76 LAW FORUM [Vol. 1978 that the FPC had held a hearing on the merits of the settlement, thus giving the objectors at least one clear chance to be heard. In 1972, an Administrative Conference recommendation took the position that the lack of unanimous consent should not bar settlement approval, but the Conference also called for giving objectors a chance to demonstrate that a hearing was necessary to resolve material facts that remained at issue.265 The hearing under such circumstances may seem to the objector to be less than wholly objective; he seems in effect forced to prove the others wrong. Assuming the agency has the data well in hand and has previously resolved many of the underlying policies, however, the actual detriment to the objector is relatively slight, while the benefit to the expeditious flow of cases through the agency seems significant indeed. V. CONCLUSION Rate cases almost certainly take too long to decide today. The delay is costly both in dollars spent on litigation and in uncertainty over final results. But this situation is not inevitable. Delay can be eliminated, not through patchwork procedural reform, but by changing the ratemaking process to make clear the applicable standards and the relevant facts earlier in the process, and to let the affected interests play a larger role in defining the ultimate outcome. If the proposals made here were adopted, decisions would be made within a more certain framework. A regulated firm would look at the world knowing somewhat better what its allowed rate of return would be or at least what formula would be used to determine it. The firm and its customers would know as nearly as possible how costs and revenues would be measured, and the firm would know better the consequences of spending behavior and could plan accordingly. Additionally, the agency and potential protestors would have a continuing X-ray of the firm's cost experience. When a firm filed a proposed tariff, protestors could challenge the factual assertions made by the firm or the reasonableness of its conduct. Parallel data derived by tracking other firms would help measure both the plausibility and the propriety of the claims. When disagreements remained as they sometimes inevitably would-they would be subject to compromise and settlement if possible or to trial-type hearing if necessary. The option of an onsite audit would be available, as today, and cases might be wholly or partially settled on condition that the audit verify the data underlying the settlement. The significance of this "revised strategy" lies in the interrelation of its three elements. Rulemaking is costly and time-consuming but when used as a mechanism for focusing data on relevant issues and simplifying the ultimate decision process through settlement, its potential can be maximized. Data collection under some circumstances could inundate 265. 1 C.F.R. § 305.72-4, Recommendation D.2 (1977). No. 1] RATEMAKING STRATEGY 77 the regulatory commission, but as proposed here, it can be channeled and directed by rules that define what is relevant. Further, firms may be more willing to comply with data-gathering requirements if they know that this information will be the focus of the settlement negotiation. Finally, settlement could be a hopelessly arbitrary and chaotic process, unless as proposed here it can be structured by the constraints imposed by formal rules relating to the fundamental issues and by a common data base from which all parties can work in forming their positions. The proposal, then, is to substitute an integrated strategy for what has been heretofore a series of makeshift changes. It may be unrealistic to assume that the revised strategy would be equally valuable in all contexts. At the FCC, for example, many of the cases are truly sui generis. An AT & T rate case is so massive and so complex that it is probably unlikely and even undesirable to believe that rules can simplify it significantly or that settlement is likely. At the CAB, too, even with the DPFI, a few cases have simply defied quick solution. No proposal will reduce the number of such cases to zero. The present proposals should work best in state or federal agencies whose workload of cases differs in detail but has many common elements. 266 The first two features of the plan give potential parties the information necessary to determine whether a protest would be worthwhile. Settlement is the logical extension of this approach to the resolution of differences. The risk, of course, is that the parties might use negotiation and settlement to reinforce a cartel. The FPC docket generally consists of cases between parties with a somewhat adversary relationship, 267 but the ICC and CAB have a greater mix. Unfortunately, in both of the latter agencies, there is so much cartelization inherently present in the regulatory process that this proposal would probably not make matters significantly worse. There is at least some reason to suppose that these may be ideas whose time has come. Professor Donald Baker has analogized times of change for public policy to the "launch window" of a moon mission. 268 Only at certain times is the need perceived, an understanding of the problem available, and the means at hand to deal with it. For ratemaking delay, the present may be such a time. The problem is perceived-at least by the regulated firms-and computer modeling potentially gives us the tools with which to make theories about proper solutions a reality. Parts of each of these proposals are being successfully employed today in 266. Although this article has been directed at the work of federal agencies, the proposals made here should be equally applicable to the work of state public utility commissions. The interplay of experience between the state and federal agencies on these issues should help improve the performance of both. 267. Parties to the contract under FPC review are not always true adversaries. The buying utility can often pass on the price directly. However, there are frequently ultimate customers who appear and guarantee the adversary setting. 268. Cohen, Federal Policy Shifting in Its View of Economic Regulation, 7 NAT'L J. REP. 270 (1975) (quoting Professor Baker). 78 LAW FORUM [Vol. 1978 at least one of the agencies, and in large part the task is to get each agency operating as well as the others at their best. Efficiency is no proof of the inherent worth of an agency, but a lack of efficiency is an indictment even of agencies that are valuable. It seems inevitable that the nation will continue to have agencies engaged in ratemaking, whether at the federal or state level or both, for the indefinite future. The foregoing proposal for a new strategy will not solve all the problems, but it may point some directions toward breaking out of the conceptual and practical prisons in which we have previously placed ourselves. Senator LEVIN. We will now move to our last panel of administrative law judges. Judge Fauver, you may proceed. Mr. FAUVER. Mr. Chairman, I believe we have an agreed-upon order. Senator LEVIN. You have a unanimous consent agreement. Senator LEVIN. Could you give us the order, please? Mr. FAUVER. Judges Liebman, Grossman, Gordon and myself. Senator LEVIN. In the interest of time, we would suggest you limit your oral testimony to no more than 10 minutes and preferably no more than five. Judge Liebman, you may proceed. TESTIMONY OF JUDGE ERNST LIEBMAN, CHAIRMAN, CONFERENCE OF ADMINISTRATIVE