Company Name: Reliant Resources, Inc.
Public Availability Date: March 5, 2004Document Sections:
INQUIRY LETTER
INQUIRY LETTER
APPENDIX
STAFF REPLY LETTER [INQUIRY LETTER]
February 6, 2004 U.S. Securities and Exchange Commission
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Reliant Resources, Inc. - Omission of Shareholder Proposal Pursuant to Rule
14a-8 Ladies and Gentlemen: We are writing on behalf of our client, Reliant Resources, Inc., a Delaware
corporation (the "Company"), pursuant to Rule 14a-8(j) under the Securities
Exchange Act of 1934, as amended, to respectfully request that the Staff of the
Division of Corporation Finance (the "Staff") of the Securities and Exchange
Commission (the "Commission") concur with the Company's view that, for the
reasons stated below, the shareholder proposal (the "Proposal") submitted on
behalf of the Comptroller of the City of New York, William C. Thompson, Jr. (the
"Proponent") may properly be omitted from the proxy materials (the "Proxy
Materials") to be distributed by the Company in connection with its 2004 annual
meeting of stockholders (the "2004 Annual Meeting").
I. The Proposal Pursuant to Rule 14a-8(j)(2), the Company is enclosing six copies of each of the
following: (i) this letter and (ii) a letter dated December 29, 2003 from
Kenneth B. Sylvester (on behalf of the Proponent) to the Company, with the
Proposal attached thereto (Exhibit A). In accordance with Rule 14a-8(j)(1), a
copy of this submission is being sent simultaneously to the Proponent.
The text of the resolution set forth in the Proposal is as follows:
"RESOLVED: The shareholders request that a committee of independent directors of
the Board assess how the company is responding to rising regulatory,
competitive, and public pressure to significantly reduce carbon dioxide and
other emissions and report to shareholders (at reasonable cost and omitting
proprietary information) by September 1, 2004." For the reasons set forth below, we respectfully request that the Staff concur
with the Company's view that the Proposal is properly excludable from the Proxy
Materials. II. Bases for Excluding the Proposal
A. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(7) Because it Relates
to the Company's Ordinary Business Operations. Rule 14a-8(i)(7) permits a company to exclude a shareholder proposal from its
proxy materials that deals with "a matter relating to the conduct of the
company's ordinary business operations." In Exchange Act Release No. 40018 (May
21, 1998), the Commission explained that the policy underlying the ordinary
business exclusion rests on two central considerations: (i) the fact that
certain tasks are so fundamental to a 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 (except that matters focusing on sufficiently
significant social policy issues generally transcend day-to-day business matters
and raise policy issues so significant that it would be appropriate for
shareholder vote) and (ii) 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. For the reasons set forth below, the Company believes that
the Proposal fails to address any social policy issue and instead encompasses
matters relating to the Company's ordinary business operations and, therefore,
may be excluded from the Proxy Materials pursuant to Rule 14a-8(i)(7).
