1 UNITED STATES OF AMERICA FEDERAL ENERGY

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Rate Recovery, Reporting, and Accounting

Treatment of Industry Association Dues

and Certain Civic, Political, and Related

Expenses

)

) Docket No. RM22-5

)

Comment of the Harvard Electricity Law Initiative

The Commission’s inquiry into its Uniform System of Accounts (USA) is both

timely and long overdue. The recent Newman and Haverty decision highlights a

loophole in the Commission’s approach to trade association dues.

In that case, the

D.C. Circuit held that Account 426.4 encompasses utility expenditures aimed at

directly or indirectly influencing public officials. Because Account 426.4 is a below-

the-line account, these expenditures are generally not recoverable from ratepayers

when incurred by utilities. Yet the USA allows utilities to recover from ratepayers

expenditures aimed at influencing public officials when they are incurred by a utility

trade association. This incongruence incentivizes utilities to avoid paying for

political expenditures by funneling them through a trade association. Indeed, the

record in Docket No. RM21-15 shows utility trade associations engage in numerous

activities aimed at influencing public officials. At the very least, in a forthcoming

rulemaking, the Commission should eliminate loopholes that treat utilities’ political

expenditures differently from their trade associations’ political expenditures.

More broadly, the Commission should update the USA to reflect the competitive

nature of today’s energy sector. As Commissioner Danly notes in dissenting from

this inquiry, “[t]here are scores of trade associations that represent every facet of our

The Harvard Electricity Law Initiative is an independent organization based at Harvard Law School’s

Environmental & Energy Law Program. These comments do not represent the views of Harvard

University or Harvard Law School.

Keryn Newman and Alison Haverty v. FERC, 22 F.4th 189 (D.C. Cir. 2021).

industry and which advocate for every policy viewpoint.”

While they “all have an

equal privilege to speak,”

the USA currently discriminates in favor of speech by

entities that file cost-of-service rates. Merchant developers, competitive retailers,

and energy technology providers all compete with utilities in the policy arena,

seeking legislative and regulatory changes that benefit their business models. It is

impossible to divorce competition from political advocacy.

Trade associations are central players in this political space. They are designed

to respond to the political landscape and shape political outcomes. While utilities do

not seek cost recovery of their trade associations’ “lobbying” expenses as defined by

the federal tax code, that narrow definition fails to capture the scope of utility trade

associations’ political activities, and in particular their efforts to entrench

traditional regulatory structures to the detriment of market-based competition and

non-utility market participants.

The Commission’s approach to utility trade association dues has not kept pace

with the industry’s evolution. Sixty years ago, the Commission concluded that

“expenditures for political activities are generally incompatible with the objectives of

utility regulation, and have a dubious relationship to the cost of rendering utility

service.”

But the Commission then left unchanged its rule allowing utilities to

classify trade association dues as “miscellaneous expenses” that are presumptively

recoverable.

Evidence in Docket RM21-15 shows that utility trade associations

engage in activities that aim to enhance the political influence of monopolist

utilities, potentially to the detriment of competition, consumers, and Commission

policy favoring market-based approaches.

Rate Recovery, Reporting, and Accounting Treatment of Industry Association Dues and Certain Civic,

Political and Related Expenses, 177 FERC ¶ 61,180 (2021) (Comm’r Danly, dissenting, Feb. 1, 2022).

Id.

Re Alabama Power Co., 22 FPC 72, 76 (1959); see also Re Alabama Power Co., 24 FPC 278, 286 (1960),

aff’d, Southwestern Elec. Power Co. v. FPC, 304 F.2d 29 (1962).

See Re Alabama Power, et al., 20 FPC 108, 110 (1958) (describing Account 801).

To remedy the discriminatory effects of the USA that benefit one class of market

participants, the Commission should reverse its approach to trade association dues.

Rather than presuming that trade association dues less the association’s “lobbying”

expenses are recoverable via Account 930.2, the Commission should require

regulated companies to include trade association dues in a below-the-line account.

Only if the regulated company provides evidence that a portion of its association

dues cover activities that “enhance the quality of the service” that the company

provides,

should the Commission allow it to book that portion of its dues in an

above-the-line account. Those expenses might relate to cybersecurity, storm

restoration, technical trainings, and other activities squarely aimed at transmission

and distribution operations. All trade association expenditures aimed at the utility

industry’s image, public policy with implications for competition, or other activities

designed to influence the industry’s positioning or otherwise serve shareholder

interests ought to be paid for by utility shareholders.

We also suggest that the Commission modernize Account 426.4 to reflect

twenty-first century utility regulation and corporate communications practices. In

particular, we propose expanding Account 426.4 to include utility expenditures

aimed at influencing public opinion on utility regulation and urge the Commission to

adopt a broad understanding of utility efforts to influence public officials and the

public. The Commission should explicitly reject any suggestion that only utility

communications about specific legislative or regulatory proposals must be accounted

for in 426.4.

Our comments respond to the Notice of Inquiry’s Questions 12, 13, 17, 20, and 21,

and Paragraph 19.

Comments of the Indicated PJM Transmission Owners, Docket No. RM21-15 (Apr. 26, 2021) (claiming

that “utilities leverage” information provided by trade associations to “enhance the quality of the

service that they provide” and discussing mutual assistance programs and information sharing but

failing to disclose what percentage of trade association dues recovered from ratepayers are spent on

such programs).

In Part I, we argue that utility trade associations should separate expenditures

that should be booked in Account 426.4 if incurred by a utility member (Q 12). We

generally endorse the Commission’s proposed approaches to enhancing transparency

and urge the Commission to ensure that it chooses an enforceable option (Q 13). We

also provide several examples of trade association activities that illustrate the gap

between Account 426.4 and the tax code (Qs 17, 20). We provide additional examples

in Parts II and III. In Part II, we suggest an alternative approach that would require

utilities to put trade association dues in a below-the-line account. If a utility

provides specific evidence that a portion of its trade association dues cover activities

that enhance utility service, it should be allowed to book those expenses in an above-

the-line account (Q 21). In Part III, we respond to Commission proposals for further

guidance on Account 426.4 (P 19).

The Commission’s inquiry is particularly important because the USA are so

widely used. As NARUC explains in a publication for the United States Agency for

International Development (USAID): The USA “is used by virtually every electric

utility in the United States and is gaining widespread support throughout the

world.”

