Ethics of Environmental Leadership
Dick Kelly
Chairman, President and CEO
Voices of Experience Series
Daniels College of Business
University of Denver
May 7, 2009
It’s good to be with you this evening to examine the ethics of environmental leadership.
I give speeches all the time about Xcel Energy’s environmental leadership because it’s such an important part of who we are.
But I don’t often get a chance to explain the ethical considerations that go along with it. So I appreciate this opportunity.
I always like to start by providing a snapshot of Xcel Energy in case you’re not familiar with us.
This is our service territory map.
Our headquarters are in Minneapolis, and we operate in 8 states with the 4 operating companies you see represented.
Overall, Xcel Energy serves 3.4 million electricity customers and 1.9 million natural gas customers.
In Colorado, PSCo serves 1.4 million electricity customers and 1.3 million natural gas customers.
Clean Energy Future
For the past few years, we’ve been getting ready for what we call a clean energy future. And we approach it with several factors in mind:
- First of all, we recognize that we make a big impact on the environment, and we work hard to reduce that impact.
- We also think that environmental stewardship is good business and that environmental investments can be attractive.
- Most important, our customers and our policymakers expect us to deliver on that clean energy vision.
I’m going to take a few minutes to describe our efforts because I think our strategy is working well, and I’m proud of our results.
Understanding the scope of our commitment will also put the ethical considerations into perspective.
Renewable Energy Portfolio
I’m proud to tell you that Xcel Energy has the nation’s best portfolio of renewable energy—in part because we have some geographical advantages, but also because we are genuinely committed to that clean energy future.
Today, Xcel Energy is the No. 1 provider of wind energy in the nation, according to the American Wind Energy Association—and we’ve held that No. 1 spot for 4 years in a row. We had almost 3,000 megawatts on our system at the end of 2008. And we are planning to deliver about 7,400 megawatts by 2020.
We are No. 5 in the nation for solar capacity. We operate a solar rebate program for customers called Solar*Rewards that has already resulted in more than 2,000 new solar systems right here in Colorado.
We’ve also placed an 8-megawatt solar facility in operation in the San Luis Valley, and recently reached an agreement to build an additional 17-megawatt solar facility in that same area.
Over the next 5 to 6 years, we have plans to add up to 600 megawatts of concentrating solar power, with storage capacity.
In Wisconsin, we have plans to refurbish an existing plant, making it the largest biomass plant in the Midwest. Depending on approvals, construction should start in 2010 and the plant should be online by 2012. We also are refurbishing and relicensing hydro plants in Wisconsin.
To deliver all of that renewable energy—especially wind power—we are making big investments in transmission lines.
In Minnesota and Colorado, we are working with other energy companies to develop transmission plans to meet regional needs.
The effort is further along in Minnesota, where the approval process is well under way and we’ve identified corridors for some of the new lines.
Just last month, in fact, the Minnesota Public Utilities Commission approved a certificate of need to build three 345-kilovolt lines in the first phase of the project.
We also believe that nuclear power is part of a clean energy future. With that in mind, we’ve secured all of the necessary approvals to relicense one of our nuclear plants and have applied to relicense both units of the other plant.
And we plan to make significant investments to uprate the plants, adding about 235 megawatts of generating capacity.
Obviously, our nuclear plants have no greenhouse gas emissions, which addresses the issue of climate change.
Climate change.
In another climate change effort, we will soon complete a major, billion-dollar emission-reduction project in Minnesota. We converted two coal-fired plants to natural gas facilities and completely refurbished a third coal-fired plant with advanced emission-reduction equipment.
In Colorado, we will bring a new coal unit on line this year, and refurbish two existing units. You might be familiar with Comanche 3. It’s a project we started several years ago after reaching a comprehensive settlement with several prominent environmental groups.
There are a couple of important things to remember about the Comanche 3 project:
- We will more than double the capacity of the entire facility—but we will decrease overall sulfur dioxide and nitrogen oxide emissions from the plant; and
- Bringing the new unit on line enables us to retire older, less-efficient plants.
We’ve proposed a resource plan here in Colorado that reduces system-wide CO2 emissions by 10% over the next few years—even with Comanche 3.
Conservation, of course, is also an effective way to reduce greenhouse gases. We’ve been working with customers for more than 20 years to help them conserve energy. Over that time, they’ve saved in the neighborhood of 3,000 megawatts of electricity. We look at those conservation efforts as the equivalent of 11 or 12 power plants we didn’t have to build.
Several states in our service territory have established ambitious new conservation goals. So despite the fact that we’ve been aggressive in this area over the years, we are ramping it up considerably.
In Colorado, we’d like to reduce electric demand by almost 700 megawatts by 2015—and we’re already seeing good results.
Efficiency Rebate Programs
Since we launched our energy efficiency rebate programs in 2006, our Colorado business customers have saved more than 320 gigawatt-hours of electricity and almost 100 megawatts in peak demand.
That translates into almost $25 million in annual energy savings. Obviously, those efforts really make an impact—not only for the environment, but for the bottom line.
So we’ve made some great strides—but it’s not quite enough to get us to the clean energy future we envision. For that, we are going to have to rely on new technologies. You might have heard about SmartGridCityTM, which is an effort we’ve launched in Boulder.
By the way, if you’re not familiar with the expression “smart grid,” it refers to an electric grid that enables two-way communication with customers and provides real-time information that makes it easier for them to manage their energy use.
SmartGridCity™ brings together all of the smart grid technologies in one pilot project—and it’s going to teach us a lot about what we can accomplish when we have all these technology tools at our disposal.
