4 ways to hold utilities accountable

John Farrell, May 23, 2022 How to Hold Utilities Accountable

John Oliver’s expose on electric utilities was marvelous, explaining the high cost of abusive utility behavior. The segment was full of rich storytelling that made clear the dangers of allowing these utility companies to continue operating in their current fashion. Here are four things we could do in response, to hold utilities accountable and to dampen the impact of their market power on our democracy.

https://youtube.com/watch?v=C-YRSqaPtMg%3Fenablejsapi%3D1%26amp%3D1%26playsinline%3D1

John Oliver discusses electric utility companies on “Last Week Tonight.” Credit: Last Week Tonight / YouTube

The following commentary was written by John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance. See our commentary guidelines for more information.


1. Sticks: Punish utility behavior by revoking franchises

The Last Week Tonight team does a masterful job of explaining the perverse rules of the electricity business, but it leaves out a key element — the monopoly itself. Utilities have a monopoly because they have a public grant, called a franchise. That public grant need not be perpetual. States can revoke or transfer this franchise of monopoly service.

In numerous cases, like Winter Park, Fla., cities have revoked a utility franchise at the local level through a public takeover. But states could also discipline bad utility behavior with the threat of losing the franchise. When Pacific Gas & Electric was found guilty of mismanagement of wildfire risk, California could have given its franchise to Southern California Edison, for example, rather than bailing out the guilty utility. Franchise accountability could even be built into the electric business model by rewriting state laws to make monopoly franchises time-limited, with an open bidding process for renewal.

Right now, utilities operate with impunity because their punishments often involve no more than fines. Last Week Tonight captured that perfectly in the closing scene with Reddy Kilowatt where, after “murdering” John Oliver, he exclaims (sarcastically), “I am gonna get such a fine for that.” States can use the threat of losing the franchise to hold utilities accountable.

2. Carrots: Rewire how utilities get paid to focus on performance instead of spending money

Oliver and his team also do a great job explaining that utilities behave poorly because their incentives don’t align with the public interest. In 49 states, utilities make money by spending money (with minor adjustments). Only Hawaii has passed laws and set regulations to pay the utility based on its performance instead of its spending. Its policy caps the utilities revenues, removing the incentive to simply spend money, and instead focuses on outcomes of values to the public.

Rewiring incentives could mean paying utilities for accelerating deployment of cost-effective clean energy, for providing customers with more opportunities to lower their bills through efficiency, for streamlining interconnection of more distributed solar, and for prioritizing benefits for customers that suffer high energy burdens or live in communities subject to the pollution from utility infrastructure. States should learn from Hawaii and rewrite the rules to pay utilities for what customers want.

3. Restructure: Remove non-monopoly functions from utility purview

Last Week Tonight explained that there was logic in having utility monopolies in the early 20th century in order to build out the electric grid. That work is done. It’s time to re-evaluate the proper extent of a utility monopoly.

Grid operation likely requires a monopoly, but all of the actual services supplied to the power grid could be competitive. Power generation can and does come from independent wind power farms or community solar arrays. Energy storage could be a public asset at each substation or a network of backup systems at local hospitals and community facilities. Energy efficiency can and is funded from customer bills and provided by one or many non-profit associations (see: Vermont or Massachusetts). Networks of homes and businesses could be coordinated by a variety of cooperatives and businesses to shift energy use to reduce strain on the grid.

There’s already robust competition in generating electricity. One-third of states have formally removed that monopoly by banning utilities from owning power plants. In every state, customers can generate their own electricity with solar panels on their rooftops. States should be establishing fair, consistent rules for power generation at every scale, from giant wind and solar farms to rooftop solar and battery systems.

4. Make public: Give monopoly functions to an unbiased non-profit or public entity to support choice and competition

Last Week Tonight gave a nod to one solution that addresses many of the problems of utility misbehavior: public ownership. There’s no question that an essential service should be governed by robust public and democratic oversight. However, simply making a private utility monopoly into a public utility monopoly misses a big opportunity.

The core problem of monopoly utilities is the conflict of interest between operating a platform (the electric grid) and being a player on the platform (by owning power plants, power lines, etc). Even public utilities have proven recalcitrant about shifting to renewable energy if it threatens existing power purchase contracts, and public utilities are often as skeptical of customer-owned solar panels as private utilities.

