September 16, 2008

Xcel Energy’s Climate Change Disclosure Agreement

Late last month, New York Attorney General Andrew Cuomo announced that Xcel Energy has reached an agreement with the State of New York to provide more disclosure about risks that the company faces as a result of climate change. In the press release announcing the agreement, Cuomo is quoted as saying “[t]his landmark agreement sets a new industry-wide precedent that will force companies to disclose the true financial risks that climate change poses to their investors.” The agreement with Xcel comes out of an effort launched by Attorney General Cuomo last September, when his office issued subpoenas to Xcel and four other energy firms – AES Corp., Dominion Resources, Dynegy and Peabody Energy.

As I noted in the blog a year ago, a group of state officials, state pension fund managers and environmental organizations had submitted a petition to the SEC (which was supplemented in June 2008), asking for interpretive guidance clarifying that, under existing law, companies are required to disclose material information related to climate change. To date, it does not appear that the SEC has acted on this petition. Now, the New York Attorney General has sought to compel climate change disclosure in a company’s SEC filings without the help of the SEC. There is no doubt that the precedent of the New York agreement with Xcel may push other utilities – as well as companies in other industries who face similar climate change issues – toward more disclosure regarding climate changes risks.

Under the terms of the “Assurance of Discontinuance” with New York, Xcel has agreed to provide specific disclosures in its Form 10-K, including an analysis of financial risks from climate change related to:

– present and probable future climate change regulation and legislation;

– climate-change related litigation; and

– physical impacts of climate change.

Xcel also agreed to beef up its climate change disclosures in a number of other areas, including:

– current carbon emissions;

– projected increases in carbon emissions from planned coal-fired power plants;

– company strategies for reducing, offsetting, limiting, or otherwise managing its global warming pollution emissions and expected global warming emissions reductions from these actions; and

– corporate governance actions related to climate change, including whether environmental performance is incorporated into officer compensation.

It remains to be seen whether the New York action will prompt the SEC to move forward with any sort of rulemaking or interpretive guidance as suggested in the petition filed last year. It always strikes me as interesting when some entity other than the SEC is prescribing specific disclosures to be included in periodic or current reports. What happens if the SEC or the SEC Staff disagrees with the New York Attorney General on the materiality of this information and whether it is necessary for investors? It could put Xcel and other companies that follow Xcel’s lead in a bind with Corp Fin when comments may be raised in the course of a Form 10-K review seeking to cut back or modify this sort of “mandatory” disclosure.

For more on this topic, be sure to check out our “Climate Change” Practice Area.

Big PIPEs: The New Weil Gotshal Survey

Weil Gotshal & Manges just published an inaugural survey of private investment in public equity (PIPE) transactions in which private equity sponsors, sovereign wealth funds and other financial investors invested $100 million or more, covering a total of 63 transactions (including 24 in the United States, 9 in Europe and 30 in Asia). The survey notes that 25% of the surveyed US transactions involved aggregate investments of greater than a whopping $5 billion, while almost half of the surveyed transactions involved aggregate investments of greater than $500 million! Many of the largest PIPEs were for investments in financial institutions seeking to bolster their capital. Interestingly enough, I notice that these very large transactions are rarely characterized as “PIPEs” when they are announced.

Of the United States deals surveyed, it is clear that PIPEs have served in some cases as vehicles for private equity sponsors to acquire significant (and sometimes controlling stakes) in companies. In this regard, some features of going private transactions have “migrated” to PIPE transactions. The survey notes that four recent PIPEs featured the retention of a “fiduciary out” by the board of the public company to accept a superior bid, and two included a “go-shop provision,” which permitted the board to solicit other bidders. While one of the transactions with a go-shop involved private equity sponsors acquiring a majority equity interest in the target company, another transaction only involved the acquisition of a significant minority interest.

At the other end of the PIPEs spectrum, US District Court Judge Graham Mullen in the Western District of North Carolina recently granted summary judgment to the defendant in SEC v. John F. Mangan, Jr., making things worse for the SEC in its cases against funds who sold short in anticipation of PIPE offerings. After the Securities Act Section 5 claims were dismissed last year, the case proceeded on insider trading claims that have now been shot down in this court. No word yet on the other two litigated PIPEs cases that remain out there.

Foreign Corrupt Practices Act: Latest Compliance and Investigation Developments

Tomorrow, catch our webcast – “Foreign Corrupt Practices Act: Latest Compliance and Investigation Developments” – to hear these panelists discuss all the latest developments regarding the FCPA:

Paul McNulty, Partner, Baker & McKenzie, LLP, former Deputy Attorney General, U.S. Department of Justice
John Soriano, Vice President-Compliance and Deputy General Counsel, Ingersoll Rand Company
Jeffrey Kaplan, Partner, Kaplan & Walker LLP

– Dave Lynn