O’Malley to try again for offshore wind development

January 22, 2012

Maryland Gov. Martin O’Malley, seeking to overcome the most visible policy failure of his second term, will on Monday introduce a revamped plan to subsidize development of some of the nation’s first offshore wind power.

As happened a year ago, lawmakers from both parties and lobbyists for energy firms are poised to line up against the multibillion-dollar subsidy, which would be shouldered by electricity ratepayers. They say it would cost customers too much and leave too much power in the hands of regulators handpicked by O’Malley (D) to structure the plan.

A recent retreat by Congress in helping to fund such clean-en­ergy projects has raised doubts about whether developers could secure financing for an offshore wind farm even with the aid O’Malley’s plan could offer.

But relative to other legislative battles that O’Malley faces over same-sex marriage and an array of proposed tax increases, the governor is beginning his renewed fight for offshore wind ahead of those others. Powerful Democrats say they are more likely to support the governor’s plan after months of behind-the-scenes negotiations with his staff. And the company of O’Malley’s former chief of staff says it is no longer involved in a potentially lucrative venture to develop the state’s offshore wind – a factor several Democrats cited last year as compromising the integrity of the governor’s first proposal.

Still, with O’Malley also seeking several tax increases, including one on incomes of six-figure earners, and probably another on the state’s gas tax, it remains to be seen whether the General Assembly may view adding long-term costs to residents’ electric bills as too much all at once.

To head off such concerns, O’Malley’s new plan seeks to guarantee that a subsidy would increase residents’ rates no more than $2 per month and 2.5 percent for the state’s largest commercial and industrial businesses, according to administration officials with extensive knowledge of the governor’s bill.

The plan would also require state regulators to hire an independent analyst to assess whether the costs to ratepayers — which would probably be added to monthly bills beginning in 2017 and continue for 20 years — would be outweighed by what the administration calculates are the potential benefits: 1,800 new construction jobs, increased electricity production and reduced air pollution.

“This whole issue of additional ratepayer costs, it’s just hard for the committee to approve,” said Sen. Thomas M. Middleton, (D-Charles), who chairs the Finance Committee, where the governor’s offshore wind bill died last year. He said he has been working with O’Malley’s office to ensure that the version of the bill introduced Monday is one that his committee could support.

“With a mandate for net positive economic development benefit, where you have jobs and manufacturing and those types of things, and an independent analysis . . . I think we’ll get there,” Middleton said.

To make the bill more palatable to Middleton and his counterpart in the House, Del. Dereck E. Davis (D-Prince George's), O’Malley’s office also did away with a mandate in last year’s version that required utilities to buy wind power at a set price high above current market rates.

Rather, to ensure that developers can turn a profit, the state’s Public Service Commission, which regulates utilities, would set up a kind of commodities market. The electricity created from offshore wind would be sold at competitive prices. But the energy would also come with renewable-energy credits. The credits are needed by the state’s power generators to meet Maryland guidelines requiring them to obtain a growing share of their power from wind, solar and other renewable sources. The price of the credits would fluctuate in tandem with market rates to ensure that offshore wind producers can continuously count on a stable profit.

The model is one that Republican Gov. Chris Christie has backed in New Jersey, but Maryland’s version would come with an explicit requirement that the cost of the credits add no more than the $2 a month to residents’ bills.

Although the arrangement is highly complicated, Maryland lawmakers are familiar and more comfortable with it. The state has a similar renewable energy credit requirement that subsidizes solar power generation, albeit at a much smaller cost to ratepayers.

A potential downside of the system for ratepayers is that unlike O’Malley’s plan last year, which would have added a line-item fee on residents’ monthly bills for offshore wind, the credits would be built into the base electric rates customers pay.

If solar is any example, that means it could be nearly impossible for residents to calculate the cost of the subsidy.

Although O’Malley’s bill would mandate that the cost be no more than $2 per month, that per-household price would have to be estimated up front on a 20-year prediction of future energy prices — a term twice as long as the state’s Public Service Commission typically forecasts.

If the commission’s estimate is wrong, the subsidy for wind could be much higher or lower.

“We could look like geniuses, or people could experience the price more” than $2, said one administration official, who spoke on the condition of anonymity to freely discuss the governor’s proposal.

Senate Republican leader E.J. Pipkin (Cecil) said lawmakers and the public should have no faith that the price of offshore wind would be limited to $2. He said the PSC — which is controlled by O’Malley appointees, including two who lobbied for offshore wind last year — could not objectively analyze the costs and benefits of offshore wind.

“The governor can’t come in the front door with this because when you analyze the details, it doesn’t work,” Pipkin said. “This is a back-door approach, punting the details to the PSC, which the governor has stacked with lobbyists for offshore wind.”

Mike Tidwell, director of the Chesapeake Climate Action Network, who has rallied grass-roots support for offshore wind in Maryland, said there is a more pressing question lawmakers must answer: The General Assembly has passed a law mandating that the state increase its reliance on renewable energy, and the only way it can meet that goal is to approve offshore wind.

“We don’t have enough open space for land-based wind, we’re not sunny Arizona,” he said. “Either we repeal the . . . law, and lose the quality jobs that would come with it, or we develop offshore wind. It’s that straightforward.”

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