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Vol. 22, No. 53 Week of December 31, 2017
Providing coverage of Alaska and northern Canada's oil and gas industry

Consolidated power

Anchorage mayor proposes sale of ML&P to Chugach Electric Association

Alan Bailey

Petroleum News

Anchorage Mayor Ethan Berkowitz is proposing the sale of municipality-owned electric utility Municipal Light & Power to Chugach Electric Association. The result would be a single, consolidated utility in Anchorage, serving the city’s electricity consumers. The idea is to achieve long-term cost savings and efficiencies by eliminating the duplication of functions and through the more efficient use of resources such as hydropower. The plan is to ask voters for approval of the sale by putting the proposal on the upcoming municipal ballot in April.

“This is a momentous occasion, and it’s momentous because a lot of people over a long period of time have worked hard to get us to this point,” Berkowitz told reporters during a Dec. 21 press conference.

“This has been a long time in coming. This has been discussed many times over the past 40 years,” said Janet Reiser, chair of the Chugach Electric board.

$1 billion deal

Total payments to the municipality from Chugach Electric for the deal, including up-front payments, annual acquisition payments and payments in lieu of taxes, would amount to some $1 billion over a 30-year period. The consequence would be payments to the municipality to replace the revenues that the municipality currently receives through its ownership of ML&P.

And the idea is to achieve the utility consolidation without loss of jobs, although the number of jobs would decline over time through attrition. The plan is also to ensure that electricity rates do not rise for consumers. In fact the municipality and Chugach Electric anticipate ultimate benefits of $111 million to $220 million in terms of reduced electricity rates, plus $170 million in Chugach Electric capital credits returned to utility members, as a result of the consolidation.

“There will be no loss of employees at ML&P as a result of this,” Berkowitz said. “It will benefit taxpayers over the long haul and in the short haul. It will benefit ratepayers. It also does a lot for the municipality in terms of stabilizing the revenue picture that we’re going to have, which is very critical in terms of making sure that our economy is on a firm footing regardless of what happens at the state level.”

Lee Thibert, CEO of Chugach Electric, commented on the anticipated benefits from the consolidation.

“With a relatively small Anchorage population, two utilities really are not necessary. We can be more efficient with one utility,” Thibert said, adding that three key factors for success in the consolidation consist of the protection of jobs at the two utilities, maintaining the necessary revenue stream for the municipality and continuing to provide the services that the community needs.

“We have met all of our goals,” Thibert said of the work that has gone into preparing the ML&P purchase proposal. “Over time we believe rates will go down for all ratepayers, both ML&P and Chugach. We believe rate savings will be in the neighborhood of hundreds of millions of dollars over the next 30 to 40 years. There will be no layoffs.”

System unification

For many years there has been a debate over the fragmented nature of the Alaska Railbelt electrical network, with six independent utilities owning and operating various sectors of the interconnected electricity generation, transmission and distribution system, a system serving a relatively small number of customers and a modest sized load, albeit over a wide geographic area. As part of moves towards more integrated system management, Chugach Electric, ML&P and Matanuska Electric Association are already in the process of implementing procedures to make tightly coordinated use of their generation and transmission assets, to assure optimum use of the most efficient generation facilities. Presumably, the consolidation of Chugach Electric and ML&P would fit within this general move to more unified system operation.

And for some time Chugach Electric and ML&P have also been working together in projects such as the shared ownership of the new Southcentral Power Project gas-fired power station in Anchorage, and through both utilities now owning shares of the Beluga River gas field.

Push for consolidation

The recent impetus towards consolidated ownership of the Anchorage utilities came in particular from the April recommendations of an Anchorage Economic Development Corp. working group. Those recommendation were soon followed by the Anchorage Assembly passing a resolution, directing the Berkowitz administration to investigate consolidation possibilities.

During the course of the subsequent investigation, it became evident that, because of differences in the structures of the two utilities, a merger of the utilities would not be possible, Berkowitz said - hence the proposal for the purchase of ML&P that has now emerged. Thibert said the timing of the consolidation is particularly appropriate, given that energy efficiencies and new technologies are now resulting in flat or declining electrical loads, and that the current interest rate environment is very favorable.

“We believe now is the time to move forward,” Thibert said.

Functional unification

The aims of the consolidation include the establishment of a single headquarters complex, with all functions combined, companywide, Thibert said. Consolidation will include call centers and customer billing. There will be consolidated functions for power distribution and transmission; for warehousing; for vehicle fleet operations; and for legal, regulatory, environmental and insurance support. Other areas with scope for the elimination of duplication include participation in the oversight of some hydroelectric generation facilities and of the Alaska transmission intertie that connects the Southcentral Alaska with the Interior segment of the Railbelt grid.

Thibert also emphasized the importance of combining the two utilities’ technical and engineering expertise.

“Having one entity, we can combine all that expertise for the benefit of ratepayers,” he said.

One specific benefit that ML&P customers can expect to see is the areawide implementation of the smart metering that Chugach Electric has already put in place for its existing customers, enabling customers to monitor the details of their electricity usage, Thibert said.

And the utility consolidation will bolster the practicalities of addressing structural changes in the electricity industry, including the increased use of renewable energy and distributed generation, he said. According to a presentation to the municipality, the utility consolidation will facilitate the integration of renewable energy sources, with, for example, less curtailment of power from the Fire Island wind farm, offshore Anchorage.

MEA a stakeholder

Thibert also commented that Matanuska Electric Association is a stakeholder in the process for the consolidation of the two Anchorage utilities and that Chugach Electric would be conducting continuous conversations with MEA with regard to the consolidation project.

“Chugach will be working with MEA, to make sure that they’re not disenfranchised, and to make sure that there will be benefits to MEA ratepayers as well,” Thibert said.

Berkowitz commented that the Municipality of Anchorage also has obligations toward MEA ratepayers, given that some of these ratepayers live within the municipality.

Thibert said that following the municipal elections at the beginning of April, it would probably take about 60 days to complete the definitive documentation for the ML&P purchase agreement. The agreement would then need to be filed with the Regulatory Commission of Alaska around June or July for its approval. RCA approval would likely take around six months, a timeframe that would suggest that the earliest that the purchase could be completed would be January 2019.

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