Saturday, September 13, 2014

Clean Line Energy Partners, FERC, & Accepting Risk

"Risk" is the potential of losing something of value.

"Risk" is mentioned ten times in FERC's consent for the Rock Island Clean Line LLC to negotiate rates.  Ten times FERC concedes RICL accepts the potential of losing something of value.  All this time RICL is a limited liability corporation with no employees and no assets.  All employees and all money is spent by the parent Clean Line Energy Partners.  RICL has nothing of value to potentially lose. 

Below are some exerts from the Conditional Consent by FERC.  The governmental regulators go far out of their way to state RICL (llc) is accepting "full market risk"...whatever that means in FERCENESSE.  Here's an example.

FERC Conditional Consent
Rock Island affirms that it will assume the full market risk of the Project and that it will have no captive customers.
Now here's an exert from Dave Berry's testimony at the Illinois Commerce Commission where he is cross examined by the attorney for the Illinois Landowners Alliance. 

ICC Transcript
Q. Okay. That's, that's a, would you agree that's a major risk for those generators to shoulder?
A. That is the business of a power plant developer to manage the risk of their own generation development.

Q. Okay. And is that a yes then?
A. I wouldn't describe it as a major risk, I would describe it as the risk of their business.

Q. But it is, that's the way it would work,is that correct? How I described? That risk would be on the generators?
A. By that risk, could I ask you to clarify what you mean by that risk?

Q. The risk that, associated with those generators who sign capacity contracts with you actually doing all the things necessary in order to get their generation facilities built and in service and connected to your western terminance.
A. Yes, they would take that risk.



As Dave Berry concedes in the attorney's questioning, under RICL's intended model, the generators (wind farms) would be accepting all the risk. Berry intends the wind farms would sign capacity contracts with RICL.  Under this model, RICL would push the risk on to the generators.  If the wind doesn't blow, that's the wind company's problem.  RICL's income would be virtually guaranteed with only the risk of the wind companies failing to meet their contractual agreements.

So if RICL is able to defer it's risk to the wind companies, how do the wind companies mitigate the risk?  In the perfect world of Michael Skelly's fantasies, there would be a Production Tax Credit.  This would mitigate some of the wind companies risk as a guaranteed source of income.

In Skelly's world, there would also be Renewable Portfolio Standards and states would  eagerly be signing 20 year Power Purchasing Agreements to buy the wind energy at premium prices.  Effectively, the combination of the Production Tax Credit and Power Purchasing Agreements would make the ratepayers Captive Customers.

And what about FERC's consent where RICL agrees not to have captive customers?  Wouldn't RICL also be able to argue captive customers are a problem of the wind companies are not captive customers of RICL?

A CAPTIVE CUSTOMER is a customer who does not have realistic alternatives to buying power from the local utility, even if that customer had the legal right to buy from competitors.
Would there be risk under RICL's business plan? 
Yes, but not Clean Line Energy and their 14 llc's. 

Would there be captive customers?  Yes, but not Clean Line Energy and their 14 llc's. 

Clean Line Energy Partners LLC investors also do not accept health or environmental risks for stray current.  With 14 LLC's there isn't much risk the investors would be liable for.

It's amazing a company can seek federal approval to negotiate rates and state's approval to construct a powerline with no gaurentee of suppliers and no gaurentee of demand at the delivery point.  The company has no assets.  The company has no creditors who can even testify to the level of actual risk.  Yet, the company can claim to the state regulators eminent domain is needed to get the creditors and get the suppliers.

Who is really bearing the risk for this alleged Merchant Transmission Line? 

The ratepayers who would be paying a higher price for energy across RICL and the landowners who would be forced to bear the risk of having a virtual aerial sewer across their fields if this companies failure.  Keep in mind this company's staff doesn't know Jack about how to build a transmission line.  Consider the risks taken by the landowners.  Soil damage, loss in crop production and income, damages to crops and buildings by stray current, health hazards, and land devaluation.  All of these risks are mitigated by Clean Line Energy Partners through layers and layers of limited liabilities corporations.  

