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Duke Energy Corporation: "Well positioned"? Duly noted

By William D Alessandro on May 16, 2012 at 12:02pm.

Content:

In the introductory letter to stakeholders, CEO Jim Rogers explains why Duke Energy chooses “well positioned” as the title for the company’s current annual financial account as well as for the sustainability report.   The theme has a twist of irony.  The implication: Duke’s story does not measure up just quite yet.  

The inference is correct.  The sustainability report could be made more worthwhile with slightly more willingness on Duke’s part. 

Since taking the helm in 2006, Rogers has transformed Duke into one of the best known (notorious say the critics) power holding companies in the country.   At various times earlier in his career, Rogers was deputy general counsel for enforcement at the Federal Energy Regulation Commission, executive vice president for Enron Gas Pipeline Group, and a partner at a prestigious Washington, DC, law firm.  He even worked as a newspaper reporter at night during college.

Rogers contributes to the campaign fund of Democratic candidates, speaks in favour of the party’s climate mitigation policies, and chairs the committee for President Barack Obama’s 2012 nomination convention in Charlotte.  He is as prominent publicly and in environmental circles as any executive ever gets in the utility industry in the US.

Duke serves 4 million electric customers in North and South Carolina, Indiana, Ohio, and Kentucky.  It also has a half-million gas customers.   The company is on the threshold of becoming the largest electric utility in the US.  Rogers is pushing through a crucial and difficult merger with Progress Energy, Duke’s rival in the Carolinas.

Management elects to discuss five lines of activities believed to make Duke more sustainable:

1) products and services for a carbon-constrained, competitive world;

2) reductions in the company’s environmental footprint;

3) attracting and retaining a quality workforce;

4) building stronger communities; and

5) maintaining financial profitability. 

 Progress towards goals set in each of the five areas is reported at length and also summarised in a colour-coded table. 

For instance, Duke wanted to outperform peers in total shareholder return, and did (Duke racked up a cumulative return of 74.1% vs. 38.7% for the industry over a three-year period).  Green mark.  Duke aims to reduce, or offset, carbon dioxide (CO2 ) emissions 17% from 2005 by 2020.  Their current forecast indicates that the goal will not be met.  Yellow mark.

Along with a clear discussion of the subject, the report contains a table condensing the complicated new (and pending), stringent environmental regulations and how these may impact the company’s fleet.  Environmental performance metrics are presented in three pages of graphs and tables.

The printable version has an abridged index to environmental, social, and governance indicators recommended by the Global Reporting Initiative (GRI) guidelines.  The complete and much better version is only available on the web.

Duke Energy International publishes a separate sustainability report covering their operations in Latin America.

Communication:

Duke’s 37-page sustainability report is a professional job through and through.  Nothing amateurish slips in. 

Seven personal perspectives are spread through the report, each under the heading: “I’m accountable.”  The presentations from the managers are short and direct.  The articles are nothing like the vacuous, feel-good employee stories found in most other reports.  These actually deliver useful information about the way specific sustainability issues are being handled.  That pretty much describes the report as a whole. 

The approach and the language of the report are simple and straightforward: 
• Customers’ rates have gone up and will rise more, and here’s why.  
•  About 25% of the coal we buy in the Carolinas comes from removing the tops of mountains because the seams are too thin to mine any other way.
•  Carbon-free nuclear energy continues to be key to our company’s long-term strategy.  We are firmly committed to retaining the option to build new ones.

The report never raises any doubt about what the company wants to say or creates any confusion by the way it is expressed. 

The printable report differs from the web version.  Additional material related to topics in each section of the PDF are denoted with an icon, but the link is not live.  The web also contains exclusive articles and videos on sustainability.

Credibility:

The report is self-declared at a B level of data disclosure against the GRI criteria.  The information in the report is not assured.

Duke does ask the industry consulting outfit Business for Social Responsibility (BSR) to comment on the report.  The remarks from BSR do not venture any opinions on the accuracy, materiality, or completeness of the information in the report.

Duke suffers some line losses, so to speak, when it comes to judging how conclusive the information is and whether the company is drawing a complete picture.

Duke owns and operates more than 35,000 megawatts of generating capacity, not including wind and solar power, or biomass.  With 1,070 MW of these renewable sources in service at the end of 2011, Duke hopes to scale up to 3,000 MW in 2020.  Nuclear-fuelled and coal-fired sources comprised 88% of the company’s 2011 generation as measured in megawatt hours.

Whether this makes Duke “well positioned” to combat climate change and justifies putting a photo of a colossal wind turbine on the cover of the sustainability report is ripe for debate.

Duke takes heavy flak from both sides of the political spectrum almost on a weekly basis.  Companies are not expected to denigrate themselves by having to rebut every insult hurdled by environmentalists and libertarians alike.  But the pace of the transition to renewable energy, the economic hardships being wrought on ratepayers, and the severity of environmental damage from power plant emissions deserve to be confronted more squarely and more strategically than Duke does here.

A thought comes to mind.  Wouldn’t almost all the sustainability issues faced by a power company be considered “material” for reporting purposes as defined by the US Securities and Exchange Commission?  The answer is 'yes'.  And in fact Duke’s 2011 annual report covers largely the same ground as the sustainability report.  It’s a close call to decide which of the two is more revealing.  Each has its own assets.  The convergence of mandatory and voluntary corporate reporting in this case is an intriguing and provocative development. 

Recommendations:

1. Alert readers in the sustainability report that they should take a close look at the annual report, too.
2. Tell us what you think the sustainability situation is going to be in your service territory 15 years, 20 years, 40 years from now. 
3. Say more about engagement, or the lack of it, with community stakeholders and non-governmental organisations.

William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters.  He also edits Crosslands Bulletin http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.