Sierra Club Reply to CPV’s 6/25/14 Response to Sierra Club’s Motion for Revocation.

SIERRA                       STERLING FOREST/HIGHLANDS COMMITTEE

CLUB               RAMAPO/CATSKILL GROUP CONSERVATION COMMITTEE

FOUNDED 1892

ATLANTIC CHAPTER

 

July 10, 2014

 

Via Email to: secretary@dps.ny.gov

 

Honorable Kathleen H. Burgess, Secretary

New York State Public Service Commission

Three Empire State Plaza

Albany, NY 12223-1350

 

Subject: CASE 10-E-0501 Petition of CPV Valley, LLC (CPV) for a Certificate of Public Convenience and Necessity Pursuant to Section 68 of the Public Service Law, Approval of Financing Pursuant to Section 69 and for Approval of a Lightened Regulatory Regime.

Sierra Club Reply to CPV’s 6/25/14 Response to Sierra Club’s Motion for Revocation.

 

Dear Secretary Burgess:

 

In accordance with the Commission’s June 17, 2014, Notice regarding the above Case, enclosed please find the Sierra Club reply to CPV’s June 25, 2014, Response to the Sierra Club June 9, 2014, Motion for Revocation.

 

  1. INTRODUCTION

 

  • In a Petition dated October 12, 2010, CPV Valley, LLC (CPV) requested that the NYS Public Service Commission (the “Commission” or “PSC”) issue an Order granting a Certificate of Public Convenience and Necessity, Approving Financing and providing for a Lightened Regulatory Regime.

 

To obtain those PSC Certificate/Approvals, CPV was required to provide the Commission with, “ . . . a description of the manner in which the cost of such plant is to be financed; evidence that the proposed plant is in the public interest and economically feasible; and, proof that the applicant is able to finance the project and render adequate service.” (See CPV Petition page 4.)

 

  • Following the prerequisite completion of the SEQRA Environmental Impact Statement process, and the procurement of required permits from other involved parties, the Commission conducted a Public Statement Hearing on February 25, 2014, at Orange County Community College (SUNY Orange), Middletown, New York.

 

In conjunction with that public hearing, the Sierra Club presented detailed written and oral comments challenging CPV claims of economic feasibility and the viability of the financing upon which the proposed power plant depends and, without which, the project could not render adequate service and would not be in the public interest. Examples were presented revealing declining sales, consumption, and production trends adversely affecting power plants throughout New York State; the recent bankruptcies and/or the lack of profitability of five Hudson Valley power plants; the fact that four new merchant generating/transmission proposals (including CPV) capable of supplying over 3,700 MGW of new power, had permits but had no customers, had no financing, and were in competition with each other for market share; the fact that formal transmission upgrade proceedings before the PSC were underway that could deliver over 2,200 MGW of additional power into our region; and, the fact that the restarting of existing Bowline and Danskammer power plants would add another 1,700 MGW of electricity into a very competitive load zone that already is well-supplied by available generation without the need for any of the above noted additional production/supply.

 

All of the above noted circumstances do not support the financial viability of CPV as a privately financed competitive merchant generating company operating in the regional market, which has a profound overhang of existing and proposed dispatchable supply without the prospect for additional demand/customers.

 

  • The Commission carefully considered the Sierra Club comments. Without disputing our contentions, the Commission issued a thoughtful, well-reasoned decision on May 9, 2014, granting the CPV Certificate/Approvals based upon CPV’s representations that CPV would be financed by private investors, would sell into the competitive, wholesale market, and could favorably compete against other suppliers. Because of their new super-efficient technology and “cheaper” fuel sources, CPV could out perform and under price competitors even in a harsh economic climate, and thus win customer contracts and, in theory, lower the price of electricity to the benefit of consumers. The Commission reasoned that under those competitive circumstances, which are also required for CPV to be eligible for a Lightened Regulatory Regime, the financial rewards from CPV construction/operation would fully accrue to CPV investors, and the financial risks would also be the responsibility of CPV investors. As a consequence, ratepayers and the public would be protected from any market risk or financial harm.

