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Options and benefits for Railbelt grid Chugach Electric sponsored report points to significant value from unified management of regional power transmission system Alan Bailey Petroleum News
A report prepared by consultancy National Economic Research Associates for Chugach Electric Association has indicated that there would be significant economic benefit in placing the Alaska Railbelt power transmission grid under a unified management arrangement, rather than having the grid continue to be operated by five independent utilities. Chugach Electric, one of the utilities that currently operates the grid, commissioned the report for filing with the Regulatory Commission of Alaska, in conjunction with an investigation by the commission into the manner in which the grid is managed.
The state Legislature has mandated that the commission investigate whether there would be benefit in transferring the management of the grid to some form of independent operator - the commission has been inviting testimony for its investigation.
Five scenarios The new report considers five possible future transmission grid scenarios:
1. Continuation of the status quo
2. The encouragement of voluntary bilateral agreements between utilities, with each utility continuing to plan for and invest in its own systems
3. The implementation of a new organization, referred to as a unified system operator, or USO, to coordinate investments in the grid, and to take responsibility for coordinating reliability issues and for the economic dispatch of electrical power over the grid
4. The implementation of a new organization that combines the functions of a USO with those of a transmission company, or transco, a for-profit company that operates, maintains and invests in transmission grid assets
5. A similar arrangement to option 4, but with the USO and transco established as separate entities
The report dismisses as impractical in the small Alaska power market the implementation of a type of independent grid operator found in the Lower 48, where the operator oversees a complex power market designed to optimize costs through market competition. In Alaska it is more appropriate to minimize costs to consumers by using economic dispatch to maximize the use of the most efficient generation units, while taking into account the need for power supply security, the report suggests.
And, by estimating the cost benefits net of implementation and transmission upgrade costs over a 50-year period, discounted back to 2015 dollars, the report compares the overall potential value of each of the options it considers.
The report indicates that option one, the status quo, is the worst option, since this option would have no net benefit and would, therefore, result in electricity consumers missing up to $792 million in benefits that might be gained from other possibilities.
Economic dispatch In a June 17 presentation to the commission, Carl Peterson from National Economic Research Associates explained that the quantified benefits from options two to five would emanate from economic dispatch, essentially from reducing the “out-of-merit” use of relatively inefficient power units.
The report sees option two as largely theoretical, given the need for the utilities to be willing and able to participate in the required agreements, and given that utilities do not appear to be voluntarily going down this route. Peterson told the commissioners that the report assumes that the implementation of option two would result in some modest upgrades to the transmission grid in Southcentral Alaska. The estimated net benefit for this option is $240 million.
Option three could create a net benefit of $581 million, through the enforcing of economic dispatch by a USO, the report says.
The report indicates that still higher benefits, in the order of $792 million, could be realized in options four or five, where a transco takes over grid operations from the regional utilities. This higher level of benefit would result from the ability of a transco to invest in grid infrastructure upgrades that would decongest the grid and, thus, allow still greater efficiency in power generation usage. In fact, this option assumes that the transco would implement major (and expensive) upgrades that have been suggested both for the northern transmission intertie from Southcentral Alaska to Fairbanks, and for the grid linking the Kenai Peninsula to the rest of Southcentral, Peterson said.
The distinction between options four and five purely relates to the question of whether the USO and transco functions should be separated, or whether both functions could operate within a single business entity. The report favors option five, involving the separation of the USO and transco functions, given the potential of conflicts of interest between the USO’s need to plan and oversee power supply reliability and the efficient use of generation capabilities, and the transco’s incentives to make profits from investments in the transmission infrastructure, rather than from generation.
Major reliability benefits The report comments that, while Lower 48 transmission system upgrades are typically justified entirely on the basis of improved power supply reliability, the potential reliability improvements achievable in Alaska from upgrades that a transco might implement would likely be much higher than the typical reliability benefits seen elsewhere in North America. And those reliability benefits would come on top of the substantial economic benefits resulting from improved economic dispatch, the report says.
Reliability benefits from grid upgrades in Alaska would be particularly substantial because the current Railbelt grid suffers from a lack of multiple transmission routes and, thus, a lack of redundancy should some portion of the grid go out of operation.
The report also says that it does not present an assessment of the resilience benefits to be gained from grid upgrades. “Resilience” refers to the capacity of the grid to flexibly accommodate major changes in grid usage, such as meeting the electrical power needs of a new mine or accommodating the disruption from a fire or other disaster at a major power generating plant.
Other unquantified benefits from grid upgrades and grid management changes include potential cost savings in the provision of reserve power, the general economic benefits gained from the availability to consumers of lower cost power, the improved integration of renewable resources and the deferral of the construction of additional generating capacity, the report says.
Commission leadership The report comments that the achievement of option five, the preferred option, would require leadership from the commission. But the current balkanized grid, operated by multiple utilities, cannot implement power-security-constrained, Railbelt-wide economic dispatch; and cannot conduct the Railbelt-wide planning of transmission upgrades, the report says.
Moreover, under current arrangements, individual utility boards have no means of justifying transmission upgrades which bring Railbelt-wide benefits but which must be paid for by utility-specific customers. A rate structure is needed in which the cost savings from grid improvements cover the cost of the improvements, with the balance of the savings then going to electricity consumers. Under the current rate structure, all cost savings are passed to customers, the report says.
The report also emphasizes that the formation of a USO and a transco does not automatically mean that all currently envisaged transmission upgrades would necessarily happen. Rather, the organizations would have to conduct a comprehensive cost-benefit analysis before committing to any new investment in the infrastructure. However, following the modest cost of implementing the recommended organizational structure, a platform would be in place, capable of carrying out beneficial improvements to the grid. Power production cost savings achievable under the recommended organization would by themselves more than cover the costs of the organizational changes. And the recommended organizational structure could make rational decisions on grid upgrades, the report says.
The current disincentive for transmission grid investment in the Alaska Railbelt is a key issue, Peterson told the commissioners.
“The ratepayers of Alaska, we believe, are paying too much for their electricity over the long term,” he said.
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