Legislature(2017 - 2018)BARNES 124
03/29/2018 10:00 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HB382 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 382 | TELECONFERENCED | |
HB 382-RAILBELT ELEC. TRANSMISSION AUTHORITY
1:34:40 PM
CHAIR WOOL announced that the only order of business would be
HOUSE BILL NO. 382, "An Act creating the Railbelt Electrical
System Authority; and relating to the duties of the Regulatory
Commission of Alaska."
1:34:50 PM
ROB EARL, Staff, Representative Adam Wool, Alaska State
Legislature, reviewed the documents included in the committee
packet and directed attention to a letter dated June, 30, 2015,
from the Regulatory Commission of Alaska (RCA), which read in
part: "Non-discriminatory access to the grid, open and
transparent system-wide transmission pricing, and economic
dispatch of generation by an independent entity are key
principles that must guide the transformation of the Railbelt
electrical system."
MR. EARL paraphrased from the Sponsor Statement [Included in
members' packets] [original punctuation provided], which read:
HB 382 calls for the establishment of a Railbelt
Electrical System Authority (RESA).
Under HB 382, a Railbelt Electrical System Authority
would:
· Manage a unified Railbelt transmission and generation
system with the goal of optimizing efficiency;
· Establish nondiscriminatory open access protocols for
the transmission system;
· Implement a long-term regional plan for the Railbelt
transmission and generation systems.
The Regulatory Commission of Alaska (RCA) will appoint
16 board members to govern the Authority, including
three non-voting members. Utility membership on the
board will not exceed 5 members for the first 5 years
and not exceed 1 member after 10 years. The RCA would
have oversight of the RESA. The RESA would function as
an independent system operator (ISO), referenced
below.
Background
In a June 30, 2015 letter to the Legislature the RCA
noted that "Concerns about the fragmented, balkanized
and often contentious Railbelt utilities have been
raised numerous times over the past 40 years" and that
"Several efforts have been made to reform and
reorganize the Railbelt electrical system, but none
have succeeded." The letter further states that: "Non-
discriminatory access to the grid, open and
transparent system-wide transmission pricing, and
economic dispatch of generation by an independent
entity are key principles that must guide the
transformation of the Railbelt electrical system."
The RESA would unify the Railbelt utilities and other
important stakeholders to oversee region-wide planning
for transmission and generation. The RESA would also
act like an Independent System Operator (ISO) to
perform merit order economic dispatch of the system's
electrical generation assets. Merit order economic
dispatch would run only the most efficient electrical
generators in the region at any given time, leading to
cost savings for electrical consumers and reduced
emissions. Open access to the transmission system and
a universal transmission tariff would lead to more
opportunities for independent power producers to
invest in renewable energy projects across the
Railbelt.
The Alaska Railbelt Cooperative Transmission &
Electric Company (ARCTEC) is a consortium of four of
the six Railbelt utilities formed in 2011 with the
stated goal to "develop an organization that would
adopt and enforce Railbelt reliability standards,
conduct Railbelt system planning and ensure open
access." Toward this end, ARCTEC recently hired GDS
Associates to facilitate the development of what is
being called the Railbelt Reliability Council (RRC),
which could someday function like an Independent
System Operator. By May 1, 2018, GDS expects to
produce a final report and present an MOU containing
its recommendations for stakeholders to sign off on
before proceeding with the development of a formal RRC
business plan.
Formation of a Transmission Company (Transco) has also
been proposed by the utilities in association with the
American Transmission Company (ATC). To achieve
desired results, a Transco should be separate from a
RESA/RRC/ISO. If formed, in addition to owning and
operating the transmission system, a Transco would
execute major maintenance, transmission system
upgrades, and new transmission projects necessary for
the reliable delivery of electric power consistent
with transmission plans developed by a RESA/RRC/ISO.
A draft of GDS's recommendations was presented to the
th
RCA on March 16. That draft proposed a nine-member
governing board for the RRC, with three seats for
Railbelt utilities. The GDS draft did not include
economic dispatch as a function of the RRC.
1:39:11 PM
DAVID GLINES, Chair, Board of Directors, Alaska Railbelt
Cooperative Transmission and Electric Company (ARCTEC), said
that ARCTEC was a consortium of four of the Railbelt utilities
which had funded the GDS Associated project presented by Mr.
Brown. He stated that the project was in response to an RCA
instruction to the utilities "to voluntarily get together and
come up with some solutions in terms of re-structuring the
Railbelt." He reported that this stakeholder collaboration
effort began in the summer of 2017.
CHAIR WOOL clarified that ARCTEC had subcontracted with GDS
Associates for the study of the Railbelt situation.
SETH BROWN, Vice President Transmission Services, GDS Associates
Inc., provided a PowerPoint presentation titled "Facilitation of
the Railbelt Reliability Council (RRC)." He shared his
background of 30 years in the [power] transmission business. He
noted that this was the identical presentation as given to the
RCA on March 16, and that there had not been any subsequent
changes. He pointed out that these findings by GDS Associates
were based on the stakeholder process and had not been endorsed
by ARCTEC.
CHAIR WOOL asked if the complete report was due in May.