It is not surprising Clean Line Energy Partners LLC is having difficulty securing credit or wind companies as clients.  When the company places all the risk on the client, they have no customers lining up for their service.  No customers means no credit. 

If those at Clean Line Energy Partners LLC want to know more about risk, ask a farmer who grew up in recession of the 80's.  Yeah, it sucks for RICL to not have a Production Tax Credit, but it's nothing like when Jimmy Carter placed Russia on a grain embargo and destroyed the Midwest grain markets.    Yes, farmers know about risk.




RICL, Risk, and FERC's Consent
1.  Commission precedent distinguishes merchant transmission projects from traditional public utilities in that the developers of merchant projects assume all of the market risk of a project and have no captive customers from which to recover the cost of the project.

2.  To do so, the Commission must determine that the merchant transmission owner has assumed the full market risk for the cost of constructing its proposed transmission project.

3.  Rock Island affirms that it will assume the full market risk of the Project and that it will have no captive customers.

4.  Rock Island meets the definition of a merchant transmission owner be cause it assumes all market risk associated with the Project and has no captive customers.

5.  Rock Island has agreed to bear all the risk that the Project will succeed or fail based on whether a market exists for its services.

6.  Rock Island also argues that wind generators, whose energy the Project will likely transmit, present numerous risks that transmission project developers and investors must overcome.


Dave Berry's testimony at the Illinois Commerce Commission while being questioned by the Illinois Landowner's Alliance Attorney
Q. Okay. Generally how will revenues under those kinds of contracts be structured?
A. As a fixed capacity charge.

Q. Okay. Would that be a monthly charge?
A. It's possible; it would be based on a period of time certainly.

Q. Okay. So in the utility parlance, would you call that a demand charge? Is that fair?
A. I would not, actually.

Q. No? Okay. How would it be different than a demand charge?
A. A capacity charge is based on the amount of capacity reserved. A demand charge is typically based on actual utilization or actual demand.

Q. Do you understand how demand charges work in the utility -- utility industry?
A. I believe I do.

Q. Okay. I won't belabor that point. Okay, so back to signing these contracts with customers. When would you, again, based on the timeframe that you've described here, when would you expect to first receive revenues from any of your anchor tenants? For the Rock Island project.
A. Be as the project is completed, which, based on our current schedule, would be towards the end of 2017.

Q. Okay. Mr. Berry, so you're telling us that Rock Island, you expect Rock Island to be able to obtain financing for the project's construction without any generation having been located at or near the western terminance in the resource area, and Rock Island's project lenders will be counting on, when they commit to you and allow you to close on the financing for this project, they will be counting on prospective generators in the resource area, getting all their necessary approvals, their own project of corporate financing for their wind projects or their generation project, and getting those projects constructed in commercial operation?
A. No, I would not characterize it that way.

Q. How would you characterize it?
A. Our lenders/investors will look to the revenue contracts into which we enter, however, it's
not standard under those contracts that the transmission shipper take the development risk associated with the project of the -- excuse me, I think I stated that wrong.  It's not typical under such contracts that the transmission shipper would try to push onto the transmission provider the risks of the transmission shipper completing his project.

Q. Okay. So the shippers that you mentioned will have an obligation, once they've signed these capacity contracts, they'll have an obligation to pay you once you have the transmission line in service and ready to be utilized, regardless of whether they have actually developed their generation facilities?
A. The nature of a capacity charge, as I described earlier, is that you pay for the capacity if it's available, regardless of your use.

Q. Okay. That's, that's a, would you agree that's a major risk for those generators to shoulder?
A. That is the business of a power plant developer to manage the risk of their own generation development.

Q. Okay. And is that a yes then?
A. I wouldn't describe it as a major risk, I would describe it as the risk of their business.

Q. But it is, that's the way it would work,is that correct? How I described? That risk would be on the generators?
A. By that risk, could I ask you to clarify what you mean by that risk?

Q. The risk that, associated with those generators who sign capacity contracts with you actually doing all the things necessary in order to get their generation facilities built and in service and connected to your western terminance.
A. Yes, they would take that risk.

Q. Okay, thank you.
A. By they, I mean the generators.

Tuesday, September 2, 2014

Sam Brownback, Aquaducts, Transmission and Eminent Domain

Sam  Brownback is an idiot.

