Energy department supports scrapping wind contract
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Wind turbines
In its bid to win Department of Public Utilities approval to scrap energy contracts for a 1,200-megawatt offshore wind installation, Commonwealth Wind has secured the backing of a potentially influential figure: another arm of the Healey administration.
The state Department of Energy Resources gave its support to Commonwealth Wind's push to pay $48 million and back out of its previous agreements with utility companies for the project, a move that would clear the way for developer Avangrid to pursue more favorable terms in a new round of bidding.
An attorney for DOER told the DPU, which must approve the proposed contract termination, that freeing Commonwealth Wind from the deal would "allow for the project to seek viability through other means while preventing protracted litigation unlikely to produce additional ratepayer benefits."
"Indeed, DOER recognizes the significant inflationary pressures and supply-chain issues facing projects like Commonwealth Wind and is committed to the development of a robust offshore wind industry in the region," DOER legal counsel Colin Carroll wrote in public comment filed with DPU earlier this month.
Both DOER and the DPU are part of the state's Executive Office of Energy and Environmental Affairs.
Energy and Environmental Affairs Secretary Rebecca Tepper, who oversees both DOER and the DPU, had previously applied some public pressure on Avangrid. In late February, while the company was pressing to back out of its contracts but before it had announced a termination agreement with utilities, Tepper told Avangrid she was "committed to establishing procurement processes that do not reward developers for backing out of their commitments."
"As you know, the procurement process entails risk that project costs will change between contract execution and commercial operation," she wrote at the time. "Bidders assume these risks and cannot in good faith anticipate that ratepayers will absorb higher costs if macroeconomic conditions change."
Commonwealth Wind had been positioned as a major step toward a clean energy future in Massachusetts, representing more than a third of the 3,200 megawatts already approved and enough generation capacity to power 750,000 homes.
But as the nascent offshore wind industry continues to face growing pains, Commonwealth Wind officials have argued for months that they can no longer finance the project under previously reached contracts with utilities due to increasing price pressures tied to the Russian invasion of Ukraine.
With the pool of competitors limited, Avangrid higher-ups are taking a calculated risk that after walking away from existing agreements, they can win another round of bidding and secure better contract terms that will make the installation viable.
Carroll said DOER believes that DPU letting Commonwealth Wind out of its current power purchase agreements with utilities "will help provide opportunity for the commercial success of the project."
"That while Commonwealth Wind is untenable under current market conditions is disappointing, DOER maintains that the successful development of offshore wind projects in the region is essential for a clean, diversified energy portfolio as well as providing greater opportunities for development of local supply-chain and offshore wind industry jobs in the Commonwealth," Carroll wrote.
Parent company Avangrid in July announced it reached a deal with utility companies to spike their contracts and end a lawsuit challenging DPU's past efforts to keep the contracts in place.
Under the proposal, Avangrid would pay $25.9 million to Eversource, $21.6 million to National Grid and $480,000 to Unitil, money that the utilities would then credit to their customers.
"DOER finds that the Termination Agreement considers ratepayer protections even under failed [power purchase agreements] with the return of $48 million to ratepayers through each Company's Long-Term Renewable Contract Adjustment," Carroll wrote. "This provision effects short-term rate relief to the Commonwealth in exchange for the Project's lost opportunities."
The reviews were not so favorable across all of state government, however.
Deputies for Attorney General Andrea Campbell, who by law serves as ratepayer advocate, gave DPU more pointed commentary about Commonwealth Wind's proposed contract termination, writing that it represents "a significant shift of the risks associated with building offshore wind facilities from private developers to ratepayers."
"When the subject [power purchase agreements] were executed, the AGO believed appropriate ratepayer protections were built into their terms, including pay-for-performance, delay damages, and development and operating period security provisions," Assistant Attorneys General Jacquelyn Bihrle and Matthew Saudners wrote. "Those [DPU]-approved protections, however, proved to be illusory -- Commonwealth Wind determined that a $48 million 'Termination Payment' is a preferred business approach than performing on its contractual obligations."
The AG's office said it believes future state solicitations for offshore wind power will now leave ratepayers expected to "foot the bill for what are very likely to be significantly more expensive [power purchase agreements], with no commensurate additional benefits to compensate ratepayers for the increased risks they must shoulder.
The Healey administration is planning to open the state's fourth round of procurement soon, and their plans seek to take into account a bidder's "experience and track record," including past projects that have been delayed, withdrawn or otherwise halted.
Campbell's office said the AG wants additional "safeguards" that would both protect ratepayers and "send a clear deterrent message to potential developers that failing to perform on valid contracts is unacceptable." Options include higher bid fees, increasing the development period security for each power purchase agreement contract, and a "stringent non-delivery disincentive," Bihrle and Saunders wrote.
"The AGO acknowledges and appreciates the challenges posed by these proposed Amendments in the context of the Commonwealth s commitment to procure offshore wind energy generation," they wrote. "Indeed, it is precisely because of these challenges that it is imperative that the Department and other stakeholders take concrete steps to ensure that ratepayers are protected to the greatest extent possible from cost overruns and risks associated with developing offshore wind energy generation here in the Commonwealth."
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