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What now for Railbelt electricity? Various initiatives head toward some major decision points over how the transmission grid should be managed, operated and regulated ALAN BAILEY Petroleum News
With Homer Electric Association making moves to cease being regulated by the Regulatory Commission of Alaska while the commission itself continues to monitor efforts by the six Alaska Railbelt power utilities to operate the Railbelt power transmission grid in a more unified manner, it is perhaps time to step back and take a holistic view of the various issues at stake and potential ways forward.
The ultimate objective for the various entities involved in the Railbelt power system is, or should be, to supply power to consumers at the least cost while maintaining an acceptable level of supply reliability. There are also issues relating to the connection of new renewable energy sources to the system, to reduce carbon emissions and diversify the sources of power - proponents of renewable energy argue that these energy sources can provide stable electricity pricing, decoupled from volatile fossil fuel costs.
A single machine The Railbelt power generation, transmission and distribution system operates as a single, integrated machine, with electrical voltage and frequency having to be carefully synchronized along its entire length, from the southern Kenai Peninsula, north to the Fairbanks area. But, because of the way the system has evolved, different sectors of the system, including the various sectors of the transmission grid, are owned and operated by different utilities. The utilities have worked together successfully over the years to maintain required electrical synchronization and to use their power generation assets to back each other up, supplying each other with power, as necessary.
On the other hand, the aging transmission grid does suffer from flaws. In particular, there are just single transmission lines with relatively modest throughput capacities connecting the highly populated region of Anchorage and the Matanuska-Susitna Borough to Fairbanks in the north, and to the Kenai Peninsula in the south. Utilities at the far ends of these lengthy “extension cords” worry about having sufficient local generation capacity, should one of the lines fail.
The preponderance of power on the grid comes from various natural gas fueled power stations in Southcentral Alaska. The cheapest source of power is the Bradley Lake hydropower facility in the southern Kenai Peninsula. Fairbanks-based utility Golden Valley Electric Association generates power from coal, diesel and naphtha power plants. Three wind farms also supply some power into the grid.
Natural monopolies As natural monopolies, all of the utilities, at the time of writing, are regulated by the Regulatory Commission of Alaska. A natural monopoly is a company that is a monopoly by nature of its business. It makes little sense, for example, to build multiple power infrastructures in a region, to enable multiple, competing utilities to operate. But, in the absence of competition, there is no means of determining a market price for electricity. Hence the argument for government regulation to ensure fair pricing typically based on the recovery by a utility of its costs plus some reasonable rate of return on its investments. Moreover, in a monopolistic situation, dissatisfied consumers do not have the option of transferring to another service provider - instead, the government regulator provides a vehicle for ensuring quality of service.
A common counterargument to utility regulation is that the regulation stifles innovation by placing the utilities in a straight jacket of “cost plus” pricing, with little incentive to improve profitability through improved efficiency, for example. And the Alaska electricity utilities are cooperatives governed by member-elected boards, with profits going to the membership.
HEA deregulation ballot Homer Electric Association has been conducting an election of its members to determine whether it will deregulate from the RCA. The deregulation vote only applies to HEA’s power distribution system on the Kenai Peninsula. But, if the vote passes, another vote will deregulate the utility’s generation and transmission assets.
HEA argues that deregulation will enable heightened flexibility and efficiency in modifying and upgrading its business while also eliminating the cost involved in RCA hearings. The utility says that ratepayers dissatisfied with HEA’s services will be able to complain to the HEA board and ultimately to make appeal through Alaska Superior Court. Critics of the deregulation initiative argue that the utility board is too embedded with the utility management to be impartial, and that court appeals would be lengthy and expensive.
An interconnected grid The interconnected nature and multi-utility use of the transmission grid, a natural monopoly in itself, complicates the regulatory issues. There is continuing debate over the extent to which the transmission grid should be managed and operated as a single entity, rather than by six independent utilities, and what authority, if any, the RCA has over this question. The state Legislature tasked RCA with investigating the grid unification question and in June 2015 the commission issued an opinion that unification should proceed. Since then, RCA has been overseeing voluntary efforts by the utilities to move towards a more unified approach.
