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US Utility Regulators Sharpen ESG Focus Amid Pandemic, Recession

As the nation's electric and gas utility industry continues to grapple with the impacts of the coronavirus pandemic, state regulators devoted much of their annual summer policy summit to the topics of resiliency and social responsibility in an era of uncertainty.

While regulators across the country continue to work with utilities to determine the best ways to handle service disconnection moratoriums that began in March and the recovery of related costs, discussions at the annual Summer Policy Summit held by the National Association of Regulatory Utility Commissioners, or NARUC, extended beyond those immediate actions. The central question was: How can state utility commissions work alongside utilities to balance the needs of consumers and the financial needs of utilities amid a rapidly shifting social, political and economic landscape?

Held virtually, the Summer Policy Summit continued dialogue on best practices for the industry's transition to cleaner energy sources and illustrated an increased focus on inclusion and diversity within the industry's workforce. Across a two-part session, "Rekindling a dynamic, diverse and resilient energy workforce," commissioners, consultants, and utility and energy industry executives shared insights and best practices for addressing bias and racial inequity in hiring practices and in the workplace. The panels included representatives from organizations eager to work with utilities and NARUC in developing their workforce, which has historically lacked meaningful minority representation, including the American Association of Blacks in Energy, the National Society of Black Engineers, Hispanics in Energy and Asians in Energy.

Maurice Smith, director of consumer services for the District of Columbia Public Service Commission, highlighted the ways in which workforce diversity and inclusion have been shown to benefit companies not just from a societal perspective, but also to their bottom lines. Though various studies have been published on the correlation between workforce diversity and corporate profits, Smith specifically pointed to research from McKinsey & Co., which found that companies in the top quartile for gender or racial and ethnic diversity are more likely to have financial returns above their national industry medians. Conversely, Smith said, the research found that companies in the bottom quartile of these dimensions are less likely to achieve above-average returns.

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"To the extent permissible, [public utility commissions] should actively monitor bias, intolerance and inequity that may exist," Smith said. "This can be accomplished through ongoing dialogue and discussion with industry executive management, with the view toward eliminating bias and exclusion and promoting diversity and opportunity."

As an example, Smith pointed to the D.C. PSC's advisory council on utility supplier and workforce diversity, which formed in 2019 with the objective of providing advice and recommendations for improving diversity and inclusion within the local energy workforce and utility suppliers. The council, composed of local utilities, government agencies, colleges and universities and trade associations, serves as a communications link between the workforce, utility companies and the PSC.

Speaking from a public relations perspective, Kim Morreale McAuliffe, CEO of Morreale Strategic Communications, also spoke to the long-term benefits of diversity within an organization.

"As we navigate today's dynamic policy government and media landscape, it is clear [that] organizations that prioritize inclusion and social responsibility will have a more resilient future," the CEO said on the July 20 panel.

The discussions on fostering racial equity within the industry follow a June 4 statement released by NARUC making a commitment to what it called "the principles of peaceful racial reconciliation and healing among our communities." The organization said it would use its national platform, its Supplier and Workforce Diversity subcommittee and its committee on Consumers and the Public Interest to address areas of bias, find opportunities to reduce barriers, and "engage in constructive national dialogues on race" as it relates to issues within NARUC's reach.

"NARUC believes that we all have a moral obligation to do more within our respective organizations to address the blatant discrimination occurring daily in the lives of people of color," the organization said in its June statement. "We must have honest conversations about this scourge in our society and adopt specific policies that create inclusion through training and job opportunities that rise up people of color and give them the economic opportunities they deserve."

While NARUC's statement came alongside a strong wave of similar sentiments expressed by U.S. corporations and industries in the wake of civil unrest that followed the killing of George Floyd, an unarmed Black man, at the hands of police officers in Minneapolis, Minn., in May, multiple conference panelists urged the industry to go beyond the initial step of making public statements on the topic. Former Florida Public Service Commission member Ronald Brisé recommended that companies and organizations take a closer look internally to determine if their values truly reflect their public statements.

Offering a series of questions that can help organizations to do this, Brisé, who is now head of the government affairs and lobbying practice at Gunster, a Florida-based law firm, said examining these topics thoroughly can help ensure that the energy sector better reflects the communities it serves.

"Have our recruitment practices evolved? Are we reaching out to [historically Black colleges and universities], Hispanic-majority and other minority institutions? Are we really trying to do the outreach? Does our investment strategy reflect our core values, by not only where we put our money but also who we trust to make those investments for us? Are we looking for and encouraging candidates to apply for/run for utility commissions," Brisé asked. "It's great to make statements and commitments, but are we truly doing the work to advance the cause?"

Tying the Summit's key themes together in a final panel on economic regulatory resilience, Commissioner Diane Burman of the New York State Public Service Commission challenged regulators to remain adaptable amid a rapidly changing operating environment for utilities and businesses in general. Burman said that as the COVID-19 pandemic wears on, said, it is important for policymakers to reassess their plans and realign policies to ensure they continue to make sense as the business climate shifts.

"It's time for us to look at our roles, not just as economic rate regulators, but as economic drivers that can help the communities we serve," Burman said. "We all need to have appropriate flexibility to address COVID-19 operational and customer issues. How do we keep viable options open? We have state policies we were looking at pre-COVID, but as we move forward, we need to examine them and [ask], are we doing what we need to do, are we on track? Do we need to evolve, do we need to pivot? How are we balancing generation, the reliability issues and now the financial impacts? We need to look at balancing ratepayer impacts and utility cost of money during a time when both are under stress. We need to keep rates as low as possible without impacting the financial health and economic contributions of utilities."

For a full listing of past and pending rate cases, rate case statistics and upcoming events, visit the S&P Global Market Intelligence Energy Research Home Page.

For a complete, searchable listing of RRA's in-depth research and analysis, please go to the S&P Global Market Intelligence Energy Research Library.

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