The Alaska Railbelt electric utilities are moving steadily towards the formation of a transmission company, or transco, to operate the region’s power transmission grid, utility executives told the Regulatory Commission of Alaska on Aug. 23. T.W. Patch, spokesman for the utilities, told the commissioners that in the first quarter of this year all of the utilities committed to negotiate and finalize a transco business plan and proposal. The expectation now is to complete a proposal for the consideration and approval of utility boards by the end of the year. That should lead to an application to the RCA at some time in the first half of 2018 for a certificate of convenience and necessity for the transco, together with proposed tariffs for transmission grid use. The expectation would then be to have a ruling by the RCA on the transco proposal by the end of 2018.
American Transmission Co., a Wisconsin transco, has been assisting the six Railbelt utilities to investigate the transco concept since 2014, Patch said. ATC was formed under similar circumstances to those facing the Railbelt grid and has been providing insights based on its experience.
Fragmented system
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.
This fragmentation of the operation and management of the transmission system has caused issues such as the fragmentation of the rates that the various utilities charge for using their sections of the system: The fragmentation leads to the “pancaking” or stacking of usage fees for the transmission of power across multiple sections of the grid. And the focus of investment by each utility on upgrades to its own grid sector distorts the economics of making grid upgrade decisions that can benefit multiple utilities - the grid infrastructure contains single points of failure and aging sections that raise concerns about future reliability.
Following an Alaska Legislature mandated investigation into the management of the grid, in June 2015 the RCA reported that there would be significant advantage in grid unification through the formation of a transco. The commission’s findings also addressed other issues, including the need to establish an acceptable governance structure for the transmission system and the need to establish the operation of what is referred to as economic dispatch across the Railbelt. Economic dispatch involves the pooling of power generation capacity, to enable the continuous use of the cheapest generation available, regardless of where that power generation is located.
Another key issue that the RCA has required the utilities to address is the question of establishing a single set of mandated reliability standards for the Railbelt grid. Currently the grid has two sets of standards, neither of which are enforced.
A transco would own or lease sections of the transmission grid, would operate and manage the grid operations, and would act as a vehicle for investment in grid upgrades. The company would generate revenues from the rates that it charges utilities for shipping power across the grid. The governance entity, variously referred to as a unified system operator or independent system operator, would set strategy for the transco and also oversee the operation of economic dispatch.
Voluntary approach
The RCA encouraged a voluntary approach to meeting its recommendations but set requirements for regular reporting on progress. The Aug. 23 meeting was designed to review progress towards the establishment of a transco. The RCA has also scheduled two further meetings - one in September to review the power pooling situation, and another in October to review what is happening with regard to reliability standards.
Although the utilities have in the past been accused of being unwilling to work cooperatively towards common solutions, several executives attending the Aug. 23 meeting commented on the manner in which the utilities are cooperating to address the RCA’s concerns. Cory Borgeson, president and CEO of Golden Valley Electric Association, said that for some time the utilities have regularly pooled their power, seeking the cheapest power available. And various entities, including the RCA, have been pushing the utilities towards more cohesive action, he said.
“We are certainly committed to going forward with … the transco … economic dispatch and some type of independent operator,” Bergeson said, also commenting that this work is setting a legacy for the future and needs to be done correctly. Other executives picked up on this legacy theme, emphasizing that it is essential to take the time necessary to develop effective solutions rather than rush into an inappropriate plan.
The process of merging operational and commercial arrangements independently developed over many years by independent operators is non-trivial. Complications include the method of allocating transmission costs, the balancing of the transco benefits and downsides among the utilities, and the need to consider each individual utility’s financing agreements, Patch said. He told the commissioners that the various utility executives are fully committed to “work meaningfully to benefit their ratepayers.”
Issues being addressed for the transco include the potential impact on transmission costs and the cost of energy; the design of an appropriate governance structure; and the design of an appropriate ownership and capital structure for the grid.
“Everyone is trying to get it done, but to get it done right,” Patch said. “It does no one any benefit to pat ourselves on the back and get it wrong.”
System operator
Lee Thibert, CEO of Chugach Electric Association, said that the primary focus needs to be the independent or unified system operator for the transmission system, to have an entity that looks at issues regionally. And Borgeson commented that the system operator concept needs to be progressed in parallel with the transco. Thibert said that, while the governing board of the transco would primarily come from the utilities, the owners of the system, the system operator would need to be more stakeholder driven. One of the biggest challenges is figuring out who those stakeholders are, Thibert said.
Tony Izzo, CEO and general manager of Matanuska Electric Association, emphasized the importance of assessing any transco plan in the context of the economics of what is to be achieved. And Anna Henderson, regulatory affairs manager for Municipal Light & Power, said that ML&P is advocating a phased approach to transco implementation, to smooth out the resulting changes in electricity rates - with only a small transmission system coupled with a heavy demand load, ML&P is particularly sensitive to the transmission cost allocation method, she said.
Brad Janorschke, general manager of Homer Electric Association, commented on the difficulty of bolstering the interties between the main electric load centers in the Kenai Peninsula, the Anchorage region and Fairbanks without either state financial assistance or the financial capability of a transco. With everyone being particularly price sensitive at the moment, it is important to balance transmission upgrade costs against the resulting benefits, he said.
Janorschke also addressed a criticism that has been leveled at the utilities: that, working independently, the utilities have overbuilt their generation capacity. While Homer Electric’s new capacity comes close to matching the utility’s load, the older generation systems provide backup power, Janorschke said. In the event of a volcanic eruption, for example, the utility would switch to the use of the old facilities to avoid damage to the newer equipment. The utility also learned from a couple of recent blackouts that the old facilities are invaluable as a means of restarting the power system, Janorschke said.
