State Agency OKs Wind-farm Developer’s Bid for Review of Rules on Power Sales to Utilities

Sep 13, 2013

Updated: Wind-power developer Mike Craft convinced state regulators this week to consider changing rules on how Alaska utilities deal with independent energy producers, especially the system used to pay the independent producers for the electricity they produce for the grid. Craft says the changes are needed to get the utilities to comply with state law that requires utilities to buy power from independent producers and sets a goal of generating half of the state’s electricity with renewables by 2025. He also hopes it’ll enable him to develop a 25-megawatt wind farm near Delta Junction and sell the power to GVEA.


Alaska Environmental Power workers and contractors prepare to hoist the hub of a rotor and the three large blades to the hub to the left Sept. 3 for the Delta Wind Farm's second 900-megawatt wind generator, completed Sept. 11. AEP Managing Partner Mike Craft says he'd like to set up more than a dozen of the big wind generators at the wind farm, if GVEA will negotiate a fair power-sales agreement.
Credit Tim Ellis/KUAC

Craft filed a complaint in July with the Regulatory Commission of Alaska claiming that GVEA’s actions have hurt him financially and crippled his plans to expand his wind farm, which now generates up to 2 megawatts, to a maximum of 25 megawatts. And last month, he filed a petition with the commission asking for a review of regulations that govern how the state’s utilities deal with independent power producers like Alaska Environmental Power.

On Wednesday, the five-member commission heard Craft and his lawyer present their case, and GVEA’s lawyer’s response – and then voted unanimously in favor of reviewing the regs, which were established in 1982.

“It’s very exciting,” Craft said Thursday. “The only thing I’m a little disappointed in is, obviously, the time frame.”

The commission won’t begin considering changes until early next year, at the earliest, after a back-and-forth comment and response period.

Still, independent power producers count the decision as a big victory in itself, says Duff Mitchell, the executive director of the Alaska Independent Power Producers Association.

“I think they were wise to do so,” Mitchell said. “I think anytime you look at any regulation – regardless of what it’s about – if it hasn’t seriously been given a look after 30 years, it’s probably time that they look at (it).”

The most important of the proposed revisions would change the system by which utilities calculate their payments to independent power producers for the electricity they feed into the grid. The independent producers want utilities to pay them on a so-called incremental basis, instead of the present system average basis, which sets payments according to the average cost of all the fuels that a utility uses to generate electricity.

For GVEA, those include cheap coal and government-subsidized hydro power from Bradley Lake, near Homer. But GVEA also generates more than a third of its power with expensive diesel and other types of fuel oil.

The independents want the utilities to pay them on an incremental basis because among other things it’s the system required by federal regulators. The independents say it also more accurately reflects the true “avoided costs” that the utilities are saving by buying power generated by the independents that is generally cheaper than diesel or oil.

“I think that this is going to give us an opportunity to drop the cost of power, in a big way,” Craft said. “Those energy surcharges that show up on the bill every month – that’s what I’m targeting.”

He says if GVEA would pay Alaska Environmental Power on an incremental basis, instead of the existing averaging system, it would save ratepayers some $4 million annually.

Craft says the change would promote private sector investment into electrical power generation, at a time of shrinking state and federal spending on those facilities. And that in turn, he says, would stimulate economic activity.

“I’m hoping that this basically entices additional private-sector development,” Craft said. “I’m hoping that this also entices other people to create some really good job opportunities.”

GVEA’s president and CEO Cory Borgeson sees it differently. He says it’s a good idea to review the regulations, but he doesn’t think changing to an incremental basis will affect payments much to independent power producers.

“We think that’ll be pretty the same as the average avoided cost,” he said. It’ll just be a more   more complex calculation.”

But Borgeson says he’s concerned about other impacts of the proposed changes.

“What we don’t want to do is commit to something that causes our ratepayers to pay more for this power,” he said.

Borgeson says he sees potentially far-reaching impact to the proposed changes that would affect all the state six major utilities that buy power from independent producers.

“I believe it’ll be a big issue throughout all the utilities. I think that when they open this docket, everybody’s going to weigh in on this.”

Editor's note: This story was updated to include a reference to AEP completing work on a second 2-megawatt wind generator at the Delta Wind Farm on Sept 11.