The Price of Private Equity’s New York Power Plant Grab

In November 2021, without fanfare, and having received no public comments, the New York Public Service Commission (PSC) issued a succinct declaratory ruling enabling a new company called Generation Bridge LLC to absorb a massive fossil-fuel-burning power plant in Staten Island and another one upstate, in Oswego. The PSC’s language made it seem benign. “No further review will be conducted of the proposed transfer of ownership interests,” the order stated, noting that the direct owners of the Arthur Kill and Oswego Harbor plants were authorized to go into debt for up to $700 million to fund their acquisitions and would continue to be subject to lightened regulation.

Four months later, the phone rang at the National Response Center (NRC), the 24-hour federal hotline for reporting hazardous discharges. It was someone near the Oswego plant, a whopping 1,800-megawatt residual fuel oil-burning facility perched on the southern edge of Lake Ontario. “Caller is reporting there is a large black container that is floating in the water and the container is discharging an unknown oil into the water,” an NRC staff member entered into a call log on March 8.

A similar report came two days later. “Caller is reporting that there is an unknown heavy oil product leaking into the Oswego Harbor from the site of a power plant. The oil is creating a large sheen on the water. The cause of the oil sheen is unknown due to limited access to the site,” the NRC recorded.

Upon notification by the NRC, officials from seven local, state, and federal agencies quickly launched an investigation. It turned out an underground fuel transfer line had corroded, and there was a hole in an oil pipe. No. 6 fuel oil was gushing into Lake Ontario and onto its shore.

Oswego Harbor Power, which stores 68 million gallons of oil on-site, was confirmed as the source. But conspicuously unnamed as a responsible party was the new owner: Generation Bridge, a subsidiary of a fund managed by ArcLight Capital Partners—a private-equity firm that has quietly scooped up and cut costs on some of the dirtiest infrastructure in the United States, which experts say might otherwise be destined for retirement.

According to NRC call logs and a December 2021 Spill Prevention, Control, and Countermeasure plan on file with the US Environmental Protection Agency, while the facility had reported small incidents of one-to-50-gallon spills under its previous owner, NRG Energy, this was—by far—the first accident of such scale to occur during the period the spill prevention plan covers, which dates back to May 2014. As of June 20, at least 45,500 gallons of oil had leaked from the site, according to an incident report. Spills of this size are relatively uncommon in New York. Between 1994 and 2011, the average annual volume of all oil spills into US waterways was just 14,985 gallons, Coast Guard records show.

The acquisition of the plant by ArcLight is part of a wave of transactions around New York and the United States over the last few years. As climate and shareholder activists pressure public companies to divest from high-emitting infrastructure, firms like NRG have rushed to offload fossil fuel assets, selling off bundles of aging plants like Arthur Kill and Oswego.

In New York, where researchers estimate over 20 percent of fossil fuel power plant capacity is now owned by private equity, companies like ArcLight appear to be jumping on the chance to collect fossil fuel infrastructure with uncertain futures under the 2019 Climate and Community Protection Act (CLCPA), which calls for a 100 percent emissions-free grid by 2040.

Many plants owned by private-equity firms have been the subject of some of the state’s highest-profile battles over polluting infrastructure, including a proposed fracked-gas plant in Astoria, Queens, which ArcLight purchased in 2015; a rebuild of another in Newburgh, at a plant acquired in 2017 by private-equity firm Tiger Infrastructure; and the Greenidge power plant in Dresden, which private-equity firm Atlas Holdings repurposed for mining bitcoin and reopened in 2017, kicking off a fierce debate over fossil-fuel-powered cryptocurrency mining in the state.

Unlike the publicly traded companies selling off the facilities, private-equity companies insulate themselves through forming cascades of LLCs, which makes it nearly impossible to know who to point a finger at when something goes wrong, and they are exempt from most public disclosure rules. Their focus on loading up companies with debt to generate outsize profits for investors nearly always involves cost cutting, which can mean understaffing and delayed maintenance, according to researchers with the Private Equity Shareholder Project.

Through its subsidiaries, such as Generation Bridge and Eastern Generation, ArcLight has been at the helm of these acquisitions. The PSC has given the green light to the purchase of at least six generation stations by ArcLight subsidiaries since 2015, approving all the transactions for lightened regulation. In the case of ArcLight subsidiaries’ latest buy ups, the Oswego, Arthur Kill, and Bethlehem plants—which all occurred after the passage of the CLCPA in 2019—the PSC has also approved the transactions for exemption from further environmental review. Emissions from private-equity-held power plants across New York amount to an estimated one-sixth of total CO₂ emissions by the state electricity sector, at a minimum.

According to a 2022 report by Americans for Financial Reform, ArcLight is the second most greenhouse-gas-emitting private-equity firm in the world, and it has a particularly bad track record of seeking to keep rickety facilities open. It co-owns the Gavin Power Plant, a coal-burning facility in Cheshire, Ohio, whose emissions are linked with an estimated 244 deaths annually; and previously co-owned the Limetree Bay refinery, on St. Croix in the US Virgin Islands, which spewed oil onto nearby homes, and contaminated drinking water in 2021—shortly after ArcLight helped finance its reopening. Since 2000, ArcLight has paid over $700 million in penalties for environmental and safety violations.

In Oswego, according to filings with the PSC, some things changed after ArcLight acquired the facility. Just months prior to the spill, Consolidated Asset Management Services took over the plant’s operations. CAMS is a Houston-based investment advisory firm that advertises itself as an expert in environment, social, and governance issues. Former employees have characterized it as not being able to retain qualified workers and of possessing “zero knowledge” of oil and gas.

