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RCA order dings CEA over power pooling
Says that utility infringed terms of agreement with MEA through unilateral imposition of change in gas pricing for pooled energy
Alan Bailey for Petroleum News
On March 3 the Regulatory Commission of Alaska issued an order negating a decision by Chugach Electric Association to unilaterally alter the power pricing arrangements for tight power pooling between Chugach Electric and Matanuska Electric Association. The commission characterized Chugach Electric’s unilateral action as “an unreasonable management practice.”
The RCA mandated the power pooling arrangement as one of the conditions under which the commission approved Chugach Electric’s acquisition of Municipal Light & Power in 2020. Under an approved tariff for the tight power pool, there was to be an 18-month implementation period, starting on Nov. 2, 2020. The implementation of the tight pool arrangements subsequently proceeded, as planned, with the actual tight pooling starting in April 2021 and continuing thereafter. The full implementation of the tight pool arrangements was to be completed by April 2022.
Maximum use of most efficient generation The concept behind the tight pool is that the utilities share power generation output in a manner that makes maximum use of their most efficient power generation facilities, thus minimizing the cost of power for electricity consumers. In Anchorage Chugach Electric operates two state-of-the-art combined cycle gas fired power stations: the Southcentral Power Project and the George M. Sullivan Plant. To the north of Anchorage MEA operates the modern Eklutna Generation Station. Chugach Electric’s two combined cycle plants work most efficiently when operating at maximum capacity. MEA’s EGS plant uses an array of gas-fueled reciprocating engines, an arrangement that enables the rapid ramping up and down of power output, to follow variations in power demand or power output from other generation facilities.
Sharing the cost savings A complication arises from the manner in which the utilities share the cost savings from the power pooling, given that each utility is operating its own power generation - a business arrangement is needed whereby the utilities can equably benefit from the shared generation. Under an agreement between the two utilities, the utilities ran a model for calculating the daily cost savings from the power pooling, with these savings being equally split between the utilities.
However, in December 2021 Chugach Electric notified MEA that from Jan. 1, 2022, Chugach Electric was going to offer power pooling transactions at a fixed price of $13 per megawatt hour. MEA notified Chugach Electric that it did not agree with this fixed price methodology and that the price was too high to justify purchasing power from Chugach Electric. In response, Chugach Electric reduced the fixed price to $10.75 per megawatt hour. MEA then said that it would not make power pool transactions under these terms - power pooling subsequently ceased for about 10 days. The pooling then restarted and has continued at a fixed settlement price of $10.30 beyond the April 2022, target time for finalizing the tight pool arrangements.
On March 3, 2022, the RCA opened a docket to investigate the situation. In its subsequent brief in the docket, Chugach Electric argued that there had been major flaws in the settlement arrangements for the gas pricing. The utility said that it would likely take several months to develop a new settlement procedure and that, meantime, the utilities should price their pooled gas using their economy energy sales pricing, the price that the utilities normally use for selling power to each other outside of a tight pool. Chugach Electric said that it believed that this change in pricing arrangements was consistent with the power pooling agreement between the two utilities.
MEA disagreed, arguing that Chugach Electric had unilaterally discontinued the use of the agreed gas price settlement method by reverting to “loose pool” arrangements at a fixed price.
Agreed responsibility for settlement process In its March 3, 2023, order, closing the docket, the commission said that, under the terms of the power pooling agreement between Chugach Electric and MEA, an operating committee with representation from each utility has the responsibility to develop, establish and implement the settlement process for power pooling transactions.
The commission found that, following implementation of the power pool, transaction settlements had continued under the initial agreement approved by the operating committee for an equal split of power pool savings. There is no evidence for an operating committee decision to change this agreed mechanism, the RCA order says. Thus, in failing to settle power pool transactions under this mechanism after Jan. 3, 2022, Chugach Electric has been in breach of the power pooling agreement, the commission found.
Consequently, power pool transactions must now revert to that equal split mechanism, as approved by the operating committee, the RCA ordered. Furthermore, Chugach Electric must issue corrected invoices for power pool transactions that took place after Jan. 3, 2022, through March 3, 2023, the commission ordered.
The commission also warned the utilities that it is considering opening two new dockets. One docket would investigate whether the power pool settlement operating procedure needs to be approved by the RCA and to be included in the utility tariffs. The other docket would investigate why the utilities have not completed their implementation of their tight pool arrangements within the timeframe required under the terms for the ML&P purchase.
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