The latest wave of climate liability litigation has primarily targeted Big Oil, Gas, and Coal. But another major part of the energy industry has played a big role in promoting climate change denial and delay: electric utilities.
In Short Circuiting Policy: Interest Groups and the Battle Over Clean Energy and Climate Policy in the American States (Oxford University Press 2020), University of California, Santa Barbara political scientist Leah C. Stokes digs deeply into how utilities have aligned with Big Fossil over three decades to undercut several states’ landmark renewable energy laws via lobbying, courts, and promoting climate denial and delay to the public.
“In this brilliant new book, Leah Stokes spells out exactly how and why entrenched interests can take advantage of weak, ambiguous laws to achieve costly delays and hobble infant clean energy sources,” writes Harvard political scientist Theda R. Skopol in her advance praise for Short Circuiting Policy.
With her spring book tour on hold because of the coronavirus COVID-19 crisis, Stokes hopes to hold a virtual book launch event in late April. Sign up here to be notified of the exact date and time.
Here, in an excerpt from Chapter 3 of Short Circuiting Policy, Stokes discusses why utilities gained so much sway over state energy politics and regulations, and how they used that power to block renewable energy progress and maintain the fossil-fuel-powered status quo.
This excerpt has been slightly edited for format. The footnotes and citations that normally appear in a scholarly publication are available in the book.
While utilities have at various times pushed for and resisted these jurisdictional changes, they have most consistently favored state-level regulation. Why? In the early twentieth century, electric utilities managed to secure a regulatory bargain at the state level that allowed them to maintain a monopoly over the power system and a privileged position in policymaking. Utilities used their power to shape policy and technology to their advantage in three problematic ways: they resisted innovation that would disrupt their business model, they shaped the rate structure in ways that exacerbated environmental harms, and they ignored or actively disputed the growing climate crisis and other environmental problems stemming from the energy system.
UC Santa Barbara political scientist Leah C. Stokes
First, utilities resisted innovation. Once monopoly rights were granted, innovation in electricity technologies slowed. Instead, utilities focused on increasing profits rather than adopting new technologies. The radical inventiveness that characterized early electricity companies declined as corporate managers took over and focused on existing technologies, building ever larger coal plants. In addition, utilities used their market power, as the exclusive provider in many markets, to price electricity in a way that drove decentralized technology and industrial cogeneration out of business. This had the effect of increasing overall energy consumption and the environmental consequences of the electricity system. Private utilities were extremely effective during much of the mid-century at driving out competition, blocking industrial electricity production, and thereby securing their monopoly status.
Second, utilities, along with their regulators, shaped prices in a way that increased environmental harms. As Karl Polanyi convincingly argued, markets are fundamentally constructed with and by governments. Thus, electricity pricing is a function of both government policy and interest group privilege; it is not a simple function of economics. Understanding contemporary debates over electricity rate structures requires an understanding of historical electricity pricing decisions.
The rate structure was built alongside the centralized plant model in the mid-twentieth century, when fuels were cheap. Until the late 1970s, electricity bills whose marginal costs declined with additional consumption had the effect of increasing the energy system’s negative environmental and health impacts. In other words, the more electricity you bought, the cheaper it got. The government supported this structure because it was focused on building new capacity, particularly in rural areas. Utilities supported this pricing structure because it allowed them to expand their capital investments and electricity sales, thereby increasing their profits.
Cost-based regulation made this the clearest pathway to increased profits for monopoly utilities. With greater sales, they could build new plants and apply for rate recovery. This kind of regulation creates an incentive to overinvest in capital to increase profits — a dynamic referred to as “gold-plating” or the “Averch-Johnson effect.” As a result, utilities maximized capital costs rather than focusing on efficiency. Consequently, private utilities did not prioritize energy conservation and efficiency before governments required it after the 1970s oil crises. And even then, they resisted.
