AIM Asks Court to Set Aside Approval of Grid/Cape Wind Deal

Posted by Robert Rio on Dec 10, 2010 2:56:00 PM

Associated Industries of Massachusetts (AIM) will ask the Massachusetts Supreme Judicial Court Monday to set aside the commonwealth’s recent approval of a power-purchase agreement between National Grid and Cape Wind that will increase electric bills for thousands of Massachusetts employers.

Cape WindAIM will argue in its appeal that approval of the National Grid/Cape Wind deal by the Department of Public Utilities (DPU) was “arbitrary, capricious,” an “abuse of discretion and not otherwise in accordance with the law.” AIM believes the agreement sets a dangerous precedent for allowing utilities to negotiate expensive power agreements outside of the competitive bidding process and to allocate the costs of those contracts unfairly to commercial and industrial customers.

The largest employer association in Massachusetts filed a Petition to Appeal today with the DPU and will file the same petition with the Supreme Judicial Court on Monday.

The DPU approved the proposed power-purchase agreement between National Grid and the 130-turbine offshore Cape Wind project on November 22. It was the first such agreement ever approved under a provision of the Green Communities Act (GCA) allowing utilities to sign long-term contracts for renewable power directly with generators.

AIM was only business association to participate in the DPU hearing process as a full intervener. Acting on behalf of employers who already pay some of the highest electric rates in the country, AIM cross-examined National Grid witnesses and submitted extensive testimony during the hearings.

National Grid agreed to purchase 50 percent of the output of Cape Wind at a cost beginning at 18.7 cents per kWh and increasing 3.5 percent each year for 15 years (extensions possible). Ratepayers also face the prospect of making up any shortfall if anticipated tax credits are not realized, or if they are reduced. The cost does not include a 4 percent fee that National Grid gets just for signing the contract. The kWh price increases if fewer than 130 windmills are built.

The price outlined in the agreement is almost three times the cost of currently available power and almost double the cost of other renewable power. The above market costs of Cape Wind total almost $1 billion over the life of the contract. National Grid ratepayers will assume all of those costs.

DPU approval is critical to Cape Wind’s ability to obtain financing for the project, even though other permitting issues remain pending in various state/federal agencies. AIM is not involved in these issues.

AIM does not oppose Cape Wind because of its location and has never opposed any permitting for the project.

The legal challenge by AIM to the Cape Wind/National Grid contract is based upon the following three issues:

  1. The contract was not competitively bid. AIM believes the intent of the Green Communities Act requires a competitive solicitation for renewable power contracts. The utilities and DPU jointly developed a model Request for Proposals (RFP) that outlined the review standards for reasonableness of price and other criteria so that each project would be judged objectively and consistently across utility regions. National Grid and Cape Wind negotiated the contract outside the competitive process. There is ample evidence that Cape Wind would not have met the articulated standards in the RFP had it gone through the competitive process. Massachusetts electric utilities have together received hundreds of bids under competitive requests for proposals. National Grid and Cape Wind were the only entities to negotiate outside the competitive process.

  2. The amount of the Power-Purchase Agreement exceeds 3 percent of National Grid’s load. The Green Communities Act limits long-term contracts to 3 percent of a utility’s total electricity load. The Cape Wind contract represents 3.5 percent of National Grid’s load. Lowering the contract to the lawful 3 percent would save ratepayers millions of dollars. We also believe that the Legislature intended utilities to reach the 3 percent limit with multiple suppliers rather than a single contract. We consider it bad policy that one contract would subject the utility and its customers to such financial exposure.

  3. National Grid’s ratepayer allocation of the above-market costs of Cape Wind is inconsistent with the law and harms ratepayers on competitive energy supply. National Grid is using the power from Cape Wind to satisfy requirements for basic service customers (those not on competitive supply) while charging the above-market costs to all ratepayers. For example, if National Grid buys power from Cape Wind at 20 cents per kWh and the market price to buy electricity for basic service customers is 10 cents per kWh, all National Grid customers, even those who buy electricity from competitive suppliers, will have to pay the 10-cent-per kWh difference. The allocation adds almost $500 million to the electricity costs of ratepayers on competitive supply, with no benefit. We believe this to be an incorrect interpretation of the law and one that harms our members.

AIM supports competition in retail energy supply and the notion that the ratepayer that receives the benefit pays the cost. The DPU decision ensures just the opposite.

It is important to note that although Cape Wind is really only applicable in National Grid territory at the present time, other utilities are negotiating their own long-term contracts for renewable power to satisfy the requirements of the Green Communities Act. These utilities will look to the precedent established under this order for guidance on how the above-market costs of any power should be allocated. It’s a bad precedent for our members and the Massachusetts economy.

Topics: Associated Industries of Massachusetts, AIM, Energy, Cape Wind

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