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.

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