|
RCA sets Chugach Electric, ML&P agenda; hearings to end in August
Alan Bailey Petroleum News
The Regulatory Commission of Alaska has issued an order setting a hearing schedule for its review of Chugach Electric Association’s proposed purchase of Municipal Light & Power. The schedule involves two hearings, the last of which will end on Aug. 27. The statutory deadline for the commission to make a ruling in the case is Nov. 19.
In its order, issued on May 8, the commission is allowing Alaska Railbelt utilities Homer Electric Association, Golden Valley Electric Association and Matanuska Electric Association to intervene in the proceedings. HEA and GVEA have expressed concern about the potential impact on their businesses of the utility consolidation. MEA told the commission that it will be impacted because of the interconnections between MEA’s system and the two Anchorage utilities. The commission is also allowing Providence Health and Services to intervene - Providence is a major ML&P customer.
A chain of events The idea of having Chugach Electric purchase ML&P, to form a consolidated utility in Anchorage, was first announced in December 2017. The idea is to achieve long-term cost savings and efficiencies by eliminating the duplication of functions and through the more efficient use of power generation resources. In April 2018 Anchorage voters approved the concept. In October 2018 the parties involved agreed on the terms of the sale. In December 2018 the Municipality of Anchorage approved the sale. Then, with the Chugach Electric board already having approved the deal, the parties moved ahead with preparing RCA filings, seeking the relevant approvals from the commission.
Chugach Electric and the municipality hope to complete the deal in the fourth quarter of 2019 or early in 2020.
Complex deal The deal is complex and involves several major components: an upfront payment to close the deal; payments in lieu of taxes to the Municipality of Anchorage by Chugach Electric for a period of 50 years; and a commitment to purchase Eklutna hydroelectric power from the municipality for 35 years. And the proposed manner in which the businesses of the utilities would be combined reflects a commitment that the electricity rates of the two utilities would not immediately be impacted by the deal, although in the longer term rates are anticipated to be lower than they would be without the deal going ahead.
A complication arises from the fact that both Chugach Electric and ML&P own portions of the Beluga River gas field on the west side of Cook Inlet and obtain some of their power station fuel gas from that field. The prices that the two utilities pay, in effect for their own gas, differ with the ML&P gas being cheaper.
HEA and GVEA concerns In its petition to intervene HEA expressed concern that the merger of the two utilities would remove a participant from the Railbelt wholesale market for economy energy sales and spinning reserves, with possible impacts on wholesale power pricing. Economy energy sales involve the sale of attractively priced power from one utility to another.
In addition, HEA said that the combined utility would end up owning more that 50 percent of the rights to power generated by the Bradley Lane hydropower facility in the southern Kenai Peninsula: These resulting majority rights would give Chugach Electric total control over the scheduling and dispatch of Bradley Lake power, HEA told the commission.
GVEA’s concerns particularly focus on the scale of the combined Chugach Electric/ML&P system, and the risks that this scale of operation poses to the Alaska Railbelt system as a whole. Chugach Electric is already the largest utility in the Railbelt, with substantial authority over the electricity system, GVEA told the commission. When the Railbelt system was originally formed. the participants ensured that no one entity had too much authority over strategically important generation and transmission assets, GVEA wrote.
GVEA also commented on possible adverse impacts on economy energy sales across the Railbelt grid.
Three dockets involved In its May 8 order the commission said that there are actually three active dockets relating to the purchase of ML&P, and that the commission is now consolidating these dockets. One docket seeks assurance of commission approval of the retrieval through electricity rates of Chugach Electric’s costs associated with the ML&P purchase, seeks approval for the various components of the deal, and seeks approval of the inclusion of ML&P’s service area in Chugach Electric’s certificate of public convenience and necessity. The second docket addresses a number of technicalities associated with the deal, including modifications to ML&P’s certificate. The third docket involves an investigation into the manner in which ML&P manages the disposition and pricing of its Beluga River field gas.
Hearing schedule A key issue to be addressed in the first of these dockets is the need to determine whether, given that the price that Chugach Electric proposes paying for ML&P’s assets is above book value, the purchase is in the public interest, the commission said.
The commission has scheduled a hearing for the third docket for Aug. 12, potentially through Aug. 21. A combined hearing for the other two dockets will run from Aug. 27, potentially through Sept. 17.
Given the complexity of the issues to be addressed, the commission has contracted consultancy firm Black and Veatch to provide expert assistance in assessing the terms of the ML&P purchase and the likely impact of the purchase on electricity consumers.
- ALAN BAILEY
|
