Loading...
HomeMy WebLinkAbout02222016 City Council Work Session Notes - Transco/Unified System Operator WORK SESSION NOTES ON I'a V1 0 I untied Dear etc n kcfric, Purpose: � �� �� ��',. Present: foutt-t, KA ) ) i vh hart) Council Members Present: zt rd ar ) .U/� tr6Piers, Arc, Davol I��L ( � WcT& "' $$- al,-,f.„(01--• iirvi Called by: Gykrici I Time: 62:ois , Date: g, -/ -dee Polt4 -O f syne,'i leo - hajo -u nkiletwN lortbl it rner February 22, 2016 I TALKING POINTS 1. TRANSCO (TRANSMISSION COMPANY) How Does this benefit the rate payers of the City of Seward? i. What is an economic dispatch model? How does it work?What important information does it give us? ii. Need an equivalent unit of measure for people outside the utility to understand. iii. Why are reliability standards important? How do these effect Seward? iv. What is the timeline the utilities would like to implement this and when does Seward need to make a decision? v. How is the legislature involved? vi. How would an emergency transmission outage be handled? a. Is there possible compensation for running backup generators? b. Is there possible compensation for dispatching our linemen to make repairs? c. What does the Transco consider an acceptable outage response time? vii. How would new transmission construction projects be handled? a. How would the City of Seward's transmission needs be assessed? b. Would the City be required to pay for regional transmission projects? If so, based on what percentage? ITALKING POINTS 2. USO (UNIFIED SYSTEM OPERATOR) How does this benefit the rate payers of the City of Seward? i. What is the difference between a USO and ISO? ii. Is ARCTEC going to be the USO? iii. Would we be required to purchase power from the USO? a. At what rate would the purchase price be(in dollars per kilowatt-hour $/kWh)? b. Would we be considered higher, lower or the same as other utilities for the best rates per unit? iv. Could we continue an all requirements contract with another utility if it was more beneficial to our members? v. Would our customers be susceptible to outages depending on the amount of spin? • vi. How would new generation projects he financed and how would that impact the City's customers? vii. Would the City be required or asked to run its backup generation facility? If so, under what circumstances? a. What would the compensation be for this? b. Would this place any additional regulations on the City's facilities? viii. Does the existence of a USO cause the City to be regulated by the RCA? ix. What is the timeline the utilities would like to implement this and when does Seward need to make a decision? x. Which utilities are involved? 2 RECEIVED December 22, 2015 By the Regulatory Commission of Alaska on Dec 22,2015 • _ J Commissioners Regulatory Commission of Alaska 701 West Eighth Avenue, Suite 300 Anchorage,Alaska 99501-3469 RE: Docket No. I-15-001; Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company—RCA Recommendation No. 1 Dear Commissioners: On behalf of Anchorage Municipal Light and Power(ML&P), Chugach Electric Association, Inc. (Chugach),the City of Seward(Seward),Golden Valley Electric Association,Inc.(GVEA),Homer Electric Association, Inc. (HEA),Matanuska Electric Association,Inc. (MEA) and the American Transmission Company LLC,by its corporate manager, ATC Management Inc. (together ATC),the above parties (Parties), file this joint second report on the progress of voluntary efforts to restructure transmission in the Railbelt and establish an independent Railbelt electric transmission company (Transco). SECOND STATUS REPORT In 2014,the Parties established principles for voluntary formation of an Alaska Railbelt Transco(ART)and formed a senior staff working group(the Working Group)charged with developing a business model for a Railbelt Transco. To date,the Working Group has met each month since December 2014 and has engaged subgroups of subject matter experts on specific tasks. The Railbelt electric utilities and ATC (collectively the Parties)are developing a business model whereby the operation,maintenance, and upgrades of the Railbelt transmission network are accomplished by a Railbelt Transco to ensure the reliable delivery of electric power to Railbelt customers. A draft of this business plan is attached to this letter. The subgroups contributing to the creation of Transco business plan include: Economic Dispatch, Finance, Governance,Human Resources and Organizational Structure, Legacy Agreements, Operations and Maintenance,Real Estate and Permitting,Regulatory, and Standards. The Parties have summarized work to date in the attached draft. A. Decisions Made Any decision to proceed with Transco formation will be based on each company's assessment of the total benefits and impact of participation on that party's operation. This process requires extensive consultation between management and the party's governing body(e.g. municipal government,board of directors). Each party will base a decision to participate in the formation of ART on a number of factors, including: 1) the economic impact to local electricity consumers from changes in transmission rates and the overall impact on the cost of energy; 2) assurance that Transco formation continues to meet its obligations to reliably serve consumers through clear reliability and planning standards; 3) regulatory certainty, including assurance of the recovery of prudently incurred costs,based upon the adopted standards, and the ability to meet long-term fmancial obligations;and 4) a governance structure that assures the Railbelt's transmission network will be operated and maintained economically and effectively and meets the needs of present and future consumers. Page 1 of 275 Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company RCA Recommendation No. 1 December 22,2015 Final decisions by individual Parties to proceed with a Transco will be based upon these and other factors and involve both management and governance organizations (boards of directors, municipal leadership, etc.), the bylaws each party operates under, and cannot be made until this analysis is complete. B. Prioritized timeline As noted in our September filing,there are several items of detailed due diligence underway to support a decision on the possibility and form of an Alaska Railbelt Transco. While each of these items is addressed in terms of progress to date in the attached draft business model,the following table summarizes progress as well as an intended end date. Key Due Diligence Task Progress to Date (% Complete) Estimated Completion Date Due diligence on subgroup 75% Q1-Q2 2016 matters (see Appendix A, and specific subgroup reports herein, September Filing) Validation of the benefits of 60% Q2 2016 Railbelt-wide economic dispatch; Design of a tariff structure that 25% Q2 2016 ensures equitable rate recovery for existing and future transmission assets Design of a business model for a 65% Q2-Q3 2016 Railbelt Transco Evaluation by Parties Ongoing Q2-Q3 2016 Approval by Governing Bodies I Q3 2016 & Stakeholders CPCN Application for Transco I Above tasks are prerequisite. Q3 2016 Transco Legal Day 1 Above tasks are prerequisite. Q2 2017 C. Use/integration of the current transmission assets into the Transco Any transition or change in the operation of the Railbelt's transmission assets must ensure that existing levels of reliable service are maintained, and that future operation is consistent with uniform reliability standards. Integration of existing assets into the Transco will be accomplished with service agreements and/or other contractual arrangements between the existing utilities and the Transco. D. Siting authority and integrated resource planning The Parties support centralized review and approval of transmission projects according to a coordinated set of standards to ensure that their costs and benefits can be evaluated. 2 Page 2 of 275 Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company RCA Recommendation No. 1 December 22,2015 We the undersigned utilities appreciate the opportunity to update our progress toward evaluating how the formation of a Transco can provide overall benefits to the Railbelt. Each party recognizes that this update describes progress to date and the status of ongoing discussions, and cannot be acted upon or implemented without a final decision by the utilities and their respective governing bodies and stakeholders. Should you have any questions regarding this report or our ongoing efforts, please contact Eric Myers (EMyers@atcllc.com, 262-422-1831) or Eric Lundberg (ELundberg'atcllc.com, 262-787-8410). Bradley P. Janorschke General Manager Alaska Electric and Energy Cooperative, Inc. & Homer Electric Association, Inc. Brad Evans Chief Execu iv• •fficer Chugach Electric Association,Inc. .de Riftler. John Foutz , . Utility Manager City of Seward gc.,15,tiet c 1 Cory Borgeson President •nd Chief Executive Officer Golde e.Iley Ele-Association, Inc. OPP_ E`:n J. Griffith eneral Mana_. Matanuska Electric Association, Inc. 3 Page 3 of 275 Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company RCA Recommendation No. 1 December 22,2015 Mark A,John on General Manager Municipality of Anchorage d/bja Municipal Light and Power 4.ft. Mike Rowe President and Chief Executive Officer American Transmission Company LLC By its Corporate Manager, ATC Management Inc 4 Page 4 of 275 Second Status Report on Voluntary Development of Independent Railbeit Electric Transmission Company RCA Recommendation No. 1 December 22,2015 Alaska Railbelt Transmission Company, LLC Draft Business Plan Executive Summary In December of 2014, the General Managers of the Railbelt's six utilities, Anchorage Municipal Light and Power,the City of Seward Electric System, Chugach Electric Association, Golden Valley Electric Association, Homer Electric Association, and Matanuska Electric Association, (collectively the "Railbelt Utilities"), and American Transmission Company LLC, a Wisconsin limited liability company (ATC) established and endorsed a set of guiding principles(See Appendix A, Guiding Principles) for the formation of a transmission-only utility to serve Alaska's Railbelt region. From those principles,the Railbelt Utilities and ATC (collectively the "Parties") charged a senior staff working group (the Working Group) with developing and evaluating a business model for the Alaska Railbelt Transco (ART). To date, the Working Group has met each month since December 2014 and has engaged subgroups of subject matter experts on specific tasks. These efforts are organized around a work plan with these primary deliverables: 1. Initial due diligence by each utility; 2. Formation of a business model for a