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Archive for the ‘FERC’ Category

 

One might be forgiven for mistaking the Federal Energy Regulatory Commission for an Agatha Christie mystery play in which the characters disappear one-by-one. With the earlier departures of three of its five commissioners, including former Chair Norman Bay, FERC is currently down to two: Acting Chair Cheryl LaFleur and Commissioner Colette Honorable. FERC has not had a quorum since those departures became effective. Honorable’s term ends in June, and she has said that she’ll step down then. LaFleur will be the sole commissioner at that point.

The Trump administration has named three replacements so far, but as of this date none of them have been confirmed by the U.S. Senate. Given the Senate’s work schedule (raising campaign funds is more important than all that boring Article I stuff), it’s not likely that the three nominees will be confirmed by June. So FERC could be hobbled for a while yet.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

Chicago, IL February 14, 2017:  Chicago energy attorneys, Patrick N. Giordano and Paul G. Neilan, announced they filed a lawsuit in the U.S. District Court Northern District of Illinois today against Anthony Star in his Official Capacity as Director of the Illinois Power Agency.  Village of Old Mill Creek, et al. v. Anthony Star was filed on Tuesday, February 14, 2017 at the U.S. District Court Northern District of Illinois.

Attorneys Giordano and Neilan represent Plaintiffs that are governmental, residential, commercial, and industrial electricity consumers located throughout the State of Illinois. Plaintiffs claim that P.A. 99-0906, executed by Governor Rauner on December 7, 2016, violates the U.S. Constitution’s Supremacy Clause, Commerce Clause, and 14th Amendment Equal Protection Clause. The underlying basis for the constitutional claims is that the prices charged by electricity generating plants are subject to federal rather than state regulation. A similar case has already been filed in federal court in New York challenging that state’s subsidy of Exelon nuclear plants by the law firm Boies, Schiller & Flexner, LLP, which is headed by preeminent attorney David Boies.

Among other things, P.A. 99-0906 is designed to subsidize Exelon Corp.’s Quad Cities and Clinton nuclear plants. This subsidy will be charged to all Illinois electricity consumers beginning June 1, 2017 regardless of what company supplies the consumer’s electricity. The lawsuit specifically asks that the U.S. District Court grant a permanent injunction blocking the charges from going into effect as scheduled on June 1, 2017. According to Mr. Giordano: “These additional charges will reverse twenty years of deregulation in Illinois which have given us perhaps the one advantage we have over neighboring states: relatively low electricity charges due to an effectively functioning competitive market.” Mr. Giordano also said: “We’re challenging the nuclear bailout provision of the legislation because the prices charged by electricity generators have already been established by the competitive wholesale electricity market subject to federal jurisdiction and cannot be increased by the State of Illinois.”

The estimated impact to all Illinois consumers will be about $3.3 billion over the ten years of the nuclear bailout. Mr. Neilan points out that: “This nuclear bailout is one of four rate increases to Illinois consumers this year, including increased delivery charges, increased renewable energy subsidies, increased energy efficiency subsidies, and these nuclear energy subsidies.” When the nuclear subsidies go into effect on June 1, 2017, Illinois residents and businesses can expect to see an average 3% increase in their electricity bills due to the nuclear subsidies alone.”

Giordano & Associates, Ltd. is Chicago’s first law firm devoted to energy issues. We provide clients with experienced counsel on regulatory, litigation, transactional, and legislative matters in the areas of electricity and natural gas. Pat Giordano can be reached at pgiordano@dereglaw.com.

The Law Offices of Paul G. Neilan, P.C. represents commercial, industrial and governmental energy users in disputes against public utilities, as well as in litigation and transactional matters with non-utility competitive energy suppliers.

