Most of us don’t give much of a thought about how the sausage of our electric bill is made. It comes, we maybe yell at our roommates about leaving the TV on or groan with our spouses about how cold it was last month, pay it, and move on. But more often than not, our utility bills reflect how big money and special interests are at play in a complex and opaque set of rulemaking that affects us all.
And it’s not just important to understand for your own finances. The future of the clean energy transition is looking increasingly like it’s going to be in the hands of America’s utilities. And it’s more important than ever to understand who is calling the shots, and how that can be changed so it’s fair for ratepayers.
“People need to recognize what a fundamentally important thing their utility bill is, and need to learn what it is going to actually pay for,” said Lee Ziesche, a community engagement coordinator at the Sane Energy Project.
Why are utilities set up the way they are?
As electricity became more advanced and widespread in the late 1800s and early 1900s, the market was open. Utilities functioned in the capitalist system like any other businesses, competing with each other for customers. But it quickly became clear that delivering electricity on the free market created a whole host of new problems.
“When there was some degree of competition, it was kind of like the Wild West,” said David Pomerantz, the executive director of the Energy and Policy Institute. “In a few places, there were different companies who were trying to string up lines, like competing electric grids.”
In other areas, companies who successfully made the investments to set up the infrastructure first enjoyed nearly unlimited power over prices. This presented a conundrum: How should we make sure everyone gets electricity in their homes at a fair price? In the aftermath of the Gilded Age, as Congress was in the middle of passing the foundation of antitrust law in the U.S., most people were loath to allow another kind of monopoly to spring up by keeping utilities fully private. But there was also a worry over giving too much responsibility over to the public sector due to increased attention on civic corruption. One of the first pieces of muckraking journalism, published in 1904, was an investigation into how political machines like Tammany Hall in New York controlled major American cities. That raised concerns that public utilities would allow corrupt groups to, quite literally, control the power.
States settled on a compromise: keep the utilities private, but make sure they’re closely regulated. Between 1910 and 1920, 29 states set up their own public utilities commissions, a set of appointed regulators whose job it is to keep an eye on how private companies deliver electricity.
These public utility commissions, or PUCs, form the backbone of how most utilities are regulated today. Most of the names you’d probably recognize on a bill—ConEdison, PG&E, Entergy, Duke Power Company—are investor-owned utilities regulated by PUCs. According to the EIA, there’s only 168 investor-owned electric utilities in the country, but they serve the majority of customers—around 110 million customers in the U.S., or 72% of households. And the way PUCs work is a large part of why we’re stuck in many ways in advancing our electric grid.
What’s the problem with this regulatory system?
In theory, the way investor-owned utilities are regulated is pretty simple. If utilities want to make any changes to what customers see on their bills, they have to bring them before the state’s PUC in what are known as ratemaking cases to explain what is going into the changes and why they’re justified. PUCs are supposed to make sure that the company’s math is fair, and accurately charges customers for the total cost of getting electricity to them. The utilities are not allowed to make money on most of these types of changes; their role is simply to be a conduit between energy and the customer.
In practice, it’s a lot trickier. The central tension comes from the fact that utilities are, at the end of the day, beholden to their investors to return a profit, despite providing what is arguably a public service.
“Historically, the way the incentive structure is set up is terrible,” Pomerantz said. “The utilities want people to use more electricity, not because they profit from selling electricity, but because the more we use, the more they can try to justify building stuff.”
Crucially, utilities are allowed to make money from one thing: building new infrastructure, like power plants or transmission lines. Pomerantz said they tend to get about a 10% rate of return on those project, which is pretty good money. Naturally, utilities are very motivated to create more infrastructure projects in order to justify turning a profit. (Publicly-owned utilities are generally nonprofits, so this incentive structure doesn’t exist since there are no shareholders to appease.)
And all that resulting money is attractive to politicians. Many utilities, Pomerantz said, have managed to keep a “revolving door” between PUCs and employment at the utilities themselves. It’s not uncommon to see a former PUC commissioner step down to take a job at a big utility. And while the PUCs are technically nonpartisan, in a majority of states, PUC members are appointed by the governor, making the nominations open to political football.
