‘Most expensive offshore wind project in the world’: Supreme Court briefs filed in Block Island Wind Farm case 

Led by outgoing state Attorney General Patrick Lynch, groups challenging the legality of the Block Island wind farm approval filed briefs in the state Supreme Court Monday.

Lynch was joined by the Conservation Law Foundation and industrial concerns Toray Plastics and Polytop Inc.

The court will consider the appeals jointly.

The briefs challenge the constitutionality of the law that paved the way for the wind farm approval as well as the costs stemming from the Power Purchase Agreement between National Grid and developer Deepwater Wind.

Lynch’s brief, prepared by attorneys Mike Rubin and Gregory Schultz, posits that the state “acted unconstitutionally in singling out Deepwater Wind for special benefits after the entity’s proposal had previously been rejected by the Public Utilities Commission (PUC).”

The CLF argues that in forcing the PUC to weigh the contract again the Legislature broke with the time-honored legal concept of res judicata – meaning an issue cannot be litigated twice.

Both Toray and Polytop argue that the wind farm’s costs to mainland ratepayers do not meet the statute’s requirement of being “commercially reasonable.”

In March, the three-member PUC unanimously rejected the Block Island wind farm power agreement reached between National Grid and developer Deepwater Wind as too expensive and “commercially unreasonable.” The contract called for National Grid to pay Deepwater Wind 24.4 cents per-kilowatt hour, with 3.5 percent escalations every year for 20 years. (Current mainland price is about 9.2 cents per-kWh.) Testimony before the PUC indicated that the contract would result in National Grid customers paying up to $390 million more for electricity during the course of two decades than they would have without the farm. (The contract only affected mainland ratepayers; Block Island residents are not yet National Grid customers.)

In response, the Legislature created a new law that called upon the PUC to consider a modified contract, and empowered the agency to consider potential benefits (and only the benefits) to the state. It also provided a definition of how the commission was to define “commercially reasonable.”

The PUC subsequently approved the contract 2-1 in August. Calls for an appeal came shortly thereafter.

The attorney general concedes that the Legislature’s effort would have been lawful had it been created to apply to all comers; but, because the law was written specifically for one applicant – Deepwater – it crossed a line.

“When a legislature attempts to give a single failed applicant a customized privilege to re-apply to the tribunal after a final decision, such legislation amounts to an attempt at re-determination of the result in a particular already-concluded case – a violation of separation-of-powers,” reads the brief.

The attorney general also says that it was wrong to ask the PUC to only consider benefits and to disregard costs – by that logic, goes the argument, one job created could trump 10,000 jobs lost.

“Does a decision-maker legally err in the course of determining whether a transaction ‘is likely to provide economic development benefits’ by going beyond mere rejection of a straight cost-benefit even-balancing analysis and by, instead, altogether precluding all forms of cost consideration?”

Also, a significant change in the second contract called for Deepwater to return any construction savings to ratepayers; that would in theory mean that the opening price could be lowered.

However, in the first go-round Deepwater said the project would cost $219 million, yet in the second, the company said it would cost $205 million – but the electricity price of 24.4 cents remained the same. Lynch argues that the baseline for calculating savings to ratepayers should be the original $219 million – not $205 million, as Deepwater has asked.

“After the $219 million projection had already become a bedrock fixed point of reference in the legislation, a new development occurred. A new figure mysteriously appeared for the first time,” reads Lynch’s brief. “This heretofore virtually unmentioned number was the supposed baseline. Two-hundred and five million dollars was the figure newly proffered by the co-applicants. No explanation was given. No other input was altered.”

Lynch says the General Assembly used the $219 million figure throughout the entire process, and that’s the number that should be the baseline for calculating savings.

The Lynch filing may eventually become moot because Attorney General-Elect Peter Kilmartin, who takes office in the new year, has said he would drop the appeal.

No second chance

As a champion of renewable energy, the CLF supported the first, rejected power agreement. However, the environmental group considers the route the Legislature took to bring the wind farm back before the PUC to be a threat to the future of renewables in the state.

“CLF supports renewable energy in general, and especially supports offshore wind for Block Island,” said CLF attorney Jerry Elmer. “But renewable energy is so important for our state that it must be done right – with fair rules, known in advance, that apply to all renewable energy developers equally. The Deepwater contract in this case was a backroom deal that benefits one developer only but does not help us get a strong renewable energy future.”

In making its res judicata argument, CLF goes to great length to illustrate that the two versions of the Power Purchase Agreement – the one rejected and the one eventually approved – were in most respects identical (down to punctuation errors and missing law citations).

However, CLF does point to a notable change in the second contract: “under the new agreement, no party is obligated to build a cable to Block Island Island, and the cable may not be built at all.”

Toray and Polytop also allude to this change: “the [modified contract] specifically provides that neither National Grid nor Deepwater are obligated in any way” to construct, own or operate a transmission cable.

The CLF then argues that “quasi-judicial decisions are final and conclusive, appealable only to a higher court; such decisions are not reversible by legislative fiat.”

Both the CLF and Lynch maintain that, as a quasi-judicial entity, the PUC enjoys the same separation of powers protection as the courts.

Too expensive

For their arguments, Toray and Polytop cite the state law that says the PUC exists to “safeguard… the public and protect… the public against improper and unreasonable rates, tolls and charges…” With above-market costs of up to $390 million dollars, they argue, the contract is “not good for Rhode Island…. By approving this uneconomic and commercially unreasonable PPA, the commission majority violated its statutory purpose and failed to protect the public against unreasonable electric charges.”

They compare the power prices of two other offshore wind farms – the operating Alpha Ventus farm in Germany (16.9 cents per-kWh), and the Cape Wind project proposed for Nantucket Sound (18.7 cents per kWh). The Block Island wind farm, the two companies argue, “appears to be the most expensive offshore wind project in the world. This is not commercially reasonable pricing and the PPA should have been rejected.”

During hearings last spring, the PUC pointed again and again to the difficulty in determining whether the Deepwater/Grid price was “reasonable” given the dearth of comparable projects. Alpha Ventus is closer to supply chains in Europe and is also subsidized by the state; and the 130-turbine Cape Wind farm, by virtue of economies of scale, would cost less than the 8-turbine Block Island project.

The briefs from Deepwater, National Grid and political intervenors are due January 13; reply briefs are due February 3, 2011. Oral arguments are expected to be scheduled in the Spring. Deepwater has asked for an expedited hearing as federal tax incentives end the last day of 2012.