 

  • Also on May 9, 2014, a timely news interview with CPV Vice President Steve Remillard by reporter Jessica DiNapoli was published in the Middletown Times Herald-Record (see enclosed article) that totally contradicted the financial representation that CPV had made to the PSC up to that point in time. CPV now professed that private financing was unavailable and that a long-term Take–or–Pay contract with a state agency was needed to guarantee private financing. That state contract, however, would transfer all financial/market risk from private CPV investors to the ratepayers and to the public, exactly what the competition recognized by the PSC was intended to prevent. Such a contract would also eliminate CPV from competitive market participation upon which lightened regulation is predicated, which also is contrary to representations in the CPV Petition.

 

  • Because of the horrendous financial liability that would be shifted to ratepayers and to all taxpayers as noted in the May 9, 2014, news story, the Sierra Club, on June 9, 2014, requested that the PSC reopen this case and revoke the Order that also had been issued on May 9, 2014.

 

  • On June 17, 2014, the Commission issued a Notice Concerning the Petition for Rehearing including responses to the Sierra Club Request for Revocation.

 

  • On June 25, 2014, attorneys for CPV responded and brought to our attention that our June 9, 2014, request had not been properly served on CPV. We had been advised that the PSC service list would distribute our submission to all parties, which we have since learned is not the case. Further, it was our understanding that CPV Vice President Steve Remillard received a copy of our Revocation Request at the June 12, 2014, Orange County NY Industrial Development Agency (IDA) meeting, which we collectively attended. Please accept our sincerest apologies for inconveniencing the Commission and CPV. We appreciate CPV and attorney Ruth Leistensnider for being able to respond to our request in a timely manner. The following comments are a reply to the CPV response dated June 25, 2014.

 

  1. SIERRA CLUB REPLY TO THE JUNE 25, 2014 CPV RESPONSE

 

  • The CPV response consists of two assertions: first, that the Sierra Club request is based on a news report that was taken out of context, and second, that even if that news story were accurate, no misrepresentation was made by CPV since the option of obtaining a “Power Purchase Agreement” (PPA) was noted in the underlying Petition. We submit that both of those responses are in error.

 

However, because the CPV response also blends several tangential issues that are somewhat confusing, further explanation is required to put the Response in proper context.

 

  • The June 25, 2014, CPV Response conflates and homogenizes three separate – related but distinct – proceedings as if those proceedings were directly connected in a dependent, linear fashion, and thus obfuscates the basis for the Sierra Club Revocation Request.

 

Foremost is Case 10-E-0501, which is the only case of relevance here, and which is the subject of the October 12, 2010, CPV Petition, the May 9, 2014, PSC Order issuing the Certificate/Approvals requested by the Petition, the June 9, 2014, Sierra Club Request to Revoke the May 9, 2014, Order, the June 25, 2014, Response by CPV, and the instant Sierra Club Reply to that CPV Response.   This Case, 10–E–0501, was filed October 12, 2010, well before the Energy Highway Blueprint Initiative and the subsequent Case 12–E–0503, “Generation Retirement Contingency Order” (Indian Point), were created.

 

The Energy Highway Blueprint Initiative, which is intertwined in the CPV Response, was announced by the Governor during the 2012 State of the State message to promote private efforts to modernize the Grid. A Task Force was formed, two major forums took place during the spring of 2012, and recommendations were made in October 2012, after which the Task Force disbanded and the Energy Highway Blueprint Initiative was concluded. The Request for Information (RFI) process was just that: an information gathering effort by the Task Force to identify all grid-related merchant projects affecting New York and to collate a status report for each. Over one hundred responses were received including that of CPV. The Energy Highway was essentially a planning effort of critical importance. It was not, however, an implementation program to fund power plant construction as purported by CPV. Implementation of Task Force recommendations was delegated to other State agencies.

 

One outgrowth of the Energy Highway Task Force recommendations was PSC Case 12–E–0503, “Generation Retirement Contingency Plans” regarding Indian Point, which resulted in a New York Power Authority (NYPA) “Request for Proposal” (RFP) during April 2013, to which CPV responded. Multiple competitive responses were received including those of Cricket Valley Energy Center and the Champlain Hudson Power Express Transmission Cable. All responses remain open but dormant. A PSC Order dated November 4, 2013, essentially placed the RFP process on hold due to companion transmission upgrade proposals, the creation of the FERC/NYISO New Capacity Zone, and evolving production developments by existing power plants such as Bowline, Roseton and Danskammer. Danskammer, for instance, just received PSC approval on June 27, 2014, to restart and, together with Roseton and Bowline, can do so without the need for a high risk, State Take-or-Pay Contract.

