NRG Energy’s David Crane: Energy Moralism Miscontrued

Meet David Crane, president and CEO of NRG Energy, the nation’s biggest independent power producer (IPP). This company’s diversified generation interests are fueled by every energy source from coal to wind.

Crane’s pedigree is a lot better than mine–degrees from Princeton and Harvard Law and lots of business experience. With all that going for him, it may not surprise you that Crane has a philosophical bent to go with his industry smarts. The current issue of Energy Biz summarizes some of his recent thoughts in an article with the deep title, Carbon Morality: The Nearsidedness of Incumbency.

The message of Carbon Morality? The power industry has lost its moral stature, and American society is on the verge of doing something awful to it.

The crisis? There’s a “fast shifting moral landscape” that “threatens to leave our industry adrift, shunned by the customers we serve.” Good luck on the shun, given that most people have monopoly utilities, and the IPP industry where NRG operates is unknown to most of the public.

Where’s the problem? Government is “terminally paralyzed by partisan deadlock” and the “desperate public” is looking to “the biggest remaining high-functioning institutions to take up the slack. That’s us: corporate America.” In electricity, the source of the reaction is clear, it’s “climate change, the mother of all social issues.”

IPPs found out all too late that they were not “the shire in the utility industry’s middle earth” but instead “a small slice of Mordor.” (Thanks Mr. Tolkien, and thanks to the lucky drudge who coined “corporate America.” It includes almost every business in the country, and for that matter its workers and shareholders.) But that’s just me, Bob Michaels, and I never ran an IPP or had my ear to the ground to sense the (John Q. )public’s moral outrage over carbon.

According to Crane, the first inkling of a problem (“we should have seen it coming”) turned up in 2007, when TXU was “forced into the hands of private equity” by a “firestorm” over planned coal-fired plants. My recollection is that TXU simultaneously misread the markets for coal, gas, power and capital and fully deserved its fate for wasting all that wealth. But let’s believe Crane’s claim that the crisis started there and was subsequently “festering just below the surface.”

And the electricity industry’s naifs don’t seem to notice the boil. They complain about EPA’s carbon rule when even some enlightened members of corporate America know better. How does Crane know this? He states (without references) that “the most influential companies of the modern era” (Microsoft, Google, Facebook and Apple) are all competing to make sure their data centers are 100 percent clean energy (which one way or the other includes fossil backup and credits).

Crane reminds us of once-progressive Amazon, its headquarters once picketed by folks protesting its use of ordinary power. It takes a lot of sensitivity to see a crisis in an item that I couldn’t find on Dow-Jones Factiva. Big, but it doesn’t come close to what Crane sees coming. The carbon divestiture campaign isn’t big in itself, but it’s the canary in the coal mine (a cliché Crane does not use).

Instead he’s “concerned” about its effect on the “hearts and minds of American college students.” (That one goes back to Vietnam, where the U.S. campaign to win hearts and minds was a failure.)

The crisis grows as new generations of students go through “four years of constant agitation about morality-driven divestment from fossil fuels.” Crane clearly didn’t go to a college like the one I teach at, somewhere in one of the 97 percentiles below Princeton.

Conclusion

Crane has a company to run and shareholders to protect, and his foray into politics and morals may be a smart strategy to keep them whole (and thus himself more than whole–think rent-seeking and crony capitalism). If it’s really about amorphous strategy (remember John Browne’s Beyond Petroleum and Ken Lay’s Green Enron), it helps explain why he depends on nothing more than rhetoric to support arguments that apply to a world my students and I don’t live in.

The public does not seem to be buying it either. For the last several years Gallup has asked folks to rank the urgency of about 16 public issues. “Climate change” almost always comes out at the bottom for both Republicans and Democrats, educated and uneducated. Considerably higher in the urgency ranking comes “The Availability and Affordability of Energy.”

Move over David Crane. Enter Alex Epstein, the author of The Moral Case for Fossil Fuels. Might Crane debate Epstein–and soon? That’s an event that I would be sure to watch, and you should too.

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Robert J. Michaels is the Daniel P. Hann Distinguished Scholar in Law and Economics, California State University, Fullerton. He is senior fellow at the Institute for Energy Research and an adjunct scholar of the Cato Institute. He can be contacted at energy.ace@att.net.

An earlier version of this post appeared in Energy Metro Desk (subscription required), titled “The Future: 97 Percentiles Below Princeton.”