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Utilities’ Failures And Shady Practices Show We Need Energy Democracy

Above Photo: A vehicle sits submerged in water along I-75 Aug. 12, 2014 in Royal Oak, Michigan. Joshua Lott / Getty Images.

Around the country, corporate utility giants like DTE in Michigan are leaving communities vulnerable while impeding progress on decarbonization.

And that’s exactly why a transition to community-owned utilities must happen.

In June of 2021, torrential rains flooded the City of Detroit and surrounding areas, causing over $100 million in damages, mostly in poor, Black, and Brown neighborhoods. Kamau Clark, an organizer for the nonprofit We The People Michigan, moved into his apartment in Detroit’s West Village neighborhood just two days before the storm. “I came home at 2AM and the apartment was flooded,” he recalls.

Overwhelmed and unsure of where to turn, Clark went to a town hall on the city’s east side, where representatives from water and sewage authorities tried to explain the situation to him and a crowd of angry residents. According to officials, the city’s infrastructure was not fit to handle the unprecedented volume of rain. However, there was another problem — the storm had also caused a power outage at the city’s wastewater facilities, rendering some of their pumps only partially operational. At the time, city officials told residents that it was these outages, combined with the heavy rain, that caused the record flooding.

“They basically told us their power provider lost power at the pump station,” and that, Clark said, “is when folks got angry.”

At the insistence of the crowd, authorities finally revealed the name of their power provider: DTE.

The Local Menace

DTE is a Detroit-based energy company that provides electricity to Southeast Michigan through its subsidiary utility company, DTE Electric. Notably, DTE does not stand for anything — the company’s namesake is its stock ticker*.* Throughout the region, DTE has a reputation for being unreliable, especially among lower-income customers who are disproportionately burdened by poor service and high prices.

For many of these customers, the June 2021 flood outage was just another letdown in the utility company’s long track record of failures. Since 2000, Michigan has reported more weather-related power outages than almost any other state, second only to Texas. One of the state’s largest outages in recent years took place just two months after the June 2021 flood, when another massive storm left over 1 million residents without power, some for up to seven days. About half of those residents were customers of DTE.

These extreme weather events have been particularly devastating for Michigan’s energy grid, which ranks among the bottom ten states for overall utility performance. In its most recent report card, the American Society of Civil Engineers gave Michigan’s energy infrastructure a grade of C-, noting a “lack of investment to preserve function, exposure to physical and cyber threats, congestion, and dependence on externally sourced fossil and nuclear fuels.”

Historically, DTE has exacerbated problems with Michigan’s energy infrastructure by failing to maintain the sections of the grid it owns. For example, until regulators intervened in 2021, DTE trimmed tree branches around its power lines only once every nine years — the industry standard is every five. Activists argue that the company’s business model gives it no incentive to perform required preventative maintenance. “When a utility is driven by a profit motive and not driven by making sure people have stable access to energy, then these things are going to happen more frequently,” Art Reyes, executive director of We The People Michigan, told Planet Detroit in 2021.

But the problem with DTE’s business practices extends far beyond accidental outages and delayed maintenance. A recent ProPublica investigation found that DTE cuts service to its customers at a rate higher than any other investor-owned utility company in Michigan. In 2021 alone, amidst the ongoing pandemic, the company disconnected accounts 178,200 times for nonpayment, on top of the 1.2 million shut-offs conducted from 2013 to 2019.

While most people impacted by these shut-offs were low-income, this alone does not explain the disproportionately high number of disconnections. ProPublica’s analysis demonstrates that Consumers Energy, Michigan’s second-largest utility company, services a comparable population while shutting off accounts at half the rate of DTE.

A more likely explanation is that DTE’s high prices and frequent rate hikes in particular are rendering its essential services unaffordable to growing numbers of Metro Detroiters. Between 2015 and 2019, the company generated $774 million in revenue from rate hikes alone, the second-fastest residential rate increase in the country during that period.

