ScottishPower plc

Case study:
ScottishPower is tackling global climate change by changing its generation mix - and building a reputation as a leading supplier of green energy.

Introduction:
ScottishPower demonstrates how a major public company has integrated business objectives and environmental policy within a broad sustainable development and corporate governance structure. Detailed policies and practices cover global climate change, atmosphere and air quality, water, energy and resource use, land and biodiversity, materials and wastes.

The company has achieved successfully differentiation as the leading supplier of green energy in the UK. Following an acquisition a key challenge last year was to develop a common approach to sustainability in UK and US businesses which operate in different legislative and regulatory frameworks.

The company is addressing global climate change by changing the generation mix to reduce CO2 emissions particularly by developing windfarms in both the UK and US and is working to substantially clean up its coal-fired power generation. Energy demand management programs have been run in the UK for many years. Programs introduced in the US substantially reduced load during an energy crisis in the second half of 2000. Energy efficiency programs in the UK from 1994-2001 have saved 3,799 GWh of energy, with CO2 savings of over 1.7 million tonnes. Seventy per cent of these programs were designed to help reduce fuel poverty in low-income households.

ScottishPower believes the commitment to sustainable development has enhanced both its business and reputation. In 2001 the company was the only UK electricity generator chosen to join E7, a group of nine utilities from G7 countries formed following the Rio Earth summit to consider sustainability in the electricity industry.

Processes:
ScottishPower is committed to sustainable development and its goals link environmental and strategic business objectives. These include a significant commitment to renewable energy which will improve the bottom line as well as creating environmental benefits. The demand for renewable energy in the UK has increased as a result of the Climate Change Levy, a tax on the use of energy by businesses introduced in March 2001. Renewable energy is exempt. This expertise in green energy is becoming an important differentiating factor in the competitive supply markets.

With the acquisition of US PacifiCorp the company has developed an international approach to environmental governance based on the transfer of best practice between the UK and US. This includes a common set of environmental principles, proactive stakeholder engagement, a company-wide Environmental Policy Advisory Committee (EPAC,) annual business risk assessments, environmental management systems, measurement of key performance indicators, producing an annual environment report for stakeholders and having independent third parties assess the governance arrangements.

Environmental policy and strategy is communicated throughout the company via the EPAC. Managing Directors within each business have access to environmental specialists within their businesses. An Executive Director chairs EPAC and is responsible to the Board for environmental performance. An advisory Environment Forum captures the input of external experts for policy development.

ScottishPower publishes an annual environment report annually. Briefings are held for City audiences, as well politicians at Scottish, UK and European levels, and State and Federal levels in the US. Senior managers are consulted on environmental issues by the UK Government and in turn they actively seek to contribute to policy formation. The key UK generation sites have local liaison committees. ScottishPower is a member of the FTSE4Good Index and regularly tops polls for environmental performance and ethics.

Impact:
There are substantial community benefits from ScottishPower's changing generation mix. The wind energy program (£400 million investment in the UK) will save an estimated one million tonnes of CO2 emissions per year by 2005 in the UK and up to two million tonnes in the US. Grants have funded renewable energy projects at community level. The company recently commissioned a 484 MW cogeneration plant at Klamath Falls in the US and in the UK purchased a 715 MW combined cycle gas station. The company is cleaning up existing coal-fired stations, for example planning to reduce SO2 emissions at the company's biggest UK power station by 90%.

Energy efficiency programs in the UK from 1994-2001 saved 3,799 GWh of energy, with carbon dioxide savings of over 1.7 million tonnes. Energy efficiency schemes in the UK launched during 2000-2001 will save 702 GWh, or 536,108 tonnes of CO2 over the life of the projects. Many of these programs were directed at alleviating fuel poverty in low-income households. Hundreds of land and biodiversity projects at community level protect and monitor wildlife at most key sites.

There have also been many and varied business benefits from ScottishPower's group environmental orientation and environmental good practice. Most substantially, the company is now the UK's leading supplier of green energy with around 12,000 domestic and 100 business customers including in 2001 the largest green energy deal in the UK (the Authorities Buying Consortium.) Similar renewable energy products have been introduced in PacifiCorp, the US subsidiary. ScottishPower has become one of the UK's leading windfarm operators which adds competitive and flexible generation. Further expansion of the wind energy business will give a leading position in an emerging market and will enhance profitability.

The company's profile helped participation in an award scheme for house builders covering innovations in environmental performance. The new houses market is important for ScottishPower with 1.8 million homes planned in the UK before 2010.

Demand management programs introduced in the US helped maintain supply during the western energy crisis from June-December 2000. In the UK the RuralCare initiative which combines strategic tree felling with dozens of native woodland and habitat enhancement projects has helped reduce power failures in rural areas during storms, reducing repair costs and compensation payments to customers. Selling power station ash for use in construction products has created a new revenue stream and avoids Landfill Tax costs.

ScottishPower believes its reputation has been enhanced by these activities and also the many awards and recognitions for the UK and US businesses, with overall benefits for customer loyalty, community trust and investor confidence.

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