MR. BROWN expressed his agreement that the final report would be
released no later than May 1. He presented an update on the
process, slide 3, and stated that there had been a presentation
of the initial findings at the RCA Technical Conference on
January 26, 2018. He noted that an update on the facilitation
process was filed on March 7, a technical conference for all
interested parties was held in Anchorage on March 13, and a
summary of the comments received from stakeholders and
interested parties was filed on March 20. He moved on to a list
of stakeholders and interested parties that had been contacted,
slide 4. He shared that the RCA would approve the establishment
of reliability, security and other operating standards,
including cyber security, and that the commission retained the
authority to review and approve investments and administrative
costs of the Railbelt Reliability Council (RRC), "RCA
Jurisdiction," slide 5. He noted that GDS Associates had been
charged with preparing a draft Memorandum of Understanding (MOU)
for all the parties to sign. He relayed that the six utilities
were developing consensus reliability standards to govern
Railbelt grid operations and a report would be filed by April 1,
"Reliability Standards," slides 6 and 7. He added that the
Railbelt managers had created the Railbelt Cybersecurity Working
Group which was developing a scope of work and a budget, which
would be incorporated into the RRC when it was established. He
moved on to slide 8, "RRC Scope and Functions," which listed the
three primary functions for the RRC: reliability, access, and
planning. He declared that the RRC would develop the rules and
possibly work in concert with Transco for the rates, terms and
conditions associated with open access transmission, whereas the
non-rate terms and conditions would remain with the RRC.
1:48:25 PM
CHAIR WOOL asked if economic dispatch was part of the scope and
functions.
MR. BROWN pointed to the key takeaways on slide 9, and stated
that the protocols, planning, and informational postings would
provide transparency to the stakeholders, while the RRC scope
and functions had been shown to work in concert with Transco.
He stated that economic dispatch monitoring and evaluation of
potential costs and savings would provide needed information to
stakeholders. He shared that there had been a lot of discussion
for the need to have single system, economic, merit ordered
dispatch for the Railbelt. He noted that the issue was that the
utilities had stated that this was already being achieved
through their own mechanisms, including power pooling, whereas
other stakeholders felt there was an even greater savings to be
achieved through an independent system operator (ISO). He
shared that GDS Associates recommended for the RRC to undertake
a study of single system, merit ordered dispatch. He said that
there had not been a study endorsed by the stakeholders that
could clearly demonstrate over a long period of time that the
net present value of those dispatch savings would pay for the
cost of an ISO.
CHAIR WOOL pointed out that the RCA had listed this as an item
of importance in a letter from 2015.
MR. BROWN, in response to Representative Spohnholz, said that an
ISO was an independent system operator. He moved on to slide
10, "RRC Governance Structure," which detailed that this was a
bottom-up organization, of both voting and nonvoting members,
which could be defined by the organization. He noted that there
would be technical and audit committees, which would report to
the Board of Directors. He shared that it was very important to
have an independent organization which operated under a code of
conduct. He stated that it would be independently staffed by
the RRC as defined by the MOU.
1:53:18 PM
REPRESENTATIVE JOHNSTON asked for clarification that the RRC
would work for the Board of Directors.
MR. BROWN explained that, although they would be hired by the
Board of Directors, they would still have independence. He
noted that the CEO of the RRC would be a voting member of the
Board of Directors. He pointed out that the RRC Board of
Directors would have four transmission and four non-transmission
voting members, with the CEO to cast any tie breaking votes,
slide 11. He noted that it was necessary to identify the
transmission owning members as this was what it was "really all
about." He added that there were also seats on the board for a
consumer advocate, three utilities, and an outside unaffiliated
director.
MR. BROWN, in response to Representative Johnson, said that the
Matanuska Electric Association, Inc. (MEA) utility would be
included in the Anchorage utility board spot and that it would
rotate with the other utilities in that area.
REPRESENTATIVE JOHNSON expressed her concern that the largest
utilities were lumped together in one seat.
MR. BROWN explained that this was an attempt to strike a balance
of power, and that the utilities, with some reasonable
consensus, had not objected to the structure. He declared that,
as the work was done in the technical committee, there would be
representation from all six of the utilities.
1:57:52 PM
REPRESENTATIVE JOHNSTON asked about TRANSCO, listed for a future
place on the Board, slide 11.
MR. BROWN explained that it depended on whether one or more
utilities elected to transfer their existing assets into
TRANSCO. If this was only for new assets, it may be necessary
to expand and bring another not-transmission owner to the board.
He moved on to slide 12, "RRC MOU/Regulatory Compact," stating
that GDS Associates recommended a Memorandum of Understanding
that would document consensus on the RRC and recognize the RCA
to retain full authority over the RRC. It would outline the RRC
structure and scope, and a commitment to develop a formal RRC
business plan. He stated that all the utility participants
would be signatory, and it would be acknowledged by the RCA and
interested parties.
CHAIR WOOL asked if the utilities were the only signatories for
the MOU.
MR. BROWN said that some legal advice would be necessary. He
moved on to slide 13 and discussed the continuing collaboration
with stakeholders. He stated that any follow up meetings would
be held as necessary, as the goal was to develop the final
report and the recommended MOU by the end of April.
REPRESENTATIVE RAUSCHER asked if the agreement between the
utilities would make something happen.
MR. BROWN opined that there was a reasonable chance for a
majority of the utilities to come together, pointing out that
they had been supportive of the process, even as none of the
stakeholders were getting everything they would like.
REPRESENTATIVE RAUSCHER asked about the influence of state
agencies in the Lower 48.
MR. BROWN explained that they were participants in these
regional organizations, even though they do not manage or
operate independent transmission organizations. In response to
Representative Rauscher, he declared that they recommended that
AEA be a participant, which he opined was consistent with the
models in the Lower 48.
