Utility Rate Pair Funds Are Different From Other Companies

In this episode, utility watchdog David Pomerantz discusses all the ways that utilities use ratepayer money to lobby against the clean-energy transition — and what regulators and policy makers can do to stop it.

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Text transcript:

David Roberts

There are many features of US public life that I believe, perhaps naively, would be the subject of a great deal more anger were they better understood. One of those is the role utilities play in climate policy.

A rapid transition to a low-carbon energy system is necessary to avoid the worst of climate change. Happily, that transition is going to be an enormous net benefit to US public health and the US economy. It's good for quality of life, economic growth, international competitiveness, national security, and the long-term inhabitability of the planet.

But it’s not necessarily good for the companies that actually sell energy to customers — power and gas utilities. In fact, utilities are using every tool at their disposal to slow the energy transition, from lobbying to PR campaigns to donations to, as the last few years have demonstrated, outright bribery.

And here's the even more galling bit: they are fighting against the clean-energy transition using your money. They use ratepayer money — from captive customers over whom they are granted a monopoly — to fund their lobbying. They have effectively conscripted their customers, who have no choice where to get their power and gas, into an involuntary small-donor army working against the public interest.

It’s outrageous. In a new report called “Getting Politics Out of Utility Bills,” the Energy and Policy Institute — one of the best utility watchdogs out there — details some of this utility corruption and offers recommendations for how to prevent it. These are not futile recommendations to Congress, but actions that fall within the current powers of state regulators and the Federal Energy Regulatory Commission.

I have been ranting about utilities for years, and one of my most reliable sources on the subject has always been the report’s author, Energy and Policy Institute Executive Director David Pomerantz, so I was eager to talk to him to air some shared grievances, hear some enraging tales of utility shenanigans, and discuss what can be done to rein them in.

All righty, then. David Pomeranz. Welcome to Volts. Thank you so much for coming.

David Pomeranz

Thank you so much for having me.

David Roberts

I was thinking of you just earlier today as I saw a new story in the Washington Post about how the gas industry is under fire and it is now hiring Democratic politicians to shill for it. And I thought: "Golly, isn't that thematically on point?". So it seems like a perfect time to be covering this report. Before we get into specifics of who's done what and how to stop them from doing it, let's just start with power utilities are out there getting involved in politics. And let's just sort of discuss what is their net effect on politics. Like, what are they pushing for and against out there in the states and at the federal level?

David Pomeranz

That is a great question, and I think it will be important in context for your listeners who I am count myself as a loyal one, and I know many are thinking about climate change, and energy policy, and decarbonization, and the energy transition. And if they are concerned about those things then they should be concerned about utilities, political power and their political machines. So let's talk about what their political agenda is. And we're talking about both electric and gas utilities. Oftentimes the same companies, but sometimes, you know, there are utilities that sell gas only and electricity only. And they're all relevant to this conversation.

So, since you mentioned, gas utilities pushing back against building electrification, and that has certainly been in the news quite a lot this month, so we can start there, because that's really simple. The gas utilities sector is, with almost no exceptions, united in its aggressive political effort to stave off building electrification. They basically see that as an existential threat to their existence. They have for some time.

David Roberts

And it is.

David Pomeranz

Yeah, we can be honest about that, I think.

David Roberts

Yeah.

David Pomeranz

We'll talk about electric utilities, of course. You know, electric utilities have not only a role to play in decarbonized world and a transition from fossil fuels, but really like the very central role to play in it. And I wish they would, more of them would get religion on that. But gas utilities don't really. Their role is, they make money from putting methane gas in pipes and sending it to buildings and factories.

David Roberts

These companies that are both, you can sort of see a root out of this for them. But an exclusively gas utility really is, you know, destined for the trash bin of history, and knows it and is fighting it tooth and nail. But some of the stuff electric utilities are fighting, I don't think is as straightforward or obvious. Why they seem hostile to both distributed renewables, sort of consumer side stuff, and hostile to interregional transmission of the big power. So they seem hostile on sort of both ends of that. Why are they out doing that and how significant is their opposition to this stuff in the grand scheme of things?

David Pomeranz

Yeah, it's significant. It depends a bit on the issue. So maybe let's start on one end of the spectrum, with the things that they are most opposed to with the lease nuance.

David Roberts

Right.

David Pomeranz

And I would say that that is distributed resources, customer owned resources, like rooftop solar, and energy efficiency, which we maybe don't talk about as much as we should. But, for decades now, electric utilities have opposed those because it presents a threat to their business model, right? As you have kind of, like, in the high priest of helping people to understand this, electric utilities in our current model make money when they build stuff. If people are putting solar panels on their roof, or adopting technologies to use less electricity, either one of those kind of has the same effect on the electric utility. It means they don't have to build as much stuff. And so they make less money.

David Roberts

Yes, you're using less utility power.

David Pomeranz

Right. So they are opposed to that. And we'll talk about some of the most scandalous things that utilities, electric utilities, have used their political machines to do in the last few years, but a lot of it roots from this almost paranoid obsession with stopping the growth of rooftop solar in some places. So that's that. On the other end of the system in terms of, like, the bulk power system, it's a little bit less monolithic and a little bit more of a spectrum within the industry. So there are absolutely electric utilities who have figured out that they can make money by retiring coal plants and gas plants, and instead building wind farms and utility scale solar farms. So Xcel Energy kind of coined the term "steel for fuel" to represent that change. And it makes sense. Now, they're all kind of in a different place on that. Some have really embraced that transition. Some of the dinosaurs in the industry, like Southern Company, or Duke Energy, or Entergy, they're not there yet for a bunch of reasons that I think are largely cultural, frankly. They just have a lot of groupthink in their leadership and their C-suites, and they haven't figured out yet that that solution sort of helps their profits and also helps customers. It's really good for everyone. And so on that, there's some heterogeneity in the whole sector.

But there are companies who, utility companies, who absolutely, in the very recent past, have used their political power to slow down that transition too. So probably the canon example of that, and I think we should talk more about this because it's really such an important case study, is FirstEnergy in Ohio.

