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Reimagining Alaska’s Railbelt with an ERO

by Sep 14, 2020Energy, Magazine

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Developing and enforcing system-wide reliability standards to create energy efficiency for Alaskans

Fragmented. Balkanized. Contentious.

These are just a few of the words the Regulatory Commission of Alaska (RCA) used to describe the state of the Railbelt in its 2015 letter to the Legislature. Exposing issues associated with the electric utilities’ independent operations in the region spanning from Homer to Fairbanks, the letter called for total institutional reform while proposing a few key recommendations.

One of the more glaring inefficiencies, RCA Chairman Bob Pickett says, was the recent outlay of almost $1.5 billion in combined and uncoordinated power generation projects between the six Railbelt utilities. “The Commission looked at it and thought the utilization and coordination of these assets, both generation and transmission, needed to be improved to get maximum benefit to the ratepayers.”

Pickett also explains that, due to Alaska’s lack of connection and governance by the Lower 48‘s Federal Energy Regulatory Commission, the RCA was concerned about enforcing reliability standards.

Developing and—perhaps more crucially—deciding on a way to best govern the service area from a regional perspective has been a point of contention for Alaskan policymakers, ratepayers, and utilities since the inception of utility-scale power generation in the state roughly eighty years ago. In the last few years, there have been multiple attempts to address these issues, but most of them have been what Pickett describes as “non-starters”—efforts like the scrapped independent transmission company that stakeholders spent nearly five years negotiating.

That is, until Governor Dunleavy signed Senate Bill 123 (SB123) into effect this spring.

“It was a very challenging process and [the utilities] weren’t on the same page and we had some pathways that didn’t produce meaningful outcomes,” says Pickett. “But we were trying to find a structure that made sense for Alaska given the size of the market and the unique conditions we have— and that is what you have with SB123.

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September 2020

Making Sense for Alaska

SB123 is the culmination of decades of work by advocates for an improved Alaska energy system and mandates several important changes to the Railbelt electric grid. Most notably, it requires that the utilities participate in what is known as an electric reliability organization, or ERO. The function of these independently operated organizations can vary depending on the region, but, as outlined in SB123, the ERO will be tasked with developing and enforcing system-wide reliability standards as well as crafting an integrated resource plan that will allow the Railbelt region to more efficiently meet future load demands in a rapidly changing energy landscape.

Prior to its official passing, the impending legislation prompted the six Railbelt utilities to sign a Memorandum of Understanding (MOU) in December of 2019, indicating their intent to form an ERO dubbed the Railbelt Reliability Council (RRC). The MOU outlined their plan to create an Implementation Committee that would be responsible for developing necessary foundational documents and applying for the certificate of public convenience and necessity to become an ERO as required by the RCA.

But the implications of SB123 and the RRC’s MOU extend far beyond matters of reliability and security.

Stakeholders have repeatedly praised these milestones as historic moments for the state. On the signing of the MOU in particular, Matanuska Electric Association’s Julie Estey described it as “groundbreaking” and spoke to the diverse parties that were present: utilities, independent power producers, state representatives, the department of defense—all gathered around a table coming up with a framework that made sense for the RRC’s many interests.

Finding a structure that works for Alaska was no simple feat. “The grid is so different here,” Estey says. “Because our grid is so small and there is very little redundancy on our grid, most people wouldn’t even call it a grid in the Lower 48—they’d call it a long extension cord comparatively,” she jokes.

While it’s helpful to look at the structures that are currently in place with other EROs in North America, Estey believes it might be more appropriate to consider what those entities looked like in their infancy when considering an organizational structure that suits Alaska’s unique needs.

“In the Lower 48, the thing that really shapes what EROs look like now compared to their infancy is the introduction of competition for power,” Estey explains. “Our market just isn’t that big; you’ll have hundreds or thousands of generators on the market that are in a system down in the Lower 48 and we have very few.

“We have a lot of infrastructure already that is being covered by very few members and utility users. And so that is different in the Lower 48. They see fewer fluctuations—the cost of these structures doesn’t even make a dent in their utilities. But for us, it matters. Every penny we spend matters. And every penny extra our members have to pay really matters.”

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But what does all of this mean for Alaskans? According to the Alaska Energy Authority’s Director of Engineering and Energy Development Kirk Warren—a lot.

“It really is a historic moment for the Railbelt region for the state—you have all six utilities agreeing to abide by a similar set of standards which will make the energy landscape within the interconnected system much easier to navigate and will perhaps bring economic development that otherwise would not be attracted to the state,” says Warren.

In addition to lowering electricity costs for Alaska’s ratepayers, Warren believes this increased connectivity could play a large role in eliminating the issue of “pancake rates,” or the added tariffs that utilities charge to transport electrons across connected, though independently operated, transmission lines.

