Xcel and NY AG settle climate change securities disclosure issues

Xcel and NY AG settle climate change securities disclosure issues

August 28, 2008 07:18

Xcel Energy, the nation’s fifth largest emitter of greenhouse gases (GHGs), signed an agreement this week with New York Attorney General Andrew M. Cuomo that requires the company to disclose the financial risks that climate change poses to its investors.

The agreement, called an "Assurance of Discontinuance Pursuant to Executive Law § 63(15) (the "Agreement")," follows Cuomo’s issuance of subpoenas to various energy companies in September, 2007, in which New York sought greater investor disclosure of climate change risks. The subpoenas were issued pursuant to New York State’s Martin Act, a 1921 state securities law that, Cuomo argues, grants the Attorney General broad powers to access the financial records of businesses. The other energy companies that are the subject of subpoenas include AES Corporation, Dominion Resources, Dynegy, and Peabody Energy. Cuomo’s office said in a press release that it is continuing its investigation of these companies.

Xcel is the parent company of electric and natural gas utility companies operating in eight Midwestern and Western states. As of 2006, according to Xcel’s response to a Carbon Disclosure Project questionnaire that was produced in response to the subpoena, Xcel was the fifth largest emitter of GHGs among utilities in the United States. But Xcel also represented to Cuomo’s office that it voluntarily has reduced GHG emissions by more than 18 million tons since 2003 and that it is making great strides in investing in wind energy projects and other renewable electric generating resources.

The Agreement indicates that after entering into discussions with Cuomo’s office, Xcel filed its Annual Report on Form 10-K with the U.S. Securities and Exchange Commission for the year 2007, in which the company expanded its disclosures of climate change related risks compared to prior filings.

The Agreement, which represents a full settlement of all possible civil and criminal claims that were or could have been asserted against Xcel, includes binding and enforceable provisions that require Xcel to disclose climate change risks in its upcoming 10-K filings with the SEC to inform investors of financial risks from climate change related to: (i) present and probable future climate change regulation and legislation; (ii) climate-change related litigation; and (iii) physical impacts of climate change. Xcel also pledged to make other disclosures, including current carbon emissions; projected increases in carbon emissions from planned coal-fired power plants; company strategies for reducing, offsetting, limiting, or otherwise managing GHGs, and corporate governance actions related to climate change, including whether environmental performance is incorporated into officer compensation.

In his press release announcing the Agreement, Cuomo said: "Substantial financial risks for energy companies that emit large quantities of carbon dioxide are being created by a number of new or likely regulatory efforts, such as New York’s newly adopted regional carbon regulations for power plants, and other future regulatory efforts, including federal regulation, Congressional action, and climate-change related litigation. These risks are especially exacerbated for power companies that are building new coal-burning power plants or other large new sources of global warming pollution emissions. Knowledge of these risks is important for investors to make informed financial decisions."

Cuomo said, "I will continue to fight for increased transparency and full disclosure of global warming financial risks to investors. Selectively revealing favorable facts or intentionally concealing unfavorable information about climate change is misleading and must be stopped."

Cuomo was among a number of states and non-governmental organizations that also petitioned the SEC last year urging the SEC to interpret existing federal securities disclosure laws and regulations as requiring enhanced disclosure of climate change related financial risks and opportunities. Environmental organizations applauded Cuomo’s Agreement with Xcel.

This week’s developments with Xcel show that public companies and their investors, especially those in industry sectors that are potentially significant sources of emissions (such as energy and utilities, petrochemical, refineries, automotive and cement) or likely to be impacted by catastrophic events or physical changes that include sea level rise (such as property and casualty insurers and commercial real estate investors), need to be increasingly mindful of state and socially-responsible investor group initiatives that target enhanced disclosure of climate change related risks and liabilities.

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The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

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