Energy (Utilities) Sustainability Report

June 18, 2012 Staff 4-min. read

Key Sustainability Issues in the Energy Industry

Reliance on coal (especially on the east coast)
Limited suppliers
Expense of constructing new Nuclear Plants
Issues with current plants – Florida’s Crystal River

Nuclear Plant rate case issues

Methodology and Rating System

In evaluating the Fortune 500 list, we found that there are 34 companies out of which 10 have already been ranked. For the purpose of this assignment the next 3 suitable companies were chosen.

The rankings are based on the following criteria:

Spend management
Strategic sourcing
Category management
Supplier relationship management
Supply chain management
Labor and human rights evaluation

Sustainability

Each of these above criteria has an evaluation framework of its own. For example, sustainability framework consists of the following parameters:

1. Policy

a. Code of conduct
b. Contracts
c. Training programs

2. Reporting

a. Reports
b. Lawsuits

3. Audit

a. Evaluation
b. Tracking mechanisms
c. Supplier enforcements
d. Second tier suppliers

*4. Miscellaneous *

a. Memberships
b. Disclosures

Each category and sub-category has a scoring grid with 1 (ad-hoc) being the worst and 5 (optimized) being the best.

Scoring Grid

We researched materials in the library database and company information and rated their performance with respect to the above grid. This gave us a basic score for the different parameters. The average score of the above parameters gave us the final scores under each category (SRM, SCM, etc).

List of Company Ratings

Companies which have been evaluated are listed from best to worst according to the scoring grid as follows:

Exelon Corp.
PG&E Corp.
Dominion Resources
Consolidated Edison, Inc
Duke Energy Corp.
Southern Company
Edison international
Sempra Energy
Xcel Energy Inc
Entergy Corp.
Progress Energy, Inc.
PPL

American Electric Power

Best Practices

Edison International

Partnership guidelines – Implemented an Enterprise Resource Planning (ERP) system that utilizes SAP software.

Supplier Diversity Program – require prime suppliers to provide Tier 2 (subcontracting) DBE spend.

Dominion Resources

Strategic sourcing – Enterprise sourcing, Exploration & Production, Gas delivery & transmission, Power generation.

Spend management and Category management.

PPL

Tracking, Reporting and Improving Environmental Impacts
Diversity and sustainability in suppliers

Spend management and Category management.

Common Gaps, Opportunities, and Industry Recommendations

The electric utility industry lags behind other industries in adopting and managing sustainable supply chain practices. Leaders in the industry, however, formed The Electric Utility Industry Sustainable Supply Chain Alliance with a mission “to promote environmental stewardship and provide value to customers and shareholders. Focusing on non-fuel suppliers, the Alliance’s goal is to work with industry suppliers and other interested parties to improve environmental performance and advance sustainable business practices.” While this is an important first step and a worthwhile organization, by addressing only environmental impacts of supply chain activities, it falls short in addressing all areas of creating a sustainable supply chain.

AEP is an example of a utility with the right policies and procedures in place to thoroughly evaluate and improve their activities and those of their supply chain in a sustainable manner. AEP has completed an annual report according to the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines Version 3.0 (G3) and meet the requirements of Application Level A. This report includes:

Profile
GRI Content Index
Governance, Commitments, & Engagement
Economic Performance Indicators
Environmental Performance Indicators
Labor and Work Performance
Human Rights
Society
Product Responsibility

Electric Utility Sector Supplement Index

AEP has set a standard with this report which all entities in the industry should strive to emulate. Of particular note is their evaluation and reporting on labor and human rights concerns. In these often neglected aspects of sustainability, AEP gauges the likelihood and impact of health and safety issues as well as worker’s right to strike and impact of a walkout. While they may not have all the appropriate policies and procedures to adequately deal with these issues, their commitment to continually improve is reflected in this publicly available report.