Though industry representatives may argue otherwise, these rate hikes were likely not due to inflation or dire economic straits for the energy company, which received $268 million in CARES Act funding in 2020 while increasing payouts to its shareholders and giving its new CEO a $2.3 million raise. Rather, they are products of an energy market that underwent decades of sustained deregulation at the hands of lawmakers and business leaders — not just in Michigan, but all over the country.

The Problem With Monopoly Busting

During most of the 20th century, big utility companies managed every aspect of the electricity production and distribution process. They owned the infrastructure, generated the power, and delivered it to customers. For all intents and purposes, they were regional monopolies, and as a check on their monopoly status, they were subject to strict regulation by the federal government.

The energy crisis of the 1970s completely upended this arrangement. To decrease America’s reliance on foreign oil, which had skyrocketed in price, lawmakers and industry leaders worked together to incentivize companies to build power plants at home. As a way to prevent companies charging monopoly prices, Congress broke the utility companies in half: one side of the industry would be managed by an independent power producer, which generated and sold energy on a wholesale market. On the other side were the old utility companies, who bought that energy at prices set by this new energy market, and sold it retail to the public.

Unfortunately, destroyed in this monopoly-busting campaign was the power of regulators to protect consumers across the whole market. While states could still set cost-of-service limits on retail electricity sold directly to consumers, they had no authority over the wholesale-priced transfer of energy from producers to utility companies.

Severing energy supply from its distribution took prices out of the control of a highly-regulated monopoly and surrendered them to an unregulatable market of middlemen, too numerous for state governments to control. By the 1990s, the regulators in charge of these markets were so overwhelmed by a new spate of power producers and power transporters that many states gave up on regulating energy production altogether, relying instead on the energy market to set its own prices.

In 1999, the federal government exacerbated the problem by delegating many of its regulatory powers to regional transmission organizations. Regional transmission organizations are not government agencies; they are voluntary membership organizations created to distribute parts of the power grid between competing companies. Because of a critical lack of oversight and questionable governance structures, these organizations tend to issue guidance that favors corporate stakeholders over consumers.

The final nail in the coffin for utility regulation came in 2005 with the passage of the Energy Policy Act, which repealed key regulations preventing utility companies from merging. Like most deregulatory policy, the bill’s stated purpose was to promote competition and drive down prices. In effect, it created a new market dominated by massive utility conglomerates. Neither restrained by competition nor regulated by the monopoly-busting rules of the energy crisis, corporate utilities in many states emerged less regulated and more powerful than ever.

Utilities Today

Today, 17 states and the District of Columbia have deregulated wholesale electricity markets. Like many deregulated industries, there is no longer a uniform structure or procedure governing the market. Some states have more oversight than others, some allow more public participation than others, and every government has different priorities depending on the political party in power.

One stakeholder in the utility industry whose priorities do not change are its corporate investors. About three out of four customers in the US get their electricity from investor-owned utilities (IOUs) — for-profit companies with a primary goal of delivering returns for their .

These investor-owned utilities are often owned by energy companies, which serve as their parent or holding companies. In deregulated states, energy companies often handle the generation side of the utility market (like running power plants), while the IOU subsidiary manages its distribution along power lines.

In theory, investor-owned utilities are regulated by states or by independent oversight bodies, which determine the rate they can charge customers. As an incentive to continue providing an essential service to the public, utilities are guaranteed a certain amount of profit by regulators. This reliable rate of return makes utilities, and the energy companies that own them, a safe bet for wealthy investors. Crucially, some of the top investors in the energy industry are massive private equity firms like Vanguard and BlackRock.

