Item E-2: Commissioner Christie’s Concurrence Regarding Rate Recovery, Reporting, and Accounting Treatment of Industry Association Dues and Certain Civic, Political, and Related Expenses

Commissioner Mark C. Christie Statement
December 16, 2021
Docket No. RM22-5-000

I concur with today’s order instituting a Notice of Inquiry (NOI) related to the treatment of industry association dues and certain civic, political, and related expenses.  The NOI asks a number of important questions regarding transparency and current accounting practices that will assist this Commission in ensuring that rates paid by consumers are just and reasonable.  I write separately because I respectfully disagree with any suggestion that First Amendment rights are implicated, much less threatened, by this inquiry. 

The Supreme Court of the United States has ruled that commercial speech by corporations and other business entities is protected by the First Amendment,[1] and that political speech by such entities is likewise protected.[2]  It is also true that spending on protected speech is inextricably part of such speech and is thus protected as well.[3]

That said, the questions raised in this NOI are not related to whether a corporation or other business entity is allowed to spend money in the exercise of its First Amendment right to free speech or “to petition the government for a redress of grievances”[4] (a/k/a “lobbying”).  They can.  Neither is it aimed at suppressing or burdening the protected speech of some limited subset of trade associations.  Rather, the central question here is the same one present in so many of the cases before an economic regulator such as FERC, and that is the less headline-grabbing, albeit critically important, question:  Who pays?

Relevant to the “who pays?” question is the type of business.  A business in a competitive market has a First Amendment right to spend its own money on speech, including lobbying the legislators who pass laws that affect it.  These activities may be aimed at rent-seeking through regulation or subsidies (or seeking protection from other special interests’ rent-seeking).  James Madison made it clear in The Federalist No. 10 that special interests (“factions”) would always seek to gain advantage at the expense of others through the political process; but it was also Madison who authored the First Amendment that protected the freedom of all to pursue their interests in the public arena, and left it up to (hopefully) public-spirited legislators —elected by the public—to protect the public interest from the special interests (including those claiming to represent the public interest) and their rent-seeking behavior.

Privately-owned businesses get funds from two primary sources:  (i) investors who put up capital; and (ii) customers who purchase its goods and/or services.  A company that holds a state-granted and state-protected monopoly franchise is fundamentally different, however, from a business in a competitive market, not in its First Amendment rights, but in how it can pay for certain activities.  Unlike the business in a competitive market whose customers voluntarily choose to purchase its products over the products of its competitors, the state-protected monopoly gets its money from captive customers who have no choice but to purchase, for example, electrical power, a vital necessity of modern life, from the monopoly.  The state-protected monopoly is also guaranteed recovery of its prudent costs incurred to serve the public (hence the term “public service company,” or “public service corporation,” defined terms typically applicable to public utilities under many state laws[5]).  The question asked herein, therefore, is which of its costs should be charged to investors, who have voluntarily invested in the company, and which to captive customers, who have no choice but to purchase an essential product such as electricity from it.[6]

Nothing keeps the monopoly from spending money on First Amendment protected speech, including lobbying legislators and related public-relations activities, but its investors should pay those costs, not captive customers.[7]  That is the issue implicated by this NOI, which seeks to better understand whether costs permitted to be “above the line” (chargeable to customers) and those required to be “below the line” (chargeable to investors) for privately-owned companies are being treated as such on a transparent and consistent basis.  

While in a typical rate proceeding, the opposing parties bear the initial burden of challenging the accounting or rate treatment of “above the line” or “below the line” expenses, under section 205 of the Federal Power Act, the ultimate burden has always been on the regulated public utility to demonstrate the justness and reasonableness of its proposed rate.  Based on the record before us, and the Commission audit staff’s own experience, it may be that the Commission, customers, and other interested parties are not able to access the information necessary to determine whether the costs included in a jurisdictional utility’s rates are appropriately classified.  The questions raised in the NOI relate to issues squarely within, and essential to, the Commission’s jurisdictional responsibilities to ensure just and reasonable rates. 

Let me also emphasize:  It may well be that the Commission’s existing rules, regulations and precedent are sufficient to ensure the just and reasonable allocation of such costs, but it is worth reviewing.  As always with energy regulation, the devil is in the details.

On a more specific topic, I also support asking whether it is time to clarify our regulations or further codify what is now established primarily through Commission precedent, i.e., not allowing a monopoly to recover from customers the costs of its contributions and grants to charitable and civic organizations.  Giving away other people’s money is not altruism.

For these reasons, I respectfully concur.