REPRESENTATIVE JOHNSON asked if the size of the grid affected
agreement, as in Alaska it was smaller and newer than in the
Lower 48.
MR. BROWN shared that stakeholders had told him that this was
the best opportunity in recent years to come to an agreement.
2:04:03 PM
JANET REISER, Executive Director, Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED), provided a PowerPoint presentation titled "Railbelt
Energy System," and listed six of the issues regarding Railbelt
electricity reform, slide 2. She addressed the first issue,
"Background:" and stated that many of the electrical systems
across the country were siloed systems, built up around small
communities, similar to the variety of power cooperatives in
Southcentral Alaska, slide 3. She moved on to slide 4 and
stated that each organizational structure had an inherent
conflict as they each had their own fiduciary responsibilities
to their member rate payers, even as the utilities were
interconnected. She noted a lack of centralized planning, which
often lead to a limited ability to benefit all the ratepayers in
the region. She explained that, as each transmission owner had
its own tariff, any expansion had to pay the tariff for every
utility that touched that transmission. She said there had been
at least three separate initiatives to restructure, slide 5,
which had been proffered but not acted upon, and that this, the
fourth attempt, had been ongoing for more than a decade, slide
6. She said that the key items for change included
institutional reform and economic dispatch, a fundamental first
order issue per AEA, slide 7. She declared that the utilities
had been given time to voluntarily undertake these efforts. She
offered her belief that the system was not built to easily
discharge the fiduciary responsibilities in a systematic way,
and hence, the efforts had failed. She added that the utilities
needed to reconcile disparate reliability standards.
2:10:48 PM
MS. REISER directed attention to slide 8, "What has already been
done to that end?" She applauded the announced efforts although
there was no proof or evidence that these efforts had happened.
She stated that there was a difference between prudent utility
management and economic dispatch. She said that there were two
similar sets of reliability standards, although either set could
change because neither were enforced. She challenged the idea
that all the ARCTEC and GDS component utilities would agree on
the findings. She stated that this had the potential to be
another failed attempt. She offered her belief that a much
earlier economic dispatch study did involve all the utilities in
the Railbelt, although there was no stakeholder process and no
starting point was agreed upon. She expressed that AEA agreed
with GDS Associates that this needed to be revisited and
refreshed, pointing out that the initial study had cost $1.5
million. She reiterated that a regional perspective was
critical, as well as the inclusivity of all the stakeholders.
CHAIR WOOL asked for clarification of the definition for the
starting point.
2:14:30 PM
KIRK WARREN, Chief Operating Officer, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development,
explained that economic dispatch models and transmission plans
were created using the reliability standards given the RCA for
informational purposes. In that study, there was a benchmark to
identify what improvements to the system would happen and what
economic realities would come from those improvements. Since
the utilities could not agree during the development of the plan
for how the system was operated, it was very difficult to arrive
at the base case. The assumptions made in the base case were
that the utilities were operating as efficiently and
economically as they could at the time, and that there were not
any hurdles to overcome in order to generate the savings. He
opined that this was the most conservative approach possible to
ensure that the savings at the end of the plan could not be
minimized.
MS. REISER directed attention to slide 10, "What needs remain?"
and stated that, as the utilities along the Railbelt were
cooperatives and municipalities [owned], the public had a right
to know what was available for money and for savings, although
currently this was not a transparent process. She pointed out
that there was not any publicly available information for the
consumer.
CHAIR WOOL mused that for the utilities, as cooperatives or
municipality owned, the ratepayers were the owners. He asked if
there was a group of ratepayers represented in these
discussions.
MS. REISER offered her belief that a variety of groups had some
influence, and that these issue-based groups were noticeable
during elections for their advocacy toward certain individuals.
She restated the need for the transparency which was currently
lacking as an important feature necessary to move forward. She
stated that GDS Associates and ARCTEC had done good work with
the basics and that there were areas of alignment. She stated
that she had some starting points for an on-going conversation,
slide 11, which included: establish a USO, or unified system
operator, as opposed to an ISO, or independent system operator.
She noted that, although GDS Associates used the term RRC, AEA
believed that it focused only on the reliability parts, and that
the issue was much bigger than just that. She said that the USO
would essentially be a new organization with a variety of
functions, even though the terms could be used interchangeably
at this earlier stage.
CHAIR WOOL expressed his agreement, noting that this was
referenced as a RESA in the proposed bill. He suggested to just
refer to it as a system operator at this stage.
2:20:04 PM
MS. REISER stated that there was agreement for the need to have
an independent organization that would represent stakeholders
with no majority control and a transparent public process. She
stated that AEA would benefit all the ratepayers, as they were
"not beholden to the ratepayers" of any of the utilities, but to
watch out for the ratepayers in all Alaska. She noted that the
formula for payment of the PCE (power cost equalization) program
was based on the average Railbelt utility cost. She added that,
as AEA administered the PCE program, it was important for the
rate in the Railbelt to be the most efficient and reasonable
rate as it affected Rural Alaska.
REPRESENTATIVE RAUSCHER asked what role was played by the RCA in
this model, slide 12.
MS. REISER explained that the RCA would have the ultimate
authority and jurisdiction over the proposed organization.
REPRESENTATIVE RAUSCHER asked what experience had prepared AEA
for this critical and complex process.
