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COVID-19, George Floyd murder may have society — and utilities — at a crossroads

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Peter Key's picture
Freelance Writer, Editor, Consultant Self-employed

I've been a business journalist since 1985 when I received an MBA from Penn State. I covered energy, technology, and venture capital for The Philadelphia Business Journal from 1998 through 2013....

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  • Jun 11, 2020
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In Christopher Nolan’s film “Inception,” a Japanese businessman named Saito hires a practitioner of corporate espionage named Dom Cobb to infiltrate a rival’s dreams and plant an idea in the man’s mind.

When Cobb asks Saito why he wants him to plant that idea, which is that the rival should break up the business empire he is inheriting from his father, Saito initially won’t answer. To convince Saito to answer, Cobb tells him that planting an idea in the man’s mind, or performing inception, is a very serious thing to do because the idea not only will come to define the man, it may come to change everything about him.

The United States, if not the entire world, may be at a similar moment now — one that comes to change everything about it.

The initial impetus for the moment was the novel coronavirus pandemic, which caused countries across the globe to shut down their economies to preserve their citizens’ lives and revealed some of the inequities that have plagued the U.S. since before its founding. 

But it was the subsequent killing of George Floyd by the Minneapolis Police Department that confirmed for people the world over that the inequities suffered by African Americans go beyond economic to existential. The result has been massive protests that have caused some dramatic shifts in public opinion that have greatly increased the likelihood that American and other societies will be forced to undergo changes — including some once considered radical — to address the racial and economic disparities that COVID-19 and Floyd’s death have laid bare.

What does that mean for electric utilities? First, they should, in the words of a Spike Lee film title, “Do the Right Thing.” This is a time for institutions that want to be on the right side of history to step up their efforts to end discrimination and promote equality in both their own organizations and society at large.

Also, they shouldn’t, in the words of another Inception character, “be afraid to dream a little bigger” in imagining the types of situations they could face over the next decade or two. Some things that seemed implausible at the start of 2020 — NASCAR banning the display of confederate battle flags at its races, for example — already have happened, meaning others that seemed impossible are at least worth considering

The simplest thing for utilities to do is to redouble their efforts to fight discrimination and its effects and they and others in the electric power industry have begun to do exactly that. For example, Duke Energy, through its foundation, recently pledged $1 million to nonprofits that promote social justice and racial equality. And the Nuclear Energy Institute committed to, among other things, “building a pipeline of diversity” in the industry, in part by working with organizations that work to boost the presence of underrepresented communities in science, technology, engineering and mathematics, or STEM, fields.

Utilities may be in a unique position to boost diversity in their ranks due to the sheer number of their workers who are retiring or expected to retire soon. Doing so, however, will require a steady effort maintained over a long term and frequently and honestly evaluated to make sure it is having the desired effect.

Utilities also need to take a hard look at their community relations to make sure they not only are treating everyone in their territories equally but also are promoting efforts to end existing inequalities, which are legion.

For example, multiple studies have shown links between exposure to pollution and COVID-19 mortality rates, leading for calls to replace urban peaker plants with more environmentally friendly alternatives, such as local renewable generation and battery storage.

Additionally, a study published last year found that residents of poor predominantly minority neighborhoods are “more energy cost-burdened” than residents of poor predominantly white neighborhoods. That’s something utilities need to consider as the moratoriums on shutoffs, late fees and debt-collection efforts imposed due to the pandemic come to an end. 

Many states had imposed such moratoriums, but some have expired and other, including some that have been extended, are set to expire in the middle of the month.  Advocacy groups have been fighting to keep the moratoriums in place with some success. For example, North Carolina Gov. Roy Cooper on May 30 signed an executive order extending his state’s moratorium 60 days after advocates asked him to.

The Coronavirus Aid, Relief, and Economic Security, or CARES, Act included $900 million for the Low Income Home Energy Assistance Program, but experts contacted by the Los Angeles Times last month said that many households eligible for LIHEAP funding still won’t have enough money to resume paying their utility bills, much less their deferred bills.

A provision requiring states and utilities receiving federal emergency funds to adopt or maintain shutoff moratoriums was in the Health and Economic Recovery Omnibus Emergency Solutions, or HEROES, act, which was passed by the House of Representatives last month, but it seems unlikely to be one of the parts of the bill that survive the Senate, if any do.

Early on in the pandemic, there was some concern that the moratoriums would hurt the earnings of investor-owned utilities. A Reuters story from early this month calling utility stocks cheap said they still may but put that concern well behind reduced demand for power from an economy still slowed by the pandemic hurting earnings.

Even if the moratoriums are allowed to end, as seems likely, utilities will need to be careful in their dealings with delinquent customers going forward, especially if the economy experiences something less than a v-shaped recovery and/or if other severe coronavirus outbreaks occur. The extent to which people are willing to let utilities pursue debt collection from customers impoverished through no fault of their own is probably less now than it was at the beginning of the year. Utilities also will need to consider how vigorously they pursue rate increases, as well as the size of the increases they request.

An even bigger worry for IOUs could be the breakdown of their bargain with the public, which is that they provide electricity in exchange for being allowed to earn a specified rate of return on approved expenditures for their investor owners.

Although advocates in recent years have begun to question that approach, arguing that utilities instead should earn money according to how they meet various performance standards, few others outside the utility industry understand it, let alone object to it. They just know they consume electricity and pay money for it. As long as they can turn on their lights when they want to and their electric bills don’t bust their budgets, they’re happy.

Unfortunately for IOUs, the increase in natural disasters due to climate change is making more of their customers unhappy. PG&E, which was driven into bankruptcy by its liability for wildfires caused by its equipment, is hoping a new board of directors, along with many other changes, will convince a judge to approve its plan to emerge from bankruptcy as an IOU, but it had to fight off an effort to turn it into a customer-owned cooperative. Other IOUs also are being accused of failing to maintain their infrastructure enough to provide their customers with reliable service, leading some to propose they be owned by the public rather than investors.

To some extent, IOUs have been cushioned from criticism due to the perception that their stocks are safe investments that provide a steady income stream to retired people and others who need one but can’t afford to take on much risk. If, however, the coronavirus causes a prolonged economic slump in which the stock market continues to perform well, a development that seems less likely today than it did yesterday, that may change.

If stocks generally wind up being viewed as a means by which the rich get richer while others suffer, critics of IOUs may gain another reason to question their ownership structure. That could really reshape the electric utility industry down the road.

 

 

 

 

 

 

Peter Key's picture
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Patrick McGarry's picture
Patrick McGarry on Jul 1, 2020

Peter-

Interesting thoughts. Sounds bullish for public power?

Patrick

Peter Key's picture
Peter Key on Jul 2, 2020

Certainly bullish for taking a longer look at public power, as well as for evaluating how well the investor-owned utility model serves the public, especially if the coronavirus-induced recession turns out to be long and deep.

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