The Role of Antitrust Law in Creating Energy Justice — Episode 127 of Building Local Power

Date: 27 May 2021 | posted in: Building Local Power, Energy | 0 Facebooktwitterredditmail

On this episode of Building Local Power, ILSR Co-Director John Farrell interviews Jean Su, director of the Center for Biological Diversity’s Energy Justice program. Their conversation touches on:

  • The history of state-granted monopolies in the electricity sector, and whether this monopoly system still works.
  • A current antitrust case in Arizona, where a utility, the Salt River Project, is fighting competition from rooftop solar.
  • The energy violence inflicted upon communities of color and what a more just energy system might look like.
  • What we can do to build a just fossil-free future.

“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?”

 

Jess Del Fiacco: Hello and welcome to Building Local Power, a podcast dedicated to thought-provoking conversations about how we can challenge corporate monopolies and expand the power of people to shape their own future. I’m Jess Del Fiacco, the host of Building Local Power and communications manager here at the Institute for Local Self-Reliance. For more than 45 years, ILSR has worked to build thriving, equitable communities where power, wealth, and accountability remain in local hands.
Jess Del Fiacco: In this week’s episode, ILSR co-director John Farrell interviews Jean Su, director of the Center for Biological Diversity’s Energy Justice program. Their discussion focuses on the role of antitrust law in the US electricity sector, and in particular, how the law backs up advocates that are working to make these monopolies more accountable to their captive customers. With that, I’m going to turn it over to John Farrell.
John Farrell: Here to talk to me about an interesting strategy to get these utilities to respect competitive markets is Jean Su from Center for Biological Diversity. Jean, welcome to building local power.
Jean Su: Great. Thanks, John. And it’s an honor to be here.
John Farrell: I like to start off my interviews with folks by just asking a little bit about their background, kind of like how they got into this kind of work. And I’m curious, how did you end up at the Center for Biological Diversity? Why are you motivated to be out here, doing legal work, and talking about antitrust in the electric utility sector?
Jean Su: Yeah. So it’s a bit of a long story, but I guess to cut it pretty short, all my work, since I began after college, has been dedicated to climate and climate justice work. Then I actually start off as a micro-finance development worker in Madagascar. And it was there, actually in the early 2000’s, that a series of really horrific cyclones ended up hitting communities with hundreds of thousands of people, and it really was just, for the first time, a true understanding of what climate change actually looks like on a real basis. And what it looked like for those communities out there was completely wiping out any food source for the next year because the harvest was completely gone. It was ridiculous malaria rates that climbed up so high, that killed children ultimately. And it was just a wiping out of the economy in general, in a place that was already so fragile.
Jean Su: And when I was there, people were saying in Malagasy, “The climate is changing. The climate is changing.” Like nobody had no idea what was going on. And it was really at that moment that I totally understood that if we were going to try to tackle extreme poverty issues and the wealth gap, internationally and nationally, that it would have to be through the lens of climate. So after Madagascar, I was really lucky to be able to work in both the private and public sector in different parts of Asia and Africa and Europe, and eventually came back to the States to try to be in the belly of the beast where so much policy work is going on that dictates so much around the world.
Jean Su: 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.
Jean Su: 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.
John Farrell: That’s great. What a awesome story in coming into this space. I feel sort of like mundane by comparison having gone to public policy school, and then taken a class on energy policy. And then I’ve been at the ILSR now for 15 years. So I love hearing stories of how people bring so much more variety into their work, so many different perspectives. Let’s try to help people understand then, a little bit, about what’s going in the energy sector. So we have electric utilities. They’ve been around for over 100 years. In most places, we granted them a monopoly. We granted them freedom from competition through our state laws because we said, “Oh, in building an electric grid, it doesn’t really make sense to have 17 sets of wires going to every home.”
John Farrell: So there was a legitimate reason for this 100 years ago. And also, it was not very common to generate electricity at a small scale. Well, I shouldn’t say that. At the beginning, it was small scale. Power plants only powered a few blocks. But it scaled up because there were huge economies of scale for fossil fuel generation for coal, for gas, for nuclear power. And we didn’t have a lot of competitive, small-scale power generation. And then solar energy came around. And ILSR’s been paying attention to this since we wrote a report in 1975 on solar cells. So we have, for a long time, been paying attention to solar. But in the last decade, it’s gotten super interesting, of course, because it’s now competitive. People can actually save money by generating their own electricity compared to buying it from the utility company.
