Archive for the ‘Energy’ Category

0NU employees step up giving to Conn. Democratic Party

Twelve employees of Northeast Utilities made donations to the Connecticut Democratic Party in October, according to a monthly filing with the Federal Election Commission, as did two employees of its subsidiary Connecticut Light & Power.

In all, the Democrats’ federal committee raised $17,000 from NU and CL&P employees last month. Six of the 14 donors listed Connecticut addresses.

Only two donors – Margaret Morton, vice president of government affairs, and Jeffrey Kotkin, vice president of investor relations – had made a federal donation to the party before last month, according to the FEC website.

“We encourage our employees to be active in their communities and supporting the political process is a natural extension of that,” a spokesman for NU said.

James Judge, executive vice president and CFO, made the largest contribution, $5,000. He lives in Massachusetts.

Werner Schweiger, president of electric distribution, gave $2,500. Schweiger lives in New York.

Morton and Rodney Powell, president of the gas unit, gave $1,500 each. Five other vice presidents gave $1,000: Kenneth Bowes, Ellen Angley, Jeffrey Cahoon, Laurie Foley and Stephen Sullivan.

Angley and Sullivan live in Massachusetts. Foley lives in Vermont.

The party received 10 donations, including all contributions by residents of other states, on Oct. 23.

The Courant’s Jon Lender has previously reported on NU’s political connections through numerous lobbyists and a contract with Global Strategies Group, where former NU communications executive Tanya Meck now works.

In March 2012 Gov. Dannel Malloy and Attorney General George Jepsen, both Democrats, announced an agreement with Northeast Utilities that would allow it to merge with NSTAR, a utility company based in Boston. The deal includes $15 million in energy efficiency funds.

Malloy made two announcements this month about funding for electric car charging stations using the money from NU.

1Environmental group sues state for going easy on wind-power company that cut down trees in state forest

A conservation group is suing the state to force it to throw out a settlement between state officials and a wind-power company that clear-cut 2.5 acres of state forest.

The Berkshire-Litchfield Environmental Council is suing the Department of Energy and Environmental Protection and officials within that agency for settling out of court with the offender.

According to BLEC’s complaint, the 111 largest trees that were cut down are worth more than $1.1 million.

BLEC claims DEEP should have referred the issue to Attorney General George Jepsen instead of settling the matter. Since the case wasn’t handled in open court, BLEC claims, the consent decree is “null and void.”

“As a result of DEEP’s failure to act in accordance with Connecticut law, which ensures the restoration of this valuable section of the state forest that was illegally destroyed, the state has now lost a unique habitat that DEEP and the attorney general are mandated by Connecticut law to protect,” BLEC wrote in its complaint.

BLEC asks the court to invalidate the agreement between DEEP and BNE and replace it with one that requires the company to restore the state forest to its “natural state.”

Jepsen, whose office is defending DEEP in court, said the agency “has broad statutory authority to resolve disputes about environmental matters through the use of consent decrees, as it did in this case.”

“I will, therefore, vigorously defend the lawsuit which is without merit,” Jepsen said.

According to BLEC’s complaint, BNE Energy, a politically-connected developer, contracted with a North Canaan property owner to test the feasibility of a wind project there. In May 2010, BNE or a contractor for the company crossed the town border into Canaan and clear-cut 2.5 acres.

An August 2010 survey for BNE discovered the error and BNE “self-reported” to DEEP in December, according to the consent decree.

BLEC claims in its complaint it was a Hartford Courant reporter, not BNE, who notified DEEP about the clear-cutting.

The agency settled the issue with BNE in November 2012.

As part of the settlement, BNE will survey the correct boundary for the property, monitor and control for invasive species and conduct an environmental research project on the property. The company also has the option to give DEEP $10,000 to fund a research project.

“Protection of open space has long been a priority for me and for my office. For that reason, I instructed my staff to initiate discussions with BLEC’s counsel to explain and discuss DEEP’s decision, set forth in the consent decree, about how best to remedy the clear cutting and restore the area. My staff is currently engaged in discussion with BLEC,” Jepsen said. “The state’s goal is to restore this site without further environmental damage, and I am hopeful that any difference BLEC has about methods to achieve the common goal will be resolved.”

BNE received state approval in 2011 to build a 9.6 megawatt wind project in Colebrook. Fairwind, an advocacy group allied with local property owners, is suing the state to block that development in a case headed for the Connecticut Supreme Court.

A legislative committee has rejected proposed regulations for future wind farms multiple times.

