APS lobbyist pitched plan to alter energy panel
Utility exec said ‘absurd’ proposal quickly rejected
Representatives of one of the state’s top consulting firms pitched a plan to Arizona Public Service Co. four years ago outlining how the utility could work behind the scenes to alter a commission established by the state Constitution to regulate it.
The plan proposed that APS fund a $4.3 million campaign using out-of-state non-profit groups to generate “fake controversies” regarding the Arizona Corporation Commission. Those controversies could sway voters and lead them to elect new regulators, the plan suggested, or could influence legislators to add additional seats on the commission.
The plan, titled “The Institute for Energy Policy,” was drafted by Lincoln Strategy Group, a Tempe-based political-consulting firm. It was presented to the utility’s chief executive soon after a contentious APS rate-increase case was settled by the commission, which regulates rates for most of the state’s utilities.
APS officials said the utility did not solicit the 20-page plan, which was obtained recently by
The Arizona Republic. A company official called it “absurd.” Don Brandt, company chief executive, said he “immediately dismissed” the proposal in 2009.
After the report was presented, however, APS hired one of the two Lincoln Strategy employees who pitched the report to Brandt. She now serves as the utility’s top lobbyist. The other executive who pitched the report also left Lincoln Strategy and is being paid by APS as an outside consultant.
“On its face it appears to be a very difficult goal to completely eliminate the (Arizona Corporation Commission), and a more long-term approach is suggested,” the plan stated. “We would propose using calendar years 2009 through 2011 to ... begin to sway public opinion against the (commission) and use 2012 to implement the electoral strategy.”
The plan to alter the commission comes to light as APS faces another intense debate, this one over solar power. APS is seeking to reduce the credits it pays customers who have solar panels and send their excess power to the grid.
Some strategies described in the 2009 plan from Lincoln Strategy appear similar to those in APS’ current media campaign over solar. In late September, APS acknowledged for the first time funding non-profits that have taken out advertisements on television siding with the utility.
APS officials said any similarity in the strategy detailed in the plan and its current campaign simply is coincidence.
“I would disagree this is a game plan for it (solar),” APS Vice President of Communications John Hatfield said of the 2009 plan. “What this (2009 plan) contemplates is a whole series of actions we’ve said we wouldn’t take and didn’t happen after this proposal was put together.”
APS spokesman Jim McDonald said he suspected The Re
public was provided a copy of the plan as part of the solar companies’ strategy to smear APS in the debate over reducing solar credits, often referred to in the industry as net metering.
“Just as the commission is getting ready to approach net metering, this surfaces,” McDonald said. “That alone raises suspicions.”
Three Corporation Commission members who served at the time the plan was written said they were not surprised to learn about it. One said it was an outrageous affront to the electoral process.
Former Commissioner Paul Newman said targeting elected officials with manufactured controversies could represent a threat to democracy.
“This is a direct attack on the ... fourth independent branch of government, the Corporation Commission,” Newman said, adding that the commission is “the most important consumerprotection agency in Arizona.”
Regulatory upheaval
APS faced a more uncertain regulatory future in 2008 and 2009.
In November 2008, two Democrats had been elected to the Republican-dominated commission for the first time in nearly a decade.
There was statewide debate over renewable energy such as wind and solar, with political factions taking sides on whether utilities should be forced to use such power and charge fees for it.
Some conservative groups wanted to kill tariffs on renewable energy, which would prevent APS from complying with a 2006 mandate to get 15 percent of its electricity from renewable sources by 2025.
Just before the 2008 election, the state Supreme Court threw out a challenge by the conservative Goldwater Institute to the commission’s renewable-energy mandate. And in spring 2009, conservatives at the state Legislature tried to pass a bill that would have upended the commission’s authority over renewable energy.
Democrats Newman and Sandra Kennedy won two of the five seats on the Corporation Commission in 2008. They said they were committed to renewable energy and spoke about increasing the renewable-energy mandate.
In addition, Republican Kris Mayes became commission chairwoman in 2009. Mayes was well-known for supporting solar power and for the scrutiny she gave APS.
It was after the 2008 elections that Lincoln Strategy, wellknown for its work in Republican political circles, made the pitch to APS.
The pitch
Utility officials said APS did not request a proposal, calling it a consultant’s pitch for business. The two presenters of the report agree.
However, the consulting firm’s owner said a plan was prepared at the utility’s request.
The plan’s origins stem from meetings between a former APS employee and the utility’s CEO.
In 2009, Jessica Pacheco was working for Lincoln Strategy. She had been an APS employee from 1997 to 2006, when she left to become the lobbyist for the Arizona Chamber of Commerce and Industry. She joined Lincoln Strategy in 2007 and then was rehired by APS in 2009.
Pacheco said that while she was at Lincoln Strategy she continued to meet a few times a year with APS’ CEO Brandt, and at one of those meetings she asked if her co-worker, Brian Murray, could meet with Brandt to “talk about some ideas.”
Pacheco and Murray are listed on the plan as the Lincoln Strategy contacts.
Pacheco said she and Murray met with Brandt in early 2009 and went over the concept, and Brandt dismissed it.
“It was a bad idea then; it is a bad idea now,” Pacheco said.
Pacheco and Murray said it was an unsolicited pitch.
“Don (Brandt) never asked me for this plan or any other plan,” Pacheco said.
Murray declined to comment further on his past work with Lincoln Strategy.
APS officials said the only utility employee who saw the report in 2009 was Brandt.
