Dominion Resources – Financial Risks of Continued Reliance on Coal

WHEREAS

For electric power companies, continued reliance on coal is increasingly problematic in the face of declining reserves of high quality central Appalachian coal, unprecedented price increases and coal price volatility, and the high cost of carbon capture and storage for coal plants. By comparison, natural gas prices have reached record lows and supplies are increasingly abundant in the U.S., and costs for wind and solar are declining.

Coal combustion for electricity is a major contributor to air pollution, accounting for one third of the nitrous oxides (NO_x), 50% of the mercury, a hazardous air pollutant, and over 36% of the carbon dioxide (CO₂) emitted in the U.S.  Older coal plants emit substantially more of these pollutants per megawatt hour (MWh) than newer plants.

The U.S. Environmental Protection Agency (EPA) is moving, in some cases pursuant to court order, to tighten regulation of the air, water and waste impacts of coal plants. Industry analysts (Bernstein Research, Jeffries & Company, Standard & Poor’s, Wood Mackenzie) have concluded that the cost of additional environmental control equipment for NO_x, particulates and mercury may make it uneconomic to retrofit small, older coal plants.  Pending EPA regulations governing storage and disposal of coal combustion wastes will likely increase operating costs for coal plants.

EPA is also developing regulations for CO₂ and other greenhouse gas emissions.  However, the lack of national climate policy to reduce CO₂ emissions further adds to economic uncertainty for coal plants. Commercial deployment of carbon capture and storage technology for coal plants is 10 to 15 years away and “would increase electricity costs by about 30 – 80%,” the U.S. Government Accountability Office reports.

This unprecedented combination of forces has led a number of utility companies to announce coal plant retirements. Dominion has stated that it expects to close two aging coal plants in Massachusetts and Indiana within 5-7 years if environmental regulations occur as expected, as it would become uneconomic to run them. Nevertheless, with 41% of its 2009 electric generation originating from coal-fired units, Dominion will remain heavily reliant on coal. Coal combustion contributes more than 90% to the company’s total NO_x, SO_2, CO₂ and mercury emissions, according to a data extrapolated from the report Benchmarking Air Emissions of the 100 Largest Electric Power Producers in the United States (Natural Resources Defense Council, 2010).

RESOLVED

Shareowners request that Dominion’s Board of Directors, at reasonable cost and omitting proprietary information, issue a report by September 2011 on the financial risks of continued reliance on coal contrasted with increased investments in efficiency and cleaner energy, including assessment of the cumulative costs of environmental compliance for coal plants compared to alternative generating sources.

Duke Energy – Financial Risks of Continued Reliance on Coal

WHEREAS

Electric utility companies that rely on coal face numerous challenges and uncertainty regarding environmental compliance costs, and the cost of carbon capture and storage for coal plants. Declining reserves of high quality central Appalachian coal, unprecedented price increases and coal price-volatility, versus abundant supplies and record low-prices for cleaner burning natural gas, and declining costs for wind and solar energy, make continued reliance on coal increasingly problematic.

Coal combustion for electricity is a major contributor to air pollution, accounting for one third of nitrous oxides (NOx), 50% of mercury, a hazardous air pollutant, and over 36% of carbon dioxide (CO₂) emitted in the U.S.  The U.S. Environmental Protection Agency (EPA) is moving, in some cases pursuant to court order, to tighten regulation of the air, water and waste impacts of coal plants.  Pending EPA regulations governing storage and disposal of coal combustion wastes will likely increase operating costs for coal plants.  Industry analysts (Bernstein Research, Jeffries & Company, Standard & Poor’s, Wood Mackenzie) have concluded that the cost of environmental control equipment may make it uneconomic to retrofit some coal plants.

This unprecedented combination of forces has led Duke Energy, which relies on coal for 62% of its electricity production, to replace some of its older coal plants. The $1.8 billion, 825-megawatt (MW) unit Duke is building in Cliffside, NC, will help replace about 1,000 MW of older, higher-emitting coal units.  Nevertheless, even with these and other coal plant closures, by 2030 Duke will still depend on coal for 28% of its energy.

