AES resolves investigation by NY Attorney General Cuomo with agreement to disclose climate-change risks to investors
In his latest use of New York's Martin Act as an environmental enforcement tool, on November 19, 2009, New York Attorney General Andrew M. Cuomo announced an agreement with The AES Corporation requiring AES to disclose material risks associated with climate change in its annual report to the Securities and Exchange Commission. The agreement resolves an investigation that began with Mr. Cuomo’s September 14, 2007 letters and accompanying subpoenas to AES and four other energy companies.
Under the terms of the November 19, 2009 Assurance of Discontinuance Pursuant to Executive Law § 63(15), AES’ disclosures will include an analysis of material financial risks associated with current and probable future greenhouse gas legislation and regulations, as well as material financial risks to the company from the physical impacts of climate change, including “the impact of an increase in sea level and changes in weather conditions.” In addition, AES has agreed to a broad litigation disclosure in which the company will describe any climate-change-related litigation involving AES,
the outcome of which will likely have a material financial effect on the Company and any climate change-related decisions issued by the United States Supreme Court, any United States Court of Appeals, or any court in any jurisdiction in which the Company operates that the Company concludes are likely to have a material financial effect on its business.
The Attorney General previously reached similar agreements with Xcel (see August 26, 2008 Xcel settlement) and Dynegy (see October 23, 2008 Dynegy settlement).
New York Attorney General Andrew Cuomo establishes Wind Industry Ethics Code
*Article updated on 11/18/2009.
On July 15, 2008, New York Attorney General Andrew Cuomo announced an “investigation into two companies developing and operating wind farms across New York state amid allegations of improper dealings with public officials and anti-competitive practices.” While the investigation appears to remain underway, Mr. Cuomo announced on October 30, 2008 that the two wind-farm companies under investigation — Noble Environmental Power, LLC (majority-owned by JPMorgan Partners Fund) and First Wind (formerly known as UPC Wind) — have signed the Attorney General’s new Wind Industry Ethics Code. Mr. Cuomo’s office characterized the Wind Industry Ethics Code as
a result of the Attorney General’s investigation into, among other things, whether companies developing wind farms improperly sought land-use agreements with citizens and public officials, and whether improper benefits were given to public officials to influence their official actions relating to wind farm development. Both Noble and First Wind fully cooperated in the inquiry and their assistance was instrumental in developing the Code of Conduct that is being announced today.
Mr. Cuomo is also establishing an Advisory Task Force to monitor wind companies to ensure that they comply with the Code of Conduct embodied in the Wind Industry Ethics Code.
The generation of electricity from wind has received increasing attention in recent years, boosted by the public profile of T. Boone Pickens and his “Pickens Plan”. The State of New York has been at the forefront of the development of wind power plants, tracing the roots of that effort at least as far back as then-Governor George E. Pataki’s January 8, 2003 announcement that within ten years, the state would draw 25% of its electricity supply from wind power and other nonpolluting sources. The state’s experience with wind power, however, has not been without controversy, including reports of corruption and intimidation.
In addition to fleshing out the enforcement and compliance role of the new Task Force, the Wind Industry Ethics Code prohibits conflicts of interest between municipal officials and wind companies and establishes a number of public disclosure, education and training requirements. Among other things, the Code
- Bans a wide range of employment, compensation, gift-giving and other benefit-transfer arrangements between wind companies and municipal employees or their relatives
- Prohibits wind companies from soliciting, using, or knowingly receiving confidential information acquired by a municipal officer in the course of his or her official duties
- Requires wind companies to display on a Web site, disclose to the municipal clerk and publish in a local newspaper the names of all municipal officers or their relatives who have a financial interest in wind farm development
- Obligates wind companies to conduct a seminar for officers and employees about identifying and preventing conflicts of interest when working with municipal employees
For the time being, Noble Environmental Power, LLC and First Wind are the only two signatories to the Wind Industry Ethics Code. Mr. Cuomo, however, expects additional companies to sign on as wind farm development continues: as he observed in his October 30 press release, “I commend Noble and First Wind for taking the lead by adopting this Code, and we fully expect other companies that want to develop wind farms in New York to follow suit.”
