News Story

Big Political Spending By Electric Utility Raises Concerns

Regulated utilities seek influence, outcomes can affect customer rates and more

A Republican state Senate candidate from Lapeer County has criticized campaign finance laws that helped him. The laws allowed political groups to spend hundreds of thousands of dollars promoting him and attacking his opponent with a flood of advertisements in days and months leading up to the August primary, all while not disclosing their donors.

The issue is complicated by the fact that the source of much of the funding was an electric utility monopoly whose rates and business practices are closely regulated under laws enacted by the legislature. Also by the fact that two different types of political spending are involved that are each subject to a different set of rules.

Former Michigan House member Kevin Daley defeated Rep. Gary Glenn by a margin of 18,548 to 13,154 votes in the Republican primary for the 31st District Senate seat. Daley will face Democrat Cynthia Luczak in the general election.

The primary campaign saw two tax-exempt nonprofit social welfare organizations spend at least $594,000 on TV political advertisements. In comparison, Sen. Mike Green, the incumbent, spent $316,532 throughout the 2014 election cycle, according to filings with the Secretary of State. Green cannot run for reelection due to the state’s term limit law.

When asked about the political spending, Daley said, “I would fall back to the fact that what they did was legal, and I think there needs to be some strong looking at fixing the laws so maybe that can’t be done. I mean, as I mentioned before, I don’t agree with spending that type of money to push certain issues.”

Glenn, who was the target of attack ads purchased by the two nonprofits, has endorsed Daley in the general election but said that the political activities of regulated monopolies should be scrutinized.

Glenn said in an email: “Michigan law currently prohibits casinos and casino owners from contributing to campaigns for state and legislative offices, since casinos operate only under the grant of a state license. It’s reasonable, for the same compelling governmental interest in preventing corruption or the appearance of corruption, to consider prohibiting campaign contributions by any government-privileged monopoly that becomes a quasi-governmental arm of the state — including the power to compel individual citizens to pay its inflated cost of providing an essential product and service — when it receives a government-guaranteed share of the marketplace and a guaranteed annual profit set by government regulators.”

A nonprofit entity called Faithful Conservatives for Michigan spent at least $264,000 before the primary election. A second nonprofit called Citizens for Energizing Michigan’s Economy spent at least $330,000 on advertisements on broadcast TV. Both numbers come from ad-tracking data from Kantar Media/CMAG, which was analyzed by the Michigan Campaign Finance Network.

This type of spending by nonprofit organizations is called an “independent expenditure,” and it differs from contributions to particular candidates. Groups that make independent expenditures do not have to disclose who funded them, and they are not limited in how much they can spend. They are, though, prohibited from “express advocacy” that calls for a vote for or against a candidate. In contrast, donors to individual candidates are limited in the amount they can give, their contributions must be disclosed by the candidate, and the candidate may spend the money on “express advocacy” messages.

Citizens for Energizing Michigan’s Economy, or CEME, was incorporated as a 501(c)4 in December 2013 and has received $43.5 million from Consumers Energy, according to filings with the Michigan Public Service Commission, which regulates the state’s utility companies.

In a 2016 filing with the IRS, the organization reported that it had three officers. One was Howard Edelson, who ran former-Gov. Jennifer Granholm’s reelection campaign in 2006. A second was David Mengebier, who worked as Consumers Energy’s senior vice president for governmental affairs for 16 years, and the third was Rhoda Tinkham, who chairs the scholarship committee of an organization of Jackson-area retirees of Consumers Energy.

In a complaint filed with the IRS, economist Patrick Anderson estimates that CEME spent $1 million on independent expenditures for campaign advertising in races throughout Michigan during May, June and July.

Anderson further alleges that the group engaged in express advocacy against “identified political candidates,” including his wife. Such advocacy is prohibited by law and contrary to assertions the group made in documents it filed with the IRS.

Faithful Conservatives for Michigan was incorporated as a 501(c)4 in January 2018, but Michigan Capitol Confidential was not able to find any available financial records for it.

Both CEME and Faithful Conservatives for Michigan were incorporated by the same attorney, Eric Doster, and use the same Okemos address.

Federal tax law defines the qualities of 501(c)4 social welfare organizations. They are allowed to lobby and engage in political advocacy, as well as donate money to each other. Taxpayers who contribute to them may not take a tax deduction for doing so, but the organizations, as nonprofits, are not subject to federal or state income taxes. Information on Consumers Energy’s donations to CEME is available only because the company is regulated by another law that requires their disclosure: the law granting Consumers Energy a regional electric monopoly, subject to regulation by a public service commission.

Daley believes that laws on campaign spending should be revisited.

“Our campaign finance needs to be revamped and redone because it’s gotten to the point where people can just raise money, and spend money and buy seats all the time. I think that’s a mistake,” he said.

According to publically available disclosures, Consumers Energy donates far more money to CEME than it does to other political causes.

Matt Kasper, research director at the Energy and Policy Institute, notes in an article that the amount of money Consumers Energy has contributed to CEME is significantly greater than its other forms of political donations between 2014 and 2017.

“The $43.5 million that Consumers Energy has contributed to CEME is far more than the utility has reported in other political spending. It’s over 40 times greater than the total amount of money the utility’s PAC has contributed to Michigan candidates, their total state lobbying expenditures, and is nearly 10 times larger than its federal government lobbying over the same four-year period,” Kasper writes in the article.

Consumers Energy Spokesperson Katie Carey said in an email statement that her employer’s political donations are a part of its involvement as a “good corporate citizen” engaged in Michigan’s political process.

“Consumers Energy stands for the people of Michigan. As a good corporate citizen, we are engaged in the political process, welcome constructive dialogue and support pragmatic policies that are focused on safe, reliable, and affordable energy for Michigan, and we support organizations that provide education and advocacy related to such policies," Carey said. "Our contributions to Citizens for Energizing Michigan’s Economy came from the company in the form of non-customer, shareholder dollars. In other words, funds driven from our shareholders – people buying stock – and not from customer bills.”

As chairman of the House Energy Policy Committee, Glenn has opposed and sought to scale back a policy that grants a 90 percent monopoly to Consumers Energy and DTE in their exclusive regions. The big utilities have opposed a policy Glenn prefers, called “energy choice.” Daley declined to take a firm position on the issue.

“I know that Gary was a strong supporter, is a strong supporter of energy choice. I wouldn’t say that I’m not a strong supporter of energy choice either,” Daley said. “I haven’t had the chance to be educated on the pros and cons of both [sides of the debate] and what the options were given and what decisions were made.”

Leading up to the August primary, Daley received $3,500 in direct campaign donations from the DTE Energy PAC and $2,500 from the CMS Energy PAC, which is the PAC of Consumers Energy. Daley said he had direct contact with Consumers Energy during the campaign and that it would be fair to describe his relationship with the company as amicable. Daley also said he never had contact with either CEME or Faithful Conservatives for Michigan.

“One thing I can tell you about myself is that nobody buys and pays for me,” Daley said. “But when it comes to accepting dollars for campaign donations, I will accept dollars for campaign donations because it takes money to run a campaign.”

He added, “I want the people to know that I think I’m in this for the right reasons and that’s to work for the voters.”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.