Utilities Versus Climate

Dominion’s behavior is not exceptional. Electric companies are one of the most powerful obstacles to implementing renewable energy and energy efficiency at the scale and speed needed to address climate change. Although there are some notable exceptions, fighting progress on climate is the norm for utilities: FirstEnergy led the lobbying effort that weakened Ohio’s law requiring utilities to source a certain amount of their power from renewable energy and energy efficiency. Exelon opposes the national wind production tax credit, a major incentive for wind energy development. Duke Energy opposes rooftop solar legislation in North Carolina.

Meanwhile, in Florida in 2014, when climate-denying Governor Rick Scott ran for reelection against pro-renewable former governor, Charlie Crist, the state’s utilities (including subsidiaries of NextEra and Duke) donated $3.55 million in support of Scott and $0.5 million in support of Crist. This year, Florida utilities have spent $21 million on an anti-solar ballot initiative in the sunshine state. And American Electric Power and Southern Companies — as members of the American Coalition for Clean Coal Electricity — are suing the Environmental Protection Agency over the Clean Power Plan to reduce greenhouse gas emissions.

Some of the largest utilities are choosing to double down on dirty energy.

The reason is simple. The largest and most powerful electric companies in this country (NextEra, Southern Company, Duke, Dominion, and American Electric Power, to name the top five) already own fossil-fuel-based electric generation and they want to squeeze as much profit as possible from their own assets.

These companies want to keep old and dirty power plants producing profits, so they engage in fearmongering, claiming that renewable energy drives up electricity prices — a claim undermined by actual data from electricity grid operators. In fact utilities, and society as a whole, would benefit from a just transition to clean energy.

Here’s a quick primer on how and why so many utilities behave the way they do and block clean energy.

There are two business models for owners of electric power generation: regulated and deregulated. In the traditional regulated utility model, vertically integrated electric utilities own power plants, transmission lines, and distribution lines. State public service commissions set rates, based on projected sales, to cover the utilities’ costs plus a profit on the money the utility has invested. If projected sales do not materialize as forecast, the utility can apply for another rate increase, but it is still harmed by the lost profit before its next rate increase goes into effect.

The result is a business model in which (a) utilities earn profits based on building and owning infrastructure; and (b) utilities are directly harmed by falling sales. This leads to behavior like Dominion’s: supporting policies to suppress homeowners’ ability to generate their own power and thereby buy less from Dominion, and also thwarting the development of larger-scale projects not owned by Dominion.

In states that deregulated their electric industries in the late 1990s and early 2000s the model is slightly different. Vertically integrated electric companies were split into separate companies: generation, transmission, and distribution (though a parent holding company can still own all three types of companies). Only the distribution companies remain under state regulation.

The power plants owned by generation companies compete to sell their power in wholesale markets. Electricity generation companies profit when wholesale power prices are higher than their costs of generating power and are harmed when prices are low. So they have a strong incentive to oppose competition from new energy sources and to oppose any initiatives that suppress sales, both of which drive prices lower.

Thus, whether or not they are regulated, electric companies want to protect their own generation from competition, as well as opposing conservation and efficiency programs that would make a significant dent in energy consumption.

In the United States many utilities are standing directly in the way of the rapid transition to renewable energy and energy efficiency needed to achieve the global goals outlined in the Paris Climate Agreement. And they are a powerful opponent; the market capitalization of the five largest electric companies range from $30 to $55 billion, making all of them larger than coal giant Peabody Energy was back in 2008, when the coal industry was doing well.

Cracks in the Business Model

But the electric utility business model is threatened. Deregulated generation companies are already in a precarious position because of several years of low wholesale power prices, driven by low natural gas prices, relatively flat electricity demand, and increasing penetration of renewable energy. (Despite the incumbent power generators’ desire to protect their own assets from competition, deregulated markets and falling costs for renewables have allowed rapid growth of wind in some regions of the country). This has led some utilities, such as Exelon and FirstEnergy, to seek ratepayer subsidies for their deregulated coal and nuclear power plants that are struggling to remain profitable.

And neither utility business model — regulated or deregulated — works well in an environment of flat, or worse, declining sales. From a climate activist perspective, flat or declining sales of dirty energy are good — they result in fewer asthma attacks and less climate change. However, flat or declining sales depress wholesale electricity prices for deregulated generators and also result in lower revenues for regulated utilities.

In the last decade, electricity consumption in the United States grew only 1.5 percent. PJM, the regional transmission operator for the mid-Atlantic region, projects only 4 percent growth in electricity sales over the next decade. This marks a radical departure from the past (consumption in the 1990s, for example, grew 24 percent). With the pie no longer growing like it used to, new power sources are in more direct competition with existing ones. Or, as the Wall Street Journal put it in 2014, “Sluggish electricity demand . . . presents utilities with an almost unprecedented challenge: how to cope with rising costs when sales of their main product have stopped growing.” This weakness is leading utilities to fight back against technologies that have the potential to make their sales outlook even worse.

A primary target of ailing utility companies is rooftop solar. The installed cost of rooftop solar has steadily fallen by 6 to 12 percent per year since 1998 and is projected to continue declining. International experience suggests that prices could still decline significantly; in Germany, which has a much higher penetration of rooftop solar than the United States, installed costs are less than half of the US cost. Electricity generated from distributed solar has increased 74 percent in just the last two years, according to the US Energy Information Administration.

In 2013, the Edison Electric Institute (an electric utility trade group) released a report describing the long-term financial challenge faced by the electric industry in the face of “disruptive challenges,” stating that “the threat to the centralized utility service model is likely to come from new technologies or customer behavioral changes that reduce load.”

