By Rory D. Sweeney

HERSHEY, Pa. — A panel of financial analysts at last week’s Mid-Atlantic Conference of Regulatory Utilities Commissioners conference peeled back the curtain on elements of their decision-making that can sometimes infuriate energy company executives and state officials alike.

The moderator, Diane Burman of the New York Public Service Commission, set the tone for the discussion by recounting her earliest memory of Wall Street workers. Her mother had warned her never to speak to them — a message that was reaffirmed when she joined the commission.

“The financial health of our energy industry is extremely, extremely important,” she said. “As commissioners, we struggle with what that means, and with what we do … good, bad or indifferent.”

The panel assured the audience that regulators have a major influence over how utilities are viewed by the financial sector. “We pretty much watch everything you do,” said Steve Fleishman of Wolfe Research. “We also care about how you communicate why you’re doing it.”

Analysts’ perception of the relationship between utilities and their regulators is the “primary driver of credit ratings,” said Lesley Ritter of Moody’s Investor Services.

Heike Doerr of S&P Global Market Intelligence said that one of the things that lowers ratings of commissions is inconsistency and uncertainty. Political influence tends to be a negative factor, she said.

One of the reasons why is because continuity can’t always be anticipated from state to state. “Ideally, we’d do things on a national-policy basis,” said Anthony Ianno of Morgan Stanley.

Fleishman noted another issue with a diminished federal vision.

“We’re moving into clearly ‘all of the above’ territory, and the one risk of that is it could get expensive,” he said, referring to recent moves by state legislatures to financially prop up certain types of generating resources. “If you support ‘all of the above,’ that means we’re paying for ‘all of the above.’”

He warned that “it’s crunch time” for states to determine which resources are most important to them.

“If states really have a view that they want to preserve nuclear or they want to preserve coal, they’re going to have to make that call relatively soon. … Now’s the time to make it clear what you’re trying to do,” he said. “There just needs to be an understanding that there’s costs to it, and there could be downsides to market functioning. … Maybe there’ll be a chance to do it in a more coordinated manner that keeps the functioning of markets in place.

“If we don’t figure this out,” Ianno warned, “what will end up happening is that those who can afford it will disaggregate from the grid, and the rest of the ratepayers will absorb all of the costs associated with the grid, and that’s a broken model.”

Doerr explained that her company’s state rankings are far more dynamic than might be expected. “It’s not just if your state is making improvement; it’s the pace at which improvement is coming relative to other states,” she said. “Many of you have companies operating in your jurisdictions that operate in other states, so the pipe needs to be upgraded everywhere.”

Analysts also complained about “black box” rate settlements that don’t provide any clarity on details like rate base or return on capital.

“If the law doesn’t allow it, why not change the law so there’s more transparency?” Ianno asked.