Two companies complaining about the increased electricity costs they would face from an offshore wind farm just south of Block Island argued that the state should have wrapped the $40 to $50 million cost of a transmission cable into its projections when deciding whether it made financial sense.
“This small project would be the most expensive offshore project in the world,” lawyer Michael R. McElroy told the Supreme Court during arguments Wednesday morning.
But a lawyer for Deepwater and National Grid, calling the project a “loss leader,” argued that the time for financial considerations was past. “The General Assembly’s decision was not just about dollars and cents,” said Gerald Petros. “This positions Rhode Island to take advantage of an emerging industry.”
Toray Plastics and Polytop Corp. were appealing the Public Utilities Commission’s decision last summer to allow Deepwater Wind to put five to eight large offshore turbines about three miles off the island’s south coast.
The PUC “only had part of the pricing” they needed to determine whether the project met the standard laid out in enabling legislation of being “commercially reasonable,” McElroy said. “Would the legislature really be saying if there’s the slightest benefit to this, despite enormous cost, it’s worth it?”
The farm is expected to cost $204 million and realize $129 million in economic benefits from money the company will spend in the state on jobs and development, including a new manufacturing plant and company headquarters at the port of Quonset. It will provide a cable linking Block Island to the mainland grid – something the island has been unable to afford on its own – and help the state fulfill its commitment to buying power from renewable sources.
National Grid would be required to buy power from Deepwater at a rate of 24.4 cents per kilowatt hour, almost triple the current price of electricity from fossil fuel sources.
The more expensive power is expected to raise rates by about 2 percent for most state users. The companies told the Supreme Court that the hike in power costs would prevent them from expanding in the state.
And, they say, more hikes will be coming, since the agreement didn’t take into account the cost of the cable. The PUC should have included that cost when comparing Deepwater’s project to comparable projects in Germany, argued McElroy.
The wind farm would be the first offshore turbine project in the United States. Deepwater has argued it needs the Block Island project to test its technology. It plans to then build a much bigger, $5 billion project further offshore, in waters between Rhode Island and Massachusetts. That project would benefit from efficiencies of scale to produce significantly cheaper power. How much cheaper had been unclear until Deepwater submitted a bid to the Long Island Power Authority at the end of last week, offering power at 14 cents per kilowatt hour from the larger, utility-scale project. If the bid is accepted, Long Island would consume much of the power the second project is expected to generate.
The manufacturers are the last challengers to the 2010 purchase agreement with National Grid that guarantees Deepwater a buyer for power from its Block Island demonstration project.
The agreement mandates that Deepwater build a cable that would connect Block Island to the mainland grid, giving ratepayers here access to rates that would bring island electricity bills down to about a third of what they currently cost. Island power users would consume about 13 percent of the power generated by the turbines, and the rest would go to the state. And they would have to pay only about 10 percent of the cost of the cable – the rest would be spread out over all state ratepayers.
But the agreement doesn’t lay out who will own the cable, and McElroy focused on that as a weak point in arguments before the court. Since both Deepwater and National Grid can opt out of owning the cable, and the project can’t happen without the cable, he argued that the agreement is basically void. “Having a mutual opt out violates the statute,” he said, “because you have to have the cable.”
McElroy also argued that when Deepwater lowered the projected cost of the project from $219 million to $204 million, they took out a necessary contingency fund. The argreement was supposed to pass through any cost savings to rate payers, he said, so taking it out showed that the company wanted to “put it in their own pockets instead of allowing it to go to ratepayers.”
Petros, in his counter argument, said the commission didn’t consider cable costs because it wasn’t yet decided who would own it. In addition, he said, there was no comparable project – it wouldn’t have been comparing “apples to apples,” he said. Instead the PUC looked at an existing project in Germany that had a far shorter cable, and used that as a yardstick for deciding whether similar parts of the Deepwater project – including a cable to the island, but not the second longer cable to the mainland – met industry standards.
And, Petros also, costs from the cable are factored into the agreement, because it specifies that whoever owns the cable will pass on the cost to ratepayers after 2013.
The project will also realize benefits other than financial ones, Deepwater argued. It will put Rhode Island out in front of the pack in a growing industry – one of the focuses of the legislation, and of former Governor Donald Carcieri, a proponent of the wind farm. There’ll be construction jobs, environmental benefits and economic development, including expansion of the port of Quonset. For these reasons, financial considerations weren’t the main focus of the legislation and therefore weren’t the main focus of the PUC’s assessment. “Toray’s gripe is not with the PUC, it’s with the legislature and the governor,” Petros said. “Toray cannot challenge that decision in this court.”
He said there is the potential for state waters to produce 3,000 megawatts of electricity from wind turbines, worth billions of dollars. “It’s worth investing in this demonstration project so that when the big projects get built, we can say, “‘We’ve done it, we’ve got the experts.’ This is a loss leader – they’re making an investment.”
“What about if industries like Toray leave the state?” asked Chief Justice Paul A. Suttell. The increased power rates could represent only about a .25 percent increase in costs overall, replied Deepwater, surely not enough to make or break business decisions.
McElroy countered that “The General Assembly, if it wanted to, could have simply authorized this – but they didn’t do that, they sent it to the commission to see if it’s commercially reasonable. Sure we would like to be first, but we can’t do it at any cost.”
It was the last argument of the term for the Rhode Island Supreme Court, which went into recess Wednesday until the fall. The court is expected to give its decision by July 4.
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