First Wind files Amendment 5 to SEC Registration Statement

Lots of great information about the process and financing of wind development in New York State and elsewhere contained in Amendment No. 5 to FORM S-1 REGISTRATION STATEMENT of First Wind Holdings, Inc. before the U.S. SECURITIES AND EXCHANGE COMMISSION, filed March 26, 2010. As we know, New York is desirable for wind development because of a rich wind resource, relatively high electricity rates and its progressive renewable energy policies such as the Renewable Portfolio Standard (RPS). Here are some excerpts:

Our Portfolio of Wind Energy Projects
Operating Projects

Cohocton is a 125 MW project in Steuben County, New York. Cohocton commenced commercial operations in January 2009. The project consists of 50 2.5 MW Clipper turbines. Cohocton is the third largest wind project in the state of New York. Similar to Mars Hill (described below), Cohocton qualifies a portion of its energy for New England RECs. The project provides local benefits to the community through property tax revenue and economic development, along with local renewable power sales.

Cohocton wheels approximately 55% of its energy to ISO-NE where its RECs are sold to various counterparties. 40% of Cohocton’s RECs are sold to the New York State Energy Research and Development Authority (NYSERDA) under 10-year, fully financeable contracts. The remaining 5% of Cohocton’s RECs is sold into the voluntary REC market. Cohocton’s power is also sold directly into NYISO Zone C where it receives floating power prices. To stabilize Cohocton’s electricity revenue, we entered into a swap with an affiliate of Credit Suisse for approximately 70% of expected generation through the end of 2014. Cohocton was among the first recipients of an ARRA grant, receiving approximately $76 million in September 2009. The remainder of our construction costs at Cohocton are financed with a combination of senior project debt from HSH Nordbank and Norddeutsche Landesbank Girozentrale and structurally subordinated debt of CSSW, LLC. Our total installed development and construction costs for Cohocton were approximately $270 million, including approximately $10 million of financing-related costs and excluding prepaid turbine maintenance and warranty costs. We estimate Cohocton’s long-term NCF [net capacity factor] will be approximately 25% to 27%, as described further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”…

Steel Winds I

Steel Winds I, which commenced commercial operations in June 2007, is a 20 MW project on the shores of Lake Erie in Lackawanna, New York, just south of Buffalo. The larger site on which the project is located was formerly a steel mill. The project consists of eight 2.5 MW Clipper turbines, the first turbines of this type Clipper produced. We undertook this project primarily as a means of testing and gaining operating experience with the Clipper wind turbines. The project’s relatively small size allowed us to initially finance the project with 100% equity, which provided more flexibility as we worked with Clipper to understand the technology and deal with start-up issues that can be common in new turbine designs. We anticipate expanding Steel Winds in 2010 to bring the total project size to 35 MW, which we believe will introduce benefits of scale.

For power at Steel Winds I we receive floating power prices within New York Independent System Operator (NYISO) Zone A. To stabilize this revenue, we entered into a swap with an affiliate of Morgan Stanley. The volume of this swap is approximately 95% of Steel Winds’ expected output. This hedge expires at the end of 2016. In January 2010, we entered into a five-year PPA with an affiliate of Just Energy Income Fund for all RECs from the project. Steel Winds I qualifies for PTCs and MACRS depreciation and receives cash payments for electricity and RECs. Our total installed development and construction costs for Steel Winds I were approximately $35 million, excluding prepaid turbine maintenance and warranty costs, and are financed by a combination of equity and structurally subordinated debt of CSSW, LLC. We estimate Steel Winds I’s long-term NCF will be approximately 29% to 31%, as described further in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”…

2010 Projects

…       Steel Winds II

Steel Winds II is a 15 MW expansion project in Lackawanna, New York. It will consist of six 2.5 MW Clipper turbines and will use our existing infrastructure, including interconnection equipment and site personnel. We are currently in the process of securing the necessary land and other rights to conduct and operate the project. The project’s System Reliability Impact Study and Facilities Study is complete and we are working towards an interconnection agreement with the New York Independent System Operator (NYISO) and National Grid. While we continue to evaluate alternatives, we anticipate selling power from Steel Winds II directly into the market through NYISO Zone A and hedging our revenue with a financial swap. We estimate that our total installed development and construction costs for Steel Winds II will be approximately $40 million, including approximately $5 million of financing-related costs and excluding prepaid turbine maintenance and warranty costs. We estimate that Steel Winds II’s long-term NCF will be approximately 28% to 30%….

