Planet Relations

The U.S. electric power industry withdraws an estimated 136 billion gallons of freshwater per day for generating and then cooling the steam that drives electric turbines. That’s roughly 41 percent of the country’s total withdrawals according to the U.S. Geological Survey.

Recent guidance from the U.S. Securities and Exchange Commission indicating that “changes in the availability or quality of water…can have material effects on companies,” and therefore must be disclosed, points to a future where the electric power industry will be forced to more fully disclose their water risks, which appear significant.

A new report from Ceres, a national coalition of investors, environmental groups, and other public interest organizations, provides a comprehensive assessment and ranking of water disclosure practices of 100 publicly-traded companies. The report examines eight key sectors exposed to water related risks:  beverage, chemicals, electric power, food, homebuilding, mining, oil and gas, and semiconductors.

Murky Waters: Corporate Reporting on Water Risk was issued in February 2010 and is available for download from the Ceres website. For the electric power industry, study authors highlight significant physical, regulatory, and litigation risks related to water.

• Physical Risks: water scarcity, unpredictability of supply, amount/timing of flows for hydropower, and increased demand for carbon capture and storage.

• Regulatory Risks: cooling water discharge temperature controls, denial of construction permits based on water availability, and wastewater discharge standards.

• Litigation Risks: lawsuits over water withdrawals or inter-state water rights.

Ceres, with data support from Bloomberg and analytical support from UBS Limited, considered five key categories of disclosure: water accounting, risk assessment, direct operations, supply chain, and stakeholder engagement. Thirteen U.S.-based electric power companies were chosen on the basis of the size and water intensity of their generation assets. Companies included:

• AES Corporation
• American Electric Power
• Constellation Energy
• Dominion Resources
• Duke Energy
• Entergy
• Exelon
• Florida Power & Light Group
• NRG Energy
• PG&E
• Pinnacle West/APS
• Southern Company
• Xcel Energy

Findings

The electric power sector showed weak water risk disclosure overall, with an average score of 19 out of 100. Pinnacle West/APS, an Arizona-based utility, achieved the highest level of disclosure in the sector with 38 points; Florida Power & Light  provided the most limited disclosure, receiving eight points.

1. Disclosure of Water Accounting Fewer than half (six out of 13) of the electric power companies reviewed provide data on water withdrawals.

2. Disclosure of Risk Assessment With the exception of NRG Energy, all the electric power companies surveyed disclose some level of physical risk related to water scarcity. All the companies report their exposure to water-related regulatory risks.

3. Disclosure of Direct Operations The electric power companies provide limited disclosure on water-related management systems and policies. Seven of the 13 companies report actions taken to reduce water withdrawals, with PG&E and Southern Company providing the most detailed disclosure. None of the companies disclose quantified targets to reduce contaminants in wastewater discharged from power plants.

4. Disclosure of Supply Chain Only one company – Entergy – provides information on collaboration with its non-fuel suppliers on water management. None of the companies disclose efforts to engage or assess fuel suppliers on water impacts or risks.

5. Disclosure of Stakeholder Engagement Eight out of the 13 electric power companies reviewed report engaging with stakeholders on water management.

The report concludes with several recommendations to the electric power sector:

• Better inclusion of water risks in financial filings
• More detailed risk assessments
• Water accounting data that puts performance in context
• Disclosure of management strategies and systems
• Setting and disclosing reduction targets
• Addressing water risks in the supply chain
• Engaging critical stakeholders
• Seizing opportunities to develop water-related product strategies

While carbon emissions have dominated the environmental disclosures in the recent past, water use, availability, and associated risks are likely to quickly gain center stage.