Investor-owned utilities transitioning to 100 percent clean energy or renewables reported mixed financial results this quarter, but offered up confident views on the implementation of their carbon-free plans.
Because of the increasing economic competitiveness of wind and solar compared to coal, a transition to renewables is unlikely to have significant impact on the quarterly earnings for such gigantic companies. But earnings calls and financial filings offer a somewhat rare glimpse into corporate decision-making regarding the clean energy transition.
Statements made during Q2 investor calls signal that many large investor-owned utilities moving toward cleaner energy mixes now view the transition as a boon, rather than a stumbling block.
Public Service Enterprise Group
New Jersey-based utility PSEG became the latest investor-owned utility to announce a carbon-free goal in July. Like several of its peers, the company plans to hit that mark by 2050.
For Q2, PSEG reported net income at $153 million, or $0.30 per share, compared to $269 million in the same quarter last year. Despite that decline, the company expects an annual 4 percent growth in earnings over 2018.
A 2018 decision to allow nuclear plants in New Jersey to receive zero-emissions certificates (ZECs) will help that bottom line, as well as the company’s carbon-free goals. PSEG has three nuclear plants in the state and said in its Q2 earnings call that its 2019 guidance “includes the benefits from a partial year of ZEC payments.”
“Nuclear plants are really going to continue to operate as long as the state values those attributes,” said PSEG President and CEO Ralph Izzo on the call.
Meanwhile, the utility plans to excise coal from its portfolio by 2021. PSEG announced the sale of a 776-megawatt coal plant in June, with plans to cut 2.4 gigawatts of coal power between 2017 and 2021.
“PSEG Power's fleet has reduced its carbon emission intensity by more than 40 percent since 2005 and is at about half the emission intensity compared to the country overall,” said Izzo on the call. “This has been achieved by maintaining its nuclear units, investing in highly efficient gas-fired generation units and renewables, and exiting coal-fired generation assets.”
In 2018, Xcel announced its plans to reach 100 percent carbon-free electricity by 2050.
Colorado, where Xcel serves more than 1 million customers, formalized the mandate statewide in May of this year. Xcel’s goal, however, will apply to its entire service territory. The utility also has electric and natural-gas customers in Minnesota, Michigan, New Mexico, the Dakotas, Texas and Wisconsin.
Though Xcel’s net income was also down in Q2 2019 compared to the year prior, declining from $265 million to $238 million, the company said it is still on track for dividend growth of between 5 and 7 percent this year.
Meanwhile, Xcel is working to rid its Upper Midwest portfolio of coal by 2030, with an 80 percent reduction in carbon emissions in the region by that same year. In its Midwest Integrated Resource Plan, filed in July, Xcel set out an added 4 gigawatts of utility-scale solar. The utility said it would achieve 60 percent renewables by the year the plan ends, in 2034.
President and CEO Ben Fowke said Xcel is “proud to be leading the clean energy transition,” during the company’s Q2 earnings call. He added that Xcel is “very much aligned” with policymakers in Colorado. Lawmakers in New Mexico also recently passed a 100 percent carbon-free electricity requirement.
Public Service Company of New Mexico (PNM)
That New Mexico law, signed into law in March, compelled the state’s largest utility, PNM, to look toward a 100 percent carbon-free future. The utility formalized the target in April.
In the second quarter of 2019, PNM reported a $86.9 million loss, compared to net positive earnings of $26.5 million at the same time last year. The utility attributed the financial strain to “extreme weather impacts,” namely, New Mexico’s mildest summer in two decades, which reduced electricity sales. PNM also had to write off $104 million in investments at its Palo Verde nuclear plant, which the state Supreme Court said PNM couldn’t rate-base.
Going forward, those investments in Palo Verde will contribute to PNM’s carbon-free mix. But the utility faces other challenges, tied to the San Juan Generating Station, in moving toward its goal.
