PER CURIAM.
Petitioner Fishermen's Atlantic City Windfarm, LLC, (FACW or Fishermen's) filed an application under the New Jersey Offshore Wind Economic Development Act (OWEDA),
Having reviewed the record in light of the applicable legal standards, we affirm.
To put the record in context, it is helpful to understand the statutory scheme under which FACW submitted its application. The Electric Discount and Energy Competition Act (EDECA),
The EDECA further required the BPU to establish a "renewable energy trading program" to assist utility companies in satisfying that requirement for increased use of renewable energy.
OWEDA, enacted in 2010, amended the EDECA to permit the development of an offshore wind energy program in New Jersey.
As part of this statutory scheme, the Legislature permitted the issuing of Offshore Renewable Energy Certificates (OREC). Like other renewable energy certificates, an OREC represents "the environmental attributes of one megawatt hour" of electricity generated by a qualified offshore wind project.
OWEDA further authorizes the BPU to "review and approve, conditionally approve, or deny an application submitted" for an offshore wind energy project.
Notably, an application must include: "the type, size and number of proposed turbines and foundations; [and] the history to-date of the same type, size and manufacturer of installed turbines and foundations globally."
The Legislature has indicated that a small offshore wind power project, of "no more than 25 megawatts in nameplate capacity," may be sited near Atlantic City.
In 2011, pursuant to OWEDA, the BPU promulgated regulations governing the application and approval process for qualified offshore wind energy projects.
This appeal arises out of the BPU's evaluation of FACW's project application pursuant to
Of particular note in the above statutory language, OWEDA requires that a proposed project show "positive economic and environmental net benefits to the State."
Significantly, OWEDA also requires that an applicant demonstrate "financial integrity," as well as "sufficient access to capital" to complete the project.
Further, OWEDA requires that a BPU order approving a project include terms aimed at insulating ratepayers from costs and risks associated with the project.
Against that regulatory backdrop, we next consider the history of FACW's application and the BPU decisions which resulted in this appeal.
On May 16, 2011, the Board solicited applications for offshore wind energy projects pursuant to OWEDA. The staff of the BPU (BPU Staff) was in charge of reviewing the applications and submitting them with its recommendation to the BPU for a final decision. On May 19, 2011, FACW filed the only application the BPU received.
FACW's initial application proposed an offshore wind farm powered by six turbines, and it provided a choice between three different turbine manufacturers: Siemens, General Electric, and XEMC
On June 24, 2011, FACW entered into a financial participation agreement with XEMC in which XEMC would own a 70% share in the project. On August 3, 2011, FACW represented to the BPU that it had entered into a "Definitive Participation Agreement" with XEMC on July 11, 2011 for the supply of six XEMC turbines, including financing and "long term warranty/operations support for 20 years." FACW also informed the BPU that the XEMC turbines were "the most technically advanced and are better for ... New Jersey than the other currently available turbines."
On December 15, 2011, the BPU granted a joint motion to intervene filed by electricity delivery companies Atlantic City Electric Company, Jersey Central Power & Light Company, Public Service Electric and Gas Company, and Rockland Electric Company (collectively "EDCs"). The New Jersey Division of Rate Counsel (Rate Counsel) also participated.
The following expert reports and pre-filed testimony were presented with respect to FACW's initial application.
On February 22, 2012, Boston Pacific Company, Inc. and OutSmart BV (collectively Boston Pacific), consultants retained by BPU Staff, filed a report analyzing FACW's initial application. Boston Pacific's employees had years of experience in evaluating offshore wind farm projects in Europe and elsewhere. Boston Pacific's report explained that, while other types of wind turbines had been successfully used for years in offshore wind farms in Europe, the turbines FAWC proposed to use were untested for offshore use. Moreover, FAWC's project involved a second new variable: "The proposed foundation design concept is of a type that has not been used before for offshore wind turbines." Boston Pacific stated that because the proposed XEMC turbine was not yet certified for offshore use, an independent assessment of the technology should be provided.
Boston Pacific also expressed concerns about the financial information FACW submitted to demonstrate XEMC's financial responsibility and integrity. Boston Pacific opined that because XEMC's financial information was based on Chinese accounting standards, with no explanation as to how those standards related to those used in the United States and Europe, FACW should submit an additional evaluation of XEMC's finances based on U.S. Generally Accepted Accounting Principles (GAAP). In the alternative, Boston Pacific recommended that FAWC be required to submit a statement from a recognized global accounting firm explaining the methodology underlying Chinese accounting principles and independently attesting to XEMC's financial strength.
