Ecotality files suit against California PUC

by Ernie Hernandez on May 30, 2012

Seeks halt to statewide infrastructure plan

ECOtality, the company behind the slow moving EV Project, has filed suit against the California Public Utilities Commission (PUC) to halt the implementation of the recently agreed upon development of a statewide infrastructure plan for the state of California. Even though ECOtality isn’t really making much headway on their initially proposed plans, they don’t want anyone else encroaching on “their” territory. But let’s take a closer look at this new agreement with Dynegy/NRG, which we were excited to write about only two short months ago.

At the time, try as we might, we could not find any direct source material from the state of California on the project. We found press releases, but could not find the settlement itself. With the announcement of this lawsuit, we went digging again and this time found the text of the settlement online. 60 pages of excrutiating reading (plus appendices). But we also found another press release dated April 27 from the PUC that shed some additional light on the settlement. According to the April 27 press release, the current settlement of $102,500,000 with Dynegy/NRG for the creation of electric vehicle (EV) infrastructure, is in addition to an agreement reached in 2004 to pay over $280 million in cash to offset the bills of customers in California. So in total, about $400 million is to be recovered in settling the overcharging scheme of 2000-2001. Not close to the full amount of over $900 million, but significantly better than pennies on the dollar.

But with ECOtality raising a ruckus, and with our discovery of the settlement, we thought that we would take a closer look at the infrastructure settlement after our first reaction. Having just finished reading Dylan Ratigan’s book Greedy Bastards, our first inclination on reading the settlement was to follow the money. In this case, it is pretty easy to do. (All page references indicated below refer to the online Joint Offer of Settlement pdf document.)

DC Fast Charger installations

The settlement with NRG calls for the installation of at least 200 “Freedom Stations” with 110 in the Los Angeles Basin, 55 in the San Francisco Bay Area, 20 in San Diego County and 15 in the San Joaquin Valley (Page 13). A Freedom Station consists of one DC Fast Charge station and one Level 2 station or one combination CHAdeMO/new SAE standard charge station, when available. The amount allocated for the installation of these stations is $50,500,000, with an implementation period covering four years plus a one year extension if needed. This agreement allows a gross cost of $252,500 per Freedom Station including equipment and installation costs. NRG is obligated to own and operate these stations for five years from the date of settlement with the intention that NRG will continue to operate them beyond the five year point but is not obligated to (Page 15).

Open public access is required (without subscription) during the five year Fixed Operating Cost Period, though they will also be available to NRG subscribers during this period (Page 21). By settlement agreement, NRG will charge $7-$15 dollars during On-Peak hours or $7-$10 during Off-Peak hours (Pages 21-22) for any single use.  After the first 30 months of operation, NRG shall retain the right to a one-time fee escalation based on the change in aggregate energy prices of Pacific Gas and Electric (PG&E), Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) since the settlement effective date. If the Fixed Operating Cost Period is extended due to an extended installation period, this open public access period is extended by the same amount of time.

This portion of the settlement tells us that the concerns of many that a subscription will be required or that high fees must be paid is not necessarily the case. For at least five years, the public will have access to these DC fast charge stations and these stations will offer both CHAdeMO and SAE standards (when and if determined). Also, with historical reference, we know that national electricity rates have risen steadily though slowly with seasonal changes being the primary fluctuation over the past three years, so it is unlikely that significant access usage fee increases will take place.

As importantly, also what this tells us is that in five years time as other competitors including perhaps ECOtality enter or improve their presence in the public EVSE space, these competitive pressures will serve to maintain a competitive environment for NRG and other potential EVSE providers. While NRG is mandated to offer these units to the public for five years, they may find it to be in their interest to maintain the same model beyond the settlement time frame to remain competitive in the marketplace.

Installation of Make Ready Stubs

In addition to the DC fast charge installations, NRG is required to make at least 10,000 electric vehicle supply equipment (EVSE) installations ready (Make Ready Stubs) in multi-family housing developments such as Condominiums, Apartments, etc (35%), work places (15%) and public interest sites (10%). The remaining 40% will be installed at NRG’s discretion at any of the determined site types (Page 23). These make ready stubs will be distributed among the territories of PG&E, SCE and SDG&E. These make ready stubs account for $40 million of the value of the settlement, which allows for $4,000 per make ready stub installation. These make ready stubs are not intended to be used by the general public (Page 22), which gives NRG an incentive to place the final 40% in public interest sites and make the total 50% public interest site installations only available to NRG subscribers. Stub arrays will consist of no more than 10 make ready stubs, with no more than 4 stub arrays at any one site, based on settlement parameters.

