Duke Energy Misses an Opportunity to Do the Right Thing

60 Minutes aired an investigative segment on Duke Energy and their Dan River coal ash spill. Leslie Stahl did a very good job of asking tough questions, but gave Duke CEO Lynn Good more than enough opportunities to be proactive and change the direction of the company. Good did not embrace the opportunity.

Instead, she blamed industrial practices of the past and called for more studies on how to handle the coal ash problem. In essence, just buying more time for another coal ash disaster to occur. If I were a Duke Energy investor (which I am not), I’d be concerned about this attitude. As CEO, Good has a fiduciary responsibility to reduce the company’s risk, not just increase shareholder value. Her actions (or lack thereof) call into question her handling of shareholder risk. If I’m an insurer, I am having a hard time underwriting the risk posed by these coal ash ponds and probably I’m raising their premiums substantially!

What Good could have done is make a bold statement: Duke Energy is going to be proactive about coal ash and is currently making plans to remove all toxic coal ash from it’s facilities within the next 24 months. In addition, we are announcing an unprecedented investment in renewables and energy efficiency: from solar to wind to geothermal, we intend to put fossil fuels behind us and become a world leader in showing how a company can move forward do the right thing.Instead of creating a company of the future, Good is giving us more of the same: excuses and pollution.

Click here to watch the story

David Crane, CEO of NRG Energy sees things very differently. In a letter to shareholders, Crane sees the need for energy companies to move forward, “There is no Amazon, Apple, Facebook or Google in the American energy industry today. There is no energy company that relates to the American energy consumer by offering a comprehensive or seamless solution to the individual’s energy needs. There is no energy company that connects the consumer with their own energy generating potential. There is no energy company that enables the consumer to make their own energy choices. there is no energy company that empowers the individual wherever they are, whatever they are doing for however long they are doing it.”

This idea of putting the consumer first is important – it is Duke’s consumers who have to deal with the effects of the energy company’s polluting ways. Crane points to future generations who will have to fix the mistakes of this one,“As we forge ahead, I am mindful of the fact that the next generation of Americans – the generation around my soon-to-be adult children – is different from you and I. Somehow, some way, the next generation of Americans became “all in” in their commitment to sustainability, in every sense of the word, including clean energy. With them, it is built into their DNA, not just learned behavior as it is for us.

And make no mistake about our children. They will hold all of us accountable – true believers and climate deniers alike. The day is coming when our children sit us down in our dotage, look us straight in the eye, with an acute sense of betrayal and disappointment in theirs, and whisper to us, “You knew… and you didn’t do anything about it. Why?” And for a long time, our string of excuses has run something like this: “We didn’t have the technology…it would have been ruinously expensive…the government didn’t make us do it…”

And while I do not agree fully with Mr. Crane, especially on the use of nuclear, he is making an effort to take the lead and be a change maker – something we at Krull & Company and our clients can applaud.

This time, CEO Good missed her chance to make positive change.   However, each day provides her a new opportunity to shift Duke Energy away from primitive industrial waste practices.  Let’s hope she seizes the next opportunity to do the right thing.

Click here to read Mr. Crane’s shareholder letter

Thoughts on Low Oil Prices

We’ve seen a precipitous decline in the price of oil over the past several months. Market analysts and economists have been chiming in with their opinions on the effects. Here is ours based on our socially & environmentally responsible strategies…

First and foremost we see low oil prices as a tremendous threat to the environmentally unfriendly practice of fracking and even worse, tar sands. These forms of extraction are already on economic thin ice and low prices may push these companies into financial trouble. Several use low quality (and high interest) debt to fund their operations. An extended period of low oil prices may put them under.

In addition, it makes the Keystone XL pipeline basically moot. If it is economically unfeasible to produce tar sands oil, then the pipeline isn’t needed.

From our environmental perspective, this is all very good. The disaster we see in Alberta tar sands needs to be limited to what they have done so far – no more! Fracking may continue because of the natural gas uses, but again, an extended period of low oil prices will test the market. It may also give scientists more time to gain the evidence needed to limit it’s use.

Because global markets still, for the most part, run on fossil fuels, low oil prices are good for the economy. This may continue to be a driver for growth as transportation and raw material costs should go down. This may drive stock markets to even higher highs. Beware if prices rise, however, causing unexpected higher expenses for businesses.

A negative from our environmentally responsible perspective is that low oil prices may inhibit the growth of alternative fuel vehicles and energy production. Low gas prices makes the premium paid for electric and hybrid vehicles less palatable. Nevertheless, there is continued momentum in these markets, and we don’t see much of a slow-down.

We are especially happy to see that the price of alternative energy generation is basically at par with dirty fossil fuel generation as reported in the New York Times, http://www.nytimes.com/2014/11/24/business/energy-environment/solar-and-wind-energy-start-to-win-on-price-vs-conventional-fuels.html

Overall, we are happy to see low oil prices, despite the potential negative effects on clean energy development. We view the low prices as the effect of global inter-industry competition (OPEC vs North America) resulting in the potential for an industry implosion. Only time will tell.