Energy Monopolies: The Dark Side of the Electricity Business (Episode 74)

I’m a big fan of his work and I’m delighted to ask him to help us understand how utility companies have become so powerful, how they use this power, and what lessons we can learn from David’s work to manage monopolies in the rest of the American economy. David, welcome to Building Local Power.

But I wanted to help people understand a little bit about how the area in which you and I work, focused on energy, is related to but not quite the same as the rest of the economy. So we at ILSR talk a lot about monopoly power across the economy, in banking and social media and internet. You focus on the utility sector, electric and gas utilities generally. Could you explain a little bit about how monopolies in energy are different from ones like in banking or social media?

With electricity it’s different. Everybody has to have electricity, and they really only have one choice, in many parts of the country at least. People only can buy electricity from a single provider that has been granted a monopoly by their state.

Because of that, it’s really important that those monopolies are tightly regulated by the government to make sure that they’re providing electricity at fair prices, to make sure that they’re not doing too much harm to the environment or the climate. Unfortunately, these electric monopolies have over the course of the last century… While they’ve had these monopolies over the energy that they sell, they’ve also built political monopolies.

So in most states the monopoly electric utilities are some of the most powerful political players in that state. They control many of the levers of government almost like puppeteers, and that makes it really hard for them to be effectively regulated in the public interest.

So we know that in the energy business, you know, thanks to this description, that utilities generally have minimal or no competition, and obviously that could be very profitable for them. You sort of alluded to this already in terms of political power. Could you give us an example of how a utility can use that profitability and protection from competition to block competitors, to block other folks from being able to compete in this market?

Those were places where it made sense for utilities to have monopolies, and even at times over the generation of electricity when the grid was being built up in the early 20th century and we were for the first time building these large power plants at scale it made sense to give companies monopolies to do that.

But now we’re in a world in the 21st century where everything is totally different, and now having these companies build these massive power plants with huge risks of cost overruns, which by the way happen to be absolute killers for our climate, that’s not only environmentally problematic, it’s no longer the most cost-effective way to do things, and we have had this amazing technological revolution where customers have a host of new technologies at their fingertips that they can adopt.

The most obvious one is rooftop solar, but there’s also energy efficiency and ways that customers can, you know, control when they use electricity. Unfortunately, these incumbent big electric monopolies, they see all that as a threat. One great example of that is in the sunny state of Arizona, a natural place for rooftop solar and local solar to grow really quickly, and starting about 10 years ago it was growing really quickly, and that became incredibly scary to a company called Arizona Public Service, which is the biggest investor owned monopoly electric utility in Arizona.

APS is one of those companies, like I mentioned before, that has done an incredibly effective job at really buying up the entire political ecosystem of Arizona. The Governor of Arizona, many of the state’s legislators, elements of both parties unfortunately, the Republican and Democratic parties of Arizona, and APS’s direct regulators, the Public Utility Commission in Arizona, are all deeply embedded to the company’s continuing contributions and the various ways that it has exerted influence over the state’s political system.

When this solar threat started to rear its head and scare the executives at APS, a few years ago they took action and they appealed to their regulators in the PUC, called the Arizona Corporation Commission, and asked them to change the way people pay their electricity rates in ways that would make rooftop solar less economic.

It was very contentious, but because of the political dominance that this company enjoys they were able to get that change through, and unfortunately we saw rooftop solar adoption rates really fall off the cliff after those changes happened.

So that’s one of those examples where unfortunately, you know, we have this amazing new technology in distributed solar, it can save people money on their bills, it can help protect the environment and the climate by avoiding the need for these companies to build more polluting gas plants and making it easier for them to shut down coal plants sooner, and as you know, John has done amazing work to document, it can help grow local economies.

But unfortunately, you know, there are these very powerful companies who see that technology as a threat, and so they have done everything they can to stifle that competition to protect their profit margin for their investors on Wall Street.

I was hoping you could explain a little bit there, because there’s a couple things I find interesting. One is you have these large power plants that the utility is looking for subsidies for, but you also have this funny layer of the market was competitive for a while, like the state decided to make the marketplace more competitive, and at first utilities really like that. Then as it actually became a competitive market and profit margins went down, now they seem to be going back and begging for monopoly protection again. Could you just describe a little bit about what’s going in Ohio for folks who might not be familiar?

So that’s really what’s happened in Ohio. There’s a company called First Energy, which has seen unbelievable financial struggles in recent years. They actually spun off part of themself, which filed for Chapter 11 bankruptcy recently. The reason for its economic problems is that they made some big bets on types of power generation, including burning coal in their existing nuclear power plants that turns out are no longer the cheapest way to make electricity, and increasingly it’s not really even close. They’ve been beaten by gas, and more recently are getting crushed, particularly in the midwest, by wind energy.

