Power Politics: An Overview of Electric Utility Political Influence and Its Effect on Regulatory Outcomes and Utility Strategy

Abstract

Across the country, electricity prices outpace inflation, and corporate influence in politics grows. State public utility commissions have broad powers over utility profitability — setting prices, reviewing mergers, and approving new infrastructure projects. In many states, governors and legislatures appoint commissioners, while in ten states, voters elect their commissioners. Electric utilities spend tens of millions of dollars as an industry on statewide elections and lobbying state politicians and officials. I set out to investigate the relationship between regulated electric utilities and their regulators. Using a comprehensive theory of firm political power, I combine four main channels of political influence to quantify electric utility political connections. I establish a unique dataset of utility political contributions, lobbying expenditures, political charitable giving, and employee voting blocs, all at the state level. I contend that political contributions and charitable giving are access-seeking activities, rather than electoral manipulation. The employee voting bloc is also an access-generating mechanism, and lobbying is the transmission of information between firms, politicians, and regulators. I introduce the idea of regulatory capture as informational lobbying, where informational asymmetries between utilities and regulators produce utility-friendly outcomes.

I analyzed electric utility rate case initiation and authorized returns on equity using a Heckman two-stage selection model and found that utilities do not file rate cases randomly, instead waiting for advantageous conditions. I show that more politically connected utilities wait longer to file traditional rate cases, and that political influence spending likely increases in more adverse regulatory environments.

I propose that informational regulatory capture is a bilateral transfer of information, where utilities transmit information to produce beneficial regulatory outcomes and gather information from regulators to better inform strategy. In such an environment, policies to reduce informational asymmetries, such as increased regulatory staff or budget and empowered rate case interveners, can reduce the likelihood of informational regulatory capture.