LAW JUDGES, AMERICAN BAR ASSOCIATION Mr. LIEBMAN. Thank you, Mr. Chairman. Mr. Chairman and members of the committee, my name is Ernst Liebman. I am chairman of the Conference of Administrative Law Judges of the American Bar Association. Our conference appreciates this opportunity to comment on certain provisions of S. 262 and S. 755. If it is agreeable to the chairman, I would like to have the prepared statement of the conference inserted in the record, and then I will briefly summarize our position. We support the aims of S. 262 and S. 755 to improve the administrative process. There are, however, provisions of both bills that we believe will not contribute to that objective. As they are now written, the bills would impair the integrity and fairness of the administrative hearing process and would lower the overall quality of the administrative law judiciary. They would make recruitment of high quality candidates for administrative law judges extremely difficult, if not impossible. They would increase the age at which applicants will apply for administrative law judgeships. And there is a very real danger that the selection process and reappointment process would be politicized. That is a bleak picture. But I ask you to satisfy yourselves that the picture I paint is wrong before you report this bill out in the form it is in. Let me turn first to the provisions in S. 262 and S. 755 which provide limited terms for judges, 10 years and 7 years, respectively. Reappointment, if any, would be determined by the Administrator of the restructured Administrative Conference in his sole discretion without statutory standards or a right to administrative or judicial review of his decisions. I might note that proposals for term-of-year appointments for administrative law judges are not new. They were presented before to this Congress and were rejected for reasons I will soon go into. We oppose the proposals for limited terms for administrative law judges. We think it is a dangerous and unnecessary change from the existing system of merit selection for career appointments, which has worked well and has helped maintain the decisional integrity of administrative law judges. The present merit system also has attracted judicial candidates of very high quality. As the Senate Study on Federal Regulation notes, and as a number of law review articles have noted, the present merit and career system for administrative law judges was developed after great dissatisfaction with the attempts to appoint hearing examiners on the basis of politics rather than merit. I would ask, Mr. Chairman, to have inserted in the record at this time two law review articles which tell the story of the attempts in the 1940's, when the Administrative Procedure Act was passed, to select Federal hearing examiners on the basis of politics, and why the present system of merit selection and career appointment was implemented. One is an article by Fuchs called "The Hearing Examiner Fiasco Under the Administrative Procedure Act," which is found at 63 Harvard Law Review, 737. The other is an article by Thomas entitled "Selection of Federal Hearing Examiners: Pressure Groups and the Administrative Process," which is found at 59 Yale Law Review, 431.1 The only apparent motive for abandoning the present merit career appointment system in favor of a fixed 7- or 10-year term is to provide a vehicle by which an unqualified judge can be removed from the bench at specified time intervals, if he has not been removed earlier for good cause or unacceptable performance. However, periodic review of a judge's performance and the imposition of sanctions when necessary can be achieved without the adverse consequences of a limited term. We have suggested in our prepared testimony the establishment of a judicial discipline and disability commission for administrative law judges. Our proposal is set out in detail in our prepared statement. Such a commission should be established in accordance with the standards adopted in 1978 by the American Bar Association. I have a copy of those standards, and I would offer it for the record. It is labeled "Tentative Draft," but it has been adopted by the ABA with the minor modification noted in the preface. Senator LEVIN. We will take a look at these documents and the length they are and do our very best to put them in the record. Mr. LIEBMAN. I certainly want to offer them to you in any event. Senator LEVIN. You have heard about the paperwork problem in the Government. We will do our best to get them in the record if possible. 'See part 2, p. 1173. Mr. LIEBMAN. It might also be helpful to the committee to have in the record the Judicial Code of Conduct adopted by the American Bar Association, which sets up certain standards. We have copies of that. Let me tell you in some detail what we think these average consequences would be from the limited term. First, let me note a basic distinction between administrative law judges and State judges or even Federal judges. We have coming before us, as parties, the agencies of the Federal Government and the agency for whom we work. For example, there is a case now pending before the Energy Regulatory Commission-part of the Department of Energy-which involves the certification of a coal gasification plant. Two States are opposed to the plant. The Department of Energy is there arguing for the plant. We ask what kind of a fair decision would be rendered if the judge were thinking about his reappointment at the end of his term? If he were in the last year of his term, there is a subtle subconscious influence on him to favor the Department of Energy. That is one of the problems you get into with these limited terms. The judge is less likely to be independent toward the end of his term than he otherwise would be. Under both bills, a judge's fear of not being reappointed would be well grounded. The judge has no right to reappointment. There is no presumption that the judge should be reappointed. The Administrator of the Administrative Conference makes the decision whether to reappoint in his sole discretion. There are no standards. There is no hearing. We think because of these things recruitment would be very difficult. Potential judges just won't come into a system where, say, in their fifties they run the risk of not being reappointed. They will opt for private practice or the Senior Executive Service, as a senior attorney for the Government. Let me turn for a minute to evaluation. There is an evaluation procedure set up in the bills. But there is a presumption in the bills that the judges are not now evaluated. I put it to you that administrative law judges are probably more frequently evaluated than any other Government employee. Everything we do is in public. We are on the record. There are signed initial decisions, and they are almost always appealed. So there is a written grade on what the judges do. We oppose merit pay provisions in S. 755, because we don't think judges should get bonuses for deciding cases certain ways. But we would like to see administrative law judges subject to the Quadrennial Pay Commission and taken out of the GS schedule, so that we can eventually, if not now, achieve adequate pay to attract very high candidates to the administrative judiciary. There are a few other points we have made in our prepared statement. I will pass over those. Senator LEVIN. Thank you. [The prepared statement of Mr. Liebman, with attachments, follow:] |