Ratepayers to save millions under Railbelt utilities’ power sharing deal

A trio of Alaska’s largest electric utilities announced an agreement Jan. 30 to start operating more as one.

Matanuska Electric Association, Anchorage’s Municipal Light and Power and Chugach Electric Association submitted a new power pooling and joint dispatch agreement to the Regulatory Commission of Alaska, also on Jan. 30, that could cumulatively save between $12 million and $16 million per year, according to utility leaders.

“This is really good for the consumer,” Chugach Electric CEO Lee Thibert said. “It’s going to lower rates; it’s good for the environment with reduced fuel (usage).”

The agreement should save Chugach about $4 million in annual fuel costs, which would translate to about a 2 percent rate reduction for the utility’s customers, according to Thibert.

He also noted that reducing fuel consumption — in Southcentral that means burning less natural gas — means emitting up to 120,000 fewer tons of carbon each year.

The cost and environmental benefits of the power pooling agreement are wrought from highlighting the strengths of each utility’s power plants to collectively maximize fuel efficiencies.

“Our focus really is all about increasing reliability while decreasing cost, especially in these challenging economic times,” Matanuska Electric General Manager Tony Izzo said.

Since early 2013, each of the utilities in the pooling partnership has built new, higher efficiency natural gas-fired power plants. Chugach and ML&P are partners in the 183-megawatt Southcentral Power Project; MEA brought its 171-megawatt Eklutna Generation Station online in 2015; and ML&P is currently in the final stages of commissioning its 120-megawatt George M. Sullivan Plant 2A.

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.

The Chugach and ML&P plants are generally best suited to be base load generators; they’re most efficient when run at maximum capacity.

In contrast, MEA’s Eklutna Station, built with 10 smaller generators, is more nimble and can be throttled up or down to meet peak demands more efficiently than the other two.

The utilities will then buy and sell power between each other based on the most efficient means of meeting demand on a given day — or given hour.

Further, the pooling agreement will allow the utilities to pool their shares of clean and stable-cost hydropower from the state-owned Bradley Lake hydro project near Homer.

The next year will be spent fine-tuning operations under the 20-year partnership, which is subject to approval by the RCA.

“What I would like to say is, we’re at the finish line, but we’re not,” ML&P General Manager Mark Johnston said. “We have started the process and over the next year we’ll be doing additional work to get us to the point where we can save our customers as much money as (projected).”

In June 2015 the RCA sent a detailed letter to state legislative leaders regarding efforts — or lack thereof — by the Railbelt utilities to operate more cooperatively.

While the letter was sent to political leaders at their request, it was also a clear warning to the utilities to change their habits. In it, the commission characterized the Railbelt electric system as “fragmented” and “balkanized.”

It 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.

Since then, Chugach and ML&P have partnered to buy a stake in the Cook Inlet Beluga River natural gas field; the Railbelt utilities are investigating if forming a single transmission company, or transco, could ease financing challenges for regional electric infrastructure and reduce transmission tariffs; and the power pooling agreement has been reached.

ML&P’s Johnston said the 2015 RCA letter “gave us the opportunity to start this process” towards formal power pooling. The utilities have long been working under casual pooling arrangements, they have said.

Anchorage Mayor Ethan Berkowitz commented at the press conference that, “you have the right leadership at an opportune time” to reach the deal. Each utility is ultimately controlled by its own board, but Izzo, Johnston and Thibert all took leadership of management at their respective utilities since August 2015.

Johnston also said the three utilities are open to other Railbelt participants in the pool, notably Golden Valley Electric Association in Fairbanks and Homer Electric Association on the Kenai Peninsula.

However, higher cost generation and transmission line capacity limitations could restrict the benefits of pooling for those utilities outside the Anchorage-Palmer-Wasilla network.

Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.