Republicans in the Legislature introduced bills this year to prohibit consideration of Environment, Social, Governance issues, or ESG, by government investments (SB1013), or financing institutions (SB1014 and SB1167). All three bills passed the Senate on party lines; SB1013 passed the House Government Committee on party lines, but they’ve been stalled since February.
On February 22, 2024, in a public hearing concerning the Arizona Public Service rate case, the chairman of the Arizona Corporation Commission said that no one he was aware of on the commission applauds ESG (hearing video at 6:27) and that those concerns would not impact the commission.
The ACC has a statutory duty. Their duty is to regulate public service corporations and protect consumers. A.R.S.40-202. The ACC is to ensure that charges are just and reasonable, adequate and efficient. A.R.S.40-361. That’s “social.”
It is also the ACC’s job to determine if equipment or facilities are unsafe and, if they are, take action. A.R.S.40-321. Violations by officers and agents of a public service corporation are class 1 misdemeanors. A.R.S. 40-426. That’s “governance.”
Factors that must be considered by the ACC include environmental compatibility. The commission must also balance, in the broad public interest, the need for an adequate, economical, and reliable supply of electric power with the desire to minimize the effect on the environment and ecology of this state. A.R.S. 40-360.07(B) That’s “environmental.”
The recent history of wildfires makes these factors increasingly important. In the PG&E fire, failure to invest in infrastructure (sustainability) resulted in bad poles with bad lines that sparked the wildfire. PG&E agreed to a $45 million settlement. The 2019 Easy Fire in California resulted in $1 million in fines. In 2021, PG&E was fined $125 million for the Kincade fire. In 2020, they pled guilty to 85 criminal counts, including involuntary manslaughter for the 2018 Camp Fire in California that killed 85 people and destroyed thousands of buildings. That fire started when a suspension hook on a nearly 100-year-old tower broke and fell causing sparks. Failure of upkeep is governance.
The Zogg fire in California cost PG&E $150 million. The tree that fell on the structures and started the fire had not been removed because of poor recordkeeping. For the involuntary manslaughters, PG&E will pay $4 million. PG&E executives agreed to a $117 million settlement for breach of fiduciary duties to act in the best interest and being directly responsible for the fires. That’s governance. The company filed for bankruptcy in 2019. In 2020, they left bankruptcy with a promise to pay $13.5 billion.
The 2023 Hawaiian fires were also sparked by power lines. The Associated Press reported bare electrical wires and unsteady poles a failure of maintenance. Even the company admitted their poles were obsolete and did not meet the 2002 national grid standard. The fire burned down the town and killed 96 people.
Xcel Energy admits its equipment may have caused the largest wildfire in Texas history because of a failure to invest in infrastructure. The Smokehouse Creek fire burned more than 1 million acres in the Texas panhandle.
All three of these utility-caused-fires are the fault of poor governance i.e. short-term profits over long term sustainability; favoring current investors over the public; profit gouging; and corporate greed. All of these are factors that the ACC should be considering but said they won’t.
Investment companies are now advising investors to consider environmental issues because it impacts the bottom line. Insurance companies were one of the first to notice the enormous impact of ESG. (ESG: A growing sense of urgency. PWC, 2022) Extreme weather events have an impact on balance sheets and company value. Businesses that refuse to face the risk are not insurable nor good investments.
Investors, insurers, and companies are evolving to be sustainable and profitable with public safety in mind. Yet our ACC fails in their constitutional duty when they refuse to consider ESG. If the Legislature bans business with a company that has an ESG score, they will drive most major business out of Arizona.
Dianne Post is an international human rights attorney.
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