Railbelt Transco; and 3. Validation of the benefits of Railbelt-wide economic dispatch and formation of a Railbelt Transco; and 4. Submission of a CPCN application to the Regulatory Commission of Alaska(RCA). Additionally,in November of 2015,the Railbelt Utility Group,an organization consisting of each of the six Railbelt Utility General Managers, charged the Working Group with developing methodologies for conducting a Railbelt-wide economic dispatch and the settlement of associated transactions between Railbelt utilities for the purchase and sale of energy, capacity, and associated ancillary services under the Guiding Principles (see Appendix A). Purpose of this Document One purpose of this document is to explain to the Regulatory Commission of Alaska and other key stakeholders the progress to date to evaluate the formation of ART. This document organizes in the form of a business plan the steps necessary to transition from a network of separately operated transmission assets to an organization whereby the operation, maintenance, and upgrades of this network are accomplished by ART. The Working Group and specific subgroups consisting of representatives from each Railbelt utility and ATC are continuing to meet regularly to build this business model. This document is a work in progress, and explains issues that have been raised and discussed to date, the status of those discussions, associated analyses of issues raised, the extent to which these issues have been resolved, and the timeline for completing tasks. In addition to serving as the framework for a progress report to the Regulatory Commission of Alaska, this document in its final form will provide the basis for each Party's decision to ultimately participate in 5 Page 5 of 275 Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company RCA Recommendation No. 1 December 22,2015 Transco formation. Since these conversations began nearly two years ago,voluntary participation has been a central principle, as it allows each party to participate actively in the framework discussions while continuing to meet the separate obligations they have to specific stakeholders, including municipalities, cooperative members, lenders, and other capital partners. Each party will base a decision to participate in the formation of ART on a number of factors, including: • the economic impact to local electricity consumers, including transmission rates and the impacts of joint economic dispatch specifically brought about through the formation of a Transco, including a settlement process; • assurance that Transco formation meets its obligations to reliably serve local consumers through clearly-defined reliability and planning standards; • regulatory certainty, including assurance of the recovery of prudently incurred costs, and the ability to meet long-term financial obligations; and • a governance structure that assures the Railbelt's transmission network will be operated and maintained economically, effectively, and expanded to meet the needs of present and future consumers. A final decision by any individual Party to proceed with Transco formation will be based upon these factors and involve both management and their governance organizations (governance, municipal leadership, etc.). This decision cannot be made until the above factors have been addressed. Mission of ART: the Transco The mission of the Alaska Railbelt Transco is to operate, maintain, plan and provide reliable economic service through prudent capital investment and associated construction the Railbelt's transmission assets; and to recover the cost of management, operations, maintenance, and capital obligations through Railbelt-wide nondiscriminatory, open-access, transmission rates. ART will operate, maintain, plan and construct electric transmission lines in and around the existing service territories of the Railbelt utilities. In general, a Transco owns no generating assets and accomplishes transmission operation, planning and construction consistent with transparent and nondiscriminatory planning and reliability standards. Governance of the Transco must balance the need to effectively operate and invest in the Railbelt's transmission infrastructure with the ongoing obligations each utility has to its customers and other stakeholders. Reliable Operation All transmission assets integrated under the Transco will be operated under a common set of standards for generation and transmission reliability, and to realize efficiencies in the overall operation of the interconnected systems. The Parties are working to clarify both the operating standards and the attendant service agreements between the Transco and the other Railbelt utilities. This approach to Transco operations maintains existing regional expertise and best practices. 6 Page 6 of 275 Second Status Report on Voluntary Development of Independent Railbelt Electric Transmission Company RCA Recommendation No. 1 December 22,2015 Transparency In all facets of the operation of the Transco, transparency is important. ART will operate under an open access transmission tariff which will allow equal access to both load serving entities and independent power producers. Such a tariff will assign the cost of transmission to end use consumers based upon a cost allocation that assigns costs equitably. Clear stakeholder driven and technically sound reliability standards and planning protocols can provide consistent direction to capital improvements and new transmission services. Management of the Transco The management team responsible for the company's development, planning, strategy, customer relationship, and management of day-to-day affairs will consist of a Board of Directors and an Executive Team, including a Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, and/or such other executive and./or management positions as determined at the time of formation. The Board of Directors will determine the overall direction of the company and will delegate responsibility for certain day-to-day matters to the Executive Team, who in turn provide direction to employees of ART and its contractors and affiliates to carry out those responsibilities. ART, the Railbelt Utilities, and ATC will allocate time and expenses to the Transco for those employees performing services on behalf of the Transco. Background on the Railbelt Since 1998, the state of Alaska has sponsored or conducted a total of 8 separate studies of the region's transmission system. The Railbelt region interconnects in a limited fashion, and opportunity may exist to reduce congestion and improve reliability in an economical manner. Strengths,Weaknesses, Opportunities and Threats The table below identifies significant internal and external factors and their potential impacts on the success of the Transco. 7 Page 7 of 275 Strengths,Weaknesses, Opportunities and Threats Strengths Weaknesses Opportunities Threats Economics Increased Economic Optimizes dispatch of existing and May require common Facilitates long-term, Restrictions in fuel supply Energy Sales future generating resources. dispatch and integrated resource contracts and legacy Provides basis for evaluating future settlement approach. planning and fuel agreements may limit system improvements Could increase costs of supply optimization. dispatch. Costs to achieve may some energy impact overall savings. transactions. Non-discriminatory Maximizes the value and benefit of Assessment of Creates one stable Stakeholders need to endorse Open-Access Tariff transmission services to all users integrated operating transmission price and agree that tariff is open and provides a firm basis for costs must be allocated signal for new and nondiscriminatory in evaluating new interconnections equitably, and cost to generation, dispatch practice. (generators and loads). achieve may impact of existing company-specific generation. savings. Network Integration One cost of transmission, stable Needs to balance Can reduce volatility Some parties disagree with the Transmission Service recovery of transmission costs. benefits to economic in the transmission necessity or proportionality of Tariff dispatch with any component of rates. the costs or benefits of certain change in transmission transmission assets. cost. New Capital Stable access to debt and equity Capital costs could be Provides additional Transmission investment is financing. higher in some cases. sources of capital. not aligned with stakeholder Equity threshold interest. creates a higher hurdle for positive benefit to cost ratio. Shared Resources Maintain existing expertise, and Create potential Manage workforce Concerns about job quality ensure a secure, reliable transition, inefficiency,additional sustainability and stability, and avoiding the creation of a redundant cost within the challenges more company-level staffing issues organization. generating utilities. effectively. throughout the change must be addressed. 8 Page 8 of 275 Strengths,Weaknesses, Opportunities and Threats Strengths Weaknesses Opportunities Threats Operations Operational Operations primarily accomplished Greater separation of Greater opportunity Centralized operations needs efficiencies through services agreements with transmission and for deploying to avoid unnecessary overhead. existing utilities, ensuring distribution functions common standards, cost, maintain service and experienced operations. may occur over time, best practices, response level. Operational decisions can take resulting in a potential grid-level interests into account. for increased costs. Common maintenance More predictable operating Changes from status Identify and maintain Drive to standardize could standards conditions. Opportunity to increase quo may need to be important regional overtake need to manage available transfer capacity and incremental to differences as smooth transition. Benefits of reliability of existing assets. maintain consistent necessary. standardization may not be operations and avoid equal. unnecessary costs. Decongestion of the Improve available transfer capacity, Potential for Improve availability Not all projects will benefit all grid facilitate economic dispatch, and "overbuild" based on of hydroelectric Parties equally, and may reliability. changing system resources impact power sales. The needs. benefits of decongestion may not justify Transco formation. Planning Central planning and Identify, evaluate and maximize Regional scale may not Provide basis for Local control over decisions evaluation of project value regionally, and translate to optimal integrated regional reduced. transmission projects solutions that provide value under local benefit, potential planning. multiple scenarios. for cost increases that are not offset by benefits. Local Capital Individual parties can focus on Perception that Local utilities can Parties disagree on cost projects (distribution, etc.) with transmission projects avoid capitalizing sharing of projects with local benefits. with local value are not assets when benefits disproportionately local priority. Potential are regional. benefits. increased cost of projects. 