Utilities Commission makes it tougher for companies to charge political expenditures to ratepayers

The NC Utilities Commission closed several, but not all, loopholes in rules prohibiting public utilities, notably Duke Energy, from passing along lobbying and advertising expenses to ratepayers, according to a ruling issued last week.

This “discretionary spending” includes advertising that appears on social media, as well as promotional materials that serve only to burnish a utility’s image, compete with other utilities for customers, and are unrelated to providing service to the public. 

Utilities must also keep detailed lobbying records involving conversations with the executive branch of state government — such as the governor’s office, the Department of Environmental Quality, and the Department of Agriculture and Consumer Services.  

The ruling becomes effective on Sept. 1 and covers filings by all public utilities: electric, natural gas, water and sewer.

The commission had already passed similar rules regarding discretionary spending — defined in part as advertising that helps promote “effective and reliable service” — but the new rules make prohibitions even more explicit. Other expenses, such as political advertising and lobbying, must be covered by company shareholders. 

NC WARN, Friends of the Earth, and the Center for Biological Diversity had petitioned the commission in 2019 to clarify and strengthen language. The Public Staff of the commission agreed with some of the public interest groups’ proposals.

In its written comments to the commission, Duke Energy said it has complied with the rules, and will continue to do so.

Jim Warren, executive director of NC WARN, an outspoken critic of Duke Energy, said that in previous rate cases the utility attempted, albeit unsuccessfully, to recover costs associated with discretionary spending.

Bob Hall, a campaign finance watchdog and former executive director of Democracy North Carolina, endorsed the changes. Hall commented that “political activity is not simple electoral but also includes promoting positions on controversial topics and issue advocacy.”

The commission agreed. It also removed the word “controversial” from the definition of political advertising, and broadened the language to include “any issue of public importance.”

Timing of ruling with HB 951

The commission’s ruling coincides with public concerns about the behind-the-scenes maneuvering on House Bill 951. The “super-secret energy bill,” so named because it was primarily — and privately — crafted by Duke Energy and select lawmakers, has encountered strong opposition from nearly every business group, dozens of legislators, and members of the public.

It narrowly passed the House, but has not been voted on by the full Senate.

“So much money seems to be geared to House Bill 951,” Warren said.

Candidates’ campaign finance reports for 2021 so far show few receipts. Campaign finance law restricts political action committees and lobbyists from contributing to lawmakers during legislative session — which this year, has been nearly nonstop.

An analysis of votes on House Bill 951 shows that the only two House Democrats who supported the measure — Shelley Willingham and Michael Ray — also voted ‘yes’ on a previous controversial energy measure, Senate Bill 559. They received $6,400 each from Duke Energy in 2020, after SB 559 became law in 2019.

SB 559 contained a provision — stripped from the final version — that would have allowed utilities, primarily Duke, to apply for multi-year rate plans. The Utilities Commission could have granted periodic rate changes for as long as three years without holding traditional base-rate hearings. Those hearings are lengthy quasi-judicial proceedings during which the utility, the public staff and ratepayers testify under oath about the effects of a proposed rate increase.

Multi-year rate plans, having failed to be included in SB 559, are now included in HB 951.

Rep. Nasif Majeed, who voted for SB 559, did not vote on HB 951. He received $1,000 from Duke late last year.

Of the five Republicans who voted against HB 951, four had voted ‘yes’ on SB 599: Reps. Mark Brody ($3,000 from Duke), Larry Pittman ($0), John Sauls ($1,000) and John Torbett ($1,000). Rep. Larry Strickland voted ‘no’ on both measures, and received no contributions from Duke.

Hall recently released an analysis of Duke’s electoral spending on SB 559, as well as the role of dark money in influencing legislation. His analysis, confirmed by Policy Watch, showed that Duke’s political action committee spent $426,300 in campaign contributions in 2020.

Of those contributions, Duke’s PAC gave more than $194,600 to SB 559 supporters in the House, but only $20,000 to opponents. The same pattern held true in the Senate: $166,600 went to bill supporters, compared with $17,400 to opponents.

Hall’s analysis, confirmed by Policy Watch, also found several front groups used Duke Energy money to influence public opinion and election outcomes. (See graphic above.) Secretary of State documents show the mailing address of Citizens for a Responsible Energy Future traces back to former top Duke Energy official Tony Almeida. He also served as senior advisor to Gov. McCrory, himself a former Duke employee.

Citizens for a Responsible Energy Future paid $83,000 to a political consulting firm run by two former high-ranking staff members in State Sen. Pro Tem Phil Berger’s office: Jim Blaine and Ray Martin. In turn, Blaine and Martin placed attack ads on Facebook, on behalf of the group and toward lawmakers deemed unfriendly to Duke, according to the social media platform’s page transparency listing.

Definition of lobbying targets expanded

As for the commission ruling, the definition of who is the target of utility lobbying has also expanded. Not only is it the public official — state, federal or local — but also the agency that employs those officials. “Agents” of the public officials are also included, which could include, for example, legislative aides.

Duke argued that some of its advocacy is constitutionally protected; expenses related to those activities can be charged to customers, the utility said. 

That includes participating in hearings before the commission, the Federal Energy Regulatory Commission and other state agencies. It also includes submitting public comments, such as on the governor’s Clean Energy Plan.

The Utilities Commission allowed these exemptions but is requiring utilities to keep detailed records of these interactions “to allow the commission and parties to determine whether the utility has complied with the rules.”

The commission wrote that it can decide, on a case-by-case basis, whether these expenses are allowable.

The records must include the names of the agencies and people contacted, the subjects of discussion and the “amount of person-hours spent in preparation for and in the discussions.”

This rule applies only to the executive branch, not the legislature. 

The interest groups did not get everything they asked for. The commission rejected a request that would have prevented utilities from including membership dues to industry groups in monthly rates. 

For example, Duke Energy belongs to the trade association Edison Electric Institute, which represents and lobbies on behalf of U.S. investor-owned utilities. However, Duke responded that EEI’s invoices already separate lobbying expenses from membership dues, and that the utility does not pass along those lobbying costs to ratepayers.

Nor did the commission oblige the petitioners’ requests to assess penalties on utilities that violate the rules. The commission responded that it already has that authority.

“We want them to use it,” Warren said.