The primary focus of the Proposal appears to be on the economic benefits that
the Company can realize and the economic risks that the Company can avoid by
taking action to reduce carbon dioxide and other emissions, rather than on the
social policy implications of emissions reduction. In particular, the Proposal
requests that a committee of independent directors of the Company's Board of
Directors assess how the Company is responding to rising regulatory, competitive
and public pressure to reduce carbon dioxide and other emissions and report to
shareholders. In support of the Proposal, the Proponent expresses his belief
that taking early action to reduce emissions and prepare for standards will
"provide competitive advantages" and that inaction and opposition to emissions
control efforts could expose the Company to "regulatory risk and reputation
damage." The Proponent does not request that the Company take any specific
action to reduce emissions or that it otherwise adhere to any principles or
polices with respect to such reductions. In fact, although many of the Whereas
clauses raise social policy issues and concerns, neither the text of the
Proposal nor the text of the supporting statement reference any such concerns or
how the adoption of the Proposal would address such concerns. Instead, the
Proposal requests an assessment and report that appear to be intended to provide
the Company's shareholders with factual information that can be used to evaluate
the economic risks and benefits associated with emissions reduction. The
evaluation of economic risks and benefits to the Company is a fundamental part
of the Company's day-to-day business operations and is best left to the
Company's management and Board of Directors. See Xcel Energy Inc. (April 1,
2003) (allowing the exclusion of a proposal that requested a report on the
economic risks and benefits associated with the company's stance regarding
efforts to reduce emissions of carbon dioxide, sulfur dioxide, nitrogen oxide
and mercury) and The Mead Corporation (January 31, 2001) (allowing the exclusion
of a proposal related to a request for a report of the company's environmental
risks in financial terms). As discussed in the preceding paragraph, many of the Whereas clauses raise
social policy issues and concerns associated with emissions reduction, although
the text of the Proposal and the supporting statement focus primarily on the
economic impact of such reductions. This apparent attempt on the part of the
Proponent to portray the Proposal as involving broad social and environmental
policies should fail because, as discussed, above, the substantive focus of the
Proposal is on economic issues that are best left to the Company's management
and Board of Directors. In fact, the Proponent makes no attempt to link any of
the social and environmental issues raised in the Whereas clauses to the
specific actions it requests the Company to take in the Proposal itself. For
example, certain of the Whereas clauses imply that carbon dioxide emissions are
a primary cause of climate change and that there is a growing commitment on the
part of certain parties to reduce carbon dioxide emissions. However, the
Proposal itself does not request that the Company cease or reduce any activities
that may cause the emission of carbon dioxide. Similarly, the Proponent has
included references in the Whereas clauses to "climate change", "side effects of
global warming", the fact that U.S. power plants are responsible for "nearly 40
percent of [the country's] carbon dioxide emissions" and that "carbon dioxide
poses significant financial risks to some electric companies," but does not
request the Company to take any direct actions with respect thereto. Since the
substance of the Proposal itself does not raise any "sufficiently significant
social policy issues," the Proponent's inclusion of references in the Whereas
clauses to such issues should not be advanced as a basis for taking the Proposal
outside of the scope of the Rule 14a-8(i)(7) exclusion. Due to the fact that the Proposal involves ordinary business matters that are
best left to the management and the Board of Directors of the Company, the
Company believes that the Proposal may be omitted from its Proxy Materials
pursuant to Rule 14a-8(i)(7). B. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(3) Because it Violates
Rule 14a-9. The Proposal may also properly be omitted from the Proxy Materials pursuant to
Rule 14a-8(i)(3). Rule 14a-8(i)(3) permits a proposal to be excluded if it is
contrary to the proxy rules, including Rule 14a-9. Rule 14a-9 prohibits false
and misleading statements in proxy material. For the following reasons, the Company believes that the Proposal contains false
and misleading statements in violation of Rule 14a-9: (i) the second Whereas
clause is misleading because it fails to give shareholders complete and accurate
information regarding what processes, studies or reports the United States EPA
relied upon to "conclude that climate change may harm the country ..."; (ii) the
Proponent fails to identify the source(s) for the statements made in the fourth
("U.S. power plants are responsible for ... nearly 40 percent of its carbon
dioxide emissions"), fifth (referring to "scientific studies"), and sixth
(referring to "[s]cientists") Whereas clauses; and (iii) the Proponent fails to
cite the name, date and underlying hypotheses or intent for the reports and
study in the ninth (referring to "[r]ecent reports by CERES, The Carbon
Disclosure Project, Innovest Strategic Value Advisors, and the Investor
Responsibility Research Center") and tenth (referring to "A study by the U.S.
