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How Clean Currents’ demise is going to cost you

February 5, 2014
By

ferc_sealClean Currents, a green electricity supplier to customers in Maryland, Pennsylvania and Washington, D.C. shut down abruptly on Friday, January 31, leaving a message on its web site:

“With deep regret, we have to announce that the recent extreme weather, which sent the wholesale electricity market into unchartered [sic] territories, has fatally compromised our ability to continue to serve customers. We are extremely saddened to share this news with you.”

Company officials did not return City Paper’s messages, but told a Washington Post reporter they had been trying to save the company, which had 19 employees, in recent weeks but could not get new investors.

Terri Czarski, Deputy People’s Counsel (which is the public advocate at the Maryland Public Service Commission) says Clean Currents just got squeezed by higher wholesale electricity prices, saying, “If you’re working on very thin margins and don’t have a granddaddy who can back you up in a pinch…”.

The change will not adversely affect Clean Currents’ 18,000 or so former customers. They will be automatically returned to their “standard offer” provider—BGE, PEPCO or whoever–and will probably save a couple of bucks next month while they shop for a new green supplier.

But that savings will not last, and if past experience holds, the costs will very likely be paid by all of us when BGE and other suppliers raise their retail rates to cover the cost of the January price spikes, which were prompted at least in part by the breakdown of a natural gas pumping station outside of Pittsburgh.

Since electric power deregulation began in the 1990s, public officials and power company executives alike have promised that retail competition would bring power prices down, while niche marketers like Clean Currents could sell renewable energy—primarily from wind and solar power—to customers willing to pay a bit more. Federal and state subsidies have also sweetened the deal to make so-called “green energy” competitive with more polluting or dangerous sources such as coal and nuclear power.

The reality has been different, however, with promised savings repeatedly—almost predictably—disappearing into unforeseen contingencies. Seven years ago Governor Martin O’Malley inked a deal with BGE/Constellation to allow that company—which serves the vast majority of retail customers in Baltimore and surrounding counties—to recoup $600 million it says it had to unexpectedly pay for fuel during a power auction the year before. Retail electric bills would have increased by 70 percent but, because of some financial razzle-dazzle (i.e., long-term borrowing) the price spike was reduced to only 15 percent, but the increase was made all but permanent and the full price with interest paid by BGE customers increased to about $800 million.

BGE customers can see this on their bills. It is labeled “RSP Chg/Misc Cr” and will amount to a little more than 10 percent of the “distribution charge.” So you pay it whether you use BGE’s electricity or not. That way, BGE’s electric supply business can remain competitive with other suppliers.

Those other competitors have brought all the usual joys and glories of deregulation.  The Office of Peoples’ Counsel warns consumers about the explosion of shady, fly-by-night power marketers and resellers who have flooded into the deregulated space. But Clean Currents was considered by most to be one of the good ones, offering long-term retail contracts and fairly competitive rates.

The problem was that by giving its customers long-term contracts, Clean Currents left itself exposed when prices spiked on the wholesale market.

Clean Currents does not generate any electricity. (The company marketed itself as selling wind power, but actually it sold power generated with coal and gas and nuclear—and bought offsets from the wind farms and other green energy producers).

So Clean Currents buys—or anyway, it bought–power from various sellers on the PJM, a regional clearinghouse where power companies, big and small, sell and purchase their kilowatts. Some contracts are long-term, but every day, some power is sold that will be used the next day. This is called the spot market, and the rules there make every power generator offer its power at whatever price it thinks it can get. Buyers bid what they will pay, and the price for the last power bought—that is, the highest acceptable price to the final bidder—becomes the “clearing price” for which all the electricity sold for that day will be paid.

Until January 24, that price was capped at a maximum of $1000 per kilowatt hour.

On January 24, the Federal Energy Regulatory Commission (FERC) removed that cap. “It’s the best of all worlds if you’re a generator,” says Tyson Slocum, director of Public Citizen’s energy program and a long-time watcher of deregulated power markets. “It’s the worst of all worlds if you’re a household or small power marketer.”

The FERC is the last arbiter of power pricing in the U.S.A. Its public purpose is to make sure prices on the wholesale power market are “just and reasonable.” PJM asked the FERC to lift the cap on January 23, beseeching the regulator to fast-track the action by February 10. FERC did even better, issuing its ruling on January 24. Slocum says this happened because the PJM is beholden to its biggest power company members, and the FERC is beholden to the same players—to the detriment of smaller companies and retail consumers.

“State PSCs came in and said ‘FERC, are you mad?’” Slocum says. “But they’re powerless. They have to go to FERC on their hands and knees the way [governor] Gray Davis did in the Enron scandal.”

PJM made its request because another FERC-regulated commodity, natural gas, had spiked to $135 per million British Thermal Units (BTUs) at the terminals that serve PJM power plants. Gas usually costs about $5 per million BTUs. PJM argued that with gas at $120, power plant owners could not produce electricity for less than about $1200 per kilowatt hour–an “untenable situation.”

The idea that wholesale producers require a profit for every single kilowatt they produce is relatively novel. But the FERC was persuaded.