State(s) Utility Companies Parent Company Top Investors
Michigan DTE Electric DTE Energy
Texas TXU Energy, Luminant, Dynegy, Ambit Vistra Energy
California Pacific Gas & Electric Company PG&E Corporation (Holding)
New York Consolidated Edison Company of New York, Inc. Consolidated Edison
North Carolina, Ohio, Kentucky, Indiana, Florida Duke Energy Carolinas, Duke Energy Ohio, Duke Energy Kentucky, Duke Energy Indiana, Duke Energy Florida Duke Energy (Holding)
Oregon, Washington, California, Utah, Idaho, Wyoming, Iowa, Illinois, South Dakota, Nebraska, Nevada Pacificorp, MidAmerican Energy Company, NV Energy Berkshire Hathaway Energy (Holding)
Ohio, Texas, West Virginia, Kentucky AEP Ohio, AEP Texas, Appalachian Power, Kentucky Power, etc. American Electric Power
Alabama, Georgia, Mississippi Alabama Power, Georgia Power, Mississippi Power Southern Company (Holding)

Top investors in energy utility companies by state

As a means of funneling more money to these corporate shareholders, investor-owned utilities have found ways to manipulate regulators into letting them rake in more profits. They do this by making unnecessary investments (particularly in large infrastructure projects) to inflate their return on equity, as well as by funneling millions into lobbying efforts and political candidates. Last year, 93% of the state legislature in Michigan had taken donations from DTE at some point in their careers. Michigan’s governor, Gretchen Whitmer, was also criticized for receiving $100,000 from the DTE Energy Company PAC and from executives for her re-election campaign.

Utilities And Climate Change

Price-gouging and buying off politicians is bad enough, but the environmental devastation wrought by this web of corporate polluters is especially heinous. Put simply, investment firms, energy companies, and utility companies have a symbiotic financial relationship that is both maintained and enriched by planetary destruction.

Currently, over 60% of the energy generated in the US for utility-scale electricity comes from fossil fuels. Though many utility companies in recent years have pledged to build more clean energy infrastructure, both their plans and their actions fall short of what is necessary to avert a climate catastrophe. In 2022, the Sierra Club’s annual Dirty Truth report analyzed 77 utility companies based on their progress towards retiring coal, halting new gas infrastructure, and building or purchasing clean energy by 2030. These companies received an aggregate score of 21 out of 100, with the report concluding that “utilities are not following up on their climate goals with sufficiently ambitious action plans.”

One key factor in the industry’s atrocious environmental record is its commitment to natural gas, which is cheaper to produce and a supposedly “cleaner” alternative to coal. While it is true that gas production releases less CO2 than coal, the process also releases methane, which has a long-term global warming effect 80 to 90 times more powerful than CO2. According to a recent NPR article, the US is projected to build about 17 gigawatts worth of gas plants over the next few years, enough to power 12.8 million homes.

Accidents that occur during production — such as leaks, explosions, spills, and fires — also threaten to negate these companies’ already insufficient progress towards achieving global climate goals. California-based utility company Pacific Gas and Electric (PG&E) is a particularly heinous offender. Between 2017 and 2022, while on probation for its role in a 2010 pipeline explosion that killed eight people, the company’s equipment caused 31 wildfires, killing 113 people and razing nearly 1.5 million acres of land. PG&E is so notorious for causing environmental damage, its Wikipedia page has two thoroughly populated sections labeled “Disasters” and “Controversies.”

In addition to actively polluting the environment, utility companies frequently block laws that would usher in a quicker clean energy transition. For example, at the federal level and in many states, residents receive a tax credit when they install solar panels — and, in a process known as net-metering, users can also lower their electric bill by selling the excess electricity they generate from their panels. As solar technology becomes more affordable, utility companies across the country have stepped in to successfully curb these subsidies, which eat into their profits and threaten their control of the energy grid. Michigan, in particular, has some of the strictest limits on rooftop solar panels in the country, with a 1% cap on the amount of energy that can come from customer-generated sources.

Even though renewables are now the cheapest option for energy generation, a full transition to clean energy would require utility companies to completely overhaul their current business model, which runs the risk of diverting profits from their shareholders. So long as utilities remain privatized, investor interests will always come before the interests of the public, and a timely Green New Deal will be nearly impossible.

