Prudence is a principle central to the theory and practice of public utility regulation, a hallowed standard of review by which utility behaviors and decisions are judged. The concept of prudence might well be applied to the institution of regulation itself and those responsible for its endurance. By nature and necessity, regulation is a political process, but by design it works best with a substantial degree of independence and when regulators are deeply committed to the ethical performance of their charge. The prudent regulator considers their own behavior not in narrow terms of technical compliance with codes of conduct, but in broader terms of institutional sustainability. The price of imprudence is paid not only by those whose impropriety betrays the public's trust, but by the very institutions they are entrusted to serve. Adopting an institutional perspective, this review idealizes the prudent regulator by examining the intricately related and largely inseparable constructs of politics, independence, and ethics, and the transcendent imperative of regulation in the public interest.
"Whatever you undertake, act with prudence, and consider the consequences " (Anonymous)
I. THE GOOD REGULATOR
Pundits sometimes ponder the qualities that make for a "good" economic regulator. Since the emergence of the railroad commissions in the middle 1800s, regulation's principals have reflected a wide spectrum of political, demographic, educational, professional, and other characteristics. Anecdotal experience suggests that good (and not-so-good) regulators come in many shapes and sizes; that individual regulators may underperform or outperform expectations based on any number of attributes; and that no single metric or set of criteria define with certitude a "good" regulator. General qualification, political custom, and screening processes not withstanding, the job of economic regulator, federal or state, has few if any prerequisites or reliable litmus tests. As with many positions of public responsibility, personal character may ultimately be of greater consequence than any particular academic credential or resume line.
Nonetheless, impressionistic observation of many regulators over many years is suggestive of some largely indubitable generalizations. The good regulator is dedicated to public service. The post pays relatively well along government scale, but typically less than the private sector, and primarily attracts those with a civic impulse. A regulatory career is probably not well suited to those whose dogma disfavors governance and the legitimate role of the state to intervene in the economy. The job is not "just a job" but a frame of mind. The good regulator embraces the public interest, appreciates the daunting obligation to it, and accepts the often agonizing process of its discovery. Easier to sense than to define or instill, the public interest is divined not through opinion polls or political expethency but by the deliberative weighing of subordinate interests in the context of a social compact to pursue a larger common good. The calculus of the public interest in many respects is a process of elimination,1 informed by politics but guided by established principles, educated instincts, and the artful blending of science and conscience.
Given the substantive demands of that process, the good regulator demonstrates intellectual curiosity in general and a genuine interest in the subject matter at hand. Given the import of their roles and decisions, disinterest or boredom on the part of regulators does not bode well. The intellectually curious appreciate complex and multi-disciplinary problems and solutions, apply critical thinking skills, exhibit healthy skepticism, appreciate empirical analysis, and welcome constructive debate. Regulators are more than likely to find themselves outside of their intellectual comfort zone. The public-interest mandate, along with the mental rigor of the work, also argue for self-awareness and bringing a healthy dose of personal humility to the task of regulating, which at times may seem antithetical to the political ego and immodesty required of those who seek high office. …