David Roberts

Yeah, we'll definitely get into that.

David Pomeranz

Sure.

David Roberts

And the transmission thing too. I think is maybe not intuitive for people just to understand that sort of, if your power generation and transmission is confined to your utility area, you're sort of stuck with the resources you have within that area. And insofar as you connect to other areas, and potentially get cheaper power, right? You lower the price of power generally. And utilities, especially the owners of those plants that are getting those sky high prices, don't want that either.

David Pomeranz

Yeah, this is really counterintuitive for people. And I think, unfortunately, this narrative has kind of taken over that the main obstacle to building the high voltage regional transmission lines that we desperately need to transition from fossil fuels to renewables, is like some farmers and ranchers and NIMBY, "not in my backyard" protesters.

David Roberts

Yes. Or environmentalists wielding environmental review, et cetera, and protecting salamanders.

David Pomeranz

Right. And I'm not dismissing those things as real. There are people, you know, there is a history of landowners not wanting transmission lines going on or near their property. But in my opinion, far less of a barrier and gets much more attention than it should compared to this really big structural barrier, which is these multibillion dollar companies that don't want to see transmission built, regional transmission. And that regional part is kind of the key when it comes to utilities. So, utilities are very happy to build local transmission. In fact, they're probably gold plating their local transmission assets because they can get it approved very quickly.

David Roberts

Yeah, super easy to get it greenlit.

David Pomeranz

Super easy. And it's a money making machine for them. The regional transmission assets, first of all, as with anything, they'll fight the opportunity for anybody to own those assets but them. So they will fight against any kind of merchant development of transmission, which takes a big piece of the market out that could make things cheaper for everybody. And, yeah, they'll fight against transmission lines that weaken their assets. So a good example of how this stuff all interacts is, there was a proposed transmission line to bring clean hydropower from Quebec into New England, and it was fought by local activists.

But also NextEra Energy paid $20 million to bankroll, very quietly, some of those protests, and to campaign against the transmission line because they own gas plants and a nuclear plant in the region, and so that imported hydro would have undercut the profitability of those assets. There's another case, that we documented on our website, about how Entergy, utility company that operates in Louisiana and in the south, they actually hired sort of an undercover operative, like a consultant that didn't disclose they were working for Entergy, to go to some of the meetings of MISO, the Mid Continent Independent System Operator, and basically kind of try to gunk up the works, and slow down development of transmission lines that would bring lower cost wind energy into Entergy's service territory. So they fight that too. They fight distributed resources, they fight competitive regional transmission.

David Roberts

And they fight the creation of new competitive electricity markets too.

David Pomeranz

Yes, for sure. So, we have competitive wholesale electricity markets in many parts of the country. The ones we have could use some reforms to make them work better for customers. Utilities certainly will fight those. But there are also places where we don't have any, and the biggest one is the southeast. And the utilities there, companies like Duke Energy, Dominion Energy, Southern Company, they are very aggressively using their political power, including paying groups with names like Power for Tomorrow, that pay former regulators to do some of this stuff, to argue against bringing an RTO to the southeast, which many legislators in some of those states have expressed an interest in, for both parties because they want to see cheaper electricity.

Large customers want to see it, because many of them want to have better access to clean energy, and a regional transmission operator would help with that. And the utilities are fighting that too. So it's really kind of up and down the system. A lot of solutions to decarbonization. Building electrification when it comes to gas utilities, certainly rooftop solar and energy efficiency, and in some cases shuttering fossil fuel assets, regional transmission... All of those are things we need, and all of those are things that in various parts of the country, one of the biggest reasons we're not getting those things fast enough, is because utilities are blocking them.

David Roberts

This is one of this genre of podcast I think of as the "you should be madder pod", and people really should be madder about this. So it's kind of wild. So, anything that sort of like, brings cheaper power, and decarbonization, and customer empowerment, like all these things that are good socially, and environmentally, and economically, and politically, name it. Everybody wants all these things, except for the companies that control electricity which are out fighting them, which is just really wild. You know, like any widget maker is gonna go politically lobby against a ban on widgets, you know what I mean?

Companies have, in our collective wisdom, we have decided that corporations are people, and have the right of free speech, and have the right to defend their interests, and whatever the propriety of that, it's a real thing. But, cannot make the point enough that utilities are not just another company, they're not just another private enterprise. So, give us that context too as well. Why? It's like, it's bad enough that the companies that control electricity are out comprehensively opposing better, cleaner, cheaper electricity. But these are not just normal companies, like, these are monopolies.

David Pomeranz

Yeah, they're basically state granted monopolies and that is a really important distinction. That's kind of everything. So, if you don't like the political position of some company that you buy some consumer product from, if you don't like the political position of a fast food company, you can buy your hamburgers from some other fast food company.

David Roberts

So you don't like the behavior of a certain Tesla executive.

David Pomeranz

Precisely. You can buy an EV from some other car company. It's getting easier than ever. But if you don't like the political positions of your utility, first of all, you have no recourse. You have to buy electricity. In some cases you have to buy gas, for the time being at least. First of all, it's interesting you mentioned how in our collective wisdom, or at least the collective wisdom of the Supreme Court, we've basically created kind of, like, an anything goes campaign finance environment. And that's meant to, if you believe it, if you give credence to the logic behind those court decisions, like Citizens United, it's meant to protect the free speech rights of corporations. I disagree entirely with the construct, but that's the construct.

What about the free speech rights of utility customers? Right? Like, if my utility is taking my money and spending it to sue the EPA, so that they can poison my air and water with impunity, that's political speech, you know? And I'm basically being conscripted unwillingly into an army of small dollar donors by my utility to fund that political speech. So there's case law about this. I'm not an attorney, but my First Amendment rights are being violated basically by compelling my speech. So that's one whole set of problems.

