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Vol. 14, No. 47 Week of November 22, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Unifying the power grid

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Plan for Alaska Railbelt power generation and transmission company takes shape

Alan Bailey

Petroleum News

The tight energy supply situation in Southcentral Alaska is reaching a point where some major decisions need to be made, given the increasing threat of a shortfall in the rate at which Cook Inlet natural gas can be delivered to utility customers, and given the age of both the power transmission network and the predominantly gas-fired power stations of the region. A debate continues regarding how best to manage the Railbelt power grid that extends from the southern Kenai Peninsula, through Anchorage and the Matanuska-Susitna valleys, and up along the route of the Alaska Railroad to the city of Fairbanks.

“We have a generation and transmission infrastructure … that’s relatively fragile. It has served its needs over a long period of time, but in many ways both the transmission lines and the power generation equipment have become old. … There’s a need to renew it,” Jim Strandberg from the Alaska Energy Authority told a meeting of the International Association for Energy Economics in Anchorage Nov. 9. Strandberg was talking about the business case for forming an entity called the Greater Railbelt Energy and Transmission Co., or GRETC, to eventually develop, maintain and operate all of the power generation and transmission in the grid, a grid currently operated by six independent utilities.

Under the GRETC arrangement, the existing utilities would purchase power from GRETC for distribution to local consumers.

Collaborative process

“This process, the GRETC process, is a collaborative process between the Railbelt utilities and the state government, represented by my agency … to respond to changing times,” Strandberg said.

The eventual objective is a single Railbelt economic unit with a single systemwide power rate and a single system-wide transmission rate, a unified arrangement suited to an energy future involving large capital investments, he said. But GRETC would likely also have the capability to purchase some power from an independent producer, were such an arrangement to prove advantageous.

In a separate but related initiative, AEA has commissioned the preparation of a regional integrated resource plan for the Railbelt, with a technical conference scheduled for Dec. 10 to roll out the plan results to the resource plan advisory board and to the public. The integrated resource plan will include recommendations for how to implement a future power generation and transmission network, including recommendations on the mix of energy sources, the power stations and the transmission network required for the next 50 years.

“AEA is creating an integrated plan which the GRETC will absorb and take as its own, as it begins operations,” Strandberg said. “… We need to determine what to build.”

The integrated resource plan includes topics such as a review of proposed Susitna and Chakachamna hydropower projects, as well as options such as wind power and the use of natural gas from various sources, including Cook Inlet and the North Slope. A decision tree analysis assesses the completion risk of all the various possible projects, Strandberg said.

AEA study

The GRETC proposal resulted from an earlier AEA-funded study into the relative benefits of different ways of managing and operating the Railbelt grid. That study, completed in 2008, found that economies of scale and the optimization of financing costs for new infrastructure developments favored the GRETC approach, in preference to the continued operation by six independent utilities of a power grid that is very small, in terms of its power capacity, by U.S. standards.

“The maximum (power cost) savings occur when we fully unify the Railbelt,” Strandberg said. Major savings would occur, regardless of the mix of energy sources used for future power generation, he said.

It is also questionable whether the existing utilities have the necessary financial muscle to raise all of the capital that will be required to upgrade the grid in the future.

The cumulative capital requirements over the 30-year period studied could be as high as a figure approaching $9 billion, while the current utilities appear to only have the capability of borrowing less than $1 billion, Strandberg said.

“I think that the conclusion is that we face a substantial shortfall under the present structure,” he said.

2009 bill

In March 2009 then Gov. Sarah Palin introduced a bill in the state Legislature to form GRETC but, with insufficient time remaining in the 2009 legislative session to deal with the proposed legislation, the governor’s bill was deferred to the 2010 session.

And discussions have continued on moving the GRETC legislation forward, with three utilities on board with the GRETC concept, and three utilities still considering the pros and cons of the proposal, Strandberg said.

“Our hope is that we can work over the next six weeks, perhaps two months, to bring everybody, all the Railbelt utilities, to a point where they can commence through a process,” Strandberg said.

GRETC, as currently envisaged, would be a nonprofit, privately owned company, established under state statutes but using bonds to raise funds for infrastructure upgrades and developments, making its own economic decisions, controlling its costs, and providing business continuity, Strandberg said.

As far as the GRETC legislation is concerned, discussions in progress are focusing on two main areas: how to develop the new company and how to transition from the existing utility arrangements into that new company, Strandberg said. AEA is likely to play a nurturing role in moving the GRETC concept forward, while Joe Balash, Gov. Parnell’s special staff assistant, is the point person in the governor’s office for the GRETC initiative, he said.

Regulation

The way in which GRETC is regulated will also prove critical to success: Discussions with the Regulatory Commission of Alaska are focusing on how to tailor the RCA statutes to support the proposed entity, allowing for adequate regulatory review, while encouraging private investment that leads to power rate stabilization through large, long-lived development projects.

It has been a cooperative process between RCA, the utilities and AEA, Strandberg said.

Meantime, the GRETC proposal and the integrated resource plan will be heading to Juneau for the 2010 legislative session, with the legislators themselves having published in October a draft Alaska energy policy that envisages the passage of GRETC legislation.

“In the end we want to maintain our Alaska quality of life. And in the end I think we all want to achieve the long term goal … of a reliable and affordable power supply,” Strandberg said. “… And we want to achieve, over a transition period, a new energy future.”



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