PUC approves Deepwater Wind-National Grid power deal, but appeals expected

DEEPWATER CHIEF Development Officer Paul Rich, at podium, is flanked by Gov. Donald L. Carcieri, Providence Mayor David N. Cicilline, Senate President Teresa Paiva Weed and former Deepwater executive Chris Wissemann last year at an event held at the company’s Providence headquarters.
Posted 8/11/10

(Updated, 3:40 p.m.)

WARWICK – A proposed offshore wind farm took a major step forward Wednesday with the approval of a key contract between National Grid and developer Deepwater Wind. But R.I. Attorney General Patrick C. Lynch vowed to appeal the decision, calling it a “sweetheart deal.”

In a series of votes, the R.I. Public Utilities Commission approved the power-purchase agreement that will govern the sale of electricity from the eight-turbine wind farm off the coast of Block Island to National Grid’s distribution system. The 20-year contract calls for Deepwater to sell electricity at 24.4 cents a kilowatt-hour in the first full year of operation in 2013 with the price increasing 3.5 percent each year after that.

In March, the commission rejected a similar contract outlining virtually the same price. Commissioners said the price was not “commercially reasonable.” But the General Assembly and Gov. Donald L. Carcieri passed a law mandating the commission take a second look and use new criteria to judge the price.

In its decision, two out of three commissioners found the price reasonable this time around despite objections from Rhode Island businesses that complained the contract would lead to higher electric prices and stem growth.

In supporting the decision, Chairman Elia Germani and Commissioner Paul J. Roberti cited an economic impact study undertaken by a consultant for the R.I. Economic Development Corporation. The study said the wind farm would generate $107 million in economic activity. The study contrasted with one by a University of Rhode Island professor that said higher prices could lead businesses to shy away from locating in the state and hurt existing companies. Executives from Toray Plastics (America) and Polytop Corp. also testified the contract would mean higher prices for them.

But Roberti said he didn’t find their arguments compelling.

“I don’t see any evidence of economic determent outweighing the EDC advisory opinion,” Roberti said.

Commissioner Mary E. Bray, the sole dissenting vote on whether the price was reasonable, took the opposite stance. She said analysis showed the contract would cost the state’s electric customers $370 million in above-market prices during the life of the contract. That would be in addition to paying $40 to $50 million to string a cable between the mainland and Block Island.

“I believe that ignoring the associated cost needed to achieve the economic benefits would defy logic,” she said. She added later that she thought the price would be a “long-term determent” to the Rhode Island economy.

Bray also took issue with the price of the project. In its original contract, Deepwater pegged the price of building the wind farm at about $220 million. In its revised contract, the price dropped to about $205 million, but the cost of electricity remained the same.

Bray said she failed to understand how the construction cost fell but price of electricity remained level. Roberti said he suspected the company found savings after reviewing the contract and determined it needed to lower construction costs but keep the overall project cost the same in order to raise profits. That would make the project more enticing to investors and help secure financing, Roberti said.

The only thing the three commissioners all agreed on was that the project would deliver environmental benefits by increasing energy independence and replacing polluting diesel generators on Block Island.

Immediately after the hearing Lynch vowed he would appeal the decision to the R.I. Supreme Court. Lynch complained that the law ordering the commission to take another look unfairly favored one company and provided commissioners too little time to review the case. (The commission had 45 days to reach a decision after receiving the revised contract.)

“We’ll fight on,” Lynch said.

Lynch and the Conservation Law Foundational Rhode Island Chapter also protested that reviewing the contract a second time broke judicial precedent by hearing the same case twice.

After the hearing, CLF Rhode Island Director Tricia K. Jedele said it was “likely” the environmental group would also appeal to the Supreme Court.

Commissioners also dismissed an objection by TransCanada. The Canadian power company said the law governing the hearing was unconstitutional. TransCanada said the law unfairly limited the ability of out-of-state companies to fulfill the state’s mandate to draw electricity from renewable energy sources.

After the hearing, Deepwater Wind released a statement hailing the decision to approve the contract.

“This decision represents a major step forward in solidifying Rhode Island’s leadership position in offshore wind development,” Deepwater CEO William Moore said.

But in an interview, Shigeru Osada, a senior vice president at Toray, called the decision a disappointment that would negatively impact businesses like his. He said if the cost of electricity rises the company will likely never expand in Rhode Island.

“It’s disappointing,” Osada said, holding back tears. “But it’s done so we need to continue to cut costs and survive.”

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