The threat of consumers supplying their own power through renewable energy technologies “raises the potential for irreparable damages to revenues and growth prospects.” The report explains that, even though regulated utilities are in the position to seek rate increases to cover lost revenues, this could result in a “death spiral” as more and more customers choose to go solar as electricity rates go up, ultimately leaving the electric utility with significant stranded costs.

A progressive response to the increased demand for solar would be to see it as a wake-up call on the need to provide renewables for a public that is concerned about climate change. But this isn’t the response most electric companies have taken. Instead, the EEI report is being used as a call to arms, encouraging utilities across the country to block customers from going solar.

Since the report was released, utilities have had legislation introduced in nearly two dozen state legislatures to weaken policy support for distributed solar. While not all of these bills have passed, utilities have also brought cases to state regulatory commissions around the country seeking to redesign rate structures to impose greater costs on customers who choose to go solar. For example, in Arizona, one of the country’s largest solar markets, utility company Arizona Public Service has just proposed to cut the price that it pays customers for rooftop solar-generated electricity from 12.8 cents/kWh to 3 cents/kWh. In Nevada, a similar effort by utility Nevada Energy was successful and resulted in a more than 95 percent drop-off in customers seeking to go solar.

Organizing the Alternative

The utility industry is fighting back against what it accurately perceives as a major threat to its business model. But while this “war on solar” has generated a strong response from the solar industry, the climate movement has largely sat this one out. The climate movement has focused attention on important battles over fossil-fuel infrastructure — which have been critically important for solidarity and for growing the movement — but it has largely ignored the electric utilities. This orientation leaves the utility industry’s large-scale and coordinated assault on rooftop solar to be fought in arcane regulatory proceedings and largely out of the public eye.

We haven’t engaged in this work because rooftop solar is still seen by many in the environmental community as a niche, rather than a fundamental threat to dirty energy systems. While rooftop solar installations are growing rapidly, the starting point is so low that distributed solar still only accounted for about 0.3 percent of US electricity generation in 2015.

This suggests to many that rooftop solar will never be a large enough electricity source to make a difference at the scale of the climate problem — an analysis that ignores the political potential inherent in solar. And energy efficiency, too, is typically framed as a laudable personal behavior, but not as a tool for challenging the entrenched power of utilities.

The electric industry understands much better than activists that distributed solar and energy efficiency pose a real threat to their business.

Even at a modest scale, energy conservation threatens utilities. The annual campaign Earth Hour, for example, asks climate activists to turn off their lights for one hour each March to show support for climate action. Millions participate around the world, as iconic buildings from the Eiffel Tower to Sears Tower go dark for an hour. For larger cities, the utilities are brought in early in order to manage the abrupt reduction in electricity use — the electrical grid needs to be managed through the process of a few million people turning off the lights at once.

Even such a small act has major impacts on electrical utilities, partly because of their failure to invest in resilient infrastructure. The lesson from Earth Hour is that it only takes a small percentage of the population to force utilities to pay attention to their actions, if we use energy conservation as a tool.

Electric companies are powerful actors blocking progress on climate change at the state and national levels. The climate movement needs more power to fight and weaken the power of the utilities, yet it is largely overlooking the most powerful economic weapon at its disposal: energy efficiency and distributed solar. Investments in efficiency and solar could be framed not as individual solutions, but as acts of non-compliance with an industry or with particular companies that refuse to make the transition to renewable energy urgently needed to address climate change.

Earth Hour could be used as a platform for a broader non-compliance campaign on dirty energy, asking people not only to turn off the lights, but also to stop complying with their utility company until it takes climate change seriously, and both prepares for climate change and plans a just transition off of fossil fuels.

There are a few examples where versions of this are occurring. After Xcel Energy refused the City of Boulder’s request to supply it with 100 percent renewable energy, Boulder decided to embark on the most extreme form of non-compliance: it decided to take over Xcel. Boulder is using eminent domain to condemn Xcel within the city and create a public electric company that will make the investments in renewable energy that city’s residents want to see.

But, to our knowledge, there has been no campaign to specifically target a utility with large-scale non-compliance in the form of energy efficiency and distributed solar.

A large-scale coordinated mass action to stop (or even cut in half or a third) use of dirty electricity is the energy equivalent of divestment — a refusal to comply with the corporate structures that blow up mountaintops and prevent climate policy.

Large-scale, coordinated energy efficiency is much more than a “personal virtue” as Dick Cheney said — it is an act of defiance. Cutting purchasing from dirty utilities, via solar or just by using less, has a huge impact if it is done in a coordinated way. It is a way of bringing utilities to the table to take our demands seriously — demands that should include clean energy and family-sustaining union jobs.

Back in Virginia, residents are starting this pushback. Despite Dominion-backed regulations making it hard, the nonprofit Virginia SUN organizes groups of residents to band together and install solar, while also advocating for policies that expand access to distributed solar. At the same time, across the state, organized climate protests are raising awareness about the impacts of climate change, making the stakes clearer to residents. Newly organized activists have an opportunity to also participate in taking on Dominion through non-compliance.

Dominion’s stranglehold on Virginia’s climate action cannot stand.

The impacts of climate change are becoming impossible to ignore in the state. The only question is whether it will be in time to save vulnerable communities in the state — in regions like Hampton Roads, where climate change impacts are already felt strongly. Climate justice for Virginia, and indeed the nation, can only be secured if we take on the power structures aiming to prevent climate justice. Non-compliance with dirty energy is an obvious way to fight back against mountaintop removal and climate injustices across the state and indeed across the world.