Gas storage operator opposes HEA’s battery system
By Ben Boettger
Homer Electric Association’s plans for a utility scale battery face opposition from the Railbelt's only natural gas storage facility, Cook Inlet Natural Gas Storage Alaska (CINGSA). Calling the planned battery system “imprudent” and “redundant,” CINGSA will oppose HEA’s request for permission from state utility regulators to recover the battery's costs through members' bills.
In a March 11 letter to the Regulatory Commission of Alaska (RCA, the state agency that oversees utility billing practices), CINGSA’s attorney called for an investigation of whether HEA truly needs the battery to meet reliability standards. The RCA commissioners have so far declined to start to an investigation, but haven’t ruled out the possibility.
The battery's backstory
In summer 2019 HEA’s board of directors voted to install a 93 megawatt series of Tesla Megapack batteries at their Soldotna substation. If it works as planned, the new battery energy storage system (BESS) will free HEA from the need to burn additional fuel for reliability when disconnected from the rest of the Railbelt. It could also follow daily changes in electrical demand more nimbly than the gas turbines that produce most of HEA’s power, and allow the grid to accept more variable renewables like wind or solar.
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Read the Alaska Energy Transparency Project’s previous coverage of the HEA battery here.
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The battery system's $38 million cost will be financed by debt. In January, HEA manager Brad Janorschke told the directors that the National Rural Utilities Cooperative Finance Corporation has given HEA a line of credit for this amount.
HEA hasn’t yet sought the RCA’s permission to include battery-related costs in its members’ bills, though recently asked the RCA to allow a 3 percent rate increase for other reasons. The increase went into effect April 1, and according to HEA’s Feb. 12 RCA filing will cover revenue loss from shrinking electrical demand and “the aggregate effect of expense increases in other operating and maintenance expense categories.”
In correspondence with RCA staff, HEA Manager of Regulatory Affairs J.D Draves wrote that these expenses don’t include any of the battery's cost.
“At the present time costs associated with the BESS are being accumulated in a dedicated account since it will eventually be capitalized,” Draves wrote. “When the BESS becomes used and useful in late 2021 to early 2022, HEA will then include the accumulated costs in its (rate) filings.”
CINGSA opposes
On Feb. 7, CINGSA’s attorney John Wood wrote to HEA Manager Janorschke “to express concern over (HEA’s) decision to build a redundant battery energy storage system that is wholly unnecessary.”
The Railbelt utilities generate roughly 70 percent of their electricity from natural gas extracted in and around Cook Inlet. Since opening in 2012, the CINGSA facility has become a key piece of the infrastructure that supplies that gas. During low demand periods CINGSA pumps excess gas into a depleted sandstone reservoir beneath the mouth of the Kenai River and extracts it when needed. HEA is one of CINGSA’s gas storage customers, along with two other Railbelt utilities — Chugach Electric Association and Municipal Light and Power — as well as ENSTAR, the regional distributor of gas for home heating. CINGSA is also a power-buying member of HEA.
CINGSA’s letter to Janorschke states that “facts do not support” HEA’s primary reason for purchasing the battery: to maintain reliable generation when “islanded” and unable to exchange power with the rest of the Railbelt.
When last summer’s Swan Lake Fire shut down the sole powerline between the Kenai Peninsula and the northern grid, HEA was islanded from mid-August to mid-December, and spent approximately $24,000 a day on extra natural gas to keep an additional gas turbine spinning for reliability. Without other utilities to send power in the event of a generator failing, another generator would have to instantly pick up its load to prevent an outage (in summer 2019, HEA also had extra shares of cheap hydroelectric power from Bradley Lake to offset its extra gas consumption). Having a charged battery waiting to pick up a failed turbine’s load would eliminate the need to keep a back-up turbine running, saving the extra gas, its cost, and its carbon emissions, according to HEA’s press releases on the battery system.
HEA’s five generation facilities on the Kenai Peninsula have a total of 210 megawatts of generation capacity. Comparing this to the 88 megawatts of peak demand cited in a 2012 HEA report, CINGSA attorney Wood wrote that HEA already has more than twice the generation capacity it needs, making the battery system “a redundant facility to provide for a heightened level of service.”
“With ‘reliable and very efficient’ generation that can provide more than double the amount of power used by cooperative members, HEA has no need for a redundant power facility,” Wood wrote. “HEA is unable to demonstrate that the BESS is required to meet reliability standards—for the simple reason that it isn’t.”
In a March 17 response, HEA attorney Pamela Anderson wrote that this claim “reflects a fundamental misunderstanding of how energy storage facilities like the BESS function” by conflating energy storage with generation.
