The energy companies of the Midwest are struggling with rising costs and a lack of investors who want to buy their stocks.
The lack of liquidity has left them scrambling to make smart strategic decisions that will help them survive, with the potential for a big upside in the short-term.
But they have little room for optimism, according to experts who say the region’s energy industry is facing an existential threat from climate change and the impact of climate-related risks.
In a report to be released Friday, the Brookings Institution and other researchers note that Midwest energy firms face a growing risk of losing money and being outpaced by competitors in other sectors.
That could cause a “substantial and potentially irreparable damage” to their ability to continue to compete with other energy providers, they wrote.
The companies are trying to manage the risk, but they have few answers for how to do it.
“We don’t know how we’re going to manage this risk,” said Tim Geller, the chairman and chief executive of Midwestern Energy Partners LP, which operates four Midwest power companies.
“The only thing we know is, we have to get a handle on it.”
The report, titled “The Midwestern Power Company Crisis: The Next Big Gamble in the Power Industry,” is based on a detailed analysis of the energy sector and its potential for financial loss in the coming years.
It warns that the Midwest is at a crossroads.
“In a globalized economy, with rapidly changing climate and climate-induced risks, we cannot afford to be unprepared,” the report said.
“While some regions are experiencing rapid economic and political changes, we face a future in which many of the industries that support our livelihoods are at risk.
The Midwest is one of those industries.
It is an industry that is highly reliant on energy, and we must remain vigilant to make sure we’re not left behind.”
A recent report from the Congressional Research Service warned that the region faces the “highest rate of CO2 emissions and the most severe impacts of climate change.”
Its findings, based on data from 2010 to 2020, found that Midwest businesses, such as oil and gas, coal, agriculture and manufacturing, have been hit hardest.
It found that the overall emissions from the region were about 5 percent higher than the U.S. average, and emissions from each sector were about 10 percent higher.
“It is clear that the energy industry of the Midwestern States is at risk from climate-driven change, and is being hit hardest by these impacts,” the authors wrote.
“As our economy transitions to a more resilient energy economy, we will need to ensure we are prepared to address these risks and maintain a high level of competitiveness in an evolving and changing energy landscape.”
The companies that dominate the Midwest face a stark choice.
They can either compete in a more globalized market or fight for their survival with the risk of a sudden and potentially catastrophic decline in their business model.
“They’re going in the opposite direction, they’re going against the tide, they are trying, and they’re not going to be able to do much more than that,” said Paul Haggis, chief executive officer of the Wisconsin-based Energy Alliance of Wisconsin.
“If they’re too big, they will be in trouble.”
The state’s governor, Scott Walker, has signaled a willingness to embrace climate change as part of his political strategy to boost his party’s chances of winning a third term in November.
The Energy Alliance estimates that a significant portion of the economy relies on energy.
It said in a report last month that the state generates about 60 percent of its economic output in energy.
But the group estimates that the number of workers in the energy and mining industries could decline by up to 60 percent if climate change takes a toll on the region.
“Climate change has made it difficult for Wisconsin’s energy and industry to maintain or recover,” the group wrote.
And the report cited recent news stories that show a growing concern in the industry about climate-change impacts.
In July, the Associated Press reported that the U-M system’s CEO said the industry was considering a merger with a rival, according a person familiar with the matter.
That same month, the state announced that the MidAmerican Energy Group, which includes Midwest energy players like Midwestern Gas and Midwestern Electric, was looking for a buyer for its assets, according the person.
MidAmerican and MidAmerican Gas are part of a consortium of energy companies led by SCE, the parent company of ConocoPhillips.
The new owners would be able take control of MidAmerican, SCE and other assets, including a power plant in the state of Michigan.
But it’s not clear how the deal would work.
The deal could involve a combination of acquisitions by the new owners, or it could simply be a change of ownership that would allow the MidAmericans to remain in control.
“What we have learned is that it is very difficult for companies to keep up with the pace of change,” said David Cramer, vice president of energy