Setting Policy

Finding 7: The State's practice of setting telecommunications policies on a case-by-case basis encourages market players to seek the same changes from the Legislature and the Public Utilities Commission. This venue shopping spurs occasional conflicts and confusion among government entities that could prove costly to nascent competitive markets.

Just as in energy, it has not always been clear when the Legislature will be the venue for establishing a policy, and when the Public Utilities Commission is the appropriate venue. This tension is predictable, given the broad policy making or legislative-like functions that the Commission performs.

The tension also provides some public benefit -- and under the current structure is one of the few ways to bring political or legal pressures to bear on the PUC.

And the tension will never fully be resolved, because a tenet of American democracy is the ability to challenge the actions of the government, and if that fails to challenge the laws that permitted the government to take the offending action.

Still, there is evidence that in telecommunications policy the relationship between the Public Utilities Commission and the Legislature has devolved. The rapidly changing telecommunications industry and its customers will be better served by some agreement in how major and minor policies will be set.

Delegation vs. Accountability

Historically, the Legislature has granted significant authority to the PUC to set both broad and detailed policy for the industries within its jurisdiction. Among the purposes of this arrangement was to insulate from day-to-day politics the establishment of regulations that would result in private concerns earning millions of dollars. It also left the task of creating those regulations in the hands of full-time experts in the field.

In creating the PUC during the Progressive Era, California helped to develop the model for that fourth-branch form of government that was widely replicated during the New Deal Era. At the time of the Great Depression, a plethora of federal regulatory commissions were developed for the expressed purpose of making swift and expert decisions affecting the marketplace with the hope of spurring an economic recovery in a number of developing markets.

By intentionally consolidating the legislative and judicial functions of government into single agencies, reformers hoped to increase the efficiency and quality of decision making. The values of fourth-branch agencies are:

• Efficiency. By vesting the PUC with quasi-legislative and quasi-judicial decision making, the Commission was expected to establish regulations quicker than the Legislature could enact laws and enforce those regulations with more consistency and alacrity than the courts.



• Integrity. By appointing Commissioners to six-year terms, prohibiting them from conflicts of interest and insulating them from removal for political reasons, the Public Utilities Commission was expected to make decisions free from corrupting influences and with an impartiality toward those with actions before it.



• Quality. By giving the Commission a focused task and an expert staff, the Commission was expected to make technically sound and legally correct decisions, with the public interest as its lodestar.

One acknowledged cost for this arrangement is reduced accountability on the part of the PUC to the Governor, who appoints the Commissioners but does not have the authority to remove them, and on the part of the PUC to the Legislature, which as the venue for making laws is the primary navigator for state policies.

In the case of the PUC, that accountability was further reduced by severe restrictions on the rights to appeal Commission decisions to the courts -- a measure of independence that government reformers have granted few other fourth-branch commissions.

Insulation vs. Isolation

More recently, the Legislature has not been satisfied either with the decisions the PUC has made or with how those decisions have been made. In a number of instances, the Legislature has initiated on its own or been asked by PUC participants to statutorily establish a policy that the PUC believed was its prerogative to decide. In other cases, PUC participants -- dissatisfied with the PUC's procedures and the extremely limited ability to appeal decisions to the courts -- have appealed to the Legislature for reconsideration of an issue "litigated" at the PUC.

Many of the complaints have resulted from the Public Utilities Commission's procedures -- how it goes about making decisions, how it relies on staff and how Commissioners are involved in the policy-setting process. Other complaints have centered on the decisions themselves -- for instance, the Commission's insistence on regulating cellular telephones and its reluctance to give up control over paging services.

The conflicts are almost inevitable as the PUC seeks to adapt itself to industries that are rapidly changing without having sought statutory clarification of the role that lawmakers would prefer it to fill.

These conflicts also are well illustrated by an instance when the problem was averted. In 1993, the Governor in his State- of-the-State address requested the PUC to develop a road map for determining the feasibility of competition in all tele-communications markets.

The Commission's investigation resulted in its report Competitive Strength: A Strategy for Telecommunications Infra-structure. That report resulted in a legislative debate in 1994 and the passage of AB 3606 (Moore) and AB 3720 (Costa) calling for competition at the local telephone market, allowing incumbent monopolies to compete for services they had been restricted from offering and streamlining PUC regulations to encourage competition.

One PUC Commissioner described this policy evolution an "an excellent example of useful synergy between policy initiative and implementation."

This process allowed for the Governor and the Legislature to express a policy preference -- and to sign off on the details of the ultimate policy -- while allowing for the PUC to utilize its expertise to develop the details of the plan and its regulatory authority to implement it. The process helped to restore the accountability for decision making between the Legislature and the PUC, allowing each to play the appropriate role at the appropriate time. But that case is the exception, not the rule.

Routine Accountability

Several provisions in SB 960 are intended to make the PUC more accountable for the decisions it makes, and begin to establish a better relationship between the Legislature and the PUC.

Beginning in January 1999, the PUC will be required to make an annual statement to the Legislature on the number of cases the PUC took longer to resolve than it said it would when the case began. This provision is intended to push the PUC toward making timely decisions, and to be accountable to the Legislature when it does not.

Also, in March 1997, the PUC is required to submit a report to the Legislature on recommendations about regulations and statutes that should be changed as a result of competition -- an attempt to eliminate the statute-by-statute revisions that are now requested often after a long battle before the PUC, the FCC or in the courts.

These efforts could be expanded -- and the success of AB 3606 repeated -- by establishing an annual reporting and goal-setting process between the Legislature and the PUC. As described for energy policy in Finding 4, the PUC and the Legislature could create an annual ritual of reviewing the PUC's accomplishments of the last year and setting goals for the next year.

GTE advocates that the PUC and the Legislature set goals on an annual basis -- for new policies the PUC would pursue and old programs it would drop. The following year, the Commission's efforts would be assessed based on outcome-oriented measurements: How did the efforts affect consumer prices and services? Based on that assessment, the Legislature and the Commission would set goals for the next year -- developing over time a constructive relationship that is better able to withstand individual special interest pressures.

Such a process should enhance the characteristics that Californians expect from fourth branch commissions -- efficiency, integrity, and quality -- while restoring the accountability that some critics believe has been lost. The process also could provide predictable procedures for setting policies concerning a dynamic industry -- discouraging market players from venue shopping between the PUC and the Legislature and encouraging consistent policy making favored by investors.

Recommendations

Recommendation 7: The Governor and the Legislature should enact legislation requiring the Public Utilities Commission, as a precursor to the annual review and approval of its budget, to collaborate with the Legislature to review telecommunications policy directions and past performance and establish specific goals that the Commission will pursue in the coming year.

While the PUC was intended to be insulated from day-to-day politics, it cannot operate in a vacuum. Over the long term, the legitimacy of fourth-branch commissions to chart significant policy changes will be enhanced by routine reality checks from elected legislators. Similarly, while the PUC is given the authority to make tough decisions day in and day out, the legitimacy of those decisions will be enhanced by an annual public accounting of PUC's policy choices.