Monday, October 29, 2007

PSC Staff Report Recommends Against Current Wind Farm Proposal

I've only had a few minutes to peruse the Public Service Commission (PSC) staff report on the term sheets. The PSC report is not gentle:
As set forth in detail in the attached Independent Consultant (the “IC”) Report, the proposal outlined in the Bluewater Wind, LLC (“Bluewater”) Term Sheet is not the same project that Bluewater proposed in its initial bid received and previously reviewed by the IC. In fact, viewed solely from an economic prospective, the new Bluewater proposal has little relationship to its prior bid. First and foremost, the negotiations with Bluewater have not reduced the price of the project, as was the expectation of Staff when it recommended negotiations with Bluewater in its report issued six months ago, but rather increased those prices dramatically. Instead of “sharpening its pencil,” Bluewater has used the negotiations to dramatically escalate the potential cost of the project to Delmarva Power (“Delmarva”) and its Standard Offer Service (“SOS”) ratepayers.
The key objection is a proposed energy price adjustment based on commodity costs during the construction of the wind farm. Bluewater Wind wants an index to protect it from increases in commodity prices between now and the installation of the turbines.
The Bluewater Term Sheet raises prices for its services to Delmarva. Bluewater’s original bid employed a fixed payment rate for energy, capacity, and Renewable Energy Credits (RECs). Moreover, the Bluewater Term Sheet includes an energy price adjustment provision to track changes in the commodity indices and currency exchange rates. This price adjustment shifts the energy payment rate in one direction – upward and towards the SOS ratepayers who will now bear 100% of the risk associated with these new price escalators. Second, the Bluewater Term Sheet delays the project in-service date by one year, which further increases the ratepayers’ risk associated with the Bluewater project.
So what happens next?
Staff recommends that the State Agencies continue the review of energy supply alternatives, including on and offshore wind projects, in PSC Docket No. 07-20.
Docket No. 07-20 sets a procedure for Integrated Resource Planning for Delmarva Power, different from the RFP process governing the current negotiations. In other words, negotiations to bring wind power to Delaware could shift to a different regulatory process. I imagine that the current negotiations could continue; after all Delmarva Power hadn't actually agreed to the term sheets now on the table.
You can download the staff report and the independent consultant's report here.

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