Company Name: Xcel Energy Inc. (Church of Brethern)
Public Availability Date: April 1, 2003
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
January 22, 2003
Via Messenger
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
On behalf of our client Xcel Energy Inc., a Minnesota corporation, (the "Company") we are submitting this letter pursuant to Rule 14a-8(j) of the Securities and Exchange Act of 1934, as amended, (the "Act") in reference to the Company's intention to omit the Shareholder Proposal (the "Proposal") filed by shareholders Church of the Brethren Trust Benefit Trust Inc., Congregation of the Sisters of Charity of the Incarnate Word, and Christus Health (the "Proponents") from its 2003 proxy statement and form of proxy relating to its Annual Meeting of Shareholders tentatively scheduled for May 20, 2003. The definitive copies of the 2003 proxy statement and form of proxy are currently scheduled to be filed pursuant to Rule 14a-6 on or about April 15, 2003. We hereby request that the staff of the Division of Corporation Finance (the "Staff") will not recommend any enforcement action to the Securities and Exchange Commission (the "Commission") if, in reliance on one or more of the interpretations of Rule 14a-8 set forth below, the Company excludes the Proposal from its proxy materials. Pursuant to Rule 14a-8(j)(2), enclosed herewith are six copies of the following materials:
1) This letter which represents the Company's statement of reasons why omission of the Proposal from the Company's 2003 proxy statement and form of proxy is appropriate and, to the extent such reasons are based on matters of law, represents a supporting legal opinion of counsel; and
2) The Proposal, attached hereto as Exhibit A, which the Proponents submitted.
Please acknowledge receipt of this letter by stamping the extra enclosed copy and returning it to our messenger, who has been instructed to wait.
Background
The Proposal states: "That the Board of Directors report (at reasonable cost and omitting proprietary information) by August 2003 to shareholders on (a) the economic risk associated with the Company's past, present, and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and mercury emissions, and the public stance of the company regarding efforts to reduce these emissions and (b) the economic benefits of committing a substantial reduction of those emissions related to its current business activities (i.e., potential improvement in competitiveness and profitability)."
For the reasons set forth below, Xcel Energy believes that the Proposal may be omitted from its proxy materials.
Discussion of Reasons for Omission
I. Rule 14a-8 (i)(7)THE PROPOSAL MAY BE OMITTED IF IT DEALS WITH ORDINARY BUSINESS OPERATIONS.
The Proposal should be considered a matter of ordinary business operations. Under Rule 14a-8(i)(7), a shareholder proposal dealing with a matter relating to the conduct of the ordinary business operations of a company may be omitted from the company's proxy materials. The Commission has stated that the policy underlying the ordinary business exclusion is "to confine the solution of ordinary business problems to the board of directors and place such problems beyond the competence and direction of the stockholders. The basic reason for this policy is that it is manifestly impracticable in most cases for stockholders to decide management problems at corporate meetings." Hearing on SEC Enforcement Problems before the Subcommittee of the Senate Committee on Banking and Currency, 85\th/ Congress, 1\st/ Session part 1, at 119 (1957), reprinted in part in Release 34-19135, n. 47 (October 14, 1982). In its release adopting revisions to Rule 14a-8, the Commission reaffirmed this position stating: "The general policy of this exclusion is consistent with the policy of most state corporate laws: to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting." Release 34-40018. The Commission went on to say:
The policy underlying the ordinary business exclusion rests on two central considerations. The first relates to the subject matter of the proposal. 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. Examples include the management of the workforce, such as the hiring, promotion, and termination of employees, decisions on production quality and quantity, and the retention of suppliers. However, proposals relating to such matters but focusing on sufficiently significant social policy issues (e.g., significant discrimination matters) generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.
The second consideration relates to the degree to which the proposal seeks to "micro-manage" the company by probing 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. This consideration may come into play in a number of circumstances, such as where the proposal involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.
In our judgment, the Proposal fits squarely within the category of proposals that the Commission intended to permit registrants to exclude under Rule 14a-8(i)(7) because the Proposal falls within the purview of ordinary business operations. In-accordance with this rule, the Staff has consistently permitted the exclusion of proposals dealing with the establishment of performance standards and policies that relate solely to the economic performance of the registrant as opposed to broader proposals implicating social policy. General Motors Corp. (available March 31, 1988) (proposal to redeploy assets in more profitable endeavors); Florida Power and Light Company (available January 18, 1983) (proposal to reduce capital expenditures). The Proposal's principal focus is the economic viability and profitability of the Company. In particular, the Proponents cite the need for a comprehensive cost-benefit analysis framework to solve a problem that may expose the Company to "reputation and brand damage, and regulatory and litigation risk," thereby eroding the benefits of economic growth for shareholders as a group. The Proponents do not request that the Company adhere to any principles or policies. Instead, the Proposal seeks an appraisal of the economic risks and benefits concerning the emission of certain pollutants. Evaluation of risks in financial terms, however, is a fundamental part of ordinary business operations, and is best left to management and the Board of Directors. See The Mead Corporation (available January 31, 2001) (excluding proposal related to a request for a report of the company's environmental risks in financial terms). The substance of the Proposal is very similar to the proposal at issue in The Mead Corporation.
