Guest Post: The Utility of Utilities
A guest post from DERTF friend Fred Stafford on his new essay in Damage Magazine.
Foreword
Fred Stafford here. This post is an excerpt of an essay by myself and geographer Matt Huber for Damage Magazine. Rather than posing leftwing arguments in favor of “big public power” like the TVA, as we have done repeatedly — and as Matt did on DERTF episode #37 and at DERVOS — here we pose leftwing arguments in favor of the regulated public utility model in general. Yes, even when investor-owned. Avowed libertarian Pier LaFarge already delivered the same basic arguments as ours on DTF episode #48; we hope the DERTF community might appreciate our own, socialist articulation of it.
Our case to “reclaim the utility of utilities” is practically heresy among progressives interested in decarbonization, who instead see new markets, new price signals, new energy firms, and ever-present competition as key steps on the path to clean energy growth. Those advocates see clear limitations of the utility model — sometimes for good reasons, which we cover in our historical look at the utilities’ rise and fall over the 20th century — but we see risky limitations in the competitive alternative too. We’re not alone in that concern; the new book “The Price is Wrong” by geographer Brett Christophers has been making waves everywhere from the Financial Times to Heatmap for its core critique about the lack of profitability of renewables development.
But what Christophers and so many others miss in such (correct!) analysis of renewables investment — apart from the need for bigger, more centralized clean energy infrastructure beyond renewables, like nuclear or pumped hydro storage — is that the competitive independent power producers aren’t the only way for the creative motor of profit to drive the development of critical infrastructure.
Now that the era of stagnant load growth is behind us we think it’s time to return to the growth engine of the utility model, to rebuild that lost institutional capacity that James lamented in conversation with Mark Nelson in DERTF episode #43. We'd prefer more New Deal-style public power — ideally with costs socialized by progressive taxation than by the “regressive tax” on ratepayers — but even private ownership of regulated “public utilities” would embody the institutional model we need.
The Utility of Utilities
Climate activists are no fans of electric utilities. But the market-based alternatives that they often prefer will not deliver infrastructural change at the scale we need.
Taller than the Washington Monument, planted in ocean-floor monopile foundations weighing as much as four 747s, heaving blades the length of a football field, offshore wind turbines were meant to be the new American clean energy juggernauts.
Generating power at a larger scale and more frequently than onshore wind turbines, though still intermittently, offshore wind has been central to the decarbonization goals of President Biden and of Atlantic blue states. As of this past January, decades behind its European counterparts, the American offshore wind industry has two turbines, off two coasts, finally delivering power.
But last fall, the future of this focal point of the energy transition began tumbling into a political-economic crisis. Post-Covid supply chain bottlenecks and rising inflation led to escalating losses and plummeting share prices for German wind turbine manufacturer Siemens. Flagship offshore projects were canceled in New York, New Jersey, Massachusetts, and Connecticut. Their total power capacity amounts to about one-fifth of Biden’s goal for offshore wind supply by 2030, the delays all but guaranteeing a miss.
Each canceled project was undertaken with—and financially completely dependent upon—state-negotiated contracts in state-designed competitive auction processes to purchase “renewable” certificates from competitive developers. The power markets aren’t enough; developers of these immensely capital-intensive projects also need subsidies on top. It’s a common scenario for all renewable energy procurement, not just offshore wind, in blue states in particular.
Meanwhile, one massive 176-turbine project off the coast of Virginia is going forward without a hitch. It is owned and managed not by a competitive developer, but by the vertically integrated electric utility Dominion Energy. As a utility, they are afforded economies of scale and efficiencies in system planning. Dominion’s project is larger than the others, and while other projects are lacking in ships to install turbines (one example of the “supply chain problems” plaguing the industry), Dominion is simply building its own.
As a regulated public utility, E&E News explains, Dominion “uniquely enjoys” an investment model unavailable to those capitalists only seeking to develop wind energy alone: thanks to its regulated utility status, “its investments are paid for by electric consumers, with utility regulators approving a return on the investment as profit.” That older model lies in stark contrast to one in which increasingly bespoke markets, price signals, financial instruments, and auction processes, designed in tandem with state policies, lure capitalists without the burden of serving customers.
Newfangled markets and competition versus old-fashioned utilities. When it comes to building tomorrow’s clean energy infrastructure, it’s hard to find anyone left of center arguing in favor of the latter arrangement. That is, except for some of the labor unions representing the energy workforce.
The reality of climate change presents a need to develop clean energy. To decarbonize the whole economy, state-of-the-art modeling from Princeton suggests we’ll need to triple or quadruple electricity production by 2050. This entails not just some wind turbines here and solar panels there but a nationwide remaking of the industrial landscape. What if that older utility model offers greater potential to build the clean energy infrastructure we need?
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