FACT SHEET

  1. Village of Old Mill Creek, et al. v. Anthony Star was filed in the United States District Court for the Northern District of Illinois on February 14, 2007.
  2. The Plaintiffs are: Village of Old Mill Creek, Ferrite International Company, Got it Maid, Inc., Nafisca Zotos, Robert Dillon,Richard Owens, and Robin Hawkins, both individually and d/b/a Robin’s Nest.
  3. The Defendant is Anthony Star in his official capacity as Director of the Illinois Power Agency.
  4. This case arises from unlawful Illinois legislation that invades the exclusive jurisdiction of the Federal Energy Regulatory Commission (“FERC”) over “the sale of electric energy at wholesale in interstate commerce” pursuant to the Federal Power Act. 16 U.S.C. 824(b)(1).
  5. The unlawful legislation is contained in subsection (d-5) Zero Emission Standard of Illinois Public Act 99-0906 (“P.A. 99-0906”), which was enacted on December 7, 2016 and is available at http://www.ilga.gov/legislation/99/HB/09900HB65761v.htm.
  6. Subsection (d-5) Zero Emission Standard of P.A. 99-0906 requires the Illinois Power Agency to procure contracts for Illinois utilities Commonwealth Edison Company, which serves northern Illinois, and Ameren Illinois Company, which services central and southern Illinois, for purchases of Zero Emission Credits (“ZECs”) from nuclear-fueled generating plants.
  7. The ZEC payments will be passed through by the utilities to all Illinois consumers through automatic adjustment tariffs.
  8. A. 99-0906 is designed to provide additional revenues to the Illinois-based Quad Cities and Clinton nuclear plants.
  9. Exelon Corp. owns both the utility ComEd and Exelon Generation, which owns the Quad Cities and Clinton nuclear plants that will sell the ZECs to the utilities.
  10. Although P.A. 99-0906 has many other provisions, this case concerns only subsection (d – 5) Zero emission standard.
  11. Plaintiffs are not challenging any other provisions of P.A. 99-0906. Section 97 of P.A. 99-0906 provides that the provisions of the Act are severable under Section 1.31 of the Illinois Statute on Statutes. 5 ILCS 70/1.31.
  12. In New York, ZEC payments to Exelon nuclear plants in that state are being challenged on the same grounds set forth by Plaintiffs in Illinois. Coalition for Competitive Electricity, et al. v. Audrey Zibelman, et al. was filed in the U.S. District Court Southern District of New York on October 19, 2016.
  13. A typical residential customer using 1 mWh (1,000 kWh) per month would pay an additional $2.64 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.
  14. A manufacturing company using 10,000 mWh per month would pay an additional $26,400 per month beginning June 1, 2017 based on the initial ZEC price established in P.A. 99-0906.

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Megabanks attempt to justify their presence in the wholesale electricity markets as providing a healthy dose of liquidity. If you believe that banks go into electricity markets for the same reasons that impelled Mother Theresa to treat sufferers of leprosy and tuberculosis in Calcutta, namely, in order to fulfill their altruistic missions on earth, I have for sale to you (and only to you) a bridge that connects Brooklyn to Lower Manhattan. It’s an antique, but it’s in wonderful condition, and very photogenic. Just think of the tolls you could charge.

The Sparkspread has previously written about the activities of banks in wholesale electricity markets. The Courthouse News reports that the Merced, California Irrigation District has filed suit against Barclays for the manipulations of its electricity traders between 2006 and 2008. FERC previously fined Barclays $435,000,000 for its violations of electricity market rules. Here’s the story:

