The Massachusetts Department of Public Utilities (DPU) is reviewing comments that were submitted regarding the proposed timetable and method for a solicitation of long-term contracts for offshore wind energy generation.
As noted in a May 1 DPU notice of filing and request for comments, Fitchburg Gas and Electric Light Company d/b/a Unitil (NYSE:UTL); Massachusetts Electric Company and Nantucket Electric Company d/b/a National Grid; and NSTAR Electric Company and Western Massachusetts Electric Company, each d/b/a Eversource Energy (NYSE:ES), on April 28 jointly filed a petition with the DPU for approval of the proposed timetable and method for the solicitation and execution of long-term contracts for offshore wind energy generation resources, under Section 83C of An Act Relative to Green Communities.
Section 83C provides that the electric distribution companies are required to jointly and competitively solicit proposals for offshore wind energy generation by June 30, 2017; and, provided that reasonable proposals have been received, are to enter into cost-effective long-term contracts for offshore wind energy generation for an annual amount of electricity equal to about 1,600 MW of nameplate capacity by June 30, 2027.
The DPU also said that in developing the provisions of long-term contracts, the electric distribution companies are to consider long-term contracts for renewable energy certificates (RECs) for energy and for a combination of RECs and energy.
The solicitation filed in this docket (D.P.U. 17-103) represents the first solicitation conducted under Section 83C, the DPU said, adding that the electric distribution companies may conduct one or more competitive solicitations through a staggered procurement schedule developed by the electric distribution companies and the Massachusetts Department of Energy Resources (DOER).
This solicitation seeks bids for a total of 400 MW of offshore wind energy generation, and it allows bidders to offer proposals for up to about 800 MW for the electric distribution companies’ consideration, if the evaluation team determines that a larger-scaled proposal is superior to other proposals submitted in response to this request for proposals (RFP) and is likely to produce significantly more economic net benefits to ratepayers based on the evaluation criteria set forth in this RFP, the DPU said.
To support development of the offshore wind energy market, the electric distribution companies are seeking proposals that include expandable, nondiscriminatory, open-access offshore transmission facilities for the efficient delivery of their power to the onshore transmission system, the DPU said.
In their April 28 filing, the companies said that for purposes of meeting the requirements of Section 83C, “offshore wind energy generation” means offshore electric generating resources derived from wind that are Class I renewable energy generating sources; have a commercial operations date on or after Jan. 1, 2018; and operate in a designated wind energy area for which an initial federal lease was issued on a competitive basis after Jan. 1, 2012.
Of the solicitation method, the filing noted that the distribution companies, in consultation with the DOER, have agreed to jointly issue the RFP; coordinate the receipt of bid proposals through the evaluation team; and evaluate bids jointly through the evaluation team. The distribution companies are responsible for negotiation and execution of final contracts, with the DOER having the right to monitor negotiations between the distribution companies and selected bidders, the filing noted. At the conclusion of the process, each distribution company will submit to the DPU a request for approval of each executed contract, under Section 83C and the DPU’s regulations, the filing said.
Of the solicitation timetable, the filing noted that after the DPU approves the method and timetable for solicitation and execution of the long-term contracts, the distribution companies will promptly issue the RFP to a wide range of potentially interested parties. A bidders’ conference will be held after the RFP is issued, and potential bidders will then have the opportunity to submit written questions regarding the RFP with responses due 40 days thereafter. The April 28 filing further noted that the:
- Submission of proposals will occur 173 days from RFP issuance
- Selection of bidders will occur 326 days from RFP issuance
- Negotiation and execution of contracts will occur 460 days from RFP issuance
- Submission of contracts for regulatory approval will occur 489 days from RFP issuance
In its May 1 notice, the DPU said that it would accept written comments regarding the proposed timetable and method for the solicitation by May 15, and that reply comments will be due by May 22.
In its May 15 comments, the Conservation Law Foundation (CLF) said that the solicitation timetable should be structured to ensure that project selection and contract negotiation are completed as early as possible in calendar year 2018, thereby allowing the project developer to take advantage of the 2018 summer construction season.
