Asset Investment Planning & Management, ESG, Value-based Decision Making

Written by: Damien Quentin

Podcast: “Driving ESG Goals for Utility Asset Investment Planning” with Energy Central

Environmental, Social, and Governance (ESG) principles and goals have evolved from a vague concept considered to a critical topic driven by customers, investors, and regulators. Despite its growing importance in the utility industry, many stakeholders are still grappling with the ESG imperative.

In this episode of the Energy Central Power Perspectives Podcast, Damien Quentin, our ESG Practice Lead at Copperleaf, discusses the significance of ESG in utilities, the role of value-based decision-making in risk management and enterprise asset management, and how utilities are incorporating equity and resilience into their ESG strategies.

Listen to this episode for insights into how utilities can navigate and prosper in a changing environment by adopting ESG principles that are redefining the future of the energy sector.

Energy Central Power Perspectives™ Podcast · 147. ‘Driving ESG Goals for Utility Asset Investment Planning’ with Damien Quentin, Copperleaf

Transcript

Jason Price:
Welcome to the Energy Central Power Perspectives Podcast. This is the show that brings leading minds from the energy industry to discuss the challenges and trends that are transforming and modernizing our energy system. And a quick thank you to Copperleaf, our sponsor of today’s show. Now, let’s talk energy.

I am Jason Price, Energy Central Podcast host and director with West Monroe, coming to you from New York City. And with me as always from Orlando, Florida is Energy Central Producer and Community Manager, Matt Chester.
Matt, roaming the floor at DISTRIBUTECH yielded some interesting conversations, as I understand. So, one of those is now a guest on today’s show. Would you like to introduce him to the Energy Central Community?

Matt Chester:
Yeah. Jason, I had the pleasure of meeting and interviewing Damien at DISTRIBUTECH this past January in San Diego. And actually shared it right above that conversation with the Energy Central Community at that point.

Damien Quentin works with a company called Copperleaf. And we had a great opportunity to chat about the conversations he and his team were leading at DISTRIBUTECH, to not only highlight the importance of ESG or environmental, social, and governance, but also the technical and programmatic opportunities Copperleaf is bringing to the utility sector in pursuit of embracing a more ESG-focused future. So, for me, it was definitely an eye-opening conversation, and I’m eager to dive into these and other related topics with the additional time we have with him on the podcast today.

Jason Price:
Yeah. Totally agree and really thrilled to have him fitting us into his busy schedule. So, Damien will give us a deeper dive into the Copperleaf business model and its important role in managing risk and enterprise asset management for utilities among its many domains that Copperleaf serves. So, let’s bring him in to do just that. So, Damien Quentin, welcome to the Energy Central Power Perspectives Podcast.

Damien Quentin:
Thank you so much for having me on the podcast. I’m so happy to be here and happy to catch up.

Jason Price:
Yeah, as are we. So, Damien, give our listeners a taste of your background and the mission of Copperleaf.

Damien Quentin:
So, what Copperleaf really wants to do is to change the way our clients think about value, and that means that every decision they make should be based on value.

So, utilities are facing a ton of challenges around energy transition, grid modernization, climate impacts, and the way they spend money is critical to solving those challenges. An essential part of that is quantifying investment value well. So, if you can quantify the value of investments in terms of the risk that you’re mitigating, the benefits you’re achieving, how that value changes over time, then there’s an optimal way that you can spend your money. And that’s really the basis of what we’re trying to do. If you can optimize the way you spend your money to bring the most value to the organization, that solves so many problems.

So, for me, at Copperleaf I’ve been here for eight years, and right now, I lead our ESG practice. So, what I do is I help our clients solve ESG problems in terms of things like decarbonization, resilience, and environmental and social justice.

Jason Price:
All right, that’s really helpful. So, you mentioned the importance of ESG, so talk to us about this, and what exactly does your team focus on for utilities? And more specifically, what problems are you trying to solve for the utility professional?

Damien Quentin:
So, ultimately, for a very long-time, utility strategy was focused on safety, liability, affordability, and it’s relatively recently that ESG is a big part of that, whether that’s coming from regulation, legislation, pressure from investors, or other stakeholders.
And the challenge that utilities have is: What’s the highest value path to execute that strategy? When you go from safe, reliable, affordable service, and expand that to a whole new other set of objectives, that’s hard not to let things fall through the cracks, and make sure that you’re still performing at a very, very efficient level. Components of ESG strategy, like what I mentioned previously around decarbonization, resilience, environmental social justice, you can include those as part of the way that you value investments.

