By Tim Bradner
Alaska Journal of Commerce

Alaska's Railbelt utility companies continue to disagree on how to structure an agreement that would lead to greater efficiency for power plant operation as well as provide a structure for jointly financing an estimated $1 billion to $2 billion in plant replacement and upgrading needed in the next 10 years.

The debate over a unified system operator for the Railbelt surfaced again in Juneau April 5 in hearings before the House Special Committee on Economic Development. The hearings concerned a bill that would transfer state-owned energy assets in Southcentral and Interior Alaska to three utilities that would form a jointly owned organization to operate the facilities.

House Bill 163, sponsored by Rep. Mike Kelly, R-Fairbanks, would transfer the state-owned Bradley Lake hydro project near Homer, a long-distance transmission line connecting Southcentral and Interior Alaska, and the 50-megawatt Healy clean coal power plant to a so-called joint action agency formed by three utilities.

Chugach Electric Association, Municipal Light and Power of Anchorage, and Golden Valley Electric Association of Fairbanks are considering forming the joint agency but have not yet actually done so.

Steve Haagenson, president and chief executive officer of Golden Valley, told the committee that a unified organization is urgently needed so new generation facilities can be planned for Southcentral and Interior Alaska.

"Most of our generation capacity is 30 years old, and we will need to replace about 1,000 megawatts of capacity in the next 10 years," Haagenson said. "How are we going to be able to finance this?"

What is needed are large regional power plants in the 200 megawatt range, and the individual utilities don't have the ability to finance these by themselves, he said. Multiple forms of associations among the utilities have been discussed over several years, but only a joint action agency would allow the utilities to jointly finance major new facilities, Haagenson said.

The issue is urgent, Haagenson said. "If we don't do something fast we'll have a train wreck in 10 years. The good news, however, is that we have the 10 years."

However, Matanuska Electric Association and Homer Electric Association voiced opposition to legislators April 5, arguing that the organizational form proposed by Chugach, ML&P and GVEA is flawed.

Lee Jordan, president of MEA, told the House Special Committee on Economic Development that the proposed joint action agency would not be a true unified system-operating organization, and that if implemented it its present form it would exacerbate problems among the six Railbelt utilities instead of resolving them. The city of Seward is the sixth utility owner in the region.

"If the state is to divest itself of these energy assets it should benefit all six Railbelt utilities, not just three of them," Jordan told the legislators.

Rick Eckert, vice president of finance for Homer Electric, said a key problem in what Chugach, ML&P and GVEA propose is that it would not bring all of the generation facilities owned by the utilities under one operating organization.

House Bill 163 would put the state facilities - Bradley Lake, the Alaska Intertie and the Healy coal plant - under the proposed agency, but members of the organization would be free to continue operating their own plants outside of the joint organization, Eckert told the legislators.

If the more costly facilities are under the joint agency, but the more profitable facilities are operated independently by the individual members, the joint agency will not achieve its goals, Eckert said.

Jordan said MEA favors an organization that would include all six utilities in the Railbelt where joint operation of all generation facilities, not just some, would be required. The organization could be formed either as a joint action agency or a generation and transmission cooperative, two forms of joint utility organizations that are allowed by state law.

Haagenson told the legislative committee that municipal utilities are not allowed to join generation and transmission cooperatives, which would leave ML&P out of any such organization. That was why the three utilities opted to form a joint action agency instead, he said.

Tuckerman Babcock, MEA's government affairs manager, said the three utilities have never made available the legal opinion on which the claim against a cooperative was based. He suggested that the legislative committee ask for a copy of the opinion.

MEA's own legal analysis indicates that there may be ways municipal utilities can join a generation and transmission cooperative, Babcock said.

Babcock said another flaw in the current bill is that there is no requirement that the joint agency retain ownership of the transferred state assets. Once the state divests them the joint agency could dissolve itself and transfer ownership of the assets to the member utilities, Babcock told the committee.

Another issue is whether the joint agency would fall under rate regulation by the Regulatory Commission of Alaska to protect consumers, Babcock said.

With the six utilities unable to come to a consensus on the formation of a unified organization, it's time for the Legislature to pressure all the utilities to reach agreement, he said.

Committee chair Rep. Nancy Dahlstrom, R-Anchorage, said HB-163 would stay in her committee until a series of questions are answered.

Among other questions, Dahlstrom asked for an analysis by the state administration of the current value of the Healy Clean Coal Project, which is not currently operating. She also asked MEA if a previous offer it had made to buy the Alaska Intertie from the state for $70 million is still valid.

Dahlstrom offered to facilitate a meeting of board members of Railbelt utilities - behind closed doors if necessary - in an effort to get them to agree on a form of a single-operator organization.

Tim Bradner can be reached at tim.bradner@alaska

journal.com.