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Concerns over power grid reform; MEA argues for complete analysis
While working with the other Alaska Railbelt electric utilities, making progress in exploring how a single system operator might beneficially manage the Railbelt power transmission grid, Matanuska Electric Association has concerns over some issues that arise in evaluating an appropriate solution, Joe Griffith, general manager of MEA, told the Regulatory Commission of Alaska in a Dec. 29 letter. Concerns include ensuring that decisions are based on a complete cost/benefit analysis of a proposed change to the grid management; a realistic assessment of potential transmission upgrade costs; and the need for an equable arrangement for distributing the costs and benefits between the Railbelt utilities.
Voluntary project The five utilities that own and operate various sections of the grid have been voluntarily working a project to figure out how to better manage the grid and have been reporting to the RCA on progress in their efforts. The concept is to establish a management structure that facilitates necessary grid upgrades and hence enables more efficient use to be made of the various power generation facilities that are connected to the grid. And, through unified grid management, it may be possible to achieve what is called “economic dispatch,” a mechanism whereby the lowest cost sources of power can be used as much as possible, within the constraints of power supply reliability requirements.
The overall intent is to reduce the cost of electricity for Railbelt electricity consumers without sacrificing security of supply.
In particular, the utilities have been working with the American Transmission Co. to develop a business model whereby a single transmission company, or transco, would operate, maintain and upgrade the grid. The American Transmission Co. operates a transmission grid in Wisconsin and the Upper Peninsula of Michigan, as a consequence of a similar transition in grid management to what is envisaged for the Railbelt. The transco would potentially invest capital in making necessary upgrades to the grid, while making a return on its capital from the fees that it charges users of the grid for the transmission of power through the transmission infrastructure.
The expectation is that cost savings as a consequence of improved efficiency in power generation usage would more than offset the cost of the transmission upgrades implemented to achieve those efficiency gains.
Transco assumed But MEA, while pleased with the progress that the utilities have made in addressing the grid management issues, worries that people seem to be assuming a transco solution before a full analysis of solution options has been completed.
Ed Jenkin, senior system engineer for MEA, spoke to Petroleum News about some of the questions that are giving MEA cause for concern.
One issue is that, while the utilities have agreed on the various inputs needed for a computer model for simulating the operation of the grid and hence estimating the costs and benefits of any change, the cost/benefit analysis to be derived from that model has yet to be completed, Jenkin said. The model, once finished, will provide insights into the potential costs and benefits of various ways of changing the way in which the grid is managed, including the implementation of a transco and the establishment of an independent system operator, or ISO, for grid governance.
“Once we’ve looked at that we’ll have a better idea of evaluating what’s the benefit of the ISO, what’s the benefit of the transco, what’s the benefit of both combined,” Jenkin said.
In particular, the economic modeling for the grid has not yet reached the point of demonstrating benefits of $50 million to $150 million that have been quoted for transco formation, Griffith told RCA.
Loose pool In fact MEA thinks that significant benefits are already being achieved through the buying and selling of power and reserve power between the utilities through what is referred to as a “loose pool” for the interchange of power resources. It is particularly important that any cost/benefit analysis of a potential transco implementation considers the incremental benefits relative to the current loose pool arrangement, rather than benefits relative to the absence of any power pooling, Jenkin said. MEA supports economic dispatch on the grid through the pooling of power, but full modeling of grid operations may demonstrate that economic dispatch benefits can be achieved without implementing a transco, he commented.
A key factor in assessing the benefits is the cost of fuel for power generation, given that the benefits would come primarily from fuel savings. But, with different utilities having different structures to their fuel costs, those differences need to be accounted for in any modeling of system unification benefits, Jenkin said. For example, there are significant variations between the utilities in the methods of accounting for the cost of transporting fuel gas by pipeline to generation facilities and the cost of gas storage, he said.
Inflated costs? On the cost side of the cost/benefit equation, MEA worries that people have been assuming that some $900 million needs to be spent on transmission grid upgrades, a figure that MEA thinks is much too high. Griffith told RCA that in 2013 the Alaska Railbelt Cooperative and Electric Co., a cooperative formed by some of the utilities, had estimated that it would cost $200 million to unconstrain the grid sufficiently to achieve economic dispatch. Jenkin told Petroleum News that, if a transco were to be formed, it would be critically important to establish appropriate transmission planning standards for transmission performance, to constrain grid upgrade expenditure and to set parameters for regulatory approval of the upgrades.
Over-inflating the potential costs might also set unrealistic expectations for the scale of the Alaska business for a prospective transco, Jenkin said.
“We don't want to set them up with the idea that they are going to have $900 million worth of projects, when it’s only $200 million, or whatever the number is,” he said.
Cost and benefit allocation The core component of MEA’s concerns relates to the manner in which the costs and benefits associated with a transco arrangement would be allocated between the different Railbelt utilities. Depending on how the total Railbelt transmission costs are recovered from all Railbelt electricity consumers, MEA’s ratepayers could see a cost increase in support of other utilities’ aging infrastructure, Griffith told RCA. There needs to be a mechanism whereby burdened ratepayers are made whole through the equitable sharing of the benefits of grid re-organization, he wrote.
And, with the central prioritization of grid upgrades under a transco arrangement, MEA worries that local needs for transmission improvements that address local supply reliability issues may fall down the priority list.
MEA also feels that, although ATC is a first-rate company, there needs to be a formal competitive bidding process, to select a company to operate as a Railbelt transco, should a transco prove to be an appropriate arrangement for the Railbelt grid. Competitive bidding is imperative for a project of this scale and importance, Griffith told RCA.
“We restate these concerns, not to derail an essential and valuable process, but to ensure these important issues are addressed in the process and not overlooked in a stampede for immediate results,” he wrote.
- ALAN BAILEY
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