The Commission’s rules will directly affect jurisdictional and retail rates.

I. The Commission Should Stop Allowing Utilities to Recover from

Ratepayers Political Expenditures Incurred by Utility Trade

Associations

A Uniform System of Accounts should provide regulators with “full knowledge”

of the regulated utilities’ activities “in order that [regulators] may ascertain whether

forbidden practices and discriminations are concealed.”

The Commission has long

required that “political expenditures” be “accounted for ‘below the line,’ as non-

operating expenses, thereby providing the basis in rate proceedings for such

NARUC, Regulatory Accounting: A Primer for Utility Regulators (2019).

Interstate Commerce Commission v. Goodrich Transit Co., 224 U.S. 194, 216 (1912).

expenses to be borne by shareholders and not consumers.”

Evidence submitted in

Docket No. RM21-15 shows that utility trade associations engage in political

activities and that ratepayers pay for those political activities through utility rates.

The Commission should close the loophole that requires ratepayers to fund utility

trade associations’ political activities that would be presumptively unrecoverable

had utilities incurred those expenses directly. The Commission’s current approach

neglects the “compelling need for separate classification and disclosure of such

controversial expenditures”

and burdens ratepayers with expenses that have a

“dubious relationship to the cost of rendering utility service.”

Trade associations and their utility members are able to exploit a gap in the

current rules. The D.C. Circuit recently held that USA Account 426.4 must “include

expenditures for the purpose of indirectly as well as directly influencing the

decisions of public officials.”

Utility trade associations, however, separate un-

recoverable political expenditures on their members’ bills using a narrower

definition from the federal tax code.

With regard to public officials, the tax code’s

definition includes only direct communication about specific legislation with

Re Alabama Power Co., 24 FPC 278, 284 (1960) (“Relatively early in the history of the System of

Accounts, the Commission interpreted it to require that political expenditures be charged to an income

deductions account.”); see also In the Matter of Northwestern Electric Co, et al., 2 FPC 369 (1941)

(finding utilities charged political expenditures to ratepayers “in spite of the fact that the expenditures

were obviously not made for the benefit of such consumers . . . [and that] many political expenditures

were made indirectly to conceal the fact that they were being made by the utilities” and committing to

issue rules to address these and other practices).

Re Alabama Power Co., 22 FPC 72, 76 (1959); see also Re Alabama Power Co., 24 FPC 278, 286

(1960):

Hence, the classification of such [political] expenditures routinely to operating

expenses would not be consistent with the objectives of utility accounting regulation,

which aims at the separate disclosure and classification of all such controversial

items, so as enable a clear understanding and realistic appraisal of the nature thereof.

Throwing all such controversial expenditures into a hotchpotch of operating expenses

would tend to obscure their essential character, and make more difficult their

informed analysis and proper ultimate disposition.

Id.

Newman and Haverty, 22 F.4

at 196.

See Appendix A, which includes a letter from EEI’s general counsel to a member company that

requested information about EEI’s expenditures for purposes of cost recovery in a state rate case. The

letter shows that EEI discloses on the record only the percent of its total budget spent on “lobbying,” as

that term is defined by the federal tax code. It provided no additional information about its

expenditures to support its member utility in a state rate case.

members and employees of a legislative body and government employees that write

legislation, as well communication with very high-level federal Executive officials.

Importantly, the tax code’s definition does not encompass expenditures aimed at

directly or indirectly influencing state governors, state utility regulators, staff at

other federal or state agencies, or this Commission, as well as expenditures aimed at

influencing legislators, other than direct communication about specific legislation.

The enormous gap between Account 426.4 and the federal tax code’s definition of

“lobbying” allows utilities to recover from ratepayers the costs of political activities,

so long as those activities are conducted on their behalf by their trade association.

Had the associations’ utility members engaged directly in those activities, the USA

would require them to book the expenses in a below-the-line account. Utility trade

associations do, in fact, engage in such activities. For instance, the Edison Electric

Institute’s (EEI) annual “Results in Review” from 2015 and 2016 (see Appendix B)

boast of the following political activities:

• “Directly engaged with state policymakers, consumer advocates, and other

key stakeholders” on state net metering policies;

• “Convened member companies, state policymakers, and consumer advocates .

. . to develop consensus principles on the evolving distribution system;”

• “Deployed a team of EEI and third-party experts to engage in state

proceedings, forums, policy conversations, and earned media;”

• “Established new strategic partnerships with key state- and community-

based organizations to further educate stakeholders and elected officials on

the value of the grid and other industry and consumer priorities;”

26 USC § 162(e)(3). The definition also covers “direct communication” with high-level Executive

officials, including the President, Vice President, and certain White House Officials. The definition does

not cover state utility regulators, governors, FERC Commissioners or staff, or staff at other state and

federal agencies. See also 26 CFR § 56.4911-2 (further clarifying the definition in the US Code).

• “Sponsored dialogues and forum [that] brought together FERC

Commissioners, state policymakers, consumers, Wall Street analysts, and

industry leaders to discuss key issues facing the industry;”

• “Educated NARUC on key industry issues and conducted educational

dialogues for state regulators;”

• “Launched a broad education and advocacy strategic initiative to highlight

the industry’s transformative leadership . . . and secure positive policy

outcomes;”

• “Partnered with AGA and NEI . . . to drive the conversation about our

nation’s energy future during the Republican and Democratic national

conventions.”

The EEI documents outlining these activities are a bit dated because EEI does

not publicly distribute its annual reviews, and these documents were obtained either

by a journalist or via discovery in a state proceeding. Regardless, there is no doubt

that EEI continues to engage in similar political activities aimed at influencing

policymakers. An EEI executive revealed at a February 2022 investor briefing that

EEI has “a state practice that we formalized in 2018, and it includes people from

external affairs, communications, people who are regulatory experts to help our

member companies. We actually were involved in 41 states and D.C. last year

helping our member companies deal with state regulators and the issues, and we

spend a lot of time with state regulators trying to educate them on the importance of

these [rate case and other proceedings about utility investments] decisions and the

impacts on the customers.”