MS. REISER stated that the discussion by GDS Associates and AEA
were all important elements of this proposed organization. She
directed attention to slide 12, which compared the proposals by
GDS Associates, AEA, and the proposed bill. She noted that all
the entities agreed on the functions, and that economic dispatch
should be looked at although it still needed a lot of work. She
declared that AEA believed that economic dispatch was the reason
for this proposed organization, that there was a lot of money to
be saved by the ratepayers, that the state had a compelling
interest in the benefits, and that the voluntary management had
not been successful. She pointed out that GDS Associates felt
the form should be a new private entity, whereas the proposed
bill suggested that it be a subdivision of the RCA. She
reported that AEA had suggested that it house the administrative
functions, such as finance and contract management, but that the
decision making should remain with the CEO and the Board. She
pointed out that all three entities had agreed that for the
governance, no stakeholder group should have a majority
interest. She noted that there were different proposals for the
levels of membership on the board and stated that AEA felt it
was more important for the role of the organization and the
representation on the board. She suggested that, although there
was agreement for a voluntary membership by the utilities, there
should be harsh consequences for not participating. She offered
her belief that the organization should be under the
jurisdiction of the RCA. She moved on to slides 13 and 14 and
stated that AEA had been the primary conduit for regional
planning both in Rural Alaska and the Railbelt, and could offer
assistance with staff, ability, and technical capacity. She
stated that AEA was not proposing to act as the USO, and to do
it by themselves, slide 15, and they were not proposing a
specific structure or to make the rules. She declared that the
state needed to play a stronger role and that it was necessary
for legislation to push the utilities.
2:27:54 PM
REPRESENTATIVE JOHNSTON shared that she had a long history in
this area and mused that she had seen "a lot of who's on first."
She expressed her concerns, noting that AEA had successes and
failures. She asked if the leadership from Ms. Reiser would
bring AEA to a better place, and whether this new proposed
governance entity would require more staff and more funding.
MS. REISER replied that AEA was now a different organization.
She relayed that she brought project, engineering, and technical
leadership, as well as extensive experience and direct knowledge
with the Railbelt. She added that there was also a change in
perspective from the Board, that AEA had not been involved in
Railbelt issues to the extent that it should. She noted that
there were some structural inefficiencies needing to be
addressed at the state level because of a lack of success at the
private level. She shared that one reason for her hiring had
been to participate in this process. She added that the
commissioner [Department of Commerce, Community & Economic
Development] was supportive of the efforts to move forward. She
offered her belief that the State of Alaska had a compelling
interest in the process. She declared that this would be "a
different look at the approach to the Railbelt."
REPRESENTATIVE JOHNSTON shared that it was sometimes hard to
separate the person from the structure. She asked if this new
structure would be independent from Ms. Reiser personally.
MS. REISER acknowledged the concern, and she opined that the
same could be said for the utilities, pointing to recent
turnovers at the higher levels. She stated that it was
"shocking the number of folks with good institutional knowledge
and leadership that will be turning over as they retire." She
declared that it was important that the staff, the Board of
Directors, and the Commissioner all support the program. She
explained that this was institutional reform and that the
structure was being set up to be self-sustaining and to outlive
any one person.
REPRESENTATIVE JOHNSTON expressed her concern that, as she
looked back, she had seen a lot of transformation in power
generation and in transmission. She cautioned against a
structure that was looking backward.
REPRESENTATIVE RAUSCHER asked if she had had talks with the
utilities.
MS. REISER shared the process to date, which included conception
of the idea, proposal to the board and the approval to move
forward, approval from the DCEED commissioner, and discussion
with the governor. She noted that the presentation to ARCTEC
had been cancelled, and that, although the program had been
moving forward conceptually for 2 - 3 weeks, it was necessary to
get all the permissions before it could be rolled out.
REPRESENTATIVE RAUSCHER questioned how this could move forward
if there had not yet been any discussion with the utilities.
MS. REISER stated that there had been several conversations with
the RCA and GDS Associates. She pointed out that the only
proposals were from GDS Associates and the proposed bill. She
acknowledged that there was intent to speak with all the
utilities, although "there's quite a bit of hostility towards
AEA for even venturing into these waters, and it's a difficult
proposition." She declared that she had no problem with talking
to the utilities.
CHAIR WOOL, in response to Representative Johnson, said there
would be opportunities for other groups to speak to the
committee. He suggested that AEA offered infrastructure
assistance and facilitation, instead of governance.
MS. REISER emphasized that this was the beginning of the process
and that AEA wanted to continue to work with all the
stakeholders to make it work.
2:38:37 PM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), stated that REAP had been working on renewable energy,
energy literacy, and energy efficiency promotion for 14 years
and was in support of HB 382. He emphasized that this was a
consumer issue that should have been dealt with 10 or 15 years
ago. He expressed appreciation that ARCTEC had hired GDS
Associates to move the process forward, even though REAP was not
convinced that this would move forward as it had failed so often
in the past. He declared that a voluntary process will not
work, as even legislative attempts had not worked in the past.
He urged for institutional reform in the Railbelt. He strongly
suggested that members read the RCA letter dated June 30, 2015,
as it "really sets the stage for everything we're talking about
from the last three years or so."
