APS Used Backdoor Charitable Donations to Sway Regulators, Report Warns

Arizona Public Service's notorious influence in Arizona politics is fueled not only by its tens of millions in political spending, but also, less visibly, by tens of millions in philanthropic contributions, a new report says.

From 2013 to 2017, APS, Arizona's largest utility, with 1.2 million captive customers, gave nearly $39 million in philanthropic contributions to a smattering of local groups, according to the report, which was published by the Energy and Policy Institute, a San Francisco-based watchdog group, on December 10.

For that report, the organization examined philanthropic contributions from 10 of the U.S.'s biggest investor-owned electric utilities: Ameren, American Electric Power, APS, Dominion Energy, DTE Energy, Duke Energy, Entergy, FirstEnergy, NextEra Energy, and Southern Company.

In total, those utilities gave roughly $1 billion in charity from 2013 to 2017, far outstripping their political spending. At least some of that money served a purpose other than generous, altruistic philanthropy, the report posited.

That charitable giving could be used to solicit direct and public support from recipients, curry favor with policymakers by giving to organizations they had connections with, suppress dissent, or demand support from communities of color, the report said.

It included specific examples that pointed to those deeper motives — community groups signing a letter supporting an APS rate hike after receiving APS donations, for instance, or a state legislator with ties to APS-funded nonprofits bucking his party to oppose a ballot initiative that APS did not want passed.

"We found that all of these major utilities use their charitable giving to manipulate politics, policies and regulation in ways designed to increase shareholder profits, often at the expense of low-income communities whose communities are more likely to bear the brunt of climate impacts and suffer higher levels of air pollution," the report said. "Much of the utilities' charitable activity is geared explicitly to influence politics."

The entire utility sector, plus political action committees and employees, had just $78 million in political spending in the 2014, 2016, and 2018 federal election cycles, the report said.

APS is a subsidiary of the publicly owned Pinnacle West, and it has faced scrutiny and criticism for years over its political spending in Arizona.

Its charitable contributions received less attention until earlier this year, when a subpoena from state regulators demanded that the utility open its books, which revealed eye-popping levels of charitable giving in addition to political machinations.

That subpoena allowed EPI to gather more detailed information about donations from APS than for any other utility, said Joe Smyth, a researcher at EPI who contributed to the report. Other utilities’ charitable spending is contained primarily in tax forms, corporate sustainability reporting, and federal disclosures, which are less detailed and don’t show, for instance, recipients of those donations.

“That speaks to one of the recommendations in the report, which is that there needs to be better regulatory oversight for the disclosure of this information,” Smyth said. “This stuff should be disclosed on an ongoing basis.”

Of the $38,919,576 that APS gave in charitable spending over the five-year period, not even one-third — $12.9 million — came from APS's nonprofit arm, the APS Foundation. The rest — about $26 million — came directly from corporate APS, which spent more than $70 million in political contributions over the same time period.

The report cited four cases that it said demonstrated the political impact of APS's charitable spending.

In one case, APS donated a total of more than $1.6 million to 15 groups whose representatives signed a letter supporting a proposed 2016 rate increase for APS.

In another — last year's failed ballot initiative to set a renewable energy standard for Arizona — eight organizations that publicly took APS's side in opposing the initiative received more than $10 million in donations from the utility. Among them were the Arizona Free Enterprise Club ($5.9 million), the Arizona Cattle Feeders' Association ($2.5 million), and the Arizona Republican Party ($1 million).

In these cases, it is very difficult to prove that those groups sided with APS as a direct result of those donations, Smyth said, but in looking at the utility sector more broadly, EPI could see a clear trend: charitable giving, followed by support from recipients of those dollars.

The point is that disclosure is important, Smyth added. “We should know that if organizations are weighing in on rate cases or policy whether they have a financial connection,” he said.

Another opponent of the renewable energy ballot initiative was State Senator Robert Meza, a Democrat who earned thousands of dollars for "marketing/branding" work from local nonprofits and companies, including Chicanos Por La Causa, The Armory, and the PSA Behavioral Health Agency, that received funding or donations from APS or had connections to the utility. (The utility also poured $50,000 into a political action committee last year to support Meza's campaign.)

Finally, it pointed out how this summer, Cindy McCain took to the editorial pages of the Arizona Republic to defend then-APS CEO Don Brandt. The piece did not disclose the half-million dollars that the McCain Institute was supposed to have received from the APS Foundation, per tax records.

The report highlighted other problems with current record-keeping. It found a discrepancy between spending records that APS filed with Federal Electoral Regulatory Commission — $11.7 million in charitable giving — and those filed with the Corporation Commission ($25.9 million). Smyth suggested that the discrepancy could be due to differences in how FERC defines such spending.

Spokespeople for APS did not respond to a request for comment for this story.

To further illustrate the idea that APS's charitable giving might be used as an extension of political spending — to curry favor and to fuel political sway — the report pointed out that the Foundation's board of directors was populated entirely by APS executives.

It argued too that for all utilities, charitable giving "helps the companies’ general public relations efforts," although it allowed that "not all of that utilities’ charitable spending is directly political."

"Utilities’ charitable arms often collect some of their revenue from utility employees, the vast majority of whom are likely acting in good faith to support community-based organizations," it added.

The report recommended more and better disclosure from policymakers, regulators, and others about when or if they had received funding or donations from utilities, in order to be transparent about possible motives or biases.

Of the 10 utilities that EPI examined, APS ranked among the lowest in charitable giving. Topping the list was Duke Energy, with $306 million, followed by Southern Company, at $209 million. Only Ameren ($35 million) and FirstEnergy ($28 million) spent less.