Each of the initiatives listed above is aimed at indirectly or directly influencing

the decisions of public officials. Because none appear to be about specific regulatory

Appendix B consists of excerpts from EEI’s 2015 and 2016 annual review documents that it

distributes to its members.

EEI Wall Street Briefing, Feb. 9, 2022, beginning at 51:38.

proceedings “in connection with [a] reporting utility's existing or proposed

operations,”

a utility engaging in any of the above activities should report its

expenditures below the line, in Account 426.4. However, none of the above activities

seem to meet the definition of “lobbying” that EEI uses when it discloses to its

members the portion of their dues that pay for unrecoverable lobbying expenses.

Therefore, ratepayers presumably pay for all of these political activities through

their utility rates.

No law compels utilities or their associations to use the tax code’s definition of

“lobbying” for purposes of recovering dues from ratepayers. That provision of the tax

code disallows a federal tax deduction for direct lobbying expenses.

A related tax

code provision requires tax exempt organizations, such as trade associations, to

report their lobbying expenses (as defined by the tax code) to their dues-paying

members.

This disclosure allows for-profit trade association members to deduct

from their taxable income only the portion of trade association dues not used for

lobbying. As applied to Public Utilities, a utility may deduct from its taxes the dues

it pays to EEI, less the portion of those dues that EEI uses for “lobbying.”

Aligning the USA with the tax code may be convenient for utility trade

associations, but it does not serve any reasonable public policy objective. It allows

the utility industry to conceal and pay for its political expenditures by funneling

them through a trade association. The Commission should not allow trade

associations to be vehicles for cost recovery of utility industry political expenditures.

As the Commission suggests in its Notice of Inquiry, it could limit utility cost

recovery of trade association dues only to trade associations that follow certain

Account 426.4 excludes “expenditures which are directly related to appearances before regulatory or

other governmental bodies in connection with the reporting utility's existing or proposed operations.”

Supra note 14.

26 USC § 162(e).

26 USC § 6033(e).

transparency or accounting guidelines.

The Commission could allow utilities to

recover trade association dues less the utility’s share of the association’s

expenditures that the utility itself would have to book in Account 426.4 (as clarified

by Newman and Haverty). In the NOI, the Commission suggests three methods for

operationalizing this approach to cost recovery of utilities dues (Q 13).

Regardless

of the approach it takes, the Commission should ensure that either the trade

association or the utility is accountable for any statements about the trade

association’s expenses. Trade associations are not Public Utilities and do not make

rate filings, but they do file annual reports to the IRS and can be liable for

misstatements about their “lobbying” expenses.

Deviating from that definition for

purposes of cost recovery will mean that the Commission cannot rely on another

federal agency to enforce inaccuracies. In addition to the Commission’s proposed

options (Q 13), the Commission could consider working with NARUC to revive its

audits of trade associations. It might also encourage trade associations to make

informational filings of audited financial statements and limit cost recovery only to

those trade associations that make such filings.

Encouraging trade associations to remove expenditures that utilities themselves

should book in Account 426.4 is not regulating or burdening speech under the First

Amendment. When utilities challenged a Commission order that required them to

book political advertising expenditures in a below-the-line account, the Fifth Circuit

dismissed their First Amendment claims, explaining:

[N]othing in the order prohibits or restrains the petitioners from

publishing or republishing these or any other similar advertisements.

Their freedom of speech or freedom of action in this area are not in

any manner limited. All that has occurred in this proceeding relating

to keeping of accounts is to exercise the Commission's discretion as to

where these expenditures should be entered and to do so in such

NOI at P 17.

Id.

See EEI, IRS Form 990, Schedule C, Part III-B (reporting the lobbying expenses disclosed its

members).

manner as to indicate the views of the Commission that such

expenditures should not be subsidized by the consumers who purchase

the power . . .

Here it may be said that these petitioners are not being denied the

right to charge the cost of this advertising as operating expenses

because they engage in constitutionally protected activities; they are

simply being required to keep their books in such manner as to

indicate that presumptively those activities are to be paid for out of

their own pockets rather than passed on to the consumer.

II. To Protect Consumers and Competition, the Commission Should

Find that Trade Association Dues Are Presumptively Non-

Recoverable

Alternatively, the Commission should amend the USA and require utilities to

book trade association dues in a below-the-line account, less any portion of dues that

the utility can prove aim at enhancing transmission and distribution service. Trade

association dues should not generally be recoverable from ratepayers because, at

best, they “obviously have a doubtful relationship to rendering utility service.”

Ratepayers currently give as much as $100 million to utility trade associations,

providing utilities with an unfair advantage over other market participants in the

competitive policymaking arena. Subsidizing utility trade associations is

particularly misguided because the benefiting utilities are designed to thrive

without the sort of market-based competition that the Commission and state

regulators promote for the benefit of ratepayers. Utilities derive significant value

from cost-of-service rates and barriers to entry that limit competition,

and

therefore have have strong incentives to protect policies that reinforce their

Southwestern Elec. Power Co. v. FPC, 304 F.2d 29 (1962).

Re Alabama Power Co., 24 FPC 278, 286 (1960), aff’d, Southwestern Elec. Power Co. v. FPC, 304 F.2d

29 (1962).

In 2018, EEI collected $76.3 million from membership dues. EEI, IRS Form 990. The American Gas

Association collected $27.3 million from membership dues. AGA, IRS Form 990. The record in Docket

RM21-15 shows that ratepayers advocates have, on occasion, successfully challenged inclusion of those

dues in utility’s retail rates. Thus, it seems unlikely that utilities recovered all $103.6 million of those

two trade associations’ dues from ratepayers.

The traditional barrier is the requirement that a company obtain a state or federally issued

certificate of public convenience and necessity. More recently, state or federal rights of first refusal and

or minimum offer price rules are barriers to entry in certain industry segments or markets.

structural advantages.

Indeed, utilities advocate for maintaining those

advantages.

Subsidizing utility speech is inconsistent with foundational Open Access

principles. For nearly three decades, the Commission has “required comparable

service in a variety of contexts”

in order to move the industry “to an environment

in which truly comparable transmission services will be provided to all wholesale

users.”

To operationalize this comparability principle, the Commission has gone so

far as to institute utility codes of conduct,

encourage utilities to cede control of

their facilities to independent organizations, and impose transmission planning

rules.

