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AIM Appeals Cape Wind Ruling; Cites $1 Billion in Unnecessary Charges

Posted on May 20, 2011

AIM filed an appeal with the Massachusetts Supreme Judicial Court today challenging the decision by state regulators to approve a power-sales agreement between National Grid and Cape Wind that would add $1 billion in unnecessary charges to the electric bills of businesses and consumers in the utility’s territory.

Cape WindThe 15-year deal approved in November by the Massachusetts Department of Public Utilities (DPU) will saddle ratepayers with the highest power price ever negotiated in Massachusetts and tens of millions of dollars in commissions that National Grid will receive for signing the contract with the offshore wind project. The agreement was the first to be approved under a provision of the Green Communities Act (GCA) that allows utilities to sign long-term contracts for renewable power directly with generators.

Other Massachusetts utilities such as NSTAR and Northeast Utilities have since negotiated renewable power contracts for what is believed to be approximately 9 cents per kilowatt hour – almost one-third of 25 cents per kWh average cost of the National Grid/Cape Wind agreement. The cost difference stems primarily from the fact that National Grid chose to negotiate with Cape Wind individually, outside a competitive bidding process, while NSTAR and the other utilities chose to bid their renewable power requirements competitively for generation anywhere in New England.

AIM argues in its appeal that the DPU’s approval of the National Grid/Cape Wind deal was “arbitrary, capricious,” an “abuse of discretion and not otherwise in accordance with the law.” The agreement sets a dangerous precedent for allowing utilities to negotiate expensive power agreements outside of the competitive bidding process and to allocate the costs of those contracts unfairly to commercial and industrial customers.

The legal challenges by AIM and others are based upon three broad issues:

  • the National Grid/Cape Wind contract was not competitively bid;
  • the amount of the Power-Purchase Agreement exceeds 3 percent of total electricity demand in the National Grid territory and therefore exceeds the legal cap on the amount of renewable power utilities must purchase through long-term contracts; and
  • National Grid’s allocation of the above-market costs of Cape Wind to ratepayers is inconsistent with the law and harms ratepayers on competitive energy supply.

The final point is the most important for AIM member employers.

National Grid has chosen to allocate the $1 billion in above-market costs of Cape Wind to all customers, even though the power will be funneled only to the customers who buy electricity from National Grid. That means businesses that buy power on the competitive market to help moderate their costs will be forced to pay extra money – tens of thousands of dollars in some cases – to subsidize the rates that others pay.

The allocation is not only unfair but a direct violation of the law.

“We are hopeful that the Supreme Judicial Court will review the plain language of the law and disallow this unfair rate treatment,” said Robert Ruddock, General Counsel of AIM.

Others groups have also appealed the DPU decision. Those groups include: TransCanada Power Marketing, the New England Power Generators Association and the Alliance to Protect Nantucket Sound. Their briefs have appealed the decision on the grounds that the contract was not competitively bid and the contract violates the Commerce Clause of the US Constitution.

Oral arguments before the Court are expected to take place in the fall.