Jansas has more problems than a pubilc utility commisson that's a rubber stamp machine with no regard for the public it serves, or the Grain Belt Express being a privately held transmission line wanting eminent domain,  or permittign and constuction of a coal plant no one wants or needs.  
Let's not forget while Governor Brownback supports Kansas wind as long as the overpriced energy is being exported to other states through the Grain Belt Express Clean Line Powerline, Governor Brownback opposes federal mandates that requires Kansas ratepayers to pay higher rates to use that same over priced wind energy at home..  Here's a new twist to the saga of Sam Brownback attempting to develop an "all of the above"energy policy without definition or clarity.



Dump Governor (Blazing Saddles)

Dumber (Illinois Governor Pat Quinn supporting Clean Line Energy)

Dumberer (Sam Brownback)







Apparently the Kansas Water Authority wants to consider building a canal to wheel water from the Missouri River near White Cloud, Kansas (elevation 883 feet)  to Utica Kansas (elevation 2251 feet).  They're looking at a 360 mile long aqueduct that climbs 1,368 feet to supply water to the drier southwest Kansas.  This project willobviously require more eminent domain. 


Keep in mind the Sunflower coal powered generation plant in Holcomb, Kansas is only 20 miles away from Utica.  Sunflower claims the new coal plant would be to power homes in Texas and Colorado .  Like the Grain Belt Express powerline, Governor Brownback has supported this potential project claiming it would bring jobs.  Remember, coal generation stations use voluminous amounts of water. 

Kansas is considering building a 360 mile long aqueduct  to transport water uphill 1,368 feet to support a new coal plant, opposed by the EPA, to provide power for Texas and Colorado.  

If western Kansas is running short of water, why build a power plant that is not needed and will consumer more water?   Why would or SHOULD Kansas residents support and be forced to pay for this aqueduct that was initially projected to cost over $2 billion dollar 30 years ago when it was first reviewed?

The argument will most likely follow the classic "Sunflower won't use this water.  They will use other waters." Same argument as the bureaucrat who says this spending isn't from the General Fund but "other monies" that don't count....  In the end, water is water.  If western Kansas is water defiecient, it just does not make logical sense for state ragulators to approve a coal generation station there.

Kansas would invariably be going down the road of more eminent domain for a public works project that will not be supported by the residents.  Sound familiar?   Got Grain Belt Express?
  
Perhaps the Governor Brownback's people NEED to learned the fundamentals rules of water.  Just in case they haven't heard them yet, here are the three rules of water transportation.

1.  Water flows downhill.
2.  Water never flows uphill.
3.  Water never ever flows uphill.

This aqueduct is going uphill 1,368 feet to feed a plant that is not needed.  The amount of pumping required will be incredible and the amount of shrinkage or line loss due to evaporation be ridiculous.  Even dumberer will be the idea of pumping this water uphill with wind energy when the wind blows at night while no one is consuming electricity to store the water uphill.  Then during the day with higher demand, run the water back downhill through turbines to reproduce the energy and this time sell it at a higher price.  The wind doesn't blow during the day when it is consumed and the aqueduct would be a form of energy storage.  Don't laugh too hard.  Even with all the shrinkage and line loss, this is being suggested. 


Governor Brownback  needs to do the math here and get on top of this issue.  This is even dumber of an idea as Brownback's support for the Grain Belt Express and supporting exporting Kansas wind energy but opposes paying for the same high priced wind energy at home.  This Governor's "all-of-the-above" energy policy is starting to remind me of a Mel Brooks character in Blazing Saddles.

When a states energy policy is defined by lobbyists pushing through agendas through a week utility commission, it's not surprising energy policies can be such a mess.  Renewable Portfolio Standards are another example of an energy policy delivered by lobbyists and it wouldn't surprise me Governor Brownback was for the RPS before he was against it.


Does it really make economic sense to run an aqueduct through the best farmland to feed a power plant in the driest part of the state? 


No, residents do not oppose these projects because they are going through their property.  These projects are opposed because they are a product of a politically dysfunctional energy policy made up of dumb and dumber ideas.