PROVIDENCE – Rhode Island’s dominant energy utility is pushing back against legislation requiring it to solicit offers for more offshore wind power, saying that it needs more money from ratepayers than state leaders would allow.
In a hearing this week, representatives of National Grid, which serves 780,000 gas and electric customers in the state, came out against the bill, telling legislators that a financial incentive in the measure falls short of what the company would need to protect its bottom line.
The legislation, submitted on behalf of Gov. Dan McKee, would set the incentive payment to the utility at 2% of the total value of a power-purchase agreement. With recent offshore-wind contracts worth billions of dollars, the payment to the utility would be in the tens of millions of dollars. All of it would be paid by electric ratepayers and would come on top of what they pay for the energy delivered to them.
National Grid says remuneration is necessary because long-term commitments to buy offshore wind power are risky investments that could harm its credit rating and increase the costs of borrowing.
But whether that’s true and such payments to the utility are actually justified are matters of debate.
“It’s just a little bit hard to swallow when we’re talking about billions of dollars, which most people can’t even fathom what that means,” said Sen. Dawn Euer, who introduced the bill. “I just want to level-set this conversation … and want to make sure that they’re not just paying folks to have great vacations and their private jets.”
National Grid says offshore wind contracts are risky commitments
While the contract for the Block Island Wind Farm provides National Grid an incentive worth 2.75% of the contract, and offshore wind contracts approved in Massachusetts include a similar payment, Rhode Island utilities regulators rejected any incentive for a contract approved in 2019.
National Grid asked for a payment for that agreement to buy 400 megawatts of capacity from the Revolution Wind proposal, but the Public Utilities Commission rejected the request, concluding that the company failed to provide evidence that its financial standing would be harmed. The commission took a similar position in a decision approving a contract National Grid had agreed to with a Connecticut solar farm.
Attorney General Maura Healey reached the same conclusion in her assessment of the incentive in Massachusetts, arguing that there was no proof that utilities’ credit ratings would be impaired. The Department of Public Utilities approved the contracts in Massachusetts over Healey’s objections.
Despite the rulings in Rhode Island, which were reached after quasi-judicial evidentiary hearings, National Grid still maintains that not only does it warrant an incentive for the reasons it’s offered in the past, but that the payment should remain at 2.75%.
“In order to maintain a level of stability and support in the regulatory framework, we want to sustain those remuneration amounts,” said Brian Schuster, the company’s director of customer and community management. “We’re concerned with the erosion of the remuneration amount.”
The lower 2 percent rate isn’t the utility’s only concern. The bill would also tie remuneration to the company’s annual earnings in Rhode Island. Once National Grid reaches the earnings level allowed by the PUC, incentive payments from new offshore wind contracts would stop for the year.
At the hearing Wednesday before the Senate Committee on Environment and Agriculture, Schuster said that ultimately it would be ratepayers who suffer if the company doesn’t get the incentive it wants. If the company’s creditworthiness goes down and borrowing costs go up, Rhode Islanders would end up paying more, he said.
“The higher the interest rates, the higher our costs,” he said. “Those costs ultimately get passed on to our ratepayers.”
Legislators unmoved by utility’s concerns
Legislators seemed unconvinced by the company’s concerns. Sen. Josh Miller echoed arguments made by the PUC and by Healey that ratepayers, not the utility, carry the risks of any offshore wind contracts because they’re the ones who will be paying for the energy.
“You’ll negotiate your best deal and then on top of that, you’ll get another two or three percent,” the Cranston Democrat said to Schuster. “Two or three percent might not sound like a lot in any other sector except energy. And then, two or three percent is a whole lot.”
Euer, the committee chair, asked whether credit ratings agencies would really see offshore wind as a risky commitment when the energy landscape worldwide is shifting to renewables. In America, she pointed out, the industry has strong support from the Biden administration. She questioned the need for an incentive that would add to ratepayers’ bills.
“This is the way of the future,” the Newport Democrat said. “We need to do this transition in a way that’s not making folks have to decide between buying milk and putting food on the table or being able to pay their utility bills.”
She asked Schuster if National Grid’s credit rating was downgraded after the rejection of incentive payments for the Revolution contract.
“It was not,” Schuster said.
Euer is lead sponsor of the bill in the Senate. Senate President Dominick Ruggerio and Majority Leader Michael McCaffrey are cosponsors.
Legislation introduced at governor’s request
The introduction of the legislation was made at McKee’s request. It calls for National Grid – or, if a proposed sale announced last year goes through, Pennsylvania-based PPL Corp. – to solicit up to 600 megawatts of new offshore wind power by this August.
If the procurement goes ahead and a contract is signed for the full 600 megawatts of capacity, it would provide nearly a third of Rhode Island’s electric demand, enough power for 340,000 homes. When combined with the 30-megawatt Block Island Wind Farm and the 400-megawatt Revolution Wind proposal, half of the state’s electric supplies could come from offshore wind power alone within the next few years.
The development of more offshore wind is seen as essential to meeting the state’s climate goals.
The House version of the bill introduced by Rep. Arthur Handy, D-Cranston, was referred to the Corporations committee, which has yet to schedule a hearing.
When asked by The Journal whether House Speaker K. Joseph Shekarchi has taken a position on the bill, spokesman Larry Berman said in an email, “Speaker Shekarchi is keeping an open mind and will evaluate the bill after it goes through the legislative hearing process.”
At the Senate hearing, Schuster said National Grid does not oppose offshore wind.
“I do want to make it clear that National Grid absolutely is supportive of the approach and the direction of offshore wind,” he said. “We want to find a workable solution that favors an outcome for all stakeholders.”
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