Few course changes executed for utilities when new president takes helm
The drive toward renewable energy in the United States will likely continue at a brisk pace even before the dust has settled from this fall’s hotly contested presidential election, a panel at the annual Edison Electric Institute (EEI) Financial Conference agreed Monday.
The shift toward renewable energy has been driven by the utility industry rather than government edict through the Trump years. The trend will likely continue without much prodding from the incoming Biden administration or from a partisan Congress that, in bipartisan fashion, doesn’t seem inclined to rock the boat.
“The pace of change will continue to accelerate. We think this is an enduring business,” said George Bilicic, Vice Chairman of Investment Banking and Global Head of Power, Energy & Infrastructure at the international investment firm Lazard Ltd.
New economic stimulus legislation likely would not much sway the fortunes of the utility industry, which had been declared an essential business from the beginning of the pandemic. Catherine Mann, Managing Director and Global Chief Economist at Citi, said there was still plenty of lost ground for the overall economy to make up and that projects that expand transmission for renewable energy might be received warmly on Capitol Hill by lawmakers. Infrastructure generates jobs in both red and blue states and, she said, “There are a lot of pro-climate Republicans who were keeping quiet for the past three and a half years.”
Although election year was framed publicly as a historical showdown between two dramatically different personalities and governing philosophies, the bottom line for utilities is that policies on energy and economics likely won’t see many dramatic policy or tax changes coming out of Washington in the immediate future.
Michael Herman, Assurance Partner and U.S. Leader for PwC’s Power and Utilities Sector, said his conversations with utility executives and investors revealed a continuing concern with matters such as tax reform and the stubborn COVID-19, but an otherwise bullish outlook prevailed among the virtual panelists. “If the Republicans hold on to a majority of the Senate, it could moderate the speed of it,” he said of the continuing expansion. “It is being driven by customer demand, so I don’t think that it is going to subside.”
The most likely effect that Biden will have on the pace of that expansion, according to the panel, is through his future appointments to the Department of Energy, the Federal Reserve and the Federal Energy Regulatory Commission (FERC). “Half of our rate base is through FERC,” said Daniel Cregg, Executive Vice President and CFO for Public Service Enterprise Group (PSEG).
The odds of an avalanche of changes in corporate tax policy are not considered to be long even though President-elect Joe Biden had called for an increase in the corporate tax rate of 21-28 percent during the campaign. “We don’t see any increase near the 28 percent that Biden was talking about,” said Herman, who added that the industry had already baked in a minor bump in the tax rate well before the election.
And both parties in Congress, Herman said, did not seem inclined to pursue any major increases that could weigh down the economy’s recovery. “I also don’t think there is a lot of appetite to raise capital gains and dividends taxes,” he said. Biden has proposed increasing capital gains taxes for incomes over $1 million, which Herman said “maybe gets a little traction, but otherwise there doesn’t seem to be much interest.”
One levy that might get a boost under a Biden administration is a carbon tax. While using a tax as a cudgel to reduce carbon emissions from power plants and refineries has been hotly criticized over the years, the energy industry has recently showed some new interest in reaching out to Washington to discuss the idea, which Herman said would add “some level of certainty of investment rather than scaring anyone away from investment.”
The expansion of renewable energy is also likely to continue without any significant action from the Biden administration, much as it had under President Donald Trump. The states and private sector have taken a lead role in expanding green energy, which has won over political leaders on both sides who see renewables providing jobs in their districts and who are genuinely concerned about climate change.
Natural gas will continue to play a significant role in generating electricity and may even see some assistance from the federal government in tamping down methane leakage. “It (gas consumption) will get chopped down a little by renewables, but you still require reliable peaking capacity,” said Bilicic. “We don’t see natural gas as being anything other than highly relevant.”