EPA is also developing regulations for CO₂ and other greenhouse gas emissions.  However, the lack of national climate policy setting limits on CO₂ emissions further adds to the economic uncertainty for coal plants.

Duke’s 630-MW coal gasification plant under construction in Edwardsport, IN, could capture 18 percent of its CO₂ within four or five years. Capturing the CO₂ created when coal is turned into a fuel gas, could add 5 percent to 15 percent to the pant’s initial $2.35 billion cost and Duke has sought regulatory approval to study a second step that could capture an additional 40% of the CO₂ at a later stage.

According to some experts, however, “before new methods can be commercialized, projects need three to five years of planning and construction, followed by eight to 10 years of actual pumping of carbon dioxide into the ground.” (http://www.nytimes.com/2009/03/17/business/energy-environment/17coal.html?_r=1&scp=4&sq=edwardsport&st=cse) A recent report from the U.S. Government Accountability Office, states that commercial deployment of carbon capture and storage technology for coal plants, is 10 to 15 years away and “would increase electricity costs by about 30 to 80 percent.”

RESOLVED

Shareowners request that Duke Energy’s Board of Directors, at reasonable cost and omitting proprietary information, issue a report by November 2011 on the financial risks of continued reliance on coal contrasted with increased investments in efficiency and cleaner energy, including assessment of the cumulative costs of environmental compliance for coal plants compared to alternative generating sources.

Big Coal Losing Momentum in the U.S.

Poor coal. For so long, it has gotten away with being the largest contributor (41 percent) to global CO2 emissions from energy use, a widespread public health hazard by virtue of lead, mercury and other pollutants, the source of black lung disease, and now we can add deforestation to its achievements. “Coal will be coal,” they said. “Isn’t it great that it’s cheap and abun­dant?” Coal claims that it’s now clean and has offered to change its ways by burying its carbon instead of spewing it all over the atmosphere, but its persecutors have obtained restraining or­ders and are bent on keeping it out of the house.

According to Coal Moratorium Now! and the Rainforest Ac­tion Network (RAN), fifty-nine coal plants (of more than 150 proposed between 2000 and 2006) were cancelled or shelved in 2007. Carbon emissions played a role in at least 15 cancel­lations, and coal plants disappeared entirely from some utili­ties’ long-range plans due to increasing regulatory scrutiny of long-range integrated resource plans. In some states, regulators are starting to favor utility-scale renewables over coal. Inter­estingly, more plants have been abandoned by their sponsors than rejected outright by regulators, courts or local authorities. Rising construction costs, insufficient financing or lack of sub­sidies and even lower demand estimates were contributing fac­tors along with climate change.

At Trillium Asset Management Corporation, it’s always been our policy not to invest in mining companies, and we try to avoid holding electric power companies that favor coal over cleaner sources of energy. But fortunately our hands are not tied when it comes to advocacy. As my colleague Lauren McLean writes about in this issue (see p. 10), we’ve used our voice at Alliant Energy to promote greater development of energy efficiency incentives. We’re also on Bank of America‘s case. The Ceres member has received a lot of praise for being the first bank to adopt an “intensity” (reduction per unit) GHG target for its energy and utility lending portfolio; its goal is to realize a 7 percent decrease by 2008 from a 2004 benchmark. It is on its way to meeting that goal. So what’s wrong with this picture? It’s simple. Reductions per unit are all well and good, unless overall (“absolute”) emissions are going up – as Bank of America’s did by 11 percent between 2005 and 2007.

The company has refused to answer shareholders’ questions as to why this is. Could it have something to do with RAN’s re­search identifying the Bank as one of the top financiers of coal power plants? We’re starting to wonder if the kudos Bank of America is getting for its intensity reduction goals isn’t a little like patting a dieter on the back for reducing calories per meal even as he eats so many meals that he’s put on 11 percent more pounds since 2005.