Installation of the stubs will occur over a four year period, with 1,000 stubs installed in year one, and 3,000 stubs installed over each of the three remaining years of the installation period. Based on certain parameters, if NRG fails to install 80 percent of the stubs in four years, two one year extensions may be provided (Pages 43-45).

Ownership of the stubs is vested in the property owner, with NRG retaining the exclusive right to install EVSEs at stub arrays for 18 months from the completion of the first stub of the array. NRG may not install EVSEs without having a subscriber for the EVSE, except that one EVSE may be installed prior to receiving any subscribers.

Now this is where we don’t know that we totally understand the language, so we have provided the settlement language directly (Page 26):

Such EVSEs shall not be made available by NRG for use by the general public or by non-subscriber occupants or users of the Make-Ready Site; provided, however, the owner of the Make-Readies Site, at its discretion, may use or permit the use of such EVSEs, and NRG shall not charge for such use; provided, further, that NRG will remove any such EVSE and accompanying signage at the conclusion of the Start-Up Period at such Make-Readies Array.

Our understanding of this clause is that prior to signing any subscribers, NRG may install one EVSE but not charge for its use until the first subscriber is signed. Once that first subscriber is signed, this first EVSE is no longer available to the owner. Further, if no subscribers are signed at the site, NRG must then remove the EVSE. In our eyes, this sounds like a dis-incentive to install that first EVSE. Granted, there is some PR value but we don’t see NRG installing hundreds of EVSEs, and then maintaining and operating them at no cost. While they may do this in certain locations, we don’t see this as being the norm.

The start up period runs for 18 months. During this time, NRG can not offer a subscription term of more than one year, nor can the subscription run beyond the end of the start up period. If a subscriber chooses not to renew, NRG must remove their EVSE and make the stub available for use by any EVSE provider (which we presume to include the previous subscriber himself). We take this to mean that the stub must be a standard 220 volt outlet usable by any EVSE.

If our understanding is correct and a non-renewing subscriber chooses to use his own EVSE, then the stub owner will negotiate a value of providing the stub to the user. This could simply be a clause added to a standard rental agreement – “If your unit is supplied with an EVSE stub which you use, you will be charge $XX per month in addition to your basic rent”. If the owner is a public interest site, they could provide their own EVSE and make it available to their users at whatever cost (or no cost) that they deem appropriate.

Demonstration and EV Opportunity Programs

The settlement also calls for the implementation of Demonstration and EV Opportunity Programs (Pages 30-33). These programs call for an additional $9 million combined to promote EV usage via technology demonstrations, EV car sharing programs and/or EV job training programs. These technology demonstrations could include the installation of additional DC fast charge stations that would include three DC fast chargers. These programs are also to run during the five year Fixed Operating Cost Period.

Follow the money

If any cost savings are realized by NRG during the installation of the DC fast charge stations or the make ready stubs, the number of each shall be increased to meet the settlement value agreement (Pages 14 and 25). An unlikely scenario in our view.

Of greater concern to us is the following: NRG is responsible for paying $50,000 per incomplete Freedom Station (Page 42), or $1,000 per incomplete EVSE stub (Page 46) per the cash out formula stipulated for the end of the installation period. As NRG is allowed $252,000 and $4,000 respectively for installation, at some point, the finances will move to favor incompletion of the settlement agreement. Which could mean that upon reaching the tipping point, NRG decides to abandon the remainder of the installation agreement, as it will be less expensive to just pay the amount determined in the cash out formula. This could mean that something less than the projected minimum installation of DC fast charge stations and EVSE stub arrays occurs.

So what does it all mean?

What all of this means is that the development of the EV infrastructure in California will be a long and involved process involving lawsuits and counter lawsuits, which will add no value, and only possibly delay the implementation of any infrastructure development at all. The NRG settlement is certainly not perfect, but it goes a long way toward forcing the initial development of EV infrastructure. Ultimately will NRG benefit? That truly depends on how they handle the initial five year implementation period. With no guarantee of DC fast charge operation beyond five years for NRG, and the freedom of all stub array owners to choose their own EVSE provider beyond the initial contract period, it appears to us as if the settlement was constructed in such a way as to provide consumers with the basis to have an EVSE infrastructure without committing the consumer to a single provider. ECOtality’s charges of the PUC creating a monopoly ring hollow with us. It will take time to complete the installations provided for in the settlement. Once these installations are completed, there is no permanent ongoing benefit provided to NRG unless agreed to by early subscribers. We stand by our original assessment that this settlement should prove to be a net positive for the consumers of California.

{ 5 comments… read them below or add one }

Chris May 30, 2012 at 3:10 pm

This deal is rotten. NRG steals $900 million from the people of California, and is “punished” by paying a $280 million settlement plus giving $100 million to itself – along with gaining a for-profit monopoly on EV charging in California. I think the scoundrels at EV Project are scam artists as well, but Dynergy/NRG are operating on a whole new level of deceit. $252,000 for a L3/L2 charger?! That’s only about $220,000 more than the MSRP for those devices – you’ve got to have some profit margin! They only have to operate these systems for 5 years? And during that time they get to charge up to $15 per use? Who the hell does CPUC have negotiating for their side, Mr. Magoo?
Instead of jail-time, these scoundrels get handed a new revenue stream – with all the competition conveniently legislated out of existence? Outrageous!

Reply

Ernie Hernandez (LEAFguy) May 30, 2012 at 6:43 pm

Chris, if you look at most class action lawsuits, quite often the resolution is for the provider to give “percent off” rebates for future additional purchases. Many of these rebates are never used so the defendant pays legal fees, the lawyers make money and the defendant moves on with little or no real penalty. In this instance, NRG is providing benefit to California EV drivers with installed infrastructure that does not currently exist. Without this settlement, it is difficult to say how long it might take to install an infrastructure base of this size. NRG will retain ownership of the DC fast charge stations but NRG is not “giving $100 million to itself”. NRG does not make DC fast charge stations, so these must be purchased (currently from Aerovironment, a California company), and they will be employing contractors to install these systems, providing needed jobs to California contractors. The $252,000 amount applies to the minimum requirement of 200 fast charge installations. If it does not cost this much per station, and we really don’t think it will, they are obligated to continue installing stations to spend the entire amount. Included in the settlement agreement are audit parameters that we did not refer to, but are included to ensure compliance with established contract performance and financial parameters. With almost no currently existing DC fast charge network in place, we think that a range of $7 to $15 per one time use is not unreasonable. With 350Green charging $7 for a one time use, we feel that NRG will likely not charge much more than that once 350Green starts installing a DC fast charge network in California.

In addition, they are not giving NRG a monopoly. Nowhere does it state in the agreement that competition will be limited for this market. There are already companies working on business plans to develop their own DC fast charge networks, in addition to the malfunctioning EV Project that already exists.

Also, I disagree with your statement that this settlement agreement decrees “all competition conveniently legislated out of existence”. Nowhere does it state that others cannot enter the EVSE business independently of this agreement, which we have already seen examples of, such as the DC fast charger installed in San Bernardino. We are also aware of other companies working on creating their own network of DC fast charge stations in Southern California and 350Green already has at least one operating DC fast charge station in Palo Alto.

Reply

Chris May 30, 2012 at 3:20 pm

“We stand by our original assessment that this settlement should prove to be a net positive for the consumers of California.”
Sorry Ernie, but as a energy consumer and EV driver in California, I couldn’t disagree with you more. NRG has been given $100 million to spend creating a new business for themselves. Wait, you say, they aren’t being “given” the money, they are the ones “giving” it! Not really. NRG was going to have to spend that money on a check to the taxpayers of California as a cash settlement – now they get to spend it on an investment in a for-profit side business. They took what should have been a $700 million dollar loss, and turned it into $100 million in new business development – I’d say NRG made out like bandits.
The people of California did not fare so well. We get to spend $620 million ($900M minus the $280M they paid back), and what we get in return is the opportunity to pay NRG $15 per charge at their new “Freedom Stations”.
If this is the way EV charging infrastructure is going to grow – I’d prefer to just buy a bigger battery and skip it all together. I can probably get a lot of miles out of a $620 million battery.

Reply

Ernie Hernandez (LEAFguy) May 30, 2012 at 6:54 pm

I don’t expect everyone to agree with my assessment. Many (perhaps most?) will not. As I stated previously, most class action lawsuits provide little or no benefit, other than to the lawyers. At least in this instance, the State of California (and EV drivers that end up using these stations) will benefit by the installation of these stations. If NRG chooses to charge $15 and 350Green (or other providers) installs stations, such as they already have in Chicago, and charge $7 per use do you really think anyone will use the NRG equipment? It is only a revenue generating business for NRG if drivers choose to use the equipment. I have never seen a settlement agreement make anyone whole. Chrysler? GM? Any of the banks? It is unrealistic to think that this situation would be any different.

Reply

Tom K June 1, 2012 at 9:09 am

So….where’s the chargers? Just joking….

Reply

Leave a Comment

Previous post:

Next post: