The New Orleans City Council should continue to regulate the city’s energy utility, at least for now, the Office of the Inspector General says in a report released Wednesday that also provides nearly two dozen recommendations on how to improve the process, including a reduction in the use of costly outside consultants.
The report says that while shifting the regulation of Entergy New Orleans to the Louisiana Public Service Commission offers the potential for cost savings, such a change would likely result in the under-representation of local interests in regulatory matters.
Devang Panchal, who led the investigation for Ed Quatrevaux’s office, said Tuesday that regulation should remain with the city at least until the impacts of future regulatory issues — such as the dissolution of the system agreement that governs the operation of individual companies as a single power pool to capture economic efficiencies — are fully known.
The investigation was conducted by the OIG and TBG Consulting during late 2013 and early 2014. TBG was contracted through a request for proposals process and was paid about $185,000, Panchal said.
Under the city charter, the City Council has the power to set rates and otherwise regulate utilities that operate in Orleans Parish. New Orleans is the only city in the United States that regulates a private energy utility when there is a state-level agency in place. The Public Service Commission regulates rates for utilities providing electric, water, wastewater, natural gas and telecommunication services in most of the state.
The OIG’s office does not recommend turning local utility regulation over to that body. The report also does not find any examples of fraud or abuse in the way the regulators have operated.
City Council President Jason Williams called the conclusion that the council should continue to regulate Entergy a “major endorsement.”
“We have known this all along, but it is nice to have the OIG’s official endorsement,” Williams said in a statement.
The OIG report is only a qualified endorsement, however. It calls the council’s regulatory operation deficient and recommends a number of changes.
Primarily, it notes, the council relies almost exclusively on outside consultants to meet its regulatory responsibilities. It spent 96 percent of its $7.2 million regulatory budget in 2013 to pay those consultants. The remainder was used to pay for two employees, a director and administrative assistant, in the council’s Utilities Regulatory Office.
The consultants often are involved in litigating complex legal matters. But the OIG report says they also handle routine tasks that are left to in-house staff in other jurisdictions. For example, the Public Service Commission in Washington, D.C., employs more than 70 people and spends only about 10 percent of its budget on outside consultants.
“The issue is not whether the council should use outside consultants; the issue is whether the council should use outside consultants for everything,” the report says. “The council’s wholly outsourced approach resulted in higher than necessary regulatory costs because many activities could have been performed by a well-trained in-house staff at a lower cost.”
The consultants’ bills are passed on to Entergy, which pays them from the money it collects from customers.
Clint Vince, for decades the council’s chief legal adviser on utility matters, said the council would probably have to spend more money on in-house staff to match the level of expertise he and other consultants bring to the table.
“I believe we’ve established our credentials,” Vince said. “I think it’s fine to find a balance between where improvements can be made and where costs can be cut, but I think our role and our results speak for themselves.”
He pointed to the consultants’ recent success in negotiating the transfer of Algiers customers from Entergy Louisiana to the Entergy New Orleans system and getting the utility to put up $100 million for a storm reserve fund.
Beyond the costs, the report says, the council’s reliance on outside help means that it isn’t building up in-house expertise. Panchal called the city’s regulatory process “insular” and said members of the public are not privy to how decisions are made.
The report also is critical of the city’s executive branch, which eliminated the Department of Utilities in 2002 under Mayor Ray Nagin and does not “actively participate” in the regulatory process by recommending rates and conducting investigations into utilities.
Without participation from the executive branch and with a lack of in-house City Council regulatory staff, outside consultants serve as advisers for both legislative and judicial regulatory issues, the report says.
“This dual role meant that the findings and recommendations made by the outside consultants went mostly unchecked,” the report says.
The report also found that the council’s regulatory process lacks controls to ensure transparency and prevent misconduct. Council members, for instance, are allowed to have off-the-record conversations with Entergy officials, and they rely on adviser-negotiated settlements to resolve regulatory issues, with the latter producing little public information documenting why and how decisions were made, the OIG report says. The report says safeguards should be put in place so that more of the negotiations happen in public.
Vince disputed that finding. He said he is in almost daily contact with Williams, who chairs the council’s Utilities Committee.
Williams’ office said some of the OIG’s recommendations are based on “stale information” that doesn’t take into account changes made since a new council was seated in 2014.
“While we welcome the observations of the OIG, many of his recommendations do not reflect changes that we have already implemented since taking office,” Williams said. “Nonetheless, we will continue to study the recommendations and continue our ongoing efforts to develop best practices to preserve and extend our record as an effective utility regulator.”