If you understand the business case for projects that bring value to the company in terms of decarbonization, etc., then you’re able to be in a position where you can make trade-offs across investments that contribute to different parts of enterprise strategy.
If you can quantify the investment’s impact in terms of value. You know what, for instance, the value of emissions reduction is. You know how much risk you’re mitigating for the dollars that you’re putting into resilience programs. You’re able to look at your entire capital plan and make sure that you’re spending money in the best way possible.

Jason Price:
I’m understanding you are empowering the power sector to really understand and analyze around risk management, and help them make decisions better, or maybe smarter. I guess, maybe you could share with us some of the traditional tools used before perhaps Copperleaf came about. And what is it that you’re replacing that is making the workforce more efficient in measuring all this?

Damien Quentin:
Ultimately what we’re replacing is a really cumbersome and subjective decision-making process that’s anchored on what’s effectively an archaic solution: Excel. So, when you’ve got that kind of siloed decision making, this archaic process, it’s really hard to align decision making to enterprise strategy.

If you’ve got a program that’s saying: “We have a target to replace X miles of conductor every year,” there’s going to be this question around how do you decide on that mileage? How do you decide on a hundred miles of whatever buyer? Was it because of resource constraints, is it because of cost constraints, or is that decision based on value? How do you justify that X mileage?

And so, that kind of subjective decision making and cumbersome process ultimately costs the organization a lot. A lot in terms of risks that are realized, process efficiencies, and all the consequences that come from poor defensibility and poor capital decision making.

Jason Price:
That’s really helpful, Damien. I want to put some context around this. The industry is going through a state of flux, and it’s an industry that is historically slow to move. So, when it comes to ESG, which has sort of just come on the horizon over the past five to 10 years in the utility space, what are the types of risk assessments that utilities need to be doing? And, in your experience, 2023 we’re heading into 2024, what grade would you give the typical utility for their current level of engagement in this process?

Damien Quentin:
I can give a few examples of ways that I see ESG risks as a part of utility capital planning.

Resilience, what’s the optimal spend I should put for a climate resilience program? What’s the right level of spend for decarbonization? I’ve got a cost-based approach where I try to find the cheapest way to meet an emissions reduction target. Versus a value-based approach, where I can say, for example, with fleet electrification, there’s a cost associated with that, but there’s value in other ways and I can use that to express the business case for those kinds of investments.

With environmental and social justice, that can look at where a mitigating risk, and how that risk is impacting different communities differently.

I can think about insurance, and how I can use an understanding of my asset risk exposure and risk-based mitigation plans as a way to basically get better insurance, or lower my premiums, or get more insurance.

And there are a great many other ways, such as biodiversity or customer satisfaction, that I can use to bring up the value of an investment, and use that to make sure that these investments that are mitigating those kinds of risks don’t sort of fall out of the capital plan. That those projects have the justification that they need to compete with the other business-as-usual projects, the reliability, and the safety projects.

So, it’s hard for me to grade what the typical utility would be because these are such huge problems they’re hard to solve. Big parts of that are things like: How do we agree on what the value is of carbon abatement, right? What’s like for each ton of carbon reduced? The federal government provides some figures. There is a whole body of research that’s arguing for different funding levels. You can look at that in terms of tax credits or social value, it can be contentious. How do we align on things like social value? What is the social value of investments? How do you value customer satisfaction? How do you align that value to the other sort of business-as-usual metrics of value, like reliability and safety?

Jason Price:
Damien, we have utility leaders listening to the podcast. So, for any who are slower to act, or may be inclined to take the wait-and-see approach, why would that be detrimental, and what are the risks of inaction or even no action at all?

Damien Quentin:
We’re making decisions to mitigate risk all the time, right? We’re already doing that. And so, what I guess is changing a little bit is how to extend that risk mitigation decision-making framework or process, to ESG problems or ESG value.

And so ultimately, it’s like: Do you want to wait to build out a process where you consider ESG value in decision making? And that is a great risk to any organization. And that’s because ESG value is business value, and as such, it is a core part of a sustainable growth strategy for any organization.