David Roberts

Let's just emphasize this real quick, because I don't know that we ever stated it clearly. But it is important for people to know that it'snnot just that your utility is out lobbying against your interests. And it's not just that you are a captive customer of that company and cannot get away from it, even if you disagree with its positions. It is also the case that the money you are being forced to give the company is being used for that lobbying. So you're not just an irritated bystander, you're literally paying for the companies to do this through bills that you have no choice but to pay. Which just seems like as straightforwardly.

I mean, it's a little wild to me that there hasn't been lawsuits about this. It's a little crazy that we allow utilities to do this in the first place. I don't know what the positive argument is for allowing utilities to conscript their customers into being dirty energy lobbyists. Are there not lawsuits?

David Pomeranz

There have been some challenges and we're starting to see more of them. I think, like a lot of issues, this one kind of only rears its head and becomes salient when a lot of people start to talk about it. Utility political influence and regulatory capture kind of thrives in the shadows, and that's sort of the default resting state almost, like, if people don't talk about it, it just kind of grows and grows like fungus in the dark.

David Roberts

Well, it's kind of true of electricity generally, it's true of your utilities generally. You don't have to pay attention to that stuff.

David Pomeranz

Interestingly, and this is a parallel to something you just talked about with Sage Welch on your show about gas stoves, there was more attention to some of these issues, like in the early 80s when there was a lot of skepticism and sort of public outrage about utilities for a lot of reasons. Electricity was expensive, it's coming off the back of Three Mile Island, and for a brief period, electric utilities were sort of treated more skeptically in terms of their political operations. And so, that's happened at other times in our history too, actually right after the stock market crash and the great depression in the late 1920s and early 1930s, which utilities had a big role in.

There, at that time, was a massive degree of concern about the political power of investor owned utilities. A lot of that manifested at the time in this very big struggle between a much larger question of how we would serve electricity in the country, would it be investor owned utilities or public power, which you had FDR sort of pushing for public power, so they're... Detour. But a long way of saying, there have been periods in our history where people do pay attention to utilities political power, and there is a lot of outrage over it, and there tends to be legal action and legislation proposed and sometimes passed and regulation. But outside of those moments, it all kind of thrives in a lack of attention.

My hope is that we are entering one of those cycles now, for a bunch of reasons.

David Roberts

You would think, right? Because decarbon it is, like, existential threat, blah, blah, blah. Decarbon by 2050, blah, blah, blah. Like, this is here now. And imperative.

David Pomeranz

Yeah, now is the time for it. And one other thing I would just say quickly about that is, even if your utility is doing some good things, even if your electric utility has gotten the memo that it needs to decarbonize, maybe it's still fighting rooftop solar on the side, but at least it's switching from, you know, it's retiring its coal plants rapidly and switching to renewables, which some are. This corruption and political spending that they do, particularly what they're doing with ratepayer money, and what they're doing, that often breaks the law, that's really bad when it happens by the sort of, quote unquote, "better utilities" also, right? Because you have a bunch of opponents that clean energy transition, like fossil fuel companies and hardcore conservatives, who don't believe in climate change, et cetera, say they don't, they are all looking for a reason, in very bad faith, to criticize the whole thing. So if you have a utility who is investing in a lot of wind, but they're doing it via political corruption, that also presents a huge backlash risk. So it's kind of bad in all its forms and, as you said, the worst part is that we're being made to fund it.

David Roberts

Yeah, I know. I think you could just say, and I think maybe you'd probably agree with this, it's just, it's ludicrous on its face, that publicly granted monopolies, who are providing an essential service that people cannot go without, are allowed to politically lobby at all. It's so familiar. I think we don't think about it, but it's just ludicrous that it's allowed at all. It ought to just be unthinkable. These should be technocratic nerds who follow instructions.

David Pomeranz

Just as one small example of this, to put a fine point on it, you have all these, like, sports stadiums and concert venues around the country that are named like FirstEnergy Stadium or the Dominion Performing Arts Center. And once you see this stuff, I mean, once you sort of see the elements of the utilities political machine, once you know to look for it, you see it everywhere. It's like they're sponsoring every nonprofit, they're naming every venue after themselves. And part of what I think is so funny about that is like, why does a monopoly actually need to advertise?

David Roberts

Exactly.

David Pomeranz

They're not competing for sales.

David Roberts

Exactly. They are not going to lose costumers, by definition.

David Pomeranz

Right. What does name recognition do for them? You can't leave them.

David Roberts

Exactly. Why do they need to have PR departments at all? Customer service departments, yes. PR? Why, it is crazy.

David Pomeranz

It absolutely is. And that's a great juxtaposition because most of them have pretty poor customer service and massive PR departments. And that's where it can be hard to quantify and measure the full breadth of their political machine, but that is something we try to do at the Energy and Policy Institute. And when you look at it, they are among the biggest spenders in their states on everything, right? They're always among the top campaign contributors. They're among the top lobbying spenders. Their trade associations are among the best funded and wealthiest in Washington, DC where they do all their lobbying.

And it comes back to that ratepayer question, right? In a perfect world, I think everyone would agree intuitively with what you just said, David. Like, why should they be allowed to practice almost any kind of politics at all, right? They're given this incredible privilege of getting a guaranteed profit margin and a monopoly. They should be essentially beholden to the will of our democratically elected officials. Not trying to shape it. But at a minimum, at a bare minimum, what we should do is make sure we get into some controls, to make sure that they're not allowed to supercharge and turbocharge that political machine using their customers money, right?That they're not allowed to hack off a few dollars out of your monthly bill every month and use it to pay for their public relations consultants, et cetera. And that is a relatively simple problem to solve with reforms. So that's what we're trying to lay out, how that can be done, in this new report that we wrote.

David Roberts

Before we get to those specific reforms, and kind of the specific channels of utility influence, and how they might or might not be blocked with reforms, let's just take a brief detour for some storytelling. Because I think when people hear the lobbying is technically legal, as absurd as it is for it to be legal, but people should not take from that the impression that utilities are lobbying within legal bounds here. The fact that they are allowed to do this, allowed to use customer money to do it, is practically an open invitation to corruption and how they have answered the invitation.

