Xcel Energy entered into a settlement with Andrew Cuomo, the Attorney General of New York, as a result of an investigation of several publicly traded utility companies that the Attorney General's office alleged failed to properly disclosure climate risk in the companies' public filings. The other utility companies that are being investigated are AES Corporation, Dominion Resources, Dynegy, and Peabody Energy. In the settlement, Xcel Energy agreed to a variety of additional disclosures relating to climate risk.
The agreement requires that Xcel provide detailed disclosure of climate change and associated risks in its “Form 10-K” filings, the annual report required under securities laws and regulations issued by the Securities and Exchange Commission (SEC) to provide financial performance information to investors.
The climate risk disclosure agreed to by Xcel includes analysis of the impact of the following:
“This landmark agreement sets a new industry-wide precedent that will force companies to disclose the true financial risks that climate change poses to their investors,” said Attorney General Andrew Cuomo. “Coal-fired power plants can significantly contribute to global warming and investors have the right to know all the associated risks. I commend Xcel Energy for working with my office to establish a standard that will improve our environment and our marketplace over the long-term.”
Ceres has been a proponent of increased climate risk disclosure. Ceres is a nonprofit organization, supported by what it asserts is institutional investors with more than $6 trillion in capital, including the treasurers and comptrollers of Newy York, California, Florida, Maryland, Rhode Island and five other states, and two of the country's largest pension funds--CalPERS and CalSSTRS.
Ceres President Mindy S. Lubber said, “This groundbreaking settlement will send ripples far beyond Xcel Energy. It serves notice that all companies face financial exposure from climate change and will be expected to better inform investors of their strategies for dealing with it.”
The Director of the Natural Resources Defense Council's State Climate Change Program and the Deputy General Counsel of the Environmental Defense Fund, cheered the settlement.
Obviously, these statements reflect the views of parties that are promoting greater disclosure and hope they will be successful in forcing some form of change in the corporate emissions of greenhouse gases. Industry reaction has not been published as yet. Many industries may find this development to raise additional questions as to disclosure obligations when it comes to the potential physical impact of climate change, the financial impact of current and future regulations, and future potential litigation.
These questions are particularly important for utilities that operate coal-fired power plants. The degree to which other publicly traded companies feel compelled to consider similar disclosure will be something that will unfold over the next year or so. At present, there is perhaps considerable uncertainty as to what is legally required. In 2009, we may see developments that help reduce the uncertainty as to what degree of climate disclosure is necessary as new federal greenhouse gas reporting requirements will be issued and climate change legislation may be passed. Many proposed bills offered in Congress require that the SEC create guidance and then regulations governing climate risk disclosure.
Andrew Cuomo’s investigation of the financial disclosure of Xcel and the other utilities is only one part of a larger attack by environmental groups, certain state governments, and public pension and other public funds on coal-fired power plants and the companies that owne and operate them. As Congress and the Whitehouse had been an impossible place to achieve any climate change legislation, the environmental groups moved to the state legislatures, have filed lawsuits to try to force action under federal and state statutes, and have brought public nuisance suits. Finally, they have tried to force action through shareholder initiatives and petitions and through an attempt to pressure public companies, especially those that operate coal-fired power plants to disclose what the environmental groups believe to be significant financial risk from operating plants that emit significant greenhouse gases.
If these actions are successful, the use of coal may be curtailed or the operators of coal-fired plants may begin to install a means of capturing the carbon dioxide emissions from the plants and injecting it underground. If either occurs, alternative forms of producing electricity or capturing and “sequestering” carbon dioxide may lead to higher electricity prices. Any federal legislation that places controls on carbon dioxide emissions from coal-fired power plant will likely increase power prices as well.
