It’s a work in progress
Utilities report to RCA on forming a transmission company for the Railbelt grid
Alan Bailey Petroleum News
The Alaska Railbelt electricity utilities anticipate completing by the end of this year the decision-making process for the formation of a transmission company, or transco, to operate the Railbelt electricity transmission grid, the utilities told the Regulatory Commission of Alaska during the commission’s May 23 public meeting.
There appears to be general agreement among the utilities over the need for transco formation, although there are questions relating to the timing for doing this. There is also a general perception that transco formation needs to happen in conjunction with the establishment of a Railbelt Reliability Council, an organization that would oversee policies for grid operation and reliability standards. As previously reported in Petroleum News, GDS Associates Inc., under contract with Alaska Railbelt Cooperative Transmission and Electric Co., is in the process of finalizing recommendations for the formation of an RRC.
Fragmented grid management The transmission grid, which runs from the southern Kenai Peninsula north through the Anchorage region to Fairbanks in the Interior, supports six independent utilities operating in the region. Currently ownership and operation of the grid, a consequence of the manner in which the electrical power system has evolved, is divided between the utilities. The state of Alaska owns a section of the transmission intertie between the Anchorage and Fairbanks regions.
In June 2015 the RCA issued a series of recommendations for a more unified approach to the operation of the Railbelt electrical system. Those recommendations included the formation of a transco. The commission also said that there should be a unified governance structure for the grid, a single set of unified, enforced reliability standards, and the establishment of merit order economic dispatch, an arrangement whereby continuous use is made of the cheapest available electrical power. The commission has been encouraging voluntary efforts by the utilities to meet the commission’s requirements. The overall objective is to minimize the cost of electricity for Railbelt consumers while maintaining acceptable levels of supply reliability. There are also issues relating to the use of renewable energy in the system.
The transco project American Transmission Co., a Wisconsin transco, has been assisting the six Railbelt utilities in figuring out how a transco could be implemented in the Railbelt. The idea is that the transco would operate the transmission infrastructure, set a unified tariff for transmission system usage and act as a conduit for investment in the transmission infrastructure. Currently, the grid fragmentation leads to the stacking or “pancaking” of fees for the transmission of power across the grid, and there is difficulty in an individual utility justifying an investment in a system upgrade, if the benefits from the upgrade involve multiple utilities.
There has been concern among some stakeholders in the electrical system over the length of time that the various voluntary grid unification efforts are taking. In August of last year the utilities told the RCA that they anticipated having an application to the commission for a transco certificate of public convenience and necessity during the first half of this year. That timeframe has clearly slipped. There are complex business issues relating to transco formation, in particular allocation of costs between the utilities - depending on their use of the transmission system, some utilities may lose out while others may gain. And utilities have to be able to recover the costs of their own assets.
Areas of agreement During the May 23 public meeting, Eric Myers, manager for business development for the American Transmission Co., outlined those aspects of transco formation where there is substantial agreement, and those areas where decisions are still needed. There is general agreement that the utilities would continue to maintain the sections of the transmission grid within their service areas, but that they would do so under contract to the transco, Myers said. Essentially, to avoid organizational duplication, the transco would operate through a series of service agreements with the utilities.
And the transco would be governed by a board of directors that include utility representatives and independent board members. Reliability standards and grid planning protocols would be administered by the Railbelt Reliability Council and approved by the RRC. The transco’s service area would encompass transmission assets within the service areas of the existing utilities. And the transco would operate a transmission tariff that would provide non-discriminatory access to the system for any entity requiring the use of transmission services.
Cost allocation is a challenge However, the utilities have yet to decide on the transmission tariff structure and how transmission costs would be allocated between the utilities. There is continuing discussion regarding specific responsibilities and service agreements within the transco operation. Individual utilities’ equity participation in the transco remain under discussion. And the proposed structure of the transco management team has yet to be finalized.
There are a number of critical factors, such as the cost and benefit of transco formation, that need to be taken into account in any final transco decision. One factor that has been progressing is the linkage between the transco and a Railbelt Reliability Council, as the RRC concept takes shape, Myers commented. There is now a general understanding that there will be a separation of powers between the RRC and the transco, with the transco operating under reliability standards maintained by the RRC.
Taking into account the issues remaining to be resolved, the utilities hope to present a final transco decision to the RCA by the end of this year, Myers said. There is much going on in the Railbelt at the moment, with the utility managers involved in several initiatives, all of which are very important, he commented. And each utility has its own, individual circumstances and conditions for transco formation that need to be considered. There are complexities over cost allocation, especially when future trends for shipping power across the system are unknown, as are the potential impacts of unknown future capital projects. But the utilities are close to figuring out an approach to the cost allocation problem, Myers said.
Are transmission upgrades needed? There was discussion during the RCA meeting over the need or otherwise for upgrades to the transmission system, especially in the light of past Alaska Energy Authority recommendations for major upgrades. Tony Izzo, CEO and general manager of Matanuska Electric Association, commented that he had not seen sufficient benefit to justify the high cost of the AEA recommendations and that he is not aware of any major transmission upgrades envisaged in the next three to five years. Lee Thibert, CEO of Chugach Electric Association, commented that efficient operation of economic dispatch across the Railbelt grid requires a more robust transmission system but that any upgrades to the system must pay for themselves in terms of benefits gained. There are also questions over the timing of any upgrades, he said. The optimum means of coming to a common agreement on transmission upgrades would be through the RRC, with the AEA involvement also being through that organization, he said.
In the absence of planned transmission system upgrades in the near future, the timing of the implementation of a transco is not particularly critical, Izzo commented, while also emphasizing that he believes the transco to be a valuable construct. In terms of timing, the RRC should be established first, to act as an organization that sets reliability standards and conducts long-range regional planning for the grid, Izzo said. Other utility managers appear to see value in the transco and RRC going into operation concurrently. Mark Johnston, general manager of Municipal Light & Power, commented that, by eliminating the pancaking of transmission rates, a transco would improve the efficiency of power pooling, regardless of whether any grid upgrades are carried out. Moreover, the proposed structure of the transco would involve minimal cost to the system, he suggested. The RRC and transco would be mutually dependent, he said.
Needed but challenging Commissioner Robert Pickett commented that, while the days of state appropriations for transmission system upgrades are past, some of the transmission system assets are aging. There is currently no organizational structure for effectively dealing with this situation, but there are understandable challenges in establishing such an organization, he said.
The commission has scheduled public meetings on June 13 and June 27 to review progress towards economic dispatch and the implementations of enforced reliability standards. Pickett commented that, given the length of time since the RCA originally made its recommendations for reform of the Railbelt electrical system, the commission needs to make a status report to the Legislature prior to the next legislative session.
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