Rate Recovery: How Electric Customers Fund Industry Lobbying
Motion to Intervene and Comments of Michael Mabee
Submitted to FERC on January 18, 2022
I commend the Commission for opening this docket on this important issue.
I am a private citizen who conducts public interest research on the security of the electric grid. I investigate and report on grid security issues, as well as the lack of transparency in the current regulatory regime. I have been quoted by the Wall Street Journal, the Washington Post and other publications on grid security and have intervened and submitted testimony to the Commission, other executive branch agencies as well as Congress.
I move to intervene because I am an electric utility ratepayer and my interests are not represented by the electric utility industry. The electric utility industry is using money ratepayers pay each month for activities where “Rate Recovery” should not be allowed.
2.3 billion reasons for this rate recovery docket.
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.[1] In total since 2003, they have spent almost $2.3 billion lobbying the U.S. Congress alone. The electric utility industry also spent $231 million in political “contributions” to candidates for federal office during the same period.[2]
Also, 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 members of Congress. And many of the recipients of these “contributions” serve on committees with responsibility for electric grid regulation and security.[3]
Exhibit A lists “contributions” to members of Congress, by recipient, from the electric utility industry in the 2020 election cycle. Exhibit B lists lobbying amounts, by entity, in the electric utility industry in 2021. Exhibit C contains two charts showing the lobbying and contributions by the electric utility industry since the great Northeast Blackout of 2003 – the event that resulted in Congress adding Section 215 to the Federal Power Act in the Energy Policy Act of 2005. This created the present self-regulatory system which is overseen by the Federal Energy Regulatory Commission (FERC).
Notably, the above summation and the Exhibits do not include the substantial “lobbying” and “contributions” at the state level.
The Commission should not allow rate recovery for any lobbying or political “contributions.” This means that industry association dues should not be eligible for rate recovery since this is where the trade associations get their funding for lobbying and political “contributions.”
Moreover, there are several other subjects on rate recovery that the Commission should consider to protect the public interest.
Lobbying and political contributions by electric utility entities.
Exhibit B shows that in addition to Industry Trade Associations, such as Edison Electric Institute, individual entities, such as PG&E Corporation, do their own lobbying and political contributing – funded by ratepayers. So, let’s take a look at PG&E Corporation for example.
Ratepayers of PG&E Corporation funded:[4]
- $1,282,400 in political contributions to federal candidates made by PG&E itself.
- $2,700,000 in federal lobbying by PG&E itself.
- Industry Association dues to Edison Electric Institute who spent:
- $6,871,491 in federal lobbying
- $787,637 in federal political contributions
The industry’s interests are often not aligned with ratepayers’ interests. In fact, the interests are often opposed. Therefore, none of this should be eligible for rate recovery.
Ratepayers fund secret penalties.
Another unjust, unreasonable and unduly discriminatory rate recovery matter arises in 295 Notice of Penalty dockets at FERC involving over 1,500 regulatory violators of “Critical Infrastructure Protection” (CIP) standards. In these cases, companies have been charged with violating CIP standards. However, the names of all the violators have been permanently withheld from the public as demanded by electric utility trade associations, the North American Electric Reliability Corporation (NERC) and individual utility companies. The Commission has allowed this coverup to continue since 2010, allowing the electric utility industry to avoid public scrutiny and accountability.
But worse, ratepayers have to foot the bill for the utilities’ CIP violation penalties. In other words, ratepayers are kept in the dark about whether the utility they pay and depend on is obeying the CIP standards, but are forced to unknowingly pay the utility’s regulatory penalties. This is repugnant to the public interest.
Here are some examples:
If you are a resident of 15 midwestern states including Arkansas, Indiana, Illinois, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, North Dakota, South Dakota, Texas, Wisconsin and Manitoba (Canada), you got swindled. Here’s how:
On December 22, 2010 NERC filed a Notice of Penalty in Docket No. NP11-59-000 against an “Unidentified Registered Entity” (the industry euphemism for a CIP violator whose identity the industry is withholding from the public).[5] The Notice of Penalty found that the “Unidentified Registered Entity” had violated a cybersecurity standard, CIP-004-1, and was assessed a $7,000 penalty.
It is bad enough that the residents of the above 15 states (and a province of Canada) would have had no idea that the entity involved impacts them due to the coverup of the identity. But is gets worse when you see what happens next.