MR. ROSE paraphrased from a letter dated March 28, 2018
[original punctuation provided] [Included in members' packets],
which read:
Renewable Energy Alaska Project is a statewide, non-
profit coalition of over 80 dues-paying diverse energy
stakeholder organizations. We have been working to
promote renewable energy, energy efficiency and energy
literacy across Alaska since 2004. I am writing this
letter to respectfully encourage the Committee to pass
HB 382. There are several important issues that relate
to the Railbelt's future contained in the bill:
Reliability Standards
One important issue for the Railbelt is the creation
and enforcement of electric reliability standards
across the entire region. These standards are
essential to ensure that the transmission system, and
the "dispatch" (use of) the region's electrical
generators is as efficient and safe as possible,
including threats against cyber security. In the
Regulatory Commission of Alaska's June 30, 2015 letter
to the Legislature, the Commission made several
findings and recommendations regarding the Railbelt.
One of those findings was that region-wide reliability
standards were both necessary and lacking in the
Railbelt. In its letter, the Commission gave the
utilities time to voluntarily come up with uniform
regional reliability standards.
It is now nearly three years later and reliability
standards have still not been agreed to by the
utilities. Four of the six Railbelt utilities that
have formed an organization called the "Alaska
Railbelt Cooperative Transmission and Electric
Company" (ARCTEC) recently hired an outside technical
advisor from Georgia called GDS Associates to look at
reliability and other Railbelt issues, and make
recommendations as to the form and function of a new
organization that ARCTEC is proposing to call the
Railbelt Reliability Council, or RRC. Note the word
"reliability" in the title of the RRC. GDS is over
halfway through a process of talking to stakeholders
and making its recommendations and is scheduled to
wrap up its process near the beginning of May. GDS is
hoping to get agreement from a range of stakeholders
on a Memorandum of Understanding that would be the
beginning of the formation of the so-called RRC.
While REAP appreciates the effort that ARCTEC (as well
as non-ARCTEC utilities Homer Electric Association and
Anchorage Municipal Light and Power) are making
through the GDS process, unfortunately REAP does not
believe that the voluntary process that the RCA has
requested the utilities to engage in will ultimately
be successful. There is simply too disagreement
amongst the utilities. As mentioned, two of the six
utilities are not aligned enough with the others to
even belong to ARCTEC, and the utilities repeatedly
fail to speak with one voice. More importantly, each
of the six utilities has a fiduciary responsibility to
its respective members, and not to the region. Since
none of the utilities has an explicit responsibility
to the region, it is REAP's belief that the
legislature must declare that reliability and other
standards be established through the proposed Railbelt
Electrical System Authority, or RESA, contained in HB
382. There is no disagreement that the region needs
reliability standards - the real question is how we
are ever going to get there from here. The RESA would
ensure that standards are set, and then enforced by
the RCA.
Economic Dispatch
For at least the last four years, the driving force
behind the formation of a new entity in the Railbelt
has been saving consumers money by ensuring that the
most efficient generators in the region are being run
in a logical order, from the most efficient generator
first, to the second most efficient second, the third
most efficient third, and so on, as the electrical
demand in the region goes up and down. This is known
as "merit order economic dispatch." At present, merit
order economic dispatch is not being done in the
Railbelt region. Instead, each respective utility is
balancing supply and demand of electricity in their
own respective service areas. Since today the
utilities are connected by transmission lines, as
opposed to when they were first established over 70
years ago, economic dispatch in the entire region is
technically feasible. However, despite some bilateral
contracts and the sharing of state-owned resources
like the Bradley Lake hydro facility, the six Railbelt
utilities are not dispatching their respective
generation assets on a regional basis. This is
inherently inefficient. It means that less efficient
generators are being run in the region when they could
remain idle, allowing the sale of more economic energy
to flow from the most efficient generators. This
inefficiency unnecessarily consumes more fuel. Burning
more fuel in inefficient generators costs Railbelt
consumers money.
The need for merit order dispatch was recognized and
called out by the RCA in its 2015 letter to the
legislature. In that letter, the Commission set the
utilities on a course to voluntarily come up with a
model for merit order economic dispatch of the
region's generation assets, instead of the utilities
continuing to balance supply and demand in their
respective, smaller and suboptimal, service areas.
Almost three years after the Commission's letter to
the legislature, there is still no economic dispatch
in the Railbelt. Over a year ago, Chugach Electric
Association, Anchorage Municipal Light and Power and
Matanuska Electric Association announced to the
Commission that those three utilities that serve parts
of Anchorage were going to form what they called a
"tight power pool" as a precursor to region wide
economic dispatch. They told the Commission they would
need an additional year to sort out how they would
settle the sharing of their generation assets. That
additional year has now come and gone and there is
still no tight power pool in the Anchorage area.
Furthermore, there is little consistency and
transparency about how those negotiations are going.
Instead, the public hears one story from one utility
about how the pool is progressing, and another story
from another utility. The "pool" has no designated
spokesperson.
While there may be some disagreement about how much
merit order dispatch can be done in the entire region
that stretches from Homer to Fairbanks without
transmission upgrades to the north and south from
Anchorage, the RCA and the public were told that the
tight power pool would be possible, and indeed
operating, by a few months ago.
What should be very disturbing to Railbelt electric
consumers is the fact that ARCTEC's consultant GDS is
no longer recommending that the so-called Railbelt
Reliability Council that it is formulating for the
utilities even include the function of economic
dispatch. The reason that GDS gave to the Commission
at a RCA public workshop held March 16, 2018 is that
there is fundamental disagreement among the parties
about the basis for economic dispatch. This is still
another example of how conflict among the six
utilities hurts the region as a whole. REAP believes
that merit order dispatch of the region's generating
assets must be a function of any new entity that is
established for the Railbelt.
Non-Discriminatory Open Access to Transmission
There are at least two problems with the way new
entities or projects can currently try to access the
Railbelt transmission system.