This metaphorical epiphany was one of the motives behind our shareholder resolution calling on the Bank to embrace a moratorium on financing coal-fired power plants and coal min­ing by means of mountain top removal (MTR). A moratorium on building new coal plants is a radical idea that’s increasingly supported by non-radicals, such as the U.S. public. Seventy-five percent of American adults would support a five-year morato­rium on new coal plants if funding for renewable alternatives was increased and efficiency standards were tightened.¹

Mountain top removal is a double whammy on the climate front. The method clear-cuts forests and blasts away mountain tops to extract coal. The rubble is dumped in the valleys below, filling streams and destroying water resources. Between 1992 and 2012, the US Environmental Protection Agency estimates that MTR will have destroyed approximately 7 percent of Ap­palachian forests in coal mining regions studied.

Over 110 coal-fired electrical generating plants and synfuels plants are currently under construction or in the planning pro­cess. In addition to bearing their share of ethical responsibility for the disaster that is coal, those that finance it assume addi­tional financial risk due to rising construction costs for coal plants and the eventual attachment of a price tag for emitting carbon (which Bank of America recently estimated at $20-$40 a ton in the absence of federal regulation).

Coal enthusiasts insist that capturing and storing car­bon underground will solve the GHG problem, but as a new report from the Interfaith Center on Corporate Responsi­bility observes, these technologies are untested at actual plant-scale sizes.²

Bank of America successfully petitioned the Securities and Exchange Commission to exclude our proposal from the proxy ballot. However, Citigroup’s shareholders will vote on a similar resolution filed by Boston Common Asset Management. Vote Yes on Proposal 9. Coal is a bad investment.

Notes

1. “A Post Fossi-Fuel America: Are Americans Ready to Make the Shift?” opinion survey conducted by Opinion Research Corporation, October 18, 2007.

2. ICCR and Synapse Energy Economics, Inc., The Risks Of Investing In New Coal-Fired Generating Facilities, p. 29.

Turn Down the Heat – It’s Getting Warmer

With all the talk out there about energy efficiency and re­duced use, I can’t help but think of my mom, telling us kids to put on a sweater, the heat would not go up. I laugh at the per­son I’ve become, as I tell my own kids the same thing, adding the environmental commentary that it’s one little thing we can do and if we don’t, climate change will turn up the heat more than we’d like – before we know it.

So what’s a shareholder to do, in this day and age of climate change, when a company in your portfolio is arguing to a utili­ties commission that their predicted power demand requires them to build a coal-fired power plant to meet it? Since a request to turn down the heat in an Iowa winter probably wouldn’t go very far, we took a more productive approach: we filed a shareholder reso­lution asking Alliant Energy to report on their efforts to curb future demand through incentives to increase energy efficiency for their customers.

Last May, a Standard & Poors report indicated that energy efficiency is likely to emerge as a major part of the solu­tion to climate change, and warned that “utilities may be affected, if revenues and profits decline with consumption,” unless policies are changed to provide incentives for utilities to reduce consumption of electricity. “Decoupling” revenues and profits from consumption (making a utility volume-insensitive) has emerged as one of the more effective ways to reduce carbon emissions, and as more states consider the option, we wanted to be sure that a company whose returns make a difference to our clients was working on the same issue where they do business.

Our concern included the impact upon shareholder value that could be brought about from the reputation risks associat­ed with their proposal to build a 630 megawatt coal-fired power plant in Iowa that would emit several million tons of carbon dioxide a year. No one across the political spectrum doubts that carbon trading and other kinds of carbon constraints are increasingly imminent, meaning that cost estimates for a plant like this can easily rise as carbon starts to trade. We hoped to see a serious commitment to efficiency as a solution to reduc­ing demand, and thereby reducing carbon linked risks, be taken by the company. Through our negotiations around our resolutions, we think we’ve gotten closer.

