Exposing the utility playbook: Ratepayers are stuck paying the bill for utility corruption

Alex Wong via Getty Images

By Landon Stevens and Mark Pischea

Originally Published in Utility Dive May 27, 2021

In 2020, Ohio House Speaker Larry Householder was arrested and subsequently resigned his speakership after an FBI investigation found that the influential lawmaker accepted $61 million dollars from electric utility FirstEnergy in exchange for passage of a nuclear bailout bill. The legislation sought to subsidize two of the company’s failing nuclear plants by charging Ohioans a monthly fee.

Another recent scandal in Illinois saw Michael Madigan, the longest serving state Speaker of the House in U.S. history, lose his position when the state’s largest utility, ComEd, confessed to giving jobs and contracts to Madigan associates for nearly a decade in an effort to sway legislation at the state capitol.

Sadly, stories like these are nothing new — and they aren’t surprising. We’ve long known that unregulated monopolies necessarily lead to higher costs, less efficiency and limited innovation. The very nature of our monopoly electric utility model leads to companies who are beholden to their shareholders — not their customers. To compound this issue, bad actors among monopoly companies expend unlimited time, money and resources on achieving regulatory capture. Regulatory capture occurs when the lawmakers and officials who are supposed to protect public interests and regulate these monopolies instead begin working to benefit those very same companies.

Ever since Edison fired up the first commercial power plant on Pearl Street in NYC in 1882, many have believed that building, operating and maintaining the electric grid and delivering power to families and businesses should be a vertically integrated industry under monopoly control. For over a century that sentiment was arguably true. After all, who needs dozens of companies running redundant power lines and infrastructure across the country from house to house in every town and city.

The historic cost associated with these investments and the local impacts warranted assigning this job to a single regulated actor. However, advances in technology today have led to a reimagining of the traditional utility industry and have made it possible for alternative models centered around competition and free markets to emerge — and most importantly, find success.

This threat of competition is understandably scary to many utilities who, for too long, have enjoyed their position as the only show in town. In many ways, they have never had to worry about innovation, efficiency, competition, customer service, etc. The thought of moving to a market structure where they must compete to earn and keep business has driven them to fight back and fight back hard.

Stories like those in Illinois and Ohio are just the most recent public examples of utility corruption. Sadly, there is a widespread and long-standing pattern of manipulation, influence and illegal activity among utilities.

For instance, a 2018 investigation into Entergy found that the company funneled money through the utility’s subcontractors to pay actors to show up at New Orleans City Council meetings as the lawmakers debated allowing Entergy to build a controversial natural gas power plant (which was ultimately given the green light). The actors were asked to sign non-disclosure agreements with one participant saying, “It was very shady, very secretive, especially when we got paid. They literally paid us under the table.” Councilwoman Susan Guidry, who voted against the plant, labeled the utility tactics “morally reprehensible,” adding that, “I think it had a phenomenal impact on public opinion.”

In 2009, in South Carolina, the Public Service Commission approved the development of a new nuclear plant by utilities SCANA and Santee Cooper. The project was to break ground in 2012 with fuel loaded in 2015 and the first reactor online in 2016. The project was estimated to cost $9.8 billion. Instead, a former SCANA executive pled guilty to committing fraud with U.S. attorney Peter M. McCoy explaining, “As noted in the record, the Defendant conspired with others to lie about the progress of the V.C. Summer Nuclear Station so SCANA could wrongly increase rates on hard-working South Carolinians and qualify for up to $1.4 billion in tax credits.” According to the Department of Justice, “…false and misleading statements, among others made by his co-conspirators, allowed SCANA to obtain rate increases imposed on SCANA’s rate-paying customers and used to finance the project.”

Pick a year, and you will find some scandal among monopoly utilities. The corruption shows no sign of slowing down. Instead, the breadth, depth and cost of such scandals only seems to multiply.

So how can these trends of utility malpractice be handled? Acknowledging the historical bad behavior of utilities, we at the Conservative Energy Network have created utilityplaybook.com, a website aimed at educating policymakers, regulators and the general public of the long history of corruption, manipulation and — in many cases — criminal behavior of monopoly electric utilities across the country.

Resources like these are needed to help those in states whose electric markets are dominated by one or two powerful monopoly companies better understand how these utilities have operated in the past, and why this model hurts the average consumer. We hope that greater acknowledgement will drive louder calls for reform.

In these regulated monopoly territories innovative changes to regulatory structures are needed that match today’s shifting energy landscape. The monopoly model of old is no longer sustainable.

In the short term, legislators and regulators need to be insulated from undue influence from utilities by limiting political spending and instituting strict anti-revolving door policies. Complex rate case proceedings need greater oversight from third-party experts and the development of innovative tools to promote transparency, protect ratepayers and incentivize desired performance by companies.

Ideally, however, the entire utility model should be reimagined and reformed to leverage the power of competition, market-based principles and customer choice. Until customers are free to choose how, when and who serves them as well as under which terms, the headlines of corrupt utilities fighting the interests of those they serve to pad the pockets of their shareholders will continue without an end in sight.

Leave a Reply

Your email address will not be published.Required fields are marked *