CORRECTION: In an earlier version of this story, a quotation from Steve Cleary of the Alaska Public Interest Research Group was incorrectly attributed to Jim Jager of CIRI.
A third floor room in an office building in downtown Anchorage was breezy Tuesday as dark-suited attorneys aired arguments for and against allowing a new wind farm close to Anchorage to sell power to the state’s largest electric utility.
Chugach Electric Association, Inc. needs approval from the Regulatory Commission of Alaska to purchase wind-generated power from Fire Island Wind LLC, a subsidiary of the Native corporation Cook Inlet Region, Inc. The two companies have already signed an agreement solidifying their relationship and are pushing for a quick decision from the RCA.
Without it, nearly $19 million in grant money available to Fire Island Wind through the American Recovery and Reinvestment Act will expire. That could irreparably sink the deal and any short-term hope of a new $65 million wind farm on Fire Island, 3 miles across Turnagain Arm from Anchorage.
The project is expected to provide about 4 percent of Chugach’s annual demand, 90 percent of which is generated from natural gas.
On the opening day of the final round of hearings, Chugach was in a lonely position as its sole advocate. Most other comments, including some from the Alaska Department of Law, were unfavorable.
The disagreement centers on whether adding wind power to Chugach’s portfolio is good or bad for rate payers. Several days of testimony is expected from experts battling about the future of the Southcentral natural gas market and the soundness of Chugach’s economic forecasts for the project.
This summer, Chugach agreed to purchase up to 48,500 megawatt hours of electricity – enough to power 6,000 Anchorage homes – from Fire Island Wind each year for 25 years at a fixed cost of $97 per megawatt hour. The deal was the result of “hard nosed” negotiations on price and risk, Todd Glass, an attorney representing Chugach, told the panel of RCA commissioners and an administrative law judge.
The large-scale wind project is the first of its kind in Alaska, and Fire Island Wind is assuming most of the risks associated with its development, Glass said. Chugach believes the project will ultimately save rate-payers close to $3 million.
Anchorage utility Municipal Light and Power and the Alaska Department of Law are skeptical, however, and among critics who believe the project doesn’t pencil out the way Chugach claims, which could end up costing rate payers money. If bringing wind into Chugach’s portfolio will cost more than the natural-gas-fired energy generation it is displacing, the project must be rejected, they told the panel.
“When you listen to our evidence, we think that you will see that Chugach is wrong,” Assistant Attorney General Steve DeVries, who works in the Regulatory Affairs and Public Advocacy division, told the commissioners. “The economic benefits that Chugach claims exist under this power purchase agreement are inaccurate.”
Dean Thompson, an attorney for ML&P, testified that where Chugach is pitching a cost-savings, ML&P’s number crunching shows costs could actually increase by millions for Chugach’s electric customers.
Chugach attempted to head off this criticism in opening remarks by urging the commission to judge its proposal on whether it was justified and reasonable instead of using an “avoided cost” standard.
“It is like driving down the road looking in the rear view mirror,” Thompson explained. “Avoided cost is simply no way to plan for the future.”
In addition to concerns about how much money the project will cost users, detractors worried that unforeseen mishaps could make integrating a new source of energy into the grid difficult.
How will the variable nature of wind generation affect other power sources used to balance the load?
Could compensating for a low wind period overtax other parts of the system, leaving some customers in the lurch?
Are the costs of connecting the island to the Anchorage grid, which requires building new infrastructure and running transmission lines under water and over land, realistic?
Will natural gas prices be lower over the long term than Chugach projected, diminishing savings even further?
“At some point what you have here is the debate of experts trying to predict the future. What we are dealing with here are big unknowns,” said Jim Jager, Director of Communications for CIRI in an interview Tuesday afternoon.
“Popular support is not the issue here,” he said, adding that the commission is charged with evaluating if the agreement between Chugach and Fire Island Wind will work.
“Our members want wind power providing clean energy for our city, and they want to see Fire Island up and running. With RCA approval, Chugach Electric will be harvesting the wind by 2012,” said Steve Cleary, a renewable energy advocate for the Alaska Public Interest Research Group in a prepared statement in advance of the hearings.
After the first day of hearings, Cleary said AkPIRG is disappointed in the resistance mounted by the state and other utilities. “They are bringing up catastrophes that simply aren’t going to happen,” he said.
Another criticism from ML&P and the Alaska Department of Law is that the process has been rushed. Caution should trump expediency, they argued.
But expediency matters. If financing isn’t in place by the end of October, Jager said, it will be too late to qualify for the $19 million grant. If that happens, CIRI’s board would be unlikely to push the project forward without significantly revising its purchase agreement.
The experts are also likely to present varied opinions on whether benefits like carbon tax and renewable energy credits will offset costs as much as Chugach predicts. At least one expert for the state believes such perks to be completely out of reach because Congress failed to enact the legislation; even if it had, Alaska’s projects are too small to qualify.
The state told regulators it is willing to endorse the wind project under one condition: Chugach must promise to insulate rate payers from increases in their bills stemming from incorporating the alternative energy source into its energy mix.
Witnesses are expected to testify through Friday. Golden Valley Electric Association and Matanuska Electric Association are also monitoring the hearings. Chugach has asked the commission to decide by Oct. 10.
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