Pitch to unite Railbelt utilities under power transmission group sees sharp divides

JUNEAU — Railbelt utilities are divided over plans to establish an organization to manage transmission of power along Southcentral Alaska’s electric grid.

Senate Bill 217 and House Bill 307 were introduced by Gov. Mike Dunleavy in February. The bills had two primary goals: to enable the lowest-cost power to be delivered across the grid between Homer and Fairbanks, and to better integrate renewable energy into the system.

The measures would eliminate wheeling rates, which are fees charged by utilities to transmit power across their portion of the grid. Renewable power producers would also be exempt from local property and sales taxes on new projects. The same exemptions currently apply to the utilities that overwhelmingly source their power from natural gas.

The members of the transmission organization would include the heads of the utilities and the executive director of the Alaska Energy Authority, which owns and operates the Bradley Lake Hydroelectric Project.

Supporters say that an integrated transmission system will reduce power costs for ratepayers in the long term. But eliminating wheeling rates is anticipated to initially see winners and losers. Power costs are expected to marginally increase in Anchorage and drop in Fairbanks.

Matanuska Electric Association and Golden Valley Electric Association both support a new Railbelt Transmission Organization. In recent days, Chugach Electric Association and Homer Electric Association have both publicly opposed elements of the plan.

Discussions are going on behind closed doors to develop a model that can get enough votes to pass the Legislature, and is acceptable to the utilities.

“It’s like herding chickens,” said Rep. George Rauscher, a Sutton Republican. “Because you fix one problem for one, and then you have another problem for two more.”

Industry experts say unifying the utilities has proven difficult, as they will inevitably be tempted to prioritize the interests of their own members over those of the system as a whole. Tony Izzo, CEO of Matanuska Electric Association, said without an integrated transmission organization, the utilities would continue engaging in the same “myopic” decision making.

Sharp divides between the utilities is nothing new. For 50 years, there have been attempts to unify the utilities under a single umbrella organization. None of those attempts have succeeded. The most recent attempt failed in 2019.

The latest effort comes after the Regulatory Commission of Alaska sent a frank letter to the Legislature in 2015 that said the Railbelt’s electrical system was “fragmented” and “balkanized.” The commission recommended that the utilities voluntarily improve their coordination.

The Legislature passed a bill in 2020 that enabled the five Railbelt utilities to form an electric reliability organization. The organization was established to oversee implementation of system-wide reliability standards and coordinate long-term planning amongst the utilities. But the electric reliability organization’s role is limited.

The new and separate transmission organization would go further and is seen as a first step toward “economic dispatch.” That model would allow an independent operator to choose which power plants to use to deliver the cheapest sources of energy along the grid.

Part of the interest in a new transmission organization comes as substantial investments are planned to modernize the grid’s infrastructure.

Last year, the state of Alaska was awarded a $206 million federal grant to invest in an undersea power cable connecting the Kenai Peninsula and Chugach Electric’s Beluga power plant, on the west side of Cook Inlet, to build redundancies and better allow the lowest-cost power to be delivered across the grid. The state wants to secure a second federal grant to build another power line between Southcentral and Healy.

Senate bill and Iceland

In October, the managers of the Railbelt’s four largest utilities and 12 legislators traveled to Iceland. The tiny European nation was seen as a potential model for the Railbelt. Iceland had publicly owned utilities operating on a state-owned transmission line before European Union regulations forced them to deregulate the market in the early 2000s.

Gwen Holdmann, the founding director of the Alaska Center for Energy and Power, organized the trip to Iceland, which is seen as a world leader in integrating renewable energy into a unified electric grid.

”I think it was really successful in terms of showing the potential for this system,” Holdmann said.

Despite their long-held disagreements and a history of failed attempts, the four Railbelt utility managers signed a tentative agreement on a napkin in Iceland to form an integrated transmission organization. Since then, there have again been disagreements.

Using Iceland as a model, the Senate bill developed a more ambitious plan for the grid than originally planned by Dunleavy. SB 217 would transfer responsibility for transmission planning and management of the utilities’ assets to the new transmission organization.

Arthur Miller, CEO of Chugach Electric Association, said the utility supported eliminating wheeling rates, and to instead recover costs through a unified rate structure. However, Miller said the utility had “significant concerns” about the transmission organization, including a central plank in the Senate’s plan.

