Policy Risk and Private Investment in Ontario’s Wind Power Sector

Even though governments may adopt favourable regulatory policies for renewable power generation, their ability to encourage private sector investment depends also on the presence of regulatory governance institutions that provide credible long-term commitments to potential investors. In the case of Ontario we contend that, despite large market potential and comparatively strong regulatory incentive policies, weak regulatory governance is one factor that has accounted for the challenges in attracting and implementing large scale private investment in power generation at a reasonable cost. We find empirical support for our arguments in a unique survey of 63 wind power firms that assessed private sector opinions about the investment environment for renewable energy in Ontario. Compared to a range of factors, firms rated the stability of regulatory policy among the weakest aspects of Ontario?s business environment. However, policy stability ranked among the most important factors in firms? assessments of the attractiveness of alternative jurisdictions in their location decisions. Subsequent interviews revealed that firms have responded to this risk in Ontario by explicitly pricing it into wind project financial models – implying higher wind power prices for ratepayers – and by directing investment funds to other jurisdictions. We argue that policy stability in Ontario may be improved by devolving greater decision-making authority to regulatory agencies in the energy sector and by strengthening their institutional independence.

Policy Risk, Political Capabilities and International Investment Strategy: Evidence from the Global Electric Power Industry �

While conventional wisdom holds that policy risk—the risk that a government will opportunistically alter policies to expropriate a firm’s profits or assets—deters foreign direct investment (FDI), we argue that multinational firms vary in their response to host-country policy risk as the result of differences in organizational capabilities for assessing and managing such risk, which are shaped by the home-country policymaking environment. Specifically, we hypothesize that firms from home countries with weaker institutional constraints on policymakers, or more intense policy competition among interest groups divided along economic or ethnic lines, will be less sensitive to host-country policy risk in their international expansion strategies. Moreover, firms from sufficiently risky or contentious home-country environments will seek out riskier host countries for their international investments, in order to leverage their political capabilities and attain competitive advantage. We find support for our hypotheses in a statistical analysis of the FDI location choices of multinational firms in the electric power industry during the period 1990 – 1999, the industry’s first decade of internationalization. Author order is alphabetical and does not reflect relative contribution. We are grateful to Witold Henisz, Am

Interest Group Representation in Administrative Institutions: The Impact of Consumer Advocates and Elected Commissioners on Regulatory Policy in the United States

We use a panel database of rate reviews conducted for U.S. electric utilities to assess how consumer advocates and elected Public Utility Commission heads affect regulatory policy and utility strategy. We find first that utilities postpone rate reviews in states with consumer advocates and elected commissioners. Second, we find that, after controlling for observed and unobserved state characteristics, states with consumer advocates and elected commissioners tend to grant lower returns on equity. Third, these institutions have differential impacts on different types of consumer: consumer advocates are associated with higher residential-industrial rate ratios while elected commissioners are associated with lower residential-industrial rate ratios