Then on top of all that, you know, the entire economy, and Ohio is certainly a part of it, is getting more efficient, which means people are using less electricity to do the same things, which is good. It saves homes and businesses money across the economy. But it does mean that some of those existing power plants that companies like First Energy are running start coming under pressure, so that’s what’s happened there.

First Energy is another company with a lot of political power. It has contributed lots of money in the most recent gubernatorial election in Ohio. The CEO of First Energy spent lavishly on the campaign and inauguration of the current Governor of Ohio, who obviously has a lot of say over these matters.

So now what First Energy is trying to do is get itself a bailout. The company is trying to get a law passed in Ohio that would, you know, essentially rob money from Ohioan’s electric bills every month to the tune of hundreds of millions of dollars statewide that would just basically be a direct transfer of wealth from the people of Ohio to First Energy, and nominally that money is to keep a couple of nuclear plants online that are not doing well in the marketplace, but it’s not clear that company actually needs that money.

You could also make the argument that Ohio has chosen more of a market system for how electricity is produced, and if those plants can’t compete, then they should be shut down and replaced with more competitive options. But even if you believe that it makes sense to keep those plants alive, you know, it shouldn’t really be down on the backs of customers. That’s something that First Energy shareholders could take on if they think that they want to keep those assets going.

Then the whole situation gets much worse, because once First Energy kind of, you know, saw that opportunity to use its political influence to keep its plants open in that kind of rent-seeking behavior, there’s basically been a pile on from some of the other incumbent players in the state.

So now this policy, which has passed one House of the Ohio State Legislature, but not the other yet… It’s called HB6 in the Ohio House, it’s been expanded so that it would also bail out a large coal burning facility, which is a major, major polluter for Ohio and really the entire region. And on top of that, to try to sweeten the deal for some legislators who have been trying to get the policies that Ohio does have to encourage renewable energy and energy efficiency, the legislation would also kill those standards.

They’re not the strongest renewable energy or energy efficiency standards in the country and hard right conservatives and the fossil fuel industry has been trying to gut those standards for several years now and failing, but this is probably the most serious threat that they’ve seen. Those standards frankly need to be much higher and stronger. It would be a sin to see them finally wiped out basically because these polluting industries are trying to protect their profits.

It’s really an incredible irony, because you have these people who are… And the companies behind it, they are trying to use an argument against renewable energy and energy efficiency standards that says well, they’re mandates, you know. This has left to the control of the economy and we need more of a free market, and making that free market argument, and then literally at the exact same time out of the other side of their mouth they’re asking for a bailout for polluting nuclear and coal plants which can’t survive in a free market.

So, you know, it’s really a stunning bit of hypocrisy, but it’s one that unfortunately, greased by a whole lot of political contributions and millions of dollars in lobbying, that First Energy has spent over the last few months they have had some traction in this.

So I want to use that to pivot into this next question about how monopoly utilities are using their money to advocate against the interests of their customers. There’s the legislative pieces like in Ohio or in Arizona, the regulatory pieces, but you also have something else that Energy and Policy Institute has been covering recently. It was called UARG. I’m going to let you spell that out and explain it: how utilities and their shareholders were using this group to undercut clean air and water for all Americans.

Maybe I’ll go back to the beginning. The Utility Air Regulatory Group was formed by utilities in the late 1970s with basically one expressed purpose. It was formed after Congress passed the Clean Air Act which is designed to protect American’s health and safety from air pollution. That was a scary thing for utilities who thought it might limit their ability to build the kinds of power plants and other infrastructure that they make a profit on. So to undermine the Clean Air Act and the EPA, which writes rules and public health standards in accordance with the Clean Air Act, utilities formed this group, UARG. For the last four decades, UARG has very quietly existed in the shadows trying to undermine and attack the Clean Air Act and the EPA’s enforcement of the Clean Air Act.

Some of the kinds of things they do includes mainly litigation, so they sue the EPA constantly. Whenever you hear about the EPA getting sued for things like President Obama’s Clean Power Plan or other public health and safety rules including from past Republican presidents as well as Democratic presidents, usually the plaintiffs in those lawsuits is the Utility Air Regulatory Group. What makes this really nasty and part of what the Energy and Policy Institute what we focused on in trying to expose is not only do these companies pay the lawyers who constitute UARG to file lawsuits that result in the public being less safe and healthy, but they’re actually doing that with our money.

