Q&A: How the Deepwater Wind deal works

PROVIDENCE, R.I. (WPRI) - The R.I. Public Utilities Commission voted Wednesday to approve a contract between National Grid and Deepwater Wind, the New Jersey company that wants to build two wind farms in the waters off Rhode Island.

The approval came four months after the PUC rejected a nearly identical agreement between the two companies as being commercially unreasonable. The General Assembly reacted by passing a law, strongly backed by Gov. Donald Carcieri, supporting the deal and pushing the commission to reconsider it.

Here is an explanation of how the agreement will impact Rhode Islanders.

What did the PUC vote to do?

The commissioners approved a 20-year contract between National Grid and Deepwater Wind that calls for Grid to buy electricity from a small wind farm Deepwater plans to build off Block Island.

Under the contract, National Grid will pay Deepwater a maximum of 24.4 cents per kilowatt-hour for the electricity in its first full year of operation. After that, the price will increase 3.5 percent per year – theoretically to 25.3 cents in the second year, 26.1 cents in the third year, etc.

One difference between the agreement approved Wednesday and the one the PUC rejected in March is that the new deal is “open book,” which means any cost savings Deepwater achieves while building the wind farm will be passed on to ratepayers in the form of a lower electricity price.

When will the wind farm start generating electricity?

Deepwater's CEO “remains optimistic” the company can get the wind farm up and running by the fall of 2012, or about two years from now, according to testimony he filed with the PUC last month. But the timing of its construction is partly out of Deepwater’s control.

The company will not be able to begin construction until the state finishes its new zoning plan for the ocean, which will allow the company to choose a site. After that, the company will have to obtain permits from the government. Then it can start building.

How much more is 24.4 cents compared with what National Grid pays for electricity now?

About two and a half times as much – National Grid pays 9.5 cents per kilowatt-hour for wholesale electricity in Rhode Island right now.

More than half of the electricity delivered to Rhode Island homes comes from natural gas and nuclear power, according to a disclosure Grid published in May that covered the year ended Sept. 30, 2009. Smaller amounts came from coal and power imported from outside the U.S.

How much will the Deepwater deal make my electric bill go up? When will that happen?

The Deepwater contract will increase the typical residential bill for electricity by $1.35 to $3 per month, or $16.20 to $36 per year, according to National Grid. That's for a household that uses 500 kilowatt-hours of electricity per month.

Customers won’t see the increase reflected on their bills until late 2012 at the earliest, because National Grid will not add the additional charge for Deepwater’s power until the project is completed and begins generating electricity.

How come the increase in bills will be relatively little when the cost difference for wind power is so big?

Since the Block Island project is small – eight turbines at most – it will only be providing 1 percent of the state's electricity, so 99 percent of Rhode Island's electricity will still be coming from cheaper sources, like natural gas and nuclear power, even when the wind farm is up and running.

What about for people who live on Block Island?

They should see a big decrease in their bills in a few years.

Right now, Block Island gets its power from diesel generators, so the price of electricity there rises and falls with the price of oil. When oil prices hit a record in July 2008, electricity rates reached 62 cents per kilowatt-hour on Block Island; the rate was 29.79 cents in January, according to The Providence Journal.

As part of the Deepwater project, the company will construct a transmission line between the island and the mainland. In addition to connecting the new wind farm to the regional power grid, the transmission line will also allow Block Island residents to get power from the mainland grid at the lower prices paid by other Rhode Islanders. (The wind farm will not be connected directly to Block Island.)

Officials also say the project will improve the reliability of electricity on Block Island and reduce the environmental hazards associated with importing and burning diesel fuel there.

What about Deepwater’s other project?

Along with the eight-turbine Block Island project, Deepwater has also proposed a larger wind farm, which would consist of roughly 100 turbines in Rhode Island Sound.

Like the smaller Block Island farm, the Rhode Island Sound project’s timeline partly depends on how long it takes Deepwater to get various government approvals.

A consultant hired by the EDC suggested it should be in operation by January 2017, but a speedier process could get it going earlier than that. At one point, the company had suggested 2015 as a target date.

How much will electricity from that second project cost?

It is too early to say – the PUC has not looked at it yet. We can get an idea, though, by looking across the border to the Cape Wind project in Massachusetts, which would put 130 turbines in Nantucket Sound.

The Bay State’s government is currently considering whether to approve a contract between National Grid and Cape Wind, similar to what was approved in Rhode Island on Wednesday.

Under the terms of that agreement, Grid would pay 18.7 cents per kilowatt-hour for energy generated by Cape Wind once it gets up and running, which is projected to be in 2013.

That price would be about one-fourth less than the 24.4 cents Deepwater will charge Grid for electricity from the Block Island project. Deepwater says that's because the much smaller Block Island project will not have the same economies of scale that both Cape Wind and their own larger development will.

tnesi@wpri.com