9 Page 9 of 275 Strengths,Weaknesses, Opportunities and Threats Strengths Weaknesses Opportunities Threats Organization Experience Parties are utilizing ATC's Alaska is unique and Approach is being Perception that the Transco is experience in Transco formation. facilities are large tailored to the an"outside" idea will need to distances from each Railbelt. Transco will be addressed. other. be Alaska based, and governed. Y0 Page 10 of 275 Governance Subgroup The Governance Subgroup's primary purpose is establishing the basic corporate organization of Transco and developing a framework for the Transco to make decisions, select key leaders, determine the composition of the Board of Directors, and process to resolve Transco disputes amongst the members. The subgroup has developed a draft term sheet and once agreement has been reached by the Parties and approved by the Parties' boards of directors,definitive agreements will be drafted. To date three subgroup meetings have been held and numerous one on one conversations have been held with individual parties to obtain feedback, clarifications, and input used for revisions to the draft term sheet. Work to Date and Items Resolved: • Each initial member shall be entitled to appoint one representative to the Transco's Board of Directors • Process for how the Transco will raise equity. • One member, one vote regardless of economic interest in the Transco except with respect to certain corporate matters (e.g. bankruptcy or assignment for benefit of creditors, change of control of the Transco, etc.). • The board will include a number of independent director(s)which shall not be a current employee of a member. • Qualifications and selection criteria for the independent directors and that the election of an independent director requires unanimous approval of the members. • Disputes to be resolved utilizing alternative dispute resolution provisions, including a member dispute resolution committee, good faith non-binding mediation with a neutral third-party mediator, and binding arbitration. • The Transco will maintain an open access network service rate transmission tariff, pursuant to which the Transco will offer transmission service on a non-discriminatory, open access basis. • Conceptual allocation of Transco profit and losses and distributions to the members. • Operating agreement will require the approval of each of the member's board of directors and regulatory approval by the Regulatory Commission of Alaska. • Governing law will be the State of Alaska with the venue in Alaska federal courts. Outstanding Items: • Number of independent directors—discussions in process with key items for consideration being costs and role of independent directors • Independent board member qualifications and compensation. Page 11 of 275 • Specific percentages for participation in equity calls—discussions are interrelated with determining the settlements for economic dispatch and the methodology of cost allocation. Negotiations amongst the Parties to determine percentages for participation in equity calls will occur once the Economic Dispatch Subgroup has completed the economic modeling analysis. • Specific allocation of Transco profit and losses and distributions to the members— specifics to be determined based upon how assets are ultimately contributed or placed under operational control of the Transco and IRS regulations. Documents in Appendix: • Confidential Governance Draft Proposed Term Sheet—reflects the work and discussions of the Governance Subgroup to date. • Original ATCLLC Operating Agreement and Revised ATCLLC Operating Agreement reflecting Amendments 1-5 revised(20130514)—ATC was formed by both investor owned utilities and public power companies and the experience and lessons learned from ATC's formation and organization documents were utilized as a starting point for the discussions for the formation of the Alaska Transco. • Independent Directors(20151112)—independent board directors normally are not found on cooperative boards, as a result some benefits of independent directors for boards where multiple companies participate were compiled for education purposes. Organization Structure Subgroup The mission of the Organization Structure Subgroup is to develop a consensus organization structure for the Alaskan Railbelt Transmission Company. To establish this organization by making use of existing local resources as much as practical. Further,to staff and resource the organization in a manner that enables it to safely,reliably and efficiently maintain, develop and utilize the Railbelt transmission system. The Transco Working Group tasked this subgroup with developing a Transco transitional organization structure spanning a five-year start-up period. Also, to staff this organization using prevailing Railbelt position grades, wages, and benefits, as well as the cost of facilities such as office space,computers, and specialized programs, etc. to develop an estimate of the start-up and annual operating costs of a Railbelt Transco. This organization structure and associated costs structure will be included in the proposed Transco's business plan and proforma financials for evaluation by the participating utility's governing boards and the RCA. Page 12 of 275 The subgroup consists of human resources and operating staff from American Transmission Co., Chugach Electric, Golden Valley Electric, Homer Electric, Seward Electric, and Municipal Light and Power. Work to Date and Items Resolved: 1. Five-year transitional organization chart and associated start-up costs 2. Fully resourced staffing plan 3. Estimate of fully loaded annual labor costs for years 1-5 The Organization Structure Subgroup has met several times both in person and telephonically, including an eight-hour face to face meeting at Chugach's offices in Anchorage. An estimated 200 man-hours Railbelt-wide has been expended on the effort so far. The subgroup has developed the attached draft transitional organization chart and has completed grading and mid-point salary assignments for each proposed position. Further, the subgroup has identified the positons that will likely be filled by existing Railbelt personnel, which will represent incremental costs to the Railbelt, and the magnitude of the estimated reduction in costs to existing utilities resulting from the transfer of effort to the Transco. Finally, the subgroup has proposed a transitional start-up staffing plan. Items one, two, and three above have been completed. (see Appendices D and E, Organization Structure and Labor Costs Years 1-5). Outstanding Items: Explanatory documents and a general approval of the package of deliverables. The subgroup believes that the final organization documents for inclusion in the business plan and CPCN application will be complete by March 1, 2016. Regulatory Strategy The Regulatory Strategy Subgroup consists of rates and regulatory policy experts from each of the Parties. The mission of this group is to ensure that all filings made with the Regulatory Commission of Alaska are consistent and approved by each of the Parties, and responsive to the Dockets and/or other requests made by the Commission. The Regulatory Strategy Subgroup is also responsible for the following tasks. • Development of a CPCN application for the Transco upon approval by the Parties • Development of a draft tariff for open access network transmission service Work to Date and Items Resolved: The Regulatory Strategy Subgroup has developed an outline for a draft CPCN application and begun review within the Parties. Much of the detail for the outline will be completed with the resolution of other subgroup tasks. The Page 13 of 275 subgroup has also developed a term sheet of key tariff issues that must be resolved prior to finalizing the draft tariff. Issues that have been resolved include: • The Transco will be an RCA-certificated utility • The Transco will operate under an open access network transmission service tariff • Cost allocation for existing and future capital projects will be made in a consistent and equitable manner. • The Transco will be an RCA-certificated utility • The Transco will operate under an open access network transmission service tariff • Cost allocation for existing and future capital projects will be made in a consistent and equitable manner. • The Transco's obligation to Railbelt consumers will include providing service meeting objective reliability standards in a cost effective manner; and investing to improve the operation of the grid as a means to efficient economic dispatch only when such investments are exceeded by the benefit of that improved efficiency; and other short term and or long term consumer benefits. Outstanding Items: • Specific cost allocation methodologies • Approval of all tariff term sheet items (See Appendix C, Draft Tariff Term Sheet). • See Appendix G, CPCN Needs from ART Subgroups. Transco Operations and Maintenance On Day One of operations ART will need to continue many operational services that are currently performed by the individual Railbelt Utilities. The O&M Subgroup's goals were to develop the core functions of Operations and Maintenance(O&M) and Transitional Service (TSA) Agreements. The subgroup chose to use ATC's Day 1 agreements as a starting place for the agreements. Each Railbelt Utility has a member on the subgroup; however,MEA has had minimal review at this time as they began active participation close to the end of our review process. ART's use of existing utility personnel to provide the ongoing services will have very little cost impact above the current costs experienced by the individual utilities. There may be some initial cost savings for some service aspects relating to transitional services as job functions that are now performed by each individual utility may be consolidated by ART. O&M costs;however,will remain unchanged as the Day 1 operations will have the utilities performing the same O&M activities that they are currently performing. Page 14 of 275 Day 1 operations will require each Railbelt Utility to have executed an O&M Agreement with ART to continue performing Transmission O&M Services within their service area. Any utility that will also perform a Transitional Service for