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Vol. 15, No. 6 Week of February 07, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Utilities and state revise GRETC bill

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Revised bill to go to Legislature envisages private co-op to manage power generation and transmission in the Alaska Railbelt

Alan Bailey

Petroleum News

One of the hotter issues facing Alaska lawmakers in the current legislative session is the question of whether and how to unify the operation of the six electricity utilities that supply power to consumers along the Alaska Railbelt, a question with major implications for future Railbelt power costs and reliability of supply. Already in a sense unified by an interconnected power grid, the utilities face a need for major upgrades to the electricity infrastructure, while also having to deal with an increasingly challenging fuel supply situation as gas supplies from the Cook Inlet decline — gas fired power stations dominate the current portfolio of Railbelt power generation facilities.

The Feb. 3 meeting of Anchorage Mayor Dan Sullivan’s Energy Task Force consisted of a workshop to review the status of work on a draft bill to establish a Greater Railbelt Energy and Transmission Co., or GRETC, to eventually manage all of the power generation and transmission in the grid — under the GRETC concept, the existing utilities would simply take delivery of power from the transmission grid for distribution to power consumers.

Apparently five of the utilities have now agreed to support the proposed bill, ahead of the bill being forwarded to legislators for consideration, with just Municipal Light and Power, the utility owned by the Municipality of Anchorage, still finding issues that deter it from signing up to GRETC as currently envisaged.

2008 study

A 2008 study commissioned by the Alaska Energy Authority concluded that the funding required for the required Railbelt electrical infrastructure upgrades is far in excess of the funding capabilities of the existing utilities. A single entity to manage and operate power generation and transmission in the Railbelt is needed both to act as a fundraising conduit and to achieve economies of scale in Railbelt power supplies, the study found.

And in March 2009 then-Gov. Sarah Palin introduced a bill in the Legislature to form GRETC, a power generation and transmission cooperative along the lines of the entity recommended by the AEA study. 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.

Since then the utilities and the state have been working on the draft bill, to massage it into a form that seems workable to the chief stakeholders in the GRETC concept. Legislators will then need to do further work on the bill before deciding whether to enact it into law.

“This is a piece of legislation. … It’s had a variety of cooks and continues to evolve,” Mark Johnson, general counsel for Chugach Electric Association and one of the members of the utilities’ task force that has been revising the bill, told the Mayor’s Energy Task Force.

Voluntary co-op

In its currently envisaged form GRETC would consist of a privately owned cooperative, established by state statute, with any or all of the Railbelt utilities as members. The cooperative would operate the power grid and would supply electrical power, either from its own power generation facilities or by buying power from independent power producers.

Membership in GRETC would be voluntary, in a business model that Jim Walker, senior counsel with Matanuska Electric Association, characterized as having “lots of carrots and no sticks.”

The carrots would essentially consist of the financial benefits of joining GRETC: GRETC would provide the only means of obtaining state financial assistance for major power projects; it would be able to obtain funding more cheaply than individual utilities; and major projects sponsored by GRETC could achieve economies of scale probably unachievable otherwise.

The intent of GRETC, as currently envisioned, is to supply power at “postage stamp” or consistent rates all along the Railbelt; there would be an individual postage stamp rate for power from each power generation facility, with each member utility able to choose which mix of power generation to buy its power from.

Transition

If GRETC comes into being it would face the daunting task of transitioning from the existing power supply arrangement, with the power entities and transmission infrastructure owned by various utilities and the state, into the new ownership and operation arrangements. But, rather than trying to spell out the transition arrangements, as was done in the original version of the GRETC bill, the crafters of the latest version of the bill have finessed the transition question by allowing a flexible business arrangement that would enable the existing infrastructure arrangements to evolve into the future structure.

“We’re looking at GRETC (initially) like the frame of a building — it doesn’t necessarily have the plywood on it,” Strandberg said. The plywood would be added later through financing.

ML&P concerns

Anchorage Municipal Manager George Vakalis said that, while Municipal Light and Power wants to find a solution that is beneficial to all, there are three remaining major stumbling blocks for ML&P in the proposed legislation:

• GRETC would not be regulated by the Regulatory Commission of Alaska.

• As a public entity, the transactions of ML&P have to be transparent to the public, while as a private entity GRETC would be “operating outside the bounds of transparency.”

• Unlike ML&P, which has to seek approval from the Anchorage Assembly for any land acquisitions, GRETC would have the power of eminent domain.

Moreover, Vakalis said, ML&P has its own power generation infrastructure upgrade route, with the ability to take care of its own capital needs for its upgrades.



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