In response, FACW presented pre-filed testimony from its chief executive officer, Chris Wissemann. He testified that "it is not a simple task to prepare a second audit to western standards." Wissemann stated that an English translation of XEMC's financial statements could be provided instead. Wissemann also testified that, in response to any concerns related to XEMC's financial capability, FACW would establish decommissioning and construction escrow accounts as a method of safeguarding against any financial shortcomings in the project. Wissemann further asserted that no payment would be made to XEMC until the project began to generate electricity, and any payment made would be based on the amount of electricity produced.
On February 3, 2012, Rate Counsel's economics consultant, Dr. David E. Dismukes of Acadian Consulting Group, provided testimony addressing FACW's initial application. Like Boston Pacific, Dismukes expressed concern about the lack of evidence of XEMC's financial integrity, noting that in 2011, XEMC had experienced an unexplained 68% drop in its stock price. Dismukes also recommended that FACW's proposed project be rejected, because he concluded that the project did not provide a net economic benefit as required by OWEDA.
FACW then submitted an amended application on June 1, 2012, which proposed a "25 MW [(megawatt)] nameplate capacity wind farm, which includes five 5 MW Darwind/XEMC XD115 direct drive turbines ... to be located 2.8 miles offshore from the Atlantic City shoreline." FACW subsequently filed several amendments and updates to the application through 2013, causing some procedural delays.
Eventually, by August 9, 2013, after filing several additional updates to the application, FACW represented that its proposed project would produce 85,492 megawatt-hours
Following FACW's amended application in June 2012, Boston Pacific issued a report on December 12, 2012. Boston Pacific reiterated that while FACW filed letters from Chinese accounting firms confirming that they had audited XEMC, FACW still failed to demonstrate XEMC's financial integrity under international standards or U.S. GAAP.
FACW's CEO Wissemann responded, testifying that the XEMC group of companies had annual revenues of $1.6 billion, more than many New Jersey utility companies. He stated that XEMC "almost qualif[ies] as a Fortune 1000 company." Wissemann further reiterated that FACW would agree to the establishment of escrow accounts as a form of security. Wissemann also testified that XEMC would shield ratepayers from performance risks of the project by providing (1) a twenty-year full service warranty of the turbines, (2) complete vendor financing, and (3) a reduction of XEMC's return on investment so that it could "showcase" its turbines. Wissemann then asserted that XEMC has "reduced its return on investment to the lowest possible amount." FACW also asserted in a brief that it would fix the OREC price at $199.17/MWh and take on the burden of any cost overruns.
In "surrebuttal testimony" on May 8, 2013, representatives of Boston Pacific stated that FACW had received "Phase I" funding from the DOE, and that it was appropriate to expect that FACW would receive "Phase II" funding of about $47 million, for a total of $51 million in DOE grants. They also testified, however, that at $199.17/MWh, the cost of ORECs produced by the FACW project would be 3.3 times the market price for electric power.
With respect to risk, Boston Pacific opined that "on balance" the proposed project fairly balanced the risks between ratepayers and shareholders. While ratepayers took on market risk — that is, they would pay the OREC price regardless of the actual market price for energy — they would not take on performance risk because ratepayers would pay only for ORECs actually generated. Boston Pacific further opined that because the OREC price was fixed, FACW bore the burden of any cost overruns.
Boston Pacific reiterated its concerns about XEMC's financial integrity, but stated that such concerns were mitigated by FACW's commitment to establish a construction escrow and a decommissioning escrow. The experts further noted the technological risk associated with using new technology manufactured by XEMC, a less established company than other companies that had already developed wind farms in Europe. They recommended that XEMC obtain "Type A certification," an evaluation process overseen by an independent engineering monitor.
The latter discussion reflected Boston Pacific's initial concern with the entire project, as expressed in its December 2012 report. That is, normally a pilot wind energy project of this type would be intended to demonstrate the viability of offshore wind power as a source of electricity. The safest way to do that would be with tested, proven technology. However, it appeared to the Boston Pacific experts that the primary purpose of FAWC's project, as sponsored by XEMC, was to demonstrate, with public subsidies, the viability of XEMC's as-yet-untested turbines
Boston Pacific assessed the economic benefits of FACW's proposed project and found that there were positive net benefits of $33.4 million, while noting that they had "differences with FACW on how some benefits ... should be accounted for."
