Vol. 15, No. 38 Week of September 19, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Fire Island wind farm needs contracts

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Nearly $44M in federal money for CIRI project expires this year; utilities concerned about cost; CIRI says cost flat over time

Elizabeth Bluemink

Anchorage Daily News

With nearly $44 million in federal money available to help build a Fire Island wind farm set to expire this year, electric companies are still weighing whether to buy the wind power — a vital step before the $162 million project can happen.

Chugach Electric Association, the Railbelt’s largest power company, is the giant at the negotiating table. But two other major power utilities are in talks, too.

Anchorage-based Cook Inlet Region Inc., which wants to develop the wind farm, said it hopes to sign power-purchase agreements with at least one electric utility. CIRI needs to have deals to sell the farm’s power to win the $43.8 million in federal grant available as well as obtain the rest of the money needed to build the project.

Getting the utilities on board hasn’t been easy, however. The Chugach board of directors weighed in recently. The board voted 6-1 on a motion reminding its staff that the clock is ticking on the grant and telling them to negotiate with CIRI to see if a fair deal can be reached.

CIRI says its project would supply nearly 4 percent of the Railbelt’s electricity, bring a relatively low-cost, clean-energy project to the region and help reduce the regional electrical grid’s reliance on turbines fueled by Cook Inlet natural gas, which is in tight supply.

Not a simple sell

The project is not a simple sell to the electric companies for several reasons.

For one, the power generated from Fire Island turbines, which could start producing as early as 2012, would cost several pennies per kilowatt hour more than gas-fueled electricity, according to CIRI’s calculations. But CIRI says its rates will be flat over time, while gas rates are expected to rise above the wind rates within a few years.

Chugach Electric staff are worried about its cost to retool equipment so that wind power can enter Chugach’s aging power grid, something they’re now studying. Further, Chugach staff are studying how to protect the reliability of its power supply when winds dramatically fluctuate.

CIRI has a cost estimate for integrating wind into the grid, but Chugach staff have not accepted it and are doing their own. A “better estimate” should be available within weeks, according to Chugach spokesman Phil Steyer.

Anchorage city officials are also noncommittal about Fire Island. “I’m just not sure yet whether they have hit the price point where it’s economical for ML&P to purchase power,” Anchorage Mayor Dan Sullivan said about the city-owned Municipal Light & Power utility.

“This is a big decision for us, my board, the Assembly and the Regulatory Commission of Alaska,” said ML&P general manager Jim Posey.

“My board has to consider it, the Assembly has to consider it and the mayor signs (off) on it. I’m moving as fast as I can,” he said.

The Native firm said more than $6 million has been spent on the project so far and it plans to spend another $3 million this year. CIRI won’t seek additional financing to build until it signs up electric companies and gets regulatory approval.

Loss of subsidy a concern

CIRI says it has presented price terms to Chugach, ML&P and Fairbanks-based Golden Valley Electric Association and is involved in discussions with all three.

But ML&P board member Charles Wohlforth, a supporter of the Fire Island project, said he is worried that the Anchorage utilities — including his own — will dicker over the project until the federal funding disappears and that, without this subsidy, the project could be in serious trouble.

“There hasn’t been a can-do attitude to get it done. If the mayor wants this project to happen, he can make it happen. He can get the people in the room to get (a) contract. If he doesn’t want it to happen, it’s very easy to stall and make objections,” Wohlforth said.

Sullivan said Sept. 8 he’s relying on the ML&P staff to evaluate the project’s viability.

“The key will be the cost of the kilowatt hour to the residents of Anchorage,” he said.

Posey said, “It’s a matter of how much data is available and how comfortable we are with the data.”

RCA rate approval required

Chugach staff declined to discuss how their negotiations with CIRI are going, citing a confidentiality agreement they signed with CIRI.

The chairman of the utility’s board, Jim Nordlund, said he thinks the Chugach staff is working diligently.

But, “The timing is critical, to be candid,” he said. The federal grant appears to be a one-shot deal, he said.

Wohlforth said he thinks the CIRI wind proposal poses some cultural challenges for the Railbelt utilities.

“They have never dealt with an independent power producer,” he said.

In Anchorage, “They have been comfortable with the way they’ve always done it,” negotiating long-term contracts with the major Cook Inlet natural gas producers, he said.

If they sign a deal with CIRI, the utilities — not CIRI — will determine what to charge their customers for the wind power. The Regulatory Commission of Alaska will have to approve those rates.

Posey wants the project costs to be brought down because he fears it might be too expensive for ML&P customers in Anchorage, who generally pay less for electricity than Chugach customers in the city.

But CIRI says the project is about as cheap as it can get right now. The company points out that the project’s installed cost per kilowatt hour would be cheaper than at least four wind projects in Washington state and Oregon, for example. The company also predicts the project will add “only a few pennies per day” to Railbelt utility customer bills.

However, both those cost estimates are contingent on CIRI receiving the $43.8 million federal grant.

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