The Movement to Take Back Control From Monopoly Electric Utilities — Episode 154 of Local Energy Rules

The reason we wanted to host this event today… Because as I said, it’s just a really incredible important moment in the shape of the electricity sector and we wanted to have a conversation about how our electricity system is structured and how the structure that we have now, the structure of investor-owned monopoly electric utilities, which may have made sense a hundred years ago, today is really at odds with the public interest, is really working across purposes with building a carbon-free future with rectifying racial inequality and with building strong local communities and a vibrant democracy. The good news is that there are some just really incredible grassroots initiatives going on across the country in which people are coming up with innovative ways to challenge control by monopoly utilities, and moving towards implementing new policies that would completely restructure the electricity system and really change the structure of ownership, of scale and decision making within the electricity system. And do so in ways that would very much align our electricity sector with the public interest.

Today’s event is a chance to meet some of the cutting-edge leaders and to hear about what they’re doing in a number of different places across the country. If you’re coming to this conversation because you mainly focus on energy issues or climate issues in your work, I think today’s event’s going to offer a chance to hear and explore how some of the frameworks and the thinking around anti-monopoly and anti-monopoly policy tools may be useful in what you’re doing. If you’re coming to this from doing work on antitrust and anti-monopoly, I think the energy sector is a really intriguing case study, particularly in helping us think about how to govern network industries, how to govern infrastructure. I think there’s some really important insights we can glean here as we think about what are the public policies we need to govern new forms of infrastructure, including in particular, the tech platforms, Google, Amazon, Facebook and so on.

The run of show today, just to give you a quick overview of how today is going to work, we’ve got two really terrific panels. Each is going to be about 25 minutes. In the first, hear from two state lawmakers from my home state of Maine, who led a successful effort in the legislature to pass a law that would allow our dominant investor-owned electric utility to become a consumer-owned electric utility. That law was vetoed by our governor. The lawmakers we have here today have joined with a set of citizen leaders and are working to put that on the ballot in 2023. It’s really an incredible campaign called Our Power. That’ll be the first panel. And then for the second panel, we’re going to broaden out and talk to some cutting-edge thinkers and advocates who are working to address utility power in other parts of the country, including challenging utility mergers and using antitrust law to go after some of the predatory things that monopoly utilities were doing.

Finally, I want to thank Jess Del Fiacco, ILSR’s communication manager, who’s been instrumental in pulling together this event. And with that, I’d like introduce ILSR’s other co-director, John Farrell, who is going to moderate the first panel. John is the director of our energy democracy initiative. Welcome, John.

I just have to say that this, really, what has been discussed in Maine with Our Power really is transformational in terms of talking about the platform of the utility system as a platform, as this idea, as a place where people might be able to transact, to innovate. Entrepreneurs and businesses could really help us solve the naughty and thorny, clean energy and energy reliability and affordability questions of the 21st Century. And they’re doing that in a really novel and exciting way, that I think is the evolution of a lot of these other efforts that have been building up. I am very pleased to welcome Senator Rick Bennett and Representative Seth Berry to join me for a conversation about Our Power. Seth and Rick, thank you so much for joining us for this conversation today.

I think, John, your question goes right to the heart of it. This idea of a nondiscriminatory platform provider and this concern about monopoly is pretty hot right now in the information space. People kind of get that. They’re like, “Facebook is take over. This is a problem.” there, there are two major cable companies and they have a stranglehold. They’ve agreed not to compete with each other. They have a monopoly in their areas. Cell phone services are much better. So as we’ve seen the information highway be purchased and increasing toll plazas is put up on it and really a huge negative impact on our very democracy, which depends on good information. We’re familiar with that. That’s more in the public eye.

But there’s this other thing happening, which also has to do with poles and wires, and it is electricity. I would argue that every bit is much as at stake. Because if you think about it, how do we decarbonize? How do we save the planet? We all know that the planet has very few seconds on the clock left if we don’t do something drastic, and that involves electricity. We need to shift to electric vehicles. We need to shift to heat pumps to heat and cool our home. Clean electricity is how we get out of the climate emergency. All of that needs to flow over the poles and wires. Those poles and wires are a monopoly. Because of the last 150 years or so of the evolution of that industry, we have allowed it. Without really thinking about it, without really noticing, we’ve allowed it to go globalize. We’ve allowed it to conglomerate. We’ve allowed it to become the province of the few in order to extract value from the many. And so, this is about power. It is about money. It’s also very much about climate.

