"Independence … is loyalty to one's best self and principles, and this is often disloyalty to the general idols and fetishes.
- Mark Twain "

The effective regulator has four attributes:  purposefulness, education, decisiveness and independence.  Prior essays addressed the first three attributes.  The purposeful regulator defines the public interest, then shapes regulation to align private behavior with it.  The educated regulator knows regulation's six subject areas, its six legal sources, its five professions, its three processes and its many local facts.  The decisive regulator acts when the public interest requires, regardless of discomfort.  She is neither Rope‑a‑Hope nor Canvasback; she is Rocky.

The fourth attribute of effectiveness is independence. But independence from what?  For what purpose?  If we are casual with the concept we will not appreciate its power.  I will distinguish literal independence (unachievable, undesirable) from effective independence (essential, but hard to achieve).

Literal independence

Literal independence is unachievable.  Court challenges, legislative overrides, financial markets and public ire:  These four pressures constrain independence, but they inject accountability.

Court challenges:  To avoid judicial reversal, regulators must respect substantive and procedural statutes, root their decisions in the record, reason logically and clearly, and explain departures from precedent. 

Legislative overrides:  The commission is a delegatee of the legislature, never fully independent of it.  The breadth of the delegation ‑‑ the extent of commission discretion ‑‑ depends on legislative trust: trust that the judgment, expertise and speed necessary for regulatory decisions is achieved better by a commission than by a legislature.

Financial markets:  Utilities are capital intensive.  Capital intensity means capital dependency.  The suppliers of debt and equity do not always act rationally, patiently, far-sightedly or public‑spiritedly, but their confidence in commissions is essential to utility survival.  The regulator cannot ignore their demands.

Public ire:  The regulatory ideal of objectivity, merit, facts and logic co-exists with an impatient public.  The essay on purposefulness pointed out that the public interest has many components ‑‑ health, safety, economic survival, environment, long-term interests, short-term interests.  Regulators must maximize the totality of these conflicting components at reasonable cost.  Then regulators must defend their decisions before a public whose irritability exceeds its expertise.  While obligated to lead the public, leaders need followers who share their goals.  See Garry Wills, Certain Trumpets: The Nature of Leadership (2007).  To attract those followers, the regulator must make compromises.  Regulators are not independent of the public they serve.

Literal independence is unachievable because the regulator is only one of many actors.  Courts overturn, legislatures change their laws (e.g., replacing "just and reasonable" with "rates shall be fixed for five years"), lenders lower bond ratings (e.g., because a commission disallows imprudent costs), large customers self‑generate (a response to high rates, but resulting in higher rates for others).  These forces make democracy work and the economy run.  Effective regulation is accountable to them.

Effective independence

Effective independence means independence from forces that undermine the purpose of regulation.  What are these forces that block alignment of private behavior with public interest?  At minimum, a regulator must be independent of financial or employment inducements.  But there is more.  A regulator's decisionmaking should be independent of arguments that are unverifiable (e.g., "An authorized return on equity below 14% will cripple us."); or legally irrelevant (e.g., "We need this merger to remain competitive.").  Regulators also must be independent of adjectives, adverbs and other phrases aimed more at emotions than intellect (e.g., "chilling effect," "rate shock," "rate relief").

Independence is assisted, paradoxically, by attentiveness to the forces that undermine independence.  The maxim of Machiavelli's imitators ‑‑ "Keep your friends close and your enemies closer" ‑‑ applies here.  Attentiveness does not mean selling out; it means studying and monitoring the parties' motivations, so as to spot and exploit opportunities to align those motivations with regulatory purpose.

Independence does not mean independence from one's own pre‑existing views.  A hunch is not a bias.  A bias is an inability or unwillingness to examine facts and reason objectively. A hunch is tentative conclusion, based on education, observation and experience.  No one wants a regulatory bench saying "my mind is a complete blank."  The regulatory mind is full of experiences, prior readings, stray facts diligently and casually acquired, which together produce hunches.  Hunches are unavoidable and useful ‑‑ as long as the regulator establishes a systematic, objective method for testing them, on the record.

Effective independence is easier to describe than to achieve.  The toughest regulatory decisions implicate at least five traditional tensions:  technical (engineering, financial, economic, legal) vs. policy (can the economy stomach higher rates?); short‑term vs. long‑term (does today's rate freeze weaken tomorrow's infrastructure?); rural vs. urban (uniform rates or distance‑sensitive rates?); large customer vs. small customer (industrial development or low income protection?); investor vs. consumer (capital market confidence or customer satisfaction?).  Regulation, unlike algebra, lacks clear lines between right and wrong.  In regulation, lawfulness covers a vast terrain and a multitude of sins.  That range of discretion demands independence but invites pressures to give in.

Questions for Regulators