Owner of Biomass Plant Asks PSC to Displace National Grid and Declare Its Distributed Generation Sales to Fort Drum Would be Deregulated

A very interesting petition for declaratory relief was just filed today with the New York PSC, involving “behind the meter” distributed generation sales from a 60 MW biomass plant owned by REEnergy at the military base of Fort Drum in upstate New York.  The power plant is a refurbished coal plant that now uses biomass energy as fuel to produce electricity.  The plant  has a total generating capacity of 60 megawatts, and converts forest residues left over after trees are harvested into steam that runs a turbine to make electricity.

Under a plan whose details are not known, through an unnamed ESCO intermediary, electricity from the ReEnergy plant would be used for all of Fort Drum’s requirements, and ReEnergy would sell the surplus under contract to National Grid, or, if NYISO rules eventually permit, into the NYISO spot markets.  Currently, ReEnergy sells its output into the wholesale markets, and does not provide or stream them to any particular customers.  A news article indicates that the plant “could receive from $5.6 million to $8.23 million in its first year, with the price compounded annually at 4.88 percent for future years.”  The Army RFP   sought bids for “Firm-fixed price per kWh; first year contract price can not exceed $0.056 /kWh; up to a 4.88 percent escalation rate compounded annually considered. Government will retain Renewable Energy Certificates; swaps are allowed.”  There were several changes in the specifications.  In any event, it appears the Army may have engineered an escape route from the unpredictable, spiking prices of the NYISO, whose short term spot markets  have dominated the pricing of wholesale electricity in the state since 2000.

ReEnergy seeks a declaration of the PSC that

“As an alternate energy production facility, ReEnergy is not an electric corporation under the Public Service Law and its sales of electric generation from the Facility to Fort Drum, to the markets administered by NYISO and/or to National Grid are exempt from Commission regulation.”

ReEnergy would still be a standby customer of National Grid, which would have the duty to meet all of Fort Drum’s demand for electricity if needed, for example, if the ReEnergy plant shuts down for any reason.  It would appear that the sale of energy from Re Energy to the ESCO would be a wholesale sale, possibly under FERC jurisdiction, if it is deemed to be in interstate commerce.  The ESCO in turn would make a retail sale to Fort Drum.  The Public Service Commission  exercises only limited aspects of its jurisdiction over ESCOs.

The petition does not disclose the rates, terms and conditions of the deal.  It appears from the petition the only customer is Fort Drum, and ReEnergy would displace National Grid as its provider — except if for any reason  it defaults.   In that event, National Grid would  provide service to ReEnergy (and not directly to Fort Drum, which would no longer be a customer).

The petition asserts that this renewable distributed generation provider is not an electric corporation under the public service law and will be completely unregulated. If so, it may argue, for example, at the end of the contract, that it has no statutory duty to serve at just and reasonable rates, there is no duty to file rates with the PSC, and no PSC review of rate increases or complaints or terms and conditions of service.

It is not clear if this strategy will allow Fort Drum to avoid paying a fair share of National Grid fixed system costs and the costs for maintaining the readiness to serve if the DG provider defaults.  According to an Army Press Release, “Fort Drum will remain connected to the electrical grid, which will serve as a reliable and trusted source of power.”  However, since Fort Drum  will not be using power transmitted by National Grid it probably will not contribute as much as before to the fixed costs of the utility needed to assure availability of service if the biomass plant shuts down.  In the past, Niagara Mohawk insisted upon exit fees for such situations, where a customer left its system to be served by a dedicated generation plant.  However, since then, the PSC has given the utilities “Revenue Decoupling Mechanisms” (RDM) to automatically adjust their revenues so that National Grid is held harmless by the reduced usage and lower revenue from a customer who it still has a duty to serve if requested.

The PSC has commenced a major new case, the REV proceeding, in which it appears to be paving the way for  “behind the meter” involvement of distributed generation (DG) companies, perhaps like the one proposed for Fort Drum, that could supplant the traditional relationship between customers and utilities.

Gerald A. Norlander
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