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Thursday, November 28, 2019

Winning by losing

New rule seeks to prevent companies from profiting off ratepayers without producing electricity

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.

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.

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.

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.