Barclays Sued for Manipulating Energy Market

By ADAM KLASFELD

MANHATTAN (CN) – Nearly two years after federal regulators fined Barclays Bank $435 million, a California irrigation district filed a federal class action accusing the British bank of similar antitrust violations.
The Merced Irrigation District sued the British bank on Tuesday, claiming Barclays and four of its energy traders manipulated electric prices from November 2006 until Dec. 31, 2008.
The irrigation district seeks damages for the “supracompetive” prices it paid for electricity.
The 41-page lawsuit cites the July 16, 2013, findings of the Federal Energy Regulatory Commission, which said that traders Daniel Brin, Scott Connelly, Karen Levine and Ryan Smith engaged in an “affirmative, coordinated and intentional effort” to steer index prices published by InterContinental Exchange and Dow Jones at four major Western U.S. trading hubs to favor the British bank.
FERC took action against the bank and its traders, whose combined penalties came to $453 million.
Merced’s lawsuit targets only Barclays and does not specify the damages sought.
“Barclays’ traders knew their dailies trading was losing money and that it would prevent free market forces from operating in the relevant markets, but they were willing to accept such losses because the uneconomic dailies trading was part of their manipulative scheme to acquire and maintain monopoly power over daily index prices to benefit their related financial positions,” the complaint states.
“This willfulness and intent of Barclays is further demonstrated through direct evidence, such as emails and instant messages (‘IMs’), suspicious timing or repetition of transactions, execution of transactions benefiting derivative positions, and trading which would be economically irrational but for the manipulative scheme,” it continues. “Barclays’ traders coordinated their individual and collective actions in furtherance of the manipulative scheme.”
Quoting extensively from the FERC report, Merced’s complaint dives into “numerous written communications demonstrating Barclays’ traders’ knowing participation in the manipulative scheme.”
On Nov. 3, 2006, Smith bragged that he “totally fuckked [sic] with the Palo” Verde market index, according to the complaint.
Smith allegedly added that he “just started lifting the piss out of the palo.”
His colleague Connelly joked about regulators on Feb. 28, 2007, according to the lawsuit.
Responding to a colleague who called the market a “shitshow,” Connelly replied: “crazy -I love it … your boy started crying this morning … he sent me an ice [InterContinental Exchange] message -said he wass [sic] calling FERC … lol.” (Ellipses in complaint.)
The complaint says that exchange referred to a FERC order assessing penalties.
The proposed class includes “Any individual or entity that held any contract which settled against the ICE [InterContinental Exchange] or Dow Jones published daily index prices for peak or non-peak power at either Mid-Columbia, Palo Verde, South Path 15 or North Path 15” during the relevant time frame, and “was damaged by movements in such index prices caused by Barclays’ unlawful scheme.”
A subclass consists of class members “who reside or are incorporated in California.”
Merced seeks class certification, restitution, and damages for unjust enrichment and violations of the Sherman Act, and the California Business & Professional Code.
It is represented by Jeffrey Klafter with Klafter Olsen & Lesser, of Rye Brook, N.Y.
Barclays did not immediately respond to a request for comment.
The California energy crisis of 2000-2001 showed that electricity prices were fairly easy to manipulate, and that federal regulators, primarily FERC, were unable to keep up with the traders. Enron profited hugely during the crisis, for a while, then collapsed in an accounting scandal.

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FERCBLOG reports that FERC has approved an LNG export facility for Dominion Cove, which is near Baltimore on Chesapeake Bay. Read the entry here:

FERC Approves Cove Point LNG – FERCblog.com.

That’s a good first step, and it puts the U.S. on the road to countering Czar Vladimir I if he again threatens to cut off natural gas supply to Ukraine or other European countries — but we’re not there yet.

As we’ve pointed out a few times on the Sparkspread, there’s a tremendous amount of natural gas that is being wasted every day in the U.S. In the Bakken, natural gas is treated as “associated gas,” or gas associated with petroleum extraction (read “waste gas”), even though it’s produced in quantities that rival the production in other fracking locales.

But there’s no gathering system in the vast expanse of the Bakken, and so the natural gas is flared at the wellhead. The cost/benefit calculation is easy: better CO2 than methane, which is much worse as a GHG. Estimates are that 100 million cubic feet of natural gas is being flared every day in the Bakken. That’s the equivalent of 10 NYMEX futures contracts, burned up with no benefit to anyone, every day.

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Exelon CEO Chris Crane

Exelon CEO Chris Crane

Make no mistake: Despite CEO Chris Crane’s denial that Exelon is angling for a state bailout for his money-losing nuclear generating stations, shifting the costs and risks of Exelon’s struggling nuclear power business to ratepayers (and/or taxpayers) is precisely what Crane intends.

For proof one need not look further than Illinois General Assembly resolution HR1146, which bewails the failure of competitive wholesale markets to recognize the true value of Exelon’s carbon-free nuclear generation, and ordering the Illinois Commerce Commission, the Illinois Power Agency, DCEO and other state agencies to prepare reports for the upcoming legislative session on how to protect Exelon from the perils of the electricity market. [Memo to Mr. Crane: Look up the term “externalities.” It’s a popular one among economists.] Were he not seeking a state bailout, there would be no reason for Crane to take his complaints about wholesale electricity markets, over which the State of Illinois has no jurisdiction (16 U.S.C. 824), to Mike Madigan. The only conceivable reason Exelon would take its woes to Springfield and have the Illinois General Assembly pass HR1146 is to seek protection from the wholesale electricity market at the expense of Illinois ratepayers and/or taxpayers.

If Crane had legitimate complaints about “flawed wholesale markets,” he’d be devoting 100% of his efforts to getting FERC and PJM to cure the market flaws he keeps crying about. But Crane can fool Springfield into believing his “market flaws” kinderfibel, while at PJM and FERC he’d be laughed out of the conference room.