Openness
According to Wood’s letter to Janorschke, CINGSA officials learned of HEA’s battery project from a January 7 story in the Peninsula Clarion newspaper. In CINGSA’s subsequent RCA filing, Wood wrote that HEA “excluded its members from discussions leading to the decision to proceed with construction of the imprudent BESS facility.”
According to their board minutes, the three meetings at which HEA’s directors discussed the battery system included both open discussion and executive sessions closed to the public because they concerned “matters that the immediate knowledge of which would clearly have an adverse effect on the finances of the Cooperative.” CINGSA omitted mention of the open discussions in the RCA filing in which it referred to “HEA’s strategy of holding discussions on the BESS in closed Executive Sessions.”
HEA attorney Anderson wrote that construing the executive sessions as a deliberate strategy for avoiding member scrutiny is “flatly not true,” referring to presentations on the battery system Janorschke gave at the May 2019 annual meeting and at eight member meetings in the fall. The three executive sessions, she wrote, concerned confidential technical and financial information submitted by the three companies that bid on the battery project.
“It was therefore appropriate for the Board to go into executive session to discuss these matters, and the Board’s decision to do so in no way reflects a strategy or conspiracy by HEA to hide the BESS from its members,” Anderson wrote.
Turnaround
In asking the RCA to prohibit HEA from billing members for a project it calls redundant, CINGSA cites a recent case in which the RCA prohibited it from funding a backup project of its own by collecting from its utility clients, including HEA. In late 2018 CINGSA planned to add two new wells for injecting and withdrawing gas from its reservoir. The new wells were meant to back up CINGSA’s five existing wells, one of which had recently suffered a 20 percent loss of capacity when it clogged with sand that March. CINGSA also planned to install a back-up dehydration unit and a smaller, more efficient compressor that would save it about $92,000 a year in maintenance, according to CINGSA Vice President of Operations John Lau. CINGSA’s self-described “redundancy project” cost a total $41 million.
When CINGSA sought RCA permission to recover this cost in rates, HEA opposed while Chugach Electric and ML&P declined their support. CINGSA’s fourth storage client, ENSTAR, supported the redundancy project. ENSTAR is contracted to operate the CINGSA facility and is owned by Michigan-based SEMCO Energy, which also holds 65 percent of CINGSA’s ownership.
"HEA does not believe the proposed redundancy project is necessary or commercially reasonable," HEA's Mike Salzetti told the RCA in his August 2018 testimony. "...(Storage) customers like HEA that did not request the redundancy project and have shown the redundancy project is unnecessary should not be required to pay for the cost of the proposed project."
In February 2019, the RCA commissioners ruled in a 79-page order that “CINGSA’s development of the proposed redundant facilities, without a request from any of its four (gas storage) customers and without the support of three of those customers, would not be prudent” and prohibited the estimated $6.3 million annual rate increase CINGSA sought to pay for the expansion. The increase would have raised storage rates 27.6 percent.
“Determining the (CINGSA Redundancy) Project’s prudence begins with ascertaining its necessity for providing service to CINGSA’s customers,” the RCA commissioners wrote in their order, before concluding that CINGSA’s project did not meet this standard because it did not increase the amount of service CINGSA could provide, and because its customers considered CINGSA’s present service adequate.
Wood cited this RCA order five times in CINGSA's arguments against the battery system, suggesting that the same conclusion should apply to HEA’s battery plans.
In a March 27 order approving HEA’s rate increase, the RCA commissioners declined CINGSA’s call to suspend the case and investigate battery-related spending, but noted that “this will not preclude the Commission from investigating the prudence of the BESS at a later date.”
Responses
Wood's Feb. 7 letter was among the informational material HEA's board members received at their March 10 meeting. None commented on it then, though HEA board president Dan Chay later wrote to the Alaska Energy Transparency Project to emphasize that the battery system is not a redundant generation facility.
“The BESS doesn't generate energy, and that's important to understand,” Chay wrote. “Rather, the BESS importantly is a storage device that enables HEA to cost-effectively meet the operating spin requirements that fall under the new enforceable Railbelt reliability standards.”
The Homer-based conservation nonprofit Cook Inletkeeper wrote in its March 19 email newsletter that "after losing to HEA in an unrelated dispute, the Cook Inlet Natural Gas Storage Association (CINGSA) is complaining to the Regulatory Commission (RCA) about our battery and trying to stop it." The newsletter called for HEA members to support the battery project with letters to the RCA. As of publication, the RCA has received 26 emails in support of the battery system.
Read more
The Regulatory Commission of Alaska has a complete archive of the letters, legal filings, and other documents related to the cases discussed here on its website, rca.alaska.gov. Find them by searching for each case’s docket number in the “Find a matter” search field on the right-hand side of the RCA homepage.