The power grid needs operating principles more like the road network: a public asset that’s available for a wide variety of people and businesses to use and offer services. State governments should make the power grid a public asset, but focused on the rules of operation and decision making, not centralized ownership of every asset. The governance of the commons by a public utility should include services like matching supply and demand, connecting wind farms and rooftop solar arrays, doing system planning to meet future needs, and acting as a clearinghouse for electricity system data.

Unlike today, these four strategies would hold utilities accountable based on their unique role as monopoly companies. It would mean paying utilities only for the services we want. It would right-size utility power relative to competitors and give customers more choice. It would restore the role of the public in delivering an essential service. Done right, holding utilities accountable would put democracy ahead of monopoly.

**

Ben Delman, Solar United Neighbors, (402) 960-0754, ben@solarunitedneighbors.org
Jean Su, Center for Biological Diversity, (415) 770-3187, jsu@biologicaldiversity.org

Legal Petition Seeks Federal Trade Commission Investigation of Energy Utility Abuses

WASHINGTON— More than 230 consumer, environmental and public interest groups urged the Federal Trade Commission today to investigate the electric utility industry for widespread abuses. These include bribery, fake dark-money campaigns and denying customers access to renewable energy.

“Today abusive utility practices are leading to increased electricity rates, obstruction of clean energy competitors in the face of climate change, and utility interference in democratic processes,” the groups said in the petition to the FTC. “The urgency for a federal investigation of utility companies’ unfair competitive and anti-democratic practices at this time cannot be overstated.”

The petition details widespread anti-competitive abuses by monopoly electric utilities across the country, including tens of millions of dollars in bribes to public officials, bankrolling schemes to run “ghost” candidates to keep political allies in power, and fixing the market to block competitors from providing renewable energy to customers.

“Monopoly utilities are out of control,” said Anya Schoolman, executive director of Solar United Neighbors. “It’s time federal regulators step in and protect consumers.”

“Utilities are gouging ratepayers and cutting off power while they line the pockets of politicians and rig the system to block planet-saving renewable energy,” said Jean Su, director of the Center for Biological Diversity’s energy justice program. “Like it did a century ago, the FTC should use its authority to investigate the broken utility industry and stop this blatant self-dealing. The FTC needs to stand up for consumers and give renewable energy competition a fighting chance.”

“Utilities are using their customers’ money to rig our political systems and to reinforce their monopolies,” said David Pomerantz, executive director of the Energy and Policy Institute. “As it did nearly a century ago, the FTC should investigate those problems so that policymakers can start to solve them.”

“The market is ready to give Americans more clean, local energy,” said John Farrell, co-director of the Institute for Local Self-Reliance. “The FTC needs to prevent the incumbent monopoly utilities from standing in the way.”

“Employing its expansive investigative powers, the FTC can help build a comprehensive factual record for legislative and administrative reconstruction of the power sector to ensure public accountability and sustainability,” said Sandeep Vaheesan of the Open Market Institute. “The commission has a history of exposing the abuses, inefficiencies and unprecedented propaganda efforts of utility companies. As it did nearly a century ago, the FTC can lay the groundwork for utility reform and help rein in the power of these massive corporations.”

An FTC investigation of the electric utility industry has precedent. Massive industry consolidation in the 1920s led to consumer abuse, corruption and an unrelenting campaign against public power competitors. These actions triggered a seven-year-long FTC investigation into electric utility abuses.

The investigations’ findings laid the groundwork for the Public Utility Holding Company Act of 1935. This landmark legislation set limits on utility companies’ ability to merge and manipulate the market. Congress repealed the Act in 2005, worsening many of the problems the United States is seeing today.

Some of the abuses described in the petition include:

  • An Ohio utility, FirstEnergy, paid $60 million in bribes to the Ohio House speaker’s political machine. In return the utility secured a $1 billion ratepayer-funded bailout for several of its unprofitable nuclear and coal plants.
  • Florida Power and Light spent millions of dollars on political consultants who engineered a scheme to siphon votes to third-party “ghost candidates” from candidates committed to holding utilities accountable, according to reporting by the Orlando Sentinel. The ghost candidate won in all three races. One utility opponent lost by just 32 votes.
  • A recent national survey found that nearly three-quarters of solar developers experience delays in interconnecting projects to the electric grid. Eighty-five percent of respondents specifically named utility noncompliance with interconnection procedures as a problem. These delays can increase the cost of distributed solar projects and cause customers to back out of long-delayed projects. Minnesota regulators fined Xcel Energy $1 million for failing to keep pace with a backlog of projects. Two years later the backlog remains a barrier to solar growth.

