Senators Vitter, Alexander seek revenue analysis of Del. lease

Source: Phil Taylor, E&E reporter • Posted: Monday, November 12, 2012

Sens. David Vitter (R-La.) and Lamar Alexander (R-Tenn.) today asked the Interior Department to estimate the fiscal trade-offs of leasing waters off the Delaware coast for wind power instead of oil and gas development.

In a letter to Interior Secretary Ken Salazar, the senators also asked what the agency plans to charge NRG Bluewater Wind Delaware LLC for generating electricity on a lease it announced late last month (E&ENews PM, Oct. 23)

“The administration has a habit of picking energy industry winners and losers, and we want an explanation,” Vitter, who will be ranking member of the Environment and Public Works Committee next Congress, said today in a statement. “The federal government receives significant revenue from royalties for offshore oil and gas production in the form of rents, royalties, bonus bids and taxes. Can the same be said for this offshore wind project?”

Offshore wind is not expected to produce the same returns as oil and gas, which generated roughly $11.2 billion in bonus bids, rents and royalties in fiscal 2011 and is often the second highest source of federal revenue after income taxes. Part of that is because the 2005 Energy Policy Act requires Interior’s Bureau of Ocean Energy Management to ensure a “fair return” on offshore wind leases, unlike oil and gas, for which it is required to maximize profit.

The Obama administration in late 2010 announced a sweeping plan to accelerate wind development off the East Coast, where Energy Department scientists believe up to 54,000 megawatts of carbon-free generation could be developed by midcentury.

Around that time — and several months after the Deepwater Horizon oil spill in the Gulf of Mexico — the agency said it would exclude the Atlantic from its new five-year offshore leasing plan for oil and gas. It finalized a plan in midsummer that focuses on leasing in the Gulf of Mexico and Arctic Ocean, which it believes to be most flush with oil.

Blake Androff, spokesman for Salazar, said in a statement to Greenwire, “Since President Obama took office, domestic oil and gas production has increased each year, with domestic oil production at an 8-year high and natural gas production at an all-time high. Total oil production from federal lands and waters has increased 13 percent during the first three years of this administration, compared to the last three years of the previous administration.”

In their letter, the senators accused the Obama administration of “implement[ing] policies that favor a chosen technology without any evident regard to economic impacts,” and ignoring bipartisan support for developing oil and gas in the Atlantic. Virginia’s Democratic Sens. Jim Webb and Mark Warner have introduced a bill to allow leasing off the state’s shores.

“Our nation’s energy policy must make economic sense for taxpayers and not be manipulated to favor one energy source over another,” Alexander said. “I hope we find that the administration’s decisions aren’t driven by politics but instead are geared toward developing the kind of low-cost, reliable energy we need to help our private sector grow and add good-paying jobs.”

The senators also asked whether the leasing contract adjusts the royalty rate if NRG qualifies to receive the wind energy production tax credit. The letter also asks whether the leasing review process considered threats to avian species from wind turbines.

Interior has said any wind farm proposals would be subject to a separate, and likely more rigorous, environmental review process. An agency spokeswoman last week said Interior is still finalizing its lease with NRG and that it hopes to make it available to the public in mid-November.

Interior announced an agreement on the NRG lease after confirming there was no competitive interest from other wind developers. The lease gives the company the exclusive right to set up meteorological towers and buoys and develop a construction and operating plan for a commercial wind farm on 100,000 acres off Rehoboth Beach.

Interior is also planning competitive lease sales off the coasts of Virginia, Maryland, New Jersey, Massachusetts and Rhode Island, though the first sale was recently bumped from this to next year (E&ENews PM, Oct. 11).

NRG Energy Inc., which had sought the lease, in January said it was putting its 450 MW Bluewater Wind project on hold, citing difficulty financing the project and the pending expiration of the investment tax credit. It said, however, that it was moving forward with its lease.

Salazar has long touted offshore wind’s ancillary benefits of combating climate change and creating jobs and economic development at East Coast ports.