Independent power producers cheer RCA rules revisions

  • By Elwood Brehmer
  • Thursday, December 10, 2015 11:25am
  • NewsBusiness

Alaska’s independent power producers are claiming victory over regulatory changes that they say will encourage investment in renewable energy projects.

The Regulatory Commission of Alaska on Nov. 20 finalized revisions to state regulations pertaining to how electric utilities calculate their cost of power and mandating them to purchase power from economically viable third-party sources.

Alaska Independent Power Producers Association Director Duff Mitchell said the changes simply bring Alaska’s scheme in line with Federal Energy Regulatory Commission, or FERC, regulations followed in the Lower 48.

“What this does is it allows independent power producers and qualifying facilities to sit at the table. The elements of a fair playing field is what this creates,” Mitchell said.

The state framework governing power purchases had not been updated since 1982. Sponsors of several renewable energy projects across Alaska felt those regulations allowed utilities to discriminately purchase power from their own generation sources regardless of potential cost savings — a power grab to retain control of the state’s electric market, the independent producers claim.

The revisions require utilities to use an incremental avoided cost methodology to determine their cost of power, which mirrors FERC requirements, versus the historical option to choose an average avoided cost model.

The Nov. 20 final order was the culmination of a public rulemaking process that took more than two years to complete.

FERC regulates Lower 48 utilities because the electric grid crosses borders and connects states. Alaska Railbelt electric network and many smaller grids are cut off from the rest of the country, which removes FERC’s jurisdiction on the matters in the state.

Given an option, electric utilities will almost always draw power from several generation sources at once as a result of need or preference, usually both. Multiple sources of power are often a necessity for larger utilities that can’t get ample supply from a sole generation plant.

Multiple sources also provide redundancy in the system, which helps a utility keep the lights on if one source should drop offline for any reason.

In an incremental avoided cost model, a utility calculates the cost of each power source individually and tries to limit the amount of power purchased from its most expensive source. 

If a less expensive source becomes available, the most expensive power is turned off, or at least throttled back.

An average avoided cost model allows utilities to average the cost of all its power generation and purchase power from another source only if it is less expensive than the averaged cost.

Mike Craft, owner of Alaska Environmental Power, a small wind farm near Delta Junction, has long said he would build more turbines to his two-windmill operation if Alaska utilities would relax their hold on the market.

“Alaska’s outdated regulations were a big factor holding up the expansion of our wind generation facility in Delta Junction,” Craft said in a release. “This ruling will help us move forward and benefit the community by displacing even more expensive diesel fuel, reducing air pollution and improving energy security in Interior Alaska.”

Cook Inlet Region Inc. wind power manager Suzanne Gibson said the decision should help larger projects, such as CIRI’s Fire Island Wind farm, which has had difficulty obtaining a power purchase agreement with utilities needed to continue with planned expansions.

The state’s few larger electric utilities — some of the only ones with power generation options — have said they are always looking for less expensive power, but the average avoided cost model allows them to better calculate the true costs of variable renewable sources, particularly wind power in Alaska.

Managing other power generation to match the clean and cheap but fickle nature of wind power adds hidden costs that also vary, so averaging those costs assures a utility it is buying a balance of cheap and stable power, utility leaders have said.

Alaska Power Association Executive Director Crystal Enkvist said some of her members disagree with aspects of the regulations and didn’t think the power-cost revisions were necessary, but added that regulatory clarity is always beneficial.

“We can understand the commission’s desire to directly align the RCA regulations with the language of the FERC regulations,” Enkvist said.

The Alaska Power Association represents 21 electric utilities across the state that are active members in the organization. Its members include four of the large Railbelt utilities.

The new regime further mirrors FERC standards by eliminating a distinction between firm and non-firm power — the difference in controlled generation such as natural gas- and oil-fired power plants or large hydropower and variable, often renewable power sources.

Mitchell said bluntly that implementing variable power sources into generation is the responsibility of the utilities that must simply follow the law.

“Utilities don’t get special treatment down south so why are ours?” he said.

The biggest positive for Alaska could come from not what the regulations require, but what they encourage, according to Mitchell. Aligning Alaska’s electric purchase requirements with the rest of the country removes regulatory uncertainty for investors interested in the potential for expanded renewable power in the state, he said.

By mandating utilities to purchase power on an incremental cost basis, investors will be assured that power from financially feasible projects will be purchased, he added.

CIRI’s Gibson agreed in a formal statement.

“The RCA’s decision helps remove impediments for renewable energy development projects, and it will make it more feasible for Native corporations and other independent power producers to invest millions of dollars of private capital to help stabilize rates and develop a clean and reliable energy system for Alaska,” she said.

Mitchell said further revisions are needed to relax regulations on small windmills and other power generation for private use, but the Nov. 20 order was a major step forward.

“We don’t like federal overreach. This eliminates some of our state overreach,” he said.

Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.

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