If I just think about resilience, it’s a race against time to be resilient to climate events. So, having the right kind of resilience strategy, you have to do that yesterday. Everybody understands that we need to throw everything we have to be resilient to wildfires or hurricanes, freezing, and things like that.

When it comes to decarbonization, a great many utilities are well underway for a strategy there. Where there’s room for improvement is building out processes where decisions for resilient strategies, decarbonization strategies, etc., are value-based. Where we can make decisions on what the best path is towards decarbonization, or what the optimal funding level is for resilience programs. And waiting and seeing for that opens up the door for not being resilient to things like regulation, legislation, the cost of emissions, and the cost of carbon, to ultimately not having climate-resilient infrastructure in the right places, in time for the next big event.

Jason Price:
Well, I’d love to take the conversation away from the theoretical and over to the practical. So, maybe you could help us put some case studies around this and walk us through where a utility is leading the pack when it comes to ESG and risk assessment, and how your team is maybe able to open their eyes in the work that you’re doing.

Damien Quentin:
One of our clients talked about their environmental and social justice component to the way that they make decisions on their infrastructure investments. Typically, what they talked about was their gas distribution integrity management program and how they look at individual gas distribution main segments and where that risk exposure is.

So, if I can look at, from an environmental and social justice perspective, where my risk is distributed, I can make equitable decisions on how I mitigate that risk. So, they look at who has safety risk exposure from leaky pipe, who has gas distribution reliability, like outage risk exposure, and that becomes a big part of their decision-making framework.

That came from, I want to say some pressure from the California Public Utility Commission because they’ve got this environmental and social justice action plan that asked the California investor-owned utilities to include environmental and social justice considerations as a part of their risk-based decision-making framework.

And that left a lot of room for interpretation. Basically, you need to show how you think about communities in your decision making. And that’s sort of a step towards that. That shows, hey, I know where the risk is. I know who is bearing the brunt of the risks from degrading infrastructure, and demonstrating a plan that has an awareness of that. It’s not to say that I’m only replacing pipes in those communities, just that we’re aware of these disparate impacts, and part of our decision making consider those impacts.

Jason Price:
Damien, let me ask you about the regulators, because as we all know, all roads lead to the regulators, right? What is the role of the regulatory bodies here in this discussion? And I know we’re hearing more about mandatory ESG reporting, so are such regulations pushing in the right way, and do you foresee this as being successful?

Damien Quentin:
So, on that mandatory reporting, we’re already seeing a need to work towards concrete plans to meet emissions targets, right? To disclose emissions, and to find ways to tie capital decision making to that kind of emissions planning, and how that intersects with asset investment planning and management.

If I look at the California Public Utility Commission, an example that I just gave around the environmental and social justice action plan… That, across all California IOUs, it’s different for each one of them, right? But starting to include these environmental justice considerations in their value framework, the way that they look at the value of their investments. At the federal level, we have this Justice40 Executive Order that says something like 40% of all benefits from public infrastructure spend needs to go to disadvantaged communities.

In different states, regulators are adapting that language, around 40% of the benefits have to flow to disadvantaged communities. And so, right away, the utilities obviously have to respond to that. We talked about the need to tie emissions planning and carbon reporting to capital planning, but even just the environmental and social justice component, putting that in capital planning, it’s like dominoes, right? You’ve got this executive order, you’ve got this action plan, and all of a sudden, all of these other smaller states are including that in regulation. All of these utilities outside of those areas are kind of feeling the winds blowing in that direction. Okay, well, how can I include equity in this capital plan? How can I make sure that I’m valuing the reduction in carbon emissions?

And so, ultimately, the regulatory side of things, when I see these new regulations and I see new legislation around this. You know, why I said earlier that including ESG and enterprise strategy makes you resilient to that kind of change. If you’re expecting environmental social justice regulation coming, if you’ve already started to include that in your decision making, that’s going to make your life easier. If you’ve already got a framework for valuing carbon offset as carbon costs increase, and as regulations become tighter, you’re resilient to that kind of thing as well.

Jason Price:
You mentioned equity, and I want to ask you about that, because one of the things that’s hard to do is measure, and measure’s a big point of contention around equity. So, what are you seeing in the field in terms of the fairest and maybe the most successful way to consider equity? And I’d love to hear how Copperleaf is solving that, or at least addressing it.