Renewable Energy Project of Alaska’s (REAP) Executive Director Chris Rose believes this increased connectivity is particularly attractive for independent power producers seeking to sell electricity generated from renewable sources to the grid.

“Interconnection is a big deal for renewable producers,” Rose says. “One of the things that this means for renewables is that if you have a bigger [load] balancing area, electrons that are produced from intermittent resources have more places to go when they are produced.

“For instance, with Fire Island Wind, Chugach Electric [Association] is the only off-taker. If Chugach Electric can’t take that wind production when it is produced, it is wasted. Chugach has basically just turned off the turbines many times over the last eight years of operation when they can’t use them even though the wind is there and it could be generating.”

The idea of regional economic dispatch—or constantly running a power plant’s most cost-efficient generator to meet short-term demand—is another mechanism advocates of SB123 sought. And while the function of regional economic dispatch is not something SB123 will task the ERO to regulate, Rose reveals there are other workings at play that will hopefully lead to a more cost-efficient energy economy.

“It is interesting to note that one of the conditions that the RCA put in their order on the acquisition case of Chugach and ML&P is that there be a tight power pool formed between Chugach and all of its ML&P assets and Matanuska Electric Association.”

And that, Rose says, is the beginning of economic dispatch.

“So, the commission has not let go of this idea that we need to have economic dispatch in order for the consumers, who are paying off all this new generation that’s been built, to get the lowest rates possible.”

Rose also feels the impact of the integrated resource planning process should not be understated, providing Alaska energy producers and consumers with a forum to discuss a variety of issues that are expected to impact future load demand.

“The integrated resource planning process that’s now mandated by SB123 will give Alaskans a chance to weigh in on how the region will utilize renewable energy resources which don’t have fuel costs or generate emissions.”

Work to Be Done

While the early signs are promising, those in favor of a restructured Railbelt agree that the work is just beginning. “There’s a lot of work to be done,” notes Pickett. “We have a rule docket that we have to have completed by July 1 of next year. And there’s still some rough edges; I’m sure there will be some differences of opinion as this moves forward, but all of us are looking at it saying, ‘We’re going to do everything we can to make sure that it works well.’”

The RRC is moving forward with an Implementation Committee to stand up the organization, with a list of committee members finalized in July; it is comprised of six Railbelt utilities; two independent power producers in CIRI and Delta Wind; the Alaska Energy Authority; a consumer advocacy group in the Alaska Public Interest Research Group; and two non-affiliated members—Chris Rose of REAP and Jerry Rust, former president and current special assistant to the chairman for Northwest Power Pool. Another stipulation of SB123 is that the entity envisioned to oversee the Railbelt grid requires a governing body of balanced stakeholders, an independent board, or a mix of the two.

This mix of utility and non-utility interests is crucial for a balanced organizational structure, as well as a comprehensive integrated resource planning process, says Executive Director Veri di Suvero of The Alaska Public Interest Research Group.

Though finding that balance has not been as straightforward as some parties might have hoped. Chugach’s acquisition of ML&P is one consideration that the Implementation Committee will need to grapple with. “That is a big question mark,” says di Suvero.

Because the entity as envisioned was supposed to involve six utility and six non-utility stakeholders, it is unclear if the acquisition—which could potentially decrease the utilities’ representation within the board—makes sure there are fair voting mechanisms in place.

Di Suvero also voiced concerns—echoing sentiments expressed by the legislature during SB123’s passage—that utilities or other entities might try to push through a number of building projects before the bill becomes effective, claiming the projects were approved or ongoing before the bill’s pre-approval requirement is in place.

“That would be unfortunate, but that pre-approval process is key and in parallel with the integrated resource planning process that the RRC would be doing.”

But di Suvero remains optimistic. “It is pretty historic that the utilities have come together and agreed on anything—much less something that will be transformative for this region.”

In the event that the RRC is unable to secure this balance, it is possible that a different organization—potentially one without the utilities’ involvement—could form and apply to become to Railbelt’s ERO.

“One issue now being debated is how the ERO will govern itself, and REAP has expressed its concerns about governance to the RCA and the legislature,” Rose notes. “The RRC wants to make its Implementation Committee the ERO’s first board of directors, but REAP questions whether there’s enough balance with that utility-proposed board structure to assure that the RCA would certify it.”

Rose adds that most similar organizations across the country are governed by independent directors to ensure that an ERO’s functions and board are not at odds. Whether the current structure proposed by the RRC or a different entity is established as the Railbelt’s ERO, Rose says that REAP is determined to keep working toward forming a new regional organization that will best serve Railbelt consumers.

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