Electricity Generation

Electric power production is responsible for nearly one third of energy-related carbon emissions in the United States.1 The largest publicly-traded electric utilities remain among the largest sources of carbon emissions in the U.S. economy, and their capital investments in fossil fuel-based electric power infrastructure have the potential to lock in greenhouse gas emissions for decades to come. In addition to curbing a direct source of emissions, the decarbonization of electricity production also enables the decarbonization of other sectors such as transportation and buildings as those sectors electrify.

 
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Target Setting

According to the IPCC, decarbonization of the power sector globally by no later than 2050 is a robust feature of all modeled pathways aligned with limiting warming to 1.5°C.2 A review of these pathways by the Carbon Disclosure Project, on behalf of the Science-based Targets Initiative (SBTI), found that sector emissions must fall between 70-92% between 2020 and 2035, and approach zero by 2040-2045. SBTI does not currently allow for negative emissions, for example from carbon dioxide removal technologies, in assessing science-based targets.3

Investors have made clear that utilities and their boards must make commitments to reduce their emissions to net-zero no later than 2050. In assessing the credibility and robustness of net-zero targets, investors should consider whether a target includes all relevant Scope 1, 2, and 3 emissions company-wide. For utilities, this includes emissions not only from electricity directly generated by assets they own, but also emissions from purchased and resold power, and for combined gas-electric utilities, emissions from customer use of fossil gas. Investors should also take into account whether the utility has plans to eliminate the upstream methane emissions from gas used in power production or by its customers.

Net-zero commitments should also incorporate interim targets and milestones that prioritize accelerated emissions reduction between now and 2030 rather than delaying the hard task of emissions reduction until after that date. Finally, robust net-zero targets should not rely on substantial use of offsets, negative emissions, or technologies that are not yet developed or commercialized to avoid short term greenhouse gas emissions reductions. Any use of such offsets or negative emissions should be clearly disclosed to allow investors to assess the quality and credibility of utilities’ plans.

 

Capital Allocation and Investment

Investors must have confidence that utilities are making the near-term shifts in capital allocation and investment necessary to decarbonize in alignment with a 1.5°C future. According to multiple studies, U.S. power producers must phase out the use of coal generation by 2030 in order to stay on track to limit warming to 1.5°C.4,5,6 Further research indicates that the cost to operate 74% of existing coal generation capacity exceeds the cost to replace it with wind and solar generation. By 2025, 86% of the coal generation capacity will be cheaper to replace. For regulated utilities, these additional costs will be borne by shareholders if utilities are unable to convince regulators to pass on those costs to consumers, creating substantial stranded asset risk for investors.7

With respect to gas generation, substantial expansion of capacity without carbon capture and storage (CCS) is not compatible with limiting warming to 1.5°C. According to the IPCC, in pathways that result in limited to no overshoot and limit the use of carbon removal technologies, fossil gas as a share of primary energy sources must fall 20-25% by 2030.8

One study by researchers at UC Berkeley found that the U.S. electricity grid could reach 90% clean energy nationally with no need for any additional fossil gas generation plants by 2035.9 According to Deloitte, existing gas generation capacity, “accounts for most of the undepreciated value of US fossil fuel capacity,” making it the largest source of potential stranded asset risk to utilities and their investors.10 Any future for gas generation beyond 2050 will only be possible with CCS, a technology that does not fully abate emissions, does not account for upstream methane emissions, and is currently cost-prohibitive.11 Investors should consider whether utilities are proposing substantial expansion of gas generation in assessing the alignment of capital allocation plans with limiting warming to 1.5°C.

Key data sources: 

 

Policy Influence

Utilities must fully align their policy influence activities, including political spending and lobbying activities, with the policy settings required to accelerate sector-wide emissions reduction on a timeline necessary to limit warming to 1.5°C. Utilities must provide full disclosure of all political and lobbying spending to allow investors to assess this alignment. Finally, utilities must ensure the alignment of the policy influence activities of any trade associations or similar entities of which they are members or to which they contribute, or cease membership of such organizations.

