Peabody Settles with NY Attorney General, Will Disclose More on Climate – But Not Much

Peabody Energy settled a multi-year investigation by the New York state attorney general’s office last night, agreeing to make more truthful disclosures to investors about climate change-related risks to its coal mining operations.

However the settlement fell far short of what some had hoped for given that the investigation of the world’s largest private sector coal producer, originally launched in 2007 under then-Attorney General Andrew Cuomo, had been renewed in 2013 under current Attorney General Eric Schneiderman with further demands for information from the company.

That fact, combined with the investigation launched by Schneiderman into ExxonMobil last Wednesday that is looking not only at investor disclosures about regulatory, litigation and other risks to the oil giant stemming from climate change but also at XOM’s ties to climate denial, raised hopes that the Peabody probe might have been expanded to include Peabody’s longstanding and robust support of climate denial.

Instead, Schneiderman came away with a far more modest victory.

Peabody agreed to no longer pretend it couldn’t estimate the potential impact of new greenhouse gas emissions regulations or taxes.  The AG’s office found that Peabody hired a consultant who projected in March 2014 that a $20 per ton carbon tax would reduce coal demand for electric power generation in 2020 by between 38% and 53%.  This was not disclosed to investors.

The company also agreed to no longer cherry-pick only the most generous future projections of coal use issued by the International Energy Agency, finding that “Peabody provided incomplete and one-sided” data from IEA, which is widely relied on as an authority on future global energy developments.

Peabody minimized the significance of its agreement with the attorney general, noting in a press release that there is “no other action associated with this settlement, no admission or denial of wrongdoing and no financial penalty.”

The company claimed it “has always sought to make appropriate disclosures,” and that “the most recent disclosures planned for the company’s third quarter 2015 Form 10-Q address the matters raised by the New York Attorney General.”

Schneiderman, who had been under increasing pressure to investigate energy companies for allegedly covering up the hazards of fossil fuel use, issued an 18-page subpoena for a wide assortment of records from ExxonMobil dating back to January 1, 1977. The company must respond by December 4th.

The news that Peabody was still under investigation accompanied Schneiderman’s  announcement on November 6th of his investigation of ExxonMobil, which apparently will zero in on the contradiction between the company’s own scientific research confirming the hazards of global warming and its subsequent funding of climate denial to protect its profits.

Peabody was one of five corporations originally swept up in Cuomo’s 2007 inquiry into alleged failures to adequately disclose the potential risks to their businesses from climate change in their annual reports to shareholders.  The other four were all utility companies – Dynegy, AES, Xcel and Dominion Resources – three of which were building or planning to build more coal-fired power plants. Dynegy, AES and Xcel settled within two years of receiving subpoenas. Now only Dominion remains.

“The general idea was to take this lens of transparency from the securities regulation world where you have to be transparent on all sorts of risks that you take with investors, especially if they’re in the public market,” said Matthew Gaul, former chief of the Investor Protection Bureau, a unit within the office of the New York’s attorney general that along with its Environmental Protection Bureau, ran the investigation of the energy companies.

A September 2007 letter from the attorney general’s office to Peabody Energy CEO Gregory Boyce expressed concern over the company’s plan to build new coal-fired power plants using conventional technology without the means to capture CO2 emissions, and noted that adding these plants to the nation’s existing coal fleet “will subject Peabody Energy to increased financial, regulatory, and litigation risks” that haven’t been disclosed to shareholders.  At the time, Peabody was a partner in building Prairie State, a coal-fired power plant in Illinois.

The AG’s letter warned that “Peabody Energy cannot excuse its failure to provide disclosure and analysis by claiming there is insufficient information concerning known climate change trends and uncertainties.”

The three utilities that settled with Cuomo had to make changes to what they disclosed to investors. They began explaining the financial risks arising from any future climate change-related regulations, laws, litigation, plus the actual physical impacts of climate change. (For example, increasingly frequent and violent downpours can flood a coal mine.)  And the three companies began disclosing their carbon emissions and projected increases along with how they planned to reduce them.

The ExxonMobil investigation, which Schneiderman’s office said could be expanded to the rest of the oil industry, seeks information about Exxon’s cutting edge climate research dating back to the 1970s, first revealed in an investigative series by Inside Climate News, and two stories published in the Los Angeles Times in conjunction with an investigative team from Columbia Journalism School.

