August 31, 2010
Massachusetts

State regulators examine Cape Wind’s cost-effectiveness

By Patrick Cassidy, Cape Cod Times, www.capecodonline.com 31 August 2010

Massachusetts public utilities regulators will begin hearings next week as part of a precedent-setting review of whether the price of power from the proposed Nantucket Sound wind farm is cost-effective.

The hearings on a contract between Cape Wind and National Grid are scheduled to run from Sept. 7 through at least Sept. 22 at One South Station in Boston and will include more than a dozen witnesses. Though witnesses have filed testimony in advance of the hearings, officials will be able to cross-examine them, as happens in a courtroom.

Because the review of the contract by the state Department of Public Utilities is the first of its kind under the Green Communities Act, the agency’s decision will rest on its interpretation of what constitutes cost-effectiveness.

“There’s disagreement over what that means,” said Jonathan Lesser, president of New Mexico-based Continental Economics Inc. and a witness for the primary Cape Wind opposition group, the Alliance to Protect Nantucket Sound.

Attorney General Martha Coakley’s office, for example, has argued that the appropriate standard is to compare the cost of Cape Wind’s power to that of other offshore wind projects, he said.

The power purchase agreement announced earlier this year between Cape Wind and National Grid originally called for the utility to buy half the power from the project for 20.7 cents per kilowatt-hour. The price dropped to 18.7 cents per kilowatt-hour as part of a deal Coakley brokered in July.

The price escalates by 3.5 percent annually but does not include an additional charge equal to 4 percent of the power cost that National Grid is allowed to collect under the Green Communities Act.

After the contract price is spread over National Grid’s entire customer base, the average Massachusetts ratepayer in the utility’s territory who uses 618 kilowatt-hours monthly will spend an additional $1.50 per month, according to the company’s calculations.

Cape Cod and Martha’s Vineyard are served by NStar. Nantucket is served by National Grid.

Failing the definition

The deal’s price is much higher than the current market and the cost to National Grid of other renewable energy sources, Lesser said. Using those standards, he said, the contract fails his definition of cost-effectiveness.

Comparing Cape Wind’s cost with the cost of a recently approved Rhode Island contract for an eight-turbine demonstration project off Block Island is a stretch, he said. That deal between National Grid and Deepwater Wind came only after a change to the state law that opponents, including the Rhode Island attorney general, say forced the state’s Public Utilities Commission to approve the contract.

The Conservation Law Foundation, a supporter of the Cape Wind contract, expects its witnesses to focus on expectations that Cape Wind will lower prices across New England by applying downward pressure on the market, said Sue Reid, an attorney with the environmental group.

Witnesses also will present evidence of the value of the 130-turbine project in avoiding greenhouse gas emissions, she said.

“That has not only a public health value but also an economic value,” she said.

While she is “cautiously optimistic” Cape Wind and its supporters will prevail in the public utilities case, Reid and others said they expect a legal challenge from opponents if the contract is approved.

“It is to be expected that this contract would be heavily litigated, particularly in a proceeding that includes committed opponents among the participants,” said Ian Bowles, state Secretary of Energy and Environmental Affairs. He said he has “full confidence” in the Department of Public Utilities’ ability to make a decision protecting customers and meeting criteria for cost-effectiveness.

Savings realized

Already, through the compromise reached by the attorney general, the DPU process has yielded savings over the original contract, Bowles said.

The more than 750 documents filed so far in preparation for the hearings is testament to the thorough review the contract has undergone, National Grid’s deputy general counsel Ronald Gerwatowski said.

The utility plans to present witnesses who will explain that there are limited sources from which utilities can buy power as they try to meet state requirements to decrease reliance on fossil fuels, Gerwatowski said.

But opponents believe the contract and the review process are flawed, said Audra Parker, president and CEO of the Alliance to Protect Nantucket Sound.

“This whole project has been a lot of behind-closed-doors negotiations,” she said.

The DPU has rushed the review to meet artificial deadlines and the attorney general has backed off a motion to compel Cape Wind to reveal the total cost of the project in return for a trivial discount on the price, Parker said.

Coakley’s office has argued in its filings that the amended power deal will save ratepayers between $400 million and $600 million over the 15-year life of the contract. If there are further savings during construction, ratepayers will benefit more under the deal.

The DPU review of the Cape Wind deal is the strangest case Lesser said he has seen in his 25 years reviewing utilities. Typically when a party asks for a delay one is granted, but in this case the DPU is adamant about sticking to its schedule, he said.

“There’s a hell of a lot of politics in this,” he said. “I have no doubt that this contract will be approved by the DPU because, honestly, I think the political fix is in.”

URL to article:  https://www.wind-watch.org/news/2010/08/31/state-regulators-examine-cape-winds-cost-effectiveness/