Thursday, April 14, 2016

A Shareholder Proposal On Sea Level Rise: NextEra Energy Says 'No.' Will Investors Agree? ... Alan Farago

NextEra Energy, Inc. is the fifth largest electric utility in the United States. The Company provides my electricity reliably and affordably along with 4. 8 million other ratepayers through its principal business, Florida Power and Light (1). FPL is the largest electric utility in Florida, a state especially vulnerable to impacts of sea level rise.

According to a July 2015 report by the Miami Herald, "Florida has more private property at risk from flooding linked to climate change than any other state, an amount that could double in the next four decades, according to a new report by the Risky Business Project. By 2030, $69 billion in coastal property in Florida could flood at high tide that is not at risk today, the report found. That amount is projected to climb to $152 billion by 2050." (2)

Recently my wife and I filed a shareholder proposal requesting the Company to report annually to shareholders on the risks to markets, operations and infrastructure from sea level rise. Despite opposition by NextEra management, the SEC allowed our proposal to move forward.

The proposal concerns the impacts of sea level rise (SLR) on investors and shareholders of NextEra Energy. This is the first shareholder proposal specific to sea level rise. (3)

The majority of NextEra shareholders are mutual funds or other financial companies that cast their votes with Company management routinely; companies like Vanguard Funds, Fidelity Management, Franklin Advisers, TIAA-CREFF, and JP Morgan.

Six years ago, the SEC tentatively dipped its toes in the rising waters of climate change, short of mandating specific disclosures of risk. Its interpretive guidance included, "Companies should ... evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business." (4)

NextEra Energy did evaluate the issue and, judging by its response in SEC filings, decided to address shareholder concerns about climate change in generic responsibility papers while dispersing climate change risk deep inside the fine print of financial reports.

So far, this bifurcated strategy has passed the test of investor confidence. NextEra's corporate communications are filled with awards like its designation as a "world's most ethical company". (5)

Meanwhile, the metrics of global warming are flooding from peer-reviewed science journals. In "Climate Model Predicts West Antarctic Ice Sheet Could Melt Rapidly", (March 19, 2016), the New York Times writes: "Continued high emissions of heat-trapping gases could launch a disintegration of the ice sheet within decades, according to a study published Wednesday, heaving enough water into the ocean to raise the sea level as much as three feet by the end of this century. With ice melting in other regions, too, the total rise of the sea could reach five or six feet by 2100, the researchers found. That is roughly twice the increase reported as a plausible worst-case scenario by a United Nations panel just three years ago, and so high it would likely provoke a profound crisis within the lifetimes of children being born today." (6)

It is hard to keep up, but electric utilities manifestly do not want to keep up.

Electric utilities once were staid, conservative businesses. Today, they are wizards of consolidation, finance and risk management, mitigating risk by hedging cash flows and using insurance as a tactical buffer against disruption.

In the Company's 170 page Annual Report, Section 1A is titled "Risk Factors: Risks Relating to NEE's and FPL's Business". In this section, there are 11,292 words beginning with, "The business, financial condition, results of operations and prospects of NEE and FPL are subject to a variety of risks, many of which are beyond the control of NEE and FPL." Climate change is buried, here:

"NEE and FPL are subject to domestic and foreign environmental laws and regulations, including, but not limited to, extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality and usage, climate change, emissions of greenhouse gases, including, but not limited to, CO2, waste management, hazardous wastes, marine, avian and other wildlife mortality and habitat protection, historical artifact preservation, natural resources, health (including, but not limited to, electric and magnetic fields from power lines and substations), safety and RPS, that could, among other things, prevent or delay the development of power generation, power or natural gas transmission, or other infrastructure projects, restrict the output of some existing facilities, limit the availability and use of some fuels required for the production of electricity, require additional pollution control equipment, and otherwise increase costs, increase capital expenditures and limit or eliminate certain operations." (2015 NEE Annual Report at Page 26)

The NEE climate change risk within its Annual Report is concerned with the regulatory framework for greenhouse gas emissions. However, sea levels are rising on a rapid schedule that does not correspond to the glacial pace of efforts to moderate the impact of carbon and methane on the climate.

The pace of sea level rise, in other words, is overtaking leaden responses by corporate America. In the Operational Risk section of NextEra's Annual Report, there is one mention of sea level rise.

"Weather conditions directly influence the demand for electricity and natural gas and other fuels and affect the price of energy and energy-related commodities. In addition, severe weather and natural disasters, such as hurricanes, floods, tornadoes, icing events and earthquakes, can be destructive and cause power outages and property damage, reduce revenue, affect the availability of fuel and water, and require NEE and FPL to incur additional costs, for example, to restore service and repair damaged facilities, to obtain replacement power and to access available financing sources. Furthermore, NEE's and FPL's physical plant could be placed at greater risk of damage should changes in the global climate produce unusual variations in temperature and weather patterns, resulting in more intense, frequent and extreme weather events, abnormal levels of precipitation and, particularly relevant to FPL, a change in sea level". (7)

In its opposition to our shareholder resolution, NextEra writes: "A proposal that asks the Company to speculate on a single aspect of global climate change nearly a century into the future would be a waste of time and money." (8)

In other words, one of the nation's largest electric utilities, NextEra, recognizes there is a "particularly relevant" risk to the Company from sea level rise but doesn't think it is worth the time and money to report that risk to shareholders. The captain of the Titanic felt the same way about icebergs.

