July 18, 2011

Offshore Wind and Economic Development: How Utility Law Could Help

By Lewis Milford

It is hard to imagine a new angle on the beleaguered Cape Wind project. Everything from its rich opponents, to the Kennedys, to the local Indian tribes has been the subject of endless news stories.

But there is one item that deserves some attention – jobs and what the Massachusetts utility regulator’s decision to approve the project means for how any new energy technology can be built.

After an interminable struggle, the state’s utility commission approved part of the future power output from the project a few months ago. But in the press around the approval, the important rationale for the approval did not get nearly enough attention.  It is never too late to point out an important point, so here goes.

That approval was a big deal because the cost of power (about 18 cents per kWh) is quite a bit more than the average cost of electricity in the state. To justify the purchase, there had to be compensating benefits. And that is why this decision is so important.

Under Massachusetts law, employment benefits are an explicit element to be used in rate case decision making. In this multi-hundred page decision, start at page 200 and read for about twenty pages to see how this is analyzed. You will see there were numerous studies showing job benefits and various other quantified and unquantified benefits—the analysis was used to offset the higher costs of the project as compared to commodity priced power. It’s very interesting to see how utility decision making is about much more than prices, it is now about jobs, environmental benefits, system reliability and regional impacts. Higher costs can be justified by economic development benefits.

Like the Cape Wind offshore wind project, any new technologies that might cost more to build—like marine power, or carbon capture and storage—state utility regulators will have to approve the higher costs. To do that, they must have good reasons to say yes.

In Massachusetts, that means jobs, as well as other factors. Like many states, a regulator must consider “employment benefits” when looking to approve or disapprove a new energy project. It is a little known part of utility law in most states.

In the Cape Wind case, the commission found that hundreds of new jobs in construction, maintenance and other areas would result from the project. And with this jobs creation justification, among others, approved the project and electricity rate.

This is an area that needs a great deal more work in the clean energy space. To get built, state regulators will have to approve emerging clean energy technologies, whose electricity output is likely to cost more in the early stages. To do that, they will need evidence to show that the countervailing benefits outweigh those higher costs. In addition to jobs, this could include environmental benefits, system reliability and regional economic impacts. Clean energy advocates should build the rate case, like in Cape Wind, with economic evidence.

Economic development benefits—new jobs—are likely to be the key to the approval of new clean energy technologies—at least in the near term.

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