|
Chugach wants power plant guarantees Utility asks RCA to decide whether power plant costs are prudent before construction begins as a way to get better financing Eric Lidji For Petroleum News
As Chugach Electric Association gets ready to build a roughly $300 million power plant, the cooperative wants to know it will be able to recoup its expenses on the project.
The largest electric utility in Alaska is asking state regulators for a sign that some of the costs of its Southcentral Power Project can someday be passed on to ratepayers. Chugach said the assurance will help it secure better financing, leading to lower interest rates that would ultimately save ratepayers between $1 million to $2 million each year.
Chugach said it is not, however, asking to actually change its rates at this time.
Instead, Chugach wants the Regulatory Commission of Alaska to reiterate its support for the project and to assure potential investors that nearly $200 million in Chugach contracts can be included in electricity rates after the plant in brought into service around 2013.
While RCA sets electricity rates in the state, it doesn’t have the authority to sign off on infrastructure projects, calling those “management decisions.” That said, in 2008, when the question of whether Chugach should build a new power plant came up during a rate case, RCA found that Chugach reached its decision after “extensive analysis.”
At the time, Chugach was deciding between repairing Beluga 8, an aging facility in its portfolio, or building a new power plant. After commissioning several studies, Chugach decided that the fuel savings alone would justify the added cost of a new power plant.
CEA wants reaffirmation Chugach believed RCA’s vote of confidence would be enough to assure lenders the project was prudent. Chugach maintained that belief even as credit markets tightened in late 2008, but recently decided it needs reaffirmation to get the best deal.
“After some initial reluctance by a potential lender, Chugach was still convinced that after credit markets settled, it could proceed without a prior prudency review,” Michael Cunningham, chief financial officer for Chugach, told RCA. “However, Chugach has concluded that the least cost financing will be obtained if it first obtains a determination of prudence and assurance of cost recovery as proposed in the accompanying petition.”
The idea of regulators signaling their intentions to potential investors is not new, according to Karl McDermott, a utility consultant hired by Chugach to review the case.
In testimony filed alongside Chugach’s request, McDermott said regulators in the Lower 48 have been using similar tactics for more than 30 years, anytime generation is added.
The general idea is to make utilities study the available options before building a new project and then to use those studies to get a nod from regulators before construction begins. The process doesn’t stand in for a review of costs later on, McDermott said.
New facilities rare in Alaska But new generation facilities are rare in Alaska. RCA asked Chugach to look for precedent, where state regulators guaranteed cost recovery in advance. It also asked Chugach to consider the precedent that might be set by making those guarantees now.
Chugach is looking to restructure its debt in October and wants RCA to rule by mid-September. RCA, which isn’t statutorily required to rule until Dec. 27, is skeptical of that timeline, but suggested it could be persuaded if Chugach details an expedited review.
Chugach and Municipal Light & Power will jointly own the power plant. Chugach will manage the facility and own 70 percent of it, while ML&P will own the remainder.
The power plant will produce about 183 megawatts from three natural gas fired turbines. Chugach signed three contracts for the power plant this year worth $197 million and told RCA it is only currently looking for guidance on that $197 million.
Several parties in case The case has attracted the attention of many players in Southcentral.
Alpine Energy and Tiqun Energy, two independent power companies, joined the case, concerned about how the outcome might impact proposed power projects in the region.
Homer Electric Association, the second-largest wholesale customer of Chugach electricity, also joined the case, saying it welcomed an RCA review as a way to independently verify whether Chugach did its due diligence in deciding to build the plant.
“HEA is aware that the new generating units on the market are more efficient and the selection of more efficient units would appear to be an acceptable option,” the company wrote. “However, while HEA is supportive of Chugach’s planning process, it is not in a position to verify that the contracting process or the resulting pricing were prudent.”
HEA chose not to renew its contract with Chugach beyond the end of 2013.
ML&P also joined the case, at the request of RCA.
“While ML&P and Chugach are co-owners of the SPP project, their interests may differ in some respects and there is no assurance that Chugach, the only current party to this docket, will fully represent ML&P’s interest,” the municipal utility wrote in filings.
The Public Advocate, a section of the state Attorney General’s office, is also joining the case.
| 