The creation of state regulatory commissions followed a national trend of moving away from regulation by means of judicial proceedings through individual lawsuits or regulation by the direct supervision of a legislature. It offered an alternative to local regulation by franchise, which is still used today, though all states have regulatory commissions. Following a model created by the federal Interstate Commerce Commission, state commissions deviate from traditional governmental organization: they are headed by a non-partisan, bipartisan, or elected plural body that operates semi-autonomously, in a quasi-judicial manner. At the time of the creation of the Hawaii Public Utilities Commission via Act 89 in 1913, about half of the states had commissions.
Act 89 went into effect July 1, 1913 with three part-time commissioners appointed by the governor and confirmed by the senate for 1-, 2-and 3-year terms. Also passed in 1913, Act 127 governed the Commission’s work, and jurisdiction over specific franchises were given in Acts 135, 136, and 152, subjecting these new “public utilities” to regulation previously accomplished by the Superintendent of Public Works or through judicial proceedings. Act 120 of 1913 allowed the instituting of the payment of fees by each utility for the maintenance of the Commission, with a starting fund of $5000. Using this fund, the Commission is given power to appoint and employ attorneys, clerks, stenographers, agents, engineers, accountants and other assistants and define staff’s duties and compensation.
Upon the establishment of the PUC, the Commission saw the need to adopt a preliminary definition of a public utility that narrowed the scope of the work since the legislative definition proved to be extremely broad. The Commission adopted the following definition: “The term public utility as defined by Section 18, Act 89, S. L. 1913, means every business which is virtually a monopoly where effective competition is not in operation and which undertakes, on a general or uniform schedule of prices, to serve all comers. The term includes all concerns doing such business whether maintained or operated by a person, firm or corporation. The term is confined to the following types of business: transportation of passengers, transportation of freight, telephone, telegraph, wireless telegraphy, light, power, heat, cold, water, gas, oil, storage and warehouse business.
Fees were set at one-twentieth of one percent of the gross income of the public utility business during the preceding calendar year. Additionally, if the public utility is a corporation whose principal business is in the territory, one-fiftieth of one percent of the par value of the entire stock issued by such corporation. In their first year of operation, the Commission required the reporting of the income from railway and transport, telephone, lighting, water, and oil companies from the previous year to begin computing and collecting the fee. Some companies denied the jurisdict ion of the Commission, in which case the Commission be gan proceedings to consider whether the company was doing a public utility business in the Territory.
After getting organized, the Commission immediately began investigating the utilities it regulated, producing a series of investigative reports on individual utilities. These reports covered electric, telephone, gas, ice and cold storage, and interisland navigation utilities. The Commission reviewed the operations and finances of the utility under investigation, held public meetings, and pointed out improper practices and charges. In addition to these investigations, the Commission’s proceedings consisted of rate analyses and complaint handling and safety investigations.
Not long after its creation, the public doubted the effectiveness of the Commission and critiqued the usefulness of the Commission. This lead up to a reorganization in 1933 which gave way to five part-time commissioners, two from Oahu and one from each of the neighboring counties. The Commission was responsible for electric, gas, telephone, and privately owned water companies. The Commission also had authority over railroad operations and Honolulu Rapid Transit. A quorum of a majority of commissioners had to be present at all hearings and a majority of the quorum was necessary for decisions.
Statehood (August 21, 1959) decreased the Commission’s autonomy greatly as the newly instituted state constitution required no more than 20 executive departments. The Commission was moved under the Department of Treasury and Regulation, which meant that the director of the Department now represented the PUC in communications with the Legislature and Governor and controlled the purchasing by the Commission. The 1961 Hawaii Administrative Procedure Act set forth the general requirement for the formulation and adoption of rules and the conduct of administrative hearings. Soon after, in 1963, the Department of Treasury and Regulation became the Department of Regulatory Agencies (“DRA”) and the director gained the power to employ, appoint, promote, transfer, and describe Commission staff, renaming the staff the Public Utilities Division (“PUD”). The change in the director’s power over staff was done to promote efficiency in the department and to allow the director to distribute the workload; however, in effect, it divided the Commissioners and staff leading to General Order No. 1 in 1966, which prohibited any ex parte communication. The Commission gained power to hire their own attorney again in 1972 as it proved a conflict of interest for the Attorney General to represent both the Commission and the PUD given that the PUD now assisted the director of the DRA rather than the Commission. This power was gained as a result of a Supreme Court case decided in 1970 where the Commission did not side with the director of the DRA, who was using the PUD staff to present his position before the Commission and to appeal the Commission’s decision to the Supreme Court. The court case, which was about telephone rates, presented a problem when both the Commission and the PUD were to be represented by the Attorney General’s office. Meanwhile in 1969, the Office of Consumer Protection was created which had concurrent jurisdiction with the Department of Regulatory Agencies in matters before the Commission, creating confusion over roles and responsibilities at the Commission.
In 1976, after years of debate on the effectiveness of a commission with five part-time commissioners, three of which were commuting from neighbor islands, the Commission structure changed from five part-time commissioners to three full-time commissioners, removing the neighbor island commissioner representation requirement, while establishing PUC assistant positions in the neighboring counties. Part of the reason for this change was that the neighbor islands had a majority in the Commission and the regulation of passenger carriers was a county-specific concern. The PUC was moved from the DRA (later known as the Department of Commerce and Consumer Affairs) to the Department of Budget & Finance. The director of the DRA became the consumer advocate and the PUD became the Division of Consumer Advocacy (“DCA”).