The Role of Antitrust Law in Creating Energy Democracy — Episode 136 of Local Energy Rules

Jean, welcome to building local power.

So I ended up the Center. The Center for Biological Diversity, it’s a wonderful environmental organization that relies on really science and a sense of justice and equity to do the work that they do. I’m an attorney there, and I also direct our energy justice program. And we’re really birthed from the Keep It In The Ground movement, and our goal, essentially, is to ensure that elements of justice are absolutely centered in any type of renewable energy future that we’re looking at. And so I think what’s happened over this past year, it’s not surprising, but it is just so devastating and heartbreaking on a day-to-day basis to see the energy violence that has been perpetuated on communities of color in this country. And right now, we’re at an incredible, exciting inflection point where we have the ability with this new Biden administration to actually not only build back better, but I’d like to say build back justly, where a fossil-free future is absolutely central to that justness. And that’s where all the utility stuff comes in in terms of really pushing that industry to center justice and figure out how to change it so that we get an equitable outcome.

But these monopolies, whether it’s Xcel Energy in Minnesota, or Dominion Energy in Virginia, or Salt River Project in Arizona, to name just a few, they are used to the idea that they are the only game in town, that everybody has to buy stuff from them. And now, that exclusive franchise is challenged by the fact that we have technology, we have competition, we have lots of different ways we can generate electricity. So we’ve already seen utilities push back against customer-owned solar. And they’ve done it in a lot of ways. They’ve tried to roll back policies that help people get fair compensation, like net energy metering, or I get credits on my bill for producing solar. They’ve tried to reduce incentives for solar. They’ve tried to own their own rooftop solar. What are other ways that utilities are really trying to make it difficult for customers who want to own solar? And then let’s talk a little bit about why we have to address this problem.

We’ll talk about the Salt River Project case in a little bit, but essentially, there are fees that are put on rooftop solar customers. So it totally disincentivizes them to do it. There are lobbying and trade union dues, and all of these more direct ways of blocking policy and blocking laws that would allow for people to gain that energy freedom. And then we see less maybe upfront pieces. And I know, John, you’re working on this. We see how utilities stall, and stall the ability for people like you and me to get rooftop solar on by delaying interconnection, and having larger interconnection fees. So all of this is quite kind of rich and interesting. And I think that actually brings us to a place where I can start talking about antitrust, and actually how utilities have dealt with disruptive technologies in the past, which is really fascinating in how antitrust has kind of come in to address that.

So Salt River Project is a utility in Arizona. They’ve got a monopoly service territory. Arizona is like ground zero for solar. Resource is awesome here. People can definitely pay their bills really well, generate lots of solar electricity on their homes. And Salt River Project’s not a fan. What have they done and what is the situation there for customers who are trying to do solar?

So the idea was definitely to decimate competition in a competing source of energy, and SRP succeeded in it, really well. Then the question became how do we fight back against this? So I kind of want to back up a little bit on antitrust history a little bit. But the first immediate response to what SRP was doing is that, as I said before, Solar City was a solar installer. And they were bought by Tesla during this period of litigating this case. And it’s really important to note that this case is a landmark case in our current, modern antitrust jurisprudence. Nobody had challenged any utility thus far on quashing rooftop solar in this modern period.

So antitrust is a really expensive piece of litigation. It requires a ton of economic analysis and technical analysis, so that’s why you see … You don’t see normal mama papa shops bringing antitrust cases. It is extremely expensive. And so for solar companies that are all struggling to even make it, when we’ve talked to them, they have noted that antitrust is just so prohibitively expensive that they couldn’t bring these types of cases. But Solar City, because Tesla was their parent, was able to bring this case. And they brought antitrust claims against SRP. So what is antitrust? Essentially, what antitrust says is that having a monopoly in and of itself is not illegal in the sense that if you are such an awesome competitor, and by merit, you produce the best product out there, and customers loved it, and they wanted it, and they gobbled it up, and you are dominating 90% of the market, that’s not illegal because essentially you got there by merit. What is illegal is if you achieved or maintained that type of monopoly power by using anti-competitive conduct, conduct and behavior the specifically tries to decimate your competition. And the SRP case is really exemplary of that, of SRP coming out and swinging super hard against their solar competitors with a very egregious rate increase, as we just talked about. So what happened in the SRP case that Solar City originally brought is that it was brought to the district court, and the district court actually found that the merits of the case and the antitrust injury were proven, and that 96% drop in the applications for Solar City was key to this because it was just a clear economic effect of the cause of the rate increase. So it was like a fabulous, kind of simple antitrust fact pattern.

