The Rhode Island PUC has approved a 20-year power purchase agreement (PPA) between Deepwater Wind and National Grid.

The agreement involves an eight-turbine wind farm planned off Block Island’s coast. It calls for National Grid to buy the energy generated from the wind farm at 24.4 cents per kilowatt hour in 2013, with the price rising 3.5% annually thereafter.

Chairman Elia Germani and Commissioner Paul Roberti voted to approve the PPA. Commissioner Mary Bray, the lone dissenting vote, said that the PPA will force ratepayers to bear $370 million in above market costs.

The RI PUC, a quasi-public body, had rejected a similar agreement in March as too costly to taxpayers. The rejection led to new legislation from the General Assembly aimed at speeding the regulatory approval process.

Attorney General Patrick Lynch said that he would appeal the decision to the state Supreme Court.

Click HERE for the full Press Release.

Today, Governor Donald L. Carcieri formally signed legislation to save the Block Island wind farm proposal. The legislation (2010-S2819A) and (2010-H8083A) clarifies the General Assembly’s original intent to encourage and promote clean, independent, renewable energy in Rhode Island through a demonstration sized, offshore wind project.

House Majority Whip Rep. J. Patrick O’Neill said Rhode Island is now poised to become a national leader in the manufacturing of wind turbines and clean energy, and the legislation will also bring countless construction jobs, manufacturing jobs, and green economy jobs to Rhode Island, in addition to its many environmental benefits.

HIGHLIGHTS of the LEGISLATION

• Requires that a new Power Purchase Agreement (PPA) between National Grid and Deepwater Wind be filed with the Public Utilities Commission (PUC) with a decision rendered within 45 days.

• Requires the RI Economic Development Corporation and the RI Department of Environmental Management to offer testimony before the PUC on the economic development and environmental benefits of the project.

• Mandates that the new PPA contain an “open book” approach that requires Deepwater Wind to disclose the construction and development costs of the project. The Division of Public Utilities is also required to verify these costs. Any capital cost savings achieved during the development and construction of the project is said to benefit ratepayers in the form of lower power prices.

• Legislation also caps the price of the power to that in the PPA previously filed with the PUC. However, that price shall be reduced commensurate with any savings achieved in the development of the project.

“In light of the environmental disaster in the Gulf, the need for alternative energy sources is more apparent than ever. This legislation will enable Rhode Island to become a national leader in the renewable energy field and will greatly enhance the economic development efforts that the General Assembly has been working so closely on with Governor Carcieri.” – Speaker of the House Gordon D. Fox

To view the full Press Release click HERE.

In public utility regulation, decoupling refers to the disassociation of a utility’s profits from its sales of the energy commodity. Instead, a rate of return is aligned with meeting revenue targets, and rates are trued up or down to meet the target at the end of the adjustment period.

This makes the utility indifferent to selling less product and improves the ability of energy efficiency and distributed generation to operate within the utility environment.

Ideally, utilities should be rewarded based on how well they meet their customers’ energy service needs. However, most current rate designs place the focus on commodity sales instead, tying a distribution company’s recovery of fixed costs directly to its commodity sales.

In order to motivate utilities to consider all the options when planning and making resource decisions on how to meet their customers’ needs, the sales-revenue link in current rate design must be broken. Breaking that link between the utility’s commodity sales and revenues, removes both the incentive to increase electricity sales and the disincentive to run effective energy efficiency programs or invest in other activities that may reduce load. Decision-making then refocuses on making least-cost investments to deliver reliable energy services to customers even when such investments reduce throughput. The result is a better alignment of shareholder and customer interests to provide for more economically and environmentally efficient resource decisions.

As an added benefit, breaking the sales-revenue link streamlines the regulatory process for rate adjustments. Contention over sales forecasts consumes extensive time in every rate case. If the sales-revenue link is broken, these forecasts carry no economic weight, so the incentive to game forecasts of electricity sales is removed and rate cases become less adversarial.

While many environmentalists and conservation advocates support decoupling, many consumer advocates representing utility ratepayers have opposed decoupling as it attempts to guarantee revenue levels to utility companies. Decoupling mechanisms reduce a utility company’s financial risk from reducing sales, due to conservation, weather and economic conditions.

As a result, many consumer advocates have requested and state and federal regulators have required that utility companies profit levels (measured through a return on equity allowance) be reduced to reflect lower risk.

From: http://en.wikipedia.org/wiki/Decoupling