Of course, Exelon, under then-CEO John Rowe, blazed the trail by which formerly lumbering utilities like Commonwealth Edison spun their generation assets off into competitive market affiliates like Exelon Generation.  Rowe’s strategy between the late 1990’s and early 2000’s was to create a competitive retail electricity market, strip the power plants out of vertically-integrated ComEd (leaving it just a wires and delivery company), and put those generating assets to work in a for-profit entity that would then sell power in an open wholesale market. The conventional wisdom back then was that the price of natural gas would go up, raising electricity market prices because natural gas generally sets the electricity price at the margin. In Rowe’s brave new power world, Exelon stood to make more money from a nuclear fleet in a competitive wholesale electricity market than it would as an old-fashioned, regulated-rate-of-return public utility whose prospects for growth lay somewhere between slim and nil. And Exelon bent the world to its will.

The strategy was working fine prior to 2008-09. Exelon was selling its power in the same markets with the same structure as in place now, and Exelon was making money. When Exelon was making money, though, we never heard it complaining that the markets were flawed. Then-CEO John Rowe bestrode the electricity markets like a capitalist colossus, and Wall Street approved.

Then came the Great Recession and the advent of abundant domestic natural gas from fracking in the Marcellus shale. Rowe had placed big bets on nuclear stations in competitive power markets, but Crane assumed Rowe’s place at the electricity gaming table just as the croupier was raking away all of Exelon’s chips. Exelon had to cut its dividend by about 60% last year as Exelon’s shareholders watched the value of their holdings fall by two thirds.

All was not well in ComEdistan.

Crane and similarly situated power company CEOs wasted no time in implementing that time-honored strategy that has ever been a favorite of both Corporate America and Wall Street: Deflect blame onto others. But the success of this strategy chiefly depends on two factors, one of which is basic credibility: the blame shifting has to make sense. The second is that the attractiveness of the blame-shiftee is inversely proportional to the shiftee’s political clout, including the throw-weight of its lobbyists.

Judging matters by these criteria, Crane’s first choice of blame-shiftee, the production tax credit (PTC) for windpower, a 2.3 cents/kilowatt-hour credit, was inauspicious. Crane and his nuclear power peers lectured many a power conference audience on the evils of the PTC as a market-distorting wind energy subsidy, how it was wreaking havoc on nuclear baseload generation, and that it would cause the lights to go out.

This strategy was a loser for Crane because, except for Big Oil, no segment of the energy industry has received (and continues to receive) more lavish subsidies than nuclear power. First are the $58,000,000,000 in federal government loan guarantees that underwrote the construction of nuclear plants. If a nuke operator like Exelon can’t sell power profitably and defaults on its loans, Harry and Louise Taxpayer will get the bill. Then there’s that grand-daddy of subsidies, the federal Price-Anderson Act, which shifts security and accident risks away from the Exelons of the nation and onto the backs of – you guessed it! – Harry and Louise Taxpayer. There are other indirect subsidies, such as tax breaks on uranium mining, but we need not wander too far into the subsidy tall grass to make the point. The Union of Concerned Scientists determined that the value of all subsidies to nuclear power amounts to more than 7 cents/kilowatt-hour. That’s more than three times the amount of the PTC about which Crane and his nuclear CEO colleagues so loudly complain. In fact, it’s more than the average wholesale price for power between 1960 and 2008. As far as the basic credibility criterion is concerned, the PTC subsidy angle was not a good one because the subsidies the government extends to Crane’s nukes are more valuable than the power his nukes produce.

As Ricky Ricardo might have said, “‘splain to me again” who’s distorting the market?

And while the renewables industry doesn’t have anywhere near the campaign contribution treasure chest that Exelon has, it still has its own lobbyists, and they’ve leveled their own fire back at Crane.

The simple truth is that Exelon is trying to portray itself a public utility, and HR1146 is a crony capitalism measure fairly dripping with job-keeping tropes. (Because the measure was led by Madigan, though, the term “job creator” could not be used without imparting an undesirable Republican tinge to the measure.)