The five-member FTC is at full strength with last week’s confirmation of law professor Alvaro M. Bedoya. The commission had been split along party lines, but Democrats now have a 3-2 majority.

Advocates say the FTC should take action to stop utility abuses and recommend legislation that will protect consumers. Legislation should include structural changes that abolish conflicts of interest and reduce utilities’ ability to exert market power over their competitors.

The Center for Biological Diversity is a national, nonprofit conservation organization with more than 1.7 million members and online activists dedicated to the protection of endangered species and wild places.

** https://ilsr.org/ilsr-joins-ask-for-federal-trade-commission-to-investigate-utility-abuses/

Report: Why the 21st Century Antitrust Act is Critical for New York Small Businesses

BY KATY MILANI AND RON KNOX | DATE: 19 MAY 2022 | 

Download the Report   |  Download the Bill

Small businesses are the lifeblood of the New York economy and its communities. They cultivate economic resilience by creating jobs, applying upward pressure on wages, fostering a healthy tax base, and circulating the wealth they create locally. But rampant market power is endangering the economic dynamism that New York small businesses generate.

State lawmakers have the opportunity to build a more level playing field for small businesses by passing the 21st Century Antitrust Act. This groundbreaking legislation will create clear, bright line standards to hold monopolists accountable for the harms they inflict on small shops and entrepreneurs.

Download the Foreword by the 21st Century Antitrust Act Cosponsors.

Our latest report, published with New Yorkers for a Fair Economy,* illustrates why this legislation will strengthen the economic vitality of communities across the state and act as a precedent for other states to follow. 

*New Yorkers for a Fair Economy (NYFE) is a coalition of labor organizations, small businesses, and immigrant and community organizations uniting to safeguard our communities from abusive practices of big corporations and achieve an economy that works for all New Yorkers.

Download the report HERE or read it below

Introduction

Small businesses are the lifeblood of the New York economy and its communities. These enterprises — making up nearly all firms incorporated in the state and employing half of its workforce[1] — help foster economic resilience at every scale, from walkable, vibrant neighborhoods to healthy industries. New York’s small businesses create jobs and apply upward pressure on wages, build a healthy tax base, and circulate the wealth they generate within their communities — both urban and rural alike. They offer a clear pathway to the middle class, especially for immigrants and entrepreneurs of color.[2] They help drive innovation and offer distinct benefits to their customers, including competitive products, services, and prices. Small businesses are essential for New York’s economic equality, vitality, and well-being.

Yet, across many industries, small businesses are imperiled by highly concentrated markets and rampant market power abuse by dominant corporations. Every step of running a small business — from accessing the capital needed to start a business, to contracting with suppliers, to reaching customers, to processing payments — pits entrepreneurs and start-ups against the most powerful and predatory firms in the country, which are not competing fairly. This is disastrous for small business owners, working people, communities, and for the New York economy more broadly.

Decades of policy choices at the federal and local level have favored corporate bigness over local, economically diverse communities, handcuffing the ability of small businesses to compete in a fair and open market. New York is no exception.

This report shows how dominant corporations and their abusive tactics impact New York’s small and independent businesses’ ability to compete, despite their often superior performance. It explains how New York lawmakers can help protect independent businesses by passing the 21st Century Antitrust Act (S933A/A1812A). Finally, it outlines why the stakes are high and the time is now to pass this bill. This groundbreaking, first-in-the-nation legislation will create clear, bright line standards to hold monopolists accountable for the harms they inflict on small shops and entrepreneurs.

