Fire Island wind power plan comes with high costs

By Dave Harbour

Petroleum News Alaska this week is running a story on Cook Inlet Region's statement June 30 that it has received key permits for a proposed wind farm on Fire Island near Anchorage, scheduled for startup in 2011. I noted at http://www.arcticgaspipeline.com, that this little wind project will be a historic diversification of energy supply for South Central Alaska. I have referred to it in my gas pipeline web page because of the extremely interesting focus it places on Regulatory Commission of Alaska (RCA) decision making re: natural gas and electricity projects.

The RCA has broad powers under AS 42.05 to consider electric utility power sales agreements and gas utility supply agreements. In late 2006 the RCA rejected a contract presented to it by Enstar, for Marathon-supplied gas through 2016. Had that contract been approved, South Central consumers would likely have enjoyed both lower gas prices than they will be paying and a more secure supply. But the RCA majority departed from a 2001 Commission precedent and rejected the 2006 contract.

I first dissented from the majority on its fundamental decision and dissented again when the majority of commissioners rejected a petition for reconsideration. In my dissents, the bad outcomes I projected are pretty much evolving. On 2-23-09, in a speech to the International Association of Energy Economics, and on 12-9-08 in another to the International Law Seminars Energy Symposium, I summarized the unavoidable, negative effects of too much regulatory interference with natural gas supply contracts.

Today one might further wonder that if the RCA could reject the price per energy unit presented in the proposed 2006 Enstar contract--jeopardizing citizen gas supply as early as this winter--how could it with consistency approve an alternative energy supply source that may be more expensive? How could it approve a North Slope gas supply from a bullet or spur line that could be more expensive that that 2006 Marathon contract it disapproved? I suspect that if the matter of a sale of wind-generated electric power from CIRI to Chugach Electric Association or other Southcentral electric utilities comes before the RCA, proponents will argue, "Well, spending more per British Thermal Unit for Fire Island wind power is worth more to consumers than spending less for natural gas for Enstar because wind is 'clean' energy, the 'favored' fuel of the future, and it helps us diversify our energy sources." At least, that's what I might try to argue if I were CIRI, dodging various logic-created traps along the way.

But I truly think that ratepayers would vote--were they allowed to vote--to have more Beluga plant-supplied electricity powered by natural gas than electricity powered by Fire-Island wind unless the wind source were cheaper. But that would require an electric company to obtain gas with RCA approval when RCA has not been willing to approve contracts in the last half-dozen years that might have represented a price higher than the weighted average of existing gas sources.

On 1-9-09 CIRI's highly articulate Wind Energy Alaska project manager, Ethan Schutt, addressed the International Association of Energy Economists. He described the project and various regulatory challenges with the FAA and Corps of Engineers. He noted that final permitting and power supply agreements should be completed this year with construction and commissioning to occur next year. This week's PNA story suggests CIRI and its Wind Energy Alaska partner, EnXco, have competently executed their plan so far. So this story is good news, but goes to show that all of these energy projects are related in small or big ways. The best way to have them all thrive and benefit ratepayers is to let the private market control the outcomes and choose 'winners' and 'losers'' whenever possible; otherwise, consumers will inevitably lose.

After all, Alaskans know better than most that bureaucratic manipulation of the free enterprise system has produced mostly failed results over the years. We must also hope that the RCA will re-embrace its 2001 Unocal gas supply agreement (GSA) position that, "The GSA is a commercially negotiated agreement. We will not speculate whether a better agreement could have been obtained by ENSTAR, with Unocal or with another potential supplier" (RCA Order U-01-7(8) at 4). -Dave Harbour, Retired Commissioner, Regulatory Commission of Alaska