Energy Policy Issues and the 2016 Presidential Race

election-2016

This year’s two mainstream presidential candidates are divided on nearly every issue, energy being one of them.  In one case, there could be significant changes to the focus of the nation’s energy policies and research.  And in the other case, the U.S. could see many current policies continued and expanded and little change to the administration’s core principals related to energy.  There are five categories that energy related commentary from Hillary Clinton and Donald Trump tend to encompass.

Coal

It’s been said that Trump will have a pro-coal policy.  He has committed to reviewing all anti-coal regulations and has vowed to remove the moratorium on new coal leases on federal land.  Meanwhile, Clinton is determined to regulate fossil fuels by phasing out their subsidies and eventually eliminate their use altogether.  Trump claims that Clinton’s policies will put coal miners out of work but she has addressed this with a plant to invest $300 million in job creation in communities who current depend heavily on the coal industry.

Natural Gas

Clinton has referred to natural gas as a bridge fuel, implying we should only be relying on it temporarily for the bulk of our energy needs while we develop and expand renewable energy options.  She has not indicated, however, the length of the bridge.  Her policies could limit natural gas production as she has shown opposition to hydraulic fracturing and building new pipelines.  Trump has promised growth to the natural gas industry just as he has to coal.  However, considering they are each other’s closest competitors, it’s hard to see how both could strengthen simultaneously.

Renewable Energy

Renewable energy is not a focus of Trump’s campaign one way or the other, but he has been critical of wind power’s impact on wildlife.  This topic comes up a lot with Clinton, though.  She wants to invest significantly in renewable energy development including installation of 500 million solar panels in the U.S. in her first term and increase tax credits for renewable energy sources.

Global Warming

Clinton’s position on climate change tracks closely with that of President Obama.  She supports the Clean Power Plan and wants the U.S. to continue to act as a leader in fighting climate change.  Although he denied it in the second presidential debate, Trump was credited with saying that global warming is a conspiracy put forth by China.  Today, he acknowledges its existence but does not agree with the position that it is man-made.  He wants to roll back regulations meant to protect the environment and end both the Clean Power Plan and the Climate Action Plan.

International Perspective

Trump is firm on his stance for United States energy independence, but has not given details on what would become of the international energy trading that already takes place today.  On the other hand, Clinton hopes to modernize the nation’s electric grid and in the third presidential debate said she wants that grid to cross international borders.  She emphasized the importance of trading energy with neighbors of the U.S. but at the same time does not want the country dependent upon the Middle East to meet energy needs.

Capacity Cost in the American Midcontinent

Author: Carl Doten, Account Manager, U.S. Energy Services

The 4th Midcontinent Independent System Operator (MISO) capacity auction was held earlier this month and the results of the auction have now been published (MISO Resource Adequacy Auction Results). The recently published prices offer insight into both expected energy costs for the coming delivery year of June 1, 2016 through May 31, 2017, and trends within the capacity supply/demand balance of each respective zone.

miso-territoryA map of MISO’s territory by zone is shown to the right. Electric consumers located in any of these zones, are likely to be impacted by the auction results either through potential cost changes in base rates in fully regulated service territories or cost changes in the capacity line item component in deregulated service territories.

The extent to which a consumer is impacted by the auction depends on a number of factors including:

  1. Which zone a consumer is located in (unit cost)
  2. Assigned capacity requirement (kW units)
  3. Energy contract structure (exposure)

The auction results (shown in $/Megawatt Day) by zone are shown in the table below along with the results of prior years.

auction-results-table

A review of the results with an understanding of the wider context prompts a few observations:

  1. All regions will be adequately supplied with capacity for the coming delivery year.
  2. Six of ten zones within the MISO will see higher capacity prices, while Zone 4 will find welcome relief from the prices of the last delivery year.
  3. The results indicate a shrinking in the available pool of capacity offerings. Most notable was the approximate 2,000 MW of capacity at the price taker point (bid in around $0/MW-day), and 3,000 MW of capacity this last year at the $160/MW-day price point. These losses represent approximately 5% of the bid capacity within the region.
  4. Regional capacity varied only slightly from what was expected, with much of the differential attributed to Reciprocating Internal Combustion Engine (RICE) regulations causing early retirements.

Finally, it should be acknowledged that within the MISO territory, the price set by the auction is only one approach to setting the cost to end users for the capacity component of pricing, and therefore should be looked at more as a price trend indicator than a specific unit cost.

From a higher level, the variability of pricing year over year, and from zone to zone provides a reasonable defense for the efforts that are underway to revise the capacity auction framework in MISO zones that rely on competitive markets to satisfy capacity needs (currently limited to Zone 4 as proposed).  The proposed shift to an annual auction covering the coming 3 delivery years (similar to PJM) would allow end users to better forecast costs, and would allow generators to finance and plan their generation resources based on a longer term view.

