Critics seeking answers after LIPA vote to expand wind farm
When LIPA trustees voted in November to approve a $388 million expansion of the planned South Fork offshore wind farm, they were told federal tax credits that were being phased out made the year-end vote a "one-time opportunity" to save customers millions of dollars.
In the aftermath of that vote, which allowed developer Orsted to increase the project's size by 40 megawatts, Orsted is declining to say whether LIPA's action allowed it to meet the year-end deadline to qualify for the 2018 credit, or whether it applied last year at all. Doing so would allow the company to qualify for federal funds amounting to 18 percent of the project's cost. The credit falls to 12 percent this year before expiring at year end.
"We'll have to decline — we can’t comment on our financial strategies for the project because it’s commercially sensitive information," Meaghan Wims, a spokeswoman for Orsted, said in an email.
That explanation was insufficient for Assemb. Fred Thiele (I-Sag Harbor), who last month pulled his support of the former Deepwater Wind project over issues of “transparency” from Orsted. Deepwater Wind was acquired by Orsted for $510 million in October.
“As a governmental entity, the [LIPA] board of trustees made a decision to increase the size of the Deepwater project based on Orsted's representation that it would apply for a tax credit in 2018,” Thiele said. “The public has a right to know whether or not they are going to benefit from that tax credit."
Loss of Thiele’s backing for the project was a setback because of his long-standing support for the South Fork wind farm to power his East End district. The project also requires local approval for a cable that makes landfall in Wainscott.
Wims said the company “anticipates” qualifying for a federal tax credit but declined to say which one. She confirmed that the company “bares the risk of qualifying for tax credits,” meaning LIPA won’t be subject to a higher cost for energy if Orsted fails to qualify.
LIPA chief executive Tom Falcone said Orsted offered LIPA two separate prices for power from the expanded array — one if the contract was approved in November and the company qualified for the tax credit, and a second price if it did not qualify.
“We weren’t going to take the risk of whether they executed or not” in qualifying for the credit, Falcone said last month, adding he was unaware whether Orsted had expected to qualify for the 2018 credit. “It wouldn’t be right for us to take the risk.”
The board resolution trustees voted on said their approval “will permit the amended project to qualify for the 2018 federal tax credit, which is scheduled to decline by 20 percent” this year. The resolution said qualification for the 2018 credit “results in approximately $15 million of savings to LIPA customers.”
Two LIPA board members were divided in their reactions to the vote. LIPA board vice chairman Mark Fischl said he didn’t see a significant difference between the written board resolution and the notion that his vote essentially transferred the tax-credit risk to Orsted.
“I think it gets you to the same place,” Fischl said. “I don’t see an issue. I’m comfortable the way staff handled it.”
LIPA trustee Matthew Cordaro, who abstained from the vote after arguing the additional 40 megawatts should have been subjected to competitive bidding, said he was unaware that the vote was about which entity bore the risk.
“The way it was presented was we could miss the tax incentive if we didn’t do it now,” said Cordaro, a former Long Island Lighting Co. executive. “It was not that they [Orsted] were going to take the risk of not getting the tax incentive.”
At the board meeting in November, Jim Parmalee, PSEG Long Island’s director of power resources and contract management, told trustees the expanded project was a "one-time opportunity" to get cheaper power from bigger turbines with new economies of scale and the benefit of the 2018 tax credits. "This is something that really can’t be replicated if we were to wait [because] the original contract is underway," he said.
The board members’ vote approved an expansion of the project from its original 90 megawatts to 130 megawatts, with an additional cost to ratepayers of $388 million. LIPA said that would raise the monthly cost on average bills by 20 to 38 cents above the project’s original estimated monthly bill impact of $1.19.
To qualify for the credit, Denmark-based Orsted must buy equipment comprising at least 5 percent of the project’s cost by the end of the year, and take delivery shortly thereafter, according to a state filing by Deepwater Wind in June.
Deepwater in the past has said the cost to build the original 15-turbine array and a 50-mile cable from the waters off Rhode Island was $740 million, so an 18 percent tax credit could cut $133.2 million from the total. The state comptroller lists the total contract value, including all payments expected to come from ratepayers over its 20-year life, at $1.62 billion.
But that last figure was before the expansion of the project with Orsted. Kate Gurnett, a spokeswoman for the comptroller’s office, said, “We haven’t seen a contract yet for the additional megawatts.”
Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.
