A busy week in the Invenergy case

This has been a busy week in the Invenergy case, culminating in a Federal Energy regulatory Commission (FERC) ruling on Friday late afternoon in the second of the two pending lawsuits pertaining to Invenergy. This e-mail reviews the events of the past week, suggests what those events mean for opponents of Invenergy, and looks ahead to next steps. On Monday, January 22, Invenergy informed the Energy Facilities Siting Board (EFSB) that it (Invenergy) had cancelled its water contract with the Narragansett Indian Tribe. On Wednesday, Jan. 24, Invenergy informed the EFSB that it (Invenergy) had withdrawn its lawsuit at FERC seeking to shift hundreds of millions of dollars in interconnection costs to ratepayers. Also on Wednesday, Conservation Law Foundation (CLF) asked the EFSB not to cancel the Show Cause Hearing schedule for next Tuesday, January 30, because there was still a very important second lawsuit pending at FERC that could affect the outcome of the EFSB Docket. We were unsuccessful; the EFSB cancelled the January 30 Show cause Hearing, saying that the hearing was moot due to the cancellation of the water contract with the Narragansett Indian Tribe and the withdrawal of one of the FERC cases. Litigation always has its ups and downs, and the foregoing events were not helpful for the anti-Invenergy side. Invenergy’s filing its lawsuit at FERC, seeking to shift hundreds of millions of dollars in interconnection costs to ratepayers, was a very stupid move on Invenergy’s part for several reasons. It allowed CLF to hammer Invenergy mercilessly in the press, and it looked like the EFSB was going to stay the entire case until Invenergy’s lawsuit was resolved, which would have taken over a year. That delay would probably have killed Invenergy. Unfortunately, Invenergy recognized this fact as well as we did, which led Invenergy to withdraw its lawsuit. While this made Invenergy look “not yet ready for prime time,” it also makes a further stay unlikely. Nevertheless, on Friday morning, CLF and Burrillville filed a motion for new stay (after a Show Cause Hearing) based on the continued pendency of the second lawsuit at FERC. In that Motion, we were pretty bold in asserting the likely outcome of the still-pending FERC case: ISO would win; Invenergy would lose. (Our prediction did not take much legal acumen. The standard of the Federal Power Act (Section 205) that the ISO had filed the case under is very, very, very deferential to the ISO.) Also on Friday, the EFSB issued a schedule for the Final Hearing for dates running from April through August. And, on Friday evening, FERC issued its ruling in the second case (and, yes, the ISO won, just as we said it would). (This is the technical, legal citation for FERC’s ruling: ISO New England, Inc. 162 FERC ¶ 61,058, Jan. 26, 2018.) Specifically, here is what FERC ruled:

• Invenergy lost its request to self-build the interconnection. [FERC Order, p. 16, ¶ 38.] Remember that Invenergy had said it could build the interconnection faster than National Grid could. But FERC ruled that Grid would build the interconnection. This means that it is now impossible for Invenergy to be operational on June 1, 2021, as it promised the EFSB. (This will hurt Invenergy if the case goes to a Final Hearing.)
• Invenergy also said it could build the interconnection less expensively than Grid could do, so there is now added expense for Invenergy. (Remember, these are the expenses that Invenergy had tried, but failed, to shift to ratepayers.)
• Invenergy lost its argument that it did not want to post the bond at the same time that it issues the Notice To Proceed (NTP) to National Grid (that is, proceed with designing and building the interconnection). [FERC Order, p. 10, ¶ 24.] Invenergy will have to post the bond when it issues the NTP, just as the ISO Tariff requires, just like every other generator in New England.
• FERC reminded everyone that Invenergy and National Grid are free to renegotiate the timing for signing the Large Generator Interconnection Agreement (LGIA) and posting the bond. [FERC Order, p. 10, ¶ 25.] (Invenergy and National Grid have already done this, because, under the original schedule, Invenergy should have signed the LGIA (and posted the bond) long ago.

So what will happen next? In light of FERC’s ruling late on Friday, Invenergy is now at a crossroads. Specifically, Invenergy has to decide between four options going forward: Option One: Invenergy could choose to appeal the FERC decision to the Circuit Court of Appeals for the District of Columbia. This is probably the least likely option of all, for several reasons. First, Invenergy’s chance of prevailing in the Circuit Court would be approximately zero. Second, the fact that FERC has now ruled in the case effectively moots CLF’s newly filed Motion for a Stay (filed just this past Friday). We asked the EFSB for a stay pending the outcome of this FERC case. Now we have the outcome. Right now, time is of the essence to Invenergy; the worst thing that could happen to Invenergy now is that the EFSB issues a stay. FERC’s ruling took away CLF’s argument in favor of a stay, but Invenergy appealing to the D.C. Circuit would give CLF that argument back. Invenergy is unlikely to do that. Option Two: Invenergy could immediately issue the NTP and post the required bond of tens of millions of dollars. This is highly unlikely. Invenergy has said that no reasonable developer would post such a huge bond in advance of securing all major permits. Because I do not trust what Invenergy says, I have verified independently the fact that this is true. If Invenergy took this course, it would certainly strengthen Invenergy’s case at the upcoming Final Hearing, but this is highly improbable. Option Three: Invenergy could walk away from the project. When Invenergy filed its permit application at the EFSB on October 29, 2015, Invenergy fully expected to have its permit by March 2016 – with little or no opposition from Burrillville or the public. Things have not exactly worked out that way for Invenergy. If Invenergy does, at some point, decide to abandon its proposal, that decision will be driven by financial concerns. There are now several reasons why the finances for the project are less attractive for Invenergy than it had planned.