On May 8, 2013, Dr. Dismukes provided additional testimony regarding the updates in FACW's amended application. Dismukes still recommended that the BPU reject the application because at an OREC price of $231.60/MWh, which assumed the receipt of the ITC and the DOE Phase I grant, the project still would not result in net economic benefits. He also opined that, even compared to the price of solar energy, or wind power produced in Europe, the price of FACW's wind-generated power would be "uneconomic." Dismukes did not evaluate the project at an OREC price of $199.17/MWh because the DOE Phase II grant of about $47 million was speculative. However, he opined that the receipt of federal grants was not a critical issue in his analysis, because any price reduction resulting from a federal subsidy would not reflect "a meaningful reduction in project cost." He pointed out, for example, that a similar project in Rhode Island had a much lower capital cost. In other words, Dismukes' view was that, even if it successfully produced electric power, the FACW project would not be a good demonstration of the viability of offshore wind power, because its capital costs were too high and, even with massive subsidies, the power it would produce would be far above the market price.
Soon after, on June 28, 2013, FACW and Rate Counsel entered into a stipulated project proposal, to which the EDCs and BPU Staff were not signatories. The BPU rejected the stipulated proposal on July 29, 2013,
In its July 29, 2013 decision, the agency did not make a finding as to the total cost of construction, but it did find that FACW had promised to finance a construction escrow of at least $61 million, and up to $120 million.
Following BPU's rejection of the stipulated proposal, the FACW provided another update to its underlying application on August 9, 2013. As part of its submission, FACW provided evidence that Det Norske Veritas (DNV), an international certification and classification society, had given the XEMC turbine a type B certification. The turbine would be available for type A certification pending the resolution of certain technical issues. No change was made to the construction and decommissioning escrows.
On December 20, 2013, the BPU heard oral argument on FACW's application.
In a March 28, 2014 decision, the Board rejected the application, concluding that the project "does not produce a net economic benefit," but rather "produces a net cost to New Jersey rate payers."
The BPU ultimately found the following in making its decision. First, FACW agreed to place the design plans and drawings of the turbine, as well as a deposit of $4 million, in escrow as a "decommissioning fund" in case the proposed project needed to be terminated. FACW promised to fund an additional construction escrow account of at least $61 million. FACW also represented that the project would receive "100% of debt and equity financing" from XEMC, which represented about 28.5% of the total cost of the project. FACW further estimated that the capital costs of the project would be $188 million without federal funding, and as low as $163.8 million with federal subsidy.
With respect to the costs to New Jersey ratepayers, FACW estimated that with an OREC price of $199.17/MWh, the cost, or ratepayer subsidy, over twenty years would be about $125.5 million at net present value. At an OREC price of $263/MWh — the OREC price assuming no federal funding — the ratepayer subsidy would be $240.3 million at net present value. These amounts would be offset by revenues of approximately $57.4 million from the sale of energy. Further, with respect to the receipt of federal subsidies, the BPU noted that FACW was willing to accept a lower rate of return in order to maintain an OREC price of $199.17/MWh.
In analyzing the application, the BPU relied on the "Rutgers R/ECON model," one of the methods specifically permitted in its regulations,
In calculating these values, the BPU found that FACW's CEO, Wissemann, had provided conflicting testimony. While initially testifying that the project would not be economically viable at a lower return on investment,
The BPU also considered the opinion of Rate Counsel's expert that the $199.17/MWh price was unrealistic, because receipt of the federal grant was speculative. BPU noted that, even according to FACW, the project had to begin production in 2013 in order for the federal tax credit (ITC) to apply. The BPU, however, considered Boston Pacific's testimony that the risk of the $199.17/MWh price would fall on FACW and not on ratepayers. Nonetheless, the BPU discounted the potential subsidies, reasoning that the project "must be able to survive scrutiny and pass the net benefits test even if such funds never materialize." Ultimately, the BPU concluded that "subsidies that are not known or measurable with any degree of certainty should be excluded from the OREC price" and found the $263/MWh price to be most credible.
The BPU then calculated economic and environmental benefits according to the OREC price of $263/MWh. The BPU credited FACW's calculations for (1) construction, operation, and maintenance benefits of $156.5 million and (2) savings and revenues of $64.2 million from the sale of generated energy.
The BPU, however, did not credit FACW's calculation of tourism benefits of $138 million to $410 million from tourist visits to the proposed wind farm, because there was no calculation of any tourism cost. Nor did the BPU find FACW's calculation of emissions reduction of $178.7 million credible, because the calculated "social gains" from emissions reduction were not tied to any market prices. The BPU also did not accept FACW's valuation of $14.3 million in "merit order effect" savings — the projected savings to ratepayers resulting from an increased capacity in the energy market — because there was nothing to substantiate FACW's projected numbers. The BPU also rejected FACW's calculation of a projected $324.5 million in benefits from "lessons learned," i.e., the economic value of FACW being the first offshore wind energy project under OWEDA. In summary, the BPU concluded that there would be no net benefit, but instead a net cost, from the FACW project.
