PUC denies ratepayer motion to disqualify Harrington due to pension from Northeast Utilities

The Public Utilities Commission (“PUC”) issued an order Tuesday denying the motion to disqualify Commissioner Michael Harrington because of the conflict of interest that may arise from Harrington’s pension from Northeast Utilities (“NU”).  The motion, made by REAL members in their individual capacities, had sought to disqualify Harrington from sitting on matters relating to Northeast Utilities, Public Service of New Hampshire (“PSNH”) and their affiliates.  REAL’s prior posts on the Harrington pension conflict can be found here and here.

REAL is disappointed by the PUC’s action, but we’re not surprised.   You’ve got to pity the PUC.  They were stuck between a rock and a hard place.  There’s a long practice, unfortunate and wrong as it is, to let people on the PSNH/NU pension payroll serve as commissioners or in other positions of responsibility.  Harrington previously sat as a PUC commissioner several years ago when he had the exact same pension entitlement, and former Commissioner Getz also had a PSNH/NU pension.  If they’d disqualified Harrington now, they’d be admitting they were wrong in the past.  And how many other people at the PUC are in the same boat as Harrington – on the PSNH/NU pension payroll?  Who knows…  The PUC was under immense pressure to stay consistent with past practice, even if it was wrong.

REAL is bemused by the PUC’s procedural approach to the Harrington disqualification issue.  The motion sought to disqualify Harrington because of his conflict, but Harrington sat as a commissioner, deliberated about and then voted against the motion for his own disqualification.  And with only two commissioners sitting (Commissioner Scott recused himself from the entire proceeding), Harrington’s vote for himself made it impossible for the disqualification motion to succeed.  The commissioner with the alleged conflict can block any PUC action on the conflict?  Bizarre.  This kind of process at the PUC will obviously not build respect or confidence among ratepayers…

Even though Harrington survived the disqualification motion, there are three pieces of good news from this episode.

First, ratepayers do have rights.  Two REAL members walked into the PUC as ratepayers (and nothing more) and asked to intervene in a PSNH rate case.  PSNH fought to keep them out, but the PUC ordered that ratepayers have a right to participate.  The PUC let the REAL ratepayers make arguments in favor of ratepayer interests.  Hopefully more and more ratepayers from around the state will think about participating directly at the PUC, particularly in critical proceedings such as PSNH’s annual rate requests.  Direct ratepayer participation can help even the odds against the utility companies at the PUC.

Second, we expect some improvements in the PUC nomination process.  Harrington successfully stonewalled the Executive Council and the public about the amount of his PSNH pension.  He thought he could get away with it, and he did until the motion to disqualify at the PUC effectively forced him to disclose the pension payments.  That’s good news for the public.  Hopefully next time a PUC nominee will be more forthcoming in the nomination process about payments they stand to collect from regulated utilities and their affiliates.  That would give the public a chance to participate on an informed basis in the nomination process.

Third, the public surely got a good window on how the PUC operates.  We had a commissioner, Harrington, who stands to collect almost half a million dollars from PSNH’s parent, Northeast Utilities, but who still wants to sit and judge PSNH’s rate cases.  We had PSNH fighting tooth and nail to keep Harrington sitting on PSNH’s cases.  The PUC ultimately sided with PSNH. It’s no surprise that the more the public looks at the PUC, the more there’s a feeling that this is a captured agency effectively working for the regulated utilities.

So what was the PUC’s basis for denying the motion to disqualify Harrington?  The PUC said Harrington had no conflict and there was no basis to disqualify him as having a “financial interest” in NU/PSNH because (according to the PUC) his pension is guaranteed by the US Pension Benefit Guaranty Corporation (“PBGC”) under its general guarantee program for corporate pension plans.

REAL strongly disagrees with the PUC’s analysis, for four reasons.

First, Harrington’s pension is a present, direct financial interest in NU for purposes of RSA 363:5, and the plain words of the statute disqualify him regardless of any PBGC guarantee.  RSA 363:5 has a flat disqualification if a person has a “pecuniary interest” (which means “financial interest”) in a registered utility or an affiliate.  Any PBGC guarantee does not change the critical fact that Harrington’s stream of payments will, except in NU’s bankruptcy, come from NU.  Harrington has a direct financial interest in NU because, in the ordinary course and indeed in all of the likely scenarios (all cases but NU bankruptcy), NU will pay the pension, assuming it is financially able to do so.  The fact that a reasonable pension holder will look first to the corporate sponsor comports with common sense and experience in other areas.  If you have a deposit with a bank, hold a securities account at a broker-dealer, own a life insurance policy with a cash value, there are backstop “guarantees” by government agencies.  But that doesn’t change the key fact that a reasonable person worries about the creditworthiness of the bank, the broker-dealer and the insurance company.  Who wants to end up in the middle of a messy corporate bankruptcy and have to look to a government agency for payment?

