Bills could energize Deepwater project

Mon, 06/15/2009 - 4:15am
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06/13/09 - Two bills critical to the development of wind farms off Block Island unanimously cleared legislative committees Wednesday afternoon.

The House and Senate bills would essentially require National Grid, the state’s largest electric distribution company, to purchase electricity from wind farm developer Deepwater Wind. The bills would create a guaranteed market for Deepwater’s electricity and help the private company secure funding to complete its two planned farms. One farm, with five to eight turbines, is proposed for three miles off the southeast coast of Block Island. The other, with about 100 turbines, would sit about 15 miles to the east.

The bills now head to the Senate and House. The House scheduled a vote on the bill for Tuesday. The Senate is likely to vote on the bill later in the week, a spokesman said Thursday.

A spokeswoman for Republican Gov. Donald Carcieri said he was pleased with the Senate bill and hoped to work with the House to amend its bill. Last year, he vetoed similar legislation, saying a provision that allowed National Grid to collect a 3 percent “bonus” on renewable energy it purchased amounted to an underserved perk. This year’s Senate bill, Kempe said, provides new protections for National Grid customers and offers more guidance for the Public Utilities Commission, which will oversee the incentive.

Deepwater officials said Wednesday that they were confident this year’s bills have a better shot at becoming law. The Senate bill lowers the bonus to 2.75 percent, while the House bill keeps it at 3 percent. The bills also have the support of the Senate president and the House majority leader.

“The support for this bill is now nearly universal; it’s got the environmental community, it’s got the labor [unions], it’s got the utility, it’s got the developer,” Deepwater Managing Director Jim Lanard said after the Senate hearing. “As a result we’re optimistic the governor will give it a fair read.”

The company is pushing to bring the smaller farm near Block Island online by late 2011. If successful, it would be the first offshore wind farm off the United States coast. Lanard declined to speculate about what would happen if the Legislature fails to enact the bills by the time it wraps up its session in a few weeks.

“That’s a big hypothetical that we don’t even want to think about right now,” he said after the hearing, declining to say outright if the projects hinged on the passage of the bills.

Lanard told senators though that the company needed the legislation passed soon in order to take advantage of an opening in the production schedule of a turbine manufacturer. The manufacturer, Lanard said, needs to know by January whether the project is a go.

Along with Deepwater and National Grid officials, about a half-dozen groups turned out at the Statehouse for the Senate Committee on Environment and Agriculture hearing to testify in support of the bill. And Deepwater lobbyist Robert Goldberg kept an eye on the scene from his seat in the corner.

Jerry Elmer of the Conservation Law Foundation told the committee the wind farm was important for the environment. And labor union leaders — lured by the promise of jobs at Deepwater’s proposed plant in North Kingstown — threw their weight behind the legislation. But senators decided they needed to hear from only Elmer, Deepwater and National Grid before sending the bill to the Senate floor.

However, if the hearings were any indication, Deepwater and National Grid will face tough questions about a provision that rewards National Grid for purchasing renewable electricity at higher rates than electricity produced from traditional sources such as coal plants.

Under the Senate bill, National Grid would be able to collect an aggregate amount from its roughly 475,000 Rhode Island customers equal to 2.75 percent of its “commercially reasonable” contract with Deepwater. The state Public Utilities Commission would approve any contracts after a hearing process.

Despite repeated requests from senators, National Grid Deputy General Counsel Ronald Gerwatowski said he could not estimate what the incentive would mean in dollars because so many variables were in play. As a result, he could not estimate how it might affect an average customer’s bill.

Some senators, clearly uncomfortable with the idea of supporting a bill that could take more money out of constituents’ pockets, expressed uncertainty. Rhode Island law already allows National Grid to pass on the full cost of its purchased electricity to customers.

“Given the fact you are entitled for dime-for-dime payment for your acquisition of power, why do we need to give you a bonus on top of that?” Sen. J. Michael Lenihan (D-East Greenwich, North Kingstown, Warwick) asked Gerwatowski.

Gerwatowski said he preferred to look at the clause as providing a security blanket for the long-term contract National Grid would enter into with Deepwater. Gerwatowski said banks would view the contract as a long-term liability and could downgrade the company’s credit rating as a result. The company needs the “bonus” to offset the higher costs of borrowing associated with a lower credit rating, Gerwatowski told senators.

The incentive was critical to ensuring National Grid’s support, Gerwatowski said. And the company backed off requesting 4 percent after lawmakers raised questions. (A similar law already on the books in Massachusetts lets utilities collect 4 percent, and Connecticut allows 3 percent.)

Concerns about the incentive stretched to a floor below where the House Committee on Environment and Natural Resources committee met to discuss the House version of the bill, which would allow a 3 percent bonus. But that committee did not take testimony and the bill was approved in less than 15 minutes.

Chairman Jan P. Malik (D-Barrington, Warren) reminded members that the 3 percent figure could change as the bill works its way through the assembly.

Who pays?

Back upstairs in the Senate Lounge, senators grilled Gerwatowski about the proposed electric cable that would link the mainland to the island. Gerwatowski said National Grid is “interested” in owning the cable, which he estimated would cost $20 million to build.

He told senators the company would pay for the cable though a loan timed to coincide with the cable’s life expectancy. He acknowledged that mainland customers would subsidize the cost of building the cable.

“There’s no other practical way to make a cable to Block Island work without the other citizens of the state chipping in,” he said.

But he told senators that National Grid would arrange its contracts so Block Island customers would share more of the burden than mainland customers. (And just to be sure that happens the Senate bill includes a provision that requires it.)

Committee Chairwoman Sen. Susan Sosnowski, a Democrat that represents the island, chimed in to remind her colleagues that the cable was necessary to deliver power from the small wind farm to the mainland. And Gerwatowski said that while costs National Grid would incur immediate cost, the hope was that renewable energy projects would provide less expensive electricity in the future.

After the meeting, Deepwater’s Lanard declined to speculate on how much Block Island customers would pay for electricity, only that it would be “significantly” less than the 68 cents per kilowatt-hour they paid last summer.

The structure of the law would lead Deepwater to sell National Grid electricity from the wind farm. National Grid would then sell the power to the Block Island Power Co., which would handle on-island distribution. The senate version of the bill creates a legal structure for the Public Utilities Commission to oversee such an arrangement.

After the meeting, Deepwater Chief Development Officer Paul Rich said the cable might include a fiber optic cable. Such an inclusion could bring high-speed Internet and cable television to the island.