Working with Ceres, we were pleased to agree to withdraw our shareholder resolution when Alliant agreed to publish a report on their energy efficiency efforts. They were willing to talk with us at some length, and made available many of their experts on policy, efficiency and demand projections to answer our ques­tions. Alliant management was clear that they’d rather work with us than against our resolution, and agreed to honor our request to publish a report to shed some light on their plans to mitigate demand as a method to build shareholder value.

Of course, it’s too soon to con­clude, “problem solved.” Citizens in Iowa dispute Alliant’s demand projec­tions, which the company has agreed to explain in this report. We’re starting to see coal-fired plants cancelled in places like Kansas, Nevada and even the fossil-fuel loving Idaho because of the mounting carbon costs and concerted citizen efforts to stop them. We’d like to see Alli­ant and other utilities take more proactive steps to curb their demand in the near term, and to propose more renewable en­ergy projects for the demand that just won’t go away. Because let’s face it – not every mom wants to wear hats and sweaters at home in the winter just to keep the thermostat hovering at 60 degrees.

Bank of America – Moritorium on Coal Financing

WHEREAS

Bank of America (BOA) is a diversified financial services company providing banking,investment, investment banking, credit card and consumer finance services.BOA recognizes that its ability to attract and retain customers and employees could be adversely affected “to the extent our reputation is damaged” and that “failure to address, or to appear to fail to address various issues” could damage the Corporation and its business prospects. (2005 Annual Report)BOA also recognizes that:

• The health of our company is dependent on the health of communities and our society;
• Climate change and atmospheric pollution represent a risk to the ultimate stability and sustainability of our way of life; and
• Every part of our business has a potential impact on our environment.

http://www.bankofamerica.com/environment/index.cfm?template=env_clichangepos

BOA’s greatest impact on climate change and the environment arises from its financing of businesses and activities, such as electric power generated from coal-burning plants, that emit substantial greenhouse gases (e.g., carbon dioxide) and other pollutants.

As a leading financial institution, BOA has adopted a goal of reducing direct greenhouse gas (GHG) emissions from its facilities by 9% and indirect GHGs within its energy & utility portfolio by 7%.

However, BOA continues to provide financing for companies engaged in mountain top removal (MTR) coal mining and for coal-fired electric power, which, in addition to having serious adverse impacts on communities, the environment, and public health, may also increase the long-term indirect GHG emissions within BOA’s portfolio.

MTR devastates the environment. Forests are clear-cut, the top of mountains blasted away to reveal coal seams and the rubble dumped in the valleys below, filling streams and destroying water resources. Between 1992 and 2012, the US Environmental Protection Agency estimates MTR will have destroyed approximately 7% of Appalachian forests in coal mining regions studied. (http://www.epa.gov/Region3/mtntop/pdf/mtm-vf_fpeis_full-document.pdf)

Deforestation is the second leading source of GHG emissions worldwide. (http://www.gsfc.nasa.gov/gsfc/service/gallery/fact_sheets/earthsci/green.htm)

The carbon in forests destroyed by MTR each year roughly equals the annual emissions from two 800 megawatt coal-fired power plants.

Coal-burning plants, which supply nearly half of U.S. electric power, are responsible for 80% of the nation’s GHG emissions from this sector. Technology for capturing and sequestering carbon from coal-burning plants is in the pilot stage and not widely available. Uncertainties remain regarding leakage and impact on underground water sources.

Coal plants also release most of the sulfur dioxide, nitrogen oxide, particulate matter and mercury, which harms reproductive health and mental development in children. (http://www.ucsusa.org/clean_energy/coalvswind/c02c.html)

Dr. James Hansen, a leading climate scientist at NASA’s Goddard Space Center, has urged an immediate moratorium on the construction of new coal fired power plants in the U.S. as a priority to avoid triggering dangerous destabilization of the Earth’s climate systems. (http://www.columbia.edu/~jeh1/dots_feb2007.ppt)

RESOLVED

Shareholders request that BOA’s board of directors amend its GHG emissions policies to observe a moratorium on all financing, investment and further involvement in activities that support MTR coal mining or the construction of new coal-burning power plants that emit carbon dioxide.