EPA and one by Robert Repetto and James Henderson") Whereas clauses. Due to the
omissions on the part of the Proponent, the Company and its shareholders are
unable to determine whether the Proponent is using selective and/or outdated
information to lend color to the Proposal. The Staff has previously stated that in certain circumstances a company may
properly exclude entire shareholder proposals where they contain false and
misleading statements or omit material facts necessary to make such proposals
not false and misleading. See Division of Corporation Finance: Staff Legal
Bulletin No. 14Shareholder Proposals (July 13, 2001) ("[i]n drafting a proposal
and supporting statement, shareholders should avoid making unsupported
assertions of fact. To this end, shareholders should provide factual support for
statements in the proposal and supporting statement or phrase statements as
their opinion where appropriate"). In addition, when a proposal and supporting
statement "will require detailed and extensive editing in order to bring them
into compliance with the proxy rules, [the Staff] may find it appropriate for
companies to exclude the entire proposal, supporting statement, or both, as
materially false and misleading." Id. Requiring the Staff to spend an enormous
amount of time and resources reviewing proposals and supporting statements that
contain "obvious deficiencies in terms of accuracy, clarity and relevance ... is
not beneficial to participants ... and diverts resources away from analyzing
core issues under Rule 14a-8 ..." Id. For the reasons cited above, the Company believes that the Proposal may be
omitted from the Proxy Materials pursuant to Rule 14a-8(i)(3) because it omits
material facts necessary to make the Proposal not false and misleading.
III. Conclusion For the reasons and based on the authorities cited herein, the Company believes
that the Proposal may properly be omitted from its Proxy Materials (i) under
Rule 14a-8(i)(7) because the Proposal deals with a matter that relates to the
Company's ordinary business operations and (ii) under Rule 14a-8(i)(3) because
it violates Rule 14a-9. Accordingly, the Company respectfully requests the
Staff's concurrence that the Proposal may be omitted from the Company's Proxy
Materials. Should the Staff disagree with the Company's conclusions regarding the omission
of the Proposal from the Proxy Materials, or should any additional information
be desired in support of the Company's position, we would appreciate an
opportunity to confer with the Staff concerning these matters prior to the
issuance of your response. If you should have any questions or require any further information regarding
this matter, please contact the undersigned at (202) 371-7550.
Thank you for your prompt attention to this matter.
Very truly yours, /s/
Michael P. Rogan cc: Michael L. Jines
Senior Vice President and General Counsel
Reliant Resources, Inc.
William C. Thompson, Jr.
Comptroller of the City of New York [INQUIRY LETTER]
December 29, 2003 Mr. Michael L. Jines
Senior Vice President and General Counsel
Reliant Resources, Inc.
1111 Louisiana Street
Houston, Texas 77002 Dear Mr. Jines:
I write on behalf of the Comptroller of the City of New York, William C.
Thompson, Jr. The Comptroller is the custodian and a trustee of the New York
City Employees' Retirement System, the New York City Police Pension Fund, the
New York City Fire Department Pension Fund, and the New York City Teachers'
Retirement System (the "Systems"). The Systems' boards of trustees have
authorized the Comptroller to inform you of their intention to offer the
enclosed proposal for the consideration and vote of the shareholders at the next
annual meeting of Reliant Resources, Inc. The proposal requests that a committee of the company's independent directors
assess how the company is responding to rising regulatory, competitive, and
public pressure to significantly reduce carbon dioxide and other emissions, and
disclose its findings to the shareholders. I submit the attached proposal to you in accordance with Rule 14a-8 of the
Securities Exchange Act of 1934, and ask that it be included in the Company's
2004 proxy statement. Letters from Citibank, N.A., the Systems' custodian bank, are enclosed,
certifying the Systems' beneficial ownership, for over a year, of shares of
Reliant Resources, Inc. common stock. The shares are held in the name of Cede
and Companythe nominee of the depository company. Each system, as a beneficial
owner of shares of the company's common stock, intends to continue to hold at
least $2,000 worth of these securities through the date of the Company's next
annual meeting. We would be happy to discuss this initiative with you. Please feel free to
contact me at (212) 669-2013, if you have any questions on this matter. Should
the Company's board of directors decide to endorse the provisions of the
proposal as policy, the Systems will ask that the proposal be withdrawn from
consideration at the annual meeting. Very truly yours,
/s/ Kenneth B. Sylvester
Enclosures [APPENDIX]
REDUCTION OF CARBON DIOXIDE AND OTHER EMISSIONS 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 2002, the United States EPA concluded that climate change may harm the
country and pose risks to coastal communities due to sea level rise, water
shortages, and increases in heat wave frequency. In 2003, the World Meteorological Organization declared that, "... as the global
temperatures continue to warm due to climate change, the number and intensity of
extreme events might increase." 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, nearly 40 percent of its carbon dioxide emissions, and 10
percent of global carbon dioxide emissions. Scientific studies show that each year, air pollution from U.S. power plants
causes tens of thousands of premature deaths and hospitalizations, hundreds of
thousands of asthrna attacks, and several million lost workdays nationwide.