Requiring ratepayers to pay for utility advocacy while leaving other market

participants to fund their advocacy out of their market-based earnings is not

comparable treatment. The Commission grounded its Open Access regime in the

truism that the “inherent characteristics of [utility] monopolists make it inevitable

that they will act in their own self-interest to the detriment of others,”

and is

premised on mitigating EEI members’ incentives and opportunities to unduly

discriminate against competitors and customers.

Yet, perversely, the Commission

See, e.g., Gordon Tullock, The Welfare Costs of Tariffs, Monopolies, and Theft, 5 WESTERN ECONOMIC

J. Issue 3, p. 224‒232 (Jun. 1967); Joseph J. Stigler, The Theory of Economic Regulation, 2 THE BELL

JOURNAL OF ECONOMICS AND MANAGEMENT SCIENCE, Issue 1, pp. 3‒21 (Spring 1971).

Just in the past two years, EEI itself has asked the Commission to end transmission competition

(Docket No. RM21-17) and raise costs of new entry for generators in PJM and NYISO (Docket Nos.

ER21-2282, ER21-1647), and has continued its longstanding crusades against PURPA and demand

response (QF17-454, RM18-9; note that EEI was a respondent alongside EPSA and others in the FERC

v. EPSA Supreme Court case about whether the Commission has jurisdiction over wholesale demand

response). As we describe, EEI’s filed comments in these proceedings are a relatively minor part of its

role in attempting to limit the scope of competition and shape market rules to benefit its monopolist

members.

Order No. 888, 61 Fed. Reg. 21,540, at p. 21,548 (May 10, 1996).

Id. at p. 21,615.

Id. at p. 21,552 (“Adoption of this code of conduct. . . is needed to ensure that the transmission

owner's wholesale marketing personnel and the transmission customer's marketing personnel have

comparable access to information about the transmission system.”).

See, e.g., Order No. 890 at P 494 (outlining the comparability transmission planning principle).

Order No. 888, at p. 21,567.

See Comment of the Harvard Electricity Law Initiative, Docket No. RM21-17, at pp. 6‒30 (Oct. 12,

2021).

subsidizes utility efforts to advocate for policies that reinforce the status quo and

utility control.

Classifying utilities’ trade association dues as “miscellaneous general expenses

. . . incurred in connection with the general management of the utility”

may have

been appropriate in the days when there was “no market structure as we

understand it in today’s electric power industry.”

Today, the scope of competition

and the rules governing competition are, at least in part, subject to political

decisions.

Advocacy, by trade associations and others, is a fundamental component

of competition. The Commission has long recognized that politics and competition

are intertwined,

and it should update the USA to reflect that understanding.

Below, we examine the roles of trade associations in the competitive

policymaking arena and fit EEI’s activities within that context. Our analysis shows

that trade association’s political advocacy aims at competition and cannot be

USA Account 930.2. This account dates back at least to the 1950s. See Alabama Power, et al., 20 FPC

108, 110 (1958). At the time, Miscellaneous General Expenses was Account 801, which then included

“such items of expense applicable to the electric department as . . . association dues; [and] contributions

for conventions and meetings of the industry.” These and other items are now booked in Account 930.2.

Grid Reliability and Resilience Pricing, 162 FERC ¶ 61,012 at P 7 (2018).

Consider just a few developments in January 2022. In Wisconsin, lawmakers introduced a

transmission right-of-first refusal law that would inhibit Commission efforts to develop regional

projects through competitive processes by preferring utility-developed transmission. See Chris

Hubbuch, “With Billions at Stake, Wisconsin Lawmakers Seek to Block Power Line Competition,”

WISCONSIN STATE JOURNAL, Jan. 22, 2022. Lawmakers in Missouri also introduced right-of-first refusal

bills HB 1811 and SB 1003. In Arizona, lawmakers introduced a bill that would reinforce utility

monopolies by repealing provisions that enable electric retail competition. Courtney Holmes, “Bill to

Eliminate Electric Competition Law Considered,” Scripps Media, Jan. 21, 2022. In Kansas and West

Virginia, lawmakers introduced bills that favor utility-owned coal-fired power plants. See KS SB 350;

WV HB 2713 (2021 bill that was reintroduced on Jan. 12, 2022). State commissions are not immune

from politics. In California, the Governor criticized a CPUC administrative law judge’s recommended

decision to revise the state’s net metering laws, commenting that he “had a chance to review [the

decision], and I’ll say this about the plan: We still have some work to do. . . . Do I think changes need to

be made? Yes I do.” Rob Nikolewski, “Newsom: ‘More Work to Be Done’ on California Net Metering

Solar Proposal,” The San Diego Tribune, Jan. 11, 2022.

In the 1950s, IOUs launched an advertising campaign that targeted their public power rivals. Re

Alabama Power Co., 20 FPC 108 (1959) (detailing one of the advertisements and including others as an

appendix to the order). Claiming they had to respond to “government competition,” IOUs sought cost

recovery of their advertising expenditures. Re Alabama Power Co., 22 FPC 72, 74 (1960). But the

Commission disallowed cost recovery, holding that the ads “involved matters of political controversy”

and that such “expenditures for political activities are generally incompatible with the objectives of

utility regulation, and have a dubious relationship to the cost of rendering utility service.” Id. at 76.

The Fifth Circuit upheld the order. Southwestern Elec. Power Co. v. FPC, 304 F.2d 29 (1962). The next

year, the Commission created Account 426.4, which is unchanged. Order No. 276, 30 FPC 1539 (1963).

confined to its “lobbying” expenditures. We use EEI as an example of a utility trade

association because it is the largest utility trade association,

and the record in

docket RM21-15 includes extensive information about the organization’s activities.

In general, a trade association allows member companies to “pool their resources

and coordinate their efforts so that they may speak with one voice on matters of

shared interest.”

A trade association can enhance its members’ lobbying by

creating a shared understanding among members of political issues, holding

members accountable for lobbying activities, and directing members to engage in

specific political activities.

By hosting conferences and other gatherings, trade

associations foster relationships and promote information exchange among corporate

executives, public officials, and government affairs professionals. These social ties

can create pressure that leads to common political activities and strategies.

EEI fits this general description. EEI states that its mission is to “provide public

policy leadership, strategic business intelligence, and essential conferences and

forums.”

Each of these core functions is political. None are aimed at enhancing its

members’ utility service. As highlighted in the previous section, EEI organizes its

members around political issues and seeks to influence policy outcomes by

EEI spent $92 million in 2019. By comparison, the American Gas Association spent $35 million, the

Nuclear Energy Institute spent $46 million, and the Interstate Natural Gas Association of America

spent $8 million.

Michael L. Barnett, One Voice, But Whose Voice? Exploring What Drives Trade Associations. 52

USINESS AND SOCIETY, Issue 2, pp. 213‒244 (2012).

Michael S. Kowal, Corporate Politicking, Together: Trade Association Ties, Lobbying, And Campaign

Giving. 20 BUSINESS AND POLITICS, Issue 1, pp. 98-13 (2018) (citing Dennis R. Young, Neil

Bania, and Darlyne Bailey, Structure and Accountability: A Study of National Nonprofit Associations. 6

NONPROFIT MANAGEMENT & LEADERSHIP Issue 4, pp. 347–65 (2006); Michael Lenox, Jennifer Nash,

Industry Self-Regulation and Adverse Selection: A Comparison Across Four Trade Association

Programs, 12 BUSINESS STRATEGY AND THE ENVIRONMENT Issue 6, pp. 343–56 (2003); Alison J.

Kirby, Trade Associations as Information Exchange Mechanisms. 19 T

HE RAND JOURNAL OF

ECONOMICS Issue 1, pp. 138–146 (1988); Leonard H. Lynn, Timothy J. McKeon, Organizing business:

Trade associations in America and Japan. American Enterprise Institute for Public Policy Research

(1988); Mancur Olson. THE LOGIC OF COLLECTIVE ACTION: PUBLIC GOOD AND THE THEORY OF GROUPS

(1965)).

Id.

EEI Mission, https://www.eei.org/about/Pages/about.aspx. EEI includes this mission statement in its

filings at this Commission and in its annual IRS Form 990. See EEI Form 990 at pg. 2 (2018).

mobilizing its own resources, those of its members, and allied organizations. EEI

builds political coalitions in part through its more than $3 million per year of

“grants” to dozens of organizations, ranging from Americans for Prosperity to the

Congressional Hispanic Caucus.

EEI’s activities are designed to enhance the

lobbying of its members and amplify the utility industry’s messaging.

Trade associations can also be part of an industry’s strategy to signal to

regulators that its members have the ability to contest new regulations and

enforcement activities. Political scientists have found that “firms that can credibly

signal their intention to fight an agency on decisions that affect them adversely”

can deter discretionary regulatory actions, such as enforcement or new

rulemakings.

“Firms may flex their muscles in this manner by enhancing their

political footprint,”

adopting a political strategy that is “akin to intimidation.”

“Active lobbying . . . can convey to a regulator a credible prospect that the group

would be able to block the regulator, such as by elevating a potential conflict with

the agency to other arenas such as Congress, the White House, or the judiciary.”

See EEI Form 990, Part IX, Line 1 (specifying the amount of “Grants and other assistance to

domestic organizations.” For the four most recent years in which the full Form 990 is publicly available,

grants averaged $3.3 million per year. In 2018, Americans for Prosperity and the Congressional

Hispanic Caucus were among the dozens of organizations that received “grants” from EEI.

Sanford C. Gordon and Catherine Hafer, Corporate Influence and the Regulatory Mandate, 69

OURNAL OF POLITICS, Issue 2, pp. 300‒319 (2007) (citing Sanford C. Gordon and Catherine Hafer,

Flexing Muscle: Corporate Political Expenditures as a Signal to the Bureaucracy, 99 A

MERICAN

POLITICAL SCIENCE REVIEW, Issue 2, pp. 245‒261 (May 2007).

Alex Acs and Cary Coglianese, Influence Through Intimidation: Evidence from Business Lobbying

and the Regulatory Process, Faculty Scholarship at Penn Law (2021) (presenting “empirical evidence

consistent with expectations that intimidation can shape regulatory outcomes to the advantage of

certain firms, both through a chilling effect, where lobbying derails nascent regulatory plans, as well as

a retreating effect, where opposition

to published proposals leads to their withdrawal”).

Id.

Alex Acs and Cary Coglianese, Influence Through Intimidation: Evidence from Business Lobbying

and the Regulatory Process, Faculty Scholarship at Penn Law (2021) (citing McGarity, Thomas.

“Administrative Law as Blood Sport: Policy Erosion in a Highly Partisan Age.” 61 DUKE LAW JOURNAL,

pp. 1671-1762 (Apr. 2012)).

general, “a broader regulatory mandate increases the value to firms of deterring

regulatory scrutiny by signaling their willingness to contest the agency.”

The power industry is heavily regulated, and each EEI member has similar

incentives to oppose rules that expose them to competitive pressures or heightened

regulatory scrutiny. With its nearly $100 million annual budget,

EEI is ubiquitous

in policy arenas, ranging from its sponsorships of NARUC events to its “dialogues”

with policymakers mentioned in Part I. EEI’s consistent presence is part of the

utility industry’s “political footprint” that reminds policymakers of the industry’s

capacity to marshal resources in service of the industry’s goals.

This signaling takes many forms. At this Commission, EEI’s filings can indicate

a willingness to contest or support a future Commission order. Consider, for

instance, EEI’s initial filing in response to the transmission ANOPR (Docket No.

RM21-17). Although dozens of EEI members filed separately, either in joint

comments with other members or individually, EEI filed its own comment. EEI

opens by asking the Commission to align transmission development with its

members’ state-granted distribution territories. The comment signals to the

Commission the terms of a new rule that the utility industry as a whole is willing to

accept. Other (non-utility) trade associations may file their own statements, but few

have the “political footprint” to back up such statements. The issue here is not

whether such filings are permissible or legitimate. Obviously they are. The only

issue in this proceeding is whether the Commission will end ratepayer funding of

the utility industry’s political footprint.

Trade associations also “manage the industry’s reputation with regards to

stakeholders like regulators, industry financial analysts, employees, suppliers, and

Id.

In its annual IRS Form 990 filing, EEI discloses its annual expenditures. For the four most recent

years when the data from those filings are publicly available, EEI’s average annual expenditures were

$92 million (2016‒2019).

the media.”