Purchase of Prattsburgh Real Property

On February 22, 2008, we entered into a purchase agreement with Windfarm Prattsburgh, LLC, a Delaware limited liability company and our indirect wholly owned subsidiary; UPC Wind Partners II, LLC; and BEC New York Properties, LLC, a Delaware limited liability company that is owned by Brian Caffyn, with respect to a parcel of land situated in the town of Prattsburgh, New York pursuant to which Windfarm Prattsburgh, LLC purchased the parcel of land from BEC New York Properties, LLC. Windfarm Prattsburgh, LLC agreed to purchase the parcel for (i) consideration of 152,527 Series A Units in UPC Wind Partners LLC to be granted to UPC Wind Partners II, LLC as the seller’s designee and (ii) a payment of $23,000 from Windfarm Prattsburgh, LLC to BEC New York Properties, LLC. In connection with that transaction, First Wind Holdings, LLC granted 152,527 Series A Units for non-cash consideration to UPC Wind Partners II, LLC….

Project Development Costs
… Should the Company decide to abandon or discontinue development of a Tier 1 project, previously capitalized costs are charged to expense in the period that such determination is made. At December 31, 2008, the Company determined that it was more likely than not that it would discontinue development of its Prattsburgh I project, which is located in New York. Upon reaching this determination, previously capitalized development costs of $3.5 million were expensed in December 2008 and included in project development expenditures in the statement of operations. In December 2009, the Company discontinued the development of the Prattsburgh I project….

Legal Proceedings

The Company is involved from time to time in litigation and disputes arising in the normal course of business, including proceedings contesting our permits or the operation of our projects. Management does not believe the following proceedings will, if determined adversely, have a material adverse effect on the financial condition, results of operations and liquidity of the Company:

On July 15, 2008, the Company was served with a civil subpoena by the New York State Attorney General relating to an investigation into its activities in the State of New York. In response to the subpoena, First Wind produced documents and information relating principally to the New York State Attorney General’s investigation into: (i) whether the Company improperly sought or obtained land-use agreements with citizens and public officials, (ii) whether improper benefits were given to public officials to influence their actions and (iii) whether the Company and its competitors entered into anti-competitive agreements or practices. The Company cooperated fully with the requests of the New York State Attorney General, with the assistance of outside counsel. Outside counsel also conducted its own internal investigation on behalf of the Company. On October 29, 2008, the Company voluntarily agreed to implement a Code of Conduct, created by the New York State Attorney General to govern the Company’s future conduct in connection with wind energy project development in New York State. The Company entered into a subsequent version of the New York code in October 2009. The Company has been advised by the New York State Attorney General’s office that it is not currently under investigation….

Source: First Wind SEC filing. See also “Wind-Power Developer First Wind To Price IPO In April”  from Dow Jones (3/31)

Small wind gets RPS boost from PSC in New York state

Small wind, other renewable projects get a boost from New York State Public Service Commission (PSC). From the PSC:

The Commission [on March 25] approved more than $279 million over a five-year period for customer-sited
renewable energy projects as part of the state’s Renewable Portfolio Standard (RPS) program. This funding will enable thousands of homeowners and businesses to install solar panels, fuel cells, wind turbines and other renewable energy devices.

Source: NYS PSC press release. Check here for the Commission’s decision in Case 03-E-0188.

Wind energy developments in NYS and the USA

New York wind developments

Proposed Fresh Kills (Staten Island) wind farm update. Staten Island Advance 3/16

Consolidated Edison and Long Island Power Authority announce plan to take 350-700 MW offshore project planning the next step. LIPA and Con Edison will work with the state, the New York Power Authority, New York City, the Metropolitan Transportation Authority, and the Port Authority to issue a request for expressions of interest (RFEI) for off-shore wind development.  Con-Ed 3/23

NYISO, New York’s electric grid operator, asks Federal Energy Regulatory Commission (FERC) to allow Limited Energy Storage Resources (LESR) – which includes battery and flywheel technologies – to provide the “regulation” service needed to balance electrical supply and demand on the grid. NYISO is requesting FERC to approve changes in the NYISO tariff to permit LESRs to provide regulation service by mid-May 2009. NYISO 3/24

More on Governor Paterson’s apparent interest in scaling back the 10-state Regional Greenhouse Gas Initiative (RGGI) to reduce carbon emissions. Albany Times Union 3/23 More on RGGI here at NYSERDA’s website.