First, today each single utility handles
interconnection within their respective service area.
There are six utility transmission owners in the
Railbelt, along with the Alaska Energy Authority. This
means the process that an independent power producer
must go through to send power into the grid from a
project varies from utility to utility. There is no
region-wide, consistent and transparent set of rules
for accessing the transmission system, a system that
has been constructed entirely from public money of one
sort or the other (federal, state, municipal or
cooperative). This lack of predictability chills
investment from the private sector that Alaska sorely
needs.
Second, there is not one single tariff, or charge, to
move electrons across the Railbelt. In fact, in some
cases there are what is referred to as "pancaking"
transmission tariffs. This is a situation where the
movement of electrons from A to B incurs multiple
tariffs from different transmission owners that are
stacked (or pancaked) on top of each other. Such
redundant costs to transmit electricity have serious
economic consequences for consumers.
Region-Wide Planning
REAP believes that region-wide planning for the
Railbelt is one of the most important functions that a
new Railbelt Electrical System Authority could handle.
The Railbelt has never been planned as one region. One
recent result of this lack of planning has been the
overbuilding of generation assets in the Railbelt. In
its 2015 letter to the legislature, the RCA noted that
the Railbelt utilities have collectively built $1.5
billion dollars of new generation projects in the last
several years. With the exception of the Southcentral
Power Plant that Chugach and ML&P built together, none
of those new generation assets were built with a
regional approach in mind. This lack of regional
planning also extended to how new generation assets
are impacting the existing transmission system. It is
also worth noting that in comparison to the $1.5
billion the utilities spent on new generation, those
same utilities spent next to nothing on transmission
system upgrades.
Now that the lack of regional planning has resulted in
more new electric generation in the Railbelt than what
was necessary for the region as a collective whole,
Railbelt consumers are on the hook to pay for those
capital expenditures. Each of the respective utilities
that built power plants committed their members to pay
back those expenditures for the next 25-30 years.
Incredibly, this was done without either MEA or HEA
having any long-term contracts for natural gas, and
both Chugach and ML&P likely to run out of the gas
reserves they now own long before the new generation
assets are paid for. You might ask why the RCA did not
prevent the utilities from building unnecessary
generation, or generation that is vulnerable to fuel
price volatility? The answer is that the RCA does not
have what is known as "siting authority" over each
respective utility's decision to build new generation.
If the Commission had siting authority, it could pre-
approve new generation projects before power plants
were built. Instead, without siting authority, the
RCA's hands are tied until after a utility has already
made its decision to plan, finance and construct a new
power plant. Only after the power plant is built and
the utility and its consumers are committed to paying
for it does the RCA have a role. That role is to hear
the utility's request to charge a tariff to its
customers to pay the investment back. This lack of
siting authority by the Commission has forced it to
allow those tariff requests in case after case because
to deny the tariff would cause financial havoc for a
utility that has already built a power plant.
Regional planning would take into account what new
generation assets the entire region needs, and
therefore avoid a repeat in the future of the
overbuilding that has recently happened in the
Railbelt. Regional planning would also take into
account where potential renewable energy assets could
be located, both relative to the resource's proximity
to the need for power, and its proximity to
transmission. Giving a new Railbelt Electrical System
Authority the ability to plan for both new generation
and transmission assets allows generation and
transmission asset decisions to be made in the context
of each other, and on a regional basis. This is far
more effective that making generation decisions for
each Railbelt utility service district in isolation of
what the neighboring utility has decided to do, or not
do. It is also more efficient to plan for the regional
electrical system as just that, a system that includes
generation assets and the transmission assets
necessary to move the electrons efficiently to market.
Having the Railbelt Electrical System Authority
objectively decide which transmission projects are a
priority for the region also protects consumers from
the impacts from a future, for-profit transmission
utility building transmission that does not have
positive long-term benefits relative to its cost.
Regional planning means that the best possible
decisions get made for the entire Railbelt, saving
consumers money. However, region-wide planning must
include stakeholders besides the six Railbelt
utilities.
Diverse Governance Structure
The governance structure of the proposed Railbelt
Electrical System Authority is perhaps the most
important part of HB 382. Without the proper balance
of independence and stakeholder input from other
sectors of Alaskan society besides the six Railbelt
electric utilities, Alaskans will see no real change
in the way business is done in the Railbelt.
Seventy-seven years ago, when my local electric
utility in the Matanuska Valley was formed, I think
the concept of a local cooperative meant something
very different to the citizens of Palmer than it does
today. Though Matanuska Electric Association is still
a cooperative, most of its members do not participate
in its governance. In fact, in the Railbelt it is
pretty typical for utility board elections to draw
less than 20% of a cooperative's eligible voters. Ask
the average electric consumer today what kind of legal
structure their electric utility is and they are
likely to say they don't know. In contrast, when MEA
was formed in 1941, there wasn't any electricity in
Palmer. People were joining together to provide it,
with an assumption and social compact that they would
remain accountable to each other.
Since the six Railbelt utilities were formed decades
ago, road systems, electric transmission lines, and
telephone and internet service have all come to the
region. The RCA itself has stated that if we were
start over today, we would certainly have just one
utility in the Railbelt. For context, the combined
average electric load of all six Railbelt utilities is
just over 600 MW. In contrast, a typical power plant
(not utility) in the Lower 48 is around 1,000 MW.