ART will also execute a TSA agreement with ART to continue performing contracted transitional services. O&M services will be managed by ART but performed by Contracting Utilities indefinitely unless a Contracting Utility would elect to no longer provide the service. A contracting Utility may use in-house personnel or contract crews. Transitional Services will ensure services essential to operations, such as Administration, Engineering, and Planning continue after Day 1 as needed and allow ART to determine its appropriate staffing levels over time. Transitional Services will either be terminated as ART absorbs the function or ART elects to continue to outsource the service. If ART elects to continue to outsource a service then it is anticipated that a professional services contract will be negotiated. Work to Date and Items Resolved: The O&M Subgroup has reviewed the core functionality of both the TSA and O&M Agreements. The agreements, attached to this document as Appendices H and I, meet the needs of the Railbelt Utilities and would form the core of both the O&M and TSA Agreements. Outstanding Items (to be completed after formation of ART): • The specific terms and conditions for the contracts such as insurance, dispute resolution, etc. will need to be developed • The documents contain reference to other documents that will be developed in the formation of ART. Those references will need to be reviewed. • The documents reference other sections of their respective document which will need to be reviewed after the entire document is completed to ensure accuracy. • Utility rate sheets and costing sections of the agreements will need to be reviewed by each utility's Accounting Departments. • Significant Issue -the TSA agreement had a Day 181 provision where certain Administrative and System Operations Services were to be transferred by. This concept will need to be reviewed and the appropriate timing determined in other agreements such as a Forming Agreement between the utilities. • ART will also need to review the documents for adequacy. No additional review of either agreement will need to take place until ART is formed. Once ART is formed,the final negotiations, costing,and appropriate legal agreements will be completed. These tasks will be straight-forward and should not be an impact to the timing for final start-up of ART. Page 15 of 275 Reliability Standards Subgroup The purpose of this subgroup is to establish consensus reliability standards for planning, forward operations (e.g., next day, next season), and real-time operations of the ART. Work to Date and Items Resolved: The Railbelt Utilities engaged consultant Henri Dale to compare and reconcile the various reliability and planning standards in place in the Railbelt. At the time of this report, the results of this work includes a proposal for spinning reserve calculation and an alignment of the Regional Reliability Organization (RRO) and Intertie Management Committee (IMC) reliability standards. The subgroup has included the draft reconciliation and spinning reserve allocation work product in this document. In addition,the Railbelt Utilities have engaged consultants EPS and Henri Dale to continue to improve the standards for the region. This effort will be managed through the IMC with participation from the RRO. The scope of work will include: • The review and modification as required to balancing standards AKBAL 001, 002 and 003. • The review and modification as required to the transmission planning standards TPL 001, 002 and 003. • The review and modification as required to facility standards FAC 001 and 002. • The review and modification of the spinning reserve allocation AKRES 001-1 • Propose the addition of protection and control standard AKPRC-006 defining the requirements of the automatic underfrequency load shedding system. • Propose the addition of MOD modeling and analysis standards. The Railbelt utilities and members of the standards subgroup will meet with the consultants weekly and provide the IMC and RRO regular updates. Economic Dispatch Subgroup The Transco Working Group tasked this subgroup with developing an economic dispatch model of the Railbelt in order to develop an agreed upon range of economic dispatch benefits against which to compare the costs of a Transco. The improvements to economic dispatch will also be compared to any costs of implementing the Transco. Each utility nominated one member and one alternate subgroup member familiar with that utilities Page 16 of 275 system operations and fuel supplies. The subgroup meets regularly to guide the efforts of the two modeling teams(ATC and Slater)and to vet the results as available at that meeting. The subgroup is tasked with completion of this effort as quickly as is reasonably possible subject to accuracy and consensus of the membership. The model will be benchmarked against an existing data set. For the purpose of clear traceability and future sensitivity analysis,the basis for each update to the current database (used for previous studies) will be clearly documented. The Economic Dispatch Subgroup has met numerous times both in person and telephonically, including multiple four to six-hour face to face meetings. Updating a complex data base is a time consuming, detailed, and extremely technical endeavor. Having an accurate model is the foundation upon which all further economic decisions are to be based. In excess of 600 work-hours Railbelt-wide have been expended on the effort so far. The subgroup is near to completing the review and approval of the economic dispatch model data base update. The subgroup has developed a partial list of appropriate sensitivities for analysis. The subgroup consists of operating staff from American Transmission Co., Chugach Electric, Golden Valley Electric,Homer Electric, Seward Electric,Matanuska Electric and Municipal Light and Power. The mission of the Economic Dispatch Subgroup is to: • Review and update the production costing model of the Railbelt as it will be in the year 2020 with the most up to date information. This includes fuel pricing, unit efficiency, load projections, unit limitations, intertie transfer limits, expected gas contract limitations and variances in gas transport costs, storage, etc. • Develop Utility-approved ProModTM model of Railbelt generating units. • Complete a base case to emulate the current energy exchanges. • Complete an unconstrained pooled case. • Evaluate the hourly dispatches for these cases to verify the unit commitment is reasonable, meets the known reliability and operational requirements of the system and reflects the expectations of the system operators. • Once the model has been thoroughly vetted, run an agreed upon set of sensitivity cases to evaluate the set of"known unknowns"to bound the potential production costing benefits of an independent dispatcher operating under single transmission tariff. Work to Date and Items Resolved: • The subgroup is developing and approving updates to the ProModtm database for the Railbelt as it is envisioned to be in 2020. Page 17 of 275 Outstanding Items: • A benchmark set of hourly dispatches for a case that allows for the transfer of current levels of economy energy transfers. • A benchmark set of hourly dispatches for a case that allows for the maximum amount of transfers between Parties. • Answer questions that might arise as to differences between this model's results and those of previous studies and defend the process used in our model's development. • Historical benchmarking if required. • A final set of base case sensitivities runs to bound the results and express the range of potential outcomes as well as to explore the effect and efficacy of specific modeling strategies. The subgroup believes that the final analyses will be completed by the second quarter of 2016 depending on the level of difficulty in vetting the results. Real Estate Subgroup The participating companies have agreed that in the initial stages of development each utility will retain and manage its own land rights on behalf of the Transco using transitional services agreements for a term of 3 years with annual renewal options thereafter. Under this agreement, employees of the participating companies will be compensated by the Transco for time spent on Transco related efforts. Accounting procedures will need to be established, itemization practices defined and auditing parameters agreed upon. Ail rights of way and easements will initially be used as is. Once the Transco is established, processes will be developed for the purpose of consistently reviewing land rights, documents and right of way conditions. Annual fees associated with certain leases, permits, etc. for existing transmission facilities will be reimbursed to each respective utility and Transco shall take over payment of these fees. These procedural criteria would include standards for encroachments, necessary rights, completeness of records and other right of way needs. They will also be used to review land rights on a priority basis,emphasizing critical lines and areas identified by the Transco as potential project areas. Each entity will provide the Transco access to its land rights records in support of such a review. In addition to land rights, the participating companies will collaborate with the Transco to identify and resolve permitting issues as they arise. Any required transmission related land rights and permitting review will be managed by the Transco. All new documents resulting from project activity will be managed and recorded as necessary by the Transco or a selected affiliate. As the Transco matures it is envisioned that a centralized approach to managing land records will be developed incrementally and standardized records management tools will Page 18 of 275 provide efficiencies and process improvements throughout the company. These systems will support land rights transactions necessary for the Transco to support construction, maintenance and asset management activities. It is yet to be determined if and at what time land rights currently owned by the participating entities would be fully transferred to the Transco. Financial Subgroup The Financial Subgroup is responsible for identifying and analyzing key financial issues for the Transco including the revenue requirement, rate payer impacts, scenarios for allocating transmission costs amongst the load serving entities,and scenarios for allocating distribution of Transco earnings. The Finance Subgroup works closely with the Regulatory, Economic Dispatch, and the Labor and Organization Structure Subgroups since those groups provide key financial data inputs. Other key tasks for the