I’ll give an example. One of the rules that Utility Air Regulatory Group has tried to kill is commonly known as the Mercury Rule. It basically exists to keep mercury that’s admitted when we burn coal out of our water and the fish we eat and our air. The reason that’s important is mercury is a really powerful neurotoxin. It gets into kids’ blood and into their brains and affects their ability for their brains to develop appropriately. That’s really widely accepted, and nobody disputes that.

But that’s not good enough for utilities who wanted to keep burning coal throughout the last several decades. So they sued to try to stop and weaken that rule from taking place. The money that they used to do that was actually a couple of cents at a time coming out of your electric bills every month. You would think that since these companies are paying the UARG lawyers to protect their shareholder profits that their shareholders at least would have to pay for that. In a world where, unfortunately, we don’t have a lot of control over how companies are able to spend their money to influence politics, there might not be a lot we can do to stop that, but in fact it’s even worse than that.

These monopoly utilities very quietly when they go to their regulators at the state level and they ask for all the money they need to operate their utility, so that’s supposed to be for things like trimming trees next to power lines so we don’t have outages, building infrastructure, paying linemen to walk the power lines and do maintenance and keep us safe, when they want to recoup those costs, they have to go to regulators to get permission to do that in a rate case. Well, what utilities would do is in the fine prints of those rate cases, they would slip in all the money they were paying the lawyers at the Utility Air Regulatory Group, which means that for many electric utility customers around the country, every time they pay their bill every month for the last four decades potentially, a few cents out of that bill was going to pay lawyers to sue the EPA to attack rules that are designed to keep us safe. So utilities, they’re trying to make us less healthy, and they’re using our money to do it.

Unfortunately, there’s not a lot that the average person can do about it. It’s very difficult and expensive to intervene in one of those rate cases. You usually need a lawyer to do it. That’s the only way that we can challenge that. John, it goes back to your original point about the problems with having these monopoly electric utilities. If Facebook or Google is suing to stop clean air rules or Walmart is, at least you have the choice to go take your business somewhere else, but we don’t have that choice with electricity if we have a monopoly utility.

Hey, do you think you’d be a great guest on Building Local Power? Are you dying to tell Chris Mitchell what he could do better? Wanted to share some love? Email us at podcast@ilsr.org. You can also send your love with a small donation. If you listen to other podcasts, you might hear about a mattress company or a meal delivery service. The Institute for Local Self-Reliance is a national organization that supports local economies, so we don’t accept national advertising. Instead, please consider making a donation to ILSR. Not only does your support underwrite this podcast, but it also helps us produce all of the resources from reports to podcasts to interactive maps we make available for free on our website. Please take a minute to go to ilsr.org/donate. Any amount is welcome and sincerely appreciated. That’s ilsr.org/donate. We also value your reviews on Stitcher, iTunes, or wherever you get your podcasts. Thank you so much. Now, let’s get back to our conversation with David about shining a light on the dark behaviors of monopoly utility companies.

Okay, were back. David, let’s talk a little bit about what Energy and Policy Institute does to help Americans understand monopoly power. How do you find out all this stuff about UARG or whatever these secretive groups that utilities are a part of or the way that they are spending their money or our money to undercut this stuff? How does Energy and Policy Institute understand this?

Even though the regulators that are supposed to make sure they are not gouging customers and hurting the environment don’t always get everything right, in the process they do require utilities to put a whole lot of stuff on paper. One of the things we do is come through that and try to find examples of where utilities are hurting people, hurting their customers, hurting the environment, and just try to translate that for people.

A lot of this stuff is pretty wonky. It can be pretty technical. We are not technical experts the way that… I think, John, you are a great resource on a lot of this stuff, and there are many others out there. But we have tried to carve out a role for us to explain what utilities are doing and then look for the proof. So we’re looking in the regulatory filings. We’re doing a lot of things that regular people could do if they have an interest in doing it. That includes looking at how utilities spend money in political campaigns. We’re looking at how they lobby, which there’s often a paper trail of. So we’re trying to use every kind of public source of information that we can to document utility’s behavior and then just explain it to people hopefully in a way that makes sense.

When people start to pay attention to what they’re doing to their political influence, to their agenda, which has been anti-energy democracy, anti-distributed solar, and in most cases, although I should say, this is starting to change for a few utilities that are moving in a different direction, their agenda has been pro-fossil fuel. So, the more people pay attention to that, and make it into an issue for their leaders, and their politicians, and sometimes for the regulators themselves directly, the harder it becomes for utilities to do what they’re doing under cover of darkness, and the greater chances that people will get regulation in the public interest. For these public utility commissions, I think kind of the first thing we need to do is put the public back into the public utility commission.

Thankfully, even in the few months we’ve seen some real progress there, and some commissions that are starting to do a better job holding utilities accountable in the public interest.

