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July 2019

Vol. 24, No.27 Week of July 07, 2019

Alaska Railbelt Transmission drops RCA certificate application

Kristen Nelson

Petroleum News

Alaska Railbelt Transmission has withdrawn its application to the Regulatory Commission of Alaska for a certificate of public convenience and necessity.

In 2014 the Alaska Legislature required RCA to determine “whether creating an independent system operator or similar structure for electric utilities in the Railbelt area is the best option for effective and efficient electrical transmission,” RCA said in an April order.

In 2015 RCA opened a docket to gather information about the Alaska Railbelt electric transmission system.

Alaska Railbelt Transmission LLC, ART, applied for a certificate of public convenience and necessity this February. The commission said it noted some deficiencies in the application and ART supplemented it in May, also filing an errata removing Matanuska Electric Association from its list of affiliates.

In its May order finding the application complete RCA required additional filings from ART: the entities who would participate in providing the proposed service; explanation of commercial and regulatory terms in which ART would provide service; and how “ART intends to participate in the construction and ownership of transmission assets in the service territories of entities that are not affiliates of ART.”

Due date for this information was June 20, the date on which ART notified RCA it was withdrawing its application.

Chugach, MEA not participants

The Railbelt utilities were never united behind the ART filing.

Matanuska Electric Association told RCA in various filings that it believed the application is “substantially deficient and premature.” MEA Chief Executive Officer Tony Izzo told the commission in a March filing that drafts from the application were first presented to a Railbelt utilities managers meeting in early December. He said “MEA subsequently proposed that the Railbelt utilities undertake a joint due diligence effort and enlist independent industry, legal and regulatory experts to review the draft proposal,” but the other utilities weren’t interested, so MEA began its own due diligence of the proposal.

He said MEA advised fellow utilities at a February RUM meeting that an early review of the proposal “raised significant concerns” and said its continuing due diligence review “will include analysis of alternative(s) to the no bid, sole-source, for-profit transmission company advanced by ATC.”

ATC Development Co. LLC, is a Wisconsin-based partner in ART. “ART,” the commission said in its February notice of the filing, “is a privately-owned limited liability company, which was organized on February 22, 2019.”

In a May filing Lee Thibert, CEO of Chugach Electric Association, said American Transmission Co., ATC, is the parent of ART’s largest equity owner.

ML&P was a participant in the ART application and Thibert noted that in late December, Chugach and the Municipality of Anchorage signed agreements on the proposed acquisition of Municipal Light & Power by Chugach, several provisions of which prohibit ML&P’s participation in the transco filing without Chugach’s participation or consent.

He also noted Chugach is concerned by the impact of “involvement with a non-member, for-profit entity on Chugach’s tax-exempt status.”

Transco

ART would be a transco, a transportation company, Thibert said, and “Chugach’s position from the beginning has been that formation of a Transco must be synchronized with the formation of an RRC (Railbelt reliability council) and a power pool.” A transco “owns, plans, constructs, operates, and maintains transmission lines used to transmit electric power,” he said. “The RRC performs integrated regional planning, and establishes, administers, monitors and enforces the reliability and cyber security standards, interconnection protocols” and some tariff requirements with which s transco must comply. “And, economic dispatch resulting from a power pool creates savings that pave the way for transmission expansion. ART’s Application disregards the need for simultaneous implementation of these two other critical components,” he said.

Issue of participants

In addition to the inclusion of MEA in a list of ART affiliates, RCA noted in its original order that while Chugach declined to participate, several areas of the application identified Chugach as a participant.

A definitive description of entities who would be participating was one of the requirements RCA had of ART, with a June 20 deadline, the date on which ART filed its notice of withdrawal.

The commission also required “an explanation of the commercial and regulatory terms on which ART proposes to provide Railbelt-wide transmission service” and “an explanation of how ART intends to participate in the construction and ownership of transmission assets in the service territories of entities that are not affiliates of ART.”

Without the participation of either Chugach Electric or MEA, there was considerable Railbelt service area not included.

RCA said it received notification from ML&P that it would not participate as a party but would rely on ART to represent its interests.

MEA concerns

MEA, which began a due diligence process in December, told the commission in a June 4 filing via attorney Sean Parnell of Holland & Hart LLP that it objected to the procedural schedule established for a hearing July 9, and said that at a minimum RCA should require ART “to file complete prefiled testimony to fully support and explain its application and proposed tariff.”

Parnell said the application proposes “sweeping changes in how the interconnected Railbelt utilities have operated for decades and raises fundamental issues wholly unaddressed by ART.”

He said MEA served ART with an initial set of discovery requests, in response to virtually all of which ART simply referred to its application.

In a lengthy filing in May, Parnell said MEA had a number of concerns, including that the structure proposed by ART “is a complex sole source, for-profit structure” which is partially taxable, would impose “first-of-its-kind, complex tax issues on the Railbelt utilities” and potentially threaten their tax-exempt status.

“The introduction of a for-profit entity to the Railbelt carries with it a novel motivation - profit seeking rate base growth - in conflict with the existing not-for-profit industry centered on the public interest standard,” Parnell said.

A utility must demonstrate that it is fit, willing and able to operate. That, Parnell said, cannot be evaluated because ART relies in part on ML&P transmission assets and expertise, but ML&P cannot make those commitments under provisions of its December 2018 asset purchase and sale agreement with Chugach Electric.

While the agreement between ML&P and Chugach hasn’t yet been submitted to the commission, Parnell said in May, “that contract establishes the rights and obligations of the parties thereto regarding the subject assets,” and under the agreement ML&P does not have a unilateral right to commit assets to ART.

- KRISTEN NELSON






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