 

  • None of the above array of potential actions favors public or private funding for CPV. Rather, any one or any combination of those projects argues against CPV’s construction at all. No RFP evaluation or “selection” is being contemplated especially since Indian Point remains open and retirement remains a distant prospect. No contracts were prepared or offered, or even exist as promoted by CPV agents. For CPV and its supporters even to infer that a “ contract decision” for CPV is imminent and just requires the Governor’s signature is wildly misleading. The PR spin is akin to someone claiming ownership of a winning lottery ticket before the numbers are even chosen and demanding that the Governor sign the check and deliver the proceeds. The goals of the 12–E–0503 RFP action appear now to be superfluous.

 

  • NEWS ARTICLE WAS NOT TAKEN OUT OF CONTEXT. The CPV Response argues that the May 9, 2014, news story was “ . . . taken out of context and not reflective of what was said.” (See page 2.) Continuing on page 5, CPV states, “ . . . the statement cited by the Sierra Club . . . was not a direct quote of Mr. Remillard, but rather the reporter’s statement of what was said, and was taken out of context.”

 

Criticizing the messenger is rather lame. Whether or not the words were placed within quotation marks or were paraphrased does not alter the accuracy of the content. Please note that reporter Jessica DiNapoli is an experienced journalist who has covered the utility industry and related power plant issues for years.

 

Similar comments regarding the necessity for a State contract were also made to Times Herald-Record reporter James Walsh (“IDA to decide on property tax deal for power plant,” June 12, 2014, enclosed); (“Tax incentives OK’d for power plant,” June 13, 2014, enclosed); and, (“Host town could gain from power plant,” June 24, 2014, enclosed).

 

The representation that a State Take-or-Pay contract is necessary to guarantee CPV financing, and that such a contract is awaiting the Governor’s signature, is often repeated by CPV’s business partners, IDA representatives, and political beneficiaries. That expectation prompted the Orange County NY IDA’s rush to award incentives (TH-Record articles June 12 and 13, 2014), and the push from the Town of Wawayanda to secure “Host Community Benefits” from CPV (TH-Record, June 24, 2014).

 

  • The above noted expectations also prompted the Orange County Partnership to lobby the Governor on behalf of CPV, which prompted the May 9, 2014, news story to begin with.

 

In a letter to Governor Andrew M. Cuomo, dated May 5, 2014, the Orange County Partnership, et al., stated that CPV had received “the final permit” required to construct the proposed power plant (four days prior to the Commission vote . . .) and beseeched the Governor to “ . . . make the CPV Valley Energy Center a key component within your Energy Highway blueprint . . . .” And, “ . . . we ask that you move quickly to help make this project a reality.” (Letter enclosed.)

 

This OC Partnership letter was copied to reporter Jessica DiNapoli who thereupon interviewed CPV Vice President Steve Remillard for further information, which was reported in the May 9, 2014, story under the headline: “State stalls on new power plant.” That headline was especially curious since the State by then had approved the final Certificate needed to initiate CPV construction and operation. What obstacle was the State still imposing on CPV to keep the project from moving forward? How was the State preventing private investors from spending their own money to construct CPV’s power plant? What contract decisions were they talking about? The news article provided some insight:

 

“ . . . Competitive Power Ventures . . . cannot move forward, even with the final permit, called the certificate of public convenience and necessity.

CPV still needs the state to decide if it will award the company a long-term power contract through the Energy Highway, an initiative to modernize the energy system. The contract would have a state organization buy energy from CPV over a number of years and is essential for the company to secure financing for the plant, said Vice President Steve Remillard.

CPV expected a decision in the fall, he said.

Maureen Halahan, CEO of the Orange County Partnership, said now is the time for the state to make a decision, because of the creation of a new zone hiking electricity rates in the Hudson Valley. The Partnership helped CPV on the project.”

 

The answer to the mystery contract became clear. It was not the need for any permit that was stalling CPV’s construction. It was the reluctance of investors too smart to risk their own money on CPV and the desire of CPV supporters to make the State use public tax dollars instead. Likewise, ratepayers would also be on the hook.