The Federal Register on Tuesday February 8, 2011 consisted of 417 pages.[6] Somehow, if you are a resident of the above 15 states, you should have noticed this entry on page 6776:
You’ll first notice that it is a completely different docket number: ER11-2798-000. The second thing you will notice is there is no indication of the violator’s identity or geographic area. There is no possible way for the public to know if they are impacted.
Buried deep in this obscure docket in FERC’s complex and bureaucratic system, an entity called Midwest Independent Transmission System Operator, Inc. (now known as Midcontinent Independent System Operator, Inc. or “MISO”) applied to FERC to pass the $7,000 penalty from the Notice of Penalty in NP11-59-000 on to its customers.
FERC approved the application[7] and thus, customers in 15 states and a province of Canada were victimized on May 6, 2011. The violator successfully passed their violation penalty to its unknowing customers.
This abhorrent situation was best summed up in a filing by Norris Electric Cooperative[8] in Illinois:
“NERC fined MISO a. penalty of $7,000. That is a small penalty and its payment would typically have little impact on an entity the size of MISO if MISO was not a not-for-profit. Due to the not-for-profit status, when NERC penalized MISO, they did not really penalize MISO, they penalized the members of MISO who have no governing control over MISO. A penalty should have the same result as disciplining a child. You spank them in hopes they do not repeat the offense. This penalty has no affect on MISO since the origin of the penalty dollars will come from the unwilling market participants. In our case it will be passed on to our own residential and commercial members. So, in my opinion, the penalty will have no affect on future behavior!
In this process, MISO is paying a law firm, Hunton & Williams, to file for the ability to recover the penalty from the MISO members. The cost of the law firm probably exceeds the cost of the penalty. When you couple that with MISO’s approved budget containing line items for attorney fees, it appears to me that it would be a far better use of the line budget item to pay the penalty!”
Kudos to Norris Electric Cooperative for standing up for their customers. We have occasionally seen heroes among the state agencies and some electric industry companies who believe that the system needs more transparency and that the public has a right to know. [9]
Unfortunately, this was not an isolated incident. I have found several FERC orders in which the CIP violation penalties were approved to be passed on to the unsuspecting customers:
- FERC Docket ER11-2798-000[10]
- FERC Docket ER12-1112-000[11]
- FERC Docket ER15-764-000[12]
- FERC Docket ER19-2362-000[13]
In each instance, the identity of the violator was withheld from the public when the Notice of Penalty was issued. In each instance, a separate docket was opened with an obscure “public notice” in the Federal Register which, in all four cases, did not give the public adequate information to determine if they were impacted. And in each case, FERC approved the penalty being passed on to the public.
There are likely many more. These are difficult to find and took a bit of “docket archeology” to root these examples out. Unfortunately, without access to the names of the violators, the public has no hope of seeing how many times FERC has approved secret violation penalties being passed on to the electric customers. In fact, these instances are all not-for-profit companies. In the case of a for profit company, the utility doesn’t even have to ask. They just decide themselves whether the ratepayers or the shareholders eat the penalties. The CEOs are certainly not going to eat them.
Let me give you an example of a for profit company: PG&E Corporation (NYSE: PCG).
PG&E endangers the grid – who paid for it?
On February 28, 2018, NERC filed a Notice of Penalty with FERC in Docket Number NP18-7-000 against an “Unidentified Registered Entity” for cybersecurity violations. The Notice of Penalty assessed a $2.7 million dollar fine. I filed a Freedom of Information Act request for the name of the entity. After a great deal of effort, I was able to determine that the “Unidentified Registered Entity” was PG&E Corporation and this was reported in the Wall Street Journal.[14]
In addition to the $2.7 million dollar penalty, PG&E presumably also had to spend an unknown amount (but likely a substantial amount) of money on mitigating the vulnerability created by their cyber security violations. Somebody had to pay for all of this. Because I could find no disclosure of the event or its costs in PG&E’s filings with the Securities and Exchange Commission, it is impossible for the public to know whether the shareholders or the ratepayers ate these costs—I am sure both groups would like to know.
- Does it make a difference in who should pay if a company is a repeat CIP violator? (Which PG&E is.)[15]
- Does it make a difference in who should pay if the company is negligent? (Which PG&E was.)[16]
One thing is for sure: PG&E’s then CEO Geisha Williams didn’t suffer. In 2018 she was paid $9.3 million[17] – an increase from the previous year. In fact, for a chart of just how obscene PG&E’s executive compensation was for the time period when this CIP violation occurred, one need to look no further than page 74 of PG&E’s 2019 Proxy Statement filed with the SEC.[18] No, the PG&E executives didn’t suffer.