This history shows us that while private utilities sometimes claim otherwise, economically rational electricity pricing has never occurred. It simply does not exist. Despite current reliance on economic arguments to justify their hostility to clean energy policies, utilities themselves have often resisted changes that would bring electricity policy in line with economic principles. Instead of favoring economic principles, like all businesses, utilities favor their bottom line: profit.
Third, for decades utilities have promoted climate denial and cast doubt on the science behind other environmental problems including acid rain and mercury pollution. Throughout the twentieth century, private electric utilities waged a concerted denial campaign to discredit environmental science and delay state and federal action to address growing environmental problems. These efforts succeeded in postponing environmental policy that would mitigate the harms their industry causes.
From the 1980s onward, private utilities — organized through their industry association, the Edison Electric Institute (EEI) — actively spread climate denial. For example, in 1991 EEI and several utilities worked on a public campaign to “‘reposition global warming as theory’ and not fact.” This denial of climate science continued for three decades. As recently as 2017, Thomas Fanning, chief executive officer (CEO) of Southern Company, a private utility based in Georgia, claimed that climate change had been happening for millennia and that human emissions were “not the issue.” When he made those statements, he was chair of the EEI.
Climate change is not the only environmental issue that utilities denied. In the 1980s, utilities claimed acid rain was not real. Throughout the 1990s, they cast doubt on the science of mercury—a highly toxic element, extremely harmful to human health. For all three issues, the science was clear during this time period. Denial of scientific facts for the sake of profit continues to permeate electric utilities at the highest ranks. Like other fossil fuel companies, utilities also allied with and funded conservative think tanks to promote climate denial.
But it is not just a matter of denying science. Private utilities also waged a campaign to delay environmental policy. Electric utilities successfully blocked the mercury rule, passed under a Republican president, for two decades. And climate policy is perhaps the issue they fought the hardest. Electric utilities engaged intensively in the 2000s to block federal emissions trading, a policy which would begin to address the climate crisis. As sociologist Robert Brulle estimates, utilities spent $554 million lobbying on climate policy at the federal level between 2000 and 2016. More recently, electric utilities have turned their attention to resisting state
clean energy laws — the focus of this book.
When efforts were made to pass a federal clean energy standard through Congress in the 1990s and early 2000s, utilities successfully resisted.* Efforts ranged in strength from Rep. Dan Schaefer’s proposed 4% by 2010 to separate proposals of 10% renewable by 2010 from Rep. Ed Markey and Sens Jim Jeffords and Dale Bumpers. The failed Waxman-Markey bill from 2009 contained a renewable electricity standard that would have required 20% renewables for each state by 2020, with efficiency able to meet 8% of the target. While this 12% target was seen as relatively weak, it would have made a difference: in 2018, only 9.7% of the US electricity supply came from renewables, and 34 states fell below the target they would have been required to meet two years later. **
Interestingly, while the largest coal companies uniformly opposed Waxman-Markey, several electric utilities provisionally supported it, in a compromise to forestall a worse outcome — what we call “strategic accommodation.” Other, coal-dominated utilities, particularly in the Midwest and South, lobbied legislators to weaken the renewable electricity standard.**
Ultimately, the Waxman-Markey bill failed in the Senate, and no clean energy target has ever passed federally despite decades of effort from advocates.
Periodically, politicians in Congress try again to pass a clean energy target — the latest iteration being Sen. Udall’s Renewable Electricity Standard Act of 2019, which would require utilities to generate 50% of their electricity from renewable sources by 2035. But carbon-intensive utilities have managed to keep this policy from passing at the federal level.
As Amory Lovins argued in the 1970s, there was a road not taken for American electricity policy. It is not difficult to imagine an alternative history where innovation was privileged over profits, energy conservation was incented, and clean energy was promoted. Such a system would have been much more favorable to renewable energy technologies today. Taking a historical view, we can see that the electricity system developed the way it did — with large and polluting fossil fuel plants and expensive, privately owned, and poorly maintained electric grids — because it served the interests of private electric utilities and other fossil fuel interests.
