Federal Update: BOEM Requests Comments on Proposed Lease Auction Process

BOEM Issues Auction Format Information Request; Public Comments Due on January 12

On December 5, 2011, the Bureau of Ocean Energy Management (BOEM) published a notice in the Federal Register entitled “Request for Information on the State of the Offshore Renewable Energy Industry—Auction Format Information Request (AFIR)” (AFIR) which seeks comments on proposed lease-sale auction procedures designated for offshore wind energy development on the Outer Continental Shelf. The AFIR provides for a 45-day public comment period set to expire on January 12, 2012. BOEM has also announced a workshop designed to educate stakeholders about the proposed auction format options and to solicit feedback. The workshop will take place on Friday December 16, 2011 from 8:30 a.m. to 3:30 p.m at the South Interior Building in Washington, D.C. Additional information about the workshop can be found here.

The auction methods proposed in the AFIR were designed in consideration of BOEM’s program objectives, which include:

• BOEM’s statutory obligation to seek a “Fair Return” for leases granted on the OCS;
  economic efficiency;



• program efficiency and manageability;



• “lease boundary flexibility” to enable bidders to select optimal lease areas within the confines directed by BOEM;



• fair competition among all interested bidders;
  process transparency;



• equal treatment and consideration of all bids by BOEM; and



• consistency.

The AFIR proposes several potential auction formats for use in a variety of circumstances including single lot leases and multiple lot leases. For example, for single lot auctions, BOEM proposes to employ a “simultaneous ascending clock auction” or SACA format. Under a SACA, BOEM would set the minimum bid price for a specific lot. If more than one bidder is willing to meet the asking price, BOEM would increase the price incrementally, requesting bidder acceptance at each increase until only one bidder remains. If all bidders drop out at the same price point, BOEM has indicated a number of possible approaches to break the tie. BOEM has also suggested a number of rules that would apply to bidders in a SACA, such as minimum and maximum numbers of lots that a prospective bidder can bid upon.

For multiple lot auctions, BOEM proposes a number of alternative auction formats including variations on the SACA approach. One proposed alternative to the SACA approach would ask bidders to submit bids at or above the designated minimum lot price in each round of bids. The auction would end when each subsequent round of bidding yields the same bid prices as the previous round. BOEM would then award the lease to the bid producing maximum revenue.

A general description of the proposed auctions is provided in the AFIR. A more comprehensive explanation of the auction formats along with BOEM’s commissioned study of various auction formats for the issuance of renewable energy leases (conducted by Power Auctions LLC) is available here.

Court Orders Reconsideration of FAA Approvals for Cape Wind Offshore Wind Project

On Friday October 28, 2011, the United States Circuit Court of Appeals for the District of Columbia issued a decision vacating and remanding the Federal Aviation Administrations’ ("FAA") 130 identical Determinations of No Hazard which were issued with respect to the proposed Cape Wind 130-turbine offshore wind farm. See Town of Barnstable, et al, v. Federal Aviation Administration, No. 10-1276 (D.C. Cir. 2011).

Summary of the Decision

The lawsuit, filed by long-standing opposition group Alliance to Protect Nantucket Sound (the “Alliance”) and the town of Barnstable, MA (together, the “Petitioners”), alleged that the FAA “violated its governing statute, misread its own regulations, and arbitrarily and capriciously failed to calculate the dangers posed to local aviation.” The FAA, along with intervening party Cape Wind Associates, LLC, responded by alleging that the petitioners had no Article III standing to challenge the FAA determinations. Id. at 3. Although the Court’s decision is likely to lead to additional delays for Cape Wind, the ruling does not per se negate the validity of the submerged land lease issued by the Department of the Interior (“DOI”) to Cape Wind in October 2010.

With respect to the threshold question of standing, the FAA argued that even if the Petitioners could allege harm, the fact that “FAA’s hazard determinations, by themselves, have ‘no enforceable legal effect’” means that reversal of the FAA hazard determinations would not redress the grievance. Id. at 5. Although the Court agreed that the FAA hazard determinations were not enforceable on their own, the DOI incorporated a provision into the submerged land lease requiring that Cape Wind abide by “any future mitigation measures that the FAA might deem necessary to reduce or eliminate a hazard on Cape Wind.” Id. at 6. Accordingly, the Court held that the DOI’s inclusion of the FAA hazard mitigation provision is sufficient basis to find it “‘likely as opposed to merely speculative,’ that [DOI would cancel or retract the Cape Wind lease] if faced with an FAA determination that the project posed an unmitigatable hazard.” Id. at 10 (additional citations omitted).

The Court then considered whether FAA properly issued its No Hazard Determinations. Although the petitioners’ alleged that the FAA violated both its governing statute (49 U.S.C. Sec. 44718(b)) and its own internal guidelines (“Procedures for Handling Airspace Matters”, FAA Order 7400.2G (April 10, 2008)), the Court’s ultimate ruling regarding the FAA’ hazard determinations rests solely on the FAA’s application of its internal guidelines. Id. at 10. Importantly, the Court did not issue a declaration stating that the Cape Wind turbines present a hazard – mitigatable or otherwise. Rather, the Court merely remanded the determinations to FAA “to require the FAA to address the issues and explain its conclusion.” Id. at 13-14.

What Happens Next?

There are at least two possibilities as to what will happen in the wake of the Circuit Court’s decision. First, the FAA and Cape Wind Associates could appeal the decision by submitting a writ of certiorari to the Supreme Court of the United States. However, if the Supreme Court does not grant certiorari, the decision of the Appeals Court will stand. Moreover, even if the Supreme Court does choose to hear the matter, a Supreme Court affirmation of the lower court ruling could further dampen the perception that the U.S. offshore wind industry has the support of the U.S. government.

The alternative is for FAA to follow the Circuit Court’s order. FAA would be within its authority to re-issue all 130 Determinations with a “No Hazard” finding provided FAA includes further explanation of its conclusions. Under principles of administrative law, the FAA’s hazard determinations must not be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). In other words, the agency must “adequately explain its result…." Public Citizen, Inc. v. FAA, 300 U.S. App. D.C. 238, 988 F.2d 186, 197 (D.C. Cir. 1993).

Nevertheless, even if FAA finds that it must issue one or more determinations indicating a hazard, the Circuit Court decision indicates that FAA may make recommendations for mitigation measures to overcome these hazards. Accordingly, the only circumstance under which DOI may need to reconsider Cape Wind’s lease is in the event that FAA finds that there are unmitigatable hazards associated with the Cape Wind turbines.

Litigants’ Statements About the Case

Given the longstanding enmity between Cape Wind Associates and the Alliance, both parties issued public statements regarding the decision of the Circuit Court.

The Alliance to Protect Nantucket Sound issued a press release stating that the decision is "a resounding victory for the Cape and Islands community and the citizens of Massachusetts" and that the "FAA case is the first of multiple federal lawsuits challenging this poorly sited and expensive project and is just the tip of the iceberg of the problems the courts will consider relative to the Nantucket Sound location."

Cape Wind spokesman Mark Rodgers issued Cape Wind's official response to the decision: "The FAA has reviewed Cape Wind for eight years and repeatedly determined that Cape Wind did not pose a hazard to air navigation," he said. "The essence of today's court ruling is that the FAA needs to better explain its Determination of No Hazard ruling."

Offshore Wind Investment Tax Credit: House Companion Bill Introduced

On October 18, 2011, Representative Bill Pascrell, Jr. (NJ-D) introduced H.R. 3238. H.R. 3238 is the companion bill to S. 1397 (previously discussed here) which was introduced on July 21, 2011 by Senators Tom Carper (D-DE) and Olympia Snowe (R-ME). The bills, both titled the “Incentivizing Offshore Wind Power Act”, propose an extension of the investment tax credit (“ITC”) for qualified offshore wind energy generation projects.

The bills, which contain nearly identical provisions, call for the Treasury to select up to 3000 MW of offshore wind projects which will qualify for tax credits if they are placed into service over a 5 year period. The tax credit would be the same 30% ITC that is granted to many other renewable energy sources. The five year extension of the ITC for offshore wind projects has been proposed in recognition of the longer siting, permitting and finance process required for offshore renewable energy projects-- a process that is currently estimated to take between 5-7 years. The existing ITC has a sunset provision expiring in 2012 that will render nearly all of the proposed offshore wind projects ineligible for the credit.

Co-sponsors for the Senate bill include Sen. Sherrod Brown (OH), Sen. Benjamin Cardin (MD), Sen. Susan Collins (ME), Sen. Christopher Coons (DE), Sen. Frank Lautenberg (NJ), Sen. Robert Menendez (NJ), Sen. Jack Reed (RI), and Sen. Sheldon Whitehouse (RI), all of whom represent states hosting active offshore wind development projects. The co-sponsor for the House bill is Representative Frank LoBiondo (NJ-R). There are at least three offshore wind generation projects proposed for both state and federal waters off the coast of New Jersey.

AWEA Offshore 2011: The Highlights

At last year's American Wind Energy Association Offshore Windpower Conference and Exhibition in Atlantic City, Secretary of the Interior Kenneth Salazar and Jim Gordon from Cape Wind signed the first-ever submerged land lease for an offshore wind farm on the United States' federally managed outer continental shelf. Many of those in attendance last year fully expected that the lease-signing would signal an increase in project momentum-- and many industry participants and observers fully believed that construction on the Nation's first offshore wind farm might begin in 2011.

At this year's Offshore Windpower Conference and Expo, attendees spent three days discussing what has happened-- and what has not happened-- since October 2010. Here are some quick highlights from the event:

Secretary Salazar and Maryland Governor O'Malley Present Keynote

The Conference kicked off with a keynote address presented by Department of the Interior Secretary Ken Salazar, Maryland Governor Martin O'Malley, AWEA CEO Denise Bode, Michelle Siekerka from the New Jersey Department of Environmental Protection, and program co-chairs Aileen Kenney (Deepwater Wind) and Jim Lanard (Offshore Wind Developers Coalition).

Following last year's lease signing, Secretary Salazar's comments seemed a little more subdued this year. Although the Secretary did not release any industry-shaking news, he affirmed that both he and the Obama administration are committed to creating an offshore wind industry in the United States. To that end, Secretary Salazar announced that the Bureau of Ocean Energy Management expects to announce lease agreements for as many as five wind farms in as little as a few weeks or months.

Deepwater Wind Announces Siemens as Turbine Supplier

Deepwater Wind announced that it signed an agreement with Siemens Energy to buy the company’s latest offshore wind turbines for deployment in the Block Island Wind Farm, a project that remains on track to be the nation’s first offshore wind farm.

Under the agreement, Siemens will supply five of its new 6.0-megawatt direct drive offshore wind turbines for the Block Island Wind Farm. This will be the first project in the United States, and one of the first anywhere in the world, to use the new turbine, which will be commercially available for the project.

The Block Island Wind Farm is one of several proposed small demonstration-scale offshore wind projects (such as Fishermen's Energy's proposed 6-turbine project to be located 2.8 miles off of Atlantic City, NJ) that may become the first offshore wind farm built in North America. The Block Island Wind Farm is a 30-megawatt project to be located in Rhode Island state waters. The project also includes a transmission cable connecting the island to the mainland grid for the first time. Pursuant to a heavily litigated but now approved 20-year power purchase agreement, National Grid has agreed to buy all of the output from the project.

The project is scheduled to be in the construction phase in 2013 or 2014, although the timing of construction is dependent on the permitting process and final turbine specifications.

Highlights from the Developers' Panel

The last session of the conference offered attendees to hear updates from two full panels of offshore wind developers actively pursuing offshore wind projects in the United States. The thirteen developers on the two panels represented the largest number of developer panelists ever put on stage at an AWEA Offshore Windpower Event.

Developers represented on the panel included: Tim Ryan (Apex Wind/ North Carolina), Ian Hatton (Baryonyx/ Texas), Bill Moore (Deepwater Wind / Rhode Island), Doug Copeland (enXco / California), Andy Kinsella (Mainstream Renewable Power/ United Kingdom), Erich Stephens (Offshore MW), Dennis Duffy (Cape Wind Associates/ Massachusetts), Daniel Cohen (Fishermen's Energy/ New Jersey), Chris Wisseman (Freshwater Wind/ Ohio), Robert Gibbs (Garden State Offshore Energy/ New Jersey), Peter Mandelstam (NRG Bluewater Wind/ Delaware), Carolyn Heeps (RES-Offshore), and Theo de Wolff (Seawind Renewable Energy Corp.).

Following an opportunity for each developer representative to provide an overview of his/her company and project status, the panel responded to questions from the audience. One of the most compelling responses was offered up by Theo de Wolff from Seawind Renewable Energy. Jim Lanard asked the panel to consider whether the Department of Energy's recent grants (bestowed upon research and development facilities seeking to lower the cost of offshore renewable energy projects) were supporting the right technologies. Mr. de Wolff responded by saying that, with all due respect to the Department of Energy, at least some of the $43 million in grant money would be better spent deploying existing offshore wind technology and getting "steel in the water." Mr. de Wolff's comments echoed the frustration of many industry participants in the audience who responded with enthusiastic applause.

Finally, Jim Lanard presented his closing remarks by setting forth three challenges. His first challenge was to the federal government. He asked federal officials to be prepared to respond to the question, "what have you done for this industry lately?" at next year's Offshore Windpower event in Virginia Beach. Second, Jim challenged state officials to work harder to develop markets and market-promoting mechanisms that will enable developers to get projects into the water sooner. Finally, he challenged the non-governmental organizations to report back on how to reach consensus among parties with different opinions, approaches, objections and concerns about offshore wind.

DOI, BOEMRE issue new Call for Information

On August 17, 2011, the Department of the Interior and the Bureau of Ocean Energy Management, Regulation and Enforcement’s announced a Call for Information and Nominations (“CFI”) for the development of offshore renewable energy projects on the Outer Continental Shelf adjacent to the state waters of Massachusetts and Rhode Island. The Federal Register notice of the Call for Information and Nominations is available here.

The CFI invites developers to identify proposed project locations within the Area of Mutual Interest (“AMI”, also known as “the Call area”) identified by the state of Rhode Island and Massachusetts in a landmark agreement in July 2010. The Call area was designated in consideration of the Rhode Island Special Area Management Plan and through a process involving BOEMRE’s Rhode Island and Massachusetts Renewable Energy Task Forces, which include federal, state, and tribal government partners.

BOEMRE is also seeking public comment – through a Notice of Intent to Prepare an Environmental Assessment – on important environmental issues and reasonable alternatives related to the proposed leasing, site characterization and assessment activities in the offshore area under consideration. The Notice of Intent to prepare the EA is available Request for Interest (RFI) regarding another area of the Outer Continental Shelf adjacent to Massachusetts state waters. BOEMRE is currently reviewing the information and nominations received in response to the RFI and will be drafting a separate Call to determine competitive interest after consulting with the BOEMRE – Massachusetts Renewable Energy Task Force. Once BOEMRE has completed its review of the RFI responses and public comments, the agency plans to issue a Call for Information and Nominations and will prepare an environmental assessment.

On August 18, 2011, Neptune Wind, an ocean-based renewable energy developer headquartered in Winchester, MA, announced its plan to respond to the CFI with a proposal to develop, construct and operate a 500 MW offshore wind farm approximately 20 nautical miles south of the Massachusetts/Rhode Island border. The project, entitled Nomans Wind, would be constructed in depths ranging from 20 to 40 meters and will employ turbines featuring a jacket structure foundation press release, Neptune Wind stated that it expects to submit its response and proposal by the October 3, 2011 deadline.

Federal Legislative Update: Politics and Geography

Offshore wind project developers and industry supporters have spent almost as much time clamoring for a comprehensive tailored legislative package as they have working on their own projects. Although some progress has been made at both the state and federal levels, there is nearly universal agreement that the absence of coordinated federal and state regulatory schemes has seriously impeded project progress and, worse, has discouraged investors from committing to capital-intensive offshore wind projects in the United States. While everyone seems to agree that top-down legislation would help streamline offshore wind in the United States, legislators have yet to agree on what that legislation will look like.

Since June 2011, three pieces of proposed legislation affecting offshore renewable energy have been introduced on Capitol Hill. The first two bills, H.R. 2170 and H.R. 2173, propose to fast track offshore wind projects abating certain prerequisite environmental studies and curtailing the associated public comment periods. The third bill, S.1397, proposes to extend the Investment Tax Credit (“ITC”) for offshore wind. Notably, the congressmen who are sponsoring the first two bills are mostly from states without active offshore wind projects. These bills have been met with significant industry resistance. In contrast, the congressmen who introduced the third bill all hail from states with active offshore wind projects. This bill has been widely lauded by industry members and advocates.

H.R. 2170 and H.R. 2173

On June 14, 2011, United States Representative Rob Wittman (VA-1) introduced two bills: H.R. 2170, “Cutting Federal Red Tape to Facilitate Renewable Energy Act”; and H.R. 2173, “Advancing Offshore Wind Production Act”. These bills seek to streamline the development of offshore energy projects by limiting or entirely eliminating certain obligations normally required under the National Environmental Policy Act (“NEPA”).

Unless a proposed action is eligible for a categorical exclusion, NEPA requires federal agencies to consider detailed evaluations of the environmental impact of any (a) the proposed action; (b) a no action alternative; and (c) alternative courses of action.

Proposed bill H.R. 2170 limits the scope of environmental assessments associated with offshore wind projects. Accordingly, H.R. 2170 eliminates the need to consider alternative courses of action in the environmental assessment as follows:

a Federal agency shall—
(1) consider only the proposed action and the no action alternative;
(2) analyze only the proposed action and the no action alternative; and
(3) identify and analyze potential mitigation measures only for the proposed action and the no action alternative.

See H.R. 2170. In addition, H.R. 2170 shortens the public comment period from the statutory minimum of 45 days to 30 days.

H.R. 2173 legislates a categorical exclusion for offshore meteorological site testing and monitoring projects. Accordingly, offshore wind developers would be allowed to install meteorological site testing and monitoring projects without preparing the otherwise mandatory environmental assessments and/or impact statements.

Although both H.R. 2170 and H.R. 2173 would have the potentially desirable effect of shortening the list of regulatory mandates for developers, both industry representatives (see testimony of Chris Taylor on behalf of AWEA) and environmental advocacy groups (see Brandi Collander on behalf of NRDC) have indicated strong opposition to both bills on the grounds that reduced or eliminated opportunities for public involvement will lead to an increase in litigation volume, which, in turn, will cause more development delays.

Both bills were co-sponsored by the same nine additional House members: Rep. Paul Broun (GA-10), Rep. Jeff Duncan (SC-3), Rep. John Duncan, Jr. (TN-2), Rep. Bill Flores (TX-17), Rep. Doc Hastings (WA-4), Rep. Raul Labrador (ID-1), Rep. Doug Lamborn (CO-5), Rep. Jeffrey Landry (LA-3) , Rep. Tom McClintock(CA-4), Rep. Steve Southerland (FL-2). With the exception of Representatives Wittman (VA) and Flores (TX) whose districts are not directly involved with offshore wind, none of the bills’ sponsoring congressmen hail from states with active offshore wind. Notwithstanding the opposition testimony, both bills were approved by the House of Representatives’ Natural Resources Committee on July 11, 2011.

S. 1397

On July 21, 2011, Senators Tom Carper (D-DE) and Olympia Snowe (R-ME), filed S. 1397, the “Incentivizing Offshore Wind Power Act.” S. 1397, also known as “A Bill to Amend the Internal Revenue Code of 1986 to Provide For an Investment Tax Credit Related to the Production of Electricity from Offshore Wind.” Although the text of S. 1397 is not yet available, Sen. Carper’s office has issued a press release describing the terms of the bill as follows:

Specifically, the Incentivizing Offshore Wind Power Act provides the offshore wind industry with enhanced stability by extending investment tax credits for the first 3,000 MW of offshore wind facilities placed into service – which is an estimate of 600 wind turbines. These tax credits are vital for this new clean energy technology because there is a much longer lead time for the permitting and construction of offshore wind turbines, compared to onshore wind energy. Once awarded a tax credit, companies have five years to install the offshore wind facility. Companies cannot receive other production or investment tax credits in addition to the offshore wind investment tax credit.

See, Offshore Wind Development Coalition ("OWDC") have announced their support for S. 1397. In fact, the OWDC had previously identified legislation extending the ITC as a key goal.

Co-sponsors for S.1393 include: Sen. Sherrod Brown (OH), Sen. Benjamin Cardin (MD), Sen. Susan Collins (ME), Sen. Christopher Coons (DE), Sen. Frank Lautenberg (NJ), Sen. Robert Menendez (NJ), Sen. Jack Reed (RI), and Sen. Sheldon Whitehouse (RI). Significantly, all of S.1397’s sponsoring legislators represent states hosting active offshore wind development projects.

Rhode Island Supreme Court Affirms Block Island PPA

On Friday July 1, 2011, the Rhode Island Supreme Court unanimously voted to uphold the Rhode Island Public Utilities Commission’s approval of a power purchase agreement between utility National Grid and offshore wind developer Deepwater Wind with regard to a proposed wind energy installation to be located three nautical miles southeast of Block Island in Rhode Island state waters (the “PPA”). See In re: Review of Proposed Town of New Shoreham Project, No. 2010-273-M.P. (4185)(July 1, 2011)(“New Shoreham”).

The New Shoreham decision resolved a challenge brought by third party intervenors, Conservation Law Foundation (“CLF”), Toray Plastics (“TP”) and Polytop Corp.(“PTC”) (together, the “intervenors”) as to the legality of a PPA submitted by Deepwater Wind and National Grid in 2010 ("2010 PPA"). Under the 20-year 2010 PPA, National Grid will pay up to 24.4 cents per kilowatt hour for electricity in the first year of operation with an annual 3.5% increase over the lifetime of the project. The intervenors alleged that the rates set by the PPA are nearly three times higher than the 6.9 cents per kilowatt hour that National Grid pays for electricity from traditional generation sources such as natural gas-fired facilities and nuclear power plants, and therefore are not “commercially reasonable” as required under R.I. Gen. Laws § 39-26.1-7 (2010) (Rhode Island’s Long Term Contracting Standard for Renewable Energy statute) (the “LTC statute”).

At the heart of the parties dispute is the definition of the term “commercially reasonable”. Under the original LTC statute passed by the General Assembly in 2009, the PUC was required to review the Block Island PPA using the definition set forth at § 39-26.1-2(1): “terms and pricing that are reasonably consistent with what an experienced power market analyst would expect to see in transactions involving newly developed renewable energy resources.”

In 2009, National Grid and Deepwater Wind submitted their initial PPA to the PUC (the “2009 PPA”). Citing the above definition of “commercially reasonable”, the PUC rejected the 2009 PPA. Specifically, the PUC found that when it compared the terms and pricing of the 2009 PPA to any renewable energy project, “regardless of sizing restrictions, technology, location or novelty”, the 2009 PPA was not “commercially reasonable.” See 2009 PUC Decision.

Subsequently in 2010, the Rhode Island General Assembly issued an amended version of the LTC statute ("Amended LTC"). The Amended LTC included, among other changes, a special new definition of the term “commercially reasonable” which was to be applied solely with regard to the PUC’s review of a Block Island offshore wind project PPA. The Amended LTC definition provides that the PPA’s “terms and conditions [will be considered] commercially reasonable [if the] terms and pricing…are reasonably consistent with what an experienced power market analyst would expect to see for a project of similar size, technology and location, and meeting the policy goals in [§ 39-26.1-7(c)(i); (c)]."

Following the enactment of the Amended LTC, National Grid and Deepwater Wind resubmitted their PPA to the PUC ("2010 PPA"). The 2010 PPA contained pricing and terms that are virtually identical to those set forth in the 2009 PPA. The PUC approved the 2010 PPA in August 2010.

The intervenors appealed the PUC’s decision to the Rhode Island Supreme Court through a petition for certiorari filed in September 2010. The intervenors argued that the PUC had “exceeded its authority or acted illegally, arbitrarily, or unreasonably” when it approved the 2010 PPA.

Following exhaustive briefing and oral arguments by both parties (see here), the Rhode Island Supreme Court issued its decision on July 1. In its 75 page opinion, the Court unanimously rejects the intervenors’ challenge and upheld the PUC’s approval of the PPA. In so doing, the Court stated:

Although we view with trepidation the General Assembly’s unwavering quest to sink this demonstration wind farm into the sediment of Rhode Island’s continental shelf, we nonetheless are constrained by our standard of review and the bounds of the revised [long-term contracting] statute.

