Can Shareholder Activism Spur Electric Utilities to Shift Away from Coal?

The entire basis for capitalism in the U.S. has been to foster individual liberty by ensuring economic opportunity for all and equal treatment under the law. Decades in the making, trends in income and wealth distribution and concentration of economic power in fewer hands threatens the foundation of American society.

One of the movements working to counter these trends and re-balance the U.S. economic system has been corporate social responsibility, or CSR, and one of the primary tools CSR advocates have been employing is shareholder activism.

The question remains open as to just how effective shareholder activism can be in the U.S. given the distribution of stock ownership across the U.S. public, as well the concentration of shareholder voting power through intermediary proxies. Shareholder advocacy group As You Sow and shareholders in electric utility and energy services provider Ameren will soon find out.

Coal risk mitigation proxy resolution up for vote

Shareholders in Ameren, a Fortune 500 company that provides services to 2.4 million electricity and 900,000 natural gas customers in Illinois and Missouri, will vote on April 24 on a resolution filed by As You Sow that asks management "to prepare a plan to reduce exposure to the costs and risks associated with continued reliance on coal, and to report to shareholders on progress in meeting the risk-reduction goals set in the plan." As You Sow has published a copy of the Ameren proxy memo on its website.

“In the past several years, a combination of environmental compliance costs, commodity, and
construction risks have rendered older coal units uneconomical, and the prospects for the remaining coal plants are exceedingly uncertain and risky,” As You Sow Energy Program Manager Corinne Bendersky stated in a press release. “We want Ameren to disclose a coherent plan to mitigate these risks in order to protect shareholder value and shield customers from rising rates.”

Electric utilities coal use: A growing threat to shareholders

As You Sow is troubled that current disclosures indicate Ameren has no plans to diversify its energy supply fleet and will continue to rely heavily on coal-- 98 percent for its merchant fleet and 85 percent for its regulated fleet. That poses a severe business risk to the company, and hence its shareholders, As You Sow asserts.

"All three major credit rating agencies have downgraded Ameren’s merchant business segment, and analysts have warned that it might be forced to go bankrupt due to: 1) the low cost of natural gas‐fired power; 2) higher coal prices; and 3) increasing capital expenses for environmental compliance," As You Sow notes.

The Environmental Protection Agency's (EPA) impending enactment of stricter limits on electric power producers' carbon dioxide (CO2) emissions and a 2014 deadline for compliance with stricter mercury emissions standards means Ameren is facing significantly higher capital expenditures. Added to that are ongoing calls for the EPA to rule on stricter coal ash regulations that have been postponed.

Credit ratings agency Fitch Ratings ranked Ameren "second among the top 10 U.S. electric utilities with coal plants lacking environmental controls that are at risk of retirement," As You Sow points out.

“At a time when coal’s share of the U.S. electric power market is shrinking and coal assets are losing value, investors must exercise enhanced diligence regarding investments in coal‐dependent utilities,” Bendersky continued. “Customers should also keep a close eye on their utilities to ensure that they won’t be left responsible for paying for the company’s poor investment decisions.”

Ameren's not the only U.S. electric utility with an urgent need to enact coal risk mitigation plans, nor is it the only one with which As You Sow has filed shareholder resolutions requesting management to report on them. "Similar resolutions requesting coal risk mitigation plans will be voted on at the annual meetings of Duke Energy on May 3 and FirstEnergy on May 15," the CSR advocacy group says.

“These upcoming shareholder resolutions and As You Sow’s work with coal‐fired utilities reflects investors’ concern with the economic viability of coal as an electricity‐generating source,” As You Sow CEO Andrew Behar stated. “The economics of coal no longer make sense and shareholders need to press companies for answers about the future of their investments.”