Railbelt utilities continue work toward unified structure

Leaders of the largest Alaska electric utilities are inching closer to finalizing an overhaul of how the state's primary power grid is managed despite continued skepticism from within the group regarding the necessity of the changes.

The collection of officials from the state's Railbelt electric utilities told the Regulatory Commission of Alaska May 23 that they are about six months behind schedule but are hopeful they can reach final decisions on forming a Railbelt transmission company.

Known in the industry as a transco, the company would be a transmission-only utility aimed at simplifying the tariff structure in the Railbelt and investing in long-haul electric infrastructure upgrades.

The Railbelt region includes the service areas of six electric utilities from Fairbanks to the Kenai Peninsula.

Chugach Electric Association CEO Lee Thibert said the formation of a transco, when joined with a proposed Railbelt Reliability Council, would help consolidate expertise currently spread amongst the utilities that face the challenge of attracting qualified technical personnel.

"If we can pull these like functions together — the more we can do that and spread the cost of doing it once rather than six ways — I think we're better off," Thibert told the RCA commissioners. "That's going to take a lot of planning and a lot of effort but I think we're headed in the right direction."

A major selling point of a transco has been the prospect of a single Railbelt transmission tariff to eliminate "rate pancaking" for producers needing to cross multiple service areas to get power to a buyer.

Independent power producers have argued the stacked transmission tariffs are an economic barrier to developing low-cost renewable energy in the state's most populated region.

Partially because ownership of the transmission lines is fragmented to each utility's service area, a utility that owns a segment of transmission and thus is on the hook for it may not be the entity to benefit from an upgrade or new line altogether — therefore eliminating the willingness to invest.

Last August, the utility general mangers and CEOs told the RCA they planned to develop a transco business plan towards the end of 2017 and file for a certificate of public convenience and necessity, or CPCN, which is essentially a business license for a regulated utility, in the first half of this year.

On May 23, they informed the RCA that they have now targeted the end of the year for having established a governing board to make the final decisions needed to form a transco and subsequently apply for a CPCN.

Eric Myers, a business development manager for Milwaukee-based American Transmission Co., said the group has a few tasks to analyze and negotiate through before it can come back and ask the RCA for approval.

He described the transco as "essentially a collaboration through service agreements," meaning the transmission network would continue to be serviced by the utilities that own and maintain the given segments of it today.

"(It) is both an efficient and effective way to transfer both those skills and knowledge to make sure the network continues to be reliably maintained," Myers said.

In December 2014, American Transmission Co., or ATC, a transmission-only utility, inquired about the possibility of developing a Railbelt transmission company to spur investment in the system. The utilities ultimately signed a memorandum of understanding with ATC to investigate the feasibility of a Railbelt transco.

ATC has experience with the transco model and would provide access to capital through its Lower 48 investors.

Subsequently, in June 2015, the RCA demanded the Railbelt utilities move to establish a united electric system. In a letter to legislative leadership, the commission stated it would seek the authority to mandate the utilities to take action if they failed to heed the warning on their own.

Myers said discussion regarding a system-wide transmission rates and tariff structures are still ongoing, as are talks about equity participation in future transmission investments. However, he said most topics are down to just a couple alternatives.

"We're not out beating the bushes for alternatives at this point," Myers commented.

"We're down to the point of figuring out what final ingredients are going to go into this recipe."

The Railbelt Reliability Council would, as its name implies, set a single standard of reliability metrics for the myriad of mechanical and infrastructure pieces that make up a complex electric grid stretching over extremely challenging terrain and environments.

The council would also act as an enforcement arm of the system to ensure open-access to the network and that the benefits of economic dispatch — using as much of the lowest-cost power as possible across the system — are realized.

The transco would use the reliability standards as an independent benchmark to determine whether or not a given transmission infrastructure project is appropriate, according to Myers.

A draft version of a study examining how to establish the council concluded that its board of directors should balance the interests of the utilities and non-utility stakeholders such as independent power producers .

The study was commissioned by the Alaska Railbelt Cooperative Transmission and Electric Co., or ARCTEC, and was conducted by Georgia-based GDS Associates, an engineering and consulting firm. It was published May 11.

The GDS study also suggests the council be staffed lean, starting with just five employees including an executive director, a finance official, an information officer, an engineer and an administrative professional. It lays out a starting annual budget of just more than $1.5 million.

"You need to be efficient and effective in how you implement the RRC because we're tapping the same pool of resources to get that work done," Myers said.

Chris Rose, the founder and executive director of the nonprofit Renewable Energy Alaska Project known as REAP, said during public testimony to the RCA that such an independent system operator needs to be established in concert with a transco because region-wide planning is a primary aspect to improving the overall power system.

