Op-ed by Grant Smith, senior energy policy advisor at Environmental Working Group
Nothing exemplifies the irrational utility business model more than the billions of dollars companies have wasted on the massive buildout of natural gas capacity over the last decade, ignoring obvious market trends favoring renewables and energy storage.
One great tool to end this financial mismanagement would be enforcing the once prominent “used and useful” standard through which states could mandate that new power plants be completed and providing service before a utility can recover costs from ratepayers. And those generation resources must remain economic, or useful, throughout their lifecycles.
But states have scrapped or severely weakened this requirement across the U.S.
And their approval of new, unnecessary natural gas infrastructure also rests in part on power companies’ misleading claims in their investment plans.
Natural gas won’t solve the climate crisis, and the industry will only become less profitable and inefficient, joining oil as yet another energy source of the past. We need an ambitious clean energy future that embraces decentralized power through residential rooftop solar, energy storage, wind, solar and other wise investments.
S&P Global reports that Wall Street analysts and others “argue that U.S. utilities are locking themselves into a generation of gas plants that are likely to become uneconomic and shut down long before their planned retirements,” otherwise known as stranded costs.
A recent Carbon Tracker analysis finds about one-third of U.S. natural gas plants are losing money, and utilities could face nearly $25 billion in stranded assets for new facilities.
S&P Global describes how we arrived at this point:
- “Many utilities’ business models reward them for building new infrastructure, whether economically viable and essential or not.
- Overburdened regulators often lack the resources and the expertise to thoroughly examine utility generation planning, or to fight flawed plans.
- And state legislators who receive generous backing from big utilities often accede to their requests.”
EWG’s analysis similarly finds that centralized monopoly utilities have manipulated planning documents to encourage state approval of greater gas capacity, even when cheaper and cleaner energy options are available. And EWG also finds several states have amended laws to give utilities full cost recovery from power plant investments regardless of market changes.
State policies encourage unnecessary gas expansion
As far back as 1984, Richard Pierce, professor of law at George Washington University, tried to understand when utilities should be able to recover the costs of bad investments from ratepayers — and how much they should be free to claim. He noted, “the forecasts actually used by the industry as a basis for investment decisions appear to reflect bias or, at the least, naivete in assumptions with respect to . . . structural changes in the market for electricity.”
The questions are still relevant.
EWG reviewed five cases when utilities, in proceedings for approval of power plants or in planning documents, focused their data to promote construction — from 2017 to the present — of likely unneeded natural gas plants. These include Minnesota Power, Southwest Indiana-based CenterPoint, formerly Vectren, Duke Energy, Xcel Energy and DTE, formerly Detroit Edison. Their plans manipulate facts and distort reality by:
- Exaggerating future electric demand
- Manipulating the timing of renewable resource or battery storage capacity additions
- Underestimating the cost savings or potential for energy efficiency measures
- Projecting overly optimistic natural gas prices
- Inflating the costs of solar and wind addition
- Underestimating the capability of wind and solar to assist with grid reliability
Duke’s 2018 planning document proposed a substantial buildout of natural gas in North Carolina. The plan prompted pushback from the state attorney general’s office, advocates, and the North Carolina Sustainable Energy Association and others. They argued the projected natural gas costs were too optimistic, that Duke ignored solar’s benefits, and that shifting to a portfolio of renewables, energy efficiency and battery storage would save ratepayers billions of dollars. However, regulators ultimately accepted Duke’s plan.