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Friday, April 19, 2013

Red flagging the OIG

Posted By on Fri, Apr 19, 2013 at 12:37 PM

In 1982, the New Orleans City Council allowed the local utility, then known as NOPSI, to pay the cost of a low-turnout referendum to transfer utility regulation from the council to the Louisiana Public Service Commission (LPSC). The proposition passed, and soon thereafter utility bills in New Orleans skyrocketed.

The council should have seen that one coming. When a utility offers to underwrite a referendum in which it has a huge stake, somebody should throw a big red flag. That didn’t happen until it was too late.

Three years later, after a grass roots push by the nascent Alliance for Affordable Energy, New Orleanians voted overwhelmingly to return utility regulation to the City Council. Ever since, the local utility — now known as Entergy New Orleans — has had to toe the line on rates and costs.

The Alliance remains a key player in utility regulation, and the council is far more responsive to local ratepayers than the LPSC. As a result, base rates in New Orleans are the lowest in the Entergy system. Those rates reflect the efforts of the Alliance and the council’s utility consultants, some of whom have advised the council for three decades. The consultants don’t come cheap, but they know their stuff — and they have saved New Orleans ratepayers billions of dollars over the years.

Every so often, some well-intentioned (or not) soul takes a look at the council’s utility regulation costs and gags because the consultants’ fees are paid by Entergy and passed on to ratepayers. Somehow, the billions in savings get overlooked or downplayed.

Apparently the city’s Office of Inspector General (OIG) has decided to weigh in on that long-settled debate — with a faintly familiar twist. The OIG in February issued a request for proposals (RFP) to hire a consultant to examine not only the costs of the council’s regulatory functions, but also the efficacy of the council’s decisions as regulator. The OIG’s costs have been covered by a third party — the Rosa Mary Foundation.

I covered the council’s ill-fated decision to let NOPSI pay for the 1982 referendum. I should have thrown a red flag then, but I didn’t. I’m not going to make that mistake again.

Let me make clear that I totally support the mission of the OIG. The city needs a well-funded, independent inspector general. That’s precisely why it’s a huge mistake for the OIG to let a third party underwrite its work. In fact, that’s why the OIG has a dedicated funding source: to keep it independent.

Questions of independence are not the only problem with the OIG delving into the council’s regulatory sphere. As noted by the Alliance and the council’s advisors, the OIG has neither the expertise to dissect complex utility issues nor the authority to examine policy decisions by the council. I would add that the OIG also lacks institutional memory on this issue, because it mentions LPSC regulation as a viable option. That’s just plain dumb.

“It’s so far away from their mission, it’s practically in another solar system,” says Alliance executive director Casey Roberts. “It’s not clear why the OIG is interested in energy policy.”

The Alliance fired off a letter objecting to the OIG’s initial RFP. The council’s lead utility advisor, Clint Vince, wrote a 15-page broadside against it, citing numerous legal problems, inaccuracies and biases. The OIG recalled its initial RFP and issued a second request. Responses are due May 3, with a decision May 14.

It would be one thing if the inquiry focused solely on waste or fraud; that’s the OIG’s mission. Instead, it’s a far-flung look at virtually all aspects of utility regulation — including whether the council should even be in that business.

IG Ed Quatrevaux told me that the proposed review is completely in line with his office’s mission. He said the inquiry has no biases, but he did note that New Orleans is “the only city in the country” that regulates a public utility and that the consultants cost ratepayers lots of money.

A March 5 OIG statement quotes Quatrevaux as saying, “It’s inappropriate to discuss the project now.”

Actually, this is precisely the time to discuss the project — and to throw a big red flag on it.

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