August 25, 2010
Massachusetts, Opinions

Cape Wind wired with favoritism

By Jason M. Armstrong and David G. Tuerck, Boston Herald, bostonherald.com 25 August 2010

While debate over Cape Wind is now focused on electricity rates, the real story is about how elected officials carved out a sweetheart deal for a group of investors at the expense of the state’s ratepayers.

The project, pegged at $2.5 billion in construction costs alone, threatens to burden the electric utilities with higher costs and their customers with higher bills. Nevertheless, Cape Wind has been able to enter into a contract with one utility, National Grid, to buy half of its electricity. Once the Department of Public Utilities (DPU) approves that contract, other utilities will, we can assume, line up to buy the other half. Only faintly visible are the machinations that our elected officials had to go through in order to pull the deal together.

The machinations trace back to the passage of the Green Communities Act of 2008, which mandates that the state’s four investor-owned utilities enter into 10- to 15-year contracts for “renewable energy generation within the jurisdictional boundaries of the commonwealth, including state waters, or in adjacent federal waters.”

A more truthful name for the law would have been “The Cape Wind Sweetheart Deal Act.” For one thing, it was written specifically to exclude cheap, renewable energy from out of state. For another, it specifies that the utilities must “consult with the Department of Energy Resources regarding its choice of contracting methods and solicitation methods.” We’re supposed to believe that Cape Wind’s supporters at the department will remain neutral on the subject of just what “solicitation methods” it should use.

Gov. Deval Patrick is trying to mollify ratepayers with the line that Cape Wind will eventually prove to be a bargain. It would appear, however, that the bean counters at the utilities are not quite ready to buy that line.

The law guarantees the utilities a bonus of 4 percent of the annual payments “for accepting the financial obligation of the long-term contract.” This bonus will cost ratepayers $220 million. That’s in addition to the $2.75 billion in above-market rates that will be passed along to consumers.

Cape Wind has tried with a straight face to say that the project will save ratepayers money by making them spend money. The authority for that wished-for magic comes from a Cape Wind-sponsored study that predicts $4.6 billion in reduced wholesale prices over the life of the project. The idea is that the expensive electricity produced by Cape Wind will push down the prices charged by other suppliers and will keep their prices lower for decades.

The Legislature should repeal the provisions of law that are allowing this to take place and the DPU should reject the National Grid deal. If Cape Wind can’t live with a subsidy equal to the existing green credits (already hugely overgenerous in light of such environmental benefits as the project will confer), then the utilities should look elsewhere for renewable electricity.

The day may well come when Cape Wind serves as nothing but a reminder that a bunch of shrewd investors, with the help of their cronies in state government, were able to foist a sweetheart deal upon the backs of ratepayers. The investors will be long gone by then, but the ratepayers might want to register their feelings about the deal when they go into the voting booth.

Jason M. Armstrong is an authority on energy policy. David G. Tuerck is director of Suffolk University’s Beacon Hill Institute. Jonathan Haughton contributed to this article.