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Vol. 24, No.44 Week of November 03, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

Revised deal for Chugach Electric purchase of ML&P under review

Alan Bailey

Petroleum News

Following disagreements among the various stakeholders in the proposed purchase of Anchorage electric utility Municipal Light & Power by Chugach Electric Association, the parties in a Regulatory Commission of Alaska hearing into the deal have filed agreed changes to the terms of the purchase.

The board of Chugach Electric has also approved the changes. The Anchorage Assembly was scheduled to determine on Oct. 31, after Petroleum News went to press, whether to agree to the changes - the Municipality of Anchorage owns ML&P. The state’s Regulatory Affairs and Public Advocacy Section has yet to determine its view on the new proposals.

Oct. 29 meeting

During an RCA hearing meeting on Oct. 29 the commissioners and the parties to the hearing agreed to continue the hearing on the basis of seeking RCA approval of just the changes to the deal. The changes that have been filed are formally referred to as “the stipulation.” The idea now is that, if the commission approves the stipulation, the commission will have approved the entire ML&P purchase deal. On the other hand, if the commission rejects the stipulation, the hearing will end without approval of the purchase.

The idea behind this manner of conducting the remainder of the hearing is to minimize the time required to complete the hearing - much testimony has already been presented on the complete terms of the deal. The hearing is already running behind schedule and has a statutory deadline of Feb. 17.

The concept behind the merger of the two Anchorage based utilities centers around the potential for improved efficiencies through the elimination of duplicated functions and more efficient use of power generation facilities. But, while simple in principle, the business technicalities of merging the two businesses are complex, involving issues such as ensuring the fair treatment of all of the utilities’ customers and ensuring a fair deal for Anchorage taxpayers.

The original deal

The deal, as initially presented to the RCA, involved an up front payment to close the deal; payments in lieu of taxes to the Municipality of Anchorage by Chugach Electric for a period of 50 years; and a commitment to purchase Eklutna hydroelectric power from the municipality for 35 years. There was also a commitment that the electricity rates would not be immediately impacted, although in the longer term the merger would result in lower rates than would otherwise be possible. One significant set of complications results from the economics of natural gas fuel obtained from the Beluga River gas field, given that both utilities own portions of the field.

The entire deal encompasses three related RCA dockets. Hearings on the dockets had been scheduled to run through to Sept. 17. But following disagreements among the parties in the dockets, the hearing into the merger was postponed on Oct. 1, pending the filing of a stipulation with agreed changes to the deal. That stipulation was filed on Oct. 25. Hence the Oct. 29 hearing meeting, to determine how to proceed.

Proposed changes

As with the original ML&P purchase deal, the terms of the stipulation are fairly complex. Key terms include a reduction in the total purchase price for ML&P from $767 million to $758 million; a reduced payment to the Municipality of Anchorage, if the net book value of ML&P’s assets is less than $715 million; a transfer of $36 million to Chugach Electric for rate reductions for ML&P’s legacy customers; provisions to reduce the amortization period for transaction costs; and a change to the accounting for Beluga River gas used in the generation of electricity sold to other utilities. The stipulation anticipates savings of $47 million in the net cost of the ML&P acquisition relative to the original agreement for the purchase.

- ALAN BAILEY



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