In September, Gov. Dannel Malloy announced the selection of two new renewable energy sources for Connecticut, one solar and one wind. The solar project will be built in along the border of Sprague and Lisbon here in Connecticut, but the wind project is destined for Aroostook County, Maine, more than 400 miles from the nearest Connecticut voter.

0Four times a charm? Wind power regulations go before legislative committee – again

The Connecticut Siting Council will propose regulations governing the construction of wind farms for the fourth time Tuesday.

The Siting Council reviews proposals to develop power plants, hazardous waste facilities, electric transmission lines and cell phone towers. The council submitted a new set of regulations early this month.

Last year, the General Assembly imposed a moratorium on new wind generation until the council put wind-power regulations in place.

The bi-partisan Regulations Review Committee rejected the first set of regulations in December.

In February, the council improperly submitted its revisions, so the committee declined to review them.

In May, the committee rejected the regulations again.

Prior to the moratorium, the council approved a two-site wind project in Colebrook proposed by the politically-connected developer BNE Energy. FairwindCT, an advocacy group, sued to stop the 9.6 megawatt project and the case is headed to the Connecticut Supreme Court.

Last week, Gov. Dannel Malloy announced the selection of two new renewable energy sources for Connecticut, one solar and one wind. The solar project will be built in along the border of Sprague and Lisbon here in Connecticut, but the wind project is destined for Aroostook County, Maine, more than 400 miles from the nearest Connecticut voter.

0CEFIA looks to get back green on green-energy

Connecticut’s green-energy bank hopes to make environmentally-friendly energy a better investment.

The Clean Energy Finance and Investment Authority presents itself as a break from traditional clean-energy funding organizations.

CEFIA, a quasi-public agency, emphasizes low-cost financing and uses private investments to get more with less public money.

Created two years ago by Public Act 11-80, CEFIA aims to advance clean-energy technology by supporting development of new technologies, funding projects and attracting consumers with subsidies.

CEFIA’s current projects include subsidies for property owners who install green or energy-efficient technologies and a pilot program to help homeowners afford solar panels with low monthly payments.

“CEFIA is trying to put out a sweep of products in the marketplace and not put ourselves in the position of picking the winners and losers, but provide opportunities,” said David Goldberg, director of government and external relations for CEFIA.

Goldberg said grant approaches used in the past caused problems because the funding was uncertain. He said organizations can be “flush with money and lots of rebates and incentives, and then soon thereafter there is no money.”

CEFIA had its own funding scare recently with the General Assembly passing a budget that took money from the agency, until a subsequent bill provided it with additional funding.

“We are very pleased and grateful for the efforts of the Legislature and the Governor to provide a mechanism that will allow CEFIA to remain financially whole,” said CEFIA President Bryan Garcia.

CEFIA is funded through surcharges tacked onto electric bills – essentially taxes – plus private investments.

It replaced the Connecticut Clean Energy Fund, which provided more than $150 million for energy projects, public awareness and education programs in its decade of existence.

CEFIA received federal funding from the American Recovery and Reinvestment Act of 2009. It also gets a portion of Connecticut’s proceeds from Regional Greenhouse Gas Initiative auction sales.

For many, the Solyndra incident is still a fresh wound and one that strengthens the belief that green energy can only thrive with the aid of wasteful government subsidies.

“All energy is subsidized,” said Goldberg. “It’s very shocking: the very small amount of subsidies provided for clean energy compared to other resources.”

Clean-energy supporters claim the U.S. provides annual fossil fuel subsidies ranging from $10 to $52 billion. Critics of these estimates say they include tax deductions available to all manufacturers and other policies not targeted at energy companies.

The ARRA allotted a one-time $27.2 billion for renewable energy research and investments and $21.5 billion for energy infrastructure. Clean-energy mandates also subsidize solar, wind and other politically-popular sources of electricity. These laws require utilities to buy more energy from certain sources even when they are more expensive.

Aside from clean energy technology development, CEFIA looks at other ways to go green. There is a lot of discussion about Connecticut’s recycling policies, explains Goldberg, so CEFIA is “looking into enhancing recycling and waste recovery in the state to reduce the amount of waste going into incinerators.” One possibility is investing in Ansonia’s plan to generate electricity by composting food waste.

Zachary Janowski contributed to this article.

0Energy efficiency program cited for inaccurate count of jobs created

A February audit of Connecticut’s energy efficiency and conservation programs found job data “was inaccurate and unsupported.”

Auditors examined data from Connecticut’s Department of Energy and  Environmental Protection and released their findings in February.