Health Care Sustainability

Source: U.S. National Library of Medicine

Source: U.S. National Library of Medicine

On July 31 the Sustainability Accounting Standards Board (SASB) released sustainability accounting standards for the health care industry; their first in a set of ten planned industry-specific standards.  SASB is a non-profit founded in 2011 to develop standards for publicly-listed companies to disclose material sustainability issues in Securities and Exchange Commission (SEC) filings.  The health care industry standards are broken down into specific guidance for six sectors: biotechnology, pharmaceuticals, medical supplies and equipment, health care delivery, health care distributors and managed care.  For the third installment in the series on industry-specific sustainability standards we’ll review the standards for health care delivery.

The sustainability accounting standard for the Health Care Delivery sector is comprised of two parts: 1) disclosure guidance and 2) accounting standards on sustainability topics.  The disclosure guidance is the result of a multi-stakeholder process to identify material sustainability topics specific to the health care delivery sector.  The stakeholder group identified eight specific sustainability topics for the health care delivery sector:

  • Quality of Care and Patient Satisfaction
  • Access for Low Income Patients
  • Employee Recruitment, Development, and Retention
  • Pricing and Billing Transparency
  • Energy and Waste Efficiency
  • Climate Change Impacts on Human Health and Infrastructure
  • Fraud and Unnecessary Procedures
  • Patient Privacy and Electronic Health Records

Accounting standards define proposed metrics for companies to use when disclosing sustainability issues.  The goal is to increase the comparability of disclosures across the industry by encouraging the use of standard metrics.  The accounting metrics for the Energy and Waste Efficiency topic include:

HC0301-11

Total annual energy consumed (gigajoules) and percentage renewable

HC0301-12

Total weight of Regulated Medical Waste Generation and total weight by disposition

HC0301-13

Total weight of pharmaceutical waste generation and total weight by disposition. Break down by: (1) hazardous waste and (2) non-hazardous (solid) waste

The description of the Energy and Waste Efficiency topic points out that the Environmental Protection Agency estimates that U.S. hospitals spend $8.8 billion annually on energy; and that improved energy management could lower operating costs and enhance shareholder value.

The SASB standards are different than other reporting standards covered previously, such as the Dairy Industry Stewardship and Sustainability Guide, in that they are inherently integrated reporting standards.  Integrated reporting means that sustainability information is disclosed in the periodic financial disclosures required of public companies by the Securities and Exchange Commission (SEC); not in a separate document such as an annual sustainability report.  The contention here is that sustainability information is material, not just nice to know, and investors should consider it as part of the total mix of information when making investment decisions.

The next sector specific standards planned for release by SASB are for the financial sector.  The full list of the ten sectors that SASB is actively developing standards for are shown below.  Timelines and the status for standard development can be found on the SASB website here.

  • Health Care
  • Financials
  • Technology & Communications
  • Non Renewable Resources
  • Transportation
  • Services
  • Resource Transformation
  • Consumption
  • Renewable Resources & Alternative Energy
  • Infrastructure

Laundry Industry Sustainability

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By Paul Hermans (Own work) CC-BY-SA-3.0-2.5-2.0-1.0 via Wikimedia Commons

 

cg_logo_newThe second in our series of industry specific sustainability standards is the Clean Green Certification developed by the Textile Rental Service Association (TRSA).  The certification, released in February of 2012, was developed to address the specific sustainability issues in the commercial laundry sector.  The Certification covers: water and energy conservation, minimization of environmental impacts through actions such as controlling discharges to sewer systems, and recycling and reuse opportunities.

The Clean Green Certification requires companies to meet minimum water and energy efficiency standards and adopt best management practices (BMPs) that lead to more sustainable operations.  The water and energy efficiency standards are based on the amount of laundry processed annually.

Water Standard Energy Standard Annual Production
2.6 gals/lb 3,000 BTUs/lb > 5 million pounds annually
3.2 gals/lb 3,700 BTUs/lb ≤ 5 million pounds annually

BMPs are divided into two tiers, with more points assigned to Tier 1 BMPs than Tier 2.