• Invenergy conceived this project when Forward Capacity Auction (FCA) clearing prices (in FCA-8) were over $17/kW-month in this zone, and Invenergy hoped and planned to clear both of its turbines at that very high price. But by the time Invenergy participated in FCA-10, Invenergy was only able to clear one turbine and the auction clearing price had crashed to $7.03/kW-month (with no zonal price separation).
• Invenergy’s second turbine failed to clear again in FCA-11, and then was disqualified from even participating in FCA-12 (to be held on February 5, 2018). It is possible that the factors that led the ISO to disqualify Invenergy’s Turbine Two from FC-12 will also get the turbine disqualified for FC-13.
• There is little profit margin on the energy side of the market, and power plant developers rely heavily on capacity payments to turn a profit. The ISO provides a seven-year price lock for developers that clear in an FCA – but Invenergy has already lost three of those seven years.
• By withdrawing one of the two lawsuits at FERC last week, Invenergy is going to have to pay hundreds of millions of dollars in interconnection costs that it was not counting on paying.
• And with the FERC ruling on Friday, Invenergy lost its option to self-build the interconnection. Invenergy said that it could build the interconnection much faster and much less expensively than National Grid could. But now Invenergy is forced to pay the much higher costs of having Grid build the interconnection (and take longer into the bargain). Invenergy won’t be up and running in 2021, and it will lose a fourth year of the seven-year FCA price lock-in.

The combination of the foregoing suggests that Invenergy was probably reconsidering its commitment to this power plant over the last few days and weeks. Nevertheless, Invenergy probably is not yet ready to pull the plug and walk away. Invenergy is probably closer to walking away than it was a year (or even six months) ago; but Invenergy is probably not quite there yet. That leaves one more possible route forward for Invenergy, and it is this route that is the most likely. Option Four: As noted above, FERC invited the parties (mainly Invenergy and National Grid, but also the ISO) to negotiate a new schedule for when Invenergy issues the NTP and posts its bond. If Invenergy wants to go ahead with the Burrillville power plant, but does not want to issue the NTP and post the bond immediately, it can work out an entirely new schedule for doing so – a schedule that pushes the time table for the plant even further into the future. Such a course would be good for Invenergy because it would provide a clear path forward for Invenergy to go to a Final Hearing, get an EFSB permit, and maybe even eventually build the plant. However, time is not on Invenergy’s side; and in the eight months or so between now and the end of a Final Hearing, most of what is likely to happen is likely to hurt Invenergy:

• If Invenergy doesn’t issue the NTP for eight to ten months, it won’t be on line until 2022 at the earliest. Invenergy will lose another year of its seven-year FCA price lock-in.
• If Invenergy isn’t up and running until 2022, it strengthens CLF’s argument that Invenergy wasn’t needed all along. Invenergy insisted that its electricity was urgently needed by the grid in 2019, but it is now obvious to everyone that Invenergy is not needed at all. This will hurt Invenergy at a Final Hearing.
• Moreover, lots more renewable energy is coming into the system every year, thereby lessening even further the need for Invenergy.
• In fact, it is entirely conceivable that the ISO will involuntarily terminate the Capacity Supply Obligation (CSO) that Invenergy acquired in FCA-10 as soon as it (the ISO) is able to do so under the Tariff, this summer (which would be before the end of the Final Hearing).

This fourth option -- Invenergy negotiating a new schedule for building out the interconnection – is the most likely course of events in the wake of Friday’s FERC ruling. This route is also Invenergy’s best way forward, because it keeps the project alive for another year. (And, of course, it forces Burrillville and CLF to continue to litigate against Invenergy.) But the passage of time also hurts Invenergy. If the ISO does involuntarily terminate Invenergy’s CSO, that single action would almost certainly be the end of Invenergy. It would be the end of Invenergy politically, because Invenergy’s only argument (flawed argument, but still an argument) in favor of the plant would be gone. It would also be the end of Invenergy economically, because that price lock-in from the auction is crucial to any developer turning a profit. Nevertheless, for now, the bottom line is that opponents of Invenergy still have a fight ahead.