A growing number of utilities have ambitious energy transition goals but many fall short of their ambitions and a new Smart Electric Power Alliance (SEPA) initiative asks why.  

By April 2021, at least 73 U.S. utilities serving 71% of customer accounts had emissions reduction goals and at least 51 had net zero emissions by 2050 goals, according to SEPA's survey. But "much work remains" to reach the goals. Only 18% of utilities surveyed have over 50% penetrations of the variable and distributed renewables that will fuel "a carbon-free future," SEPA reported.

"Utilities can make any public commitment, but this initiative details the steps they are taking toward those commitments," SEPA Chief Strategy Officer Sharon Allan said. "Transformation is about making investments in people, processes, technologies and alignment with customers to build a modern foundation for carbon reductions, because you can't get to 'clean' without 'modern.'" 

In a parallel assessment, Sierra Club's January analysis called electric utilities "the cornerstone of economy-wide decarbonization" but found that many "fall far short" of meeting their decarbonization pledges.

"People at utilities are not climate deniers, but they continue to operate in ways that show they cannot see a future without fossil fuels," said Sierra Club electric sector analyst and paper co-author Cara Bottorff. "Regulators need to ask more questions about utilities' reporting and be ready to tell them there are better options."

Utilities' actual progress toward higher renewables penetrations and explicit commitments to emissions reductions are important first steps, both groups agreed. But accountability in utilities' organizational cultures can make those commitments more than just half-fulfilled promises, SEPA added.

In conjunction with state and local commitments to emissions reductions, regulators are "monitoring utilities’ efforts," National Association of Regulatory Utility Commissioners (NARUC) Executive Director Greg White said. NARUC is also "engaging in dialogues" with utility and state commission partners "to address best practices and innovation."

Utilities "are leading the clean energy transformation and are committed to getting the energy they provide as clean as they can as fast as they can, without compromising reliability and affordability," added Edison Electric Institute spokesperson Brian Reil.

Though leading utilities have made real progress on strong and explicit commitments to emissions reductions and modernization, more comprehensive transformation of utility culture is still needed, SEPA found. 

A holistic look at utilities

Over the coming years, SEPA's Utility Transformation Challenge will track utility commitments and provide periodic survey data on cumulative achievements. This year, it surveyed over 130 investor-owned, public and cooperative utilities of all sizes and regions.

The nonprofit organization wanted a "holistic assessment of utility progress" in developing and executing strategies that lead to the necessary transformative investments, SEPA's Allan said. "Change is more than exchanging one generation resource for another."

Based on trends in four key areas — clean energy resources, corporate leadership, modern grid enablement, and aligned actions and engagement — the Utility Transformation Challenge named "leaderboard" utilities that "have demonstrated the most progress toward a clean and modern grid by investing in new customer programs, new technologies, and in changing the culture of the company," Allan added. 

Leaderboard rankings credited utility programs that align with demand by customers, stakeholders and the wider community, Allan said.

More utilities need "ambitious, science-based" emissions reduction targets, with interim goals and detailed plans to achieve them, SEPA recommended. And transformation must be embraced, transparently tracked and rewarded "across the organization through changes to processes, programs and structures" that serve the goals and integrate outside input.

Comprehensive planning can avoid reliability risks associated with transformation, SEPA added. Planning can recognize the long-term value of grid modernization in addressing uncertainties of load growth and evolving consumption due to distributed energy resources (DER) and transportation and building electrification. "A high renewables penetration is a yellow flag if the utility can't reliably monitor and control it," Allan said.

But transformation should not be delayed because "the world does not have the luxury of time," on emissions reductions, SEPA said. Most of the leading utilities get out ahead of mandated goals and include emissions reduction considerations in their integrated resource planning, SEPA found.

Utility performance

Sierra Club quantified the past performance of "79 operating companies owned by 50 different parent companies" which own half of all remaining U.S. coal and natural gas generation. They included investor-owned utilities, public power authorities, generation and transmission cooperatives and municipal utilities.

