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June 29, 2017

Legal Update
Dylan Sanders

Massachusetts utilities seek contracts for offshore wind energy, but for when?

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Even as the federal government under the current administration is doubling down on fossil fuels, the Massachusetts Department of Public Utilities (DPU) has approved a plan submitted by the state’s utilities to begin soliciting the first round of long-term contracts for offshore wind energy, a process that will start with the issuance of a Request for Proposals on June 29, 2017. The DPU, however, rebuffed calls from some to set a deadline for commercial operation of the offshore wind farms under development sooner than January 1, 2027, which means that actual generation from those facilities – and the anticipated environmental benefits, including helping the state meet the greenhouse gas emission reduction requirements of the Global Warming Solutions Act – could be as much as a decade away.

Under a law passed by the state legislature in 2016, the utilities must by June 2027 enter into long-term contracts to purchase at least 1,600 megawatts of offshore-wind-generated energy capacity, and must begin soliciting contracts for a quarter of this capacity—400 megawatts—by June  2017. The utilities—Eversource, National Grid, and Unitil—submitted, and DPU has now approved, a timetable and joint request for proposals for the initial 400-megawatt minimum, though bidders will be allowed to offer proposals for up to 800 megawatts of capacity, provided this results in a superior bid and significant net benefits to ratepayers. The plan then contemplates a staggered procurement schedule for one or more bids for the remaining offshore-wind capacity required by the statute.

Three companies are expected to bid for the wind contracts: Bay State Wind (a partnership between DONG Energy of Denmark and Eversource), Deepwater Wind, the developers of the Block Island Wind Farm in Rhode Island, and Vineyard Wind. Each have “won” at federal auction leases of areas south of Martha’s Vineyard for wind farms.

The generators’ bids are to be submitted by December 2017.  Selection will occur by April 2018, and contracts with one or more generators are to be submitted for DPU approval by July 2018. This schedule is slightly more accelerated than the timetable originally proposed by the utilities. During a comment period before finalizing and approving the plan, the DPU considered comments from the three prospective bidders, Massachusetts attorney general Maura Healey, state legislators, and many environmental groups, including the Conservation Law Foundation and the Environmental League of Massachusetts. Some commentators argued that the slightly more aggressive schedule ultimately approved by the DPU would benefit ratepayers, by making it more likely for developers of the wind farms to take advantage of diminishing federal tax credits, thereby reducing the cost of offshore wind energy.

The RFP approved by the DPU sets an outside commercial operation date of January 1, 2027.  Various legislators, environmentalists, and one of the wind developers, Vineyard Wind, sought a substantially earlier commercial operation deadline.  Vineyard Wind argued, among other things, that further delay past 2023 is not technically warranted, and will undermine the ability of the state to meet the greenhouse gas emissions reduction requirements of the Global Warming Solutions Act.  The DPU was unpersuaded by these contentions.

The DPU declined the requests of CLF and other environmental groups to prescribe certain specific environmental-evaluation criteria. The agency concluded that its role in reviewing the utilities’ proposed plan is limited at this stage to “timetable and methods of solicitation,” and said that environmental concerns will be dealt with later, during the review of executed contracts.

The DPU also declined the suggestion of some commentators that first-round bids should be limited to a 400-megawatts maximum, in order to open the process to a wider range of generator-candidates, and to minimize risk to ratepayers—the idea being that further capacity would be left for subsequent procurement when costs will likely have fallen. Indeed, the DPU ruled that utilities could consider individual proposals for less than 400 megawatts, rejecting arguments from some commentators that the statute does not permit such lower-capacity bids. Generators making such smaller bids will be required to submit alternative proposals to supply the 400-megawatt minimum, and the utilities must aggregate any lower-capacity bids to meet the 400-megawatt mark.

Finally, against the recommendation of the Attorney General and others, the DPU ruled that the utilities can require bidders to submit two separate transmission options for connecting to the ISO New England grid: a project-specific transmission line, and an “expandable transmission facility” option, which would enable nondiscriminatory transmission from multiple future wind projects.

It will be interesting to see how the developers of the offshore wind farms respond to the RFP and position themselves for participation in the new energy economy now being shaped by state statute, regulation and policy.

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