Thursday, June 22, 2006

A Principled Veto

Earlier today Governor Ehrlich vetoed SB 1, the bill passed by the Maryland General Assembly's bill to deal with the BG&E electricity rate hike. He gave five reasons, and one of them was the focus of my testimony before the governor at his Tuesday veto hearing: the bill's summary dismissal of all of the Public Service Commission members to be replaced, in effect, by choices of the leaders of the legislature. Read his veto message here.

As I urged in my hearing testimony, in and of itself this provision constitutes sufficient grounds for a veto. I stated that: "This precedent will create an environment in which utilities will conclude that regulatory decisions will be made not based on sound ratemaking principles, but rather with an eye to the political passions of the moment. In this environment, incentives to innovate and invest for the longer term will be diminished....This course will encourage the view that the legal regime and regulatory environment are unstable and unpredictable...."

Along these very same lines, in his veto message Governor Ehrlich stated: "[I]t is unsettling to the State's regulatory climate for the General Assembly to eliminate the members of a quasi-judicial agency with nearly a century of independence when the General Assembly disagrees with an opinion of the agency. Such action will only lead to major regulatory uncertainty, less competition, and higher costs for consumers."

The governor also rightly pointed to the potential unconstitutionality of the dismissal provision on the grounds that it violates separation of powers principles that are key to Maryland's tripartite constitutional regime. Whether or not a court would ultimately hold the provision unconstitutional we do not now know. But we do know that the PSC dismissal provision is an assault on fundamental separation of powers principles that are essential to maintaining liberty and effective and responsible government. As I said at the close of my testimony:

"Reform of the PSC warrants serious consideration. But it is far more consistent with accepted notions of a government of separated and diffused powers—one in which no branch aggrandizes its own power at the expense of the power of a co-equal branch—for the PSC to be reformed in a way that increases the governor’s appointment and removal authority over the agency’s commissioners, and, therefore, the governor’s accountability for the agency’s policymaking actions. Because SB 1’s approach is in the opposite direction, it should be rejected."

The governor was right --and courageous--to veto SB 1. There are various ways to address the details of the rate relief mitigation plan to which Governor Ehrlich objected that ought to be acceptable. But, as I said in my testimony, in addition to the substance of regulation, consumer welfare is affected "more broadly, by whether government structures put in place for bodies such as the Public Service Commission are consistent with fundamental principles of sound governance."

With his principled veto, Governor Ehrlich has given the General Assembly another opportunity to get it right!