The second consideration underlying the ordinary business exclusion relates to the degree to which the Proposal seeks to micro-manage the Company. Because the Proposal involves tremendous detail, seeks to impose specific timeframes and/or methods for implementing complex policies, the Proponents seek to micro-manage the Company on an impermissible level. First, the Company is the fourth largest combination gas and electric utility in the United States, with a service territory that spans 12 states, from the Canadian to the Mexican border. An analysis of the Company as a whole is a task of tremendous scope that necessarily involves large amounts of detail. The task is further complicated by the Proposal's requirement that the cost-benefit analysis cover an infinite timeframe. Second, by requiring the Company to complete its analysis so that it can report to shareholders by August 2003, the Proposal impermissibly seeks to impose a specific timeframe. And, third, the cost-benefit analysis probes too deeply into matters of a complex nature upon which shareholders, as a group, are not in a position to make an informed judgment. In particular, Proponents do not seek to admit or embrace the fact that some or more of the underlying components of any cost-benefit analysis are subjective or based on certain assumptions. A cost-benefit analysis can be carried out using only financial costs and financial benefits. However, the Proponents reference to intangible items such as the increased irritation we feel as a result of "increases in the heat index," "pollution-related ailments," and "lost workdays" clearly suggest that the cost-benefit analysis should include these "soft" values. As you must estimate a value for these intangible items, this inevitably brings an element of subjectivity into the process. Moreover, there are many factors that go into the construction of a proper cost-benefit analysis. Decisions on such matters must be informed by an understanding of the science and statistics involved. The unsubstantiated, inflammatory and emotional assertions presented by the Proponents make it clear that they are not informed on such matters. By contrast, the Board of Directors understands the link between risk, growth and ultimately enhanced shareholder value. Indeed, although risk management is the responsibility of all levels of management, the policy, design and framework for risk management is ultimately driven by the Board of Directors. See Minnesota Statute 302A.201, Subdivision 1, ("the business affairs of a corporation shall be managed by or under the direction of a board).
Finally, the Proponents' attempt to portray the Proposal as involving broad social and environmental policies must fail. Although the Proponents imply that fossil fuels and coal are primary causes of global warming and that rapidly accelerating climatic change could well have catastrophic economic effects, the Proposal does not request that the Company shift its balance of generation away from traditional fossil fuel-based generation to more environmentally friendly sources of energy. Instead, the Company is directed to undertake an extensive cost-benefit analysis and report its findings to the shareholders. The Proponents' inclusion in the Proposal of references to "global climate change" and to "pollution-related ailments" is an attempt to couch something that essentially involves ordinary business - establishment of appropriate risk management policies regarding carbon dioxide, sulfur dioxide, nitrogen oxide and mercury emissions - in language that the Proponents hope will make the Proposal appear to involve a "sufficiently significant social policy issue." This subterfuge should not be permitted. The Proposal does not identify a single social policy issue that the Company is requested to review or address nor does it make clear what social issues the report would remedy. The Proponents simply cannot circumvent Rule 14a-8(i)(7) by coupling ordinary business matters with significant policy issues. See, e.g., Wal-Mart Stores, Inc., (available Mar. 15, 1999) (permitting the exclusion of a proposal requiring the company to report on actions it has taken to ensure that its suppliers do not use slave or child labor where a single element to be included in the report related to ordinary business matters); Chrysler Corp. (available Feb. 18, 1998) (proposal requiring company to review and report on its international codes and standards in six areas, including human rights, child labor and environmental standards, was properly excludable where one item related to ordinary business and another was "susceptible to a variety of interpretations, some of which could involve ordinary business matters"). Accordingly, the Proposal does not raise a "sufficiently significant social policy issue" so as to bring it outside the prohibitory rule found in Rule 14a-8(i)(7). Instead, the Proposal merely addresses the "ordinary business" of the Company.
