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Rhode Island regulators look into agreement for energy generated by Portsmouth turbine  

Credit:  By Alex Kuffner, Journal Staff Writer, The Providence Journal, www.projo.com 9 January 2011 ~~

The wind turbine installed last year by the Town of Portsmouth has been held up as a model for the state, heralded not only as a generator of clean, renewable energy but also as a dependable source of income for a municipality feeling the squeeze in tough economic times.

But now state regulators are investigating the arrangement under which the town sells power from the 1.5-megawatt turbine to National Grid and whether it is consistent with state and federal laws.

The case being pursued by the Division of Public Utilities and Carriers could have far-reaching implications for clean energy in Rhode Island. Portsmouth could be asked to accept a lower price for its electricity. And for other municipalities that are trying to follow that town’s lead – including a group of East Bay communities that have proposed building a wind farm together – it could mean that investing in green power will not be as financially attractive as once thought.

National Grid, Rhode Island’s dominant utility and virtually the only potential buyer of clean energy in the state, has conceded that the price it pays Portsmouth is very generous and has recommended a moratorium be placed on all similar arrangements until new regulations can be developed.

The repercussions have been immediate, with some renewable-power projects stalled as a resolution is awaited in the case.

“The Division’s investigation has had a chilling effect,” said Karina Lutz, deputy director of People’s Power and Light, a Providence-based green power company and a key supporter of the Portsmouth turbine.

The investigation was initiated in response to a complaint from Benjamin C. Riggs Jr., a retired manufacturing executive who lives in Newport. Riggs has testified in regulatory proceedings against Deepwater Wind, the company proposing to build wind farms in waters off the Rhode Island coast, and is skeptical of the economics of wind power in general.

The Portsmouth turbine is a perfect example of how the numbers don’t add up, he says. The Canadian-made AAER turbine was installed at Portsmouth High School in March 2009 at a cost of $3 million. It was funded through $2.6 million in federal Clean Renewable Energy Bonds that have an interest rate of 1.15 percent and the borrowing of $400,000 from the state Economic Development Corporation at a 2 percent interest rate.

Standing 336 feet tall, it is the largest of four wind turbines in Rhode Island. It had been operating smoothly for a year and a half until technical problems temporarily shut it down last month. It is expected to start working again by this week.

The turbine has attracted statewide attention, with town and state officials quickly judging it a success. During its first 12 months in operation, by selling power, it earned a profit of 14 percent more than original projections, they said last March.

Riggs, however, says the benefits to the town are coming on the backs of other ratepayers.

“What the public doesn’t know is that they’re paying for it,” he says.

Portsmouth sells power to National Grid under a mechanism called “net metering.” State law defines net metering as “the process of measuring the difference between electricity delivered by an electrical distribution company and electricity generated by a solar-net-metering facility or wind-net-metering facility, and fed back to the distribution company.”

Strictly speaking, this means that the owner of a wind turbine or solar energy system is allowed to sell any electricity they don’t use to the regional power grid so it doesn’t go to waste. They can sell this excess power at retail rates and the electric utility must buy it, according to state law.

It’s an important financial incentive that is primarily used by homeowners or the developers of small renewable-energy systems. It enables a person who installs photovoltaic panels on his home’s roof to benefit when he’s at work and the system is still producing power. Or the owner of a wind turbine can be compensated for power generated at night when she’s in bed but the blades are still spinning.

Net metering in that form is a common practice throughout the United States, designed to support the development of renewable energy.

But last year, Rhode Island legislators tweaked the law governing net metering, mainly in response to issues raised by Portsmouth. The amendment loosened the definition of net metering in the state, creating something different from the nationally accepted practice.

The Portsmouth turbine is able to sell power to National Grid only under this new, more relaxed definition.

According to National Grid, the Portsmouth turbine was initially planned to be installed behind an electric meter at the high school, so that it would provide power directly to the school building, its gym and tennis courts. Any power from the turbine that wasn’t used at those sites would flow back through the meter and into the electric grid. Portsmouth would then be credited a dollar amount for that excess power.