The AG’s office is also seeking documents about ExxonMobil’s funding of surrogates and slanted scientific research that tried to cast doubt on the overwhelming scientific consensus on climate change. The company spent some $31 million on a wide variety of organizations and individuals in an effort to create the appearance of a controversy about climate science.

“We want to know how they used their research and knowledge,” said a source with knowledge of Schneiderman’s inquiry.  “In other words, if they were honest about how climate change would impact the oil business in the future. Or if they decided to send out a message to the public that this wasn’t a problem for oil.”

And while most in the industry insist climate change only hit their radar in the late eighties, in fact increases in CO2 levels were being discussed in the scientific literature as far back as the 1940s, and concerns about human impacts on the “greenhouse effect” were a subject of concern within the U.S. government in the 1960s, making industry arguments about being in the dark about these issues far less credible.

Schneiderman’s investigators may find a case study in duplicity in the company’s treatment of the Arctic climate crisis.

Documents unearthed by the Columbia Journalism School/Los Angeles Times team show that, through the 1980s and early 1990s, the company knew man-made climate change would affect polar regions more severely – many degrees more severely than more temperate regions of the globe. They knew enough to plan for both the worst and the best scenarios. ExxonMobil internal documents show a keen awareness of the need to harden facilities in the Arctic against the more extreme weather of the future.  They also modeled the “up side” – that melting sea ice would lower operating costs and lengthen the warm weather drilling season.

In 1992, an Exxon researcher told the company, “potential global warming can only help lower exploration and development costs” in the Beaufort Sea.

Some 20 years later, ExxonMobil, along with its trade association the American Petroleum Institute,  embarked on a campaign of climate science denial specifically aimed at the Arctic.  Both API and ExxonMobil along with the Southern Company, a giant electric utility company, awarded grants titled “Arctic” to Dr. Willie Soon, a notorious climate denier affiliated with the Harvard Smithsonian Center for Astrophysics. ExxonMobil paid Dr. Soon over $335,000 from 2005 until 2010 while API paid the Smithsonian some $274,000 between 2001 and 2007.  Grant titles included the innocuous-sounding “Understanding Arctic Climate Change.” Meanwhile, Soon published a now infamous paper (Dyck, Soon 2007) called, “Polar Bears of Western Hudson Bay and Climate Change: Are Warming Spring Air Temperatures the ‘Ultimate Survival Control Factor?

The paper sought to show that polar bear populations were faring well, would survive warming in the region, and that the Hudson Bay area of the Arctic showed “no significant warming trend and are more likely identified with the large-amplitude, natural climatic variability that is characteristic of the Arctic. Any role of external forcing by anthropogenic greenhouse gases remains difficult to identify.”

Dr. Soon acknowledged in the paper that his “effort for the completion of this paper was partially supported by grants from the Charles G. Koch Charitable Foundation, American Petroleum Institute, and Exxon-Mobil Corporation.”

Since the the 1990s, attorneys general have gone to court and prevailed in a wide variety of causes, from illegal drug company marketing to firearms regulation. When Mississippi’s attorney general sued them in 1994,  Big Tobacco had never lost a smoking and health lawsuit and was a rogue enterprise, outside the ambit of federal oversight. Four years later, with all fifty AGs having followed Mississippi’s lead, the industry signed a historic settlement that banned ads targeting children, dissolved the industry’s front organizations, paid the states $246 billion in damages and paved the way for federal regulation of tobacco products in 2009.

Schneiderman has by far the most powerful investigative toolkit of any attorney general.  The state’s Martin Act, designed specifically to attack investor fraud, prohibits “all deceitful practices contrary to the plain rules of common honesty,” an extraordinarily broad mandate.  And unlike federal securities laws, no proof of intent to deceive is required under the Martin Act, and neither damage resulting from the fraud nor reliance upon the fraud by investors has to be proven. The act is often used in conjunction with the state’s Executive Act, which grants additional power to investigate fraud in the context of any business activity.

With the broad powers granted under the Martin and Executive Acts, Attorney General Schneiderman may be able to change the behavior of the oil industry even if no other attorney general enters the fray, just as his predecessor, Andrew Cuomo, forced changes in the climate change-related risks utilities must disclose.

It’s notable that the utilities surrendered to Cuomo without any charges being filed – all he had to do was open an investigation. Perhaps this was partly because the Martin Act allows the attorney general to pursue both civil and criminal cases – simultaneously, if he so chooses – while also stripping the company under investigation of legal protections it would normally be afforded.

Posted by Dan Zegart