Providing coverage of Alaska and northern Canada's oil and gas industry
February 2016

Vol. 21, No. 6 Week of February 07, 2016

Toward unification

Railbelt utilities report on forming transmission grid system operator


Petroleum News

At the end of January the Alaska Railbelt electric utilities reported to the Regulatory Commission of Alaska on the status of efforts to create a single operating entity for the Railbelt electricity transmission grid. Currently various sectors of the grid are owned and operated by five independent electric utilities and the state of Alaska.

Following a directive from the Alaska Legislature to investigate whether there would be benefit in transferring management of the grid to some form of independent operator, at the end of June the RCA reported that there would indeed be significant advantage in a transition to a single operating company.

However, there are two distinct components to grid management and operation that need to be addressed. One is the potential formation of a transmission company which would conduct the day to day operation and maintenance of the grid, and which would implement grid upgrades. The other is the formation of a unified system operator, which would set policies for grid operation and manage the unified scheduling of power supplies across the grid.

As part of its findings, the commission required the utilities to file reports in September and December on voluntary efforts towards forming a single transmission company for the grid, and to report by the end of January on progress towards forming a unified system operator. It is the unified system operator report that the utilities have now filed.

A single grid

The issue at the core of the grid unification question is the fact that the grid, which stretches from the southern Kenai Peninsula all the way north to the city of Fairbanks, acts technically as a unified whole, with a requirement for a precisely synchronized alternating current frequency along its length, and with events at one point on the grid impacting the grid in its entirety. Moreover, proponents of grid unification argue that, through some form of centralized dispatch of power across the grid from the various power generation facilities on the grid, it will be possible to make best use of the cheapest sources of Railbelt power and hence minimize consumers’ electricity bills.

The formation of a unified operator can also lead to transparent and equitable transmission rate and grid connection arrangements that can make it simpler for independent power producers to connect to the grid, proponents say.

In their end-January report, the utilities say that at this point they are in the process of conducting computer modeling to identify the overall savings that may be achieved through unified system operator formation - the results of this modeling are anticipated in the second quarter of 2016. Meanwhile, the utilities are voluntarily holding bi-weekly meetings to coordinate their generation and transmission outages, taking into account fuel supply considerations, the utilities told the commission.

Developing a plan

The utilities also reported progress in engaging all of the Railbelt utilities in the unified system operator initiative, with Homer Electric Association and Municipal Light & Power now joining the discussions. The Alaska Railbelt Cooperative Transmission and Electric Company, or ARCTEC, the entity that formally filed the end-January report with the commission, was formed to facilitate unified system operator formation and has as its members Chugach Electric Association, Matanuska Electric Association, Seward Electric System and Golden Valley Electric Association.

During the coming months the utilities will develop a project plan for implementation of a unified system operator and define the requirements for a transmission tariff and Regulatory Commission of Alaska filing, the report to the commission says.

A unified system operator is typically implemented as a nonprofit entity that is governed by a board of directors and that recovers its costs from users of the transmission system.

Two key issues

The new report to the commission also says that in the coming months the utilities will address two key issues that need to be resolved: the manner in which the costs and benefits of unified grid operation will be settled, and the need for consensus on how the unified system operator will be governed.

The settlement question arises because, with the efficient dispatch of power from anywhere along the grid and with the possibility of a unified tariff for grid usage, some individual utilities could see their costs fall while others see their costs rise: an equitable and acceptable solution will require a mechanism whereby the costs and benefits are distributed to the benefit of all utilities and their ratepayers. The utilities’ report says that there are several models for possible settlement arrangements, including the splitting of cost savings among the utilities, the sale of power at the current marginal price of the power and the payment of premium rates for the use of generators that are operating beyond their regular load requirements.

The report comments that the utilities’ project that is investigating the formation of a Railbelt transmission company also has a team investigating the settlement issue.

