PUC UPDATE: Wind farm costs under fire

Tue, 08/03/2010 - 2:45am

Deepwater Wind’s CEO and its consultants faced a barrage of skepticism at Monday’s hearing before the Rhode Island Public Utilities Commission in Warwick.

Attorney Michael McElroy, representing two of Rhode Island’s largest manufacturers, persistently questioned Deepwater CEO William Moore to show that the cost and projected profit were understated for the company’s proposed wind farm three miles off Block Island. Deepwater is seeking PUC approval for a $205 million wind turbine project that would lower electric rates on the island, but raise them on the mainland.

McElroy, who usually represents Interstate Navigation Company and Block Island Power Company at the PUC, noted that the project’s estimated cost, which is required by state law to be “commercially reasonable,” does not include the estimated $42 million needed to install an electric cable connecting Block Island with the mainland. Deepwater consultant David Nickerson agreed that 87 percent of the electricity generated by the project would be sent to the mainland, with only 13 percent used on Block Island. Nickerson argued, however, that the cable to the mainland should not be included in cost estimates because Block Island is the end point of Deepwater’s power purchase agreement with National Grid that is being considered by the PUC. A later PUC case will be required to review the cable project, he said.

McElroy, however, was not convinced and noted that if the $42 million were factored into the project’s cost, it would be 23 percent more expensive than the average cost of the European offshore projects cited by Nickerson to prove that the Block Island project is commercially reasonable.

But McElroy’s most dogged questioning was reserved for CEO Moore, who often failed to directly answer the attorney’s questions until asked multiple times. The power purchase agreement calls for Deepwater to sell National Grid electricity for 24.4 cents per kilowatt-hour, although the current price of electricity generated from fossil fuel and nuclear plants is 9 cents per kilowatt-hour. McElroy asked Moore if Rhode Island’s high electric costs would discourage manufacturers from locating in the state. Moore responded that it would not be a large factor in costs for an assembly plant, McElroy then asked repeatedly about discouraging manufacturing investment before getting Moore to concede, “That theoretically could be the case.”

Next McElroy asked how Rhode Island’s electric rates compared with rates around the country. Moore responded that Rhode Island’s rates were comparable to those in other New England states. After several more tries, Moore again conceded, “Yes, Rhode Island has above average electricity costs for the country.”

McElroy also pointed out that even a unique profit sharing plan would force mainland ratepayer costs upwards. The power purchase agreement assumes that the Deepwater turbines will operate at 40 percent of their capacity, an accepted estimate in the wind industry. If they operate at a higher capacity, however, the “savings” would be split equally between Deepwater and consumers. McElroy noted that the provision would still mean mainland consumers would pay 12 cents per kilowatt-hour, rather than the current 9 cents.

McElroy was not the only person to question Deepwater’s testimony. PUC Senior Legal Counsel Cindy Wilson-Frias gently asked Moore why the corporation’s cost estimates included warranty repairs and repairs of vendor work. Shouldn’t the equipment warranty cover the cost of warranty repairs, she asked, and wouldn’t contractors be responsible for shoddy work? Moore struggled, then admitted he could not explain.

PUC Commissioner Mary Bray asked if the project would fail without a $55 million loan from the United States Department of Energy. Deepwater’s first attempt to win the loan was rejected, but the company plans to reapply in August. The company is only eligible for the loan, however, if the project is completed by the end of 2012. No DOE loan “would make it that much harder,” Moore responded, to arrange the private sector borrowing required for the project, “but it would not be a reason to abandon the project.”

PUC chairman Elia Germani also questioned the project’s viability, calling Deepwater “a shell company,” that “isn’t really in a position to know what the project’s going to cost.” Moore strongly disagreed, citing a British consultant hired to estimate construction costs.

The hearings are expected to continue for the rest of the week.