Homer Electric Association’s board of directors has approved an initiative to establish local control for the utility, moving out from economic regulation by the Regulatory Commission of Alaska and giving full authority for the approval of electricity rates to the board.
“We’re going to go to our members this fall and do our best to provide them the information to decide if they are interested in HEA becoming locally controlled, exempt from regulation,” Brad Janorschke, general manager of HEA, told Petroleum News on July 26. “We’re trying to allow our members to make an informed decision.”
On Aug. 1 the Kenai Peninsula utility will officially notify the RCA of its proposal. Then, during local community meetings conducted in September, the utility will explain its proposal to its membership. Ballots on the proposal will go to the members in conjunction with the utility’s billing cycle in October. The returned ballots will be sent to the RCA for counting by the end of December. If the members pass the proposal, local control would likely go into effect on Jan. 1, Janorschke said.
Utility regulation
As a public utility, Homer Electric requires a certificate of public necessity and convenience, a kind of operating license, from the RCA. And by default the RCA regulates the rates that the utility charges its customers, with any rate change having to go through a formal RCA rate approval process.
But HEA is a member-owned cooperative, governed by a board of directors elected by the membership. And under a state statute the subscribers or members of a utility or cooperative can vote for economic deregulation, in effect passing the regulatory authority for rates from the RCA to the utility board, with the board reviewing the utility’s cost of service through public meetings. As with the RCA regulatory process, a consumer who is ultimately dissatisfied with a rate decision can appeal that decision through state Superior Court, Janorschke explained.
Approval of the move to local control requires a simple majority of the membership in the approval vote, although at least 15 percent of the membership must vote, Janorschke said. And, if ultimately the membership discovers that it does not like the local control arrangement, after two years the membership can vote to return to RCA regulation, he said.
According to information provided by HEA about 80 percent of U.S. electric cooperatives operate under the type of local control arrangement that HEA is proposing. In Alaska, 56 percent of electric utilities are locally controlled, including Kodiak Electric Association and Copper Valley Electric Association, HEA says.
Janorschke emphasized that the local control initiative only applies to HEA’s power distribution business, and not to the utility’s power generation and transmission operations, which are handled by a separate business entity, the Alaska Electric and Energy Cooperative. Consequently, the proposed move to HEA local control has no relevance to a current debate, overseen by the RCA, on consolidating the management of the Railbelt power transmission grid, the pooling of power generation capabilities and the alignment of Railbelt power transmission reliability standards, he said.
Local control motivation
Janorschke said that HEA’s motivation for local control revolves around the cost, lengthy timeframe and rigidity of the RCA regulatory process. Eliminating the RCA rate case process, which can take up to 450 days to complete, would cut significant cost, including attorney fees, consulting fees and staff time, from HEA’s rate change procedures.
Moreover, by cutting out that lengthy RCA process, HEA can be more nimble and flexible in implementing new service arrangements, perhaps piloting new rate structures ahead of final board approval decisions, Janorschke said.
“We can implement it right there, as opposed to taking that whole analysis, bringing it up to Anchorage, have a panel of commissioners, who are located in Anchorage, trying to weigh in on what our local directors have approved,” he said.
The flexibility of local control could help, for example, in implementing new renewable energy sources, he commented.
Elimination of the RCA rate approval process would also enable the HEA board to make immediate strategic decisions on electricity rates based on forecast costs, rather than having to wait until after the costs have been incurred before making a rate rise. Thus, for example, by feathering in the cost recovery for a new major piece of infrastructure, the rate impact could be softened, spread over time, rather than appearing as a sudden major jump, Janorschke said.
The bottom line for a utility such as HEA, regardless of the regulatory environment, is to supply power at least cost, while also maintaining safety and power supply reliability, he said.
