Commissioners Solicited Sponsorships; Ethical Questions Raised
Public Utilities Commissioner Gary Hanson solicited money for an energy conference from many of the Midwest utility companies that the PUC regulates.
The conference violated no state rules and was held to benefit the state’s citizens, Hanson said. But statutes in other states would have prohibited the sponsorships, and some who have seen similar situations elsewhere say the conference never should have happened.
Improper relationships between Minnesota PUC members and the companies they regulate led years ago to new ethics rules to prohibit contact with the utilities during pending cases.
But South Dakota has no such guidelines, and donations of up to $10,000 from two utilities the PUC regulates and several smaller sponsorships helped pay for the just-completed conference, "Crisis or Renaissance? The State of America’s Energy."
In the wake of last week’s conference, a consumer group spokeswoman, an ethics specialist and a state senator wondered whether funding the conference was the cost of doing business in South Dakota.
Otter Tail Power Co., a $2,500 sponsor of last week’s conference, has a 15.3 percent rate increase, or $3.8 million, pending before the South Dakota PUC.
"The simple answer is, they should have never done this," said David Schultz, a professor of business at Hamline University in St. Paul and a frequent lecturer on political ethics. "I question the motive, the conflict of interest is there. Customers, going forward, will question whether their next rate increase is on merit, or based on a trivial, but important, sponsorship as the utilities came through for these commissioners when they needed it."
South Dakota law does not bar regulators from raising money from utilities they oversee. The three-member PUC regulates rates and services of a public utility, such as phone, gas and electric companies, protects consumer rights such as participating in the "Do Not Call" telemarketer guidelines and oversees grain-storage warehouses.
Sponsorships meant to offset costs
Hanson solicited sponsorships for the conference via e-mail. Sponsorship levels that began at $500 and went up to $10,000 were intended to defray costs and make the conference affordable, even to the public.
"Frankly, I spent very little time on sponsors, I sent out an e-mail and whoever wanted to participate, did, and those who didn’t, did not," said Hanson, a Republican who served three terms as a state senator and two terms as the mayor of Sioux Falls before winning a second term to the PUC in November. "I’m extremely disappointed that this is even an issue."
Hanson added that if he based his regulatory decisions on conference sponsorships, he wouldn’t be fit to serve as a commissioner.
"It’s the perception of conflict, a quid pro quo," Schultz said. "Everybody likes Santa Claus, because the people who give us gifts, we like. And it may totally be unconscious."
In the e-mail to utility companies, Hanson asked:
"In order to keep the registration costs as low as possible and provide for the greatest attendance, we are offering energy-affiliated organizations the opportunity to provide sponsorships. The attached document outlines the sponsorship packages. Please take some time to review and determine if there is a package that is appropriate for your organization. We truly appreciate your generous consideration. We would not be able to provide the conference without the support of sponsors like you."
"This level of fraternity is unacceptable," said Judy Dugan, research director with Consumer Watchdog, a California-based nonprofit, nonpartisan consumer rights group. "They will owe something to these industries at some point."
Utility companies who sponsored the event say their donations were not made to influence the PUC or to remain in the commissioners’ good graces.
"Absolutely not, no," said Heath Johnson, principal with Denali Energy of South Dakota, a $500 sponsor. "And $500 was plenty. We don’t have anything before them and we’re not trying to buy their favor. We’re just trying to be good citizens. We live here, we work here, and we have to be on the up-and-up."
Lawmaker: It does not pass smell test
Total cost for the conference was about $48,000, although final figures had yet to be calculated Thursday, Hanson said. Sponsorships totaled $44,500.
"I think the real question here is, who benefits?" said PUC chairman Dusty Johnson. "If individual commissioners were benefiting from those donations, those dollars were going into our pockets, it’s clearly a conflict. If it’s something that added to statutory authority or staffing of commissioners or financial benefits to the commission, those may raise questions. They did not. Gary worked tirelessly, on his own time, to put this together."
But state Sen. Frank Kloucek, D-Scotland, said the utilities’ sponsorship "might not be illegal, but it sure raises a whole lot of questions. … It certainly doesn’t pass the smell test."
Registration fees were $115 for industry members and the general public, $85 for government and nonprofits and $70 for students and faculty. The conference drew more than 250 people. Commissioners put on an almost identical conference in 2005.
