Merger may impact nation’s 1st offshore wind farm
Monday, September 26, 2011
BOSTON (AP) — The nation’s first offshore wind farm enjoys high-profile federal and state backing, but it hasn’t been able to win over one important party: the second-largest utility in Massachusetts.
Cape Wind sorely needs to attract big power customers to obtain the financing to fully build out its 130-turbine project in Nantucket Sound. But the utility NStar has taken a tepid public stance on Cape Wind — chief executive Tom May once proclaimed his company “agnostic” about it.
It may be about to get religion.
A pending merger between NStar and Northeast Utilities has become a possible pressure point to get NStar to buy Cape Wind power.
Since the merger was announced last year, regulators added a requirement that such deals must advance the state’s clean energy goals, which include developing offshore wind. The state also made a request, still pending, to stay proceedings for a review of the merger’s effect on rates — a lengthy process that could lead to a merger-killing delay.
The moves are obvious attempts to pressure NStar to buy power from a favored private developer, said Republican state Rep. Brad Jones, minority leader in the Massachusetts House.
“(It’s) the great administration shakedown of NStar,” he said.
In The Wall Street Journal, environmental attorney Robert F. Kennedy Jr. accused Gov. Deval Patrick’s administration of “trying to hold hostage the proposed NStar-Northeast Utilities merger unless the two electric companies agree to buy Cape Wind’s power.”
But the state says it’s just upholding the law and protecting the public interest. Asked if the filings were related to Cape Wind, Department of Energy Resources commissioner Mark Sylvia said, “No.”
The state is now in discussions with NStar about the utility buying Cape Wind’s power, Sylvia said. He said a purchase would be “a welcome step,” because Cape Wind helps meet various state clean energy goals, including installing 2,000 megawatts of wind energy by 2020, Sylvia said.
Asked if a purchase would affect the state’s decision to pursue the merger stay, he said: “We’d drop our motion to stay, ultimately, if NStar could demonstrate how the proposed merger would result in a net benefit to ratepayers and the commonwealth’s clean energy goals.”
NStar declined comment on whether it was in talks about buying Cape Wind power or felt pressure to buy it to preserve the merger, which would create New England’s largest utility.
Cape Wind represents the nation’s first major step in turning its offshore breezes into energy. Last year, U.S. Interior Secretary Ken Salazar approved the project after nine years of grinding federal review, hailing it as “a new direction in our nation’s energy future.”
It soon had its first customer in National Grid, the state’s largest utility, which agreed to buy half of Cape Wind’s power for an average of about 24 cents per kilowatt hour over 15 years. Its deal met a state requirement that utilities enter long-term contracts to buy 3 percent of their electricity from renewable sources, but critics said it was too expensive for electricity customers.
No other state utility has since signed on, and NStar is the only one large enough to buy a significant chunk of Cape Wind’s output.
Without committed buyers for all its power, Cape Wind is unlikely to find financing for the full $2.6 billion project, which it plans to begin operating in 2013.
It could try to move a smaller project forward. But if Cape Wind builds 110 turbines or fewer, National Grid must pay more for the power, according to its contract.
Cape Wind has argued, and state regulators have agreed, that focusing narrowly on price overlooks the project’s unique benefits, such as the jobs it will spur and close proximity to an area thirsty for electricity.
But NStar has so far pursued cheaper power, filling about half its state requirement with three contracts from land wind farms at less than half the price National Grid would pay Cape Wind. NStar chose from dozens of bidders, indicating it could bypass Cape Wind and still fill its entire renewable energy requirement.
But that won’t be as easy as it would have been nine months ago.
In January, the state Department of Energy Resources made an ultimately successful filing arguing mergers shouldn’t be judged just on the historical standard of whether consumers aren’t harmed, but also if they benefit — such as by the advance of the state’s clean energy goals, which include developing offshore wind.
Then in July, the department asked regulators to delay merger proceedings until NStar met various conditions, including the rate review. NStar said that could take more than a year, past the merger’s April 2012 “termination date,” when either party can back out.
Rate cases are normally the attorney general’s purview, but Sylvia said his department got involved because “it’s our responsibility to be aware of what the (merger’s) impacts are to consumers.”
He added the standard for reviewing utility mergers had to be changed after Massachusetts passed the 2008 law that set the new renewable energy goals. The NStar-Northeast Utilities deal just happened to be the first merger since, he said.
Rep. Jones said he’s concerned Cape Wind deals will sock ratepayers in a state already dealing with high-cost energy. He’s filed a bill which would amend the 2008 law to require utilities to sign the lowest priced power deals after competitive bidding.
Jones noted the state’s recent record backing renewable energy companies has blemishes, including a solar company that went bankrupt after receiving tens of millions in grants and incentives.
“I have a bit of a concern when we’re picking winners and losers in terms of business,” he said.
If NStar does sign on with Cape Wind, there’s little risk to shareholders, since any added costs would be passed directly to ratepayers, said Travis Miller, associate director at Morningstar Inc. equity research.
Signing on “would be any easy way to appease regulators,” Miller said. “However, it does nothing to benefit customers, which is supposed to be the regulators’ key criteria.”
Andrew Tarsy, president of the pro-Cape Wind Progressive Business Leaders Network, said it’s debatable just how much governments should push private projects, but it’s done at different levels all the time, and the public can benefit.
“One person’s interference is another person’s public policy,” Tarsy said.
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