Is your utility a clean energy champion?

This is Bright Ideas, a weekly newsletter on the rise of clean energy, by me, reporter Julian Spector. It’s free, so if you like what you see, please subscribe and tell your friends. We could all use some more Bright Ideas in our lives.

You’re reading this with electricity. Do you know if the company providing you with that electricity promised to make it clean?

I follow electric utilities like some people follow sports: who’s on the rise, whose owner is holding them back, who just traded for some major talent? These days, this obsession feels particularly gratifying, because there’s more action in the utility sector than in actual sports right now.

On the off-chance that this is new to you, I’ll suggest my favorite storyline: the biggest and smartest utilities are racing to switch their fleets away from coal and towards clean energy.

Some had no choice—when California passed a law to phase out fossil-powered electricity by 2045, its utilities had to oblige. The same applies to the seven other states that passed similar laws. Elsewhere, utilities took the initiative themselves.

Back in 2018, Xcel Energy, the biggest power company in Colorado and Minnesota, pledged to go 100 percent carbon-free by 2050. Duke Energy, covering the Carolinas, Florida, Indiana, Ohio and Kentucky promised net zero carbon emissions by 2050. Southern Company, the old-school utility powering much of Georgia, Alabama and Mississippi, matched that promise this May. Arizona Public Service, the biggest utility in Arizona, promised carbon-free power by 2050. The list goes on.

Utilities spent years rebuffing clean energy as too risky, too expensive, too unpredictable, too uncontrollable. Now they see it as a moneymaker, and that change has massive ramifications.

Burning coal doesn’t make you rich

People often ascribe morals to utility decisions.

You may have heard your utility described as a big bad monopoly trying to keep you from getting solar power on your roof, or forcing you to pay for fossil fuel projects you don’t want. 

There certainly are moral dimensions to the business of producing life-giving power, polluting some neighborhoods in the process, and taking money from a populace to do it. But I find it more useful to examine utilities in terms of structural incentives: what makes the most sense for them to do given the rules that currently exist?

Utility policy scores high on the public impact to public attention ratio. I’m going to oversimplify and tell you the overarching rule:

Utilities make money by building things. 

More specifically, when a utility convinces its regulator that it needs to build something, it takes the money to do so from its customers (like you and me!), and earns guaranteed profit on the money it spends. The guaranteed profit margin, or regulated rate of return, is usually in the ballpark of 10 percent—with pretty much zero risk. It’s like betting on the stock market and earning that 10 percent average, without the stress of possibly losing any money—pretty sweet, in other words.

The important corollary to this rule is that utilities do not profit from everyday operations. The cost of fuel like gas or coal gets reimbursed by the customers (like you and me!), but it doesn’t earn that tasty guaranteed profit.

A logical thinker, surveying these rules, would conclude that building new stuff is more profitable than not building stuff, or trying to operate the old stuff more efficiently. It’s not hard to imagine ways that this would create perverse incentives. But what if you could harness that perversity, and channel it into something generous and life-affirming?

That coal going up in smoke is not returning profits to utility shareholders. (Photo credit: DOE)

The trade of a lifetime

Here’s the fun part: clean energy works great for utilities, because it fits those rules like a custom golf club made of money.

Wind and solar don’t have any fuel cost, because their fuel (wind, sunshine) is free. But they are things that you need to build. See where this is going?

Xcel Energy, of Minnesota and Colorado and six other nearby states, figured this out bright and early. It came up with a plan to shut down coal plants, which are expensive to run, and replace them with wind and solar batteries, which are cheap to run. Costs for customers fall, while the electricity gets considerably cleaner, which makes the public happy. All of this means Xcel earns more profit to send to its shareholders, making them happy, too.

Cheaper power, cleaner power, more profitable power, all at once? That win-win-win is only possible by eliminating the operating costs from coal, which don’t make guaranteed profit, while building stuff, which does.

Xcel called this trade “steel for fuel,” which makes perfect sense to people who follow this stuff like sports.

Most of the nationally prominent utilities have caught onto the game. That helps explain why you see such ambitious climate commitments by utility companies in states that don’t care about climate change.

The risk is that clean energy becomes the new boondoggle, that public excitement for clean power creates political cover to spend extra money on gold-plated systems. This is where market competition comes in handy—but that ~juicy~ topic will have to wait for another week.

The greater risk, from a climate perspective, is that the structural incentive to build stuff is not channeled into clean energy. In that case, it works toward fossil fuels, namely gas plants of questionable value and new pipelines to supply them. Even some of the utilities promising clean power by mid-century are pushing to build plants and pipelines now.

So next time you flip on the big game and realize it isn’t happening, check the roster of your utility. Is it running a gas pipeline Hail Mary? Or throwing a change-up clean energy pitch? You’re paying for it either way, so you may as well get to know the team.

The Energy Stream

And if you want to keep the utility game night vibes going, follow in my footsteps and check out a strategy board game called Terraforming Mars. The point of the game is to go to Mars and terraform it, which is to say, make climate change happen in a way that’s nice for us humans.

This generational mission requires energy, so players in the game have to erect power plants of various kinds, both to power their airtight domed cities and to release waste heat into the atmosphere, nudging the temperature up over time. Once you thaw the permafrost, you can start farming, or seed the new oceans with plankton and other critters that speed up oxygenation of the Martian air. 

Much like the race to overhaul our civilization with clean energy, the players in Terraforming Mars are all pushing the planet toward one shared goal. But you can still win, by achieving that goal sooner and better than your peers.