The audit focused on DEEP’s implementation of Energy Efficiency and Conservation Block Grants from Sept. 14, 2009 through Dec. 31, 2011.

The EECBG program was designed to reduce emissions and energy usage, and to promote conservation and energy efficiency.

These federal grants are funded through the American Recovery and Reinvestment Act of 2009.

“Because one of the goals of the Recovery Act is job creation, a failure to ensure accurate reporting of such jobs could lead to erroneous conclusions on the performance of the Recovery Act,” auditors said.

Designed to boost the nation’s ailing economy, the act allocated a total of $787 billion for tax cuts, entitlement programs and federal contracts, grants and loans.

Of this amount, $3.2 billion was appropriated for EECBG. The U.S Department of Energy distributed this pot of money to states, counties, cities and Indian tribes throughout the U.S.

The Energy Department sent a total of $24.5 million in EECBG funding to Connecticut. Direct grants to large municipalities and Indian tribes added up to $14.9 million.

The remaining $9.6 million went to the state, which between September 2009 through September 2012, distributed the money to 142 towns in the form of indirect grants.

According to auditors, DEEP failed to require sub-grantees to provide proper supporting documents in order to justify reports on jobs created and retained.

Of the 16 sub-grantees reviewed, six could not support the number of jobs reported, five provided DEEP with inaccurate information for the quarter, four did not maintain proper job data and one misreported a job.

The agency also reported 1.235 jobs for two sub-grantees, even though the sub-grantees reported no jobs.

Auditors blamed this error on the agency’s reliance on a “reasonableness test” and its inability to require sub-grantees to justify their estimates.

As a result of this error, auditors see an increased risk that agency numbers reported in other quarters may also be inaccurate.

The ARRA mandates that all grant recipients submit quarterly reports that outline projects, activities, and any jobs created and retained.

DEEP responded to the claim stating that, “given limited resources, it relied on the sub-grantees for the determination of jobs created and retained” and that it “believed the sub-grantees understood the methodology for calculating and reporting jobs created and retained.”

In their recommendation, auditors suggested that the agency require proper, previous-quarter documentation be released by sub-grantees and determine whether any job data released in the past would require corrections.

DEEP said it planned to confirm the job estimates by sending a “post-grant award closeout letter” to each recipient, but disagreed with auditors, maintaining that the quality controls they put in place were consistent with Recovery Act guidance.

In response, auditors stated that if DEEP needed to justify its job estimates they would not be prepared to do so because they failed to demand proper documentation from sub-grantees.  “The Agency was unaware of the reporting errors identified and thus, could not make necessary corrections as required,” they added.

Auditors also stated that DEEP’s response failed to adequately address the auditor recommendations for requiring supporting documentation, verifying accurate job calculations and determining the need for corrections to previous data.

Auditors also found that the state agency:

  • Failed to receive the certified payrolls required weekly to ensure timely review of sub-grantee contractors’ compliance with Davis-Bacon Act wage requirements.
  • Failed to ensure sub-grantees were compliant with federal requirements for recording and controlling fixed assets.

0Ansonia officials plan to compost food into electricity

The city of Ansonia hopes to become home to an innovative power plant fueled by decomposing food in a partnership with a New York green-energy company by leasing city property to the company for $1 a year.

Ansonia has collaborated with Greenpoint Energy Partners, a Brooklyn-based firm, on a plan to open one of the first anaerobic digestion plants on the East Coast.

Described by Greenpoint as the “largest single-source municipal scale anaerobic digestion project in the country,” the plant may test whether the technology can be profitable while staying subsidy-free.

“We’ve been involved in renewable energy for the past five to six years, mainly solar and wind,” said Chris Timbrell, principal at Greenpoint Energy Partners, a Brooklyn-based firm. “Those technologies became heavily reliant on government subsidies.”

Realizing this, Greenpoint set their sights on anaerobic digestion in an effort to find a more economically viable alternative. Timbrell said the plant was designed to function without the aid of subsidies.

“Anaerobic digestion” refers to the process of using microorganisms in an oxygen-free environment  to break down organic matter such as food waste. This decomposition releases biogas, which is harnessed for use as energy. Biogas technology has been called “one of the most useful decentralized sources of energy supply.”

Of the 1,500 anaerobic digestion facilities in the U.S, most don’t make use of the biogas produced. According to the American Biogas Council, which expects significant growth potential for the industry, less than 17 of the facilities harness the biogas as an energy source.

Supporters of the project think it can elevate Ansonia as a clean-energy leader and boost the local economy.