How Dominant Corporations Harm New York Small Businesses

Small businesses are essential for healthy, competitive markets. In sectors across the economy, they deliver distinct benefits to their customers and their industries, and outperform larger rivals in many ways. Independent toy stores help small domestic manufacturers access new customers. Independent community banks provide the vast majority of small business loans.[3] Independent pharmacies often provide better health care and cheaper prescriptions to the communities they serve compared to the big chain pharmacies, and they have been on the front lines for those communities during the Covid crisis.[4] Independent grocers and bodegas offer fresh food in neighborhoods and towns abandoned by larger food and retail chains.[5]

“Our local small independent businesses are the backbone of our communities. They provide character and individuality while keeping jobs and money in the local community. The Big Box stores and dominant online retailers do none of those things. That’s why the Westchester Independent Business Alliance is supporting the 21st Century Antitrust Act. We need this legislation to give small, independent businesses a fair shot at competing.” – Bob Giordano, President/Founder of the Westchester Independent Business Alliance

A growing body of research underscores the important role small firms play in driving innovation. Research has shown that industries populated by small businesses generate new products and processes at a faster clip than those consisting of a few large companies.[6] Small firms, for example, produce 13 times more patents per employee than do large companies, and those patents tend to have more industry impact and growth.[7] In the tech sector, Amazon, Facebook, and Google have slowed the once-brisk pace of technological innovation by buying and burying smaller competitors before they become true threats.[8]

Despite the productivity and innovation of small businesses, it has become increasingly harder to compete because dominant rivals abuse their outsized market power. Those tactics raise costs for small businesses, cut off their access to crucial supplies and credit, and unfairly lure customers away with predatory, below-cost prices.

New York independent businesses in particular are under the thumb of some of the most predatory corporate giants in America. Visa and Mastercard are increasing the transaction fees they charge New York’s neighborhood bodegas and retailers.[9] The state’s independent pharmacies are being pushed out by pharmacy benefit managers — powerful middlemen that the Pharmacists Society of the State of New York called “parasites of the healthcare system.”[10] Wall Street megabanks doled out crucial Covid relief to their largest and most powerful clients, while many small businesses struggled to access funding.[11]

In fact, a recent survey of more than 900 independent businesses found that top challenges facing small businesses came from the unchecked exercise of market power by dominant corporations — 65% of respondents rated as a major challenge the fact that their big competitors receive special discounts and terms from suppliers.[12] By strong-arming suppliers, dominant corporations can tilt the playing field and compel suppliers to raise prices for smaller competitors. Sixty two percent of businesses said Amazon’s control over the online market was a “very or extremely significant challenge” and 58% of businesses reported that a major challenge is that big competitors sell goods and services below cost, which is a predatory tactic outsized corporations use to take market share from small rivals without having to compete for it.[13]

“Amazon makes it nearly impossible for small business owners like myself to make a profit selling on their Marketplace. They ask for documentation they know you can’t provide. They stock a product you’re selling when they see it is popular and profitable, and then undercut your price. They pull your products off the site for no legitimate reason. Because Amazon controls so much of the online selling market share, we don’t have a choice and need to be there. Small business owners need this kind of legislation so that our government has better tools to stand up to monopoly bullies like Amazon. They treat small business owners poorly because they know we don’t have the power it takes to stand up to them.” – Bill Stewart, owner of LI Toy & Game in Kings Park, New York

Many of the core tactics monopolists use to stamp out their smaller rivals have become commonplace over the past four decades, as policymakers and judges defanged our core federal antitrust laws — undermining Congress’ intentions when drafting and passing those laws.[14]

How Policymakers Promoted Bigness at the Expense of Small Business

The ways big, dominant corporations today abuse smaller rivals and suppliers were what U.S. antitrust laws — the Sherman Act, the Clayton Act and the Federal Trade Commission Act, among others — were intended to, and for many years did, prevent. For most of the 20th century, Congress passed strong antimonopoly laws, and amended them as needed to keep up with new manifestations of monopoly power.[15] Law enforcers and judges relied on them to stop the worst monopoly abuses.

But in the 1980s, influenced by the theories of scholars associated with the University of Chicago, policymakers decided that antitrust would no longer be “concerned with fairness to smaller competitors,” as William Baxter, Ronald Reagan’s choice to run the Antitrust Division at the Department of Justice, said in 1981.[16] The new goal of antitrust would be “an exclusive concern with economic efficiency.” Armed with this narrow philosophy of what antitrust should do, enforcers and judges undid bright-line rules against harmful conduct and big mergers that made specific conduct outright illegal, instead deciding cases under the subjective, opaque “rule of reason.” As a result, the government routinely greenlights mergers that directly harm small businesses.

