Hold off on retail competition, says Alaska regulatory staff

Alaska regulators have recommended the state hold off on retail electricity competition, while boosting wholesale competition in the nation's largest and one of its most lightly populated states. . Some sources believe the study's conclusions will lay to rest a proposal that has been on the commission docket since 1999.

Jul 5th, 2001


By the OGJ Online Staff

HOUSTON, July 5 -- Alaska regulators have recommended the state hold off on retail electricity competition, while boosting wholesale competition in the nation's largest and one of its most lightly populated states.

Alaska consumers would have little to gain from retail electricity competition, the staff of the Regulatory Commission of Alaska concluded in a new analysis that is open for public comment until July 23. Some sources believe the study's conclusions will lay to rest a proposal that has been on the commission docket since 1999.

Alaska's electricity industry is infrastructure poor, highly fragmented, and existing utilities can do little to increase production efficiency whose gains could be passed to consumers, said staff economist Antony Scott.

However, he said, the commission may want to consider developing an open access transmission tariff for wholesale transactions. Presently, parties can engage in bilateral transactions to use existing transmission lines.

But formal rules, rates, and procedures will significantly reduce transaction costs and reduce uncertainty for those interested in using the system in new ways, Scott said.

"Competitive outcomes will be facilitated by a system in which all existing and potential future parties understand the cost of moving power over the grid," he said.

But the idea of retail competition is unworkable in Alaska's "bush" or frontier regions because there are no transmission lines connecting remote villages, he said. Many settlements have just a few distribution lines and are powered by diesel generators.

Southeast Alaska and cities such as Juneau are not as isolated but are not as interconnected as they would like to be. In the most densely populated Railbelt region, so-called because of rail line connecting its cities, electricity is provided mainly by customer-owned cooperatives and municipally owned generators.

Because it is relatively infrastructure poor, well functioning fuel supply markets don't exist in Alaska and fuel producers have little incentive to develop resources without long-term assurance of demand.

Railbelt utilities are linked by a web of wholesale power contracts that include fuel suppliers and each other, Scott said. Some bilateral contracts prohibit a buyer from reselling purchased power to a third party and some prohibit purchasing utilities from buying power from other parties. Any large scale restructuring would require restructuring within these contractual limits or a "buy out" of the contracts, both having serious drawbacks, he said.

In the Lower 48 states, in contrast, he said, retail electric competition can reward utilities that best manage fuel purchases. Near-term competitive outcomes "will be largely determined by the utility with the most favorable gas price," Scott said.

But Railbelt utilities cannot exert effective control over fuel prices, with the result being competition will not encourage them to better manage their fuel portfolios.

"The Railbelt's small market, and limited generation and transmission infrastructure, seems to pose very substantial problems of market power � problems well in excess of those that have been experienced in California and elsewhere," he said.

By waiting a few years, Scott said, uncertainties overhanging Alaska's energy market may be resolved, including the routing of the future North Slope gas pipeline, and the pricing mechanism for gas delivered in the state. Also in question is whether gas will continue to be exported to Japan out of Cook Inlet after 2009 when the current license expires.

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