Target Rock Urges New Approach to Utility Sustainability Practices to Benefit Industry, Consumers

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In a paper published in the July issue of the online journal ElectricityPolicy.com. Target Rock Advisors, LLC has suggested that state regulators adopt a more comprehensive and balanced view of sustainability in the U.S. energy utility sector. With as much as $2 trillion needing to be invested in the electric power network over the next several decades, the article argues that the industry should begin establishing standards that explicitly take into account economic, environmental and social factors, a framework also known as the “Triple Bottom Line,” or TBL.

In a paper published in the July issue of the online journal http://www.ElectricityPolicy.com. Target Rock Advisors, LLC has suggested that state regulators adopt a more comprehensive and balanced view of sustainability in the U.S. energy utility sector.

With as much as $2 trillion needing to be invested in the electric power network over the next several decades, the article argues that the industry should begin establishing standards that explicitly take into account economic, environmental and social factors, a framework also known as the “Triple Bottom Line,” or TBL.

The paper, “Sustainable Utility Regulation and Socio-Economic Success,” (a downloadable PDF is available at http://www.electricitypolicy.com/images/pdf/Rudden-Sustainability-7-10-12-final.pdf) authored by Richard Rudden, CEO of Target Rock, discusses sustainability from both conceptual and historic perspectives, and describes a general framework for integrating TBL issues in utility planning. The paper emphasizes that with appropriate sustainability standards and goals in place, utility companies would have strong financial incentives to improve performance, with a number of benefits accruing to customers and the economy.

“The approach is similar to integrated resource planning (IRP), but goes beyond that by focusing on longer-term strategic enterprise issues, which are not generally given much attention outside of rate cases, management audits and M&A proceedings,” said Mr. Rudden, “Even then, the ‘test periods’ considered tend to be in the order of no more than five years. Without assuring the longer-term sustainability of the company, IRPs are worth little more than the gigabytes that comprise them. What we think is needed is an Integrated Sustainability Strategy, as discussed in the paper.”

The paper and earlier research conducted by Target Rock suggest that implementation of comprehensive, integrated and truly TBL-based practices represents a potential win-win for all stakeholders, including customers, shareholders and the economy, through cost reduction, local economic development and employment, lower costs of capital and lower rates. The paper also suggests that the comparative economic analyses included in IRPs should try to account for some of the more significant upstream supply chain costs associated with resource selection– even if only approximately or subjectively.

“Presently, our system of economic regulation and permitting does a fairly good job of considering the indirect and external environmental costs of new fossil generation, for example, but we could improve how we factor in total supply chain externalities, such as the trade and labor practices of the companies that manufacture the generating equipment, or the emissions produced in the transportation of the equipment from the point of production to the plant site,” said Mr. Rudden. “This approach would of course apply uniformly to all technologies, from solar cells and wind turbines to natural gas, coal and nuclear.”

“There’s no question that the development of an Integrated Sustainability Strategy would be a considerable undertaking,” said Mr. Rudden. “In fact, implementation of the concept could be a good number of years away. But the underlying principles and fundamental objectives of sustainable planning and reporting reflected in this approach are being seriously discussed and implemented today at many U.S.-based, global companies, as well as by Non- Governmental Organizations throughout the world. While complex and still evolving, this sort of approach is not purely academic.”

Over one thousand companies representing approximately $32 trillion in financial assets globally have signed on to the U.N.-sponsored Principles of Responsible Investing. PRI obligates the signatories to promote socially responsible investment principles relative to the assets they own or manage. Further, the trend in sustainable and socially responsible investing in the U.S. is accelerating. By one account, total socially responsible assets under management could reach $9 trillion by 2015 and beyond. With utilities and energy companies needing approximately $2 trillion for capital expansion between now and 2035, sustainable and socially responsible investors represent a potentially large source of funds for the sector.

“Our research shows that, as a group, the equities of firms that demonstrate sustainable behavior have outperformed those with lesser sustainability profiles in the long term, and also outperformed the broader market indexes and other established utility indexes. It just seems to us that with some effort and focus, regulators could develop a new generation of sustainability policies that would not only promote energy efficiency and source diversity, but also produce socio-economic benefits that flow to both customers and shareholders,” said Mr. Rudden.

About Target Rock

Target Rock is dedicated to the rigorous study and implementation of sustainability policies and practices within the utility and financial industries. The Company’s mission is to provide data, information, analytical systems and deep sector-specific technical expertise that identifies areas for improved performance and helps utility companies achieve their sustainability objectives with favorable social and economic outcomes. Through its partners and associates, Target Rock has over 250 years of combined experience in sustainability and executive leadership, equities and fixed income analysis, financial management, statistics and econometrics, regulatory policy analysis and management consulting. For more information visit http://www.targetrockadvisors.com.

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