The Anti-Competitive Tricks up Utility Sleeves — Episode 191 of Local Energy Rules

Date: 30 Aug 2023 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

If utility regulators are not defending competition, they are not defending consumers.

For this episode of the Local Energy Rules Podcast, host John Farrell is joined by Seth Handy, a clean energy attorney in Rhode Island. Handy and his law firm have come up against electric utilities in many different cases, often around their suppression of distributed solar projects and competition. Handy explains how utilities have, through loopholes in federal guidance and friends on public regulatory bodies, protected their own interests at the expense of clean energy projects.

Listen to the full episode and explore more resources below — including a transcript and summary of the conversation.

Seth Handy: It’s really troublesome to me that this is just through the system. We can’t get an answer after litigating seven years in the state system and we’ve been at this federal case for a while. It’s amazing how much energy it takes to just get an answer and I think we’ll get there. Actually, I think we’ll be successful on appeal, I hope, and I think we’ll get there, but it’s brutal. The process is brutal.
John Farrell: It’s hard to find a better word to describe the life of a clean energy developer than Seth’s word. It’s brutal. In this interview, he explained several ways that a single Rhode Island utility was able to use its monopoly power over the grid to hinder access by its competitor, often with a complicit state agency or state public utilities commission. The implicit promise of an electric monopoly is that state regulation will protect the public interest. But by the end of this interview with Rhode Island Clean Energy Attorney Seth Handy, recorded in August, 2023, you might be wondering why an electric utilities behavior seems a lot like other monopolies — from Amazon to Ticketmaster. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance, and this is Local Energy Rules, a podcast about monopoly power, energy democracy, and how communities can take charge to transform the energy system. Seth, welcome to Local Energy Rules.
Seth Handy: Thank you, John. Glad to be here.
John Farrell: I feel like this is way overdue because of the great work that you’ve been doing for so long in this and I’m just glad that it really fits in with these other podcast guests that we’ve had talking about policy and interconnection. I just want to start, and it sort of makes me laugh to say this, but I feel like there’s maybe a dozen people in any given state who have the depth of knowledge that you do about state level interconnection policies or they’re even interested enough to get in at that level of depth. I’m just curious what drew you to working on this issue of interconnection, maybe to renewable energy more generally as an attorney, what got you going in this and paying attention to this issue?
Seth Handy: Yeah, well, thank you for having me on the show. I think it’s funny because it reciprocates because I had you on a show about two years ago and you were wonderful as always. So I’m a lawyer by training. I started out as an environmental policy person assisting EPA with the implementation of water and waste policies as a consultant, and then I went to law school, came out of law school and focused on environmental law, litigation, compliance, that kind of thing, and got into real estate development and I’ve always wanted to be more proactive in implementing environmental policy and energy was a means of combining my history and environmental law and my interest in real estate development and also just trying to be more progressive in actually moving the ball and the needle on environmental initiatives and energy is a great kind of sweet spot for that. I’ve been very pleased with the work. I’m very passionate about trying to move forward.
John Farrell: You’ve uncovered in your work, with the clients that you’ve worked with, some really, I don’t think I can mince words here, appalling examples of how difficult it can be to get clean energy onto the grid around this issue of interconnections, producing electricity from solar, or from wind, or whatever. You have the project development side of finding a place to put the project, raising the money to build the project, producing the electricity, but then there’s this really other key factor of course, which is how do you get that energy to market, whether it’s because you’re putting it on your own rooftop and you might have excess energy that goes to the grid or maybe you’re producing energy that you’re selling to the utility company, but much like a small business might want to sell their product on Amazon and they have to deal with Amazon, these sellers of electricity have to connect to the utilities grid and in most places there’s just one utility that you get to deal with that controls the grid system. Maybe we could just start off with are there particular clients that you’ve represented, particular projects that seemed like they ought to be sort of a home run like, oh, this is absolutely the kind of project that we’d like to see developed, the kind of clean energy that we’d wanted to get on the grid that ran into a lot of these roadblocks in this process of interconnection?
Seth Handy: Yeah, there, sure. I’ll start by saying this is a little different than Amazon as you know, but your audience may not. There are also competitive interests involved. The utility has a financial interest in the transmission and distribution of electricity typically. So the local distribution of electricity is not very well aligned with its economic interests. So when you have the likes of an Amazon that has its own independent economic interests that run contrary to yours, it raises a whole other element in terms of accessing the grid that they control. In response to your question, maybe the poster project is the work I did with the Episcopal Divinity, the Episcopal Church of Rhode Island. They were looking to do a camp in northern Rhode Island. They actually, they’ve had a camp for a long time. It’s been economically challenging for them. It’s a camp for inner city kids and they wanted to do a solar project on their property to raise rent revenue to support the camp and also to generate electricity for all of their parishes in Rhode Island under our net metering program.

