Our material issues are varied and complex.
Sustainability inherently is complex. The social, environmental and economic aspects of a company cross departments, business units and work groups; externally, a business impacts the families of employees, communities, customers, investors and potentially hundreds of special interest groups.
We employ a number of processes to determine materiality, priority of topics and stakeholder audiences for this report. We identify emerging issues from a variety of sources such as direct stakeholder feedback, thought leader perspectives, social and traditional media coverage and shareholder resolutions in our sector. The more important an issue is to our stakeholders and to our business success, the more it matters. Further discussion of our stakeholder engagement program is provided in Stakeholder Engagement.
The issues – and their interrelationships – will continue to evolve as the environment in which we operate changes.
Ongoing regulatory uncertainties with coal and natural gas supply continue to call for a comprehensive energy plan that encourages all domestic energy fuel sources, including coal, expanded access to oil and natural gas from conventional and unconventional sources and renewables. Along with fuel supply issues, there also is need for stronger regionalization of electric transmission that will facilitate a significant improvement in the wholesale market.
Climate change remains a topic of public concern, and the movement toward a low-carbon economy is expected to remain a central driver behind policies likely to impact the energy business. Proposals for federal legislation to establish broad clean energy standards have emerged. The U.S. Environmental Protection Agency (EPA) has adopted measures under the Clean Air Act (CAA) to regulate greenhouse gas emissions. Ad hoc regulation can lead to unintended consequences, including fuel switching, over-reliance on a few fuels, reliability concerns and potential rate shock as markets fluctuate.
Environmental regulatory initiatives
Nationwide, electricity generated from coal will continue to become cleaner as new EPA regulations sharply reduce emissions and lead to the closure, replacement and retrofit of older coal plants. These regulations include the development of new or updated regulations for greenhouse gases, utility maximum achievable technology standards (MATS), coal combustion byproducts, cooling water intake structures and effluent guidelines, among others. Visit the Environment section of our 2014 Sustainability Report to learn about our proactive approach to environmental leadership.
Overall, the ability to undertake broad deployment of renewables remains highly dependent on state and federal policies to promote renewable energy development. Florida has grappled with this issue for many years, attempting to find the balance between promoting renewable energy and controlling the overall impact to customer bills. Absent effective state or federal policies that promote renewable energy in Florida, Investor-Owned Utilities are limited in their ability to pursue renewable projects by laws that prohibit them from buying power at prices above avoided cost. To enhance the public policy in Florida, we support the development of a framework that ensures timely and complete cost recovery, on a limited basis, to electric utilities for renewable energy costs above avoided cost. With renewables, we are seeking a balanced legislative and regulatory approach that would allow us to include a renewable resources generation portfolio in a meaningful way.
Conservation and energy efficiency
Several forces – including environmental concerns and greenhouse gases peak capacity constraints, strain on transmission and distribution systems and state regulatory requirements – have driven the focus on energy conservation to help reduce emissions and preserve resources. Energy efficiency is often seen as the most abundant near-term, cost-effective resource to reduce emissions and environmental impact. About half the states, including Florida, allow for the recovery of costs associated with energy conservation and demand-side management programs. We believe conservation and energy efficiency are key resources to help meet customers' future energy needs, while controlling costs and the environmental impacts of our energy supply. Conservation and energy-efficiency programs also help reduce, offset or avoid GHG emissions, as well as reach other federal and state environmental goals. Tampa Electric and Peoples Gas continue to look for opportunities to develop cost-effective, energy-efficient programs and to provide customers more options for managing their energy use.
Fuel supply and diversity
One of the most significant trends for the industry in recent years has been persistently low natural gas prices. To ensure a reliable, affordable supply, we will need to protect our access to a variety of fuel sources – including coal, natural gas, nuclear and renewables – as we look to the future. As consumers are ever-more dependent on electric technologies in their homes and businesses, we need a balanced and diverse energy portfolio to maintain reliable, affordable electricity. Given the continuing importance of natural gas as a fuel source for electricity generation and direct use by consumers through local distribution companies, we are watching developments on environmental issues surrounding hydraulic fracturing, price volatility and transportation, with the overall goal of ensuring the long-term viability of natural gas supply through support of responsible natural gas development practices.
As the grid becomes more dependent on digital technologies, protecting it against cyber-attacks becomes more important. Getting actionable information from our government is paramount; this is a shared responsibility and public-private partnerships can best leverage mutual expertise in the protection of critical infrastructure.
We are committed to the enactment of comprehensive cyber legislation, with particular focus on improving sharing information between the federal government and industry, establishing a clear regulatory structure and facilitating government-industry responses to threats. We continue to support the development of a regional bulk-transmission system that improves planning and cost allocation in the state and with neighboring states, as well.
