Corporate Law Alert

Power Purchase Contract Signed for First Offshore U.S. Wind Farm

Orrick represented Delmarva Power & Light Company, a Delaware utility, in two significant energy supply RFPs resulting in long-term energy supply contracts for up to 350 MW of wind energy from a new offshore wind farm in Delaware and new wind farms in Pennsylvania and Maryland. The transactions are described below. Additional details are available by clicking on the transaction headlines.

Bluewater Wind Energy Supply Transaction: Delmarva signed a landmark 25-year power purchase agreement with Bluewater Wind Delaware, LLC for up to 200 MW of wind energy from an offshore wind farm to be built by Bluewater 11.5 miles off the coast of Rehoboth Beach, Delaware. This agreement will help establish what is anticipated by many to be the first offshore wind farm in the United States, which is expected to come online between 2012 and 2015.
Synergics and AES Energy Supply Transactions: Delmarva signed power purchase agreements for up to 150 MW of wind energy from two other new wind farms to be built by subsidiaries of Synergics and AES Corporation in Maryland and Pennsylvania.

Bluewater Wind Energy Supply Transaction
The Delmarva/Bluewater power purchase agreement is the culmination of a unique and intense two-year debate in Delaware over the Bluewater offshore wind farm and recent legislation that required Delmarva to issue an RFP for new long-term energy supply from a new plant to be constructed in Delaware. Pursuant to that legislation and the resulting RFP, the Delaware Public Service Commission and three other state regulators ordered Delmarva to negotiate with Bluewater to buy power from its proposed offshore wind farm and negotiate with two other bidders for backup power from a new natural
gas-fired plant in Delaware.

Delmarva's Opposition to Initial Deal Terms: Delmarva publicly opposed many aspects of the original Bluewater deal, including Bluewater's price, the original proposed facility size, the need for backup power and the allocation of the costs of the Bluewater contract only to Delmarva's residential and small commercial customers under the existing law. The Delaware Public Service Commission took a significant role in the negotiation of the contract, including mandating numerous key terms and imposing an arbitrator to resolve various terms on which Delmarva and Bluewater did not agree.
Compromise Deal and Amended Legislation: Under the compromise deal ultimately agreed to by Delmarva and Bluewater and approved by the Delaware Public Service Commission and other state regulators in July 2008, Delmarva will buy the energy generated from 200 MW of nameplate capacity of the Bluewater wind farm at a slightly reduced price. The underlying legislation was amended to spread the costs of the contract to Delmarva's entire Delaware customer base, and Delaware's renewable energy portfolio standards (RPS) law was amended to provide additional compliance credit for energy from the Bluewater wind farm to improve the wind farm's economics for Bluewater and Delmarva. The wind farm is guaranteed to be operational by 2014 and must be completed by 2015. Bluewater must now begin its permitting process for the wind farm, and state regulators are determining whether to proceed with a backup facility.
Novel Issues: In the process of reaching the final deal, Delmarva and Bluewater had to reach consensus on many novel issues related to the offshore wind project, including the multiyear construction schedule for the wind farm, transmission issues related to interconnecting into PJM and the process and terms for capacity and REC sales into the PJM and Delaware markets. Contingencies were also necessary to account for the fact that the Department of the Interior's Minerals Management Service has not yet published final rules for siting offshore wind farms in federal waters.

Synergics and AES Energy Supply Transactions
While the Bluewater proposal was being considered by the Delaware Public Service Commission and other state regulators (including the Delaware General Assembly, which directs one of the deciding agencies), Delmarva, again with Orrick's assistance, initiated a second RFP for wind energy as its own effort to obtain competitively priced renewable wind energy for its Delaware customers and to provide an alternative to the Bluewater deal. The solicitation was met with significant bidder interest, and Delmarva successfully completed the Synergics and AES transactions in May and June 2008 to serve Delmarva's more-immediate needs for renewable energy.

Synergics Deal: Under the Synergics transactions, Delmarva will purchase up to 100 MW of wind energy from two separate wind farms to be developed by Synergics in Garrett County, Maryland.
AES Deal: Under the AES transaction, Delmarva will purchase up to 50 MW of wind energy from a wind farm to be developed by AES in Tioga and Bradford counties in Pennsylvania.

Orrick's Energy Team
For more information, please visit the Energy and Project Finance practice page on orrick.com or contact the following partners:

Jonathan Guy
Partner, Creditors' Rights and Bankruptcy/Litigation
jguy@orrick.com
202.339.8516

Kyle Drefke
Partner, Global Finance
kdrefke@orrick.com
202.339.8434

Keith Kriebel
Partner, Global Finance
kwkriebel@orrick.com
202.339.8489

Paul Zarnowiecki
Associate, Global Finance
pzarno@orrick.com
202.339.8452

August 2008

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