Wind farm testimony picks up

Mon, 08/02/2010 - 4:00am
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7/31/10 — The state Public Utilities Commission heard testimony this week on the amended Power Purchase Agreement reached by National Grid and Deepwater Wind for the Block Island wind farm.

On Monday, the Deepwater CEO explained why the cost projections for the wind farm were lower than previously stated in March, while on Tuesday the PUC heard about the potential negative economic impact the project would have on mainland businesses, including Toray Plastics and Polytop, two of the largest users of electricity in Rhode Island.

At Monday’s hearing, PUC Chairman Elia Germani asked, “What am I missing here?”

His question was directed to William M. Moore, chief executive officer of Deepwater Wind. Germani pointed out that the PPA would be the same under the current proposed contract to build the wind farm for $205 million as it was going to be under the previous proposed contract to build it for $219 million.

Germani wanted to know why $205 million was not mentioned during hearings held on the earlier contract, which the PUC unanimously rejected as being commercially unreasonable.

“If $205 million was the real number, why did you put $220 million?” Germani asked.

Moore explained that $205 million was always the cost Deepwater projected for building the wind farm and that the $219 million included substantial contingency funds. He described it as “a snapshot of our cost estimate at the time.” With $205 million as the target cost for the farm proposed for within three miles of Block Island, Moore said that Deepwater’s rate of return would be 10.5 percent, which would be “at the low end of what lenders and investors expect.”

“This project has so much risk,” Moore said, adding that Deepwater has every incentive to do it right to support the creation of a new industry in the area.

Since the Block Island wind farm would be the first of its kind in the United States, Moore said that the cost would cover not only the construction of the wind farm itself but also the development of the infrastructure to support the building of the wind farm offshore. The infrastructure would include such items as the wind turbines and other electrical components, the fabrication of jacket foundations and the supply of construction services.

The current contract reached between Deepwater and National Grid calls for an opening price of 24.4 cents per kilowatt-hour in the first year of the farm’s operation in 2013, with annual 3.5 percent hikes during the course of the 20-year contract. The current cost for electricity from traditional sources is about 9.5 cents per kWh.

The terms are essentially the same as the contract the PUC rejected in March; however in this iteration, Deepwater has agreed to “open book” accounting, with any savings in the wind farm’s construction going toward lowering the opening price for ratepayers.

In attendance for the hearings were Germani, along with commissioners Mary E. Bray and Paul Roberti and six PUC staff members. Ten attorneys were present, representing various parties interested in the case, as well as a dozen witnesses and observers.

Crippling costs

On Tuesday, Shigeru Osada, senior vice president of engineering and maintenance of Toray Plastics, which employs 600 people in Rhode Island where it manufactures thin, high technology film for industrial applications, testified that over the 20 years of the Block Island wind farm project, Toray would have to pay an additional $7.3 million in fees to National Grid.

Osada explained that of the 20 megawatts Toray needs for its Rhode Island plant, 7.5 megawatts are made by the company as a cogeneration facility producing natural gas — generated power and steam. For the rest of the electricity that Toray needs in Rhode Island, Toray goes out to bid and currently buys electricity from TransCanada.

TransCanada sends electricity over National Grid’s wires so Toray pays a fee to National Grid for the distribution. In the first year of the Block Island wind farm project, Toray would have to pay an extra $304,000 for the National Grid distribution charge, Osada said. This is based on the price of 24.4 cents per kWh in the current PPA before the PUC, taking into account the 3.5 percent annual increase for 20 years proposed in the contract.

“I feel that the PPA is totally unfair,” Osada said. “It forces 480,000 ratepayers to buy high-cost electricity for 20 years, charging an additional $390 million above market cost based on National Grid’s own estimation. This new law appears to have been enacted to subsidize one company in an attempt to guarantee their revenue for 20 years simply because their product is renewable.”

The “above market cost” of $390 million represents the amount Rhode Island ratepayers would pay over 20 years for renewable energy generated by the wind farm as compared to what they would pay for power generated through traditional means.

