Utilities facing pushback on clean energy contract compensation
Healey calls payments to Eversource, National Grid, Unitil ‘kickbacks’
THE THREE MASSACHUSETTS utilities, accustomed to getting their way on Beacon Hill, are facing pushback on a provision in state law that allows them to collect from electricity ratepayers up to 2.75 percent of the value of any clean energy procurement for simply carrying the contract on their books.
House and Senate negotiators trying to reach agreement on climate change/energy legislation are at odds on the utility compensation issue, with the House backing the existing 2.75 percent level and the Senate in favor of cutting it back to 1.25 percent.
Attorney General Maura Healey for years has questioned the need for remuneration. Now, as the leading candidate for governor, she has ratcheted up her rhetoric.
“Get this,” she said at an April 27 forum hosted by the Environmental League of Massachusetts, “we’re also a state that allows kickbacks to the utilities if they agree to sign contracts for wind. We should be getting rid of these kickbacks and instead giving rebates, as I propose, to residents here so they can actually purchase electric vehicles so they can meet my goal of 1 million electric vehicles by 2030.”
The utilities – Eversource, National Grid, and Unitil — have long argued that the job of collecting money from ratepayers and using that money to pay the long-term contracts negotiated with offshore wind and hydroelectric developers comes with a hard-to-quantify but nevertheless real financial cost.
The Legislature hasn’t been able to make up its mind on the issue. Originally, the Legislature set the remuneration level at 4 percent, then lowered it to 2.75 percent, and then punted the issue to the Department of Public Utilities, giving the agency the authority to set the compensation at “up to 2.75 percent.”
The DPU in 2019 approved compensation levels at the full 2.75 percent on the offshore wind contract with Vineyard Wind, which is under construction, and the hydro-electric contract with Hydro Quebec and Central Maine Power, which was blocked by voters in Maine and is currently tied up in court.
“In the exercise of our discretion, the department is mindful that establishing a remuneration rate below 2.75 percent could send a negative signal to the financial markets and credit rating agencies regarding regulatory consistency in our review of long-term renewable energy contracts,” said the DPU’s 2019 decision approving a contract Vineyard Wind, the nation’s first industrial-scale wind farm.
The DPU’s decision approving he Hydro-Quebec/Central Maine Power contract called 2.75 percent “reasonable and in the public interest.”
How much the 2.75 percent is worth appears to be a closely guarded secret. The utilities never mention the actual dollar value in their filings and Eversource declined to provide one. Healey’s office couldn’t provide an estimate on Monday. CommonWealth has estimated the utility share of the Vineyard Wind contract is about $168 million and the utility share of the hydro contract $406 million.
In recent filings with the DPU in connection with more offshore wind contracts, the utilities retained experts to testify why a compensation level of 2.75 percent should be set again.
“In my professional opinion, the rate requested by the companies will actually under-compensate the companies for their role as contractual counterparties because it does not equal the cost the capital market or commercial insurance market would demand as compensation for exposure to such obligations,” Lapson said. “However, this is the maximum amount allowed by law and the companies are therefore restricted to this proposed amount. Consequently, it is my opinion that the proposed remuneration rate of 2.75 percent is reasonable, warranted, and appropriate for application to the proposed contracts.”