Massachusetts regulator rejects offshore wind developers' pleas to renegotiate PPAs

Adding to questions about the future two large offshore wind proposals in Massachusetts, state regulators on Nov. 4 blasted an effort by the projects' developers to renegotiate their off-take contracts and gave the companies only until the middle of this week to decide whether they want to pursue the projects or drop them.

In Friday's order, the Massachusetts Department of Public Utilities rejected pleas by Commonwealth Wind and Mayflower Wind projects to delay its review of power purchase agreements (PPAs) that the wind farms had reached with three of the state's utilities.

The decision came in response to requests in October by Commonwealth Wind developer Avangrid and Mayflower Wind, a joint venture between Shell New Energies and Ocean Winds North America, for a one-month delay in the proceedings to allow for renegotiation of their contracts with Eversource, National Grid and Unitil. Both project developers had said rising cost pressures had imperiled the PPAs' economics, and that the delay would help them find financial assistance in the recently passed Inflation Reduction Act.

But last week's DPU ruling sided with the utilities—which had resisted efforts to renegotiate the deals — and had some terse words for Avangrid in the process.

"Commonwealth Wind is a sophisticated market participant, well capable of factoring economic contingencies into its contract prices, negotiating contract terms to protect its interests in the event of unforeseen circumstances, and exercising its options under the existing PPAs," the DPU said.

Noting that the Commonwealth Wind contracts were "competitively bid on and freely negotiated," the DPU pointed out that Avangrid's determination that the PPAs were no longer satisfactory came "[l]ess than six months" after the company first submitted the contracts to the agency for consideration.

The DPU also excoriated Avangrid for waiting until after the evidentiary hearings on the PPAs had concluded to make its request for the delay in the proceedings. Avangrid's petition came in an Oct. 20 filing arguing that changing global conditions — including high inflation, the war in Ukraine and pandemic-related supply chain disruptions — meant that the PPAs would no longer be profitable. A week later, Mayflower offered its support to Avangrid's motion and asked for a similar delay for its own PPAs with the utilities.

"Commonwealth Wind asserts that it has been in discussions with the other parties about the financial outlook of its project for a month but made no effort to disclose this material information to the department before filing its motion to stay," the DPU said. That comment seemingly refers to a Sept. 22 declaration by Avangrid CEO Pedro Azagra at a New York Stock Exchange event that the project's commercial start date would be postponed from 2027 to 2028.

"While the department will not speculate as to when Commonwealth Wind first determined its project was no longer viable under the terms of the PPAs, it is evident that the economic impacts of the COVID-19 pandemic and war in Ukraine on its project became apparent some time before Commonwealth Wind notified the department," the ruling continued.

For their part, the utilities have refused to accede to the wind developer's request for renegotiation. In a Nov. 1 joint letter to DPU Secretary Mark Marini, the three companies claimed the contracts had been negotiated in good faith and fully vetted by all parties with the support of the state Department of Energy Resources. A pause in DPU deliberations would be "unnecessary ... given that the companies do not intend to renegotiate the PPAs," the utilities said.

In its Nov. 4 ruling, the DPU noted that it is "obligated to ensure that our review of the proposed PPAs is done in an administratively efficient manner and avoid the unnecessary use of resources that could be dedicated to other important matters pending before the department." The agency also noted that state residents and businesses "deserve certainty" about the future of the PPAs. To that end, the DPU ordered the wind developers to disclose their next steps this week.

"Accordingly, Commonwealth Wind and Mayflower Wind must now decide whether they intend to move forward with their contractual obligations under the PPAs or file a request to dismiss the proceedings," the ruling said. "The department directs Commonwealth Wind and Mayflower Wind to notify the department and the companies of their election within three business days of this order."

5,600 MW of offshore wind by 2027

What comes next is unclear. In an affidavit filed to the DPU on Nov. 1, Avangrid Renewablesx Senior Vice President for Offshore Projects Sy Oytan reiterated that Commonwealth Wind could not proceed without changing the current PPAs. But Oytan claimed that only a "modest" cost increase for the utilities could make the math work.

Meanwhile, the state has a powerful incentive to keep the offshore wind projects from collapsing as an August climate law signed by Republican Gov. Charlie Baker requires the state to install about 5,600 megawatts of offshore wind capacity by 2027. Unlike many Republican officials in other states, Baker and Lt. Gov. Karyn Polito have made combating climate change a priority, and the governor has set a 2050 target date for Massachusetts to reach net-zero emissions.

In an emailed statement to The Energy Daily, Avangrid spokesperson Craig Gilvarg said the company would shortly suggest a path forward to both state officials and the utilities.

"As stated in our filing last month and supplemented this week, Avangrid can present a proposal that would return the project to economic viability while still delivering transformational economic investments, significant job creation, and cost savings to ratepayers," Gilvarg said.

Gilvarg added that Avangrid "intends to present that information to the Baker-Polito administration, regulatory officials, the attorney general's office, and the Massachusetts electric distribution companies in the coming days" and stressed that the firm "remains committed to working with all stakeholders to find a path forward for this important project."

Meanwhile, on Nov. 7, Mayflower Wind backed down from its call for renegotiation of the contracts, submitting a new filing to the DPU to withdraw its motion for a one-month delay. "Mayflower looks forward to approval of the PPA amendments and will seek to resolve with the petitioners and the Commonwealth the issues discussed above, beginning by providing petitioners and the department with detailed third-party analysis demonstrating challenges to financeability, with the goal of finding solutions that provide value to the rate payers," the filing said.