Tuesday, December 11, 2007

It's Time to Do the Deal

We seem to have a pretty good deal on the table. But it's still not good enough for Delmarva Power, as arbitrator Lawrence Hamermesh pointed out in the transmittal letter that accompanied the agreement:
Enclosed for filing is the form of Power Purchase Agreement (PPA) prepared in accordance with the agencies’ December 4, 2007 Order. While it is labeled an “agreement,” and Bluewater has indicated that it is prepared to enter into that agreement, I wish to make clear that there are important aspects of it which Delmarva opposes, and there is therefore no mutually acceptable PPA at this point. I will submit by the end of the day on Wednesday a summary of the several issues on which it was necessary for me to specify a resolution to be embodied in the agreement, and my rationales for resolving them as I did.
Even though the price has come down, the News Journal reports that
Delmarva Power is still balking at the deal, quoting spokesman Bill Yingling:
Yingling said Delmarva continues to have concerns that offshore wind power would cost customers too much. Other forms of renewable energy, such as onshore wind, could be purchased from out of state, he said. The onshore option is not currently on the table, however, as the agencies are following a legislative directive to seek new Delaware-based power generation options.
Yingling said Delmarva continues to be concerned that residents and small businesses, which buy 28 percent of Delmarva Power's electricity, will pay for the extra costs of the wind power. Industrial customers would receive the wind power, but not have to pay more for it.
Yingling said Delmarva was not refusing to sign a contract.
"At this point, we have not been asked to sign a contract yet. So it would be premature
to say we weren't willing. We look forward to seeing how the state agencies address these significant issues in this proposal," Yingling said.
These issues aren't really addressed in the PPA itself. When Yingling and other Delmarva execs talk about seeking other, out of state, sources of renewable energy, what they really mean is that Delmarva wants to scrap the current negotiations and go shopping for energy on the market, just as the company does now. It's a direct challenge to the authority of the PSC and the other state agencies under the law governing the current negotiations.
The second issue, whether standard offer service (SOS) customers take on the burden (and the benefits) of the wind power, is a more subtle matter. If fossil fuel prices don't rise, SOS customers will pay a little more. But if fossil fuel prices continue to climb, these customers will realize savings for 25 years. The question is whether to spread the costs—and the benefits—to all of Delmarva's customers.
But the heart of the matter is that Delmarva Power doesn't want to do a deal, period, end of sentence. The PPA now before us is a good deal. The time has come for the PSC and other state agencies to exercise their authority under the law and direct Delmarva Power to sign the agreement.

7 Comments:

Blogger Nancy Willing said...

yup.

8:59 AM, December 11, 2007  
Anonymous kaivps said...

here is the clincher. When Legislature opens Jan 08 (wow that time already?) we ram a bill through requiring Delmarva pay Blue Water Wind 69,000 dollars a day for wasting their time....Or we could assess a fine, of 69,000 a day, to cover losses for the state...Hell the state needs revenue anyway, correct?

This would last of course until a deal was signed.

3:11 PM, December 11, 2007  
Anonymous kavips said...

Delmarva often says: Other forms of renewable energy, such as onshore wind, could be purchased from out of state.

This has proven to be far more costly than wind from a wind farm....

Demand will outstrip supply, raising the cost...far above what Blue Water Wind proposed.

The reason Delmarva wants to go to land wind power, is that in the future, some form of Pepco will be generating it.

The real money in "generation." Not in the "marketing." With Bluewater Wind Pepco stands to lose a valuable revenue stream. But with Bluewater Wind, Delawareans wins with a stable source of power.

7:24 AM, December 12, 2007  
Blogger Nancy Willing said...

The reason Delmarva wants to go to land wind power, is that in the future, some form of Pepco will be generating it.
*
I think you are correct.

8:11 AM, December 12, 2007  
Blogger TommyWonk said...

There may be something to your view that Delmarva would rather do a deal with a sister company, but I don't think that is the whole story of the company's instransigence.

Delmarva used to be a vertically integrated utility that generated electricity, transmitted it over its power lines and delivered it to its customers. Today, as a part of Pepco Holdings, Delmarva is no longer in the power generation business. Instead, it buys power from sister company Conectiv Energy and from the grid.

Entering into a long term contract into a long term contract with Bluewater Wind would upset its corporate strategy. Most of Pepco's profits come from delivery, not generation.

My best guess as to why Delmarva doesn't want to do the deal is that it's happy buying power off the grid and delivering it to its customers. The company doesn't want the state messing with a profitable business model.

8:45 AM, December 12, 2007  
Anonymous Nick Fernandez said...

Tommy, can you explain why a new wind farm in Deaware is different from a new coal plant in Delaware, in terms of Delmarva's business model. Isn't delmarva buying power from another company in both cases?

9:02 AM, December 13, 2007  
Blogger TommyWonk said...

Nick, your question takes us back to the spring, when the PSC was evaluating three proposals: a new coal plant, a new natural gas plant and the proposed wind farm. Delmarva Power voiced its preference for doing nothing and rejecting all proposals as far back as February.

9:25 AM, December 13, 2007  

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