The deal was reached as part of an agreement that allowed NSTAR to merge with Northeast Utilities. Two years ago, Massachusetts regulators approved Cape Wind’s contract to sell 50 percent of its power to National Grid. According to the company, these combined power purchase agreements are sufficient for construction to begin.

The three hearings will be held in Natick, MA, on May 22, Barnstable, MA, on May 23 and Boston on May 30.

Delaware Official Backs Transmission Backbone

Delaware Natural Resourcs Secretary Collin O’Mara said the Atlantic Wind Connection offshore wind transmission backbone could be a boon to the region even without a local offshore wind project, the Wilmington News-Journal reported today.

Bluewater Wind had planned a project off the Delaware coast, but that project was scuttled late last year.

According to the report, O’Mara said the project could bring down electricity rates. He also cautioned, however, that more negotiation was needed with regional grid operator PJM Interconnection.

The deal is for 27.5 percent of Cape Wind’s output, according to the report.

Initially reluctant, NStar officials agreed to purchase Cape Wind power in exchange for the state’s approval of a proposed merger with Northeast Utilities.

“We know that it will take a diversified approach using all available renewable resources to meet the state’s climate change goals,’’ NStar spokeswoman Caroline Pretyman said.

Maryland Rally for Offshore Wind

Maryland activists surrounded the Statehouse and cheered Gov. Martin O’Malley’s call for offshore wind, the Washington Post reported today.

The governor’s offshore wind legislation was approved by the House of Delegates and is now in front of the Senate Finance Committee.

“It’s very, very important that you talk with [lawmakers] and that you ask them to support wind power now,” O’Malley said.

Offshore Wind Wire: Cape Wind recently achieved a significant breakthrough with a tentative agreement for a merged regional utility to buy electricity from the project. The deal means you have buyers for 77.5 percent of the energy output. Is this sufficient to move forward with financing and project development? What is the plan for locating buyers for the remaining electricity?

Jim Gordon: Governor Patrick and NSTAR’s announcement that NSTAR will purchase a considerable portion of Cape Wind’s power represents a big win for the people of Massachusetts and brings closer the new jobs, cleaner air, and greater energy independence Cape Wind will provide.  We are ready to commence the project financing stage.  Meanwhile we will continue pursuing opportunities to market and sell the remaining power.

OWW: When do you expect to begin construction? And when do you expect to begin operation?

Gordon: We expect to begin construction in 2013.  Construction will take 2 ½ years.

OWW:   Last week, Deputy Interior Department Secretary David Hayes said he does not want Cape Wind to be the template for US offshore wind development. Has the federal government done enough to avoid another decade-long permitting saga?

Gordon: I am proud of the role that Cape Wind has played in helping the nation develop a regulatory framework for reviewing offshore wind farms so that they can be approved in much shorter time than was the case for us.

OWW: Given the vast experience you’ve accumulated in offshore wind, are you planning to develop other projects after Cape Wind?

Gordon: By building and successfully operating Cape Wind, America’s first utility scale offshore wind farm, we at EMI will be in a position to be one of the nation’s leading offshore wind developers and yes we will certainly pursue other opportunities.  Offshore wind power is too important to the United States to be limited to one project or a few projects, the potential is to build tens of gigawatts in the years to come.  I’m very excited to move forward.

Offshore wind developer Cape Wind appears poised to secure a second buyer for the electricity to be produced by its proposed project off Massachusetts.

Governor Deval Patrick’s administration and other key players have advanced a plan to allow two major utilities to merge on the condition that the resulting utility agree to buy part of Cape Wind’s output.  While the deal still faces regulatory approval by the Massachusetts Department of Public Utilities, the prospect of having buyers for most of the project’s output is promising for Cape Wind and may enable financing needed for construction.

First proposed in 2001, Cape Wind Associates intends to develop an offshore wind project in federal waters in Nantucket Sound.  The project would cover about 25 square miles centered around Horseshoe Shoal, and would consist of 130 turbines, each of which could be rated at 3.6 MW.  Total nameplate capacity could be as high as 468 MW, but due to cable and transformer losses and station service load the maximum deliverable net capacity is closer to 420 MW.

In average wind conditions, the project is expected to produce 182 MW; according to federal regulators, this average expected production could provide about 75% of the electricity demand for Cape Cod and the nearby islands of Martha’s Vineyard and Nantucket.  Ten years later, Cape Wind has obtained its environmental permits, and in 2010 became the first U.S. offshore wind project to receive a commercial lease from the U.S. Department of Interior.
 
