Utilities advancing transmission co., AEA refining cost estimates

  • The $369 million power plant in Anchorage was transferred to Chugach Electric Association and Municipal Light & Power on Jan. 31, 2013. The six Railbelt utilities are exploring an arrangement with a Wisconsin company to upgrade and manage power distribution to achieve efficiencies and ultimately cost savings to ratepayers. Photo/Courtesy/Chugach Electric Association

Alaska’s Railbelt electric utilities are working with a Wisconsin company to form another utility to manage the region’s transmission lines while the Alaska Energy Authority updates a study outlining how much investment is needed in those same transmission lines.

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., which led to the formation of a working group in December 2014 that has met monthly to examine the formation of a Railbelt transmission company, or TRANSCO.

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

The Regulatory Commission of Alaska added to the urgency of that work in June, when RCA chair Bob Pickett wrote in a letter to legislative leaders that the utilities need to form an institutional structure to finance the $903 million of upgrades the Railbelt transmission system needs. Lack of that structure is a weakness in the system Pickett described as “fragmented” and “balkanized.”

In 2014, the Legislature appropriated $250,000 to the RCA to provide its input on how to improve the Railbelt system.

Ownership of Railbelt transmission lines is divided amongst the utilities and their service areas; even the State of Alaska, through AEA, owns 173 miles of intertie between Willow and Healy. That split ownership structure has challenged investment in the system and economic dispatch of power — drawing power from the cheapest available source, regardless of who manages the generation.

Without tangible action by the utilities to form a TRANSCO, Pickett warned the RCA would seek authority through the Legislature to mandate economic dispatch.

That’s where American Transmission Co. comes in. The Milwaukee-area company is a transmission-only utility; it does not own power generation or distribution infrastructure. Formed in 2001 as the first multi-state transmission utility, American Transmission Co. prioritizes transmission investment for the owner utilities in its service area of eastern Wisconsin and Michigan’s Upper Peninsula.

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

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 the more than $900 million of transmission upgrades were completed at once, Railbelt consumers would immediately and collectively save between $80 million and $241 million each year, AEA Energy Policy Director Gene Therriault said at an Oct. 22 AEA meeting.

“These (savings) are just accessing cheaper sources of power and delivering it to the consumer compared to the power that currently serves their needs,” he said.

The value of the upgrades is modeled on financing at 5 percent interest over 30 years, according to Therriault.

Upgrades to the Railbelt transmission system would also be imperative to realize the economic benefit of the proposed Susitna-Watana hydroelectric dam.

A TRANSCO, possibly led by Amercian Transmission Co., would finance the substation and transmission projects that could lead to the free flow of economic power.

American Transmission Co. Business Development Manager Eric Myers said in an interview that his company’s investment would be much more stable than the one-time state appropriations that have funded transmission improvements in the past.

Those state grants are a part of Alaska’s history, but certainly not its near future.

“What we’re hoping to bring to the challenge this time around is some experience assembling a transmission-only utility,” Myers said. “We think that’s what really made the difference in terms of providing a foundation for transmission investment in Wisconsin, and we also stand ready to be a capital partner.”

Through a TRANSCO, Alaska’s utilities could voluntarily invest in upgrades alongside American Transmission Co. for a simple return, according to Myers. That investment would also include the ability to participate in the governance of the TRANSCO.

American Transmission Co. has direct equity to put into the Railbelt system, he said.

“Where we want to make sure we get the balance right is putting together the most efficient combination of debt and equity. The conversations we’ve had with the Railbelt utilities would also allow individual utilities to invest equity and that’s similar to the model we have in Wisconsin,” Myers said.

Alaska Railbelt Cooperative Transmission and Electric Co., or ARCTEC, CEO David Gillespie said the utilities are interested in bringing new money into the region, but American Transmission Co.’s involvement is not a done deal; the parties are still working out the particulars of a TRANSCO structure.

ARCTEC is a consortium of five Railbelt utilities. Homer Electric Association is not a member.

Another Midwest electric utility, Minneapolis-based Xcel Energy, expressed interest in financing Railbelt transmission projects during a presentation to the Legislature earlier this year. Xcel offered a model that would form multiple project companies to finance individual projects, an option that could still be used for some work, Gillespie said.

AEA, with its Anchorage-based consultant Electric Power Systems Inc., is revising the $903 million upgrade figure. That grand total was calculated in 2013 based on single backup in the system, known in the industry as N-1.

The cost to the system with no additional redundancy and two contingencies, N-0 and N-2, respectively, as well as a finer N-1 cost should be finalized by the end of the year, AEA Energy Infrastructure Manager Kirk Warren said.

“The project costs will probably increase to develop a system that will handle a loss of two contingencies, but we imagine the N-1 costs will probably go down because we’re going to allow the utilities to plan for a loss of load if there is a loss of transmission line between segmented areas,” Warren said.

He also noted that he believes the utilities have taken the RCA recommendations seriously and are on their way to developing a TRANSCO.

Losing, or shedding load is certainly not optimal, but Therriault said it could be a way the utilities can improve the system without adding too much cost.

“Of course, in Fairbanks at -40 or -50 (degrees Fahrenheit) when they shed load and a community goes black some of the houses there have about a half-hour, 45 minutes before they start experiencing real problems; so shedding load is not something the utilities want to do but they’re just trying to balance the expense,” Therriault said.

Elwood Brehmer can be reached at [email protected].

11/24/2016 - 3:33pm