Concept scrapped for unified Railbelt utility

Alaska’s Railbelt electric utility leaders are headed back to the drawing board after five years of work now that efforts to jointly manage the region’s transmission infrastructure have failed, at least for the time being.

The utilities behind Alaska Railbelt Transmission LLC withdrew the startup transmission company’s application for a certificate of public convenience and necessity, or CPCN, from the Regulatory Commission of Alaska on June 20. An RCA-approved CPCN is required for any regulated electric utility to operate in the state.

A transmission company, or transco, has long been seen as a way for the five large Railbelt utilities, plus the City of Seward, to coordinate construction of new power generation facilities and pool resources for expensive transmission infrastructure projects that a single utility might not be able to afford but would benefit the customers on the broader system.

Such a joint transmission-only utility would be a first for Alaska but they are more common in the Lower 48.

When the transco CPCN application was sent to the RCA in February, Homer Electric Association, Anchorage-owned Municipal Light and Power, Golden Valley Electric Association, the City of Seward and Wisconsin-based American Transmission Co. were signatories to the 750-page document.

American Transmission Co. operates as a transco in the Upper Midwest and company representatives coordinated transco development in Alaska since 2015, though the concept was being discussed prior to that.

Work to formally integrate Railbelt utility operations became more urgent following a sternly worded June 2015 letter from the RCA to the Legislature in which the commission characterized the Railbelt electric system at the time as “fragmented” and “balkanized.”

The RCA also insisted that if the utilities would not voluntarily work together for the betterment of their customers, the commission would do what it could to mandate better cooperation, either through its own regulations or by seeking statutory help from the Legislature.

In May, the early drafts of in-depth legislation clarifying the RCA’s authority to oversee a transco or other joint utility organizations was introduced in both the state House and Senate.

Some critical observers of the Railbelt electric system contend the six utilities — spread over a large area but with collective demand less than many individual Lower 48 utilities — have overbuilt generation capacity in recent years while ignoring transmission investments that could make it more cost effective to move lower cost power from one end of the system to the other.

The 2015 letter notes the utilities had spent roughly $1.5 billion on new generation facilities over the previous five years.

Currently, the Railbelt utilities continuously buy and sell power to each other; however, they also each apply their own transmission, or wheeling, tariffs, when power is sent across the portion of the main transmission lines they own.

This can lead to situations where tariff “pancaking” disincentives power transactions that could otherwise maximize the efficiency of the system as a whole.

Renewable energy advocates, in particular, stress that an open-access transmission system with a flat wheeling tariff would allow independent power producers to compete on a level playing field with current power plants for power sales and would incentivize more investment renewable projects in the region.

Alaska Railbelt Transmission was challenged from the outset by not having participation from two of the larger utilities in the region, Chugach Electric and Matanuska Electric associations. Golden Valley CEO Cory Borgeson said when the group learned that ML&P was withdrawing its support for the transco it was scrapped.

Chugach officials have said in filings to the RCA that the Anchorage-area utility wants to resolve its pending $1 billion purchase of ML&P from the Municipality of Anchorage, which is also under review by the commission, before entering into any binding agreements.

ML&P officials did not respond to questions in time for this story.

Seward Utility Manager John Foutz said Seward supports a transco because it would give the city “a buyer’s market.”

“Right now we’re attached directly to Chugach’s transmission lines so any power we that we purchase has to go through Chugach’s system. If there was a transco that covered all of the transmission system then we would have the opportunity to basically shop around for the lowest price for our ratepayers and pay one unified transmission price to get it to us,” Foutz said.

Seward currently buys the vast majority of its power from Chugach; it also has rights to a small portion of power from the state-owned Bradley Lake hydro plant near Homer, according to Foutz.

MEA General Manager Tony Izzo said his utility hired outside consultants to evaluate the transco application and business plan and who concluded MEA should not get involved in the company.

“We are convinced from the analysis that the transco as filed did not do what even the cover letter of the filing said it would do,” he said in an interview.

Last November, prior to the transco application being filed, Izzo wrote in a letter to the RCA that MEA was “in full support of the formation of a transco,” but the utility wanted to see a sister cooperative organization formed to address transmission system reliability standards and perform economic power dispatch — consistently running the most efficient generators for the demand — across the Railbelt.

Izzo insists the transco, as envisioned in the application, would not lessen the cost of wheeling tariff pancaking on the system, but would largely combine the existing tariffs into “one big pancake,” he said.

Izzo has also questioned the ultimate motivation of a for-profit transco, which Alaska Railbelt Transmission would have been with ATC’s involvement, saying he would worry about costly and unnecessary transmission projects.

The Alaska Railbelt Transmission application requested a 10 percent return on equity investments in its projects.

Izzo said he believes the conceptual Railbelt Reliability Council cooperative can perform the functions of a transco while also implementing a single set of operating reliability standards in the Railbelt and coordinating the most efficient dispatch in the region.

Chugach Electric CEO Lee Thibert similarly said the transco application gave Alaska Railbelt Transmission the authority to dictate long-term system planning and power dispatch; functions he said would be best performed by the reliability council.

“Before you had two parallel paths and it was very difficult when you had two things going to the commission and competing against each other. At least with the transco pulled back maybe we can all agree on how we can move forward with the RRC and try to resolve our transmission issues at the same time,” Thibert said in an interview. “I’m hoping it opens the door to try to solve some of those things.”

Borgeson noted that significant progress has been made with the utilities agreeing to a single set of reliability standards across the system, which Thibert said was a big deal for protecting their IT networks.

“Probably the biggest focus (with reliability) is making sure we all have the same cyber security standards because we’re all interconnected,” Thibert said.

There is no definitive timeline for the utilities to settle on the final structure of an RRC, but utility leaders said it would likely have a 13-member governing board with seats for each utility, the Alaska Energy Authority as a transmission asset owner, independent power producers, public experts and an RCA delegate.

While they acknowledge the RRC does not inherently solve the issues with wheeling tariffs, its believed the organization would be able to work through those challenges.

“Part of the RRC is to make sure we have a common way of dealing with interconnection guidelines (for independent power producers) and then it’s not a burden to move power from one side of the system to the other,” Thibert said.

Despite the challenges, the utility leaders insist their relationships — which have been blamed for slowing reform in the past — are still very good.

“A couple steps forward and one step back,” Borgeson said, adding that the utilities are already working continuously to provide the lowest cost power.

GVEA purchases roughly 30 percent of its power from Southcentral utilities that have access to natural gas-fired generation versus the typically higher cost fuel oil plants the Fairbanks utility operates, according to Borgeson.

“We’ll pick up the ball on the transco and we’ll keep moving the ball on the RRC,” he said.