On New Year’s Eve, most people watched the ball drop in Times Square or sang “Auld Lang Syne.” Tom May was waiting for the exact moment he could dump the Cape Wind contract.
He never liked Cape Wind, and the Patrick administration twisted his arm to buy power from the controversial offshore wind project as a condition of NStar’s $17.5 billion merger with Northeast Utilities.
May was running the Boston power company at the time, and he’s now the chairman and chief executive of Northeast Utilities. On Dec. 31, Cape Wind missed a critical deadline to secure financing, start construction, or put up financial collateral to extend the contract with Northeast. That gave Northeast and another utility, National Grid, a reason to pull out.
In 2012, the NStar-Cape Wind deal was considered a stroke of political genius, driven by Ian Bowles, Governor Deval Patrick’s first energy and environmental affairs secretary.
Cape Wind wanted to be the nation’s first offshore wind farm – and the state was eager to help because it would be the ultimate symbol of the Patrick administration’s clean-energy revolution. To get financing, Cape Wind needed customers, in the form of utilities locked into long-term contracts to buy electricity.
National Grid, excited by renewable energy, signed on first, agreeing to buy half of the power produced by Cape Wind. The utility, based in the United Kingdom, was comfortable with offshore wind farms, which were already up and running on the other side of the pond.
May had nothing against the wind or renewable energy. It’s just that electricity from Cape Wind, which would set up 130 turbines in Nantucket Sound, would be expensive. And that matters in a state where electricity costs are already twice the national average.
“Clean energy,” May told the Globe in 2010, “isn’t cheaper energy.”
I’m sure May’s concern for the ratepayers was sincere. But the CEO, who has a nice place on the Cape, was probably getting an earful from other members of the multimillionaire club worried about what the project would do to their vacation compounds.
Power from the $2.5 billion Cape Wind project would indeed be pricey. But since state regulators had to approve the utility merger, Bowles and Patrick were able to put the squeeze on NStar.
May ended up agreeing to a 15-year Cape Wind contract with a base rate of 18.7 cents per kilowatt hour, the same price as National Grid. No doubt it was done through clenched teeth, knowing that power from land-based wind farms costs about 8 cents per kilowatt hour. Over the life of the contract, NStar would pay an average price of 24 cents per kilowatt hour.
Who knew the salty seabreeze off Nantucket was as rich as the island itself?
There are real reasons why offshore wind comes at a premium. It costs more to build in the middle of the water, but companies want to be there because of the steady winds.
Jim Gordon, who made his money building power plants, proposed Cape Wind in 2001. He picked Nantucket Sound for its shallow waters in a location protected from harsh ocean waves, making construction and operation of the turbines easier.
After all these years, Gordon seemed close with permits and a good chunk of funding in hand. The state even started to build a $113 million marine terminal in New Bedford to support Cape Wind construction.
Cape Wind had already extended its contract with the utilities once and could have exercised another six-month extension if the wind company put down a $1.8 million security deposit.
But on Dec. 31, Gordon, in a letter to utilities and regulators, cited “unprecedented” litigation by the project’s chief opponent, the Alliance to Protect Nantucket Sound, which he believed triggered a so-called force majeure clause that would automatically extend contract deadlines.
Neither utility agreed that the lawsuits constituted a force majeure, which typically applies to unforeseeable natural disasters or labor strikes.
“We saw that the future was uncertain if the project itself was not willing to buy six months of time with $1.8 million,” said James Daly, vice president of energy supply at Northeast Utilities.
So now what?
No doubt Cape Wind is looking at its legal options. Did the utilities breach their contracts? I’m told the company has already spent $100 million fending off lawsuits from the Alliance and others. What’s a few more legal bills?
Even though Gordon may have thought Cape Wind was on solid legal ground, it was stupid not to pay the collateral. The utilities called his bluff, and the project is now all but dead.
Maybe this is why they pay Tom May the really big bucks. He got his merger – which grew his stock holdings and pension benefits to more than $80 million – and he did it without Cape Wind.
No matter what else happens in 2015, it’s already a happy new year for May.