Offshore wind transmission system raises red flag at state agencies

State officials worry that Atlantic Wind Connection's underwater backbone could spike already high power prices

New Jersey officials are worried that a much talked-about proposal to build an offshore wind transmission system could undermine the state's own efforts to develop offshore wind farms and spike already high electric bills for customers.

Developers of Underwater Transmission System Seek Special Incentive Rates

In filings with the Federal Energy Regulatory Commission (FERC), both the state Board of Public Utilities (BPU) and the New Jersey Division of Rate Counsel expressed concern about the Atlantic Wind Connection project, a $5 billion submarine high-voltage transmission backbone.

In asking to intervene in the case, the two agencies argued that the project, stretching from Virginia to New Jersey, could adversely affect the rates paid by consumers and also place much of the risk on the ratepayer instead of the developers.

The Atlantic Wind Connection is a 350-mile underwater transmission line, which aims to connect the spate of offshore wind farms being developed by New Jersey and other states. Its backers include Google, and Trans-Elect, a transmission company.

Expensive Interconnections

The Atlantic Wind Connection proposal has been viewed warily in New Jersey by both regulators and offshore wind developers, who already have lined up their own interconnections with the regional power grid, and at a far lower cost than what Atlantic Wind Connection envisions. With at least five developers talking about building offshore wind farms, which produce electricity at greater cost than conventional coal and natural gas power plants, cost is a big concern to all involved.

Robert Mitchell, chief executive officer of Trans-Elect argued at a forum sponsored by NJ Spotlight last week that the project would bring down electricity costs to consumers by reducing congestion on the regional power grid, a problem blamed for spiking consumers' bills in New Jersey by more than $1 billion a year.

With the injection of 6,000 megawatts of offshore wind, Mitchell said their consultant estimates it could result in a savings of $17 billion for ratepayers up and down the eastern seaboard over the next two decades. It also could reduce carbon dioxide emissions, a source of global climate change, by 16 million tons over the same period.

Boosting Transmission Costs

New Jersey officials, however, remain unconvinced. In a filing by the BPU, the state wrote the project "could unnecessarily increase transmission costs for New Jersey consumers."

Those consumers already pay some of the highest electric bills in the nation, a burden some argue could increase as the state shifts to cleaner sources of energy, such as solar and wind power. According to the Rate Counsel, if current state policies remain in effect, subsidies to develop solar and wind power projects could cost consumers an additional $5 billion over the next two decades.

The agency also argued the project ought to go through the same planning process as other transmission proposals, which need to be reviewed and approved by PJM Interconnection, the independent operator of the regional power grid. The agency also questioned the ultimate viability of the Atlantic Wind Connection proposal, which seeks a return on equity of 13.58 percent, the highest possible under the FERC's rules.

"While the filing does not lack vision, in addressing it the commission must be alert to the possibility that the envisioned facilities will ultimately not be completed or will take longer, cost more, or do less than advertised," the filing said.

In particular, the Rate Counsel objects to the project's seeking special incentive ratemaking remedies, including allowing the project to begin collecting from customers even before construction on the transmission backbone begins. Its consultant argued approval of such incentives side-steps state regulatory ratemaking and fails to balance risk between the developer and ratepayers.

In the filing, the consultant, David Dismukes said: "If approved, the AWC companies' proposed incentives could work to undermine, not facilitate, the development of offshore wind generation, since many of those proposed mechanisms are contrary to those included in existing state offshore wind policies.''

Even if the project never went into service, the developer would be able to collect 100 percent of its development costs and construction work in progress under its filing with FERC, the agency noted. "AWC's coin would have only an upside, while all offshore wind project developers and other stakeholders would have to take their chances," according to the filing. Otherwise, the filing went on, the developer "profits handsomely for merely spending money, before or without delivering tangible 'service' to a paying customer."

Mitchell said the developer hopes to clear the federal agency review within a couple of months.