Three key issues relating to unification moves are the desire to make maximum use of the cheapest power generation available across the grid, the need for a mechanism for investing in transmission grid upgrades that will benefit multiple utilities and the establishment of a fair mechanism for non-utility power providers to connect to the grid. Another important issue is the establishment of a consistent set of reliability standards for the grid as a whole - at present there are two sets of standards.
If the RCA becomes dissatisfied with progress towards the voluntary unifying efforts, the agency could presumably recommend new legislation clarifying the commission’s authority over the various unification issues.
Economic dispatch In terms of making best use of cheap power, the utilities regularly exchange power under arrangements known as economy sales. However, the holy grail of generation efficiency is a system called economic dispatch, in which the cheapest sources of power are dispatched as much as possible across the grid on a continuous basis. The utilities have been conducting computer modeling, simulating the potential benefits of economic dispatch in the Railbelt, but they have yet to announce any results from this effort.
Meanwhile, two of the utilities, Chugach Electric Association and Municipal Light & Power, are establishing economic dispatch in the Anchorage area, pooling the use of their new high-efficiency gas fired plants in Anchorage. Matanuska Electric Association has said that it is going to join this power pool, thus putting MEA’s new power plant at Eklutna, north of Anchorage, into the power generation mix. Questions remain over how, whether or when this Southcentral “tight power pool” might extend to other parts of the Railbelt, especially given the limitations of the single transmission interties to the north and south.
System operator One key issue relating to a future economic dispatch system is the question of having an operator entity, known as a unified or independent system operator, to oversee the grid, adjudicating grid upgrades, setting rules for grid connection and operating the dispatch of power. The independence or otherwise of this entity from the utilities operating on the grid has become a contentious issue, with the utilities arguing that their expertise is needed on the system operator board while independent power producers want to see an independent board that can ensure a level playing field for all would-be grid users.
In 2011 the Railbelt utilities formed a company called the Alaska Railbelt Cooperative Transmission and Electric Co., or ARCTEC, to try to move forward on the system operator concept, but only four of the six Railbelt utilities are ARCTEC members. However, all of the utilities have been engaged in negotiations aimed at unifying the current transmission grid reliability standards.
Transmission company One solution that has been proposed for the issues surrounding investment in transmission grid upgrades is the formation of a transmission company, or transco, to own or lease, and operate, the various components of the grid infrastructure. The concept is that, as a private company, the transco could attract private investment in the grid, earning a return on investment through the rates charged for shipping power across the grid. And, by charging a consistent fee for power transmission, rather than having individual utilities pancaking their own individual fees onto the electrons traversing the grid cabling, transmission rates would cease to be an obstacle to the flexible use of the most appropriate power sources, proponents of grid unification say.
But the system operator, not the transco, would adjudicate over how the transmission grid is operated and what upgrades should be made.
The Railbelt utilities have been working with a transmission company from the Lower 48 to develop a plan for transco formation. The results of that endeavor are expected around the end of this year. Some people have expressed concern about the possibility of a single company having a monopoly over transmission grid construction projects.
Investment priorities And questions remain over how much investment in transmission grid upgrades can actually be afforded or justified. There is also contention over whether an upsurge in construction of new power generation in recent years has resulted in more generation than is actually needed. Although modern new generation plants have reduced power generation fuel consumption, the key parameter in Railbelt electricity costs, some utility electricity rates have increased significantly, to enable the recovery of the cost of generation facility construction.
Utilities have said that they have had to replace inefficient, aging and increasingly unreliable power generation systems, and that some excess capacity is required to ensure power supply reliability. Some people, on the other hand, have argued that some of the money spent on new generation could have better been deployed on upgrades to the transmission network, to enable more efficient use of power generation facilities.
Siting authority Another tricky issue revolves around the siting of new power generation, and whether the locations where generation facilities pump electrons into the grid best match the overall needs of electricity consumers - if a generation facility at one location swamps the capacity of the local transmission grid, that can impede the flow of power from some other facility. There have been discussions over whether, in fact, RCA should have generation siting authority, to ensure that locations of new generation capacity best meet the needs of Railbelt electricity consumers as a whole. And should the commission also have regulatory authority over transmission grid reliability?
The questions being debated and solutions being put forward for the future of the electrical system in the Railbelt are of great importance to the future economic well being of Railbelt residents and businesses. Changes to the system will impact the economy of the Railbelt for years to come.
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