FAIRBANKS—The Regulatory Commission of Alaska has approved new regulations for the way utilities buy electricity from smaller-scale, independent power producers, including a Delta Junction wind farm in a pricing dispute for several years with Golden Valley Electric Association in Fairbanks.
Set to go into effect statewide this spring, the regulations adopted Friday are the result of complaints against Golden Valley filed with the commission by Mike Craft, who owns the Delta wind farm under the business name Alaska Environmental Power.
The regulatory commission’s updated regulations change how electric utilities measure their costs in relation to what they pay small, qualifying power producers like Alaska Environmental Power. And if a dispute arises, the utility must show the commission how it calculated its costs.
Utilities in Alaska have used an annual average to determine whatever savings they might get by buying supplemental power from independent producers, compared to generating or buying power from all sources over the entire year. Among other factors, that annual avoided cost is how utilities determined the rate to pay the smaller-scale power producers, whose capacity to generate power might fluctuate according to the wind.
The updated regulations direct utilities to calculate the rates they pay independent producers using what is called “incremental avoided cost.” That means the amount an independent producer gets paid will be based on how much the utility is paying to generate or buy power right at the time the independent is displacing that cost, which can change daily or hourly.
The new regulations are set to go into effect April 1, pending approval by the state Department of Law and, ultimately, the governor’s office. There also is the possibility of an appeal.
The Alaska Independent Power Producers Association called the commission’s 4-1 vote to adopt the new regulations a “landmark decision.”
The association’s director, Duff Mitchell, said the new regulations will provide more certainty for anyone hoping to invest in independent renewable energy projects, who might be seeking loans, because the utilities will be under more pressure to buy their power at a reasonable rate.
Changing the regulations also will bring Alaska in line with federal guidelines for renewable power generation already in place in the rest of the United States, Mitchell said. It is a large step away from “state overreach” that is discriminating against upstart renewable projects, he said.
“This is kind of like a glacier moving, and we just had a big chunk of ice break off,” Mitchell said. “This is good.”
It also amounts to vindication for those running existing projects that want to expand and sell more power to utilities, Mitchell said, including Craft and his wind farm in Delta.
For years, Craft has wanted to install more turbines and expand the two-megawatt wind farm to a 25-megawatt farm, but he and Golden Valley failed to reach a deal on the price the utility would pay for the additional capacity. Craft said the utility favored its own 25-megawatt wind farm at Eva Creek and was unwilling to fairly negotiate with him for the power from Delta, which he felt could have worked well in tandem with the Eva Creek farm.
For its part, Golden Valley officials said Craft and Alaska Environmental Power wanted to lock the nonprofit power cooperative into paying a rate that was too high and could cause members’ bills to increase. Wind power also needs to be backed up by diesel generators – more expensive than coal, the utility’s main source of power generation – because wind can drop off faster than a coal power plant can adjust to pick up the extra load, according to Golden Valley.
Still, Golden Valley’s avoided cost calculations, and therefore the amount they offered for outside wind power, were artificially low, Craft said.
“It’s a bunch of smoke and mirrors. It always has been,” Craft said.
Craft filed his initial complaint with the regulatory commission in 2010, following up with additional filings in 2012 and 2013. The regulatory commission effectively delivered Craft a win Friday after public comment periods and consideration by the Department of Law, according to the commission’s order to adopt the new regulations.
Shortly after the Friday order, Craft started talks to buy more wind turbines to install in Delta, something he said he has wanted to do for seven years, adding that his construction projects have used mostly local labor.
Craft said he had to admit that he is more prepared now to expand the wind farm than he was before, having fought for expansion over the years.
“It’s been a tough road,” he said. “Yeah, I do feel vindicated. … It’s cost me a ton of money, a little bit of blood pressure issues.”
Golden Valley President and CEO Cory Borgeson described the process as “probably healthy” for everyone involved.
The utility co-op had been following the regulations that were in place and disagreed with characterizations that it had been too resistant in negotiations with Craft.
“Like any business deal, there’s always tension,” Borgeson said. “You know, ‘What are you going to charge us?,’ Well, ‘What will you pay?’ type of thing.”
Golden Valley had already budgeted $120,000 to install new software that, among other abilities, will allow it to calculate incremental cost avoidance, and there may be added personnel expenses needed to analyze the data, Borgeson said.
There could also be more pressure on utilities to make deals with independent power producers, but whether the new regulations result in higher rates for the producers is yet to be seen, Borgeson said.
“How big a difference it makes, we’ll find out,” he said. “Sometimes they’ll get more. Sometimes they’ll get less.”
Golden Valley has welcomed deals to buy power from independents, Borgeson said. He pointed to efforts to purchase hydroelectric and wind power outside Interior Alaska and Golden Valley’s SNAP program – short for Sustainable Natural Alternative Power – which offers incentives to homeowners who produce more solar or wind power than their homes use.
Ultimately, Golden Valley is trying to keep rates low for its members, Borgeson said. That, he said, is an important part of the regulations: Changes cannot cause rates to increase for consumers.
“We’re open to independent power producers. It just needs to make business sense,” Borgeson said. “It’s really about making a deal. Do we bargain hard for our members? Do they want us to bargain hard or pay more?”
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