And they were using best practices to make sure that they minimize the environmental damage from the project. It just, everything seemed to be such a good idea. But when they went to the utility, they started to run into problems not only distribution system interconnection problems, but ultimately transmission system problems, which for those that don’t know, the transmission system is the equivalent of our highway system that moves electricity long distances and the distribution system is the equivalent of our roads. There’ve been more problems than necessary in just using the local road for these projects, which that’s all they really do. They don’t look to move electricity long distances.

But the utility, and the utility addressed one of those problems, the PUC basically reviewed a proposal to charge a distribution level project for upgrades to the transmission system that are typically rate-based as part of their infrastructure plan. And the commission in that case decided that the cost $200,000 was clearly something that is typically handled through the infrastructure safety and reliability process and required them to file it as part of the infrastructure reliability and safety process, which was a win for the project. But the utility at the same time decided to put this project into a transmission study, which I think has been happening across the country. So they basically took the position that there’s so many of these projects happening now that the level of interconnection is such that it has such significant transmission system implications that it needs to be studied, which takes a long time. And they basically held the prospect of really high expensive costs to deal with transmission interconnection issues. And our position was that the state law only allowed them to charge for costs associated with their company’s activities and their company didn’t run the transmission system, it only ran the distribution system. And so we litigated that issue.

And I guess while I’m at it, there’s another issue which is that they pay a tax on interconnection. So on the cost of interconnection, they’re assessed a tax that is called a contribution in aid of construction tax, CIAC tax. And that tax is logical on one level because basically it says that as long as the utility is charging a customer for upgrades to the system that the utility controls, it should have to claim those as revenue and taxable revenue. But the problem is that the utility turns around and charges that tax to the project, it doesn’t pay for that tax itself. And the law says that when the interconnection is for the benefit of the project basically so that the project can put electricity onto the grid rather than the utility selling electricity to the customer, that should be exempt from the tax. So we also have been litigating this issue of a tax that is charged to renewable energy customers that we claim is not owed by ’em to the IRS.

John Farrell: I want to dive into that second one and then maybe come back to the first. This is the part that really blows my mind, but it has come up in other ways too related to taxation. So under President Trump, Congress passed some laws changing corporate taxation, and I recall that as you said, utilities when they have taxes normally are passing them through to customers. And one of the things I remember from that tax law change is that in, not in every state did regulators actually require utilities to return those tax benefits to customers. I guess I’m curious if there’s a relationship there where when they passed that law that reducing taxes on investor-owned utilities, they still charged in many cases customers for that tax that they thought they would be paying, and then they in some cases kept that money even though they didn’t have to pay the tax and it was only if state regulators went in and required them to refund it to customers that they had to.

This somehow seems related in the sense that there’s this tax, supposedly a tax that they have to pay if someone were giving them money essentially to upgrade their grid. But there’s this very clear carve out or safe harbor, I guess the term is for the IRS, for whether or not they need to pay this tax in this case. So I guess it seems similar here. In one case, they are charging customers for a tax and then not paying it because they’re not having to anymore thanks to tax law change. And in this case, they’re charging the interconnecting projects a tax, but again, are not actually required to pay that tax, right?

Seth Handy: So we don’t know in this case whether they are paying the tax. We’re going to be conducting discovery to figure that out, but we haven’t gotten into discovery yet. But the challenge is that the renewable energy customer is paying the tax but isn’t the taxpayer for the IRS purposes. So logically you would think that the customer would be able to appeal the tax or basically refuse to pay the tax and work it out with the IRS, but that is not the case here because there’s an intermediary. We don’t have the capacity to go straight to the IRS to resolve the issue. So we have to litigate the issue with the utility in between, and you would think it would be in everyone’s interest to not pay a tax that’s not owed to the IRS, whether it’s the utility or the customer.