 

Follow-up discussions with the principals confirmed that the only decision requested of the Governor and of the State was to have the State commit to a Take–or–Pay contract with CPV. That contract would serve as collateral to guarantee repayment of private financing for a high-risk investment in a saturated market having no customers, which otherwise would not be funded by savvy private investors. The State would be obligated to back private CPV financing with the taxation power of the State and would be required to repay any CPV losses with other State revenue. Such a State guarantee would also lower CPV borrowing costs, a financial benefit and advantage that competitors would not receive. All financial risk for CPV would thus be transferred from private investors to the State. An example of that risk is NYPA’s current $64 Million annual Take-or-Pay LOSS for the Hudson Transmission Project constructed to deliver power to New York City, which New York City does not need. (See Albany Times Union April 5, 2014, article entitled: “No customers for Authority’s power.” (Enclosed)

 

Subsequently, Mr. Remillard unambiguously acknowledged the need for a Take–or–Pay contract to finance CPV during a conversation with the undersigned on June 12, 2014, following the Orange County IDA meeting at which incentives for CPV were approved. That conversation reaffirmed the accuracy of the May 9, 2014, news story that, contrary to the assertions of CPV, was very much in context.

 

  • The CPV Response claims that no Petition misrepresentation took place since the sale of power via a “Power Purchase Agreement” (PPA) was an option noted in the Petition. The June 25, 2014, CPV response argues that “ . . . CPV Valley’s Petition specifically stated it would participate exclusively in the wholesale market either through the NYISO spot market, neighboring control areas, power purchase agreements (‘PPA’) or financial hedge contracts . . .. Thus, CPV Valley’s intent to pursue a PPA has been made clear from the beginning and is not new information, nor was there any misrepresentation by CPV Valley in its Petition.”

 

The October 12, 2010 Petition also states, “Since the Project will be a competitive wholesale provider of electricity and will not serve retail customers, the scrutiny applicable to monopoly utilities under PSL Section 69 may be reduced.” (See Petition, page 10).

 

Further, the Petition notes on page 9, footnote 11, that, “ . . . the Commission found that where the facility provided benefits by enhancing competition, that the facility was economically feasible and in the public interest . . .. As demonstrated above, CPV Valley will enhance competition in the energy markets, and therefore, the CPV Energy Project should be found to be economically feasible and in the public interest on this basis alone.”

 

Regarding financial risk as it relates to economic feasibility and the public interest determined by enhanced competition, the Petition states, “As with other financings approved for such facilities, captive New York ratepayers cannot be harmed by the terms of the contemplated financing because the Petitioner and its affiliates bear all financial risks associated with the financing arrangements.” (See Petition, page 10.)

 

But those CPV assertions are misrepresentations since an exclusive, “no-bid,” non-competitive State Take–or–Pay contract is not the equivalent of a competitive PPA. A State guaranteed contract shifts all financial risk to the State, reduces competition at the expense of other rival merchants, subverts the Petition’s claim to enhance competition and also violates the eligibility conditions needed by CPV to qualify for a “Lightened Regulatory Regime.”

 

The CPV Response is in error by attempting to substitute the term “Power Purchase Agreement” as noted in the Petition for the term “State Take–or–Pay contract” as noted in the Sierra Club Request to Revoke. The two terms as described here cannot be equated with each other especially since the controlling word “competitive” is absent from the CPV PPA definition, which is contrary to market-driven PPA’s as implemented by industry.

 

A competitive PPA is a bilateral contract between competing power generators and a utility, which would solicit bids among merchant power facilities in order to obtain and distribute electricity to existing utility customers.

 

A no-bid Take–or–Pay contract between CPV and a State agency such as NYPA, however, would be the antithesis of competition.  Such a deal would only benefit CPV investors at the expense of its merchant competitors such as Cricket Valley Energy Center, Champlain Hudson Power Express, Bowline, Roseton and Danskammer, and would reduce competition to the disadvantage of ratepayers and taxpayers. Such a non-competitive sweetheart deal would not only be bad business for the State, but would also stifle private competition. The stated competition is also a requirement for a “Lightened Regulatory Regime” which is predicated on FERC’s promotion of competition among merchant power plants to prevent de facto monopoly supply arrangements from forming.

 

Such anti-competitive attempts by CPV destroy its Petition claim to “enhance competition” and reveal that the CPV facility is not “economically feasible” and is not in the “public interest.”

 

 

III. CONCLUSION

 

The matter at hand is not about an Energy Highway Blueprint Initiative, an exercise that has been concluded.