If we’re going to decarbonize, we know that we need to shift to consumer ownership because it works. Because if you look at the first six communities in the US, the only six that I know of that have actually fully decarbonized, all six of them were served by consumer-owned utilities. I can rattle off the names if you like, but four of them just happen to be in conservative parts of the country. Consumer-owned utilities, by the way, are not a new thing. They serve 28% of America right now. Some are co-ops, which serve the rural areas. They were the the last to get service because the big boys didn’t want to cover them, wasn’t profitable enough. So, thank you, FDR. Munis have been around for even longer. They’ve been around since the very dawn of the electrical era. Between the muni’s and the co-op’s 28%, those are the places where they have turned to it, that have decarbonized fully successfully, gotten to a hundred percent renewable electricity. In the large utility space, I think of SMUD, I think of LA. They’re the leaders in getting to a hundred percent renewables as well, and they just happen to be consumer-owned. It’s not an accident. It is very analogous to the information space. If you want a utility that isn’t intent on preserving and protecting its stranglehold on that highway of electricity, just like the information highway, then you need to have the right motives, the right incentives, and not perverse incentives. Right now, all the incentives are about protecting what they have, maintaining the status quo, making sure that that transition is frankly as expensive as possible. And that’s not going to help us if we’re trying to get there. I’ll stop there, but have a lot more to say, John.

Seth was also saying, I mean, part of these savings and just because people are nicer because they live closer to the utility or the grid, it’s because of the way that the finance works. Most utilities, because they’ve got captive customers, that natural monopolies, people love to give them very low-risk bonding. And so, revenue bonds can fund much of the capitalization necessary for modernizing the grid with consumer-owned utilities. Those revenue bonds are currently selling at two or three percent. The investor-owned utilities, however, because of Supreme Court decisions from starting nearly a century ago, have baked in returns for capital investments, returns in equity of eight to 12 percent, with some variation. Because of that differential, between the two and three percent and the eight and 12 percent, there is an opportunity to recapture money that ratepayers are now paying in and have savings in the monthly bill, but also to capture some of that money to update and modernize the grid. That’s already been shown. If people are interested in the impact on Maine, particularly, there’s a lot of research available at our website, ourpowermaine.org, in that way.

That analysis was then reviewed by a Maine-based energy economist by the name of Dr. Richard Silkman. He took it a step further and said, “Wait a minute. You forgot to mention there’s about $4 billion sitting on the books in a reserve account in your own economic model so you got to count that. That belongs to ratepayers, and some other adjustments as well.” He said, “No, you’re going to save $9 billion over the first 30 years alone,” which in Maine is a lot. It might not be as much in California, but we’re a small state. $9 billion, and that’s in net savings. Even after you pay down the acquisition, and you will see ratepayer savings from year one. So, you can reduce rates. You can invest some of that money, some of that savings in building out the grid and modernizing the grid. It’s a win-win all around. We also, in our proposal, allocate some of that to better pay and conditions for workers. We make sure that the utility is required to use union labor, to invest in local businesses and provide some protections for workers. They keep their jobs, their benefits, their two collective bargaining units, so they go to the higher one. It is a win-win all around. Really, you do it as Rick said. You simply do this by displacing a very high cost business model, which has worked okay, I guess, in the 20th century, but is fundamentally broken for the 21st and for the challenges that we’ll face in the future.

