Utilities With Purpose

Abstract

Environmental, social and governance (ESG) reporting has become a mainstay of corporate and investment decision-making, although not without controversy. Corporations are increasingly making ESG disclosures to assess and limit risks, to bolster their reputations, and to attract and keep customers. But one group of companies is significantly behind on moving toward meaningfully achieving ESG goals: large, investor-owned electric utilities (IOUs). IOUs are critical to the clean energy transition through mitigating their climate change impacts. While they claim to be increasingly focused on the environmental and social aspects of their actions, they are hampering progress on climate change. This Article is the first to describe the intersecting reasons why utilities’ ESG commitments fall short of supporting the clean energy transition, and to suggest a remedy. Utilities’ ESG disclosures are inadequate and lack transparency, and utilities are not meeting the limited commitments they have made to reduce carbon emissions. Also, unlike other public corporations, utilities are monopolies governed by state public utility commissions (PUCs), which introduces amplifying effects through utilities’ wide-ranging abuses of the regulatory system.

Simply changing ESG disclosure requirements or modifying the utility regulatory system will not reduce a utility’s core incentive to maximize profits at the expense of pursuing broader societal goals. Therefore, more sweeping structural changes are necessary. This Article concludes that the utility landscape’s unique features require a different approach from existing types of socially focused corporations. It proposes transforming IOUs into “purpose-driven utilities.” This involves converting utilities’ voluntary promises into enforceable commitments by changing an IOU’s basic corporate form from one focused solely on profit to a purpose-based form with broad stakeholder involvement and ESG values established in the corporate charter. We outline the central features and benefits of the purpose-driven utility, and describe the authority that state PUCs have to require and oversee this transformation. We conclude that pairing these changes with robust enforcement powers by utilities’ customers and others to enforce the purposes listed in the charter would make IOUs more accountable and less driven solely by profit, leading to a more rapid clean energy transition with broader stakeholder engagement.

Keywords: ESG, environmental, social, governance, utility, energy, energy transition, rate regulation, corporate law, B-corp, public benefit, climate change, renewable energy, electric grid, purpose

JEL Classification: K23, K32, L12, L21, L22, L32, L38, L43, L53, L94, L97, L98, Q48