But because of difficulties setting the turbine up “behind the meter,” including complications with a plan to sell already-installed poles, wires and transformers from National Grid to the town, the machine was instead connected directly to existing distribution lines, or “in front of the meter.”

This made crediting Portsmouth for only the excess power it produced – the traditional definition of net metering – impossible. The turbine, in effect, became a wholesale generator, feeding all of the electricity it produced directly into the power grid, not to the high school.

“Every [kilowatt-hour] that the turbine generates goes directly onto the grid,” Gary R. Crosby, Portsmouth’s assistant town planner, wrote in a letter that was shared with Riggs. “In theory, you used some of that electricity when you made your coffee this morning. We do not ‘save’ money by using power from the turbine that we would otherwise have to purchase from [National Grid]. We make money by selling power to [National Grid]. The distinction is important.”

National Grid agreed to the arrangement because the alternative would have been difficult for both sides.

“Given the set of facts at the Portsmouth site, the Company made an accommodation to help the town avoid otherwise significant costs,” the utility’s senior counsel Thomas R. Teehan wrote in a letter to the Division of Public Utilities and Carriers. “The resulting configuration is not net metering as that term has traditionally been understood, but rather has been inadvertently labeled as net metering as one of the multiple interpretations of state law in Rhode Island.”

Because the setup was considered net metering under state law, National Grid never negotiated a power purchase agreement with Portsmouth. An agreement would have been reviewed by the PUC, which could have rejected the selling price.

Instead, state law required National Grid to buy the power at a prescribed rate that is higher than what the utility pays for power from other sources, such as natural gas-fired power plants.

Portsmouth sells its power to National Grid at the exact price the utility charges the town and other customers in the same rate class. It’s a retail rate, not a wholesale rate. The bundled price includes the actual cost of energy, along with other charges for distribution, transmission and transition.

For the industrial class the town falls under, that rate totaled 11.4 cents per kilowatt hour during the first year the turbine was in operation. In comparison, over the same period of time, the wholesale rate for electricity in the same class hovered around 7 to 8 cents per kilowatt hour.

Portsmouth also made money, and still does, by selling federal renewable energy credits, financial incentives that accrue with the production of clean energy. Under a 10-year agreement, Portsmouth sells the RECs at 4 cents per kilowatt hour to People’s Power and Light, whose customers voluntarily buy them to support green power.

According to Crosby, for the 12-month period from April 2009 to March 2010, the wind turbine generated 3,712,800 kilowatt hours. Using a combined rate of 15.4 cents per kilowatt hour – the retail rate of electricity plus the price of RECs –– the town made $571,325 in revenues from the power. Expenses for the same period, for debt service, operations and maintenance and contributions to two reserve funds, totaled $314,250.

That left the town a net income for the period of $257,075 – money it could use to pay its energy bills or any other line item in the municipal budget.

But Riggs contends that Portsmouth does not deserve all the money it is being given. By receiving a retail rate for power, Portsmouth is being paid for distribution and transmission, services the town does not provide. Rather, National Grid provides them. It’s the utility that maintains the power lines that distribute electricity.

If National Grid is giving that money to Portsmouth, Riggs reasons, it must have to get it from somewhere else: other customers.

“Essentially, National Grid is paying whatever the rate is and getting zero compensation from Portsmouth for maintaining the distribution system,” he said. “And, of course, Grid is passing that cost along to all of us.”

Although that cost may be small in the Portsmouth case, what happens when more wind turbines, such as a towering one proposed in North Kingstown, or solar energy systems, like a sprawling project being considered in Westerly, come on line? The costs to other ratepayers would mount, he says.

Riggs has argued another point that National Grid has also indicated may be true. If the turbine were accurately labeled as a wholesale generator, it may be subject to additional federal review and a requirement that the price of power it generates does not exceed the “avoided cost” of the purchasing facility.

