September 16, 2007

New York Subpoenas 5 Energy Companies

By FELICITY BARRINGER and DANNY HAKIM

Attorney General Andrew M. Cuomo of New York has opened an investigation of five large energy companies, questioning whether their plans to build coal-fired power plants pose undisclosed financial risks that their investors should know about.

Mr. Cuomo, using the same state securities law wielded by his predecessor, Gov. Eliot Spitzer, to investigate corruption on Wall Street, sent subpoenas late Friday to the top executives of the five companies, seeking internal documents.

The companies, which have projects in various states, are AES Corporation, Dominion, Dynegy, Peabody Energy and Xcel Energy.

It is rare, if not unique, for a securities law to be used for an environmental purpose, in this case the fight against new coal-fired power plants. The plants’ main emission, carbon dioxide, has been linked by scientists to global warming.

In letters accompanying the subpoenas, the attorney general’s office asked whether investors received adequate information about the potential financial liabilities of carbon dioxide emissions that exacerbate climate change.

“Any one of the several new or likely regulatory initiatives for CO2 emissions from power plants — including state carbon controls, E.P.A.’s regulations under the Clean Air Act, or the enactment of federal global warming legislation — would add a significant cost to carbon-intensive coal generation,” the letters said.

They added, “Selective disclosure of favorable information or omission of unfavorable information concerning climate change is misleading.”

Mr. Cuomo’s move represents a new tactic in an expanding campaign against some of the more than 100 coal-fired power plants currently under consideration.

The nationwide anti-coal effort is being directed by a coalition of environmental groups, shareholder activists and state officials in the Northeast and on the West Coast, including in New York and California.

In an interview, Mr. Cuomo said, “The concept here is using the securities laws to investigate whether the economic risks of these plants are being disclosed — the economic risks which are dovetailing with the environmental concerns.”

Katherine Kennedy, a special deputy attorney general in the environmental protection bureau who worked for the Natural Resources Defense Council for 19 years, added that power plants produced about 30 percent of carbon emissions in the United States, so “it seemed like a logical place to begin.”

Mr. Cuomo said, “It’s a priority for us.”

Two of the five companies disputed Mr. Cuomo’s assertions. Representatives of the other companies postponed comment until they could examine the letters and subpoenas.

The power plant investigation was the second last week in which Mr. Cuomo issued subpoenas under the Martin Act, a 1921 state securities law that predates the creation of the federal Securities and Exchange Commission. The New York law grants the attorney general broad powers to compel testimony and subpoena records.

Until Mr. Spitzer used the law as a weapon against corruption on Wall Street, it was obscure. In June, The Wall Street Journal’s editorial page called for its repeal, arguing that “it is a law that allows a prosecutor to punish, or even ruin, any financial company regardless of evidence or motive.”

In the case of the five energy companies, Mr. Cuomo said, “This is a very straightforward, consistent use of the act because it’s about disclosure to investors.”

For five years, environmentally oriented shareholder groups have been filing resolutions seeking similar disclosures — including one with Peabody Energy — said Dan Bakal, the director of electric power programs for Ceres, a Boston-based coalition of investors and environmental groups focused on the environmental impacts of corporate actions.

“This ratchets up the pressure on companies to provide more information as the risks become more and more material,” Mr. Bakal said. Peabody Energy, he added, had increased its disclosure somewhat following shareholders’ requests.

Vic Svec, a spokesman for Peabody, said in an e-mail message yesterday that the company included climate change disclosures “in multiple places” in its public financial filings.

Mr. Svec also said the letter was inaccurate “in claiming that we operate power plants.” He said Peabody is a minority partner in a planned Illinois plant.

Mr. Svec called the New York action “outrageous,” adding, “The legal system was designed to protect — not harass — those such as Peabody who are providing clean energy solutions for America.”

Representatives of Dynegy, Dominion and AES said the documents were under review.

Xcel Energy is building a coal-fired plant in Colorado that was cited in the letter from the attorney general.

A company spokeswoman, Mary Sandok, said in an e-mailed statement: “The plant under construction in Colorado is being built under an agreement we reached with national, state and local environmental groups, including the Sierra Club and Environmental Defense. Our financial disclosures are adequate.”

Data from the federal Energy Information Administration shows that about half the country’s electrical generation comes from coal. For the next two or three years, new capacity will be coming largely from natural gas.

But coal, which is now the cheapest fuel — absent expensive technology, still in its experimental stage, to control carbon dioxide emissions — is projected to be the dominant fuel for new electricity from 2009 onward.

The fight against new coal-fired plants has been waged by environmental groups in tandem with their fight at the state, regional and national levels to cap emissions of greenhouse gases in all sectors of the economy.

A group of 10 Northeastern states, including New York, is adopting a program that would cap emissions and allow trading of pollution allotments among projects in those states.

California already has developed rules, which are being copied by New York, Vermont and 10 other states, to reduce heat-trapping gases from passenger vehicles. Those rules were endorsed in a ruling by a federal district judge in Vermont last week — in a case in which Mr. Cuomo’s staff participated.

But this is Mr. Cuomo’s most significant foray into the arena of climate change since taking over in January from Mr. Spitzer, who was one of the most high-profile occupants of the attorney general’s office.

Before he started, Mr. Cuomo acknowledged Mr. Spitzer’s formidable shadow; a Cuomo campaign ad last year said his predecessor had left “big shoes to fill” and featured people holding up the foot-measuring scales used by shoe salesmen. This year, Mr. Cuomo, who is a former federal housing secretary and son of a former governor, has himself made waves nationwide.

He shined a harsh light on close ties between some universities and student lenders, and he is now expanding Mr. Spitzer’s aggressive use of the Martin Act in new areas.

Mr. Cuomo’s office said last week that the attorney general had also invoked the Martin Act and issued subpoenas in his investigation of the oversight of the state’s $154 billion pension fund during the four-year tenure of Alan G. Hevesi as state comptroller.