The BPU was also unconvinced of the "financial integrity" of the project. Its decision acknowledged that FACW had submitted several letters with respect to XEMC's financial health, including some from the Chinese company's auditors. However, the agency noted a report in the record describing the "high level difference" between the Chinese accounting standards used in auditing XEMC and the U.S. GAAP. For those reasons, the BPU was unable to independently assess the financial information submitted or perform its due diligence. The BPU further stated that it was "unwilling to ignore FACW's lack of transparency" based on its initial submission of documents in Mandarin without translation, and failure to either submit an audit using U.S. GAAP or an explanatory statement from a global accounting firm. The agency found that the project lacked financial integrity, despite FACW's offer to create escrow accounts as security.
The BPU acknowledged that the 2011 New Jersey Energy Master Plan
In summarizing its conclusions, the BPU's March 28, 2014 decision denied FACW's application because the estimated costs were too high at an OREC price of $263/MWh, and because the XEMC turbines FACW proposed to use were an untested and unproven technology. The Board credited the testimony of Boston Pacific, and concluded that the project was too technologically risky and expensive:
In a separate concurrence, Commissioner Jeanne M. Fox stated her reasons for rejecting the application. She considered that although projects "not exceeding 25 MW in nameplate capacity may be built in state waters and ... could be eligible for ORECs," those small projects still needed to survive the same cost-benefit analysis as "commercial scale projects." Relying on the expert testimony she found credible, Commissioner Fox agreed that FACW's project did not pass scrutiny, because it did not "adequately demonstrate tourism benefits," and it failed to "adequately demonstrate the monetization of whatever health and environmental benefits" its project would produce. Commissioner Fox also shared the Board majority's concerns about "the financial integrity of the project." She agreed that establishing construction and decommissioning escrows was not an acceptable substitute for providing adequate accounting data about FACW and its principal investor, XEMC.
On April 7, 2014, FACW filed a motion for reconsideration. As part of the motion, Wissemann submitted another affidavit restating FACW's willingness to accept an OREC price of $199.17/MWh regardless of federal funding, and to accept a lower rate of return. Noting that the evidentiary record had "closed on August 9, 2013," the Board declined to consider this new evidence, which conflicted with "other testimony in the record." The Board noted its prior reliance on Wissemann's testimony that "the project could not proceed with a rate of return lower than 9.78%." The BPU noted that FACW did not "recant or amend" that testimony during the course of the hearing.
The BPU rejected FACW's argument that it "erred in analyzing the project at an OREC price of $263 rather than $199.17." The BPU stated that it had already analyzed the $199.17/MWh price in its March 28, 2014 order and found the proposed price was not "adequately substantiated." The agency reiterated its finding that the receipt of federal subsidies was not sufficiently certain to warrant their inclusion in the calculation of the OREC price. It reaffirmed the conclusion that the project did not provide ratepayers with a net economic and environmental benefit.
The decision acknowledged that as of December 11, 2012, FACW provided English translations of XEMC's financial statements as part of its discovery responses.
In a separate concurrence, Commissioner Fox stated her view that FACW had not created a sufficient record to show "sufficient financial integrity to allow for a reasonable expectation for a successful project of the 20 year term of an OREC order." She emphasized FACW's "failure to provide full disclosure to the Board on XEMC's financial standing by the submission of financial documentation under the US GAAP standards or a submission from a global accounting firm attesting to the financial strength of XEMC as requested." She agreed that the proposed escrows were not the equivalent of that accounting information.
On May 5, 2014, FACW filed a notice of appeal and a motion to supplement the administrative record on appeal with information concerning its receipt of a Phase II federal DOE grant. On August 8, 2014, we granted the motion and remanded the matter to the BPU. Our order did not reflect a decision on the merits of the underlying appeal. Rather, it gave FACW the opportunity to supplement the administrative record and ordered the BPU to review those supplemental materials and make findings based on that review.
On September 19, 2014, FACW, the BPU Staff, and Rate Counsel agreed on an Amended and Restated Stipulation on Joint Record of Exhibits. The supplemental record included additional testimony from Wissemann, who explained that following the BPU's decision in March 2014, FACW obtained full DOE funding (about $47 million), and therefore the proper OREC price for the BPU to review was $199.17/MWh.
