03/10/2022 - Comment Filed - Electricity Law Initiative

Electricity Law Initiative Responds to FERC Inquiry on Utility Trade Associations

by Ari Peskoe

In February, the Electricity Law Initiative filed a comment at the Federal Energy Regulatory Commission (FERC) arguing that FERC’s rules force ratepayers to subsidize utilities’ political advocacy, which is unfair to utility competitors and distorts competitive markets. At issue in the proceeding are FERC’s accounting rules that apply to electric and natural gas utilities with captive ratepayers. Under rules that date back to the 1950s, utilities can recover from ratepayers the dues they pay to their trade associations, such as the Edison Electric Institute and American Gas Association. In December, FERC requested comment on these accounting rules.

ELI argues that FERC’s accounting rules have not kept pace with industry developments. In the 1950s, the investor-owned utilities dominated the power sector, and there was virtually no other private investment in the industry. But today, numerous developers, retailers, and technology providers compete with utilities. Like utilities, these companies seek legislative and regulatory changes that benefit their businesses. It is impossible to divorce competition from political advocacy. The scope of competition and the rules governing competition are, at least in part, subject to political decisions. Trade associations are central players in this political space. They are designed to respond to the political landscape and shape political outcomes.

ELI shows that FERC’s accounting rules discriminate in favor of utilities and to the detriment of their competitors. It argues that forcing ratepayers to subsidize utility trade associations is particularly misguided because the benefiting utilities are designed to thrive without the sort of market-based competition that FERC and state regulators promote for the benefit of ratepayers. ELI suggests that FERC reverse its approach to trade association dues. Rather than presuming that utility dues can be recovered from ratepayers, FERC should require utilities to prove that they are paying for trade association activities that aim to enhance the quality of utility service. Relevant expenses might be focused on common industry technical challenges, such as cybersecurity and storm restoration. All other trade association expenses should be paid for by utility shareholders. Alternatively, ELI proposes how FERC can modify its existing rules to prevent ratepayers from subsidizing utilities’ political advocacy.