States have long stepped in when federal antitrust enforcement failed to stop abuses of monopoly power or harmful mergers. Indeed, it was state lawmakers who enacted the country’s first antitrust laws in the late 19th century to address the abuses of the oil, agriculture, and money trusts. Those first state laws were largely successful — the state of Ohio took on Standard Oil years before the federal government sued to dissolve the trust. More recently, when federal antitrust enforcement froze during the Reagan administration, state enforcers tried diligently to take on monopoly power in the federal government’s absence. But the damage courts have done to the federal antitrust laws has infected states’ ability to take on monopoly power. Passing new, clear laws is one way states can overcome the toxic, pro-monopoly policies of the past 40 years and make their economies open and fair for all.

How the 21st Century Antitrust Act Will Level the Playing Field for New York Small Businesses

The 21st Century Antitrust Act would usher in much needed reforms to New York’s existing antitrust laws. It would also place New York at the forefront of a resurgent local movement to rein in corporate power and create a fair, open marketplace for independent businesses. Given the lax state of antitrust enforcement at the federal level over the past four decades, and the hostility to antitrust cases in the federal courts, this bill would allow the state and private parties to sue abusive, dominant corporations in New York courts as a means of reining in their harmful conduct.

Small and independent businesses in New York would enjoy significant new protections from the abusive, often anticompetitive behavior of monopolistic corporations, including:

Allowing antitrust enforcement against corporations that act unilaterally to stifle competition. Anticompetitive conduct is often perpetrated by a single corporation, as we have seen in cases with Amazon, Walmart and other dominant corporations. But under the current law, the state can only punish conspiracies between multiple companies. With the passage of this bill, New York’s antitrust laws will also cover unilateral conduct by powerful corporations that abuse their dominance or attempt to monopolize markets.

Allowing the New York State Attorney General and small, independent businesses to use evidence of harm to prove a corporation’s dominance. The proposed law gives the New York Attorney General new authority to go after monopoly conduct and ensure fair markets for small businesses. Businesses and other plaintiffs will not need to rely on expensive economists and lawyers to prove that a company dominates a market. Instead, evidence of a dominant firm’s wrongful conduct — such as the ability to set prices, and to dictate terms to workers or suppliers — will be enough to prove that they wield power in an industry and expose them to punishment for their illegal monopolization.

Furthermore, the bill establishes bright-line rules for establishing which companies are considered dominant — exposing corporations that control more than 40 percent of a market for products they sell, and more than 30 percent of a product they buy, to more assertive monopoly enforcement. The thresholds defining dominance are a key feature of the bill, aiming to hold the largest corporations accountable for their anti-competitive behaviors, not small or medium-sized firms. For example, Amazon’s share of e-commerce has risen to over 50%.[17] Walmart alone captures one-quarter of grocery spending nationally. In over 200 metropolitan and micropolitan regions, it has a market share greater than 50 percent.[18] Visa, the largest credit card company, controls 60% of the credit and debit card market, with Mastercard controlling 25% of the market.[19]

Ensuring small businesses have an opportunity to be heard in court. Under this law, independent businesses can band together in class action lawsuits to sue abusive monopolists for their abusive conduct. Class actions are only allowed in New York if the law explicitly allows them. The current antitrust law, known as the Donnelly Act, makes no mention of class actions. The new law would allow those harmed by anticompetitive conduct to sue as a class and, if successful, collect triple the amount of damages.

“New Yorkers love how local businesses contribute to the uniqueness of their neighborhoods and to the vitality of the entire city, but monopolies like Amazon continue to threaten independent businesses. We urgently need this legislation to curb monopolistic behavior in the retail market in order to give local businesses a chance to compete.” – Natasha Amott, owner of Whisk kitchen store in New York City

Why We Need This Law Now

For far too long, New York’s small business owners have been competing on an uneven playing field. Without this legislation, the problem will only get worse. The problem is not that small businesses can’t compete. It’s that dominant corporations, empowered by policies that tilt the playing field, are muscling them out and, in the process, destroying the economic vitality of many communities. The stakes are high, and passing the 21st Century Antitrust Act is a critical step toward ensuring New York’s small businesses can thrive and compete.