Scientists also estirnate that about 160,000 people die every year from
side-effects of global warming ranging from malaria to malnutrition and the
numbers could almost double by 2020. Commitments to reduce carbon dioxide emissions and other air pollutants are
emerging. More than 100 countries have ratified the Kyoto Protocol.
Massachusetts and New Hampshire have enacted legislation capping power plants'
greenhouse gases emissions. Governors of eleven states have pledged to reduce
carbon dioxide emissions significantly. Renewable energy standards now exist in
13 states, indicating increasing support for non-polluting electricity sources.
In October 2003, 43 U.S. Senators voted in favor of legislation that would have
capped greenhouse gas emissions from a range of industrial sectors.
Recent reports by CERES, The Carbon Disclosure Project, Innovest Strategic Value
Advisors, and the Investor Responsibility Research Center demonstrate both the
growing financial risks of climate change for US corporations, and inadequate
risk disclosure to investors. A study by the U.S. EPA and one by Robert Repetto and James Henderson indicate
that proposed legislation to regulate carbon dioxide poses significant financial
risks to some electric companies, with wide sector variation.
In April 2003, the Wall Street Journal reported that, Swiss Re is starting to
ask companies applying for directors and officers liability coverage to explain
how they are preparing for potential government regulation of greenhouse-gas
emissions." RESOLVED: The shareholders request that a committee of independent directors of
the Board assess how the company is responding to rising regulatory,
competitive, and public pressure to significantly reduce carbon dioxide and
other emissions and report to shareholders (at reasonable cost and omitting
proprietary information) by September 1, 2004. SUPPORTING STATEMENT
We believe management and the Board have a fiduciary duty to carefully assess
and disclose to shareholders all pertinent information on its climate change
responses. We believe taking early action to reduce emissions and prepare for
standards will provide competitive advantages, and inaction and opposition to
emissions control efforts could expose companies to regulatory risk and
reputation damage.
[STAFF REPLY LETTER]
March 5, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Reliant Resources, Inc. Incoming letter dated February 6, 2004
The proposal requests that the board prepare a report on how the company is
responding to rising regulatory, competitive, and public pressure to
significantly reduce carbon dioxide and other emissions. We are unable to concur in your view that Reliant Resources may exclude the
entire proposal under rule 14a-8(i)(3). There appears to be some basis for your
view, however, that portions of the supporting statement may be materially false
or misleading under rule 14a-9. In our view, the proponents must:
provide a citation to a specific source for the sentence that begins "In 2002,
the United States EPA ..." and ends "... in heat wave frequency";
provide a citation to a specific source for the sentence that begins "U.S.
power plants are responsible ..." and ends "... global carbon dioxide
emissions";
provide a citation to a specific source for the sentence that begins
"Scientific studies who that ..." and ends "... lost workdays nationwide";
provide a citation to a specific source for the sentence that begins
"Scientist also estimate ..." and ends "... almost double by 2020";
provide a citation to a specific source for the sentence that begins "Recent
reports by CERES ..." and ends "... risk disclosure to investors"; and
provide a citation to a specific source for the sentence that begins "A study
by the U.S. EPA ..." and ends "... wide sector variation."
Accordingly, unless the proponents provide Reliant Resources with a proposal and
supporting statement revised in this manner, within seven calendar days after
receiving this letter, we will not recommend enforcement action to the
Commission if Reliant Resources omits only these portions of the supporting
statement from its proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Reliant Resources may exclude the
proposal under rule 14a-8(i)(7). Accordingly, we do not believe that Reliant
Resources may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(7). Sincerely, /s/
Graee K. Lee
Special Counsel
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