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Institutional Investors Call on Power Sector to Focus Attention on Financial Risks from Climate Change

Citing the financial risks that electric power companies face from climate change, 15 leading U.S. investors today sent letters to 43 of the country's 50 largest investor-owned greenhouse gas emitters in the industry requesting that they report within a year how future greenhouse gas limits will affect their financial bottom lines and steps they are taking to reduce those financial impacts and improve their competitive positioning. (See company list below.)
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Jul 11, 2005

Citing the financial risks that electric power companies face from climate change, 15 leading U.S. investors today sent letters to 43 of the country's 50 largest investor-owned greenhouse gas emitters in the industry requesting that they report within a year how future greenhouse gas limits will affect their financial bottom lines and steps they are taking to reduce those financial impacts and improve their competitive positioning. (See company list below.)

The letter to company CEOs was sent by California State Treasurer Phil Angelides, Connecticut State Treasurer Denise Nappier, New York City Comptroller William Thompson and a dozen other investors managing more than $550 billion of assets. The letter also was signed by New York State Comptroller Alan Hevesi, California State Controller Steve Westly and Maryland State Treasurer Nancy Kopp, as well as a half-dozen labor pension funds, socially responsible investment funds and foundations. Many of the investors are part of the Investor Network on Climate Risk (INCR), a leading U.S.-based investor coalition working on climate risk issues.

The request comes as a growing number of electric power companies are preparing climate risk evaluation reports at the request of shareholders, including four that have already been done by American Electric Power (AEP), Cinergy, TXU and Southern. According to a recent analysis of three of those reports by the Boston-based Ceres investor coalition, there is widespread concern in the industry about regulatory uncertainty and the potential financial exposure it is causing for long-term capital investments.

"Shareholders need to know if the companies they own are adopting strategies that will enable them to survive, or even thrive, as greenhouse gas limits begin taking effect," said Angelides, a board member at the California Public Employees' Retirement System (CalPERS) and the California State Teachers Retirement System (CalSTRS), the nation's largest and third largest public pension funds with over $300 billion in assets.

"These first-in-the-industry reports underscore the need for electric power companies across the industry to take a serious look at the business ramifications of climate change," added Connecticut State Treasurer Denise Nappier, whose office has been active in urging electric power, oil & gas and auto companies to analyze the financial impacts of climate change.

Angelides, Nappier and the other investors said the climate risk reports from power sector companies should include financial analysis of likely regulatory scenarios and the strategic actions being taken to prepare for those scenarios.

The report comes as the industry is proposing to build more than 110 new coal-fired power plants in the coming years - investments that could be substantially affected when greenhouse gas regulations are adopted in the U.S., as is widely expected.

"Wall Street firms should insist upon climate risk analysis as a standard practice and all companies should be preparing them voluntarily without investors having to file shareholder resolutions," said Mindy S. Lubber, president of Ceres, a coalition of investment funds, environmental organizations and public interest groups that has been spearheading investor activity on the climate risk issue. Ceres also coordinates INCR.

"Regardless of what is happening in Washington, states are beginning to mandate that utilities reduce their greenhouse gas emissions," added California State Controller Steve Westly, who also serves on the CalPERS and CalSTRS boards. "Utilities that fail to comprehend the meaning of these broader market signals risk absorbing higher costs for their delayed action. Undertaking a comprehensive evaluation of the company's operations is the only responsible action."

Ceres has convened a group of investors, environmentalists and industry representatives that will recommend best practice guidelines for analyzing and disclosing climate risks early this fall. The results will immediately be shared with power sector companies and Wall Street firms.

Four companies - AEP, TXU, Cinergy and Southern - agreed last year to prepare reports and three more have agreed this year to do the same, including FirstEnergy, Progress Energy and DTE Energy.

An analysis of those reports by Ceres underscores shareholders' concerns. All three of the companies acknowledged that carbon limits are inevitable in the U.S. and also voiced widespread concern that impending climate regulations might make today's investments and operating decisions obsolete.

Among the key findings in the Ceres report:

  • All of the companies are concerned about the financial risks from regulatory uncertainty
  • All of the companies are concerned they will be penalized for early voluntary emission reductions, an issue that calls into question the effectiveness of a voluntary approach to greenhouse gas reductions.
  • Two of the three companies - AEP and Cinergy - said national carbon regulations can be implemented without causing significant harm to the U.S. economy.
  • Investors consider the electric power industry to be a likely target for regional and national carbon regulations because it is the largest source of greenhouse gases in the United States, contributing 39 percent of the country's emissions and 10 percent of the world's. Two states in the Northeast - Massachusetts and New Hampshire - have already imposed carbon emission limits on power plants and a handful of other states, including California, Colorado and Utah, now expect power companies to factor carbon emission costs into their proposals for new power plants.

Letters were sent to 43 of the 50 investor-owned electric power companies listed below. The companies are the top 50 investor-owned CO2 emitters in the U.S. power industry based on Ceres 2004 Benchmarking Air Emissions Report. (The seven companies that did not receive letters have prepared or are preparing to plan climate risk reports. They are identified with an asterik.)

*American Electric Power, Columbus, Ohio 
*Southern Company, Atlanta, GA 
Xcel, Minneapolis, MN 
*Cinergy, Cincinnati, Ohio 
*Progress Energy, Raleigh, NC 
Ameren, St. Louis, MO 
Edison International, Roemead, CA 
*FirstEnergy, Akron, Ohio 
ScottishPower, Scotland 
Dominion, Richmond, VA 
Allegheny Energy, Greennsberg, PA 
AES, Arlington, VA 
Duke Energy, Charlotte, NC 
FPL Group, Juno Beach, FL 
Entergy, New Orleans, LA 
*DTE Energy, Detroit, MI 
CenterPoint Energy, Houston, TX 
Reliant Resources, Houston, TX 
E.ON, Germany 
Mirant, West Atlanta. GA 
PPL, Allentown, PA 
Westar Energy, Topeka, KA 
Dynegy, Houston, TX 
Wisconsin Energy, Milwaukee, WI 
OGE Energy, Oklahoma City, OK 
Alliant Energy, Madison, WI 
CMS Energy, Jackson, MI 
MidAmerican Energy, Des Moines, IA 
PG&E, San Francisco, CA 
*TXU, Dallas, TX 
Calpine, San Jose, CA 
PSEG, Newark, NJ 
Constellation Energy Group, Baltimore, MD 
TECO Energy, Tampa, FL 
Great Plains Energy, Kansas City, MO 
SCANA, Columbus, SC 
DPL, Dayton, Ohio 
NiSource, Merrilville, IN 
Pinnacle West Capital, Phoenix, AR 
Exelon, Chicago, IL 
WPS Resources, Green Bay, Wis 
UniSource Energy, Tucson, AZ 
KeySpan, Brooklyn, NY 
Sierra Pacific Resources, Reno, NV 
TransAlta, Canada 
Oglethorpe Power, Tucker, GA 
Aquila, Kansas City, KA 
Vectren, Evansville, IN 
ALLETE, Duluth, MN 
PNM Resources, Albuquerque, NM

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