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Sempra, Xcel Lead Utility Sustainability Index

Sempra, Xcel Energy, PG&E, Edison International and Avista top a new sustainability ranking and set of stock indices for U.S. utilities, compiled by Target Rock Advisors.

The advisory group says this is the first sustainability index focused exclusively on publicly-traded utilities in the U.S.

The main index, called the Target Rock High Sustainability Index, comprises 15 “high performance” domestic energy utilities that score highly for sustainable operations. Their scores are based on their performance related to environment, economy and society.

Rounding out the top 15 are Pinnacle West Capital, Southern Company, American Electric Power, Entergy, Duke Energy, Unitil, Progress Energy, Idacorp, Wisconsin Energy and NextEra.

As a group, the stocks of the utilities in the index out-performed both utility-specific sector indexes and broader market indices, such as the Dow Jones Industrial Average and the S&P 500, for the ten-year period ending December 31, 2011, according to Target Rock.

Overall the advisory group has published ten sustainability indices for the utility sector. In addition to the main index, there are three “flagship” indices relating to high, medium and low scores on sustainability; three based on high, medium and low scores on combined environmental, social and governance dimensions; and one index each ranking the top 15 economic, top 15 environmental and top 15 social performers.

On the environmental dimension, the top companies are Unitil, PG&E, Avista, Idacorp, Xcel, NextEra, Edison International, Public Service Enterprise Group, NV Energy, Sempra, Allete, Teco Energy, Northeast Utilities, Duke Energy and Pinnacle West Capital.

Chief executive Richard Rudden says investment in sustainable utilities makes sense for many investors. Pension funds and older individuals are seeking less volatile, longer-term returns with moderate potential for price gains. But he said the markets have lacked an effective measure of utilities’ sustainability performance.

Assets under management by socially responsible investment (SRI) funds could reach $9 trillion in the U.S. alone by 2015, Target Rock says.  According to the company, investor-owned public utilities are an under-appreciated asset class, and have a ripe potential funding source in SRI funds. Utilities are expected to need $2 trillion in capital by 2030, the advisors said.

Target Rock co-founder and partner Kyle Rudden said the lack of sustainable utility index has been surprising, given how complex the utility segment is and how different it is from other sectors commonly found in sustainability indices.

Target Rock will be releasing additional rankings and indexes in the next few months.

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3 thoughts on “Sempra, Xcel Lead Utility Sustainability Index

  1. I’m not sure what the formula was, but Duke is still building coal and has thousands of MWs of nukes in the pipeline, just like its acquisition target, Progress. In contrast, Progress has no renewables pipeline. While Edison is doing great stuff in California because of a fat rate base, they operate the dirtiest power plant in the country (Homer City) and coal plants in the two densest neighborhoods in the city (Fisk & Crawford). Seems like Target Rock might want to rethink some of these rankings.

  2. Mike and Rick,
    Thanks for your thoughts and help on this. To be clear, we do provide coal with a low score for that part of the analysis (and we score renewables highly). We also have a positive outlook on most nuclear, which we understand is controversial. Another important consideration in our environmental scoring is the success that a company has with customer-facing energy conservation and demand side management, since this is where the lowest hanging green fruit is. We weight energy efficiency, conservation and DSM heavily.
    In the grand scheme of things, environmental considerations are weighted at 1/3, as are the other two triple bottom line categories of sustainability – economics and social/governance. The bottom line is that sustainability is about many utility behaviors and operating results, not just environmental. Some not-so-good behaviors in some areas can be off set in our scoring process by very good behaviors elsewhere.
    Thanks again, and please don’t hesitate to visit our site and ask questions or offer suggestions. We are truly seeking stakeholder collaboration and all inputs are welcome, good, bad or indifferent. Richard Rudden, http://www.targetrockadvisors.com

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