But what happened, essentially, is that there was a pause because of a procedural issue. Sorry, this is really getting into the weeds. But it basically got up to the Supreme Court very quickly for a specific procedural issue. For all transparency purposes, ILSR, through John and us, we are actually amici in that original case. So at the Supreme Court level, the day before argument happened, Tesla ended up settling with the Salt River Project and basically closed the case. And they settled for a multi-billion dollar deal in battery that SRP would buy. And they allowed for that rate increase to stay intact. So that was kind of the first iteration of the SRP case. And unfortunately, it didn’t solve the issue of the discriminatory pricing that SRP had originally put in place.

So antitrust laws was this final kind of fourth way to control private industry in this country. And so academics today will call this the Brandeisian vision of antitrust. It was Justice Brandeis who put forward this type of idea of protecting the public interest, essentially, through antitrust. What ended up happening, unfortunately, is that in the 70’s, 80’s, 90’s, till now, we had a new school of antitrust that really dominated the jurisprudence and kind of lost this original vision of what it was supposed to be. And this was really led by the Chicago School from the University of Chicago, and eventually really embraced by Bush administration, and the Obama administration, and the Trump administration. And they narrowed the scope of antitrust to be like very exclusively about consumer welfare, and that if a company was not raising the rates of the product that you were buying, so like Amazon driving these types of cheap prices, than we’re okay, like totally fine. Like if consumers are actually saving a buck, totally great. And we’re like all about economies of scale. I think this really tracks on to the general capitalist boom throughout these decades that we’ve seen, and unfortunately, antitrust law and the administrations behind it didn’t seek to police anything more, and kind of lost that original thrust of antitrust as a check on our democracy. And so what’s happening today in the Biden administration is that there is a new revival of that Brandeisian vision of antitrust. And this is where we see people like Lina Kahn come in, who is so brilliant, and basically brought antitrust theories, like the Brandeisian vision to big tech right now. And people like Professor Tim Wu, who was also at the Columbia University Law School with Lina Kahn, and basically are perpetuating this type of new theory of antitrust. So I think it’s really important to kind of view all of this within that lens of a fluctuation antitrust history for really understanding the nuts and bolts and the spirit, and the joie de vivre behind antitrust.

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So Otter Tail, fascinating. They are a private electric utility. And what happened back in the day is that in Minnesota and North Dakota and South Dakota, there were a bunch of small municipalities that had granted franchises to Otter Tail to be their retail electricity provider. But those franchises were in contracts that ended after 20 years. And so when the contract was about to expire, a bunch of these municipalities said, “Hey, we actually want to become our own retail electric provider. We want to create public power.” Otter Tail, in response, did incredible things to stop that from happening. So the first thing they did was say, “Nope. We’re actually not going to sell you wholesale power. So actually, you can’t even … There’s no power for you to even sell on a municipal basis.” So what the munis did is then they talked to the Bureau of Land Reclamation and asked if the Bureau of Land Reclamation could sell them wholesale power, and then Bureau of Land Reclamation said, “Yes, we can.” So then those municipalities went back to Otter Tail and said, “Hey, we actually have wholesale providers. We just need use of your transmission lines.” And Otter Tail, again, said, “No. No way. Nope. We’re not going to give you use to our transmission lines. You still have to buy from us.” And then the third thing that Otter Tail did is that they litigated these poor small towns to death. They basically did a ton of litigation that was super expensive and bankrupted these small towns from basically escaping from their monopoly power. And so the Department of Justice stepped in and represented these municipalities, and basically took Otter Tail to task and said, “Everything that you just did, those three things, are absolutely anti-competitive, and therefore they are in violation antitrust law.” And Otter Tail said, “Well, we have a regulatory compact. We’re immune.” And the Supreme Court found that that was bullocks. That was not true, that antitrust law still persisted, regardless of what the state regulatory compacts are. And that private utilities have no right to do anything anti-competitive to maintain their monopoly. So that’s a really key case.

