By Kristi E. Swartz
E&E News, Jul 15, 2022
For many companies, the ongoing shift to clean energy presents a massive financial opportunity.
But for U.S. electric utilities, the transition may upend a longstanding business model.
That’s because utilities have traditionally made money by investing in new assets, from power plants to power lines. Consumers pay for those investments through monthly bills and expect reliable service in return. Utilities, with the approval of regulators, lock in rates of return and paths to hitting financial targets for Wall Street.
As the electricity mix has evolved, though, resources like rooftop solar and electric vehicles haven’t fit into that model — at least not in the traditional sense. Now, companies are facing a potential financial gap compared with past expectations. Some are trying to address that by proposing that utility customers pay for technologies like public EV chargers, a development that could be a financial opportunity for companies, but also one that is spurring resistance.
The clash is coming to a head after last month’s Supreme Court ruling, West Virginia v. EPA, which hamstrung the federal government in regulating greenhouse gases. Government leaders and climate advocates are leaning on utilities to lead the way in cutting greenhouse gas emissions and move toward a cleaner generation mix. President Joe Biden has proposed a decarbonized U.S. power sector by 2035, while a number of states have their own carbon-cutting goals for electricity and beyond.
But if utilities feel like they can’t make money off of many of the technologies to achieve decarbonization, will they make the effort to fully shift away from fossil fuels?
In many ways, the Southeast is ground zero for this emerging battle. It’s home to some of the biggest U.S. utility companies, which have enormous political and business clout. States and companies must decide how quickly to shut down coal plants and how much extra capacity should remain on the grid as extreme weather threatens reliability.
“Given the political leanings of [the Southeast region], I highly suspect that the utilities are going to win the day,” said Josh Basseches, a postdoctoral fellow at the University of Michigan’s Gerald R. Ford School of Public Policy.
Indeed, while Congress continues to negotiate some form of climate legislation absent of Biden’s signature “Build Back Better” proposal, having states and electric companies carry out their own net-zero policies becomes ever more important.
Electric companies and states like it that way: being in charge of their own energy destiny and letting the market — not Washington — drive those policies. But it’s also a chief reason why the Southeast continues to fall behind in the clean energy transition, experts say.
“In general, the Southeast is the area of the country that’s lagging when it comes to climate and energy policy,” Basseches said.
Disagreements among state lawmakers and utility regulators also have, in some cases, led to stalled clean energy legislation in the region.
The shifting energy mix is raising financial questions that utilities — and their regulators — will need to solve in the coming years.
The Southeast is fast becoming a hub for electric transportation, with a host of battery makers and auto manufacturers choosing the region to start up or expand. Utilities have been banking on the sector to contribute significantly to future revenue and profits.
The bulk of that money is in the chargers, and electric companies have been adding publicly available charging infrastructure to long-term energy plans and rate requests. That means all customers would pay for the chargers whether they drive an EV or not.
“The charging infrastructure is nothing more than a fancy plug; we ought to be able to include it with our [capital expenditure] plans,” said Tom Fanning, CEO of Southern Co., which operates electric companies in Alabama, Georgia and Mississippi, at the company’s annual meeting in May.
Not all lawmakers agree, arguing that letting electric companies embed those costs in monthly power bills gives them an economic leg up against private charging companies, gasoline stations and convenience stores, which don’t have the ready-made customer base of millions of people to pay for that infrastructure.
If there’s not a strong business case for EV chargers, gas stations and convenience stores won’t install them, their lobbyists have said. That would slow the transportation shift that so many electric companies have wanted.
“Southern has been talking about this for the better part of a decade as a business opportunity,” said Daniel Matisoff, director of the sustainable energy and environmental management master’s program at Georgia Tech. “The only way they can make more money is to sell more electricity.”
Georgia, Florida and Louisiana have discussed legislation to shape EV charging infrastructure this year. Lawmakers have called for a competitive marketplace, arguing that’s the best way to build out a charging network quickly.
That, and they don’t want the utilities to be in the charging business.
“We’re not going to allow the monopoly; we’re not going to allow the utilities to use their rate base to subsidize the EV business,” said Georgia state Rep. Alan Powell, a Republican from Hart County in northeast Georgia.
The Feb. 22 EV subcommittee meeting, part of the Georgia House Committee on Energy, Utilities and Telecommunications, was one of a series of debates over how to best set up a framework and rate structure that would help allow gasoline stations, electric companies and private EV charging companies install chargers.
