FCA 10 – RI Future

June 27, 2016June 27, 2016

Why should Burrillville care about Invenergy’s bad financial decisions?

Deprecated: Function get_magic_quotes_gpc() is deprecated in /hermes/bosnacweb08/bosnacweb08bf/b1577/ipg.rifuturecom/RIFutureNew/wp-includes/formatting.php on line 4387

At the most recent Burrillville Town Council meeting, Town Councillor Kimberly Briquette Brown made some curious remarks about Invenergy’s obligations to ISO-NE, the organization responsible for managing the supply of electricity to Rhode Island and neighboring states. Invenergy is planning to build a $700 million fracked gas and diesel oil burning power plant in the town and residents of Burrillville strongly oppose the plant.

“It’s my understanding,” said Brissette Brown, “from speaking to Mike McElroy and learning about this just as much as everybody else has been over the last few months, that once the ISO had granted the power capacity in February to Invenergy, that regardless of whether not they enter into a tax agreement with the town, if they do not go forward with building the power plant they’re going to be fined, substantially, it’s my understanding, and I could be wrong, millions of dollars. At the time… there was a concern about the financial ramifications of leaving the bill to people that thought that by voting no to a tax agreement that they’d be basically sending the power company packing.”

The gist of her remarks seems to be that Burrillville town attorney Michael McElroy convinced her that the town might be on the hook financially for the fines that Invenergy might suffer for not delivering on its obligations to ISO-NE. I couldn’t see how this was possible, so I asked Jerry Elmer, senior attorney at the Conservation Law Foundation (CLF), for his insight. The added emphasis is all mine:

By way of background, I explain in general that the results of FCA-10 show that the Invenergy plant is not needed, here.

And I am well aware of the fact that the mechanics of these FCAs can be complicated and difficult to understand; I provide some general background, here.

“In FCA-10, Invenergy bid both of its turbines, or 997 MW, into the ISO’s auction. However, in the actual auction, Invenergy cleared only one turbine, or 485 MW. Thus, Invenergy acquired a CSO of 485 MW. Invenergy agreed to provide electricity to the regional grid operator, ISO-NE, for a one-year period of time running from June 1, 2019 through May 31, 2020. This period of time is called Capacity Commitment Period 10 (CCP-10), and it corresponds to FCA-10. In return for agreeing to be available to the regional grid operator during that specified, future period, Invenergy will receive a stream of payments called capacity payments.

“In effect, Invenergy is selling a commodity, capacity, in return for a stream of money, called capacity payments. (And those links above provide some needed background that may help readers understand this.)

“In order to be allowed to participate in the ISO’s Forward Capacity Auction (FCA), Invenergy (or any other entity) had to first “qualify.” In order to qualify to participate in an auction, Invenergy (or any other entity) had to show that it had a realistic chance to actually build its proposed plant. (The ISO requires this, because the ISO is responsible for keeping our electricity grid reliable. ISO cannot keep the grid reliable if entities that acquire CSOs cannot actually build and operate power plants.) Invenergy (or any other entity) also has to put up a huge amount of “Financial Assurance” to even be allowed to participate in an FCA. FA is a kind of bond, a way of securing (guaranteeing) that Invenergy will be able to perform its obligation. FA would be forfeited if Invenergy (or any other entity) acquired a CSO (in an auction) but then did not actually have a plant built by the beginning of the CCP.

“So, now that Invenergy did acquire a CSO in FCA-10, is Invenergy irrevocably committed to building the proposed plant in Burrilville? The answer is unequivocally not.

“Could Invenergy abandon its proposed plant in Burrillville completely, and not lose the FA (bond) posted with ISO? The answer is unequivocally yes.

“To be sure, Invenergy could not just walk away from the plant. However, between today and June 1, 2019 (the beginning of CCP-10, when Invenergy’s CSO kicks in) the ISO will hold three separate Reconfiguration Auctions. One will occur about 2 years before June 1, 2019; one will occur about a year before June 1, 2019; and the last one will occur just before the start of CCP-10. At each of these Reconfiguration Auctions, buyers and sellers buy and sell CSOs to each other.

