Palin to unveil Railbelt power plan

The Railbelt is named for areas touched by tracks of the Alaska Railroad: Anchorage, Fairbanks, the Mat-Su and the Kenai Peninsula. Six independent utilities now power the region. An $800,000 state study overseen by the Alaska Energy Authority suggests it's time for a more efficient management model.

The best hope for future affordable rates, according to the study, is a centralized authority with the financial muscle to build efficient power plants, coordinate power generation between all facilities and send electricity over a reliable power grid.

"It isn't really a new idea," says Joe Balash, Palin's energy adviser. "It's just time."

A transition would be complex. The six utilities -- Golden Valley Electric Association in Fairbanks, Matanuska Electric Association, Chugach Electric Association, Anchorage Municipal Light & Power, the City of Seward and Homer Electric Association -- operate under a variety of state and federal rules. They have long-term obligations for purchasing fuel and paying off debt. They operate with their own elected or appointed boards and their first allegiance is to their own customers.

Mike Abbott, municipal manager in Anchorage, the owner of Anchorage Municipal Light & Power, said a coordinated approach to generation and transmission could be a huge improvement to the status quo but "the devil will be in the details."

"The state can do everybody a service," Abbott said.

POWER GENERATION CHALLENGES

Doing nothing is not an option, according to Palin, who last month said the days of living off cheap natural gas and generous state subsidies are ending.

"We've known for some time that this system is not sustainable," Palin said.

Railbelt generating plants are wearing out. Nearly half the existing generation capability is scheduled to be retired in 15 years.

Also, Cook Inlet gas that has helped keep rates low is drying up. Reserves owned by Anchorage Municipal Light & Power are declining. Favorable gas contracts held by Chugach Electric Association, which supplies power to Matanuska Electric, Homer Electric, and to a lesser degree, Golden Valley Electric, are ending.

The challenges and a recommendation are outlined in a 257-page report by consultant Black & Veatch, an international engineering and construction company. The Railbelt Energy Grid Authority study was released in September.

The report does not address how or what kind of power plants should supply electricity for the next 50 years. A separate report with those recommendations and how to finance them is planned for October.

Instead, the REGA study laid out management options. Whether new power is generated by natural gas, coal or a hydroelectric project, the consultants recommend a united entity that takes advantage of economies of scale, state tax-exempt bond status, streamlined management and a single vision for meeting power requirements.

FUTURE POWER PLANTS

The report estimates new generation and transmission facilities will cost $2.5 billion to $8.1 billion or more. Hydroelectric would cost more upfront and a coal-burning plant less. The report estimates that rate-payers collectively could save $40 million annually with a regional corporation, in part because of the state's tax-exempt status for borrowing the money.

With power plants, bigger is often more efficient. The peak load of the six utilities collectively is about 875 megawatts. Many electric utilities in the Lower 48 have single coal or nuclear plants greater than 900 megawatts.

None of the six utilities is big enough to pull off a hydroelectric plant on the Susitna River, a gas fired turbine at the end of a North Slope "bullet line," or a massive coal-fired facility, according to the consultants.

If natural gas were available in all areas, the utilities probably could continue to operate with decentralized power plants, said the Alaska Energy Authority's Jim Strandberg.

If one huge power plant starts to supply most of the region's power, a power grid to ensure reliability will be crucial, Strandberg said. The Railbelt now has what's called a grid but the power lines are more like a long straw, essentially a single line running from Fairbanks to the Kenai Peninsula with no external connections to other areas.

RAILBELT GRID

There has been little incentive for individual utilities to invest in the power grid, said former state Rep. Norm Rokeberg, R-Anchorage, who sponsored the bill for the REGA study and who backs its recommendation.

"The grid never seemed to gain the priority for capital investment that was needed," he said.

A state corporation has other benefits, Strandberg said.

"You avoid duplication of manpower, you're able to create a better technical work force, so you don't have meter shops with each utility, for example," Strandberg said.

The new corporation could coordinate generation sources, scheduling how much power each unit put out, holding back water behind a dam when a wind farm elsewhere was operating at full capacity.

"You can come up with much better economics if you can intelligently operate these units together," Strandberg said. "Currently, we can't do that."

UTILITY CONCERNS

Chris Rose, director of Renewable Energy Alaska Project, said utilities with the cheapest electricity likely will have concerns about the administration's stated goal of one "postage-stamp rate" for power in the Railbelt if it affects their customers' pocketbooks. Abbott, of Anchorage Municipal Light & Power, said utilities likely will want to maintain benefits of past decisions they've made.

Some utilities may prefer a regional power cooperative rather than a state corporation, Rose said. Also up in the air is whether a state corporation's decision would be overseen by the Regulatory Commission of Alaska, Rose said.

Administration officials are trying to address concerns, Strandberg said. Utility representatives have helped write the bill that will be unveiled.

"Obviously, at the board level, there's going to be a loss of control," Strandberg said.

Palin will wield a considerable hammer for getting the utilities on board. State money has helped subsidize Railbelt energy infrastructure, and grants or low-interest loans represent the most significant way to reduce the debt burden on rate-payers, the study said.

Administration officials have hinted that state government will be more willing to provide financial assistance to a state agency instead of a cooperative.

"We are working hard to achieve, basically, an all-in, but we're working to find ways that the process is economically attractive to the utilities so they agree to collaborate," Strandberg said.