State has mixed success making goal of having renewables (the Renewable Portfolio Standard or RPS) be substantial part of energy consumption mix. Associated Press in Newsday 3/22

Schenectady-based GE shoots for five-fold increase in European turbine sales in 2009. Reuters 3/16

USA wind developments

Acting FERC chair favors enhanced national transmission line system. Wall Street Journal 3/19

With a hyperbolic headline about hypobaric trauma, this article discusses how research from Iberdrola Renewables suggests cutting off turbines at low wind speeds may result in fewer bat deaths. Washington Times 3/23

New report released by the Ernest Orlando Lawrence Berkeley National Laboratory and National Renewable Energy Laboratory for wind developers.

The purpose of this report is to both quantitatively and qualitatively analyze, from the project developer/owner perspective, the choice between the PTC and the ITC (or equivalent cash grant) for a number of different renewable power technologies.

LBNL and NREL (by Mark Bolinger, Ryan Wiser, Karlynn Cory and Ted James), March 2009

NYISO releases wind energy-related white papers

The New York Independent System Operator (NYISO), which manages the state’s electricity grid, recently released three white papers that relate to the integration of wind generation facilities into New York’s grid.

We understand that NYISO welcomes comments on them. Comments to NYISO should be directed to Kathleen Carrigan, Acting VP of External Affairs, NYISO, kcarrigan [at] nyiso.com.

The white papers discuss System Dispatch, Fuel Diversity,  and Transmission Expansion. Per NYISO, the reports are:

Integration of Wind into System Dispatch
Incorporating significant wind powered generation is a key to achieving the goals of New York State’s renewable portfolio standard (RPS). The NYISO has introduced system and operating changes to better utilize New York State’s existing wind resources, and pave the way for their continued growth. Those efforts and proposals for further enhancements are detailed in the NYISO white paper.

The purpose of this paper is to review work done to date, identify the current challenges of integrating large amounts of wind generation into the New York transmission system, and propose changes to the market rules that will improve the reliable dispatch of wind resources in New York State.

Transmission Expansion in New York State
Since 2000, more than 6,500 MW of new generation has been developed, predominantly in the regions of New York State with the greatest demand for power, and nearly 1,000 MW of transmission has been added to bring more power into those regions. However, there has not been a major high-voltage transmission addition inside the state for over 20 years. The NYISO white paper, prepared with assistance from Energy Security Analysis, Inc. (ESAI), reviews transmission planning processes and investment activity in New York State and neighboring regions.

The NYISO worked with ESAI to draft this Transmission Expansion White Paper in order to review the potential and actual drivers of transmission expansion activities in New York State and its neighboring control areas. While PJM and ISO-NE have facilitated a great deal of investment in transmission expansion projects to address reliability, it appears that the NYISO will be able to best promote transmission expansion through the development of its economic planning process and the Congestion Assessment and Resource Integration Studies which will begin after the 2009 CRP is issued.

Fuel Diversity in the New York Electricity Market
Fuel diversity is a crucial component of the reliable and efficient operation of wholesale electricity systems. This NYISO white paper, developed with assistance from the Analysis Group, explores the significance of fuel diversity and its impact on the New York electricity market.

This paper identifies trends that have led to the electric industry’s focus on fuel diversity. It examines various meanings of fuel diversity within an electricity market; discusses various economic, reliability and environmental dimensions of fuel diversity; explores the impacts of various events on fuel or technology-dependent energy systems; looks at approaches used in other regions to address fuel diversity; and identifies options to address fuel diversity that are both well aligned and poorly aligned with New York’s electricity markets.

Thanks to ACE-NY for flagging these reports.

Iberdrola accepts NY PSC conditions on Energy East purchase

Iberdrola announced that it accepts the conditions imposed by the New York Public Service Commission (PSC) on the company’s bid to purchase Energy East. In a statement, the company noted that its

decision came following analysis of the conditions stipulated by the New York State Public Services Commission (NYPSC) in voting to approve the transaction on September 3 and in the order granting approval issued September 9, which IBERDOLA considered to be consistent with the financial and value creation criteria it has set for corporate transactions.In particular, the NYPSC authorization, containing conditions customary to this kind of transaction, involves no limitation on IBERDROLA’s ability to develop wind power activities in the State of New York.