Electric utilities have a key role to play in economy-wide decarbonization, but many climate goals "are meaningless greenwashing," Sierra Club concluded. Though not a blanket finding for all utilities, many are failing to decarbonize in the timeframe that matters and to build out clean energy at the needed scale and pace, Sierra Club's Bottorff said.

The companies could score up to 100 points in Sierra Club's rankings, based on their plans to retire coal plants, stop building new natural gas generation, and build clean energy, Sierra Club said.

"We must cut planet warming emissions globally by about half by 2030" or risk "long-lasting or irreversible changes and impacts on ecosystems, human health, and well-being,"  the Sierra Club analysis concluded.  

To achieve this ambitious goal, Sierra Club focused entirely on verifiable utility performance on emissions reduction. And utility performance varies, as the five investor-owned utilities detailed in the Sierra Club report show.

Northern Indiana Public Service Company scored 82, based on plans to retire its coal plants by 2028 "and largely replace them with clean energy, without building any new gas," Sierra Club reported. But Duke Energy Indiana scored only 13, "for failing to retire its coal and for planning to build new gas plants," and other Indiana utilities scored between the two.

Overall, utilities with net-zero emissions by 2050 pledges averaged scores of 20 and those without pledges scored 14, Sierra Club found. This coincides with SEPA's finding that utilities with pledges accomplish more than those without pledges, but also underscores Sierra Club's conclusion that many utility corporate pledges "mean little in terms of action."

There were valuable comparisons and contrasts in the two analyses.

Though San Diego Gas and Electric and Southern California Edison are on SEPA's leaderboard, "we generally don't see them as leaders," Sierra Club Beyond Coal California Senior Campaign Representative Luis Amezcua said. Their fossil generation has aggravated the poor air quality in Southern California, he said.

But Sierra Club is "generally supportive" of public utilities like Los Angeles Department of Water and Power and the Sacramento Municipal Utility District, also on SEPA's leaderboard, for "planning a 100% clean energy future," Amezcua said.

Like Sierra Club, SEPA did not find all utility efforts equal.

Consolidated Edison spokesperson Allan Drury, Pacific Gas and Electric spokesperson Ari Vanrenen, and Green Mountain Power spokesperson Kristin Carlson, whose utilities are on the SEPA leaderboard, described concrete commitments to net zero emissions, increasing clean energy, and developing enabling technologies for transportation and building electrification and DER.

Hawaiian Electric Senior Vice President of Operations Jim Alberts and Orlando Utilities Commission Chief Customer and Marketing Officer Linda Ferrone described similar commitments and transitional actions, though their utilities are not on the SEPA leaderboard.

One explanation for why SEPA's conclusions about utility efforts differed from Sierra Club's is that it studied a wider range of utilities. Hawaiian Electric and Orlando Utilities were not on its leaderboard but influenced its larger considerations. That allowed a more general understanding that most utilities are working toward transformation, but with differing approaches. Sierra Club's narrower focus on the performance of fewer utilities led toward more limited conclusions.

Natural Resources Defense Council (NRDC) Climate and Clean Energy Program Co-Director Ralph Cavanagh also weighed in on the findings.

"I have worked with major Southeastern, Western and Northeastern utilities," Cavanagh said. "Utilities that aren't positioning themselves as essential, clean energy partners are outliers, and most recognize they can thrive while doing it."

The Sierra Club analysis "recycled many past concerns and wasn't forward-looking," Cavanagh added. "[An April Lawrence Berkeley National Laboratory] study found the U.S. is halfway to net zero emissions from 2005 projections. We have to keep working to accelerate this extraordinary story."

But many of the utilities studied by Sierra Club have zero emissions by 2050 goals without effective interim goals, Sierra Club Southeastern Region Deputy Director David Rogers said. In fact, SEPA found only three leaderboard utilities and only 27% of respondents that even have interim targets.

"For many of the utilities in the Southeast, it is cultural," Rogers said. "They are not outright climate deniers, but the cultural problems mean they don't make their goals a priority."