While REAP is not advocating for all six utilities to
be made into one, what the Railbelt Electrical System
Authority would do is make sure that all six utilities
take full advantage of the fact that today they are
connected. The region's future prosperity depends on
it.
Besides the transmission, road and communication
infrastructure that has been built over the last
decades, there are other changes and trends that the
current system of six independently operated utilities
cannot effectively address. For example, over the
decades there has been an increase in the number of
commercial and industrial electrical consumers in the
region. Those consumers are a stakeholder group that
should have input into planning the region's
electrical system. Another change has been the
meteoric drop in the cost of renewable electricity
from wind and solar, even as the efficiency of those
technologies continues to increase. For example, in
1990, the average price of wind power in the United
States was 65 cents/kWh. Today, the average
unsubsidized price for wind in the Lower 48 has
dropped to under 5 cents/kWh, making it competitive
with natural gas and coal. Likewise, the price of
utility-scale solar has dropped precipitously in the
last 10 years, with the average unsubsidized price now
also down to around 5 cents/kWh. In 2017, nearly half
of all new generating capacity additions in the United
States were wind or solar. In the rest of the world,
most of those wind and solar installations are being
developed by independent power producers, companies
that specialize in those technologies and are
therefore most often in the best position to build
projects as efficiently as possible. Independent power
producers are another constituency that must be at the
table when plans are made for our electric future.
There are other trends that are not being effectively
addressed or represented in the current system of six
utilities that make decisions independent of each
other. One is the increasing use of "distributed"
power. This refers to both an accelerating number of
people in the Railbelt who are putting cheap solar
panels on their homes, and businesses who are finding
it more economical to generate their own power on-
site, often coupled with energy storage. Those
businesses and consumers need a seat at the table.
Another major trend is energy efficiency. As more
consumers have been made aware of how energy efficient
lighting and appliances can save them money, the
demand for electricity in the Railbelt has actually
been decreasing, even as the region as a whole has
overbuilt generation. Fortuitously, another trend that
can counter that decrease in demand is electric
vehicles, or EVs. EVs, and the lithium ion batteries
that run them, are coming down in price so fast that
many experts, investors, nations and car companies are
betting on them to completely change the way we
transport ourselves. The cost of operating a Chevy
Bolt or Tesla Model 3 with a range of over 200 miles
that one can purchase today for about $35,000 (before
a federal tax credit of up to $7,500) is half of what
it costs to operate a standard car with an internal
combustion engine. Even with the Railbelt's relatively
expensive 20 cent/kWh power, a Chevy Bolt can go 200
miles on $12 worth of electricity. In contrast, a
person with a car that gets 25 mpg and uses $3/gallon
gasoline would spend $24 to go the same 200 miles. EVs
also have only about 20 moving parts, as opposed to
roughly 2,000 moving parts in the internal combustion
engines of today, making EVs cheaper to maintain and
likely to last much longer. As the price of EVs
continues to drop every year, a transportation
revolution is brewing. It is imperative that the
governance structure of a new Railbelt Electrical
System Authority also have people and entities on the
governing board who understand how the trends of
energy efficiency and electric transportation fit
together so they can help the Railbelt prepare for its
future.
Besides different types of electric consumers,
independent power producers, and renewable, efficiency
and electric vehicle stakeholders, other entities that
should be represented on the governance structure of
the Railbelt Electric System Authority include the
Alaska Energy Authority (AEA), the RCA itself and a
representative of any new transmission utility that
might be formed in the future.
Just two weeks ago, ARCTEC's consultant, GDS
Associates, made a preliminary recommendation in front
of the RCA that the governing board of ARCTEC's
proposed Railbelt Reliability Council be made up of
nine members, with just three seats held by Railbelt
utilities. This preliminary recommendation is further
evidence that a diverse group stakeholders, not just
the same six utility players, must guide the
Railbelt's future. It is also consistent with the
language in HB 382, which states that no more than 40%
of the governing board of the Railbelt Electrical
System Authority come from the six existing Railbelt
utilities.
If the governance structure of the Railbelt System
Authority did not include the wide array of Alaskans
that have a stake in how the region plans for and then
produces and transmits electricity, Alaskans will see
more of the same conflict among the utilities who are
now running the show, and Alaska will continue to lag
behind other states and nations that have embraced
regional electric systems and renewable energy. A wide
variety of non-utility stakeholders are part of the
governance in those so-called Independent System
Operators (ISOs) and Regional Transmission
Organizations (RTOs) in other jurisdictions.
The Railbelt needs a vision of our future that is
based on objective reality, not six often competing
versions of it. Indeed, it is utility disagreement
over what the region needs that GDS pointed to when it
told the RCA on March 16th that it was not including
the function of economic dispatch in ARCTEC's proposed
Railbelt Reliability Council. Instead, GDS is
currently proposing that the RRC be stood up first,
and then a wide group of stakeholders could design
still another study to determine whether it makes
sense to have only the most efficient generators
operating in the Railbelt at any one moment in time.
By not including economic dispatch in the RRC's
functions, GDS is essentially saying that Alaskans
need to spend more time and more money on more studies
to determine what common sense tells us is true: that
consumers will save money if natural gas is not burned
inefficiently. This conclusion by GDS underscores why
we need a Railbelt Electrical System Authority now,
and why the utilities cannot control it. If Alaska is
going to do what other jurisdictions have now done for
decades and make the planning and operations of our
electrical system more efficient on a regional basis,
we cannot afford to continue to wait for the utilities
to address these issues voluntarily.
