Representative Kathy Castor (D-FL) introduced legislation last week that directs the Federal Energy Regulatory Commission (FERC) to prohibit utilities from recovering political expenses from ratepayers. Representatives Sean Casten (D-IL) and Jamaal Bowman (D-NY) cosponsored the legislation. Each of the legislators has had utilities in their home state involved in political scandals, with some of the utilities forcing customers to subsidize their political activities.
ComEd, an Exelon subsidiary, was ordered by the Illinois Commerce Commission last year to refund $38 million to customers for using ratepayer funds as part of a bribery scheme detailed in the utility’s 2020 deferred criminal prosecution agreement with the U.S. Department of Justice. ComEd admitted to participating in a years-long bribery scheme in Illinois in which the utility arranged jobs and contracts for associates of then-Illinois House Speaker Michael Madigan to influence and reward the official for his efforts to pass legislation favorable to the utility.
In Florida, NextEra Energy’s Florida Power & Light spent millions of dollars on political consultants who engineered a scheme to siphon votes to third-party “ghost candidates” who were recruited to appear on the ballot for competitive state Senate seats without actually running, according to reporting by the Orlando Sentinel. The utility-backed effort targeted legislators who were trying to hold the utility accountable, the Sentinel reported.
And New York gas utility National Fuel reportedly made its customers pay for advocacy materials that directed them to oppose pro-electrification policies.
“Electric utilities should be prohibited from using ratepayer money to bankroll their political slush funds. FPL used shady tactics and dark money to hijack elections, mislead voters and steal elections, and it is time for it to end,” said Rep. Castor. “In fact, the numerous public corruption scandals involving electric utilities across the country require federal action immediately. Utility companies should be operating in the best interest of ratepayers, not raising electric bills to bankroll deceitful political activities and block clean energy.”
The bill instructs FERC to amend the Uniform System of Accounts to ensure electric and gas utilities place expenses in accounts that are presumptively not recovered from ratepayers and instructs FERC to make sure ratepayers are not charged for those expenses. The prohibited expenses include any activities that directly or indirectly influence:
- Federal, state, or local regulations, legislation, or ordinances – or repeal or modification of existing ones
- Elections or appointments of public officials
- Approval, modification, or revocation of utility franchises
- Public opinion with respect to federal, state or local regulations, legislation, ordinances, elections, referenda, or rate setting
- Decisions of federal, state, or local government officials
Advertising, marketing, or public relations expenses designed to influence public opinion, increase goodwill, improve reputation, promote utility services, and expenses relating to attendance or participation in any formal proceeding before a regulatory commission are also prohibited from recovery.
The legislation also directs FERC to ensure utilities do not recover costs for dues or fees paid to trade associations or industry associations, and 501(c)3 or (c)4 organizations.
The legislation requires utilities to submit to FERC a report that itemizes the covered expenses and payments to outside services or vendors, and details payments with respect to administrative and general expenses to assure compliance and add transparency within the industry. Utilities would have to detail billing details for payments related to political activities made to a centralized service company, parent company, another affiliate utility, or their own employees.
In addition to the ComEd, FPL, and National Fuel examples, a bribery scandal involving FirstEnergy, a utility company based in Ohio, has drawn attention to utility industry influence and corruption over the past several years. The utility corporation, which has subsidiaries in Ohio, Pennsylvania, West Virginia, Maryland, New Jersey, and New York, paid $60 million in bribes to then-Ohio House Speaker Larry Householder’s political organization. In return, the utility secured a $1 billion ratepayer-funded bailout of several of its unprofitable nuclear and coal plants, and a provision that guaranteed the profits of FirstEnergy’s Ohio utilities at ratepayers’ expense. Investigations, audits, and court proceedings revealed how FirstEnergy used improper accounting methods and collected money from ratepayers that went toward its political efforts.
Rep. Castor’s legislation also adds a penalty system for FERC to deploy when utilities violate or fail to comply with the rules. Audits performed by FERC show that utilities are consistently allocating lobbying, charitable donations, or political donations in accounts charged to ratepayers. For example, a 2021 audit found that Ameren employees performed work on behalf of the company’s political action committee and allocated their time to accounts that caused transmission customers to pay for that portion of those salaries. A 2019 audit found that American Electric Power allocated charitable donations to accounts charged to customers. And Northwestern Energy classified lobbying expenses to various administrative and general accounts as part of transmission formula rates. In each of these cases, and more, FERC required the utility to revise internal policies and procedures and issue refunds, but did not penalize the companies for improper accounting behaviors.
Center for Biological Diversity’s Petition and FERC’s Notice of Inquiry
In March 2021, the Center for Biological Diversity petitioned FERC to amend its accounting system, the Uniform Systems of Accounts, as it pertains to payments to trade associations engaged in influence-related activities. Trade associations, such as the Edison Electric Institute (EEI) and the American Gas Association (AGA), engage in and support political activities that ratepayers subsidize through their electric and gas utility bills. The Center petitioned FERC to require that all industry association dues be recorded in a presumptively non-recoverable account, Account 426.4, which would shift the burden of proof on utilities to demonstrate why customers paying for trade association dues is fair, just, and reasonable.
In December 2021, FERC issued a Notice of Inquiry (NOI) to seek comment on the accounting treatment of trade association dues in response to the petition (Docket RM21-15-000).
“Regulated utilities have every right to engage in outreach to influence public opinion on political issues. Presumptively, however, they do not have the right to pass through the costs of this outreach to their customers’ bills,” said Commissioner Allison Clements at the time. “At a minimum it is a good housekeeping exercise to ensure that customers are not inappropriately left footing the bill for their utility providers’ political aims simply because they were taken on by a trade association instead of the regulated entities themselves.”
Commissioner Mark Christie said, “Nothing keeps the monopoly from spending money on First Amendment protected speech, including lobbying legislators and related public-relations activities, but its investors should pay those costs, not captive customers. That is the issue implicated by this NOI, which seeks to better understand whether costs permitted to be “above the line” (chargeable to customers) and those required to be “below the line” (chargeable to investors) for privately-owned companies are being treated as such on a transparent and consistent basis.”
In response to both the Center’s petition and FERC’s NOI, dozens of environmental, climate, clean energy, and consumer advocates filed comments in support of amending the Uniform System of Accounts.
States Are Enacting Their Own Ratepayer Protection Laws
Rep. Castor’s legislation would only apply to FERC and its legal authority over wholesale transmission rates. State public utility commissions have jurisdiction over the rates that utilities charge for generation and distribution; state legislators and regulators are pursuing their own policies to protect customers from paying for political expenses through those rates. In recent months, Colorado, Connecticut, and Maine have each enacted laws to prohibit utilities from charging ratepayers for political activities.
Each law prohibits utilities from charging their customers for trade association dues, charitable contributions, and public relations expenses. Colorado’s law prohibits utilities from charging their customers for legislative lobbying, while Connecticut and Maine go further by using a more expansive definition of lobbying – prohibiting utilities from charging customers for efforts to influence administrative action by executive agencies. All three pieces of legislation also include requirements for annual detailed disclosure filings to ensure compliance.
The Louisiana Public Service Commission recently launched an investigation to examine its existing rules to see if new policies are needed to prevent the utilities it regulates from charging customers for their lobbying, public relations spending, and dues to political trade associations.
The Energy and Policy Institute’s report, “Getting Politics Out of Utility Bills,” outlines how policymakers can protect customers from being forced to fund utilities’ political activities.