The effect of recent economic developments on the wind farm industry’s plans — in New York and across the country — remains to be seen. According to a November 11, 2008 Reuters report, Mr. Pickens has ordered $2 billion worth of wind turbines, which are due to be delivered starting in 2010. In a November 12, 2008 article, The Arizona Republic reported that Mr. Pickens “said that his Texas wind farm is on hold because natural-gas prices have dropped but that his plan for wind power and natural-gas vehicles is still viable to reduce foreign oil imports.”
Dynegy Inc. agrees with New York Attorney General Andrew Cuomo to disclose material risks related to climate change
Following in the footsteps of Xcel Energy's August 2008 landmark settlement with New York Attorney General Andrew M. Cuomo, on October 23, 2008, Mr. Cuomo announced an agreement with Dynegy Inc. under which Dynegy will include disclosures of material risks related to climate change in its Form 10-K filings. The agreements with Dynegy and Xcel are the fruits of Mr. Cuomo's innovative use of New York's Martin Act as an environmental enforcement tool, which began with the New York Attorney General's September 14, 2007 letters and accompanying subpoenas to Dynegy, Xcel, AES Corporation, Dominion Resources, and Peabody Energy. Mr. Cuomo's inquiries regarding AES Corporation, Dominion Resources, and Peabody Energy are said to be "ongoing."
According to the October 23, 2008 Assurance of Discontinuance Pursuant to Executive Law § 63(15), Dynegy's disclosures will include an analysis of material financial risks to the company from the physical impacts of climate change, "including the impact of an increase in sea level and changes in weather conditions", as well as material financial risks associated with present and probable future greenhouse gas legislation and regulations. Dynegy has also agreed to a broad climate-change litigation disclosure covering
[a] description of any litigation related to climate change involving the Company the outcome of which will likely have a material financial effect on the Company and any climate change-related decisions issued by the United States Supreme Court, any United States Court of Appeals, or any court in any jurisdiction in which the Company operates that the Company concludes are likely to have a material financial effect on its business.
In addition, to the extent that Dynegy's greenhouse gas ("GHG") emissions materially affect its financial exposure from climate-change risk, Dynegy will disclose
- current and projected increases in GHG emissions,
- corporate strategies to reduce the company's climate-change risk,
- the role of the company's board of directors in Dynegy's corporate governance process as it applies to climate-change issues, and
- the extent (if any) to which "environmental performance factors" are incorporated into officer compensation.
Mr. Cuomo lauded the agreement with Dynegy, noting that it will help “protect investors by ensuring disclosure of potential financial risks that climate change may pose,” and adding:
Today we raise the bar in the industry and ensure transparency and disclosure in the marketplace. Investors have the right to know all the material financial risks faced by coal-fired power plants associated with global warming and I hope and expect that other companies will follow the lead of Dynegy and Xcel.
Much as former New York Governor Eliot Spitzer used the Martin Act’s broad powers to fight Wall Street fraud when he was New York Attorney General, Mr. Cuomo has used that tool to investigate a range of securities-related issues including subprime mortgages and other financial industry practices. In addition to drawing public attention to his political accomplishments, Mr. Cuomo’s efforts to obtain climate-change-related disclosures from operators of coal-fired power plants may also spur the Securities and Exchange Commission to act as it considers climate-change disclosure requirements.
The October 23, 2008 Dynegy agreement came one day after a group of institutional investors sent a letter to the SEC asking that it require improved climate-risk disclosure in SEC filings. In their October 22, 2008 letter, the Ceres-sponsored investor group -- the Investor Network on Climate Risk ("INCR") -- also asked the SEC to consider how material environmental, social and governance (sometimes referred to as "ESG") risks, including "environmental issues such as water-related risks and social issues such as labor and supply chain risks," can be integrated into the SEC's disclosure requirements. The INCR letter was sent in response to the SEC's request for public comment on its 21st Century Disclosure Initiative, announced by Chairman Christopher Cox in June 2008. (Public comments on the SEC initiative are available on the SEC's Web site.)
