New legislation to create the quasi-public East Bay Energy Consortium needs some clarification, including an explanation of proposed eminent domain power and issuing of bonds.
The East Bay Energy Consortium (EBEC), made up of the nine East Bay communities, has submitted a bill to the Legislature to enable the creation of a quasi-public agency. New legislation creates a need to clarify issues and to inform the public.
Background: EBEC was formed in late 2009 to use renewable energy and energy efficiencies to save taxpayer money by reducing the amount of energy our municipalities pay for. (Schools, streetlights, water treatment, and municipal buildings require a lot of energy.) Each city and town joined through council resolution and a cash contribution or in-kind payment, and each city and town council appointed one representative and alternates to attend meetings and report back to the municipality.
Entity: Rhode Island state law provides for an entity called a quasi-public agency. There are currently 21 in the state with various powers. Some of the better-known agencies with the power of eminent domain and the ability to issue bonds are the Economic Development Corporation and the Narragansett Bay Commission. Since February, EBEC has met with councils, administrators, municipal solicitors, planners, legislators and experts to inform and to seek advice about the form of the legislation. EBEC held a special breakfast meeting for all municipal leaders and legislators on March 20. This meeting was well attended, and the presentation from the meeting was sent to all municipalities along with any requested supplemental information. As of May, eight of the nine councils have passed resolutions in support of the legislation that would enable creation of EBEC.
The quasi-public agency EBEC will have a board of directors, one from each municipality. These representatives will be appointed by the cities and towns for a term specified in their respective ordinances; councils will decide who will serve. The legislatively created EBEC will be made up of the member municipalities, but will be separate from them for purposes of liability. It is anticipated that meetings of the agency will be subject to the open meetings law and will have annual audits available to the public. EBEC does not presently envision hiring personnel, paying pensions or purchasing land, but the permissive language is included in the bill to give cities and town the flexibility to respond if economies of scale make hiring staff the most efficient solution to meet the goal of providing cash flow to cities and towns to reduce tax burdens
Eminent Domain: Creation of a quasi-public agency requires a specific power as an “indicia of governmental authority”. There are three powers: police, taxation and eminent domain. The use of eminent domain in member municipalities is in the legislation. Eminent domain is a serious and complex process, and there is no current plan to use it, but EBEC requires one indicia of governmental authority to issue bonds. For EBEC there are three checks on the use of eminent domain: 1) Any EBEC project and the exercise of eminent domain will require a majority vote of the board, 2) Use of eminent domain will require the affirmative vote of the host municipality’s appointed representative and 3) EBEC projects will include a host community payment. The council must approve the terms of this payment and any other restrictions, including the use of eminent domain. But the governmental authority of eminent domain must be in the enabling legislation so that EBEC can issue revenue bonds.
Bonds and bonding: EBEC will issue tax-exempt bonds to finance the Tiverton project and future projects, and will not use the bonding capacity of member cities and towns, so the municipalities will not be liable for the debt, EBEC will.
Competition with private developers: The legislation will enable EBEC to compete for site control contracts, to apply to National Grid for interconnection studies, and puts EBEC on an equal footing with private developers because EBEC’s becoming a quasi-public agency enables it to participate in negotiations, submit applications, and finance projects. Issuing tax-exempt bonds makes EBEC competitive with private developers who utilize tax credits and accelerated depreciations to make the economics viable.
Without the legislation, financing is not possible and EBEC projects are not viable. The difference to our municipalities is that should a project be financially viable, and EBEC develops the project, the municipalities make the money, not a developer.
Our first project, the Tiverton wind farm, is an expensive one. Our member cities and towns will reserve their bonding capacity for their own projects and our project will pay for itself. The bonds will be guaranteed by a long-term electricity purchase contract with National Grid, who will purchase the electricity the project generates. This contract is the security that bond investors will look for. It is important to state that the Tiverton project, and any other project, will be subject to rigorous due diligence examination before it goes forward and any bonds are issued. EBEC will know if there is adequate wind, if interconnection is feasible, if National Grid will purchase the electricity at a reasonable price, if there is appetite in the sophisticated capital market for the bonds, if permits are obtainable, if the project conforms to local ordinances, and if the host community wants the project, before anyone picks up a shovel or issues a bond.
The Tiverton site is ideal because it is large, remote from residential areas, is near a highway for delivery of equipment, is near an interconnection site to the electrical grid, and has an adequate wind resource. The site was selected after two feasibility studies by a RI engineering firm who conducted a survey of municipal property in all nine cities and towns, with the assistance of the nine municipal planning departments.
National Grid and purchase of EBEC’s electricity: National Grid is required by RI law to purchase a set quantity of renewable energy each year or pay a penalty, and we want them to purchase energy generated in RI. The purchasing process is competitive, and our project needs to be financially feasible. Just like a private developer, EBEC will need to prove that we can provide a product at a competitive price. EBEC’s advantage is that all the money made will go to our cities and towns, finance the bonds, and pay for operation and maintenance. Should the project go forward, it is a major construction project in our own state, and will be sent out for competitive bidding.
Electrical rates: Electrical rates are regulated by the PUC and are a combination of the cost of procuring the electricity, transmission, operation and maintenance, taxes and the Renewable Energy Charge. As a reminder, under Rhode Island law National Grid (NGrid) must purchase a certain percentage of its electricity from renewable sources each year or pay a penalty If there isn’t enough electricity from renewables produced in Rhode Island to purchase at a good price, NGrid has to buy it from out of state. The PUC regulates rates, and they ultimately regulate the cost NGrid will pay for any electricity it purchases. Because they have to buy from renewables, don’t we want NGrid to buy a Rhode Island product and keep the money in state for our taxpayers.
The Tiverton project is a major engineering project, but nothing that hasn’t been done many times before. We have been fortunate to have the support and vision of nine Councils, planning departments, finance departments, engineers, as well as the support of Roger Williams University, EDC, the Rhode Island Foundation, private cash donors and our experts. It will employ steelworkers, electricians, concrete experts, arborists, heavy machinery operators and other trades and professions.
Revenue estimates: Until the scope of the project is well defined, EBEC makes profit assumptions based on similar projects, just like in the private sector. Because all profits will be divided among the members, and costs like interconnection are currently unknown, we make conservative estimates. Private developers, who only pay a portion of proceeds to a municipality and keep the major share, can perhaps be more definite about their payment to municipalities. When EBEC completes more detailed interconnection studies and the turbine locations are known, all cities and towns will be informed. It’s all part of the decision making process for the project, and collaboration among our cities and towns.
EBEC’s website is eastbayenergy.org.
East Bay Energy Consortium, Christine Forster, Vice Chair
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