Notably, the Court held that the Amended LTC statute did not require the PUC to balance the costs of the project against the benefits. Rather, the PUC’s review of the PPA needed only to consider the criteria set forth in the Amended LTC statute. Thus, held the Court, the PUC acted appropriately when it considered only potential positive impacts of the project.

The Court concluded the Opinion with what could be construed both as a critique of the General Assembly's 2010 amendments to the LTC as well as a whimsically quaint wish for the ultimate success of the Block Island offshore wind project, and for the U.S. Offshore Wind industry generally:

...it is this Court's fervent hope that our Legislature's William Seward-esque policy decision championing this amended purchase-power agreement proves as lucrative and majestic as the Alaska Purchase of 1867.

Because the case does not concern federal law or a federal constitutional challenge to Rhode Island state law, this decision is final and is not eligible for review on certiorari to the U.S. Supreme Court. Nevertheless, while this particular obstacle to development of the project has been eliminated, Deepwater Wind still has significant hurdles to overcome before it can begin construction of its Block Island project. For example, Deepwater Wind must still secure permitting from, among other agencies, the Rhode Island Coastal Resources Management Council and the U.S. Army Corps of Engineers. Hopefully, the affirmation of its PPA with National Grid will bolster investor confidence and help Deepwater Wind to procure the over $200 million in front-end financing needed for the project.

The New Shoreham case is among the first of what will likely be many challenges to PPAs fashioned for offshore wind installations. Because the upfront development, permitting, supply-chain, and construction costs for offshore wind are so high, PPAs negotiated for these projects typically present rates that are significantly higher than rates associated with traditional and/or existing generation sources. As in Rhode Island, states will most likely be forced to enact legislation that authorizes exceptional terms (see e.g., New Jersey) and/or requires state utility commissions to employ special analytical criteria for new renewable generation projects if these projects have any hope of being built.

And we're back!

Dear Friends and Colleagues,

You may have noticed that things have been very quiet for the last month here at the Ocean and Offshore Energy Projects and Policy Blog—and it isn’t for lack of developments in the offshore renewable energy world.

I have recently relocated from Philadelphia to join Nixon Peabody LLP’s Environmental and Energy Practice Group in the firm’s Boston office. Among the many reasons that factored into my decision is Nixon Peabody’s unparalleled expertise with the legal issues that impact ocean-based renewable energy projects and the firm’s commitment to and enthusiasm for working with developers and other interested entities who want to see the United States’ offshore renewable energy industry flourish.

Nixon Peabody has one of the broadest energy practices in the country and has served the needs of energy industry clients for more than 100 years. Our energy practice includes a wide variety of renewable energy clients including developers of wind, solar, biomass and other renewable
technologies.

With regard to marine-based renewable energy projects, Nixon Peabody’s attorneys have:

• Assisted developers to prepare Responses to Requests for Proposals and Requests for Information with regard to potential offshore wind installations in the Northeast, Mid-Atlantic, and Great Lakes regions;


• Assisted developers to negotiate leases to install met towers in both state and federal waters;


• Assisted a developer to secure a Memorandum of Understanding for a Power Sales Agreement;


• Provided clients with advice and analysis regarding the permitting requirements involved in both offshore generation and transmission plans;


• Advised clients with regard to structuring a practicable financing plan for developments;
  Assisted clients through all stages of submarine electric transmission project development and financing, including state and federal siting and permitting issues, commercial agreements such as supply chain and construction contracts, federal market-based and incentive rate proceedings, transmission capacity purchase and sale agreements, and financial structuring; and


• Advised and assisted clients to comply with various legislative and regulatory schemes including those governed by BOEMRE, the United States Army Corps of Engineers, NOAA, and various other local, state, and federal authorities.

The energy practice has 5 attorneys listed in Chambers USA America’s Leading Lawyers for Business (2011), and supported by additional teams of lawyers in such areas as intellectual property, creditor’s rights and workouts, and litigation and arbitration.

Nixon Peabody attorneys are frequent speakers at conferences presented by national industry trade groups such as SEIA, AWEA, and ACORE. The firm is also an active member of these groups. Many of our attorneys also speak at conferences presented by commercial sponsors such as Infocast, EUCI, Euromoney, Platt’s, and LSI.

I am extremely honored and excited to join the team here at Nixon Peabody LLP and hope that you will feel free to contact me at my new professional home.

Thanks for being patient during this transitional period. Keep an eye out for my next post where I will resume my usual analysis of timely events in offshore renewable energy development and policy!

Best,
Jennifer Simon Lento, Esq.
Nixon Peabody LLP
100 Summer St.
Boston, MA 02110
jsimonlento@nixonpeabody.com
617-342-1352
http://www.blogger.com/www.nixonpeabody.com

Offshore Wind State Update: Mid-Atlantic Edition (New Jersey, Maryland, Virginia, North Carolina)

New Jersey

Offshore Wind Renewable Energy Credit Program:

On Monday May 16, 2010, the New Jersey Board of Public Utilities announced and confirmed that they have begun accepting applications for offshore wind projects in state waters. Applications must be received by or before June 14, 2011.

Under the recently adopted Offshore Renewable Energy Credit regulations, applications will enter a six-month review process after they have been received and deemed administratively complete.

Fishermen's Energy:

Fishermen's Energy, the developer spearheading an effort to build a windfarm in New Jersey state waters off of Cape May, NJ, has announced that the New Jersey Department of Environmental Protection (NJDEP) has issued the major environmental permits to build its demonstration-scale six turbine Fishermen's Atlantic City Windfarm to be located in New Jersey State waters off the coast of Atlantic City.

In a May 6, 2011 press release, Fishermen’s Energy announced that they have now received approval from the New Jersey State House Commission for a Green Acres permit and the Tidelands Council for an electric line easement and turbine locations license required to build its demonstration-scale six turbine Fishermen's Atlantic City Windfarm. These were the remaining State permits required for the project to
commence construction.

This wind energy project will be located in New Jersey State waters off the coast of Atlantic City. Fishermen’s Energy also announced the completion of a year of pre-construction avian and marine mammal monitoring, keeping the project on target for a Fall 2012 commissioning.

Earlier this spring, NJ DEP issued the project's CAFRA Individual Permit, Waterfront Development Permit and Water Quality Certificate after technical, legal, and staff review of the project application and after a public notice and comment period which garnered only positive support from a variety of stakeholders.

Maryland

Despite strong support from Maryland's Governor O'Malley, the Maryland legislature has decided to shelve proposed legislation which would have required state utilities to enter into power purchase agreements with offshore wind generation facilities to be developed off of Maryland's coastline.

Supporters of the legislation, entitled the Maryland Offshore Wind Energy Act, hope to reintroduce the proposed law again early next year.

Virginia

On May 10, 2011, the Associated Press reported that Virginia Utility Dominion Power announced that it will not include offshore wind as part of its generation portfolio until that offshore wind power becomes cost-competitive with traditional forms of generation. Dominion issued this statement in response to the launch of VA4Wind, a consortium of environmental and green economy offshore wind energy advocates.

“The costs must become competitive with other conventional or renewable forms of generation for the technology to be chosen,” Jim Norvelle, a Dominion spokesman, wrote in an e-mail to the Associated Press. “Dominion continues to pursue cost reduction options and would put plans in place to build when it is cost effective to do so.”

North Carolina

On April 19, 2011, Republican State Sen. Fletcher Hartsell filed a bill in the North Carolina legislature entitled An Act to Encourage the Development of the State's Offshore Wind Energy Resources and to Attract Jobs and Economic Development. The bill was filed just short of the deadline for bills that can be considered during the current legislative session.

The Hartsell bill, which follows (but does not replicate) both New Jersey's 2010 Offshore Wind Economic Development Act and the now-shelved Maryland Offshore Wind Energy Act, requires the North Carolina Utilities Commission to issue regulations mandating that state utilities enter into power purchase agreements for up to 2,500 megawatts of offshore wind energy. The legislation stipulates that the offshore wind generation facilities would be built over a period of seven to ten years, and requires the first project to begin producing power by Dec. 31, 2017. The legislation also sets the goal of building 5,000 megawatts of offshore nameplate capacity by 2030.

