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Providing coverage of Alaska and northern Canada's oil and gas industry
May 2019

Vol. 24, No.18 Week of May 05, 2019

RCA reviews grid unification, considers letter to Legislature

Alan Bailey

Petroleum News

In one of a series of Regulatory Commission of Alaska public meetings that will lead to a letter to the Alaska Legislature on the status of unification efforts for the Alaska Railbelt electrical system, on April 24 the RCA commissioners reviewed some of the steps taken by the utilities in those endeavors. The commissioners also reviewed comments they have received on potential statutory language, designed to clarify the commission’s legal authority over changes to the operation of the electrical system: The comments and the commissioners’ responses highlighted some of the complex issues involved in grid unification.

Big area, small system

The interconnected electrical system, which extends from the southern Kenai Peninsula north through Southcentral Alaska to the Fairbanks region of the Interior, is owned and operated by six independent utilities and the state. Although covering a large geographic area, the entire system is tiny, in terms of the number of consumers and the electrical load, when compared with load balancing areas elsewhere in North America.

In 2015, following a directive from the Legislature to investigate the case for electrical system unification, the commission issued a series of recommendations for more unified arrangements. Since then the commission has been facilitating voluntary efforts by the utilities to satisfy the commission’s requirements. But these efforts, while making progress, have been taking significantly longer than the commission had hoped and are still some distance from the eventual goal.

The overall objective is to minimize the cost of electricity for consumers within the constraints of acceptable supply reliability. There are also issues relating to the ease of access to the system for independent power producers, including renewable energy facilities.

But pulling together a system that has grown over the years as a series of independent entities is far from simple.

Components of unification

One aspect of unification is the interchange of power generation capacity through an arrangement referred to as merit order economic dispatch, in which the cheapest available power generation would continuously be used across the grid. Another aspect is the formation of a single transmission company to operate the transmission network that connects the service areas of the various utilities. Through a consistent transmission fee structure and open access to the system, a transmission company could facilitate the sharing of power across the grid and access for independent power producers. A transmission company could also become a vehicle for investment in any necessary grid upgrades, thereby overcoming investment constraints that result from grid balkanization.

Particularly critical to the unification efforts is the enforcement of a uniform set of reliability standards for the transmission network and other high-voltage components of the electrical system.

Underpinning all of this there needs to be what is referred to as an electric reliability organization, or ERO, an entity that would provide management and policy oversight of the entire system, with the authority to enforce policies and reliability standards.

Progress on reliability standards

Most progress has been made in the formation of an ERO and moves towards the enforcement of a uniform set of reliability standards. In April 2018 the utilities filed a unified set of standards for the entire Railbelt. And in the fall of the same year the utilities announced that they had signed a memorandum of understanding for the formation of an entity called the Railbelt Reliability Council, or RRC, a form of ERO, to enforce reliability standards for the system; enforce system-wide interconnection protocols for the grid; conduct system-wide integrated resource planning; and evaluate the economic dispatch of power generation in the system.

Since then, the utilities have been working to fill in some significant gaps in the reliability standards, especially in the area of standards for cybersecurity. And the commission has been considering issues relating to its statutory authority over the proposed RRC - hence the potential statutory language discussed during the April 24 meeting.

A transmission company

In February of this year four of the Railbelt utilities told the commission that they and the American Transmission Co. had formed the Alaska Railbelt Transmission LLC, or ART, for operating the transmission system. ART filed an application for a certificate from the RRC. But two utilities, Chugach Electric Association and Matanuska Electric Association, both of which own sectors of the transmission grid, have not joined ART. And there is uncertainty regarding ART’s potential jurisdiction over power transmitted from the state-owned Bradley Lake hydropower facility in the southern Kenai Peninsula.

Interchanging energy

In terms of making use of least-cost power generation, the utilities have been supporting each other through the frequent use of what are termed economy energy sales, the sale of power generated by one utility to another utility. However, the commission views this type of arrangement as falling short of economic dispatch. In 2017 the three Southcentral Alaska utilities - Chugach Electric Association, Municipal Light & Power and Matanuska Electric Association - announced an agreement to implement economic dispatch across their service areas. The utilities developed protocols for the implementation and conducted some testing of the arrangements. However, all of this came to a halt in 2018 after Chugach Electric embarked on a project involving the purchase of ML&P. Chugach Electric said it was not realistic to try to proceed with the economic dispatch initiative in parallel with dealing with the complications of the ML&P purchase. MEA has expressed a willingness to revamp the economic dispatch initiative, as soon as it becomes possible to do so.

The commissioners have expressed their extreme frustration that so far the efforts towards economic dispatch have come to naught.

Statutory authority

The commission’s worries over its statutory authority particularly relate to the RRC proposal. The implementation of the RRC, regulated by the commission, would diverge from the commission’s traditional role of regulating individual utilities and would involve the delegation of some oversight authority from the commission to the RRC.

During the April 24 RCA meeting, Commissioner Antony Scott reflected on comments received on the commission’s statutory language. One particularly contentious issue is the question of the governance of an ERO and the composition of an ERO board of directors. While some stakeholders in the electrical system are anxious that the board should be fully independent from the utilities, the utilities argue that they have the technical expertise necessary for making practical policy decisions. The RRC proposal involves a board with six utility members and six non-utility members. Scott said that the proposed statutory language leaves the governance question somewhat open, with an expectation of clarification during the development of regulations that would apply to the ERO. Commissioner Robert Pickett commented that the exact meaning of the independence of the ERO does still require definition.

Delegation of authority

Another issue emerging from the comments revolves around the extent to which the RCA would delegate its authority to an ERO, and the extent to which the ERO could assess penalties against individual utilities. The emerging concept is that the ERO would maintain and enforce a set of reliability standards, while the commission would have ultimate authority over those standards and their enforcement. The standards would be part of the ERO’s tariff, which would require commission approval.

And, while the ERO could impose penalties against utilities for infringing the ERO’s rules, an aggrieved party would be able to appeal to the commission in the event of a dispute over ERO actions. The intent is to have an efficient process, with the commission acting as a backstop, having ultimate statutory authority over the system, Scott explained.

Integrated resource planning

During the meeting there was discussion about integrated resource planning, involving the advance planning of future transmission and generation developments. While the ERO would conduct integrated resource planning, the commission’s suggested statutory language gives the commission approval authority over the ERO’s plans. The commission also seeks authority over the pre-approval of the construction of major new generation and transmission assets.

Some commenters on the proposed language questioned whether the purpose of the planning, defined in statute, should be least-cost planning: What, in fact, does the term “least cost” mean, and is the term too constrictive? Scott said that, in his view, the idea is to plan for least-cost solutions, within the constraints of acceptable reliability.

Pickett commented that the cheapest option may not necessarily be the best option. Scott agreed, saying that he anticipates the RCA developing a rule spelling out the characteristics of an integrated resource plan.

Scott and Pickett also discussed another issue that has been raised, regarding the relative timing of ERO and transmission company formation. Do both organizations have to be formed concurrently, to ensure appropriate governance for the transmission company while also establishing a business structure that enables the ERO’s plans to be carried out?

- ALAN BAILEY






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