 

Companies at which votes AGAINST the Board Chair and/or Lead Independent Director are warranted on the basis of failures to oversee climate performance:

Duke Energy (NYSE:DUK)

Duke is the largest U.S. generator of electricity, the second largest emitter of carbon dioxide and the second largest user of coal to generate electricity among investor-owned U.S. electric utilities.   

Chair/CEO: Lynn Good; Independent Lead Director: Michael G. Browning.

Targets

ALIGNED

- Net-zero by 2050 commitment for electricity production Duke announced a net-zero by 2050 commitment for electricity production in 2019.

NOT ALIGNED

- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: By specifying that its net-zero target is for “emissions from electricity generation” [emphasis added] Duke appears to exclude from its target emissions from purchased electric power and emissions from its customers’ burning of gas in its gas utility business. According to Climate Action 100+, Duke’s net-zero ambition does not cover the most relevant Scope 3 emissions categories for its sector.

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets (FAIL) : Relies heavily on technologies which require further R&D, referred to as “zero-emitting load-following resources (ZELFRs)” for 30% of its regulated electric power generation by 2050.

- Robust interim targets on the pathway to net-zero: Interim target of 50% absolute reduction from power production by 2030 from a 2005 baseline, equivalent to only 1.6% per year between 2019 and 2030.

Capital Allocation

NOT ALIGNED

- Firm plan to phase out coal by 2030: According to a Sierra Club analysis, Duke has committed to retire only 11% of its coal generation by 2030, and will remain one of the largest coal generators among investor-owned electric utilities, with a forecast 47.7 million MWh generated from coal in 2030 based on the typical usage of those assets. According to Climate Action 100+, Duke does not meet the criteria for capital allocation alignment.

- Limited expansion of gas generation capacity: Duke has the largest gas generation expansion plans of any investor-owned utility, with 7,804 MW in planned additional capacity.

Policy Influence

NOT ALIGNED

- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: According to InfluenceMap, “Duke Energy appears to have a largely negative influence on climate change policy in the US, [and] has lobbied against GHG emissions standards and the transition of the US energy mix.” Duke’s Political Action Committee has a history of spending which opposes action on climate change and supports far-right extremists. In the 2018 election cycle, it gave maximum $10,000 donations to 11 Members of Congress, each of whom voted against pro-environmental legislation at least 92% of the time. As of 2017, it was the largest funder of a trade group, UARG, which coordinated utility litigation against toxic pollution controls. In the last three election cycles, it gave more than $500,000 to Members of Congress who voted against certification of the U.S. presidential election results. Despite facing criticism for these donations, Duke in March issued a new political expenditures policy which contains no pledge to end support for anti-democracy politicians or align its policy influence activities with its net-zero commitment. According to Climate Action 100+, Duke does not meet any of the criteria for climate policy engagement alignment.

Southern Company (NYSE:SO)

Among investor-owned U.S. electric utilities, Southern is the fifth largest generator of electricity and the fourth largest user of coal to generate electricity. As of 2018, it depended on fossil fuels to generate 78% of its electricity.

Chair/CEO: Thomas A. Fanning; Lead Independent Director: Steven R. Specker

Targets

ALIGNED
- Net-zero by 2050 commitment for electricity production: Southern Company announced a net-zero by 2050 commitment for electricity production and gas in 2020.

NOT ALIGNED
- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: Does not cover Scope 3 emissions from the burning of gas by customers of its gas distribution business, and excludes or is unclear about the coverage of purchased power. Its operating subsidiaries in Alabama and Georgia have told state officials that they are not taking the company’s net-zero goal into account in their system planning. According to Climate Action 100+, Southern’s net-zero ambition does not cover the most relevant Scope 3 emissions categories for its sector.

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: Projects that burn gas will continue to provide 39% of its nameplate capacity in 2050, with emissions offset by “negative carbon technologies” not yet ready to be deployed at scale.

- Robust interim targets on the pathway to net-zero: Interim target of 50% reduction from power production by 2030, from a 2007 baseline, equivalent to only 0.8% per year between 2019 and 2030.

Capital Allocation

NOT ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, Southern has committed to retire only 7% of its coal generation by 2030. It will continue to be a major user of coal to generate electricity, with a forecast 40.5 million MWh generated from coal in 2030 based on the typical usage of those assets. According to Climate Action 100+, Southern does not meet the criteria for capital allocation alignment.