In layman’s terms, the price should not be higher than what National Grid pays for power from conventional sources.

The Division of Public Utilities and Carriers saw enough merit in Riggs’s concerns that it opened an investigation in September. The case will be decided by the three-member Public Utilities Commission, which has yet to schedule a hearing on the matter.

Supporters of renewable energy in the state concede that Portsmouth’s relationship with National Grid does not fall within the traditional view of net metering. Lutz, of People’s Power and Light, calls the arrangement “net excess generation.” Seth Handy, a Providence lawyer hired by the state to review renewable energy laws, calls it “distributed generation.”

“The problem is it was created to get a toe under the tent,” Handy says. “It was the best we got to do at the time and it morphed into something different than what net metering has traditionally been.”

No matter what its name, however, they say the arrangement is legal and a part of Rhode Island policy to support clean energy. In fact, Handy is working with lawmakers on legislation to be introduced this General Assembly session that would specifically allow similar setups for other renewable energy projects.

The supporters also doubt that federal law would apply to the Portsmouth turbine and require a lower price for its power. In the Public Utilities Commission docket, National Grid cites a case before the Federal Energy Regulatory Commission involving a California utility that appears to support giving greater authority to federal law. But a clarification issued by the FERC in October actually gives states more autonomy, say Handy and others.

“As I understand it, Grid’s argument is that federal law preempts state law in this conflict,” said Jerry Elmer, staff attorney in the Rhode Island office of the Conservation Law Foundation, a New England environmental group. “The CLF has some real skepticism about whether that argument about federal preemption is correct in this circumstance.”

Lutz says there is justification for Portsmouth receiving a higher price for its power. The turbine reduces stress on the regional power grid and may actually dampen the overall price of power by providing electricity during periods of peak demand.

“Portsmouth is being rewarded for taking the risk and doing the right thing to increase our energy independence, slow global warming and increase avoided costs to the power grid,” she says.

Daniel Mendelsohn, principal of Applied Science Associates, a South Kingstown-based environmental consulting firm, said Riggs’s position is misguided.

“[Riggs] has a short-term view of things, focusing on the immediate cost of the electricity, not the long term prospect for potentially significantly more expensive electricity as our fossil fuel supply begins to dwindle,” he wrote in an e-mail. “Not to mention the fact that the real cost of extracting those fuels, including natural gas, is not presently paid for and will be a continuing and growing nightmare to future generations; also not to mention the potential economic growth and benefit to the state and country from the development of the renewable energy industry.”

Developers in the state’s green power industry are watching the Portsmouth case closely. They fear that the PUC or the state legislature could place restrictions on net metering to prevent other projects from imitating the way the Portsmouth turbine sells its power. National Grid has suggested paying projects at a lower, wholesale rate.

Even at a wholesale price, Portsmouth would likely turn a profit, though it would be a smaller one. And revenues would increase again once the town pays off its debt on the turbine.

But a change in the law represents a disruption to an industry that is still trying to find its feet in Rhode Island.

In response to possible amendments, the East Bay Energy Consortium, nine communities proposing a wind farm in Tiverton, is now considering other ways to sell its power, said Mendelsohn, who is advising the group. One possibility is negotiating a long-term contract with National Grid, which is required to buy clean energy under the state’s Renewable Portfolio Standard.

In addition, Bob Chew, president of the wind division at Alteris Renewables, said his company is currently redesigning a wind power project at the Sandy Woods Farm housing development in Tiverton, so it will be behind the meter and comply with a stricter interpretation of net metering.

But two other proposals Alteris was hired to work on in Washington County are on hold until a decision is reached in the Portsmouth case. Neither proposal can be reconfigured, Chew said.

“The last thing we want is to put these wind turbines up thinking they’ll get the retail price, and then once they’re up, find out that they’ll only get a portion,” he said.

Source:  By Alex Kuffner, Journal Staff Writer, The Providence Journal, www.projo.com 9 January 2011

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

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