New rule
seeks to prevent companies from profiting off ratepayers without producing
electricity
By Steve
Ahlquist in UpRiseRI
ISO New
England is the independent non-profit
responsible for running the energy grid in New England and for securing “reliable, competitively priced”
electricity. To do this, ISO New England holds annual auctions to secure energy three years in the future. Power plant operators bid into the system, agreeing to deliver a certain amount of energy for a certain price when required, three years hence.
This system worked well for about a
decade, until Invenergy came
to Rhode Island with
the intention of building a $1B fracked gas and diesel oil burning power plant
amidst the pristine forests of Burrillville.
Invenergy didn’t have a power plant, but they planned to have one three years in the future, so Invenergy entered into a Forward Capacity Auction (FCA) and secured what is called a Capacity Supply Obligation (CSO), essentially a promise to deliver energy for money in the future.
Invenergy didn’t have a power plant, but they planned to have one three years in the future, so Invenergy entered into a Forward Capacity Auction (FCA) and secured what is called a Capacity Supply Obligation (CSO), essentially a promise to deliver energy for money in the future.
More technically, what Invenergy did
was enter FCA-10, held in
February 2016, and was awarded a CSO of 485 MW on Turbine One. (Invenergy’s
proposed power plant was to feature two turbines; only one sold into the
auction.) The energy Invenergy agreed to provide to ISO New England was to be
supplied between June 1, 2019 and May 31, 2020.
We now know that it would have been
impossible for Invenergy to meet their obligation to deliver the electricity,
since the proposed power plant will never be built. And in fact, given that it
takes years to approve and build a power plant, it was clear very early on that
Invenergy was going to be unable to meet their 2019 obligation to deliver
power. But this is no big deal.
Anticipating this problem, ISO New England holds a series of reconfiguration auctions, where companies can offload their CSOs to other power producers.
Invenergy was easily able to sell
off its first CSO, and more easily sold off its second CSO for energy to be
supplied June 1, 2020 and May 31, 2021.
Early on, those who understood
energy markets were making the case that Invenergy’s proposed power plant was
not needed because there were, are, and would be more than enough power plants
generating electricity in New England to satisfy the needs of consumers.
This was proven when Invenergy found themselves in the position of having to sell off their CSOs. Not only did they do so easily, Invenergy made a tidy profit from the resale.
This was proven when Invenergy found themselves in the position of having to sell off their CSOs. Not only did they do so easily, Invenergy made a tidy profit from the resale.
Invenergy made about $6M selling off
their first CSO, and the very next year made a profit of $20M selling off their
next CSO.
Invenergy was on their way to netting perhaps another $20M in profit selling off their third CSO, but ISO New England made the stunning and unprecedented decision to cancel Invenergy’s third CSO, effectively preventing the company from exploiting this profitable loophole a third time.
Invenergy was on their way to netting perhaps another $20M in profit selling off their third CSO, but ISO New England made the stunning and unprecedented decision to cancel Invenergy’s third CSO, effectively preventing the company from exploiting this profitable loophole a third time.
These profits were revealed during
the Energy Facility Siting Board (EFSB) hearings and reported on by UpriseRI
here:
The easy way Invenergy profited off
the system, without producing so much as one battery’s worth of electricity,
was big evidence that the proposed power plant was not needed. Conservation Law Foundation (CLF) Attorney Jerry Elmer included this fact in the very last
paragraph of his Post-Hearing Memorandum, writing:
“The plant is not cost-justified. Indeed, Invenergy may have the unenviable distinction of being the only “power plant” in history that has actually cost New England ratepayers tens of millions of dollars without having an actual power plant, without having a permit to build a power plant, and without ever having contributed a single electron to the electricity grid.“
A business savvy person might look
at this and ask what the big deal is. Invenergy made some money, turning a
sow’s ear into a silk purse. Good on them. But where exactly did Invenergy’s
$26M in profits come from? This money didn’t just pop out of thin air.
In fact, this money came from New
England ratepayers. People like you and me, and businesses, large and small.
It’s like each and every person living in New England gave $2 to
billionaire Michael Polsky,
the owner of Invenergy, and received nothing in return.
Now this is a problem. Not just for
ratepayers, but for ISO-New England. Recall that ISO-New England is responsible
for securing “reliable, competitively priced” electricity. That extra $27M paid
to Invenergy for nothing doesn’t really do justice to their mission.
Furthermore, every state in New
England has a version of Rhode Island’s Division of Public Utilities and Carriers (DPUC), an agency that looks after
ratepayer interests. All these state level ratepayer advocates were really
upset over Invenergy’s shenanigans and the rip-off the ratepayers in their
state had to suffer.
Also angry were every other owner of
a power plant entered into ISO New England’s Forward Capacity Auctions.
Invenergy’s participation glutted the market, driving prices down for every
other generator.
Invenergy was driving prices down
artificially, because there was no power plant. To understand this better,
imagine bidding on an auction, and there’s someone in the room with no money
just bidding for the hell of it. You will end up paying much more for the item
than you needed to.
On November 15, 2019, the same day that Rhode Island learned that Invenergy would not be appealing the EFSB decision against their proposed power plant to the State Supreme Court, ISO New England coincidentally filed a proposed rule change with the Federal Energy Regulatory Commission to change the rules around Forward Capacity Auctions so that this situation will never happen again.
Reading the filing ISO New England
made with FERC, it’s possible to miss the fact that the reason for the
requested change is because of Invenergy. Invenergy is never once mention in
the filing. But after conversing with Jerry Elmer, who’s expertise was critical
to my understanding of this ISO filing and the way Invenergy has profited from
a system loophole, it becomes very obvious.
Elmer made a rough comparison
between the ISO New England filing and the War Powers Act in 1973. “The bill did not mention Vietnam; but
every Senator and every Representative who voted for or against the bill knew
that the bill was caused by the Vietnam disaster,” said Elmer, “and was a
(belated) effort not to have that happen again.”
The filing that ISO New England made
with FERC on November 15 changed the rules so that no future company will ever
again be able to soak the ratepayers as Invenergy did. Never again will an
electricity generator in New England be able to game the system and make a
profit at the expense of ratepayers without contributing a single electron to
the electricity grid.