PARTIALLY ALIGNED
- Limited expansion of gas generation capacity: Southern has plans to add 1,452 MW of additional capacity.

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: According to InfluenceMap, Southern has “actively lobbied against US climate change regulation in key policy areas such as carbon taxation and renewable energy” and “its stance on climate-related regulation and the transition of the energy mix remain largely at odds with IPCC guidance.” Southern has lobbied or litigated against the Clean Power Plan, Mercury and Air Toxics Standards, Cross State Air Pollution Rule, Coal Combustion Residual rules, and the Paris Climate Accord, among others. It was a major secret donor to a trade group, UARG, which coordinated utility litigation against toxic pollution controls. UARG was the subject of a 2019 congressional investigation related to the rollback of Clean Air Act regulations. According to Climate Action 100+, Southern does not meet any of the criteria for climate policy engagement alignment.

First Energy (NYSE:FE)

Scandal-ridden FirstEnergy is the parent company for regulated electric utilities and transmission companies operating in Maryland, New Jersey, Ohio, Pennsylvania and West Virginia. As of 2018, coal accounted for 51% of FirstEnergy’s electric generation capacity. Since a restructuring following the bankruptcy of one of its subsidiaries, FirstEnergy’s electric generation capacity is now 86% coal.

Board Chairman: Donald T. Misheff.

Targets

ALIGNED
Net-zero by 2050 commitment for electricity production: FirstEnergy’s “Strategic Plan” on the firm’s website contains a “pledge to achieve carbon neutrality by 2050.”

NOT ALIGNED
- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: The only decarbonization target FirstEnergy describes in detail is a 62% reduction of Scope 1 emissions by 2045, according to its Climate Change 2020 disclosure filed with CDP, and this limited target is not “science-based.” The company’s plan covers only plants owned by the company, despite the fact that purchased power accounted for 38% of emissions associated with FirstEnergy electric sales, as of 2018. 

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: Not fully disclosed. FirstEnergy’s Strategic Plan says only that, “to achieve carbon neutrality, we will execute our fleet electrification plans, replace aging transmission equipment, [and] implement operational flexibilities at our generating plants.”

PARTIALLY ALIGNED
Robust interim targets on the pathway to net-zero:  Interim target of only 30% reduction from power production by 2030, from a 2019 baseline, equivalent to only 2.7% per year between 2019 and 2030.

Capital Allocation

NOT ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, FirstEnergy has no plan to phase out any coal by 2030, and has a forecast 19.7 million MWh remaining in 2030 based on the typical usage of those assets. The company says it will “thoughtfully transition away from our regulated coal generation fleet by 2050.” According to Climate Action 100+, FirstEnergy does not meet the criteria for capital allocation alignment.

ALIGNED
- Limited expansion of gas generation capacity: No reported gas expansion.

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: FirstEnergy is the target of multiple bribery investigations related to payments which supported a campaign to enact and defend state legislation which included subsidies for two 1950s-era coal plants and rollbacks to Ohio’s energy efficiency and renewable energy standards. It was a major secret donor to a trade group, UARG, which coordinated utility litigation against toxic pollution controls. UARG was the subject of a 2019 congressional investigation related to the rollback of Clean Air Act regulations. According to Climate Action 100+, FirstEnergy does not meet most of the criteria for climate policy engagement alignment.

Berkshire Hathaway Energy (BHE, subsidiary of NYSE:BRK.A)

The company is a subsidiary of Warren Buffett’s Berkshire Hathaway. It is the seventh largest investor-owned U.S. electric utility and the fifth largest producer of carbon dioxide emissions. As of 2018, it relied on coal for more than 44% of electric generation and gas for more than 26%. BHE is also part-owner of several coal mining companies.

Parent Company Berkshire Hathaway Chairman/CEO: Warren E. Buffett; no Lead Independent Director

Targets

NOT ALIGNED
- Net-zero by 2050 commitment for electricity production: BHE is the second largest U.S. investor-owned electric utility (as measured by power generation) to fail to set any carbon reduction targets. According to Climate Action 100+, Berkshire meets none of the criteria for net-zero and greenhouse gas reduction target setting.

- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: Not applicable. 

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: Not applicable.

- Robust interim targets on the pathway to net-zero: No interim targets set.

Capital Allocation

NOT ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, the company has committed to retire only 10% of its coal generation by 2030, with a forecast 42.3 million MWh remaining in 2030 based on the typical usage of those assets. According to Climate Action 100+, Berkshire does not meet the criteria for capital allocation alignment.

PARTIALLY ALIGNED
- Limited expansion of gas generation capacity: BHE has plans to add 1,873 MW of additional capacity.

Policy Influence

NOT ALIGNED
Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: BHE’s regulated utility companies have been criticized for attempting to block adoption of rooftop solar by waging state-level lobbying campaigns in Iowa, Utah (additional sources), and Nevada. 

NextEra Energy (NYSE:NEE)

NextEra relies on gas for 48% of electric generation. It is the third largest investor-owned electric utility in the U.S. measured by power generated.

Chair/CEO: James L. Robo; Lead Independent Director: Incumbent unknown

Targets

NOT ALIGNED
- Net-zero by 2050 commitment for electricity production: No. NextEra is the largest U.S. electric utility, measured by power generation, that has not announced a “net-zero” target. According to Climate Action 100+, NextEra meets none of the criteria for net-zero and long-term greenhouse gas reduction target setting.

- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: Not applicable.

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets : Not applicable.

- Robust interim targets on the pathway to net-zero: The only target in the firm’s latest ESG report is to reduce the firm’s carbon dioxide emissions intensity rate by 67% by 2025, from a 2000 baseline. The company does not report absolute emissions reductions targets.

Capital Allocation

PARTIALLY ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, NextEra has committed to retire only 36% of its coal generation by 2030, with a forecast 4.7 million MWh remaining in 2030 based on the typical usage of those assets. However, the company has indicated it will close its coal generation no later than 2030. According to Climate Action 100+, NextEra does not meet the criteria for capital allocation alignment.

NOT ALIGNED
- Limited expansion of gas generation capacity: NextEra has plans to add 2,112 MW of additional capacity.

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: According to InfluenceMap, NextEra “shows significant areas of misalignment,” including membership in groups with “negative lines on US climate policy,” including EEI, the Business Roundtable, the Community Energy Alliance and the US Chamber of Commerce. According to Climate Action 100+, NextEra does not meet any of the criteria for climate policy engagement alignment, except its disclosure of trade association memberships.

PPL Corp. (NYSE:PPL)

PPL operates electric utilities in Pennsylvania and electric and gas utilities in Kentucky. Its U.S. electric operations are among the nation’s most coal-dependent, relying on coal for 81.6% of electric generation. It has the second highest carbon dioxide emission rate (lb/MWh) among U.S. investor-owned electric utilities. It recently sold its other major asset, an electric utility operating in the U.K., where utilities face a net-zero by 2050 mandate.

; Independent Chair: Craig A. Rogerson; Independent Lead Director: John W. Conway

Targets

NOT ALIGNED
- Net-zero by 2050 commitment for electricity production: PPL has not made a commitment to reduce U.S. emissions to net-zero by 2050, instead announcing a reduction goal of 80% by 2050 from a 2010 base. According to Climate Action 100+, PPL meets none of the criteria for net-zero target setting and its long-term greenhouse gas reduction target is not aligned with a 1.5°C pathway.

- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: Not applicable

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: Not applicable

- Robust interim targets on the pathway to net-zero: Not applicable.

Capital Allocation

NOT ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, PPL has committed to phase out only 3% coal by 2030, and has a forecast 26.2 million MWh remaining in 2030 based on the typical usage of those assets. According to Climate Action 100+, PPL does not meet the criteria for capital allocation alignment.

ALIGNED
- Limited expansion of gas generation capacity: No planned expansion of gas generation.

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: The company has lobbied against GHG standards affecting its U.S. operations, especially in Kentucky. According to Climate Action 100+, PPL does not meet any of the criteria for climate policy engagement alignment, except its disclosure of trade association memberships.

