Beyond Big Tech: Monopoly Power & Our Democracy — Episode 129 of Building Local Power

Date: 22 Jun 2021 | posted in: Building Local Power, Energy | 0 Facebooktwitterredditmail

On this episode of Building Local Power, host Jess Del Fiacco is joined by ILSR’s John Farrell, Stacy Mitchell, and Christopher Mitchell. They discuss some of the exciting things happening in different sectors of ILSR’s work, including:

 

“I think there are a lot of people who see these issues, the issues of monopoly, and the tech companies in particular, as being really fundamental to questions of democracy, questions of how our economy works, questions of equity and liberty.”

 

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. And hello, today I am here, I’m joined by some familiar voices on this podcast. My colleague, Stacy Mitchell, John Farrell and Chris Mitchell. Welcome to the show everybody.
Chris Mitchell: Hi.
Stacy Mitchell: Really great to be here.
John Farrell: Woo-hoo.
Jess Del Fiacco: Woo, loving the enthusiastic opening. Thank you for the woo-hoos, John. So this conversation is going to touch on everyone’s work and recent events, but I think we’re going to start off with Chris. A few months ago, the Biden administration was hyping up, community broadband solutions, and yet where are we now? What’s happening? What went wrong?
Chris Mitchell: Well, there are some things that went wrong, but the Biden administration still does seem to be very much in support of both municipal and cooperative solutions. The Biden administration came out and somewhat unexpectedly said that it felt that the solution for broadband across America was structural reform and adding new competition, breaking up the monopolies effectively, I mean, breaking up is a bit of an overstatement, but at least no longer blindly supporting the monopolies and supporting more local structures that would provide a better restraint in terms of price increases and things like that.
Chris Mitchell: And they specifically cited municipal solutions and cooperative solutions. So that was tremendously exciting. And then a little bit more recently, the Biden administration’s Treasury department came out and-
Jess Del Fiacco: Hey listeners, sorry to just jump in here, but this is Jess and I wanted to let you know that after we recorded this conversation that you are about to hear, the Treasury department updated its guidance around these rules in ways that address many of our concerns. The Biden administration has been listening to the concerns of cities and has more clearly given broad discretion to cities and how to interpret the requirement to focus on areas lacking reliable broadband. We welcome this guidance as a major improvement, but still have concerns about the lack of language around affordability and believe the critique you are about to hear is still valuable and understanding how we got here. Thanks, now back to the show.
Chris Mitchell: And it had to rate rules around how the executive branch would be spending money under the American rescue plan that Congress had given the president to sign, which he did, which is 1.9 trillion includes a lot of money that could be spent on broadband. And unfortunately the Treasury department basically said, we’re going to let the cable companies heavily influence these rules and we are going to interpret them in a way that makes it much harder to spend in any area in which there’s a cable network currently.
Jess Del Fiacco: And just to give us some perspective, that means, how much area is that, if there’s sort of coverage?
Chris Mitchell: Oh, America. Yeah. 90% of America. Stacy, I want to give you a chance because you have a shocked look on your face.
Stacy Mitchell: Oh, well, I mean, you’ve been hearing that the Biden administration has been making really good appointments. It seems to me a pretty fundamental shift, so I’m trying to understand how that happened.
Chris Mitchell: I think the first thing to understand is that the Biden administration doesn’t really have a lot of people in it that are broadband experts. It has people that care about this, it recognizes it’s an important issue, but it hasn’t brought in, until more recently perhaps, people that really have a sense of how this whole industry works.
Chris Mitchell: And I think when they wrote the rules, which broadly that they encouraged cities to spend the money in areas that do not have a wireline, 25 megabit down, three megabit up connection, they use the word reliably. And I think they felt like, oh, well that means that it will pretty much include a lot of places in the United States that are in the most need. And the problem is that now city attorneys don’t know anything about broadband, don’t know how to assess this, they’re going to try to decide whether or not they’re within the rules to spend money in areas and most cable companies in the United States would claim that they can offer 25/3 reliably, which is the minimum definition of broadband for the past six years.
Stacy Mitchell: Using these little words, reliably, I mean, this is why this is the state of law and why you have to pay attention to all these little things, because you end up with things that are open to interpretation, you end up with a lot of layers on their side who can then exploit that. Yeah, it’s a really good illustration of why rules need to be clear and they also need to be very directive, not figure out if there’s a harm or figure out if there’s this. Because once you go down that road, then you have companies who are much better able to gain the system of those determinations than ordinary people are.
John Farrell: I get surprised by this kind of thing, Chris, because I wonder, don’t people in the Treasury department have experienced dealing with the cable company and don’t they understand those are not the right people to listen to about how to deliver good customer service and speedy broadband at affordable prices?
Chris Mitchell: Yeah. I mean, I am so with you on that, and at the same time understand that AT&T is a Republican company, right? It gives a lot of money to Republicans. Broadly would prefer to see Republicans in power. Comcast is a Democratic company, would broadly prefer to see Democrats in power. Joe Biden’s first fundraiser was at Comcast, top lobbyists.