John Farrell: 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.
Jean Su: Absolutely. So I think you just touched on the real quagmire that utilities are in right now. I love that you began with the regulatory compact. We’re all Gretchen Bakke fans in that sense and I’ve totally read that history. And really, that history was grounded in this understanding that a monopoly can be given to a private corporation if it actually fulfills two things. And this was part of state laws generally. One is that it allowed for just and reasonable prices, which we can get into in a little bit. And two, fundamentally, it served the public interest.
Jean Su: And I think that is where, fast forward 120 years, we’re in a really bad spot in terms of utilities meeting that goal. And it’s exactly for the reasons that you’re saying. We are in a climate emergency right now, and yet pumping out fossil fuels. And continuing to stifle true renewable energy sources are really not in the public interest and violate that fundamental regulatory compact. And so as, John, you were saying, there are so many different actions that have been taken by utilities to do this. And it’s essentially all for the purpose of not serving the public interest, but to maintain their monopoly and their status as the sole provider of energy in many of the territories that they were granted.
Jean Su: 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.
Jean Su: 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.
John Farrell: Let me just, since a lot of the listeners to this podcast are not deep in the energy sphere, I just want to kind of summarize for them. So think of it like right now, we have roads that are public, a publicly owned network that allow a lot of private companies to compete. So you have the Postal Service, you have UPS, you have FedEx for package delivery. You have Amazon doing its own thing now. But the infrastructure is owned by a public entity that is not involved in the delivery of services.
John Farrell: What we have in the utility sector, generally speaking, is the opposite. We have private companies that have been given monopolies, or in some cases, we have member-owned co-ops, or we have public entities that can also be utilities. But the problem we’re seeing is largely with these private companies. And the issue is not just that we have a sort of threat to their long term monopoly over who generates electricity, but also the fact that because they own the infrastructure, they’re putting up all sorts of roadblocks. I mean, imagine if like UPS had to pay tolls to drive on the US Postal Service roads. I mean, this is the kind of odd and complex problem we have where the monopoly that we establish, as you said, there were these two principles, doesn’t really make a lot of sense anymore. So let’s bring that home to this case in Arizona.
John Farrell: 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?
Jean Su: So the Salt River Project case is fascinating. And what I’d say is that it is not necessarily unique. So Salt River Project is a … It’s quote/unquote a public utility in Arizona. But it actually, in legal cases, has been defined as a private corporation. And basically what they did is that for rooftop solar customers … So Arizona does allow for competition and people to put solar on their rooftops, which is great. But what Salt River Project did is that for any of its customers that wanted to install solar, they actually put on a 65% rate increase in any electricity that those customers would have to buy from SRP in the case that their solar on the rooftop didn’t generate 100% of their needs, which is often the case.
Jean Su: And when that actually came down, it made solar, rooftop solar so prohibitively expensive. Your payback period was doubled, essentially, I think to around 15 years instead of 7 years. And so it just became economically unappetizing for households to invest in solar. And one of the most interesting economic metrics is that Solar City, which no longer exists, unfortunately, but they were a solar provider in the area. When this rate increase came down from SRP, their applications for solar systems fell by over 96%. So that pretty much decimated the market for rooftop solar just by this pretty egregious rate increase from Salt River Project.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
John Farrell: So I want to do a couple things here. One is just to help people understand. I think the explanation you gave of antitrust was great. But the idea that having a monopoly is not illegal, and that makes a lot of sense. I mean, in this case, the state governments are actually granting monopolies. So we know that it’s allowed. We also do have one complicating factor, I think, if I understand this correctly, which is that because a state has granted a monopoly to a utility, and because they are often overseen by a regulatory agency, in Arizona it’s the Arizona Corporation Commission. In other states, they call them public utilities or public service commissions. It kind of raises the bar on this antitrust thing right?
Jean Su: Yes.