But just stepping back a bit, taking it to the highest level. Yes, there are these nonprofit consumer-owned utilities and these for-profit investor-owned utilities. It is true that there are better investor-owned utilities and worse consumer-owned utilities within those two families. They’re not all created equal. In a way. I think a business model is like a tool. It’s potentially a very powerful tool. The part of the purpose of the investor-owned tool is to make money for shareholders. In fact, it’s their number one fiduciary responsibility. They would be doing a bad job on the board if that was not their top priority. That is removed from the consumer-owned model. They don’t have to worry about profit. Their focus is on people. And perhaps, if you make it so, it’s about planning. The people part matters. Their number one focus is people. If I’m a consumer-owned utility in rural Nebraska, I might not be asked by my constituents to care about the climate. But you know what? If my constituents do ask me to care about climate, I can put my full attention on that. I don’t need to think about how I’m going to maximize the future profit of this enterprise. I can go full on to decarbonization, to adjust transition, what I like to call a full, fast, fair, and friendly transition, which is in fact what we have to do. It is absolutely critical that we do this. The proof’s in the pudding. I mentioned the communities that have done it so far. I think that’s a good indicator that the business model is the right tool for the challenges that we face today. Do we need to pay attention? Can we create it and then walk away? Of course not. We need to pay attention. Democracy is a participatory sport, not a spectator sport. And a democratic institution, like a consumer-owned utility, needs tending.

The other question was about why the grid… I almost took the question to be, “Is the grid going away in the future?” I don’t think it can. I think there are too many lower income, vulnerable communities that can’t simply put a solar panel on the roof and walk away. I think we also have to be cognizant that we use a lot of energy right now, not just in electricity. But to displace petroleum, to displace natural gas, to displace, number two, oil, to displace coal, we’re going to have to create a whole heck of a lot of grid to interconnect, to avoid situations where an isolated part of the grid goes down, like it did in Texas. I mean, you, you need a robust grid. You need transmission. It’s not all local microgrids and distribution, but that is a big piece of it. And by the way, we can do more with decentralized solutions if we do have a consumer-owned model, simply because you don’t have that built-in incentive to build out more transmission and get that high rate of return that Senator Bennett mentioned.

Our Power coalition, and you can learn lots more at ourpowermaine.org, has gone directly to the people, exercising Maine’s constitutional right to. The ballot question, the citizen initiative. We have already, just in the last 11 weeks, collected 73% of the signatures needed. That’s a high 40 thousands, 46, 47,000 signatures. That was during the very peak of the pandemic here. Hospitalizations were twice as high as they had been. We had volunteers out in the cold, because you couldn’t do the signature collection indoors for the most part. No corporate money, a lot of small dollar donations. But it’s really been an astonishing, impressive, unprecedented effort. We’re very proud of what we’ve done so far. We are aiming for the 2023 ballot, so it won’t be on the ballot this year. It’ll be on the ballot next year, 2023. That gives us a lot of time to educate voters to finish up with the signature collection. We hope to network with other like-minded individuals around the country, because I know there are many folks out there working on similar things, including on this call today.

Hey, thanks for listening to Local Energy Rules. If you’ve made it this far, you’re obviously a fan and we could use your help for just two minutes. As you’ve probably noticed, we don’t have any corporate sponsors or ads for any of our podcasts. The reason is that our mission at ILSR is to reinvigorate democracy by decentralizing economic power. Instead, we rely on you, our listeners. Your donations not only underwrite this podcast, but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations. Every year ILSR’s small staff helps hundreds of communities challenge monopoly power directly and rebuild their local economies. So please take a minute and go to ilsr.org and click on the donate button. And if making a donation isn’t something you can do, please consider helping us in other ways. You can help other folks find this podcast by telling them about it, or by giving it a review on iTunes, Stitcher, or wherever you get your podcasts. The more ratings from listeners like you, the more folks can find this and ILSR’s other podcasts, Community Broadband Bits and Building Local Power. Thanks again for listening. Now, back to the program.

Welcome, both of you. I’m so glad you could join. Just a reminder to everyone in the audience. We’ll have the second part of the discussion for about 25 minutes, and then all of our panelists are going to come together for a wrap up. I want to turn first, I think, to you, John. I was hoping that you could just zoom out a little bit and talk about how it is that policymaker structure the electric utility sector a century ago. That structure may have made sense at the time. I don’t know. But today, it seems that it’s really at odds with what we want to see. And I want to hear what changed, what’s different now, what changed over time. I think that there are people who may be listening, who are not involved in the electricity sector, who would say, “Well, these are regulated monopolies with public commissions that oversee them. Doesn’t that solve the problem of having a functioning sector? Can you give us a big picture overview?

