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Vol. 25, No.31 Week of August 02, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Chugach Electric files for power pool; condition of ML&P purchase

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Alan Bailey

for Petroleum News

Anchorage-based utility Chugach Electric Association has filed a tariff advice with the Regulatory Commission of Alaska, requesting commission approval of the formation of a tight power pool with Matanuska Electric Association. Often termed security constrained economic dispatch, the concept behind the power pool is to share the continuous use of the most cost effective power generation, thus reducing the cost of electricity for consumers.

As one of the conditions for regulatory approval of Chugach Electricís planned purchase of Municipal Light & Power the commission requires Chugach Electric to establish economic dispatch with MEA - the commission sees the operation of a tight pool as a factor in ensuring that the electricity ratepayers are compensated for the amount that the price that Chugach Electric pays for ML&P exceeds ML&Pís book value.

The proposed power pool will only go into effect if Chugach Electric completes its purchase of ML&P. And the pooling agreement requires approval from the MEA and Chugach Electric boards.

Chugach Electric, ML&P and MEA had previously proposed a power pooling agreement in January 2017. However, that agreement was placed on hold, pending the proposed purchase of ML&P by Chugach Electric.

The key component of the tight power pool is the operation of a central function for managing the dispatch of power across both utilities, and to manage transactions involving the sale and purchase of energy with entities outside the power pool.

A variety of power plants

The utilities own and operate a combination of new, efficient generation plants, and older less efficient units. In particular Chugach Electric and ML&P jointly operate the Southcentral Power Project, a modern combined cycle, gas fired power plant in Anchorage. ML&P operates its modern Plant 2A combined cycle, gas fired plant, also in Anchorage. MEA has the Eklutna Generation Station, a modern power plant that uses gas-fueled reciprocating engines for power generation.

The utilities also obtain hydropower from Bradley Lake on the Kenai Peninsula and from the Eklutna hydroelectric power plant, just north of Anchorage. Chugach Electric purchases wind power from the Fire Island Wind Project, offshore Anchorage. MEA also uses some other hydropower and some solar power.

Presumably the ML&P acquisition would, in itself, result in the economic dispatch of power generation within the consolidated utility. However, the power pool with MEA would reduce the overall cost of fuel gas for the utilities by maximizing the optimum use of the more modern and efficient gas-fired units. Power pooling would also reduce operations and maintenance costs. Under the terms of the agreement, the utilities would equally share the net cost savings from the power pooling. And neither utility would charge the other for the transmission of power involved in pooling transactions across their networks.

Chugach Electric told the commission that the power pooling agreement will likely result in annual cost saving across the utilities of $4 million to $6 million. For Chugach Electric that would translate to a net operating cost reduction of $1.8 million to $2.8 million, a cost savings equivalent to an electricity rate reduction of 0.5 to 0.7%. Chugach Electric would incur an upfront implementation cost of about $300 million for establishing the power pool arrangements.

The utility is asking the RCA for approval in time to enable pooling transactions to begin no later than April 30, 2021 - that would be six months after the anticipated close of the ML&P acquisition on October 30, 2020.

Implementation period

An 18-month implementation period for the power pooling would start upon close of the ML&P purchase. Testing of the power pool arrangements would take place during the first six months of this period. The power pooling would then go into operation, with the remainder of the implementation period providing opportunities to further refine the pooled operations, agree on the combined load balancing area boundaries, and finalize dispatch and settlement arrangements for the pooled operations.

Given inherent uncertainties in the ultimate financial impacts of the pooling arrangements, the utilities plan to continuously monitor the efficiencies and cost savings achieved, with the possibility of modifying the pooling agreement to address any issues that may arise. Ultimately, if adequate benefits cannot be achieved, either utility can cancel the agreement. The utilities also reserve the right to terminate the agreement if the RCA seeks to impose conditions on the agreement that are unacceptable to the utilities.

- ALAN BAILEY



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