“One area where I have worked with the mayor is trying to create a local economic development competitive advantage to attract business by becoming a ‘green community,’” said Gary Hale, a former state senator, Ansonia native and lobbyist with Halloran & Sage, who advocates for this and other green-energy projects. “The idea is to attract those businesses that want to associate themselves  with green energy by becoming a town that actually leads in green energy.”

According to Timbrell, the plant will provide electricity for less than what the city currently pays.

Aside from reduced energy costs, Hale lists “substantial expansion of the city’s private sector tax base,” “dramatic reduction of the city’s carbon footprint” and “Class I renewable energy which, if used in municipal buildings will make Ansonia a regional and, perhaps, national leader in municipal green energy practices” as the major advantages the plant will give Ansonia.

The company is investing the $30 million needed for the project, which will sit on a lot adjacent to the city’s Public Works Department, at a bargain annual rent of $1.

The plant will harness up to 50,000 tons of locally-sourced food waste per year to produce two megawatt-hours of electricity, double the amount currently consumed by the city’s municipal buildings. The electricity would be delivered to Ansonia’s wastewater treatment plant and nearby businesses through underground power lines. Excess energy will be sold to other municipal and commercial entities.

An estimated 15,000 tons of organic matter will be left over once electricity is produced. This compost material will be prepared for commercial, and possibly retail, sale. Several farms and golf courses across the state have already expressed interest in purchasing the compost, according to Timbrell.

For protection against blackouts, Greenpoint will also create a micro-grid capable of sustaining around-the-clock electric power for four weeks.

“With this plan, power is traded locally so when there is a bad storm it gives a better sense of energy security,” said Timbrell.

Local energy production is a major benefit, according to Timbrell, who emphasized that the plant will use local waste to generate local energy, creating local jobs.

“Apart from creating renewable energy, that is really what’s nice to me about this project; it really is a local initiative using local resources to solve a local problem.”

The technology behind the facility was developed by BDI – BioEnergy International AG, an Austria-based firm founded in 1996.

The announcement and details of the plan were made public in January after two years of discussions between Ansonia and Greenpoint. The idea grew out of Ansonia’s quest to reduce their waste stream. Both parties ultimately saw the project as mutually beneficial.

Former Ansonia Alderman Stephen Blume announced his support early on, seeing the plan as an opportunity for the city to save money by purchasing more cost-effective energy.

In December, the Clean Energy Finance and Investment Authority announced it would allocate $2 million for a pilot program offering a grant, loan or power purchase incentive for anaerobic digestion projects. Funding would “vary based on the specific technology, efficiency and economics of the installation.”

“We did receive an application from Greenpoint Energy Partners,” said David Goldberg, director of government and external relations for CEFIA. “CEFIA is currently evaluating all of the proposals.”

Timbrell said that while the grant would be nice to get, the plant is “not dependent on it.”

While the future of biogas energy production in Connecticut seems promising, business hasn’t been booming for other alternative energy sources. STR Holdings, Inc., an Enfield-based solar energy company, recently announced plans to lay off one-third of their employees. In addition to restructuring costs of $15 to $20 million, the company’s East Windsor location will close.

0Risky business? State hedges bet on solar

Connecticut’s green-energy bank is forming a legal entity to help advance a new solar initiative while protecting the quasi-public agency from investment losses.

The Clean Energy Finance and Investment Authority is preparing to launch its Solar Lease 2.0 program, which officials expect to increase the amount of residential solar generation in Connecticut by more than half.

CEFIA is partnering with the state’s venture capital firm, Connecticut Innovations, to create a special purpose vehicle.

“We partnered with CI and now we have this vehicle to move forward with our solar loans and solar lease products,” said David Goldberg, director of government and external relations for CEFIA.

According to Goldberg, the SPV will help attract low-cost capital that would add to CEFIA’s fundraising dollars.

To help fund Solar Lease 2.0, CEFIA is repurposing money received as part of the American Recovery and Reinvestment Act State Energy Program.

ARRA, more commonly known as the stimulus package, allocated a total $27.2 billion toward energy efficiency and renewable energy research and investment, including $3.1 billion for the State Energy Program.

Connecticut received $38.5 million under the program.

At its February board meeting, members voted to approve three types of funding for the project: up to $3.5 million as a loss reserve, $7.2 million as sponsor equity and $2.3 million for subordinated debt.

CEFIA will also work with Reznick Group, an accounting and consulting firm, to raise $60 million in private funds.

“We’re working very hard to use the limited resources we have to attract private investment,” said Bryan Garcia, president and CEO of CEFIA.