But the problem here is that as we said at the beginning, there’s some anti-competitive influences involved and the issue for renewable energy is getting access to the market without excessive costs because these technologies are efficient, market efficient right now, and if they can get to the market without excessive costs, they can outcompete the alternatives, but as long as excessive costs are layered down to this industry, it makes it very hard for the industry to compete on the open market and that’s fundamentally what’s going on here. You would think that a tax that’s not owed shouldn’t be paid, but the utility is passing it through, they don’t care, it doesn’t impact them and some utilities aren’t charging it. Some utilities are, which basically seems to suggest that it’s questionable whether it’s owed, but we’re working to resolve that concern and it’s been much more complicated to do so than we had originally anticipated, unfortunately.

John Farrell: I just want to emphasize, I think that one part that you drew out there about the utilities interest here, that, and I think you put it so well, it seems like it would be in everybody’s interest not to pay a tax that isn’t owed, but because as you say that the person being forced to pay the tax, in this case, the renewable energy project, isn’t the actual taxpayer, so they can’t appeal to the IRS. The utility is the actual taxpayer. They’re the ones who would have to appeal, but they don’t want to or seem to have no interest in doing so, and they’re just happy to pass the tax through because it’s making their competitor more expensive. Ultimately, that just blows my mind.
Seth Handy: Well, I mean I’m surprised it blows your mind because you deal in these issues all the time and frankly it’s not atypical. There are a lot of cases where costs are stacked on competitors in ways that, and people in your industry that are interested in local initiative often call it payment of rent. Fundamentally, you’re charged rents in order to make it difficult for you to compete. And that happens all over the place and unfortunately, the antitrust laws are such that it’s very hard to use them to prevent this from happening. So this is why this has become a tax case for us.
John Farrell: We are going to take a short break. When we come back, I ask Seth to share more about the case that he litigated regarding transmission fees on local solar projects. We also discussed the potential for antitrust law to intervene on behalf of competitive local clean energy, and we talk about an all too common problem of utility stakeholder proceeding going nowhere. You’re listening to a local Energy Rules podcast with Seth Handy, a Rhode Island based clean energy attorney.

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John Farrell: I’d love to get into the antitrust stuff a little bit more because I’m doing some very active research on that right now. I did want to come back to the distribution project and transmission system upgrades because there was an interesting twist here that I didn’t expect. So in a lot of the areas in which I do work, the investor owned utility is vertically integrated. So they own power plants, they own the transmission system, they own the distribution system. So there’s a little bit more logic perhaps to the notion that they might say, oh, we’ve got a lot of community solar projects, for example, connecting in a particular place, and some of that energy is going to spill back up onto the transmission system, and we’re in control of that too, so we need to be responsible for dealing with upgrades there. But what I heard you saying is that in Rhode Island, there’s actually a separation between the distribution company and the transmission company and you have the distribution utility, the road folks basically saying, we need to delay your project or maybe even charge your project for fees on the highway system, even though all we control are the roads. Did I get that right?
Seth Handy: Yeah, so I mean the important part of this is that there’s a Rhode Island statute that says that they can only charge interconnection costs that are related to their system, the distribution company system. So our fundamental position in that case was that the distribution system is assessing charges that are associated with a transmission system. Now, the complexity in Rhode Island is that National Grid was a holding company that also happened to own the transmission company, but it owned a distribution company and a transmission company. And when we first brought this case to the Public Utilities Commission, the utility was very clear that there was a distinction between distribution and transmission and that it only controlled distribution and that the transmission was controlled by its affiliate New England Power. So it was quite clear on the facts actually that there was a distinction between the operating entities. Despite the fact that the parent company owned both, under Rhode Island law, it seemed clear that there was a limitation on what they could charge for.

Now, this also gets into the issue of collusion because this case went up to the Supreme Court on appeal, and while it was in the Supreme Court, it became evident to us that the utility had been directly working with the Division of Public Utilities Commission on the case. Fundamentally, they had exchanged a lot of emails and correspondence and the division, the division, which is supposed to be the rate payer advocate in Rhode Island representing all rate payers, fundamentally assumed the utilities position almost word for word in the case based on emails that had gone back forth. Now, we had to discover this through access to Public Records Act requests, and it didn’t come out until the case was before the Supreme Court. So the Supreme Court remanded the case actually twice for reconsideration. And on the second reconsideration there was a new chair of the Public Utilities Commission who had formally been a lawyer for the utility who basically sought to change the facts and established that the National Grid Distribution Company in Rhode Island, Narragansett Electric actually did own and control transmission, which is totally contrary to what they had set in the record below.

