Utilities update RCA on Railbelt grid upgrades

Leaders of the state’s largest electric utilities submitted a draft plan to state regulators on Dec. 22 outlining how they will address more than $900 million of needed infrastructure upgrades.

The early-stage business plan, developed in conjunction with Wisconsin-based American Transmission Co., is an update for the Regulatory Commission of Alaska on the utilities’ efforts to form the Alaska Railbelt Transmission Co.

A Railbelt region electric transmission company, commonly referenced as a TRANSCO, would eliminate the disparate management of the region’s aging electric transmission system and bring it under one entity.

In theory, operational savings drawn from sole control of the Railbelt’s transmission lines and substations would ultimately benefit ratepayers through lower electric rates. More important, perhaps, would be the ability to spur investment in and improve the reliability of Railbelt transmission infrastructure.

The six utilities, from Homer Electric Association to Golden Valley Electric Association in the Interior, signed a nonbinding memorandum of understanding with American Transmission Co. in December 2014 to examine the formation of a Railbelt TRANSCO.

Those six utilities provide about 80 percent of Alaskans with power.

The RCA released a report at the behest of the Legislature last June that was critical of the utilities’ collective lack of substantive action to form a TRANSCO, which is assumed to be the best path towards addressing the Railbelt’s electric transmission issues. If the utilities did not take meaningful steps to voluntarily form a TRANSCO, the RCA warned it would seek legislative authority to handle the situation itself.

The latest progress report to on a Railbelt TRANSCO projects a certificate of public convenience and necessity application, essentially a utility’s business license, could be submitted to the RCA by fall 2016. That could have a TRANSCO up and running by the spring of 2017, based on the utilities’ timeline.

The utilities expect to have the potential benefits of a TRANSCO validated and a fair cost-recovery structure for transmission assets settled by next spring. A detailed, formal TRANSCO business model would be developed at the same time.

The utilities would then take the agreements to their governing bodies — director boards and local governments — sometime next fall.

Which utilities participate in the TRANSCO will largely depend on the benefits that can be identified for their individual ratepayers, the report states.

If all six regional electric utilities participate, the TRANSCO would be governed by representatives from each utility, American Transmission Co., five independent directors and its CEO on a large board of directors.

Some independent power producers in the state have criticized the Railbelt utilities for allegedly attempting to retain control of the transmission system by limiting access to it, thus squashing competition. Utility leaders collectively claim they will gladly purchase power from the cheapest source, regardless of who provides it.

The challenge in the current system is keeping power from nontraditional sources economic as it travels the Railbelt on lines with multiple owners, each with their own transmission tariff needed to pay for the infrastructure. This often leads to what is known as tariff, or rate, pancaking in the industry.

American Transmission Co. Business Development Manager Eric Myers said a lot of progress has been made casting an outline for a Railbelt TRANSCO, but noted it’s hard for any utility to commit to the idea at this point.

“We’re in the middle of a process of coming up with a workable business model that can serve as a basis for decisions by the companies, and consequently by the regulators, but we’ve got to get all the details down,” Myers said.

A 2013 Alaska Energy Authority study estimated $903 million worth of transmission upgrades are needed in the Railbelt to bring the entire system up to single redundancy. AEA is working with a consultant to update that study.

Transmission investments in Alaska’s Railbelt would not only improve reliability — some areas are linked with a single transmission line — but could also save consumers money through economic dispatch.

AEA has estimated that maximum use of the Railbelt’s cheapest power sources could save ratepayers between $80 million and $240 million per year.

Bottlenecks in the system prevent adequate amounts of economic power from being shipped across the lines, forcing power to be purchased from more expensive sources.

If AEA’s identified savings are actually realized will likely depend on how infrastructure investments are financed through the inner workings of a Railbelt TRANSCO.

Myers said the first priority would probably be de-constraining state-owned Bradley Lake hydropower near Homer.

“(Bradley Lake) is really inexpensive power and the more you get that power to market at peak times when demand is high — there’s value in that,” he said.

Myers noted that the biggest cost savings along the Railbelt is traditionally avoiding oil-generated power, primarily from Golden Valley Electric Association. Low oil prices, if they last long-term, could challenge the economics of some otherwise obvious line capacity improvements.

Ownership of Railbelt transmission lines is divided amongst the utilities and their service areas. The Alaska Energy Authority also manages 173 miles of electric intertie owned by the state between Willow and Healy.

Improving transmission is a financial challenge for the individual utilities because expansive service areas and small customer bases can make projects that might benefit consumers elsewhere in the region a large cost burden to bear.

Selling or leasing existing transmission infrastructure to the TRANSCO would allow the utilities to pool money for capital projects and allow ATC to invest in transmission, either directly or by attracting third-party investment.

Milwaukee-area American Transmission Co. was the first multi-state, transmission-only company when it formed in 2001 to prioritize investment for the owner utilities in its service area of eastern Wisconsin and Michigan’s Upper Peninsula.

By 2021, the fourth year full year of operation for a Railbelt TRANSCO under the current proposal, the transmission utility’s gross annual cost is estimated at $11.6 million.  At the same time, it’s projected to save the utilities more than $4.3 million per year, making a TRANSCO’s net cost in 2021 about $7.3 million, a cost that equates to an additional 96 cents per month on an average consumer’s bill.

The economic benefits of a TRANSCO would not likely be manifested directly in significant savings on ratepayers’ electric bills. Rather, a TRANSCO would slow or stall significant rate increases by providing the most economic power on a more reliable transmission system.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
12/29/2015 - 3:55pm

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