Exelon is a for-profit corporation whose earnings, after the payment of princely salaries to its executives (e.g., $17MM to Crane for 2013, even though the share price tanked), either go out as dividends to shareholders or get plowed back into the business to (hopefully) enhance the stock price and earn even more money for shareholders in the future. Exelon certainly didn’t share its bounty with either ratepayers or taxpayers when times were good in the wholesale markets. Now times are bad, and Crane has been paving the way for corporate welfare for Exelon so that it won’t have to close two or three of its unprofitable nuclear generating stations. Crane’s strategy is thus no different than that of the Wall Street Banksters, so gloriously on display during the financial crisis: Privatize gains, socialize losses. When Exelon makes money, Exelon gets to keep it. If Exelon loses money, all ratepayers and taxpayers must chip in to save Chris Crane’s job.

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Ms. Masters testifies before a U.S. Congressional Committee in 2009

Ms. Masters testifies before a U.S. Congressional Committee in 2009

Blythe Masters, who headed up JP Morgan Global Commodities Group, of which JP Morgan Ventures Energy Corp. (JPMVEC) was a major part, is reported to be under investigation by the feds:

Blythe Masters Is Under Investigation By The Feds.

Masters and her group manipulated power markets in California and, to a lesser extent, Michigan. JPMVEC settled the charges with FERC for $410 million last year. So what was going on? Let’s just take one example of the manipulation strategies used by her group.

In addition to regular bilateral markets, the electricity market has a real time and day ahead market. Under the California Independent System Operator tariff rules in effect during her tenure, bidders in the day ahead market were paid for  “ramp” hours that day at their bid price for hours on each side of their bid. This is intended to reflect a power plant’s need to power up and then power down to supply electricity during the bid hours. JPMVEC knew that CAISO’s software for evaluating bids did so only one day at a time.

During the hours of midnight to 2:00 a.m., demand is very low, and market prices are very, very low. Most people are asleep.

JPMVEC bid -$30/MWh (yes, that’s right, negative thirty dollars — they’re paying CAISO to take their power) for the hour between 11:00 p.m. and midnight on Day 1, and then submitted a bid for $999/MWh for the wee  hours between midnight and 2:00 a.m. on Day 2. Because of its one-day-at-a-time software, CAISO took the midnight to 2:00 a.m. bids as ramp hours, and CAISO paid JPMVEC at its bid price of $999/MWh, even though the market price was just $12/MWh.

Blythe and her crew played this little game between April 1 and June 18, 2011, or about 78 days, and raked in a cool $20 million (net) off CAISO. That comes out to about $256,400 in pure profits every day. And that’s just one of the simpler of JPMVEC’s market schemes.

Like the song says, nice work if you can get it.  And people ask why the banksters are trading electricity. What a stupid question.

 

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Yesterday on the U.S. Senate floor, Senators Lisa Murkowski (R., Alaska) and Mary Landrieu (D., Louisiana) officially elevated the status of discussions of electric grid security from brouhaha to donnybrook. The senators criticized Jon Wellinghoff, FERC’s immediate past chair, for providing “sensational” if not “reckless” comments to the Wall Street Journal on flaws in the security of the grid.

The Sparkspread discussed this issue in its March 13, 2014 entry, specifically referring to a FERC analysis of grid power flows that concluded that disabling just nine substations in different regions could lead to a nationwide blackout that could last for weeks, if not months.

Senator Murkowski also called for an investigation into who leaked this information to the Wall Street Journal.

Wellinghoff fired back, stating that there was no classified information in the report, and that he and other FERC officials briefed hundreds of people in the utility industry across the country.

As the Sparkspread pointed out, the idea of attacks on a nation’s power grid are hardly new. Bombardment of Nazi Germany’s generation infrastructure was considered but ultimately not prioritized during WWII.  Amory and Hunter Lovins detailed the risks in their 1982 book, “Brittle Power,” which can be read on the web. It would be ironic if a detailed review of the FERC report revealed extensive reliance on the Lovins’s work from thirty years ago.  That these unknown persons carried out an attack on a substation shows that they already know about these flaws in grid security. This looks less like a leak and more like an effort to build awareness of the risk within the industry. If the House Republicans accuse Wellinghoff of involvement with Benghazi, we’ll know how serious this is.

Read the story here:

Wellinghoff fires back at ENR leaders on grid security study – Lesser prairie chicken gets ‘threatened’ designation – Obama in Saudi Arabia – POLITICO Morning Energy – POLITICO.com.

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