Arizona Eagletarian

Arizona Eagletarian

Wednesday, April 15, 2015

Price of admission: 1 share of Pinnacle West stock!

Recently, the board of directors of Pinnacle West Capital Corporation, parent company of Arizona Public Service, released it's 2015 Proxy Statement. The 92-page document has some juicy and potentially very significant tidbits you may want to know about.

First, PinWest's annual meeting will be held on Wednesday May 20, 2015 at 10:30 am (MST) at the Heard Museum on Central Avenue in Phoenix. It says the purposes of the annual meeting are:
  1. to elect ten directors to serve until the 2016 Annual Meeting of Shareholders (Proposal 1);
  2. to hold an advisory vote to approve executive compensation (Proposal 2);
  3. to ratify the appointment of our independent accountants for the year ending December 31, 2015 (Proposal 3);
  4. to consider a shareholder proposal, if properly presented at the Annual Meeting (Proposal 4); and
  5. to transact such other business as may properly come before the Annual Meeting and at any adjournments or postponements thereof.
Apparently, in order to vote, one must be a shareholder of record as of the close of business on March 15, 2015. According to the proxy statement, if you become a new shareholder now, tough shit. You can't even get in to the meeting. And speaking of transparency (were we speaking of transparency?), check this out. From page 9 of the statement,
In order to attend the Annual Meeting, you will need to present a valid picture identification, such as a driver’s license or passport, and either:
  • the Internet Notice or the top portion of your proxy card if you are a shareholder of record (each Internet Notice or proxy card admits up to two shareholders);
  • or a copy of a brokerage statement showing ownership of our stock as of the close of business on the record date if you hold your shares in street name (each brokerage statement admits up to two shareholders).
Please do not carry items such as large handbags and packages to the meeting, as we reserve the right to inspect any items brought into the meeting. Weapons are prohibited in the meeting. We also reserve the right to prohibit bringing cell phones, pagers, cameras, recording devices, and other items into the meeting room.
Would I be off base to interpret that last paragraph to mean that not all stockholders will actually be subject to search? Might a person holding only one or a few shares get more scrutiny than institutional (pension fund) holders? Of course, it's a very good thing to prohibit weapons. But if they don't like you, they will likely be more vigilant about checking to see whether you have a cell phone that can take pictures or record video or audio.

But really, it's the shareholder proposal that intrigues me.

Essentially, because corporate lobbying (especially the way PinWest and APS do it) exposes the company to adverse risks, and because shareholders rely on information provided by the company to determine if it is acting in the best interests of shareholders, the proposal is for the board to report annually, disclosing company policy on both direct and indirect lobbying, lobbying expenditures, membership in organizations like ALEC, and how the Board went about authorizing those lobbying activities and expenditures.

And what do you know, the Board of Directors recommends shareholders refuse to approve the proposal. First, the supporting statement,
Shareholders encourage transparency and accountability in the use of staff time and corporate funds to influence legislation and regulation, directly and indirectly. Pinnacle West Capital does not comprehensively disclose its trade association memberships, nor payments to special interests groups on its website. Absent a system of accountability, company assets could be used for objectives contrary to the long term interests of the company.
Pinnacle West Capital spent approximately $800,000 on federal lobbying in 2013. (opensecrets.org) This figure excludes spending on memberships or contributions to organizations that write and endorse model legislation, such as the American Legislative Exchange Council (ALEC), where Pinnacle West Capital serves on the Energy, Environment and Agriculture Task Force. It also excludes contributions to trade groups such as the Edison Electric Institute, where Pinnacle Capital West [sic] is a member. Additionally, in 2013 Pinnacle West Capital’s subsidiary Arizona Public Service donated $4 million to nonprofits that executed an anti-renewable power advertising campaign which created national controversy. (Berman, ‘‘Why the Dark Money Debate Matters’’, AZCentral.com, April 5, 2014)
We encourage our Board to require comprehensive disclosure related to direct, indirect and grassroots lobbying.

BOARD OF DIRECTORS RESPONSE:
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST PROPOSAL 4.
Pinnacle West is committed to complying with the law, our policies and our values when engaging in any type of lobbying or political activity. Pinnacle West’s Political Participation Policy (the ‘‘Policy’’) is set forth on our website in our section on Corporate Governance (available at www.pinnaclewest.com). The Policy provides that our Company and our subsidiaries participate in the democratic process to advance our long-term business interests and the interests of our customers, employees, shareholders and other stakeholders.
Political interaction is important to shareholder value. As a vertically integrated utility, APS is highly regulated and its operations are significantly affected by the actions of elected officials at the local, state and national levels, including the rates it can charge customers, its profitability, and the recovery of the costs of its investments in infrastructure. When it is in the Company’s best interest, the Company has a responsibility to our customers, shareholders and other stakeholders to be an active participant in the political process, to inform policy and decision makers of our views on issues, and to develop and maintain strong working relationships with governmental decision makers. While the proponent claims that lobbying exposes our Company to risks, we believe that the failure to engage in critical public policy developments that impact our business would represent a far greater risk to shareholders’ interests.
Some translation may be needed. Here's mine:

Pinnacle West is committed to doing everything it possibly can to not get caught violating laws. Among the strategies we use, we heavily lobby Congress, the Arizona Legislature, the Arizona Corporation Commission AND the people of Arizona (to propagandize, thereby creating the public perception that what we want changed in law is the right thing to do in all cases). We do so in order that legal compliance is -- as much as possible -- changing laws and the regulatory environment so that what we want to do is made to be legal before we get caught. Especially in doing something we haven't yet had enough time to sweet talk or strong arm lawmakers/regulators into seeing our way.

The expression, "The Policy provides that..." engulfs a wide range of ambiguity. "... our Company and our subsidiaries participate in the democratic process to advance..." Does the policy authorize (the company MAY...) or require (the company SHALL)? I don't know the answer to that question, but I do recall that during the 2004 legislative campaign, when I assisted candidates for the Arizona House in soliciting Clean Elections $5 qualifying contributions, more than one APS employee declined out of fear of retaliation from company management for contributing to candidates not authorized by the company.

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Of course, I am not conversant in laws pertaining to attendance at annual shareholder meetings. But it occurs to me that if one purchases one or more shares of stock now, that person should be lawfully authorized to attend the meeting, even if he or she is not allowed to vote.

At the close of business today, Pinnacle West common stock shares traded at $63.04.

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