Investors group asks power companies about fallout from clean energy
By John D. Oravecz
Published: Friday, Oct. 25, 2013, 12:01 a.m.
Consol Energy Inc. and FirstEnergy Corp. are among 45 major coal, natural gas, oil and electric power companies asked by a group of global investors to explain how they will manage the financial risks that efforts to deal with climate change pose to their businesses.
The group of 70 investors, mostly in the United States and Europe, sent letters to the companies last month asking for detailed responses before their annual shareholders meetings next year. The group said it received 30 early responses from the companies.
Investors signing the letters include California's two largest public pension funds, the New York state and New York City Comptrollers, F&C Asset Management and the Scottish Widows Investment Partnership.
The letters come as coal producers and power generators, such as Consol and FirstEnergy, grapple with the fallout on their businesses from a shift to cleaner sources of energy and efforts by the Obama administration to limit pollution from fossil fuels by imposing more stringent emissions standards for coal-fired plants.
Consol spokeswoman Lynn Seay did not comment on the letter from the investors. Spokeswoman Tricia Ingraham said FirstEnergy is evaluating the investors' request and has not yet responded to it.
Last week, Cecil-based Consol forecast a third-quarter loss, even though it produced and sold more natural gas and coal than expected. Despite a growing gas-drilling business, the company remains largely a coal producer — an industry hit hard by dropping demand and the low price of natural gas.
The company is evaluating its operations but has refused to comment on speculation that it will sell as many as five of its coal mines. CEO J. Brett Harvey has said “everything is on the table” to increase shareholder value.
Akron, Ohio-based FirstEnergy, the largest electricity provider in Pennsylvania, has moved to deactivate about a dozen coal-fired power plants rather than spend hundreds of millions of dollars to meet the stiffer pollution-control requirements to deal with greenhouse gases.
The closings include the 370-megawatt Mitchell Power Station in Union Township, Washington County, and the 1,710-megawatt Hatfield's Ferry plant near Carmichaels, Greene County.
“Those plants are losing money today and will lose money in the future. Our plans are not to run those units again,” James H. Lash, president of FirstEnergy Generation, said last month, referring to the local plants.
Robert Strauss, economics and public policy professor at Carnegie Mellon University's H.J. Heinz School of Public Policy, said the companies will be careful about their response to the investors' letter.
“The companies will all want to be forthcoming, because CEOs know if they don't respond, their stock prices likely will go down, and their salaries will go down. So it will be vague, and it will be written by lawyers,” Strauss said.
At its annual meeting on May 8, Consol recommended against and shareholders defeated a similar proposal from the As You Sow Foundation of San Francisco. In a lengthy response, Consol called the proposal “overreaching, unlikely to be implemented at a reasonable cost and requires a report addressing issues outside our experience and purpose.”
The investors inquiry is being coordinated by Boston-based Ceres, a coalition of investors and companies that advocate for sustainable business practices, and the Carbon Tracker initiative, an effort to get companies to better explain to investors the value of their fossil fuel reserves. In a statement released on Thursday, Ceres said the action is driven by concern that companies may not be as profitable in the future because of efforts to limit climate change.
“The underlying question here is the billions of dollars that are being invested” in exploration for fossil fuels every year, and whether that's a prudent investment, said Jack Ehnes, head of the California's State Teachers' Retirement System, which has about $5.4 billion invested in major fossil fuel companies.
The letter said investment bank HSBC assessed how a number of oil and gas companies would be affected and estimated that 40 to 60 percent of their market value could be lost because a portion of their proven reserves would become stranded assets and reduced demand for oil would drive down prices, reducing the value of remaining reserves.
“We would also like to understand what options there are for (companies) to manage these risks by, for example, reducing the carbon intensity of its assets, divesting its most carbon — intensive assets, diversifying its business by investing in lower — carbon energy sources or returning capital to shareholders.”
The Associated Press contributed to this report. John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or email@example.com.
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