The regulations issued by the State Utilities Commission pursuant to the bill set forth a series of aggressive deadlines in order to meet the 2017 project completion date:

January 1, 2012: The Commission must issue a request for proposals soliciting bids from offshore wind project developers.

April 30, 2012: Responses to the RFP from potential project developers are due.

October 31, 2012: The Commission must review the Responses and award bids.

Offshore Wind: An Argument for Aesthetics

Many of those opposed to offshore wind power have argued that offshore wind turbines are an aesthetic blight. Typically, my response to that position has been, "Ok, but have you ever seen a coal fired power plant?" With the understanding that aesthetics are somewhat subjective, I think we can all agree that this:



is not as ugly as this:



In the spirit of wind-favorable aesthetic comparisons, a California-based non-profit organization which advocates for electric vehicles recently issued the following public service announcement. This may be the first domestic video advertisement in support of offshore wind:

Ocean & Offshore Energy Projects and Policy Blog is one of LexisNexis' Top 50 Blogs for 2011!

Dear Offshore Energy Blog Readers, Colleagues and Friends:

Thanks to your support and readership, the LexisNexis Environmental Law & Climate Change Community has selected this blog as one of the top 50 blogs of 2011.

I look forward to continuing to publish timely analysis of cutting edge developments in ocean energy project development, regulation, and policy making in 2011 and beyond.


Best,
Jennifer Simon Lento, Esq.

Secretary Salazar Announces Approval of Cape Wind's Construction and Operations Plan!

At 10:30am on April 19, 2011, Department of the Interior Secretary Ken Salazar announced that Cape Wind's Construction and Operations plan has been approved. Secretary Salazar made the announcement at the Charlestown Navy Yard in Boston and was accompanied by Jim Gordon, the President and CEO of Cape Wind, LLC and Massachussetts governmental representatives.

The Department of the Interior posted the following >press release at the DOI website:

WASHINGTON, DC – Secretary of the Interior Ken Salazar today announced that the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) has approved a Construction and Operations Plan (COP) submitted for the Cape Wind Energy Project, which is required before construction may begin on the generation facility planned in Nantucket Sound. The timeframe reported in the COP submitted by Cape Wind Associates suggests that construction of the nation’s first offshore wind farm could begin as early as the fall.

“The Department has taken extraordinary steps to fully evaluate Cape Wind’s potential impacts on environmental and cultural resources of Nantucket Sound,” said Secretary Salazar. “By signing the Construction and Operations Plan today, we are even closer towards ushering in our Nation’s first offshore wind energy facility while creating jobs.”

“After a thorough review of environmental impacts, we are confident that this offshore commercial wind project – the first in the nation – can move forward. This will accelerate interest in the renewable energy sector generally and the offshore wind sector specifically, and spur innovation and investment in our nation’s energy infrastructure,” said BOEMRE Director Michael R. Bromwich.

"With today's announcement by Secretary Salazar, we are one step closer to benefiting from the clean energy, green jobs and long-term economic benefits that will result from creating the nation's first offshore wind farm," said Governor Deval Patrick. "States up and down the East Coast are now looking to Massachusetts with envy as we launch this brand new American industry." ?

The proposed action, including its size and location, remain substantially the same as analyzed in the Cape Wind Final Environmental Impact Statement (FEIS) that was published in January 2009. The Cape Wind energy project calls for 130 3.6± megawatt wind turbine generators, each with a maximum blade height of 440 feet, to be arranged in a grid pattern on the OCS in Nantucket Sound, offshore Cape Cod, Martha’s Vineyard, and Nantucket Island.


As part of its evaluation of the COP, the bureau conducted an Environmental Assessment (EA) under the National Environmental Policy Act (NEPA) to determine whether there were any significant impacts that had not been discussed in the 2009 FEIS or other environmental assessments, and concluded that all impacts had been properly examined. BOEMRE also issued a Record of Decision for the COP approval, which details the terms and conditions that Cape Wind Associates will need to follow these terms and conditions are in addition to those established in the lease agreement.

A notice about the preparation of an EA was posted on the BOEMRE website in February which initiated a comment period and provided an opportunity for public input. BOEMRE received and considered approximately 160 comments during the comment period. Issues considered in the EA include: additional surveys and sampling, conflicts with aviation traffic and fishing use, emergency response, migratory birds, microclimate, oil within wind turbine generators, permits issued by other federal agencies and consultations with other agencies.

For more information about the Cape Wind energy project, including the COP, previous environmental reviews, Record of Decision, lease and related documents, please visit: http://www.boemre.gov/offshore/RenewableEnergy/CapeWind.htm.

Offshore Wind State Update: New England Edition (Maine, Massachusetts and Rhode Island)

The States have been busy this year. Maine has been focusing on developing new technologies. Massachusetts and the Cape Wind project have finally (fingers crossed here!) overcome the worst of the legal obstacles but now must find solutions to financial challenges. Rhode Island's Deepwater Wind Block Island project is still ensnared in legal challenges related to financing issues. See the below for more detailed updates.

MAINE

WindFloat Maine LLC of Camden, a subsidiary of Principle Power Inc., and a member of the DeepCwind Consortium at the University of Maine's Advanced Structures and Composites Center, received a grant of $500,000 from the Maine Technology Institute. The money will be used towards the development of a floating wind turbine platform design, also called Windfloat. WindFloat Maine also brought in a $500,000 matching investment.

The significance of viable floating wind turbine technology should not be underestimated. The turbines that are presently installed at offshore wind farms must be secured to the ocean floor via monopile or gravity offset mechanisms. For this reason, all currently installed offshore windfarms worldwide are installed in waters that are <30 meters. Although new advances in marine turbine technology has made it practicable to install turbines off the eastern seaboard of the United States at depths of up to approximately 40-50 meters.

However, the western seaboard of the United States has significantly steeper ocean bathymetry-- that is, the ocean floor drops off precipitously relatively close to shore. This makes the western seaboard a poor candidate location for offshore windfarms regardless of the available wind resources (and Pacific coastal wind resources are not insignificant). See, e.g., NREL Offshore Wind Resource Map for Washington State. However, proposed floating turbine technology would allow offshore windfarms to be constructed at depths of 40-900 meters, thus effectively opening up the Pacific coast of the United States.

Massachussetts

Cape Wind may begin construction as early as this year. However, Cape Wind Associates, LLC, the developer of the 130-turbine 420MW project, may be in trouble if it cannot obtain sufficient financial backing.

At present, half of the power generated from Cape Wind will be sold to National Grid PLC subject to a 15-year power purchase agreement. Cape Wind has not been able to secure a power purchase agreement for the remaining name plate capacity. The guarantee of a back-end revenue stream yielded through a power purchase agreement provides lenders with the assurance and comfort that loans for front-end costs (like construction) will be repaid. Therefore, Cape Wind's inability to secure a PPA for the entirety of its production does not bode well.

The first phase of construction will cost approximately $1.7 billion. Cape Wind now hopes to find a "strategic partner" that would invest a significant portion of the estimated $500 million of equity needed before debt financing can be launched to round out the complete financing package.

Rhode Island

On Wednesday April 6, the Rhode Island Supreme Court heard oral arguments in a case wherein the Rhode Island Attorney General along with a variety of intervenors (most vocally, the Conservation Law Foundation (“CLF”), Toray Plastics (“TP”) and Polytop Corp.(“PTC”)) have challenged the legality of an amended power purchase agreement between National Grid and Deepwater Wind (In re: Review of Amended Power Purchase Agreement between Narragansett Electric Company d/b/a National Grid and Deepwater Wind Block Island, LLC pursuant to R.I. Gen.Laws § 39-26.1-7, Docket No. 4185). The power purchase agreement governs National Grid’s purchase of certain quantities of power generated by a proposed 8-turbine offshore wind farm planned to be located off of Block Island in the jurisdictional waters of Rhode Island.

The court's decision is expected within 60 days. If the Supreme Court finds the intervenors’ arguments convincing, it will likely mean that Deepwater Wind’s Block Island wind farm will not get built.

The history of the case is somewhat confusing. Back in December 2009, the Rhode Island Public Utilities Commission received for its review a power purchase agreement between National Grid and Deepwater Wind. This PPA was subject to Rhode Island Gen. Laws § 39-26.1-1 to 8. The relevant provision of the law required National Grid to “solicit proposals for one newly developed renewable energy resources project of ten (10) megawatts or less that includes a proposal to enhance the electric reliability and environmental quality of the Town of Shoreham.” See R.I. Gen. Laws §39-26.1-7(a). Once National grid had identified the project, National Grid was to enter into negotiations with the selected project developer with the goal of “achieving a commercially reasonable contract.” R.I. Gen. Laws §39-26.1-7(b).

During the course of the R.I. PUC’s review of the December 2009 PPA, a variety of intervenors, including CLF, TP and PTC, entered submissions arguing that the December 2009 PPA was not “commercially reasonable.” See R.I. PUC Docket No. 4111. On that basis, the R.I. PUC concluded that the 2009 PPA did not comply with the requirements of R.I. Gen. Laws §39-26.1-7(b), and refused to approve it. See R.I. PUC Opinion.

On April 28, 2010, the Rhode Island legislature adopted revised legislation that significantly altered the Rhode Island Gen. Laws § 39-26.1-1 to 8. See revised legislation here. Most notably, the new legislation (a) specifically authorized National Grid to enter into a PPA for an 8-turbine offshore wind project; (b) changed the criteria under which the R.I. PUC was to review that PPA; (c) and provided explicitly for the same intervenors whom had challenged the original PPA to challenge the amended PPA again within the scope of a streamlined process.

Subsequently, National Grid and Deepwater Wind resubmitted their PPA to the Rhode Island PUC. The intervenors, not surprisingly, again the challenged the PPA. However, instead of challenging the PPA exclusively, the intervenors now also argue that the new legislation is itself illegal.

For a summary of the parties’ arguments, see the Providence Journal.

Japan and the Resilience of Wind Power

Although this blog focuses on the United States Offshore Wind industry, things occasionally happen outside of the United States that warrant coverage here. For those of us watching from the safety of the Western Hemisphere, the horrific destruction caused by the earthquakes and tsunami in Japan is simply incomprehensible. And, as if the physical impact of the earthquakes and tsunami weren`t enough, the crisis at the Fukushima Nuclear Plant appears to be getting worse by the hour, and news sources are now reporting that radiation leaks may be severe enough to impact human health and welfare.

According to the World Nuclear Association, Japan's nuclear power plants provide approximately 30% of consumed electricity in Japan. At least 25% of Japan's 55 nuclear reactors have been shut down since the earthquake and tsunami on March 11, 2011.

As Japan begins the long road of "rebuilding the country from scratch", it is important to highlight the infrastructure that survived the catastrophes.

Amazingly, Yoshinori Ueda, leader of the International Committee of the Japan Wind Power Association & Japan Wind Energy Association has reported that there has been no damage reported at any of Japan's member wind generation plants-- including the Kamisu semi-offshore wind farm. The Kamisu wind farm, which is located approximately 300km from the epicenter of the quake, was designed to withstand earthquakes-- and the merit of that design should plainly be lauded.

According to the Huffington Post's Kelly Rigg, Mr. Ueda has confirmed that the majority of Japanese wind turbines are fully operational and have been asked to increase output to make up for shortages due to the disaster:

Eurus Energy Japan says that 174.9MW with eight wind farms (64% of their total capacity with 11 wind farms in eastern part of Japan) are in operation now. The residual three wind farms (Kamaishi 42.9MW, Takinekoshirai 46MW, Satomi 10.02MW) are stopped due to the grid failure caused by the earthquake and Tsunami. Satomi is to re-start operations in a few days. Kamaishi is notorious for tsunami disaster, but this wind farm is safe because it is locate in the mountains about 900m high from sea level.

The resilience of wind power in the face of incredible natural forces should not be overlooked.

Should you wish to contribute to organizations that are providing much-needed services and assistance to those who have been impacted by the earthquakes and tsunami in Japan, please consider donating to the following organizations:



The Red Cross



Doctors Without Borders

Ontario's Moratorium on Offshore Wind in the Great Lakes: Impacts on U.S. Great Lakes Offshore Wind Development

What Canada Did

On February 11, 2011, the Ontario Ministry of the Environment ("MOE") announced that it has suspended all activities pertaining to offshore wind development in the Great Lakes. See HERE for official statement. Accordingly, the MOE has suspended review of all applications for Renewable Energy Approvals and is not accepting any further applications for offshore wind projects in the Feed-In-Tariff ("FIT") program. Further, the Ontario Ministry of Natural Resources ("MNR") will not accept any new Crown land applications for offshore wind development and will cancel all existing Crown land applications for offshore wind development that do not have a FIT contract, including those with Applicant of Record status.

The Canadian Wind Energy Association ("CanWEA") and many developers, including Trillium Wind Power Corp., have broadly criticized the MOE's decision to halt the review of permit applications and approvals. The developers have noted that MOE and MNR’s cancellation of submitted applications will cost their investors the value of years of work and have a severe adverse impact on investors’ view of the reliability of offshore wind as an investment option in the future.

MOE has promised that projects will receive refunds for the site release permitting process, developers like Trillium say that a refund for an application fee cannot compensate for the last 15 years of time, money, and resources that they have dedicated towards developing their proposed project.

Why Canada Did It

The MOE stated that this moratorium has been instituted to allow time to review further scientific research on the effects of offshore wind projects on freshwater ecosystems. Others speculate that MOE's alleged need for additional environmental and engineering studies is simply an excuse to provide the Canadian government with more time to re-evaluate and align their offshore regulatory processes and policies.

Although a variety of federal and provincial authorities have issued legislation impacting offshore wind development on the Canadian side of the Great Lakes, neither the provincial government of Ontario nor the federal Canadian government have established a clear directive with regard to what studies, permits, applications, or other submissions must be prepared and submitted and in what order. For example, developers seeking to build offshore wind projects need to obtain submerged land leases from the Ministry of Natural Resources. The MNR has not yet established a competitive application process to govern the issuance of submerged land leases, which give developers site control to conduct environment and meteorological testing on their proposed site. This lack of a competitive process has resulted in a number of applicants -- qualified and unqualified -- being granted “placeholder” rights to a designated area just by virtue of filling out the application with no qualifications standards and thereby are precluding any other applicants whom may be better prepared financially and/or technically. Moreover, there is no official coordination between the leasing/siting process and MOE’s authority to issue Renewable Energy Approvals under the Feed in Tariff program.

What This Means for the U.S. Offshore Wind Industry

Although stakeholders in the U.S. Offshore Wind industry have not reacted strongly thus far, Canada’s offshore wind moratorium could provide fodder for a variety of opposition groups in the U.S. Traditionally, parties that oppose offshore wind development focus on one of three areas: (1) complaints about the visual impacts; (2) alleged adverse environmental impacts; and (3) increased rates associated with fixed prices set forth in power purchase agreements. Since the MOE has indicated that this moratorium stems from possible concerns regarding environmental and/or engineering issues, parties opposing U.S. Great Lakes developments may cite the Canadian moratorium as justification for implementing identical delays for U.S. projects in the Great Lakes.

More concerning is the impact that this decision may have on investor confidence. Although the U.S. Department of the Interior has instituted a more rigorous process (via the Final Rule and the Smart from the Start initiative) by which developers may pursue approvals for offshore wind developments, there is still significant uncertainty in the process. Possible investors for U.S. projects will certainly consider the losses which will inevitably be sustained by investors in the Canadian projects whose applications have been cancelled and/or whose submission is now indefinitely suspended. The potential for financial losses resulting from an unpredictable and untried regulatory process—even if these losses are a result of a completely independent foreign regulatory system— may appear that much more real to investors who are considering investing in U.S. offshore projects.

On the plus side, the Ontario market collapse may also increase investment in the U.S. offshore wind industry and result in more opportunities for job creation on our side of the border. As a result of its FIT program, many manufacturers and investors have viewed Ontario as having taken the lead in offshore wind development. Ontario's indefinite moratorium on offshore wind permitting means that Ontario has effectively lost that competitive advantage. Incentive-based legislation (e.g., the New Jersey Offshore Wind Economic Development Act and recently proposed legislation in Maryland) and slow but steady project progress in the U.S. may now compel these manufacturers to set up shop in the U.S. instead-- thus garnering the associated revenue and job creation for the U.S. economy.

