With federal aid on the table, a shift to embrace climate goals
WASHINGTON — Just two years ago, DTE Energy, a Michigan-based electric utility, was still enmeshed in a court fight with federal regulators over emissions from a coal-burning power plant on the western shore of Lake Erie that ranks as one of the nation’s largest sources of climate-changing air pollution.
But in September, Gerard Anderson, who led DTE for the last decade, was on the South Lawn of the White House alongside hundreds of other supporters of President Joe Biden, giving a standing ovation to the president for his success in pushing a climate change package through Congress — a law that will help accelerate the closure of the very same coal-burning behemoth, known as DTE Monroe, that his company had been fighting to protect.
Anderson’s position reflects a fundamental shift among major electric utilities nationwide as they deploy their considerable clout in Washington: After years of taking steps like backing dark-money groups to sue the government to block tighter air pollution rules, DTE and a growing number of other utilities have joined forces to speed the transition away from fossil fuels.
Their new stance is driven less by evolving ideology than the changing economics of renewable energy, fueled in part by the sheer amount of money the federal government is putting on the table to encourage utilities to move more quickly to cleaner and more sustainable sources of energy like solar and wind.
With the passage of the climate and economic policy bill known as the Inflation Reduction Act, DTE and other big utilities like American Electric Power, NextEra Energy and Southern Co. stand to benefit from the largest package of subsidies ever granted to the industry.
It is a 10-year, $220 billion hodgepodge of tax breaks and major changes in federal tax law and other climatechange-inspired inducements that amount to a kind of lobbyist wish list never before considered even remotely possible by the industry.
With so much on the line financially, the industry ramped up spending on lobbyists to help push the package through the House and the Senate. It has also directed at least $17 million in campaign contributions to lawmakers since last year, targeting in particular key players like Sen. Chuck Schumer of New York, the Democratic majority leader, and Sen. Joe Manchin, DW.Va., whose consent was vital to getting the measure passed.
The legislation will do more than just accelerate efforts to meet climate change goals, according to an analysis by the New York Times of the 273-page law.
Buried in the hundreds of pages are carefully crafted provisions that will eventually help electric utilities gain additional profits for years to come, totaling hundreds of millions of dollars per year for some of the larger players, according to Wall Street analysts.
In the course of its twoyear lobbying effort, the industry managed to help knock out of the legislation measures that would have mandated actions to curb pollution, largely leaving only those provisions that rewarded it for doing so — in effect securing more carrots while tossing aside the stick.
“Let’s be honest — these guys can say all they want about the environment and how we are all aligned,” said Shahriar Pourreza, who has spent two decades studying the utility industry for Wall Street firms. “But you strip back the layers of the onion, and this is also a major longterm growth opportunity for these utilities.”
The benefits come in part from the extension of aboutto-expire tax breaks for the industry for as long as two decades, a provision that alone is worth more than $120 billion. Lawmakers also significantly expanded the kinds of things utilities can spend money on and still get a generous tax break for, like new energy storage equipment.
The new law also allows utilities that build cleanenergy installations to sell large chunks of their tax perks to other companies or Wall Street investors, even those that have no connection to the energy industry.
Part of the shift away from coal was driven by federal mandates that were going to force the company to spend hundreds of millions of dollars to upgrade the plants to reduce toxic water pollution sent into area rivers and streams. At the same time, natural gas had emerged as a plentiful, cleaner and more affordable alternative, and the costs of renewables like solar and wind were coming down rapidly.
Nick Akins, the chair of American Electric Power, which serves 5 millions
customers in 11 states, pointed out much of the value of the tax breaks that were then under debate in Congress would be passed on to ratepayers, in the form of smaller future electric power rate increases, since the federal government would effectively be subsidizing the cost of the transition to cleaner-burning fuels.
But renewables even without federal subsidies are now cheaper than coal, meaning the market was already giving the utilities plenty of incentive to change how they produced power.
No company is better positioned to cash in on the subsidies than NextEra Energy, which serves 6 million customers in Florida as well as millions more in 38 other states that rely on electricity produced from wind and solar installations it has built to supply other utilities.
For every dollar utilities like NextEra spend to build solar installations, they should be able to get as much as 60 percent back in the form of a so-called investment tax credit under the new law, if they tap into various bonuses, like building in a low-income area where land has previously been polluted.
“If they now put $2 down instead of $1, instead of making 10 cents, now they are making 20 cents,” said Julien Dumoulin-Smith, who tracks NextEra for Bank of America.