FERC Filings
REQUEST FOR REHEARING OF THE ELECTRIC POWER SUPPLY ASSOCITION RE: CONSOLIDATED EDISON CO. OF NEW YORK
ARGUMENTS II
II.
THE COMMISSION’S APPROVAL OF REDUNDANT MITIGATION MEASURES WILL INCREASE UNCERTAINTY, DISCOURAGE INVESTMENT AND DELAY DEVELOPMENT OF COMPETITIVE MARKETS
As EPSA has repeatedly warned, a reliance on unsupported and seemingly unnecessary mitigation measures will provide only short-term political relief, rather than meaningful reform, for New York’s energy markets. The Commission’s action reversing its original denial of Con Edison’s proposal does nothing to ensure that additional generation infrastructure development is encouraged. Currently, New York has many overlapping market mitigation measures, including the Market Mitigation Measures Plan, the Temporary Extraordinary Procedures, the $1,000 MWh energy bid cap, the $2.52 MW bid cap on 10-minute non-spinning reserves, the proposed penalty provisions in Docket No. ER01-2489-000, as well as the AMP. Such voluminous, not to mention redundant, approvals set an ambiguous precedent telling the industry that the Commission’s decisions are driven by politically acceptable solutions. As such, the Commission’s rules have become a moving target.
The financial community is beginning to take notice of these confusing signals as well. A June 27th Merrill Lynch Energy Merchants briefing paper included the following:
It is vitally important for policymakers to sit up and take sobering notice of the California Crisis, and the resultant impacts that have occurred, not only on California’ own pocketbook, but on the $52+ billion in REAL equity value (just for these four companies [Dynegy, El Paso, Enron and Williams] alone) which has evaporated since the beginning of the year. Many politicians and policymakers appear to be overwhelmingly ignoring shareholders in the quest to protect/insulate consumers from market realities; the result of disincentivizing investment is already taking solid shape as uneasy energy shareholders speak with their feet.
Similarly, the Williams Capital Group, LP has issued a recent report – while discussing California:
The market [in California] has sent the private sector the signal that new capacity is needed. While generators have responded to the signal, regulatory meddling may disincentivize the private sector and obstruct the addition of new generating capacity. . . . The politics of fear have entered the market and generators have responded by withdrawing new supply plans. If regulators hope to encourage new supply, we believe they will respond by solidifying the generators’ expectations of regulation and free market prices. New generating capacity will be installed by private enterprise if and only if the risk of investing hundreds or millions of dollars per project is secured by expectations of financing (reasonable stock market valuations), reasonable returns, and regulatory stability.
A June 25th Credit Suisse First Boston Report raised similar concerns, recognizing the “angst of investors in terms of dealing with the potential of a new era of regulation in the natural gas and power industry. With trust, credibility and
visibility critical investment factors, it is our opinion that the new administration, the new FERC and California politicians have fomented an environment of mistrust.” The Report goes on: “Lesser ability to raise the necessary capital
to build new energy assets in the Western U.S. and elsewhere is an obvious consequence of the politically motivated FERC actions.” (emphasis added.)
Companies that have invested in New York will have to pay attention to the message their equity investors are sending regarding the political and regulatory risk of continued investment in the region. Investors may no longer be willing to risk investing in companies that are making infrastructure investment in New York.