WIND POWER IS NOT FREE
NATIONAL GRID TO THE RESCUE?
Nearly nine years ago James S. Gordon, then a self made millionaire in his mid to late forties stood on the stage of the Mattacheese Middle School in Yarmouth, Massachusetts and spun a tale of cheap, green energy; offshore wind power produced by huge commercial scale wind turbines. Yarmouth is the middle town of the fifteen that make up Cape Cod. It has shoreline on two sides; to the north Cape Cod Bay and to the south Nantucket Sound. An amazed and largely skeptical audience watched and listened as this superb salesman flung out his net of facts and promises, trying to haul Cape Cod into his camp. All he wanted was exclusive use of twenty-five square miles in the center of Nantucket Sound. Little did he know how completely he had misread the Cape Cod mind and temperament.
Now, nearly nine years later Cape Wind has cost Gordon, if his claims are to be believed, over forty million dollars to cover the staggering cost of what seems an endless permit review process. We need not worry about where Jim Gordon's next meal will be found or who will pay for it. Gordon still lives in a brick row house on Boston's Beacon Hill with such distinguished and wealthy neighbors as Massachusetts Senator John Kerry (actually it is Kerry's wife, widow of Senator Heinz who has the money). His house, with an elevator, is valued just south of ten million dollars and he even owns two condominium parking spaces at the foot of Beacon Hill, where spaces have sold for prices that would buy two families a comfortable home each.
Jim Gordon made tens of millions, perhaps even into the hundreds of millions of dollars in the merchant power business, most of his wealth having come late in the nineteen nineties. But, the point of this piece is not Jim Gordon's financial condition, it is much more basic --- the ability of the ordinary electric customer to pay for wind power. Can we as consumers and tax payers afford Jim Gordon's wind power?
Gordon's original promise, one repeated by Gordon, his staff at Energy Management Inc. (EMI is his parent company) and Cape Wind Associates LLC of which he is president and by his very green supporters was simple and clear: Cape Wind would save New England Electric customers money. Twenty-five million dollars every year was the savings that Gordon and others in his camp have said since the very beginning would be the benefit to New England's electric customers. This is still the claim. And, Gordon says that he did not invent this number, he is simply repeating what the Massachusetts Energy facilities Siting Board said their analysis had determined. Two problems arise: EFSB was not involved in the Cape Wind project review until two years or so after Gordon's original presentations and the figure was actually given to EFSB by LaCapra Associates, a consulting firm working for Cape Wind.
Gordon's reasoning was something we ought not question. Right? After all, Jim Gordon actually built and owned six gas-fired power plants in New England. Selling them made him very rich. At his peak Gordon was generating eight percent of New England's total electricity. If he could not be relied on to figure out how much Cape Wind would save us, who could? Actually, the math is not very difficult and there are some much smarter bears in the woods than Gordon reckoned. Trusting Jim Gordon in such things might be unwise. Enthusiasm, perhaps even greed seems to get the better of him. His exact assurance was, and I know because I was sitting in the auditorium when he first made it and in various other venues when he and his staff repeated it: individual electric bills would see a monthly savings of around ten cents. This, he admitted, was a token amount but when viewed for its overall impact on the six-state New England region it added up to twenty-five million dollars every year. Jim Gordon has never said on the record that Cape Wind would cause anyone's electric bill to increase. He is not admitting higher costs even now as we begin the year 2010.
Gordon told his first audience in Yarmouth nearly nine years ago that Cape Wind would cost $650 million to build. Now, even he admits that the capital cost is over $1 billion, but he still holds to his claim of saving New Englanders money on their electric bills. (In a future piece we shall explore some easy ways to show that Cape Wind will cost well over $2 billion.) Dennis Duffy, vice president of Cape Wind, was quoted in the Cape Cod Times on September 21 of 2009 saying that Cape Wind will "exert a downward pressure on New England electric rates." Duffy has worked for Gordon for several years and prior to that he was part of a law firm in Providence, Rhode Island which specializes in energy matters. He should know better and he probably does, but there are huge subsidies at stake. For a man of Gordon's demonstrated ego and avarice hundreds of millions of dollars in tax free cash are too much of temptation. Truth becomes relative.