Best Management Practice Points
Tier 1
Boiler Heat Recovery or Direct-Fired Hot Water Heater 20
Wastewater Heat Recovery 20
Wastewater Pre-Treatment, Mechanical Solids Removal 20
Wastewater Pre-Treatment, Advanced Treatment Technologies 20
Water Reuse Technology 20
Tier 2
Alternative Energy, Solar or Geothermal 10
Energy Audit (every 3 years) 10
Energy Efficient Lighting and/or Skylights 10
Fleet Vehicle Route Optimization 10
Fleet Vehicles – Alternative Fuels (minimum 15%) 10
Low Temperature Detergents 10
Nonylphenol Ethoxylate (NPE) Free Detergent 10
Preventative Maintenance (boiler or direct-fired hot water heater) 10
Recycling Program 10
Spill Prevention Plan or Slug Discharge Control Plan 10

In order to achieve certification, commercial laundries must meet both the water and energy standards, and implement 100 points of BMPs (60 Tier 1 + 40 Tier 2).  If the laundry can only meet either the water or energy standard, but not both, certification can still be achieved with the adoption of three additional Tier 2 BMPs for a total of 130 BMP points (60 Tier 1 + 70 Tier 2).  The full certification standards can be found here.   The Clean Green Certification also requires a third party review by TRSA to verify compliance with efficiency standards and BMP implementation.  The certification must be renewed every three years.

The TRSA developed the Clean Green Certification to: 1) drive sustainability in the commercial laundry sector, 2) provide laundries a way to demonstrate their commitment to sustainability in a consistent and externally verified manner, and 3) to facilitate customers’ desire to improve the sustainability of their supply chains.  A list of certified laundries can be found here.

Dairy Industry Sustainability

Holstein 2

When one thinks of sustainability frameworks and standardized reporting there are a few big names that dominate the landscape.  The Carbon Disclosure Project is backed by 722 institutional investors that manage $87 trillion in assets who are interested in uncovering and mitigating risk in their portfolios.  The Carbon Disclosure Project recently rebranded to CDP since it now has disclosure mechanisms for both carbon and water.  The other large player is the Global Reporting Initiative (GRI) whose sustainability reporting framework is used by over 5,400 organizations worldwide.   Though these two reporting standards get most of the press there are other standards being developed to address the needs of a specific industry.   The first we’ll highlight here is the Stewardship and Sustainability Guide for U.S. Dairy developed by the Innovation Center for U.S. Dairy.

Development of the Stewardship and Sustainability Guide for U.S. Dairy began in 2011 with the goal of enhancing the sustainability performance of the farmers, processors and other companies in the supply chain that bring dairy products to the consumer.  The Guide is intended to help farmers, processors and manufacturers:

  • Communicate about sustainability
  • Demonstrate progress where it matters most
  • Create long-term economic growth
  • Build consumer trust

The Guide includes indicators for both farmers, processors and manufacturers.  Development of indicators and their relevancy was informed by the GRI reporting standards and covers all aspects of the triple bottom line: environmental, social and economic.  Indicator development was also informed by Life Cycle Analyses conducted by the Innovation Center for U.S. Dairy, which helps to target indicators on those aspects of the farm and dairy industry that have the greatest impact.  For example, over half of the greenhouse gas emissions in the dairy supply chain occur on the farm.  The second largest contributor at over 20% is feed production.  The balance of emissions comes from transport, processing, packaging, retail, and consumers.

The Innovation Center for U.S. Dairy also developed three tools to use in conjunction with the Guide.  The Farm Smart tool helps farmers calculate and manage their environmental footprint.  The Plant Smart tool helps dairy processors and manufacturers improve the efficiency and lessen the impact of their facilities.  The Fleet Smart tool helps improve transportation efficiencies and reduce fuel use in order to reduce environmental impact and create competitive advantage.

Version 1.2 of the Guide is currently out for comment until July 14, 2013.  It is expected that subsequent versions of the Guide will add additional indicators of interest to stakeholder audiences.

Sustainability Reporting Now Common Practice

Value of Reporting CoverNinety-five percent of the 250 largest companies in the world issue sustainability reports according to a report by Boston College Center for Corporate Citizenship and Ernst & Young.  As the link between material business impacts and environmental and social issues becomes clearer corporate sustainability activities are increasingly seen as risk mitigating.  A survey done in conjunction with the report: Value of Sustainability Reporting identified the top four motivations for reporting as:

  • Transparency
  • Competitive advantage
  • Risk management
  • Stakeholder pressure

Stakeholder pressure is increasingly coming from institutions.  The report finds that stock exchanges in 20 countries require or strongly encourage sustainability reporting.  These requirements cover 44% of capital invested in exchanges around the world.

When organizations were queried about the value of sustainability reporting improvement in reputation and public trust were cited as the number one reason.  The three other major values to reporting cited in the survey are shown below.

  • Improved reputation
  • Employee loyalty
  • Improved accuracy of corporate CSR information
  • Helped refine corporate strategy

Beyond these qualitative benefits the report found that the most transparent companies tended to have higher cash flows, and improved share prices.

The report indicates that the Global Reporting Initiative (GRI) framework is the most commonly used.  Of the companies surveyed for the report, two-thirds use the GRI framework.  In 2011, over 2,500 companies reported to the GRI standard or used it as the model for their sustainability report.  The latest version of the GRI standard: G4 was just released, and provides a greater emphasis on helping companies determine and report material impacts.