PROVIDENCE – Last August, when the state Public Utilities Commission approved a contract for the sale of power from what could be the first offshore wind farm in the country, it was unable to take into account the full costs of the project, a lawyer representing opponents to the pact argued before the Rhode Island Supreme Court on Wednesday.
State law limited the PUC’s review to only the $205-million wind farm that developer Deepwater Wind would build within three miles of Block Island and did not consider the additional cost, estimated at up to $50 million, of an undersea transmission cable that must be built to connect the project to the mainland.
If the cable were factored in, said attorney Michael R. McElroy, the price of power would surely be even higher than the rate of 24.4 cents per kilowatt-hour agreed to in the contract by the utility, National Grid, and the overall proposal would, he argued, be an even worse deal for the state.
“Sure, we’d like to be first in the water, but you can’t do it at any cost,” McElroy said.
McElroy argued before the five Supreme Court justices that the 20-year agreement between National Grid and Deepwater Wind should be overturned because the costs of the wind farm far outweigh any of its potential economic benefits. His clients, Toray Plastics and Polytop Corp., are two manufacturers that use a lot of electricity and say that the higher cost of power from the wind farm would harm business and could deter them from expanding in the state.
They contend that the PUC erred in approving the controversial deal because, they say, it fails to meet the standard of being commercially reasonable. Their chief objection is the starting price of up to 24.4 cents per kilowatt-hour, which is nearly three times what National Grid pays for power from conventional sources, primarily natural gas-fired power plants and nuclear facilities. The price in the first year may be lower if Deepwater is able to save money on construction but, no matter what, it would increase 3.5 percent annually in subsequent years.
And, says McElroy, the cost of the cable will add to that cost. Although it’s not bundled into the Deepwater price, ratepayers would still be responsible for that cost through a separate surcharge.
“Is it even conceivable that the wind farm can be constructed without the cable?” asked Chief Justice Paul A. Suttell.
“Not at all, your honor,” said McElroy. “You can’t do the project without the cable.”
Gerald Petros, the lawyer for Deepwater and National Grid who also argued on behalf of the state on Wednesday, acknowledged the importance of the cable. But he contended that its cost was not included in the base price because it’s unclear who will install it. Deepwater and National Grid are still deciding which of them will do it.
Moreover, he said, the cost of the cable was rightly not considered in the case before the PUC because it would have muddied the waters as the commissioners tried to compare the cost of Deepwater’s wind farm with other similar projects. Although offshore wind farms have been built in Europe, none are located as far off the coast as Deepwater’s proposal, so none have required the construction of a long transmission cable.
“It’s a peculiar need related to this project,” Petros said.
In any case, he added, the cable cost was not listed among the criteria the PUC was tasked to consider in an amendment to state law passed last year by the General Assembly and signed by then-Gov. Donald L. Carcieri. The PUC did consider the project’s environmental benefits, which Petros described as “significant,” because it would negate the need for the diesel generators that currently provide power on Block Island.
And the commission looked at the economic benefits of the wind farm. The state is making a large investment in the project, because policymakers believe that a broader offshore wind industry will develop along the East Coast with new companies moving into, say, Quonset Business Park in North Kingstown.
“It’s worth investing in this small demonstration project, because when the big projects are developed, we can say, ‘We’ve done it,’ ” Petros said.
But McElroy said that any potential benefits would pale in comparison with the detrimental effects on existing businesses in the state. He referred to a report by a consultant hired by the state Economic Development Corporation – which supports the wind farm – that estimated $129 million in benefits. In comparison, Rhode Islanders would pay an estimated $415 million more for power from the wind farm over the 20-year contract than if they bought the equivalent amount of power generated from conventional sources.
“The numbers make it clear that it simply does not make financial sense to do this project,” McElroy said.
The Supreme Court has no deadline to make a decision in the case, but lawyers expect a ruling in the coming weeks.
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