“At a big picture level with these residential financing programs, we’ve attracted about $85 million worth of private investment,” said Garcia. He said CEFIA has used about $15 million of ratepayer capital.

“We’re very much focused on not only bringing down the installed costs of clean energy but also just making clean energy cheaper and more affordable for consumers,” Garcia said.

Garcia explained that the new program builds on the success of Solar Lease 1.0, which saw only two defaults out of 855 leases.

CEFIA’s predecessor, the Connecticut Clean Energy Fund, developed the first solar lease program, which ran from 2008 until 2011.

Sometimes called a bankruptcy remote entity, an SPV acts as a subsidiary that provides protection from financial loss. As a legally separate entity, an SPV minimizes the hazards involved with potentially risky investments and allows for risk sharing between partner companies.

According to Bert Hunter, CEFIA’s chief investment officer, the formation of the SPV will cost the organization about $100,000.

Under the arrangement, CEFIA and CI will also retain their status as tax-exempt, quasi-public agencies. Last year, CEFIA released an RFP seeking tax accounting firms to “advise and consult regarding financial and tax aspects of structuring a tax equity transaction including financial projection using a tax equity model.”

Currently, Wiggin & Dana is facilitating the creation of the SPV to ensure its legality.

4Washington couple takes shelter from Solyndra scandal at Connecticut agencies

Newlywed former members of Pres. Barack Obama’s administration recently took jobs in Connecticut’s environmental bureaucracy despite the groom’s potential ties to Solyndra, the now-defunct solar company aggressively funded by the federal government.

Michael “Mackey” Dykes, a former regional finance manager for Obama’s presidential campaign, served as a liaison between the White House and the Department of Energy. He was hired in February to serve as chief of staff for the newly formed Connecticut Clean Energy Finance and Investment Authority.

His salary is $125,000.

ABC News connected Dykes and other former Obama fundraisers to the Solyndra fiasco in a September 2011 investigation.

CEFIA is responsible for investing in clean energy and energy efficiency projects, much like the federal programs that provided Solyndra with more than $500 million in loan guarantees.

Dennis Schain, spokesman for Connecticut’s Department of Energy and Environmental Protection, told the Courant, the couple is “making a new start” in Connecticut.

“They’re here in Connecticut working now and that’s the story,” Schain said in response to questions about what, if anything, the couple did in relation to Solyndra.

Last year, leading up to the October “jobs session” of the General Assembly, CEFIA proposed investing hundreds of millions of state pension dollars into its green energy projects, but the proposal did not make it into the final legislation, according to a legislative source.

Katie Scharf Dykes – according to a wedding announcement the couple had plans to marry in October 2011 – worked in Washington as deputy White House counsel for the Council on Environmental Quality and before that as legal advisor for the general counsel of the Department of Energy.

Earlier this week, DEEP Commissioner Dan Esty announced Scharf Dykes would serve as his acting deputy. Esty’s previous deputy, Jonathan Schrag, resigned after he apparently tried to intimidate a conservative activist.

Documents obtained by Congress as part of its investigation into Solyndra do not shed any light on what players were involved because most of the names are redacted.

3Conn. loses federal energy complaint despite paying lawyers $4.6 million, begins appeal process

H. Peter Young, a FERC adminsitrative law judge, said Connecticut's lawyers "failed in the extreme" to prove their case.

Connecticut’s Attorney General and utility regulators paid lawyers – who “failed in the extreme” according to one federal judge – almost $4.6 million to challenge payments to three New York energy companies.

The state began the appeal process last year despite the wholesale rejection of their legal arguments by the judge and the Federal Energy Regulatory Commission.

Through their electric bills, customers already paid the $4.6 million in legal fees, plus about $17 million of the $65 million in payments questioned by Connecticut officials.

An administrative law judge filed an initial ruling Sept. 29, 2010, and FERC affirmed that ruling May 6, 2011. The state filed a request for rehearing – a necessary procedural step before an appeal can be filed – on June 6, 2011, which the commission denied Jan. 9.

“We’re reviewing the decision and will make a determination about whether to take further action after we have completed our review,” a spokesman for Attorney General George Jepsen said.

The state has until March 9 to file an appeal with the D.C. Circuit Court of Appeals.

The state paid for more than the equivalent of 6.5 years of full-time work by attorneys and paralegals at an average cost of $336 an hour.

Connecticut – and, in turn, electricity customers in the state – also paid for 244,266 copies at 10 cents apiece and $120,117.33 for consultants and experts costing as much as $325 an hour.