subgroup are: • Drafting equity participation and cost allocation rules • Developing estimates of the incremental Transco costs • Developing the Transco financial model Work To Date and Items Resolved: The first priority of the group was developing an issues list identifying the Parties' various financial and organization covenants and restrictions that need to be addressed. Identified areas include: • Asset and Lienholder Restrictions—Identification of items where bondholder and/or RUS consent and cooperative membership approval will be needed. • Credit Rating and Credit Covenants—Ensure that existing borrowing capability is not negatively impacted. No decrease in credit ratings and/or credit metrics that may increase borrowing costs and/or impact the ability to issue additional debt. • Existing Asset Recovery— Ensure that transmission investments to date are recovered. • Allocation of Transmission Costs—Develop an allocation methodology for existing transmission assets. • Allocation of Costs for New Transmission Projects—Develop methodologies for evaluating cost allocation for new transmission assets. • IRS Private Letter Ruling—The transaction structure for the Transco may require a private letter ruling from the IRS to provide confirmation that the tax exempt status of the participating organizations will not be impacted. At ATC's formation, members (investor owned utilities, cooperatives, and municipalities) joined ATC by either contributing transmission assets or cash in exchange for equity. For the initial formation for the Alaska Railbelt Transco, a combination of approaches to Page 19 of 275 handling existing assets may need to be utilized until encumbrances on some assets can be removed. To address this issue, the Finance Subgroup has been to develop alternative Transco structures for existing assets. An overview of potential alternatives is provided in Appendix—Finance Potential Transco Structure Alternatives. Funding for the Transco will be from its operations,debt issuances,and capital calls to the Transco members. For funding received via operations,this amount will be the revenues received under the Transco's tariff less the Transco's operations and administrative costs. • Transco Revenue Requirement—The revenue requirement for the Transco will be determined by the tariff that the Transco receives. The subgroup has been working closely with the Regulatory Subgroup to develop the tariff template sheets for the Transco's CPCN filing. The ultimate methodology, amount, and return requirement will be determined by the Regulatory Commission of Alaska. • Transco Operations and Maintenance Costs—The Operations & Maintenance Subgroup is developing the core operations and maintenance functions and transitional service agreements for the Transco. • Transco Administrative and General Costs—The HR and Organization Subgroup is identifying the functions and people needed for the operations of the Transco. For day to day operations of the Transco,the amounts received from the Transco's tariff will be sufficient to fund operations. To fund capital projects, the Transco will rely on a combination of debt issuances and capital calls to fund the projects. Each Transco member will have an opportunity to participate in capital calls for the equity needed for capital projects. Further, the subgroup has developed illustrations of the Transco financial statements and illustrations of different measures that reflect the Railbelt Utilities' transmission system, investment,and customer load. The illustrations have been based on historical information and augmented with more refined information when available. The measures, or others, potentially could be used, individually or in combination, to develop a proportionate allocation of existing and new transmission costs. For instance, existing transmission asset costs could be allocated based upon Existing Transmission Capital Investment while allocating new transmission asset costs by peak demand. Different measures explored to date are: • Existing Transmission Capital Investment—Measurement based upon existing transmission investment of the Railbelt Utilities. This measure also illustrates the current percentage of transmission costs that the utilities pay. • Existing Transmission Line Miles—Measurement based on the respective line miles, weighted by voltage, of Railbelt Utilities' transmission systems. • Peak Demand -A measurement of the peak demand of Railbelt Utilities. • Energy Usage—A measurement of the kilowatt hours (kWh) sold by Railbelt Utilities. Page 20 of 275 The table below compares the different measures explored, Table: Railbelt Utilities' Transmission Measurements 2014 Transmission and Load Measurements Line Miles Net System (Voltage Peak Energy Entity Investment Weighted) Demand Usage Chugach Electric Association 41.9% 39.8% 25.4% 25.2% Golden Valley Electric Association 24.3% 26.1% 25.7% 26.5% Homer Electric Association 15.4% 18.4% 9.0% 10.2% Matanuska Electric Association 4.0% 10.2% 16.1% 15.6% Municipal Light&Power 12.6% 5.5% 22.2% 21.2% City of Seward 1.8%_ 0.0% 1.6% 1.2% Total I 100.0% 100.0% 100.0% 100.0% * For illustrative purposes only * City of Seward information based upon most recent cost of service study *All others based upon 2014 reports filed with the Regulatory Commission of Alaska * Does not reflect subsequent transmission additions or retirements Discussions to reach resolution of many of the key financial items such as cost allocation and equity participation will commence once the benefits of economic dispatch are better known. To reach agreement on an approach without knowing the benefits of economic dispatch and how economic dispatch will be settled could lead to an undue burden or disproportionate benefit to the entities that would inhibit the formation of a Transco. As a result,the discussions to reach resolution once a holistic view can he presented. Items Resolved • Financial model template to be utilized for the business plan to the Railbelt utilities to provide the allocation of income and distributions to the members and to provide financial sensitivity analysis. • Different cost allocation methodologies which can be refined once the benefits of economic dispatch are better known so that the Railbelt utilities can evaluate the rate impact to their customers under different approaches. Outstanding Items: • Contribution/Lease/Operation Control of Existing Assets—The Railbelt utilities are reviewing the potential approaches for contribution, lease, or operational control of existing assets in regards to debt covenants, tax exempt status, and other stakeholder interests. • Cost allocation of existing assists—different allocation options have been modeled and refinement continues. Scenarios will be refined once total benefits from economic dispatch and settlement are known. Page 21 of 275 • Cost allocation of new assets—different allocation options have been modeled and continuing refinement is ongoing. • Equity participation for capital calls—Negotiations to determine participation percentages for capital calls will commence once the benefits of economic dispatch are determined. Milestones Key Due Diligence Task Progress to Date Estimated (% Complete) Completion Date Due diligence on subgroup 75% Q 1-Q2 2016 matters (see Appendix A, and specific subgroup reports herein, September Filing) Validation of the benefits of 60% Q2 2016 Railbelt-wide economic dispatch; Design of a tariff structure that 25% Q2 2016 ensures equitable rate recovery for existing and future transmission assets _ Design of a business model for a 65% Q2-Q3 2016 Railbelt Transco Evaluation by Parties Ongoing Q2-Q3 2016 Approval by Governing Bodies Q3 2016 & Stakeholders CPCN Application for Transco Above tasks are Q3 2016 prerequisite. Transco Legal Day 1 Above tasks are Q2 2017 prerequisite. Rate Impact Analysis—To Be Analyzed Based Upon Pro-Forma Financials at Time of CPCN Application Page 22 of 275 Legacy Agreements Section Assignee: Legacy and Grandfathered Agreements Subgroup A number of existing, long-term agreements will in their present form present obstacles to the establishment of a Transco with an associated network integration transmission service tariff The Parties acknowledge both a need and willingness to consider amendments to and or replacement of some or all of these agreements to achieve the full benefit of Transco formation and associated improvements in the economic utilization of generating assets. Resolving these issues will require an understanding of the total value proposition for Transco formation to compare against any changes to existing agreements. As a result,the Subgroup's work on these matters has been sequenced to follow discussions of cost allocation, the analysis of economic dispatch benefits, and elements of the Transco structure that have a bearing on these existing agreements and the Parties thereto. Specific agreements identified include, but are not limited to: • The Bradley Lake Agreements • The Eklutna Hydro agreements • The Alaska Intertie management agreements Work to Date and Items Resolved: The Legacy and Grandfathered agreements subgroup will prepare and discuss paths toward resolution of any conflicts with these and other legacy agreements as necessary, and proposals for resolution will be part of the complete business model and associated agreements reviewed by the parties and their governing bodies in the Q2-Q3 2016 timeframe. Disposition of State Assets To Be Determined. Page 23 of 275 Appendices Appendix A: Guiding Principles of a Railbelt Transco Appendix B: Prior Attempts Toward Railbelt Transmission Efficiency Appendix C: Governance Draft Proposed Term Sheet Appendix D: Independent Directors Appendix E: Draft Organization Structure Appendix F: Labor Costs Years 1-5 Appendix. G: CPCN Needs from ART Subgroups Appendix H: Transitional Services Agreement Appendix I: Operations Services and Maintenance Services Appendix J: Operations and Maintenance Agreement Appendix K: Alaska Transco Financial Statement Illustrations Appendix L: The Intertie Management Committees' Railbeit Operating and Reliability Standards Appendix M: HEA (RRO) Reliability Standards 1 Page 24 of 275 Appendix A Guiding Principles of a Railbe!t Transco Guiding Principles of.1 Railhrlt i ransco These principle,reflect the consensus of discussions to date regarding the voluntary tormation of trammission-only unlit) (Transco)between Amencan Transmission Company 1.1 t t\TC) Golden Valley \ssociation. Matanuska Electric Association.Anchonwe \tum opal Light and Power Chugach Electric Association Homer Electric Association .Ind the t in oh Seward(collectnd the Transco Partners' • Voluntary Transco formation will result from a commercial transaction between the Railbelt utiltines and American Transmission Company LLC.