AG wrests price cut from Cape Wind

Jul 31, 2010 — The Boston Globe

By Beth Daley

Jul. 31, 2010 (The Boston Globe delivered by Newstex) -- The developers of the Cape Wind energy project in Nantucket Sound have agreed to reduce the price of its electricity by 10 percent, saving consumers at least $456 million over the 15-year span of a proposed contract with National Grid.
The deal, negotiated by Attorney General Martha Coakley's office, comes amid deepening controversy over the cost of the 130-turbine project planned for the waters off Cape Cod. National Grid signed an agreement in May to purchase 50 percent of Cape Wind's power at prices more than double the current cost of electricity from fossil fuels - and higher even than other renewable power.
The agreement and attorney general's endorsement is expected to make it easier for the con tract to gain approval from the state Department of Public Utilities, which is reviewing it to see whether it is fair for ratepayers. The agency's signoff is critical for the project to get financing.
But the deal did not satisfy critics, who reacted angrily to the news, saying the project is still far too expensive in a state that already has some of the highest electricity rates in the country. Both Coakley and some opponents demanded that Cape Wind reveal projected construction costs and how much profit the developers anticipate making. The attorney general's office did not win a concession from Cape Wind to disclose such information.
``This agreement accomplishes two important goals - working to develop renewable energy, specifically offshore in Massachusetts, and ensuring customers get the benefits of this project under a much fairer price than what was originally proposed,'' Coakley said in a statement.
Instead of the 20.7 cents per kilowatt hour National Grid and Cape Wind negotiated as a starting price, customers would pay 18.7 cents per kilowatt hour, according to the agreement, probably saving homeowners several dollars a year - and businesses much more. The cost per kilowatt is to increase 3.5 percent per year if the entire project is built, as was agreed to in the original contract.
To ensure that National Grid's customers will not have to pay for even more Cape Wind power, the agreement also prohibits the utility from buying the other 50 percent of the wind farm's output, which will also be sold at 18.7 cents per kilowatt hour, with an annual price increase of 3.5 percent. If Cape Wind receives up to $55 million in federal loan guarantees or saves money through a reduction in construction costs, the contract price will be adjusted downward for consumers.
Cape Wind developer Jim Gordon declined in an interview to say how exactly he was able to afford a 10 percent price reduction, but said, "We wanted to move this project forward'' and that it was important "to garner support particularly from the chief ratepayer advocate in the Commonwealth.''
National Grid officials said they had driven a hard bargain with Cape Wind in the spring, but Coakley's office was able to provide additional leverage for ratepayers, helped in part by changing market conditions such as falling interest rates since the original contract was struck.
Patrick administration officials, who have been strong advocates of Cape Wind, had said the earlier negotiated price was a good deal for ratepayers - and in fact would save money over time by locking in a price and removing a portion of electricity use from volatile fossil fuel markets, in addition to helping fight global warming. National Grid and Cape Wind provided figures showing that the negotiated price in the original contract would mean a rise of slightly more than $2 in the average residential customer's monthly bills, but did not release much information about how that price was negotiated. Business opponents, including the retail giant Wal-Mart (NYSE:WMT) , worried it would translate into steep price increases for stores and warehouses.
Yesterday, Ian Bowles, state secretary of Energy and Environmental Affairs, praised the attorney general's office for negotiating a lower price.
``We're very pleased a revised deal has been struck,'' said Bowles. "I am confident it will save money for Massachusetts ratepayers. The original deal would have saved money but this is obviously a better deal.''
But Associated Industries of Massachusetts, the major lobbying group for businesses in the state, said it was disappointed.
``The settlement circumvents what should have been an open and transparent review by the Department of Public Utilities of the largest electricity rate case in recent memory,'' the group said. "AIM is in favor of `smart' renewable development that is more competitive, cheaper, and less impactful on the business climate than the proposed Cape Wind/National Grid agreement.''
The main opposition group to the project, The Alliance to Protect Nantucket Sound, complained that Cape Wind developers have not been required to disclose how much profit they expect to make. The group is largely concerned about the aesthetics of the wind farm - the turbines will stand 400 feet above the water and be visible low on the horizon - but has also attacked it over cost, environmental, and other issues.
Beth Daley can be reached at bdaley@globe.com.

Newstex ID: BGL-1035-47489667