The billable hours from the law firm Kaye Scholer make up the bulk of the costs, $4.4 million of nearly $4.6 million spent. Partners at the firm, including Randall Speck and Jeffery Tomasevich, cost as much as $550 an hour.

In 2010, Kaye Scholer billed the state for 7,747.1 hours totaling $2.6 million.

Eight attorneys billed for more than $100,000 that year: David Cousineau ($488,372.50), Joshua Holt ($378,140), Alexa Hahn ($328,930), Kimberly Frank ($293,984), Amanda Butler ($292,285), Rebecca Grunfeld ($288,637), Speck ($206,072) and Karen Robinson ($134,867.50).

In May 2010, the state paid Kaye Scholer for the equivalent of 12 full-time employees working on the case. In that month, five attorneys billed more than the 160 hours most people work in a month. Cousineau averaged about 14 billable hours per day that month, while Frank and Grunfeld averaged 12 hours a day. Butler and Hahn averaged 11 hours a day in May.

These costs do not account for work done by lawyers and experts who work for the State, including the Office of the Attorney General, the Office of Consumer Counsel and the Department of Public Utility Control or its successor, the Public Utility Regulatory Authority.

The state signed a contract with Spiegel & McDiarmid to provide lower-cost outside counsel for future FERC proceedings in October 2010. The contract specifies rates of up to $410 per hour, with several attorneys making less.

A new contract with Kaye Scholer, entered into on the same day, sets Speck’s rate at $495 per hour, with first-year associates making $205 an hour and paralegals $110.

Spiegel & McDiarmid’s rates specify $165 to $195 for junior level associates and between $90 and $140 for paralegals.

According to Jepsen’s spokesman, it is possible that the state could recoup its legal costs if the complaint is successful.

“We continue to pursue this appeal because we believe that FERC got it seriously wrong, to the detriment of Connecticut ratepayers, and we want this wrong corrected,” said a spokesman for Jepsen. “In this case, several out-of-state entities accepted $65 million in ratepayer funds to provide capacity services they admit they never intended to honor.”

“The request for rehearing in this matter was prepared entirely by staff attorneys in this office without any outside counsel, and we expect that any further challenge will be pursued on the same basis,” the spokesman said. “There are therefore no incremental legal costs being expended to pursue this.”

The Complaint

Former Attorney General Richard Blumenthal, the Office of Consumer Counsel and the Department of Public Utility Control filed the complaint, which resembles a lawsuit, with the Federal Energy Regulatory Commission in 2009.

Blumenthal, now a U.S. Senator, did not respond to a request for comment through his office.

According to Jepsen’s office, three New York energy companies received $65 million in payments without providing anything of value.

The three companies are Brookfield Energy Marketing Inc. (BEMI), Constellation Energy Commodities Group and Shell Energy North America.

BEMI declined to comment. Constellation and Shell did not respond to requests for comment.

Between December 2006 and June 2010, utilities throughout New England made about $5.5 billion in payments to generators in the forward capacity market, which pays power plants for being available regardless of whether they are needed to generate electricity.

The goal of the capacity market is to ensure utilities will have enough electricity when demand is above average, like hot summer days when many turn on their air conditioning.

Independent System Operator New England, the nonprofit that runs New England’s electrical grid, explains capacity markets this way: “In wholesale electricity markets, the capacity market acts as an insurance policy, making certain that the region will have the resources needed to meet future electricity demand.”

In return for capacity payments, generators promise to provide the energy when called on by ISO New England.

If a generator receiving capacity payments fails to sell energy when called upon by ISO New England, FERC would investigate and could issue fines.

The $65 million in payments questioned by the Connecticut complaint represent about 1.2 percent of the total capacity market.

If the payments were illegitimate, all New England states could be entitled to a refund. Connecticut utilities pay about 26 percent of capacity costs, according to ISO New England, so its share of a refund would be about $16.9 million.

How it began

Connecticut’s complaint originated from a March 2009 ISO New England report that certain capacity importers had violated market rules by failing to provide energy when called upon.

ISO New England amended its filings with FERC to reflect that it based those allegations on incomplete and preliminary data. Actual transaction histories show ISO New England never called on the companies.

“We sincerely regret this error and are working to change our internal review process to reduce the likelihood of a reoccurrence,” said Gordon van Welie, ISO-NE president and CEO. “Fulfilling New England’s electricity needs and maintaining reliability were never at issue.”

In response to Connecticut’s complaint to FERC, ISO New England announced on April 21, 2009, it would file an explanation of how market rules were not broken.

