How the electric utility industry torpedoed grid security

Our biggest security problem is not Russia or China – it is electric utility industry lobbyists

While reading a Federal Energy Regulatory Commission (FERC) order from January of this year, I was amused for a moment that the North American Electric Reliability Corporation (NERC) actually had the audacity to ask FERC if they could abdicate even more of their enforcement responsibilities. FERC showed some real backbone, told NERC “No,” and ordered them to do their job. It was quite a slap for NERC.

This is just the latest example demonstrating the painfully obvious: The electric utility industry has made NERC their stooge.

In defense of NERC, they never stood a chance. They were never going to get independence from the industry in the legislation that made NERC the industry’s self-regulator after the Great Northeast Blackout of 2003 – the industry’s lobbyists made sure of that. And today the industry’s predatory lobbyists have interjected themselves into every point in our political system to make sure that industry continues to self-regulate the electric grid and operate in the dark, free of unwanted federal interference.

NERC is not alone. Since the electric utility lobbyists swarmed DC in 2003, they have inserted themselves into the states’ regulatory commissions (PSC/PUC). Trade associations, such as the Electric Subsector Coordinating Council (ESCC) – another thinly veiled lobbying group – as well the industry run and funded Electric Power Research Institute (EPRI) and an army of attorneys and lobbyists has co-opted the entire federal and state electric grid regulatory system.

This undue influence spans all the way from U.S. Congressional committees, through the Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC), to our State legislatures and State Public Utility Commissions. The industry, through the ESCC has literally embedded itself with the regulators. Its trade groups lobby Congress and participate in “partnerships” with executive agencies, such as the DOE and FERC. Little happens without the industry’s input and recommendations. And since 2003, their advice and counsel has generally been persuasive with Congress and these agencies.

And today massive vulnerabilities in the electric grid have not been addressed precisely because of this undue influence. An example of this absurd result? Convicted felon and formerly bankrupt PG&E has more influence over U.S. grid security than our federal government.

I recently filed a detailed report with the Department of Energy outlining the four major challenges to securing the electric grid. This article briefly explains how we got here.

(To see who in Congress took the money, scroll down)

“Mandatory Self-Regulation”

Before the Great Northeast Blackout of 2003, there were other blackouts that caused Congressional and public concern, such as the Northeast Blackout of 1965 where over 30 million people lost power. And then, according to a Senate hearing in 1967, there were 17 further cascading blackouts between 1965 and 1967. The industry dodged the regulatory bullet and convinced Congress that they could improve the system with “voluntary self-regulation.” They created NERC – the National Electric Reliability Council in 1967. (The name was later changed to the North American Electric Reliability Council in 1981.)

The electric utility industry never wanted mandatory regulation. But mandatory regulation became inevitable after Congressional ire over the industry’s cataclysmic failure to prevent the Great Northeast Blackout of 2003. The industry had the experience and foresight to see that they needed to insert themselves at every level of the process so they could keep “onerous” regulation at bay and continue to operate under the radar. Hence, we went from “voluntary self-regulation” to “mandatory self-regulation.”

Prior to the Great Northeast Blackout of 2003, the electric utility industry, and the electric grid itself, were “voluntarily” self-regulated under the North American Electric Reliability Council. According to a federal report:

“NERC is a non-governmental entity whose mission is to ensure that the bulk electric system in North America is reliable, adequate and secure. The organization was established in 1968, as a result of the Northeast blackout in 1965. Since its inception, NERC has operated as a voluntary organization, relying on reciprocity, peer pressure and the mutual self-interest of all those involved to ensure compliance with reliability requirements. An independent board governs NERC.”

About that “independent board.” Prior to the 2003 blackout, NERC had 10 members, who were the Regional Reliability Councils. And the Reliability Councils, in turn, had a membership consisting of the whole of the electric utility industry. Ultimately, the industry called the shots. The U.S.-Canada Power System Outage Task Force studied the voluntary regulatory structure in detail and concluded that NERC lacked the independence and authority to enforce its voluntary standards.

After the 2003 blackout, there were more reports, hearings and finger-pointing. The electric utility industry saw the writing on the wall. If regulatory authority was now going to be mandatory, they needed to control that authority. They proposed that NERC, who they owned, should fill the role and the mandatory regulatory authority. Even lobbyist Edison Electric Institute (EEI) supported this new regulatory regime. (After all, the industry already controlled the previous iteration of the “North American Reliability Council” and could devise a way to still control the process if they could keep the federal government at arm’s length.)

(To see who in Congress took the money, scroll down)

All it takes is money.

According to the Center for Responsive Politics, since the Great Northeast Blackout of 2003, the electric utility industry has spent an average of $124 million per year lobbying the U.S. Congress. In total since 2003, they have spent almost $2.3 billion lobbying the U.S. Congress alone.  Not to mention the $231 million in political “contributions.” Since 2003, the electric utility industry has made “contributions” to members of the U.S. House and U.S Senate averaging $22.8 million per election cycle (or approximately $11.4 million per year).  In the 2020 election cycle, the industry made $28.5 million in political “contributions” to Congress. And many of the recipients of these “contributions” are members of congressional committees who might have an interest in electric grid regulation and security. All of them are listed below.

By the way, the above does not include the substantial “lobbying” and “contributions” at the state level.