Even the United states Minerals Management Service, the lead agency in the federal review of Cape Wind said in its flawed economic analysis of this project that Cape Wind's energy will cost double conventional energy. Still, the Cape Wind battle cry of cheap energy is repeated and accepted by a sleeping press and incompetent government at both state and federal levels. It would appear that hosting a high dollar fund raiser for then candidate/now governor Deval Patrick has served Gordon well. One wonders, did he let Mr. Patrick ride in the elevator?
There was always something about Gordon's explanation that sounded odd. He, people who worked for Cape Wind and several of his more prominent supporters all have explained the pricing of Cape Wind's power in the following way:
1. The New England Power Pool (NEPOOL) would issue a call for prices on a certain amount of power to be delivered over a certain period. For example, starting at noon today and running through noon seven days from now NEPOOL would purchase x number of kilowatt hours of electricity (KWh).
2. Then, power producers who wished to bid would submit pricing. This would include those who generate power using nuclear, coal, oil and natural gas as fuel....and Cape Wind.
3. Nepool would assemble the prices and carve the total load into portions, so much for each bidder, then establish an overall average price and make this offer to those who had bid. Cheaper fuels such as coal would clearly have an advantage over higher priced fuels, wind being the highest. (A new Massachusetts law requires utilities to include 3% renewable energy in their energy portfolio; more on this in later pieces.) In theory, Gordon and Cape Wind could be shut out completely. But, why confuse energetic environmentalists with facts?
4. Cape Wind, we have always been told, would simply "bid into the stack" at zero. They would, therefore take whatever price was offered as a weighted average to those producers who actually gave a price. Again, they would lose their shirts.
This, of course, has always been nonsense. But, it has fleets of green energy advocates breathlessly proclaiming that Cape Wind will save everyone money while cutting air pollution. We were being deceived by Cape Wind and their supporters. One fellow in particular who boastfully signs himself as a retired professional engineer has many times repeated this exact explanation of "bidding into the stack at zero." He writes letters to the editor, speaks at various public meetings where his ignorance of fact seem not to embarrass him at all, sits on the board of directors of a prominent Cape Wind support group as well as representing his town to the Cape Light Compact, our regional municipal aggreggator. And now, we have proof positive that Gordon and his various supporters were not giving us good information.
On December 3 of 2009 Deval Patrick, the same governor who as a candidate enjoyed the financial and social support of Jim Gordon announced that National Grid, an English based energy company whose North American operations are run by a former Enron executive had submitted a draft Memorandum of Understanding with Cape Wind to the Massachusetts Department of Public Utilities. After a brief comment period the DPU approved the MOU and Cape Wind began a sixty-day period of negotiations with National Grid aimed at crafting a long term power Purchase Agreement (PPA) by which National Grid would buy Cape Wind's power.
This arrangement has the fragrance of low tide on the wrong side of town. One month ago National Grid completed a PPA with DeepWater Wind in Rhode Island, agreeing to pay 24.4 cents per kilowatt ($.244/KW) for electricity to be produced by an offshore wind farm. Rhode Island is adjacent to Massachusetts; how different will the price be in Nantucket Sound? How will Gordon explain the sudden emergence of real world numbers and costs to Cape Codders who can get a guaranteed price of less than 9 cents through 2001 from their municipal aggregator?
Some energy experts predict an increase in retail electric bills of over $200 annually to pay for Gordon's money-saving scheme, not a monthly savings of ten cents per customer. It will be entertaining to hear the whopper Jim Gordon has in store for us now. And, in our next HUB we shall look at how a new Danish wind farm tells us what Jim Gordon needs for capital.
All for now....
Copyright 2010 By Peter A. Kenney
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