Chris Mitchell: So I don’t think they necessarily view them with the same kind of skepticism that we do. And ultimately, you have people in Treasury, no one who is making the rule in Treasury woke up the morning they found out they were going to be doing that and thought, “You know what I want to do today? Broadband.” And all of a sudden they have a hundred calendar requests from lobbyists they didn’t know existed, trying to talk to them about how to set these rules. And from their point of view, they’re like, “Ah, I just don’t want to do it.”
Chris Mitchell: That’s that’s my understanding, but let’s be real about the impact here, right? The way they wrote the rules, it is, if you wanted to write a rule to make racial equity impossible, this is that rule. Because for instance, Baltimore, you have a city in which Comcast says it can deliver reliably a gigabit to every address, more or less. And yet when the pandemic hits, half of the kids in the school district do not have broadband in their homes.
Chris Mitchell: Now you’re going to ask a city attorney to determine whether or not they have reliable access without any word about affordability or anything else. It’s just awful. And I mean, I don’t know what to say about it, except for the fact that they screwed this up, they screwed it up real bad. And we talked to some of the people who were involved and you get a sense that they really don’t want to change this rule. It is an interim final rule. So there is an opportunity for people to make comments about it throughout the month of June and early July. And in theory, they will be considering those comments and changing them.
Chris Mitchell: But right now we’re looking at major cities that have massive numbers of people of color who do not have high quality internet access because they cannot afford it, or because it’s pretty clear that it’s not there. But you have a city attorney in these cases that has to decide whether or not they have 25/3 reliably and there’s no data set. I mean, Anna Eshoo, the representative from California who’s been a real champion of broadband, she wrote a letter to Treasury saying, the federal government for years has been trying to figure out where broadband is available in this country, and it has not been able to do that. The federal expert agency.
Chris Mitchell: And now you’re going to have city attorneys trying to figure out where it’s available so they can determine where to make this spending? The practical result is that you have cities that could spend five times the amount of money that’s available to them on any number of things. And they’re considering 10 projects. They can only fund two of them. And so what happens is, you attach a lot of friction to the broadband project and that one just goes away.
Chris Mitchell: And now where’s Baltimore in the future going to find tens of millions of dollars or a hundred million dollars to permanently solve this problem, to make sure that low-income communities have high quality access. It’s going to take them a heck of a lot longer. I mean, we’re hearing from small cities where they’re saying, “Yeah, we were going to invest it in our areas where there’s a lot of economic need, but instead it looks to us like we should spend it on the outskirts of town where we have million dollar homes that are far apart from each other and so the private sector hasn’t wanted to build to them.”
Chris Mitchell: And you have a Biden administration, which claims it cares about racial equity and which it is encouraging cities to leave behind the core of the city where people have been historically marginalized and instead push the money on the outskirts. Now, they would say that I’m being uncharitable or even wrong. But this is the dynamic that we are seeing when we talk to cities.
Stacy Mitchell: So just to understand this, what is the prospect that this is going to get changed? I understand they’re headed down this interim rule, final rule pathway and they don’t want to really reverse course, but this seems pretty serious.
Chris Mitchell: I think it is really serious. And I mean, one of the problems is whether you talk to people in The White House, in Congress, or even in many cases in the city councils, many of them are looking at this and saying, “All right, well, maybe that’s not really what we want it to be, but there’s this infrastructure bill coming and that’s going to be great. We’re going to hit it out of the park with the American Jobs Act and that’s going to solve this issue. So let’s not worry about it. Let’s do the best we can with this money.”
Chris Mitchell: And the thing I have to say is that, John, you and I are Minnesotans for a long time now, and Senator Franken was the 60th vote in the Senate and he didn’t get seated for many months into the Obama administration. And about two months after he did, Senator Kennedy died. And so I don’t want to hear any talk about what we’re going to do in the future, because one car accident means the Biden administration doesn’t pass another piece of legislation. And I just feel like there’s too many people, whether it’s on the local level, who are, I think, taking this quite seriously in many of the cities.
Chris Mitchell: But in other cases, I am hearing local officials saying, “Well, we weren’t going to spend that money on broadband anyway, because we’re going to get so much money from the infrastructure bill.” I just feel people do not appreciate this money is here, this money is real, it could make a huge difference. And at the federal level, the state level and the local level, people just aren’t giving it the attention that it needs to get this rule right. And I’m worried that we’re going to miss this opportunity.
Chris Mitchell: We’re still going to see some places. Like Brownsville, Texas, one of the cities in deepest poverty in the United States, they’re moving forward with an aggressive investment. They think they have the data to comport with the rule. And so I’m not saying we’re not going to see any investment, but we’re going to see half maybe of what we would have seen before. We’re going to see families, millions of families, I think, at least hundreds of thousands, potentially millions of families going without internet connections for years longer because of this screw up, unless somehow the infrastructure bill comes along.
Chris Mitchell: But the dynamic that I expect with the infrastructure bill is the same thing we’ve seen before, which is that if Republicans come on board, who knows what happens in terms of their priorities of wanting to just put money into rural areas. Democrats, on the other hand, if they want to pass it with 50 votes, they have to be entirely united. And at that point that they need to be entirely united, the cable industry just has to pick off one person. And so again, you just see this political power of the cable companies setting the agenda.