“Invenergy could – if it wanted to – sell out of its CSO in any one of those Reconfiguration Auctions. Of course, because the ISO is still responsible for keeping the New England electricity grid reliable, any entity that wanted to buy Invenergy’s 485-MW CSO would have to be qualified by the ISO to participate in the Reconfiguration Auction. The qualification process would be very similar to the qualification process for participating in an FCA – show that you either have a power plant already or could realistically build one in the remaining time allowed, and post FA.

“Invenergy could elect to sell out of its CSO in any of the next 3 ISO-run Reconfiguration Auctions for any one of a variety of reasons. For example, Invenergy could decide that the political climate in Rhode Island has turned against it, and that the plant might not be permitted by the Energy Facility Siting Board. (This could happen, say, if Governor Raimondo were persuaded to oppose the proposed plant as a result of overwhelming constituent pressure.) Or Invenergy could decide that the New England energy market is less lucrative than it thought it would be, and it is not worth building the plant. (In fact, the auction clearing price crashed from over $17 per kilowatt-month in FCA-9 to $7.03 per kilowatt month in FCA-10.) Or, Invenergy could sell out of its CSO for no other reason than that it thought it was profitable to do so. (Remember that whatever entity buys the CSO from Invenergy would be buying the right to a future stream of income. This is a valuable commodity, and it is entirely possible that Invenergy simply flips the CSO for a quick profit. Note that in that last sentence I mean “possible” as being completely within the ISO Market Rules; I am not suggesting that this is a likely course for Invenergy – only that it can be done.)

“In fact, Invenergy could sell out of its CSO in any one of the next three Reconfiguration Auctions for any reason it wanted to do so. The fact is that, having acquired a CSO on February 8 does not mean that the plant must inevitably be built, and does not mean that Invenergy is powerless to walk away without forfeiting the huge bond it posted with the ISO.

“In this scenario, the Town of Burrillville would not be on the hook for any of Invenergy’s CSO. In fact, the Town of Burrillville could almost certainly not be qualified by the ISO to buy Invenergy’s CSO. But, in any event, if Invenergy sold out of its CSO, the Town of Burrillville would have no liability for the CSO.”

So, in summary, the Town of Burrillville is in no way responsible for Invenergy’s bad decision to buy into a forward capacity energy market before being sure that they would be able to supply the energy required.

Invenergy made the promise, not Burrillville.

So I ask again, “Why should anyone in Burrillville care about bad decisions made by a Chicago based energy company? How is it possible that Burrillville should be liable for Invenergy’s bad business decisions?”

June 14, 2016

CLF: Invenergy lied to public at EFSB hearing in Burrillville

Deprecated: Function get_magic_quotes_gpc() is deprecated in /hermes/bosnacweb08/bosnacweb08bf/b1577/ipg.rifuturecom/RIFutureNew/wp-includes/formatting.php on line 4387

John Niland, director of development for Invenergy, knowingly mislead both the public and the EFSB, the board tasked with deciding the fate of the Burrillville power plant proposal, at a public hearing on the matter, according to the Conservation Law Foundation (CLF).

The Conservation Law Foundation (CLF) today filed two expert witness testimonies with the Public Utilities Commission (PUC) that reveals Invenergy representatives knowingly presented false facts and figures at a public Energy Facilities Siting Board (EFSB) hearing in Burrillville attended by 700 people.

The CLF testimony also provides further evidence that the electricity produced by a proposed $700 million fracked gas and diesel burning power plant in Burrillville is not needed in New England.

Invenergy’s estimates of consumer savings from the proposed plant are grossly inflated and inaccurate, says the CLF. Invenergy claims the power plant will save between $118 to $120 million for ratepayers. The actual number, according to CLF’s witnesses, is between 0 and $36 million.

Christopher Stix, first witness

The first testimony is from Christopher Stix, a volunteer financial analyst for the CLF providing financial and market analysis for CLF’s energy initiatives, specifically in the area of power plant licensing and electric and gas transmission. The testimony is lengthy and technical (and can be downloaded at the link above) but the actual conclusions of the testimony are fairly easy to present.

False Facts

Stix claims in his testimony that Invenergy knowingly presented false information at the March 31, 2016 EFSB hearing at the Burrillville High School.