Many utilities studied by Sierra Club invest in lobbyists that work against strong climate policy and leave planning and operations decisions to "engineers used to a centrally dispatched, fossil fuel-based system," he added. "This is starting to shift, but cultural inertia is probably the biggest problem and we are working to change it."

Culture is not easily defined, he said. "Utilities are right to focus on reliability, but many seem unable to envision reliability as anything except 100% dispatchable generation," Rogers said. Many utilities that are behind in setting or achieving emissions reductions "seem to see new technologies like DER as complications instead of tools to maintain reliability, lower customer costs, and clean up the grid."

The utility culture has long been described as "resistant to change, risk averse, and lacking transparency on decision-making, and that is not a culture that enables innovation," said SEPA President Julia Hamm. But "leading utilities are proactively changing their culture by encouraging employees to take risks and allowing them to fail in order to innovate."

Data from the SEPA survey shows some utilities have started to make progress, but there is still a lot more progress needed, Hamm said.

The utility culture

Culture change comes from external pressures, Sierra Club's Rogers said. "First, if enough shareholders see missed opportunities to increase utility returns, cultural change will happen or there will be a change in leadership."

Customer demand also drives change, he added. "Duke Energy reduced coal use in part because of activist customers and stakeholders. But regulations and legislation are also needed because utilities with strong profit motives have perverse incentives to obtain guaranteed earnings on capital investments and don't see there are similar opportunities in renewables."

Culture is hard to quantify, but data indicators demonstrate how and where culture change is and is not happening, SEPA's Hamm said. "Leadership drives culture change, and executive compensation is a way utilities could connect their goals and targets to day-to-day work."

But the survey showed 10% or fewer utilities compensate executives in any way for emissions reductions or increased levels or use of renewables, she acknowledged.

However, utility emissions reduction commitments grew from two per quarter in 2018 to 10 per quarter in 2020, SEPA found. And, in the last five years, 80% of survey respondents added public sustainability plans and 84% disclosed emissions data publicly.

Because these efforts often follow or coincide with state and local mandates, they do not prove anything about culture change, but it allows customers, stakeholders and regulators to hold utilities accountable, Hamm said.

Sierra Club's Rogers called out utilities' reluctance toward DER, but nine of the ten leaderboard utilities and 77% of respondents include DER like energy storage, electric vehicles, or flexible loads in planning, SEPA reported.

Utilities are still developing "tools and capabilities" to accommodate DER, Hamm said. But 80% or more of respondents have streamlined interconnections and non-wires alternatives are being evaluated, planned, piloted or integrated by 91% of respondents.

The use of clean energy in two-way smart thermostat programs, grid-interactive water heater programs, behind-the-meter storage programs, and EV charging programs still lag, SEPA found. But interest in the opportunities in building and transportation electrification is growing, utility spokespeople reported.

"Utilities now see electrification as a win-win that will increase electricity sales and drive down electricity bills because costs for upgrading assets will be spread across a broader base," NRDC's Cavanagh said. "The DER sector originally positioned itself as a disruptor of utility systems, but both advocates and utilities now see DER as grid enhancements."

A major indicator of cultural change may be in utility interactions with the stakeholder community because utilities are beginning to see that "not engaging leads to suboptimal outcomes," SEPA's Allan said. Stakeholders are included by 71% of respondents in transportation electrification planning, 57% include them in distribution system planning, and 47% include them in grid modernization planning.

Seven of the ten leaders but only 39% of all respondents are engaging stakeholders in emissions reduction planning. These data points are not "proof points," but may be "indicators" of a changing culture, Hamm said.

The utility culture was once suspicious of clean energy advocates, but utility leaders I work with see this transition as the heart of what they can do for their customers, NRDC's Cavanagh said. "Some people can't break free of old antagonisms, but a culture change is well underway and many see the future is not a zero-sum competition because we are all going to the future together. And we're picking up speed."