Editor’s note: This oped is by Donald M. Kreis, an associate director and assistant professor of law for the Institute for Energy and the Environment at Vermont Law School.
Bad news for Vermont: 620 megawatts of generation capacity on the banks of the Connecticut River were blown to smithereens on Superbowl Sunday and at least five people are dead. The good news is that Vermont Yankee was not involved.
Still, the demise of the Kleen Energy facility in Middletown, Conn., which was 96 percent complete and scheduled to fire up its gas-fired turbines later this year, is an event of no small significance throughout New England. It raises profound questions of accountability and energy capacity.
Once upon a time, generation facilities of this size were developed only by regulated utilities subject to the jurisdiction of both the Federal Energy Regulatory Commission (FERC) and state commissions like the Vermont Public Service Board. Today, in Connecticut, Vermont and many other states, utilities own little or no generation capacity themselves and buy their power from so-called merchant generators like Vermont Yankee and Kleen Energy.
New England has one big regional market for wholesale electricity, which got under way in the late 1990s and quickly proved itself inadequate. The key flaw was an inability to attract developers interested in building new generation facilities to serve future growth in electricity demand. In the old days, utilities were simply required by regulators to meet those needs and to do so prudently.
Several years of hotly contested litigation later, the FERC approved something called the Forward Capacity Market – essentially an auction-based mechanism for compensating developers now in exchange for their promise to be available later. Utilities and other companies with retail electric customers are required to buy capacity credits from these generation owners.
At least until Sunday, the biggest winner in this capacity game has been Kleen Energy, which has (or had) a 15-year deal brokered by state officials to sell its capacity to Connecticut Light & Power (CL&P). A key fact, usually overlooked in coverage of the explosion, is that CL&P did not buy Kleen Energy’s actual electric output – just the right to claim Kleen Energy’s capacity credits.
Meanwhile, when the Forward Capacity Market began holding auctions in 2008, Kleen Energy’s 15-year capacity deal, and three others like it in Connecticut, were blamed (or credited) for driving down the auction price of capacity credits. This meant that other developers of new capacity throughout New England, some of which will never be built, and none of which have since exploded, could not get the same deal-sweetening subsidies that Kleen Energy had locked into place by contracting with CL&P.
As far as the actual energy is concerned, Kleen Energy has (or had) a sales agreement with Constellation Energy Commodities Group, a big wholesale energy trading firm. Kleen Energy had filed a request with the FERC for so-called market-based wholesale rates. This is essentially a request that FERC simply assume that Kleen Energy’s deal with Constellation is just and reasonable. Under this hands-off theory of regulation, the FERC is powerless to help consumer advocates or anyone else who pops up later to complain. That’s what the U.S. Supreme Court decided less than a month ago in a case called NRG Power Marketing LLC v. Maine Public Utilities Commission.
The upshot is that, starting later this year, 620 megawatts of power that was supposed to be there for New England will not be available for purchase or use by customers. Those who favor closing Vermont Yankee can call it a dress rehearsal for not renewing the plant’s license, which expires in two years.
An interesting question is who owns Kleen Energy. A private equity firm, Energy Investors Funds, pumped nearly a billion dollars into Kleen Energy two years ago and thereby acquired 80 percent of the facility. The project’s original backer was Philip Armetta, proprietor of the local Dainty Rubbish Service, who bought the Kleen Energy site in the late 1990s. In April 2007, in connection with a federal investigation of Connecticut’s trash hauling business, Armetta pleaded guilty to withholding information on a crime. He spent three months in prison and three months on house arrest. His minority interest in Kleen Energy is now in a trust, according to the New York Times.
In other words, the future of New England’s electricity supply is no longer in the hands of publicly traded corporations whose every move is scrutinized by federal and state regulators. Today it is frequently consigned to operators who avoid the limelight when possible.
Merchant generators can rightly claim that electric customers are no longer directly on the hook if plants are shuttered because of tritium leaks or never open because of explosions. But ratepayers do not get off scot-free. The loss of Kleen Energy’s power will alter the equilibrium between supply and demand by raising the wholesale price of electricity throughout New England. Meanwhile, Vermont ratepayers helped subsidize massive transmission upgrades in Connecticut.
Electricity customers at all points along the Connecticut River want clean and reliable energy at the lowest possible cost. Developers of projects like Kleen Energy never claim that their energy will be ultimately be cheaper than facilities built by utilities working under full public scrutiny. Apart from what it buys from Hydro-Quebec, Vermont gets nearly all of its electricity from non-utility merchant generators around New England. They’re not promising cheaper power, and apparently they cannot deliver safety either.