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Terms agreed for sale of ML&P
Alan Bailey Petroleum News
Chugach Electric Association and the Municipality of Anchorage have released a proposed term sheet, setting out the provisions for the sale of municipality-owned electric utility Municipal Light & Power to Chugach Electric Association, Chugach Electric announced Sept. 28. Anchorage voters approved the sale in the municipal election that was held in April - since then the municipality, ML&P and Chugach Electric have been working out the details of the deal. Completion of the deal will result in a single consolidated utility in Anchorage, which, the municipality and the utilities say, will achieve long term economies of scale through the efficient use of resource and the elimination of duplicated functions.
Anticipated timeframe A series of public meetings have now been scheduled to review the proposed terms - the ballot measure for the sale required the Anchorage Assembly to approve final terms for the deal by Dec. 31. The term sheet envisages the assembly and the Chugach Electric board approving the terms of the sale by early December. That would be followed within 60 days by a petition to the Regulatory Commission of Alaska for approval of the sale. The sale would then close within 120 days of RCA approval being obtained. Chugach Electric anticipates this complete process concluding in mid-to-late 2019.
“The term sheet is a product of rigorous review, vigorous discussion and adheres to the parameters outlined by the assembly and ratified by more than 65 percent of the voters of Anchorage,” said Anchorage Mayor Ethan Berkowitz. “It represents an important milestone, and we are looking forward to a completed transaction.”
“We’re pleased to be moving forward with this acquisition and are looking forward to the public discussion over the next few months as we move toward final approval by the Chugach Board of Directors and the Assembly,” said Chugach Electric CEO Lee Thibert.
Payment schedule Under the agreed terms, Chugach Electric would make a payment to the Municipality of Anchorage of $767.8 million at the close of the purchase. Of this, $170 million would be a cash payment, with the remaining $542 million being use for the repayment of all of ML&P’s outstanding debt. Chugach Electric would obtain all of ML&P’s assets, except for the utility’s interests in the Eklutna hydroelectric power station. Assets transferred would include ML&P’s interest in the Beluga River gas field in Cook Inlet.
The municipality is offering Matanuska Electric Association the option to either purchase or enter into a power purchase agreement for a portion of ML&P’s interests in the Eklutna facility. Chugach Electric would then have the right to enter into a power purchase agreement with the Municipality of Anchorage, to buy the municipality’s Eklutna power not transferred or allocated to MEA. Depending on what, if any, arrangement is agreed on with MEA, the net present value of Chugach Electric’s power purchase agreement is estimated to be in the range of $48.8 million to $75 million. Chugach Electric already owns a 30 percent interest in the Eklutna facility.
As part of the agreed terms of the sale of ML&P to Chugach Electric, Chugach Electric would make payment in lieu of taxes, or PILT, payments to the Municipality of Anchorage for the next 50 years (originally there was a commitment of 30 years for the PILT payments, but in the course of negotiations that increased to 50 years). Those payments, in effect property tax payments, would be calculated annually, using the book value of ML&P plant that is in service multiplied by the property tax mill rate. Using current mill rates and an assumed 5 percent annual discount, the net present value of the PILT payments over 50 years is estimated to be $166.8 million.
Thus, the total net present value cost to Chugach Electric of the ML&P purchase, including the NPVs of the Eklutna power purchase agreement and the PILT payments, is estimated to be just over $1 billion.
No service fee increases The utilities have agreed that their customers’ electricity service fees will not increase as a consequence of the ML&P purchase. And, through to the end of 2033, the fuel gas cost component of the electricity bills for customers in the current ML&P service area will use the ML&P price formula for the cost of gas from the Beluga field.
Chugach Electric guarantees that no ML&P employees will be made redundant as a result of the purchase transaction. Nor will any Chugach Electric employees be laid off. However, the total number of employees would presumably decline over time through attrition.
The utility has previously said that the aims of the consolidation include the establishment of a single headquarters complex, with all functions combined. Consolidation would include call centers and customer billing. There would 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.
Schedule of meetings Chugach Electric anticipates an ordinance for approval of the sale being introduced to the Anchorage Municipal Assembly on Oct. 9. There may be a discussion of the ordinance during an Assembly work session on Nov. 2. The first public hearing is expected during the Nov. 7 Assembly meeting. And the ordinance will be discussed during the Assembly Utility and Enterprise Committee meeting on Nov. 15. A further public hearing and final Assembly action on the ordinance is anticipated during the Dec. 4 Assembly meeting.
The Chugach Electric board also has to approve the term sheet and the asset purchase agreement - the utility anticipates taking a vote on this in October, Julie Hasquet, Chugach Electric manager for corporate communications, has told Petroleum News.
- ALAN BAILEY
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