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Going vertical limits downside risk because a vertically integrated buyer…

2026-08-06 · 22:23 UTC ·@xiaowang1984 ·1 min read

Brief

Going vertical limits downside risk, the author argues, because an integrated buyer pays an average price rather than an IPP's marginal price—so deregulation only looks good when marginal prices are low. Fred Stafford highlights that Con Edison's ROE is ~9.5% versus NRG's 12–15% demand for NYC gas projects, asking why regulators would treat them differently.

Why it matters

Going vertical limits downside risk because a vertically integrated buyer captures the average power price, whereas buying from an independent power producer (IPP) exposes you to the IPP's marginal price; when marginal price is low deregulation looks attractive, but that changes in the current market.

Key details

  • Fred Stafford notes Con Edison (NYC) gets roughly a 9.5% return on equity for projects while NRG expects 12–15% ROE for any new gas project in NYC, and he questions why regulators would allow Con Ed to build a gas plant but not NRG.
Source evidence

I think the bigger thing with going vertical is that you limit the downside risk compared to buying from an IPP where the later can sell to you at the marginal price whereas in the former you get the average price. When marginal price is low then dereg looks great. In this market though...

Fred Stafford (@fredstaffordcs)

If an investor-owned utility like NYC's Con Ed gets a ~9.5% return on equity for their projects, and if independent power producer NRG, which seems poised to develop a new gas plant in NYC and tried to repower one several years ago, expects a minimum of 12-15% return on equity for any projecys, why would it be "those profit-loving dastardly utilities" if Con Ed were allowed to build the gas plant but not "those profit-loving dastardly independent power producers" if NRG does?

— https://nitter.net/fredstaffordcs/status/2042620423154618866#m