Chris Mitchell: And so I know to move this full circle to where just started us, I’m really hopeful that The White House is able to show its preferences for municipal networks and for cooperative networks. But I don’t see a politically realistic path right now, aside from getting this rule right and being able to spend the rescue plan funds in the correct way to actually achieving that, based on just the real hard politics that we’re facing.
John Farrell: Chris, just to be clear about the interim rule, this language about reliably getting service for the federal definition of broadband, which has already, if I understand your work, a little bit weak by itself in terms of what constitutes adequate connection. But if you just got to edit it, they gave you the Word doc of the rule and they’re like, “Chris, just make the change.” Do you just strike this sentence about geographic restrictions and say, “Invest anywhere and let cities decide.” And even if that means there is a cable company incumbent that cities just invest because they know already where they need to make investments, or do you try to insert language about affordability or something else?
Chris Mitchell: There’s a real issue that I think they were trying to get at, which is that if you have families that have a cable connection or some kind of broadband connection which is okay but not great, and then you have another family that has nothing, we do want to focus federal support to the family that has nothing to try to make sure that they have something.
Chris Mitchell: And so the language that’s used in the rule kind of changes what we’ve seen states doing for many years. There was this language of unserved, which means that you don’t even have up to a basic level, and then there’s underserved, which means that you have something but it’s not good enough for what we would define to make sure that three kids at home can work on school while parents are also doing their work and that sort of a thing.
Chris Mitchell: This actually uses both of those words, but it uses them as meaning the exact same thing. And so I would simply say that cities have to prioritize the unserved. People who don’t have that cable connection for the purposes of cities. And then the areas in which you may have an affordability metric or you may just say then in fact, anyone who doesn’t have what we expect to be the next definition of broadband would be considered underserved. And as long as you’re prioritizing unserved, you have authority to also build to the underserved. And that would allow broadly way for cities to make these investments.
Chris Mitchell: We’re on track to spend more than $10 billion of federal dollars on broadband support for low-income families, practically none of it will be on anything that will be around to help families once that money runs out. This will be used in case studies of government failure for years, I think, in terms of spending a ton of money without making a structural change, so that we’re going to have all of these families who, as soon as this last federal dollar is spent, they go back to not having broadband to be able to connect their kids.
Chris Mitchell: The Biden administration’s federal communications commission has chosen to interpret law to support kids getting connected in their homes, to mean that you basically have to give the money to AT&T and Verizon if they’re available. Cities can only do, and more accurately, school districts can only do what they call self-provisioning, where the school itself builds a network to connect kids. Even if that’s more cost effective, the schools are prohibited from doing that if there’s a private option available.
Chris Mitchell: And that’s the thing where you give a school district several million dollars and you can tell them either, here, use this in a way that you give most of the money to AT&T, and as soon as that money runs out, all those kids are not connected anymore. Or build a network so that when the federal money runs out, you can keep running it, because you can build networks in that way in which you can use that money to build a high quality network, and then just keep it going, whether it’s philanthropy or some other source of funds at a much lower cost in. And we’ve just abandoned that line. And once again, we see the Biden administration choosing to interpret rules in ways that are very good for the big cable and telephone companies and are very bad for the low income families that desperately need this connectivity.
John Farrell: Chris, I’m just really struck by the fact that I’ve just started reading Heather McGhee’s The Sum of Us and I’ve heard a couple of interviews about it, just really stunned by the analysis about the way that racial prejudice played into the way that we would make investments in public goods. And it strikes me in some ways that we’re seeing this play out in a similar way, even if it’s not necessarily race-driven specifically in broadband.
John Farrell: The way that you described it, how there might be cheaper public options and that we’re prohibited from spending the money that way. Her story is so beautiful and drawing this picture of all of these grand public pools. They could hold thousands of people at a time in all of these communities across the country that were basically filled in once courts said that they had to integrate the pools and that the options for everybody became more expensive because you had to have private access.
John Farrell: You might have a subdivision that had a pool or a country club or whatever, and it’s like we have this country club model of internet right now where it’s, we don’t allow public options to come in and make that broad provision of affordable access. We’ve privatized it and all these little domains and we even use the use our government to prop up those private fiefdoms rather than making public investments that might be more affordable. It’s just really stunning the way in which that racial prejudice ended up shifting the conversation to one where we are so reluctant to embrace public options, even when everybody would be better off if we did it, except for a few shareholders of these big corporations.
Chris Mitchell: Yeah, no, I think that’s [inaudible 00:17:18] and there’s so much more that I would love to go in to follow up with that. But let me just say that we have spent tens of billions of dollars in rural areas to get people connected. And we have spent, it’s hard to even call it a fraction, it’s approaching zero, to connect low-income families in cities. It’s a major blind spot. I don’t think it’s outright racial animus, but it is an artifact of the government policy that created housing policy the way it is. It makes it very easy for the officials to ignore that when they decide where to put money like this, it has a very disparate racial impact.
