Deepwater and N. Grid back to bargainingState modifies law to facilitate power contract

Mon, 11/09/2009 - 5:00am
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11/07/09 - During the next month, developer Deepwater Wind and National Grid will return to the bargaining table with improved chances of reaching a contract to construct a wind farm within three miles of Block Island.

Thursday, October 29, the Rhode Island General Assembly approved new legislation to allow Deepwater to construct up to eight turbines near Block Island that could produce up to 12 megawatts of electricity. Assuming Governor Donald Carcieri signs the bill into law, the change makes Deepwater’s project more economically viable — and potentially more attractive to National Grid — by allowing the project’s output to grow from 10 megawatts (as stipulated in an earlier version of the law) to 12 megawatts. The output number is based upon the turbines operating at 40 percent efficiency, since wind will not always be optimal.

Deepwater had always included up to eight turbines in its proposal for a wind farm off Block Island; since the summer the company has been explicit about its desire to have at total of eight turbines in place.

However, when National Grid refused to sign Deepwater’s proposed power agreement by the statutory deadline of October 15, it argued that state legislation passed in June called for it to purchase no more than 10 megawatts of electricity from Deepwater’s Block Island wind farm, which would translate to six turbines.

The legislative change Thursday allowing for 12 megawatts removed that hurdle. It coincided with the opening of proceedings on the matter at the Rhode Island Public Utilities Commission the same day.

Twenty-four lawyers, government officials and business leaders met at the PUC in Warwick to plan the upcoming hearing on Deepwater’s proposal. The PUC will either consider a negotiated contract or impose one.

The closely watched proceeding is an early legal round in Rhode Island’s efforts to generate more electricity from renewable resources like wind and solar. Under the state law passed in June, National Grid was to negotiate a “commercially reasonable” contract with Deepwater by October 15. The law then requires the PUC to approve or reject the contract by December 31. The bill passed Thursday loosens the December deadline by extending it to January 31.

At the October 15 deadline, however, National Grid announced it could not reach an agreement because Deepwater wanted 30.7 cents per kilowatt-hour with an escalation clause that would double the price in 20 years. In subsequent public statements, Deepwater said it only wanted 20 to 25 cents per kilowatt-hour. Mainland Rhode Islanders pay about 9 cents a kilowatt-hour for energy generated from natural gas, coal and nuclear power plants. Deepwater argued that the price difference was a function of how many turbines could be installed; National Grid said no more than six, while Deepwater said eight were needed to reach its proposed lower price.

At Thursday’s hearing, lawyers for Block Island Power Company (BIPCo) the Conservation Law Foundation (CLF), the Town of New Shoreham, the Rhode Island Economic Development Corporation (RIEDC), Deepwater and National Grid argued about the law’s requirements if a contract was not reached by October 15. National Grid maintained that the dispute resolution system in the law (arbitration followed by PUC review), has to be completed by December 31. If the PUC fails to meet that deadline, claimed National Grid deputy general counsel Ronald Gerwatowski, “it’s over,” and National Grid’s requirement to purchase power from the project is void.

CLF lawyer Jerry Elmer, however, said the December deadline only applied if a contract was reached by October 15. Without a contract, there is no deadline, he explained. BIPCo attorney Michael McElroy, Town of New Shoreham lawyer Alan Mandl and attorneys for RIEDC and Deepwater all agreed.

But Gerwatowski warned that if the PUC ignored the December 31 deadline, the contract could have a “legal flaw” opening it to a court challenge that could also jeopardize Deepwater’s ability to borrow the money needed to construct the wind turbines. The legislature’s one month extension, if signed by Carcieri, eases the problem, but still sets a tight schedule for review of a complicated project.

The biggest issue preventing a contract, according to Gerwatowski at the PUC meeting, is the lack of a fixed cost offer from Deepwater. “If we don’t have an agreement on pricing,” he said, “everything else is a futile exercise.” In response, Deepwater promised to provide a fixed price proposal next week.

At the end of the two hour meeting, Deepwater and National Grid agreed to continue to negotiate a contract and PUC senior legal counsel Cindy Wilson-Frias set a schedule for legal filings that assumes a contract will be agreed upon by November 13 and reviewed by the PUC by January 31.

Due to the impending deadlines, Wilson-Frias announced that rate setting for Block Island customers would be delayed until the initial Deepwater/National Grid contract is resolved.

The PUC must decide how to apportion the cost of a proposed electricity cable cost connecting Block Island to the mainland between National Grid’s mainland customers and BIPCo’s customers. The June legislation called for Block Island ratepayers to pay proportionally more.

In the 1990s, the PUC considered a BIPCo plan to connect the island to the rest of the state with a cable, but it was ultimately abandoned due to cost.

The prospect of the Deepwater project creating numerous union construction jobs drew representatives of the Rhode Island Building and Construction Trades Council, the International Brotherhood of Electrical Workers and the AFL-CIO’s Providence Central Federated Council to the hearing.

The Deepwater case is one of two renewables cases pending at the PUC. According to CLF’s Elmer, the 2009 law that mandates a 10-megawatt Block Island project also requires another 80 megawatts of renewable projects throughout Rhode Island to be approved by the end of 2013. The PUC is currently drafting rules to govern the four year phase in of those projects. — Peter Voskamp contributed reporting.