The last one who should be deciding who pays is the regulatory violator. This decision should be made by the appropriate regulator (FERC or the PUC) with full transparency to the two possible victims: the ratepayers and the shareholders.
But this is not how the system presently works.
Lack of transparency makes rate recovery unfair to the public.
In sum, ratepayers should not be forced to pay for the electric utility industry’s political agenda, which is not always aligned with the public interest. Moreover, by passing the costs of penalties on to the ratepayers, the utilities lose incentive to follow mandatory standards and the public is unknowingly harmed for corporate misbehavior that in many instances is not transparent to the public in the first place.
Therefore, I recommend that the Commission consider adopting the following policies:
- No funds used for lobbying or political contributions should be eligible for rate recovery. This means that industry association dues should not be recoverable. Moreover, no funds used for lobbying or political contributions by an individual utility should be eligible for rate recovery.
- Utilities should not be allowed to recover penalty amounts for violations of any mandatory reliability standards and this must be made crystal clear to the regulated industry.
Respectfully submitted,
Michael Mabee
Exhibit A – Contributions to Members of Congress by the Electric Utility Industry
Exhibit B – Congressional Lobbying and Contributions by the Electric Utility Industry
Exhibit C – Total Yearly Contributions & Lobbying to Congress by the Electric Utility Industry
Footnotes:
[1] See: https://www.opensecrets.org/industries/lobbying.php?cycle=2018&ind=E08
[2] See: https://www.opensecrets.org/industries/totals.php?cycle=2020&ind=E08
[3] See: https://www.opensecrets.org/industries/recips.php?cycle=2020&ind=E08
[4] According to PG&E’s latest Form 10-K Annual Report filed with the Securities and Exchange Commission on February 25, 2021: “PG&E Corporation, incorporated in California in 1995, is a holding company whose primary operating subsidiary is Pacific Gas and Electric Company, a public utility operating in northern and central California. The Utility was incorporated in California in 1905. PG&E Corporation became the holding company of the Utility and its subsidiaries in 1997. The Utility generates revenues mainly through the sale and delivery of electricity and natural gas to customers.” [Emphasis added.]
[5] See: https://elibrary.ferc.gov/eLibrary/filelist?document_id=13875725&optimized=false
[6] See: https://www.govinfo.gov/content/pkg/FR-2011-02-08/pdf/FR-2011-02-08.pdf
[7] See: 135 FERC ¶ 61,118, issued May 6, 2011.
[8] See: https://elibrary.ferc.gov/eLibrary/filelist?document_id=13929694&optimized=false
[9] Several examples, such as the New Mexico Public Regulation Commission, the Louisiana Public Service Commission and multiple elected and appointed officials in New Hampshire can be found Here: https://securethegrid.com/multiple-states-to-ferc-the-public-has-a-right-to-know/
[10] See: 135 FERC ¶ 61,118, issued May 6, 2011.
[11] See: 139 FERC ¶ 61,038, issued April 16, 2012
[12] See Letter Order, dated February 27, 2015. https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20150227-3065&optimized=false
[13] See Letter Order, dated August 27, 2019. https://elibrary.ferc.gov/eLibrary/filelist?accession_number=20190827-3028&optimized=false
[14] Smith, Rebecca. Wall Street Journal. “PG&E Identified as Utility That Lost Control of Confidential Information.” August 24, 2018. https://www.wsj.com/articles/pg-e-identified-as-utility-that-lost-control-of-confidential-information-1535145850
[15] Smith, Rebecca. Wall Street Journal. “PG&E Among Utilities Cited for Failing to Protect Against Cyber and Physical Attacks.” April 9, 2019. https://www.wsj.com/articles/pg-e-among-utilities-cited-for-failing-to-protect-against-cyber-and-physical-attacks-11554821337
[16] See: https://securethegrid.com/pge-endangered-the-grid/
[17] Avalos, George. Bay Area News Group. “Former PG&E CEO got pay increases, stock sale windfalls, during years of lethal wildfires.” April 26, 2019. https://www.mercurynews.com/2019/04/26/former-pge-ceo-got-pay-increases-stock-sale-windfalls-during-years-of-lethal-wildfires/
[18] Available at: https://www.sec.gov/Archives/edgar/data/0001004980/000130817919000192/lpcg2019_pre14a.htm
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