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

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.

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?

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.

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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.

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.

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.

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?

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.

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?

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.

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.