Chris Mitchell: And so we’ve made it permanent that spending money in a lot of areas has significant disparate racial impact even where none is intended, just because of the way we’ve constructed our cities over the years with our housing policy. And that’s where we absolutely need smarter policy to make sure we’re not continuing that history, which is awful.
Jess Del Fiacco: Yeah. I was going to go back to what John was kind of getting at with his last section about kind of having the wrong priorities and policy, the wrong incentives to do things, and ask you John about your recent op-ed that was in the Star Tribune, which talked about the big energy companies in Minnesota and other states, which basically have none of the right incentives to make energy decisions in ways that would benefit our environment or their customers because they have no competition and how that shapes their investments. So you want to talk about what you said in that piece, what your argument was.
John Farrell: Yeah. I’ll just flag that it was inspired in a way by this piece in Bloomberg News on May 21st, and it starts with the phrase, new gas plants threatened carbon hangovers. They’re talking about power plants, new power plants that have been proposed by a number of utilities, that these utilities have made commitments to reach low carbon energy goals, independent of any legislation or mandate.
John Farrell: They’ve just said, “As a company, we think it’s going to be in our best interest to reduce carbon emissions because we have all these affordable, clean energy options.” And yet these utilities in places as diverse as Texas, Florida, Minnesota, Michigan, Los Angeles, municipal utility have these gas plants that they want to construct that have a lifespan far beyond those dates when they have said that they will be providing zero carbon electricity.
John Farrell: And the challenge is really that most of these utilities, not all of them, but most of them are in states where the rules of the market or the rules of the system are set up so that they make a profit when they build a power plant, it’s called cost-plus regulation. About 35 states still use this largely as the way they regulate electric utilities, which are defacto monopoly, I shouldn’t say defacto monopolies, they are publicly approved monopolies. We as a government, a hundred years ago said, electric utilities should be monopolies because we thought it would be way more efficient than trying to have a bunch of competitors stringing wires to all the homes and businesses in our country.
John Farrell: So these gas plants, they’re going to build these gas plants that are likely to not pay back. They’re not going to be able to operate according to the utilities own claims, but as well as plenty of private research that suggests that gas plants simply aren’t going to be competitive after the next decade or so. And the reason that they’re going to do this anyway, or that they want to do this anyway, is that they will spend a billion dollars on a gas plant and they get a state-guaranteed return on that investment, a profit of nine to 10%. So they’ll make a hundred million dollars for their shareholders and they’ll get that money for their shareholders long before these plants can’t operate anymore.
John Farrell: And when they can’t operate anymore, they will close them down and likely the state public utilities commission will give them permission to collect any remaining profits from that plant operation that did not pay off in the end because there were cheaper options available. And meanwhile, the sad truth is that in most states we also allow these utilities to pass the fuel cost directly through to customers. So customers will be on the hook for whatever the fuel prices are. And I can talk a little bit more about that too.
Chris Mitchell: John, I just got to say, I was thinking about this after I saw your op-ed, and that rate of return, it was one of those things that’s interesting if you think about it. When there’s an interest rate of 3%, 4%, a rate of return of nine or 10% is good, when there’s an interest rate of 0% and the rest of us aren’t getting anything from the money we put in the bank and stuff like that, and there’s a return guaranteed of nine or 10% is crazy. It’s just so high. It’s unbelievable to me that isn’t indexed in some way to make it at least a little bit more reasonable for the ripoff that we have to deal with.
John Farrell: No, I mean, it is one of the greatest scandals that’s out in public view in the utility sector is that, these rates of return, these profits are negotiated with state utility commission, state regulators, as they have been for decades. And in the 1970s, as you say, in terms of rate of return, utilities rate of return, their profits were pretty comparable to things that you could get from other low-risk investments.
John Farrell: And again, these are very low-risk investments, these are monopoly utilities. They have no competition. All they have to do is meet some basic standards for spending money well and the utility commission will allow them to collect their profits. 40 years ago, that you could get a Treasury bond, you could make other low-risk investments and make a similar amount, right? That was a time of high inflation so they were high interest rates.
John Farrell: All of those other low-risk investments have decreased in their reward. A Treasury bond now might be two or 3% interest, for example, or lower. And so utilities now make three to four times what you could in other low-risk investments, even though they continue to be very low-risk because they are these monopoly companies. So you have that factor really playing into this of utilities are making far more than they ought to. And of course then why not? If you’re going to make a big handsome profit for doing something that’s very low-risk and you can assess all of the risk of that investment, as small as it is onto your customers, we’ve created unfortunately the system that encourages utilities to do this, even when it’s very clear that these investments will not pay off in the long run.
John Farrell: And we’ve seen in others, this is one of the fascinating things, is that some sectors of the utility business are competitive, and what we’ve seen, what are called merchant power plant operators. So the people who don’t have captive customers and monopolies, they’ve basically given up building gas plants because they know they can’t make their money back doing it. It’s only the monopoly utilities that are still building gas plants, because they’re the ones that have this expectation that regulators will allow them to make dumb mistakes and to socialize the cost of their mistakes onto customers who have no other choice.
