Ten years ago, I was asked to represent a social justice organization before the Florida Public Service Commission. The Commission was considering its ten-year integrated resource plan. By general definition, an integrated resource plan is a utility’s description of its resource needs, policy goals, physical, economic, and financial needs, and proposed roadmap for meeting those needs. The plan also includes options for meeting base load demand for energy.
One of the issues that year was net metering, a concept that provided for households and individuals who used renewable energy sources to meet their energy needs. Net metering allowed these households and workplaces to sell excess energy back to the utilities. The argument was that the individual household or business could reduce its energy costs and contribute to the state’s overall policy of introducing clean energy sources into Florida’s energy grid.
Of concern to my client was the potential of higher costs of utility electricity generation being passed on to lower income black households due to less reliance on the grid by higher income ratepayers. Cost shifting in economic theory makes some sense. Power grids become increasingly efficient where there are more ratepayers on the grid. The cost per household served decreases where you have more paying consumers on the grid. If higher-end consumers are able to go their own way, the utility is forced to recover from lower-end consumers who cannot invest limited resources into expensive solar panels or batteries.
While the utilities and renewable energy advocates presented data, witnesses, and testimony, my client, who entered the proceeding within a few weeks of its initiation, decided to forego introducing testimony or examining witnesses. Hindsight is 20/20. While the client’s in-house counsel was a seasoned civil rights lawyer, his apparent failure was not appreciating that the commission, although sympathetic to an equity argument, was primarily concerned with language and data that not only addressed the approval of an integrated resource plan, but also addressed the balancing of investor and ratepayer needs.
But was this really a failure or stakeholder tactic?
For an outsider looking in, they may assume that the individual parties participating in such proceedings have separate interests that are in conflict. The reality is that out of a multitude of stakeholders there is at least one maestro orchestrating these interests. The maestro is willing to take a suggestion or two from the string or woodwind section, but in the end, it boils down to what the maestro has written on her sheet of music and her final interpretation of the sheet music during the performance.
For the trading desk trying to determine the outcome of a proceeding, your stakeholder analysis cannot assume conflict just based on what you are seeing on the surface. Take a look at what the major players are willing to give up in order to advance their interests. Also take a look at the investment other players are making in presenting their positions. Are they simply going through the motions or are they investing in sound counter attacks? The stiffer a counterattack by smaller players, the likelihood of expected gains by larger players may be reduced.
I would also think that for a major activist investor, properly analyzing the stakeholders and their interests would better inform the activist investor’s strategy.
Alton Drew
31 July 2024
For more of my take on the American political economy, buy my book at amazon.com/author/altondrew.
Lawyers Write the Bets. Bankers Sell the Bets. 