(ARI. While each entity's participation in the Transco is important to its success.each entity Nvill voluntarily enter into this transaction • Facilitate future trruistnission iris esttnents Creates a transmission-only entity with a stable balance sheet and reliable tariff structure to support debt and equity ins estments in the Riailbelt transnusslon infrastructure • Planning and Rehahi1ity Standards file planning design and operation t+t transnusston facilities shall adhere to standards dei eloped by a stakeholder-soy cried independent body holding a regulatory compact with the RCA and providing for reliable.economic dispatch • Transmission-Only locus. 1rans.o o.ill own no generation assets"and operations and planning decisions will he transparent nondiscriminatory and in compliance with established planning and reliability standards Standards and protocols a ell be based on established,objective tralnsmission operating.mamtenanee. planning and design principles to promote safety reliahiltty and economic efficiency of the Railbelr grid • Regulated by the Regulators'Commission of Alaska(RCA) The Transco must obtain a Certificate of Public Convenience and Necessity(CPCN)ttom the RCA and operate under a tariff with the RCA • Provide Adequate Transmissions Service to Load Serving Entitles The Transco shall ham a:t public duty to operate. maintain,plan and construct its Transmission system to reliably meet the needs of existing load:ening entities • Provide.Open Nondiscriminatory Access The Transco operates under a publicly-available tienerator interconnection agreement kir standard network sen ice dei eloped as part of its tariff • Pros ide Network Transmission Service. I ransnussron sen u e is pros tded under a single "postage stamp rate "'or similar network-wide tariff allocating the costs and benefits of the network across all transmission users equitably • State resources t he t alue of state funds invested_contributed"of loaned for the purpose of energy infrastructure will benefit trom an integrated Railhelt-sside transmission plan • Labor Agreements and Existing Operations Resources Formation of the I ransco will not result in the net loss of iohs perlomned by craft labor under existing labor agreements. • Pre-existing transmission contracts and am estments. I he formation of the I ransco w ill address historical agreements and tesolve conflicts in a mime/that promotes independent nondiscriminatory access to transmission seryice and supports recovery of existing tin esti-tient • Foimation of the Ttans.o fiaas<o fuiruatiom is conditioned upon all necessary tceulaio* board of director.and financial institution approvals This formation will honor any restrictions contained in existing indentures of 1n151 01 debt agreements and will not negatively impact credit spinas November I9 2014 Anchorage, AK 2 Page 25 of 275 C:rriding Principles of a Raiihelt Fran;!_:) \Ve the undersigned suppon the above pnnciples as the basis lnr further conversation:. n the formation of a 7ran:+co in .lJska's Railbeti John t: Pnkann ( hiel hrerunt•c r)1i10.r .trnencan•1•ransmisss i C'otrpana E.[_C James !rent Wadley J.unz:s hke (ieneraI Manager c►enerul Manager •&neharage\lut_icipal 1.tela and Power. Horner %sociitinn IJrad Evans Joe C►rith tieneral Manager (knead Manager (.hugach 1-iectric:Is;octatton I•leetric A.uacI.►t:,+n ( ,,r. I;nrgeson John hut? (iener:al Manager l(tilrty Manager Golden Valley 1•Ieettle \sti►k 14111111 Seward Electric`vi'L'm • \o%ember 1').22014 .\ttehorage. \K 3 Page 26 of 275 Guiding Principles of a Kaliheht Intim() We the undersigned support the above principles as the basis for further conversations on the formation of a Transco in Alaska's Ruilbelt. John C Procario Chief Executive Officer American Transmission Company LLC' James A Tont Bradley Janotschkc ML&P General Manager& General Manager Chief Operating Officer Homer t:lectrie Association Anchorage Municipal light and Pow-a DU4 L014 Brad Evans Joe Griffith General Manager General Manager Chugach Flectric Association Matanuska f ectrnc Association Cory Bergeson John Form General Manaeet Utility Manager (,olden Valley electric Association Seward Flectric System November 19,2014 Anchorage.AK 4 Page 27 of 275 Guiding Principles of a Railbelt Transco We the undersigned support the above principles as the basis for further conversations on the formation of a Transco in Alaska's Railbelt, John C.Procario Chief Executive Officer American Transmission Company 1,1.0 James Tract Bradley Janorschke General Manager General Manager Anchorage Municipal l ight and Power Homer Electric Association �►r,f: ='"` 12-01-14 Brad Evans Joe Griffith General Manager General Manager Chugach Electric Association Matanuska Electric Association Cory Borgeson John Foutz General Manager Utility Manager Golden Valley Electric Association Seward Electric System - /://a/iy November 19,2014 Anchorage. AK 5 Page 28 of 275 Guidint; Principles of a Rai(belt !rause() We the undersigned support the above principles as the h;rais for further cu avers;tions on the rermation of Transco in :Alaska's Railbelt. 'nhn C.Procano Chief Faccutiv c Office American Transmission Company 1 1(' James trent Bradley lanorschkc t ieneral Manager General Manager Anchur.1pe Municipal Light and patter Ibuner Fleetnc . F,ocintion Brad l;e:u„ Joe Griffith General Manager General Manager Chugach Electric association Matanuska Eleerr:c �s.c�.crtinn • C on. Borgesi n John Foutz (;metal Manager tildity Manager (olden Valley tlectnc (V4soctatton Sett.ud Electric System No%etnher I''.2014 Anchorage.AK 6 Page 29 of 275 Guiding Principles of a Railb It Transco We the undersigned support the above principles as the basis for further conversations on the formation of u Transco in Alaska's Railbclt. John C Procarilr Chief Executive Mice American transmission Company I_I C James Trent Bradley Janorschkc General Manager General Manager Anchorage Municipal I teht and I'oaer I tomer Electric Assck1atton Brad Evans Joe Griffith General Manager General Manager Chugach Electric Association Maim tectri• •tion /. "'J/ i t car) Horgesom John t•outt. (ienerut Manager t!Miry Manager Golden Valley Electric Association Sessard Electric System \onembcr l9, 2u14 Anchorage. AK 7 Page 30 of 275 Guiding Principles of a Railhtlt We the undersigned support the above principles,rs the basis for further eonsersations on the formation ofa Fransen in Alaska's Ruilbelt. Jnhn C Prccn4' Chief Executive Officer American Transmission Company LI C James Trent Bradley Janorschke General Manager Genera; Manager Anchorage Municipal I ;glht 4nd Pt'v.er homer Electric Association Firutl F.c.ui< Joe Griffith tienernl soca+lager General Manager Chugach Ctectric Association Matanuska 1'tectric Association Cory Iiorgeson John Fault General Manager Utility Manager Golden Valley Electric Ay aeanh+m Seward He tri S stem 'iusember is?.21114 anchorage, AK 8 Page 31 of 275 Appendix B Prior Attempts Toward Railbelt Transmission Efficiency 2015 Regulator), Commission of Alter r_•u zductij a L-tc-i ,Ludy ul crLirj en independent i'' Lcrn,oper_tu or. •ai filar rt utLur.ir Alaska,Alaska State Legisiature br:li.eIc_-s t43 Lt;t be,l optir.,Ii 101 r_•IIot.ive and ell Iuerd.c-le&!I ir_•eI LIarLhc.• RCA f file,) ei a :1iurL wi-h -he Alaska I egisl-rare rer.nmmPndir,R;in incdel•►ea;den-rr,n:smr:f,'bM7 rnmpar!'y h created to ooeritethe Lir driyiriissic'r syste'Ii iteLi Ply and b aii p::11. y. rd Lei than a:I►a' :U'Ll.e iiiejor -",,aiiiLeIiaiil'e, .ra1151rli•:':ion g�;LriTl u1:;;r sties, kind pr uir_c►., I is lc^;,a y I ur the• r c'i.e Lal.._ A1c l :•ti r y :'b e eulr i•.1.10W121 to I?Silhe Ir r I l tourers_ 2013 .Alaska Energy Authority Rall belt An :,nzWis to determine the futt.:re tra-,solis:cion srctem in the R:7i[belt. I he Lieerl fot the trinsmtssion Transmission Pian rlrivPr-,crrr the c.hanges in rhe C?;ikIbetr,genertitrnn and trtin rnissii::n system since the campIP-icll or 2.310 R.i;una!tr•,Lcj r__til Resuuico Plan 1;"R.IRP";i administered It IV Alaska Ertel by Authug:,Ly("AEA."). irlenti%erl-.59110P.9 il'. r.r,:•t l u stiff eri pro jest, 2011 Alaska Railbelt Cooperative A.uuoper a Live•ul 111:skari ulil i:ic s Icpi rrl cd I us Lite pu i puse ctrl adcir e n:_:ia-,l, 1:trier a Liras,, Ltd I I I I i3,iciI l and TUansilllssiorl and Electric ancillar•,:seroicP needs rhf the liAilhelt utirities and to prrr.i,a fuel, alrernM ve energy resndrres,and nytJioclot IaLiliL L'S. Cviartkit rrrerrGt _•rs irrtIutic•i_Irul;;ictr, M EA,Sc*S•4rci ;�I1u E'•+EA_ Company iARCTEC) 2009 Greater Railbelt Energy and I I:pisl Iwi' irdikeit l,rr ir7:Iar3Iicc':l LIQ forIno! Ar:•nxr i.;o.•c:rn0 5trh P;hii i hal won Id()cl p-Al1: 111111r:: Transmission Corp, [b RETC] ee nerzr_ion arid :ran sur iss ion ii•,'est irie n is in a si1gle enr_ir_v. 2O08 Railbelt Electrical Grid Authority §:crcip Lorcwillisaiutic•J by Lhr.AItiAa Eu .re.M Au:Iiuri.p ca ed lur iaj- •uvrrimelll_I al cuc•t :c•r_+ftier�,.t Ltic d,REGA1 i?ailibeles grid. 2005 Alaska Railbelt Energy Authority An do aw:': IL and P&u'•Mc-r LI cps,-i.n is n L (fv1El;CP`r a w.:1 Fa i 1 bar kk' Guider VA Huy Asstruid Lion, Inc. (AREA) :iv! Al r,me to yerher to loan a starurnry joint,-:r.Ti er agency I IN.M i to fund nNJ a 1:sTr.:ct tr nFrm csi r:n ..nd Lu hu rt _if1 stab...:rletLlitila' al�e:s,iI 4.11.1 iiiii! L_',c R.ailtae L 1998 Power Pooling.Central Dispatch S..ud'p 1.Urrkniis,i.c*irc•iJ by Ltrc_Alaska Puta`ric U:ililic,Cur 4rrlis,sior Lu L!ic Reedljl-ur?Conlin issi4jII Planning Study of Alaskal. I,apt-art zn,it•:-FrJ the 'fienefilts of an Ali.kan pn.ver pool with central dispatch ind o.:rined SIF ye.