One thing to note is that there’s questions basically about proof of antitrust injury. And we think it’s pretty clear because of basically the penalization that rooftop solar owners are getting for having rooftop solar. The other issue that is really interesting at play is the one that you were talking about, John, about this idea of states and where states are in all of this in terms of antitrust law. So there’s generally an immunity that comes with state action. It’s actually called state action immunity. And the principle is that states are somewhat immune, or like actions, essentially, that are sanctioned by states are immune from antitrust law if you can prove that there is enough state supervision, or state permission of certain actions from happening. And the SRP case is actually really wonderful. We fully briefed this issue about state action. And essentially, the district court in both cases, on both Tesla and this new class action, both found that state action immunity did not apply here. It’s because, first of all, the state … Arizona as a state did not authorize the quashing of rooftop solar.

In fact, all of their laws on the books very much emphasize and encourage competition. And it encourages rooftop solar. So there is no like Arizona state of approval to quash rooftop solar. That is like totally antithetical to the overall laws that are in that state. But the second prong of that test though is a question about active state supervision. Is the state actively supervising and saying yes to SRP doing these types of actions? What we brought forward, and this argument was accepted by the court, was that the Salt River Project, even though it is public, and even though it made all these arguments about how Arizona is somewhat supervising this, they actually are very much a private corporation, and past law cases have actually like adjudicated that explicitly that they are essentially a private corporation. Their sense of democracy in their system is actually a weighted voting system where only property owners are allowed to vote in anything with SRP. And on top of that, it’s weighted by how much property you have. So renters, like normal people in the Salt River Project territory don’t have any voting rights. And if you do have a voting right, it is weighted towards those who are rich and nothing else. So it essentially is private, and therefore, that other argument that the state supervises, it fails as well.

So I think that’s where the SRP case is. And this essential question of state action immunity, though, is one of the biggest barriers to pursuing antitrust violations against normal, private utilities because a lot of what they’re doing is arguably state sanctioned because utility commissions may be approving things like rate increases and things like that on top of rooftop solar. But that actually is definitely an area of flux. There are cases, also from the 1970’s, that totally challenge that idea. And test have been created to try to measure how much state action was involved, how dominant was state action or approval in the things that is inherently challenged as anti-competitive. So I don’t think that it’s foreclosed at all that private utilities are somehow immunized from antitrust by putting up a state action immunity shield. That actually has to be seen on a case by case basis where we have to prove how state action is not dominating the actual anti-competitive behavior.

And so I think I absolutely agree with you. I don’t think antitrust is enough. I think we are in a moment where we really need to question the system. The foundational principles of monopoly utilities no longer makes sense because they are not serving the public interest. John and I, we also work on utility shutoffs. And I think that is actually a really incredible and heartbreaking issue to highlight this on. Electricity is a basic human right. That is actually … And I know, oh my gosh, how can you put this as a human right? It is a human right because people die if they do not have electricity. Texas was key to showing that. But more so than Texas, during this entire COVID period, millions of families have been shut off because they could not afford it. And because of that, they did not have access to medicines that they needed. They did not have access to air conditioning that was life saving, or heat that was life saving in all of these places. And mind you, they’re in bad housing as well, that is not energy efficient and does not protect people against these forces.

So given that electricity is a human right, and that it is a life and death issue, why is it that we have given private corporations the ability to govern that access? Why is it that they solely, a private corporation, whose sole interest is to reward shareholders, why are they in charge of life and death in this country? They are in charge, and that is a huge problem. So that particular area of law makes it very clear that utilities need to change, and that we need an entirely new system. I do not think that corporations whose sole mission is to generate shareholder profits is acceptable anymore for delivering a basic human right. And one of the really shocking things that we’ve seen from the financials coming out throughout COVID was that all the top 20 electric utilities increased their shareholder dividends, some as high as 17% over 2020. Every single one of those electric utilities also increased their executive compensation packages. And when we look at the average CEO compensation package to average employee salary, we have ratios that are up to 200 to 1. Right now, AES itself has a ratio of 178 to 1. That means the average employee at AES is making 1/178th of their CEO’s salary. So when you think about antitrust and this idea about guarding against the concentration of power and wealth, and really protecting democracy and everyday citizens, the utility sector has completely exemplified why it is such a problem that private corporations are the way they are in the electricity sector right now.