“…on March 31, in front of 700 people, Invenergy presented in two different ways… information that Invenergy knew, at the time, was false. First, the words “$280 million in Savings” appear in big, green letters on Slide 12 of Invenergy’s presentation… Second, the false information was emphasized by Invenergy’s John Niland, who said, “Talking about ratepayer savings, the analysis we’ve done looks at what happens to the cost of power to the region when you put in a plant like this. – – [T]hat’s really what the $280 million number represents.” [EFSB March 31, 2016 Hearing Transcript. page 16, lines 8-11; 15-17.)

“…eventually Invenergy backed off its wrong assertion of $180 – $120 million in capacity savings in just FCA-10. In Ryan Hardy’s April 22 testimony, page 13, lines 20-21, Invenergy touts ‘Capacity cost savings to Rhode Island ratepayers . . . to be $170 million from 2019 to 2022, or $42 million annually on average.’ It is important to note here that in his testimony, Mr. Hardy gives no specific figure at all for projected capacity savings from just FCA-10. Instead, he sticks with a vague average over a period of several years.

“Mr. Hardy does not acknowledge in his April 22 testimony that his figure had changed radically from his sworn testimony before the EFSB on January 12, 2016, when he stated under oath that ‘the savings from capacity costs alone is nearly 212 million…’” [January 12, 2016 Transcript. page 164, lines 6-14; and Slide 24.]

“Third, and importantly, nothing changed between March 31, when Invenergy publicly presented figures that were grossly wrong, and April 22, when Invenergy presented very different figures. The relevant FCA had occurred on February 8. Invenergy acquired no new information between March 31 and April 22. Thus, there was absolutely no reason for Invenergy to have presented inaccurate information to the EFSB and Burrillville residents on March 31.”

Power plant not needed

Early on, Stix was asked if the New England electricity grid needs the proposed Invenergy plant.

Stix replied, “neither the New England electricity grid, nor the ISO, needs Invenergy in order to keep the grid reliable. Overall, in FCA-lO, the ISO procured fully 1,416 MW more than its ICR. Even if you subtract all 485 MW of the CSO acquired by Invenergy, the ISO would have still over-procured 931MW. And, here in the SENE zone, the ISO procured 1,321 MW more than its LSR Again, even if you subtract all 485 MW of the CSO acquired by Invenergy, the ISO would still have over-procured 836 MW in the zone The result of FCA-10 shows that the generation capacity that the Invenergy plant would bring to the electricity grid is not needed in Rhode Island, and is not needed in New England.”

Inaccurate consumer savings

Stix testified that “[t]he irrefutable, bottom-line fact is that Mr. Hardy and [PA Consulting Group] wrongly predicted savings to Rhode Island ratepayers,just from capacity, and just from FCA-l0, to be between $118 and $120 million dollars. The actual figure was somewhere between zero and $36 million. Mr. Hardy’s projected figure was 272% of the actual figure, and maybe much, much more than that. To put it another way, it is just not true to say that a predicted result of $118 million in ratepayer savings in one year “is very close to” ratepayer savings of between zero and $36 million. I doubt very much if Rhode Island ratepayers consider $118 million in one-year savings to be “very close” to zero to $36 million. And I doubt that the PUC will view it that way, either.”

Robert Fagan, second witness

The second witness testimony presented by the CLF today is from Robert Fagan, a Principal Associate at Synapse Energy Economics, a research and consulting firm specializing in electricity industry regulation, planning and analysis.

Fagan also says the proposed power plant is not needed in both the short, medium and long terms. He says there is no “near-to-medium term reliability need for the proposed Invenergy plant,” pointing out that “existing and projected energy efficiency and behind-the-meter solar PV resources in New England more than supplant the energy output of the proposed plant and support a reliable electric sector in Rhode Island and New England without the proposed plant” and “there is no longer-term reliability need for the proposed plant.”

Fagan says that “Rhode Island and New England net loads… exhibit declining trends, contrary to the applicant’s assertions.” Invenergy claims that the ISO-New England Forward Capacity Markets indicate need, but as we have seen, they do not.

Further, Invenergy offers, “no evidence of any longer-term reliability or other need for the proposed plant. They incorrectly inflate the energy forecast need for Rhode Island and New England. Their narrative on alternative energy resources, including energy efficiency and renewable energy resources, is completely absent of any quantitative analysis of the effect of a portfolio of energy efficiency and renewable resource supply as an alternative to the proposed plant.