Conclusion
Today we are at an important crossroads for the
Railbelt, and for the state. If Alaska is going to
diversify its economy, the Railbelt will have a major
role to play. Energy efficiency, electric vehicles,
renewable energy and distributed energy are all making
what was for many decades a relatively static electric
industry one of the most dynamic and fast changing
industries on the planet. The Railbelt Electrical
System Authority is necessary for the Railbelt's six
independent utilities to come together to meet today's
trends and challenges. Today, the six Railbelt
utilities still do not speak with one voice, in large
part because their respective fiduciary duties are to
their own members, and not to the region. While
efforts to pool generation resources around Anchorage,
and to look at new models like an RRC are commendable,
consumers cannot wait any longer for the utilities to
voluntarily put something together with the requisite
functions and governance structure. Consumers are
already on the hook for more generation capacity than
the region as a whole needed, and the resulting higher
electricity prices in the Railbelt will impact
consumers all over the state as the target electricity
price for the Power Cost Equalization program rises
higher and higher.
Alaska can also no longer afford to operate with a
balkanized Railbelt electricity system. We need
regional planning, economic dispatch and reliability
standards to protect consumers and transparent and
consistent interconnection standards to attract
investment. Most importantly, we need a governance
structure for the Railbelt Electrical System Authority
that does not rely on utilities alone to plan the
region's future. Consumers and investors have waited
long enough for voluntarily action. The utilities' RRC
model will not get us to where the region must go.
Instead, REAP respectfully suggests that you, the
elected representatives of the state's consumers, take
the required action to establish the Railbelt
Electrical System Authority. Thank you very much for
your consideration of this critical issue. I am always
available to answer any questions that you may have,
or to provide background materials.
2:46:24 PM
REPRESENTATIVE JOHNSON asked to ensure that the RCA was given
some credit.
MR. ROSE replied that this was not intended to disparage the
RCA.
REPRESENTATIVE JOHNSTON asked if this would be a loaded economic
dispatch due to all the generation plants that were beholding to
the co-op membership. She suggested that this could force some
of the utilities into bankruptcy.
MR. ROSE pointed out that, as the expenditures for the power
plants were already included in the rates, those jurisdictions
were already paying for it. The concept of economic dispatch
would allow any of those utilities to buy power from someone
else cheaper than they could produce the power. He said that
moving forward this could reduce the cost of operation because
power was bought cheaper.
REPRESENTATIVE JOHNSTON declared that she was 100 percent behind
economic dispatch. She asked whether, as the operation of the
plant was a labor agreement, this was forcing the situation.
2:50:27 PM
MR. ROSE opined that the power plants had a relatively small
labor force, as most of the labor force maintained the
transmission lines, which would need to be kept operating. He
pointed out that the utilities would not go away, but that there
would be one single system operator to dispatch all the
generation units in a merit order in which the most efficient
would go first. He stated that this was a consumer issue and
the question was really for when. He referenced the $1 million
study in 2010 for a regional integrated resource plan which was
supposed to be enforced by proposed legislation. He stated that
there was work still to be done, and he supported that AEA
wanted to keep this project moving. He declared that it was
necessary to have a neutral facilitator. He pointed out that,
over time, there had not been any agreement from the utilities.
He opined that the aforementioned letter from the RCA in 2015
had been a request to the legislature to do something if the
voluntary efforts requested from the utilities did not happen.
He expressed his agreement that the inherent problem was that
the six utilities each had fiduciary duties to its membership
and not to the region. He declared that, as the RCA, AEA, and
the university had all called for a regional approach, it was
incumbent for the legislature to consider a way to work it out.
He stated that the lack of economic dispatch was a problem for
REAP.
REPRESENTATIVE JOHNSTON stated that the cost for future changes
to transmission would push changes to the system.
MR. ROSE expressed his agreement, although a roadblock for
transmission was a lack of reliability standards. He opined
that there was now less demand with the changes in technology.
2:56:38 PM
CHAIR WOOL acknowledged that economic dispatch was an issue,
noting that the presentation by GDS Associates referred to it as
a sticking point among the utilities. He asked if most parties
agreed that there was some savings, although there was
disagreement for how much would be saved.
MR. ROSE expressed his agreement and noted that the other issue
was for the cost of setting up a system operator to dispatch
versus how much would be saved. He pointed out that every new
addition for transmission would potentially offer more savings.
CHAIR WOOL offered an understanding that the utilities would not
take on an endeavor that would lessen their return, due to their
concern solely for service areas and not a system wide concern.
MR. ROSE stated that although change was hard, there would be a
transition process and the longer the wait, the harder it would
be. He declared the need for a "hammer" to implement the
changes.
CO-CHAIR WOOL asked if it had been made easier for other states
with the integration of nearby states, or had it been necessary
to have legislation to force the issue.
MR. ROSE replied that it varied and stated that there were other
independent system operators and regional transmission
organizations. He pointed out that Alaska was trying to change
a system for 500,000 people whereas a change on the East Coast
would be for 60 million people. He pointed to the transition
over time in Texas. He declared that it was necessary to get
this transition to a true independent system operator completed
in Alaska, as there were other pressing energy issues.
REPRESENTATIVE RAUSCHER offered his understanding that economic
dispatch was in progress and that the utilities would be filing
with RCA in the next few months. He asked what was the fear.
MR. ROSE declared that REPA did not believe it, that economic
dispatch was not happening and that nothing had been filed. He
declared the need for a referee for all these disputes.
3:02:18 PM
[HB 382 was held over.]