That all came to a halt in the 1970s, where essentially we ran into the wall of the economies of scale of power plant construction, that it became actually more expensive to build bigger. There was a breakdown in the model where folks assumed, who have been in the industry for decades, that energy use would just keep growing and they would always have a market to build more power Plants. What we had doing is, in the last 50 years, almost, we’re paddling upstream to get the things that we want, whether it’s energy efficiency or renewable energy, like solar energy, or access to the markets for community solar or other ways of developing energy.

All of this is going against the flow of the incentives for the utility companies. Seth and Rick mentioned this in the first panel. Their incentives are to build more infrastructure to serve the electric customers. And the thing is that we don’t need them to build it in the same way that they’ve been doing it, but we haven’t restructured the rules of the market in order to encourage them to do something different. In part, because they oppose us when we try to do that. We’re in this situation right now, where we’ve got a hundred years of flow in this river. And every once in a while, we’re trying to paddle to the shore or paddle somewhere different, but there’s just so much momentum behind it, whether it’s the institutional inertia of the utilities themselves, or the legal and political power that they have over the decision making process. And that’s led to what some of these hopeful moments though, in what we’re seeing, whether it’s in Maine or New Mexico and Arizona and other places, of ways that we can fight back against that flow.

The conclusion of all of that and the result is that we don’t have a system that’s fighting for our public interest anymore. We have a system that is actually benefiting private corporate interests or the utilities’ interests. We see this in a bunch of different ways. There are significant examples of energy violence that we see in our system. We have a system that is majority fossil fuel right now. Who suffers the most? The disproportionate amount of communities of color in this country who live disproportionately close within three miles of a fracked gas plant and a coal plant. Those are the people who are suffering from that dirty energy system.

We also have energy violence in the form of unaffordability and energy poverty. We were able to track this year, the millions of families who were disconnected during COVID for failure to be able to pay. And at the same time, the increasing shareholder profits that all the top corporate utilities actually made this year. They could have taken just less than one percent of the executive compensation and shareholder returns that they got this year for COVID and put it towards saving the over one million households that they cut off, but they didn’t, and regulators didn’t force them to do that. I think the last type of energy violence that we’re seeing is, of course, the violence that comes from climate disasters. People are unable to actually keep on their connection during hurricanes, floods, wildfires, and heat domes right now. Distributed energy is a way that we can actually make energy truly resilient. All of those pieces are coming together to solidify monopoly power in this country. It’s also stifling the absolute clean energy transition that we need and the rooftop and community solar that we need to combat those types of energy violence, and actually work in the public interest.

What we’re doing right now is seeing how that type of law, antitrust law, can challenge pretty egregious behavior from utilities, where they are cutting out their competition. How can we do that? The case in Arizona is super interesting. The Salt River Project is a public utility, but it’s actually been found to operate like an IOU and a corporation. This is very common, so a lot of people on this call will hear this pattern and it’ll ring very true. SRP, Salt River Project saw that there was a threat to their revenue from rooftop solar, because suddenly people are generating our own power and we are biting into their revenue source. So what they did, is that they jacked up the rates for rooftop solar customers by 65%. What that did is it dropped the amount of applications for rooftop solar by 96%. So basically, it gutted rooftop solar in Arizona, in that territory. That is classic anti-competitive behavior under antitrust, because you have a company launching an anti-competitive action and literally obliterating the competition, so we used antitrust law in this case. Very interesting background. But right now, it is currently sitting before the ninth circuit and we are still waiting for a decision. But if the ninth circuit actually finds that, yes, this was antitrust violation, then this can actually open a huge area of case law to use antitrust against utilities and how they are trying to cut out competition.

I’d like to just tell you one important story that really relates to what Jean had said before. Iberdrola and Avangrid testified that their goal was to you use PNM as their beachhead. It’s a military term to land. And from that landing, attack can be launched. So under cross examination, the Avangrid CEO admitted that their purpose was to consolidate renewable production for their own financial growth. It was not only the extraction of our resources, but literally the export of that money out, not only to wall street, but to Spain. So this is exactly what Jean was talking about. They wanted to consolidate the market, get rid of any competition, and then Jack up rates, and then sell to wherever they wanted. Literally, they said that they chose PNM to get a southwestern platform in the form of a government-protected monopoly for which they could make further acquisitions and sell our renewable energy for their private profit. Of course, all of us are in favor of renewable energy, which will shortly dominate the grid if we’re going to survive, but not for the exploitation of a foreign company with such a bad track record.