The company states that with the transaction it is now Spain’s largest investor in the United States. Iberdrola’s (English language) press release is here. For purists, the Spanish-language release is here.

The PSC’s abbreviated order is found here. A longer final order will issue at a later date. The PSC abandoned reasoning of PSC staff and the administrative law judge charged with investigating the transaction. Rather than deny the transaction on public interest grounds, the commissioners found that the transaction will benefit consumers.

Under the PSL [Public Service Law] §70 “public interest” criterion applicable to this proposed transaction, petitioners must show that the transaction would provide ratepayers a positive net benefit. Here, we have weighed the expected benefits from the transaction against related risks and detriments remaining after applying reasonable mitigation measures. We conclude that, with the provision of the positive benefit adjustments (PBAs) and the conditions ordered here, Iberdrola’s acquisition of the Energy East companies will provide ratepayers sufficient positive net benefits to warrant its approval under PSL §70.

Wind, of course, played a significant role in the discussion of the transaction. Not suprising given Iberdrola’s renewables focus and the compelling symmetry between maps of New York wind resources and the map of Energy East distribution and transmission shown in the Iberdrola press release above. The PSC had some words to say about wind:

We conclude that Iberdrola’s ongoing participation in the New York State wind industry offers some benefit in advancing our renewable energy goals. Therefore, consistent with our existing policy of using wind development as an important means of achieving those goals, we do not condition our approval here on a prohibition against Iberdrola’s development or ownership of wind facilities in the State.

Indeed, to strengthen Iberdrola’s commitment to invest in renewables in New York, we will condition our approval of the transaction upon a requirement that Iberdrola commit to make wind-related capital investments in New York worth $200 million. [Note: We note an ambiguity in both petitioners’ [earlier submissions in which] Iberdrola commits “to support” an investment of $100 million in renewable generation. Given Iberdrola’s 80% ownership interest in Iberdrola Renewables and its capacity to create other means to make such an investment, we resolve this ambiguity by requiring Iberdrola to make, rather than merely support, such an investment, and we increase the required investment from $100 million to $200 million.] This requirement will be subject to the same contingency Iberdrola placed on its original $100 million commitment, namely, that there be “no material adverse change to the existing fundamental economics of wind generation development in New York State.” [Note: … According to petitioners’ qualification, this condition would relieve Iberdrola of its commitment should the federal production tax credit [PTC] or our renewable portfolio standard [RPS] subsidies be eliminated or reduced, or should there be material changes in the market price for power in the market maintained by the New York Independent System Operator (NYISO)…] However, this qualification does not extend to the economics of any individual wind project, such as land rights acquisition, turbine rights acquisition, financing, construction, interconnection, or operation and maintenance. [Note omitted]

This capital investment requirement applies to incremental investment in construction of new wind projects, as distinguished from investment in or acquisition of existing wind resources or sums already spent on projects underway. This requirement may be satisfied by new investments in wind projects within New York State that are made during the initial two years following the acquisition’s closing date. We are willing to consider, however, upon a petition from Iberdrola, a modest extension of the two-year period.

With wind project costs at somewhere between $2 and $3 per watt (and, generally speaking, rising), this presumably would result in some 60-100 megawatts of additional wind generation in the state, the size of a wind farm not atypical in New York state. (By contrast, the state’s largest wind farm, Maple Ridge, partially owned by an Iberdrola subsidiary, is some 325 megawatts).

One of the investment caveats is particularly noteworthy. The federal production tax credit or PTC is set to expire at the end of this year, and Congress has shown only moderate inclination to extend it (or at least to attempt to extend it without also including other extraneous matters). While this blogger has spoken with some wind industry players who believe the industry is mature enough as a whole to withstand a PTC gap of some time, if history is a guide, much development in the country will stop or fail if the PTC is not extended. More concretely for this transaction, a PTC gap may be a kicker for some wind development in the state. Per the PSC decision, should Iberdrola not invest the $200M over two years for any reason, the company is required to contribute up to $25M toward economic development projects in the Energy East service territory.