Dive Brief:

• The Federal Energy Regulatory Commission started an inquiry Thursday into whether it should change its accounting rules to prevent electric and gas utilities from recovering expenses related to political and lobbying contributions from their customers.

• Advocacy groups contend that requiring utilities to show that their trade association dues are for activities that FERC allows to be recovered in rates would increase transparency around the issue.

• "The trade groups, Edison Electric [Institute,] the American Gas Association, have been very active, not just on lobbying, but all sorts of other political activities and advocacy, that we believe should not be funded by ratepayers," said Howard Crystal, a senior attorney with the Center for Biological Diversity (CBD), which spurred FERC's inquiry by asking the agency in March to start a rulemaking process.

Dive Insight:

FERC's action comes as utilities have been under increased scrutiny for their efforts to influence the public and their political activity, which includes Commonwealth Edison and FirstEnergy bribery scandals.

Under FERC's accounting rules, association dues are considered "presumptively" recoverable. 

FERC doesn't allow expenses related to lobbying, influencing the public or political activity to be recovered in rates. However, the agency doesn't have a "bright line rule" or specific guidelines for accounting for expenses related to influencing the public, including trade group dues for those activities, FERC said in the notice.

The CBD wants utilities to be required to show their dues are for allowed activities before those expenses are passed along in rates.

Through a notice of inquiry issued on Thursday, FERC gave the public 60 days to respond to a series of questions related to the agency's accounting rules.

Some of the questions, for example, focus on increasing transparency. "We are considering whether increased transparency into industry association costs may improve public knowledge into industry association dues and therefore ensure the just and reasonable recovery of industry association dues," FERC said in the notice.

The Edison Electric Institute and the American Gas Association opposed the CBD's petition, saying FERC's existing accounting rules prevent cost recovery for political activity.

Groups like the Sierra Club, the National Whistleblower Center and the Office of the Ohio Consumers' Council supported the petition.

Sens. Edward Markey, D-Mass., Jeffrey Merkley, D-Ore., Jack Reed, D-R.I., Bernie Sanders, I-Vt., and Sheldon Whitehouse, D-R.I., also backed the CBD's request to tighten up FERC's accounting rules.

"To prevent ratepayers from unknowingly funding lobbying and other political activities by trade associations and the dark money groups they fund, FERC should amend the [Uniform System of Accounts] to classify industry association dues as presumptively non-recoverable, as is already the case for a utility's civic and political activities," the lawmakers said in a June 24 letter to FERC.

FERC's inquiry could affect state rate proceedings because a majority of states use FERC's accounting system, according to the CBD's Crystal.

"If and when FERC were to change its accounting system, it automatically changes in those states as well, and therefore the utilities in those states will have to change how they conduct their reporting and what they have to provide their state regulators," Crystal said.

FERC Commissioner Allison Clements said the notice wouldn't affect utilities' political activities.

"Regulated utilities have every right to engage in outreach to influence public opinion on political issues," Clements said Thursday during FERC's monthly meeting. "However, they do not have the right to pass through the costs of this outreach to their customers' bills." 

FERC Commissioner Mark Christie also backed the review of FERC's accounting rules, noting he supported the agency's consideration of clarifying that contributions to charities and civic groups cannot be recovered in rates.

FERC's decision to review its accounting rules may help prevent utilities from recovering costs from ratepayers they aren't allowed to recoup, according to the Energy and Policy Institute, a watchdog group.

"FERC is asking smart questions about utilities' trade associations that will help it make changes to better protect the public interest," David Pomerantz, the group's executive director, said in an email. "If FERC takes action to close the trade association political loophole, that certainly won't stop all the ways that utilities use their customers' money to fund their political machines, but it is a key first step."