The Scheme To Enrich Utility Companies At Your Expense
Investor-owned utility companies are jacking up energy prices—and regulators aren’t doing enough to stop them.
By Brock Hrehor, More Perfect Union
If your electric bill is outrageous this summer, Wall Street might be partially to blame.
Investor-owned utilities, motivated by a commitment to secure ever-higher returns for their shareholders, have embarked on a quiet plan to build expensive energy projects and pass the costs on to their consumers.
In the utility industry, profits are based on a fixed percentage of the amount of capital a company invests in infrastructure. Since more money spent on a project means higher profits, companies have an incentive to invest as much money as possible, regardless of whether it provides value to consumers.
“Customers pay both for the investments and they pay for the excess profits,” Mark Ellis, a financial consultant, told More Perfect Union. “The excess profits alone are about $50 billion a year nationwide. So works out to about $300 a household. So, it's real money.”
After years of buyouts, mergers, and consolidations, two-thirds of electric utilities in the U.S. are now privately owned.
As a result, energy bills have risen at unprecedented rates. Unlike their public counterparts—whose rates have risen by 44 percent less than inflation over the past three years—investor-owned utilities’ rates have increased by 49 percent more than inflation, according to the American Economic Liberties Project.
Montana’s NorthWestern Energy, the state’s largest utility of which BlackRock and Vanguard are the top shareholders, is advocating for a 20% rate increase. Just two years ago, regulators approved the company’s requested rate increase of 28%.
Industry insiders and a trail of financial records suggest that regulators have favored investors, letting them secure excessive returns at the expense of consumers.
“There are models that have been used for decades, not just in utilities, but all over finance to estimate the cost of capital for any business,” Ellis said. “If you run them correctly, you come up with a utility cost of equity around 5.5 to 6%. But utilities are regularly granted profits of around 9-10%."
In Montana, NorthWestern’s latest investment is the Yellowstone County Generating Station, a $320 million methane gas plant.
“The utility wanted to build that because in my mind, it's expensive and that earns it a higher amount of money for its shareholders over time,” Anne Hedges, Executive Director of the Montana Environmental Information Center, told More Perfect Union. “Every dollar it spends, it gets a return on its equity.”
NorthWestern recently asked Montana’s regulators, the Public Service Commission, to approve returns of 9.6 percent, including on the extortionate Yellowstone plant, igniting widespread public outcry.
What happens in the state could set a precedent for what utility companies can get away with. Will regulators side with the public? Or will they continue to let giant firms like NorthWestern hike up rates — and force consumers to foot the bill?
Watch our full report below:
Reporting by Katie Nixdorf and Ava Anderson. See below for a full transcript of the video.
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VOICEOVER: Wall Street investors are infiltrating your home in ways you might not even realize – but are paying a huge price for.
NEWS ANNOUNCEMENT: Get ready to pay more for your electricity bills.
ANNOUNCER, FOX 57: Energy bills are increasing along with those temps.
TikTok Users talking about their electricity bills
VOICEOVER: Americans’ utility bills are rising at unprecedented rates because of a systemic failure.
LARRY BEAN, MONTANA RESIDENT: Their primary concern is to make more money, and their only way to make more money is to take it away from people like me.
ANNE HEDGES, EXECUTIVE DIRECTOR OF THE MONTANA ENVIRONMENTAL INFORMATION CENTER: People should be angry.
VOICEOVER: To uncover how electric utilities are getting away with this, we talked to an industry insider.
MARK ELLIS, FINANCIAL CONSULTANT: People were realizing like, hey, this is a, you know, a corrupt business model. It's not bribes, but it is corruption.
VOICEOVER: And went to Montana to investigate the most powerful utility in the state.
NORTHWESTERN SECURITY GUARD: Can we help you or something?
MPU: Hi, we’re just filming.
SECURITY GUARD: We need to take pictures of your license plates. Also, sheriffs are on the way. This is a private facility.
VOICEOVER: What we heard was a shocking account of how these companies are gaming the system and making homes uninhabitable.
STEVE KRUM, LAUREL RESIDENT: The hay is drying pretty fast.
KASEY FELDER, LAUREL RESIDENT: My property boundary is here, and then obviously the look north, and there you have the plant. You can feel it vibrating inside of our house.
VOICEOVER: Kasey and her father Steve, live in Laurel, Montana. Two years ago, the state's largest utility began building a $320 million methane gas power plant less than a mile from Casey's house.
STEVE: This is the most populated area in the state, and yet they build a power plant right smack dab in the middle of it.
KASEY: They just kind of shoved it down our throats. This area, this residential area, and claimed it was in an industrial area.
VOICEOVER: Northwestern provides power for more than two thirds of Montanans. The company claimed this new gas plant was critical to an even cleaner energy future.
STEVE: It's all bullshit. That's what it is.
KASEY: Just kind of feels like local government just pushes through whatever Northwestern wants.
MARK: They are literally, you know, it's like shooting, what's the expression, shooting ducks in a barrel?
VOICEOVER: Mark Ellis is a financial consultant who used to work at one of the largest utilities in the US. He saw the corrupt business model that companies like Northwestern are using firsthand.
MARK: A lot of people don't realize that their local utility company is a for-profit company, and like any other for-profit company, their incentive is to maximize profits.
VOICEOVER: Northwestern energy is an investor-owned utility. Its biggest shareholders are massive investment firms like BlackRock and Vanguard. Almost two thirds of U.S. electric utilities are investor-owned. Their main goal is not to provide affordable power for the community, but to generate profit.
MARK: The utility’s profits are basically a fixed percentage on the amount of capital they invest in infrastructure, power plants, pipelines, distribution systems.