EEI is active on this front as well. In its 2017 Wall Street briefing, an

EEI executive explained the organization’s initiatives:

A year ago, EEI launched an industry Education and Advocacy

Strategic Initiative with national communications, inside-the-Beltway,

and beyond-the-Beltway components. The initiative is designed to tell

the story of our industry’s leadership, while also promoting the value

of our industry overall — to our everyday lives, our economy, and our

national security — and the innovation we are driving. With the new

Administration, new Congress, and many new elected officials in the

states, our job of telling our industry story and educating

policymakers will be more important than ever as we work to achieve

favorable policy outcomes. A critical component of our initiative is to

establish a common language for the industry, ensuring that we speak

in a common industry voice. We laid the foundation with the rollout of

our lexicon project last March, and we continue to expand our work

around messaging and language. We have many opportunities to

advance this initiative this year — both in Washington and in the

states — and I know my colleagues share my enthusiasm for what’s to

come for our industry.

These efforts to promote the utility industry in D.C. and state capitals harm

utility competitors. EEI’s so-called lexicon project referenced in the previous

paragraph aimed to help utilities “speak with a common voice” by standardizing

industry terms based on expensive market research.

For instance, EEI

recommended that its members call net-metered solar “private solar” that earns

“private solar credits,” in contrast to utility-scale “universal solar” that “benefits [ ]

all American homes . . .”

As the EEI executive put it, the industry should “proceed

with the terminology that is more favorable to us.”

EEI’s then-chairman and CEO

of a major utility holding company explained that the lexicon project is about

Andrew Tucker, Trade Associations as Industry Reputation Agents: A Model of Reputational Trust,

10 BUSINESS AND POLITICS, Issue 1 (2008).

EEI, 2017 Wall Street Briefing. See Appendix B.

EEI and Maslanksy&Partners, The Future of Energy: A Working Communication for Discussion

(Apr. 2016).

Id.

Kate Sheppard, This Messaging Guru Is Helping Utilities Clean Up Their Appearance,” Huffington

Post, Mar. 29, 2016 (quoting EEI executive Brian Wolff).

“do[ing] a better job talking about the aspirational attributes of what we could do

with effective energy policy.”

To be clear, there is nothing wrong with market research or a communications

strategy aimed at influencing energy policy. Presumably, non-utility trade

associations conduct their own research and develop their own strategies to advance

their political and consumer messaging. The issue before the Commission in this

proceeding is only whether utilities should recover the costs of that research and

developing those strategies when those activities are conducted by a utility trade

association. Why should the Commission require consumers to subsidize utilities’

political campaigns when they are spearheaded by a trade association?

By making trade association dues presumptively non-recoverable, the

Commission will not be prohibiting cost recovery of all trade association dues.

Rather, the Commission should put the burden of proof on regulated companies to

demonstrate that trade association dues are “ordinary and necessary in the

operation of the companies’ businesses.”

Distinguishing between recoverable and

unrecoverable trade association expenses does not create a novel line-drawing

problem. That problem already exists. When it finalized Account 426.4, the

Commission acknowledged that:

No matter where the line be drawn with respect to either the general

category of expenditures to be labeled as ‘political’ for purposes of

accounting and reporting or assignment of particular costs, there will

be many people who will believe that some expenditures so listed

should not have been classified as political and others who will be

equally convinced that certain operating expenses were in fact

expenditures for political purposes. This does not mean, as some have

suggested, that we should abandon our effort at separate classification

and reporting of political expenditures, or even that we should limit

Rod Kuckro, Southern’s Fanning Sees His Industry Driving U.S. Economic Success, E&E News (Jul,

14, 2016) (“I never liked defensive messages,” Fanning said. “This is an industry that historically has

been run by lawyers and engineers, and we love them. However, I think we can do a better job talking

about the aspirational attributes of what we could do with effective energy policy,” he said.).

Re Alabama Power Co., 22 FPC 72, 77 (1960).

our effort to those types of expenditures with respect to which all

persons would agree in advance concerning the classification.

The Commission then emphasized the importance of “defin[ing] a class of

expenditures for political purposes in a way which can be applied with an

appreciable degree of uniformity and comparability.”

With that goal in mind, we

propose that the Commission allow recovery of the portion of a utility’s trade

association dues that the trade association spends on activities that aim to enhance

the quality of utility service. Includible expenses might address cybersecurity, storm

hardening and recovery, and operations of transmission and distribution systems.

The Commission could modify Account 930.2 to include only this portion of a utility’s

trade association dues. The remaining portion of a utility’s trade associations dues

should be booked in a below-the-line account, such as Account 426.4. As we

suggested in Part I, the Commission should operationalize this approach through an

enforceable mechanism that ensures either the utility or trade association is

accountable for its representations about trade association expenditures.

III. The Commission Should Modernize Account 426.4

In addition to the two approaches proposed in the previous parts, the

Commission should ensure that the scope of Account 426.4 reflects twenty-first

century industry regulation and corporate communications practices. In Newman

and Haverty, the D.C. Circuit demarcated Account 426.4 into the Public Opinion

Clause and the Official Decisions Clause. The court held that the Officials Decisions

Clause encompasses “expenditures for the purpose of indirectly as well as directly

influencing the decisions of public officials.”

As understood by the court, this clause

is written broadly and should encompass all utility efforts to influence public

officials. The Commission might clarify the breadth of the clause by illustrating the

Order No. 276, 30 FPC 1539, 1540 (1963).

Id.

Newman and Haverty, 22 F.4

at 196.

types of communications that should be included. It might include actual EEI

initiatives listed in Part I and in the record in Docket No. RM21-15.

The Public Opinion Clause is currently narrower. It includes utility spending on

“direct popular decisions,”

such as elections of public officials and referenda, as

well as utility spending “for the purpose of influencing public opinion” on “legislation

or ordinances . . . [or] franchises.”

The Commission should expand the Public

Opinion Clause, either by adding additional items — including utility regulation and

industry positioning — or removing the currently listed items and replacing them

with a general phrase designed to capture all utility expenditures aimed at

influencing public opinion.

Utility expenditures aimed at influencing public opinion on utility regulation

can harm utility competitors and ratepayers. For instance, in Docket RM19-15, the

Commission proposed new rules implementing PURPA. The record includes a letter

filed by “We Stand for Energy” that appears to be from approximately 250 people

across the United States who claim to “support the Commission’s decision to revisit

[PURPA] rules.”

