December 11, 2007
Delaware

Wind company trims price of power; Final decision on Bluewater deal due next week

Bluewater Wind reduced its selling price of wind energy in a proposed contract with Delmarva Power that also includes a guarantee of millions more in revenue for the developer.

On Monday, the Public Service Commission released the proposed 25-year power purchase contract between the two parties, with an arbitrator deciding disputed issues.

Delmarva has not embraced the price outlined in the contract, setting the stage for a showdown next Tuesday in Dover. Four state agencies will consider the contract and decide whether to order Delmarva to sign it.

The proposed contract pegs the price of wind energy at 9.893 cents per kilowatt hour – down 6.6 percent from the price Bluewater submitted in September of 10.59 cents per kilowatt hour. One surcharge will diminish the savings a bit, although it’s unclear exactly how much.

“Throughout the negotiations, the PSC staff reminded us regularly that this was all about the price. And that the price needed to be lower than our [September] proposal,” said Bluewater spokesman Jim Lanard. “We believe we’ve reached a price that will satisfy the needs of Delmarva Power and its customers.”

One reason for the price drop is a new source of revenue for Bluewater. Delmarva Power would buy all the renewable energy credits generated by the project, according to the proposed contract, which could approach 1.4 million credits.

That’s a purchase of significantly more credits than the figure in the September term sheet, which was 175,000.

That difference could fetch Bluewater a guaranteed revenue stream, as much as $23.3 million more per year than it would have gotten from the September contract.

Delmarva would use some of the credits to fulfill state requirements to buy renewable energy, and could conceivably resell excess credits at a profit.

Delmarva spokesman Bill Yingling said the utility chose to buy all the credits so customers wouldn’t have to pay the cost of Delmarva’s acquiring them on the open market.

Last month, four state agencies gave negotiator Lawrence Hamermesh powers of arbitration. In a cover letter, Hamermesh wrote: “While it is labeled an ‘agreement,’ and Bluewater has indicated that it is prepared to enter into that agreement, I wish to make clear there are important aspects of it which Delmarva opposes, and there is therefore no mutually acceptable PPA [power purchase agreement] at this point.”

Hamermesh wrote that on Wednesday he would submit a summary of the issues “on which it was necessary for me to specify a resolution to be embodied in the agreement, and my rationales for resolving them as I did.”

The contract itself did not specify areas of disagreement.

Yingling said Delmarva continues to have concerns that offshore wind power would cost customers too much. Other forms of renewable energy, such as onshore wind, could be purchased from out of state, he said.

The onshore option is not currently on the table, however, as the agencies are following a legislative directive to seek new Delaware-based power generation options.

Yingling said Delmarva continues to be concerned that residents and small businesses, which buy 28 percent of Delmarva Power’s electricity, will pay for the extra costs of the wind power. Industrial customers would receive the wind power, but not have to pay more for it.

Yingling said Delmarva was not refusing to sign a contract.

“At this point, we have not been asked to sign a contract yet. So it would be premature to say we weren’t willing. We look forward to seeing how the state agencies address these significant issues in this proposal,” Yingling said.

It was unclear whether the agencies would entertain asking Delmarva to sign the contract, instead of ordering the company to do so.

Besides the energy price, there are two other costs to consider as part of Bluewater’s overall price. One is the capacity payment rate, which Delmarva would pay Bluewater for the assurance its power would be available whenever it is needed. That price went up 8 percent, from $65.23 to $70.23 per kilowatt year.

The other cost is the price of each renewable energy credit, which did not change from the September price of $19.75 per credit.

Delmarva characterized the overall price change as a 5 percent decrease from Bluewater’s September proposal. Lanard said he didn’t know where Delmarva got that number and would not vouch for it.

An independent consultant to the Public Service Commission is expected to issue a report Thursday translating those costs into an anticipated price to Delmarva customers.

On Friday, the PSC staff is scheduled to release a report analyzing the contract.

The proposed project remains 11.5 miles east of Rehoboth Beach, and Delmarva would still be obligated to buy up to 300 megawatts of electricity from Bluewater at any given time.

The contract changes the site of the wind farm’s interconnection with the electricity grid, from a Bethany Beach substation to the Indian River substation. That is one way Bluewater can save money, because Delmarva would pick up the cost of needed upgrades to the substation, Lanard said.

AT A GLANCE

The issue: Bluewater Wind wants to build a 150-turbine wind farm 11.5 miles off the coast of Rehoboth Beach and sell the electricity to Delmarva Power.

What happened: Bluewater Wind revealed its new proposed price for wind electricity. It’s 6.6 percent lower than the company’s last bid in September. That savings will be diminished slightly by a surcharge.

What’s next: A state consultant will release an analysis of the report on Thursday. A final vote of four state agencies on the wind project is scheduled for Dec. 18.

By Aaron Nathans

The News Journal

11 December 2007


URL to article:  https://www.wind-watch.org/news/2007/12/11/wind-company-trims-price-of-power-final-decision-on-bluewater-deal-due-next-week/