Stacy Mitchell: It seems like we’ve just seen this, and this has been going on for years, not only the misguided power plant construction, but the full cost of nuclear… Just a bunch of other things where this whole business of a monopoly power plant that could pass along costs without actually having to have a moment where the rubber meets the road in terms of what the actual dynamics are. And you talked about in the piece, how there’s been analysis, the case of the Minnesota example that distributed approach actually makes much more sense and you could meet these future needs and so on. So what is the big picture shift that needs to happen in order to prevent this from continuing to go on forever?
John Farrell: Well, at the margins, or the first thing we can do is to make sure that utility commissions are getting enough data independently to analyze alternatives to what utilities are proposing. So what we’ve seen in Minnesota and was one of the reasons why I wrote the op-ed here, is that there’s actually been robust analysis by several non-governmental organizations that are parties to this docket, to this discussion in front of regulators, that on their own dime have paid to do an alternatives analysis and found there’s no need for this gas plant. That it would be cheaper, more reliable, et cetera, for customers, lower carbon emissions, lower environmental impact, et cetera, all of these things, if the utilities didn’t build these gas plants and instead did solar and wind and batteries and other things like that.
John Farrell: But in a lot of states there’s not that robust advocacy network that provides regulators with that information and regulators are often reactive and not proactive, and so they’re not going out there and asking those questions themselves, or it might be what they’ll say to the utility, you tell us if it’s the most cost-effective thing. And it’s really no surprise when you send the utility with that profit motive backed to doing analysis and they come back like, “Yeah, we looked at all the options and this one’s the best one.”
John Farrell: And the irony really is, and to some degree here that, utilities can still make a lot of money doing clean energy at this point. And in fact, there are some that have kind of figured that out. You look at Green Mountain Power, you look at Consumers Energy in Michigan, NIPSCO in Indiana, there are quite a few utilities that have basically said, we’re going to get rid of most of the gas plants that we had proposed to build and instead invest in renewable energy.
John Farrell: Renewable energy also has high capital costs, like a power plant from fossil fuels. And so we can make a profit doing that as well. And what we’re really looking at, and I think is probably even the most important thing is that there’s also now a lot of effective competition at the retail level, where customers can produce their own energy with things like rooftop solar, and have their own battery backup and things like that.
John Farrell: And the dynamic that really needs to shift, if we could even just get utilities talking about, let’s do clean energy instead of dirty energy, that would be a step in the right direction. But the thing that would actually make it cheaper for everybody is if we made lots of investments or allowed more customers to make their own investments in clean energy and got utilities from blocking that in many ways they do, because unfortunately the utilities not only build and own the power plants, they also control and operate the electric grid, which is where all of this kind of commercial activity could happen.
John Farrell: And so it’s very different than for example, packaged delivery, where we have public roads and lots of private competition on the roads. The electric grid, even though it’s a publicly granted monopoly, they’re controlled by private companies who are then very interested in keeping their competitors off the wires.
Jess Del Fiacco: Chris, are there any commonalities between this and what happens in the broadband sector?
Chris Mitchell: Well, I’m afraid that when I look at what John’s talking about, that some of the solutions that we see for how to fix the broadband problems we have will lead us down that path of, well, we just need more state regulation, more federal regulation, and maybe we do need to create broadband monopolies and make sure that everyone’s paying fair rates and things like that.
Chris Mitchell: And I’m not going to sit here and say there’s no benefits to that approach, but ILSR strongly believes that what we need is more locally accountable networks and that we can solve this in many ways, with some smart federal regulation, there is a role for states, there’s a role for the federal government, but that broadly we can’t count on a all-knowing regulator to solve this problem. And instead we need local efforts to establish this. And so that’s one of the things for me that I look at constantly from John’s work, is these lessons of, let’s not try to fix this by just creating more powerful regulators alone.
John Farrell: I think a great lesson, frankly, that I’ve taken from the work we’ve done in broadband is around things like open access networks. So this idea that you create public infrastructure that allows both public and private companies to compete with one another, and that’s something that’s really missing in the electricity sector.
John Farrell: We have hardly any ways that at the local level you compete, we actually, 20 years ago, we took the high voltage wires. The ones that you might see along the highway or along the train tracks or whatever, they’re on the big steel towers, though there are competitive markets and access to those, that infrastructure among the many really big players in the industry who can build power plants, but we don’t have that at the local level. The poles and wires in our backyards and the ones that run under the streets, those are still all owned in monopoly structures.
John Farrell: And even when we create laws to offer access to people to produce power on them, because the utility controls them and because they have a profit motive that is to build and own the things themselves, we often see really poor implementation or a really big delay. So Xcel Energy in Minnesota, which is one of the companies that wants to build this gas plant, has coincidentally been fined a million dollars by the public utilities commission, which is a terribly small sum of money, but at least as a really important thing and that they hardly ever find utilities for bad behavior, was fined a million dollars for stalling interconnection of customer-owned solar projects, because they are so slow at allowing other people access to the grid.
John Farrell: There’s a connection between those two that most people don’t see. And so I think one of the goals that we have is, how do we break open access to the market in different ways? And we actually had someone on our podcast, Cisco DeVries in the Local Energy Rules Podcast. He’s the CEO of OhmConnect, and in the few states like Texas or California, where they will allow this, they’re pooling together homes and businesses that have solar, that have energy storage, and they’re able to compete with the big utilities in those markets in ways that saves everybody money.