So let's talk about a few of the kind of higher profile examples that have come up in recent years. Because I think people, again, unless you really hear it put out plainly, it really boggles the mind, it beggars the imagination. Like, what they're doing is worse than anyone thinks. So, let's start with Ohio. I wrote a whole long thing about this and it was, what a rabbit hole! Like, every twist and turn you go, it's just nastier and nastier. But tell us what went down in Ohio.

David Pomeranz

For sure. This is a great time to talk about it. So, last week a criminal trial started for the former speaker of the House of Ohio, guy named Larry Householder. He is being charged with accepting bribes and being part of a racketeering scheme. Here's what happened. So, there's a large electric utility company based in Ohio called FirstEnergy. FirstEnergy for years had been trying to collect bailouts for some nuclear plants, and also for some of its coal plants that were struggling to make any money. They had tried with the Trump administration, they had tried with previous Ohio state governments, but they kept coming up empty and they found their guy in Larry Householder.

So, what Larry Householder is accused of, and what I should note, this is very important since they're technically allegations for Householder until he's proven guilty, if he is. But for FirstEnergy, that's not the case. They admitted to everything I'm about to say in what's called a deferred prosecution agreement with the federal government, to avoid going on trial. So they paid $230 million and admitted guilt to all the following. They routed $60 million through different dark money organizations. So technically, these are 501c4 nonprofit groups, that do not have to disclose their donors, and FirstEnergy did not have to disclose giving them money.

So it's kind of untraceable money that was then passed to Larry Householder. He used some of that just for his own personal use, which is what is at the center of some of the bribery charges. So, he like, used it to pay down a home of his, and he used it to pay for his defense in a lawsuit. But most of the money went to his political machine. So in 2018, most of that money went to elect a slate of republicans in Republican primaries that year in Ohio, that had sort of pledged their loyalty to Householder. They were actually in all these text messages that have come out through the legal process.

They're referred to as the "team Householder" candidates. And through the political power that Householder gained through the election of a lot of those folks, he was able to win kind of an internal Republican struggle to become the speaker of the House. And in exchange, his payback to FirstEnergy was to pass a law called House Bill 6, which passed, it was signed by Ohio governor Mike DeWine. It offered over a billion dollars in subsidies to FirstEnergy's coal plants and nuclear plants. Did some other things that don't get as much attention, but are pretty important. Kind of did this fake decoupling scheme where, some of your listeners probably know, but decoupling is a policy where if a utility adopts energy efficiency measures, so its customers use electricity, they can be made whole from that. This was like one reporter in Ohio, Kathiann Kowalski, described it as a spoonful of sugar without the medicine. So basically it was like, if Ohioans use electricity, absent the energy efficiency investments, FirstEnergy would still get all that money back. And that's ended up being what happened through the COVID pandemic.

So it was billions of dollars in handouts and bailouts to FirstEnergy. That's not even all of it. They also have, and FirstEnergy has admitted to this, they also paid over the last ten years, over $20 million to a guy named Sam Randazzo. $4 million of that came a couple of years ago, just before he was appointed as FirstEnergy's top regulator on the Ohio, the Public Utilities Commission of Ohio. And they have basically conceded, FirstEnergy has conceded that that last $4 million payment at least, was to influence his behavior as their regulator. And he was a big driving force behind passing HB 6.

David Roberts

That's not a small amount of money for a dude, for an individual dude. These are not small bribes.

David Pomeranz

No, they're lots of money. And in this case, we don't always know, as this money sort of works its way through the utility accounting machine, like, where it originally came from. In this case, we know, thanks to some audits and some good investigative reporting by folks in various states and some people on my team, that this was ratepayer money, at least some of it was, went into this bribery scheme. And amazingly, not even just from Ohio ratepayers. So, at this point, it seems certain that FirstEnergy also took money from ratepayers of its subsidiaries in Pennsylvania, and New Jersey, and West Virginia, and Maryland. And all of that money kind of got hoovered into this machine and ultimately came out the other side, went to these politicians in exchange for these laws.

David Roberts

Amazing. If there's one thing that could be more irritating than your ratepayer money being forced to lobby your state politicians, its having your ratepayer money be used..

David Pomeranz

Some other state politician.

David Roberts

For corruption in some other state. You don't even get the benefits of the corruption. I think a lot of listeners probably were aware of this, or followed this, or read my piece about it a few years ago, or a million other pieces. It was really just to sort of put a pin in it. This is not one of these things where lines were pushed or like, it's impropriety. This is very straightforward bribery and corruption. It's almost like charmingly old school in a way like this. Like, checks being handed over.

David Pomeranz

Sometimes there are gray areas and blurry lines, but not on this one. And another day that, David Anderson is one of my colleagues who's kind of led our investigative work on FirstEnergy. He said something the other day that it's wrong for utilities to spend their ratepayer money on lobbying and politics. They're not supposed to do that. They're supposed to spend shareholder money on that, which we can talk more about, but they're not supposed to spend anyone's money on bribes. Like, that's just straight up illegal. And that's what happened with FirstEnergy in Ohio.

David Roberts

Yeah, there are a bunch of examples in your report, and we could go through this all day, but I don't want to waste too much time. But just one other one, which I thought was also telling, is in Florida, which also involved a lot of very sort of straightforward interventions in the political system to get friendly Republicans elected.

David Pomeranz

So in Florida case, we're talking about a utility called Florida Power and Light. Also in the news lately because their CEO is a guy named Eric Silagy, who just unexpectedly announced his early retirement.

David Roberts

It's probably fine. Probably nothing going on there.

David Pomeranz

Yeah, nothing to do with anything I'm about to say. So, unlike FirstEnergy, Florida Power & Light disputes a lot of this. But it's been reported out, and it's pretty airtight, and they've kind of been dishonest throughout the process, so I take pretty much anything they say with it the biggest grain of salt you can find. What FPL is accused of having done is, they were paying some, again, their political consultants, and these consultants then routed money. Again, you see a common theme here to these dark money 501c4 groups that they basically created for these purposes.