Cape Wind is not a traditional electric utility with a franchised service territory, but rather would be a standalone or merchant generator.  These non-utility projects typically require financing prior to construction, which in turn typically requires a developer to have power purchase agreements (PPA) in place for most if not all of the project’s output.  Cape Wind already had a buyer for half its output, as the Massachusetts Department of Public Utilities approved a PPA between Cape Wind and utility National Grid.  Prices for the National Grid deal start at 18.7 cents per kilowatt-hour, escalating 3.5 percent annually over a 15-year term.  Despite legal challenges, that agreement was upheld by the Massachusetts Supreme Judicial Court in 2011.
 
Though the National Grid deal gave Cape Wind a buyer for 50% of its output, it struggled to find a buyer for the rest of its production.  Other utilities, such as NSTAR, declined to enter into PPAs for the project’s output, turning instead to land-based wind projects for renewable power.  While Cape Wind could sell energy at wholesale into the New England market at the prevailing rates, PPAs with utilities or other electricity suppliers facilitate financing by giving investors greater certainty over a project’s revenue streams.  PPAs can also benefit developers by locking in above-market prices, such as those contained in Cape Wind’s PPA with National Grid, as long as utilities are willing (or required) to enter into such deals to achieve state environmental goals or other objectives.
 
In 2010, utilities NSTAR Electric Company, NSTAR Gas Company, and Western Massachusetts Electric Company along with holding company parent Northeast Utilities petitioned the Massachusetts Department of Public Utilities (DPU) for approval of a proposed $17.5 billion merger.  After over a year of litigation at the DPU, last week Governor Deval Patrick announced that his administration had negotiated an agreement to settle the merger case.  Under the proposed settlement, the utilities would be allowed to merge under a series of specified conditions.  These conditions are designed to create enhanced ratepayer benefit, and include a one-time credit to utility customers totaling $21 million. 
 
The settlement conditions would also require the merged utility to enter into a contract to buy 27.5% of the electricity to be produced by the Cape Wind offshore wind project, or 129 MW, for a 15-year term.  Proponents suggest that offshore wind will be important in helping Massachusetts comply with the Green Communities Act and the Commonwealth’s renewable portfolio standard and thus that it is appropriate to condition the merger on ensuring this benefit.
 
The DPU has asked for initial comments on the settlement proposal by February 27, 2012, with reply comments due by March 2.  If the DPU approves the settlement proposal and allows the merger, NSTAR will have to negotiate the price terms of the PPA with Cape Wind.  While these terms could take any number of forms, the National Grid PPA is seen as a likely model for a subsequent NSTAR PPA, particularly since an NSTAR PPA would be subject to DPU review and approval.
 
All told, the National Grid PPA plus the proposed NSTAR PPA could give Cape Wind a buyer for 77.5% of its energy output.  While there may be no magic threshold at which point the project could complete its financing, the developer likely hopes that a PPA with NSTAR would enable it to move forward with project development.

Todd J. Griset practices energy law with Preti Flaherty Beliveau & Pachios in Maine. He also writes a blog on offshore wind, renewable energy and policy issues.

The agreement is a major breakthrough for Cape Wind, which has an agreement to sell 50 percent of its output to National Grid but has struggled to find a buyer for the remaining electricity.

“Today’s announcement by Governor Patrick represents a major step forward in making Massachusetts a leader in offshore wind power,” said Cape Wind President Jim Gordon. “By including Cape Wind in this utility merger Settlement Agreement, NSTAR and the Patrick Administration are helping ensure that Cape Wind will supply up to 500,000 homes with locally harvested renewable energy and create hundreds of new jobs.”

The January 3 report said that “the ISO and its consultants … have determined that it is unlikely that the project will achieve Commercial Operation” by June 1, 2015.

The company disagreed with the ISO New England assessment.

“We think it is very likely we’ll be online by June 2015, either in whole or in part,” said Cape Wind Vice President Dennis Duffy.

Atlantic City Project Aims For 2013 Commissioning

Fishermen’s Energy vice president and senior counsel Paul Gallagher said yesterday that his company’s Atlantic City offshore wind project is almost ready to begin construction, the Press of Atlantic City reported today.

Construction is waiting on a decision in March from the New Jersey Board of Public Utilities on the sale of the project’s electricity.

“We have arranged our financing, selected our turbines and lined up our contractors … We are, in what Obamaspeak refers to, as ‘shovel ready,’” Gallagher said. The decision in March “will allow us to put steel in the water next summer (2013), with turbines installed in August and power being generated by Labor Day 2013.”

Maryland Rallies For Offshore Wind

Over 100 protesters rallied at the Maryland statehouse this week to urge state lawmakers to support Gov. Martin O’Malley’s offshore wind plan, the Huffington Post reported.

In a major victory for Cape Wind supporters, the Massachusetts Supreme Judicial Court today issued a decision in which it upheld the long term power purchase agreement (PPA) between Cape Wind and National Grid. In its decision, the Court sided with the Massachusetts Department of Public Utilities (DPU) in finding that the Cape Wind project offered “unique benefits” and that the PPA was in the “public interest”.

“Our review of the record indicates that there was clearly sufficient evidence on which the department could base its conclusion that the special benefits of (the PPA) exceeded those of other renewable energy resources, and we uphold the department’s conclusion that approval of the contract was in the public interest,” Associate Justice Margot Botsford stated in the SJC’s opinion.

In November of 2010, the DPU approved the 15-year PPA, saying the project’s unique benefit to the public interest outweighed its costs. That ruling was then challenged in court by trade groups Associated Industries of Massachusetts and New England Power Generators Association, along with opposition group Alliance to Protect Nantucket Sound and energy company TransCanada. The SJC’s decision today will end those challenges, and may clear the way for Cape Wind to find a buyer for the other half of its electricity generation.

“This decision provides a big boost for creating up to 1,000 jobs and providing Massachusetts with cleaner air, greater energy independence and a leadership position in offshore wind power,” said Jim Gordon, President of Cape Wind.

CAPE WIND ADVOCATE CLOSES ITS DOORS

Clean Power Now, a Cape Cod non-profit supportive of Cape Wind and other renewable energy projects, has announced that it is halting its efforts. Executive Director Barbara Hill announced the group’s plan in an email Thursday morning citing “challenges” facing non-profits and public and federal support for Cape Wind. “This decision is bittersweet, but both the governing board and the staff feel that our core mission has been accomplished through our work as citizen advocates for America’s first fully permitted offshore wind farm – Cape Wind,” Hill wrote in her email. “Today, a strong majority supports the Cape Wind project, and the project has cleared all local, state and federal reviews, with help from Clean Power Now at each step along the way.”

UPDATE

Mark Rodgers, Communications Director for Cape Wind, recently issued a statement on the closing of Clean Power Now:

“Volunteers, Staff, and Directors of Clean Power Now should be very proud of their important work and accomplishments in ultimately helping Cape Wind become a reality.  They mobilized the voices of the many people of the Cape and Islands who support Cape Wind and they were there in force when they were most needed to demonstrate public support and to help counter misinformation being put out by project opponents.  I think after Secretary Salazar approved Cape Wind and granted us a lease last year that many of their members rightly felt a sense of ‘mission accomplished’ but that also made it harder for their organization to continue to move forward with the same energy as they had in the past. You also see evidence of the challenge in keeping up that energy on the other side as the Alliance to Protect Nantucket Sound recently filed their 2010 financials which show they ended that year nearly 1 ½ million dollars in debt, with contributions not coming close to keeping up with their growing expenses.  As for Cape Wind, we are resolute to continue to move forward to construct and operate America’s first utility scale offshore wind farm that will deliver important economic and environmental benefits to the region and we are grateful to the hard work of the thousands of members of Clean Power Now in having helped make that happen.”

Last week, when the U.S. Court of Appeals for the District of Columbia Circuit overturned a ruling that Cape Wind’s turbines would pose no hazard to aviation, many assumed that the decision would be the latest setback to the project.

The Federal Aviation Administration decision that was overturned had only a 24-month shelf life, which is why Cape Wind has already received three of these “No Hazard” determinations over the course of the project.  In fact, the one that the Appeals Court vacated last week was set to expire in 90 days, at which time Cape Wind would have had to go back to the FAA so they could review the file again and write a new Determination.

As reported by the Offshore Wind Wire, the proposed Cape Wind offshore wind project hit a legal snag last week.  The U.S. Court of Appeals for the District of Columbia Circuit issued an order overturning a finding by the Federal Aviation Administration (FAA) that the Cape Wind project’s wind turbines would pose no hazard to aviation.

