While everyone was watching James B. Comey’s testimony in the Senate on Thursday, the other side of the Capitol was more quietly (but also consequentially) passing a piece of legislation that would have far-reaching financial implications if it becomes law.
The bill is called the Financial Choice Act, and it passed the GOP-led House in a 233-to-186 party-line vote. The legislation is designed to dismantle much of the 2010 Dodd-Frank law signed by President Obama and passed by a Democrat-controlled Congress in the wake of the financial crisis.
Among the many implications of the bill were it to become law (and there are many; you can read about them in my colleague Tory Newmyer’s edition of The Finance 202 today) is an overhaul of the process by which stockholders can file and pass shareholder resolutions that ask corporations to change policies. Of concern for us at The Energy 202: About 175 of the roughly 1,000 shareholder resolutions submitted to companies in 2016 concerned corporate climate-change policy.
Though shareholder resolutions have been used for decades to press firms in the energy sector and elsewhere to disclose the risks climate change may pose to their businesses, it’s only very recently that climate-related resolutions have had much success. Last week, a majority of ExxonMobil shareholders voted to instruct the company to disclose more information about the risk it faces from climate-change regulation. Last month, similar resolutions succeeded at oil and gas producer Occidental Petroleum and electric utility PPL Corp.
Let’s break down the new bill:
What are shareholder resolutions? They are proposals put forward by shareholders at annual company meetings in a process under rules set by the Securities and Exchange Commission. Though usually non-binding, a shareholder resolution that receives a majority of votes from stockholders sends a signal to the board of directors — shape up, or we the shareholders may vote you out.
What does the current law say? Right now, any shareholder who owns either $2,000 or 1 percent of a corporation is entitled to file a shareholder resolution. First-time resolutions, with which investors are just becoming familiar, almost never garner a majority, though they may stimulate discussion among a company’s top brass. But resolutions can be resubmitted if they receive a certain percentage of the vote. For example, if a first-time resolution receives more than 3 percent of the vote, a stock owner may again submit it next year. But it then must receive 6 percent of the next vote to remain on the ballot a third time.
What does the new House bill say? Under the Financial Choice Act passed yesterday, the $2,000 threshold is gone. A shareholder would have to own at least 1 percent of the company to file a resolution — a prohibitively high bar for most investors. For a company the size of, say, ExxonMobil, that would be about $3.4 billion.
“It severely curtails — obliterates — the ability of shareholders to file resolution on any issue,” said Tim Smith, who leads shareholder engagement at Walden Asset Management.
The bill also raises the resubmission threshold: In the above example, the percentages would now be 6 and 15 percent.
Who opposes this (and who doesn’t)? Pension funds and other institutional investors, seeking transparency from the companies in which they invest, oppose the new shareholder language. Given the pressure it puts on companies, the broader environmental community opposes it too. But the Business Roundtable, which represents large U.S. companies, sent a letter in February to Gary Cohn, chief economic advisor to President Trump, in support of amending the law.
“In too many cases, activist investors with insignificant stakes in public companies make shareholder proposals that pursue social or political agendas unrelated to the interests of the shareholders as a whole,” Mark Costa, chief executive of Eastman Chemical Company and chair of the Business Roundtable’s regulations committee, wrote to Cohn.
But it is unclear which individual firms with executives on the Business Roundtable, including energy companies like American Electric Power and ExxonMobil, think of the new language. Few companies have come forward by name to support raising the bar on shareholder resolutions.
The corporate counter-argument in favor of resolutions: They have the benefit to companies of acting as a pressure valve for shareholder dissatisfaction, without which investors would have to begin ousting board members to make their voices heard.
“If that gets taken away, the only tool that investors have is to vote against the board of directors,” Edward Kamonjoh, executive director of the 50/50 Climate Project, said.
