U.S. Plan to Aid Coal and Nuclear Plants Gets a Bipartisan Thumbs Down From Past Regulators FacebookTwitterLinkedInEmailPrint分享Washington Post;Energy Secretary Rick Perry’s bid to change regulations to help coal and nuclear power plants has run into unusually blunt opposition from a group of former regulators from both parties.Eight former members of the Federal Energy Regulatory Commission — including five former chairmen — have filed a letter with the commission opposing Perry’s proposal that would give coal and nuclear plants credit for resilience so that they would have a better chance of beating solar, wind and natural gas competitors.The former commissioners said that Perry was seeking to reverse a quarter century of FERC reforms that have created a marketplace for electric power generators and that many of the coal plants he is aiming to help have no advantage when it comes to reliability.“His focus is clearly coal and there are a lot of dirty coal plants that are not competitive in today’s energy markets,” Elizabeth Moler, a former FERC chairwoman, former deputy energy secretary and former Exelon executive, said in an interview. “To me he’s effectively proposing to subsidize them and put a tax on consumers in doing so. It’s a tax in different clothing. It’s going to cost customers more money to run dirty old coal plants.”In early October, Perry made his proposal to FERC and asked for a decision within 60 days. He proposed that credit be given to power plants with 90-day fuel supplies on site so that they could operate during an emergency including extreme weather or a natural or man-made disaster.FERC is an independent agency, however, and some current members have indicated that the commission would make its own decision. Even one of President Trump’s nominees has stressed FERC’s independence. Robert F. Powelson, who was confirmed in August, said in a speech at the National Press Club on Oct. 16 that “the moment we put our thumbs on the scale is the moment we bastardize the process.” In an earlier speech on Oct. 4, Powelson said “we will not destroy the marketplace.”Over the past quarter century, FERC has helped create regional electricity grid operators with the ability to accept bids from power plants to supply electricity to the grid. The competition has attracted tens of billions of dollars of investment in natural gas and renewable power sources.The former commissioners’ letter to FERC said Perry’s proposal “would be a significant step backward from the Commission’s long and bipartisan evolution to transparent, open, competitive wholesale markets” and that it “would instead disrupt decades of substantial investment made in the modern electric power system, raise costs for customers, and do so in a manner directly counter to the Commission’s long experience.”The group wrote that “subsidizing resources so they do not retire would fundamentally distort markets. The subsidized resources would inevitably drive out the unsubsidized resources, and the subsidies would inevitably raise prices to customers.”It said that “investor confidence would evaporate and markets would tend to collapse. This loss of faith in markets would thereby undermine reliability.”Pat Wood III, who was chairman of FERC under President George W. Bush, said that “I understand the politics. I’m sympathetic.”But he said that the reliability Perry said he wanted to favor had more to do with transmission and distribution than it did with they type of fuel used.The group’s letter acknowledged that there are federal tax subsidies for every kind of fuel, but it said that “one step the Commission has never taken is to create or authorize on its own the kind of subsidy proposed here.”Sen. Ron Wyden (D-Ore), the ranking Democrat on the Senate Finance Committee, said Thursday that FERC should shelve the Perry proposal.“Arbitrarily propping up a dying industry goes against what the GOP has long claimed is its goal – an all-of-the-above energy strategy,” Wyden said in a statement. “This rule clearly picks winners and losers in energy resources, which robs taxpayers of the benefits of competitive markets.”More: Bipartisan group of former FERC commissioners rejects energy secretary’s bid to help coal plants
According to Hawley and Lukomnik, however, the way in which the industry had adopted modern portfolio theory (MPT) – both consciously and inadvertently – combined with the industry’s current business models had created a tendency for asset managers to pursue strategies that diverged from this purpose.There were misalignments between the incentives of the industry and the investors who were its ultimate clients, they said: complexity, multiple and opaque fees, and short-termism.“Our clear recommendation is to unify this potential to affect real world risk under a common banner that could be called ‘systems-level investing’.”Jon LukomnikThe main remedy, according to the authors, was for asset managers to focus on changing the systemic risk/return of the market. This was not about a wholesale abandoning of modern portfolio theory, they said, but about adding “systems-level” considerations to security selection and portfolio construction.“Using a systems-based approach alongside modern portfolio theory has the power to evolve the asset management industry and realign its interests with its customers,” said Lukomnik. “Our clear recommendation is to unify this potential to affect real-world risk under a common banner that could be called ‘systems-level investing’. This will benefit not only the performance of the industry and its customers, but society more generally.”The paper is the second in a series about the purpose of finance, facilitated by Pension Insurance Corporation (PIC), an insurer of defined benefit pension funds.Tracy Blackwell, CEO of PIC, said: “We believe profoundly in the importance of the finance industry. But asset management, like other parts of the finance industry, must demonstrate that it fulfils a clear purpose. As Hawley and Lukomnik argue, for that to happen, we have work to do.”Industry reactions In addition to arguing for a new intellectual paradigm for investing, the authors also recommended measures such as a simple fee statement – equivalent to the nutrition labels on prepared food – and a ‘do-no-harm’ pledge similar to the medical profession’s Hippocratic Oath.According to PIC, the paper generated “considerable interest”. A summary of stakeholder responses said they suggested “profound differences in perspective as to the problems within the asset management industry”.It relayed that “the industry challenges the argument that modern portfolio theory contributes to short termism and is responsible for… reliance on index benchmark approaches”. Short-termism was not inherent to MPT but was mostly driven by regulation, behavioural biases, and other factors, according to PIC’s summary. For further progress to be made on some aspects, asset managers felt asset owners needed to lead.Andreas Utermann, CEO of Allianz Global Investors, was one of the most critical of Hawley and Lukomnik: “The argument that MPT is (mostly) to blame for many of the ills that befall our industry, and in particular that it drives short termism and is responsible for (over-)reliance on index benchmark approaches, is tenuous,” he wrote.His and other stakeholders’ responses were included in the paper. It was “not clear” how MPT contributed to systemic factors being neglected in investment decision-making, added Utermann, and the paper “leaves the reader wondering what ‘systems theory’ is meant to be, other than the implications that it is somehow ‘superior’ to MPT”.“The idea that one can improve ‘beta returns’ is the most fanciful of all,” wrote Utermann. “Directing capital towards certain sectors/activities may have great societal (system) benefits but will likely lead to lower beta returns in those sectors as capital is ‘wasted’ from an efficient capital market perspective.”Gavin Ralston, head of official institutions at Schroders, questioned whether it was up to asset managers to move away from a model based on modern portfolio theory.“We would welcome the industry moving further in this direction, but it needs to be led by the asset owners,” he said.‘The Purpose of Asset Management’ can be found here . An overreliance on modern portfolio theory, which assumes away the effect investors can have on the market, has led to asset managers not adequately fulfilling their purpose, according to a new paper.Managers are ignoring “systems-level risks to investing, such as government actions, diversity issues and climate change”, authors Jim Hawley and Jon Lukomnik wrote in the report, ‘The Purpose of Asset Management’, published today.Lukomnik is a former deputy comptroller for the City of New York and investment adviser to the city’s pension funds, while Hawley is head of applied research at TruValue Labs and a professor emeritus at St Mary’s College of California.The asset management industry had a twin purpose, the authors said: to provide a reasonable, risk-adjusted return to clients by efficiently allocating capital to improve the economy and society.