II. Rule 14a-8(i)(1)THE PROPOSAL MAY BE OMITTED IF IT IS NOT A PROPER SUBJECT FOR ACTION BY SECURITY HOLDERS UNDER THE LAWS OF THE ISSUER'S DOMICILE
If the Commission does not agree with the Company that the Proposal may be excluded from the Company's proxy materials under Rule 14a-8(i)(7) because it deals with ordinary business operations, then the Proposal should be considered not a proper subject for action by security holders under the laws of the issuer's domicile. According to the note to Rule 14a-8(i)(1), a proposal that would be binding on the Company if approved by shareholders may not be a proper subject matter for shareholder action, while a proposal recommending or requesting such action of the board may be proper under state law. See also United Bankshares, Inc. (available Mar. 16, 1993). The SEC's rationale for excluding certain mandatory proposals and permitting precatory proposals is based under an analysis of whether such proposals infringe upon the directors' statutory authority to manage the corporation:
[I]t is the Commission's understanding that the laws of most states do not, for the most part, explicitly indicate those matters which are proper for security holders to act upon but instead provide only that `the business and affairs of every corporation organized under this law shall be managed by its board of directors,' or words to that effect. Under such a statute, the board may be considered to have exclusive discretion in corporate matters, absent a specific provision to the contrary in the statute itself, or the corporation's charter or bylaws. Accordingly, proposals by security holders that mandate or direct the board to take certain action may constitute an unlawful intrusion on the board's discretionary authority under the typical statute. On the other hand, however, proposals that merely recommend or request that the board take certain action would not appear to be contrary to the typical state statute, since such proposals are merely advisory in nature and would not be binding on the board even if adopted by a majority of the security holders.
Exchange Act Release 34-12999 (November 22, 1976), cited in the 1983 Release. The Proposal is not a request for action by the Board, it is, at least according to its Proponents, a demand by the shareholders for action by the Board. The language is absolute: the Board of Directors must complete the task of undertaking a cost-benefit analysis associated with the Company's "past, present and future emissions" of certain greenhouse gases and report to shareholders by August 2003. This is precisely the type of a proposal that should be excluded as being an improper subject for security holder action. See Minnesota Statute 302A.201, Subdivision 1 ("the business affairs of a corporation shall be managed by or under the direction of a board").
III. Rule 14a-8(i)(3)THE PROPOSAL MAY BE OMITTED IF IT IS CONTRARY TO THE COMMISSION'S PROXY RULES, INCLUDING RULE 14a-9, WHICH PROHIBITS FALSE OR MISLEADING STATEMENTS IN PROXY SOLICITING MATERIALS.
The Company may properly exclude the Proposal under Rule 14a-8(i)(3) because it contains impermissibly misleading and vague language. Proponents have made the following statements in support of the Proposal which have no basis in fact, or omit to state relevant information, and which the Company considers to be false and misleading in violation of the Commission's proxy rules:
1. Proponents' Statement: "In 2001[,] [t]he Intergovernmental Panel on Climate Change concluded that `there is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities.'"; "In 2001[,] the National Academy of Sciences stated that `the degree of confidence in the IPCC assessment is higher today than it was 10, or even 5 years ago ... there is general agreement that the observed warming is real and particularly strong within the past 20 years.'"
Read together, these statements are misleading because they imply that the IPCC's assessment has been endorsed by the National Academy of Sciences. This is false. The National Academy of Sciences was asked to address whether there were any substantive differences between the full IPCC report and the IPCC summaries. A Committee was appointed through the National Academies' National Research Council. This Committee (the "Committee") released a report entitled "Climate Change Science: An Analysis of Some Key Questions." In this report, the Committee points out that: (1.) uncertainties in climate science throw the question of human causality of climate change into doubti.e., tremendous long-term natural variability in global climate may be the source of any temperature increases measured over the last several years; (2.) uncertainties in projecting future social trends make predictions of future climate conditions "tentative;" (3.) political influences played a significant role in shaping the "Summary for Policymakers of the United Nations' Intergovernmental Panel on Climate Change (IPCC), a key formal document in the U.N.'s three-volume Third Assessment Report on climate change; and, (4.) understanding of climate change science is far from complete and is, in fact, still rudimentary in many areas. While the Committee goes on to affirm some of the technical claims from the third Assessment Report of the U.N's IPCC, the Committee report has many sharply cautionary warnings scattered throughout. Indeed, the Committee's report stated, "Climate projections will always be far from perfect. Confidence limits and probabilistic information, with their basis, should always be considered as an integral part of the information that climate scientists provide to policy and decision makers. Without them, the IPCC SPM could give an impression that the science of global warming is "settled", event though many uncertainties still remain."
The Proponents attempt to lend unwarranted credibility to the IPCC statement by reference to the National Academy of Sciences cannot be permitted. The National Academy of Sciences has not endorsed the IPCC.