VOICEOVER: The more expensive a project, the more money investors get out of that fixed profit percentage.
MARK: So if their profit is based on how much they invest, and like every other investor-owned company, they want to maximize profits. How do they do that? By maximizing the amount of capital they invest.
ANNE: Yellowstone county generating station is a 175 megawatt gas plant, and it is the most expensive type of gas plant you can build today. But the utility wanted to build that because, in my mind, it's expensive and that earns it a higher amount of money for its shareholders over time.
VOICEOVER: But unlike the profits of other companies, utilities’ profits are set by government regulators.
MARK: So in principle, the regulator's job is to balance the consumer and the investor interest, right? Based on my work and the observations of many others, regulators are not doing their job when it comes to balancing those interests with respect to setting the appropriate level of utility profits.
VOICEOVER: Northwestern is currently asking Montana's regulators, the Public Service Commission, or PSC, to approve a 9.6% profit on its investments, which now include the costly Yellowstone gas plant.
ANNE: Northwestern is back in the rate case right now, arguing that all of the costs for this plan were justified.
SARAH NORCOTT, NORTHWESTERN: We understand that increases in utility bills are difficult, especially when families are already managing rising costs in other areas. This is why we've worked hard to keep the impact as low as possible while still making critical investments needed to keep the lights on and the heat flowing.
ANNE: Northwestern wants to acquire the most expensive resources that it can get away with in order to earn a greater return for its shareholders, and it wants to convince the utility commission to charge customers for those at a really sweet return on equity.
VOICEOVER: Regulators are supposed to grant profits that are fair and reasonable in order to avoid driving up costs for consumers that utilities serve, but the financial evidence is that these profits, or what's called the cost of capital, should be much lower.
MARK: There are models that have been used for decades, not just in utilities, but all over finance, to estimate the cost of capital for any business. So you can run those models, and if you run them correctly, you come in around five and a half to six percent.
VOICEOVER: But utilities are repeatedly granted profits of around nine to ten percent.
MARK: Customers pay both for the investments and they pay for the excess profits. The excess profits alone are about $50 billion a year nationwide. So works out to about $300 a household.
So it's real money.
EDWARD BARTA, MONTANA RESIDENT AT RALLY: Thank you very much for being here. We are here today because we are fed up. We are here because Northwest energy is out of control. How many of you have felt the squeeze of your wallets lately? How many of you are tired of seeing your hard-earned money disappear into the wallets of a greedy monopoly.
VOICEOVER: In addition to approving Northwestern profit, the PSC approves the rates the utility can charge its customers. Two years ago, the PSC approved a 28% rate hike, and now Northwestern is back asking for another 20% increase.
ITA KILLEEN, MONTANA RESIDENT: I see people trying to work longer hours, sometimes six days a week, eight to 12 hour days, or juggling different, you know, several jobs. I see people turning off their lights. I see people in mobile home parks where there's not good insulation being cold during the winter because they don't want to use more gas.
MARY ANN DUNWELL, MONTANA STATE SENATOR: My 20,000 constituents certainly can't afford a senseless increase in energy costs simply to pay for the Laurel natural gas generating fossil fuel plant
MARK: Since 2020 the last time I looked at the data, publicly owned utilities, their rates have basically just gone up a little bit below inflation, but investor-owned utilities have gone up much faster than inflation.
LARRY STIMAC, MONTANA RESIDENT: As a utility consumer, I'm confused: is Northwestern energy regulating this body, or is this body regulating Northwest energy?
LARRY: You just can't give these rate increases and look out for the best interest of the actual average everyday user. I think they try real hard to try to protect the people, but I think their hands are really tied because of politics.
VOICEOVER: The PSC is still deciding on Northwestern proposed rate increases. What they do could set a new precedent for what utilities are able to get away with nationwide.
LARRY: We do come to a point of hopelessness when all the stuff you go through is just, doesn't matter. They just go forward with what they're going to do. They make their rulings based on what Northwest Energy wants.
VOICEOVER: For Casey and Steve, the Yellowstone plant has fundamentally changed the place they live.
ANNE: The people in the area are really upset. It was so unfair. They tried everything they could think of to convince Northwestern not to build it near their homes, not to build it along the banks of the Yellowstone River.
KASEY: I am concerned about the air pollution that is coming from that plant.
LARRY: None of these pollutants kill you in a day or two. It's down the road when my granddaughter grows up as Casey gets older, when we're gone, she can, she's probably going to get sick sooner because of that, the people who live around these things should have a say in it, and instead, it's the controlled politicians.
ANNE: until our elected officials try to rein in this out of control utility, we're going to continue on this path of ever increasing rates and a degraded environment.
VOICEOVER: Some states are taking action to curb utilities' incentive to invest in expensive and polluting projects.
MARK: This is starting to get political traction. You know, you are continuing to see state and federal legislators saying, like, the rates are too damn high.
VOICEOVER: Five states recently introduced bills to match utilities’ profits to what financial models actually say they should be.
MARK: It hasn't gone anywhere, unfortunately, in any of the states. But the basic idea is like, hey, we need to formally legislate a standard, huge step in the right direction.
VOICEOVER: Until then, it's up to regulators to put the interests of consumers ahead of corporations.
MARK: Nationwide, they talk about an affordability crisis, and I think that that's starting to reach a tipping point.
LARRY: Whoever sees this, many, many people across the country are going to go, yeah, that's us. So I hope we have a good outcome, and I hope that will be an encouragement for others.
MPU: Thanks for watching. Don't forget to like and subscribe to get More Perfect Union in your feed. If you have a story about a utility company in your state, send us an email at stories at perfectunion.us.