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CICIO: FERC Nears One of the Costliest Energy Decisions in History

President Biden got it right in his 2022 State of the Union Address when he said “capitalism without competition is exploitation.” Competition is the keystone of the American economic model and its success. Unfortunately, the Federal Energy Regulatory Commission is considering a proposed rule on electricity transmission that not only fails to support the expansion of competition but also backs away from existing rules designed to usher in a new era of transmission competition to lower electricity costs for consumers.

According to a study by Princeton University, the United States will need to spend $2.1 trillion on transmission by 2050 if it is to reach net-zero emissions in that time. Competitively bid transmission projects have been shown to offer savings as great as 40 percent, which means requiring transmission projects to be competitively bid could save ratepayers $480 billion. Either way, consumer electric bills will substantially increase, but competition can reduce those cost increases and electricity price inflation.

The president, the Department of Justice, and the Federal Trade Commission are squarely supporting competition, as outlined in a joint comment submitted to FERC backing transmission competition. In a statement, the director of the FTC Office of Policy Planning, Elizabeth Wilkins, said, “Competition is still the best way to ensure that our electric grid is built out in a way that lowers rates, increases innovation, and improves sustainability and resiliency.” Despite this, FERC is proposing an anti-competition policy — putting it add odds with the rest of the executive branch.

The problem is that incumbent monopoly electric utilities are opposed to competition and cheered when the proposed rule to scale back competition was released. Electric utilities make money by tacking on a 10 percent to 12 percent return to their equity investments — and continue to receive returns on their transmission investments for up to 40 years. These monopolies fear competition, as evidenced by the voluminous comments they have filed to prevent transmission competition.

Under the Obama administration in 2011, FERC issued Order 1000, designed to usher in a new era of competition by eliminating a federal right of first refusal for incumbent utilities. However, in a giveaway to incumbent utility companies, state-level right of first refusal laws have limited the number of competitively bid projects to only 3 percent of all transmission projects nationwide.

From 2014 to 2021, the transmission portion of consumer electric bills has increased a staggering 79 percent while the energy and distribution cost components have remained relatively low. The explanation is simple: by blocking competition, incumbent utilities have been able to steadily increase consumer prices without the fear of losing business.

All Americans have been hit hard by record Consumer Price Index inflation, but more than half of that growth has come from energy price increases. Electricity price inflation came in at 15.5 percent on an annualized basis in the latest CPI report, outpacing the inflation rate.

While higher gasoline prices tend to get all the attention, in 2021, the typical American consumer spent  $179 per month on gasoline and $176.67 on heating, comprising electricity, natural gas and fuel oil and accounts for about 3 percent of household expenditures. A Census Bureau Household Pulse Survey reveals that 33 percent of 44 million renter households across the country were behind on their energy bills in the past year.

Electricity transmission competition is a proven anti-inflation policy that works every time. New Jersey offers an example of how transmission competition fits into the picture of fighting electricity price inflation and connecting renewable energy projects with the grid. The New Jersey Board of Public Utilities recently concluded their largest competitively bid transmission project, with savings ranging from 50 percent to 66 percent — or between $2.3 billion and $4.6 billion.

Congress and the Biden administration have made fighting inflation a priority while also working to lower the price of energy. Both policies can be accomplished by embracing electricity transmission competition. FERC should stand up for consumers and lead the fight for transmission competition instead of blocking it.

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State AGs Accuse Vanguard of Pressuring Utility Companies Over Climate

Thirteen state attorneys general are asking the Federal Energy Regulatory Commission (FERC) to hold a hearing about the actions of Malvern-based investment company Vanguard toward utility companies in which it has invested.

The states, whose utilities use coal and natural gas, accuse Vanguard of kowtowing to climate activists to actively manage utilities it invests in to move away from fossil fuels to renewable energy, raising utility bills for consumers in those states.

