A Comparison of American Electric Power Company Annual Reports from the 1980s to 2017 Concerning Disclosure of Any and All Matters about the Physical Environment or Climate Change

- A Comparison of American Electric Power Company Annual Reports from the 1980s to 2017 Concerning Disclosure of Any and All Matters about the Physical Environment or Climate Change.
- Companies in many nations such as England, Germany, The United States and Vietnam issue public documents in addition to annual reports with the audited annual financial statements.
- Researchers, Investors and others interested in the environmental information of a company typically refer to these documents.
- However, this research chooses to explore what information concerning the physical environment is presented in the required annual reports (with audited financial statements) of five electrical power companies in the United States.
- The annual reports of these companies are examined both in the late 1980s and for the year 2017.
- The conclusion is that the reports form the late 1980s have less information on the physical environment and do not discuss climate change at all.
- The reports from 2017 have relatively more information concerning the physical environment and do occasionally mention climate change.
- We conclude that it is appropriate that companies consider issuing sustainability reports in addition to their annual reports wit financial information given the modest amount of environmental and climate change information current presented in annual reports..
- Keywords: Physical environment, Annual report, Environmental Issues.
- This paper will examine annual reports (and/or the nearly identical SEC 10-Ks) of certain investor owned electric power companies.
- The Securities Exchange Commission on its web site observes the following concerning company annual reports..
- “The annual report to shareholders is a document used by most public companies to disclose corporate information to their shareholders.
- It is usually a state-of-the-company report, including an opening letter from the Chief Executive Officer, financial data, results of operations, market segment information, new product plans, subsidiary activities, and research and development activities on future programs.
- Reporting companies must send annual reports to their shareholders when they hold annual meetings to elect directors.
- The annual report on Form 10-K, which must be filed with the SEC, may contain more detailed information about the company’s financial condition than the annual report and will include the annual financial statements of the company.
- Investor-owned electric companies are subject to extensive government regulation by the Federal Energy Regulatory Commission FERC), and the state utility commissions of each state they operate in.
- This makes the board of directors and the management team of all investor-owned electric power companies exceptionally concerned about what consumers, investors, investment bankers, legislators, the press, and almost everyone thinks about the electric companies conduct and what it thinks about the issues of the day.
- However, in the end the annual report is for investors and potential investors and they always have a continuing focus on profitability and dividends..
- As it happens we choose the 1980s as the start date for accessing investor-owned electric power companies concerns about climate change just because it represented a long enough time that some change might be observed.
- On August 1 “Losing Earth: The Decade We Almost Stopped Climate Change.” By Nathaniel Rich.
- It was published in the New York Times Magazine.
- The article made the case that expert community in Washington did not find a way to implement change, in large part because some scientists in the government and other government leaders were unconvinced things were all that serious for certain, and in any event climate change prevention could be put off for a while anyhow..
- We argue that if we look at the reports form the 1980s we see limited concern with the environment and no mention of climate change at all.
- No notion of Nathaniel Rich’s idea that we knew in the 1980s what the score was.
- Nothing like the guaranteed climate change promised by scientists in the 1980s can be seen anywhere..
- In current (2017) we see climate change featured in the California utilities, but not in all the reports.
- Except in the California-based utilities no urgency is detectable.
- ITEM 1 of 10 (American Electric Power, 1985).
- The Overview on page 1 included what is troubling information for any investor- owned electric power company – a decline in both earnings and the earning per share and dividends per share.
- When mentioning the bad news about a loss on the Zimmer plant, the letter stated “…this chapter is now behind us.”.
- Later in the shareholder letter the subject of acid rain surfaced, and the letter stated the issue of acid rain “…is an environmental, economic and political problem.” Concluding later, “we believe we have an obligation to ensure that our customers are not exposed to unnecessary costs that may not result in environmental improvements.” Unsaid is that AEP is also likely hopeful of not exposing its investors to such costs.
- The shareholder letter also references a position statement of position on page 20 (presumably on the costs of acid rain), but unhappily this page is unreadable..
- Financial Statement Note 1 on page 37 discusses corporate responsibility to pay.
