American utility companies are petri dishes in which you can see how companies exposed to new planetary limits react. Like organisms, some evolve while others draw inward, seeking to hide from the new stimuli.
In some ways, utilities are the perfect industry to study to see how companies react to the business risks posed by climate change They are energy intensive, heavily regulated and demographically vast. They have substantial wealth, touch virtually every business and every American. And, there is a lot of information publicly available. As a result, we can easily draw comparisons.
Yet for all this similarity, publicly owned utilities are responding to the business risks posed by climate change in widely disparate ways.
Some companies are changing their sources of energy, encouraging conservation through technologies like advanced metering infrastructure and managing their carbon emissions intensity. But others are fighting rearguard actions to cling to the status quo. These utilities that are resisting change and continue to rely on coal as a primary power source, lobby at state and federal levels to neuter environmental regulation and file lawsuits against the Clean Power Plan, the centerpiece of the United States' Paris accord commitments to fight climate change.
- Energy Mix: Six utilities - AES, NiSource, DTE Energy, Ameren, CMS Energy and American Electric Power - still use coal as the source of more than 75% of their power. By contrast, PG&E and Sempra have no coal in their energy mix.
- Emissions Intensity: NiSource, NRG Energy, CMS Energy, Xcel Energy, DTE Energy, American Electric Power and AES are the most carbon intensive. PG&E and Exelon are the least.
- Board Expertise: Only Ameren, Exelon and PG&E have a board member with recognizable climate science expertise.
- Political Spending: NRG Energy, FirstEnergy, Southern and AEP are high spenders on elections and lobbying. AES, Consolidated Edison, ONEOK and PPL are low spenders.
The IRRCi/SI2 report is available here.
If the IRRCi/SI2 report provides a detailed picture of the state of the utility industry today, the second noteworthy development may just provide a peek into the future.
On May 25, at the annual general meeting of Southern Company, shareowners will vote on a relatively new type of proxy resolution. The Tri-State Coalition for Responsible Investment, representing a number of institutional investors, is asking Southern to report, without revealing proprietary information, on its strategic plan to align business operations with the International Energy Association's two-degree climate change limit scenario. This is the limit governments agreed to in the historic UN climate treaty last December.
Thanks partially to the efforts of a London-based NGO, Preventable Surprises, business planning based on limiting climate change to two degrees Celsius is gaining some traction. In a notable success, last year BHP Billiton, the mega-cap natural resources company based in Australia, did just that, publishing a well-received two degrees report. But it is a relatively new idea in the US, and the Board of Southern Company is pushing back, asking shareowners to vote against requiring such a report.
While the proxy proposal at Southern probably won't win -- shareowner proposals rarely do and new issues generally fare poorly -- it may just signal the direction that investors, environmental activists and companies seeking to guarantee their future in a carbon-constrained world are going. Even if the resolution loses badly, I suspect we will see many more requests for two-degree business planning in the near future.
So take a look at the IRRCi/SI2 report to understand where utilities are in today's world. And follow what happens to the two degree campaign to help to understand tomorrow's world. Together, the two developments shine a bright light on the utility industry climate change petri dish.