Falling prices for renewables and batteries, along with decarbonization efforts in a growing number of states, are increasing the risk that new fossil-fuel infrastructure, like this pumping station near Watford City, N.D., could become stranded assets.
Shareholder efforts to influence companies' approaches to issues related to climate change have suffered blows from both financial regulators and a federal judge in recent weeks.
Staff for the U.S. SEC on March 6 said that Dominion Energy Inc., Sempra Energy and PNM Resources Inc. could justifiably exclude from their proxy materials shareholder resolutions calling for the companies to report on the risks that planned natural gas infrastructure could become economically stranded due to government climate policies. Commission staff also said there appeared to be a legal basis for Chevron Corp. and Exxon Mobil Corp. to block resolutions that would commit the companies to support policies aimed at reducing carbon-dioxide emissions and, in the case of Exxon, to create a climate-risk committee.
Those findings followed a February ruling by a U.S. district court judge in Montana that NorthWestern Corp. could exclude a shareholder resolution calling for the company to publish a plan for stopping coal-fired generation at the Colstrip power plant and replacing it with renewable energy and energy storage.
The shareholder resolutions were deemed duplicative of existing corporate disclosures or attempts to interfere with ordinary business operations and micromanage the companies.
The conflicts over shareholder activism come as companies face increasing investor pressure to address environmental, social and governance issues. At the same time, falling prices for renewables and batteries, as well as decarbonization efforts in a growing number of states, are focusing more attention on the risk that new natural gas plants and pipelines could become stranded assets. At least 200 new gas plants were planned or in development across the U.S. as of December 2019, totaling nearly 70,200 MW of additional capacity — nearly equal to total generation capacity in Texas.
'A great partner for renewables'
Dominion said in its latest annual report that new regulations limiting greenhouse gas emissions or requiring efficiency improvements could increase compliance costs and make some of the company's power plants or natural gas facilities "uneconomical to maintain or operate."
At the same time, Dominion executives have argued that investing in natural gas makes sense "because it's a great partner for renewables."
Lawyers for Sempra Energy told the SEC that the company has told shareholders that it is working to ensure that natural gas assets are "necessary parts of the solution to 'the global response to climate change.'"
Lawyers for PNM Resources, meanwhile, pointed to publicly available documents stating that the company expects that it would be able to recover costs from ratepayers associated with any natural gas plants it may have to retire in order to comply with New Mexico's clean-energy law.
Lila Holzman, energy program manager at As You Sow, a shareholder activist group that filed the Dominion and Sempra resolutions, says the companies have not "gone far enough."
"In the face of the clean energy transition and the urgent need to reach the Paris Climate Agreement's goal, increasing reliance on emissions-intensive natural gas is a risky bet," Holzman said in a news release March 11. "Sempra and Dominion are both continuing to build out significant gas assets in states with aggressive climate change targets."
A report issued by As You Sow in early March found that companies across the U.S. are poised to invest billions of dollars in new natural gas infrastructure. "This investment drive, which includes power plants and pipelines with multi-decadal lifespans, is incompatible with maintaining a safe climate and avoiding disastrous and costly economy-wide impacts," the report stated.
The investments are occurring as states impose new emissions-reduction mandates on electric power suppliers.
The Virginia Senate on March 6 sent the governor legislation that would require utilities operated by Dominion and American Electric Power Co. Inc. to decarbonize their power portfolios by midcentury. California has until 2045 to transition entirely to carbon-free sources of electricity.
In Montana, NorthWestern has until 2045 to cut the carbon intensity of its power portfolio by 90% from 2010 levels. However, the company objected to a shareholder resolution that tried to shape corporate policy in the interim. Like Exxon and Chevron, which have resisted setting targets to reduce emissions, NorthWestern complained that a shareholder was trying to encroach on the role of management. Federal Judge Dana Christensen agreed.
"The Proposal would shut down a significant carbon-generator two decades before NorthWestern's 90 percent carbon-reduction date, and the steps to be taken to accomplish the phase out are complex," Christensen, the chief judge for the U.S. District Court for the District of Montana, wrote in a Feb. 25 order. "NorthWestern — having agreed to its essential policy — must carry it out safely using business and technical skills day-to-day that are not meant for shareholder debate and participation."