And then, what those groups did was bankroll unaffiliated independent candidates for state legislative elections, who were designed to siphon votes away from candidates disfavored by the utility. In every case happen to be Democrats, not surprisingly.

David Roberts

Spoiler candidates.

David Pomeranz

Spoiler candidates. And in Florida, this has been referred to as the "ghost candidate" scandal because these people, it's not like, oh, we're going to fund a green party candidate because we think that'll take votes away from a Democrat. But it's like, a real person who really wants to hold the office and for better or worse, is running. These are people who didn't do any kind of campaigning.

They were candidates only on paper. In at least one case, the main attribute of the candidate was that they had the same last name as the democrat, which is useful if you're trying to knife and go to them. And it's pretty clear why they were doing this. That CEO who's resigning that I just mentioned, Eric Silagi, he said in an email to two other FPL executives, writing about one of the targets of this "ghost candidate scandal", a guy named Jose Javier Rodriguez, a democratic senator in Florida. He said, "I want you to make his life a living hell" to two other FPL executives. And it worked. That senator went on to lose reelection by 34 votes. So, in these state races that can have really close margins, this utility money has an effect, and that's just kind of the tip of the iceberg. FPL also, the same network of consultants and dark money groups and shady characters, they paid to have private investigators follow a newspaper columnist that had been critical of the utility. They paid for a network of these kind of fake news sites designed to spread utility propaganda.

David Roberts

My goodness.

David Pomeranz

They were trying to buy out a municipal utility in Jacksonville. And allegedly, these consultants paid by FBL created a nonprofit to advocate for marijuana legalization, and then offered one of the city councilors who was most opposed to this FPL buyout, they offered him, like, a very high paid job with the fake nonprofit they just created. So it's really like a whole massive political machine.

David Roberts

Pretty f*****g devious though.

David Pomeranz

It's diabolical, man.

David Roberts

I guess if you're just getting millions of dollars to sit around in a room and think of fuckery.

David Pomeranz

And that's literally what they do. I mean, in that sense, like other companies, this gets back to the monopoly business model issue. Like, other companies, their incentives as a business are to like, keep costs low, make better stuff, keep customers happy, grow revenues, whatever. All of the utilities profit is determined by the regulatory system, like by their public utility commissions, or appointed by governors and nominated by legislators, et cetera. So, their biggest incentive is to game all that. So that becomes the focus of the company. I mean, anything they can do. And, I think some leaders of some of these companies have maybe better ethical systems than others.

But the incentive structure is for them to do anything possible, short of getting caught by law enforcement officials, to game the system in their favor. And so, we don't need to go through all the examples, it could be hours. But it's not just red states. It's not just Florida and Ohio. ComEd in Illinois, they got busted by the department of justice and paid a 200 million dollar fine for a patronage scheme with the speaker of that House. This has happened really all over the country, and I think people hear the first energy story in Ohio and think, "oh my God. Well that's got to be the bad apple". And I'm not sure that's true. I think they're the ones who were the most egregious and got caught the worst, but if it's a difference, it's maybe a difference of degree, but not of type. Most utilities are engaged in some version of this behavior.

David Roberts

Just to reiterate again, this behavior is not just lobbying. There's weird trade groups, there's dark money groups, there's weird public relations campaigns that are not traceable back to the utilities, there's advertising. It's really a full spectrum of fuckery going on. All of which seem sort of inevitable, based on the structural incentives. I'm sure these are a lot of scummy people involved, but if you set things up this way and make it legal for them to do this, of course they're going to do this. So one other question before we get to solutions is just insofar as these things get caught, are the punishments or the threat of punishment enough to deter future examples of this?

Does anyone get strung up as an example or how far behind are lawmakers on this?

David Pomeranz

Very far behind. Unfortunately. This is actually one of the main solution sets, is around deterrence and enforcement. But that's really a missing piece of the puzzle. And I'll give you an example of how broken this is in Ohio. Let's look at what's happened to FirstEnergy. Now, the biggest penalty they've probably actually had to pay is with investor sentiment, right? Like shareholders in the company are a little bit skittish and certainly their stock dropped after the scandal, after this CEO of Florida Power and Light just announced his unexpected retirement. Next area of the parent company, their stock dropped by about 8% that day.

They may recover some of that or all of it, but they do have some price to pay on Wall Street because investors I think the sort of unspoken secret among utility investors is they see regulatory capture and utility political power as a good thing right up until the point they get caught. For them, it's like, yeah, of course we want you to control the political environment. We want you to have the Euphemism is like, good relationships with your regulators. But they don't I think they kind of are happy to hear encino evil in terms of how that happens, but they certainly don't like when it leads to, like, FBI raids and Department of justice investigations.

So there is a price they have to pay there, but the bigger price ought to come from the political system, and that has not happened. So just taking a look at FirstEnergy a rational response to what they did in Ohio, which was essentially a full scale takeover, a full scale purchase, essentially, of the legislature that's supposed to be democratically elected. I think a rational proportional response to that would have been at least exploring the idea that First Energy should should lose its charter to operate, like should lose its monopoly, find another utility that can provide those services to Ohioans. Because I would argue First Energy has lost the right to be considered for that.

That would, to me be a rational response.

David Roberts

It's hard to think of what would justify that if not this.

David Pomeranz

I agree.

David Roberts

What would be worse? I mean, totally.

David Pomeranz

And no one with power has proposed that. I mean, people like me talk about it all the time, but no one in power to do it in Ohio has proposed that. Instead, what we've seen is really a complete abdication. First of all, they haven't even fully addressed the law that was passed via these corrupt means. So the nuclear subsidies were rolled back from HP 6, but not the coal subsidies. Those are still rolling. That law I didn't even mention it before, but that law also stripped the very meager sort of renewable incentives or renewable performance standards in Ohio.

David Roberts

I remember.

