Sunday, November 29, 2009

Sub-post: Follow the money behind the RGGI

(This is a section from the super long post "The $10 Trillion Emissions Market," for easy reference on the Regional Greenhouse Gas Initiative. For a more complete picture on how the RGGI fits into the emissions market, check out the full post.)

The RGGI is the Regional Greenhouse Gas Initiative, and is run by RGGI, Inc, a Delaware non-profit 501(c)(3) formed in September 2007 to implement the scheme. The RGGI is currently the only mandatory emission trading scheme in the US to "reduce carbon emissions," with ten states signed on: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. The board of directors at RGGI includes two members for each of the ten states, and all the members are from various state energy/environmental agencies.

Climate Exchange PLC's CCFE had to launch a futures contract that on RGGI credits because they hadn't yet been distributed in August 2008 when the futures market started. The NYMEX launched the official exchange for the RGGI credits, the RGGI-COATS, or RGGI CO2 Allowance Trading System. The NYMEX also had created a futures/options exchange for the RGGI even before the auctions. The credits are auctioned off by RGGI Inc, and power plants in the 10 states must purchase them to satisfy their obligations for reduction, the first phase of which became mandatory on January 1 2009. The first auctions of the RGGI credits happened on September 25, with six states participating, and the results were $3.07 per "CO2 Allowance"---to the tune of $35,575,738.09. To date, three more auctions have occurred with all states in, for a total of more than a quarter billion dollars in sales of RGGI allowances, or to be exact $262,314,303.13--in nine months.

A quarter billion dollars in nine months? The RGGI Inc, by the way, promises to use "the proceeds of allowance auctions to support low-carbon-intensity solutions, including energy efficiency and clean renewable energy, such as solar and wind power" (or in other words, more centralized energy projects). You might be wondering if anyone can buy these credits, or if the market is restricted to those power plants, who, after all are, required to "offset their emissions" with the credits. Well, considering the NYMEX has an exchange for it, you guessed right if you guessed that, indeed, anyone can get in--click here to get "all of the information and forms you will need to apply to bid in the current RGGI auction"! Do you think some big players might have a hand in this mandatory market? Hmm...let's see, there's a mandatory market in which anyone with the money can buy the credits, and then there is a group of power plants who must purchase the credits from whoever's got them, and the power powers themselves can just pass the costs onto their customers...yeah, I think there might be some interest in that. Here's the Owner/Operator Report disclosed by RGGI, Inc to show the auction participants and allowance purchasers. Many the names you see in this participant report you'll also see on the CCX members lists. Open the PDF version, and just note that every account after page 25 is a "Compliance" account. The first 25 pages are of voluntary participants, many of which are actually energy trading firms from the very power companies that also have to buy the credits to comply. The energy companies are very much in favor of the whole cap-and-trade scheme because any expenses they incur will be passed onto the customer, and meanwhile they can aquire and trade these credits through thier trading arms, ala Enron. Remember, in the interview, Dr Sador said that 22% of the major power companies were participants in the CCX. The power companies have both "compliance" and "non-compliance" trading interests in the credits/allowance markets. I've taken a several from the Owner/Operators list to demonstrate the "non-compliance" interests in the RGGI auctions, and how they are betting and trading on allowances that driving up prices for the electricity customer in RGGI states:

Non-Profits and For-Profit "Environmental interests:"
Brooklyn Navy Yard Cogeneration (of Brooklyn Navy Yard Development Corporation, a City of New York owned an industrialpark in Brooklyn established as a non-profit development group)
Clean Air Conservancy (a non-profit environmental group that retires CO2 credits by putting them in their "Emission Bank")
MLCI (Maine Lakes Conservancy Institute, a non-profit environmental group)
Axiom Methods (Axiom Methods, self-described "carbon offset developer and facilitator)Climate Clean (a private LLC who recently partnered with EcoSecurites to create verified emissions reductions credits)
Sterling Planet (Sterling Planet, providing "carbon neutral solutions" for companies for a small fee..)
EnvironmentalXC (of Environmental XC, a Toronto-based "climate change consulting" firm)


Banks, Investment Firms, Brokers:
JPMorgan Ventures Energy Corporation (needs no explanation, Climate Exchange PLC shareholder)
Morgan Stanley Capital Group, Inc
Barclay Bank PLC (the massive UK bank)
BNP Paribas (the massive French bank and FRS Primary Dealer, shareholder in Climate Exchange PLC through Fortis)
"RGGI General Account" (this is listed to Lehman Brothers Commodity Services, interestingly)
J. Aron & Company (you'd never know it by the name, but this is the speculative commodity trading arm of Goldman Sachs, Climate Exchange PLC shareholder)
RBC (RBC Capital Markets, or Royal Bank of Canada Capital Markets)
Evolution Markets (Evolution Markets, "environmental brokerage solution" including "weather derivatives markets")
C-Quest Capital (of C-Quest, C-Quest Capital is their "carbon finance business")