John Farrell: It’s saying, “Oh, there’s already some public oversight here.” If these agencies are looking at the policies, at the practices of these utilities, it becomes that much harder to make this antitrust argument. So it’s kind of impressive that it already cleared that bar, that this particular case got that far because it’s even harder to bring an antitrust case against a utility than it might be against, for example, Amazon, where it’s saying to its sellers, “Oh, you have to use our distribution centers or we’ll punish you. Or we’re going to take the data and we’re going to introduce our own competing products and then place them higher in the listings.” That’s retail business. There’s no special protection. So we’ve got an interesting case here where the bar is higher. So Solar City settles, which is, of course, a bummer for everybody else because they’re already a big guy in town, owned by Tesla. They got themselves a nice deal, but everybody else is still screwed. What happens next?
Jean Su: Everyone else is screwed. Well, actually, can I answer your previous question essentially?
John Farrell: Yeah, please.
Jean Su: Which is I think it might be helpful for me to unpack a little bit the history of antitrust law and actually the history of it in the utility space to actually help us situate the SRP case. This is me nerding out on antitrust law. I love antitrust laws. Basically, at the turn of the last century, so when we entered the 1900’s, there was a huge movement for monopolization. And what we saw at that point was US Steel, Standard Oil, the railroads, all of those industries had like hundreds of mama and papa shops at the turn of the century. And then within one decade, all of those industries had been consolidated to about one to two players in those industries that completely monopolized them.
Jean Su: And in response to that, Congress essentially passed our first antitrust law, which was the Sherman Act. In the early 1900’s, a few more would pass, the Clinton Act as well. And the whole idea behind that was actually a really remarkable and beautiful understanding of what role antitrust was supposed to play. So the heart of antitrust law is really to stop the concentration of wealth and power by private industry. And the whole kind of concept and existential idea was to restrain unrestrained capitalism because what lawmakers found at the time was that if industry essentially could accumulate so much power, they would have greater influence over our lawmaking than ordinary citizens like you and me.
Jean Su: So trusts and the accumulation of private power in private companies was viewed as a profound threat to our democracy itself. And so antitrust was really created, that whole kind of jurisprudence and law was created to have a check on private industry and their political power. And in a way, it was designed as a counterpart, and really sibling and sister to our exquisitely architected three branches of government, which were conceptually and theoretically designed to check each other, Congress, the president, and the judiciary.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jess Del Fiacco: Sorry to interrupt the conversation. We’ll return to this in just a moment. But first, we’re going to take a short break. Thanks for listening to Building Local Power. If you’re enjoying John and Jean’s conversation, I hope you’ll consider heading over to ILSR.org/donate to help support our work. Your donation directly supports this podcast, and it supports the important work being done all across ILSR. You can visit ILSR.org/donate to make a contribution today. And any amount is sincerely appreciated. Now back to John Farrell and Jean Su.
John Farrell: Before we pivot back to solar, I just want to say I think how important it is for people to understand the difference between these two. You’ve covered it really well. I don’t think I need to give anymore detail about it. But just to emphasize, the origins of antitrust were to say that market power is a threat to democracy. And what we’ve essentially said with this so-called consumer welfare standard is, “Democracy, we can sell our democracy for lower prices. If I can by that TV for cheaper, the price is really the weight of my vote.” Because these companies now have so many lobbyists, and so much political power.
John Farrell: And we see that as soon as Apple and Amazon were sensing a threat from the government around antitrust, boy, they staffed up lobbyists in a hurry. Like there are so many more lobbyists for these tech companies in Washington now than there were before because they’ve recognized that the government is saying, essentially, “We think you’re too powerful.” And they’re right. So I just really appreciate the overview there. And I would love to see how you tie that back into this case with Salt River Project and with clean energy.
Jean Su: I think this new school of this new Brandeisian school really kind of blames the administrations in the 1990s, the White House at that point, for not prosecuting big tech then. Tech, at that point, was at a point where it could have been prosecuted and we could have prevented the incredible monopolies that we see today. But essentially, the antitrust enforcement provisions have been pretty lame, just latent and not doing their job for the past 30 years. And so I think that’s why we’re seeing this type of scary place that we’re in right now.
Jean Su: I will say, in the electric utility sector, this is a sector that has not quite yet been touched. And in fact, that’s why SRP is actually a pivotal case for this right now. What was touched back in the day was really interesting. I have to talk about this case, because it’s a beautiful case, and it opens this all up. In 1973, there was a case called Otter Tail V. US. And John, does Otter Tail still exist in Minnesota?
John Farrell: They sure do.