As a result, the utility industry is a pretty heavy hitter money-wise in both Washington, DC, and statehouses around the country. In 2020, the utility industry spent more than $104 million on lobbying at the federal level alone and gave nearly $20 million to individual politicians. In Virginia, Dominion Energy successfully managed to fight against a tide of reform-minded Democrats who were elected in 2019 by spending millions lobbying against legislation that would lower electric bills. Pomerantz’s group has documented instances of utilities giving to charities that then send members to show up to testify for the utility in rate cases, or give money to universities or academics that can then author papers to support the utility’s claims.
“Basically, every way that a corporation influences politics, utilities do that,” Pomerantz said.
Then there’s the looming energy transition. While utilities are more than happy to take advantage of the increasingly plummeting prices of wind and solar, there’s still much more aggressive action that could be taken to set up a just transition, both from the utility side and on how the PUCs can push these companies for change.
“PUCs have as much authority as really anyone in the country to speed up the transition from fossil fuels to clean energy,” Pomerantz said. “And not only to speed it up, but to make sure we’re doing it in the most equitable and cost effective ways so that it’s good for everyone. Their history to date has been that they haven’t done that kind of thing...they’re captured agencies.”
“Our system would be much more reliable and democratic and we could make the transition to renewables much faster if these corporate utilities weren’t in the middle and weren’t making the system based on profit,” Ziesche said. “They’re in this to make money.”
So what can we do to change this?
The downside of being a customer of an investor-owned utility is that there’s not a lot you can do to change your reliance on their grid for your needs. While the regulation from state governments mean that these companies aren’t technically monopolies, they still control the infrastructure that powers your home. You can’t shop around for new wiring to bring power to your house, or new repair crews to fix downed lines after a storm.
There’s an emerging retail electricity market that provides customers of big utilities in some areas with options for electricity providers, which work with the utility to deliver power. However, the utility still owns the infrastructure needed to transport the power, and will still charge for its services.
Some states let customers under some circumstances choose their electric providers, in what is known as a deregulated market. For example, in New York, if you choose to use a different electricity provider, you’ll get a split bill: one from the electricity provider, and another from ConEdison. More economic freedom isn’t always a good idea: Texas was the most deregulated electric market in the country, and providers were able to prey on customers during the February blackouts.
There are local consumer groups, charities and federal programs that can help lower-income customers pay their bills. Groups like the National Association of State Utility Consumer Advocates can help people who want to dispute their bill with the PUC.
But both Ziesche and Pomerantz said that knowing what goes into your monthly bill should be much more motivating to people—and that, in turn, can help change the system. Part of the reason the status quo has stagnated for so many years is because utilities have, deliberately or otherwise, kept us all confused as hell about this whole system. PUCs break down public hearings “into these siloed proceedings that aren’t very accessible,” Zische said. “The rate case proceedings are very complicated and take a long time to be a part of, and they aren’t democratic.”
Ziesche recommended that people concerned about their utility start with learning about what groups are working on utility accountability in their city or region and getting involved with them. Those groups can help guide concerned citizens through the process of publicly available options to get involved in ratemaking cases, like attending hearings or writing a public comment letter.
Public comment letters may not sound particularly groundbreaking, but “it’s building power over time,” she said. “We’re showing them people are paying attention to this and that people have these demands.”
There’s also a growing movement in many cities to overhaul the entire system itself, including transitioning utilities from private to public ownership. In New York, for instance, the Public Power NYC campaign is pushing a series of bills that would take over the distribution system from ConEdison and establish utility-scale renewables in public ownership. Overthrowing a big private utility like ConEdison might seem extreme, but there are models of public utility ownership across the country, and Ziesche said it may be the best way forward.
“I just don’t see us reaching our climate goals and centering the communities that have been most impacted by the fossil fuel industry while we still have corporate utilities,” she said.
Pomerantz isn’t as eager to throw the whole system away (he pointed out that there are several publicly-owned utilities, like Tennessee Valley Authority, that have been historically pretty terrible at actually doing their jobs). But he said that if voters become more educated about the political calculus behind PUCs, and if they make their voices known to their elected officials, it could help transform our energy system for the better.
“There’s a group of people [in every state] who can basically single-handedly clean up the electricity grid and accelerate our switch away from these dirty, polluting fossil fuels causing climate change,” he said. “And all we have to do is figure out how to make that happen. That’s an incredible, exciting opportunity for anybody who cares about climate change.”