Providing coverage of Alaska and northern Canada's oil and gas industry
October 2016

Vol. 21, No. 43 Week of October 23, 2016

HEA plans deregulation of AEEC

Brad Janorschke, general manager of Homer Electric Association, has responded to comments made during an Oct. 12 Regulatory Commission of Alaska public meeting in which the commissioners reviewed some concerns raised over HEA’s initiative to deregulate. HEA is conducting a ballot of its members, seeking membership approval of deregulation, shifting from regulation by the commission to full local control by the utility’s board.

Among his responses to the comments at the meeting Janorschke said that if HEA’s members vote to approve deregulation, the Alaska Electric and Energy Cooperative, the HEA affiliate that owns and operates both the southernmost portion of the Railbelt transmission grid and the utility’s Kenai Peninsula power generation assets, would also deregulate. HEA itself only operates the electricity distribution network on much of the Kenai Peninsula. Apparently the AEEC board, with the same membership as the HEA board, has already indicated that shortly after an election result approving the HEA deregulation, the AEEC voting delegation would be instructed to vote in favor of deregulation. AEEC is a utility with HEA as its only member.

Under Alaska statutes a utility can opt for deregulation if a majority of the utility’s membership vote in favor of the deregulation move.

Transmission issues

One of the questions that the deregulation of the HEA/AEEC transmission and generation assets on the Kenai Peninsula would presumably raise would be the potential impact on current moves to consolidate the management and operation of the Alaska Railbelt transmission grid. Use of the grid is shared by the six Railbelt electricity utilities.

In June 2015, following a directive from the state Legislature to investigate the merits of operating the grid under unified management, the commission concluded that unified management would be beneficial for Railbelt electricity consumers through the possibility of making maximum use of the cheapest power sources on the grid. Since then, the commission has been encouraging the six Railbelt utilities to achieve unification through voluntary means, and there has been progress in that direction, with HEA involved in the unification discussions.

In July Janorschke told Petroleum News that the deregulation vote that his utility had planned only applies to the electrical distribution aspects of his utility’s business and was a separate issue from the question of transmission system integration. The deregulation does not impact discussions that are taking place over the future of the transmission grid, he said.

“The local control vote that we’re taking to our membership is for our distribution cooperative, which is poles and wires,” Janorschke said. He said that the question of whether to deregulate the generation and transmission side of the business would be addressed after the deregulation of the distribution system had been dealt with.

Increased flexibility

HEA has said that deregulation would eliminate the lengthy, expensive and rigid RCA approval process for rate changes, thus enabling the utility to more flexibly implement or pilot new service arrangements and rate structures. Currently, under RCA regulation, all rate changes must go through a rate case process that can take up to 450 days to complete. Moreover, the utility’s board would be able to make strategic decisions on electricity rates before the costs from those decisions would be incurred, HEA has said.

The RCA commissioners, while not disputing HEA’s legal right to seek deregulation, have expressed concern over whether the utility has presented a fully balanced view of all of the deregulation issues to its members, thus enabling the membership to make a fully informed decision.

Undue influence

In response to concerns expressed by some commissioners that the HEA board, lacking the expertise of the HEA management, might unduly come under the influence of the management, Janorschke said that this view represents a misunderstanding of the board’s role as a policy body, rather than as a management group. Janorschke also challenged questions over AEEC’s apparent high current level of debt, saying that neither HEA nor AEEC is financially stressed and that the equity levels in the two utilities are rising.

And, in response to a discussion at the Oct. 12 meeting over the relatively high cost of electricity in HEA’s service area, Janorschke commented that the high cost relates to the population density per mile of electrical line on the peninsula, and not to HEA’s decision to build and operate its own power generation facilities. HEA electricity pricing was also relatively high during an earlier era when the utility purchased its power from Chugach Electric Association, Janorschke said.

Shavelson comments

During the Oct. 12 meeting, much discussion revolved around a set of concerns raised by Bob Shavelson, an HEA member and executive director of environmental organization Cook Inletkeeper. Some other HEA members expressed support for Shavelson’s views.

In response to a general criticism that, especially through the use of a public relations firm to promote deregulation to its membership, HEA has overemphasized the positive aspects of deregulation at the expense of pointing out the downsides, HEA has responded that it had “made every effort to provide a balanced set of information to our members.” However, HEA does believe that the benefits outweigh the concerns - the HEA board unanimously supports local control through deregulation, HEA said.

Shavelson also commented on the relationship between HEA and AEEC, accusing HEA of being obscure about the relationship between the two utilities and of not explaining to its membership the impact of deregulation on the generation and transmission components of HEA’s business.

In response, HEA said that it has always been willing to divulge the purpose of AEEC and the nature of the relationship between AEEC and HEA. AEEC board meetings and financial information are open to HEA members, while the AEEC board determines AEEC’s strategic direction, HEA said. HEA also dismissed a concern raised by Shavelson about AEEC’s current level of debt and, hence, the utility’s capability to invest in new renewable energy projects.

In response to a complaint that HEA refuses to commit to lower utility rates as a result of the cost savings to be gained from deregulation, HEA said that it has made it clear that cost savings will be passed through future rate calculation but that, given the many variables impacting the utility’s rates, assuring a future rate reduction would be irresponsible.

Shavelson also questioned whether HEA, in its business decision making, truly reflects its members’ interests. And would the utility assist its members with litigation costs, should they have to resort to a court appeal in the event of a dispute with the HEA board, Shavelson asked. HEA questioned the factual basis of Shavelson’s concerns and commented that disputes would be resolved through utility representatives and the board of directors, as is done elsewhere in the United States.

Utilities comparison

Both Shavelson and the commissioners questioned HEA’s use of utilities such as Kodiak Electric Association and Matanuska Telephone Association as examples of utilities that have successfully deregulated, given that KEA is not hooked into the Alaska Railbelt transmission grid and that MTA is a telecommunications utility that operates in a competitive market. While deregulation would not hinder the buying or selling of power with other Railbelt utilities, HEA would be regulated by its members, in an analogous manner to the way in which voters regulate the operations of local governments, HEA responded.

HEA also dismissed a concern that, if other Railbelt utilities opt for deregulation, that might have a negative impact on reliability and electricity costs across the Railbelt.


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