Deepwater Wind Working on Another Power Agreement

By DAVID FISHER/ecoRI News staff

The Public Utilities Commission (PUC) voted unanimously July 15 to continue with the hearing process concerning the power purchase agreement between Deepwater Wind and the Narragansett Electric Co., despite objections from the attorney general’s office and the Conservation Law Foundation.

In March, after the PUC rejected the initial agreement between Block Island Power and Deepwater Wind, as commercially unreasonable at 24.4 cents per kilowatt-hour, the state legislature changed the text of the contracting standard for the Renewable Energy Bill to include language that provides for lower electricity rates directly correlated to power overproduction and to any savings in the cost of building or operating the first phase of the Deepwater Wind farm off Block Island, the construction and regulation of a power transmission line to the mainland, shortened hearing periods for the power purchase agreement and a series of considerations for the PUC to make when deliberating on the next proposed agreement. The amended bill was passed by the General Assembly and signed into law by the governor.

The new law compels the PUC to consider the viability of the new power purchase agreement with a few things in mind. The recently amended agreement contains provisions that provide for a decrease in pricing if savings can be achieved in the actual cost of the project. The agreement is likely to provide economic development benefits to the state, and could provide environmental benefits, including the reduction of carbon emissions.

These considerations constitute “taking into account the state’s policy intention to facilitate the development of a small offshore wind project,” according to the new state law.

“Commercially reasonable” becomes a much wider net to cast when you add in the aforementioned caveats. Many people in Rhode Island believe this new law basically forces the PUC to approve any new power purchase agreement from Deepwater Wind, including its latest proposal of 23.57 cents per kilowatt-hour. The shortened review period by the PUC underscores the urgency of energy independence, and looks toward garnering federal tax credits for the developer, which will expire in 2012.

The Conservation Law Foundation and the attorney general’s office filed papers with the PUC claiming the new process is unconstitutional. The Conservation Law Foundation charges that the law favors one developer over another and, by doing so, violates the language in Rhode Island’s Constitution that “all laws be made for the good of the whole.” The foundation also said that by hearing the case again the PUC is in breach of laws that bar litigation of the same claim between the same parties.

Attorney General Patrick Lynch made similar arguments in a motion filed July 6. Lynch claimed that the PUC has already heard and rejected the initially proposed power purchase agreement, and the new law simply circumvents the PUC. He also claimed that Deepwater Wind has had the chance and failed to show the merits of this agreement to Rhode Islanders, and also failed to file an appeal to the state Supreme Court, which would have been the proper action to take if the company believed its proposal was unfairly rejected.

Although almost 24 cents per kilowatt-hour for electricity sounds like highway robbery to many Rhode Islanders, for most Block Island residents and businesses that number actually represents a rate reduction, and offers the island a more predictable rate of increase in electricity prices. Block Island currently gets all of its electricity from diesel generators. Occasional island blackouts are the norm, and rapid spikes in petroleum prices directly impact the cost of electricity on the island. In summer 2008, electricity prices skyrocketed to 62 cents per kilowatt-hour when the price of crude oil jumped to $140 a barrel.

The eight proposed wind turbines off Block Island would conceivably power the entire island with little power overflow, save for winter months when the population of the island is about 1,000. In the summer, population on the island balloons to about 15,000 and electricity usage quadruples. The project’s proposed transmission cable would allow two-way electricity flow between the mainland and the island, further stabilizing power prices and decreasing the possibility of island power outages due to generator failure.

The second phase of the project, with 100 more turbines located 15 miles off the Rhode Island coast, would generate about 15 percent of the state’s electricity needs. Deepwater Wind has assured the PUC that a lower rate would be easier to attain on this phase of the project.

According to the new law, the transmission cable would be owned and operated by Deepwater Wind, National Grid or third party, and the cost of laying and maintaining the cable would be passed on to ratepayers through higher transmission rates.

National Grid usually seeks to increase rates once every two to three years. Beginning July 11, National Grid ratepayers were hit with a PUC-approved 21.7 percent rate hike on electricity. After this increase, the going rate for electricity produced through the combustion of natural gas, for residential customers in Rhode Island, will be 11.6 cents per kilowatt-hour. For the past 10 years, electricity rates in Rhode Island have been increased an average of about 7 percent annually. The progressive rate increase for electricity from the Deepwater Wind project is 3.75 percent per year.

Let’s put these numbers to work on the average electric bill.

Let’s say you use 300 kilowatt-hours of electricity in any given month — $34.80 per month is what you would pay just for electricity. No taxes or transmission fees included.

If you used the same 300 kilowatt-hours, paying the wind-generated price of 23.57 cents per kilowatt-hour for 15 percent of your energy, you would pay $29.58 for the first 85 percent of your electricity and $10.61 for the remaining 15 percent, totaling $40.19 for 300 kilowatt-hours — an increase of $5.39 per month. Again, no taxes or transmission fees included.

Some of those opposed to the high initial price of power from a wind farm point to recent advances in “hydrofracking” — also known as hydrofracturing — where deposits of natural gas are accessed by using water to fracture the bedrock around the gas pocket, as a means to significantly reduce he cost of natural gas by increasing supply. But “fracking” is an environmental nightmare. Entire communities around some of these sites have had their drinking water contaminated by natural gas.

The University of Maine is conducting a study of floating wind turbines that are moored to the ocean floor. This advance in design could greatly reduce the initial construction costs of future offshore wind projects, such as the second phase of the Deepwater Wind project.

The PUC may have a ruling on the amended power purchase agreement in as little as 45 days.