There was opposition to continued “self-regulation” by the electric utility industry. In a Senate hearing in the fall of 2003, Mark N. Cooper, Director of Research, Consumer Federation of America, testified:

“We must not rely on industry self-regulation. The proposal to move from voluntary self-regulation to mandatory self-regulation misses the point. The difficulty is not the voluntary versus the mandatory. It is the ‘self’ part. We need clear accountability to public authorities.”

But on August 8, 2005, the Energy Policy Act of 2005 was signed into law and the industry kept their “self-regulation.”

The Energy Policy Act of 2005 added Section 215 to the Federal Power Act, which implemented this new “mandatory self-regulation” regime. The current regulatory scheme uses NERC as the industry’s “self-regulator” known as the Electric Reliability Organization or “ERO.” Some of the details of Section 215 arose out of the recommendations of the 2003 “U.S.-Canada Power System Outage Task Force” headed up by the U, S. Department of Energy (DOE) and the Canadian Minister of Natural Resources. The task force issued an interim report in November of 2003, and a final report in April of 2004.

One of the Task Force’s key recommendations which made it into the new law was that NERC have independence from the industry:

Many of the institutional problems arise not because NERC is an inadequate or ineffective organization, but rather because it has no structural independence from the industry it represents and has no authority to develop strong reliability standards and to enforce compliance with those standards. [Emphasis added.]

(To see who in Congress took the money, scroll down)

Cue the electric utility industry lawyers.

Since the new law [16 U.S. Code § 824o(c)(2)(A)] required that the ERO: “assure its independence of the users and owners and operators of the bulk-power system [i.e., the transmission system], while assuring fair stakeholder representation in the selection of its directors and balanced decision making in any ERO committee or subordinate organizational structure” – some deft legal hocus-pocus was needed.

Here’s how they did it.

Although technically anybody can become a “member” of NERC, the membership structure stacks the deck in favor of the electric utility industry as far as the election of NERC’s “independent trustees” (the board that governs NERC). NERC accomplishes this shell-game by assigning all members to one of 13 groups. According to NERC rules:

“Each member will join only 1 of 13 industry sectors, members of sectors 1-12 elect sector representatives on the NERC Member Representatives Committee (MRC). The MRC elects NERC’s independent trustees, votes on amendments to the bylaws, and provides advice and recommendations to the Board with respect to the development of annual budgets, business plans and funding mechanisms, and other matters pertinent to the purpose and operations of NERC.”

Obviously, only 12 of the 13 sectors have a vote. So, what are the “13 industry sectors?”

1. Investor-owned utility
2. State/municipal utility
3. Cooperative utility
4. Federal or provincial utility/Federal Power Marketing Administration
5. Transmission-dependent utility
6. Merchant electricity generator
7. Electricity marketer
8. Large end-use electricity customer
9. Small end-use electricity customer
10. Independent system operator/regional transmission organization
11. Regional entity
12. Government representatives
13. “Associate” (Non-voting. The public gets herded into here)

In other words, two sectors are “customers” and one is the government. The other nine are the electric industry. The electric industry gets 9 votes—the customers and the government get 3. If that is not a stacked deck, I don’t know what is. So, NERC is literally funded, run and its leadership elected by the electric utility industry that it allegedly regulates. If the grid does not want to be regulated, it has means to resist being regulated.

And by the way, “customers” in sectors 8 and 9 does not mean “customers.” If you are a regular citizen ratepayer, like me, you are not allowed to join the 12 voting sectors! You will be duffed off to a non-voting sector (“Sector 13”), and consequently, the industry has completely snuffed out the public and limited the government to one vote.

One has to admire the industry’s subtle use of bylaws to thwart the intent of the actual law.

(To see who in Congress took the money, scroll down)

Conclusion

Since 2003 the electric utility lobby has inserted itself into every aspect of electric utility regulation, legislation and standards development. The electric utility industry, through its trade associations, the Electric Subsector Coordinating Council (ESCC) – another thinly veiled lobbying group – as well as an army of attorneys and lobbyists has quite successfully co-opted the entire electric grid regulatory system.

Today massive vulnerabilities in the electric grid have been patently ignored precisely because of this undue influence.

The true irony is that this money largely originates from the bills of ratepayers of electricity: the public is funding the electric utilities campaign to fight grid security regulation and pay for Congressional support of their agenda. In addition to funding the industry’s legal bribes (i.e., lobbying and “contributions”), ratepayer money also funds the industry’s illegal bribes (and likely their penalties when they are caught).

This has been a massive, well organized and well-funded campaign to co-opt the legislative and executive branches of our government to protect the electric utility industry’s agenda – often at the expense of grid security. And to make ratepayers pay for it all.

And it is still going on. According to the Center for Responsive Politics, here are the latest electric utility industry payments to Congress:

Who took the electric utility industry money this election cycle?

U.S. Senate 2020 Cycle:

U.S. House 2020 Cycle:

Editor’s note: What kind of loser only gets $6 from such a generous industry? Perhaps his website offers a clue:

“In Congress, Cicilline is working hard to restore the public’s confidence and trust in government by making our campaign finance system more transparent and by reducing the influence of corporate money in our elections.”

Well, this kind of attitude is of no help at all to the electric utility industry lobbyists.