Deepwater denies 38 Studios comparison

Sun, 06/24/2012 - 2:30pm

As one big state-supported company folds in spectacular fashion — Curt Schilling’s 38 Studios is under investigation after going broke and leaving the state on the hook for a $75 million loan guarantee — voices locally and upstate wonder if it’s a portend for another big company: Deepwater Wind.
Both were pet projects for former Governor Donald Carcieri. But, Deepwater insists, the differences end there.
38 Studios was backed by the RI Economic Development Corporation and out of Schilling’s pocket. Deepwater is funded by private investors lured by the promise of a lucrative market for the power its wind farm will create. A deal pushed through the state legislature during Carcieri’s tenure guarantees that National Grid will buy it.
“Deepwater Wind is not 38 Studios,” said Bryan Wilson, the Block Island liaison for Deepwater, and Jeff Grybowski, the company’s chief administrative officer, repeating comments made by the company to in a story that ran there last week.
Comparisons between the two businesses were made by state Rep. Bob Watson, conservative groups and letter writers, reported WPRI. Islanders have made similar comparisons — including a letter to the editor in May 26’s issue of the Block Island Times, written by Mike Hickey.
“The recent financial troubles of video game maker 38 Studios and its political and financial relationship to the state should be a shot across the bow for the Deepwater Wind near-shore Block Island wind farm and the risk of shortfalls in future resources to dismantle the wind farm,” reads the letter written by Hickey.
“It’s like comparing apples to oranges,” said Wilson.
“The biggest difference,” adds Grybowski, “is that all of our funding comes from private investors, and not tax dollars.”
The expected $205 million Block Island project will be commercially funded by banks and outside investors. The company, majority owned by hedge fund D.E. Shaw & Co., has invested more than $25 million so far in its five-turbine Block Island demonstration project. Unlike 38 Studios, which defaulted on payments, Grybowski says Deepwater is on track with payments, including $3.2 million to the RI EDC, and blind payments to the state to reimburse it for Coastal Resources Management Council ocean planning. Wilson added that similar payments have been made on a local level, such as payments for the leasing of land.
“That $25 million [of our own money] is at risk,” Grybowski said. If something happened to Deepwater causing it to not go through, it would be Deepwater and investors that would be hurt, not taxpayers, he explained. Furthermore — because National Grid is on contract to pay only for the energy Deepwater provides — if the wind farm ceased production after installation, there would be no loss in excess fees.
Another difference between the two is the type of project: Deepwater is a large-scale industrial project, while 38 Studios is a “Knowledge economy-type initiative that happens primarily on computer screens,” described WPRI. The Block Island project won’t be a huge job creator; 200 temporary construction workers will be hired to install the wind farm, and six full-time maintenance workers will monitor the farm from the mainland. In comparison, 38 Studios had about 300 employees in Providence, all of whom were laid off.
Who pays to decommission wind turbines?
In addition to comparisons drawn to 38 Studios, Hickey has publicly wondered about decommissioning costs, and whether or not Deepwater would be responsible for what can often be a big bill to get rid of outmoded infrastructure.
In the same letter to the editor, Hickey writes: “There is not and will not be private sector wealth or taxpayer resources in this state to provide funds to de-commission the wind farm if it is not done properly by Deepwater Wind or its parent DE Shaw.” Hickey draws a parallel to what happened with the Jamestown Bridge, which was not dismantled for years due to lack of state resources, and ultimately cost $22 million of federal money to dismantle, he claimed.
Grybowski claims Deepwater has it covered, and has already built decommissioning costs into its budget.
Deepwater is currently under a permitting process from various state and federal agencies, the two most prominent of which are the CRMC and Army Corps of Engineers. Deepwater receives pretty intense scrutiny from these organizations, he explained.
“One of the aspects of the process is that we need to demonstrate to those agencies that it is technically and financially feasible to complete the project,” said Grybowski. “With a project as big as wind turbines, we don’t want to turn around and say ‘Oh, we forgot to do that.’”
As to other company’s wind turbines in other locations that have not been properly decommissioned, Grybowki said that there’s been a learning process for the industry since the first wind turbines.
As for the Jamestown Bridge, it was owned entirely by government, he says.
Polls show support
So far, small polls have indicated that the public, here and in mainland Rhode Island, support the wind project. A September 2010 WPRI poll showed 56 percent of likely voters were willing to pay an additional $1.35 to $3 per month for electricity from Block Island demonstration project. And a local Land Trust Poll published last October showed that 63 percent of island residents support the project, which will include a cable that hooks the island’s power grid up to National Grid.
Higher numbers in support here are no surprise, given that island ratepayers have more to gain. While WPRI reports energy costs on the mainland will increase, that’s not forecast to be the case for Block Island, where rates are four times higher than in other state towns, fluctuate wildly with oil costs and come in as some of the highest in the country. Island ratepayers will still have to pay to maintain an emergency generator at Block Island Power Company and to upgrade the distribution system, but will no longer be on the hook for diesel trucked here by ferry. Overall prices would be “substantially less” than they are now, Wilson said.
“And it resonates with the environmental aspect of Block Island,” he added, “and the proud tradition of conservation.”