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State refuses to renegotiate offshore wind energy agreements, gives developers a mid-week deadline

Offshore wind turbines stand near Block Island, R.I. on Aug. 15, 2016. (Michael Dwyer/AP File)
Offshore wind turbines stand near Block Island, R.I. on Aug. 15, 2016. (Michael Dwyer/AP File)

Commonwealth Wind and Mayflower Wind each have until the middle of this week to tell the Department of Public Utilities whether they will move forward with their latest offshore wind projects under the contract terms they have already agreed to or ask state regulators to no longer consider those essential agreements.

In a decision issued late Friday, the DPU took issue with the argument from Avangrid Renewables that its 1,200 megawatt Commonwealth Wind project is "no longer viable and would not be able to move forward" without changes to the contracts between the developer and Bay State utility companies. These changes that would likely delay the wind farm's launch date and make its power more expensive.

Mayflower Wind, the other developer tapped last year to help Massachusetts plug into offshore wind power, supported the Commonwealth Wind's request for a month-long pause in the review of the projects' power purchase agreements (PPAs). The utilities buying the power said they don't plan to renegotiate.

The DPU on Friday denied the request in an order that suggests the Baker administration, which has made offshore wind a major part of its energy and climate policy portfolio, is none too pleased with the way that Commonwealth Wind seemingly sprung on the state its claim that it is no longer a viable project late in the contract proceedings. The Friday order gave the developers three business days to say whether they will live up to the contracts they agreed to or back away from them.

"[R]esidents and businesses that financially support these contracts deserve certainty whether the Projects, if approved by the Department, will deliver consistent with the PPAs Commonwealth Wind and Mayflower Wind executed after a competitive solicitation," the DPU order signed by Chairman Matt Nelson said, referring to electric ratepayers.

"Accordingly, Commonwealth Wind and Mayflower Wind must now decide whether they intend to move forward with their contractual obligations under the PPAs or file a request to dismiss the proceedings."

Massachusetts is relying on offshore wind power generation to be a major contributor to its decarbonization goals over the next three decades, not to mention billions of dollars in projected savings for electricity customers. But there have been challenges and setbacks nearly every step of the way, the latest of which threatens the largest single project in the state's pipeline.

Commonwealth Wind said in a motion it filed on Oct. 20 that price increases, supply shortages and interest rate hikes have changed the project's economics so much since the developer and utilities agreed to long-term contracts for the power that it might not be able to secure the upfront financing necessary to actually build the project at all.

The developer's motion came in the midst of DPU's regulatory process, which involves the filing of briefs from the developers, utilities, and other state entities. The Commonwealth Wind request came towards the end of what is essentially DPU's information gathering phase, and the regulators appeared peeved Friday that Commonwealth Wind had waited so long to formally notify the state of potentially fatal changes to the project's outlook.

"In its Motion to Stay, Commonwealth Wind represents for the first time in these proceedings that its Project is no longer economically viable, and the reasons given for this change in economic viability are inflation, interest rates, and supply shortages driven by the COVID-19 pandemic and the war in Ukraine," the DPU order said.

It added, "While the Department will not speculate as to when Commonwealth Wind first determined its Project was no longer viable under the terms of the PPAs, it is evident that the economic impacts of the COVID-19 pandemic and war in Ukraine on its Project became apparent some time before Commonwealth Wind notified the Department."

The agency made its displeasure with Commonwealth Wind clear by pointing out that while it does not normally comment on the strategy of another entity, "in this case we feel obligated to depart from our normal practice."

DPU also alluded to potential penalties for violating its procedural regulations that require a company like Commonwealth Wind to "seasonably amend" materials submitted to the agency if information in them has changed.

"The Department has expended precious resources over the last several months investigating PPAs that, according to Commonwealth Wind, no longer facilitate financing for the Project. Whatever its reasons, Commonwealth Wind waited until after the filing of initial briefs in these proceedings to come forward," DPU said. "Of course, a party will be held to the predictable consequences of its strategic choices, regardless of outcome."

DPU gave Commonwealth Wind and Mayflower Wind until the end of the day Wednesday to report back with how they plan to proceed. In its denial of the request for a pause in its review, DPU said that renegotiation of major contract terms like the price of the power generated would set the contract approval process back months, not weeks.

The agency suggested that it may be just as efficient to withdraw the contracts and file new ones, if they can be agreed to, later.

"In effect, the parties to the PPAs would be starting over, and as such there is no delay avoided or efficiency gained by granting a stay as opposed to the Companies withdrawing their petitions and submitting renegotiated PPAs, if any, at a future date," DPU said.

Gov. Charlie Baker suggested last week that he's open to changes to contract language. But he also said the matter is really between Commonwealth Wind and the utilities, and made clear that he has no interest in upending the whole procurement process.

"That's a discussion to take place between them and the utilities. We have no interest in reopening anything," Baker said. "And let's remember, these are long-term contracts, like really long-term contracts. And while there may be some choppy water at the moment with respect to interest rates and supply chains and all the rest, we're talking about a deal that basically lasts for 15 years, some of them more than that, depending upon what actually happens over that period of time.

I think it's premature for people to think that where we sit now is necessarily representative of where things are going to be over time."

The governor added, "They can go negotiate with the utilities. But in terms of reopening the bid, no."

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