-,r r:,p ..al and integrated resnllrr.e plan. 9 Page 32 of 275 From: David Gillespie To: RCA Electronic Filina; Mail. RCA(RCA sponsored) RECEIVED Subject: Docket I-15-001 first Update report Date: Tuesday,February 02,2016 9:21:30 AM `By the Regulatory Commission of Alaska on Feb 02,2016 Attachments: Jan 2016 Filing.pdf Please find attached the comments of Chugach Electric Association, Golden Valley Electric Association, Matanuska Electric Association, The City of Seward, Alaska Railbelt Cooperative Transmission and Electric Company and Anchorage Municipal Light and Power in the above referenced docket. Thank you. David A. Gillespie Chief Executive Officer Alaska Railbelt Cooperative Transmission & Electric Company, Inc. dagillespie@earthlink.net (713) 748-9329 January 31, 2016 Commissioners Regulatory Commission of Alaska 701 West Eighth Avenue, Suite 300 Anchorage, AK 99501 Re: Docket I-15-001; Status report on efforts to implement Economic Dispatch and to Establish a Railbelt Unified system Operator—RCA Recommendation#2. Dear Commissioners: On behalf of Anchorage Municipal Light and Power(MLP),Alaska Railbelt Cooperative Transmission and Electric Company (ARCTEC), Chugach Electric Association(CEA), the City of Seward(Seward) and Golden Valley Electric Association(GVEA), (together the Parties) file this first update on voluntary efforts to implement economic dispatch and establish a Railbelt Unified System Operator. Introduction On behalf of the Parties please accept this response to your recent request for periodic reports on the progress of voluntary efforts to restructure the Railbelt electric system through the pooling of utility resources to achieve a more economic dispatch of the region's electric generation. As we have said in our previous filings we appreciate the Regulatory Commission of Alaska's (the"Commission)continued support of bottom-up stakeholder driven solutions instead of top-down government designed approaches. History On June 30 2015,then Chairman Pickett issued a response to the 2014 Legislative directive requesting the RCA's recommendation on "whether creating an independent system operator or similar structure in the Railbelt area is the best option for effective and efficient electrical transmission." In prior filings the case has been made for establishing a Railbelt Unified System Operator(USO)'. We will not repeat the Case for Action here, but in summary, a Railbelt USO will: • Enable long-term, more reliable electric service for Alaskans at costs lower than they would otherwise be under today's structure; • Provide a stable regulatory environment to attract capital investment and provide a business case for needed transmission upgrades; • Facilitate better opportunities for independent generators and renewable energy providers by making the process by which they interconnect and take service more transparent and predictable. Efforts of the utilities continue to proceed along two coordinated tracks: evaluating the formation of a Transco and establishment of an Independent or Unified System Operator (USO)to facilitate more economic dispatch of generation resources. Our comments here focus on the latter: establishing the USO. Overview Prior filings have focused on the need to establish a USO,the USO's high level mission to represent all stakeholders, and making the case for action that the USO will deliver on ' See ARCTEC Comments in Docket I-15-001 dated 6/17/15 and 9/30/15 its promise of lower cost, more reliable energy for Alaskans. This progress report advances USO development by beginning to get specific as to WHAT detailed functions are desirable and HOW those functions will be implemented. A critical, overarching theme we repeat over and over is that the Railbelt electric power generators and load serving entities are not a collection of six independent grids, owned by six independent utilities,but rather an integrated, single whole with on-going reserve sharing, power sales and reserve transactions that are coordinated on a daily basis. Much of the benefit created by establishing a Railbelt USO is ultimately derived from recognizing the integrated nature of the grid and managing it with that in mind. Another theme we repeat throughout this filing is that, while the USO is the party responsible for many aspects of the system, it does not always have to be the entity that performs the work. Indeed, much of this work is already being done today by the individual utilities working together and on their own. The Railbelt is small. Customers cannot afford to support the cost of a new and expensive bureaucracy to do all of this work. It is important that we continue to utilize the expertise we have. A third theme is credibility. Stakeholders need to have confidence that a new model will actually work! Utilities need to have confidence they will still be able to keep the lights on; independent generators need to assurance they will be treated fairly. By placing critical functions within an institution that is not controlled by any one stakeholder all stakeholders can have greater confidence in the decisions and policies, creating efficiency and reducing the possibility of future litigation. The core of this filing further defines the specific functions of the USO, how it will be organized and how it will be governed. Much progress has been made. Much work still remains. Establishing a Railbelt USO will require months and years to "get it right". We look forward to the Commission's continuing support. USO Core Functions The USO will typically fulfill the following key functions2: • Adopt existing Railbelt operating and planning reliability standards related to generation; • Maintain and update standards; • Monitor and report on compliance • Coordinate operation of Generation in accordance with reliability standards; • Schedule generation capacity/Perform security constrained economic dispatch of generation; • Coordinate planned generator and transmission outages; • Maintain an accurate system model; • Oversee the interconnection of new generation ; • Provide for financial settlement of services provided to the system; • Audit/enforcement 2 This structure assumes the successful implementation of a Railbelt Transco that includes all Railbelt transmission Develop (or adopt) operating and planning reliability standards The USO is the entity that answers the questions: What is the right level of reliability to be maintained within the Railbelt electric system? What are the objective and statistical criteria that will be used to justify reliability based capital investments? How much is reliability really worth? The Railbelt grid operates as a single, integrated unit. Operating protocols should be based on the same criteria on the Kenai as they are in Fairbanks. Today,there is no single entity that can coordinate this decision making with respect to the need for system improvements. As a result, investment and operating decisions made by one utility can affect all the other utilities around it. It is not necessary to reinvent the wheel to address the issue of planning and operating standards. While the Railbelt is unique in some regards,there is a great body of knowledge that has been developed on this topic in the Lower 48 by NERC and has been applied to other small systems. Right here in Alaska organizations like the Intertie Operating Committee, coordinating with Homer Electric Association are making great progress toward establishing Railbelt wide standards. Schedule/Commit/Dispatch Generation Capacity This essential function is the"engine"that drives savings for customers. By ensuring in real time that the lowest cost generators are being dispatched to provide energy and other necessary system services like reserves and load following,natural gas costs will be lower and renewable hydro resources will be utilized when they are of the most value. It can be assumed that some generators will run more and some will run less when economic dispatch is fully implemented. It is important to emphasize that economic dispatch is based on incremental costs only. The capital and O&M costs of a plant are not included in the economic dispatch algorithm because those costs exist whether a generator runs or not. A key feature of the USO model is that those capital and O&M costs continue to be recovered in retail rates, and do not become stranded. Stakeholders must be encouraged to embrace economic dispatch without fear that changing dispatch patterns will call into question the prudence of past investment decisions that were made under a very different set of rules. Coordinate planned generation and transmission outages Generation and transmission operators must submit their proposed planned transmission outage schedules to the USO for approval. This is presently being done voluntarily through bi-weekly meetings that take into account fuel supply and delivery activities as well. The USO will study all the proposed outages in aggregate to determine if the system can be reliably operated. In consultation with the transmission operator,the USO must be able to cancel or reschedule outages if necessary. The USO will maintain an outage schedule. The USO does not perform transmission switching or have any direct controls of transmission operator facilities. Local utilities (and/or Transco)will continue to have responsibility for the safe operation of their systems. Maintain an accurate system model To develop a consensus approach to operating and investment decisions it is important for stakeholders to be proceeding with a common set of assumptions and modelling tools. The interaction of the Railbelt generators, loads and transmission is complex, and so are the analytical tools used to model them. Today, each utility maintains its own set of assumptions, data and models. . The USO will bring the regional stakeholders together by developing one fully vetted model that is both technically rigorous and unbiased by any single stakeholder's viewpoint. So, when a new project is proposed,there will be confidence that its effects on the operation of the system will be well and accurately understood. Oversee the interconnection of new generation The USO should oversee a standard process and analysis for proposed new generation projects to determine what system improvements are necessary to fully integrate their projects into the system. The process will define the scope,timing and payment responsibilities for: • System Impact Studies (SIS). These are the studies that determine what impacts may result on the system as a result of the new generator's interconnection. The SIS sends an important economic signal to potential generators to site projects in locations that have low, or even positive system impacts. • Facility Studies (FS). These are the studies that evaluate what system upgrades may be necessary to integrate a project. The FS helps a new generator determine the economic impact to its project of mitigating its impacts to the system. It also sends a signal to site generators in favorable locations. Financial settlement of services provided to the system Where economic dispatch is the "engine"that creates real benefits for customers, it is the settlement process that prescribes how those benefits are measured and apportioned among stakeholders. There are many models for settlement: • Split the Savings: benefits of economic dispatch are divided among load serving utilities based on their load; • Marginal Price: All energy is bought and sold at the system marginal price for any hour. • Cost+mark-up: Generators that generate over and above their load requirements