Energy Democracy Is The Answer

Most private utility companies are owned by energy companies, which are some of the largest greenhouse gas emitters in the country, and most energy companies are funded by investment firms, which are Notorious Financiers of the fossil fuel industry. Because of these specific connections, private utility companies often act as regional gateways into a national network of corporate polluters.

This means that activism at the local level, as tedious and difficult as it may sometimes seem, can meaningfully change a local piece of a much larger global structure, and help the country transition more quickly and safely to clean energy.

For many activists, the transition to clean energy starts with transferring ownership of the existing dirty infrastructure from private companies to city, county, or state governments. With publicly-owned utilities, citizens and their elected representatives can have a greater say in how their electricity is generated, and prioritize cleaner sources like wind and solar. This movement towards greener, community-owned utilities is known as energy democracy.

Over the last decade, energy democracy groups have sprung up all over the country, particularly in states hardest hit by failed deregulatory policy. In California, the coalition group Reclaim Our Power frequently intervenes in the regulatory process to hold the massively powerful PG&E accountable; in Minnesota, Community Power helps finance and build cooperative solar projects in low-income communities; and DSA chapters in Chicago and New York City have both launched campaigns to democratize their regional utility, ConEd.

Back in Michigan, energy democracy activists are also building toward a different future for their state. Because of the size and scope of their corporate targets, these activists often attempt to whittle down DTE’s profits and diminish its political power with a death-by-a-thousand-cuts approach. Welfare groups demand affordable payment plans for low-income DTE customers, while legal groups challenge the company’s requests for new polluting permits. In Highland Park, an enclave city surrounded by Detroit, the nonprofit group Soulardarity even started building residential and municipal solar projects for its neighbors after DTE repossessed the city’s streetlights in a 2011 bankruptcy agreement.

These activists have found formidable allies within higher education. In 2019, the Michigan Environmental Justice Coalition partnered with the University of Michigan to produce a health impact assessment, the results of which forced regulators to add new dimensions measuring public health and equity to their evaluation of DTE.

“We must pay attention to the behavior of the utilities,” explains Michelle Martinez, director of the Tishman Center for Social Justice and the Environment at the University of Michigan. “Communities are being directly impacted by high costs of energy, lack of access to solar energy, and the impacts of climate change associated with the burning of fossil fuels.”

Activist groups in Ann Arbor, some of which are affiliated with the university, are leading their own campaign for public utilities. In January 2022, at the insistence of energy democracy advocates, the city agreed to conduct a feasibility study on the process of buying back their energy grid from DTE. Local advocates believe this is the quickest and most affordable way for the city to meet its stated goal of 100% renewable power by 2030.

“We basically have two paths in front of us,” says Greg Woodring, president of Ann Arbor for Public Power. “The first is radically changing the way we do our energy system. The second is extinction.”

Most recently, in late 2022, energy democracy activists came together to demand a public hearing after DTE petitioned state regulators for a rate increase of $388 million. Over 200 people showed up in protest, including Clark, who started organizing around energy democracy soon after the 2021 flood that damaged his apartment.

“You could tell that folks had reached out to their people,” he said. “It was an incredible example of strong organizing across organizations and communities.”

It paid off in the end. In a stunning upset, DTE was only approved for $30.5 million — about 8% of what they asked for. With a win under their belt, local activists are now shifting their focus to education and organizing. They acknowledge that the energy democracy movement can only succeed with the community behind it.

However, while the road ahead may be long, the barrier to participation is low. Anyone who pays for utilities, public and private alike, already has tremendous leverage over the energy industry by virtue of fronting the bill; these corporations may seem untouchable now, but their entire business model is vulnerable to a critical mass of angry ratepayers just waiting to realize their own power.

“[Everyone] must talk to their state legislators, join advocacy groups that organize affordable rate structures, more rooftop solar, and less political spending from DTE and other fossil fuel companies,” urges Martinez. “At the base of it, the utility model is broken, and it’s breaking the planet. We must use all of our power and imagination to change it, fast.”

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