That hasn't been returned. So they didn't even address kind of the law that was bought with it. But in terms of consequences, there's been almost nothing. The Public Utility Commission of Ohio, they say that they have some ongoing audits and investigations of FirstEnergy, those are on hold until the criminal investigations are over. We'll see what comes of that, if anything. Interestingly, they did have to pay this $230 million payment to the Department of Justice to avoid prosecution. But we should just put that in perspective. The company made $11 billion in revenue in 2021. $230 million is significant, but it's less than the ill gotten gains they got from HP 6. I mean, that was billions in subsidies.

Way less.

David Pomeranz

Just as one indicator of how broken our enforcement machine is on this stuff. Interestingly, before the HP 6 news exploded, like, before there were indictments and criminal charges, FERC, Federal Energy Regulatory Commission, they had just started an audit of FirstEnergy's Accounting practices. And not surprisingly, in that audit, FirstEnergy did not disclose to FERC the portions of the Excel spreadsheet that showed the bribe payments. They sort of left that out. So just a few weeks ago, actually, FERC announced that it was finding FirstEnergy for violating its duty of candor obligation with the commission, because when you're audited, you're supposed to provide all those documents.

They didn't tell auditors about $90 million in lobbying expenses, 70 million of which were dark money payments involved in that bribery scheme. For that violation, they fined FirstEnergy $3.9 million.

David Roberts

Oh my God.

David Pomeranz

And they said, well, this is kind of a fair and equitable fine based on our practices, but that's $4 million.

David Roberts

Householder got more than that. Personally, bribes, never mind the rest of it.

David Pomeranz

It's a $4 million penalty for lying, about $90 million, much of it spent on a corruption scheme that netted billions for the company. So to call it a slap on the wrist is kind of an insult to slap on the wrist. And the way regulators treat this right now, it's interesting. Public Utility Commissions and FERC actually have a lot of statutory power to fine utilities. That is like a key component of what it means to be a utility regulator is that, if you want to, you can penalize them. FERC has authority to find violations that utilities commit in its jurisdiction up to a million dollars a day for every day that they're in violation.

But they almost never use this authority. I mean, occasionally FERC will use it in cases of really, really egregious market manipulation. But on this stuff, I'm like lying or sort of quote unquote, "mistakenly charging customers for political expenses", that's almost never fined very, very rare cases, and the fines are very small. And when they do catch it, what they say is like, okay, well, you got to refund the money to Raypayers. But that's sort of like telling somebody who robbed a bank if a cop caught a bank robber mid act and said, "Oh, you know what? Just put the money back in the vault and we'll call it a day". That's basically the way regulators treat this kind of misbehavior. So there's almost no deterrent.

David Roberts

Which is to say, even from the perspective of today, what FirstEnergy did was perfectly rational and business positive. And if I were a FirstEnergy investor, I'd be like, "Nice work, do it again". There's no reason not to do it again. They get so much more out of this than anyone penalizes them for, even if they are caught. So in terms of maximizing shareholder returns, it just seems like perfectly rational behavior on their part.

David Pomeranz

And they're the ones who got caught, which is the minority, I think. Obviously, we don't know what we don't know.

David Roberts

Right.

David Pomeranz

But FirstEnergy, at least had to suffer some consequences. Like they've gone through two CEO, they fired the CEO who was responsible for much of this, and the next CEO didn't hold his job terribly long, they've had some board turnover.

David Roberts

I'm sure those guys are suffering, David. I'm sure they're on the soup line now, regretting their choices.

David Pomeranz

That's a great point. But to the extent they've had any consequences at all, it's only because they got caught and other utilities are not, or they're caught doing things that are deemed to be just on the right side of legal. So, as an example, Michigan Utilities, not caught in as much attention because there haven't been criminal charges, but they've spent tens of millions of dollars on dark money operations to control the political environment in their state and even in others. I mean, DTE Energy is a Detroit based energy company. They own some biomass plants in California as part of their unregulated part of their company.

And they routed money through a dark money group, which ultimately ended at a national laboratory, which put out a report talking about how those biomass plants would be great candidates for carbon capture and sequestration, which is what DTE is trying to do. So none of that has been prosecuted. None of it's been caught. We've tried to expose some of it. Sammy Roth at the L.A. times wrote a great story about that scheme. And and I should say, by the way, just quickly, as an aside, there are reporters around the country who are working tirelessly to expose this kind of corruption.

Too many for me to name individually, but they're really doing an incredible service to not just energy customers, but to democratic institutions that these utilities are undermining. But your central premise is, right, just a newspaper article or two. And even when there have been criminal prosecutions, the consequences are too low to deter utilities from doing this. And part of the reason we know that's true is because they keep doing it.

David Roberts

Yeah, proofs in the pudding. So with our time remaining, then having griped about this, which is deeply gratifying to me, as you know, griping about this for many years now, let's talk about what can be done. Obviously, in a sane world, in a country with an operational federal apparatus, which you'd like to see is Congress to act, right? I mean, Congress could just write a law saying utilities can't do this anymore, period, full stop. And that would be nice. As we know, Congress doesn't work, et cetera, et cetera. Half of them are bought by utilities filibuster, on and on, usual.

So we're left basically looking to either federal agencies, that Biden can control, or state governments. So what can those entities do that would have some actual bite and then some effect?

David Pomeranz

Yeah. A lot, thankfully. So that's what our new report is about. And usually the stuff that we do at EPI is just kind of like, try to expose and document all these problems. But we've been spending so long doing that, and it does seem like people care that we wanted to at least take a stab at saying, here's what we can do about it. And there's basically three things. One is having utility regulators. So this is mostly Public Utility Commissions simply pass rules and clarify the existing rules to close all these loopholes and just make clear that utilities cannot spend their ratepayer money on any kind of political influence activity and then define that activity really clearly.

By the way, if you ask utilities right now, they would say, "Well, we don't spend any ratepayer money on politics. We certainly don't spend any ratepayer money on lobbying." But that's just sort of fun with words, like, the way they define lobbying as the narrowest possible definition. And even then they're not actually following those rules, which we can get to how you prevent that problem. But the first thing is to make those rules airtight. So define, Public Utility Commissions can define all of these different kinds of politics lobbying, PR machines, advertising, political advertising, regulatory lobbying, where you're going to regulators and asking for stuff, all of it, and say you cannot use customer money for that.

If you want to do it, you can do it out of your own profits.

David Roberts

Two things. One is, so any PUC can just do this now. PUC has the regulatory authority to just do this. Now, my only question is how easy is it to distinguish utility ratepayer funds from utility, I don't know, like investor...

David Pomeranz

Profits? Yeah.

David Roberts

Profits. I'm sure there are all sorts of ways of muddling those.

David Pomeranz

There are. And that's what happened in the FirstEnergy case. I won't bore you all with it. But the answer, is it's hard to distinguish. And so that's what gets into the second leg of this tool.

David Roberts

I mean, why not just say don't do it at all with anybody's money?

David Pomeranz

That would be the perfect world. So that is something that a public utility commission couldn't do by itself, but a state legislature could. And we've seen some efforts at this. I think it's politically a bigger lift, but that doesn't mean it's not possible. There's nothing stopping a state legislature from trying to say "Utilities are different from other kinds of companies, and we think they shouldn't spend any money on politics". And clearly define what that means. Usually in the wake of big scandals, there have been some legislators, state legislators, who have proposed bills like that, like after utilities in South Carolina tried to spend billions of dollars on a nuclear plant and just built the world's most expensive piece of pipe art.

There were some legislators who proposed bills like that. I would love to see more of it. I think those kinds of bills will run into challenges in the courts, given our current campaign finance rules, but they're worth trying. And I'm not a constitutional law scholar by any means but there is reason to believe that, I think there is legal justification to treat utilities different than other companies when it comes to campaign finance.

David Roberts

I mean it's an interesting legal question because utilities sit in this really weird ontological space like they're companies. They're kind of private companies, kind of not, kind of public, kind of not. Has it been hashed through the courts whether they have all the same rights of expression as truly private companies?

David Pomeranz

I don't think it has. I'm going to get out over my skis pretty quickly talking about legal stuff. But one thing I will say, interestingly, just as a note, that maybe will pique folks interests, in the Citizens United case, the liberal justices in their minority opinion argued that the framers did not think corporations should have kind of unfettered speech, and they're different from human beings free speech rights. And of all people, Justice Scalia's rebuttal to that. He actually said well when the framers said that kind of stuff they were talking about state chartered monopoly corporations and that might be true for them, because, at the time, we had, that was common then, corporate structures were very different 300 years ago.

So comments like that do sort of open the door of this tantalizing question like, should there be legal efforts to try to treat monopoly utilities as fundamentally different? Like you said they operate in this different space., they're not like other private free market companies. Should they be treated differently from a campaign finance perspective? And I think if there are constitutional lawyers who are listening to Volts I hope they will explore that question because it's ripe for that.

David Roberts

But don't you just think like whatever the legal merits, our Supreme Court will end up getting it and doing whatever is corporate friendliest regardless of the legal merits? I mean, law feels so futile these days.

David Pomeranz

Yeah, well I'm certainly not optimistic.

David Roberts

But PUCs are squarely within their rights to say "Don't use ratepayer money".

David Pomeranz

Yes, absolutely. So that's sort of why we start there, it's just because it requires no systemic changes, no constitutional challenges, it's really simple for PUCs to say "No ratepayer money on politics".

David Roberts

And that is because, by law, utilities are supposed to spend money in whatever the most just and reasonable.

David Pomeranz

Reasonable. Exactly.

David Roberts

And so this would be under that provision basically saying it is not fair and reasonable to spend money this way.

David Pomeranz

That's exactly right. And then the challenge becomes, as you said, okay well, we can say that but how can we tell which money is very fungible? How can we tell which pot of money this political activity is being funded by? And so that requires basic transparency and disclosure reforms. So, right now, if you want to know whether a utility spend ratepayer or shareholder money on a given activity, the process basically is to wait for the utility to go in for a rate increase, and then there's a sort of quasi judicial rate case. And if you have money and can hire a lawyer, you can intervene and get status to be an intervener in that rate case, and then you can ask discovery questions with the utility and try to find out how that activity was funded. Now, to be clear, like groups do this. Earthjustice, they do an incredible job of that around the country. Sierra Club does that. Consumer advocates in every state try to do that. They're trying to protect consumers from that, but they're totally outgunned. And some utility companies don't have rate cases for five years or longer. Alabama Power in Alabama, they haven't had a legally contested sort of open rate case with public intervention since 1982. So who knows what they're spending money on.

So what we need is basically, the solution to this is having annual line item granular disclosures that utilities are made to file with the PUC in all of these areas. So anything that is vaguely political, or even adjacent to political, PUCs should be requiring them to basically submit a spreadsheet every year that says what they spent, where the money came from. And then you can kind of check. So that the first step is to make sure the rules are strong. The second step is to have these disclosures, so that you can verify that companies are following the rules.

And the third step is enforcement. So this is what we talked about before, so I won't dwell on it. But if you make the rules strong, so the utilities know them and they can't say that they screwed up by accident, and then you have the disclosures, so that members of the public or regulators can catch if they screwed up, and they did screw up, or they did break the law and they charged ratepayers for some political activity, then there have to be consequences. Otherwise there's no deterrent. And those consequences should be severe. So we're arguing, like, if a utility takes a million dollars of ratepayer money and spends it on, you know, what political trade association or some kind of politics that they're not supposed to, they should have to return that money, and then be fined, like, at least that million dollars and probably a lot more to make the deterrent adequate. So those are kind of the three steps. We've got better rules, better disclosure, better enforcement.

David Roberts

Right? And is enforcement, at least what's available today that we know works, is that mostly just financial? Is that mostly just fines? Are there other potential consequences? Because for a company like FirstEnergy that's doing billions of dollars of business and lobbying on behalf of billion dollar nuclear plants, there's just unfathomably large amounts of money being deployed here. And I'm just trying to imagine the size of fine that would compete with those amounts of money for their interest in there. You know what I mean? Can fines even get big enough?

