On Thursday, October 4, the Maine Public Utilities Commission (“PUC”) unanimously voted to table action on Statoil North America’s proposal to moor four floating wind turbines off the coast of Maine. Statoil North America, a division of Norway’s Statoil ASA, proposed the 12-megawatt pilot project in response to the PUC’s September 2010 request for proposals for deepwater offshore wind and tidal energy demonstration projects.
Two out of three PUC commissioners expressed concern that the proposed contract price—$290/MWh for 20 years—would negatively impact ratepayers and the state’s potential return on investment. While the PUC voted to reject the term sheet for now, Commission Chairman Thomas Welch said that his concerns could be alleviated if Statoil revises the term sheet to balance the project’s “potential benefits and certain costs” and “shore up the connection between the pilot and substantial benefits to Maine.”
Approval of the term sheet would enable Statoil to enter into a long-term contract to sell electricity at above-market rates to one or more of Maine’s investor-owned utilities—Bangor Hydro, Central Maine Power or Maine Public Service Company. The project is also seeking permission to connect to the ISO New England power grid.
Meanwhile, the Bureau of Ocean Energy Management has set a deadline for Tuesday, October 9, to determine if other firms besides Statoil North America are interested in bidding on the 22-square-mile offshore wind lease. A second round of comments, with a November 8 deadline, will determine the potential environmental impacts of the proposal.
When negotiating contracts with a client, sometimes their eyes roll when we come to the section on insurance, particularly that awkward phrase, “waiver of subrogation.” What is subrogation and what does it mean to waive it? Simply put, subrogation is the right of a party, typically an insurance company, to pay a loss then sue the party or parties who are liable for the loss. A waiver of subrogation precludes an insurer from such an action.
A recent case in Connecticut illustrates the importance of the subrogation waiver. On February 7, 2010 a natural gas explosion killed five, injured a dozen more and caused extensive damage to a power plant under construction.
The accident occurred during a “gas blow,” which is a commissioning procedure whereby natural gas is forced through the plant piping at a high rate in an effort to clean out the gas supply lines to the gas turbine. These operations are perilous because any spark from such debris or from static electricity can ignite the gas. Here, the gas was discharged into a confined area, where workers were engaged in welding and other activities.
Not surprisingly, lawsuits followed. The facility owner’s insurance carrier ultimately paid approximately $200 million in settlement of claims. The carrier then sued the subcontractors, the gas turbine manufacturer, and the sellers and transporters of the natural gas. The defendants denied liability and moved for dismissal based in part on language in the contract that explicitly waived the carrier’s right of subrogation. Among other theories, the carrier argued that the accident was caused by the recklessness of the subcontractors, which rendered the waiver of subrogation void as against public policy. Last Friday, the U.S. District Court for the District of Connecticut ruled on the motions to dismiss.
In language that must have given the subcontractors pause, the court found that the plaintiffs’ allegations supported a finding of recklessness. The court based this finding on allegations that, despite knowing that the gas blow process was inherently dangerous, the subcontractors designed the gas blows for discharge into a confined space with numerous sources of ignition. They also failed to follow their own commissioning procedures, lacked experience and expertise regarding the gas blow process, failed to modify the process after being warned of the dangers associated with discharge into a confined space, and discharged an employee because he attempted to develop a safer procedure.
The court found that the waiver of subrogation was valid and enforceable, and then had to squarely address the issue of whether public policy requires a different result in cases of recklessness and strict liability. Drawing a distinction between claims in a setting that would leave tort victims without compensation and situations like this that would leave an insurance carrier without reimbursement from a third party for an otherwise covered loss, the court found no public policy in favor of the carrier: “[T]he plaintiffs knowingly agreed to insure the construction of the Kleen Plant and neither the construction contract nor the insurance policy provided an exception or exclusion for reckless or ultrahazardous conduct.” The carrier’s claims against the subcontractor for subrogation were dismissed.
