In recent years, clean energy and climate advocates have sharpened their focus beyond carbon emissions or kilowatt-hours to equity. Though exact definitions differ, equity means including those affected by the energy system in decision making, expanding the benefits of the clean energy transition, and righting historical and contemporary wrongs of the energy sector in the outcomes. Given the disparities in the U.S., equity typically means uplifting Black folks, Indigenous peoples, and other people of color in a transition to bring affordable clean energy to everyone.
However, few realize that we’ve been centering a different equity for decades: shareholder equity. Two-thirds of U.S. consumers receive their electricity service from a monopoly investor-owned utility (and millions more get gas service from similar private monopoly companies). When mostly white, male legislators established this system one hundred years ago, they accepted an industry promise of good service in exchange for government regulation. If you were white and middle class, it seemed to work. But utilities and their (also disproportionately white and male) regulators have failed to keep that promise.
This historic and systemic focus on shareholder equity has had enormous consequences for the other energy system participants. Utility coal and gas-fired power plants have emitted billions of tons of carbon dioxide, contributing to climate change that affects all people but also releasing toxic pollutants like lead, mercury, and particulate matter that harm the health of nearby residents, most often people of color or poor whites. Utility executives cut off millions of Americans from electricity service each year, even during the early years of the pandemic when utilities received tax breaks from the federal government. Despite this, utility regulators have continued to reward utility investors with very high rates of return (9-10%) for investments that have very little risk, given utilities’ government-provided monopoly. In fact, testimony from a former utility executive and recent studies such as one from the HAAS Institute at the University of California, Berkeley suggest Americans vastly overpay utility shareholders by billions of dollars each year for this basic service delivered with costly consequences.
Utilities have taken advantage of lax regulatory oversight to double down on preserving their profitability for shareholders. According to Open Secrets, electric utilities ranked 4th in total lobbying spending from 1998 to 2022, with expenditures approaching $3 billion. Utilities also spent close to $100 million on state political races in the past decade, in just 17 states that actually track this type of political giving. Utilities have lobbied for and won legislation like Ohio House Bill 6, which suppressed competition from renewable energy and energy efficiency, and provided bailouts to utility coal and nuclear power plants that could no longer operate affordably.
Recent state and federal policies have tried to prioritize equity among energy customers, but it’s insufficient when the money train keeps delivering oversized profits to utility shareholders. The federal Inflation Reduction Act includes a $7 billion investment in Solar for All, among other measures that will target historically marginalized communities. But consider that in 2011, Harvard researchers estimated the public health costs of coal power plants in Appalachia alone approached $75 billion per year. The Solar for All program is an upstream trickle against a torrent of money flowing toward utility shareholders.
Creating equitable outcomes in our energy systems means correcting the bias toward utility shareholder equity. For one, clean energy advocates must ask regulators to sharply reduce utility rates of return to align more closely with actual costs of capital. The billions of dollars liberated from excessive shareholder returns could be used to drive down bills or increase clean energy investments in disadvantaged communities. By reducing utility returns, regulators would also reduce the capital bias that leads utilities to overspend on poles, wires, and power plants when more affordable and more effective tools are available. In California, for example, aggregated demand response programs saved California’s grid from blackouts while saving customers –– many of them low-income –– millions of dollars on their bills. Due to utility lobbying and regulatory capture, most states block these programs. Regulators and legislators need to remove utility-imposed barriers to independent service providers that can deliver more of these entrepreneurial, cost-saving programs.
Legislators should also consider public ownership of electric utilities. This ownership change lowers grid investment costs by nearly one-third, simply because public entities can borrow at much lower interest rates than investor-owned ones. A public utility won’t be equitable by default, but it could free up billions of dollars currently sent to Wall Street shareholders for communities to invest in equitable clean energy projects, and its democratic governance can make it more accountable to its customers.
We can’t achieve equitable outcomes from the U.S. energy system when utility regulators, legislators, and clean energy advocates let utility shareholder equity dominate. Historic federal investments in equitable clean energy hang in the balance. Clean energy champions have to choose: are we in this fight for an equitable outcome? Or will we sacrifice the most marginalized among us (again) on the altar of shareholder profitability?