The Regulatory Commission of Alaska has completed an investigation into the way in which the Alaska Railbelt electricity transmission grid is operated and has concluded that the grid needs to transition to management by a single, independent transmission company. Currently, most of the grid is owned and operated by five independent utilities, with the state of Alaska also owning one section.
Given the limitations of the current grid infrastructure, with its single points of failure and limited ability to transmit power on a regional basis, the question of how best to operate the grid has been the subject of a long and, at times, contentious debate. At question are the impacts of grid inefficiency on the costs to electricity consumers in terms of electricity rates and power supply reliability.
In an effort to find some resolution to the issues, the state Legislature has tasked the commission with investigating whether there would be benefit in transferring the management of the grid to some form of independent operator. Since the end of February the commissioners have been gathering testimony from a wide range of sources and, having considered the views and evidence presented, have now formulated their conclusions.
Challenging problem
At the start of a June 29 commission meeting, in which the commissioners passed formal motions confirming their decision, Chairman Picket commented on the challenging nature of the issues involved in the transmission grid conundrum.
“I think it will be the decision of the commission that the status quo is not acceptable,” Pickett said, referencing the upcoming votes on the various motions.
The commission presented and voted on a series of formal findings and associated recommendations, the upshot of which is a requirement that the utilities come up with mutually agreed proposals for reform, with mandated reform to follow should this voluntary effort fail. The commission will transmit its recommendations, its findings and all of the documented records from its investigation to the state Legislature.
In its first finding the commission concluded that the Railbelt grid, with its balkanized ownership and legacy power purchase agreements, requires institutional reform. And, while the state of Alaska does not have significant funding for Railbelt grid upgrades, none of the existing institutions that own and operate the grid can obtain capital to fund upgrade projects that cross the territories of several Railbelt utilities, the commission found.
The commission recommends resolving this institutional impasse through the creation of an independent transmission company that would operate the grid reliably and transparently, and that would be able to plan and execute maintenance and upgrade projects. The new transmission company should be regulated as a public utility, the commission says. In addition, the commission should be granted approval authority over new transmission and power generation development on the grid, and the authority to regulate the integrated planning of the mix of energy resources used for power generation, the commission recommends.
Status reports
In the interest of encouraging a voluntary approach to meeting this recommendation, the commission requires the Railbelt utilities to deliver by Sept. 30 a report on the status of current efforts to develop an independent Railbelt transmission company. A second report on efforts for transmission restructuring must be delivered by Dec. 31, the commission says.
The commission says that it will construe failure to deliver these reports as a failure of current voluntary efforts to develop an independent Railbelt electric transmission company. In that case, the commission says that it will work with the state Legislature and the state administration to develop and implement actions for the creation of an electric transmission company.
Commissioner Stephen McAlpine emphasized that the commission is looking for a voluntary effort by the utilities, but that time is running out for this approach.
“A red flag has gone up that this is really the last chance to put together a cooperative effort, before some mandatory relief is imposed,” McAlpine said.
The commissioners left as an open question the exact form that the proposed Railbelt transmission company should take, while commenting that some independent system operator organizations that have been established in the Lower 48 are too complex for managing the small electrical loads and relatively few generation assets that exist in the Alaska Railbelt. Key principles in the Railbelt should be non-discriminatory grid access for grid users; open and transparent system-wide transmission pricing; and the economic dispatch of power by an entity that can operate independently, the commissioners said.
Economic dispatch
In its second finding the commission concluded that, although energy transactions occur bilaterally between Railbelt utilities, the true economic dispatch of power does not happen on the Railbelt grid. The term “economic dispatch” refers to a procedure whereby the transmission of power across an electrical grid is used to make maximum use of the lowest cost power generation units, thus minimizing the cost of electricity for consumers.
Given the lack of economic dispatch in the grid, the Railbelt electric system does not deliver the maximum possible benefit to ratepayers, who are paying $1.5 billion for new power generation facilities that the utilities have been installing, the commission found.
The commission recommends that it should use its regulatory and statutory authority to strongly promote economic dispatch for the maximum benefit of electricity ratepayers. As an interim step towards power pooling through a central authority, the utilities should be encouraged to use loose power pooling arrangements to make more efficient use of power. To monitor progress, the commission would require quarterly reports, starting in the fourth quarter of 2015, with these reports containing data concerning the costs, benefits and other outcomes from voluntary pooling strategies. The reports would be analyzed for insights into the appropriate governance structure for an independent system operator.
Failure to file the reports would be construed as a failure of voluntary efforts to move towards economic dispatch, the commission says. And, should voluntary efforts fail, the commission will work with the state administration and Legislature to develop and implement the steps required to institutionalize economic dispatch, the commission recommends.
Checkered history
The commission’s third finding comments on the substantial history of meetings, hearings and reports relating to the transmission grid issues, and on a general lack of trust among stakeholders and a dependence on state funding for grid initiatives. This history supports the setting of deadlines for voluntary action to remedy the situation, backed up by mandatory actions should these prove necessary, the commission recommends.
A fourth finding comments on the lack of universal reliability standards for the grid. The accompanying recommendation encourages the utilities to resolve their differences over these standards, with the commission proposing to start a process in January 2016 to determine whether it should adopt regulations for grid operating and reliability standards.
The fifth finding and recommendation relate to the anticipated lengthy time scale and significant amount of commission work that would be involved in carrying out the commission’s recommendations. The commission recommends that it includes in its budget for the 2017 financial year the costs involved in implementing the recommendations - the commission recovers its costs from regulatory cost charges to regulated utilities, and not from state general funds.
The commission said that it anticipates that structural changes to the operation of the Railbelt grid would likely take five to 10 years to accomplish.
