Company Name: Dominion Resources, Inc.
Public Availability Date: March 13, 2002
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 27, 2001
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
RE: Dominion Resources, Inc. - Omission of Shareholder Proposal under SEC Rule 14a-8(i)(6)Absence of Power/Authority; Rule 14a-8(i)(7)Management Functions; Rule 14a-8(i)(3)Violation of Proxy Rules.
Ladies and Gentlemen:
Dominion Resources, Inc. ("Dominion") respectfully requests that the staff of the Division of Corporation Finance concur with our view that we may omit the shareholder proposal and supporting statement (or portions thereof) referred to below and attached as Exhibit A (the "Proposal") from our proxy statement for our 2002 Annual Meeting of Shareholders pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended. Dominion also requests that the Staff indicate that it will not recommend any enforcement action to the Securities and Exchange Commission if Dominion omits such Proposal, or if not permitted by the Staff to do so, omits portions of the Proposal, from its proxy materials.
The Proposal
The Proposal is from Mr. Bartlett Naylor, an individual Dominion shareholder. The Proposal is in the form of the following shareholder resolution:
Be it resolved that the shareholders urge the Company to invest in new electrical generation capacity from solar and wind sources to replace or add approximately one percent (1%) of system capacity yearly for the next twenty years with the goal of having the company producing twenty percent (20%) of generation capacity from clean renewable sources in 20 years.
Dominion intends to omit the Proposal from its proxy materials pursuant to Rule 14a-8(i)(6) because Dominion lacks the power or authority to implement the Proposal and Rule 14a-8(i)(7) because the Proposal deals with a matter relating to Dominion's ordinary business operations. Alternatively, if not permitted by the Staff to omit the entire Proposal, Dominion intends to omit a potion of the Proposal pursuant to Rule 14a-8(i)(3) because a statement in support of the Proposal does not comply with the Commission's proxy rules.
1. The Proposal is Excludable under Rule 14a-8(i)(6)
Rule 14a-8(i)(6) permits a company to exclude a shareholder proposal from its proxy materials if the company would lack the power or authority to implement the proposal. Dominion believes that the Proposal is excludable because Dominion would not have the authority to implement it.
Under Virginia law, all corporate powers are exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its board of directors, subject to any limitations set forth in the articles of incorporation. Va. Code Ann. Section 13.1-673. Dominion's Articles of Incorporation do not limit the authority granted to the Board of Directors pursuant to Virginia law. In exercising the authority granted under Virginia law, directors are required to discharge their duties in accordance with their good faith business judgement of the best interests of the corporation. Va. Code Ann. Section 13.1-690.
The Proposal urges Dominion to replace a specified percentage (1%) of system capacity with solar and wind sources for each of the next 20 years, thereby asking current and future Boards of Directors and management to commit significant resources to building and maintaining new generating facilities from these particular sources without considering the financial impact, consistency with strategic goals, or feasibility of such facilities. The Board would be following a specified plan without the opportunity to exercise its fiduciary responsibility of determining whether such plan is in the best interests of Dominion. The Board does not have such authority under Virginia law.
In his supporting statement, Mr. Naylor suggests that the resolution's requirement of a build-up of renewable sources in 1% increments "allows for small pilot facilities to be built and tried as the program and technology advances." With this statement he recognizes that these sources are still in the experimental stage and that programs should evolve through research and experimentation. However, Mr. Naylor's Proposal is a 20-year plan not providing for proper consideration by management or the Board of Directors. Even if Dominion determined, based on developing technology or our experience with the first pilot programs, that the solar and wind sources are not cost-effective or dependable sources of power, the Proposal if implemented would require continued expansion of the wind and solar facilities on the time schedule requested. Moreover, as discussed below, "small" pilot facilities would not be sufficient to produce 1% of our generation capacity. Rather, at our current system capacity, an approximately 200 Mw facility would be required to replace 1% of our capacity without factoring in any system growth. It would be difficult if not impossible to install such a sizable facility within one year due to permitting, purchasing, construction, and other constraints. Such facilities would cost hundreds of millions of dollars to construct. Finally, reasonable, costefficient financing for such projects would be difficult to secure based on the unproven nature of such projects. It is unlikely that such facilities would produce positive returns in today's energy environment.