In April 2016, Newseek reported:

"Boston and other coastal cities may want to batten down the hatches. A new study from climate scientists at the University of Massachusetts Amherst and Pennsylvania State University warns estimates of future sea level rise may be significantly underestimated. ... Boston, for example, could see about 5 feet of sea level rise in the next 100 years, according to the researchers. The most recent prediction by the Intergovernmental Panel on Climate Change is that the sea level will rise as much as 38 inches by the year 2100 because of melting glaciers and the fact that warming makes water expand." Researchers Robert DeConto and David Pollard argue that this estimate fails to take into account atmospheric warming in Antarctica that will melt major ice shelves and elevate sea levels another 3 feet over earlier estimates by 2100 to 6 feet total ... (9)

It may be that gallows humor is the only way to absorb what lies ahead. The problem is that climate change could put us all on the gallows scaffolding -executives, engineers and employees of the nation's electric utilities, included.

A voluntary report to shareholders and investors on the real, quantifiable risks to the Company's markets, operations and infrastructure from sea level rise would snap the inconsistencies into alignment; an important step to reconciling predictable, harsh outcomes on coastlines around the world with regulatory frameworks on climate change.

NextEra management dismisses this notion: "Investors and the public already have ample sources of information to assess the sustainability of the Company's business and operations. In light of the foregoing, the report called for in the proposal would not lead to any additional material disclosures; rather, the Company believes that the report would be, by its nature, highly speculative and confusing."

On April 12, 2016 the Insurance Journal published, "Sea Level Rise Will Be Worse And Come Sooner". (10)

"That revelation was made by an official with the National Oceanic and Atmospheric Administration on Tuesday at the annual RIMS conference for risk management and insurance professionals in San Diego, Calif. The conference is being attended by more than 10,000 people, according to organizers ... Margaret Davidson, NOAA's senior advisor for coastal inundation and resilience science and services, and Michael Angelina, executive director of the Academy of Risk Management and Insurance, offered their take on climate change data in a conference session titled "Environmental Intelligence: Quantifying the Risks of Climate Change." Davidson said recent data that has been collected but has yet to be made official indicates sea levels could rise by roughly 3 meters or 9 feet by 2050-2060, far higher and quicker than current projections."

Civilization is on the cusp of catastrophic change in sea level, not "80 years from now" but within the Company's depreciation schedules and investment timelines.

Of 901 shareholder proposals in 2015, 56 concerned climate change. None passed (11). With that dismal record, it may take action by the SEC to require risk disclosure from sea level rise.

This is not a confusing issue. Our shareholder resolution requesting an annual report from NextEra Energy on the real, quantifiable risks of sea level rise according to best available science is common sense.



Anonymous said...

How about contacting largest NEE largest shareholders and explain the importance of your proxy? You know NEE will not like such a move, a first indication that it is worth doing.
NEE largest stockholder is Vanguard, a company that seeks to be or claims to care about sustainability.
State Street files a sustainability report.
Wellington Management Company, LLP also has a sustainability report.
J.P. Morgan, OK they are unindicted co-conspirators in about every Wall St. scam, don't bother with these criminals.

Anonymous said...

Climate change is a big deal, and disclosure of risk is good. But making NextEra the target? This company is one of the biggest developers of renewable energy in the U.S.; they produce electricity with very low rates of carbon emissions (natural gas and nuclear plants); and unlike many other utilities, they are not fighting the Obama Administration's Clean Power Plan. Why don't you focus on a good ol' fashioned coal-fired utility instead of them?

Also, I cannot help but see the irony of all of your blog posts attacking NextEra related to the Turkey Point nuclear power plant (which, by the way, produces lots of electricity with zero carbon emissions) and this post which attacks NextEra for not doing enough about climate change. You all look like unguided missiles.

Alexandria said...

Turkey Point is the unguided missile. That plant has been poisoning Miami since before Andrew. The storage for the spent rods is overloaded and leaking. They have to take another 100 MILLION GALLONS OF WATER on top of what they had been allocated. That is the drinking water for 5 cities. FPL needs to be investigated for numerous frauds. Maintenance to FPL is toothpicks, and Duct Tape. They have neglected the grid going on 30 years. They let go 10,000 maintenance employees in 1990 and never looked back. FPL is a Ponzi Scheme with the ratepayers paying. Here's some Facts Martin County plant 4000 acres of cooling ponds leaching into the ground water. 12 Million tons of emissions. Loxahatchee WCEC 12 Million tons of emissions 21 Million gallons of poisoned water being deep well injected seeping into ground water thru vertical migration. So anonymous your very uninformed and I would guess are a very well paid Employee of Next Evil. I can only hope karma come calling real soon. The SEC, FBI, NRC, and God needs to come down on FPL they are polluters who do not care.