But the “document info” on the Commission’s eLibrary system

shows that We Stand for Energy is a “Project of the Edison Electric Institute.” The

letter is part of a broader campaign that publishes information about a range of

regulatory issues under the We Stand for Energy banner. EEI’s public outreach

might plausibly serve several industry goals, but there is no doubt that its effort to

gather signatures for its PURPA filing aimed to influence public opinion in service of

the utility industry’s regulatory agenda.

EEI’s We Stand for Energy has also

Newman and Haverty, 22 F.4

at 198.

Account 426.4.

Comment of We Stand for Energy, Docket No. RM19-15, Dec. 3, 2019.

EEI says as much in its 2015 annual review: “Through We Stand for Energy, EEI continues to

educate and unite more than 250,000 electricity consumers and stakeholders across the country and to

advocate for smart energy solutions that ensure electricity remains safe, reliable, affordable, and

increasingly clean.” It is equally clear that EEI directly opposed qualifying facilities and their trade

associations in Docket RM19-15. The Solar Energy Industries Association (SEIA) petitioned the Ninth

Circuit to review the Commission’s PURPA rules, and EEI (along with other utility trade associations)

opposed net metering rules or bills through social media campaigns that have

targeted people in Maine, Iowa, New Hampshire, South Carolina, and Kentucky.

Utilities have more directly funded campaigns against various net metering

proposals or have primed the public to oppose policies favorable to rooftop solar. For

instance, in Arizona, a utility funded two advocacy organizations to produce and run

commercials that sought to tie rooftop solar policies to then-President Obama or

portray existing policies as unfair.

In Michigan, two utility-funded organizations

paid for ads on social media that claimed “out-of-state special interests” were either

threatening reliability or were opposed to ratepayers “paying their fair share” to

maintain the electric system.

These examples illustrate how modernizing Account 426.4 in two respects will

protect against ratepayers subsidizing utility speech in the policymaking arena.

First, the Commission should include utility expenditures that aim to influence

public opinion on regulations. Second, the examples highlight why the Commission

must “make clear that the term ‘political’ in the title to subaccount 426.4 is used in

its broadest meaning.”

Many of the social media and video ads do not mention any

specific state policy or urge viewers to take any specific action. While some of the ads

filed an amicus brief in support of the Commission. The case pits the ratepayer-funded trade

associations against a privately funded trade association.

A utility watchdog organization has documented these campaigns, including screenshots of social

media ads. See https://www.energyandpolicy.org/midamerican-and-anti-solar-real-coalition/;

https://www.energyandpolicy.org/what-the-public-learned-from-the-utility-industry-in-2018/.

Kate Sheppard, Arizona Solar Policy Fight Heats Up as Utility Admits To Funding Nonprofits’

Campaign Ads, Huffington Post, Oct. 25, 2013; Herman K. Trabish, Arizona Utility Funds Solar Smear

Campaign, Saying It Is ‘Obligated to Fight’, GreenTechMedia, Oct. 22, 2013. The ads are available on

Youtube - https://www.youtube.com/watch?v=zliNcfyu0eQ (stating rooftop solar policies are generally

“unfair” to seniors but not mentioning any specific policy and instead tying rooftop solar companies to

President Obama);

https://www.youtube.com/watch?v=gZOi-_sPF6s (portraying rooftop solar companies

as corrupt entities tied to President Obama); http://www.youtube.com/watch?v=Ewwx8GQx52Y

(making specific claims about the “unfair” effects of solar policies but not naming any policy);

https://www.youtube.com/watch?v=zJ8tToIeQ_U (asking whether “net metering is fair” and comparing

net-metered ratepayers to a man who takes sprinkles and hot fudge toppings from an ice cream truck

but does not buy anything).

Interlochen Public Radio, Misleading Social Media Ads Bash a Rooftop Solar Bill. They’re Backed By

Big Utility Companies.” Apr. 5, 2021.

Order No. 276, 30 FPC 1539, 1545 (1963) (Comm’r Black, concurring).

coincided with pending bills in the state house, others did not. The Commission

should explicitly reject a narrow reading of Account 426.4 that would require

utilities to book expenditures in that account only if the relevant communications

specify a law, regulation, or elected official. Just as television commercials can be

atmospheric and obscure the product they’re selling, political speech may not target

specific regulatory proposals or political candidates.

As Commissioner David S. Black explained in concurring to the Commission’s

order that finalized Account 426.4:

The utilities and the advertising agencies have displayed great

ingenuity in conveying a ‘message’ which is not always political in the

ordinary sense of the word, but which concerns itself with problems of

broad national social or economic policy. These efforts are intended to

influence fundamental attitudes or beliefs and bear no reasonable

relationship to the necessary operations of a utility company or the

furnishing of utility service. The industry is, of course, free to spend

its money this way, but such costs should be reported as income

deductions below the line. Unless we make this clear, I am fearful that

too restrictive an interpretation may be put on the language of

subaccount 426.4 and expenditures for these purposes may be lost in

various above-the-line operating expense accounts.

Order No. 276, 30 FPC 1539, 1545 (1963) (Comm’r Black, concurring).

Conclusion

The Commission should update its approach to trade association dues. Because

a primary purpose of utility trade associations is to shape competition through

political advocacy, the Commission should require utilities to book trade association

dues in a below-the-line account. Alternatively, the Commission should allow

utilities to recover trade associations dues only when the trade association separates

expenses that should be booked in Account 426.4 if incurred directly by a utility.

Under that approach, a utility would be allowed to recover only the portion of its

dues not used for Account 426.4 expenditures. The Commission should also

modernize Account 426.4 by including expenditures aimed at influencing public

opinion about regulation and explicitly adopting a broad understanding of political

expenditures that should be booked in Account 426.4.

/s/ Ari Peskoe

Ari Peskoe

Harvard Electricity Law Initiative

6 Everett St., Suite 4133

Cambridge, MA 02138

617.495.4425

[email protected]

ebruary 22, 2022

Appendix A

These documents from a Kentucky rate case show that EEI-member utilities seek cost

recovery of the utility’s EEI dues less the utility’s share of EEI’s “lobbying” expenses as

defined in the federal tax code, 26 USC § 162(e). In this proceeding, utility opponents

challenged cost recovery of EEI dues and asked the utility to disclose how much money EEI

spends on “legislative advocacy, regulatory advocacy, and public relations.” Claiming not to

possess relevant information, a utility representative contacted EEI’s general counsel.

