Order 15744- RI Hope Energy: Advisory Opinion for a Generating Plant in Johnston

 

STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS

PUBLIC UTILITIES COMMISSION

ADVISORY OPINION TO THE ENERGY FACILITY SITING BOARD

PURSUANT TO SECTION 42-98-9(D) OF THE GENERAL LAWS OF RHODE ISLAND

On July 13, 1998, Rhode Island Hope Energy Limited Partnership ("Hope Energy") filed an application with the Energy Facility Siting Board ("EFSB") seeking authority to construct a major energy facility. Hope Energy proposes to build and operate an approximately 500 megawatt ("MW") gas-fired combined cycle independent power production facility and ancillary facilities in the town of Johnston, Rhode Island ("Project"). Rhode Island law requires such facilities to be approved and licensed by the EFSB (See R.I.G.L. Section 42-98-4).

In response to the filing, the EFSB conducted a preliminary hearing on September 22, 1998. The purpose of the hearing was to determine the issues to be considered by the EFSB in evaluating the application, to designate those agencies which are to act at the direction of the EFSB for the purpose of rendering advisory opinions, and to identify those licenses required by the facility which are under the direct control of the Department of Environmental Management and the Coastal Resources Management Council (R.I.G.L. Section 42-98-9(a)).

As a result of the evidence proffered by the parties at the aforementioned EFSB preliminary hearing on the Hope Energy application, and in accordance with Rhode Island General Laws, Section 42-98-9(d), the EFSB issued a preliminary order which, inter alia, directed the Rhode Island Public Utilities Commission ("Commission") to provide the EFSB with an advisory opinion "as to the need for the proposed facility" (EFSB Order 34, issued on October 7, 1998). The EFSB has asked the Commission to file its advisory opinion no later than January 15, 1999.

As noted above, the basis for the EFSB's request for a Commission advisory opinion on the Hope Energy Project is contained in Rhode Island General Laws, Section 42-98-9(d) which reads as follows:

The public utilities commission shall conduct an investigation in which the division of planning of the department of administration, the governor's office of energy assistance and the division of public utilities and carriers shall participate and render an advisory opinion as to the need for the proposed facility.

In furtherance of the Commission's responsibility to provide the EFSB with an advisory opinion, the Commission convened a prehearing conference on October 23, 1998, for the purpose of bringing the agencies identified above together. Hope Energy was also invited and attended the conference. Each party agreed to participate in the Commission's investigation so that an advisory opinion could be rendered.

At the pre-hearing conference, it was agreed that the Division of Public Utilities and Carriers ("Division") would take the lead role among the State agencies involved, in the preparation of a needs assessment conclusion for the Project. The Division of Planning and the State Energy Office  [1 Formally the Governor's Office of Energy Assistance.] represented that they would assist the Division. The Division and Hope Energy were directed to submit their needs assessment positions in advance of the public hearing to be conducted in this docket.

The Commission conducted a duly noticed public hearing on November 4, 1998 at the Commission's hearing room located at 100 Orange Street in Providence. The following counsel entered appearances:

FOR HOPE ENERGY:                        Craig L. Eaton, Esq.

FOR THE DIVISION OF PUBLIC

UTILITIES AND CARRIERS:            Elizabeth A. Kelleher, Esq.

Special Assistant Attorney General

FOR THE COMMISSION:                 John Spirito, Jr., Esq.

At the hearing, Hope Energy proffered two witnesses in support of its contention that the Project is needed. The witnesses were identified as Mr. Stephen S. Davies, Project Manager; and Mr. Daniel E. Peaco, Senior Consultant, LaCapra Associates ("LCA"), 333 Washington Street, Boston, Massachusetts. The Division did not proffer any witnesses in this docket.

Mr. Davies testified that the decision to build the Project was based on an assessment performed by his company relative to "emerging wholesale energy markets in New England" (Tr. 14). Mr. Davies also provided a brief overview of the Project, which included the presentation of a model of the Project.

