Greenhouse Gas Management-Are U.S. Public Utility Companies Ready?

Advanced Workshop in Regulation and Competition 29th Annual Eastern Conference
20 May 2010 Skytop Lodge, Skytop, PA

Peter A. Soyka President

5/20/10

Copyright © 2010 Soyka & Company, LLC

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Today’s Discussion •  Context •  Indicia of Effective Carbon Management Approaches •  Review and Analysis of Evidence –  Russell 1000 –  Electric and Gas Utility Industries •  Conclusions and Discussion 5/20/10 2 Copyright © 2010 Soyka & Company. LLC .

Acknowledgement IW
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Street. LLC 3 .com
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Some Context… •  Why Should We Care? –  Contribution to National/Global Carbon Footprint –  Costs/Feasibility of Controls and Emission Reductions –  Regulatory and Market Risks –  Investment Risk 5/20/10 Copyright © 2010 Soyka & Company. LLC 4 .

Some Context… EPA Greenhouse Gas Reporting Rule (effective December 29.700 of world’s largest companies • 2204 responses (2008). 2009) • Includes final reporting requirements for 31/42 source categories SEC Guidance Regarding Disclosure Related to Climate Change “…intended to remind companies of their obligations under existing federal securities laws and regulations to consider climate change and its consequences as they prepare disclosure documents…We will monitor the impact of this interpretive release on company filings as part of our ongoing disclosure review program. 2010) Carbon Disclosure Project • 534 institutional investors with assets of $64 trillion under management • Requested disclosure of investment-relevant information concerning greenhouse gas emissions from 3. 82% of FT 500 • Data to assess climate change risk not always available. sometimes lacks comparability or is of poor quality 5/20/10 5 Copyright © 2010 Soyka & Company.” (February 2. LLC .

LLC 6 .Indicia of Effective Carbon Management Approaches •  Presence of 49 Environmental Indicators –  Governance –  Policy-Environmental. Sustainability or EHS •  Climate change policy/statement may be alternative or supplement –  Infrastructure and Systems –  Performance Results –  Transparency/Accessibility •  Weightings Based on Importance •  Numerical Score (100 points available) 5/20/10 Copyright © 2010 Soyka & Company.

and Validated by IW Financial. Electric. Inc. Collated. Reviewed. Publicly Available –  Collected. LLC 7 .Indicia of Effective Carbon Management Approaches •  Study Population –  Russell 1000 –  Utility Sector •  Diversified. 5/20/10 Copyright © 2010 Soyka & Company. and Gas Utility Industries •  Data –  Disclosed by Firms.

0% 10.0% 25.0% 0.Review and Analysis of Evidence The Big Picture-Total Scores 30.0% 20.0% 5.5-10 Firms with Score of Zero 8 5/20/10 Copyright © 2010 Soyka & Company.0% 15.0% Firms with Score >70 Firms with Score 60-70 Firms with Score 50-60 Firms with Score 40-50 Firms with Score 30-40 Electric & Gas Utiliities Firms with Score 20-30 Firms with Score 10-20 All Russell 1000 Firms Firms with Score 0. LLC .

9 Score Median 10.2 Score & Gas Utilities Median 27.8 0 3.5 Copyright © 2010 Soyka & Company.4 5.5 1.3 6 2.4 5.6 1 1.7 2.0 6.6 8.0 3.2 Score PolicyPresence 4.5 3.0 9 Governance 2. LLC .7 3.5 2.7 0 Average Electric 29.9 2.0 2.0 Score 5/20/10 4.0 5.Review and Analysis of Evidence Major Element Sub-Scores of "Typical" Company Environmental Policy Content Infrastructure / Systems ResultsCompliance & Emissions 1.3 0 ResultsResource Use Disclosure/ Accessibility 1.1 1.1 0 Total Score All Russell 1000 Average 16.

Review and Analysis of Evidence Utility Sector-Environmental Governance and Policy Strength Overall Status Management Element Number of Utility Firms with Element Environmental Policy Presence Policy applies to all operations Environmental policy is global in scope Mixed Company discloses environmental improvement goals Status/ Supplemental Position Statement on climate change Readiness Policy/Statement addresses energy conservation Policy/Statement addresses greenhouse gases Board of Directors is specifically responsible for the Weaknesses environmental policy Company has a senior level company officer responsible for the implementation of the environmental policy Strengths 5/20/10 57 44 35 34 33 30 16 4 4 Copyright © 2010 Soyka & Company. LLC 10 .

LLC 11 .3% 15.2% 33.1% 21.2% 9.6% 8 3 7 11 5 11 10 24.3% Commitments Strategy 5/20/10 Copyright © 2010 Soyka & Company.Review and Analysis of Evidence Utility Sector Climate Change Position Statement Attributes N=33 Category Public Policy Position/ Attribute Public Policy Preferences Supports Cap & Trade Legislation/ Regulation Supports Tax or Other Legislation GHG Emission Measurement & Reporting Emission Reductions Use of Offsets & Other Mitigation Strategies Support Renewables Development Demand-Side Management Number of Percentage Firms of Firms 21 63.2% 33.3% 30.

LLC 12 .7% 24 13 6 4 39.6% 5/20/10 Copyright © 2010 Soyka & Company.3% 9.8% 6.3% 21.Review and Analysis of Evidence Utility Sector Infrastructure/Systems Strength N=61 Infrastructure Element The company discloses one or more environmental goals The company disclose the presence of emissions reductions programs The company operates an EMS certified and/or attested to ISO 14001 Incentives are provided to employees for meeting company energy conservation goals The company discloses the amount of total investment in energy conservation programs Number of Percentage Firms of Firms 34 55.

9% 13 Copyright © 2010 Soyka & Company. LLC .6% 8.9% 6.5% 45.3% 49.2% 11.2% 27.9% 4.Review and Analysis of Evidence Utility Sector GHG Emissions Disclosure N=61 Measures Total Direct Total Indirect Normalized Direct and Indirect Total Direct and Indirect Total Direct Plus Normalized Total Indirect Plus Normalized All Four No GHG Disclosure 5/20/10 Number Percentage of Firms of Firms 13 30 17 3 4 5 7 28 21.

Review and Analysis of Evidence Disclosed Utility Sector Energy Use and Conservation Activities N=61 Measures Number of Firms Percent of Firms Energy Conservation Programs Total Energy Use Cost of Energy Use Total investment in energy conservation programs Total amount of energy conserved Associated total savings or profits Reported Use of Employee Incentives Energy Cost plus Employee Incentives Energy Cost plus Amount Invested Energy Cost plus Energy Conserved Amount Invested plus Energy Conserved Employee Incentives plus Energy Conserved Any two of the four Any three of the four All four Copyright © 2010 Soyka & Company.8% 4.3% 4.6% 8.6% 14 5/20/10 .9% 14.9% 6.8% 9.6% 3.0% 9.4% 42. LLC 21 26 4 5 0 6 6 3 4 2 3 9 4 1 34.8% 6.2% 0.6% 6.6% 1.

and results 5/20/10 Copyright © 2010 Soyka & Company. LLC 15 .Conclusions and Discussion •  Electric and gas utilities will need to actively manage carbon emissions (fossil fuel combustion) –  Possible carbon constraints –  Growing regulatory and stakeholder demands •  Contemporary environmental/sustainability management practices offer useful framework •  Utility sector stronger than most at level of typical firm •  But. resources invested. many areas for improvement –  Coherence of systems and other infrastructure –  Nature of conservation/reduction program characteristics.