In a battle that is playing out across the country, however, gas stations — and some lawmakers — don’t want the electric companies to be able to recoup the cost of those EV chargers from all of their customers, arguing that gives them a financially competitive advantage.
Those bills stalled in Georgia and in Florida. In Louisiana, S.B. 460, which sets up a framework to build out EV charging infrastructure statewide, was signed by Gov. John Bel Edwards (D) on June 18.
“We’re trying to … get us to a place where the gas stations that you see up and down the highway have a road map, so to speak, to move forward to make those investments,” state Sen. Rick Ward, a Republican and the bill’s sponsor, during an April 27 meeting of the Committee on Commerce, Consumer Protection and International Affairs, which he chaired. Ward resigned from the Legislature in June to take a job in the public relations sector, according to a media report.
Eva Rigamonti, associate general counsel for RaceTrac Inc., said a chief barrier to convenience stores installing EV chargers is the rates electric companies charge them for doing so.
“This unambiguously stifles investment,” she testified at that April meeting.
Entergy Louisiana LLC executives, including its CEO, met with Rigamonti and others the previous day to say they would not stand in the way of anyone that wants to build fast chargers, said Jody Montelaro, the electric company’s public affairs vice president.
“What we are charged with is to make sure that the infrastructure is in place, for anyone. That’s going to be a big deal,” Montelaro said at the meeting. “EV is a totally different type of system because you are using our grid.”
As more customers want cleaner energy options or to generate their own electricity, a battle over how much they should get paid for selling excess electricity to the grid is reemerging. Known as net metering, the system credits customers with rooftop solar who generate more power than they can use and sell it back to the electric company.
Some electric companies oppose paying customers what’s known as a retail rate, saying that amount is too high. This is because utilities argue that customers without solar panels are subsidizing those who have them. The state’s electric companies still must be able to provide traditional electricity for solar panel owners when they need it.
That has turned rooftop solar policy, at times, into an issue of class. The panels are expensive, often preventing low-income residents from being able to buy them. What’s more, renters and people who live in multi-unit dwellings typically can’t use them because they don’t own their roofs.
That means the people who may need to reduce their monthly power bills may not be able to take the steps to do so.
“There’s a lot of emotion,” said William Boyd, a professor at UCLA’s School of Law and at the Institute of the Environment and Sustainability. “There’s a concern there to try and deal with those issues if they can.”
The issue was in the spotlight this year in Florida, where the state’s largest electric company has long threatened to slash the incentives that rooftop customers receive for selling excess electricity to the grid.
Many clean energy advocates weren’t surprised when a bill, largely penned by NextEra Energy Inc.’s Florida Power & Light Co., was filed in November 2021 for the 2022 legislative session. The measure moved quickly through both chambers despite dozens of people lining up in each committee to oppose it. The bill would have cut the amount of money rooftop solar users would receive for selling excess electricity back to the power grid. Then came Republican Gov. Ron DeSantis and his veto pen.
DeSantis said Floridians didn’t need more economic woes on top of inflation and the price hikes in fuel, groceries and other bills (Energywire, April 28). The governor indicated that he did not want to cut back on a financial incentive for consumers at a time when monthly bills, among other things, were rising.
Abigail Ross Hopper, CEO of the Solar Energy Industries Association, said in a statement following the governor’s April 27 veto that by vetoing the bill, DeSantis protected jobs, businesses and consumer choice.
“This veto signals that Florida’s energy economy is open for business, and that the rights of state residents should be placed ahead of monopoly utility interests,” Hopper said.
FPL is a top political donor to DeSantis and much of the GOP-controlled Legislature. His veto sent shockwaves through Florida’s energy and political landscape.
Alabama, Georgia and Mississippi are grappling with rooftop solar policies in front of regulators and, in one case, the courtroom. The issue is about control of the power grid, experts say.
“Every time someone puts a solar panel array on their rooftop, they now own a small piece of that grid,” said Basseches, the University of Michigan fellow.
As power companies propose ways to make money off new investments, they also seek to profit off their old ones. That can put a strain on both consumers and utilities, which want to be made whole as they transition away from coal while having certainty on when to make the shift.