On April 14, 2011, the EPA announced the settlement of a twelve year dispute with Tennessee Valley Authority (TVA) over Clean Air Act violations. In the settlement, TVA agrees to permanently retire 2,700 MW of coal power from Alabama, Kentucky and Tennessee and invest an estimated $3 to $5 billion on new and upgraded state-of-the-art pollution controls on 11 coal fired plants. The EPA estimates that this action will prevent an estimated 1,200 to 3,000 premature deaths, 2,000 heart attacks and 21,000 cases of asthma attacks each year, resulting in up to $27 billion in annual health benefits.
The dispute stems from an administrative compliance order that EPA issued to TVA in November 1999, alleging that TVA modified a number of coal-fired units at nine of TVA's plants without first obtaining preconstruction permits and installing and operating state-of-the-art pollution control technology. Under the settlement agreement, TVA will upgrade 92% of its remaining coal fired fleet by either installing state-of-the-art selective catalytic reduction, flue gas desulfurization, or repowering the assets to burn renewable biomass. The settlement also requires TVA to spend $240 million on energy efficiency initiatives and to provide $1 million to the National Park Service and the National Forest Service to improve, protect, or rehabilitate forest and park lands that have been impacted by emissions from TVA’s plants, including Mammoth Cave National Park and Great Smoky Mountains National Park.
TVA, a corporation owned by the U.S. government, provides electricity for 9 million people in parts of seven southeastern states at prices below the national average. TVA, which receives no taxpayer money and makes no profits, developed an “Integrated Resource Plan,” detailing two portfolio standards, 2,500 MW or 3,500 MW of renewable energy by 2020. Notably, only 2 of TVA’s 7 states, North Carolina and Virginia, are subject to RPS standards.
This settlement is a major boost for the renewable energy industry. By 2012, TVA will have 1,625 MW of renewables in its portfolio. In addition to needing 1,000 – 2,000 MW of new renewable generation to fill its renewable energy portfolio, it now must offset its retired 2,700 MW coal power by 2018.
For more information:
EPA Press Release on Settlement: http://yosemite.epa.gov/opa/admpress.nsf/ab2d81eb088f4a7e85257359003f5339/45cbf1a4262af67b8525787200516dd7!OpenDocument
EPA’s Overview and Settlement with TVA:
NRG Bluewater Wind won the exclusive rights to negotiate with the federal government to build an offshore wind farm off the Delaware coast on March 24, 2011. As the first developer to enter into the “Smart from the Start” program released by the BOEMRE on February 7, 2011, NRG Bluewater Wind signed a non-competitive lease agreement for a proposed 450 MW offshore wind energy facility.
The reason for non-competitive lease? After the DOI released a RFI on April 26, 2010, only two commercial parties submitted interest, Occidental Development & Equities, LLC and NRG Bluewater Wind. The RFI, reviewed by the BOEMRE, invited submissions for interested parties to obtain one or more commercial leases for the construction of a wind energy project(s) on the Outer Continental Shelf (OCS) offshore Delaware. Subsequently BOEMRE determined that Occidental’s proposal “lacked development, construction, operation and maintenance or decommissioning cost details,” and as a result was rejected by the committee.
NRG Bluewater Wind has had their eye on the project since 2006, after Delaware's signed a RPS into law, requiring that 10% of the state's electricity come from renewable sources by 2018. In June and July of 2008 NRG Bluewater Wind and Delmarva Power finalized a 25 – year PPA for up to 200 MW. The project proposes 49 large turbines and 150 smaller ones approximately 13.2 miles off the Delaware coast. The contract requires the turbines start producing electricity no later than 2016. (NRG timeline link below)
The future is still unknown. Although the non-competitive lease agreement is in place, there are a whole slew of rigorous environmental reviews and an extensive permitting process at the federal, state, and local level. Ironically, the goal of “Smart from the Start” program was to cut, in half, the time associated with permitting processes. Optimistically, NRG Bluewater Wind allotted 12 – 24 months for permitting into the timeline. However, if Cape Wind can provide any insight to construction and operation, NRG Bluewater Wind may be in for a long ride.