Jean Su: Great. Okay. So I would love to know what the current state of them. But let me tell you about this 1973 case because it will give you chills in terms of the parallels of today. The importance of Otter Tail V. US is that it established the principle that no electric utilities, even if they are in a regulated monopoly, are not immune from antitrust law. So this is the key case that shows you that electric utilities can totally be liable for antitrust violations. They are not protected because they have some regulatory compact.
Jean Su: 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.
Jean Su: 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.”
Jean Su: 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.
John Farrell: I want to just share a little follow up from this. So we were working with the City of Minneapolis a few years back, and their franchise contract, which is very similar here, was expiring with Xcel Energy, which is a private owned utility. So Minneapolis, which had a climate action plan, and it was clear that it was going to be difficult to reach the goals in that climate action plan without controlling the utility companies that were responsible for so much of the emissions said, “We’re interested in exploring our options.” And it turns out that in 1973, the Minnesota state legislature added a poison pill to the municipalization statute to say that if you did want to take over from the private utility provider, you would have to pay 10 years of lost profits to that utility provider.
Jean Su: Oh my goodness.
John Farrell: So Otter Tail might have lost from the federal government, but I would imagine they were responsible for getting that law passed in exchange for some other kinds of like oversight from the state regulators, but it is now virtually impossible in Minnesota. There has not been a single city that has taken over its power system from the incumbent utility since that law passed in 1973. For good reason, because unlike any other competitive market, it’s like, “Oh, I’m going to McDonald’s for lunch. And now I want to go to Burger King. But I have to pay McDonald’s for my lunch for 10 more years before I can start going to Burger King.” It’s just unbelievable.
Jean Su: Oh my goodness. I didn’t know the second part of that story. That is so horrific.
John Farrell: So I mean this is fascinating because I never understood how that happened. And now this story makes me think, “Oh my gosh, there is such a great connection here.” Or I shouldn’t say a great connection, but there is such a logical, intellectual connection here between why that law passed in ’73 and how it made it so much harder for cities to take over their electric systems. It’s like, “Oh, they got slapped down trying to act like a monopoly.” And so they decided to see if the state government would give them a better chance, and they sure did.
Jean Su: Oh my gosh. That is so upsetting. Okay. There you go. Oh my goodness. Wow. Wow. Horrible.
John Farrell: You’ve established at least though that under federal law, this utility was held accountable, and that the Supreme Court established that all of these kinds of behaviors were anti-competitive and could still be litigated under antitrust, even for a utility that was given a state-granted monopoly.
Jean Su: Yes, absolutely.
John Farrell: So ignoring the fact that they then just ran to the state government and potentially lobbied them to get things to make the market less competitive, let’s get back to the focus that you had there. Sorry for that little thing, but I had never heard this story about Otter Tail before. And it just makes so much sense.
Jean Su: Yeah, it makes total sense. Great. I mean, this is a really great insight into the utility playbook. We use everything we can to maintain our monopoly. Okay, so that happened in 1973. And there wasn’t much antitrust play really in the electric utility space until now, where we’re seeing new disruptive technologies from regular household owners who really pose a competitive threat to utilities. So the Salt River Project, as I said before, Tesla settled for a really sweet deal. Then what happened a couple of months later is that a group of normal, every day, rooftop solar citizens came together and sued SRP alone.
Jean Su: And so that is a class action. And again, John and I are amici in that case, meaning we’re friends of the court and here to offer our thoughts and arguments against SRP for violating antitrust. So it’s obviously the same fact pattern that’s being sued upon. And these are rooftop solar owner for whom rooftop solar became economically un-viable, essentially because of these rates.
Jean Su: It basically, where it is right now is that it is in the 9th circuit. And so we’re pending a decision right now. 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
John Farrell: So I wanted to take a step back now. We’ve gone way in the weeds on antitrust, which is amazing, and connected it to so many of the other things that are happening.
Jean Su: Sorry.
John Farrell: No, don’t be sorry. This is what this podcast is for is kind of helping people understand that we have this really strong legal tradition in this country that has been sort of unexercised, this like unexercised muscle that helps to protect our democracy. And we need to use it some more. And we have this … I mean, we’re ina unique situation here because you think about like Amazon and the retail sector, or even the tech companies. There’s certainly a threat to democracy and to economic competition, but in the utility sector, what we have at stake really is, like you said, the motivation for you being in this, and for many of us is that we have a climate crisis.