Private Capital Groups, Hedge Funds:
Akeida 2008 (of Akeida Environmental Master Fund, an private investment fund run by NYC-based Akeida Capital)
UCF (of Universal Carbon Fund, a Phoenix-based hedge fund with a minimum $250,000 entry)Green Fund (of Green Fund Partners LLC, a Chicago based fund that is active in all OTC carbon markets)
Five Rings Capital (NYC based hedge fund)


Individuals:
Michael Flett (an individual, former successful NYSE broker who runs the Flett Exchange)
Silas Proft (an individual who apparently knows Michael Flett, because he's selling his RGGI credits on the Flett Exchange)

Miscellaneous:
RS Lynch (of RS Lynch & Company, a energy consultant firm)
Verso Paper (of Verso Paper, makers of paper products)
Element Markets (alternative clean energy consultants and owners of carbon credit portfolios)Energy TradersHess Carbon (of Hess Corporation, the oil refiner, oil explorer, and energy trader)Tradax Energy (an ethanol and other chemical seller)
ICAP RGGI Allowance Account (of ICAP United, a marketer of energy who also works with ICE on energy trading markets)
LDES CO2 Account (of Louis Dreyfus Energy Services, energy trader and distributor of natural gas)
Vitol (of Vitol, who--to quote their site--is "thriving proof that a multi-billion dollar oil conglomerate does not have to be alumbering corporate giant," also an energy trader)
Cargill Power Markets LLC (of Cargill, the feed manufacturer, who also has a huge energy trading division)
Hess Carbon (of Hess Corporation, the oil refiner, oil explorer, and energy trader)ConocoPhillips (the oil company's energy trading division)

Electricity Companies:
AES (several accounts, all of AES, a global power provider with plants in 29 countries and some RGGI states)
Calpine Energy Services (Calpine Energy, electricity provider, 76 plants in US including RGGI states)
ANP Blackstone (of American National Power Blackstone Energy, electricity provider with plants in RGGI states)
RPL Holdings (of Renewable Power and Light PLC, a UK-based power company with plants in RGGI states)
Indeck (of Indeck Energy Service Inc, electricity provider with plants in RGGI states)
Equus Power 1 (of Equus Freeport Power, an electricity provider with plants in RGGI states)RGGI-1 (of Connectiv Energy, an electricity provider and trader with plants in RGGI states)Mirant Energy Trading (of Mirant Corporation, an electricity provider with plants in RGGI states)
Dynergy Holdings, Inc (of Dynergy, Texas-based electricity provider with plants in RGGI states)
Sempra Energy Trading, LLC (of Sempra Energy, San Diego-based electricity provider with no plants in RGGI states)
Dominion Energy Marketing, Inc (of Dominion Energy, electricity provider with no plants in RGGI states, big on SmartGrid)
National Grid (of National Grid PLC, a UK-based electricity provider with plants in RGGI states. More about them later)

You know, its just too bad that we don't have a historical example to work with to see what happens when energy companies create huge carbon-derivatives marketing sub-companies and unleash them. What did you say--Enron? what's that? Good thing we have the banks in there, they'll save us! (By the way, here's the banks and many of these same players at it again in the 2009 EPA acid rain auctions...)

(end sub-post, see the full post here)

1 comment:

  1. Your story is even better than you know. Michael Flett, founder of The Flett Exchange isn't exactly what you'd call a "successful broker". He has been discliplined three times by NYMEX and paid fines and restitutions of over $100,000, which pretty much makes him unemployable in the commodities world. One of the disciplinary cases was for trading ahead of a customer's order, pretty relevant for someone who now runs an unregulated "exchange" where he can trade ahead and manipulate the market at will with no oversight. Perhaps your allusion to Enron wasn't too far off?
    You can find his complete disciplinary history at the NFA futures web site at this link:
    http://www.nfa.futures.org/basicnet/Case.aspx?entityid=0236105&case=06-15&contrib=NYME

    Here is the official narrative for the worst of his infractions:

    Narrative for 0236105 - FLETT, MICHAEL DONALD
    The New York Mercantile Exchange took final disciplinary action against Michael Flett("GALT"), a Member of the NYMEX Division of the Exchange. The subject of the disciplinary action concerned an allegation that in October, 2004 and November, 2004 Respondent trading ahead of customer Market on Close orders in violation of NYMEX Division Rule 6.41(B): Trading Standards for Floor Brokers; and Exchange Rule 8.55(B)(2): Engaging in Conduct Inconsistent with Just and Equitable Principles of Trade.
    Respondent submitted a Joint Offer of Settlement without admitting or denying the allegations against him. The Offer, consisting of a fine of $25,000, restitution in the amount of $74,700, and an order to cease and desist from future similar rule violations, was accepted by the Exchange’s Board of Directors at its meeting held on September 19, 2007.

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