David Pomeranz

It's a really good point. Well, I think one answer is let's try some really big fines and see how they work.

David Roberts

Let's give it a world.

David Pomeranz

Let's give it a college try. But I do agree with your premise there that some corruption, some kinds of behavior, are so bad enough that it is hard to imagine a dollar figure that could adequately deter, especially when they're all counting on not getting caught. And so, in that case, I do think this probably would be something that a legislature would need to do and would be difficult for a PUC to do unilaterally. But I do think in cases like FirstEnergy, public officials in Ohio ought to consider whether the company should be allowed to continue to operate in its current form there. So that can all be part of enforcement as well.

David Roberts

What about a legislature saying "This balance of public and private that we tried in investor owned utilities clearly isn't working, so we're just going to make you public, make you into a public utility". Has anyone tossed that out there? Is that even on the table?

David Pomeranz

I think so. People are talking about that. I mean, there are movements of people where I live, for instance, in California, who's basically suggested it's a little bit different than these political issues, but they've basically said that PG&E's criminality with regard to starting these devastating fires has been so bad that the only solution really is to have them be converted into a public power entity. There have been similar efforts like that in different pockets of the country. There's one ongoing right now in Maine, and a lot of that I think is inspired by this problem. If you talk to advocates of public power, they will say that we just can't trust these investor owned utilities to not run these political machines that threaten the integrity of our state government. And I'm very sympathetic to those views. I'm not sure if that solution will work at scale everywhere. And it's also worth noting, like public power entities aren't perfect, they also require good governance and good accountability. All you have to do is look at TVA.

David Roberts

I was going to say, and they don't necessarily perform better. I always sort of caution people about that. Like, the issues that dictate good or bad performance don't necessarily line up with public and private. But it does seem like, at the very least, if it was a public utility, it would have less structural incentive to cheat and lie. Do you know what I mean?

David Pomeranz

I think that's true. I agree with that. And so I think that option should be on the table in places where that makes sense. I'm all for people pushing for it. It's a much bigger lift, obviously.

David Roberts

Yes, all of this is pretty tough.

David Pomeranz

It is. Although, just to back up to some of these changes that would be easier for a single public utility commission to do, or a single state legislature. The kind of stuff that we're outlining in this report, I don't think it would solve every single problem when it comes to utility political machines. But something is better than nothing. The status quo is pretty bad. So let's start trying things. And these are all doable within the current system. Some of them are being explored now. So just as some bright spots, some examples. The New York state legislature recently passed a law that banned utilities from charging ratepayers for any trade associations that lobby.

I think that's progress. FERC has an open proceeding. So, inspired by a great legal challenge from the Center for Biological Diversity. So yes, who's doing lawsuits? Who's doing legal challenges on this stuff? Center for Biological Diversity has an energy justice program with great lawyers that are doing some of this. So they petitioned FERC to take a look at some of this, and FERC opened an inquiry, they got lots of comments. Everybody other than the utility said, "Yeah, we need some accounting changes and some new rules and some better transparency to prevent utilities from charging customers for trade associations, for politics, for their politically motivated charitable giving, for all that stuff".

Interestingly, even people who I don't agree with about anything agree on this. Like oil companies actually as electricity customers, weighed into the FERC docket and said, we would prefer not to pay for their lobbying. Also that happened, and FERC can act at any time. So you mentioned through federal agencies, FERC is meant to be independent, for commissioners are appointed by the President, but they don't act in his direction. But FERC can do this anytime they want. They've had this notice of inquiry proceeding. It's been responded to by all parties. They could draft a rulemaking that makes it harder for utilities to supercharge your political machine on rates.

And there are some individual public utility commissions who have disallowed some things, who have done some aggressive disclosures. So we point out those examples in the report. People should check them out just to show like this is possible. And our hope is that more PUCs and legislators start proposing these things and we'll see what comes of it.

David Roberts

If you're just a listener out there and you didn't realize how bad this is and are now mad per the you should be mad or about this episode, they just listen to what can people do? Is there a particular organization that's working on this? Or is it just a matter of contacting your own state's PUC or writing your legislature? Is there a place to sort of centralize this work that people can go just support?

David Pomeranz

Good question. Well, they can learn more about it at our website. So that's energyandpolicy.org. We focus pretty heavily on this stuff. In terms of groups that are taking action, I'd recommend a couple Center for Biological Diversity, as I mentioned, they are doing some great legal work on this. There's a group called Solar United Neighbors who works with rooftop solar advocates and customers, but they have operations in a lot of different states, and they have a national advocacy program, and they are invested in creating some of these kinds of changes. And then if you're not sure, like, those groups have ways in for you where you live.

The Sierra Club is involved in Public Utility Commission proceedings in most states, and they're very much invested in attacking utility political power. So that's another organization that folks can check out.

David Roberts

Yeah. And worth saying again, as I've said so many times over the years, PUC meetings are pretty sleepy. You're not going to be standing in a long line to get in one of those. So a little bit of noise goes a long way. Especially relative to a lot of other places you could make noise, like, they don't get a lot of noise there, so they care.

David Pomeranz

I couldn't agree more. These parts of state government that are responsible for regulating utilities, they're not very well known. And for people who want to become active, they can do a lot as a single person. I'll give a shout out to one activist in Arizona, a woman named Stacey Champion, who pretty much working independently, she's a very skilled person, but she didn't have lots of backers or anything really helped to bring Arizona Public Service, a utility that was behaving very badly in that state, to heal over the last years just by getting lots and lots of attention and doing great organizing work and campaigning.

So it is a place where people can make a difference and everything's harder alone. So they just kind of need to find some people who are willing to work with them on it.

David Roberts

Awesome. Okay, well, thank you so much for coming on and walking through this. It's like with so many things like you, listeners, probably vaguely know that it's bad, but it's way worse than they thought. So, David Pomeranz, thank you for coming and sharing this with us.

David Pomeranz

Thank you so much for having me.

David Roberts

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