In their complaint, the attorneys general for Utah, Indiana, Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Ohio, South Carolina, South Dakota, and Texas allege Vanguard has gone back on its 2919 promises to FERC not to interfere with the management of these utilities. They ask that FERC hold a hearing rather than simply agreeing to approve Vanguard’s latest request for a three-year approval for an extension of its investments in utility companies.

A spokeswoman for Attorney General Josh Shapiro did not respond when asked if his office plans to join the complaint. Pennsylvania utility companies also use natural gas. And Pennsylvania produced some 7.6 trillion cubic feet of natural gas from the Marcellus Shale in 2021, second only to Texas, according to the U.S. Energy Atlas. The state is also third for coal production. It is also the second-highest exporter of energy to other states after Texas.

Vanguard has also been the subject of climate change protests.

“Vanguard, pursuant to its environmental commitments, has taken actions through its stewardship, engagement, and proxy-voting strategies to control the day-to-day operations of its portfolio utility companies in violation of the 2019 Authorization. For example, in its own publications, Vanguard warns its portfolio companies that it will support shareholder proposals that require the pursuit of climate risk mitigation targets and disclosure of greenhouse gas emissions or other climate-related metrics,” the complaint said.

“Vanguard also engages companies in carbon-intensive industries to have risk mitigation targets that are aligned with the Paris Agreement and disclosure of progress against those risk-mitigation targets,” the complaint said.

Further, the complaint said, “Vanguard’s environmental mandates impose costs on its portfolio companies, and it is highly plausible that those costs are passed on to consumers directly or indirectly by hampering access to capital or foreclosing certain revenue-generating opportunities. A holding company of Vanguard’s size and influence should not be overlooked; to do so would be an abdication of the Commission’s statutory duty to safeguard the energy markets.

“Finally, we note that in joining (climate activist groups) NZAM and Ceres, Vanguard has engaged (and promises to continue to engage) in organizations that coordinate conduct with other major financial institutions, including BlackRock and State Street, to impose net-zero requirements on publicly traded utilities. This group effort to control day-to-day operations of public utilities raises serious concerns about the continuing efficacy of the 10 percent and 20 percent ownership limits imposed by the 2019 Authorization and the Office of Energy Market Regulations’ nine-month extension order.”

“As an investor-owned asset manager, Vanguard’s role is to promote long-term value creation for investors in our funds, leaving management and policy decisions to companies and policymakers. We look forward to working through the regulatory process,” said Alyssa Thornton, a spokeswoman for Vanguard.

Previously, she told Delaware Valley Journal, “Vanguard considers climate change to be a fundamental risk to many companies and their shareholders’ long-term financial success. As an investment manager and steward of our clients’ assets, we have a responsibility to ensure investors are aware of material risks, and that portfolio companies are taking the appropriate steps to manage and mitigate those risks on behalf of their shareholders.

“As such, we continue to address climate change risk by engaging with the companies held in our funds on their climate risk oversight, mitigation, and disclosures; through thoughtful investment products that help investors manage certain climate-related risks and opportunities; and, through engagement with policymakers, regulators, and other industry participants,” she said.

When asked to comment, Douglas Pyle, co-founder of Radnor Capital Management, said it is not unusual for investment firms to cater to clients’ wishes as far as avoiding certain industries. In the past, those shunned groups tended to be alcohol, tobacco, and firearms manufacturers. Now fossil fuels are deemed unacceptable by some investors.

“We have managed a lot of ‘socially responsible’ money, but the clients came to us and said, ‘Here are the things that we find objectionable,’” said “Pyle. “So, we would do it, but we would not do it for all of our clients, whether they wanted it or not.”

Pyle noted that investors can pull their money, which the state of Florida just did, withdrawing $3 billion from the investment firm Blackrock.

Asked if Vanguard has a fiduciary duty to make money for its clients rather than focusing on climate change activism, Pyle said, “I would say yes. But they must have alternatives for regular investment funds where that’s not a priority versus putting everybody into something that has those guidelines.”

With a workforce of more than 8,000 people, Vanguard is the largest employer in Chester County.

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