FERC Needs to Know That ‘Investor Confidence’ Matters
By Steven Schleimer | January 22, 2021
In his dissent to a Nov. 19, 2020, Federal Energy Regulatory Commission Order on Rehearing related to ISO New England’s Competitive Auctions with Sponsored Policy Resources (CASPR) construct (Docket ER18-619-001), Chairman Richard Glick questions the need for a Minimum Offer Price Rule (MOPR) and whether the concept of “investor confidence” should be a “lodestar” that matters in FERC’s decision-making. Regardless of how the debate on any particular market mechanism plays out, it is of course true that investors countenance investments based on the expectation that they can recover their capital (including an adequate return). The key market design question is whether investors or ratepayers should bear the risk that the investment choices were sound.
Investors are willing to commit significant at-risk capital when they are confident in market rules. Well over $100 billion of private capital has flowed into Texas, PJM and New England over the last decade, resulting in more than 70 GW of new capacity. This at-risk investment has served the dual pursuits of reliability and low cost — and is exactly what the MOPR rules were designed to protect.
Competitive markets have proven their effectiveness in meeting cost and reliability goals, but some states are now eager to include additional attributes — such as environmental performance or economic development — in their preferred resource selection criteria. State regulators have become impatient with the often painstakingly slow process of revising RTO tariffs, and legislators are eager to make their mark — pursuing policy goals via direct procurement of renewable resources. The current trend is toward low- or zero-risk investment opportunities, primarily through state-mandated contracts, which shifts the risk of the investment decision from investors to ratepayers.