That is playing out as many of the region’s electric companies have set net-zero carbon goals and proposed closing the last of their aging coal plants by 2035, making natural gas their replacement fuel of choice for plants that can run on demand. Some state regulators want utilities to rethink those plans, however, arguing that extreme weather events in places like Louisiana and Texas have led to widespread blackouts and that those old coal plants may be needed to keep the lights on.
What’s more, the longer the coal plants run, the more that delays building a new natural gas plant, a move that fits in with the industry’s age-old capital-intensive business model.
“It’s a big, looming issue for sure,” said UCLA’s Boyd.
Roughly 38 percent of the nation’s electricity last year came from natural gas, according to the U.S. Energy Information Administration. The eventual question is whether electric companies can recover the cost of stranded natural gas assets, especially after doing so with coal plants, Boyd said.
“I think the gas build-out question is hard,” he said in an interview. “Are there going to be stranded assets in 10 to 15 years if we do make a big push on carbon?”
South Carolina utility regulators took the unusual step last year of rejecting Duke Energy Corp.’s long-term electricity plans, saying the utility company wasn’t moving away from fossil fuels quickly enough in favor of solar and battery storage (Energywire, June 22, 2021).
But the Public Service Commission this year directed Duke to keep the last of its coal plants running longer, into the 2030s. For this and other reasons, Duke asked for a rehearing, which the PSC denied.
In its request, Duke argued that keeping older, emissions-intensive power plants running is an economic risk. Aside from the power plant’s reliability, coal markets have become increasingly volatile, and the number of coal suppliers is dwindling, the company said.
Electric companies also must start choosing future forms of generation now as the nation shifts to cleaner sources of electricity.
“The companies, along with other peer utilities in the Southeast and across the country, are engaging in a significant and transformative period of energy transition,” attorneys for Charlotte, N.C.-based Duke Energy Corp., wrote in its filing on May 13.
In an email, Duke spokesperson Erin Culbert said the company is “disappointed with the commission mandating the least proactive path for moving away from coal generation, because it carries unnecessary risks for customers and our system.”
South Carolina utility regulators declined to comment, saying they would explain their decision in an upcoming order.
The PSC’s decision also puts Duke at a crossroads in the two main states where it operates: North Carolina and South Carolina.
North Carolina now has a mandate to become net zero by 2050, and Duke is required to cut its carbon emissions 70 percent by 2030 from 2005 levels. That includes closing roughly 9,000 megawatts of coal plants in the Carolinas.
In Georgia, the state’s largest electric company wanted to close its remaining coal plants by 2028, according to its long-term energy plan that regulators are scheduled to vote on July 21.
But members of the Georgia Public Service Commission staff argued recently that Georgia Power can put off making that decision until 2025 for three of those individual units.
The absence of federal carbon legislation is a chief reason, according to economic analysts with the PSC staff. They also want Georgia Power to use a competitive bidding process for replacement generation instead of simply turning to natural gas.
Southern signaled a year ago the end of its coal plants was near, citing a Trump administration-era rule for water and wastewater. At a recent hearing, clean energy advocates asked the Georgia PSC staff whether they weighed the cost of environmental upgrades.
Utility Finance Director Tom Newsome with the Georgia PSC answered affirmatively and cautioned against racking up a bunch of hypothetical costs based on other regulations that didn’t exist.
“Then we retire these units prematurely, and you open the door for Georgia Power to come in an do a new build,” he said, adding that building a new power plant costs more than a long-term agreement to buy electricity or keeping those coal units operating.
Members of the PSC staff and Georgia Power reached an agreement on major issues of the company’s long-term energy plan on June 13. The utility and others discussed the agreement at a routine committee meeting yesterday, and the PSC is scheduled to vote on the plan on July 21. The agreement includes closing some of Georgia Power’s remaining coal units this year and others by 2028.
The commission has yet to decide the fate of two additional units. By 2035, the utility expects to shutter all of the coal units in which it has a majority stake.
Brandon Marzo, an attorney who represents Georgia Power, reiterated the reasons why the utility wants to shutter its aging coal plants in speaking in support of the agreement.
Marzo cited environmental “pressures,” that are likely to increase as well as a diminishing coal supply in the United States. The recent Supreme Court decision on environmental regulation also has no impact on the utility’s plans, he said.
“It does not alter the company’s analysis in this case or the economic conclusions that several of GPC’s coal plants are uneconomic to operate,” Marzo said at a meeting that was streamed online yesterday.