While this ruling may be a setback for the project, it reveals the complex interplay between federal agencies in permitting offshore wind in the U.S.

Federal regulation of offshore wind projects spans a broad range of activities, from site leasing on the outer continental shelf to marine mammal protection and fisheries to impacts on historic sites.  These regulatory functions are carried out by an “alphabet soup” of administrative agencies from the universe of federal bureaucracy.  FAA is charged with maintaining the safety of air navigation, so the Department of Interior consults FAA before granting a project developer a site lease.

If FAA decides that constructing an offshore wind tower would result in either an “obstruction of the navigable airspace” or “interference with air navigation facilities” like radar systems, FAA has the authority to study the proposed project in more detail and recommend strategies to mitigate the project’s impacts.  On their own, FAA’s recommendations are technically advisory, but the Interior Department can issue site leases contingent upon compliance with any FAA mitigation measures.  This gives FAA’s findings increased importance.

In Cape Wind’s case, after the developer notified FAA of the project, FAA initially issued a Notice of Presumed Hazard, requested public comment, and performed aeronautical studies. FAA analyzed the project for 8 years, ultimately concluding that Cape Wind’s 130 turbines “would have no substantial adverse effect on the safe and efficient utilization of the navigable airspace by aircraft or on the operation of air navigation facilities.”  FAA issued 130 identical Determinations of No Hazard for the project, one for each proposed turbine.

In the meantime, the Department of Interior granted Cape Wind a site lease, contingent on compliance with aviation impact mitigation requirements in the lease as well as any FAA recommendations; once the FAA found no hazard, no such recommendations applied beyond the mitigation measures required in the lease itself.

The Cape Cod town of Barnstable, Massachusetts and the Alliance to Protect Nantucket Sound challenged FAA’s No Hazard determinations by filing a petition for review by the D.C. Circuit Court of Appeals.  Petitioners argued that FAA had violated its governing statute, misread its own regulations, and failed to calculate the project’s safety impacts on aviation.

The D.C. Circuit agreed with the petitioners, finding that “FAA did misread its regulations, leaving the challenged determinations inadequately justified.”  The court noted that the record contained evidence of safety risks from the project, such as avoiding the towers in foggy weather and increased traffic density if planes must divert around the project’s airspace.  By contrast, the court found that the record did not contain sufficient countervailing evidence:

While of course the wind farm may be one of those projects with such overwhelming policy benefits (and political support) as to trump all other considerations, even as they relate to safety, the record expresses no such proposition.

The court also found that while the Department of Interior technically could have ignored an FAA determination of hazard, it was likely that the “Interior Department would rethink the project if faced with an FAA determination that the project posed an unmitigable hazard.”

The court found that FAA improperly applied its own handbook in evaluating whether the project would have an “adverse aeronautical effect.”  In the D.C. Circuit’s view, FAA interpreted its handbook too narrowly, and “catapulted over the real issues and the analytical work required by its handbook.”  As a result,

FAA may ultimately find the risk of these dangers to be modest, but we cannot meaningfully review any such prediction because the FAA cut the process short in reliance on a misreading of its handbook and thus, as far as we can tell, never calculated the risks in the first place.

The court noted that it could not tell whether FAA will find the project to be a hazard when it applies the handbook guidelines correctly, but that it would hold FAA to the “standard requirement of reasoned decision-making, i.e. to require the FAA to address the issues and explain its conclusion.”  As a result, the court vacated FAA’s No Hazard determinations, sending the question back to FAA for further analysis and a renewed determination process.

FAA will now reconsider whether the Cape Wind project would pose any adverse effects on air navigation.  The D.C. Circuit did not rule that FAA reached the wrong conclusion in finding the project would pose no hazard, but rather that FAA did not properly document (and it appears properly consider) how it reached that conclusion.

FAA now has guidance from the court as to how to conduct this determination.  FAA’s new look at the project could result in the agency reaching a different conclusion, but could equally well result in a stronger order affirming its previous finding the Cape Wind project would pose no hazard to aviation.  Either way, Cape Wind’s signed lease with the Department of Interior remains in effect, yet the D.C. Circuit’s ruling reveals the complexity of navigating the multiple layers of federal regulation of offshore wind projects.

Todd J. Griset practices energy law with Preti Flaherty Beliveau & Pachios in Maine. He also writes a blog on offshore wind, renewable energy and policy issues.