Special thanks to Leslie Garrison of Bluewater Wind/NRG for her contributions to this post.

Ocean & Offshore Energy Projects and Policy Blog Nominated by LexisNexis!

Dear Offshore Energy Blog Readers, Colleagues and Friends:

For the first time, the LexisNexis Environmental Law & Climate Change Community is honoring a select group of blogs that set the online standard for environmental and energy law and policy online publications. I am pleased to announce that Ocean & Offshore Energy Projects and Policy Blog is one of the nominated candidates for the LexisNexis Top 50 Environmental Law & Climate Change Blogs for 2011.

I hope that you will click on this link and submit a comment in support of the Ocean & Offshore Energy Projects and Policy Blog.

The deadline for comments is 28 February 2011. Thanks for your support!!

Best,

Jennifer Simon Lento, Esq.

New Jersey OREC Regulations Issued! Fishermen's Energy Submits First Application to NJ BPU!

New Rules Issued Implementing New Jersey's OWEDA

On Thursday February 10, 2011, the New Jersey Board of Public Utilities ("BPU") approved new rules implementing the New Jersey Offshore Wind Economic Development Act (OWEDA). See NJBPU Press Release, dated 2/10/11. The rules became effective upon last Thursday's filing with the New Jersey Office of Administrative Law. The rules, codified at N.J.A.C. 14:8-6, were promulgated through a Special Adoption, and will remain in effect until 18 months from the effective date-- i.e., until August 10, 2012.

The Rules, which largely mirror the OWEDA, establish the Offshore Wind Renewable Energy Certificate (OREC) program. The OREC program requires developers of "qualified offshore wind projects" to submit an application requesting that the BPU issue ORECs for the designated project. Once applications have been deemed administratively complete, the BPU will have 180 days to review the substance of an application and issue a finding. The BPU will designate dates by which applications must be received so that they are able to review all developer applications simultaneously and comparatively.

This application must include, among other things, a detailed description of the project, construction plans, financing methods and analysis demonstrating the financial integrity of the developer and access to sufficient capital, proposed OREC pricing methods, and operations, maintenance and safety plans. In addition, the application must include a comprehensive cost-benefit analysis which must demonstrate "positive economic and environmental net benefits to the State."

Once the application has been received, the BPU may issue Offshore Wind Renewable Energy Certificates. These ORECs can be purchased by electricity distributors in New Jersey. The OWEDA provides that electricity sold to retail customers in New Jersey must include, at the least, the minimum percentage of energy derived from Offshore Wind generation projects as required for that energy year, as determined by the BPU.

The new Rules include some provisions which many developers are likely to find objectionable or difficult to implement. For example, the Rules require an applicant to identify by name the key project personnel and then commit to maintaining those exact people throughout the project development process. The Rules do not appear to include exceptions for personnel identified in the application who later leave the applicant's employ, get promoted, or otherwise shift their career function over the course of what could reasonably be years. Another provision requires applicants to describe the type of job creation anticipated through the project and then formally commit to those jobs actually coming to fruition. If the described jobs do not come about, the applicant must provide a direct adverse consequence that it will impose upon itself.

Rob Gibbs, Vice President of Garden State Offshore Energy, one of the three anticipated prospective applicant project developers (i.e., GSOE, Bluewater Wind and Fishermen's Energy), said the following with regard to the new Rules:

We’re pleased the OREC regulations are out and are currently reviewing them to ensure what’s been adopted is financeable from a project perspective. While the regulations contain a good deal of detail with respect to application requirements, we were disappointed the Board did not go further in establishing common assumptions that all interested developers would use in their applications. For instance, establishing common assumptions on capacity factor, forward energy prices, etc. would enable the Board to compare applications on a similar basis rather than letting interested developers use divergent data points that are subjective and could make it more difficult for meaningful comparison. We also would have liked to have seen more definitive time periods for submitting applications but we understand a stakeholder process will be held in the next few weeks so we’re encouraged that this will be fleshed out quickly.

Fishermen's Energy Submits First OREC Application

Fishermen’s Energy of New Jersey, LLC (Fishermen’s) announced that it filed the first application for approval for the issuance of ORECs with the New Jersey Board of Public Utilities on February 9, 2011. The application was filed for a "Demonstration Project" consisting of six turbines with an output not to exceed 25MW. The project will be located in New Jersey state waters about 2.8 miles from Atlantic City.

If approved by the NJ BPU, the Fishermen’s Atlantic City Windfarm, located in New Jersey State waters, is on schedule to be the first grid connected offshore wind project in the United States.

Daniel Cohen, President of Fishermen’s Energy, stated:

The decision to allow us to receive OREC funding will be up to the NJ BPU. The price for the electricity is within the range we testified to during the legislative
process to enact the Offshore Wind Development Act, with about a one tenth of one percent rate increase in the first operating year, which will decrease each year thereafter, as the cost of fossil fired energy increases. This is a bargain for New Jersey and its ratepayers as a societal and energy cost hedge and to start a new
industry.

Mike Madia, Chief Operating Officer of Fishermen's Energy and the team leader in charge of the BPU application, further asserted that the project's benefits will far outweigh its upfront costs:

This project will be a magnet for industrial development of wind energy manufacturing in New Jersey. The State’s and the NJ BPU’s willingness to support this first offshore wind project for New Jersey and the US will be a key selling point to convince wind turbine manufacturing and related supply chain participants to locate new facilities in New Jersey, bringing their associated jobs and investment. Aside from industrial jobs, based on polling data among tourists, Fishermen’s projects that the presence of an operating wind farm visually associated with Atlantic City and that is accessible to tourists by boat from shore, will result in increased tourism to Atlantic City, drawing people to the birthplace of offshore wind in the Americas. This coupled with the economic incentives for manufacturing included in the Offshore Wind Economic Development Act provides compelling reasons for new industry to locate in New Jersey.

Another Big News Day: Salazar, Chu Announce Major Initiatives; News out of RI and NJ

DOE, DOI Announce Inter-Agency Offshore Wind Initiative: Funding for R&D Projects Solicited and New Wind Energy Areas Identified

Although recent events have suggested that the Obama administration's goal to generate 80% of the Nation's energy from carbon-neutral generation is at loggerheads with regulatory progress, DOI Secretary Salazar and and DOE Secretary Chu today unveiled the first-ever inter-agency Strategic Work Plan in support of offshore wind. The Strategic Work Plan, part of the National Offshore Wind Strategy, incorporates and expands upon the "Smart from the Start" program announced by Secretary Salazar in November 2010. The Strategic Work Plan will begin with two major initiatives: (1) $50.5 Million in funding for research and development; and (2) the continued identification of "Wind Energy Areas."

First, DOI and DOE have announced up to $50.5 Million to fund research and development projects that will contribute to the efficient development of domestic offshore wind projects. Today, the first round of funding was announced in the following three areas:

• Technology Development (up to $25 million over 5 years): DOE will support the development of innovative wind turbine design tools and hardware to provide the foundation for a cost-competitive and world-class offshore wind industry in the United States. Specific activities will include the development of open-source computational tools, system-optimized offshore wind plant concept studies, and coupled turbine rotor and control systems to optimize next-generation offshore wind systems.
• Removing Market Barriers (up to $18 million over 3 years): DOE will support baseline studies and targeted environmental research to characterize key industry sectors and factors limiting the deployment of offshore wind. Specific activities will include offshore wind market and economic analysis; environmental risk reduction; manufacturing and supply chain development; transmission planning and interconnection strategies; optimized infrastructure and operations; and wind resource characterization.
• Next-Generation Drivetrain (up to $7.5 million over 3 years): DOE will fund the development and refinement of next-generation designs for wind turbine drivetrains, a core technology required for cost-effective offshore wind power.

See DOI Press Release.

Second, Secretary Salazar also announced several new "wind energy areas" (WEAs) located on the Outer Continental Shelf off the coasts of Delaware (122 square nautical miles), Maryland (207), New Jersey (417), and Virginia (165). See here for a map of the new WEAs. Additional new WEAs off of Massachusetts, Rhode Island, and the Southern Atlantic Region will be identified by DOI by Spring 2011. The WEAs, part of the Smart for the Start program initiative to reduce permitting and leasing process time, will allow developers to take advantage of pre-existing and/or approved coordinated environmental studies, large-scale planning (such as ocean zoning and mapping studies), as well as expedited approval processes.