- No mention of climate change concerns exist in the annual report and seemingly the thrust of environmental concerns seem to be in the nature of cost control only..
- ITEM 2 of 10 (American Electric Power, 2017).
- The 2017 Annual Report of American Electric Power (AEP) now has a category labeled.
- “Environmental Issues” that begins on page 14 and continues until the end of page 21.
- The first sentence in the category “Environmental Issues’ on page 14 states “AEP has a substantial capital investment program and is incurring additional operating costs to comply with environmental control requirements.” Costs mentioned include disposal of coal combustion by-products, clean water rules, and water discharge issues..
- On page 19 Climate Change is explicitly mentioned, however the coverage is limited to carbon dioxide rules and proposed regulations and the ongoing challenges in various courts.
- This portion of the document concludes with a brief discussion of the economic and accounting consequences to AEP if it is forced to close some coal-fired generation facilities..
- ITEM 3 of 10 (Commonwealth Edison, 1986).
- On page 1 Commonwealth Edison spent most of the page celebrating its early corporate history in that 1987 was its centennial in that its ancestor corporation, the Chicago Edison Company began in 1887..
- So, it is no surprise that on page 7 the shareholder letter mentions the intensified cost containment program in place..
- Much of the document mentions the challenges faced by the company in getting utility commission approval for approving the costs of new nuclear generation as rate base assets.
- If actual costs of such assets are approved for rate base treatment the company will earn a return on these assets.
- If such approval is denied the company and its investors will suffer an economic loss..
- There was no mention of climate change or the environment except for a sentence on page 11, where company management states, “The construction program, coupled with additional costs imposed by environmental compliance regulations, regulatory delays and difficulties encountered in meeting design and construction schedules, has required the Company to seek large amounts of new capital…”.
- ITEM 4 of 10 (Commonwealth Edison, 2017).
- On page 1 Exelon reveals that Commonwealth Edison is now but a part of a large multi-jurisdictional electric holding company similar in many ways to American Electric Power and The Southern Company.
- On page 22 begins a four-page coverage of Environmental Regulation.
- It is clearly set out that those individuals with primary responsibilities in the environmental area have their performance reviewed annually.
- It is stated that, “The Exelon Board of Directors has delegated to its Generation Oversight committee and the Corporate Governance Committee the authority to oversee Exelon’s compliance with health, environmental and safety laws and regulations and its strategies and efforts to protect and improve the quality of the environment, including Exelon’s internal climate change and sustainability policies and programs….”.
- Under the headline “Global Climate Change,” on page 24 we are told that, “Exelon,.
- ITEM 5 of 10 (Pacific Gas &.
- On page 1 PG&E discussed the challenges it faced during the October 17, 7.1 magnitude earthquake.
- The company noted its efforts were praised by many.
- On page 6 of the report the shareholder concludes with its attempt to use compressed natural gas powered vehicles in order “…help reduce the amount of pollution in California’s skies.”.
- The environment is also covered on page 37, where we learn that concerning the topic.
- “Environmental clean-up matters”, “The Company is currently assessing measures that may need to be taken principally at retired manufactured gas plant sites, to comply with environmental laws and regulations.”.
- The Company frequently mentioned the regulatory approval of its new Diablo Canyon Nuclear Power Plant, and of how (page 4) it is recognized, “as one of the nation’s premier nuclear power plants.” On page 22 on the Balance Sheet we can see its capitalized cost is almost six billion dollars, more than all other electric generating power plants combined.”.
- ITEM 6 of 10 (Pacific Gas &.
- On page iii PG&E discussed the challenges it faces from California wildfires.
- Also, it proudly mentions on page iii that due to PG&E’s leadership in clean energy and corporate responsibility, the company has been honored by its inclusion in the prestigious Dow Jones Sustainability Index..
- The Diablo Canyon Power Plant is mentioned on page iv in first half of the shareholder letter, in that the Company reveals it will close it at the expiration of its current operating license..
- The intent is to replace the Diablo Canyon generation, “with a combination of renewables and energy efficiency.” The shareholder letter concludes with such statements as,.
