Legislature, RCA press utilities to coordinate as talks stall
The legislative session is winding down but work continues on efforts to compel the six Railbelt electric utilities to act more as one.
The House Energy Committee introduced legislation May 3 to give the Regulatory Commission of Alaska the authority to enforce the standards of an electric reliability organization and jurisdiction over some utilities’ large capital decisions.
House Bill 151 comes just as the RCA is preparing to send lawmakers a progress report on the utilities’ current voluntary efforts to pool generation capacity for fuel efficiency and cost savings to ratepayers, which the five-member commission says have stalled.
The RCA issued a series of recommendations in a June 2015 letter to the Legislature that outlined ways the electric utilities operating from Fairbanks to Homer could work together, such as combining their generation and transmission assets, as a means to ultimately achieve a more efficient and reliable system.
The Legislature requested insight into Railbelt utility operations the year prior.
In the letter, the commission characterized the Railbelt electric system at the time as “fragmented” and “balkanized.” It also insisted that if the utilities would not voluntarily work together for the betterment of their customers, the commission would do what it could to mandate better cooperation, either through its own regulations or by seeking statutory help from the Legislature.
Some critical observers of the Railbelt electric system contend the six utilities — spread over a large area but with collective demand less than many single Lower 48 utilities — have overbuilt generation capacity in recent years while ignoring transmission investments that could make it more cost effective to move lower cost power from one end of the system to the other.
The 2015 letter notes the utilities had spent roughly $1.5 billion on new generation facilities over the previous five years.
Utility leaders spent much of the interim period investigating the viability of establishing a transmission company, or transco, that would make large capital decisions based on the system-wide need for an investment.
Concurrently, they also looked at establishing a unified, or independent system operator structure, which at a basic level would act as a system-wide power dispatch organization.
When properly combined, proponents say the transco and system operator groups would reform the Railbelt grid to resemble more integrated Lower 48 electric utility operations.
Currently, the Railbelt utilities continuously buy and sell power to each other; however, they also each apply their own transmission, or wheeling, tariffs, when power is sent across the portion of the main transmission lines they own.
This can lead to situations where tariff “pancaking” disincentives power transactions that could otherwise maximize the efficiency of the system as a whole.
Renewable energy advocates, in particular, stress that an open-access transmission system with a flat wheeling tariff would allow independent power producers to compete on a level playing field with current power plants for power sales and would incentivize more investment renewable projects in the region.
The Alaska Energy Authority released a study in early 2014 estimating that a $900 million overhaul to the transmission system would provide additional power moving capacity that could save Railbelt ratepayers up to $240 million per year by maximizing transmission efficiency and economies of scale in the system.
Utility leaders have largely questioned the conclusions of that study, contending the need for investment and corresponding benefit figures are overblown. AEA commissioned a revised Railbelt transmission study in 2017 that reached mostly similar conclusions.
In January 2017, Matanuska Electric Association, Anchorage Municipal Light and Power and Chugach Electric Association announced a power pooling and joint dispatch agreement that had accompanying estimated savings in fuel costs — primarily through burning less natural gas — totaling up to $16 million per year collectively.
Since early 2013, each of the utilities in the pooling partnership has built new, higher efficiency natural gas-fired power plants. While the plants are individually more efficient than the generation they replaced, jointly orchestrating how they are used can take that efficiency further, according to utility officials.
Utility leaders said at the time that the short-term agreement was a step towards a firm 20-year pooling partnership.
But during a May 8 meeting, Commissioner Bob Pickett, who has led the RCA’s review of the Railbelt utility operations, said that progress towards the long-term arrangement has stopped.
He said it is time for the commission and the Legislature to move toward mandating the utilities work closer together as their voluntary efforts have not been wholly successful.
“This does not mean, however, that no value has resulted from the utilities’ efforts over the past four years,” Pickett said. “There has been increased interaction between the dispatch centers and a better understanding between the electric utilities of each other’s generation units and heat rates, operation and maintenance costs. This has provided a better foundation for discussions about pricing and development of transactions.”
He continued to note that it’s unlikely the voluntary efforts will resume until 2021, when Chugach’s proposed $1 billion purchase of MLP is likely to be formally completed.
Chugach spokeswoman Julie Hasquet wrote via email that efforts to achieve a firm, or tight power pool are continuing. The three Anchorage-area utilities in October notified the RCA that they would pause the three-party negotiations to focus on the utility merger, Hasquet said, adding that Chugach’s acquisition of MLP will realize most of the savings from a tight power pool.
“Chugach has committed to MEA that we will continue to negotiate the tight pool following the RCA process on acquisition. The processes developed to operate as a tight power pool can easily be expanded throughout the Railbelt,” she said, “and we welcome the other utilities to join in.”
In late February, four of the six Railbelt utilities — minus Chugach and MEA — applied with Wisconsin-based ATC Development Company LLC to the RCA to form Alaska Railbelt Transmission LLC, a transmission-only utility based on the transco model.
MEA leaders have long said they believe a complex transco is unnecessary to realize efficiencies in the system and could force utilities into making investments that are ultimately detrimental to their operations, which would be counter to their obligations to their own ratepayers.
MEA officials contended in comments on the transco application that it does not demonstrate how the transmission utility’s proposed activities would serve the public interest. MEA also questioned the ability of the startup utility to provide the touted benefits.
Lee Thibert, CEO of Chugach, which did not join Alaska Railbelt Transmission, said in comments to the RCA that the utility has concerns about how being a member the for-profit transmission utility would impact the cooperative’s tax-exempt status and how its formation could impact Chugach’s potential purchase of MLP, among other issues.
Elwood Brehmer can be reached at [email protected].