Damien Quentin:
So, we see, two big approaches. Where you look at the risk of each asset that you’ve got, and where that asset is, and where that risk exposure is being mitigated. Who is seeing the value of your investment planning? That’s a big part of equity strategy. That’s just about what’s fair investment strategy that ought to be expressed in terms of where you’re mitigating risk.

The other strategy is around, well, is there a different value for risks being mitigated in disadvantaged communities? And that can be a little bit contentious, because you’re basically saying that the same event, the same telephone pole falling, the same transformer failing, or exploding is worth something different based on the community that it serves. That’s obviously contentious.

And if you want to value those risks differently, the number one thing you’re going to say is: What’s your justification for that? Okay, you’ve said that it’s 1.5 times higher consequence for this thing exploding in a disadvantaged community versus a non-disadvantaged community. Why did you choose that?

And ultimately there’s just a ton of research, and if you point to peer-reviewed literature on that, that can be a really good way to defend what that difference in valuation ought to be. You can leverage a huge body of research that will tell you things like hospital stays are different across these different population groups. The impacts of outages have different impacts on different people’s ability to earn income based on census demographics and the kind of work that we see, or the kind of employment that we see in different communities. We can really quantify the way in which different communities experience outages and failures from utility infrastructure, and use that as the basis for scaling investment value across different communities. That really is kind of a big part of the way that we see, or the way that our clients see, a way to implement equity strategy in value-based decision making.

Jason Price:
It’s really interesting, this whole decision analytics market, and in this case, what Copperleaf is doing seems to be sort of table stakes, or foundational for utilities. It’s such a platform for its time, especially with such an emphasis around so many of the things you discussed, and in particular, the ESG that each utility is trying to achieve. So, it’s really, really remarkable storyline of what the Copperleaf platform can offer.

Damien, I want to thank you for sharing this insight, and we want to give you the last word. However, we want to pivot now to what we call the lightning round, which gives us an opportunity to learn a little bit more about you, the person rather than the professional. So, we have five questions we want to ask, and we ask that you keep your response to one word or phrase. So, are you ready?

Damien Quentin:
Yeah, let’s go.

Jason Price:
All right. What would be your preferred superpower if you could choose any?

Damien Quentin:
I would love to read my kids’ mind, and talk to them so they would listen every time.

Jason Price:
Do you have any hidden talents?

Damien Quentin:
I’m able to drive surprisingly far with screaming children in the background and regain sharp focus.

Jason Price:
I think most people who are listening in will have that kind of a talent. All right, can you share with us any guilty pleasures you have?

Damien Quentin:
So, actually, I really like musicals, which isn’t really such a guilty pleasure because obviously musicals are great. But I’ve grown to like the musicals my kids like, which are Disney musicals, and I know all the words.

Jason Price:
That’s great. Are there any surprising ways you noticed your work in ESG seep into your everyday life?

Damien Quentin:
I definitely think about the climate resilience of my own house, and what I can do to make it more energy efficient.

Jason Price:
All right. And what are you most motivated by?

Damien Quentin:
I have to say my kids.

Jason Price:
That was great. And you navigated the lightning round with grace. So, we want to leave you the final word. So, what resounding message you hope our listeners take away from this episode?

Damien Quentin:
ESG value is business value, and that needs to be a core part of decision making.

Jason Price:
Excellent. Well, we’ve definitely learned a lot from you during this course of the conversation, and Damien, very much want to thank you for spending time with us today. We also know that our energy-centric community will surely have thoughts and questions to share and response. So, we’ll look out for that in the comments section of energycentral.com, and trust that you’ll be available to hop back in. Until then though, we just want to thank you for sharing your insights with us on today’s episode of the podcast.

Damien Quentin:
Thank you very much.

Jason Price:
And you can always reach Damien through the Energy Central platform. We welcome your questions and comments. We also want to give a shout-out of thanks to the podcast sponsors that made today’s episode possible, to Copperleaf.

Copperleaf’s decision analytics software solutions are used by utilities and other critical infrastructure sectors globally. They help clients decide where and when to invest in their businesses to meet performance targets, manage risk, and achieve ESG and financial goals. Copperleaf is a market leader in asset investment planning solutions, and is actively involved in shaping and implementing global industry standards and sustainability principles.

And once again, I’m your host Jason Price. Plug in and stay fully charged in the discussion by hopping into the community at EnergyCentral.com. And we’ll see you next time at the Energy Central Power Perspectives Podcast.

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