Also in Colorado, we are working with the National Renewable Energy Lab and others to develop a world-class solar technology acceleration center. It’s going to give us the opportunity to test new solar technologies and eventually deploy them.
In Minnesota, we have a project under way to examine the potential of storing wind power in big batteries. At this point, it’s looking very promising. If we can figure out how to store electricity in a cost-effective way, we’d really be able to boost the value and use of renewable energy.
Compliance Effort
I’ve saved our largest, oldest and most comprehensive environmental effort for last. I’m talking about compliance. And I saved it for last because it’s a good way to kick off our ethics discussion.
First, let me give you a feel for the scope of our compliance effort. I know this is a huge number but we have actually determined that Xcel Energy complies with more than 2 million permits and other environmental regulatory limits.
We’re talking about:
- every rule, regulation and permit from…
- every city, county, state and federal regulatory agency governing…
- every air and water emission you can imagine.
For example, each of our facilities is subject to multiple, overlapping regulations:
- Some are annual limits;
- Some are daily; and
- Some are even hourly.
If we are measuring opacity, which is essentially the clarity of the plume coming out of a stack, the limits are triggered every 6 minutes. A plant with a 6-minute average opacity limit has up to 87,600 chances to violate that limit alone.
Compliance is fundamentally ethical. But it’s obviously not easy with that vast array of regulations.
So we put a lot of energy into measuring and reporting and improving our compliance programs. And when we fail to meet one of our targets, we report that too.
At Xcel Energy, we look at compliance as the foundation of environmental stewardship.
And then we go above and beyond—to environmental leadership—with the efforts I’ve just described:
- Renewable energy;
- Investing in transmission and nuclear power;
- Emission reductions;
- Conservation; and
- New technology
I’ve just given you a lot of information about our responsibility to the environment. Here’s the ethical rub: we have to balance that responsibility with our obligations to customers and shareholders.
Customer Relationship
Let’s talk about our relationship with customers. The utility business is a business like no other because we have what’s called an “obligation to serve.” That means it’s our responsibility to provide energy to every customer class whether they are large or small, whether they can pay for it or not.
And we have to provide that energy on demand. It doesn’t matter if it’s 20 below in North Dakota or 110 in Amarillo. We have to deliver.
For the most part, customers are interested in two things:
- They want reliable energy; and
- They want it at a reasonable cost.
Of course, a lot of customers also want us to be environmentally responsible. But the majority are primarily interested in reliability and cost.
It’s easy to understand why. Businesses—especially manufacturers—absolutely depend on a steady supply of quality electricity. Interruptions cost time and money. Reliability is essential.
Reasonable cost is also a big factor. These are tough times, and customers can’t afford big increases in their energy bills.
Obviously, Xcel Energy makes significant investments in environmental stewardship. But if you’re a customer struggling to pay your electric bill, you might not care that Xcel Energy is the No. 1 provider of wind energy in the nation. You’re not particularly interested in paying for that.
So we have to balance the good we’re doing for the environment against what customers are able to pay.
We also have an obligation to our shareholders. After all, Xcel Energy is also a business—and I make no apologies for working hard to be profitable. Shareholders expect and deserve a fair return, including a growing dividend.
Environmental Leadership
I think we’ve done a good job of making our environmental leadership strategy work for shareholders. Every time we invest in our core business to make environmental improvements, we make that business more valuable for shareholders.>/p>
But even before we make those investments, we work with regulators and legislators to ensure the regulatory rules are in place to enable us to recover our costs and earn a fair return. We owe that to shareholders.
Of course, environmental ethics go far beyond Xcel Energy and its 8-state service territory. On a national level, we have ethical obligations in connection with federal energy policy.
This is an exciting time in Washington. Congress is considering renewable energy standards, climate change legislation, how to strengthen our transmission system and how to deploy smart grid technologies—just for starters. In fact, there is so much going on that it’s mind-boggling. I’ve never seen anything like it.
In many ways, we have the same kind of obligation at the federal level that we do in our service territory. It’s our responsibility to speak for the same constituents. We have to balance the needs of our customers and shareholders with what’s good for the environment.
We have to be actively engaged—and that means really digging into the details. I spoke at an energy conference last month in Washington and described what Xcel Energy was looking for in sound energy policy. Just scratching the surface of what we need gets into all kinds of complicated detail.
And it gets even more complicated when you get a number of utilities together to speak for their constituents. We’re not all starting from the same place and we don’t all operate in the same kind of service territory.
At Xcel Energy, as I mentioned, we have a lot of wind and solar resources. Other utilities don’t. Should they be held to the same renewable energy standards?
These are ethical considerations that require a lot of thought.
In some ways, I think utilities have to be the voice of reason amid a lot of hoopla.
At the same time, we can’t be a drag on the environmental progress that is definitely being made.
I mentioned up front that I give a lot of speeches about environmental leadership. And just about every time I do, I explain Xcel Energy’s commitment to the environment by simply saying, “It’s the right thing to do.” That’s probably the best explanation of our ethical obligation.
I think it’s also illustrated by our new tagline: Responsible By Nature™. We are mindful of our responsibility to the environment, but also to customers, communities and shareholders. That’s the way we’ve always done business and that’s the way we are going to continue.
To wrap this up, I wish I had a dramatic example of a major ethical environmental dilemma in which we chose the high road. But ethical behavior is made up of many small decisions. Things like:
- Reporting a violation;
- Choosing to be completely transparent with every transaction; or
- Clarifying a regulation even when you know it might cost you more.
I like to think we make the right decisions in all of those small ways, and then we make big decisions that get us even closer to that clean energy future.
Thank you.