Looking to the longer term future of energy in Rhode Island, Fagan says, “When considering energy efficiency and alternative new resources including behind-the-meter solar PV, other solar PV (utility scale), onshore wind, offshore wind, Canadian hydro, demand response, and storage alternatives – in addition to existing capacity resources and a recently strengthened New England transmission system – near-term and long-term reliability of Rhode Island and New England electric power sectors can be assured without reliance on the proposed power plant.”

Fagan also says that, “The applicant’s failure to present any evidence of a long-term reliability need for the plant is significant, because absent such a need, I don’t see how this proposed plant fits with Rhode Island state energy policy that, according to the applicant, emphasizes increasing energy efficiency, integration of renewable energy into the system, and achieving reductions in greenhouse gases.”

February 16, 2016May 3, 2016

Recent power auction proves Burrillville power plant unneeded

Deprecated: Function get_magic_quotes_gpc() is deprecated in /hermes/bosnacweb08/bosnacweb08bf/b1577/ipg.rifuturecom/RIFutureNew/wp-includes/formatting.php on line 4387

The Clear River Energy Center, a gas and oil fired energy plant proposed by Invenergy for Burrillville, Rhode Island is not needed, according to the results of ISO New England Forward Capacity Auction, the results of which were released last Monday. The results of the auction means that cost of energy in Rhode Island in 2019-2020 will be reduced and these lower costs have nothing to do with the energy offered by Invenergy.

[Note: Jerry Elmer had this to say in an email received after the story ran: “Energy and capacity are two different commodities. (The third component of electricity price is ‘ancillary services.’) The price of both energy and capacity are elements of the ultimate price of electricity that is paid by ratepayers (electricity customers) but energy and capacity are not the same thing. (That is, energy and capacity are not the same thing as each other; and energy and capacity prices are not the same thing as the price of electricity.) As components of the overall electricity market in New England, energy represents about 80% of the value (price) of electricity and capacity represents about 20%. (Ancillary services are a very, very small part of the price.)]

Forward Capacity Auctions (FCA) are somewhat complicated, and making sense of the ISO NE press release was a big lift, so I talked to Jerry Elmer, senior staff attorney at the Conservation Law Foundation (CLF), to get my head around it.

“Invenergy is planning to build a 900 – 1000 MegaWatt (MW) plant,” said Elmer, “Only 485 MWs cleared in that auction and got a capacity supply obligation (CSO). So what that tells you immediately is that the plant is not needed in RI. If the plant were needed it would have gotten a CSO of 900 MW.”

Hold up. Let’s take this a little slower.

The way electrical prices are determined in Rhode Island is through a series of annual auctions. Most recently we completed FCA 10 (Forward Capacity Auction 10). Power companies bid to supply energy and ISO NE takes the best offers at the lowest price. The companies in the bidding are then obligated to supply that power during the time period specified and at the determined price. This is the capacity supply obligation (CSO).

In the most recent auction, FCA 10, Invenergy cleared only 485 MWs, about half of what their proposed 900-1000 MW plant could produce.

Under the rules of ISO NE, a certain amount of energy must be locally sourced in each zone. Here in Rhode Island, we are in the South Eastern New England (SENE) zone and the amount of locally sourced power required is 10,028 MW.

As Elmer explained the math, “The zone cleared the auction at 11,348 MW. So do a thought experiment: Invenergy got a CSO for 485 MW. Take 485 MW out of 11,348 MW and you’ve got 10,843 MW in the zone without Invenergy. You’ve got a surplus. You’ve 500 MW more than you need, without Invenergy.”

This is not what Invenergy expected when they presented their plans for the new plant. “If you look at Invenergy’s filing with the Energy Facility Siting Board (EFSB),” says Elmer, “they were talking about how desperately the plant is needed, it’s needed in RI to keep the lights on, and that the clearing price of capacity is going to be much higher in RI than in the rest of the ISO NE pool, what they call ‘rest of pool.’”

In the previous auction, Rhode Island did not fare so well. The reason for this is that between FCA 9 and FCA 10 the zones were restructured. “It used to be, up until this auction, there were two separate zones,” said Elmer, “There was SEMA RI (SouthEast Massachusetts and RI), NEMA Boston (SouthEast Massachusetts and Boston), and ‘Rest of Pool,’ but for FCA 10, the ISO collapsed what used to be the NEMA Boston zone with the SEMA RI zone and made one SouthEast New England (SENE) zone.