And that issue became clouded. We obviously advocated that you can’t change the record halfway through an appeal. Unfortunately, that case was short circuited by a judge that decided that the claim was moot because after we appeal to the Supreme Court, the utility decided basically to take the project out of the transmission study and decided that it didn’t require transmission upgrades. We advocated that it didn’t really matter, that this was an industry-wide issue and whether or not they were going to assess charges to this particular project, this was an issue that needed to be resolved for broader policy purposes. But when it went up to the Supreme Court, a judge without any advocacy from the utility or the Public Utilities Commission decided that the case might be moot because a project was taken out of the transmission study process and ultimately the court found that the case was moot. So the case was basically kicked out of court.

John Farrell: I just want to highlight how many different ways in which one particular project can encounter barriers on this road to trying to produce electricity. Right. You have the initial going into the interconnection queue and looking for permission to interconnect. It gets slotted into this transmission study bucket where it either is going to have potentially high costs, but also a lot of delays can also be very costly for projects in terms of acquiring the materials to build the project, having to pay for the land that they’ve already secured but not have a project producing electricity. Then on top of that, you have these additional costs related to this tax that’s being passed through by a utility that it might not even actually be paying, which you’re in the process of discovering, but ultimately you know that it doesn’t have to pay even if it is paying that tax because you have other utilities that are not paying it.

And then you have this whole case hinging on both the public advocate taking the utilities position in behavior that seems very much like collusion. You have a new public utilities commission chair who is a former utility lawyer. It’s just remarkable to think about all of the barriers that projects can encounter when the utility has so much power over this. Let’s do a little dalliance with antitrust law here because I think one of the things that people, as there is more public conversation recently about antitrust law, Amazon is being targeted by the Federal Trade Commission. Google and other big tech companies have been in their sights. FTC just released new merger guidelines to try to reign in corporate concentration and to ensure that there is better competition. And yet all of these suites of laws generally do not apply to utility companies because the presumption is that the monopoly that has provided them over whatever service they provide is being overseen by state regulators.

So we have, I guess what’s called the state action doctrine, which is to say as long as that policy was passed by the state and is overseen actively by the state, then you cannot bring an antitrust claim. And yet we seem to be in a little bit of an interesting gray area here, whereas you mentioned some of these behaviors are specifically anti-competitive and also maybe not explicitly approved by state regulators to take the tax issue, for example, is choosing to pay a tax or to charge a tax that you may or may not be paying something that the Public Utilities Commission has actually expressly said, yeah, we give you permission to do this even though it has big implications for your competitors.

Seth Handy: Yeah, so the tax case is very interesting because I litigated it in Rhode Island courts at the PUC and in Rhode Island courts for six years. And at the end of the day, at the beginning of that process, the PUC decided that it could only determine whether the charge was a reasonable charge if it was determined whether the tax was owed. So fundamentally, even though it was a federal tax, the PUC said we to decide, we have to figure out whether it’s owed to the IRS because if it’s not owed to the I R S, it’s not a reasonable charge. So actually the IRS, we got a requirement that the utility submit a private letter ruling to the IRS. The IRS bumped it back and the deposit for that private letter ruling and said they were going to issue guidance that would address the issue.

The guidance said clearly that the tax wasn’t owed. Fundamentally, that distribution systems like transmission systems are exempt from the tax, and this is getting a little in the weeds, but the utility was claiming that the safe harbor only applied to a transmission system interconnections, and the guidance from the IRS said it applied both to distribution and transmission. We thought that resolved the case, but the utility still raised issues about whether that was entirely clear despite the plain language. And when pressed, the PUC said, well, we’re not tax lawyers, we can’t apply federal tax law, so in the absence of that, we’re just going to defer to the utility and find that it’s a reasonable charge. So that’s what led to federal lawsuits basically saying, okay, we got to take this to federal court to have federal court read the law and determine whether it really is owed in response to the federal lawsuits. The utility is still saying you should require them to resolve it at the state level. This is a state issue, and we’ve already been through that and we never got a ruling. So we’re seeking a ruling. Now, it’s been very hard to get a ruling from the federal courts on the issue, frankly, and we’re still in the midst of that in Rhode Island, Massachusetts, and New York.

