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GE’s Impact on U.S. Energy Goals Tied to Environmental Liability

Nov. 15, 2021, 10:30 AM

How General Electric Co. divvies up its environmental liabilities could affect the future of the energy-focused business it’s creating and the company’s ability to contribute to the Biden administration’s clean energy and climate goals, energy analysts say.

GE announced Nov. 9 it would split into three separate companies focused, respectively, on aviation, health care, and energy. The energy company will be a combination of its portfolio that includes renewable energy, fossil-fuel power, hydropower, and digital services.

The company plans to work over the next year to divide its liabilities in a responsible way, and plans to reach climate-change goals by reducing emissions and developing technologies for zero-carbon power, a company spokesperson told Bloomberg Law.

GE has installed more than 400 gigawatts of wind, solar and other renewable energy resources; equipped more than 90 percent of utilities worldwide; and is working on “green” hydrogen at a natural gas-fired power plant in New York, according to the company. GE says its plants provides roughly one-third of the world’s power.

“GE is critical to our efforts to have an American-based manufacturer that is leading the charge towards non-fossil fuel energy generation,” said Daniel Spitzer, a Buffalo-based attorney with Hodgson Russ’ Renewable Energy practice. “We need them to be a leader.”

If GE spreads its existing liabilities evenly, it will signal its intent to promote all three companies, said Ramanan Krishnamoorti, a professor and chief energy officer at the University of Houston.

But if the energy division were to get the bulk of the environmental liabilities and inadequate assets, that would be a problem, according to analysts including Daniel Squire, an adjunct professor specializing in environmental law and civil litigation at American University’s Washington School of Law.

Dividing the Liabilities

Squire thought that scenario unlikely. But he said it’s something people will think about, because GE’s historic nuclear and energy activities have created liabilities that could logically remain with the new energy company.

The three companies GE is creating will have to agree to contracts that detail which liabilities and assets they’ll retain. They can do that in any way they choose, Squire said.

While there’s no total liability estimate, GE’s total reserves for environmental remediation, nuclear decommissioning, and worker exposure claims were $2.5 billion as of the end of last year, according to a Feb. 12 financial filing to the Securities and Exchange Commission.

The energy segment will have $33.3 billion in revenue this year, though it will barely break even, and its operating profit margin will be only 4% by 2024, when the spin-off of the energy unit will be complete, according to a Bloomberg Intelligence report.

A common approach would be to tie the liabilities to the business unit most logically connected to that line of work, said Aimee Curtright, a senior scientist focused on energy issues at the Rand Corp., a non-profit research organization.

GE’s nuclear liabilities, for example, would seem to clearly fall in the energy wheelhouse, while liabilities that may have resulted from the radiological materials used in medical imaging would stay with the new health care company, she said.

The company’s historic polychlorinated biphenyls (PCBs) liabilities may not clearly belong to any specific business units, so they could be divided among the three companies, Curtright said. Long used in electrical and other equipment, the Environmental Protection Agency banned PCBs in 1979.

Yet their persistence, toxicity, and other problems mean companies, communities, and governments still grapple with them.

Last December the EPA gave GE the thumbs up to proceed with a revised PCB cleanup along Massachusetts’ Housatonic River that’s estimated to cost $576 million, up to three years to design, and 13 years to carry out. That’s on top of the $1.7 billion GE already spent dredging PCBs out of the Hudson River.

Attracting Investors

These kinds of expenditures, while huge, are in some cases already paid for and, in others, something that can be managed and planned, Squire said.

It doesn’t appear that GE has the unexpected types of liabilities that can pop up when individuals start filing and winning personal injury cases from previously unrecognized hazards, he said.

Squire referred to historic asbestos litigation that has bankrupted firms and to the explosion in “forever chemicals” personal injury claims that fueled a lawsuit in which the Chemours Co. claimed its parent company, E.I. du Pont de Nemours, Inc., misled it concerning the extent of health and legal liabilities Chemours would incur following the spin-off.

Curtright agreed GE’s split is unlikely to create a Dupont-Chemours type of dispute.

While there are scientific and regulatory uncertainties per- and polyfluoroalkyl substances, or PFAS, much more is known about the chemicals and radiological risks of materials GE works and that allows the new companies to plan for how to address them, she said.

Thanks to new U.S. and European financial reporting requirements, GE won’t be able to hide environmental liabilities as it sets up its new companies, said Neil Pelkey, an environmental science professor at Juniata College in Huntingdon, Pa.

Looking to the Future

The GE shakeup was announced as the U.S. joined world leaders in pledging to meet clean energy goals at the United Nations climate summit in Glasgow. The Biden administration wants the power sector to reach net-zero greenhouse gas emissions by 2035 and the entire U.S. economy to reach that goal by 2050.

The roadmap to meeting those goals depend in part on companies like GE, said Mark Brownstein, senior vice president of energy at Environmental Defense Fund.

“There’s a real premium on companies that can provide the technologies and strategies that lead us to a fundamentally decarbonized energy economy,” Brownstein said.

GE’s new energy business should focus on technologies that “fundamentally move us away from oil and gas dependence,” said Brownstein, who recently returned from the climate summit and plans to attend ADIPEC, an oil and gas conference in Abu Dhabi, next week.

GE “has the DNA of Thomas Edison,” Brownstein added. “My guess is, if Edison were alive today, he’d be on the cutting edge of innovation.”

‘Urgent Task’

The company has helped bring down the cost of producing wind and solar energy to address the “urgent task” of decarbonization, said Jérôme Pécresse, CEO of GE Renewable Energy, said in Oct. 28 remarks to the National Press Club in Washington.

“When people hear GE, they often think about something in our past,” Pécresse said. “Without question, one of the most critical challenges of our day is to address climate change by accelerating the energy transition, in no small part through the use of more renewable energy.”

The company has also made investments in battery storage, hydropower, and more efficient transformers, which are “the backbone of the electric grid,” Pécresse said.

The breadth of GE’s energy portfolio is useful, because it allows for the possibility that one or more technologies may not move forward but others would, Rand’s Curtright said.

To contact the reporters on this story: Daniel Moore at dmoore1@bloombergindustry.com; Pat Rizzuto in Washington at prizzuto@bloombergindustry.com

To contact the editor responsible for this story: Rebecca Baker at rbaker@bloombergindustry.com