Rose, along with smaller, mostly renewable power producers in the region have pushed the RCA and the utilities to form an independent system operator on the belief it would greatly aid in economic dispatch, which, in the Railbelt, generally means giving Fairbanks' Golden Valley Electric Association more low-cost power options to choose from.

Disconnected from the natural gas supply of Southcentral, Golden Valley relies on diesel or fuel oil-fired generation for the lion's share of its generation capacity.

"I don't want the public or anyone else to think that we didn't at Golden Valley yesterday call around to find out who the cheapest generator is and buy as much of that power as possible," CEO Cory Borgeson stressed. "So to the extent that we can kind of perfect that, we have a more efficient market in the dispatch and better coordination is what this is about, but there is economic dispatch going on."

MEA chief still skeptical

Matanuska Electric Association General Manager Tony Izzo said he is still skeptical of the near-term necessity of a transco; he instead insists that the utilities set up the reliability council or a system operator in some form and measure what materializes before revisiting the transmission issue.

MEA officials believe the real value to ratepayers will come through system-wide economic dispatch and not infrastructure investments.

"I've looked at a number of capital work plans over the next three to five years and I don't see a project that is region-wide that meets the cost-benefit test," Izzo said, noting if state or federal funding were available some transmission projects could be viable for broader economic development purposes.

He emphasized that the wheeling tariff must not distort economic dispatch decisions and also needs to provide for equitable cost sharing across the system, which could be a challenge.

Izzo and prior MEA leaders have dismissed studies commissioned by the Alaska Energy Authority that contend the Railbelt needs upwards of $885 million of transmission upgrades over the next decade-plus to provide unlimited access to lowest-cost power and fully realize the benefits of economic dispatch.

In January 2017, MEA, Chugach Electric and Anchorage Municipal Light and Power signed an agreement to pool their generation resources in an effort to maximize the benefits of the new, more efficient gas-fired power plants each has brought online in the last five years. They contend the voluntary, or loose, power pool will save their ratepayers up to $16 million per year simply by burning less fuel.

"I support the transco construct completely; I believe it is something the Railbelt needs. My difference is I'm questioning when we need it and in what order," Izzo said.

He suggested following up on the transco plan a year or so after the Railbelt Reliability Council is formed, adding he wants to see what impacts the possible Chugach-ML&P merger approved to advance by Anchorage voters in the April municipal election could have on the immediate need for a transco.

However, Izzo said that MEA would not stand in the way of a transco if the other utilities continue to push forward.

ML&P General Manager Mark Johnston contended the reliability council and transmission organization are co-dependent in that the transco needs the operating standards set by the council, which needs the transco as its "boots on the ground" to implement the best economic dispatch.

Chugach's Thibert said that the delta in generation fuel prices between Fairbanks and Southcentral is what will ultimately determine the viability of transmission projects and a large part of the debate over what is needed boils down to how long one wants to plan — for years or for decades.

The utilities' leaders said AEA, which owns 170 miles of transmission lines between Willow and Healy, would be best situated with a long-term planning role in the council.

AEA spokeswoman Katie Conway said in a response to questions that the state-owned authority agrees that "a stakeholder-driven, consumer-oriented single operator entity that includes AEA as a board member and active participant is a good idea and is what's needed in the Railbelt."

She said further that authority officials think any new organization should focus on merit order dispatch as a high priority.

"We are pleased with the general progress and direction of the conversation so far and look forward to continuing to participate to bring this idea to a meaningful conclusion — one that results in reduced costs to ratepayers across the state," Conway concluded.

AEA officials point to the fact that the current Kenai Peninsula transmission system, which is a single line between Soldotna and Anchorage, limits the availability of Bradley Lake power when the hydro plant is operated at above 65 megawatts, or just more than half of its capacity.

Located across Kachemak Bay from Homer, the Bradley Lake hydro project is also owned by AEA.

The oldest part of the line was built originally in 1961 to move power from the small Cooper Lake hydro plant near Cooper Landing to Anchorage, according to the study.

It's that inability to maximize the use of Bradley Lake whenever the utilities want it — at about 4 cents per kilowatt-hour; the hydro plant is the cheapest power source in the region — that limits its usefulness.

Additionally, AEA is pursuing a $50 million project to divert part of nearby Battle Creek into the Bradley Lake system, which would increase Bradley's generation capacity by about 10 percent.

Myers said ATC and the utilities would provide monthly updates to the RCA going forward.

Commissioner Bob Pickett said the RCA would likely draft a report for the Legislature on the utilities' progress in carrying out the commission's 2015 directive sometime near the end of the year.