John Farrell: The people who participate get to get their bills lower because they’re getting paid to offer services to the grid. And the grid itself gets services at a lower price than it would if the monopoly utility was the one picking the way to solve the problems of the grid of the 21st century.
Stacy Mitchell: I feel like all of this is such a good illustration and lesson about ideologically or philosophically this world we’ve been living in, where you have government on one side and markets on the other. And it’s just a linear thing. You either have completely markets and competition, or you just have government-run. And that framework is so misguided in so many ways, but one of the complete failures of it is the inability to recognize that government structures markets, and therefore the smart thing to do is to figure out, well, where is the public role and what is it that we need to do to get the benefits of the market piece and just being strategic about the nuances of how these things actually work, as opposed to living in this black and white world where it’s one or the other.
John Farrell: I have to laugh and I hope this will provide a nice transition to some of what we want to talk about with you, Stacy. But we use this term platform monopolies a lot of times to talk about tech companies as though it’s something novel that happened because of technology in Silicon Valley. And it’s, no electric utilities are the original platform monopolies. They control the grid and there’s all this stuff now. This problem is that we have a hundred years ago, there really weren’t as many options and so the idea of a platform for the electric grid wasn’t as important.
John Farrell: But these days with rooftop solar that is so affordable and so competitive with the kind of electricity that utilities can offer, it’s really a crime that we continue to allow the utilities to monopolize the electricity market. And this is one of the things I think of as we try to confront climate change, and there’s so much push in the environmental advocacy community to solve these problems.
John Farrell: We often ignore the fact that the ones who caused the problem are the electric utilities and that even if it was as you said, Chris, even if we try to make their regulator bigger by getting the federal government more involved, we fundamentally don’t change the problem, which is that these utilities that exist and have monopolies have perverse incentives to not solve the problems that we want to solve.
John Farrell: Whereas if we just broke them up and said, “No, your platform, you could still have power plants and you can still sell services, but you will have to compete with other people on a publicly run or a nonprofit network.” We could see a lot more solutions come to market much more quickly in a way that doesn’t require the government to do mandates for decarbonization because some of this stuff is already so much cheaper anyway.
Chris Mitchell: I want to say regarding Stacy’s last comment, Mariana Mazzucato is just doing tremendous work about how the state and the market, there’s no bright line between them. And in fact, many of the best achievements of humankind show a blurring of that line in an intentional way. And I just can’t recommend her work enough. She’s got several books, she’s regularly doing presentations and speaking.
Jess Del Fiacco: Yeah. Thanks Chris. Thanks John. We have to move on to Stacy so we can fit her in and our short amount of time left here. But first we’ll take a short break. Thanks for listening to our show. If you’re enjoying this conversation, I have two suggestions for you. The first is that you might enjoy hearing more from Chris, John and Stacy on some of our other ILSR podcasts. They include the Local Energy Rules Podcast, the Community Broadband Bits Podcast and the Antimonopoly Happy Hour, among others. You can find them all at ilsr.org/podcasts.
Jess Del Fiacco: And the second thing is that I hope you’ll consider making a donation to support our work. You can visit ilsr.work/donate to make a contribution today. Any amount is sincerely appreciated. So Stacy, it has been a hectic few weeks in the anti-monopoly world. I don’t know where you want to start, but I’m guessing the biggest piece of news we have to talk about is the new federal legislation that aims to reign in monopoly power. So do you want to start there and then give us a little background on the bills that just came up?
Stacy Mitchell: Sure. It’s been so busy. I don’t actually know where to start. But the House Judiciary Committee has introduced five bills around big tech monopolies. And as people will recall, we’ve been watching this committee, and particularly the antitrust subcommittee, quite closely now for really more than two years. They’ve been leading the way and saying that Congress needs to act really to deal with monopoly power, to deal with both the big tech companies, but also just the fundamental problems that have crept into antitrust law that have made it ineffective because of some really bad decisions by judges over the years and the like.
Stacy Mitchell: And so this is, I think part one, of what we’re hoping will be a two-part thing. Part one is deal with the tech companies and then part two will be, we hope and anticipate the broader reforms to antitrust policy. So on Friday we had these five bills drop. I think the big headline in the bills is that there’s a bill to break up the tech companies.
Stacy Mitchell: And I know that that can sound glib, oh, we should just break them up. What does that really mean? But it is an absolutely integral part of the solution. And it really has to do with the fact that, if you are a platform, if you’re a dominant gatekeeper, by which people exchange information, sell goods and services, if you’re the gatekeeper, then you can’t also be selling and offering your own products through that gate, because it’s just, obviously there is a fundamental problem with that.
Stacy Mitchell: And the ability to self deal, to advantage yourself, to undermine your smaller competitors is just so profound that there really isn’t a way to effectively police that, to create rules around it, to prevent bad behavior. So the solution ultimately has to be breakup. And so that’s been a real bottom line for us, and we were very pleased to see that that was part of the five bills. All five of these bills have Republican co-sponsors. And we’re expecting that the House Judiciary Committee very soon will be taking a vote on all five of them. So we’re hoping that they will come out of that committee with strong support.
