The Emperor Has No Clothes

Initial briefs have been filed in the Missouri Public Service Commission proceeding regarding the amendment of Grain Belt's Certificate of Convenience and Necessity.  I know some of us had a hard time staying awake for all 40 hours of the hearing, but imagine if it was your job to sum it all up as concisely and convincingly as possible, and get it all written in less than 30 days.  Brief writing isn't for the faint of heart.  In addition to exceptional writing skills, the lawyer has to frame it all within the parameters of precedent (the Tartan factors.)  I've read a lot of briefs over the past 15 years, and actually had to write a generous handful.  It's painstaking, tedious work that shuts out the rest of the world while you're doing it.

So, who did the best job briefing the GBE case?  Hands down the best brief was written by the Missouri Landowners Alliance attorney, Paul Agathen.  Legal briefs, by their very nature, can be very dry, boring and sleep inducing.  The rare brief that adds a little personality and common humanity is a gem.  Especially when it is extremely persuasive and opens new trains of thought.

One such nugget I gleaned from the MLA brief is that perhaps GBE is trying just a bit too hard.  Since GBE's application is for an amendment to its existing CCN, the only thing it needed to prove was that the amendments were needed and in the public interest.  GBE did not need to re-prove the general need for the project or its benefits.  But that's exactly what GBE did (and continues to do on brief), creating a blizzard of words designed to obscure the fact that there IS NO NEED for the amendments.  The most GBE could say is that Missouri would receive benefits "sooner" than it otherwise would by about 18 months.  That just doesn't add up against the huge expense of this proceeding to the PSC, Invenergy and all the other parties to the case.  They probably spent more than any supposed early "benefits."  A thinking person might suspect that there's an ulterior motive behind all this, and the possibilities are endless.  I won't detail them all here... that's another blog.  Just remember... if it doesn't ring true, it simply isn't.  Let's hope the PSC thinks long and hard on this simple fact.

Here's a few delicious snippets from the MLA brief that everyone can understand:

Grain Belt is also in the process of shifting some of the risk of the project to taxpayers, through its application to the DOE for a loan guarantee for a substantial portion of the construction costs.  And by shifting a portion of the risk of the project to taxpayers, Grain Belt will no longer be bearing all of its risks – raising the question of whether it is still are a merchant project.

Ya know, perhaps Brad Pnazek was right when he "misspoke" at the DOE webinar... Grain Belt Express is not a merchant transmission project.  It's all snuggled up to the government teat and is preparing to feast.  Will the DOE require that GBE have signed contracts representing an adequate revenue stream before signing the loan guarantee?  Or will the DOE obligate taxpayers to pay for GBE without adequate consideration of whether or not GBE can repay?  While GBE tells the MO PSC that it cannot get financing without enough firm revenue to support the loan, is that really true if it gets a loan guarantee from the DOE?  What if DOE loans them the money without any firm revenue?  Then it doesn't matter what the MO PSC CCN requires, GBE could build its project without any contracts at all and then walk away on a half-finished project if actual contracts don't materialize by the time they run out of borrowed money.  Don't make me say "I told you so."

Under the terms of the FERC order which initially granted Grain Belt the authority to negotiate rates with its customers, Grain Belt is required to solicit potential buyers of capacity through what is called an “open solicitation” process.  Grain Belt began the customer solicitation process in January of 2015 – more than 8 and a half years ago.  Yet despite its concerted efforts to do so, since that time Grain Belt has failed to sell a single MW of capacity at market rates.

Yes... GBE's negotiated rate authority from FERC requires the company to hold an open season for all available capacity and to negotiate fairly with all interested customers.  Once an open season closes, the company is stuck negotiating with the parties who expressed interest.  It may not expand its pool of potential customers without opening a new open season.  Is GBE still negotiating with the original interested parties from 2015?  I doubt it.  Also, when capacity expands, the company is required to re-notice the open season for the additional capacity.  Did GBE do this?  I doubt it.  Finally, the PSC should take note that GBE's negotiated rate authority does not allow the company to sell "undivided interests" in the project instead of capacity. 

And on the subject of GBE's potential customers, there's this nugget that demonstrates GBE's puffery about having customers.

Grain Belt’s lack of success is certainly not due to a lack of trying. After the close of the previous CCN case, Grain Belt has been actively seeking, although unsuccessfully, to sell capacity on its line at a sustainable rate.

At one point Grain Belt had signed Memorandums of Understanding (MOUs) with three entities for the sale of capacity on the Project.  But the period for further good faith negotiations regarding each of those MOUs has now expired.  Therefore, those parties have no obligation to buy anything from Grain Belt or to even engage in future negotiations with Grain Belt.  In addition, Grain Belt signed a Letter of Intent with another party regarding the sale of an interest in the Project, but the commercial terms of that proposal had not even been disclosed by Grain Belt to the counter-party at the time the testimony was filed in this case.  Thus at this point, the Letter of Intent is at best nothing more than a non-binding MOU.  Also, last year Grain Belt submitted proposals to four utilities for the sale of varying interests in the Project.  Apparently, none of those utilities has accepted or even formally responded to Grain Belt’s proposed sales.

Well, there you have it.  Grain Belt seems to have a scary lack of success finding any customers.  Could it be that the bloated, costly GBE project is not attractive to customers at market rates?  It certainly appears so to me.  Pretending that GBE has no market rate customers only because it does not have all its permits just doesn't hold up under logical scrutiny.

In summary, despite its on-going efforts to do so, Grain Belt has failed for nine years now to sell even a single MW of capacity at a sustainable rate. Yet they continue to hope that if they build the Project, the customers will come.  Given Grain Belt’s track record over these past nine years, it is time to recognize that the emperor has no clothes.

That's right... naked as a jay bird.

Invenergy recently filed a formal complaint with the FERC against MISO regarding the way MISO treats the Grain Belt Project in MISO’s long-term transmission planning process.

Briefly, Invenergy’s complaint is that MISO does not include the Grain Belt project in MISO’s “base case” in its yearly evaluation of what additional transmission projects MISO should add.

Invenergy no doubt knows exactly what it was doing in filing the complaint case against MISO. If it is successful, its efforts in that proceeding could prevent MISO from pursuing alternative transmission service that could duplicate Grain Belt’s Project. If Grain Belt is attempting to eliminate competition from the MISO projects, it is fair to ask how confident Grain Belt could be in its own financial viability.

Bingo!  Eliminating competition is the only logical reason for Invenergy to have filed that complaint at FERC asking that MISO toss out its transmission plan approved last year and add GBE so that competing projects bringing wind from Iowa to Missouri won't be built.  Afraid of a little healthy competition, are we?  Is that any way for a market-based merchant transmission line to behave?  Sounds suspiciously like an attempt at market manipulation.

Grain Belt contends that its investors bear the risk of the Project.  However, as Staff has observed, “Invenergy has repeatedly petitioned FERC to require RTOs to pay for the presumed benefits of this and other merchant HVDC projects, which could result in Missouri ratepayers paying for the project regardless of use by Missouri Utilities.”

Right.  Finding another source of income because GBE just can't cut it as a merchant?  When the naked emperor is exposed, who is going to be left picking up the pieces on this Franken-project?  Ratepayers?  Taxpayers?  Landowners?  Remember how Solyndra spent $500M of taxpayers' money building their wonder factory, but in the end walked away without a scratch?  GBE is Solyndra 2.0.

On the issue of financial viability, Grain Belt has apparently recognized a need for additional revenue sources in order to bolster the viability of its Project.  Until now, GrainBelt’s revenue was to be derived solely from the sale of capacity on the line.  Now, as another means to raise revenue, Grain Belt is also offering to sell or lease an undivided interest in the ownership of the line itself.

Ms. Shine stated that the undivided interests would be a sale for the exclusive use of the line by the purchaser.  However, exclusive use is not a public use. While the issue is not ripe for a decision in this case, if Grain Belt sells undivided interests for all or a significant portion of the Project, the MLA contends Grain Belt would no longer be a “public utility” or serve a “public use.”

This is perhaps one of the biggest issues -- if GBE does not offer its service for public use, is it still a public utility with eminent domain authority?  What if GBE sold an "undivided interest" for 99% of the project's capacity to another Invenergy affiliate that owned generation at the Kansas end of the line?  Perhaps the nation's largest wind farm planned by Invenergy CEO Michael Polsky?  If Invenergy applied to the MO PSC to build a generation tie line for its own exclusive use across Missouri, would the PSC grant them public utility status?  The answer is, most likely, no.  So why should the PSC allow this exact thing to happen via a back door?  The PSC should consider ALL the new evidence submitted, even if GBE doesn't want them to look.  I think GBE is no longer a merchant transmission project, nor a public utility.

Coming up next... reply briefs.  I think we can expect more of the same.