The CLF further recommended that the DPU require a significantly earlier project operation deadline, stating, for instance, that there is no technical justification for a project operation date that is nearly a decade away.
“Because it is technically feasible to develop a 400-MW offshore wind project much more quickly than the draft RFP would require, a developer could conceivably delay project development in an attempt to ‘game’ the market,” the CLF said. “In this instance, benefits to ratepayers and the public would be delayed and the initial solicitation would not serve to catalyze a vibrant domestic wind industry. Ratepayers should not bear this risk.”
Similarly, state Sen. Julian Cyr (Cape and Islands District) and state Rep. Dylan Fernandes (Barnstable, Dukes and Nantucket District), in their May 15 comments, recommended that the DPU adjust the timeframe for bidding and selecting projects to shorten the process by several years, and to require projects to be in service by 2023 instead of the current date of 2027.
“The earlier the projects are selected, the better chance those projects have of accessing a higher level of the federal investment tax credit (ITC), which declines with each year (until it is phased out in 2020,” the lawmakers said. “Pushing projects into the 2019 qualifying year, instead of giving them a good chance to qualify in 2018 will result in increased project costs – in the millions of dollars. The greater level of federal ITC support will allow projects to be more competitively priced and lead to direct ratepayer savings.”
Among other things, they said that they recommend that bidders be selected by March 1, 2018, instead of May 22, 2018.
In its May 15 comments, Deepwater Wind said, “As the company that built America’s first offshore wind farm, we believe the ratepayers and taxpayers of the Commonwealth will be best served if the state continues to move to create a competitive environment where multiple developers are engaged in building multiple projects, over a predictable and accelerated time frame.”
Deepwater Wind said that it believes it would be a mistake for the state to authorize one big project, as some are advocating for, adding, “Even a 400 MW project would be one of the largest infrastructure projects ever undertaken in the New England region.”
A project substantially larger would impose unnecessary risks to the state’s offshore wind program, as supersized projects can create stakeholder, ratepayer, and policy concerns that can lead to lengthy delays, Deepwater Wind said.
Among other things, Deepwater Wind said that creating volume in the industry through multiple awards to multiple companies over time will also allow for the creation of a robust supply chain and new industry in Massachusetts.
Among entities commenting was Anbaric Development Partners, which said in its May 15 comments that the RFP should be structured to include a competitive solicitation for the transmission component of all generation bids.
The Act does not require the transmission project itself to be included or bundled with the generation bid, Anbaric said, adding that the proviso states only that if a transmission project’s costs are included in a bid, the DPU may authorize cost recovery through a FERC jurisdictional rate.
Because the provision for cost recovery is written as a proviso, which must be read as a narrow exception to a general rule in accordance with the rules of statutory construction, the statute generally contemplates that a proposal could be made that includes “associated transmission costs” without including a specific transmission project.
The most likely arrangement for a bundled transmission and generation bid would be for the transmission developer to enter into a FERC-jurisdictional agreement with the electric distribution company’s transmission affiliate to pay for the developer’s costs, Anbaric said. The transmission affiliate, which is not subject to the DPU’s jurisdiction, would then allocate the facilities agreement costs to the electric distribution company through its transmission rates, Anbaric said.
The transmission project’s revenues from the facilities agreement – paid by the electric distribution company transmission affiliate – would be subtracted from the cost of the “all in” DPU-approved generation bid, leaving only the net cost of the offshore wind generation itself to be passed through distribution rates, Anbaric said.
Among other things, Anbaric said that while the Act is silent as to cost recovery for a project that is not bundled with generation, the same framework would apply, but without a need to offset the generation bid costs, because the generation contract would include only the offshore wind generation costs. The independent transmission developer’s costs would be handled through a transmission service agreement with the electric distribution company transmission affiliate, which would pass through those costs to the electric distribution company in transmission rates, Anbaric said.