- “We look forward to decarbonize the transportation sector by providing clean fuels.” So the new Diablo Canyon plant mentioned in the 1989 report is now unloved even though it is now low carbon in that it is nuclear..
- In the 10-K portion of the document, pages 22 – 26 are details of “Environmental Regulation,” including “Air Quality and Climate Change.” Some coverage is provided of conflicts ongoing between the Trump Administration and the State of California..
- On page 27 a long discussion of wildfires reveals the fact that, “If the Utility’s facilities, such as its electric distribution and transmission lines, are determined to be the cause of one or.
- more fires and the doctrine of inverse condemnation applies, the Utility could be liable for property damage, interest, and attorney’s fees without having been found negligent…” This could mean substantial economic damage to PG&E and its investors..
- ITEM 7 of 10 (Southern California Edison, 1985).
- On page 7 Southern California Edison note, that it “uses nine different basic energy resources to generate electricity – more than any other utility in the world.
- The last paragraph on the last page of the report (page 58) the company acknowledges it is subject to many rules and regulations, including those for, “environmental protection.”.
- ITEM 8 of 10 (Southern California Edison, 2017).
- On page 1 in the Letter to Shareholders, Pedro Pizarro, President and Chief Executive Officer of Southern California Edison noted, “Toward the end of 2017 we faced new challenges from massive wildfires statewide…” In the next paragraph on page 1 he continues, “In December, we experienced in our service territory the largest wildfire by acreage ever recorded in California history.” On page 3 the shareholder letter concludes with this short paragraph, “There are challenges ahead, but the solutions are within our reach.
- Maybe caution about climate promises is not the Southern California Edison way, as on page 4, the company boldly states “We are charting a path to help curb climate change and cleanse our air of smog-forming pollutants.
- It’s the reason we are building a grid that delivers more and more carbonfree energy.”.
- Now Southern California Edison has climate change in its sights, but maybe success will be harder than it seems to tell us..
- ITEM 9 of 10 (The Southern Company, 1986).
- On page 9 the Southern Company seems most concerned with operating efficiency as it observes, For the fifth consecutive year, our coal-fired and nuclear units surpassed industry averages for operating availability – the percentage of time units are available for service..
- Revenue generation is also to be celebrated (page 13), “Across our service area, energy sales increased in every major category during 1986 - reflecting the continued growth of the region and an unusually hot summer.
- The Southern Company was celebrating that the Vogtle nuclear power plant (units 1 and 2 were near commercial operation, and that they represented, (page 18) “the Southern electric system’s largest project”..
- ITEM 10 of 10 (The Southern Company, 2017).
- On page 8 the Southern Company seems enchanted with “environmentally unrivaled venues.” This mostly about the Georgia Dome and the Sun Trust park in Atlanta..
- On page 23 the company brags about research money it has donated to help a species recovery of the local bat population..
- Discussing its business activities on page 41, Sothern Management states, “Many factors affect the opportunities, challenges, and risks of the Southern Company system’s electricity and natural gas businesses.
- Our detailed survey of five electric power company annual reports from the late 1980s and 2017 show little information concerning the physical environment in the 1980s and no discussion of climate change in the 1980s.
- We choose electric power companies as their industry is more often involved in discussions of climate change and the physical environment.
- On the other hand, we found relatively more information on the physical environment in 2017 and occasional discussion of climate change..
- We therefore believe that it is valuable that many electric power companies issue sustainability reports or release other documents related to climate change and the physical environment.
- American Electric Power (1985), Annual Report, University of California Haas Business Library..
- American Electric Power (2017), Annual Report, Company website..
- Commonwealth Edison (1986), Annual Report, University of California Haas Business Library..
- Commonwealth Edison (2017), Annual Report, Company website..
- Electric (1989), Annual Report, University of California Haas Business Library..
- Electric (2017), Annual Report, Company website..
- Securities and Exchange Commission (2018), Annual Report, accessed on August 1, 2018.
- Southern California Edison (1985), Annual Report, University of California Haas Business Library..
- Southern California Edison (2017), Annual Report, University of California Haas Business Library..
- The Southern Company (1986), Annual Report, University of California Haas Business Library..
- The Southern Company (2017), Annual Report, Company website.

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