Additionally, because solar and wind facilities depend on the sun and wind being present in sufficient amounts in order to generate electricity, back-up facilities would be required to provide power when sufficient sun and wind are not available. The cost of building and operating these back-up facilities affects the profitability of the solar and wind sources, if not making the need for them moot. Ironically, the back-up facilities for the renewable sources also would increase our overall non-renewable capacity. Therefore, under the requested proposal Dominion would then have to develop more renewable sources to maintain the required ratios, creating an endless cycle focused on an arbitrary ratio rather than the best interests of the corporation. Adding to this "endless" cycle is that fact that Dominion's capacity is frequently changing because of acquisitions, divestitures and growth to meet customer demand. The Board would not be able to determine such a policy is in Dominion's best interests because of the difficulty or impossibility of meeting the targeted growth for both practical and financial reasons.
Directors are required to exercise their duties and authority in accordance with their good faith business judgement of the best interests of the corporation, and therefore would lack the authority to implement the scheduled build-up of significant renewable generation sources requested without meeting such requirements. Dominion, therefore, intends to exclude the Proposal from its proxy materials pursuant to Rule 14a-8(i)(6) because Dominion does not have the authority to implement the Proposal.
2. The Proposal is Excludable under Rule 14a-8(i)(7)
Dominion believes the Proposal may be excluded from its proxy materials under Rule 14a-8(i)(7) of the Exchange Act which allows a company to exclude from Dominion's proxy materials proposals that deal with matters relating to Dominion's ordinary business operations.
In Release No. 34-40018 (the "Release"), the Commission stated that the policy underlying the ordinary business exclusion rests on two central considerations: the subject matter of the proposal and the degree to which the proposal seeks to micro-manage a company. With respect to the first consideration, the subject matter of the proposal, the Commission explained that "certain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight." The Commission further explained that with respect to the second consideration, the Commission would consider whether a proposal probed "too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment." The Commission noted that this consideration may come into play "where the proposal ... seeks to impose specific time-frames or methods for implementing complex policies."
One of the fundamental decisions to be made by the Board of Directors and management of an energy company such as Dominion is the building of new generating facilities. On a regular basis, Dominion must consider the need for new generating capacity, the cost of such capacity, the financial impact of new capacity, the replacement of existing capacity and the sources for generating power. It is not feasible or practicable for shareholders to determine the timing or method for adding generating capacity. To leave such a decision to shareholders would contradict the Commission's stated policy for the ordinary business exclusion by delegating to shareholders an impossible taskthe task of managing Dominion's business on a daily basis. Moreover, the implementation of the Proposal would result in the micro-management of Dominion by imposing specific time-frames or methods for implementing complex policies. The Proposal proposes a 20-year time-frame for Dominion to replace a significant portion of its existing generating capacity with wind and solar powered generating facilities. As explained above, the decision of whether and when to build new generating facilities is a complex decision which requires the consideration of numerous factors. In fact, almost 1.5% of Dominion's current generating capacity comes from renewable sources, including hydroelectric facilities. However, such a buildup has taken time, planning and experimentation. As stated in our corporate policy on Environmental Responsibility, which is posted on our web-site and office walls throughout the company, Dominion is focused on meeting our customers' energy demand in an environmentally responsible manner. Dominion continues to explore new sources and expansion of existing sources, but plans to do so in the ordinary course. While it is proper for our shareholders to raise social issues such as environmental responsibility, it is not proper for them to prescribe a rate (timeline or percentage change) at which Dominion should make complex decisions.
Based on the conclusion that the Proposal deals with ordinary business matters, Dominion intends to omit the Proposal from its proxy materials pursuant to Rule 14a-8(i)(7).
3. The Proposal is Excludable under Rule 14a-8(i)(3)
A company may omit a shareholder proposal or any statement in support of it from its proxy materials if the proposal or supporting statement is contrary to any of the Commission's rules, including Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. 17 C.F.R. 240.14a-8(i)(3); see also Duke Energy Corporation (February 13, 2001).
At our request, Mr. Naylor has amended some of his original statements in support of his proposal. We have enclosed copies of our correspondence with Mr. Naylor and a copy of the original proposal. However, one issue remains. Mr. Naylor states that his suggested program "allows for small pilot facilities to be built and tried as the program and technology advances." This statement is particularly troubling and misleading. One percent of our generating capacity is equal to approximately 200 Mw of power. To suggest that we could build, on a yearly basis, small pilot facilities to meet these requirements involves several misleading components, as mentioned above. First, a 200 Mw facility is not a small pilot facility. While a facility of that size would not be one of Dominion's largest facilities, it is a sizable facility. Also, it would be difficult if not impossible to install such a sizable facility within one year due to permitting, purchasing, construction, and other constraints. Such facilities would cost hundreds of millions of dollars to construct. The Proposal misleads the shareholders to believe that the request is for "a small pilot program" to be tried out, when it is really a request that Dominion implement a significant, expensive and financially risky program for unreliable generating facilities. This statement is false and misleading and therefore Dominion intends to exclude the statement from the Proposal under Rule 14a-8(i)(3).
