Nation’s Top Utility Companies Take Varied Approaches to Business Risks Posed by Climate Change, from Forward-Looking to Defense of Status Quo
Most Utilities Lack Boards with Relevant Climate Science
Expertise; Six Companies Still Rely on Coal for More Than 75 Percent of
Energy
Utilities are taking widely varied paths to meet climate change business
challenges – from new approaches that will guarantee reliable energy
supplies to litigation to protect the status quo. These findings are
contained in a new report, The
Top 25 U.S. Electric Utilities: Climate Change, Corporate Governance and
Politics, from the Investor Responsibility Research
Center Institute (IRRCi)
and the Sustainable Investments Institute (SI2).
Download the full study here.
“Whatever your opinion of climate change, it is a reality that
regulation and societal pressure is changing the business landscape for
utilities,” said Jon
Lukomnik, IRRCi executive director. “Some utilities are taking
proactive approaches to ensure ample and dependable energy supplies that
reduce regulatory and legal risk. But other utilities are digging in
their heels while looking backwards to maintain business as usual.
Rather than changing the energy mix or seeking innovation that can
reduce capital costs, some utilities are deploying their resources
toward court battles and political influence.”
Lukomnik added, “This report offers a new multi-perspective framework to
help stakeholders understand each utility’s climate change business
strategies. Investors, in particular, can use this report to better
evaluate which companies are deploying forward-thinking approaches and
better equipping themselves for the business challenges ahead by
improving their board expertise and management incentives.”
“The tension between long-term planning needs and short-term profit
taking comes out clearly in the report,” said report lead author Sara
E. Murphy. “We’ve tried to connect the dots between the most
pressing issues on which investors say they want action—climate change
and corporate political activity transparency—for a sector that will be
hard hit if it doesn’t adapt.”
This comprehensive, 117-page study offers a new framework as outlined
below with 12 key metrics for investors, companies and others to measure
the nation’s 25 largest public utilities’ climate change orientation.
-
Energy Mix: Among the 20 companies that generate their own
power, six rely on coal for more than 75 percent of their generation
including AES, Ni-Source, DTE Energy, Ameren, CMS Energy and American
Electric Power. Conversely, coal makes up none of the fuel mix for two
companies—PG&E and Sempra Energy.
-
Advanced Metering Infrastructure: Advanced Metering
Infrastructure enables two-way communication between utilities and
customers, helping to reduce energy demand. Leaders using this
technology for grid modernization are CenterPoint Energy, Edison
International, PG&E and Sempra Energy, Duke Energy, Consolidated
Edison and PPL in Pennsylvania and Florida.
-
Return on Capital Relative to Capital Expenditures (RoC:CapEx):
The report explores how effectively utilities deploy capital while
considering climate risks. CenterPoint Energy, Eversource Energy and
DTE Energy have the strongest ratios, while Dominion Resources, Duke
Energy, Exelon, FirstEnergy, NRG Energy and Southern have the weakest
ratios.
-
Stranded Carbon Asset Risk: Stranded carbon asset risk measures
the potential that a utility’s assets can never be used if global
warming is to be limited to two degrees Celsius. Data available for 12
of the 25 companies show that AEP, NRG Energy, Ameren and DTE Energy
face the highest stranded carbon risk. Duke Energy, FirstEnergy,
Southern and PPL have the lowest risk.
-
Emissions Intensity: This shows each company’s contribution to
the U.S. carbon footprint. The most carbon-intensive utilities are
NiSource, NRG Energy, CMS Energy, Xcel Energy, DTE Energy, American
Electric Power and AES. Those with the lowest intensity are PG&E and
Exelon.
-
Emissions Transparency: While required emissions disclosure
rules cover all 25 utilities, 15 also provide more extensive,
voluntary reporting.
-
Potential Legal Liability: The Clean Power Plan, the primary
vehicle through which the United States has pledged to implement the
Paris climate accord, could impose financial penalties on greenhouse
gas emitters. According to a Michigan Technical University analysis,
Southern, NextEra Energy and AEP face the biggest potential liability.
PG&E, Exelon and PSEG have the least risk.
-
Board Climate Change Oversight and Expertise: Among the
utilities examined in this study, three firms—Ameren, Exelon and PG&E—
currently have specifically articulated climate change board oversight
responsibilities.
-
Environment and Climate Change Management Incentives: Few
compensation incentives concern the environment and/or climate change.
When these issues are mentioned in incentive discussions, there is a
heavy emphasis on legal compliance, but little else. An exception is
Xcel Energy, which has stronger and more specific disclosures on the
subject.
-
Political Activity Spending and Public Policy Position Disclosure:
The 25 utilities in the study have together spent more than $400
million on federal lobbying and in federal and state elections in the
last five years. NRG Energy, FirstEnergy. Southern and AEP are among
the highest spenders. On the low end of the intensity scale are AES,
Consolidated Edison, ONEOK and PPL.
-
Corporate Political Activity Governance: The Center for
Political Accountability’s Index shows that Edison International,
Exelon, PG&E, Ameren and Entergy score highly, while CenterPoint
Energy, AES, NRG Energy, FirstEnergy, Eversource Energy, ONEOK,
NextEra Energy and NiSource score poorly.
-
Litigation: A number of utilities are taking legal stands for
or against the Clean Power Plan. NextEra Energy and PG&E stand out for
their legal support of the CPP, while Southern is the most active
company opposing the CPP. AEP, Ameren, DTE Energy, Duke Energy,
Entergy, NRG Energy and PPL are also active in their opposition to the
CPP.
Download the full study here.
The Investor Responsibility Research Center Institute is a
nonprofit research organization that funds academic and practitioner
research enabling investors, policymakers, and other stakeholders to
make data-driven decisions. IRRCi research covers a wide range of topics
of interest to investors, is objective, unbiased, and disseminated
widely. More information is available at www.irrcinstitute.org
The Sustainable Investments Institute (Si2) provides
institutional investors with in-depth, impartial analysis of
environmental and social policy shareholder resolutions filed at U.S.
companies. It also is an incubator for empirical research on emerging
sustainability topics and corporate and investor responsibility issues.
More about Si2 is at www.siinstitute.org.
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Copyright Business Wire 2016
Source: Business Wire
(April 14, 2016 - 7:00 AM EDT)
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