John Farrell: And utility companies are the center of that because it is their decisions, ostensibly approved by public regulators, that have led us into this, because it is in our utility sector, and like building heating and cooling, gas utilities, electric utilities, what have you, that are generating all this climate pollution. And so I think one of the key questions that we have to have here is like is antitrust even enough? It gets us to challenging this question about are monopolies acting in anti-competitive ways, but I guess I would maybe go even further and say to what degree is having a monopoly utility even the right market structure anymore? We created this market structure. This didn’t arise out of random behaviors. The fact that Apple is a big company, or that Amazon is a big company, it’s through negligence to some degree, right?
Jean Su: Yes. Yes.
John Farrell: It’s through allowing Amazon never to charge sales taxes, or it’s through the lack of exercising this antitrust legal muscle. But we pass state laws in like every state basically establishing what utilities would serve certain customers. We have the option then to change that. And I guess my question for you is what is the right approach to this? How do we address the climate crisis? How do we address our crisis of racial inequality, which obviously shows up, whether it’s in the pollution impacts of the fossil fuel system, or the cost, the economic cost of fossil fuel system. When we still have these monopolies, we talk about the work equity, for example. Let me just frame it around this. Equity is both a financial term, in terms of who has the money, as well as a term that we use to describe broadly, like how do we distribute benefits? In the utility sector, we have concentrated equity and ownership into these private monopolies. Is that even sustainable when we’re trying to address these bigger issues?
Jean Su: So, John, I totally, 4,000%, am on the same page as you. I think that this original idea that monopolies are here to serve the public interest has completely been undermined by everything we’re seeing today. I like think about it in a framework of energy violence essentially. And I see it come out in at least three ways that our current utility sector is doing that. The first is obviously the horrific pollution that is killing and poisoning communities, especially communities of color, across this country. The second, of course, is energy burdens, which not that many people talk about yet. And it’s not even a normal issue in rate cases. And that is essentially the burden of your energy bill over your entire income, and as our friends at ACEEE have really exposed, obviously black and brown communities suffer far higher energy burdens than their white counterparts.
Jean Su: And then the third really important part of energy violence is the impacts that low wealth communities feel from climate disasters. They are actually disproportionately in flood zones and in hot spots, all because of public housing and other redlining and inherently racist property divisions that have been made across the country. So the point of this is that our energy system is racist. There is nothing in our country that is not racist. And I think that putting those two pieces together really should make people think about how do we change our energy system to be anti-racist, because inherently it is mired in that issue and the climate emergency issue at large.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
Jean Su: 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.
John Farrell: I just want to give you one last thing to react to around this, which is I think what’s fascinating about the arc of antitrust, and to arc of the utility sector is that we have fundamentally, whether it’s in the regular economy, the broader economy with the consumer welfare standard of antitrust, or in the utility sector with public regulatory commissions in different states, we’ve essentially said that letting private companies accumulate a lot of wealth and power is okay as long as we have some public, government run oversight.
John Farrell: And I think it’s really ironic because it’s on the one hand, the evidence, as you just laid out, suggests that it’s insufficient. So for a progressive, you would look at that and say our government is not strong enough to do this, or it has been insufficient, and we need a different path. But also, for a conservative, you should look at this and say why do we want the government to have to be even bigger, or more powerful in order to confront this when we have strategies like antitrust that allow market forces, competition, to help to reduce the market and political power of these giant entities. So I just think it’s really interesting in terms of where we’ve gotten, where we have established this system that if you said, as you’ve illustrated so vividly, does energy violence on people through this private monopoly ownership. And I don’t think folks from any section of the political spectrum could look at it and say, “Yeah, we’re getting the outcomes that we want from this.”
Jean Su: Right, exactly. And I think the question becomes, and this is what ILSR specializes in, what does that new electricity system look like if we do want to deliver on equity and anti-racist outcomes and climate solutions. What does that exactly look like? And I think the … And I’d love to be in dialogue with you right now on this. You and I are also supporting a resolution that’s coming out next week from Cory Bush that emphasizes and encourages public power. And I think public power has … I think its greatest argument against public power is that we’re not really seeing great outcomes necessarily in current iterations of public power. But I think the question becomes we’re not looking to replicate bad models. Actually, we’re looking to create an accountable democratic system of public power that could help us achieve the outcomes that we want.
