energy

PUC rejects Deepwater contract on price

CROWN ESTATE, VIA BLOOMBERG NEWS
AN INSTALLATION VESSEL erects an offshore wind turbine in waters off the United Kingdom last summer. Deepwater Wind hopes to do the same off Rhode Island.
Posted 3/30/10

(Updated, 4:30 p.m.)

WARWICK – The R.I. Public Utilities Commission on Tuesday rejected as too expensive a proposed power-purchase agreement between Deepwater Wind LLC and National Grid Plc, dealing a heavy blow to Deepwater’s plan to build a wind farm off Block Island.

The three commissioners unanimously voted down the 20-year contract despite strong support for it from Gov. Donald L. Carcieri. They said the deal’s projected cost of electricity did not qualify as “commercially reasonable” under a test required by state law.

In a statement, Deepwater CEO William M. Moore said he was “extremely disappointed” by the PUC’s decision, and suggested the company may abandon its projects here.

“This vote is a serious setback to Rhode Island’s plans to become the leader in the nation’s offshore wind industry,” Moore said. “With this vote, the plans to provide Rhode Island with clean, renewable wind power and to establish a green jobs hub at Quonset Point are in jeopardy. Deepwater Wind is now forced to reevaluate our plans for Rhode Island.”

A National Grid spokesman said the utility believed the PUC’s vote meant the end of the process, since the law provides no recourse for the two parties to present a revised contract.

At Tuesday’s hearing, commissioners said they felt torn between, on the one hand, supporting a project with strong political support and clear environmental benefits and, on the other, following their mandate to get the best deal for electricity ratepayers.

In the end, commissioners said they simply could not swallow the deal’s estimated above-market costs of $25 million a year.

Deepwater would have charged National Grid 24.4 cents per kilowatt-hour in 2013, the first year of the contract. Prices would increase 3.5 percent per year after that. (The ultimate retail price paid by customers would have been higher.) Under state law, National Grid also would have received a bonus for buying renewable energy.

The retail price of electricity for a home in Rhode Island currently is about 13 cents per kilowatt-hour.

“What we are determining is the will of Rhode Island, the political will of Rhode Island, to … pay substantially above-market prices,” said Commissioner Paul J. Roberti, the most outspoken of the three.

The commissioners did acknowledge that the proposed wind farm and a transmission cable to the mainland could benefit Block Island because it would allow the island to stop operating its diesel generation plant. But commissioners said that was not enough reason to approve the contract because the same result could be achieved by building a cable on its own.

Commissioners also chastised the R.I. Economic Development Corporation for failing to provide evidence that a wind farm would have a positive impact on Rhode Island’s economy.

Commissioner Mary E. Bray said that while The Energy Council of Rhode Island, a manufacturing trade group, provided data that showed a wind farm would drive up electricity prices, the EDC failed to show how such a project would provide an economic boost.

Reaction from National Grid was muted. “There is not much more to say other than we’re disappointed,” spokesman David Graves said after the hearing. “We feel we’ve fulfilled the mandate of the statute that established the process.”

The governor released a statement Tuesday afternoon saying he was extremely disappointed with the decision.

"I plan on meeting with legislative leaders to discuss other potential solutions," he added. "While the price for the power from this Block Island demonstration project is higher than current electricity rates, I, along with many others, feel that over 20 years this differential is likely to disappear. In addition, securing a small fraction of our state's energy needs from clean offshore renewable wind power is good, long-term, public policy."

Jerry Elmer, a staff attorney at the Conservation Law Foundation’s Rhode Island office, said he was “dismayed that the [PUC’s] decision appeared to hinge on comparing current costs of heating our homes with oil and gas with the costs of renewable energy.”

“The PUC failed to factor in the benefits renewable-energy projects will yield in terms of price predictability, energy independence, and reduction in global warming pollution,” Elmer said.

The deal between Deepwater and National Grid was brokered by Carcieri last December after months of negotiations. At the time, the governor’s office said the agreement would increase the average residential customer’s monthly electric bill by $1.35.

The governor has clashed with the PUC in the past for what he saw as a lack of commitment by the commissioners to supporting renewable power.

In 2008, Carcieri called on the commission to force National Grid to sign long-term contracts to buy electricity from renewable sources. He argued that doing so would help reduce costs over the long term as supply constraints raise the price of other types of fuel.

Soon after, the General Assembly passed legislation essentially mandating that the PUC just do that, and contract negotiations between Deepwater and National Grid got under way.

Additional information is available at ripuc.org.

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