The Offshore Wind Strategy will be employed in furtherance of the Obama administration's goal of generating 80% of the Nation's electricity from carbon-neutral generation projects by 2035. See State of the Union Address, January 25, 2011. Under the Offshore Wind Strategy, 10 gigawatts of offshore wind generating capacity will be deployed in state and federal waters by 2020 (enough to power 2.8 million homes) and another 54 gigawatts will be deployed by 2030 (enough to power 15.2 million homes).

State Developments:

Much Bigger NJ Offshore Wind Farm?

New Jersey is going to be a hot spot for the foreseeable future. First, later this week, we expect that the New Jersey Board of Public Utilities will issue regulations implementing the requirements of last August's Offshore Wind Economic Development Act. More information to come on that later this week.

However, there also appears to be some changes in the development plans for the wind farms currently proposed off of the New Jersey coastline. At last week's GreenPower Conference, "Offshore Wind Power USA: Creating a Roadmap for Commercially Successful Offshore Wind Projects" in Boston, Robert Gibbs, Vice President of the Deepwater Wind/ PSEG Global collaborative offshore wind development group Garden State Offshore Energy, provided a rather startling update regarding its New Jersey project. Up until last week, GSOE had been saying that its plan was to develop a utility scale project of approximately 350 megawatts of name plate capacity approximately 20 miles off of Cape May, New Jersey. During last week's conference, Mr. Gibbs' presentation included a slide which suggests that GSOE may be intending to expand its development plan to provide for a utility scale project of up to 1,000 megawatts of name capacity. Notably, GSOE's development arm, Deepwater Wind, recently made a similar announcement with regard to its Rhode Island Sound project.

GSOE's plan to radically increase the size of its project is in part motivated by seeking economy of scale benefits now available via larger, more productive turbines. However, it also creates a potentially dicey competitive environment for the other New Jersey developer, Fishermen's Energy. Under New Jersey's offshore wind energy legislation, the OWEDA, direct funding and financial incentives are directed for up to 1,100 megawatts of offshore energy generation. Thus, if the GSOE project encompasses 1,000 megawatts, it essentially eliminates incentives for projects other than the GSOE project.

Rhode Island: One Less Opponent for Block Island

There is one less opponent to Deepwater Wind's proposed 6-turbine offshore wind installation near Block Island. Rhode Island Attorney General Peter Kilmartin dropped his office’s appeal of the power purchase agreement between Deepwater Wind and National Grid. The appeal, which is set to be heard in the first quarter of 2011, was filed after the state’s Public Utilities Commission approved a price agreement for the sale of electricity from the planned Block Island wind farm.

The appeal will nevertheless proceed because three other petitioners, the Conservation Law Foundation and two manufacturers, are still actively involved in the proceeding.

BOEMRE Slows Down; Maryland Picks Up the Pace

Although there is still one last installment of my "What's Next: 2011 Edition" series yet to be published, I had no choice but to interrupt myself with two new developments related to two of my earlier predictions:

• First, BOEMRE's announcement regarding its revised offshore renewable project permitting rules will directly impact my predictions regarding BOEMRE's anticipated Requests for Interest. In short, the revised shortened timeline for these Requests for Interest is, for the moment, extended.
• Second, as I predicted here, Maryland Governor Martin O'Malley has issued a more concrete summary of the legislation he plans to pursue in support of offshore wind projects off of Maryland's coast.
  

A Speedier Permitting Process? Not So Fast, Thanks to Rulemaking Mandates.

Ah, the absurdity that can result from bureaucratic efforts to facilitate efficiency: BOEMRE's announcement that it must now proceed through the rulemaking process twice in order to promulgate a rule designed to eliminate regulatory redundancy in the federal permitting process for offshore wind projects may just take the prize.

BOEMRE originally unveiled the Rule, part of the "Smart from the Start program" on November 26, 2010. On Monday, January 21, 2011, BOEMRE announced that it now plans to republish the November 26, 2010 Rule within the next 30 days as a Proposed Rule. This accouncement indicates that (1) BOEMRE will be shepherding the revised rule through standard informal notice and comment rulemaking procedures; and (2) BOEMRE received at least one adverse comment or notice during the 30 day comment period following the November 26, 2010 direct final rule publication. BOEMRE has not released any information regarding the basis of the adverse comments or notices. The need to proceed through a second round of rulemaking procedures means that the November 26, 2010 Rule will not go into effect until - at the earliest - May 2011.

The November 26, 2011 Rule, which amends the 2009 MMS Final Rule governing offshore renewable energy project permitting, was designed to eliminate a redundant step in the noncompetitive leasing process for commercial renewable energy development on the Outer Continental Shelf. Under the 2009 MMS Final Rule, BOEMRE must issue a second Request for Interest with regard to leasing specific areas of interest on the Outer Continental Shelf even if only one entity responds to BOEMRE's first request. The November 26, 2011 Rule eliminates BOEMRE's obligation to issue a second request for interest in the event that there is only one interested entity -- resulting in a time savings of up to six to twelve months in the leasing process. If time is money in the project development arena- and it is- the elimination of pointless bureaucratic delay seems like a no-brainer.

In an attempt to codify the 2009 Rule as quickly as possible, BOEMRE decided to employ the little-used "direct final rulemaking" process. The direct final rulemaking process is an accelerated version of the standard notice-and-comment method of informal rulemaking set forth under the Administrative Procedure Act that negates the requirement that an agency proceed through rounds of deliberation at both the proposal and final promulgation stages. See 5 U.S.C. 553. Typically, an agency will use the direct final rulemaking process when it believes that a rule is so uncontroversial that the standard notice-and-comment method would be superfluous and impose needless delay.

Under the direct final rulemaking process, BOEMRE published the Rule in the Federal Register accompanied by the following statement:

This rule becomes effective on January 25, 2011 unless BOEMRE publishes a notice withdrawing this rule before that date.

See November 26 Rule. If no adverse comments had been received before January 25, 2011, the Rule would have been effective as of January 25, 2011. However, under the APA, BOEMRE was compelled to withdraw the Rule upon receipt of even one adverse comments or notices during the comment period compelled.

Nothing in the APA, however, prevents BOEMRE from republishing the November 26, 2010 Rule and initiating the standard informal notice and comment rulemaking process. Under the standard rulemaking process, BOEMRE must first publish a "proposed rule" in the Federal Register. BOEMRE has stated that it intends to issue a proposed rule within the next 30 days. The proposed rule will include a notice setting forth a period of time during which the public and interested parties may submit comments in support of or adverse to the Rule-- typically, between 30 and 180 days. After reviewing all comments and notices, BOEMRE will then be required to publish a "final rule" in the Federal Register. The "final rule" must include BOEMRE's written responses to the substance of each and every comment or notice recieved during the comment period. Subject to any further challenges or comments, the Rule may then be codified into the Code of Federal Regulations ("CFR"). See 5 U.S.C. 553.

So what are the immediate impacts? You may recall that BOEMRE issued an RFI for specially identified submerged lands off of the Maryland coast on April 26, 2010. By way of a letter dated November 8, 2010, BOEMRE notified Bluewater Wind, LLC that it has submitted the only eligible submission. Under the November 26, 2010 Rule, BOEMRE would not be required to issue a second RFI and Bluewater Wind, LLC would be permitted to proceed to the next step in the permitting process immediately. However, because the Rule has not gone into effect, BOEMRE has now issued a second RFI in accordance with the 2009 MMS Final Rule.

Maryland: Proposed Offshore Wind Legislation

Governor Martin O'Malley revealed further details about the legislation he intends to sponsor this year in support of a Maryland-based offshore wind industry. According to the summary, O'Malley's proposed legislation will:

direct the Public Service Commission to require Maryland’s five distribution utilities to award long-term contracts to procure between 400 to 600 megawatts of offshore wind energy. The Commission will oversee the procurement process and approve the final contracts which must be for a period of not less than 20 years. Any additional costs of electricity from offshore wind, and ultimately the additional savings, will be shared by all ratepayers and customer classes in the State.

O'Malley's proposed legislation appears to track similar legislation adopted last year in New Jersey.