APPA Details How SEC’s Proposed Climate Disclosure Rule Will Harm Public Power

by Paul Ciampoli
APPA News Director
June 30, 2022

A proposed climate-related disclosure rule issued by the Securities and Exchange Commission (SEC) will have an adverse effect on the American Public Power Association’s (APPA) members, even though those members, as no-for-profit providers of electric power, are not publicly traded or directly subject to the proposed rule, APPA said in recent comments submitted to the SEC.

More than three million businesses receive their power from a publicly owned electric utility, APPA noted in its June 17 comments. In some instances, these businesses are publicly traded companies that would be required to comply with the proposed rule if finalized, including the proposed requirement that all publicly traded companies disclose their “Scope 2” emissions (i.e., the amount of greenhouse gas emissions attributed to the company’s purchase of electricity).

“As a result, if finalized, the Proposed Rule will have a significant adverse effect on public power utilities through increased costs to provide information to public power utility customers for their SEC filings. These increased costs will not be borne by shareholders or investors, but by the citizens of the communities that own the public power utilities,” APPA said.

The proposed rule will impose significant additional costs on public power utilities “that go well beyond what is currently required to assist customers with their voluntary reporting of greenhouse gas emissions,” the group said.

APPA also said that the requirement in the proposed rule that certain publicly traded companies report their “Scope 3” emissions will have a cascading, extremely costly effect on public power.

Scope 3 emissions are those indirect emissions (other than emissions associated with purchased power) that occur in the upstream and downstream activities of a registrant’s value chain.

Upstream emissions include emissions attributable to goods and services that the registrant acquires, the transportation of goods (for example, to the registrant), and employee business travel and commuting. Downstream emissions include the use of the registrant’s products, transportation of products (for example, to the registrant’s customers), end of life treatment of sold products, and investments made by the registrant.

Registrants are required to report their Scope 3 emissions if those emissions are material or if the registrant has set an emissions goal or target that includes Scope 3 emissions. The SEC believes that many registrants will need to report Scope 3 emissions because those emissions are material.

“The requirement for certain registrants to report their Scope 3 emissions means that public power utilities will also need to report data to their customers that are not publicly traded companies because those customers are going to need to provide data to their customers or suppliers that are publicly traded and need to report Scope 3 emissions,” APPA said.

The group said that along with the questionable benefit of gathering and reporting uncertain or inaccurate information, “there are also concerns about the increased costs of substantially expanding the scope and scale of emissions that must reported.”

First, the sheer number of companies that will be required to report will vastly exceed what is being done voluntarily now, APPA argued.

“Second, there will be a huge number of companies that are not subject to the Proposed Rule that will be required to provide information to their customers and suppliers, and this will exponentially increase the number of entities that need information.”

Third, the stakes for customers’ reporting are much higher under the proposed rule than they are for the voluntary programs, APPA said.

It noted that under the proposed rule, accelerated filers and large accelerated filers must provide “reasonable assurance” (after a short transition period) that the emissions calculation that they provide is accurate. Failure of a reporting company to meet this standard has serious liability ramifications, APPA said.

“There is a big difference between providing information to public power customers to assist them with estimating their Scope 2 emissions for a voluntary program and providing information to those customers to aid them in complying with an SEC-mandated program for which there are grave consequences for making a mistake.”

These additional burdens that are associated with the proposed rule will have an adverse effect on public power, APPA told the SEC.

For some public power providers, the effect may be relatively minimal, simply involving the additional cost of ensuring that current practices comport with the new demands for information from customers.

“For others, however, the costs will be substantial, requiring the hiring of additional staff to manage customer requests and outside consultants to ensure responses to these requests meet regulatory requirements.”

APPA noted that one larger public power utility estimates that it would need an additional two to three full-time employees on staff to work through all the calculations of hourly replacement power under contractual agreements with one major supplier and other purchase power agreement counterparties. These staff would also be required to obtain information on the hourly energy mix of the wholesale market to calculate Off-System Purchase and Imbalance Energy emissions.

Moreover, public power utilities do not have shareholders or investors onto whom to pass additional costs of complying with the proposed rule, APPA pointed out.

Rather, because public power is not-for-profit and community-owned, these costs will be passed directly to their residential and business customers.

Some of the areas served by public power utilities are economically disadvantaged communities and households. In addition to being served by public power utilities, many economically disadvantaged areas – particularly rural areas – are served by electric cooperatives.

The fact that poor customers in economically disadvantaged areas are going to have increased costs associated with the proposed rule – “costs that they will have to bear and that cannot be passed on to investors — raises serious environmental justice concerns,” APPA said.

SEC 2010 Guidance

In 2010, the SEC released guidance regarding the types of disclosures that publicly traded companies must report in their SEC filings.

“To the extent that the SEC believes that there are gaps in what is being reported to investors, APPA suggests that the Commission instead update the 2010 Guidance or provide additional interpretive guidance regarding those gaps,” the group said.

“This approach would be much more targeted and streamlined than the Proposed Rule and would have the advantage of adhering to the SEC’s longstanding principle that only information that is material to investors need be disclosed by registrants in their SEC filings.”

Scope 3 Emissions

Under the Proposed Rule, a registrant must disclose their Scope 3 emissions if those emissions are “material,” or if the registrant has set a greenhouse gas emissions target or emissions reduction goal that includes Scope 3 emissions.

“APPA suggests that the SEC consider making any requirement to disclose Scope 3 emissions voluntary. This could result in a reduction in the burden and costs put on public power utilities. Conversely, while this would result in a reduction of the volume of information provided to investors, if that information is duplicative or unreliable,” it would not result in a reduction of information on which investors and shareholders could confidently rely.