“Data concerning energy delivery from these transactions was not fully understood by the ISO and led to unintentionally misleading statements in ISO’s earlier filing that suppliers had received $85 million and never delivered energy during 108 hours,” an ISO New England spokesman said.

According to the ISO New England statement, one software tool showed there was a possibility of needing to import energy from New York during these 108 hours. This software showed a forecast of electricity needs, rather than actual requests.

When it came time to call on electricity for those 108 hours, “less expensive energy was available within New England to meet the region’s needs.”

In March 2009, ISO New England began seeking a rule change through FERC that would require capacity importers to offer their electricity at competitive prices “based on historical and current market prices.” The new rules became effective July 1, 2009.

“The Commission’s approval of the market rule changes proposed by the ISO and stakeholders underscores the merits of these revisions,” said Raymond Hepper, vice president and general counsel of ISO New England. “With these market rule changes, New England can now derive more value from these capacity resources.”

Under the new rules, capacity importers will lose part of their monthly capacity payment if their offer to sell electricity rises above a price benchmark. Capacity importers that fail to deliver when called would also face increased financial penalties.

The judgment

Administrative law judge H. Peter Young, who presided over the complaint and issued an initial decision in October 2010, said Connecticut’s lawyers “failed in the extreme” to prove their case – a phrase he used twice in his written opinion.

The FERC commissioners unanimously approved a final decision based on Young’s initial ruling, finding Connecticut’s lawyers “failed to support their allegations of market manipulation.”

Young, one of 15 administrative law judges at FERC, incidentally has Connecticut ties. He graduated from Connecticut College (B.A., B.S., 1983), Yale University (M.S., 1984) and the University of Connecticut School of Law (J.D., 1987).

He said Connecticut failed despite the extensive leeway he and the commission granted the state and its lawyers.

Connecticut improperly filed its initial complaint with FERC, citing the wrong section of the relevant federal law. FERC reclassified the filing on its own and allowed the allegations to proceed “as if they had been properly filed.”

Young’s concessions to Kaye Scholer included “multiple extensions” and the ability to review “a massive volume of transaction data from respondents and ISO New England.”

One company, BEMI, had to pay up to 10 bilingual contract attorneys to review documents written in French.

Young gave Connecticut’s lawyers the “extraordinary accommodation” of allowing them to make lists of search terms for the three companies to use when searching their transaction data.

FERC’s own enforcement litigation staff supported the arguments made by the three companies accused by Connecticut. According to Young, the enforcement litigation staff was the only participant in the case “with no vested interest in the outcome.”

FERC staff argued that “having the motive and opportunity to limit risk and maximize profit” is not market manipulation.

The staff also argued Kaye Scholer based Connecticut’s case on “alleged violations of non-existent Tariff obligations” even though a violation of a tariff – a FERC rule – does not imply market manipulation.

Young explained in his ruling that Connecticut’s lawyers had to meet a “preponderance of the evidence” standard for him to rule in their favor.

“This standard requires the complainant’s evidence to outweigh and otherwise be more convincing than the evidence submitted in rebuttal,” Young said.

He said Connecticut’s argument wouldn’t even meet a lower standard. He found the arguments “fall so short of this measure on every material issue of fact and law that their case would not satisfy even a ‘substantial evidence’ standard of proof – i.e. they do not present evidence a reasonable mind might accept as adequate to support their market manipulation allegations.”

“Despite being afforded every possible opportunity to prove their case – by the Commission as well as the presiding judge – and despite being granted extraordinary latitude to secure the evidence they insisted would demonstrate that respondents manipulated the New England capacity markets in violation of FPA section 222(a) and section 1c.2 of the Commission’s regulations, I find and conclude Connecticut Representatives have failed in the extreme to prove their allegations against any respondent here,” Young wrote in his decision.

The argument

Connecticut made a two-part argument in the complaint. First, the state’s lawyers argued the New York companies were incapable of providing electricity in New England despite having sold capacity to the region. Second, Kaye Scholer and the state’s sole witness argued the companies had an unwritten obligation to make “reasonable” offers to sell electricity.

The first argument centered on timing.

The three companies used placeholder bids in the New York and New England energy markets. In the New York market, they set their bids to buy electricity near the lowest allowable amount – so low that the bids were sometimes negative, meaning a seller would have to pay the companies for taking electricity off their hands.

In the New England market, the companies offered to sell electricity near the $1,000 per megawatt hour cap.