While debated for many years, several recent high-profile gas pipeline accidents have heightened the concern over the safety of the country's natural gas pipeline infrastructure. Operators are faced with significant investments in the pipeline infrastructure to replace existing bare steel and cast iron pipe and to support the development of a regulatory process with a mechanism that provides certainty for cost recovery.
Timely cost recovery of our new investments is critical. We advocate state regulatory frameworks that promote financial health, accelerate cost recovery and mitigate regulatory lag. Innovative approaches are needed to maintain our creditworthiness and mitigate rate shocks for consumers in light of today's challenges, including our high levels of capital expenditures and slowing electricity demand. We cannot ignore our regulators and the regulatory environment that we must work within. We will continue to strive to earn within our allowed ranges of return. We also will push to support innovative legislative and regulatory mechanisms that create greater certainty for timely and full-cost recovery.
Reasonable rates, cost-effectiveness and reliability have long been the foundation of TECO Energy's approach to the management of our business units. Our companies are continuously balancing the needs of the company, team members and customers while controlling costs to maintain competitive electric and gas rates. While customers expect reasonable rates, we must generate sustainable revenue streams that attract investors, provide competitive compensation packages to recruit and retain a talented workforce and maintain the reliability of a vast electrical and gas system. We operate under regulatory oversight by the Florida Public Service Commission (FPSC) on a cost-recovery model. We are allowed to charge prices that are fair and reasonable, while allowing for the recovery of prudent costs of providing service to customers. The current regulatory process has yielded a reliable and cost-effective system for the production, distribution and delivery of reasonably priced energy.
The electric infrastructure is a fully-integrated, sophisticated network of systems including generation, transmission and distribution assets. The gas distribution infrastructure is similarly integrated with all systems required to be functioning properly to ensure the availability of energy when needed.
Tampa Electric plans generation 10 years in advance so that it will be available to serve the energy needs of business and residential customers. Power plants and transmission and distribution lines must be in place when energy demand increases. Fuel must be available to provide generation with minimal impact to the environment. Tampa Electric serves its retail and wholesale customers' energy needs through a portfolio of generation and wholesale purchases, with a balanced fuel mix of coal and natural gas. Like electric, gas infrastructure requires long-term planning and financing of considerable up-front investments that have very long lives.
Tampa Electric has implemented a comprehensive 10-point storm preparedness plan that addresses managing vegetation, inspecting poles and analyzing pole attachments, collaborating with local government agencies and researching to make structures stronger to withstand extreme winds. We achieve this through periodic maintenance, condition assessment and predictive maintenance. Other activities to ensure reliability include thermal imaging, oil analysis, vibration analysis and root cause analysis.
Due to the nature of our business, Tampa Electric and Peoples Gas have the opportunity to interact and touch a wide base of areas we serve. Additionally, we have the responsibility to provide leadership and set an example for ethical and transparent business practices. Constant, open and thoughtful communication to our many stakeholders is critical to maintain trust and understanding. From our community outreach programs to our consumer newsletters, we strive to spread our message and build relationships that can be mutually beneficial.
Expectations on services and products are constantly evolving, which requires a constant dialogue and evaluation to ensure we meet our customers' demands. Currently, customer trends indicate the desire to take more control over their energy usage requiring a better understanding of how their bills are structured and opportunities to reduce usage. Additionally, customers are becoming increasingly interested in alternative sources of energy such as solar energy. While maintaining cost-effective rates, TECO Energy's companies provide a wide array of products and services to meet these changing needs. Additionally, providing gas service is a beneficial utility offering which meets certain needs and wants of customers and can serve to limit the growth of electric peak demand by substituting electric appliances with gas-fired appliances and equipment.
To gain a better understanding of what customers value and to build on data we have gathered through quarterly customer favorability surveys, Tampa Electric and Peoples Gas have begun to perform a more robust qualitative and quantitative survey process. We have processes in place that allow us to receive continuous feedback on targeted activities and interactions so the information stays fresh and useful. We want to gather valuable data so we can truly prioritize all we do to provide customers with services they desire.
TECO Energy views the maturing of the workforce as an issue that we need to proactively address with more specific emphasis in certain areas of the company. The areas of technology and the skilled trades are of particular concern. Technology changes over time can create deficits in expertise and in knowledge of existing systems, requiring the company to seek new talent to implement and operate new technology. Retirement of workers who perform more fundamental trades may become one of the more challenging aspects of this issue because employment pools that feed those trades are now on the decline. Furthermore, the pool of available applicants mirrors, in many cases, the age profile of our existing workforce. The impending exodus of baby boomers is also a consideration.
Targeted-mentoring, cross-training and job rotation initiatives are occurring throughout the company. TECO Energy has a four-year apprentice program for transferring knowledge and skills acquired by linemen. Managers identified as successors participate in a year-long development program. They are required to develop a continuity book with sections on standard content. The book is intended to ease the transition of a new team member into that position, minimize disruption to operations and facilitate the transfer of knowledge.