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RCA ML&P-Chugach hearing ends; utilities express support for deal
Alan Bailey for Petroleum News
A lengthy Regulatory Commission of Alaska hearing into the proposed purchase of Anchorage electricity utility Municipal Light & Power by Chugach Electric Association ended on Nov. 6, with closing arguments by the participants in the hearing. The RCA commissioners must now decide on whether to approve the deal - the regulatory deadline for the case is Feb. 17.
Following various disagreements between the hearing participants that emerged during testimony presented to the commissioners, on Oct. 25 the participants filed a stipulation, documenting changes to the original deal that had been presented to the commission. All hearing participants except the state’s Regulatory Affairs and Public Advocacy Section have agreed with the terms of the stipulation. As part of his closing statement RAPA attorney Jeffrey Waller confirmed that RAPA does not accept the modified deal.
The commissioners and the participants in the hearing have agreed that, if the commissioners approve the stipulation, the commissioners will, in effect, have approved the ML&P purchase. If, on the other hand, the commissioners reject the stipulation, the entire deal will be rejected. And the parties in the case will not be allowed to appeal the commission’s decision.
The Chugach Electric Board has approved the terms of the deal, as modified by the stipulation. And the Anchorage Assembly has also voted to approve the modified deal - the Municipality of Anchorage owns ML&P.
Simple intent; complex details The general concept behind the ML&P acquisition is relatively simple: The idea is to gain efficiencies of scale and operational efficiencies by combining two Anchorage based electricity utilities into a single entity. But, given the differences between the manner in which the two utilities operate, and taking into account the need for fairness for existing utility customers and Municipality of Anchorage taxpayers, the details of the deal are complex, with scope for contention.
The original deal presented to the RCA involved an up-front payment to close the deal combined with payments in lieu of taxes (PILT payments) to the Municipality of Anchorage by Chugach Electric for a period of 50 years, to compensate the municipality for the loss of tax revenue it had obtained from ML&P (as a member-owned cooperative, Chugach Electric does not have to pay property taxes). There was also a commitment to purchase Eklutna hydroelectric power from the municipality for 35 years. Chugach Electric made a commitment that there would be no immediate impact to electricity rates for Anchorage electricity consumers - depending on circumstances, electricity rates may increase in the future, but the expectation is that rates for a combined utility would be lower than those of two separate utilities.
Provisions in the deal took account of complications arising from the fact that both Chugach Electric and ML&P own portions of the Beluga River gas field in the Cook Inlet and obtain fuel gas from the field under different pricing arrangements.
Changes to the agreement Adjustments to the deal under the stipulation reduced the total purchase price for ML&P from $767 million to $758 million, with a reduced payment to the Municipality of Anchorage, if the net book value of ML&P’s assets is less than $715 million. $36 million of the funding would be dedicated to rate reductions over three years for ML&P’s legacy customers, while the Municipality of Anchorage would dedicate $15 million in funding to a project addressing substance abuse disorder issues in Southcentral Alaska. The mechanism for accounting for some of the use of Beluga field natural gas was modified. An issue regarding the Eklutna power purchase agreement was resolved. And existing appeals over the prudence of ML&P’s construction of its new Plant 2A power generation facility and over the utility’s approved rate of return on equity would be dismissed.
The stipulation anticipated savings of $47 million in the net cost of the ML&P acquisition relative to the original agreement for the purchase.
Utility support During closing arguments, Don Edwards, attorney representing Chugach Electric, said that the deal would result in $285 million in savings in the utility revenue requirements over 15 years (the revenue requirement is a key factor in determining electricity rates). Edwards commented that the agreements involved in the revised deal are a careful balance. He questioned whether the deal would survive if the fundamentals of the deal are changed.
“And so the best way to deliver the savings to the customers is to approve the settlement. It’s an opportunity of a lifetime and I hope you are able to see your way to approve that,” Edwards told the commissioners.
Dean Thompson, attorney representing ML&P, also expressed strong support for the deal, arguing that the deal would bring benefits to other Alaska Railbelt utilities, as well as to electricity consumers in Anchorage.
“This is a truly historic win-win opportunity to enable ratepayers in this town to see savings of over $325 million net present value over a long period of time,” Thomson told the commissioners.
RAPA concerns Jeffrey Waller from RAPA overviewed the benefits that could arise from combining the two Anchorage utilities, while also expressing RAPA’s concerns with some of the terms of the agreement. RAPA sees problems with the concept of Chugach Electric legacy customers having to fund future PILT payments, despite the fact that Chugach Electric is currently tax exempt, Waller said. Waller also questioned the manner in which it is proposed to separately account for Chugach Electric and ML&P Beluga River gas, following the merging of the two utilities. He questioned the fairness of the mechanism for returning $36 million to ML&P ratepayers. In addition, Waller questioned the legality of dismissing the Plant 2A prudence appeal.
Waller also referenced a concern that had arisen during the hearing, regarding Chugach Electric’s anticipated reduced level of equity as a consequence of the ML&P purchase.
In response to Waller’s critique Edwards commented on the difficulty of accomplishing an acceptable solution that can benefit the electricity ratepayers.
“That’s the problem that we in Anchorage … have confronted for many decades, and it’s still there and it’s understandable,” Edwards said, in characterizing the issues that Waller had raised. He said that the commissioners will need to decide whether or not the problems can now be overcome.
- ALAN BAILEY
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