Alaskan utilities propose six-way tie-up

Some disagree with the union's assertion that $900m in transmission upgrades could produce annual benefits of up to $240m.

The Alaska Railbelt Cooperative Transmission & Electric Company (ARCTEC) has released a draft business plan to unify the ageing transmission assets of six utilities and move forward with $903 million in infrastructure upgrades. 

The plan, in the works since 2011, is currently under review by the Alaska Regulatory Commission (RCA). Under the agreement, ARCTEC would “operate, maintain, plan and construct electric transmission lines in and around the existing service territories of the Railbelt utilities.”

Alaska's Railbelt region is a 500-mile swathe of central Alaska that stretches from the Kenai Peninsula in the south to Fairbanks in the north. Past attempts at utility unification have floundered due to the very modest size of the customer base relative to the area affected.

The initiative to form a single transmission entity is not a new one: the first such plan was proposed in 1998, with subsequent proposals following in 2005, 2008 and 2009. It is believed that through system unification, 'rate pancaking' – that is, stacking of tariffs as electricity moves through multiple interwoven transmission systems – can be eliminated. 

The six utilities involved include Anchorage Municipal Light and Power, the City of Seward Electric System, Chugach Electric, Golden Valley Electric, Homer Electric, and Matanuska Electric. By forming a single transmission company, ARCTEC hopes to create inroads for the pooling of funds in capital projects while the Wisconsin-based American Transmission Co (ATC) invests in regional transmission expansions, according to the plan.

If it were allowed to form, ARCTEC would be governed by representatives of each utility, ATC, five independent directors and a chief executive.  

In order to bring the entire transmission system across the Railbelt up to single redundancy, roughly $903 million in investments would be needed, according to a study performed in 2013 by the Alaska Energy Authority. The authority indicated in that same study that the resulting unification could lead to between $80 million to $240 million in additional economic activity across the region. 

Unifications comes with drawbacks as well as benefits. For example, the environment created by the unified system would facilitate stable access to new capital through debt and equity financing, but capital costs could be higher in some cases. By sharing resources, workforce sustainability challenges could be navigated more efficiently. But then again it could introduce new inefficiencies and additional costs for those generating utilities in the tie-up. 

One utility – the Matanuska Electric Association (MEA) – has spoken out against the plan, noting that economic benefits of unification might be overstated. In a December 29 letter to the RCA, MEA general manager Joe Griffith reportedly told the Alaska Journal of Commerce in an interview that the six ARCTEC utilities could see significant benefit from as little as $50 million in strategic investments. 

“The [AEA] study was done properly for the boundaries and conditions they studied it under,” he said. “It's probably right, but the first question you have to ask is do we need it?”

If the ARCTEC draft plan were adopted in 2016 it is estimated that monthly billing rates for regional customers would increase by 15 cents in the first year, and 96 cents by the fourth year in 2021. These estimates were derived for customers consuming 650 kilowatt-hours of electricity per month. All told, the unified system would comprise 5,000 gigawatt-hours of monthly transmission capacity.

The AEA is currently updating its study with a broader look at cost and benefit potentialities, with a report on findings due to be released in March.