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EDITORIAL: Time to change utility regulation

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IBJ Editorial

Gov. Mitch Daniels did the right thing last week when he canned Indiana Utility Regulatory Commission Chairman David Lott Hardy after an internal review showed Hardy knew a key IURC official was negotiating for a job with Duke Energy—even while the official took part in regulatory matters involving the utility.

But the conflict of interest shouldn’t have cropped up in the first place. And it should inspire legislation to slow the revolving door between the commission and the utilities the commission is supposed to watch.

Daniels should push for legislation requiring a chamber of the General Assembly to sign off on the governor’s IURC board appointments. Doing so would add a level of accountability by allowing opposing parties a shot at exposing potential conflicts.

The Hardy scandal is a doozy even by IURC standards. The official who jumped to Duke, Scott Storms, was the commission’s chief legal adviser. The Indiana Ethics Commission opined that Storms wasn’t covered by a state statute requiring a one-year cooling-off period for officials moving from the IURC to companies it regulates because he hadn’t negotiated or administered a contract with Duke.

Hardy and Storms shouldn’t have needed Daniels’ clarification that administrative law judges are covered under the law; the spirit of the law implies as much.

Now Storms and his boss at Duke, Michael Reed, who happens to be a former IURC executive director, have been put on paid leave, and the state is combing through commission decisions to determine if anything untoward took place in decisions as big as green-lighting Duke’s construction of a coal gasification plant at Edwardsport—a project plagued by soaring costs.

The Citizens Action Coalition deserves a tip of the hat for flagging Storms’ appointment.

Daniels, who has repeatedly talked of raising the ethics bar, and who appointed Hardy five years ago, should follow up by fixing the way the commission is chosen.

One can only imagine the temptation for governors to choose industry insiders. Utility regulation is mind-bogglingly complex, and the commission is charged with making decisions on issues ranging from rate increases to signing off on new power plants. It isn’t work for rookies.

Some states allow voters to directly elect commission members, but Indiana shouldn’t follow suit, because too many people would enter voting booths with little background on commission candidates; our reticence to entrust voters with electing their own watchdog is sad commentary in itself, but unfortunately necessary in this case.

Indiana should adopt the more common approach of allowing governors to nominate commissioners but requiring approval by a legislative chamber. Bringing candidates before lawmakers allows the parties to vet the candidates and raise questions about conflicts of interest.

Daniels should take advantage of the anticipated Republican domination of both houses of the Legislature next year and push for reform.•

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To comment on this editorial, write to ibjedit@ibj.com.

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