EEI’s general counsel responded that because the tax code “does not require us to

separately report regulatory or other activities, as defined in the request made to you, EEI

is not required, nor do we, track or account for our budget in the manner requested.”

This material is referenced in footnotes 13 and 18 of the comment.

LOUISVILLE GAS AND ELECTRIC COMPANY

Response to Joint Supplemental Data Requests of the Attorney General and KIUC

Dated February 5, 2021

Case No. 2020-00350

Question No. 42

Responding Witness: Robert M. Conroy / Christopher M. Garrett

Q-42. Provide all documents that illustrate how EEI utilizes the Companies’ ratepayer-

funded dues. If such documents are not in the Companies’ immediate possession,

provide all correspondence, letters, documents and memoranda between the

Companies and EEI in which the Companies requested such information.

A-42. The Companies are not aware of any such documents in their possession. In the

Companies’ 2018 rate cases, after receiving data requests about EEI, the

Companies contacted EEI by phone and discussed EEI’s reporting of lobbying

expenses. After receiving these data requests in this case, the Companies again

contacted EEI by phone on February 11, 2021 and by letter on February 12, 2021.

EEI replied by letter on February 17, 2021. Copies are attached.

From: Sturgeon, Allyson <[email protected]om>

Date: February 12, 2021 at 8:56:27 AM EST

To: '[email protected]' <[email protected]>, 'abensh[email protected]' <[email protected]g>

Cc: Keisling, Jennifer <Jenni[email protected]om>

Subject: Request for Information

Good morning –

Attached is a formal request for information related to LG&E’s and KU’s pending rate proceedings in Kentucky. We

would appreciate a response within the next few days, if possible, because our responses must be filed by next Friday,

February 19

. Thanks in advance for your assistance. Allyson

Allyson K. Sturgeon

Managing Senior Counsel – Regulatory and Transactions

LG&E and KU Energy LLC

220 West Main Street

Louisville, Kentucky 40202

Phone: (502) 627-2088

Cell: (502) 489-0989

Fax: (502) 217-4995

[email protected]

This e-mail message is confidential, intended only for the named recipients(s) above and may contain

information that is privileged, attorney work product or confidential. It is not intended for transmission to,

or receipt by, any unauthorized persons. If you have received this electronic mail transmission in error,

please delete it from your system without copying it, and notify the sender by reply e-mail, so that our

address record can be corrected.

----------------------------------------- The information contained in this transmission is intended only for the person or entity

to which it is directly addressed or copied. It may contain material of confidential and/or private nature. Any review,

retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or

entities other than the intended recipient is not allowed. If you received this message and the information contained

therein by error, please contact the sender and delete the material from your/any storage medium.

Case Nos. 2020-00349 and 2020-00350

Attachment 1 to Response to AG-KIUC-2 Question No. 42

Page 1 of 2

Conroy / Garrett

1 | 1

Dear Ms. Fisher:

Kentucky Utilities Company and Louisville Gas and Electric Company

(collectively, “Companies”) are members of the Edison Electric Institute (“EEI”).

In the Companies’ pending rate cases before the Kentucky Public Service

Commission, certain intervenors have requested information about the

Companies’ membership in EEI. The requests seek information about the amount

of money EEI budgets and spends on “Covered Activities,” which the requests

define as legislative advocacy, regulatory advocacy, and public relations.

Particularly, intervenors request the following EEI information: “(i) its budget

for Covered Activities since the date of the last NARUC audit; and (ii) the ratio

that the Covered Activities budget bears in relation to EEI’s overall budget.”

Please provide the requested information no later than February 16, 2021. Should

you have any questions, please do not hesitate to contact me.

Best regards,

Allyson K. Sturgeon

LG&E and KU Energy LLC

Legal

220 W Main Street

Louisville, KY 40202

www.lge-ku.com

Allyson K. Sturgeon

Managing Sr Counsel

Regulatory & Transactions

T 502-627-2088

F 502-627-4850

Allyson.Sturgeon

lge-ku.com

February 12, 2021

Emily Sanford Fisher

General Counsel

Edison Electric Institute

701 Pennsylvania Avenue, NW

Washington, DC 200004-2696

Case Nos. 2020-00349 and 2020-00350

Attachment 1 to Response to AG-KIUC-2 Question No. 42

Page 2 of 2

Conroy / Garrett

From: Fisher, Emily <EFish[email protected]>

Sent: Wednesday, February 17, 2021 11:45 AM

To: Sturgeon, Allyson <Allyson.Sturgeon@lge-ku.com>; Benshoff, Adam <[email protected]>

Cc: Keisling, Jennifer <Jenni[email protected]om>

Subject: RE: Request for Information

EXTERNAL email. STOP and THINK before responding, clicking on links, or opening attachments.

Allyson,

In response to your request, please find attached EEI’s response, as well as additional information about the benefits of

EEI members for customers.

If you have any questions, please let me know.

Be well,

Emily

Emily Sanford Fisher

General Counsel & Corporate Secretary

701 Pennsylvania Avenue, N.W.

Washington, D.C. 20004-2696

202-508-5616

202-731-5887

www.eei.org

Follow EEI on Twitter, Facebook, and YouTube.

From: Sturgeon, Allyson <[email protected]om>

Sent: Friday, February 12, 2021 8:56 AM

To: Fisher, Emily <[email protected]>; Benshoff, Adam <[email protected]>

Cc: Jennifer.Keisling <Jenni[email protected]m>

Subject: Request for Information

Case Nos. 2020-00349 and 2020-00350

Attachment 2 to Response to AG-KIUC-2 Question No. 42

Page 1 of 9

Conroy / Garrett

This email originated from an external sender. Use caution before clicking links or opening attachments. If suspicious please

click the

'Phish Alert Report’ button in Outlook. If you have any questions, email [email protected]rg or call ext 5100.

Mimecast Attachment Protection has deemed this file to be safe, but always exercise caution when opening files.