At least one other public agency-sponsored conference in the U.S. sought donations. Biomass ’09 on July 14-15 in Grand Forks, N.D., was hosted by the University of North Dakota’s Energy and Environmental Research Center, the U.S. Department of Energy and the North Dakota Department of Commerce. Signature sponsorship began at $15,000 and dropped to $1,500 for an afternoon break sponsor.
"We approached the commission and asked to help sponsor this," said Bob Rowe, president and chief executive officer of NorthWestern Energy, a $10,000 sponsor. "Commissioners did not have to do this, but there’s immeasurable benefit to have these national-caliber speakers here."
The conference, Monday through Wednesday at the Sioux Falls Convention Center, consisted of 23 speakers. Presenters ranged from Federal Energy Regulatory Commissioner Marc Spitzer to Joe Dudak, vice president, major contracts and special projects for ITC Holdings. That’s the company that wants to build a 3,000-mile transmission "superhighway" to move wind-generated power out of the Midwest.
Speakers were not paid for their time, Hanson said, but received a complimentary registration – and a book about South Dakota.
"I’m paying my own way," said Beth Soholt, director of Wind on the Wires, a nonprofit based in St. Paul that works to overcome barriers to deliver wind power on transmission grids.
Face-to-face time called beneficial
For MidAmerican Energy, the chance for officials to interact with commissioners as well as the public was the reason behind its $1,500 sponsorship, spokesman Mark Reinders said. The money came from the company’s energy efficiency group and the government relations group, since the two employees who attended the conference came from those divisions.
"It was good for the PUC folks and good for us – the general public can come in and get that face-to-face time with commissioners and even the utilities that they pay for," Reinders said. "This was not a lavish affair, there were no golf outings, no lavish receptions."
Still, commissioners asking utilities for money to pay for the conference opens up conflict of interest and "pay-to-play" issues, consumer and ethics experts said. There has been precedent to back those assumptions.
In 1986 in Minnesota, commissioners passed a strict code of conduct policy, now part of Minnesota statutes, after one commissioner sought a job with Northern States Power (now part of Xcel Energy) while casting decisive votes on NSP’s natural gas rates. Two other commissioners discussed jobs with Northwestern Bell (now part of Qwest). After leaving the commission, one received more than $30,000 in one year and the other more than $100,000 in two years for consulting work for Bell.
Those missteps lead to more oversight on communication and code of conduct for PUC officials, said Burl Haar, executive secretary for the Minnesota PUC.
"It essentially created a set of communication guidelines to remove conflicts," he said. "It’s the first thing we talk about when we get a new commissioner through the door. I think those guidelines have served us well."
Forty of the 50 states have a separate ethics commission or administration. South Dakota does not.
"It’s too bad you don’t have an ethics body or law that covers this sort of thing," Dugan said. "People see a clear, sharp line between industry and the person who is doing their business. Elected officials have become blind to the people they serve – they think it’s OK to do this. Your commissioners should be forbidden to rule on a company that donated – and has an issue before the commission – for at least a year."
Hanson defended the e-mail, as well as the sponsorship money. He said donations and sponsorships are the "gray area" of politics.
"As someone running for the office, we receive money from the employees of those companies," he said. "The importance is, you have to have integrity. If you don’t, you shouldn’t last in this business, period. It’s a gray, challenging area. Ultimately, citizens need to decide whether a person is elected or not."
$10,000: NorthWestern Energy, Xcel Energy
$7,000: Black Hills Power
$2,500: Missouri River Energy Services, Otter Tail Power Co., Montana-Dakota Utilities, Heartland Consumers Power District, BP Wind Energy
Investor-owned, not regulated by PUC:
$2,500: East River Electric Power Cooperative, Basin Electric Power Cooperative, Rushmore Power Cooperative, South Dakota Rural Electric Association
$1,500: MidAmerican Energy.
$500: Dakota Wind Energy and Denali Energy of South Dakota.
Terawatt-level sponsors: Those giving $7,000 or more (NorthWestern Energy, Xcel Energy, Black Hills Power) received exclusive sponsorship of either the opening reception or one of two luncheons, complimentary conference registration for eight people, full-page advertisement in the conference presentation book and verbal recognition.
A spark-level sponsors: Those giving at least $500 received one paid registration for a company employee, a one-sixth page ad and Web site recognition at the conference.
Reach Thom Gabrukiewicz at [email protected]