Regulators deal blow to wind farm; Report criticizing costs 'pretty much a nail in the coffin,' senator says
A proposed offshore wind farm off the coast of Rehoboth Beach was dealt a serious setback Monday, after the Public Service Commission staff released a report criticizing the plans as too financially risky to ratepayers.
The project, in its current form, could add as much as $55 to Delmarva ratepayers’ monthly bills, the 91-page staff report said.
The Delaware PSC staff lauded Bluewater for offering to add a significant amount of pollution-free electricity to the grid, but contended that the 150-turbine proposal is far different from the 200-turbine version Bluewater submitted last year.
The staff criticized Bluewater’s willingness to pass along to ratepayers increases in the cost of commodities like steel.
Conversely, if commodity costs go down, the price of wind power would not, the staff pointed out.
“The consequence of the changes in Bluewater’s project is a drastic increase in the price impact for Delmarva’s SOS ratepayers,” the staff wrote, referring to residential customers.
The original proposal would have cost ratepayers $6.23 more per megawatt hour for wind power, above the cost of buying traditional power from the grid, the staff reported. But the staff calculated the new proposal results in a premium of $11.71 per megawatt hour. That’s a conservative estimate, the staff suggested.
If commodities continue to increase in price as they have in recent years, coupled with a delay in construction, that could push the additional price per megawatt hour above $55, the report said.
That would represent a $1.7 billion increase over the original Bluewater bid, the staff wrote.
A megawatt hour approximates an average residential customer’s monthly usage.
The proposed contract included a 2.5 percent annual adjustment for inflation, which could send the costs even higher, the staff wrote.
The staff used a team of independent consultants to help arrive at the numbers.
“Although Staff would like to be part of the effort to pioneer offshore wind power to take control of Delaware’s energy future, such a recommendation is – at this time – not in the public interest as it is not consistent with the underlying principles of the Electric Utility Retail Customer Supply Act of 2006,” the staff wrote.
The report comes a year and a half after Delmarva raised residential electricity rates by 59 percent, provoking lawmakers to order state agencies to find a way to stabilize electricity rates.
With considerable public support, the PSC staff endorsed the wind farm proposal in May, suggesting the project could increase electrical capacity in southern Delaware without endangering the environment with additional pollutants.
Wind still a possibility
While disappointed, Bluewater spokesman Jim Lanard said the report holds out the possibility the company can submit a revised proposal, and hoped the state would listen.
Lanard said that statement shows the PSC staff still believes there can be a place at the table for Bluewater and its project.
“We’re disappointed with this report, but we appreciate the PSC staff’s offer to continue the dialogue,” he said.
Jeremy Firestone, assistant professor of marine policy at the University of Delaware, said the PSC staff should not have been surprised the price of the wind farm went up when it asked Bluewater to cut its size.
Firestone suggested the state agencies have known the estimated costs of offshore wind power for months, and previously found them acceptable. A cap on commodity and currency escalators could help share the risk between ratepayers and Bluewater, he said.
The PSC staff reiterated concerns brought up by Delmarva, including costs.
Delmarva spokesman Bill Yingling said his company thanked the PSC staff for looking out for consumers.
“Our analysis to date also confirms that the price and risks are far too high, and we support the conclusion that this project is not in the public interest,” Yingling said.
The report came as a relief to opponents of the project, including Sen. Harris McDowell III, D-Wilmington.
“This is pretty much a nail in the coffin,” he said.
The report also called for the cancellation of plans to build a natural gas plant that would back up the wind farm.
The report made a prominent mention of a failed plan to build a wind farm off the coast of Long Island. This summer, the power authority there stopped the project because costs quadrupled.
That project’s cost escalation occurred because costs of metals and installation increased; the Long Island Power Authority also noted the lack of a national commitment to subsidizing offshore wind.
The staff’s report is not the final word on the wind farm. Four state agencies, including the Public Service Commission, will vote on Nov. 20 at Legislative Hall on whether to proceed after a 14-day public comment period.
The higher costs created the possibility that customers would leave Delmarva and choose an alternative electricity supplier, the staff wrote.
Washington Gas and Horizon Power and Light have both begun selling electricity to Delaware residents in recent years, taking advantage of the competitive marketplace created by deregulation.
The report suggested the need still exists for new electrical power generation in southern Delaware, with the upcoming closure of two units at NRG’s Indian River power plant.
The PSC staff said the state should continue to look at wind, whether on or offshore, and listen to proposals for new generation from Delmarva, Conectiv and NRG. And if the agencies believe they should continue exploring this particular wind farm-natural gas proposal, it should address the cost issues outlined in the report, the staff wrote.
Phillip Cherry, a policy manager at the Department of Natural Resources and Control, said he could not comment yet on the report, but added that the debate was just beginning.
“I’m anxious to hear what the public has to say about the report. I do think that the public’s opinion will be important in this case.”
By Aaron Nathans
The News Journal
According to Public Service Commission’s report:
• The Bluewater wind project could add as much as $55 to Delmarva ratepayers’ monthly bills.
• The PSC calculated a potential $1.7 billion increase over Bluewater’s original bid.
30 October 2007
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