Company behind offshore wind test project reduces rates in face of PUC opposition

Posted Jan. 18, 2013, at 3:24 p.m.
Last modified Jan. 18, 2013, at 4:37 p.m.

AUGUSTA, Maine — Faced with likely rejection by the Maine Public Utilities Commission, Statoil North America has revised its terms for a pilot wind energy project in the Gulf of Maine.

The proposal received a guarded reception from Patrick Woodcock, the new director of the Maine energy office, who said Friday that he continues to review Statoil’s new proposal to “see if this is a good deal for Maine’s economy and ratepayers.”

Statoil’s revised proposal reduces the cost to ratepayers of energy generated by the test project and attempts to ease doubts about its long-term economic benefits for Maine. Those changes address concerns raised by Woodcock’s predecessor, Ken Fletcher, and later by PUC Chairman Thomas Welch during an Oct. 4., public hearing on the firm’s original term sheet.

As a pilot project for more extensive development of offshore wind energy production, Statoil North America proposes to moor four floating turbines in federal waters off the coast of Maine to generate 12 megawatts of energy. On May 2, 2011, Statoil submitted a proposal for the project, called Hywind Maine, to the PUC, which had issued a request for proposals after the Legislature passed the 2010 Ocean Energy Act.

Statoil must gain PUC approval for a 20-year contract to sell electricity from its offshore wind experiment to one or more of Maine’s investor-owned utilities — Bangor Hydro, Central Maine Power or Maine Public Service Co. In October 2012, Welch indicated that he would join Commissioner Mark Vannoy in voting against ordering utilities to buy electricity from Statoil unless the firm revised its offer. The PUC’s third commissioner, David Littell, supports the project.

The revised proposal, submitted Monday, cuts the energy cost from $290/Mhw to $270/Mhw and adds a “good faith” commitment to involve Maine contractors in any commercial wind farm Statoil develops along the Atlantic Coast from Maine to Maryland before 2025.

Even with the price reduction, energy generated by the four floating turbines would cost significantly more than market prices. Barring clear evidence that Hywind Maine would benefit Maine’s economy in other ways, that concerns Woodcock, who plans to submit formal comments to the PUC. The deadline to submit public comments on the revised term sheet is Tuesday.

Woodcock voiced concern Friday that Statoil’s proposed price reduction is contingent upon receiving $47 million in U.S. Department of Energy grants and investment tax credits for capital costs.

“I would have hoped that, with those assumptions, the price would have been reduced more for Maine ratepayers,” said Woodcock, noting that the revised proposal would reduce costs to ratepayers from roughly 30 to 27 cents per kilowatt-hour. “We would have hoped that receiving a 30 percent tax credit and a grant would have reduced the energy price more than three cents,” he said.

John Carroll, a spokesman for Central Maine Power, said the utility will file comments to the PUC before Tuesday’s deadline.

“The general sense is that it’s still a lot of money,” he said. “Our concern will be the effect on utility ratepayers and on the price they pay for their electricity.”

During his tenure as Gov. Paul LePage’s energy czar, Fletcher also questioned whether the project warrants a $200 million risk he believes it poses to Maine utility ratepayers.

“I don’t know if Maine ratepayers can shoulder $10 million per year [for 20 years] without more assurance that this will work,” Fletcher told the Bangor Daily News in September. “I know pilot project costs are higher, but if you’re asking Maine ratepayers to pay $10 million per year, we need to see that we’re going to get a reasonable return on the investment.”

Welch echoed that concern in his October 2012 call for Statoil to revise its term sheet. He asked Statoil for assurances that the pilot project would lead to a “much larger offshore wind development” and sought “a sufficient probability of bringing substantial benefits to Maine.”

Statoil presented studies by economists Charles Colgan and Todd Gabe to buttress its claim that Hywind Maine would yield direct and indirect benefits for Maine companies and workers, but Welch and Vannoy remained unconvinced.

In its revised term sheet, Statoil states that it will make “commercially reasonable efforts” to direct at least 40 percent of its capital expenditures for the pilot project to Maine companies; employ at least 150 people during its construction phase; place the operations center in Maine; and contract with Maine consultants.

To demonstrate a long-term commitment to Maine, Statoil proposes to “use good faith, diligent efforts” to award contracts of 10 percent of capital expenditures, up to $100 million, “to qualified Maine-based contractors and suppliers,” if they meet Statoil’s standards.

Statoil appears to leave itself an escape route by including a clause that makes those Maine contracts dependent on “any local content requirements and other legal obligations it is required to meet in order for the project to be successful.”

That vague language troubles Woodcock.

“We need it ironclad that economic activity occurs in Maine,” he said. “We need to know better what they mean by supporting Maine jobs.”

In his cover letter for the revised term sheet, Lars Johannes Nordli, Statoil’s vice president of wind business development, indicates that the firm won’t negotiate further.

“Statoil is not in a position to make further concessions,” he states. “Statoil continues to believe that the Hywind Maine Project creates an extraordinary opportunity to begin the development of offshore wind in the Gulf of Maine, an industry that holds tremendous potential for Maine’s economic future.”

Statoil’s initial term sheet elicited responses from dozens of Maine residents, state and national advocacy groups, businesses, and government officials. Most were supportive, although public utilities and a group representing industries that consume large amounts of electricity expressed reservations. The Maine public advocate’s office endorsed the revised plan in comments submitted Friday to the PUC.

The PUC will accept online comments about the revised term sheet through noon Tuesday. Commissioners are scheduled to consider the revised term sheet at their Jan. 24 meeting.

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