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Railbelt utilities' rivalries are wasting millions of dollars

Alaska's Southcentral power utilities built at least one power plant over the past few years that we don't need, and maybe more. But there is a solution to make the best of it and prevent similar mistakes.

Electric loads in Anchorage have dropped for several years and will probably continue to drop. A flurry of power plant construction that is nearly completed was based on projections that electric use would rise. And something else contributed to the overbuilding: Everyone wants their very own power plant.

Six electric utilities serve Alaska's Railbelt from the Kenai Peninsula to Fairbanks. Combined, they would add up to a small utility in the Lower 48. The system developed that way when our communities were truly rural. Repeated efforts to unify the companies have failed.

Anchorage alone has two electric utilities: Chugach Electric Association and, in the downtown area, the city-owned Municipal Light and Power. Golden Valley Electric Association serves Fairbanks, and Seward has the tiny Seward Electric System.

For decades, Chugach provided power to Matanuska Electric Association and Homer Electric Association. But the conflicts that often arise at the borders of petty kingdoms created simmering resentments. When the MEA and HEA's long-term contracts with Chugach ended, they built their own generating capacity.

MEA's plant at Eklutna, completed last year, is down the Glenn Highway from the ML&P plant near Muldoon Road (and ML&P is currently building another plant at that same site). HEA built its new plant at Nikiski.

Before utilities build power plants, they have to do studies, and those studies surely showed that all these new generators made sense, within the logic of each tiny utility on its own. But no one looking at our region as a whole would set it up this way. You would create one utility with plants located and scaled to save money for everyone.

That was the part of the idea behind the big, efficient Southcentral Power Project that Chugach and ML&P jointly built off Minnesota Drive in 2013.

It's inefficient to have all the small utilities operating small power plants. A study looking into operating them together as a single company found savings of around $50 million a year (although I was told a new estimate using today's lower cost of oil, due out soon, reduces that figure to "tens of millions.")

The reason for the savings is not difficult to understand. Running only the most efficient plants and sending the power over transmission lines costs less than uncoordinated operation of many small power stations that are dispersed. Connecting plants across utility boundaries also allows pooling of backup resources in case of breakdowns. Instead of building extra capacity, utilities can count on help from someone else.

The new HEA plant in Nikiski highlights the problem with going it alone. The cheapest power in the Railbelt comes from the Bradley Lake dam, east of Homer, built in the 1980s. Every additional megawatt there costs next to nothing as long as there is enough water in the lake.

Although much of that power belongs to Anchorage-area utilities, dam builders couldn't afford a new power line to bring the electricity to Anchorage. The only connection is a low-capacity line built for a much smaller project.

For years, coordination solved that problem. When Chugach was in charge of dispatching power in most of the region, it used electrons produced at Bradley to supply needs on the Kenai Peninsula. To make up for using Anchorage-owned power there, it swapped for gas-generated electricity in Anchorage. All that was left was to do was accounting who paid for what.

Having HEA build its new generation at Nikiski means that too much power originates on the Peninsula. Swapping is no longer a solution. But since Bradley power can't all fit through the lines, Anchorage ratepayers must rely on more expensive power from gas at peak times.

Studies show that building better power lines along the railbelt is a no-brainer, with economic payback that would come rapidly. But utilities haven't been willing to do so, because of the way financing and billing works between their fiefdoms. That issue is so boring I'm just going to ask you to take my word for it.

There is a solution to all this. It has been known for 30 years, and has been attempted numerous times, in initiatives led by governors, mayors and others. The utilities could cooperate through legal structures that allow them to act as one.

One reason I haven't quoted anyone in this column is that the discussions on these joint arrangements are going on now. Utilities hope to submit bylaws for a cooperative organization to the Regulatory Commission of Alaska next week. I interviewed my sources on the record, but I don't want to mess up these talks by quoting anyone. The past shows that electric utility managers have thin skins.

The cooperation concept has two parts.

One part is to form a new company to transmit electricity through the Railbelt, called a transco. It would operate existing lines, build new lines and establish flat rates for moving power. Having that single transmission authority would clear the way to financial decisions that make sense for the whole, saving many millions of dollars.

The other part of cooperating would be to set up a single operator that would run the entire system, from Fairbanks to Homer, using the least-cost combination of generators. That would save many more millions more, starting on Day One.

The Legislature and regulatory commission have pushed for these changes. The work is coming together now and over the next six months.

There's plenty of reason for pessimism. Getting any six entities to agree on a complex idea is difficult. These six utilities have different assets and different needs and won't all benefit the same amount.

But if that doesn't work, it will be time for the Legislature and governor to force Southcentral electricity utilities to unify.

Charles Wohlforth's column appears three times weekly. He served on the board of Municipal Light and Power from 2009 to 2011.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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