Connecticut’s lawyers argued that since New York energy markets close 15 minutes before New England markets, the companies could not change their New York offers in time to meet their obligations in New England.

The companies claimed ISO New England typically provided advanced notice to generators and the New York Independent System Operator could manually intervene to change bids, if necessary.

In the request for rehearing, Connecticut’s lawyers – this time state employees, instead of expensive D.C.-based outside counsel – argued the FERC decision is inconsistent. According to the request, FERC ruled against Connecticut because its argument was based on rules not found in the tariff, but supported the argument by the three companies that they NYISO could have manually intervened – a procedure that isn’t in the tariff.

Constellation told FERC it removed the capacity it sold to New England from the New York market. According to the company, this arrangement would have allowed it to send electricity from three New York nuclear power plants to New England.

Even while the companies bid their capacity-backed energy at extreme prices, BEMI, Constellation and Shell did sell electricity – unrelated to their capacity contracts – to ISO New England during this period. The companies made these sales at prevailing market prices.

Energy-only sales have more flexibility, according to Shell.

According to the companies, these sales undermined Connecticut’s claim they would not be able sell power to New England if called upon.

“This reasoning fails on a number of grounds,” Young said. Since “none of respondents ever failed to deliver energy,” Connecticut’s claim the companies were unable to respond “has absolutely no factual support either” (emphasis in original).

“It is pure conjecture,” Young said.

Connecticut’s lawyers also argued capacity importers had to make reasonable offers to sell electricity. The companies – with agreement from ISO New England and FERC staff – claimed the only requirement was to offer electricity for less than $1,000 per megawatt hour, a cap written into the rules governing the capacity market.

In the request for rehearing, Connecticut argued capacity enhances competition, but customers lost those benefits because of the bidding practices of these companies.

BEMI, one of the companies, claims the argument Kaye Scholer made on behalf of Connecticut – that capacity sellers are required to make a “reasonable” offer – is “an after-the-fact attempt to lend continuing legitimacy to market manipulation claims which turned out to be premised on inaccurate information.”

According to BEMI, PURA chief of utility regulation Steven Cadwallader, the state’s only witness, “concocted” this argument.

Constellation argued Connecticut was “compelled to fabricate” requirements to justify “otherwise unsupportable market manipulation claims.”

According to Constellation, ISO New England only asked about buying capacity-backed electricity from the company on two dates – Sept. 8, 2007, and June 29, 2009 – but the company did not have a capacity contract with ISO New England on either date.

ISO New England did fine Constellation twice for violations unrelated to Connecticut’s complaint. In July 2006 ISO-NE fined Constellation $43,063 for scheduling violations. ISO New England fined the company again in November 2007 “for failing to properly enter certain transaction data,” this time for $340,000.

The company argued these fines show ISO New England is not timid when exercising control over energy markets.

Rule changes

“After discovering how these entities had gamed the market rules, ISO New England and FERC quickly revised the market rules to prevent such conduct going forward.  FERC incorrectly refused, however, to sanction the generators for their conduct,” a spokesman for Jepsen said.

The three companies accused in the complaint take the opposite view, that the new rules prove there was no rule to violate before it was instituted.

Young agreed with the companies. He said the new requirement – as of July 1, 2009 – that companies make a “competitive” offer undermines Connecticut’s argument that the rule existed before the change.

“It is implausible to argue by implication – as Connecticut Representatives do – that ISO New England (i) did not fully understand its own Tariff or (ii) proposed what amounted to a redundant Tariff supplement,” Young wrote.

Motive

In order to prove market manipulation, Connecticut needed to show the companies acted with “specific deceitful or fraudulent intent or recklessness.”

Young found none of the companies met this requirement. He found “there is absolutely no evidence” any of the companies misrepresented or omitted information they were required to provide. He also found none of them engaged in deception.

“I also observe the circumstances that BEMI, Constellation and Shell may have ‘consciously’ ‘intended’ to formulate and pursue offer/bid ‘schemes’ that satisfied their Tariff capacity obligations and earned them capacity payments while minimizing the attending economic risks simply constitute a pattern of rational economic behavior if the ‘scare quote’ descriptors are construed in accordance with their non-pejorative meanings,” Young said.

“BEMI, Constellation and Shell therefore in no way impaired, obstructed or defeated ISO-New England’s well-functioning markets,” he said.

Young said all market manipulation allegations made by Connecticut “shall be deemed meritless and shall be dismissed with prejudice.”

The commission ruled all three companies acted properly and did not manipulate the market.

“There is a dearth of evidence to the contrary,” the commission said.