 

It is not about a Request for Information (RFI), a process that has been completed.

 

It is not about a FERC/NYISO New Capacity Zone issue that is currently being challenged by the State in Federal Court.

 

It is not about a replacement for Indian Point (Case 12–E–0503), a power plant that first must actually close. Please note that transmission solutions alone could replace Indian Point production, which include Case 13–E–0448 Proceedings, and the West Point Partners Cable Proposal (Case 13–T–0292) that could channel the full 1,200 MGW output of the Athens Generating Facility (which CPV’s parent company operates . . .) directly into the Westchester Con Ed grid interconnection that currently serves Indian Point.

 

It is not about the false pretences of public officials and business cheerleaders who lobby for a phantom contract that would not only con the State into assuming financing obligations for the private CPV power plant, but also would disrupt the competitive basis of the power supply markets.

 

The above are distractions from the simple truth that CPV made assertions in its Petition in order to obtain the required Certificate/Approvals and immediately reversed those representations upon the PSC’s issuing those coveted Certificate/Approvals. Those serious misrepresentations, no matter how one chooses to define a “PPA,” also undermine the integrity of the entire PSC public hearing and permit decision-making process.

 

In its Petition, CPV affirmed that the project’s construction and operating costs would be funded by a combination of private debt and equity, that CPV had the resources to obtain the required financing, that CPV would sell its electrical output exclusively in the competitive wholesale market, that those sales will enhance competition amongst suppliers, and, that captive ratepayers and the public cannot financially be harmed “ . . . by the terms of the contemplated financings because the Petitioner and its affiliates bear all the financial risk associated with the financing arrangements.” (See Petition, page 10).

 

Before the ink was even dry on the Commission’s Decision to grant the Certificate/Approvals, CPV recanted and publically acknowledged that insufficient private financing existed, and that CPV required a Take–or–Pay contract from the State to provide surety to guarantee the financing for the power plant.

 

The Petition promises private financing but CPV now requires a State contract to purchase all electricity produced by CPV for resale by the State or to have the State pay for all CPV          costs even if the State does not “take” and resell any of that electricity. That contract feature is especially damaging in a market of volatile fuel prices without needed customers where the power cannot be stored for future sale.

 

The Petition promises that all the risk would be shouldered by the private investor and that the ratepayer and taxpayer would be protected from market risk and financial harm, but CPV’s need for a State contract would now protect the investor from financial harm and shift all market risk and financial losses to the ratepayer and taxpayer.

 

The Petition promises to enhance competition, but CPV’s need for a State contract would nullify the required competition needed to obtain lightened regulation.

 

The Petition promises increased municipal revenue and financial benefits created from the value-added activity of private enterprise, but CPV’s need for a State contract would mean that other State taxpayers would be obligated to transfer State revenue into municipal coffers and into the pockets of CPV investors, the exact opposite of a customer-based, earnings driven, private sector business model.

 

Contrary to the representations made in the Petition, such a non-competitive contract would shift all financial and market risk from CPV investors to the State, to ratepayers and to the public and would be detrimental to all taxpayers and give CPV an unfair advantage over its market competitors. Such a contract would inhibit competition, not enhance it.

 

As a consequence, the CPV project has not satisfied the requirements needed to obtain a Certificate of Convenience or Lightened Regulation. The project would not be economically feasible and is not in the Public Interest.

 

Due to all of the misrepresentations, which materially depart from the financial arrangements described in the CPV Petition upon which the Commission based its May 9, 2014, Order, including a financial plan that is essentially nonexistent, we reaffirm our Request that the Commission Reopen this Case and Revoke the Order that was approved on May 9, 2014.

 

Respectfully submitted,

 

 

 

Jurgen Wekerle, Co-chairman Sterling Forest/Highlands Committee

PO Box 287, Walden, NY 12586, Tel: 845-744-5116, Email: jwekerle2@gmail.com

 

 

 

Randolph Hurst, Ramapo/Catskill Group Conservation Committee

83 Post Road, Slate Hill, NY 10973, Tel: 845-374-6006, Email: randyjhurst@gmail.com

 

Enclosures

 

cc: Paul Agresta, Esq.

David Drexler, Esq.

Pramilla Srivastava

Steve Remillard

Ruth Leistensnider, Esq.