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Power Play

Why Your Utility Company Sucks

Companies that run the electrical grid have long been accused of anti-competitive and abusive practices. Now a massive coalition of 235 organizations is pressuring the Federal Trade Commission to investigate them.

Don and Melinda Crawford/UCG/Getty
An electric utility lineman at work

The United States will be asking a lot of its electric grid over the coming decades. Everything from home heating to transportation will need to move to the grid, as a system built to distribute electrons out from a central source transforms to accept them back from millions of rooftop solar arrays—all as it swiftly excises coal and gas and weathers the climate crisis those fuel sources have already created. Given the magnitude of the task ahead, it’s understandable that people are asking questions about how electricity is governed. Right now, the vast majority of the U.S. grid is managed by companies that have had regulatory capture and rampant corruption baked into their business model.

This week, 235 organizations—including nonprofits Solar United Neighbors, the Energy and Policy Institute, the Institute for Local Self-Reliance, the Center for Biological Diversity, and the Open Markets Institute, as well as a variety of consumer and anti-monopoly advocates, environmental groups, and rooftop solar companies—submitted a petition asking the Federal Trade Commission to open an investigation into investor-owned utilities’ anti-competitive practices and violations of consumer protections. Specifically, they’re asking the agency to explore “unfair competitive actions that harm clean energy competitors, including consumers generating their own renewable electricity” and “unfair and deceptive acts, including corrupt dealings and voting interference, that enrich utilities and ultimately drive up consumer electricity rates and decrease consumer choice.”

“Decarbonization has to run through electric utilities,” said David Pomerantz, executive director of the Energy and Policy Institute. “It seems really important that those same utilities at the center of our vision for the future of climate action not be allowed to corrupt regulators and policymakers wantonly. So we have to solve those things in parallel.”

Electricity utility governance in the U.S. is built on a bargain struck more than a  century ago with a burgeoning class of robber barons. In exchange for submitting to state-level regulation, highly concentrated investor-owned utilities—fierce competitors with public power providers—would receive a monopoly over massive service areas. Public utility commissions (or PUCs, as they’re still generally known) would ensure those for-profit utilities provided reliable and affordable service, and executives could use the rates charged to their customers to fund new infrastructure, like generation plants and power lines. That bargain also served to legitimate the then-controversial idea that people deserved to get fabulously rich off providing an essential service.

There have been many changes to utility law in the intervening years, but problems remain endemic. As comedian John Oliver noted in a recent Last Week Tonight segment, “Just Google your utility company right now and the word scandal, and chances are they’ve gotten into some major trouble.” Ohio’s FirstEnergy is the subject of an ongoing FBI probe over a $60 million bribery scandal in which the company essentially bought seats in the state legislature to funnel itself a $1 billion bailout. The groups petitioning the FTC point out that such dynamics have also slowed down the energy transition: Utility companies, they write, have blocked out third-party solar providers, charged higher rates to ratepayers who install solar panels on their homes, and failed to provide such solar-using ratepayers with hook-ups to the grid.

Investor-owned utilities have slowed the energy transition in other ways, as well. They can take, and have taken, advantage of tax giveaways for carbon capture and storage, or CCS, to spend exorbitant sums to attach carbon-sucking machines onto coal- and gas-fired power plants, for example, rather than making plans to shut them down. That’s come at a direct cost to consumers. Although renewables are a far cheaper, more efficient means to reduce emissions, utilities can simply pass the cost of new CCS infrastructure onto their customers and reap the rewards—whether they actually manage to capture carbon or not.

As Pomerantz told me, utilities have tended to be hostile to federal regulation, preferring to point to PUCs as providing all the oversight they need. Yet utilities spend huge amounts to manage the PUCs that are supposed to be managing them: The Arizona Public Service—the state’s largest electric company—spent millions via dark money to buy seats on its state utility regulator, the Arizona Corporation Commission. In states that haven’t outlawed the practice, ratepayers also inadvertently fund trade associations like the Edison Electric Institute, which have in turn funded climate disinformation efforts and lobby against clean energy provisions at the state and federal level.

The call for an investigation builds on the example set by the FTC not long after investor-owned utilities were awarded their monopolies. By the late 1920s, just 10 holding companies, comprising assets across multiple states, controlled 75 percent of American electricity. Samuel Insull—an electricity magnate and key architect of the regulatory bargain that governed his industry—owned 12 percent. And because it simply wasn’t profitable to build lines out to poorer households outside of major population centers, some 90 percent of rural residents lacked electricity.

As the FTC investigation starting in 1928 helped uncover, Insull’s business model looked a lot like a pyramid scheme: Under the premise that their electricity would be “publicly owned,” Insull had recruited “widows and orphans” to buy up stocks in his company that they assumed would be safe investments given that they had the backing of state regulators. To spread the gospel of private utility ownership, utility executives built a remarkably modern public relations operation, with annual budgets as large as $30 million, or $380 million in today’s dollars. Boxes of documents made public by the FTC investigation showed investor-owned utilities had bought off newspapers, union leaders, and academic departments and infiltrated Rotary Clubs. They sponsored elaborate propaganda campaigns targeting students from kindergarten through college, which cast public ownership as a plot by “Bolsheviks” and “parlor pinks.” After the stock market crashed in 1929, Insull’s creditors buckled and the pyramid collapsed, wiping out tens of thousands of shareholders and sharpening rage against the utilities.

Popular ire at the investor-owned utilities prompted Franklin Delano Roosevelt to campaign on widening public options for electricity, eventually creating the Tennessee Valley Authority and rural electric cooperatives through the New Deal. The conclusion of the FTC’s investigation—in which it repeatedly called the industry’s practices “evil”—led to the passage of the Public Utility Holding Company Act of 1935. PUHCA (pronounced “puka,” like the shells) significantly limited the scope of electric utility holding companies and added reporting requirements, mandating that utilities operate only in contiguous service areas. The 2005 repeal of that law—part of a longer wave of deregulation that took off in the 1990s—helped to clear the way for the reemergence of the type of holding companies that inspired it in the first place, with entities like Southern Company having spawned new arms that exist in something of a regulatory gray area.

In theory, the Federal Energy Regulatory Commission could increase regulation of the grid through its limited federal oversight, as could state regulators, Pomerantz explains. “But the broader point,” he tells me, “is that the more consolidated the industry is and the larger the holding company empires, the easier it becomes for those companies to hide the ball from any of their individual regulators. And the harder it becomes for any individual public utility commission to track money and rein in abuses.”

Those bringing the petition don’t have a particular regulatory or legislative outcome in mind, and the FTC wouldn’t be the agency to write or enforce regulations anyway. But the groups say some kind of deep transformation needs to happen, fast, to respond to the challenges of the twenty-first century. An investigation would be only the first step. PUHCA, the result of the last investigation, “was designed to solve a very different set of problems from 100 years ago,” Pomerantz said. “We probably need a very different set of laws to solve our problems today.”