Chris Mitchell: I wanted to go back to, John made his point about history. I read in Barbara Freese’s book, Coal, which is a terrific history about coal, she’s a fascinating writer, that [inaudible 00:36:16] the [inaudible 00:36:17] canal, the time it was built, they outlawed the coal companies from operating the rails because they recognized that if you could extract coal and control the shipping, then you would destroy all your rivals. So the common carriage around this goes back well beyond that even. I always want to remind people, this is nothing new under the sun here.
Stacy Mitchell: That’s absolutely right. And in fact, I’ve been brushing up on banking policy as part of this process, because we don’t allow banks to also engage in commercial and industrial activities. You’re a bank you’re not involved in other types of business, period. And it turns out the history of that is very old. I think it actually goes back to England, but it certainly goes back to the States.
Stacy Mitchell: So there were some early banks that did not have those guardrails and states very quickly were like, no way, if you’re a bank, you play this crucial role for other businesses and for the whole economy and therefore that’s the only thing you get to do. And that was part of the National Bank Act in 1864, and then was subsequently reaffirmed with the Bank Holding Company Act in the 1950s. And so you’re absolutely right, Chris, we have long recognized that if you’re some critical infrastructure or you’re a critical input, you could say, for other businesses, you have a special obligation and you have really a different kind of ability to abuse your power and we have to watch out for that.
John Farrell: It feels like if you’re bringing up railroads, Chris, I can tell my story really quick about Warren Buffet. But it’s so interesting how he portrays himself as somewhat of a progressive regulator, but he makes his money in monopolies. He owns utility companies and then he buys railroads and then he buys coal mines. And then he uses the railroads to raise the prices on the coal for his monopoly utilities and to make more money for his coal mines at the same time.
John Farrell: And because the utilities are regulated, he knows that they’ll be able to pass the cost through their customers. It’s just an outrageous use of our regulatory system to do monopoly profiteering. It is really striking to think about as well. And this kind of also gets to the banking issue too and the utility sector has this overlap.
John Farrell: So Tyson Slocum at Public Citizen has been doing a lot of digging on the owners of merchant power plants. And what he’s finding is that these private firms that are essentially subsidiaries of banks like JPMorgan, they have the same people, the same phone numbers are listed as contacts as the people who are in the banking, are owning power plants and they’re also involved in being on the boards of utility companies and financing the regulated utility companies.
John Farrell: So this kind of issue of structural separation is also causing significant problems in the energy business, where it is allowing companies to double dip, to favor the each other’s businesses without some bright lines between who runs the marketplace and who owns the infrastructure and the platform.
Stacy Mitchell: Yeah. That Warren Buffet thing, I mean, it’s not just that example, I think his entire investment strategy has been to figure out where there’s monopoly, gatekeeping and to get in on a piece of that.
Chris Mitchell: [inaudible 00:39:25].
Stacy Mitchell: Yeah. The journalist, David Dan has written a number of pieces on this and we can link to them on the show page, but the whole folksy persona, not at all the case.
Chris Mitchell: Well, and what John was just saying about the private equity, we’re seeing this too, in that there’s a number of regional or even local companies that are doing very well competing with the cable companies. And they’re all getting bought up by these other companies that are backed by private equity, sometimes based in the US, sometimes global. Because there’s a sense that obviously people will pay a lot of money for internet access. The price is not regulated and the cable companies are weak and can be attacked. And so right now, one of the things we’re seeing is, there’s this threat of competition, but it’s a mirage because it’s all owned by the same people.
John Farrell: Stacy, I’m kind of curious to come back to the federal legislation. What are the prospects for this? Tell us a little bit more about what’s going to develop here in the next few months.
Stacy Mitchell: It’s going to be really interesting to see. I mean, I think we’ve certainly got a lot of activity in the Senate. I think there are a lot of people who see these issues, the issues of monopoly and the tech companies in particular, as being really fundamental to questions of democracy, questions of how our economy works, questions of equity and liberty. So I’m hopeful that, it feels like over the last couple of years, that the horizon of what’s possible just keeps getting more and more expansive. And so I’m hopeful on that front.
Stacy Mitchell: I mentioned that one of the bottom lines for us with this package around big tech was making sure that there was a breakup bill, that we didn’t just have a bill to try to regulate say, Amazon’s treatment of third-party sellers, there’s also a bill that does that, but that we clearly had a structural solution. That had to be part of the mix. So that’s been a real bottom line.
Stacy Mitchell: I think the other thing that we have been very much pushing for is that this legislation get away from an old, outdated and dysfunctional anti-trust paradigm, that has rested very heavily on outdated economic theories and economic analysis. And this really kind of brings us back to the top of the show when Chris was talking about this language around reliability.
Stacy Mitchell: So the way that people tend to want to write these laws in the conventional sense and talk about antitrust is to say, well, if it’s harm to competition, if there are these things that you can prove in terms of outcomes from the bad behavior. And the problem with that is that then you have to define, well, what’s the market? Is there really competition? Is the outcome in some future state going to be bad? Who’s it going to be bad for? Is it going to be bad for consumers?