Conclusion
For the reasons set forth above, we hereby request that the Division of Corporation Finance concur with our view that the Proposal may be omitted and advise us that it will not recommend any enforcement action be taken against us for omitting the Proposal.
Pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934, as amended, six copies of this letter and the Proposal, including the supporting statement, are enclosed, as well as six copies of all other enclosures referred to herein. I have also included six copies of our most recent proxy statement for your convenience and six copies of our opinion of counsel regarding state law matters discussed herein. I have mailed a copy of this letter to Mr. Naylor, and hereby request that he copy me on any response he may make to the Staff related to the Proposal.
In compliance with Rule 14a-8(j), this letter is submitted at least eighty (80) calendar days prior to Dominion's anticipated date of filing of our definitive proxy statement in connection with the 2002 annual meeting of shareholders.
If you have any questions or need additional information, please call me at (804) 819-2120, or in my absence, Carter Reid, Managing Counsel, at (804) 819-2144.
Sincerely yours,
/s/
Patricia A. Wilkerson
Vice President & Corporate Secretary
Dominion Resources, Inc.
cc: Mr. Bartlett Naylor
[APPENDIX]
EXHIBIT A
Amended Resolution
Be it resolved that the shareholders urge the Company to invest in new electrical generation capacity from solar and wind sources to replace or add approximately one percent (1%) of system capacity yearly for the next twenty years with the goal of having the company producing twenty percent (20%) of generation capacity from clean renewable sources in 20 years.
Supporting Statement:
Utility deregulation demands the Company present a good public image, and the public is demanding progress toward clean energy and a reduction in global warming. Electric power utilities currently emit over 30% of the pollution that now blankets the earth and causes global climate change.
I believe efforts must be made to slow down changes in global warming to prevent a wide range of unintended, harmful and costly impacts including but not limited to sea level rise, drought and desertification, other extreme weather events, expansion of tropical diseases, and changes in the biosphere affecting animal and plant life.
Solar and wind sources do not require the purchase of fossil fuels. As the costs of these non-renewable fuels rise in the future, this renewable generation capacity may achieve a return on investment over the long term. A mix in the generation capacity will allow for small pilot facilities to be built and tried as the program and technology advances.
Support for this resolution will indicate shareholder desire to gradually de-emphasize the production of fossil fuels and to support the development of more non-polluting, environmentally-friendly approaches to energy production. Please vote `yes' for this resolution."
[INQUIRY LETTER]
December 27, 2001
Dominion Resources, Inc.
120 Tredegar Street
Richmond, VA 23219
Shareholder Proposal Submitted by Bartlett Naylor to Dominion Resources, Inc.
Ladies and Gentlemen:
We are counsel to Dominion Resources, Inc., a Virginia corporation ("Dominion"). Dominion has received from Bartlett Naylor a shareholder proposal (the "Proposal") for inclusion in Dominion's proxy materials for its 2002 Annual Meeting of Shareholders. We have reviewed the letter from Patricia A. Wilkerson to your office dated December 27, 2001 (the "Letter"), the Proposal and such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth herein.
We believe that the statements contained in the Letter, to the extent they purport to describe the laws of the Commonwealth of Virginia, are fair statements of Virginia law. While we cannot predict with certainty the outcome of any litigation concerning the application of the Virginia Stock Corporation Act to Dominion, we believe that a Virginia court, if properly presented with the issues concerning Virginia law that are discussed in the Letter, would reach the conclusions contained in the Letter.
This opinion is rendered solely to the addressee hereof pursuant to Section 14a-8(j)(2)(iii) of the Securities Exchange Act of 1934, as amended. This opinion may not be relied upon for any other purpose, or by any other person, without our prior written consent.
If you have any questions concerning this matter, please contact Jane Whitt Sellers, Esq. at (804) 775-1054.
Very truly yours,
/s/
[STAFF REPLY LETTER]
March 13, 2002
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Dominion Resources, Inc.
Incoming letter dated December 27, 2001
The proposal requests that Dominion invest resources to build new electrical generation from solar and wind power sources.
We are unable to concur in your view that Dominion may exclude the proposal under rule 14a-8(i)(3). Accordingly, we do not believe that Dominion may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Dominion may exclude the proposal under rule 14a-8(i)(6). Accordingly, we do not believe that Dominion may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(6).
We are unable to concur in your view that Dominion may exclude the proposal under rule 14a-8(i)(7). Accordingly, we do not believe that Dominion may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7).
Sincerely,
/s/
Lillian K. Cummins
Attorney-Advisor