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Sale of Fire Island wind power to Chugach Electric gets OK

Sean CockerhamMcClatchy-Tribune News Service

Regulators have approved a deal for Chugach Electric Association to buy Fire Island wind power, a move that should allow Cook Inlet Region Inc. to go ahead and build a windmill farm on the island.

There's been talk of building wind turbines on Fire Island, about three miles offshore from Kincaid Park on Anchorage's western tip, since the early 1990s. Now it looks like it's finally going to happen.

"We expect that as soon as the ice is off the inlet in April we'll start mobilizing construction equipment out there. We expect first power sometime in September 2012," CIRI spokesman Jim Jager said Tuesday.

Chugach Electric, Alaska's biggest electric power utility, figures Fire Island wind power will replace about 4 percent of its total electric energy needs.

Chugach estimates the deal will initially result in a 1.7 percent increase in a typical residential bill. The utility forecasts the 25-year wind power agreement will save customers money over the longer term, though, with expected increases in the price of natural gas.

The utility's contention of a cost savings came under dispute as the Regulatory Commission of Alaska weighed whether to approve the deal. But the RCA also heavily considered the Legislature's statements that Alaska needs more renewable energy.

"We find that this wind project is an opportunity to facilitate important public policy initiatives at a minimal cost to Chugach's member-owners," said the commission's order issued late Monday night approving the deal.

Jim Nordlund, a member of the Chugach Electric board, called it "a great decision that allows us to be less dependent on diminishing Cook Inlet gas reserves."

The commission said if it didn't approve the deal by Monday then the $90-million project was going to fall through. CIRI has said it needs to get going on the project in order to qualify for nearly $19 million in federal stimulus grant money available to developers of renewable energy.

The Legislature has also appropriated a $25 million grant available to be used to build the underwater transmission line to get the electricity from Fire Island to Anchorage.

CIRI officials described the commission's approval as the last big hurdle for the project to become a reality. The next step is for CIRI to close its commercial financing arrangements. That couldn't happen until the RCA ruled.

The agreement calls for CIRI to deliver electricity to Chugach from 11 wind turbines that are capable of producing up to 17.6 megawatts of power. That's enough to provide electricity to power more than 6,000 homes, according to CIRI.

The 11-turbine wind farm is one-third of the size that CIRI had hoped to build. Chugach is the only utility that has signed on to buy Fire Island power, so CIRI created a scaled-back first phase, with the possibility of expanding the wind farm in the future.

Alaska Democratic Sen. Mark Begich on Tuesday praised the approval of the deal, sending out a statement saying "this is good news for creating jobs in Alaska and good news for our ongoing efforts to diversify the energy mix for Southcentral Alaska."

Wind power advocates also cheered. "This is a huge step toward energy diversification and price stability in the Railbelt," said Steve Cleary, who advocates for renewable energy with the Alaska Public Interest Research Group. "Whereas other proposed energy sources are many years away, Chugach customers can now expect to be using renewable wind power as early as 2012."

The commission said it received more than 150 comments from the public, for and against approval.

Alex Gimarc, a former member of the Chugach Electric board of directors, argued that wind energy is notoriously variable and unreliable, and that it was a bad deal for ratepayers "It will increase overall costs to all railbelt electric consumers, not result in any decrease in reliance on natural gas, and is based upon flawed economic models for costs of future natural gas," Gimarc wrote.

The state attorney general's office and Municipal Light and Power disputed Chugach's assertion that the deal will save ratepayers $3 million over the 25-year term of the contract as natural gas prices rise. The attorney general's office and ML&P suggested it could instead cost the utility $12.9 million over the 25-year contract.

But the Regulatory Commission of Alaska decided in its ruling that Chugach's estimate of the cost benefit was "reasonable."

"We have no crystal ball, nor does Chugach, ML&P, or the AG. With the benefit of hindsight, Chugach's cost-benefit analysis may prove perspicacious or it may make Chugach appear quite foolish. Based on the record we have, we think it most likely that, over the term... this deal will neither significantly harm nor greatly benefit Chugach's member-owners financially because the (Fire Island) Project contributes only four percent of the power Chugach sells," the commission said.

The commission didn't come to its conclusions on Fire Island easily. Commissioner Robert Pickett wrote "this is one of the most challenging and frustrating dockets I've been involved with during my tenure as an RCA Commissioner."

The commission's approval included the condition that Chugach reimburse other Railbelt utilities for any costs that might come from integrating the fluctuations of wind power into the grid. Chugach says that won't be an issue with this project but that it's willing to have a compensation agreement with the other utilities in order to ease the concerns.

The RCA ruling emphasized that the Alaska Legislature passed a bill last year saying the state intends to obtain 50 percent of its electric generation from renewable and alternative sources by 2025 Anchorage Republican Sen. Lesil McGuire, who has been active in energy legislation, put out a statement Tuesday saying "this is a great day for Alaska and marks an important step in our efforts to diversify our energy supplies and bring private capital to Alaska's electric grid."

Reach Sean Cockerham at scockerham@adn.com or 257-4344.

Regulatory Commission of Alaska ruling
By SEAN COCKERHAM
Anchorage Daily News