I’ll just say one last thing. One of the things that they wanted to do is create these “baby affiliates” that then could buy up all the rest outside of PNM’s beachhead. And the commission found that they didn’t have the resources to police, not only Avangrid, PNM, but all those other baby affiliates that they said that they were going to create for the umbrella company, Iberdrola.

The question really that we should be asking is, are we going to… If we’re going to survive, we have to transform the grid and it’s got to be a hundred percent renewable. We’re on the cusp of not only transferring the electric grid for our electricity but, as Representative Berry said, to transform it to meet the transportation needs and the housing sector needs, so we are going to increase renewable usage by a lot. And the question is, are we going to replicate the exact same system of inequity and inequality and of racism, and then literally export the profits to Wall Street at 1%? Or are we going to shift that model? Are we going to have our power and stop the violence?

Another point that I made in the hearing, also to Jean Su’s point, was literally the Monday after the hearing was supposed to end, PNM was set to disconnect ratepayers, 21,000 rate payers from electricity. Meanwhile, they’re throwing out millions and billions to the executives and the shareholders. And one of the things, what they said was, “We’ll eliminate about half of the COVID disconnect notices.” And I literally just asked, “Why not all of them? You’re doing an $8 billion merger. Why not just eliminate the COVID disconnects?” And they were just like, “Uh-uh (negative). We can’t do that.” It’s that kind of thing, over and over and over again. That’s the real day-to-day violence. Because when that orange notice comes into your mailbox and you are literally concerned about, “Should I have food on my table or have electricity?” That’s not what we want to do for a just society. I just read that during COVID, child poverty, including food insecurity has gone up. And meanwhile, PNM made $190 million in profit just last year.

To try to tackle that very large question, Stacy, in terms of wrapping up, I think I would just say this. To go back to my river metaphor, we have to change the way that the entire system is flowing. The problem that we have right now, especially with investor-owned utilities, but not solely with them, as we mentioned before, that we can have even examples of public power that are running in a problematic way, is really how do we break down the institutional power that these organizations have and disperse it? Jean, I think, did such a great job of highlighting the importance of antitrust in all of this, that the purpose of that law was to protect our democracy from concentrations of power. That can be private power, as we have with investor-owned utilities. It can also be public power. One way we can do that is to not let one entity own everything. At some places they’ve restructured and already broken apart, like who owns power plants, who owns the distribution system. In some places, like New York, they’re talking about restructuring how companies earn money.

Rick, I think, mentioned that we have these really high rates of return that are almost guaranteed from monopoly utilities, and we pay them for things we don’t want them to do anymore, like build giant power plants. We need to change that. Hawaii has moved to a system of almost entirely performance-based regulation. It’s very new and we don’t know if it’s going to work very well, but there’s a lot of hope behind that, and at least we’re doing the right thing. And then, there’s what Our Power is trying to do, which is honestly, I think one of the best things, which is to say, “Let’s break up this utility. Let’s create a consumer-owned core of it. And let’s also do that with the idea that we’re going to allow lots of other entities, not just this utility, to make the decisions about how the system runs.” So, like lots of folks building rooftop solar or energy storage, or homes and businesses, community solar, all of the kinds of things that allow people to make decisions independent of the utility that shrinks not only like the market share of that utility within the electricity sector, but then all of the political power that comes with that of having the monopoly, of the relationships with regulators, the virtually unlimited amount of money they can have for the legal fights to promote their own mergers, to reward their executives.

All of these things come back to this idea that we’ve concentrated the power in this market within these particular companies. We need to attack it directly whether that’s even just rhetorically, like noting that and these fights in California and saying, “Look, the utility wants to quash rooftop solar because it’s a threat to their market share, to how they make money building transmission lines and building substations and transformers.” Those are the things they want to do that they profit from. So of course, they’re opposed to this. Or by bringing to the table real substantive reforms, like in Hawaii, like in this, it’s called a high DER proceeding in California. I don’t want to get into the weeds, but talking about how do we restructure the system to reduce the power of those institutions.