”Chugach is adamantly opposed to the transfer of management or operational control of its transmission system. This will not lower cost or rates, that provides no benefit to our membership,” Miller said to lawmakers last week.

Sen. Cathy Giessel, an Anchorage Republican and architect of the Senate’s bill, argued that the state’s largest utility had a simpler reason for opposing the new transmission organization: “Chugach has a huge amount of infrastructure that they have built and they have bonding on.”

Chugach Electric holds substantial debt after acquiring Municipal Light & Power in 2019. Miller told legislators last week that the utility has spent $41 million rebuilding its transmission line and has planned to invest over $85 million more in upgrades through 2030.

The Anchorage-based utility filed a proposed rate increase in July with the Regulatory Commission of Alaska, which is the state board tasked with setting “just and reasonable rates” for Railbelt ratepayers. In its filing, Chugach requested to raise its wheeling rates, which would increase costs for the other utilities. Matanuska Electric Association, Golden Valley Electric Association and Homer Electric all filed motions arguing that Chugach’s proposal would significantly increase costs for their members.

While the Senate’s proposal for a transmission organization has been expansive, the House bill is more limited. Instead of transferring management of the utilities’ assets, Andrew Jensen, Dunleavy’s energy policy adviser, said that under the House bill, the transmission organization “would be tasked solely, for now, with eliminating wheeling rates.”

Legislators say the House bill has alleviated some of Chugach Electric’s concerns, but other concerns remain.

[Energy bills intended to address Cook Inlet gas shortage in doubt as end of legislative session approaches]

Homer Electric Association has largely operated in isolation from the other utilities and has recently shown an unwillingness to join a unified transmission organization, legislators say.

Keriann Baker, chief strategy officer at Homer Electric, told legislators last week that the proposed changes in the Senate’s bill were too much for a single year.

“We think that we should probably understand the law that’s being passed before we pass it. That’s just our position,” she said.

Baker told legislators that before joining the transmission organization, the utility wants to see the grid upgraded and bottlenecks removed that hinder the delivery of power.

Other stakeholders have expressed oversight concerns. The Renewable Energy Alaska Project, or REAP, prefers the House version of the bill. REAP’s executive director, Chris Rose, is a member of the existing electric reliability organization. He wants transmission planning to stay there.

“We believe it makes far more sense to use existing law and institutions to build out our transmission system, rather than creating a new transmission organization that is not subject to the RCA project preapproval authority,” he said to legislators last week.

The Alaska Public Interest Research Group, a consumer advocacy organization, is also concerned about moving planning authority for the Railbelt grid to the new transmission organization. The group suggested that there could be insufficient oversight from state regulators.

More clean power

Integrating more renewable power into the Railbelt’s electric grid is a key priority in the House and Senate bills. In a recent report, the National Renewable Energy Laboratory said that ratepayers could save well over $1 billion by 2040 if the grid got 80% of its power from renewable sources.

Jenn Miller, CEO of Renewable Independent Power Producers, said that eliminating local taxes on new clean energy projects creates “a level playing field and reduces energy costs to ratepayers.”

In testimony to senators last week, Matanuska Electric CEO Izzo applauded Miller’s work in developing the state’s largest solar farm in Houston. As Railbelt utilities face a looming shortfall of Cook Inlet natural gas, Izzo said that it was “key” to exempt new renewable power projects from local taxes.

“We need to move to other sources of energy as soon as possible,” he said.

Supporters say that eliminating wheeling rates charged by utilities to transmit power across the grid would be another critical step for more clean energy.

Holdmann used the example of the Shovel Creek wind project proposed in Fairbanks. She said the wind farm could produce 150 megawatts of power, but that would be far more than Fairbanks needs. The city’s peak demand is around 220 megawatts, she said.

Eliminating wheeling rates charged to send power across the grid could make that project more attractive to utilities south of Fairbanks, Holdmann said. She said that wheeling rates were why a plan to build additional wind turbines on Fire Island was scrapped in 2015.

“It wasn’t cost competitive anymore,” she said.

With one week left in the Alaska Legislature’s regular session, time is running out to approve an integrated transmission system for the Railbelt. Rauscher said it would be a “monumental task” to get a transmission organization passed into law this year alongside several other measures intended to address a Cook Inlet gas shortage.

HB 307 has advanced to the House floor before it would head across to the Senate for its consideration. The Senate bill is before the Senate Finance Committee. The regular legislative session is constitutionally required to end by midnight on May 15.

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