Advocates framed renewable energy technologies as solutions to climate change,
air quality, and a lack of supply diversity. Renewable energy technologies typically do not emit carbon and other kinds air pollution. And, unlike conventional fossil fuel technologies, they do not require fuel as an input. Advocates were particularly interested in getting the government to support new and more expensive technologies that had lower environmental impacts: wind, solar (photovoltaic, thermal, and concentrated solar power), geothermal, and biomass. Since these technologies were young, innovation in manufacturing and installation could theoretically still bring large cost reductions.
Initially, electric utilities, like other fossil fuel companies, grasped and accepted
the science of climate change. Like the fossil fuel industry, the electric utility industry
undertook research on the greenhouse effect and consistently found that the earth was warming. In 1977, the Electric Power Research Institute (EPRI) testified in front of Congress that if climate change “turns out to be of major concern, then fossil fuel combustion will be essentially unacceptable, an important justification for expanding the nuclear and solar energy options.” Throughout the 1970s and 1980s, many articles ran in the utility industry’s trade magazines that confirmed the scientific consensus of climate change.
But by 1989 the private utilities were actively promoting climate denial. As climate policy began to gain traction on the national agenda, electric utilities understood that they could stand to lose a lot of money. Dealing with the environmental harms from coal and natural gas plants was inconvenient. Hence, utilities waged a war on environmental science, casting doubt on climate change, acid rain, and mercury pollution. Particularly active utilities in climate denial included Southern Company, AEP, and Duke Energy, as well as the association EEI.
Beginning in the mid-1970s, AEP ran advertisements in The New York Times, The
Washington Post, and elsewhere arguing that coal use should be expanded. In 1991, EEI alongside the utility Southern Company started a public campaign to “‘reposition global warming as theory’ and not fact.” They designed ads that said climate change was like Chicken Little — there was “no hard evidence it is occurring.” From 1989 and throughout the 1990s, electric utilities — alongside EEI, EPRI, and the National Rural Electric Cooperative Association — were part of the Global Climate Coalition (GCC), a prominent climate denial organization. Participating utilities included AEP, Ameren, Consumers Power Company, Duke Energy, PG&E, and Southern Company. Southern Company played a particularly active role, for example, hosting meetings for the GCC in 1996. Southern Company, Duke Energy, FirstEnergy (then Ohio Edison) and EEI were all on the board of the GCC in the 1990s, along with the National Rural Electric Cooperatives Association.
These utilities also attended workshops, received and promoted anti-climate policy memos, and helped disseminate information, particularly in the mid-to-late 1990s.
Even after the GCC disbanded in 2002, utilities continued to deny climate science. For example, the Intermountain Rural Electric Association circulated a memo in 2006 challenging “the legitimacy of the ‘alarmist’ science about climate change.” The memo specifically mentioned that Koch Industries, AEP and Southern Company were working together on producing climate denial content. Until 2015, Southern Company funded a prominent climate denier, and in 2017 their CEO publicly disputed climate science. Recent efforts to delay climate action have been organized through the Utility Air Regulatory Group (UARG), the American Legislative Exchange Council (ALEC), and other groups. Through their denial campaign, electric utilities successfully managed to delay climate policy enactment, implementation, and expansion for decades. This history is all the more problematic given that monopoly utilities funded their denial campaigns using guaranteed profits from captured customers who could not choose to buy their power from other, more ethical companies.
* Notably, the New York attorney general’s case against Exxon for climate denial names Rex Tillerson. Anecdotally, when I sat next to a utility executive at a dinner in 2013, he was still claiming that mercury did not really affect human health. Heck, he used to play with that mercury as a kid—clearly that hadn’t affected his IQ.
** Note, this figure excludes hydropower. Technically, hydropower projects built after 1992 were eligible for the program, but in practice almost all of the US hydropower is much older, so very little would have counted toward the targets. US EIA, “Hydroelectric Generators Are Among the United States’ Oldest Power Plants,” March 13, 2017, and “Electricity: Detailed State Data,” June 28, 2019.