A condition of New Mexico’s 100 percent law allowed PNM to close San Juan, which burns coal, and recover the cost from ratepayers, a process known as securitization. In July, the utility filed for approvals for abandonment and securitization of the plant, along with replacement power that includes 350 megawatts of solar, 130 megawatts of battery storage and 280 megawatts of natural gas.
“The San Juan replacement plan we put forth will not only save customers money but will have one of the largest solar facilities in the U.S. and one of the highest percentages of battery storage anywhere in the country,” said President and CEO Pat Vincent-Collawn at the time.
Now, regulators have segmented the decision docket in a way that may make securitization impossible — placing it in an existing docket from before the state’s Energy Transition Act was passed.
Though Vincent-Collawn said on the Q2 earnings call that the decision from the commission “moves up the uncertainty” for PNM’s 100 percent plans, she added that PNM is “very confident of our legal petition and our legal position.” The utility should get more clarity in coming months.
Berkshire Hathaway Energy
Several Berkshire Hathaway subsidiaries are moving toward more clean energy, although they already cumulatively get 84 percent of their generation from renewables.
NV Energy, serving customers in Nevada, has to hit 100 percent carbon-free electricity by 2050 according to a recently passed Nevada law. In June, the utility announced a procurement for 1.2 gigawatts of solar paired with 590 megawatts of storage.
MidAmerican Energy, which serves customers in several Midwestern states, said in 2018 it would transition to 100 percent renewable electricity in 2020. Wind will carry that goal: The company plans to build about 2.6 gigawatts through 2020, bringing its total to 6,598 megawatts.
Oregon-based PacifiCorp, the least renewables-reliant among Berkshire Hathaway’s subsidiaries, serves customers in Washington and will have to meet mandates set out in that state, where another 100 percent clean energy bill recently passed. Currently PacifiCorp gets 21 percent of its electricity from coal and 70 percent from renewables. The rest is natural gas.
In Q2, Berkshire Hathaway Energy profits increased 4 percent. Net income increased from $378 million in Q2 2018 to $688 million in Q2 2019. In an investor presentation this year, the company said it is continuing to “de-risk its balance sheet as it relates to carbon-based generation assets,” suggesting the parent company thinks it's more fiscally dangerous to continue using fossil fuels than to get rid of them.
Washington-based utility Avista, which serves customers in Idaho, Oregon and Washington, also announced a move to 100 percent carbon-free electricity in April, just days before Washington passed a law requiring 100 percent clean energy by 2045. Though Avista’s 100 percent clean electricity target matches the state’s, it had previously laid out a goal of having carbon-neutral power by the end of 2027.
Net income and earnings per share were relatively steady for Avista compared to the same period last year. The company reported net income of $25.3 million, or $0.38 per share, for Q2 2019, compared to $25.6 million and $0.39 per share for Q2 2018.
Low operating costs as well as “better-than-expected customer growth” drove those results, prompting Avista to raise its yearly guidance by $0.05 per share.
On its Q2 earnings call, Avista executives offered few details about progress on meeting the requirements of Washington’s new legislation. Vice President of External Affairs and Chief Customer Officer Kevin Christie said the utility is working on “the steps to move forward to implement.” Avista did say it expects to increase capital expenditures by $30 million in 2019, in large part to fund the integration of renewables.
Hitting the gas
Despite talk of renewables, many utilities on this list — including PSEG, Xcel and PNM —will keep natural gas as part of their portfolios in the near term.
Xcel’s Fowke, for instance, said gas, renewables and nuclear will all “support each other” in the utility’s future. And though Xcel is interested in batteries, the utility doesn’t yet believe they can completely replace natural gas.
“Storage can be the new peakers, but only to a certain degree of penetration and saturation,” he said on Xcel’s most recent earnings call.
That framing shows that while utilities are now making the energy transition central to future planning, many are not ready to entirely give up their reliance on fossil fuels. Getting from mostly clean to entirely clean is a problem to tackle later — “a number of decades away,” according to Fowke.
We’ll report back in Q2 2050.