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January 17, 2003
Global Warming Shareowner Resolution Filed at "Filthy Five" Electric Companies
    by William Baue

A coalition of institutional investors has filed a shareowner resolution calling on five electric power producers to report on the business risk of their greenhouse gas emissions.

Following the dictum that there is strength in numbers, a coalition of institutional investors has filed a global warming shareowner resolution at the five largest carbon dioxide (CO2) emitters in the U.S. electric power industry. Dubbed the "filthy five," these companies include American Electric Power (ticker: AEP), Southern Company (SO), Xcel Energy Inc. (XEL), TXU Corporation (TXU), and Cinergy Corporation (CIN).

The Connecticut Retirement Plans and Trust Funds (CRPTF) led the initiative, with coordinating support from the Coalition for Environmentally Responsible Economies (CERES) and the Interfaith Center on Corporate Responsibility (ICCR). The resolution asks the companies to report on the business risk of their greenhouse gas emissions and on the potential economic benefit of curtailing those emissions.

"Investors need the full picture to assess companies' long-term investment value," said State of Connecticut Treasurer Denise Nappier, the principal fiduciary of CRPTF's $17 billion portfolio. "Air pollutant emissions are some of the most measurable, relevant, and significant indicators of risk for this particular industry, and it's our responsibility to ask what the company's plans are to address that risk." CRPTF filed the resolution at AEP.

Ms. Nappier noted that AEP itself has acknowledged climate change as a risk factor in its SEC filings. AEP is also a founding member of the Chicago Climate Exchange (CCX). According to Ms. Nappier, the fact that AEP helped found CCX further substantiates the company's recognition that its CO2 emissions pose a long-term material financial risk that must be managed. CCX is a voluntary program, which launches today, that enables companies to trade greenhouse gas emissions credits.

"What [AEP has not] done, and what most utility companies haven't done, so far, is present to their shareholders a comprehensive assessment of these risks [from greenhouse gas emissions] and how they plan to address them," said Ms. Nappier at yesterday's news conference announcing the resolution initiative.

The resolution calls on the companies to assess the economic risks of past, present, and future emissions of carbon dioxide, sulfur dioxide (SO2), nitrogen oxide (NOx), and mercury (Hg). All of these emissions are known public health risks that contribute to global warming. The resolution notes that U.S. power plants create one-tenth of all global carbon dioxide emissions. The U.S. electric industry generates two-fifths of the domestic carbon dioxide emissions, two-thirds of the sulfur dioxide emissions, one-quarter of the nitrogen oxide emissions, and one-third of the mercury emissions.

"We believe that taking early action on reducing emissions and preparing for standards could better position companies over their peers, including being first to market with new high-efficiency and low-emission technologies," the resolution states. "Changing consumer preferences, particularly those relating to clean energy, should also be considered. Inaction and opposition to emissions control efforts could expose companies to reputation and brand damage, and regulatory and litigation risk."

The resolution notes that governmental regulation of greenhouse gas emissions is inevitable, and hence electric companies need to prepare for the financial implications of such regulation. The Bush Administration has been widely criticized for failing in last year's Climate Action Report to recommend mandatory reductions of greenhouse gas emissions. In the absence of federal regulation, however, states such as Massachusetts and New Hampshire are legislating caps on power plant emissions of carbon dioxide and other pollutants, and other states are poised to follow suit.

"We need to know now where a utility will stand down the road when there are federal regulations in place," said Jim Newland, chairperson of the Mission Responsibility Through Investment Committee of the Presbyterian Church, U.S.A., which filed the resolution with Cinergy. "If the company has not made the right amount of progress toward investing in alternative sources, it will be extremely expensive and detrimental to stockholder return to adapt at that point."

CERES Executive Director Robert K. Massie summed up the business case for a forward-looking approach regarding climate change and greenhouse gas emissions.

"Ignoring the writing on the wall is just not good corporate governance," Mr. Massie said.


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