‘Squeezing Every Last Penny’

ArcLight and other private equity buyouts of oil and gas power plants could have even longer-lasting environmental, climate, and health impacts than that of the March oil spill in Oswego if, as some advocates fear, control by private equity enables the facilities to remain open, burning oil and gas longer than would otherwise be possible.

The CLCPA climate law charges state officials, including public service commissioners, with overseeing the retirement of fossil-fuel-generation facilities and their replacement with renewable energy and storage capacity. The state has not yet adopted a detailed time frame identifying which privately owned plants should retire and when. But climate and environmental justice advocates have suggested a blueprint for doing that in New York City. They say the city should start by shuttering the oldest emitters, known as “peaker plants,” which run only a few hours per year, produce high volumes of air pollution, and are overwhelmingly located in communities of color.

A similar logic applies upstate, experts told New York Focus, where officials should focus on identifying the “clunkers.” The Oswego Harbor Power plant is 47 years old and burns residual fuel oil, which emits high levels of air pollutants. It currently generates electricity only at peak demand times, but it was designed to run continuously, said Elena Krieger, director of research at Physicians, Scientists and Engineers for Healthy Energy. As a result, the plant can take hours to rev up, running an average of 26 hours even if peak demand that day lasts just a couple of hours. That inefficiency translates into vast amounts of unnecessary greenhouse gas emissions and co-pollutants, Krieger said.

The gas and oil turbines at plants like Arthur Kill, Astoria, and Oswego only run less than 1 percent of the time, according to Krieger’s calculations, but their owners are likely collecting millions annually in capacity payments for simply staying open and standing by.

“They are looking to keep their resources online, in operation until the bitter end, squeezing every last penny,” said Seth Mullendore, president and executive director of Clean Energy Group, a nonprofit dedicated to providing technical expertise and independent analysis in support of a just energy transition.

Private-equity firms buying up power plants may be rolling the dice that New York won’t build a zero-emissions grid on the timeline that state climate law requires. “Why would you invest in something that you’re not going to be allowed to use?” said Anthony Rogers-Wright, director of environmental justice at the civil rights law firm New York Lawyers for the Public Interest.

That could be a reasonable bet from a business perspective, given that state lawmakers elsewhere have extended a lifeline to fossil-fuel-burning plants previously slated for retirement. For its part, Generation Bridge LLC has touted plans to “directly support the development of clean energy resources,” including through development of a potential 25 MW solar project near the Oswego plant. But ArcLight and Generation Bridge did not respond to repeated inquiries from New York Focus over a time frame for the facility’s potential transition to solar. Nor have any such proposals appeared in filings before the PSC as of September 2022.

Light Regulation

In their petitions to acquire New York’s aging fossil fuel infrastructure like the Oswego plant, private-equity firms appear to be calling on a little-known order to request limited review by the PSC.

In a 1994 order, the PSC established the “Wallkill Presumption,” which says electricity-generating facilities should receive less regulation than utility companies under state public service law. As such, parties involved with ownership transfers like ArcLight’s acquisition of Arthur Kill and Oswego Harbor Power have been granted laxer oversight citing that precedent.

Unlike some previous entities petitioning for a declaratory ruling under the Wallkill Presumption, private-equity firms are also using the precedent to seek approval of millions of dollars in debt to fund the transactions. The petitioners in the Oswego and Arthur Kill transaction argued that the PSC should skip environmental review and that Generation Bridge’s issuing of up to $700 million in debt for the transaction would be in the public interest, because it would strengthen the company’s creditworthiness.

In its declaratory ruling, the PSC agreed that petitioners had satisfied the Wallkill Presumption and that the transaction would not present the risk of a monopoly or any potential harm to ratepayers. When asked whether the commissioners had considered ArcLight’s previous record of environmental and safety violations or the potential overall impact of private-equity ownership of New York’s aging power plants in its ruling, a PSC spokesperson told New York Focus that commissioners were focused exclusively on whether the transfer of upstream corporate interests would present Generation Bridge with the opportunity to exercise horizontal or vertical market power. The spokesperson also said that the PSC is fully engaged in implementing and meeting CLCPA requirements, but that environmental compliance matters including oil spills fall under the jurisdiction of other entities.

Officials at the New York State Department of Environmental Conservation, the Environmental Protection Agency, and the Coast Guard all declined to comment specifically on the environmental impact of the spill. None of the entities involved with the acquisition or operations, including ArcLight Capital Partners, Generation Bridge LLC, and Consolidated Asset Management Services, responded to requests for comment. Eastern Generation, another ArcLight subsidiary that serves as Oswego Harbor Power’s asset manager, reached out to New York Focus independently upon receiving questions from the EPA, noting that remediation was expected to cost upwards of $8 million, and that Oswego Harbor Power—not Generation Bridge or ArcLight—would pay. A Coast Guard official previously said that the Oil Spill Liability Trust Fund was opened to recover federal agency expenses. The tax fund is used when a responsible party is unknown or refuses to pay—pushing some of the cost of the error on to the public.

Historically, state public service commissions have been charged with preventing monopoly control of energy markets by utility companies. But this narrow orientation is perhaps outdated, according to legal scholars. In New York, some argue that it is also unlawful. Under the CLCPA, the PSC, along with all state agencies, is charged with ensuring that its decisions do not stand in the way of attaining statewide greenhouse gas emissions limits, and it they prioritizes reductions of greenhouse gas emissions and co-pollutants in disadvantaged communities.

“‘Public service’ connotes [being] in service to the public,” Rogers-Wright said. “And if you’re not going to scrutinize the transactions of bad actors that put New Yorkers—especially marginalized New Yorkers—at more risk, that’s a big problem.”