Majority Action is calling on Dominion Energy to appoint an independent board chair because “the board’s composition and the qualifications and outside connections of board members in key leadership positions call into question whether the board is well-positioned to provide independent oversight.” Proxy advisory firm ISS has recommended a vote in favor of the resolution.
From the supporting statement (footnotes omitted).
Dominion is one of the largest US investor-owned utilities by generation and a significant contributor to greenhouse gas emissions.3 The Company’s long-term prospects depend on its ability to rapidly transform its business model in response to the disruptions and decarbonization policy imperatives caused by climate change. The US energy policy landscape is shifting significantly, as states are adopting ambitious targets for complete decarbonization of electricity within their jurisdictions.4 The falling costs of renewable energy sources and systems are rapidly upending fundamental assumptions underlying utility investments in fossil fuel-based infrastructure,5 and corporate customers are increasingly demanding power generated from only renewable sources, at times going around electric utilities to obtain clean power directly.6
Utilities that fail to adjust capital expenditures to this new reality risk investing in long-lived capital assets that will be uneconomic to operate and may be unable to pass on costs associated with those investments to ratepayers. In addition to these substantial business risks, utilities and their investors face further danger from the devastating effects changing environmental conditions can have on electric utility infrastructure.7
At the same time, electric utilities have much to gain from the economy-wide transition away from fossil fuels. Electrification can support transformation of other sectors, such as transportation, boosting demand for electric power. More capital intensive renewable generation can support higher earnings growth, as regulated utilities generally can earn a rate of return on capital investments but not fuel and other operating costs.8
In early 2019, Dominion set a long-term target of reducing its carbon emissions by 80 percent by 2050 from 2005 levels.9 This target falls short of that demanded by investors representing $1.8 trillion in assets under management, which called on U.S. investor-owned utilities to commit to achieving net-zero carbon emissions by 2050.10 In fact, according to research from the Energy and Policy Institute, Dominion’s announced targets actually represent a significant slowdown of its decarbonization rate, with a targeted reduction of only 1 percent per year between now and 2030.11 Moreover, Dominion does not explain how its new target is in line with the goals of the Paris Agreement of limiting warming to well below 2˚C and aiming for 1.5˚C, in accordance with requests made by the Climate Action 100+, a coalition of investors representing $33 trillion in assets under management.12 Dominion has published no roadmap detailing how it would achieve its stated emissions reductions, though its plans submitted to regulators include building between four and seven gas generation plants.13
Indeed, Dominion’s progress in reducing carbon emissions to date has relied almost entirely on switching from coal to gas fired generation, and only four percent of the Company’s generation were from renewable sources in 2017 (the most recent figures provided by the company in its 2019 investor day presentation).14 Dominion’s investment plans and corporate strategy have generated public controversy and risk political backlash in a critical market. The Company’s commitment to natural gas infrastructure is driving increases in policy and regulatory risk, reputational risk, and competitive risks.
For example, Dominion has come under extended community criticism related to the Atlantic Coast Pipeline (ACP). Concerns about the environmental impact of the construction and the need for additional gas capacity in the affected states have led to multiple legal challenges against the ACP.15 Originally estimated to cost $6.0-6.5 billion, challenges to various permits have increased the cost of the ACP to $7.0-7.5 billion, and the project is now unlikely to be in-service until late 2020.16
The siting of the Union Hill-Atlantic Coast Pipeline compressor has been particularly controversial, with worries that the compressor will impose disproportionate harm from toxic air pollution on communities of color in Union Hill, Virginia.17 Concerns about controversial projects like the ACP, and a growing unease regarding Dominion’s influence in state politics, led 13 newly-elected members of the Virginia General Assembly to refuse donations from Dominion in 2017.18 According to Activate Virginia, the organization promoting the pledge, 15 sitting House of Delegates members have pledged to refuse Dominion’s donations, as have two sitting members of the U.S. House of Representatives. Twenty-five non-incumbent candidates for the Virginia Senate and 45 candidates for the VA House of Delegates in 2019 have done the same.19
The over-reliance on building new gas infrastructure creates risks that these assets will become stranded in a carbon constrained future. Dominion appears not to have published any report in which it assesses whether the investment case for the ACP has been stress-tested against a future in which use of gas as a fuel is rapidly phased out as part of a transition to net-zero carbon emissions. Indeed, the Company’s most recent Climate Report, issued in November 2018, claims that pipeline capacity, in particular the ACP, will remain central to Dominion’s plans even in a world with significantly greater reliance on renewable energy.20 Analysts at the Institute for Energy Economics and Financial Analysis (IEEFA) have warned that “The biggest threat to the project’s profitability may come if and when the project is ever completed. The demand outlook for gas has changed dramatically since the project’s inception and much of the project’s original justification has evaporated. Indications are that the project’s affiliated utility customers may struggle to convince state regulators to pass the full cost of pipeline transportation agreements through to utility customers.”21
Given these key risks and challenges facing Dominion, independent oversight is crucial. We believe that an independent chair would strengthen the board’s ability to provide such oversight.