Did NRG unfairly get the keys to California's EV future?

Did NRG unfairly get the keys to California's EV future?

When is a legal settlement not a punishment, but an invitation to monopoly? And when is such a settlement -- and a potential monopoly -- also a boon to the market?

These are just two of the top-level questions underlying a lawsuit filed last week between ECOtality, a San Francisco-based electric vehicle charging infrastructure developer, and California's Public Utilities Commission.

ECOtality is suing the PUC over a settlement with the New Jersey-based energy company NRG from last March, which requires NRG to invest $102.5 million in California's fledgling electric vehicle charging infrastructure. So far so good, right -- couldn't the market for EVs use a shot in the arm like this?

Not so fast, ECOtality says: The suit charges the PUC with handing NRG "a monopoly over the nascent market in California" because the investment will result in the creation of 1,200 electric vehicle charging stations throughout the state -- and NRG's ownership of an electric vehicle charging network provider, eVgo, makes the deal monopolistic, ECOtality claims.

"This so-called 'punishment' is like a restaurant failing a health inspection then being given an exclusive franchise to open and operate every restaurant in the city, subsidized by public funds," said ECOtality CEO Jonathan Read in a statement (the company did not respond to GreenBiz.com's request for comment).

The settlement with the PUC stems from the California power crisis of the early 2000s, and includes $20 million in punitive damages from NRG. Dynegy Energy, a company purchased by NRG in 2006, played a role the price-gouging scandal during that time. (Dynegy paid $281 million to California ratepayers as part of an earlier settlement in the energy scandal.)

The Makings of a Monopoly?

The devil may or may not be in the details of the settlement. Among the requirements the PUC placed on NRG is the installation of at least 200 "level 2" EV charging stations (which use 480 volts and offer faster charging than "level 1" chargers, which can take many hours to recharge an exhausted battery).

But the settlement also requires NRG to spend $40 million to install 10,000 "make-ready stubs" in at least 1,000 locations across the state. These stubs are essentially ready-wired EV charger hook-ups awaiting the final charger module, which any company can theoretically install.

However, the settlement gives NRG the right to choose many of these locations, and gives the company exclusivity over these make-ready stubs for the 18 months following their installation. That means it can decide to install a charging station there -- or not -- and select the vendor for the charging hardware for each of these sites during that time. This is where PUC crossed the line, ECOtality claims.

By requiring that NRG make a $102.5 million investment in the California EV charging infrastructure, the lawsuit also contents that the PUC "intervened outside of its authority in the private marketplace by endorsing one of multiple competitors." The suit calls for the settlement's implementation to be halted.

Both the PUC and NRG have separately issued letters opposing the suit. They claim that the suit should be dismissed for a number of reasons, including a failure by ECOtality to make specific claims on how the settlement would cause it immediate and direct financial harm. The PUC also claims that because the Federal Energy Regulatory Commission is still reviewing the agreement, ECOtality is asking the court for relief that is beyond its jurisdiction.

But John Gartner, senior analyst at Pike Research, points to some other contentious elements of the NRG settlement. "Forcing NRG to pay for the installation of the EV infrastructure sounds, in theory, like it would be a good deal for Californians and could potentially excite interest in the [EV charging] equipment market. However, the way the settlement is structured it does have the potential to be anti-competitive," he says.

"Once NRG starts contacting sites to install wiring [stubs], the property owners will have disincentives to start talking to other EV supply companies" because they'll know that NRG may be putting one in for free, says Gartner. Plus, "there's not much incentive for another EV network provider to put a competing network right next to NRG's [stubs]."

Monopoly or Fair ROI?

But Jay Friedland, legislative director for EV advocacy group Plug-In America, believes the exclusivity period that NRG is granted for the make-ready stubs is fair. The $40 million that NRG will be spending on these wiring set-ups will be "a lot of steel in the ground" on which it wants a chance to get a payback, he says. Plus, NRG may decide to not install chargers in many of the make-ready spots, which will mean they'll be available to other providers.

NRG spokesman David Knox stresses that "nothing in [the settlement] prevents any other companies from installing an EV charging infrastructure in California." He argues the bigger impact of the settlement is that it will encourage wider investments in EV infrastructure and vehicles in California by growing the EV charging network.

Knox also differentiates the $20 million cash payment portion of the PUC settlement from the $102.5 million infrastructure development portion. "The $102.5 million is not a penalty payment, it's an investment," he says. "We've paid $20 million, which will go toward ratepayer relief, but this $102.5 million is not going to the state. It's a commitment to invest in the EV infrastructure. That might be a nuanced difference, but I believe it's an important difference," he says.

NRG's EV charging network platform, eVgo, currently operates only in Texas. When asked whether NRG had any plans, prior to the PUC settlement, to install EV chargers in California, Knox said "We were looking at expanding outside of Texas, but we had no plans to enter the California market prior to the settlement."

Debate over whether the PUC settlement amounts to unfair favoritism to NRG has been brewing throughout the EV industry since the settlement was announced in March. "I've been at two EV conferences since deal was proposed and at both it was the key topic of discussion in the hallways," says Gartner.

Mired in a 'Big Mess'

Many vendors in the EV infrastructure space consider the deal unfair and anti-competitive, he says. But while ECOtality and other EV charging network platform providers, such as Coulomb and 350Green, will be competing directly against eVgo in California, the vendors that provide just the charging hardware have an opportunity to attract eVgo's business.

L.A.-based AeroVironment provides all of eVgo's charging stations in Texas, but Knox says that while the details are still being worked out, NRG will create an open request for proposal to contract with EV charging hardware providers for its California network. "It will be a totally open RFP with a transparent process. We know AeroVironment and we know their equipment, but they have no real advantage in California [in terms of securing contracts]. This will be an open process," he says.

Gartner notes that when ECOtality received $115 million in funding from the Department of Energy to build out the EV Project, a 36-month program aimed at getting 14,000 chargers installed in 18 major cities in six states and Washington, D.C., it selected its own Blink brand of EV charging hardware. One could argue that was anti-competitive, as well. "But," Gartner says, "the EV Project was an elective contract from the DoE, as opposed to a penalty that was put upon them for illegal activities.

Given the sheer number of charging stations that NRG is being tasked to enable (either through complete stations or the wiring to power them), the settlement does present an opportunity for EV charger hardware providers -- including large companies that are relatively new to the market, such as GE and Siemens -- to gain a bigger foothold in the California EV market through the charging hardware bidding process.

But Gartner thinks the exclusivity clauses in the settlement are "not going to help" the EV infrastructure build out in California. "I think the fast chargers are going to help give people exposure [to faster recharging] and maybe encourage more people to purchase an EV. But I don't know what the PUC was thinking when it granted NRG those exclusivity clauses.

"It's a big mess. And I think it'll be messy for a while," he says.

EV parking lot photo via Shutterstock.