John Farrell: One of the things I thought was interesting, I read a piece recently by Michael Wara on sort of antitrust implications for utilities. It was written actually about five years ago, and I’m hoping to have him in the future on the podcast, I think to talk more about it. But one of the things he said I thought was very interesting about this antitrust issue. So in this case, right, the PUC clearly made a ruling on this, right? We’re not tax experts. We’re going to defer to the utility and say that this tax is reasonable, even though it seems very clear that the federal government through the IRS has said, no, it does not need to be paid. One of the things that he said I thought was really interesting was that in these issues where competition is at issue, so in this issue of distributed solar projects getting connected to the grid who compete with the utility around providing resources, whether it’s a transmission or distribution utility that wants to build wires, or a generation utility that wants to build power plants, one of the things he said I thought was interesting was that it’s not enough for a public utilities commission potentially to say that a charge is reasonable, that they also actually need to be evaluating the competitive impact of that charge.

And I wonder if you have any thoughts about, I presume that the Rhode Island Public Utilities Commission did not in fact discuss the competitive impact of that. But I’m wondering if you think that that could provide an opening in the conversations about applying antitrust law to utilities, given that some of these decisions are in the usual domain of the Public Utilities Commission to just say, is that charge reasonable or not, but are actually much more in the vein of is this going to harm competition in an area that is competitive? And does that mean that there is an opening to have more antitrust scrutiny of utilities?

Seth Handy: I hope so. I think you may know more about this than I do, frankly. I mean, it’s not my area of specialty. I’m working with a firm that does specialize in antitrust. They indicated that a more specific tax claim would be more viable on this issue, particularly because of all of the defenses that are available to the industry. On the antitrust side, I will say that I’ve been using Ari Peskoe who as an authority on the issue that fundamentally what has happened historically is that these utilities have been giving monopolies over the distribution system and over transmission systems as well. But those are meant to be in exchange for active regulation at the state level and in the absence of regulation. They’re not a regulated monopoly, they’re just a monopoly. And the problem is that we have situations in which we don’t seem to be getting much regulation.

And in the absence of that regulation, I would submit that there clearly are some antitrust issues with capacity to exclude competition. I am advised by experts on antitrust law that it’s not easy to go down that path yet, but I do hope that that will be improved. I know that you’ve been involved with the Center for Biological Diversity and petitioning the FTC to investigate these issues, and I appreciate that. I’m not sure where that stands. I’d love to hear an update on that actually from you, but I’ve been a cheerleader for that. I think it’s a really important thing.

John Farrell: I appreciate that, Seth. I don’t have any great updates to offer on this podcast. The FTC is obviously up to a lot of good things at this point right now with regard to corporate power and competition in the economy. And so we’re hopeful that that petition will still resonate with them as something to follow up on and to investigate monopoly power abuses of utilities, which seems to be pretty much the content of this entire podcast. So I’ll maybe share that with some of our friends there saying, here are some things that you could look into if you need some specific examples.

Speaking of that, there was one additional issue that you and I have corresponded about. You’ve also worked on issues around the interconnection tariffs, so the procedures that have been adopted into state law governing how projects can connect to the electric grid. And you mentioned that in some cases there were behaviors by the utility that were clearly in violation of the state statute. The commission, I think, in the way that many commissions do, convened, it sounded like a stakeholder process to try to resolve some of these issues, but it sounded like it also basically said, we want you to get in the room together and try to work this out, but any changes are voluntary even though there seem to be some very clear violations going on of state statute. So I don’t know enough of the details there. Maybe you want to fill in a little bit more on what you see the utilities doing that doesn’t align with state law? But then I’m also just kind of curious about your perspective of does this really feel like a way that you can solve problems that have very significant bearing on competition when the utility in charge of the grid is only asked to make changes if they feel like it at the end of the stakeholder process?

Seth Handy: I’m going to try to use a concrete example. I actually don’t remember all that advocacy unfortunately because that process has been shut down. It was a voluntary process, and I think they got irritated by my advocacy about what was required and what wasn’t required. And it’s kind of gone into remission unfortunately. So hoping that it reactivates, but it’s been a while since I’ve advocated in that particular proceeding. But one of the issues was, for instance, the statute, the state statute, which I worked on years ago, required cost sharing among different people that interconnect to the system at different times so that if one person invests a lot of money in an upgrade that benefits either other projects, other renewable energy projects, or other distribution customers, that they should be reimbursed. The utility fundamentally took the position that it was their discretion as to whether reimbursement happened or not, and that’s not what the law said.

The law said that it was required. And so the tariff language itself indicated that they were applying the law in a way that was inconsistent with the statute. And so we just raised that to the attention of the company. We raised it to the attention of the commission. I was hopeful that that would result in affirmative action without a lot of haranguing that would amend the tariff to make sure that it was consistent with the statute. Because as you know, when developers look at the tariff, not all of them are familiar with the statute and they may see something that doesn’t guide them in the right direction in terms of what they’re entitled to. As I say, we didn’t get that affirmative response. In fact, we got a docket that pretty much shut down. And the only other thing I’ll say about it while I’m going is that there was a transaction in Rhode Island where the utility was sold not long ago, and we advocated hard on these issues in that transaction.

We weren’t actually even allowed to intervene in the sale of the utility, which was just extraordinary to me that we had the former director of the Office of Energy Resources involved with our coalition, and it was not deemed in the public interest to have the likes of him engaged in discovery and the conversation about what our new utility should be required to do. Highly unfortunate, I think, for Rhode Island. But anyway, what came out of that is that the attorney general settled with the utility because there were a lot of problems with the decision that was rendered as a result of that proceeding. And the Attorney general has become more of an advocate on these issues, which is very helpful. We do need an independent advocate because developers are, I’ll use the word overtaxed, we’re overstretched. It’s very hard for them to participate in all of this advocacy because they have their day jobs and they’re just working on very narrow margins right now, given all the issues that we’ve talked about before. So I was hopeful that the Attorney General would take up the charge in that interconnection docket. And I’ve been advocating with the Attorney General to do so. But again, the attorney general, like the FTC, has a lot of priorities, some of which are crime related and things. So it’s just really hard to get anyone’s attention, particularly in the weeds. And a lot of this stuff happens pretty deep in the weeds, and it’s very hard to present it clearly and to get action.

John Farrell: I’m wondering, in terms of wrapping up this fascinating conversation about the struggles that you’ve been going through in Rhode Island, if you have advice from that experience for how folks who are interested in making it easier for distributed energy projects, community solar, what have you, to get onto the grid, the things that they should be thinking about of maybe it’s sort of in compliment to like IREC’s freeing the grid report that talks about adopting good policy here. You’re talking about sort of the next layer, for example, where when that statute becomes a tariff and making sure that it’s consistent. Yeah. So what advice do you have about where do people need to pay attention to make sure that these policies that we pass are implemented? Well, and I guess the other question I have for you and take ’em in any order, is there a place that you feel like does this really well where we aren’t relying on overstretched developers to advocate, to make sure that the rules are followed, but that there is a good process set up to ensure that this competitive market is well policed and not distorted by the behavior of the incumbent utility?
Seth Handy: Yeah, so on the first thing, I think who is advocating for the industry is just an extremely important issue. Who is regulating the monopoly is just critically important, and making sure that you get the best people possible involved in the regulatory systems so that it reduces the lift on those that are trying to compete is just so important. And we’ve had inconsistent results here in Rhode Island, and as a result, there isn’t as much transparency and accountability as there needs to be. And I think that’s it. Fundamentally, you have to stand up for transparency and accountability, and unfortunately, it just requires a lot of attention to detail and a lot of knowledge of the requirements and policing of them as actively as possible. But at the end of the day, there’s a lot of attrition on these issues. People just, they can’t last in the fight, and the utility has enough resources so that they’re able to outlast people typically, and they fundamentally get paid for their advocacy by rate payers.

So that’s an issue that you’ve raised in the past, I know, and it’s just so important to have people that are independent of the utility providing a function of helping the industry on these competitive issues. So places that have done that well, I’ve worked historically with Karl Rabago as an expert. I think he’s a great expert, and I know that he did great work in Colorado, in Boulder as I recall, and it was fundamentally about wrestling control away from a for-profit entity that was operating a system for its own benefit, and then being able to operate in the way that was best suited to the public interest. And the changes that arose out of that systemically were super important. And he’s spoken out on that. He’s written on that. I think that’s a very valuable case study.

It’s not surprising where you see the most progress. I mean, California’s been wrestling with these issues for a long time. Not to say that California doesn’t have its problems in the electric sector, but they tend to be ahead on regulatory issues like this, ahead of Rhode Island, at least, in some ways we’re more advanced than Massachusetts, but in some ways we look to them for guidance. I think some of the problems we confront in Rhode Island are ever present in Massachusetts too, in terms of regulatory collusion and things like that. So it’s not always the best example. New York has made strides. I don’t think they’re without challenges in New York either, but it’s helpful to them to have IREC in their backyard. And I think IREC’s made a difference there. And I think there are other examples, Minnesota, where you are, has made some strides possibly because you’re in their backyard. I think it would be helpful to all of us to look to case studies, try to get the specifics of where this has been advanced effectively, and try to replicate that in other jurisdictions. And I appreciate your work on that.

John Farrell: Well, Seth, thank you so much for taking the time to join me to talk about the many different ways in which you’ve been trying to support competitive access for distributed energy in Rhode Island, and also about some of the larger implications of that work for these opportunities across the country. Really appreciate your time.
Seth Handy: I appreciate being with you, John.
John Farrell: Thank you so much for listening to this episode of Local Energy Rules with Rhode Island based clean energy attorney Seth Handy about the numerous abuses of one of the state’s dominant electric utility monopolies and the failure of state regulators to check them. On the show page, look for links to a Rhode Island Bar Journal article by Seth on the phantom tax called The Return of Taxation Without Representation. We’ll also have a copy of the FERC complaint that he filed on the issue of assessing transmission access charges to distributed clean energy projects, and an annotated version of the Rhode Island Attorney General’s office’s finding that the division of Public utilities must disclose its communications with utility, a finding that happened to uncover how the division claims to have common interest with the utility. Also on the website of the Institute for Local Self-Reliance, look for a piece that I penned called Why is Connecting Clean Energy to the Grid So Hard, as well as ILSR’S research on grid interconnection, and two great related podcasts with Sky Stanfield and Mari Hernandez about the tug of war between clean energy advocates and utilities over getting clean energy on the grid. Local Energy Rules is produced by myself and Maria McCoy with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear how we can take on concentrated power to transform the energy system. Until next time, keep your energy local and thanks for listening.


A Rhode Island Utility Exploits a Gap in IRS Guidance

One of Handy’s clients is the Episcopal Church of Rhode Island, which has been trying to build a solar project. While small solar projects typically connect to the distribution system, the utility tried to charge the Episcopal Church for transmission upgrades. Beyond that, interconnection costs come with a tax. Handy explains how, after asking the IRS for clarification, they confirmed his understanding: the project developer is exempt from the tax. Still, the utility argued that IRS guidelines were unclear and continued to levy the tax.

You would think it would be in everyone’s interest to not pay a tax that’s not owed to the IRS, whether it’s the utility or the customer, but the problem here is, that as we said at the beginning, there’s some anti-competitive influences involved… as long as excessive costs are layered down to this industry, it makes it very hard for the industry to compete on the open market

“Common Interest” is a Sign of Regulatory Capture

In a related issue, Handy explains that Rhode Island distribution operators (electric utilities) are only able to assess charges that relate to the distribution system — the Episcopal Church should not have to pay for transmission upgrades. The Public Utilities Commission, however, allowed the utility to place the solar project in a transmission study. Through a public records request, Handy found that the Commission had been exchanging emails with the utility and claimed to have a “common interest.”

Handy took the utility all the way to the supreme court, where the case was dropped. A judge decided the case was moot after the utility took the project out of the transmission study, despite Handy and other advocates pleading that the case had broader implications.

Fundamentally, you have to stand up for transparency and accountability… It’s just so important to have people that are independent of the utility helping the industry on these competitive issues.

Episode Notes

See these resources for more behind the story:

For concrete examples of how towns and cities can take action toward gaining more control over their clean energy future, explore ILSR’s Community Power Toolkit.

Explore local and state policies and programs that help advance clean energy goals across the country, using ILSR’s interactive Community Power Map.

This is the 191st episode of Local Energy Rules, an ILSR podcast with Energy Democracy Director John Farrell, which shares stories of communities taking on concentrated power to transform the energy system.

Local Energy Rules is Produced by ILSR’s John Farrell and Maria McCoy. Audio engineering by Drew Birschbach.

This article originally posted at For timely updates, follow John Farrell on Twitter, our energy work on Facebook, or sign up to get the Energy Democracy weekly update.

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Maria McCoy

Maria McCoy is a Researcher with the Energy Democracy Initiative. In this role, she contributes to blog posts, podcasts, video content, and interactive features.