A newly-released legislative audit of the Montana Public Service Commission revealed lingering management challenges at the state’s utility regulation agency, which has in recent years attracted significant controversy.
The agency, which is charged with balancing the interests of monopoly utilities with their captive customers, found itself in lawmakers’ crosshairs in 2021 after auditors unearthed loose spending suggestive of a “waste of state resources” and falsified records that led them to “doubt the integrity and competence of certain members of management and the commission.”
In response, the commission, which is comprised of five elected commissioners and about 30 supporting staff, overhauled its structure, standardized expense reporting practices and initiated a commissioner orientation process, the auditors write in their new report. Those changes were helpful, auditors found, but a handful of issues related to commissioners’ public communications and ethics persist. They say the agency has experienced high staff turnover in recent years and would benefit from an examination of hiring practices and the adoption of a formal code of conduct for commissioners to help rebuild the public’s trust.
“We determined the department should further address gaps in the organizational structure and risks to the quality and effectiveness of the regulatory work, including the conduct of commissioners, the status of key positions in the department, and recruitment and retention for critical positions,” the report reads.
In a response to the audit, PSC President James Brown pushed back against the report’s findings, arguing that the agency’s “extensive reforms are given only cursory recognition” and that some of the issues flagged in the audit aren’t unique to the PSC.
To conduct the audit, the Legislative Audit Division surveyed PSC staff (including the commissioners), read a sample of emails from commissioners and PSC management, examined campaign contributions and ethics complaints and compared Montana’s PSC with best practices used by regulatory agencies in other states.
“While we did not find instances of improper influence from the regulated industry, we did identify improvements to current practices and policies that could increase public trust in the commission and the regulatory process they oversee,” the report reads.
The audit unearthed a considerable gap in the perceived ethics of PSC staff as compared to the commissioners they work for: 60% of staff surveyed said they believe management-level staff always exhibits high ethical values while just 23% of respondents said the same of the commissioners. Half of surveyed staff said they agree that commissioners are held accountable for inappropriate behavior.
Turnover at the agency was exceptionally high in 2021 and 2022, the report notes — though it has since stabilized. Roughly a third of the PSC’s staff left in 2021, the year after several scandals at the commission came to a head. Those included former commissioner Roger Koopman reporting “bullying” behavior and email spying by commissioner Randy Pinocci and the dismissal of the PSC chief legal counsel who said he reported the spying, both situations that produced lawsuits.
High turnover at the PSC is of particular concern given the complex, exceedingly technical nature of the agency’s business, auditors wrote. To understand the factors driving the turnover, auditors reviewed exit interviews and included turnover-related questions in their survey of department staff.
“In the survey, 50 percent of staff reported looking for other job opportunities in the past due to wanting a better work-life balance, more opportunities for career advancement, more flexible schedules, higher pay, and not feeling their work contributes to the PSC’s decisions,” auditors wrote.
To help combat the turnover rate, auditors recommend pay increases for competitive positions and the adoption of an employee pay plan.
Issues surrounding campaign finance and public communications were also flagged by auditors, who found that commissioners experienced “difficulty separating campaign and political activity from their official positions,” a dynamic that “compromises public trust.”
RELATED
PSC rebuked after audit suggests waste of state resources
The Public Service Commission has pledged to address culture and leadership issues after a scathing legislative audit.
PSC President James Brown announces campaign for state auditor
Brown, a Republican attorney who ran an unsuccessful campaign for state Supreme Court in 2022, is the first candidate to declare for the auditor’s office this cycle.
‘Situations indicative of an unhealthy organizational culture and ineffective leadership’
A routine financial-compliance audit of the Public Service Commission released this month flagged issues regarding commissioners’ compliance with state travel policy and raised concerns about the integrity and competence of PSC commissioners and staff.
The report references a 2022 statement commissioners Pinocci and Tony O’Donnell sent on PSC letterhead championing coal-fired power and warning of imminent energy blackouts for Montana Dakota Utilities customers, a threat MDU disputed.
“When commissioners use state publication materials for individual statements rather than statements from the entire commission, this creates confusing messaging for the public and compromises public trust if messages are conflicting or unsupported,” the auditors wrote.
Auditors also found that ahead of the 2022 election a commissioner who is unnamed in the report received campaign contributions totaling $1,100 from individuals working for a PSC-regulated entity.
“Commissioners are expected to self-identify potential conflicts of interest relating to substantial personal interests, such as business or other economic interests,” the report reads. “However, there is no guidance for recusal relating to campaign contributions from individuals employed by regulated entities in Public Service Commission hearings.”
PSC staff also complained of chain-of-command confusion following the creation of an executive director position for the agency — one of the positions that’s experienced high turnover, with three people holding it in two-and-a-half years. The audit also surfaced concerns that five of the agency’s key positions are politically appointed personal staff that serve at the commission’s discretion, which PSC staff said can deter them from reporting inappropriate behavior by commissioners.
In his 11-page response to the report, Brown, who announced his candidacy for state auditor Thursday, highlighted reforms the commission made in response to the 2021 audit. He wrote that those changes include a “complete overhaul and rewrite” of the PSC’s internal operations policies and manuals, a restructuring of the agency to better define the agency’s chain of command and operations, the release of “underperforming” senior staff and hiring of experienced senior staff.
That effort, Brown wrote, helped the agency receive “a clean fiscal audit for the first time” in most of a decade — a reference to the agency’s August 2023 financial audit.
“The agency’s extensive reforms are given only cursory recognition in the audit report and are, disappointingly, not highlighted or discussed in detail,” Brown continued, adding that the report’s finding that there has been no evidence of undue regulatory influence deserved more ink in the report. He also wrote that some of the information underpinning the audit is two years old, making it “stale.”
As to the pay issues, the ability to increase the PSC’s budget rests with the Legislature, not the commission itself, Brown wrote, adding that the agency was not insulated from “the big quit” wrought by the COVID-19 pandemic. The Legislative Audit Division itself has reported long-term vacancies, he wrote. Brown added that commissioners disagree with the assertion that the new agency structure is ineffective or creates ambiguous chains of command.
The agency “partially concurred” with the three specific recommendations in the report: that it further define a commission code of conduct, consider making management-level positions nonexempt to encourage reporting of improper behavior and pitch the Legislature on increasing pay for competitive staff positions.
On Jan. 24, the Legislative Audit Committee will have an opportunity to hear from and ask questions of both auditors and commissioners.
LATEST STORIES
Who the heck is on your ballot?
PLUS: Next steps for south-central Montana’s passenger rail push.
The race to be the partisan clerk of Montana’s nonpartisan Supreme Court
The clerk of the Montana Supreme Court is a unique position. Unlike the actual justiceships on the high court, the clerkship is partisan. And unlike almost every other state supreme court clerk in the country, Montana’s is elected.
Second Montana ski resort looks to turn wastewater into powder
More than a dozen ski areas in eight states, plus some in Canada, Switzerland and Australia, use wastewater to make powder. This past winter, the Yellowstone Club near Big Sky became the first in Montana to turn what was once sewage into snow.