To: the Editor—

What does Deepwater Stand to Gain off Block Island?

A letter to the editor at the Block Island Times (May 1, 2010) asked this question: “Who are these Deepwater folks and what did they actually stand to gain from our sacrifice?” A simple question that has been asked of Deepwater formally by Rhode Island’s regulators and informally by citizens on and off Block Island. The answer to that question can be determined with inputs from the thousands of pages of testimony provided to the Rhode Island Public Utilities Commission (PUC) in its Docket Matter #4111 (you can find all of that testimony at this website http://www.ripuc.org/eventsactions/docket/4111page.html).

The total capital cost to build the Block Island Wind Farm is estimated to be $219 million (Per DWW Answer to PUC Request Div 1-18, Set 1), which includes development and financing costs. The debt to equity ratio in this capital cost is anticipated to be 4:1 (Per DWW Answer to PUC Request Div 1-13, Set 1). That means Deepwater will invest about $44 million of its own money and borrow the rest with bank loans (much of which will likely be guaranteed by the U.S. government). The power costs embodied in the pending Power Purchase Agreement (PPA) between Deepwater and National Grid is $0.244 per kilowatt-hour (kWh, for the 1st year) for the 100,915,000 kilowatt-hours produced per year and escalate at a 3.5 percent rate each year of the 20 year life of the project. (When you factor in the 20-year cost of the installation and maintenance of the kind of cable that would be needed for the wind farm, the power cost would start out at $0.312 per kWh).

The Rhode Island Attorney General’s expert witness calculated the internal rate of return (IRR) on Deepwater’s equity to be 98 percent on one set of assumptions given to him by Deepwater and 28.1 percent on a subsequent set of assumptions given to him by Deepwater. When you take into account publicly available financial information on the PUC website on Deepwater’s financial forecasts (much of which is currently being kept from the general public under a PUC Protective Order), you can estimate the cash gain on Deepwater’s $44 million investment using average annual cashflow estimates. At a 28.1 percent IRR over 20 years, Deepwater’s $44 million investment would double every four-and-one-half years, and ultimately add up to $204 million. Deepwater’s most recent testimony on the floor of the Rhode Island House of Representatives last week places its IRR at 18 percent. At an 18 percent IRR over 20 years, Deepwater’s $44 million investment nets $120 million, doubling every seven years. Either way, that amply pays for the hamburgers and hotdogs that are showing up at Beach Clean-Ups and town gatherings on Block Island. There’s an attempt for your answer: What does Deepwater stand to gain from our sacrifice? A lot. More transparency is needed.

The RI Division of Public Utilities and Carriers and National Grid (Rhode Island’s power distributor) has estimated that it will cost statewide ratepayers $500 million over the market value of the power generated by the Block Island Wind Farm and landed by the necessary cable. So, much of that excess appears headed to Deepwater’s pockets. Accordingly to National Grid’s own expert witness in the PUC case, they based these conclusions on primary market research commissioned and used by every power utility in New England. This is why the PUC rejected the Power Purchase Agreement for being unreasonable.

This Demonstration Project off of Block Island would demonstrate how easy it is to make money OFF of Rhode Island (and Block Island) rather than for the economic benefit of the people who WORK in Rhode Island (and Block Island). Seems odd for a Demonstration Project that will create 35 to 50 temporary and just six permanent jobs that Deepwater says it will create for this wind farm. Call your state senator and representative.

A stand-alone cable for Block Island would cost between $20 to $35 million. Federal funds should be sought under the Recovery Act of 2009 for some part or all of that cost. We should focus resources on getting a cable as soon as possible (through which we can purchase power made from renewable sources), a true impactful 100+ turbine utility scale wind farm far off-shore (just like Deepwater’s website suggests), and its promised jobs (which are mostly still six to eight years out), all without compromising the preservation history of our Rhode Island gem.

Michael R. Beauregard

Mohegan Trail