The answer: why are Vinalhaven electric rates so high?

Why are Fox Island Electric Cooperative’s electric energy rates so high compared with what we were promised? Back in 2008 at the Island Institute’s Sustainable Living Conference, Mr. George Baker, CEO of Fox Islands Wind, said, “If electricity prices go down and stay down, we might kick ourselves for doing this project.” Instead of the project instigators kicking themselves, the kicking has been targeting neighbors of the wind turbines. Read what one member of the Fox Island Electric Cooperative (FIEC) recently wrote:

When the wind project started, FIW promised islanders that we would be locking in our electric energy rates at around 6.5 cents per kilowatt hour (kwh) for the next twenty years. Why then are our electric rates now at 12.55 cents per kwh, almost 6 cents over what we were promised?  Our educated and well-researched estimates are as follows.  Since the FIW books are inaccessible, this is the best we can do until we hear evidence to the contrary.

Only a minor portion of that increase is due to the Fox Island Wind consulting and legal costs.  Indeed, in a FIEC update of April 7, 2011 that was included in our monthly bill, FIEC stated that “FIW has provided notice to the Coop that it will be necessary to implement a 1 cent per kwh adder to the costs of power generated from the wind project… to pay lawyers and sound consultants.” Please note: There is and never has been any law suit against FIEC or FIW!  What this 1 cent represents is the cost of FIW and FIEC intervening in the neighbors’ petition against the State of Maine.

The easily accessible public record documents FIW’s efforts to push back against DEP and against that petition for fairness and equity.

So 1 cent of the increase is to cover legal and consulting fees.  Where does the rest of the 5 cents increase come from?  Part of it was due to poor planning on the part of Mr. Baker on the economics of the project.  He had estimated (according to a forecast spreadsheet that he disclosed soon after the project started) that FIW would receive $355,437 in annual revenues from the sale of renewable energy credits (RECs) which would offset operational costs.  RECs are traded on the open market and shortly after the project started, this market collapsed.  No longer would FIW receive $355,437, but more like $37,171.  This translates to an increase of about 3 cents per kwh for island energy costs.  But how do we account for the additional 2 cents that we are being charged?

To answer this, we have to segue to the national market for electric power. Huge natural gas deposits have been released (whether or not we believe in fracking) driving down the cost of electricity.  Indeed, if we had never installed the turbines, we could be buying power off the grid for around 6.5 cents per kwh.  Excess power from the FIW project is sold into the grid at the new lower cost and actually bought back at a higher cost, a negative arbitrage that costs us all the additional added 2 cents.

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So there you have it.  Since much of the blame for this increase rests on the shoulders of those who planned it and who are reluctant to take any responsibility, the convenient scapegoat is the neighbors.  Those who planned the project must not have considered a drop in the REC market.  Finally, the national wholesale/retail market place changed dramatically, changing the economics of the entire project. Back in 2008 at the Island Institute’s Sustainable Living Conference, Mr. Baker said, “If electricity prices go down and stay down, we might kick ourselves for doing this project.”

Some might surmise that better project planning should have been applied. Even during the planning phase of FIW, the US Department of Energy’s 2008 report forecast plummeting electric prices. FIEC hired a noise consultant (RSE) before the project even started who warned that the project siting and the noise would be an issue because of wind shear; a phenomenon that was well known at the time.

So where do we go from here?  Indications are that nothing will dramatically change and we are locked in to higher prices for the foreseeable future.  Even Mr. Baker’s aforementioned forecast spread sheet planned on generation capacity dropping in half by 2014 and the prices doubling.  This diminution in operating efficiency is documented and echoed in a 2013 analysis of wind farms with similar turbines in Europe and Scandinavia.  So maybe he did plan on increased prices after all (for different reasons) but simply failed to mention it to eager islanders.

The Vinalhaven and North Haven members of the FIEC have been sold a “pig in the poke” and will need to live with the consequences for an entire generation. The only winners of this entire project may indeed be the investors who continue to glean tax benefits. Meanwhile islanders pay about $400 extra each annually on their electric bills.

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