“The interesting thing here is that Invenergy has been planning this plant for a couple of years and it is true that in the two previous actions, FCA 8 and FCA 9 one year ago, the SEMA RI zone cleared much higher than rest of pool. Invenergy was right about that. So they start this plan for this plant, and they figure that they are going to absolutely clean up financially.

“This is an import constrained zone, clearing price is double what the rest of the pool is, we’re going to put 900 or 1000 MW into this very high priced zone, we are going to make a fortune. This was their thinking.

“Between FCA 9 and FCA 10, ISO NE collapsed the NEMA Boston and SEMA RI zone into a big zone, and now, instead of the zone that includes RI being very constrained with a shortage of power, we now have an excess of power in the zone.”

Drawing the lines of the various zones has nothing to do with politics, said Elmer, “It’s nothing you can vote on or put political pressure on. It’s physics! It’s where the transmission does or does not exist.”

Let’s look at this from Invenergy’s point of view for a minute: Invenergy “thought they were supposed to have 900 or 1000 MW cleared, at a very high price,” said Elmer, “instead only half the plant cleared, 485 MW. What cleared went at exactly the same price as rest of pool, no premium, zero. The rest of pool came out 25 percent lower than last year’s clearing price, and the zone here [in Rhode Island] cleared at about half the price of last years price for this zone.”

This is great news for Rhode Island, but for Invenergy, not so much. “Here’s the kicker,” said Elmer, “Invenergy got a CSO for 485 MW. That means they have got to build the plant. They are on the hook. They posted a huge bond with the ISO called Financial Assurance (FA) just to be allowed to play in the auction. So now Invenergy has the worst of all worlds.

“It only sold half its capacity to the ISO and at a much lower price than anticipated, but they still have to build the plant, or as an alternative, they could sell their CSO between now and June 1, 2019 in one of the annual or monthly reconfiguration auctions that the ISO runs, and get out of the business altogether and not even build the plant.

“They are now forced to build the plant that will be much less profitable and lucrative than they thought, or get out of it.”

Currently, the EFSB is holding hearings to determine whether or not the plant will be built. In their filing with the EFSB, Invenergy’s two major arguments in favor of the plant were, “The plant is needed for system reliability, to prevent blackouts, to keep the lights on” and “The plant will end up lowering the bill for ratepayers,” said Elmer.

“What the results of the auction shows is that both of Invenergy’s main arguments are just wrong. They are false,” said Elmer, “The plant is not needed for system reliability, it is not needed to keep the lights on and the net effect on the clearing price is either zero or very close to zero because the plant wasn’t needed.”

“CLF is presenting three witnesses to the EFSB,” said Elmer, “one witness for each of the three arguments that Invenergy is making in favor of the plant. We’ve got one witness on the system reliability issue: Is the plant needed to keep the lights on? The answer is no and this auction proves it.

“We have a separate witness on the money issue. Will building the plant save money for rate payers? This auction result says no, the answer is no.

“And then we’ve got another witness on the climate change/carbon emission issues whose testimony is going to be that if the plant is built, it will be impossible for the state to meet its carbon emission reduction goals.”

This information is “absolutely all relevant to the EFSB. In fact, Invenergy is the party before the EFSB that raised these issues! CLF is not raising these issues. We’re addressing these issues because Invenergy raised them. In legal terms, Invenergy opened the door on each of these issues, we’re just walking through it. We’re not raising these issues, Invenergy’s raising these issues. The reason we’ve got witnesses addressing these issues is because Invenergy raised them!”

The arguments in favor of the plant that we are hearing from our elected leaders, such as Senator Sheldon Whitehouse, that Rhode Island suffers from an energy “choke point” and needs this plant for grid reliability, is simply not true any more, if it ever was. Given this new information, Senator Whitehouse should now feel very free to change his position on the proposed plant.

The low energy prices available now allows Rhode Island the luxury of planning a just transition to renewable energy sources and the time we need to concentrate on efforts to lower the amount of energy we need. Political leadership is needed to take advantage of this opportunity, and should not be squandered on an unnecessary fossil fuel plant that will harm Rhode Island’s environment and keep us addicted to fossil fuels for at least another half century.