Jean Su: And so I don’t know if the answer is necessarily the federal government takes over everything, or munis, or communities and community ownership, which is so beautifully articulated by ILSR every single week. And I think there’s different iterations of it. And I think the important part is to figure out what is it that we need out of our energy system to feel that it is working? And how do we design the systems to get us there? And I think maybe one thing that a lot of people can accept is that private corporations are not that path. But what are your views on what is our ideal system?
John Farrell: That seems to be the topic for an entirely different podcast.
Jean Su: Yes.
John Farrell: I’d love to have that conversation, but I think ultimately, to take us back to that analogy I provided earlier about the roads, that the problem really is that the way that we’ve set up the market structure is that it’s currently a privatized system, and we could make it a commons. We could still have lots of private companies generating electricity, coming up with clever services, aggregating customers like OhmConnect does, building power plants that are big, or building small power plants on homes and businesses. But the problem is that the system upon which we build all that is not a commons, which is really different from most of the rest of the way that our markets work.
John Farrell: On the internet, I can go and find anybody and buy something. I have choices in the grocery stores that I go to and the kinds of brands of butter that I buy. And none of those distributions systems is controlled all by one single entity that has a perverse and self-interest in doing it in a particular way. So I don’t know, I think antitrust, as you’ve outlined here, could be a really important tool to get us there. But I think that ultimately, the problem is that we have these companies who are controlling the way that the system operates, not just running a business.
Jean Su: Yeah, absolutely. And I think also these kind of seemingly like God-given monopolies actually is very anti-capitalist spirit in the American spirit itself. These franchises are granted for 100 years. They’ve been there for 120 years. So we actually don’t have corporations that are competing on merit. There’s actually like no good competitor to actually get them into good shape. So I actually think it’s super ironic that essentially I think these God-given monopolies actually are very anti-capitalist in the way that America likes to compete. So yeah, they’re not winning because of merit. They’re winning and they’re lazy. And they got there because we gave them a territory to rule over.
John Farrell: For sure. Well, jean, thank you so much for joining me to talk about the role of antitrust in the energy sector, and thank you for your work standing up for more competitive markets and a more just and equitable energy system. Really appreciate you taking the time.
Jean Su: Great. And thank you, John. And I will say one thing that my team wanted me to tell you and relay to you is that our team actually, we birthed ourselves, our energy justice team at the Center, about a year and a half ago. And in our strategy planning, one of our main missions was literally, quote, to be more like John Farrell, and to just be a voice of justice and firmness in this space. And we really deeply appreciate your work on everything you’re doing every day. So thank you.
John Farrell: Well, thank you so much. I really appreciate it. And the feeling is mutual. It’s been great to partner with you on so much of this work. So thanks again, Jean.
Jean Su: Thank you, John.
Jess Del Fiacco: Thank you for tuning in to this episode of the Building Local Power podcast from the Institute for Local Self-Reliance. You can find links to what we discussed today by going to ILSR.org and clicking on the show page for this episode. That’s ILSR.org. While you’re there, you can sign up for one of our many newsletters and connect with us on social media. We hope you’ll also take the opportunity to help us out with a gift that helps produce this very podcast and supports the research and resources we make available for free on our website. Finally, we’d ask that you let us know how we’re doing with a rating or review on Apple Podcasts, or wherever you find your podcasts. This show is produced by me, Jess Del Fiacco, and edited by Drew Birschbach. Our theme music is Funk Interlude by [Dysfunctionalle 00:49:04]. For the Institute for Local Self-Reliance, I’m Jess Del Fiacco, and I hope you’ll join us again in two weeks for the next episode of Building Local Power.

 

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Audio Credit: Funk Interlude by Dysfunction_AL Ft: Fourstones – Scomber (Bonus Track). Copyright 2016 Licensed under a Creative Commons Attribution Noncommercial (3.0) license.

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Jessica Del Fiacco is the Institute for Local Self-Reliance’s Communications Manager. She works closely with all of our initiatives to build community power and combat monopolies, and she runs ILSR’s social media networks on Facebook, LinkedIn, and Twitter. Jessica also produces the Institute’s Building Local Power podcast. Contact Jessica for media inquiries.