Notes:

[1] “2021 Small Business Profile for New York,” U.S. Small Business Administration Office of Advocacy, 2021.

[2] Ibid; Lena Afridi and Diana Drogaris, “The Forgotten Tenants: New York City’s Immigrant Small Business Owners,” Association for Neighborhood and Housing Development, March 6, 2019, (Small businesses are particularly crucial to and within Black, Brown and immigrant communities. More than half a million New York small businesses are Black or Asian-owned. Of New York City’s nearly 22,000 small businesses, 48 percent are owned by immigrants. As the Association for Neighborhood and Housing Development noted, immigrant-owned businesses “provide culturally relevant goods and services and a space for neighbors to convene” and “are crucial to New York City’s economic and cultural vitality.”)

[3] Stacy Mitchell and Susan R. Holmberg, “Fighting Monopoly Power: Banking,” Institute for Local Self-Reliance, July 2020.

[4] Lisa L. Gill, “Consumers Still Prefer Independent Pharmacies, CR’s Ratings Show,” Consumer Reports, December 2018; Zach Freed, “Fighting Monopoly Power: Pharmacy,” Institute for Local Self-Reliance, 2020.

[5] Molly Pfaffenroth, “Independent Grocers are Critical to Overcoming SNAP Healthy Food Access Hurdles,” National Grocers Association, July 1, 2021.

[6] Wilfred Dolfsma & Gerben van der Velde, “Industry Innovativeness, Firm Size, and Entrepreneurship: Schumpeter Mark III?”  Journal of Evolutionary Economics, 2014.

[7] Anthony Breitzman and Diana Hicks, “An Analysis of Small Business Patents By Industry and Firm Size,” U.S. Small Business Administration Office of Advocacy, November 2008, (finding that “Small businesses develop more patents per employee than larger businesses, with the smallest firms, those with fewer than 25 employees, producing the greatest number of patents per employee,” and that “small firm patents tend to be more significant than large firm patents, outperforming them in a number of categories including growth, citation impact, and originality.”)

[8] “Investigation of Competition In Digital Markets,” Subcommittee on Antitrust, Commercial and Administrative Law of the Committee on the Judiciary, U.S. House of Representatives, October 2020, (finding that, “In some cases, a dominant firm evidently acquired nascent or potential competitors to neutralize a competitive threat or to maintain and expand the firm’s dominance. In other cases, a dominant firm acquired smaller companies to shut them down

or discontinue underlying products entirely—transactions aptly described as ‘killer acquisitions.’”)

[9] AnnaMaria Andriotis, “Visa, Mastercard Prepare to Raise Credit-Card Fees,” The Wall Street Journal, March 8, 2022.

[10] Morgan McKay, “New York Pharmacists Rally to ‘Save’ Independent Pharmacies,” Spectrum News, June 2, 2021.

[11] Emily Flitter and Stacy Cowley, “Banks Gave Richest Clients ‘Concierge Treatment’ for Pandemic Aid,” The New York Times, April 22, 2020.

[12] Kennedy Smith and Stacy Mitchell, “2022 Independent Business Survey: Top Challenges and Policy Priorities,” Institute for Local Self-Reliance, March 30, 2022.

[13] Ibid.

[14] See generally, Ron Knox, “Handcuffed by the Courts: How Judges Broke Our Monopoly Laws and What Congress Must Do To Repair Them,” Institute for Local Self-Reliance, March 2022.

[15] Maurice E. Stucke and Ariel Ezrach, “The Rise, Fall, and Rebirth of the U.S. Antitrust Movement,” Harvard Business Review, December 15, 2017.

[16] Jack Egan, “The New Antitrust Policy: Big is Beautiful,” New York, May 11, 1982.

[17] “Amazon’s Share of US eCommerce and Sales Hits All-Time High of 56.7% in 2021,” PYMNTS, March 14, 2022; Jerrold Nadler and David N. Cicilline, “Investigation of Competition in Digital Markets,” House Committee on the Judiciary, 2020.

[18] Susan R. Holmberg and Zach Freed, “Fighting Monopoly Power: Food and Farming,” Institute for Local Self-Reliance, 2020.

[19] Charlie Thaxton, “The Hidden Price of Cashless Retail,” Fortune, April 3, 2019.


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