Osada said that Toray would like to expand its operations at Quonset and increase its work force, but that cannot be done if the cost of electricity goes higher.

“Rhode Island’s economic recovery and future development will be negatively impacted by this PPA. In a free market economy, laws should not attempt to specifically guarantee one company’s revenue and profits for 20 years,” Osada said.

Dr. Edward M. Mazze, professor of business administration at the University of Rhode Island, testified that the amended PPA “will have negative consequences to commercial and industrial businesses that rely heavily on purchased energy” and predicted that it will be difficult for the state to attract new businesses and retain existing businesses that rely heavily on purchased energy.

Only Block Island homeowners benefit

“The only benefit of this project is to residential customers who reside in the town of New Shoreham,” Mazze said.

“The Block Island project may create a few jobs, but it’s not going to have any significant [positive] impact on the Rhode Island economy,” Mazze testified. He characterized statistics that claim the wind farm would have positive economic benefits for the state as “absolutely ridiculous” and “extremely speculative.”

Outside the hearing room, state Attorney General Patrick Lynch said that for someone of Mazze’s stature to testify “so eloquently on how bad this project is for Rhode Island confirms that my position [opposing the wind farm contract] is the appropriate one for Rhode Island citizens.”

Lynch also referred to a cable to deliver electricity to Block Island, which is part of the proposed eight-turbine project.

“There are other ways to establish a transmission line to Block Island,” Lynch said, adding that the cable to the island is being used as a ribbon tied in a bow around a “devastating package, which would cost the ratepayers of Rhode Island a tremendous amount of money.”

The PUC is required by the state’s new renewable energy law to review the amended PPA between National Grid and Deepwater Wind to determine if the agreement is commercially reasonable and likely to provide economic development and environmental benefits, including business expansion, new renewable energy jobs and further development of Quonset Business Park.

Supporters say the initial, eight-turbine wind farm within three miles off Block Island would act as a gateway to a larger 100-turbine farm farther offshore and spur a “green” industrial revolution in the state.

TransCanada allegations

In a separate legal proceeding earlier Tuesday, the PUC heard arguments for and against Canadian power company TransCanada’s motion to dismiss the PPA between Deepwater Wind and National Grid on constitutional grounds.

Attorney Robert Buchanan, Jr., representing TransCanada, argued that the Commerce Clause of the U.S. Constitution prevents states from setting up barriers to discriminate against out-of-state producers unless that is the only way to meet the stated objective. He emphasized that from TransCanada’s viewpoint, the Rhode Island PUC has the obligation to consider whether the legislative statute that supports the PPA can be applied in a manner consistent with the U.S. Constitution.

Although the state Supreme Court is the final arbiter of what is constitutional, Buchanan argued that did not mean the PUC should turn a blind eye to the issue.

In written testimony submitted to the PUC, TransCanada concluded that “where a violation of the commerce clause leads to increased costs for renewable energy, this slows the adoption of renewable energy by the purchasing public, which in turn contravenes the legitimate objectives of a renewable energy program.”

Attorney Gerald J. Petros, representing Deepwater Wind and National Grid, countered that the PUC could not consider constitutional issues because the Legislature has not vested that authority in the PUC. “This issue begins and ends with enabling legislation,” Petros said.

When Commissioner Paul Roberti asked if it would not be appropriate for the PUC to “weigh in on” the issue, Petros argued that, “a court should decide whether the amended statute is constitutional.”  

Petros urged the commissioners to deny the motion because it is based on a false premise that the amended statute required National Grid to enter into the amended PPA when there was no requirement as such and therefore, no discrimination.

While National Grid was required to solicit proposals, Petros said that National Grid was not required to enter into a contract with only a Rhode Island company; instead, Petros said, the project was “open to all comers.”

Roberti said that it could be argued that Rhode Island ratepayers are not favored by the higher rates of an offshore wind farm. Petros conceded that renewable energy would cost more, but pointed out that the Block Island wind farm could be a catalyst to achieve other goals, including other economic and environmental benefits that will favor the citizens of Rhode Island.

The hearings resume Monday at the PUC offices in Warwick.