“I get unsolicited sales pitches all the time from consultants trying to sell ideas, the overwhelming majority of which go nowhere,” Brandt said in a statement to The Republic. “Frankly, I have little memory of this one ... I didn’t keep a copy and it was not something I discussed at length with Jessica, Brian Murray or anyone else. We are not using this plan today or anything like it.”
Nathan Sproul, owner of Lincoln Strategy, said Pacheco and Murray came up with a proposal “at the request of APS” but that his company never implemented a plan.
Sproul would not comment further about the plan, citing client confidentiality.
He said he is not working for any company involved in the current APS solar debate. Sproul, a longtime Republican operative, has been involved in voter-registration controversies in several states.
Not long after Brandt said he rejected the plan, Pacheco was rehired by APS and now is the utility’s head lobbyist. Murray, now a partner with Summit Consulting Group Inc., works as an APS contractor.
APS officials said such a plan never would have been put to use at the utility, and that no one within APS would have requested such a plan from consultants.
“Getting involved in commissioner elections? Unbelievably high risk,” said Jeff Guldner, senior vice president of customers and regulation at APS. Guldner frequently testifies at the Corporation Commission for APS on regulatory matters. “We don’t tell employees who to vote for or try to influence elections. If you do that and are wrong, you have to live with it for four to eight years.”
The plan
The plan to change the Corporation Commission involved a three-year strategy and APS money funneled through nonprofits with no apparent ties to the utility.
It called for creating two nonprofit groups that would direct APS donations to generate research that would show the Corporation Commission’s decisions cost ratepayers money and hurt families. The plan called for making the non-profits appear as a grass-roots efforts rather than as well-funded operations directed by industry insiders with clear corporate goals.
According to the plan, the key non-profit would be the report’s namesake, the Institute for Energy Policy, which would have a national office in Washington, D.C., and chapters in various states and position itself as “a legitimate public-policy organization.”
The institute was supposed to conduct research activities to push public-policy objectives and “lobby members of Congress.”
The plan suggested the institute also involve itself in political issues in other states, which would obscure that it would be funded by APS to target an Arizona cause.
The plan said eliminating the five-member Corporation Commission would be difficult, as the panel was established by the state Constitution. The plan suggested pushing for voters either to add appointed members to the board or to make the state Legislature the final authority on utility rates.
“Arizona will have a budget to conduct survey research to begin developing solid messaging with the end goal of changing the selection process for the Arizona Corporation Commission,” the report stated.
Ex-commissioners react
Reaction to the plan was mixed from former commissioners. While some said they understand why the plan was written, they doubt it would have succeeded.
“It was clearly a time of great change in energy policy in Arizona,” said Mayes, who now teaches law at Arizona State University. “I’m not completely surprised that APS was looking at a lot of different scenarios. But I’m just glad that they ultimately chose not to go down that path.”
Commissioner Gary Pierce, who was on the commission in 2008 and remains there today, said several groups have proposed changes to the commission over the years. He said he suspects the plan was crafted by Lincoln Strategy to drum up business.
“I can’t imagine anyone (at APS) would have thought that would be successful,” Pierce said.
He said the structure of the commission is appropriate because if voters or utility customers don’t like the policies, they get the opportunity to vote for new commissioners.
Newman said APS appeared to be working to alter the composition of the commission, adding that such a plan “is very dangerous to our democracy.”
Guldner said the policy at APS is to work with whoever is elected to the commission in a collaborative way, and to bring in the opposition and work out settlement agreements.
Ties to the report
APS officials said because they have ties to the only two former Lincoln Strategy employees named in the plan doesn’t mean the utility condones the plan’s goals.
Hatfield said the plan was “absurd” and “ridiculous” and that Pacheco was not hired at APS because of it. Brandt agreed. “She was rehired in 2009 because of her talent and her previous work with the company,” he said. “The unsolicited sales pitch in question was irrelevant to the decision to bring her back to APS.”
Pacheco said the plan had nothing to do with why she was hired.
“I was probably hired in spite of the plan,” she said. “This company would never do that.”
Hatfield, Pacheco and other APS officials would not discuss Murray’s current role in working with APS-other than to say he is among the consultants APS is using to try to change the Corporation Commission’s rules for solar.
Murray previously served as chief of staff for former U.S. Rep. Rick Renzi, an Arizona Republican who was convicted this year on conspiracy, extortion, racketeering and other charges. Murray did not work for Renzi when the crimes were committed and was not charged in the case.
In addition to APS, Murray’s current clients include a coalition trying to maintain the Navajo Generating Station coal-fired power plant amid environmental rules that could shut it down.
Newman said because APS hired one executive and works with the other as a consultant, executives must not have found the plan distasteful, regardless of what company officials say today and whether they actually tried to alter the commission.
Similar to 2009 plan
APS’ political strategy in its solar battle has some similarities to the 2009 plan by Lincoln Strategy, but APS officials said the two are not connected.
The plan suggested funneling money through non-profits, which would be difficult to trace. It suggested using “a highly qualified candidate with solid knowledge in public policy and electoral strategy who has pre-established credibility within the community” to lead the Arizona effort.
It also envisioned messages that “look at the cost of regulation on individual families and drive home how it hurts working families.”
Hatfield said the only connection was that both plans involve non-profits.
Barry Goldwater Jr., son of the Arizona icon and a former U.S. representative from California, speaks for a coalition of solar companies. He said the way APS has been using nonprofits to make its political message is suspect.
He said APS was using “unsavory” political tactics and should be investigated by state and federal authorities.