Budget Distractions Won't Help Energy Infrastructure

Earlier this week, the Office of Management and Budget released the Administration’s Fiscal Year 2019 budget proposal. As with any massive federal government document, there’s a mixture of good and bad ideas. Stakeholders and media are still reading to find both. To be sure, there are highlights, such as forward-thinking ideas on cybersecurity, expanding broadband access, and energy research and development. PACE will highlight some of these in the weeks to come.

However, one bad idea was easy to find since it appears to have been copied and pasted from several past Administration proposals, both Republican and Democrat. Once again, the budget proposes selling federal energy assets, focusing particularly on the transmission systems operated by the Tennessee Valley Authority and the Power Marketing Administrations.

TVA and the PMAs were created by Congress, in partnership with citizens, to ensure that light and power reached every corner of our vast nation. Eighty-five years ago, many rural citizens read by candlelight and carried water by hand. As generating stations and transmission lines sprang up, quality of life increased for formerly isolated communities. Urban people and businesses benefited too, from more abundant food and commodity supplies produced in rural America.

“That’s a nice history lesson,” a budget author might say from deep inside the OMB offices, “but today we need to streamline and modernize and nobody does that better than the private sector.” However, the facts are with the PMAs and TVA and with their customers.

Congress established the PMAs and TVA, but the customers provide the funding to operate the utilities. So, residential and industrial customers who are ultimately served by these transmission assets have already paid for them over decades.

If the private sector bought the transmission lines, the purchaser’s check would go to the Treasury, rather than to those customers. Then, the citizens in dozens of states served by TVA and the PMAs would get charged all over again. The private sector would then likely try to bring these areas the benefits of competitive wholesale and retail markets, so they too can pay higher electricity costs. Neither dog hunts.

The PMAs and TVA are an American success story. Millions of people receive low-cost power drawn from a portfolio with impressive ratios of clean renewables and efficiency measures. All five organizations are supported and close-questioned by an array of lawmakers, citizens and stakeholder groups. When there’s a misstep (can you name a private sector utility that’s never had one?), it quickly comes to light and gets corrected.

Since the PMAs and TVA are creatures of Congress, the Administration isn’t the decider. Once again, bipartisan voices have spoken up to criticize the Administration for trying this one again, as though nobody was watching. Sen. Ron Wyden (D-OR) and Sen. Lamar Alexander (R-TN) have widely divergent voting records, but here they agree, in quite colorful language. Sen. Alexander said “looney” with “zero chance” while Sen. Wyden called it “another broken promise to rebuild America’s aging infrastructure.”

Privatization always sounds so good. As a talking point, it polls well, just like deregulation or patriotism. But the details matter. By dredging up tired arguments about privatizing federal transmission assets, the Administration is missing the point and distracting energy leaders who it should be engaging for real work needed to strengthen our nation’s energy infrastructure.


Value of the Regulated Utility

Based on observing and responding to Florida’s sudden spike in deregulation conversations, PACE has built on research and work highlighting the value of the regulated utility model.  The University of Georgia’s Carl Vinson Institute of Government released a new study this week, “Powering the Future and Protecting Consumers: Ensuring Reliability, Resilience, and Quality of Electric Service.”

Whether you’re an energy policy veteran who recalls the deregulation debates and decisions of twenty-plus years ago, or somewhat newer on the scene, this paper serves as a useful resource recounting the historic policy rationale for regulating electricity providers. As set forth in the Executive Summary:

“Over the past century, reliable and universal access to electricity has served as the backbone of economic development and improved quality of life in the United States. This backbone exists in large part because of laws, regulations, and policies designed to ensure access to this essential service. Long-term commitments by utilities to maintain a complex web of transmission lines, invest in power generation plants and projects, and train and deploy a skilled workforce have contributed to dependable and affordable access to electricity.”

Because the electric power industry is experiencing a wave of change and innovation, “[u]understanding this history is important so that when proposals for change are considered, important values and lessons learned are not lost. Regulatory frameworks have ensured reliability, supported long-term planning, allowed for public participation, provided oversight, and resulted in cost savings and customer protections.”

Based on research into the deregulation experiences in a diverse set of states, the paper makes the following key points:

  • Price volatility and immediate rate increases have been an all-too-frequent outcome when restructuring has occurred.
  • Market restructuring has highlighted that the electricity industry’s unique technical requirements should take precedence over political or economic theories.
  • While numerous factors such as geography and fuel mix inform the average price of retail electricity, the region with the highest retail prices is New England, where five of the six states have restructured markets. The lowest rates are in regions where none of the states have restructured markets: East South Central, West North Central, and Mountain.
  • Deregulation or restructuring, particularly at the retail level, could add unnecessary uncertainty at a time when states are facing a rapidly changing environment with respect to traditional baseload power.

Perhaps most importantly, the paper reminds us that “electricity as an essential service must continue to be provided in an affordable and reliable way that promoted public safety and bolsters resilience to natural disasters.”

