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Vol. 25, No.13 Week of March 29, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

SB 123 goes to governor

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Legislature passes bill enabling formation of electric reliability organization

Alan Bailey

for Petroleum News

The Alaska Legislature has passed Senate Bill 123, a bill designed to enable the formation of an electric reliability organization, in particular for the Alaska Railbelt electricity system. The bill also enacts a statute that gives the Regulatory Commission of Alaska authority to regulate the construction of new major generation and transmission facilities in the electricity grid, and to regulate integrated resource planning for the system. The bill now goes to the governor for his signature.

The purpose of the legislation is to ensure a more coordinated and efficient approach to the overall management and operation of the electrical system in the Railbelt, to minimize the cost of electricity for consumers while also assuring a high level of supply reliability.

In passing SB 123 the legislators added the text of another bill, Senate Bill 81, presumably to allow the simultaneous passage of both bills. SB 81 makes changes to the statutes governing the operation of electrical and telecommunications cooperatives - the existing statutes date from 1959 and need updating to reflect the use of modern technologies and communication capabilities.

Fragmented grid management

The Railbelt electrical system, which runs from the southern Kenai Peninsula through Southcentral Alaskan north to the Fairbanks region, is owned and operated by six independent electric utilities and the State of Alaska. And, while the utilities have achieved a high level of reliability in supplying electricity to their customers, there are significant concerns regarding the need for a more coordinated approach to the provision and maintenance of generation and transmission facilities across the system, and for open access to the system for independent power producers. There are also concerns relating to the need for a consistent set of mandated reliability standards, including standards for cybersecurity and physical security.

RRC agreement

In December all six of the Railbelt utilities signed a memorandum of understanding for the formation of the Railbelt Reliability Council, in effect an electric reliability organization for the Railbelt. The RRC will maintain and mandate reliability standards; administer rules for open access to the grid; conduct Railbelt-wide system planning; and investigate the economic value of security constrained economic dispatch for all or part of the system. Economic dispatch involves the continuous use of the most cost effective power generation that is securely available.

But the RRC also requires RCA regulation and oversight, something that is not possible under current statutes defining how the RCA can operate. Hence part of the urgency to pass SB 123, to enable the implementation of the RRC to proceed this year.

Started in 2014

The passage of SB 123 and the initiative to form the RRC are outcomes of a process that started in 2014, when the Legislature directed the RCA to investigate the manner in which the Railbelt electrical system was operated. Although covering a large geographical area, the Railbelt grid is small in terms of its electrical load and generation capacity. But the evolution of the system through its fragmented ownership has resulted in inefficiencies. There has been a lack of coordination in the development of new generation capacity, for example. The pancaking of electricity transmission fees across sectors of the grid owned by different entities elevates transmission costs. The business economics of making major upgrades to the transmission system are very challenging. And it is difficult for independent power producers, including purveyors of renewable energy, to connect to the system.

2015 report

In 2015 the RCA responded to the Legislature by submitting a report, recommending various changes to the management of the system. The commission recommended the implementation of merit-ordered economic dispatch; the formation of a single transmission company, to operate the transmission grid; and the implementation of a single set of enforced reliability standards. The commission also opened a docket to investigate the formation of some form of unified operator, to oversee the management of the entire electrical system.

Since then the commission has been encouraging voluntary efforts by the utilities to follow the commissionís recommendations.

The utilities had been making significant progress towards the implementation of economic dispatch, especially in Southcentral Alaska. However, the initiatives for achieving this were placed on hold, pending the proposed purchase of Anchorage based Municipal Light & Power by Chugach Electric Association.

In April 2018 the utilities filed an agreed set of reliability standards and have since added cybersecurity standards. Maintenance and enforcement of these standards would become a function of the RRC, with regulatory oversight by the RCA, enabled by the passage of SB 123.

In March 2019 four of the utilities and the American Transmission Co. filed an application for RCA certification of a transmission company. However, this application was withdrawn later in the year following objections from some utilities about the manner in which the proposed transco was structured and would operate. Key concerns included the governance of the proposed company, which would have operated as a for-profit corporation.

Some utilities expressed a view that the RRC should be formed first, to provide governance of the entire system. GDS Associates, the consultancy involved in the development of the RRC concept, has since suggested that functional control of the transmission grid could at some stage be made an additional responsibility of the RRC. However, this issue has yet to be resolved.

Governance

Effective and balanced governance will be a critical factor in the success of future oversight of the electrical system. On the one hand, the utilities have considerable expertise in the technicalities and business of operating the system. On the other hand, there are other stakeholders, including independent power producers, consumers and the state, all of whom have significant interests in the system.

The RRC will be governed by a board with six members representing the six Railbelt utilities and six independent members representing other stakeholders. The RRC CEO would have a tie-breaking vote on board decisions. Independent members would consist of two representatives from independent power producers, one member representing consumer interests, a representative from the Alaska Energy Authority and two non-affiliated members. The RCA and the stateís Regulatory Affairs and Public Advocacy Section would have non-voting board seats.



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