In this issue of Infrastructure, we feature three very fine articles from long-time contributors. From the West Coast, Charlie Read writes about five recent developments in California that could pose very serious regulatory risks for utilities. The five “innovations” in regulatory policy that he covers are interesting in their own right. However, they are especially relevant insofar as they foreshadow the possible emergence of new, disruptive regulatory policies that, because of California’s outsized influence on other states, could broadly affect utilities wherever they do business. The threats are different in origin but common in their shared assumption that capital markets and the returns shareholders expect on their investments can be, at least to some degree, disregarded in the pursuit of popular community goals. Of course, no one in the utility industry believes in disrespecting community goals, and utilities work very hard to reconcile those goals while managing regulatory risk and the demands of maintaining their financial integrity. However, utilities can be expected to struggle to access capital on reasonable terms if they are asked to perform the impossible, such as spreading the risk of casualty events that are not insurable.
July 15, 2018 Column
Editor’s Column
By Casey Wren
I remain, however, an optimist. The industry retains its very strong public service character, as evidenced, for example, by the recent armies of utility employees that were deployed in Florida and the Carolinas from around the country to restore electric service to the millions of people affected by Hurricanes Michael and Florence. Over its long history, the utility industry has always responded to grave challenges directed its way with a salute to the changing times, regardless of the difficulties of the assignment. Likewise, the regulatory authorities that supervise utilities are demanding, to be sure, and they sometimes change the rules of the game, but they, too, are professionals who badly want the system to work. There is good reason to be optimistic about the future of the industry.
We have another contribution to our 100-year anniversary series of articles. David Hardy writes about the impact of the corporate income tax on infrastructure industries over the course of the last 100 years. He traces the transformation of corporate income tax from an irrelevant factor to a crucial financial tool of industry and examines the significant and changing role of tax lawyers as the corporate tax has evolved from a predictable expense into a featured and complicated planning exercise that involves financial risk. Interestingly, David discusses the modern proliferation of business structures such as master limited partnerships and public-private partnerships that are not taxed at the entity level. He observes that it seems we have come full circle from the early days of untaxed governmental entities to today’s lightly taxed businesses. In this environment, David concludes, although corporate tax rates have fallen, increasingly those businesses that cannot escape corporate income taxes are finding themselves operating at a competitive disadvantage.
From Washington, D.C., Chuck Patrizia and three colleagues, Michael L. Spafford, Igor V. Timofeyev, and Daren F. Stanaway, write about the recent Appointments Clause decision of the Supreme Court in Lucia v. SEC. The authors explain the decision and its rationale, and they describe the impact of the decision on the method that federal agencies use to appoint ALJs and the status of proceedings conducted before ALJs whose initial appointments did not comply with Lucia’s requirements. Beyond these immediate matters, the authors contemplate additional issues that Lucia raises that could significantly affect the work of federal agencies and the employment of personnel with significant authority. These issues include whether federal agency personnel beyond ALJs who exercise “significant authority” similarly could be considered “inferior officers” subject to Appointments Clause requirements, as well as whether ALJs, as inferior officers of the United States, must be removable at will.
This will be the last issue for Chuck Patrizia and me as editors of Infrastructure. We will both remain active, however, in this great Section that has enriched our professional and personal lives. William Drexel will take over as editor of Infrastructure. I’m sure all of us will show Bill the courtesies and provide the help he will need to publish interesting and timely articles.
Chuck and I have enjoyed our work as co-editors. I have wonderful memories of the many friends and colleagues who generously responded to the call for articles, many of them multiple times. I can truthfully say I was never disappointed in reading the articles as they came in. They have been uniformly interesting and helpful to those of us trying to understand and navigate a sometimes complex and always-changing regulatory course. I want to say a special thank you to my two coeditors, Chuck Patrizia and the late Judge Cudahy. They were wise in their editorial judgments and generous to a fault with their time. Thank you, Chuck and Judge Cudahy.
Chuck Patrizia adds the following postscript: I endorse everything Casey says in the last two paragraphs. I thank you, Casey, for all the efforts, the thoughtful commentary on potential articles and topics. While we all miss Judge Cudahy, the work over the last several years has been satisfying and intellectually stimulating thanks to you.—CP