Railbelt utilities sign historic agreement

The leaders of Alaska’s Railbelt utilities have signed a long-anticipated agreement to potentially transform and modernize operation of the region’s power grid.

Nearly five years after regulators demanded it, the memorandum of understanding signed Dec. 18 by the general managers and CEOs of the six electric utilities covering an area from Fairbanks to Homer is the framework by which utility officials and stakeholder groups can form a semi-independent regional grid reliability and planning organization.

Chugach Electric Association Chief Operating Officer Brian Hickey called signing the eight-page agreement “a huge let-go moment” for utility officials because it voluntary cedes much of their autonomy to a yet-to-be-formed group that they will be part of but not have control over.

Matanuska Electric Association CEO Tony Izzo similarly called it “a big let-go moment” in a separate interview.

That group, the Railbelt Reliability Council, will have a governing board comprised of representatives from each of the six Railbelt electric utilities and six non-utility stakeholders. The council’s CEO will provide a 13th vote when it is needed to break a tie on the board, according to the MOU.

The non-utility board members will be an official from the Alaska Energy Authority, which owns transmission lines and the Bradley Lake hydroelectric project; two independent power producers; a consumer advocate; and two other subject matter experts.

Representatives of independent power producers — such as wind or solar farms — and other renewable energy advocates have long pushed to have some part of decision-making authority over long-term grid planning in the Railbelt to make accessing the transmission network with their power simpler and more affordable.

Utility officials have generally said they support more collaboration with stakeholder groups to gain operational efficiencies and provide lower-cost and cleaner power sources, but getting leadership from all six utilities aligned on the details of such a cooperative arrangement had been the hang-up.

RCA spurred action

Work to formally coordinate Railbelt utility operations became more urgent following a sternly worded June 2015 letter from the RCA to the Legislature in which the commission characterized the Railbelt electric system as “fragmented” and “balkanized.” The RCA 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 individual 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.

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. Rate pancaking can also kill the economics of otherwise lower-cost independent power projects that aim to sell power to utilities across the grid.

As a result, independent power producers are strong advocates for a single system wheeling tariff that allocates revenue to the participating transmission owners, usually utilities.

Organizations like the Railbelt Reliability Council have been set up across the country but the Dec. 18 MOU is the closest the Railbelt utilities have gotten to establishing one in Alaska.

“We have a fiduciary responsibility to our membership, to the people that own these (grid) assets. We have hundreds of millions of dollars invested in it and what we’re saying is we’re going to allow people who don’t have a direct financial linkage to those assets help us plan the system,” Chugach’s Hickey said.

He added that much of what the agreement calls for has been done by the utilities for years on an “ad hoc basis;” the MOU is simply a contract to formalize and expand utility coordination.

Some skeptics say strained personal relationships between utility leaders and an unwillingness to give up some local decision-making authority had historically prevented progress on the issue, while utility officials say it is more the gradual maturation of the Railbelt electric system that was first set up to serve a handful of isolated areas.

Hickey said the utilities have historically done well by their members, keeping the power on across networks with relatively few customers and challenging terrain and weather. The Railbelt Reliability Council will just help them do it better together.

He said utility leaders spent much of 2018 — when there was ample talk that a groundbreaking agreement was close in RCA hearings — negotiating the MOU amongst themselves. From there, it was taken to stakeholders for their input.

“There was about 30-some meetings, 30-some revisions to this over the past 12 months that got us to this place,” Hickey said. “It’s one of those processes — I think it seems to have taken a long time but there is a lot included in those eight pages.”

Overcoming obstacles

Homer Electric Association General Manager Brad Janorschke wrote in an Aug. 19 letter to the RCA that an early version of the MOU drafted in May was problematic because, among other reasons, it expanded the scope of the Railbelt Reliability Council beyond what leadership from several utilities had previously agreed to.

Hickey said those comments helped produce a better agreement — the proof being that Janorschke ultimately signed the revised MOU.

Officials from HEA and Fairbanks-area Golden Valley Electric Association did not respond to requests for comment during the Christmas week, but Janorschke said in a joint statement announcing the MOU that HEA “looks forward to working symbiotically with all the Railbelt utilities and non-utility stakeholders alike to make this happen.”

A copy of the draft MOU dated May 16 and attached to Janorschke’s letter to the RCA largely mirrors the final version. However, the signed agreement includes a clause that says the council can require that grid infrastructure be built if it’s deemed to benefit grid reliability or efficiency but it “shall not mandate, deny, or approve the construction of any generation or transmission facility by any specific utility.”

Some transmission projects proposed by AEA and other Railbelt observers that could improve the ability of utilities to efficiently move or sell power across the regional grid, known as economic dispatch, have been met with resistance by the utilities in the areas of those projects because they would bear the cost of the infrastructure but might not see a corresponding benefit.

Chris Rose, executive director of the nonprofit Renewable Energy Alaska Project is one of the stakeholders that has followed the conception of the agreement closely.

According to Rose, while the agreement does not require the all of the Railbelt utilities to participate in mandated economic dispatch, it does call for a cost-benefit analysis of single-system power dispatch and lays out the parameters under which an associated single tariff could be developed.

He said regional transmission and generation planning is a big benefit of the agreement.

“It’s a good starting point to get a regional forum,” Rose said of the Railbelt Reliability Council.

MEA’s Izzo said that while the MOU and eventually the council won’t be a cure-all for the region’s power transmission and dispatch issues, it’s a big step forward.

He acknowledged that bills with bipartisan support pending in the Legislature to mandate the Railbelt utilities to participate in an organization like the council — or direct the RCA to set one up by October 2020 if the utilities don’t — are a big impetus for getting the MOU signed now.

Izzo said MEA supports Senate Bill 123, which was introduced last May by a special Senate Railbelt Electric System Committee chaired by Fairbanks Republican Sen. John Coghill. SB 123 would also give the RCA explicit authority to approve or deny new large generation or transmission projects based on the grid reliability and efficiency that could be gained region-wide.

Hickey said Chugach believes SB 123 “could use some fine tuning” but the Anchorage utility generally supports granting the RCA specific authority to establish and implement the Railbelt Reliability Council or something similar. He said the RCA commissioners have somewhat pushed the utilities to this point as well.

“They finally decided that this needs to happen and I think it’s great,” Hickey said.

From here, the utilities will select the stakeholder representatives that will help form the council implementation committee; that committee will then morph into the council’s initial governing board that will select the CEO. According to Hickey, the implementation committee should be set by April and the MOU calls for the committee to have a business plan ready for the council by Dec. 1.

The costs associated with forming the council will be apportioned to the utilities based on their portions of the overall Railbelt system electric load, according to the MOU.

Hickey and Izzo said it’s too early to know exactly what those costs will be but the benefits will show in more reliable and efficient delivery of one of societies most basic and important commodities.

“I think overall we can enhance economic growth by keeping rates low regionally and I think it will help us do that,” Hickey said. “I think the benefits will outweigh the costs significantly.”

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Elwood Brehmer can be reached at [email protected].

Updated: 
12/31/2019 - 2:40pm

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