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Grid plan moving Utilities look to modify management, operation across Alaska Railbelt ALAN BAILEY Petroleum News
Electric utilities along the Alaska Railbelt are moving forward with developing plans for the unification of the management and operation of the Railbelt transmission grid, Brian Hickey, manager, grid development, Chugach Electric Association, told Law Seminars International’s Energy in Alaska conference on Dec. 8.
The utilities are investigating the establishment of a unified operator for management of the grid, and a transmission company to operate the grid. By the second quarter of 2016 the utilities hope to seek approvals for proposed governance arrangements, with this to be followed by an application for regulatory approval. That could lead to the startup of the new management and operational arrangements by the first quarter of 2018, Hickey said.
Currently various components of the grid, stretching from Homer in the south to Fairbanks in the north, are owned and operated by five independent utilities and the state of Alaska. Through improved efficiency resulting from the consolidation of the fragmented grid management, Railbelt electricity consumers could see reductions of anywhere from $50 million to $150 million in their total annual electricity costs, which currently amount to about $900 million, Hickey said. Those cost benefit estimates came from computer modeling of the impacts of a range of improvements in grid operations as a result of grid unification, he said.
RCA investigation The operation of the aging Railbelt grid has long been a subject of debate. And in June, following a directive from the state Legislature, the Regulatory Commission of Alaska reported on the results of an investigation that it had carried out into the manner in which the grid is operated. The commission concluded that the grid should be operated by a single independent company, regulated as a public utility. In the interests of encouraging a voluntary approach to the situation, the commission required the Railbelt utilities to submit reports by Sept. 30 and Dec. 31 on their efforts to develop an independent transmission company.
In the first of these reports, filed at the end of September, the utilities told the commission that they had been working together and with American Transmission Co. LLC to establish and endorse the principles for the voluntary formation of a Railbelt transmission company, or transco. American Transmission Co. operates a transmission grid in Wisconsin and the Upper Peninsula of Michigan, as a consequence of a similar transition in grid management to what is envisaged for the Railbelt, the utilities told the commission.
Hickey told the Energy in Alaska conference that the report to be delivered at the end of December will include a business plan for what the utilities are doing and will indicate that significant progress has been made.
Economic dispatch Compared with the huge electricity markets in the Lower 48, Alaska does not have a truly competitive market, Hickey said. But there is scope in Alaska for the use of what is called “economic dispatch,” the switching in and out of power generation facilities to make the most economically efficient use of the facilities that are available. It is also easier to integrate renewable energy sources into a unified grid than into a series of smaller grids, Hickey said.
The primary sources of cost savings in a unified grid would be the ability to make optimum use around the Railbelt of cheap power from the Bradley Lake hydropower system, in the southern Kenai Peninsula, and the potential access in Fairbanks to electricity from gas-fired power generation in Southcentral Alaska, Hickey said. Currently this grid-wide use of the cheaper power sources is constrained by congestion in the transmission system, with the grid’s current business model preventing investment in additional transmission capacity, he said.
Rate pancaking Unified operation of the grid would also eliminate a phenomenon called rate pancaking, the stacking onto each other of the fees charged by each utility when power is transmitted across multiple sectors of the grid, each with a different ownership. Under a pancaking system, as at present, the fee that one utility pays for “wheeling” power through another utility’s system includes the fixed costs of that second utility’s facilities, thus obscuring the potential benefits of fuel costs savings that might be achieved through the wheeling arrangement, Hickey explained. But, while those fixed costs have to be recovered, regardless of the fee structure, the variable fuel costs can be minimized through the optimum use of appropriate power generation facilities, he said.
In addition, with one utility being reluctant because of the rate structure to wheel its power through another utility’s infrastructure, that second utility may have difficulty in funding maintenance of its facilities, Hickey explained. Moreover, the costs incurred under the pancaking of rates render the economic dispatch of power impractical, he said.
A fragmentation of the power load balancing areas within the grid since 2013, because of the expiry of some long-term power supply agreements, has compounded the problems, Hickey said.
Transco and USO To resolve these various problems, the utilities propose instigating a transco that would operate, maintain and invest in the entire transmission system. A separate organization called a unified system operator, or USO, would develop plans for maintaining and building out the transmission grid. The USO would maintain and enforce reliability standards for the grid, and would also direct the economic dispatch of power on the grid.
The transco would be a for-profit, regulated utility, charging fees for use of the grid to achieve a return on the equity invested in the grid assets. The USO, on the other hand, would have no stake in any generation or transmission entities but would charge fees simply to recover its operating costs. A governance board, with membership from the utilities and various stakeholders in the transmission grid, would oversee the USO’s operations.
The utilities have been engaging with grid stakeholders to align people on a route forward. Currently four of the six Railbelt utilities are on board with the USO concept, with Anchorage utility Municipal Light & Power being undecided, and with Homer Electric Association opposed, Hickey said. All of the utilities except Matanuska Electric Association, which is undecided, agree with the principle of instigating a transco, he said. The utilities that have bought into the transco concept have formed a joint development agreement and have been working on a business plan, a tariff and a draft certificate application for the regulatory commission, Hickey said.
Although the implementation of a transco would reallocate transmission costs among the transmission grid users, with costs dropping for some and increasing for others, the overall cost benefits to be gained from the unified grid arrangements would swamp those transmission cost differentials, Hickey commented.
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