State Supreme Court Upholds Cape Wind/National Grid Power Agreement

Posted by Robert Rio on Dec 28, 2011 10:44:00 AM

The Massachusetts Supreme Judicial Court (SJC) today upheld the commonwealth’s approval of a power-sales agreement between National Grid and Cape Wind that will require thousands of employers to pay the highest power price ever negotiated in Massachusetts.

Cape WindThe ruling rejects arguments by Associated Industries of Massachusetts that the power sales agreement violates state law by forcing employers in Grid’s service territory to pay for Cape Wind power even if they do not use it. The SJC also ruled that the Massachusetts Department of Public Utilities had the authority to approve the 15-year deal, even though National Grid did not seek competitive bids.

The SJC, in an opinion written by Justice Margot Botsford, ruled that while the Massachusetts Green Communities Act does not explicitly address the authority of state regulators to approve cost-recovery methods for renewable power, “it is well established that the (Massachusetts Department of Public Utilities) has the statutory authority to rule on the appropriateness of proposed cost-recovery formulas.”

“(T)he department's decision in this proceeding is not precluded by the fact that the proposed cost recovery method is novel, particularly in light of the new emphasis on development of renewable energy in the (Green Communities Act)… The department permissibly determined that the environmental benefits of (the power purchase agreement) … will accrue to all National Grid customers, and it is therefore appropriate to require all customers to share in the costs of acquiring these benefits, in accordance with departmental precedent,” the court said.

Richard C. Lord, President and Chief Executive Officer of AIM, said the association respects the ruling of the court but is disappointed with the outcome.

“We continue to maintain that state regulators fell short of their responsibilities to consumers by approving this agreement at a time when other utilities were finding plentiful renewable electricity at less than half the cost of Cape Wind."

Massachusetts employers already pay among the highest electricity rates in the nation. According to the Department of Energy Information Administration (EIA), the average electricity price in the U.S. for industrial customers in July 2011 was 7.39 cents per kilowatt hour (kWh). The average price in Massachusetts was 13.87 cents per kWh, the highest rate in the continental United States.

The Cape Wind/National Grid agreement was the first to be approved under a provision of the Green Communities Act that allows utilities to sign long-term contracts for renewable power directly with generators. Other Massachusetts utilities such as NSTAR have since negotiated renewable power contract for much less than the 25 cents per kWh average cost of the National Grid/Cape Wind agreement.

The cost difference stems primarily from the fact that National Grid chose to negotiate with Cape Wind individually, outside a competitive bidding process, while NSTAR and the other utilities chose to bid their renewable power requirements competitively for generation anywhere in New England.

The legal challenge that AIM filed on behalf of employers and others was based upon three broad arguments:

  • National Grid’s allocation of the above-market costs of Cape Wind to ratepayers is inconsistent with the law and harms ratepayers on competitive energy supply;
  • The amount of the Power-Purchase Agreement exceeds 3 percent of total electricity demand in the National Grid territory and therefore exceeds the legal cap on the amount of renewable power utilities must purchase through long-term contracts; and
  • The National Grid/Cape Wind contract was not competitively bid.

The first issue was the most important for AIM member employers. National Grid has chosen to allocate the $1 billion in above-market costs of Cape Wind to all customers, even though the power will be funneled only to the customers who buy electricity from National Grid. That means businesses that buy power on the competitive market to help moderate their costs will be forced to pay extra money - tens of thousands of dollars in some cases – for power they do not use, essentially making them pay twice for electricity.

Topics: Issues, Energy, Cape Wind

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