Stacy Mitchell: So once you’re going into all of those questions, suddenly you’re doing just incredible economic analysis. So you’ve got all these economists coming into the courts and proving that, well, this is going to cause a 47 cent increase in this and blah, blah, blah, blah, blah. And of course the companies have all the resources in the world to have these economists. You’ve got judges who’ve built up this case law over the years through this total misguided approach that makes it very hard to prove these cases.
Stacy Mitchell: And so we have been in this uphill losing fight against monopoly power because of this. And so with the drafting of these laws, one of the things, the bills in the House Antitrust Subcommittee, the Judiciary Committee, we’ve been really wanting to see a move away from that, to be clear. For Congress to be like, “If you’re one of these, you can’t do that.” That there is real market problems and not to leave wiggle room for that whole process to unfold.
Stacy Mitchell: And looking at the drafts, you can see some of that new thinking, and then you can still see some of the old conventional way of thinking. And so I think we’re in a transition phase in terms of moving away from those bad frameworks.
Chris Mitchell: One of the biggest criticisms that I hear from some of the folks that I take somewhat seriously, who don’t always agree with us, is that all this antitrust stuff is just made up and there really is no guideline. And I’m not talking about just the consumer welfare center, I’m talking about everything before that, and a lot of the stuff that we want to do. And there’s this argument that it’s all vulnerable to someone like Donald Trump coming in and just trying to screw the companies he doesn’t like in favor the ones he does like, and are we able to avoid that?
Stacy Mitchell: Yeah. Absolutely. And I think we have multiple periods in our history where we can see that actually happening. I think you can see that in certain part of the 19th century, when a lot of this stuff was handled by the states, when business generally didn’t extend across state lines. And a lot of states set really hard and fast rules and were clear about the purposes, that the purpose was to decentralize power.
Stacy Mitchell: And if you have that guiding direction, then the choices that flow out of that are much clearer. And that was true, I think for a lot of the 20th century, under both Republicans and Democrats, where you were bringing a framework that said, we’re deeply concerned about power, concentration of private power. And therefore we want to always err on the side of breaking it up, dispersing it, saying no to mergers. And very explicitly considering impacts on community and producers and on all of this in that context.
Stacy Mitchell: I think the state of play now with this very economist-driven model, is very much available to be gamed, but it’s often gamed by the corporations and has created among other things, an incredibly costly enforcement system. And so you get enforcers who are unwilling to bring cases because you don’t have a clear path because of a bad case law and the cost of doing it is just extraordinary. And it’s impossible for there to be private cases brought. So I think that that has created a situation where it is much easier to kind of derail what policymakers intend.
Chris Mitchell: I just hurt myself nodding so vigorously.
Stacy Mitchell: I don’t know if I exactly answered your question, but I’m going to go with that. I’m sticking to it.
Chris Mitchell: No, you did. Absolutely. And I think that’s a big piece of it. That cost, if you can only bring one or two cases per year to stop a merger, that’s a disaster. You can’t work under that scenario.
Stacy Mitchell: No, no. I mentioned state law in the 19th century, helping to lay a foundation for this way of thinking, one of the really exciting things that’s happened in the last few weeks is that New York State, the Senate overwhelmingly approved an anti-trust bill. The session ran out and so we didn’t get it through the assembly in time, but it’ll come back next session. But that bill establishes a new approach. It’s called abuse of dominance.
Stacy Mitchell: And here, you’re able to establish under this bill through direct evidence, that a company has power. You don’t have to do all of this market definition stuff and so on. All this economist-driven analysis. And that bill will enable the attorney general to set clear rules, that if you are dominant, you can’t abuse it. And it doesn’t matter what the impacts are. So again, we don’t have to go through a long process of saying someone was harmed, how much were they harmed and all these questions. It’s just, if you are dominant, you can’t do this, period. And so it’s really encouraging, I think that bottom up kind of generation of new ways of approaching these issues.
Jess Del Fiacco: All right then. I think we’ll have to wrap up there. So thanks everybody.
Chris Mitchell: Thank you.
Stacy Mitchell: So nice to talk with you all. Thanks.
John Farrell: Thanks Jess.
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. I 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.
Jess Del Fiacco: Finally, we ask that you let us know how we’re doing with a rating or review on Apple Podcasts or wherever you find your podcasts. The show is produced by me, Jess Del Fiacco, and edited by Drew [inaudible 00:47:40]. Our theme music is Funk Interlude by Dysfunction-Al. For the Institute for Local Self-Reliance, I’m Jess Del Fiacco, and I hope you join us again in two weeks for the next episode of Building Local Power.

 

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Jess Del Fiacco

Jess Del Fiacco is ILSR’s Communications Manager. In this role, she works closely with program staff to develop and implement communications strategy that supports ILSR’s mission. She promotes ILSR’s work through the organization’s newsletters, website, social media, events, and more. Jess also hosts the Building Local Power podcast. Contact Jess for media inquiries.