Mr. Davies additionally discussed the financial structure of the Project, the employment opportunities associated with the Project, and the benefits the Project will bring to the town of Johnston and the State of Rhode Island (Tr. 14-17). Mr. Davies also discussed how the additional capacity would add to the reliability of power for Rhode Island consumers (Tr. 17).

Mr. Daniel E. Peaco testified that his consulting firm was retained by Hope Energy to conduct an assessment of the need for generating capacity in Rhode Island and New England. Mr. Peaco related that this assessment was reduced to a report which was attached to Hope Energy's July 13, 1998 EFSB application filing. This report was similarly attached to Mr. Peaco's prefiled direct testimony in this docket.

The LCA assessment reaches the following conclusions:

The deregulation of the regional power market has direct bearing on the need for capacity forecast. The deregulation of electric wholesale and retail power markets in New England and Rhode Island is well underway and expected to be largely complete within the next year. Four other New England states have joined Rhode Island in enacting restructuring legislation. Retail access is already available in two states for the first of seven wholesale power products, with all seven slated for operation by December 1998. The existing generation in the region is transitioning from a deregulated structure to a merchant plant structure. Boston Edison recently completed the sale of its non-nuclear assets to Sithe Energy. The asset sales of New England Power, Central Maine Power, Commonwealth Electric, and Eastern Utilities are expected to close by year-end 1998. Along with those sales, this market change is attracting significant interest from developers of new merchant power plants.

Amidst this change, the adequacy of the power supply in New England has become a concern. Operating margins have tightened significantly due to the unexpected early retirements of three nuclear units, extended outages at three more, along with a robust economy and electricity demand growth.

LCA expects that the region will need 5,000 MW from new supply sources over the next 5 years (by 2003), including nearly 4,000 MW from sources that are not yet under construction, to meet expected peak requirements. There is also significant immediate need for capacity (e.g. 4,000 MW by 2001) and a growing long-term need due to expected load growth and retirements (e.g., over 7,000 MW by 2006). Even under optimistic assumptions, there is a significant need for new capacity. LCA believes there is a very high likelihood that the need for new capacity within 5 years will be in excess of 4,000 MW, including 2,500 MW from sources not yet under construction. Conversely, the need for new capacity could approach 10,000 MW by 2006 under highly plausible load growth and/or supply failure scenarios.

Under these scenarios, LCA expects significant additional capacity will be needed in Rhode Island to balance the instate capacity supply and demand....Rhode Island's existing power supplies currently provide about 60% of the state's capacity requirements. Over the next 5 years, Rhode Island will need to add nearly 900 MW of new capacity to bring Rhode Island's capacity supply in-line with its in-state requirements (Hope Energy Exh. 1, exhibit B).

Mr. Peaco concluded that "the need for capacity in New England and Rhode Island are essentially the same" since LCA completed its need assessment earlier this year (Id., p. 4).

The Division voiced support for the application of Hope Energy. Through a position statement, the Division provided the following rationale for its support:

Traditionally in Rhode Island, need determinations for new electric generating facilities have been performed using measures of projected supply vis a vis demand for the utility building or purchasing power from the plant, as well as in the state and region. In the past, in accordance with the Energy Facility Siting Act, the Division of Public Utilities and Carriers in conjunction with the State Energy Office and the Division of Planning has undertaken a study to analyze the need as well as the projected costs for a generating facility applying to the Energy Facility Siting Board. The study and the representation of the three above-named agencies has been provided to the Public Utilities Commission, which has held a hearing and provided its recommendation to the Board within the statutory time frame allowed.

The rationale for this procedure has been that under regulatory economics, electric ratepayers were responsible for support of generating facilities built to meet their needs. If energy sales in the relevant utility were lower than anticipated, the costs of the project were simply spread amongst fewer kilowatt hours. It was imperative that the best estimate possible be made of future demand for electricity, as the costs for the new plant would be spread over a captive ratepayer base. It was clearly in the ratepayers' interest to assure that more projects were not approved than were needed to meet their projected usage so that they would not have to pay for surplus capacity.