For more information on BOEMRE announcement: http://www.doi.gov/news/pressreleases/Interior-Initiates-Process-for-First-Smart-from-the-Start-Lease-for-Commercial-Wind-Power-Offshore-Delaware.cfm
NRG Bluewater Timeline: http://www.bluewaterwind.com/de_timeline.htm
“Smart from the Start” http://www.doi.gov/news/pressreleases/loader.cfm?csModule=security/getfile&PageID=186636
In a long-awaited announcement, last week the New Jersey Board of Public Utilities adopted rules to codify the State’s Offshore Wind Economic Development Act. The new rules provide the process for an applicant to submit project information and to propose a pricing method and structure for Offshore Renewable Energy Credits (ORECs) for the Board’s consideration. If approved, each retail provider of electricity in New Jersey will be required to buy Board mandated levels of ORECs in proportion to retail sales.
The application process requires detailed disclosures concerning the proposer’s business information, its collective project experience, and key employees. A proposal must describe the proposed technology, the anticipated schedule for completion, the financial details of the project including a specified cost-benefit analysis, and documentation that the project has applied for all applicable State and federal grants, rebates, tax credits and other incentive programs. In addition, the applicant must describe its anticipated operations and maintenance plan, its decommissioning plan and must provide segregated decommissioning funds. Upon receipt of completion of application, the Board shall approve, conditionally approve, or deny the application within 180 days. Perhaps the most complex aspect of the required application is the cost-benefit analysis. The rules suggest the use of one of four listed input-output models, but will allow applicant to us any model that successfully calculates the economic benefit that the proposed project will bring to the State of New Jersey. The Board will assess the net economic benefit, with a “particular emphasis” on in-state manufacturing employment, as well as the net environmental benefit of the project in terms of anticipated reductions in carbon dioxide and air emissions. The rules also allow the Board to perform its own net benefit analysis, which may result in additional conditions of approval.
Separately, even before the Board issued its rules, Fishermen’s Energy of New Jersey, LLC filed an application for the first phase of its proposed 300MW project offshore Atlantic City.
On Friday, GE Energy announced the acquisition of new tower construction and erection technology from Utah based Wind Tower Systems, LLC. Wind Tower Systems has developed a space frame tower design to accommodate tower heights of over 100 meters that can be installed without the use of heavy lift cranes during construction.
“We see great potential in the addition of this technology to our portfolio not only for our customers but also for the wind industry as a whole,” said Victor Abate, vice president-renewable energy for GE Power & Water. “Taller towers are an essential complement to longer blades. Longer blades capture more energy and in turn improve return on investment for wind farm developers.”
“The taller space frame towers and integrated lifting system concepts, developed with the support of the U.S. DOE and California Energy Commission, have been designed to drive lower wind energy costs,” said Thomas Conroy, CEO of Wind Tower Systems. ”We are delighted that the development of the company’s products will be completed and commercialized by GE.”
On Monday February 7, 2011, the DOE issued an ambitious plan to spur development of offshore wind facilities in federal and state waters off the eastern seaboard. The report identifies the key challenges to widespread development are reducing both the cost and the timeline of project development. It estimates that the current cost of offshore facilities must be cut by more than half from the current installed capital cost of $4,250 per kW in order to achieve the report’s goal of 54 GW of offshore power by 2030.
In an effort to drive this massive effort forward, the DOE offers $50.5 million in grants for the development of tools and hardware in wind turbine factories, market studies and research on electrical infrastructure and funding for research into next-generation wind-turbine drive trains. Perhaps more importantly, the report designates four “Wind Energy Areas” for expedited approval evaluation and possible lease offerings by the end of 2011 or in early 2012. The report promises that this “Smart from the Start” program will accelerate the leasing process by cutting the current approval timeline of 7 to 10 year in half.
Most notably, the National Offshore Wind Strategy presents the eastern United States with tremendous potential to generate significant economic activity through the installation of facilities that will produce clean, renewable energy. The industry will benefit from the program outlined in this report, particularly if it is followed by an extension of tax credits applicable to these types of renewable energy projects.
Click here for the complete National Offshore Wind Strategy: Creating an Offshore Wind Industry in the United States.
Click here for more information on the Smart from the Start Initiative.
Click here for a map of the mid-Atlantic WEA’s.
More information is available at: http://www.boemre.gov/offshore/RenewableEnergy/index.htm andwww.windandwater.energy.gov.