In an Oct. 10 order the Regulatory Commission of Alaska has given the go ahead to power utility Chugach Electric Association to purchase electrical power from a wind farm that Cook Inlet Region Inc. plans to build on Fire Island, offshore Anchorage. CIRI needs the power purchase agreement to secure the funding needed for the completion of the wind farm construction, with a 2012 deadline for completion if the project is to qualify for a nearly $19 million federal grant.
“It was something a lot of people worked for a long time to get to,” an elated Jim Jager, CIRI spokesman, told Petroleum News Oct. 11 in response to the RCA decision.
Ethan Schutt, CIRI’s senior vice president of land and energy development, said that CIRI will now close on the financing for the continuing construction of the project, with heavy construction scheduled to start in April. CIRI anticipates having the wind farm completed in good time to meet the federal deadline.
“We should have first power some time next September,” Schutt said.
“On behalf of the board, I’m pleased with the order and proud of the work done by staff to achieve it,” said Chugach Electric board chair Janet Reiser on Oct. 12. “Chugach appreciates that the commission was responsive to the request for expedited review.”
Controversy
The wind farm has caused controversy among the Southcentral Alaska power utilities, primarily because of the fluctuating nature of wind power generation and the potential cost and stability impacts of those power fluctuations on the Alaska Railbelt power grid. Questions have also been raised about the cost of the power from the wind farm, with that cost causing an initial increase in consumer’s electricity bills, but with the subsequent cost of wind power remaining stable for many years to come.
In its order the RCA commissioners said that, with an immediate decision on the power purchase agreement needed to meet the required wind farm construction schedule, the commission will allow Chugach Electric to recover the cost of the Fire Island wind power from its customers.
Initial price increase
According to information provided to RCA, the Chugach Electric power purchase agreement involves the power utility paying $107.85 per megawatt hour of Fire Island wind power for the entire 25-year lifetime of the agreement. The wind farm will, however, pay Chugach Electric a fixed fee of $10.85 per megawatt hour, to compensate the utility for the cost of integrating the fluctuating power into other power supply arrangements — that fee will result in a net cost of $97 per megawatt hour for the wind power. At that cost, a typical electricity consumer will see an increase of some 2 percent in their electricity bill, Chugach Electric said.
But, unlike the cost of power from natural gas generation, which is likely to increase as gas prices rise, the cost of wind power will remain constant, leading to an overall cost benefit from wind power use, the utility said.
Diversification
Chugach Electric also said that the Fire Island wind power will provide a first opportunity for the utility to diversify into a renewable form of energy other than hydropower, and that the wind power will reduce the utility’s carbon emissions.
The utility said it expects its cost of accommodating wind power fluctuations to be less than the $10.85 fee that the wind farm will pay as compensation for those fluctuations. Moreover, the utility anticipates the integration cost dropping progressively over a five year period, as the utility gains experience in dealing with the wind power usage.
RCA said that it does not have the authority to regulate the operation of the wind farm itself, but that it does have the authority and obligation to review Chugach Electric power supply agreements, to ensure that these agreements are “just and reasonable.” The commission said that it reviewed the Fire Island supply agreement using a cost-benefit analysis presented by Chugach Electric. That cost benefit analysis indicated a positive value for the use of wind farm power over the 25-year lifespan of the supply agreement.
Assumption questions
The state attorney general, intervening on behalf of the general public, and Anchorage power utility Municipal Light & Power, questioned many of the assumptions behind the finding of a net positive value to the wind power supply. The intervenors presented evidence for what they claimed to be more realistic assumptions that raise serious questions over the supposed benefits of the wind farm. However, the commissioners, while accepting that there are major uncertainties in many of the assumptions behind Chugach Electric’s economic analysis, said most of the utility’s assumptions are fairly reasonable.
And, also mindful of a state law, passed in 2010, requiring that the state move towards obtaining 50 percent of its electricity from renewable sources by 2025, the commission agreed to authorize Chugach Electric to purchase Fire Island power.
However, given serious concerns and some uncertainty about the cost and reliability issues associated with integrating wind power into the Southcentral grid, the commission declined to approve the tariff that Chugach Electric had submitted in association with the Fire Island supply agreement. Instead, the commission required the submission of a revised tariff incorporating a plan for power rate recovery from power consumers.
New docket
The commission is opening a new docket to track the progress of the Fire Island project and requires Chugach Electric to reimburse other utilities for any costs those utilities incur as a consequence of integrating fluctuating power from Fire Island into the grid. Chugach Electric must “to the extent possible” protect other utilities from grid reliability problems and costs resulting from Fire Island power integration, the commission said.
But CIRI is skeptical that fluctuations in the Fire Island power supply will have any major impact on the power grid.
“Given the scale of the project that we’re building right now — this is not high penetration wind. … This is entirely manageable within Chugach’s control area,” Schutt said. “This will have no detectable impact on anybody else in the grid.”
Difficult case
In a statement concurring with the RCA Fire Island decision, Commissioner Robert Pickett said that this particular case had proved particularly difficult to deal with.
“This is one of the most challenging and frustrating dockets I’ve been involved with during my tenure as an RCA commissioner,” Pickett wrote. “The power purchase agreement … has been shaped by a number of powerful and conflicting forces. The circumstances surrounding this PPA are unique. The use of the commission’s decision in this proceeding as a precedent in future cases should be done with extreme caution and trepidation.”