The Commission is well aware of the new era of competitive rather than regulatory economics. New generating plants built will be, as is the case for RI Hope Energy plant, merchant plants. Risks involving the sale of electricity and the costs of the plant will be borne by its owner and private investors rather than by captive utility ratepayers. The plant owners will seek to make contracts with buyers. Some will have contracts in place before building; others will build "on spec," anticipating increasing demand and/or phase out of existing generation. Future costs for replacement power if equipment fails and the costs for equipment upgrade will also be borne by plant owners with no obligations passed to ratepayers. Ideally, in this brave new world, the regional market will be perfectly responsive to regional demand by building the right number of power plants at the right time. Environmental permitting regulations in each state should assure that plants are not sited inappropriately.

In this new era, determination of need for generating plants is to be performed by the free market rather than by regulators. The Division believes that it is no longer appropriate for the Commission to certify need to the EFSB in the same way it has in the past. The Division will recommend legislation for the revision of the Energy Facility Siting Act to reflect the changes in responsibilities propagated by the Utility Restructuring Act.

Even if sufficient generation exists, replacement of inefficient old plants with clean, efficient new plants may have economic as well as environmental value. Absent a gap between supply and demand, new plants may still be considered "needed" by the region. In the end, it is the market that will supply the answers; in the time frame allowed. The "need" of a unit is now a factor decided by the relationship of the efficiency and environmental cleanliness of the new plant relative to the existing mix of the available generation in the region. Improving the overall total effectiveness of generation theoretically constitutes need.

NEPOOL now has almost 30,000 MW of proposed capability, only a portion of which will actually be constructed. Those plants meeting the state and NEPOOL requirements will garner for their proposed location the tax and employment benefits of those facilities (Division Exh. 1).

Two members of the public also testified in support of the Project. The public members were identified as Ms. Sherri Giarrusso Mulhern, the Executive Director of the Rhode Island Resource Recovery Corporation; and the Honorable Louis A. Perrotta, Mayor of the town of Johnston. Both witnesses espoused the benefits to be realized by the town of Johnston if the Project is approved.

FINDINGS

In the Commission's November 21, 1997 Advisory Opinion to the EFSB relative to the Tiverton Power Associates Limited Partnership EFSB application filing (Commission Docket No. 2600), we noted what we perceived to be "obvious inconsistencies and anachronisms" between the Energy Facilities Siting Act ("EFSA") and the Utility Restructuring Act of 1996 ("URA") (Order No. 15456, pp. 8-10). Indeed, we opined that the more recently enacted URA effectively repealed by implication the much older "need" assessment provision of the EFSA (Id.). Our opinion on this issue has not changed.

Nevertheless, the Commission has considered the issue of whether the record supports a conclusion of need for the Project, and finds that such support is present. The testimony proffered by Mr. Peaco, and the data contained in LCA's need for generating capacity report support a conclusion that the project is presently needed and will be needed in the future.

Accordingly, it is

(15744) ORDERED:

That the Commission finds, after due deliberation, that there is a State and regional need for Hope Energy's proposed 500-megawtt gasfired combined cycle independent power production facility and ancillary facilities, and so advises the Energy Facility Siting Board.

Albeit this advisory opinion has been issued with an order number, it is not the intention of the Commission to treat it as a final order. It merely represents an advisory opinion to the Energy Facility Siting Board. The order number is included exclusively for record keeping purposes.

EFFECTIVE AT PROVIDENCE, RHODE ISLAND, ON NOVEMBER 6, 1998, PURSUANT TO OPEN MEETING DECISION. WRITTEN OPINION ISSUED ON NOVEMBER 24, 1998.

PUBLIC UTILITIES COMMISSION