What happens next? The bill goes to the Senate, where it is expected to die a quick death. It contains too many top-line changes, like curtailing the power of the Consumer Financial Protection Bureau, to be palatable to the moderate Democrats needed for Senate Majority Leader Mitch McConnell (R-Ky.) to break the 60-vote filibuster threshold.
But it is another warning to environmentalists that things have changed for them in GOP-controlled Washington.
— Environmentalists aim at a pipeline project’s pocketbook. This week, a group of environmental organizations, including the Sierra Club, Greenpeace and 350.org, sent a letter to 28 banks asking them not to finance the Trans Mountain Expansion Project through British Columbia, running from Edmonton to the Pacific Coast near Vancouver.
Twenty green groups asked the financial firms not to fund the project by Kinder Morgan, a Houston-based energy infrastructure company that last month made an initial public offering to raise money for the expansion, and is still finalizing financing. If completed, the expansion would nearly triple the capacity of the existing 715-mile-long pipeline system.
The project shares similarities to other pipelines that have drawn protest, making it an attractive target for environmentalists. Like the controversial Dakota Access pipeline, it will run near indigenous populations who wish it were not being built near their lands. Like the Keystone XL pipeline, Trans Mountain will help deliver Alberta tar sands oil, a particularly carbon-intensive fuel source, to international markets.
Jason Disterhoft, a senior campaigner at the Rainforest Action Network, said environmentalists chose to focus on this project because of “the scale of the impact both on the climate side and the indigenous side.”
“The last thing the climate needs is expanded tar sands production,” Disterhoft added, citing Canada’s commitment to reducing greenhouse gas emissions under the Paris accord.
There’s one crucial difference, though, between the Trans Mountain expansion and those other two proposed pipelines — it’s in Canada. Over the last eight years, environmentalists found with President Obama a White House amenable to their interest in weaning the United States off of fossil fuels. That is no longer the case with President Trump.
The political climate is more favorable in Canada to environmentalists. While Canada’s federal government under Prime Minister Justin Trudeau signed off on the pipeline expansion, British Columbia’s provincial government has come out in strong opposition to it.
Kinder Morgan did not respond to a request for comment.
— Underlining the messy politics of shrinking the federal government, a group of business executives, including some from oil and utilities firms, sent a letter to Congress asking it to preserve research-and-development funding at the Department of Energy, The Post’s Steven Mufson reports.
The defense from some energy executives, usually not the tax-and-spend crowd, makes sense here: One of the many innovations to emerge from Energy Department research, after all, is horizontal drilling. That extraction technique helped spur the natural gas revolution in the United States (and elsewhere).
In Mufson’s article, Chad Holliday, a former chief executive at DuPont and now chairman of Shell, highlighted “the importance of research, particularly about energy with the energy transition around the world.” He added that “companies alone will not be able to do this in a robust enough way. Research and partnering with the private sector is so important, and it is a small amount of money in the grand scheme of things.”
Similarly, three former assistant energy secretaries from the two Bush administrations joined their Democratic counterparts to send a letter of protest to Congress over proposed funding cuts to renewable energy and efficiency at the department.
— During his Rose Garden speech announcing the Paris withdrawal, Trump went off script at one point and said:
The mines are starting to open up, having a big opening in two weeks, Pennsylvania, Ohio, West Virginia, so many places. A big opening of a brand, new mine. It’s unheard of. For many, many years that hasn’t happened. They asked me if I’d go. I’m going to try.
Though he didn’t name names, it was widely thought he was referring to the Acosta Deep Mine in Jennerstown, Pa.
Well on Thursday, that mine opened. And while Trump couldn’t make it in person, the president sent mine employees a video message. Via the Pittsburgh Post-Gazette’s Daniel Moore:
Trump: “I’m so proud of the fact that you’re opening that mine today. I told you it was going to happen. God Bless America.”
— Interior Secretary Ryan Zinke’s acting deputy chief of staff, Megan Bloomgren, has been hired by the American Petroleum Institute. She will be the lobbying group’s new vice president for communications. Before the Interior Department, she was a partner at the public affairs firm DCI Group.
While you were watching the Comey hearing…
This is from an oversight hearing of the Senate Energy and Natural Resources Committee on cost reductions in various emerging energy technologies. The committee chair, Sen. Lisa Murkowski (R-Alaska), understood Washington had other things on its mind on Thursday. A press release on the hearing from her committee began: “In what was easily the most anticipated hearing on Capitol Hill this morning…”
— Digging deep into President Trump’s budget, Joe Kunches for The Post found that the White House proposed to eliminate a program that detects solar storms. These storms can send toward Earth a rush of radiation that, if powerful enough, could cripple the electric grid. Kunches explains:
Geomagnetic storms — disturbances to the normal state of Earth’s magnetic field — result from energized solar wind. The solar wind is always blowing, but sometimes it’s particularly — windy. The largest storms usually are sparked by “solar wind gusts” called coronal mass ejections. The geomagnetic field fluctuates wildly during a storm, like the wind during a hurricane, and that creates electrical currents here on Earth. They can be intense and damaging to transformers in the power grid.
It costs only $1.9 million per year to run. The proposal is head-scratching given the interest the Trump administration has paid toward grid security generally and toward these very radiation threats, called electromagnetic pulses, specifically — whether they come from the sun or from a hostile foreign power like North Korea via a nuclear bomb.
— Zinke says the Interior Department will continue climate research. But, the Interior secretary told a House Appropriations Committee panel, it will be concentrated in one part of the department, the U.S. Geological Survey. The Washington Examiner’s John Siciliano reports:
Interior Secretary Ryan Zinke told lawmakers Thursday that his agency is doing research on climate change, but it will be focused in one division of the sprawling department instead of four or five.
“So, on the climate issue … we saddled it in one division because I want to know from a division what’s going on,” Zinke told the House Appropriations Committee’s panel on Interior and related agencies.
Last month, the Interior Department asked USGS to edit out a line — “Global climate change drives sea-level rise, increasing the frequency of coastal flooding” — from a news release on a sea-level-rise study.
— The U.S. solar industry is doing just fine under Trump — for now. The Post’s Chris Mooney reports on how the industry is faring during the first quarter of 2017: “The U.S. saw the installation of more than 2 gigawatts, or billion watts, of new solar capacity, a quarter of it on individual rooftops, according to a Thursday report by SEIA and GTM Research. That ranks solar second to natural gas overall for new U.S. electricity installations in the quarter, and was only a slight — 2 percent — year-on-year decline.”
The reasons? State level incentives to add renewables to the grid have helped. Plus many solar installations at the beginning of this year were set into motion before Election Day, when the prospect of a Trump presidency seemed unlikely to many.
- EPA head Scott Pruitt will testify before the House Appropriations Interior, Environment and Related Agencies subcommittee next week on the agency’s proposed budget.
- Interior Secretary Ryan Zinke has until June 10 to make a recommendation about the future of the contested Bears Ears National Monument in Utah. The recommendation does not have to be made publicly. Morning Consult noted that Zinke could make his recommendation to Trump privately by Saturday.
- The Senate Committee on Environment and Public Works will hold its hearing on June 13 on the nominations of Kristine Svinicki, Annie Caputo and David Wright to be members of the U.S. Nuclear Regulatory Commission, and the nomination of Susan Bodine to be assistant administrator of the Office of Enforcement and Compliance Assurance of the EPA.
- Later this month, the U.S. Energy Information Administration will host its 2017 EIA Energy Conference in Washington D.C.
Here’s what you need to know about the Financial Choice Act:
If you missed James B. Comey’s testimony yesterday, watch this three-minute recap:
From Capital Weather Gang’s Angela Fritz, watch this dark, ominous tornado churn through the dirt in North Dakota:
And finally, in things you hope you never have to do: