Q1-2017: HIP Impact-Rated Electric Utilities & Power Districts

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SUMMARY: The 2017 HIP (Human Impact + Profit) Ratings for the electric utility sector have expanded to include 2,270 U.S. electric utilities, covering 99.5% of electric revenue sales across the nation. More than 600 utilities produce power, whereas nearly all utilities purchase power to fulfill demand. Of power-generating utilities, 120 (or 20%) are 100% free of fossil and associated emissions – though frequently small utilities (e.g. the largest pure-clean-energy utilities include Nevada Irrigation District, and L.A. Dept. of Water and Power). However, other utilities do produce clean power; more than 6% of non-hydro power, and 13% of all power including hydro, is generated cleanly by US utilities overall.

METHODOLOGY UPDATE: In addition to dramatically expanding our coverage nationally, the updated HIP Ratings now incorporate new impact indicators across the HIP Pillars of Health, Wealth, Earth and Trust. All previous metrics to assess utilities – such as low-carbon power mix and electric reliability – are still evaluated. Plus, this 2017 update adds new metrics – including energy efficiency investments per revenue, coal ash management practices, and smart meter installations – for indicators of risk reduction via increased environmental and social impacts. In total, 14 key metric scores are synthesized from over 100 individual data points per utility. Overall, HIP’s electric utility ratings are unmatched in scope and detail of analytics to rate electric utility municipal bonds.

 

METRIC PROFILE: Going deeper into the HIP metrics, air pollution emissions associated with power sourcing is a key indicator for regulatory risk exposure and clean-energy impact. HIP’s air emission score is based on quantitative performance metrics in reducing air pollutants, namely NOX, SO2, CH4, and N2O, in generated and purchased power. Lower rates of air emissions generally result in a higher HIP Rating as seen in Figure 1, but there can be significant variance along the trend line due to other key performance indicators. For example, Alaska Electric & Energy Coop has an above average air emission performance (53 score out of 100), but its HIP Rating lags in the bottom 10% due to lacking performance, including few energy efficiency investments, few smart meters installations, and a lack of establishing dynamic pricing models. Thus, while reducing air pollution is an important impact, additional factors are evaluated to determine overall leaders and laggards.

 

STATE COMPARISONS: A state-based geographic analysis of electric utility scores finds three impact trends. First, electric utilities averaged across the nation, weighted by total energy produced and sold, have an absolute HIP Rating of 43 out of 100. Essentially, the sector as a whole is “dirty” or “net negative.” HIP Ratings above 50 identify “net positive” issuers – 367 utilities, or 16% of the total universe. The US electric power industry lags in transitioning from carbon intensive to clean energy sources; also, many are not aggressively implementing energy efficiency technologies. State-based HIP electric utility scores give further insight into regional trends: western and north-east states have more clean and renewable power mixes, and thus tend to have better HIP Ratings than the mid-west and southern regions. There are also key differences that are insightful to note. For example, Oregon has a relatively well performing state power mix (weighted average HIP Rating of 61), similar to the surrounding states of California, Washington, Idaho; but utilities in Oregon also underperform in key areas, such as energy efficiency and smart metering availability. On the flip side, Iowa (a weighted-average HIP Rating of 47) outperforms neighboring states, due to higher relative scores in energy efficiency, reliability and lower compliance expenses. HIP Ratings can be a useful tool to identify muni-bond opportunities for higher impact, which may also have lower future risk, in the US utility sector.

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