The governance issue revolves around an on-going and lively debate over the extent to which the board of directors of the system operator should be independent from the stakeholders in the grid, such as the electric utilities. Those who argue for complete independence say that only through independent governance can a unified operator assure that the transmission grid will act as a level playing field for all grid users. Others, however, say that completely independent governance is impractical in Alaska and that some level of local utility expertise is needed in making governance decisions.

Loose power pooling

In parallel with the report to the commission on progress towards the formation of a unified system operator, utilities Chugach Electric Association, Matanuska Electric Association and Homer Electric Association reported to the commission on their efforts at using “loose pool” arrangements for making optimum use of power generation facilities. In a loose pool different utilities make use of each others’ power generation capabilities without operating under a centralized grid-wide management structure.

Chugach Electric and ML&P told the commission that they have been discussing the development of a power pooling and joint dispatch arrangement called “the Anchorage Pool.” This power pool, through factors such as reductions in the overall volume of natural gas needed for power generation and maximizing the use of new generation facilities, could deliver cost savings in excess of $10 million per year, the utilities say. However, the utilities commented that they view the Anchorage Pool as a step that will complement rather than replace efforts towards the economic dispatch of power across the entire grid.

Fuel savings

Homer Electric told the commission that it has been achieving significant savings in its cost of fuel for power generation as a result of loose pool arrangements, especially with Municipal Light & Power and Golden Valley Electric Association. HEA said that it anticipates additional fuel cost savings from bilateral power pooling arrangements across the whole Railbelt in 2016, when ML&P brings a new high-efficiency gas-fired power plant online in Anchorage and Golden Valley activates its Healy Unit 2 coal-fired generation facility.

Matanuska Electric Association said that it has been conducting power sales and purchase agreements with the other Railbelt utilities, with cost savings for all involved. MEA says that it provides price quotes for its power to the other utilities, together with information about the availability of that power - the utilities can then choose whether to use any of the power. MEA, for its part, has on occasion purchased power from Chugach Electric and ML&P. These transactions incur at no additional cost to ratepayers while making a major step towards the benefits of economic dispatch on the grid, MEA told the commission.

Independent oversight for the Railbelt grid

The apparently esoteric distinction between the terms “independent system operator” and “unified system operator” clearly means a great deal when it comes to decisions over how the Alaska Railbelt transmission grid will be managed in the future. The Railbelt utilities are engaged in an initiative aimed at establishing what they refer to as a unified system operator to oversee the way in which the grid operates as a unified whole. But some people, concerned that the operator’s board should be independent of any vested interest in the grid, prefer that the term “independent” be encapsulated in the organization’s identity.

This issue came to the fore during testimony to the Alaska House Energy Committee on Jan. 28, during a hearing over House Bill 187, a bill designed to establish a new state agency as the overarching grid operator. Given that the utilities are already moving in the direction of establishing an operator, the House is gathering testimony on the issue but is not moving the bill forward.

The need for independence

Chris Rose, executive director of the Renewable Energy Alaska Project, said his organization wants a fully independent grid operator that can establish a universal transmission tariff and ensure non-discriminatory access to the grid. REAP’s members include potential independent power producers who want the ability to connect to the grid without being disadvantaged by factors such as unfavorable transmission fees.

“We want a system operator that is impartial and independent,” Rose said. “That governance structure issue is really important to REAP and all of our different members.”

Rose questioned whether, in light of the need for an independent governing board for the system operator, the electric utilities should have places on the board. If the utilities are represented on the board, the board needs to be large enough to dilute their power, he said. And, if the utilities must be on the board at the outset, there should be a mechanism whereby their participation is phased out over, say, five years.

The need for expertise

Bradley Evans, CEO of Chugach Electric Association, said that, while his utility would seek to populate the board with rigorously vetted independent members, the board also needs to be composed of current experts in the Railbelt electrical industry, with stakeholders who do have agendas. He said that, while reducing utility involvement to a minority position would be a desirable long-term goal, the board needs the utilities’ expertise. Evans also questioned the feasibility of finding truly independent board members in Alaska, given the multiple roles that potential board members tend to play in the state.

“That’s going to be a great public debate that’s going to ensue,” Evans said of the independent board question.


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