It’s become quite trendy to talk about the “value of” different fuels and technologies, but here at PACE we thought it was appropriate and timely to speak up for the value of the regulated utility. If you agree, please share this new paper with colleagues and policymakers in your states.


Trading Away Common Sense

Yesterday, PACE commentary was featured in Morning Consult. The content of our op-ed, part of a continuing focus on harmful and misguided energy divestment and defunding campaigns, is below. 

Environmental activists, driven by self-interests and profoundly mistaken beliefs about financial markets and energy policy, are pressuring citizens, public officials and corporate boards to abandon profitable investments in energy companies. These activists promote divestment and claim its implementation will save the environment. The reality, though, is that divestment is a poor solution for tackling the climate challenges that lay ahead. In fact, divestment simply doesn’t work, failing virtually everywhere it’s been tried.

Environmental activist and 350.org founder Bill McKibben recently authored an op-ed laying out an extreme plan to undermine domestic energy development. One of McKibben’s proposals is for the United States to move to a 100 percent renewable energy future. He and his allies attempted to advance this far-fetched scheme yesterday at a Washington event alongside other outside-the-mainstream voices such as Sen. Bernie Sanders (I-Vt.) and Jessica Lorena Rangel of Eyes of a Dreamer.

The truth is that the environmentalist vision of abolishing fossil fuel production is not a viable path. The better path is the one traditional energy companies are already pursuing, which is investing resources in the research and development of alternative energies that will actually help meet the climate challenges that all of us, including the divestment movement, care about. For example, Duke Energy Renewables “generates about 2,300 megawatts of wind power at 19 wind farms across the country, providing enough zero-carbon energy to power more than half a million homes.” This is a real strategy, not a symbolic one, that moves the needle toward a balanced, sustainable future that works for everyone.

Regardless of what environmentalists at the fringes think about them, oil and gas will be integral parts of the U.S. energy portfolio for decades to come, for power generation, home heating, commercial applications and transportation. That’s because the energy industry is essential to the functions of our society and U.S. economic prosperity. In 2015, energy resources supported 10.3 million jobs and contributed more than $1.3 trillion to the U.S. economy. It is irresponsible of environmental activists to push an “us against them” mentality about an industry that is inextricably woven into the country’s economic fabric. Energy means jobs. Energy means progress.

Criticism of the divestment movement has been harsh in some circles. Oxford University Professor William MacAskill, for example, asserts that divestment campaigns are misguided if they intend to “reduce companies’ profitability by directly reducing their share prices.” The divestment movement has also failed to come clean about its short-sighted goal to demonize energy companies and admit to the fact that divestment will do nothing to reduce greenhouse gas emissions. That’s because divestment is more interested in symbolism than results.

When energy stocks are purged, or a bank refuses to lend, a new investor buys the assets – someone who almost certainly is not beholden to the scrutiny of a publicly held fund. MacAskill asserts, “[a]s long as there are economic incentives to invest in a certain stock, there will be individuals and groups willing to jump on the opportunity. These people will undo the good that socially conscious investors are trying to do.” In other words, you actually endanger the momentum for progress by walking away from the discussion.

It’s that application of logic and sense of social conscience that has led higher learning institutions including Stanford, Harvard, Princeton, MIT, Columbia and NYU to refuse divestment. Others in academia agree. As a Vassar trustee said, “[t]he problem I have found, in every instance, without exception, is that trying to use an investment portfolio to accomplish social or political causes, comes up short in every way you can imagine.”

The broadest campaign by divestment activists today targets a vulnerable population – public employee workers and retirees. Too many politicians, swayed by environmental luminaries and misguided green talking points, have attempted to force fund managers to sell off energy holdings that are intended to sustain pensioners over the long haul. However, this political rhetoric does little to comfort retirees once the truth hits home and retirement losses begin mounting. Thankfully, some pension funds have learned these lessons.

For example, California’s public employee pension fund, CALPERS, resisted pressure from state legislators, reaffirmed its fiduciary responsibilities and issued a policy in April to “generally prohibit divesting.” New York’s state comptroller has resisted proposed divestment legislation, noting that funds that shed energy stocks relinquish any voice in energy companies’ evolution.

Most recently, the San Francisco Employees’ Retirement System rejected shrill cries from activists for full-scale divestment, opting instead to follow staff recommendations against selling high-performing fossil fuel assets. Brian Stansbury, president of the Retirement Board, stated, “While the Board is committed to socially responsible investing, we must ensure that all investment decisions meet our fiduciary duties and do not negatively affect our investment returns.”

As the Partnership for Affordable Clean Energy documented in December, the evidence is clear – following the path laid out by divestment activists only defeats the long-term financial interests of universities, public employees and consumers. Divestment rhetoric and pressure doesn’t lead to increased investment in renewable energy and innovative technologies. It only causes reckless decisions that ripple across financial, policy and personal landscapes.