command a premium over their costs of$X/MWh. Each of these models yields a different result. The benefits that accrue in the settlement process,when combined with the shifting of transmission costs that will occur when a future Transco implements its system wide tariff will be the chief determinant of whether a restructuring of the Railbelt grid makes sense for all stakeholders. • Reallocation of fixed revenue requirements Transmission • Changes in wheeling revenue - 1 • Reallocation of generation costs Generation • Reallocation of reserve costs • For each utility the net effect of these changes must be a reduction in total Net Impact costs Audit/Enforcement The USO shall have responsibility for auditing participants' performance With respect to operational and system planning requirements. Auditable items may include compliance with transmission planning standards, generation must-offer requirements, fuel costs, O&M costs. A mechanism to enforce compliance will be developed and administered by the RCA with USO support. USO Governance Corporate Structure The most common legal structure for ISOs in the Lower forty-eight is as a non-stock, non-profit,tax-exempt organization formed pursuant to Section 501(c)(3) of the U. S. Tax Code. This is the structure proposed for the Railbelt USO. Membership Members will be corporate entities that fit into one of the following classifications: • Cooperative, municipal or investor owned utility, load serving entities; • Independent transmission companies; • Independent power producers; • Large Customer; • Economic development organizations; • Residential customer advocate; • Renewable and environmental advocate Members will pay nominal annual dues of approximately $3,000 - $5,000. By becoming a member of the USO,parties agree to comply with all applicable planning and operating criteria and procedures that are approved by the Board. The primary role of the members in governance is to ratify the Board of Directors Board of Directors The ultimate structure under which the USO is ultimately governed will have sweeping effect, and it has been(and still is)the subject of much discussion and negotiation. All stakeholders agree that there is a need to evolve toward a more independent model,but not all parties agree on the pace or path of that evolution. A successful board structure will achieve the following objectives: • It will give voice to non-utility stakeholders in setting policy; • It will recognize the historical technical expertise resident in the utilities and their ongoing obligation to serve their customers; • Its members will be professionals, with real ability and the experience to effectively govern; • It will not be dominated by special interests; • It will not become a vehicle of broad public policy, remaining true to its narrow mission of Railbelt electric grid policy and operations; • Utilizing the expertise already resident in the Railbelt, it will not create an expensive new bureaucracy that must be paid for by customers. We propose a Board composition that evolves over time. The initial Board will be comprised of members from each of the six Railbelt utilities plus three non-utility, "at- large" directors. Over time, as the new system matures, [an] additional [four] non-utility board members will be added. The rate of evolution toward greater independence will be based on the achievement milestones that demonstrate the USO's objectives are being achieved. These milestones may include: adoption of a regional transmission tariff,the implementation of economic dispatch and settlement, and/or the adoption of a regional transmission plan. As industry sectors mature and are capable of proffering a dedicated professional board member and qualified technical advisory personnel the non-utility board seats may be assigned to sectors. To maintain close ties to the Commission, the Chair of the RCA will be an ex-officio, non-voting member of the Board. Across the broad spectrum of governance issues,the make-up of the USO's Board of Directors has been the most difficult on which to reach consensus. Director Qualifications Non-utility directors must have no financial or other interest in any industry stakeholder. All directors must possess a combination of training and experience that provides direct utility expertise or expertise in a related area such as finance,regulatory, law, or information technology. Utility directors must have decision-making authority and be an officer or employee of the company they represent. Board/Director Responsibilities • Directors must be fiduciaries. Director actions must be in the best interest of the organization(USO); • The Board will set overall policy for the organization, consistent with the USO mission and bylaws; • The Board will approve the annual USO budget; • The Board will approve planning and operating criteria, procedures and guides; • The Board will select the CEO and may approve other officers of the organization; • The Board will act on the recommendations of the Advisory Committee. Technical Advisory Committee A standing Technical Advisory Committee ("TAC") made up of representatives of the members will be the primary policy development arm of the USO3. From time to time ad hoc committees will be formed to address specific topics like tariffs,reliability, settlements, etc. The TAC will develop policies and procedures that govern how the USO operates, to be approved by the Board. The TAC avoids creating a new and expensive bureaucracy by drawing on Stakeholder Member's existing expertise. For the most part,these are not new functions, but rather existing functions that are now being coordinated. See Appendix 1: Typical Committee Structure USO Functional Organization Figure 1 shows a typical functional USO organization. Figure 1 in no way represents the initial USO headcount. While it is true that some of the functions will require staffing, most will not. Most functions can, at least initially, be performed by contracting the work Members Board CEO Operations Planning Settlements Regulatory/ Admin 24 hr desk — — Outage — Ex-post _ Tariffs _ Fin/Acct/ planning dispatch Audit Real time _ Day ahead _ Energy _ Regulatory/ schedulers schedule accounting rate filing Outage _ _ System — Billing — HR coordinators planning Figure 1: Typical USO Functional Organization to the utilities that do it today. Over time,the USO may assume a greater level of self- sufficiency, centralizing some functions and allowing the utilities to reduce internal administrative costs. At every step, effort will be needed to avoid expensive duplication of services. Progress to Date and Next Steps Since our last filing Railbelt utilities have made significant progress toward more economic dispatch of the regions generation resources. Examples include: • Modeling is now underway to identify the overall savings expected to be realized through the formation of a USO. It is expected that this product will be complete in the second quarter of 2016 and will inform much of the discussions moving forward. • Generation and transmission outage schedules are being coordinated voluntarily through bi-weekly meetings that take into account fuel supply and delivery activities as well. Also since our last filing, our USO discussions have expanded to include Homer Electric Association(HEA)and Anchorage Municipal Light and Power(MLP). Progress has been made among the utilities to further clarify the specific functions of the USO and to establish a governance structure. Additionally,the Alaska Railbelt Transco Formation Working Group ("Working Group")has formed a Settlement Subgroup to evaluate and recommend economic dispatch settlement methodologies4. Progress on economic dispatch and settlement is key to establishing the expected benefits to be achieved under a new system. Over the coming months the utilities will: • Develop a project implementation plan; • Define the requirements of an administrative cost recovery Tariff and/or CPCN filing; • Continue to seek consensus on governance; • Negotiate the terms of the settlement process. 4 ATC letter to Railbelt Utility Group, 1/27/16 The Parties appreciate this opportunity to update the Commission on our progress toward establishing a Railbelt USO with economic dispatch. John Foutz Brad Evans Utility Manager General Manager City of Seward Alaska Chugach Electric Association Municipal Light and Power Ie David A. Gi -spie • th o 11 Chief Executive Officer fi eneral Manager Alaska Railbelt Cooperative Electric Company Matanuska Electric Association \ A Cory Borgeson Mark Johnston President and Chief Executive Officer General Manager Golden Valley Electric Association Municipality of Anchorage d/b/a Municipal Light and Power The Parties appreciate this opportunity to update the Commission on our progress toward establishing a Railbelt USO with economic dispatch. Mark A. Johnston Bradley W. Ev. - General Manager Chief Executive Officer Municipality of Anchorage dba Chugach Electric Association Municipal Light and Power David A. Gillespie Anthony Izzo Chief Executive Officer General Manager Alaska Railbelt Cooperative Electric Company Matanuska Electric Association John Foutz Utility Manager City of Seward,Alaska Cory Borgeson President and Chief Executive Officer Golden Valley Electric Association The Parties appreciate this opportunity to update the Commission on our progress toward establishing a Railbelt USO with economic dispatch. John Foutz Brad Evans Utility Manager General Manager City of Seward Alaska Chugach Electric Association Municipal Light and Power David A. Gillespie Anthony Izzo Chief Executive Officer General Manager Alaska Railbelt Cooperative EIectric Company Matanuska Electric Association Cory Borgeson Mark Johnston President and Chief Executive Officer General Manager Golden Valley Electric Association Municipality of Anchorage d/b/a Municipal Light and Power The Parties appreciate this opportunity to update the Commission on our progress toward establishing a Railbelt USO with economic dispatch. Mark A. Johnston Brad Evans General Manager General Manager Municipality of Anchorage dba Chugach Electric Association Municipal Light and Power David A. Gillespie Anthony Izzo Chief Executive Officer General Manager Alaska Railbelt Cooperative Electric Company Matanuska Electric Association I John Foutz Electric Utility Manager ./ City of Seward, Alaska Cory Borgeson President and Chief Executive Officer Golden Valley Electric Association APPENDIX 1: TYPICAL COMMITTEE STRUCTURE Board CEO — Technical Advisory Committee Tariff sub- Reliability Sub- Settlements Planning Sub- Operations Sub- Committee Committee Sub-Committee Committee Committee