2. Proponents' Statement: "The United States government's `Climate Action Report - 2002,' concluded that global climate change may harm the country. The report highlights risks to coastal communities in the Southeast due to sea level rise, water shortages throughout the West, and increases in the heat index and frequency of heat waves."
This statement is misleading because it omits certain facts that are necessary to give stockholders complete and accurate information. First, the Proposal cites the "Climate Action Report 2002" for the proposition that global warming will cause a variety of harm to the country, including rising sea levels, droughts, and heat waves. Yet, the Climate Action Report itself cites the Committee report discussed above for the proposition that "fundamental scientific questions remain regarding the specifics of regional and local projections. Predicting the potential impacts of climate change is compounded by a lack of understanding of the sensitivity of many environmental systems and resources-both managed and unmanaged-to climate change". Moreover, the White House itself cited two documents as authoritative regarding its position on "climate change" science in the Climate Action Report: the U.N.'s own IPCC reportwhich the administration itself refuted in a fairly thorough expos|pi|qe in August, 2001and the "National Assessment on Climate Change" (NACC), a politicized and scientifically dubious report that the White House withdrew to avoid a lawsuit immediately following its rebuttal of IPCC. In particular, the NACC was subject to criticism by the scientific community. For example, Dr. Patrick Michaels of the University of Virginia examined the temperature predictions of the two computer models used in the NACC and discovered that they were less accurate in predicting the temperature of the past century than a table of random numbers. This kind of questionable science continued in the Climate Action Report. One of the computer models used in the report predicts that the level of the Great Lakes could drop by 5 feet as the result of climate change, while the other computer model forecasts just the opposite: Great Lakes levels may rise by a foot.
3. Proponents' Statement: "Scientific studies show that air pollution from U.S. power plants causes tens of thousands of premature deaths and hospitalizations, hundreds of thousands of asthma attacks, and several million lost workdays nationwide every year from pollution-related ailments."
This statement is misleading because it omits certain facts that are necessary to give stockholders complete and accurate information. The Proposal states that "scientific studies" demonstrate that air pollution from power plants causes numerous premature deaths and pollution related illnesses. Numerous studies have examined the association between power plant emissions and adverse health effects. Where appropriate, findings from some of these studies have been used to set ambient air quality standards to protect human health. Yet the Proposal does not indicate the sources of the "studies" it relies upon and fails to acknowledge uncertainty that may undermine this statement. Indeed, as a result of systemic biases and imprecise measurement of variables, as well as the existence of confounders and a background rate of disease, associations that emerge from epidemiological studies do not necessarily signal the true causal relationship that Proponents assert between air pollution and the various ailments described. Finally, it is unclear whether the Proponents are exploiting selective and outdated scientific studies to lend color their Proposal.
Conclusion
For the reasons given above, we respectfully request that the Staff not recommend any enforcement action from the Commission if the Company omits the Proposal from its 2003 proxy materials. If the Staff disagrees with the Company's conclusion to omit the proposal, we request the opportunity to confer with the Staff prior to the final determination of the Staff's position. Notification and a copy of this letter is simultaneously being forwarded to the Proponents.
Should you have any questions or require additional information, please contact the undersigned at (312) 269-4176.
Very truly yours,
/s/
Robert J. Joseph
cc: Church of the Brethren Trust Benefit Trust Inc.
Congregation of the Sisters of Charity of the Incarnate Word
Christus Health
[APPENDIX]
ELETRIC UTILITY RESOLUTION
WHEREAS:
In 2001 The Intergovernmental Panel on Climate Change concluded that "there is new and stronger evidence that most of the warming observed over the last 50 years is attributable to human activities."
In 2001 the National Academy of Sciences stated that the "degree of confidence in the IPCC assessment is higher today than it was 10, or even 5 years ago ... there is general agreement that the observed warming is real and particularly strong within the past 20 years."
The United States government's "Climate Action Report2002," concluded that global climate change may harm the country. The report highlights risks to coastal communities in the Southeast due to sea level rise, water shortages throughout the West, and increases in the heat index and frequency of heat waves.
In July 2002, eleven Attorneys General wrote President Bush, outlining their concern over the U.S. Climate Action Report's failure to recommend mandatory reductions of greenhouse gas emissions. They declared that States are being forced to fill the federal regulatory void through state-by-state regulation and litigation, increasing the ultimate costs of addressing climate change. They urged a reconsideration of his regulatory position, and adoption of a "comprehensive policy that will protect both our citizens and our economy."