Second, the PUC made only a surficial analysis of PBGC guarantees, and the PBGC guarantee of Harrington’s pension may not be the full guarantee the PUC assumed.  Harrington’s pension payments as disclosed to the PUC (up to $42,088 per year) are less than the current dollar cap on PBGC guarantees, and that was the start and the end of the PUC’s analysis.  But there are a host of other specific, highly-detailed statutory and regulatory limitations on PBGC guarantees, and there is nothing in the PUC record that analyzes these limits to show whether Harrington’s pension is or is not fully guaranteed by the PBGC.  Further, the PUC did not address the delays, transaction costs and other burdens that can arise for PBGC guarantees as a result of corporate bankruptcies, litigation and other circumstances.  A PBGC guarantee that may be partial or may be delayed or subject to costs is not the full guarantee assumed by the PUC.

Third, the PUC made no analysis whatsoever of (and did not even advert to) the well-known financial difficulties at the PBGC that, in REAL’s view, call into serious question any reliance on future PBGC guarantee paymentsAs the PBGC itself has reported, the agency has a $26 billion financial deficit and a pension funding ratio (assets/obligations) well less than the level generally associated with financial soundness.  More important, the future looks bleak because the agency is in a financial death-spiral.  The PBGC’s only source of revenues to pay its pension guarantees are the premiums it charges companies with pension plans.  But the number of US companies with old-style pension plans is shrinking almost every day, exposing the PBGC to a sharply declining revenue base at the same time as its obligations to pay out for failed pension plans grow.  The PBGC will almost surely need to join the long line for a federal taxpayer bailout, and who knows if the politicians will grant the bailout and on what terms.  What’s the credit value of a PBGC guarantee going to be in several years?  Who knows.  Will the PBGC be more or less creditworthy than Northeast Utilities when Harrington’s pension is payable?  Who knows.  On these facts, a reasonable pension holder most certainly worries about the creditworthiness of the corporate sponsor of an underfunded pension plan and doesn’t sleep soundly on account of the PBGC.

Fourth, the PUC seeks to protect its flimsy analysis by making unfair procedural assertions.  The PUC failed to make any independent investigation of Harrington’s conflict. One might have expected the PUC to follow the standard process laid out for general state ethics complaints.  When a complaint is made, unless it is obviously lacking in substance, the ethics board accepts the complaint and then conducts an independent investigation. A well-designed ethics board does not, for obvious reasons, force the complainant to carry a burden of proof, because citizen complainants do not typically have the skills to develop facts nor the litigation skills or resources to do so.  This is in fact how the NH state ethics board works.  If a citizen makes a complaint, and the complaint is plausible, the ethics board makes its independent investigation.

But the PUC asserts that the complainant has the burden of proof. This may be the way that the PUC does things, but it’s not right. It effectively disenfranchises ratepayer citizens who have plausible complaints.

Instead, the PUC cherry-picked a single fact – that Harrington’s pension payments appear to be less than the PBGC’s headline guarantee cap,  – and swept all other questions under the rug.  The PUC defends this by asserting that it was up to the ratepayers to “make the case” that Harrington should be disqualified.  REAL disagrees.  It was up to the PUC, once a colorable conflict and basis for disqualification were asserted, to conduct an independent, robust analysis.  But instead the PUC looked for a quick and easy way out of an uncomfortable situation.

If there is an ethics complaint to the PUC, it should conduct a full, robust, independent investigation and develop all the facts, just like the NH state ethics board.  By cherry-picking a single fact and then asserting that if there were any other relevant facts they were up to the ratepayers to develop, the PUC short-circuited any serious determination of the conflicts issue.

REAL is disturbed by the PUC’s approach.  Ratepayers should be concerned as well.  So should PUC officers and employees who focus on the importance of making sure that every decision contributes to the long-term legitimacy of this important agency.  The Harrington decision, to the contrary, reduces the legitimacy of the PUC.

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