Anchorage sells ML&P to Chugach, passing over Valley’s MEA

A sale of Anchorage’s city-owned Municipal Light & Power to Chugach Electric, the regional electric cooperative, is getting praise for its idea of consolidating the two large Southcentral utilities, but the way the deal was negotiated behind closed doors, and lack of information on other bidders, is now raising questions.

The agreement was announced last Thursday at a press conference. It will be taken to Anchorage’s voters in the April 3 municipal election, Anchorage mayor Ethan Berkowitz said. The Regulatory Commission of Alaska must approve the acquisition as well as Anchorage voters.

“This proposal represents a great opportunity – it protects taxpayers and ratepayers. It helps secure Anchorage’s fiscal and energy future,” Berkowitz said in the announcement. This is important given the current fragility of the state’s economy.

But Mary Ann Pease, an Anchorage-based business consultant and former ML&P finance director who attended the Dec. 21 roll-out of the deal, is not happy about the deal. She is displeased over the way it was done and that it is being rushed to Anchorage voters for approval without an independent analysis.

“We can all commend the vision for bringing together the two utilities, an objective that has been looked at for decades, but it is the process I am questioning,” Pease said in an interview.

The acquisition is being touted as a consolidation but that is inaccurate, she said.

“This is a sole-source acquisition of ML&P by Chugach Electric,” she said.

As such, the process should have been more open and transparent. “Why not offer a competitive bidding process for the sale of the municipality’s greatest asset?”

Done properly a consolidation would have wide benefits, “but I heard nothing (Dec. 21) to convince me that we have done anything properly, transparent or in the best interest of ML&P or residents of the community,” Pease said.

Berkowitz said the agreement is structured so there will be no rate increases, at least in the near future, and no layoffs of employees at either utility. If there are workforce reductions they will occur over time by attrition. Recent rate increases by ML&P will remain, however.

Chugach will immediately pay the municipality $170 million with another $170 million paid over four years. Chugach will also make Payment-in-Lieu-of-Tax, or PILT, payments to the municipality, although those will replace revenues ML&P now provides to the city.

When all benefits to the municipality are combined the value of the transfer reaches $1 billion, Berkowitz said. The mayor did not explain how that total was reached, however.

The sale will allow the municipality to pay off $525 million in debt and invest additional funds into the city’s trust fund. Continuing contributions from Chugach, under the PILT, will help preserve Anchorage’s tax cap.

Chugach CEO Lee Thibert said a combination of the two utilities will save hundreds of millions of dollars in the coming years through the consolidation of regulatory work, purchasing and administration and other efficiencies.

“With one Anchorage utility, it strengthens our position to address the underlying structural changes in our industry brought on by new technologies and distributed generation. We reduce duplication on many fronts. I haven’t found anyone who doesn’t think this is a good idea,” he said.

Berkowitz said both utilities are facing declining demand for electricity due to energy efficiency technologies and other structural changes. Both ML&P and Chugach now own the most efficient natural gas generation plants in the state, the Southcentral Power Project owned by both utilities and ML&P’s new Plant 2.

Both also own part of the Beluga gas field, to supply much of their own fuel for power generation. ML&P now owns one-third share of the Beluga gas field. Owning part of its own gas has allowed ML&P to keep its rates for electricity among the lowest in the state for year. Chugach also owns 10 percent of the Beluga field.

ML&P’s one-third share will go to Chugach in the sale, giving Chugach over 43 percent of the field. Beluga has enough gas reserves to produce until 2033.

Pease said her questions are mainly over the lack of information made available about the sale. “Have we secured the best and highest value for our asset? We were told (at the assembly work session) that the analysis done for the municipality was confidential. I would like to see an independent analysis by an independent financial expert, someone like Goldman Sachs.”

The only public presentation so far was by a consultant to Chugach, she said.

Pease also said offers by others should be disclosed. ML&P officials said there were confidentiality agreements that prevented disclosures. Pease said names could be removed, but the range of alternative offers should be available to the public.

She is also concerned with how the state regulatory commission will view the added debt on Chugach’s books. “At first glance, and without the benefit of any financial information provided, it would appear that Chugach’s equity would slip below 13 percent,” Pease said.

This could cause the regulatory commission to view Chugach’s finances as impaired, which could affect payments to the municipality and others, she said.

Matanuska Electric Association, whose Eagle River/Chugiak service areas border ML&P’s, views the combination of the two utilities as positive, MEA spokeswoman Julie Estey said. However, MEA is still waiting to learn more about how it will affect initiatives where the utilities now work together, such as a new “railbelt” power pooling arrangement and proposals for jointly-owned new transmission facilities, she said.

MEA recently indicated its interest in purchasing ML&P in a letter from MEA general manager Tony Izzo to Anchorage mayor Berkowitz. Estey said staff from the municipality replied by email that the focus was now on Chugach. “We realized we were too late in the game,” she said.

MEA had been identified early on by the Anchorage assembly as a “stakeholder” in the utility discussions but the Mat-Su co-op was never included in the confidential discussions. “It was a surprise to us. We were expecting a more open and transparent process, but we are where we are,” Estey said.

Tim Bradner is copublisher of Alaska Legislative Digest