U.S. power plants are responsible for about two-thirds of the country's sulfur dioxide emissions, one-quarter of its nitrogen oxides emissions, one-third of its mercury emissions, approximately 40 percent of its carbon dioxide emissions, and 10 percent of global carbon dioxide emissions.
Scientific studies show that air pollution from U.S. power plants causes tens of thousands of premature deaths and hospitalizations, hundreds of thousands of asthma attacks, and several million lost workdays nationwide every year from pollution-related ailments.
Standards for carbon dioxide emissions and other air pollutants are emerging across multiple fronts. Ninety-six countries have ratified the Kyoto Protocol, requiring carbon dioxide reductions. Massachusetts and New Hampshire have enacted legislation capping power plants emissions of carbon dioxide and other air pollutants. In June 2002 the Senate Environment and Public Works Committee passed a bill seeking to cap emissions from the generation of electric and thermal energy.
We believe that taking early action on reducing emissions and preparing for standards could better position companies over their peers, including being first to market with new high-efficiency and low-emission technologies. Changing consumer preferences, particularly those relating to clean energy, should also be considered.
Inaction and opposition to emissions control efforts could expose companies to reputation and brand damage, and regulatory and litigation risk.
RESOLVED: That the Board of Directors report (at reasonable cost and omitting proprietary information) by August 2003 to shareholders on (a) the economic risks associated with the Company's past, present, and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and mercury emissions, and the public stance of the company regarding efforts to reduce these emissions and (b) the economic benefits of committing to a substantial reduction of those emissions related to its current business activities (i.e. potential improvement in competitiveness and profitability).
[INQUIRY LETTER]
13 November 2002
Mr. Wayne H. Brunetti
President, Excel Energy
414 Nicollet Mall
Minneapolis, MN 55401-1993
Dear Mr. Brunetti:
Brethren Benefit Trust, Inc., (BBT) is the financial arm of the Church of the Brethren. As a religiously sponsored organization, BBT seeks to reflect its values, principles and mission in its investment decisions. BBT, therefore, presents the enclosed resolution for inclusion in the proxy statement for action at the next stockholders meeting in accordance with rule 14-a-8 of the General Rules and Regulations of the Securities and Exchange Act of 1934. In addition, we request that we be listed as a sponsor of this resolution in the company proxy statement.
We believe the issues raised in the resolution are essential for Xcel to address. Few industries can be as directly linked to the emissions of greenhouse gases and other air pollutants as the electric utilities sector. The scientific demonstration of the human contribution to global warming and the adverse impacts of other air pollutants is now generally accepted. Since legislation, regulation, litigation, and other responses to global warming and other air pollutants are now reasonably foreseeable, prudent management has a fiduciary duty to carefully assess and disclose to shareholders all pertinent information on financial risks associated with global warming. Additionally, shareholders, employees, and customers are increasingly looking at financial risk associated with such emissions when making investment, employment, and consumption decisions. Issuing the kind of report anticipated in the resolution is therefore simply consistent with the fiduciary duties of the corporation's officers and directors, and with good environmental and risk management.
BBT is the beneficial owner of 2,355 shares of Xcel Energy common stock. Proof of ownership of common stock in the company for at least the last twelve months will be provided upon request. We have held the requisite amount of stock for over a year and intend to maintain ownership through the date of the annual meeting. There will be a representative present at the stockholders' meeting to present this resolution as required by the SEC Rules. We are filing this resolution along with other concerned investors. I will serve as primary contact for the co-sponsors.
Brethren Benefit Trust, Inc., and the other organizations who will co-file this resolution are interested in participating in a dialogue with top management on these issues.
Sincerely,
/s/
Will Thomas
Director of Foundation Operations
Enclosures: Copy of the resolution
[STAFF REPLY LETTER]
April 1, 2003
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Xcel Energy Inc.
Incoming letter dated January 22, 2003
The proposal urges the board of directors to issue a report disclosing: (a) the economic risks associated with the Company's past, present and future emissions of carbon dioxide, sulfur dioxide, nitrogen oxide and mercury emissions, and the public stance of the company regarding efforts to reduce these emissions; and (b) the economic benefits of committing to a substantial reduction of those emissions related to its current business activities.
There appears to be some basis for your view that Xcel may exclude the proposal under rule 14a-8(i)(7), as relating to its ordinary business operations (i.e., evaluation of risks and benefits). Accordingly, we will not recommend enforcement action to the Commission if Xcel omits the proposal from its proxy materials in reliance on rule 14a-8(i)(7). In reaching this position, we have not found it necessary to address the alternative bases for omission upon which Xcel relies.
Sincerely,
/s/
Grace K. Lee
Special Counsel