Wissemann also explained that the DOE grants would be made through reimbursement of FACW's construction costs as they were incurred, and that the continuation of the grant would depend on the project meeting certain milestones. He also asserted that FACW would accept a lower rate of return than stated in his prior filed testimony, even if FACW did not receive the ITC. Hence, he asserted that FAWC "unequivocally" proposed an OREC price of $199.17/MWh.
After review of the supplemental record, the BPU "reaffirm[ed]" its finding that FACW's application was not sufficient under OWEDA. The BPU found that even though FACW had received the DOE grant, it still did not substantiate that it would in fact receive the full $100 million in federal subsidies needed to make $199.17/MWh a viable OREC price. The BPU noted that there was no additional financial analysis provided in the supplemental record and, therefore, no expert testimony to support Wissemann's representation that FACW could accept a lower rate of return: "Nor does the record, as supplemented, explain how the lower rate of return FACW alludes to — and does not specify — would affect the project over the twenty year term of the OREC order."
The Board further considered that the federal Phase II grant was not unconditional. Rather, FACW's continued receipt of grant money would depend "on the project's ability to meet certain milestones" and could be discontinued if the "milestones are not met." The Board further noted there was no guarantee that FACW would receive the other half of the federal subsidies that it needed, i.e., the $50 million in investment tax credits. Lastly, the Board found no basis to reconsider the other ground for its rejection of the application — "its prior finding that the project does not demonstrate financial integrity."
Accordingly, the Board reaffirmed its prior findings that FACW had not demonstrated its certain receipt of $100 million in federal subsidies, and had not proven that the project was viable at an OREC price of $199.17/MWh without the entire $100 million. The Board found that the supplemental record did not materially change its financial analysis of the project. The Board reaffirmed its findings that the project did not provide a net economic and environmental benefit to the State's ratepayers; and that even if FACW had demonstrated sufficient access to capital, it had not demonstrated its financial integrity.
Following the decision on remand, FACW filed an amended notice of appeal on November 24, 2014. On December 24, 2014, FACW submitted a letter pursuant to
On this appeal, the BPU's decision is "entitled to presumptive validity."
We may reverse the agency's decision only if it is "arbitrary, capricious, unreasonable or beyond the agency's delegated powers."
As the Supreme Court has explained:
Where an agency, such as the Board, is authorized to make policy decisions in its areas of expertise, our role is not to determine whether its policy is wise but only whether it is lawful. In an analogous context, we have stated that
With respect to the BPU's interpretation of the law, while courts give effect to the plain language of a statute, "considerable weight" is placed on BPU's construction.
On this appeal, FACW presents the following points of argument for our consideration:
Except as set forth below, FACW's appellate contentions are without sufficient merit to warrant discussion in a written opinion.
We reject FACW's implied premise (stated more explicitly at oral argument) that we owe little or no deference to the BPU's decision because the agency has no expertise in dealing with wind energy projects. The fact that the Board does not have specialized knowledge concerning every possible method of generating power does not mean its decisions warrant no deference. The agency has expertise in ratemaking issues and, to the extent that its decisions require technological information, the Board has traditionally relied on its own staff as well as testimony from outside experts in the pertinent field. The agency has many decades of experience in evaluating the competing views of experts in a plethora of areas pertaining to utilities and electric generation. Consequently, we review the agency's decision in this case employing our usual deferential standard.
After reading the voluminous record presented to us, we cannot conclude that the Board's decision was arbitrary or unsupported by evidence. The record is replete with expert reports and filed testimony, setting forth conflicting views about the viability of FACW's proposed project and the wisdom of approving it. In the final analysis, the Board was persuaded that FACW had not established the financial viability of the project, or the financial integrity of its business partners, and the Board was not persuaded that the risks and costs of using an unproven technology to produce electricity at prices several times the market price were offset by the asserted benefits of the project.
Those were policy decisions which the Legislature has authorized the Board to make. It is not our role to judge the wisdom of the Board's decision or to second-guess the Board's findings unless there is no evidence to support them. Having read the entire record, we find there is ample evidence to support the Board's decision.
We reject FACW's argument that the BPU was not authorized to consider its financial integrity apart from its fiscal ability to complete construction of the project. The statutory standard requires consideration of the applicant's financial integrity "and" its financial ability to complete construction of the project.
The agency's regulations also require that the applicant demonstrate "a good performance record" and provide "audited financial statements or other evidence of adequate financial capacity" to ensure that the project can be "successfully completed as proposed."
Moreover, even if we were persuaded that the statutory language was as narrow in scope as FACW contends, the BPU is still authorized to consider "any other elements the board deems appropriate in conjunction with the application."
Affirmed.
