The EconomistJuly 27th 2019 531I
t is hardto ignore the wind hurtling
across the green expanse of southern
Minnesota. On highways, gusts nudge cars.
Corn stalks shimmy in the breeze. And
towering overhead, white turbines twirl.
xcel Energy bought its first wind farm in
the state in 2008. The utility’s turbines now
stretch to the horizon—its ambitions, far
beyond. This month xcel, still dependent
on coal to generate electricity, proposed big
investments in solar and wind power in the
upper Midwest, part of its bid to produce
carbon-free electricity in the eight states it
serves by 2050. It is one of many firms mak-
ing multi-billion-dollar gambles on the
shift to cleaner energy.
The opportunity is vast. Last year Amer-
ica’s power sector generated 4.2bn kilo-
watt-hours of electricity and 1.8bn tonnes
of carbon dioxide (a third of America’s to-
tal). Only 17% of power generation is cur-
rently from renewable sources, and anoth-
er 19% from nuclear energy. If the $400bn
industry were a country, it would be the
world’s fourth-biggest emitter, ranking be-tween India and Russia. Some see benefits
in moving slowly to cleaner sources of
power. Duke Energy, America’s biggest util-
ity, this month proposed large investments
in natural gas in Indiana and will keep a
giant coal plant there open for another 20
years. xcel is among those that sniff profits
in the winds of change.
For decades, to describe electric utili-
ties as dull was not an insult but a summary
of corporate purpose: keep lights on, rates
low and returns steady. The somnolence of
their corporate offices, a seasoned visitor
quipped, was disturbed only by the period-
ic whirr of a printer. A push in the 1990s to
break up the power monopolies that still
dominate America’s electricity market lost
steam after blackouts in California in
2000-01 curbed enthusiasm for deregula-
tion. It suspended retail choice for con-
sumers soon after. Today just 15 states have
competitive retail electricity markets.
The business model of utilities seems
designed not to speed up innovation but to
stifle it. Some firms corner the market fortransmission. Vertically integrated mo-
nopolists generate power, too. To keep
them in check, a utility commission re-
views a regulated utility’s investments,
then sets rates that cover costs, plus an an-
nual return on invested capital of about
10%, net of depreciation.
This soporific status quo has served
utilities rather well. In recent years regula-
tors have authorised big investments in
transmission and distribution, and profits
from these have helped to support utilities’
dividends and share prices (see chart on
next page).
Now things are heating up. Some com-
panies must contend with the impact of
global warming. Pacific Gas and Electric,
California’s largest power company, is bat-
tling regulators, politicians and investors
over its alleged role in causing devastating
wildfires during recent droughts (see Sci-
ence section). Other companies are trying
to make their infrastructure more resilient
to floods along coasts, tornadoes in the
Midwest and other climatic disruptions.
The politics of green electricity, too, are
evolving. Clean-power plans feature prom-
inently in the Democratic presidential pri-
maries. States led by Democrats, and even
some led by Republicans, have set goals for
clean electricity; in all, 29 have set targets
for raising its share. Utilities face scrutiny
from green-minded asset managers. In
February institutional investors with
$1.8trn under management urged them toAmerican utilitiesWindfall
MINNEAPOLIS
Can the monopolists at the heart of America’s shift to cleaner energy thrive
in a new climate?Business
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