Exposing the utility playbook: Ratepayers are stuck paying the bill for utility corruption, Also EPA urges FERC to consider gas pipelines as stranded assets, ‘carbon lock-in’ S&P

The U.S. Environmental Protection Agency staked out a new position on federal reviews of interstate natural gas pipelines, advising the Federal Energy Regulatory Commission to weigh the potential for “carbon lock-in” and the “costly irreversibility” of building such infrastructure.

The EPA, as a representative of the Biden administration, has the potential to shake up debate on a key FERC policy. The recommendation for a broad expansion of climate considerations would mark a sharp departure from the commission’s historical approach. The EPA comment was a major one among a flood of filings from energy companies, environmental nonprofits, and others responding to the commission’s updated notice of inquiry on how it might alter its 1999 natural gas pipeline certificate policy (PL18-1).

Gas pipeline companies and their allies argued that FERC’s existing pipeline policy framework under the Natural Gas Act is sufficient. “The commission should be reticent to implement significant changes to a process that is working as Congress intended,” the Interstate Natural Gas Association of America, or INGAA, told the regulator.

The EPA letter, signed by Associate Administrator Victoria Arroyo, echoed a sentiment of environmental groups that FERC should be careful about locking in long-lived infrastructure that releases greenhouse gas emissions or creates the potential for stranded assets. The environmental agency backed the idea that FERC could seek mitigation of a project’s climate and environmental justice impacts, and offered possible options, such as considering compressor stations with electric turbines.

The EPA also recommended that FERC prioritize climate adaptation and resilience concerns, potentially helping avoid investments in locations that are vulnerable to the effects of climate change. The agency said FERC should “consider requiring applicants to incorporate climate-resilient design considerations and develop climate adaptation plans.”

And in assessing whether a gas pipeline project is needed, FERC should examine whether other types of energy infrastructure could meet future energy demand, the EPA said.

Along with the Council on Environmental Quality, the EPA encouraged FERC to consider the climate impacts of upstream production and downstream end-use emissions. The EPA said FERC could deny a pipeline on grounds that the total impacts from upstream, downstream and direct activities would be too harmful to the environment. It suggested that FERC routinely include a quantitative estimate of downstream emissions.

Both the EPA and the CEQ suggested that the social cost of greenhouse gases could be a useful metric in pipeline reviews. The social cost of carbon is an estimate in dollars of the long-term economic damage caused by emissions for use in cost-benefit analyses.

Most pipelines and other energy companies took a more constrained view of the scope of FERC’s legal authority to examine indirect emissions or require mitigation. INGAA argued that the commission should not rely on the social cost of carbon tool in certificate proceedings because it “is an expansive tool that incorporates factors beyond the authority of the commission to consider” under the Natural Gas Act. The group supported a previous finding by FERC that the tool is also “inadequately accurate” to use in reviews under the National Environmental Policy Act.

This view was not universal in the pipeline industry. Kinder Morgan Inc. said the social cost could be useful in some cases as a “screening tool” in an environmental impact statement. The tool could help FERC gauge whether emissions associated with a project are “uncharacteristically high” and compare projects against alternatives, the company said. But Kinder Morgan said it would be inappropriate to use the social cost of carbon for quantifying project benefits and impacts or for determining mitigation measures.

Environmental justice also got ample attention in the comments landing at FERC. The EPA has defined environmental justice communities as low-income or minority communities that have historically borne the brunt of impacts from industrial development.

A coalition of conservation groups led by the Natural Resources Defense Council said FERC should look back at prior certificate orders to see whether existing conditions adequately protect environmental justice communities, and it should weigh possible changes to these conditions. FERC should make it a regular practice to require certificate holders to mitigate or avoid impacts to environmental justice communities, the groups said.

INGAA urged FERC to set clear, consistent standards for identifying and promoting engagement with environmental justice communities. It said clearer definitions could help pipeline developers avoid such communities at the planning stage. The pipeline trade group said applicants should be able to propose alternatives or minimize impacts if disproportionate impacts were identified. But FERC should not push pipeline companies to mitigate for past environmental justice impacts associated with industrial impacts unrelated to the gas projects, INGAA said.

Other industry groups emphasized that FERC should consider any positive economic effects of gas projects for low-income communities in addition to negative impacts.

The EPA recommended that when FERC identifies disproportionate impacts on environmental justice communities, the commission considers developing a new alternative, modifying the project design, or including mitigation.

The EPA’s recommendations followed sweeping executive orders signed by President Joe Biden that called for a “whole of government” approach to tackling climate change. Biden also reestablished an interagency working group to calculate the social cost of carbon. FERC was exempt from the orders as an independent agency.

“Ultimately, FERC is an economic regulator — not an environmental regulator — and these [climate] functions are more appropriately considered under the jurisdiction of CEQ and the EPA,” the Natural Gas Supply Association wrote.

Maya Weber is a reporter for S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.

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

Published May 27, 2021By Landon Stevens and Mark Pischea

The following is a contributed article by Landon Stevens, Director of Policy & Advocacy, and Mark Pischea, President & CEO, at the Conservative Energy Network.

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.

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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.