Risky Business

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THE ENVIRONMENTAL LIABILITY RANKINGS: PHASE I

The initial focus of our risk rankings is electric utilities, which account for about 90 percent of U.S. electricity sales and a still higher fraction of generation-based greenhouse gas emissions. Independent generators have been mounting a competitive challenge to utilities over the past decade, but their current market share is less than 11 percent and only about 16 percent of their total production is coal-fueled, compared to more than 50 percent for all U.S. generation (the independents' renewable-energy generation contribution, by contrast, is more than double the utility average).^[15] For these reasons, the utility industry itself accounts for most of the generation sector's unrealized liability for carbon-dioxide controls.^[16]

As a benchmark for power plant owners' exposure to risks from emissions, we used the ratio of electric revenues to tons of carbon dioxide released by electric generation. The rankings draw on three main data sources: information from the Environmental Protection Agency (EPA) about 1995 carbon dioxide emissions from individual power plant units; information from the Energy Information Administration (EIA) about utility ownership of these units; and information from the Federal Energy Regulatory Commission (FERC) about utility revenues. For utilities that sell both electricity and natural gas, we used only electric revenues.

Our initial liability rankings (along with a methodological appendix) are attached to the body of this report.^[17] They appear in two tables; the first lists the 60 utility generation owners with 1995 revenues exceeding $1 billion, while the second includes many smaller suppliers as well.^[18] The lowest-risk institution on both lists is the nonprofit Bonneville Power Administration, which is the only major U.S. generation marketer whose power plants emit no carbon dioxide (BPA relies on hydropower for most of its sales, and also markets output from a nuclear power plant). Among the other larger suppliers, exposure ratios for the least risky investor-owned utility (Pacific Gas & Electric) and the most exposed (PSI Energy, Inc.) vary by a factor of more than 25. In other words, per dollar of operating revenue, PSI-owned plants emitted more than 25 times as much carbon dioxide as PG&E-owned plants in 1995. Viewed another way, higher-risk enterprises like PSI, Ohio Power, Pacificorp and TVA have more than ten times the financial vulnerability to carbon-dioxide regulations of BPA, PG&E, Connecticut Light and Power, Boston Edison, San Diego Gas & Electric, the New York Power Authority, and Consolidated Edison.

Some may contend that the rankings reward high-cost electricity producers by letting them spread emissions over a larger revenue base. The short answer is that some of the highest ranking suppliers on our list are well known for their low electricity rates (e.g., BPA and the New York Power Authority); in addition, the 10-1 and greater disparities in emissions per dollar of revenues far exceed any disparities in electricity prices among the nation's utilities. It is no accident, finally, that the highest ranking utilities include a disproportionate share of the industry leaders in energy-efficiency and renewable energy investment. The good news for the higher-risk suppliers is that much can be done to improve their position, as Chapter 6 explains.

Notes

15. See Energy Information Administration, Annual Energy Outlook 1996, DOE/EIA-0383(96) (January 1996) (data for 1994); Ross Kerber, Independent Electric Producers Losing Power Struggle, Wall Street Journal, August 7, 1996, p. B4.

16. This may change if, as some predict, industry restructuring motivates today's integrated utilities to sell off all or part of their generation assets. Future versions of these rankings will take any such asset transfers into account.

17. For investor-owned utilities, we included all companies who reported at least $100 million in annual electric revenues and one billion kilowatt-hours of sales from company-owned generation. For publicly-owned utilities, we used the same generation criterion but imposed a higher dollar cut-off of $500 million in annual revenues (costs of gathering reliable data were substantially higher for this sector). Combined kilowatt-hour production by all these utilities' generators in 1995 accounted for more than 85 percent of the nation's total electric utility net generation for that year, as reported in Energy Information Administration, Monthly Energy Review, p. 95 (July 1996).

18. Technically BPA does not "own" the generation it markets, most of which is produced at hydropower facilities operated by sister federal agencies.