In this most recent election cycle in 2018, there was so much scandal around APS’s influence, that for the first time in the last three elections, APS actually sat that election cycle out, they didn’t spend money on the candidates that people assumed were their preferred candidates. I think the reason they did that is because, there had been so much scandal, and their reputation had become so toxic, that republicans, and democrats kind of didn’t want to be associated with a monopoly utility anymore. In the wake of that election, several of the regulators on the Arizona Corporation Commission, including people from both parties, republican and a democrat have really tried to bring some more accountability into play. So, I don’t agree with everything that those commissioners have done, but they have tried to force APS to account for its political activity over the years.

They’re trying to crack down on how APS is spending its rate payers money on politics. They are starting to explore ways where they can challenge a lot of things that APS has done in recent years that are really bad for customers. Including trying to build gas lamps that customers don’t need. I think some of the commissioners are taking a look at issues around rooftop solar, and interest in doing that. Other commissioners are interested in looking at how they could bring more competition into Arizona. That’s a place where unfortunately APS still does have a lot of political power, but there have been changes afoot, and part of that is because a lot of people have taken action, and organized, and made these issues more political.

Another example is in South Carolina. Where one of the utilities unfortunately spent billions, and billions of their customers dollars basically to build a very expensive hole in the ground. They were trying to build a nuclear power plant. That spiraled completely out of control. It’s something they never should have built in the first place. They actually had to abandon the project even after they’d spent multiple billions of dollars. In the fall out of that scandal. There were new public utility commissioners who have been appointed, and elected. They are looking at the monopoly utilities in South Carolina with a much more critical eye.

In the case of another utility, Duke Energy, that was asking for a really obscene rate hike on customers. They were asking to increase the fixed part of customer’s bills dramatically in a way that was higher than almost any other utilities around the country have done. In response, that public utility commission, first of all they said no to many of those asks. They also actually cut Duke Energy’s CEO’s salary significantly, at least the amount of it that was paid by South Carolina rate payers in a way to send a signal to that company that, some of the things they’ve been doing in the past to try to take advantage of their customers, we’re not going to work anymore under this new public utility commission. So, we have seen a number of utility regulators around the country in the last few months who are really taking a more critical approach, and really … like I said before, trying to put the public interest back into the public utility commissions.

I don’t think that’s always true though at the state level. So, these public utility commissions, they’re pretty sleepy. They meet all the time, the public does not always show up, and call me naive, but I actually think if people are engaged in that process, what we’ve seen in recent months and years is that, you can make a big difference there. I have a couple pieces of advice. The first is, just find out the basics about the public utility commission in your state. Where is it? Who serves on it? How are they appointed? Then look for ways that you can get involved. You know? This is can be hard stuff, and somewhat technical. I think it’s probably not the easiest thing in the world as one person to just get engaged in, but there are tons of groups.

There are consumer advocacy groups, there are citizen utility boards, there are many environmental groups that have ways of engaging in that public utility commission process. They can tell you when there’s hearings you can show up to, to testify. They can offer some guidance about how you can make a difference there. I’ll give one more plug about a very specific idea that we’ve seen really take off in the last year or so. John, you talked before about Dominion Energy in Virginia. That’s one place here we’ve seen one of the amazing responses to Dominion’s political power, has been a movement to ask people running for office in Virginia to sign a pledge that they would not accept campaign contributions from monopoly utilities. I mean there are a lot of people who feel like our campaign finance system is generally broken, and politicians probably shouldn’t be taking money from any corporation, and I’m sympathetic to that view.

Monopoly electric utility is a great place to start. They’re monopolies, like I said before, they’re companies that people have no choice but to patronize. They have unbelievable political power right now, and they have really high stakes in terms of, they’re very heavily regulated, and it’s really important to them to hold office. So, it’s the perfect place to start, to try to get money out of politics. We’ve seen unbelievable success with that effort. Virginia is a great example where, over a dozen of the freshmen legislatures who were elected in 2017, in November 2017 in Virginia signed a pledge that they would not accept any money from monopoly electric utilities, and more including several incumbents have signed that pledge since them. And we’re not at the point in Virginia where there’s assumed pressure as soon as anybody announces they are running for any office in the state, that they’re going to be asked, and will need to have a pretty good answer for whether they are going to take campaign contributions from monopoly eclectic utilities. That’s an effort that I think can happen, and work in any part of the country. It’s completely not partisan.

I think people who are democrats, republicans, and anywhere in between those, all would probably agree that these monopoly companies should not be allowed to buy our politicians. So, that’d be one specific idea that we’ve been very encouraged to see catch on, and I would encourage folks to check out.