Progress on transco
Alaska Railbelt electric utilities give timeline for transmission company
The Alaska Railbelt electric utilities are continuing to make progress towards the formation of a transmission company, or transco, to operate the Railbelt transmission grid that extends from the southern Kenai Peninsula, across Southcentral Alaska and north to the Fairbanks region in the Interior, utility executives told the Regulatory Commission of Alaska during a commission public meeting on Sept. 26.
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Board presentationsProposed terms for forming a transco have been negotiated by utility managers and are in the process of being presented to utility boards for consideration, with the last of these presentations scheduled for Oct. 8, Eric Myers, manager of business development for the American Transmission Co., told the commission. The utility boards will need to decide on whether to agree with what is proposed. That will then lead to two possible outcomes in the fourth quarter of this year: Either, if agreement is reached, the utilities will file an application to the RCA for a certificate of public convenience and necessity for the formation of a transco, or, if there is no general agreement, the utilities will likely file a final report on the transco assessment and specification process, Myers explained.
An exception to this general procedure is Municipal Light & Power, which is owned by the Municipality of Anchorage and does not, therefore, have a board. ML&P has discussed the transco proposals with the municipal administration, and the administration supports what is being done, Mark Johnston, ML&P general manager, told the commission.
The American Transmission Co., a Wisconsin transco, has been assisting the Railbelt utilities in figuring out how a transco could be implemented in the Railbelt. The Railbelt transmission system 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.
Addressing inefficienciesThe fragmented nature of the grid operations leads to some significant inefficiencies that impact the cost of electricity for consumers and create obstacles for the shipment of power across the system. For example, the fact that each utility charges its own fees for the shipment of power across its sector of the grid leads to the stacking or “pancaking” of fees for the movement of power across multiple sectors. Another significant problem arises from the fact that a potential grid upgrade that can benefit multiple utilities typically has to be funded by a single utility, a situation that can render desirable investments in upgrades uneconomic.
Transco benefitsThe operation of the entire transmission grid by a single transco can bring major benefits through the instigation, for example, of a single “postage stamp” rate for power transmission across the system, and by providing a mechanism for investing in transmission upgrades that benefit multiple utilities. Unfortunately, however, the economic case for transco formation, and the optimum rules for transco operation, vary considerably between the different utilities, depending on how each utility actually uses the grid: Determining and agreeing on a transco structure and mode of operation is, therefore, a complex and difficult task.
RCA recommendationsIn June 2015 the RCA issued a series of recommendations for a more unified approach to the operation of the Railbelt electrical system, including a recommendation for the formation of a transco. The commission has been encouraging voluntary efforts by the utilities to meet those recommendations and the utility managers have, among other things, been working towards a proposal for transco formation.
The state Legislature originally directed the commission to make recommendations on the future operation of the Railbelt electrical system - the commission plans to send a report to the Legislature ahead of the upcoming legislative session, explaining the status of electrical system unification efforts. In addition to transco formation, those efforts involve the formation of an operating entity to oversee the entire electrical transmission and generation system; the instigation of merit-ordered economic dispatch, to make continuous use of the cheapest available power generation; and the enforced implementation of comprehensive reliability standards for the electrical system.
Tentative agreementDuring the Sept. 26 RCA meeting Myers reported that the utility managers have now reached tentative agreement, subject to board approvals, on the various elements of the transco structure and operation. However, the exact structure of the organization’s executive leadership team has yet to be determined and will probably be decided on as part of the startup of the organization.
“Based on this level of consensus the general managers agreed that there was enough ... to take to their boards, to make a decision about whether or not to proceed,” Myers told the commissioners.
That consensus encompasses the various aspects of the potential transco, including the board structure for the organization, service agreements with utilities, and the rate and the tariff structure. However, Myers declined to provide the details of what was being proposed, saying that utility management did not want to back the boards into a corner by making the terms and conditions public before the boards had an opportunity to consider them. The details will become public once a transco certificate application or a final report on the transco negotiations is filed, Myers said.
Questions of governanceThe question of how the overall electrical system should be governed has been a contentious issue, and this issue factored into some of the discussion during the Sept. 26 meeting. On the one hand, the utilities have a strong level of knowledge about the technicalities and technical limitations involved in operating the electrical system. And the utilities have duties to serve their own members and customers. On the other hand, general stakeholders in the system, including for example independent power producers and the state administration, may have different priorities than have the utilities.
In parallel with moves towards forming a transco, the utilities are moving towards forming an operating entity that they are calling the Railbelt Reliability Council, or RRC, that would oversee the electrical system, enforcing reliability standards and making, for example, decisions over major grid upgrades. The emerging concept is that the governing board of the RRC would have a broad composition, including a variety of stakeholders in addition to representation from the utilities. It appeared during the Sept. 26 meeting that the transco board would have a somewhat narrower composition. The concept is that the RRC and its board would have jurisdiction over the transco board, thus ensuring the appropriate checks and balances over transco actions.
But that leads to a timing issue. If the transco were to be formed prior to the RRC, could the transco forge ahead, making decisions without those broader checks and balances?
In sequence or in parallel?Commissioner Antony Scott particularly homed in on this particular issue, asking if the RRC formation is a condition precedent to the formation of the transco. Scott also wondered if the RRC formation would require statutory changes, with the passage of any necessary legislation potentially delaying the point at which the RRC could be brought into operation.
“We’re working these two paths in parallel,” Brian Hickey, vice president of systems operations for Chugach Electric Association, told the commission in reference to proposals for transco and RRC formation. And, at this point, there is a memorandum of understanding between the utilities for the RRC, he said. From the perspective of Chugach Electric, the necessary checks and balances are best ensured through the RRC, and the transco implementation can be pursued in parallel with the RRC formation, he said.
Tony Izzo, CEO of Matanuska Electric Association, expressed agreement with Chugach Electric’s perspective. Checks and balances in the governance of the system are absolutely essential, but these should be implemented outside the transco governance structure, he said. Various pieces of the puzzle are coming together simultaneously - the utilities will look to the commission for guidance, in terms of ensuring that the needs for checks and balances are met, Izzo said.
Izzo also commented that there are no major electrical system projects on the horizon, for at least the next couple of years, and said that the time envisaged as needed to resolve the various issues is prudent. He also commented that a tremendous amount of work had gone into the proposals now being put to the utility boards and that MEA has become increasingly confident in its understanding of the situation, and of how to address the Railbelt’s future needs.
InterdependenceIn terms of the relative timing of RRC and transco formation, there was also discussion about the interdependence of these two organizations, and hence the need to implement both. For example, if the RRC wants to enact a policy of improved capacity scheduling across the Railbelt, or perhaps open new power markets, that would depend on actions taken by the transco, Dan Chay, president of the board of Homer Electric Association, suggested.
The RCA has scheduled two other public meetings, one on Oct. 10 and one on Oct. 24, to review other aspects of electrical system unification: economic dispatch, RRC formation and reliability standards. Commissioner Robert Pickett said that in November he plans to institute a new rule-making docket that will specifically address the enforcement of unified reliability standards.
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