Background: American Electric Power (AEP) asked Ceres to lead a process to obtain multi-stakeholder feedback on the company’s sustainability plans, performance and disclosure, based on the company’s 2009 Corporate Sustainability Report. Ceres convened a group, including shareholders and representatives from labor, environmental and social NGOs. As a part of this process, the group met with the company twice (on January 21 and March 2, 2009) and once independently to have a robust discussion about AEP’s overall sustainability approach and key issues. This statement represents the highlights of the stakeholder feedback provided as a part of this process, and is not a consensus-based statement.

Stakeholders appreciate that AEP had its senior executives meet extensively with diverse constituencies to engage in an open and candid dialogue on the company’s efforts to address key issues such as climate change, energy efficiency, coal supply and water use. Stakeholders also acknowledge the company’s overall responsiveness to the feedback and recommendations provided by the group.

Stakeholders acknowledge the constraints posed by the current economic downturn on AEP’s business and encourage the company to continue to strengthen its commitment to sustainability as a part of its business planning and performance. The company’s business model and operating practices must adapt to the market and regulatory changes already happening in the utility industry. How will AEP’s plans for continued reliance on coal affect the company in an increasingly carbon constrained economy, including risks, opportunities and adjustments? Stakeholders recommend that AEP outline a bold business strategy that responds to these changing times with aggressive programs on energy efficiency, renewable energy and distributed generation.

AEP has built a clear structure for governing sustainability through its planning and decision-making processes. How will proposed national policies that impose a cost on carbon impact business decision making at all levels within the company? Going forward, AEP should publicly disclose more information (specifically quantitative analysis) about the financial impacts associated with key sustainability risks, including climate change, as these are materially relevant to the company’s financial performance.

Climate science and the projected economic costs of inaction clearly indicate that there is a need for immediate, bold steps to address climate change. Because AEP is the largest CO₂ emitter in the United States, many stakeholders view climate change as the most significant challenge that the company should address. Stakeholders acknowledge AEP’s resolve to work towards overcoming differences and identifying commonalities with the environmental community on climate policy, and advocate rapid action in this regard. Some stakeholders suggest that the company consider options to align with U.S. Climate Action Partnership (USCAP). Given the recent change in U.S. political leadership, federal climate policy may include a provision to auction a significant portion of emission allowances. AEP should disclose how this would impact its business, including customers and shareholders. AEP should also outline a set of conditions that specifically ties free emissions allocations to investments for climate mitigation. While stakeholders acknowledge the need for investment in transmission systems for enhanced reliability and efficiency, a cost on carbon may be needed to ensure that the investments support the increased transmission of renewable energy. Many stakeholders appreciate AEP’s willingness to develop and rapidly deploy advanced technology, including carbon capture and storage (CCS). The company could clarify that some forms of this technology (for example, CO₂ capture with gasification, CO₂ storage in oil and gas formations) are developed and commercial. However, other stakeholders stress the challenges associated with the scaled deployment of CCS, including cost and infrastructure, and encourage the company to invest aggressively in resources beyond coal. The benefits and challenges of these technology options should be discussed in the report.

Energy efficiency and conservation are cost-effective strategies to help address climate change and have the potential to create jobs and reduce energy bills during these difficult economic times. Stakeholders recommend that AEP take a leadership position on this issue, including setting strong company-wide targets, proposing far-reaching programs, engaging and educating customers to reduce energy consumption, and proactively supporting strong energy efficiency policy at the federal and state levels. The group appreciates that AEP has set an energy consumption reduction target, following stakeholder feedback. However, this target should be more aggressive to match or exceed standards in place in the states in which AEP operates and to align with federal proposals on this issue. Stakeholders recognize that there are some implementation hurdles to energy efficiency at the consumer level. Also, actions are constrained by state-level regulatory policies. These barriers, however, are starting to come down in states in which AEP operates. Some stakeholders are interested in working with the company to advocate for appropriate financial incentives for energy efficiency at the state level based on cost-recovery, performance-based earnings, and being kept whole for fixed costs.

AEP’s generation is largely coal-based and some stakeholders are concerned about the company’s plans to build new coal plants. Others note the importance of projects that address the impacts of coal generation using advanced technologies. Fuel-based supply chain issues are a critical component of AEP’s overall sustainability footprint. While the group commends the company’s commitment to develop a sustainability scorecard for its coal suppliers following stakeholder feedback on this issue, stakeholders strongly feel that this process should drive AEP to phase out the use of coal derived from mountaintop mining, which has significant impacts on land, water, biodiversity and communities. Many stakeholders look forward to providing input on the scope of the process, indicators and implementa-tion plan.

Electricity generation requires access to large quantities of water, and some of the technology alternatives that AEP is considering, including nuclear power and CCS, are particularly water intensive. Stakeholders applaud the company for proactively working on a strategy to identify and address some of the risks posed by this issue. This strategy should consider water impacts when making decisions on issues such as technology, siting and fuel sources.

The aging work force issue continues to be a concern for stakeholders, who recommend that the company move forward with programs to maintain a trained and skilled work force. Stakeholders applaud the company’s continued emphasis on safety, including contractor safety. The group also appreciates AEP’s efforts to integrate sustainability in its supply chain, and looks forward to data on the impacts of the process.

AEP’s sustainability reports, which include candid discussion of several challenging issues, have evolved over the past few years and have clearly been influenced by the company’s several stakeholder engagement processes. AEP’s commitment to provide semiannual updates of its performance would demonstrate a best practice in the industry. The company should also work to educate the investment community about sustainability issues, by raising it in quarterly earnings calls, annual meetings and continuing to discuss the business impacts of sustainability issues in financial filings.

Please note that the stakeholders agreed to participate in this process as individuals and experts, rather than as representatives of their respective organizations, and this statement is not an endorsement of the company or its operations. The group did not participate in formal verification or assurance processes regarding the accuracy and completeness of information in this 2009 Corporate Sustainability Report.

Don Kirshbaum, Connecticut State Treasurer’s Office
Andrew Brengle, KLD Research & Analytics
Julie Fox Gorte, Pax World Management Corporation
Mark Brownstein, Environmental Defense Fund
Kurt Waltzer, Clean Air Task Force
Nolan Moser, Ohio Environmental Council
Mary Ann Hitt, Sierra Club
Brad Crabtree, Great Plains Institute
Rebecca Stanfield, Natural Resources Defense Council
Michael Webber, University of Texas - Austin
Leslie Lowe, Interfaith Center on Corporate Responsibility
William Somplatsky-Jarman, Presbyterian Church
Jim Hunter, IBEW International
Dan Bakal, Ceres
Dan Mullen, Ceres
Andrea Moffat, Ceres
Veena Ramani, Ceres