Governor: The economy is in the toilet, unemployment is skyrocketing and nobody will build a factory here. What on earth can I do?
Aide: I have just the solution: Studio 38 and Deepwater Wind. I have the numbers right here on the back of an envelope.
Governor: Looks stunning. My legacy is made. Let’s go.
Sarcastic? Yes. Close to the truth? You decide.
Well, 38 Studios is behind us, or I should say on top of us, as we the people will cough up $75 million to pay for its bankruptcy. Deepwater Wind will build a small demonstration wind farm to generate electricity off of Block Island. The cost to the consumer is about half a billion dollars in increased electric rates over the next 20 years. In essence, we are financing the cost of building the farm, about $200 million, and giving Deepwater Wind $300 million toward operating costs and profit. The return on investment should be very, very, good once it is leveraged with debt and the federal government kicks in another $60 million. The deal was struck when the legislature approved the price of electricity sold to National Grid of 24.4 cents per kilowatt hour (and escalating by 3.0 percent per year.) This price is absurd when renewable hydroelectric and land-based wind energy is now available elsewhere at 9 cents or less. How and why, you say, did this incredibly bad, deal get funded? I interviewed a number of politicians and interested parties to find out.
The basic justification for the bill was to increase long and short-term employment. This was to be done by attracting additional renewable energy and other types of businesses by projecting an image of Rhode Island as a technologically advanced and receptive green state. There was to be a slight environmental advantage of displacing a tiny bit of fossil fuel somewhere in National Grid’s system.
The first two reasons don’t hold up.
First, per Deepwater Wind’s estimates, there will be little increase in employment. Only six permanent and 50 temporary jobs will be created, some of which will likely be filled by people from out of state.
Second, it is unlikely that a new manufactured “progressive image” will attract significant number of new companies. There’s little incentive to locate in a state that is ranked 50th in Forbes listing of “Best States for Business and Careers,” has high taxes, and an under-skilled labor force. This is not to mention the harm that deals like Studio 38 and Deepwater Wind do to our reputation. Well, maybe not. Companies may flock to us, thinking us fools, in hopes of getting a lush deal.
Third, one small project employing six people does not give us the image of being technologically advanced. It’s a stretch, but this project may reduce pollution a tiny, tiny, tiny bit by displacing coal-generating capacity somewhere, sometime.
To make matters worse, the agreed upon price was the one needed to support Deepwater Wind’s return on investment and to attract its investors. No consideration was given to a price that would benefit both Deepwater Wind and the consumer. In fact, in none of my research on the government’s position, did I see the needs of the consumer addressed.
Then, the Public Utilities Commission turned the project down cold, as it should have. The law dictated that a project be “commercially reasonable”– in this case, meaning that the price of electricity should be reasonably consistent with other energy options. It was not, of course. In the final perversity of the process, the governor and legislature quickly overrode the PUC by changing the law specifically to allow the Deepwater Wind proposal to sail though.
In short, a biased, thoughtless process of negotiating the Deepwater Wind contract left the consumer holding the bag with much of its development costs and profit.
Let me make my position clear. First, I am in favor of renewable energy and think the public should pay somewhat higher electric prices to help the environment and develop a competitive source of wind energy.
Second, I think Deepwater Wind is much maligned by some, and there is no reason to do so. Others and I do not think that Deepwater Wind is dishonest or a bad company. I found its CEO, Jeffrey Grabowski, direct and forthcoming in giving information that I requested and in a hearing with the Narragansett Town Council. The culprits are Governor Carcieri, and the legislature driven by Speaker of the House Gordon Fox. They overwhelmingly approved the deal, even when available evidence showed it not to be in the constituents’ best interests. Maybe our administration and legislature are financially illiterate or didn’t read briefings on the bill. Finally, a company is in business to make money, and no one should criticize Deepwater Wind for negotiating the best deal it could get.
C. Davis Fogg
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