Evergy (NYSE:EVRG)

Evergy operates regulated electric utilities in Kansas and Missouri. It relies on coal for 67% of electric generation, gas for 6%.

Chairman: Mark A. Ruelle 

Targets

NOT ALIGNED
- Net-zero by 2050 commitment for electricity production: Evergy is “targeting an 80% reduction” of carbon dioxide emissions by 2050.

- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: Not applicable

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: Not applicable

- Robust interim targets on the pathway to net-zero: Not applicable

Capital Allocation

NOT ALIGNED
- Firm plan to phase out coal by 2030: The company has no plan to retire any of its coal generation between now and 2030 and has forecast 24.3 million MWh remaining in 2030 based on the typical usage of those assets.

ALIGNED
- Limited expansion of gas generation capacity: The company has no reported plans for increasing gas capacity.  

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: Evergy has not set a net-zero target and as such has not realigned its policy engagement to support such a target.

Entergy (NYSE:ETR)

Entergy relies on coal for 10% of power generated; gas for 41%. It is the sixth largest investor-owned electric utility in the U.S. measured by power generated.

Chairman/CEO: Leo P. Denault; Lead Director: Stuart L. Levenick

Targets

ALIGNED
- Net-zero by 2050 commitment for electricity production: Entergy has committed “to achieve net-zero emissions by 2050” from “our operations.”

NOT ALIGNED
- Net-zero commitment covers all material Scopes and business segments, in particular purchased power, emissions from use of gas by customers, upstream methane emissions: While Entergy’s net-zero target appears to cover its small gas distribution business and the company “anticipates” it will not enter into any power purchase agreements from resources that use coal, its climate scenario planning excludes purchased power which made up approximately 25% of power supplied to customers in 2018, so it is unclear whether the company’s net-zero by 2050 target includes purchased power going forward.

- Limited use of offsets, negative emissions, or unproven or uncommercialized technologies, including CCS, in reaching net-zero targets: The firm’s 2050 “scenario analysis” says its potential for achieving net-zero relies on “emerging technologies” to provide about 75% of generating capacity and “zero-carbon technologies” which include “modern gas assets retrofitted to incorporate emerging technologies” for about 25%.

- Robust interim targets on the pathway to net-zero: Interim 2030 emissions target is “approximately 28 percent below our 2000 baseline.” This is the equivalent of 0.5% per year on a straight-line basis between 2019 and 2030.

Capital Allocation

PARTIALLY ALIGNED
- Firm plan to phase out coal by 2030: According to the Sierra Club, the company has committed to retire 75% of its coal generation by 2030, with a forecast 6.5 million MWh remaining in 2030 based on the typical usage of those assets. However, the company has said it will close its remaining coal generation no later than 2031.

- Limited expansion of gas generation capacity: Entergy plans to add 2,883 MW of additional capacity. Its CEO indicated to investors that this could rise to as much as 4,000MW of new gas.

Policy Influence

NOT ALIGNED
- Alignment of policy influence activities with net-zero target and limiting warming to 1.5°C: Entergy has repeatedly come under fire for deceptive lobbying practices. The company deployed a paid consultant who falsely described himself to stakeholders as a customer, however he was a “covert agent” paid to advance its interests in regulatory proceedings, according to EPI. EPI also reported that Entergy used paid actors to “feign public support”and threatened to sue the city of New Orleans during hearings about a proposed gas plant. 

Companies on watch list with no director vote recommendations in 2021

Utilities and power producers such as Vistra, Xcel, AEP, NRG and WEC with robust interim targets of greater than 60% by 2030,11 or a straight-line equivalent of greater than 3.0% between 2019 and 2030, did not receive adverse recommendations in 2021, however for all these companies, greater alignment between these targets and their coal phaseout and gas investment plans will be necessary in the next year to maintain that status. Similarly, companies such as DTE and Ameren, which have set coal-free dates later than 2030,13 must accelerate their coal closure plans to meet a 2030 deadline consistent with limiting warming to 1.5°C. Finally, companies like Dominion, which has begun divesting from many gas assets and will need to decarbonize rapidly to meet state legislative mandates,14 must set clear interim targets, phase out its coal generation by no later than 2030, and abandon its gas generation expansion plans.