Some concerns raisedHave HEA members have been given a fully balanced perspective on deregulation? ALAN BAILEY Petroleum News
While members of Homer Electric Association are engaged in a ballot on whether the Kenai Peninsula utility should become deregulated from the Regulatory Commission of Alaska, on Oct. 12 the commission held a public meeting to review comments on the deregulation issue. Some members of the public and individual commissioners expressed concern that information provided to HEA members by the utility had not provided a fully balanced view of the deregulation question. HEA did not send any representatives to the RCA meeting to answer the concerns raised.
Commission Chairman Robert Pickett said that he had attended the two public information meetings that HEA had convened, one in Homer and one in Kenai, and that the utility and its board had welcomed his participation in the discussions. The commission does not question the legality of HEA’s deregulation move, nor that of the process that the utility is using to ballot its members and hence arrive at a deregulation decision. The concern is the extent to which the information that HEA is providing to its members enables those members to make a fully informed decision.
The purpose of RCA regulation is the protection of the interests of customers of “natural monopolies,” businesses that, by their nature, have little or no local competition. Under Alaska statutes a utility such as HEA can deregulate provided that a majority of its membership vote for deregulation in an appropriately organized election. Upon deregulation, the role of oversight of issues such as the setting of electricity rates would pass from the RCA to the utility’s board. If a member disagrees with a board decision, the member has the right to challenge the decision through an appeal in Alaska Superior Court.
Improved efficiency HEA has said that deregulation would eliminate the lengthy, expensive and rigid RCA approval process for rate changes, thus enabling the utility to more nimbly and flexibly implement or pilot new service arrangements and rate structures. The utility’s board would be able to make strategic decisions on electricity rates ahead of costs from those decisions being incurred, enabling, for example, the feathering in of the costs of new major pieces of infrastructure, rather than having those costs suddenly cause a jump in the rates, HEA has argued.
Currently, under RCA regulation, all rate changes must go through a rate case process that can take up to 450 days to complete.
HEA has cited, as examples of successful deregulation, several other utilities, inside and outside Alaska, including Matanuska Telephone Association and Kodiak Electric Association. But the commission has questioned the validity of these comparisons. Commissioner Stephen McAlpine, for example, commented that MTA operates in a highly competitive telecommunications market, with customers having options to switch to other providers, and not as a monopoly as is the case for HEA. And KEA, unlike HEA, is not connected to the Railbelt transmission grid, an integrated grid serving several utilities, McAlpine said.
Implications for the grid? Commissioner Norman Rokeberg particularly focused on the possible implication of the HEA deregulation for current efforts towards integrating the management and operation of the Railbelt transmission grid. HEA owns and operates both the southernmost portion of the grid and the utility’s Kenai Peninsula power generation assets through a separate HEA affiliate called Alaska Electric and Energy Cooperative. HEA, itself, operates the electricity distribution system on much of the peninsula. HEA has said the deregulation only applies to the distribution system, and not to AEEC’s generation and transmission facilities. Apparently AEEC is a separate utility, with HEA as its only member.
In principle, HEA could, after deregulation, opt to deregulate AEEC, using its single member vote, Rokeberg commented. The commissioners want to know what will happen and what is the intention, he said.
McAlpine also questioned the practicalities of HEA members challenging board decisions through Superior Court, given the formality and cost of taking court action. With HEA as a regulated utility, ratepayers can currently complain about utility services free of charge through the RCA, he said.
Ratepayer concerns Bob Shavelson, an HEA member and executive director of environmental organization Cook Inletkeeper, provided comments to the commission, expressing several concerns about the deregulation initiative. Three other HEA ratepayers also commented, generally supporting Shavelson’s position.
Shavelson’s concerns included his perception that, by using a public relations firm to promote deregulation to the HEA ratepayers, HEA had only presented the positive aspects of the proposal. Shavelson questioned a lack of information about the situation regarding AEEC, especially as AEEC holds some $363 million in debt. Moreover, if HEA saves money through deregulation, what will that money be used for, Shavelson asked, commenting that there does not appear to be any commitment to reduce electricity rates. HEA’s fiduciary duty appears to be towards itself rather than its members, he said. And, with a large debt overhang, how will HEA be able to invest in new renewable energy sources, he asked.
Shavelson also raised the question of the integrated Railbelt transmission grid, wondering that, if HEA deregulates, other Railbelt utilities might follow suit, thus raising issues over the efficiency and effectiveness of operations across the grid.
Given that the deregulation election has already started, the commission is going to expedite publication on its website of the transcript of its Oct. 12 meeting.
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