Asked about the gas price spike, April Lee of the U.S. Energy Information Administration pointed to a single natural gas pumping station near Pittsburgh that failed on January 6. “It might have been cold related,” she says. “I’m not sure. That was that evening right before it got really cold. So a lot of gas that was scheduled to flow through that compression station had to be rescheduled.”

The cold weather was cold, so more gas was required. But most power plant operators nail-down long-term fuel contracts years before any Polar Vortex is forecast. The contracts presume the gas can be pipes to the plants in question, however. Texas Eastern Transmission, LP, a pipeline company that owns the compressor, declared a “force majeure” during the outage—meaning that all its forward contracts were canceled until the pump could be fixed.

The PJM gas spot market then went crazy as players scrambled to buy the remaining available gas. Lee says the pump station failure accounts only for an earlier January price spike to about $30 per million BTUs. But the order lasted until January 31.

As this was happening, two reactors at Calvert Cliffs went down on January 21 for unscheduled maintenance as well.

The phenomenon of essential equipment breaking or going off-line just as a weather emergency looms is not new in the world of wholesale electric power. More than decade ago key power plants in California and New England would mysteriously break down just as heatwaves or cold snaps threatened. Typically these plants would be situated at the mouths of transmission bottlenecks–spots on the power grid where it was difficult to get more electricity to flow. These bottlenecks were typically just outside major population centers, such as Fairfield County in Connecticut.

The rules in the power market at that time allowed for power plant owners to profit from the huge price spikes. If an owner had five or six plants in the region, it might be worth its while to have one “break” so that the others could reap the windfall. Power market rules were changed to guaranty capacity–and pay the companies a flat fee to supply stand-by power.

The games continued. In 2010 the Justice Department fined a power company called KeySpan $12 million for rigging the markets in New York. The scam netted $157 million, and FERC saw nothing amiss. In 2012 Constellation Energy paid $245 million after a FERC investigation of that company’s trading desk discovered a scheme to rig the day-ahead spot market prices.  Constellation did not admit wrongdoing and the fine paved the way for its merger with Exelon. Then last July FERC fined J.P. Morgan $285 million for a similar scheme involving “make whole” payments in California and midwest power markets. (PDF document) J.P. Morgan did not admit wrongdoing.

“Make whole” payments are what the FERC  just authorized for PJM’s players until March 1. And the beat goes on.

This morning the Maryland Public Service Commission issued a press release urging retail customers who signed so-called “variable rate” contracts to read their bills carefully:

 

Maryland PSC Advises Retail Energy Customers to Review

Contract Terms

Variable Rate Customers Could Experience Bill Increases

BALTIMORE—The Maryland Public Service Commission is alerting Maryland energy customers who have contracted with retail energy suppliers that the recent spate of extremely cold temperatures may affect their rates if they have contracted with retail energy suppliers through variable rate contracts. Therefore, the Commission urges all customers, particularly those with variable rate agreements, to review their contracts, as the continued frigid weather has increased both demand and the wholesale price of natural gas and electricity.

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  • Dan__Watson

    (The company marketed itself as selling wind power, but actually it sold power generated with coal and gas and nuclear—and bought offsets from the wind farms and other green energy producers.)

    That’s shady. Is there documentation of this? Saying I’m buying “power generated from wind” when I’m not is bogus advertising, although maybe not illegally bogus.

    Is there any entity in Baltimore that actually sells wind power?

  • Edward Ericson Jr

    It’s not really shady, Dan. It’s how this is done. Wind power is sold into the grid anyway, so everyone is using it. The offsets are kind of like markers that designate who gets to take credit for being green.

  • Not so dumb

    Clean Currents distributed flyers saying “Wind power for your home”. That was deceptive advertising, in my opinion, because it led people who did not understand what they were really getting to believe that if they enrolled with Clean Currents the electricity that used in their homes was generated by wind-powered generators.
    When you enrolled with Clean Currents you continued to receive electricity from the regional grid delivered to you by your electric utility – BGE, Pepco, et al – just like everybody else receives. You received the exact same electricity that was in the utility’s power lines coming down your block as your next door neighbor received.
    What Clean Currents did was purchase renewable energy credits (REC’s) sold by electricity generators who turned their mechanical generators with windmills or other non-polluting or renewable sources. You were not getting the electricity from those wind farms; the electricity delivered to you was your electric utility’s ordinary electricity. But Clean Currents convinced residents and other customers that what they were getting was something clean and special. In my view, it was deceptive marketing.
    I was always amazed at Clean Currents’ prices. In some cases they were charging prices for electricity + a matching amount of REC’s that were 20% – 25% above the competitive market price for electricity. If electricity supply cost 8 cents per kWh, Clean Currents was selling it with corresponding REC’s for 10 or 10.5 cents per kWh. But REC’s are very cheap. The fair market price for them is about 2/10 cent per kWh. Clean Currents seemed to be selling them for 2 or more cents each, which by my quick calculus suggests a markup of 1,000% or more on the cost of an REC.
    Clean Currents got a lot of politicians to buy into their story line and promote or actually require government agencies, school districts, municipal buildings, etc. to buy this bundled product of plain old electricity + REC’s. What a questionable use of taxpayer money! A reporter should do an investigative piece to see if Clean Currents or its executives made political contributions to local politicians and what those politicians did to require government agencies to buy this kind of bundled product that Clean Currents pushed on the public.