MEA fights Chugach rate hike

MAT-SU — An expected $30 million Chugach Electric Association shortfall caused by the construction of its Southcentral Power Project will be passed on to Matanuska Electric Association customers in the form of a rate increase beginning this month.

On the heals of an interim approval by the Regulatory Commission of Alaska, MEA will see a 42.3 percent hike to its base rate for electricity the cooperative purchases from Chugach. As MEA and other Chugach power customers petition the RCA to revisit its decision, an effort that could include some involvement from the state Attorney General’s Office, the go-ahead means rates will be increased while that process continues.

The Attorney General’s Office was contacted by the RCA and will uphold its role “to protect the public interest,” Assistant Attorney General Jeffrey J. Waller said. “Part of that role is there is some investigation.”

The rate increase has been designated by the RCA as “interim,” which means that although approved, there’s a chance that approval could be reversed. If that happens, any excess moneys collected would be refunded, MEA spokesman Kevin Brown said. That process could take up to a year.

With a little less than two years left on the current agreement for MEA to buy Chugach electricity, the increase is expected to cost Matanuska Electric members about $24,000 a day through Dec. 31, 2014. MEA’s new Eklutna power generation plant is expected to come online Jan. 1, 2015.

The increase will be passed on to customers on MEA’s grid, the co-op says in a statement announcing the change.

“The average MEA customer uses about 750 kilowatt hours per month, and this means the average bill will be about $9 per month higher than it would have been if Chugach hadn’t sought this rate increase,” Brown said.

He also noted that the increase for MEA is significantly higher than other entities that purchase power from Chugach Electric Association. According to a filing with the RCA, the commission approved interim rate increases to base energy and demand charges of:

• 28.5 percent for Homer Electric Association;

• 42.3 percent for MEA;

• 32.4 percent for Seward Electrical Systems;

• and 22.1 percent for Chugach Retail.

While MEA has explained the increase — granted by the RCA on an interim basis, which means a final determination hasn’t been made — as that $9 per month on customers’ bills, that’s only part of the story, said Phil Steyer, spokesperson for Chugach Electric Association.

“You have to stop and understand rate structure,” he said. “You look at your MEA bill or Chugach bill or Municipal Light and Power bill. You have two components to it, you have base rates and fuel adjustment.”

Along with the 42.3 percent raise in MEA’s base rate charge is a subsequent drop in the fuel charge related to efficiencies that come with the new Southcentral Power Project plant, which came online earlier this year, Steyer said. He said Chugach actually also applied for a lower fuel cost adjustment on the same day it applied for the base rate increase.

Something Brown said he wants to make clear is the 42.3 percent hike to the base rate for electricity does not translate to an overall increase of the same amount to an MEA customer’s bill. The base rate reflects only a part of the costs, and overall is about a 7.8 percent increase.

Those base rate costs are simply a necessary part of bringing new power generation online, Steyer said, adding that the savings come long-term in continued efficiencies realized from the new plant.

“You bring a new power plant online, the portion (of charges) for base rates go up, the portion for fuel goes down,” he said. “The expectation is the economy of the new plant over time largely pays for the construction of the plant.”

Although Steyer said he’s confident this increased fuel efficiency will eventually make up for any increased base-rate charges, MEA officials are concerned that may not be the case.

“Chugach believes that this plant will be more fuel-efficient than the old Beluga plant that it replaces,” the cooperative says in its statement. “But it has not yet quantified the extent to which fuel savings might partially offset the 42 percent rate increase.”

Beyond the immediate effects the rate increase will have for MEA customers through the end of 2014, such a significant change to Chugach’s rate structure could have lasting impacts for MEA into the future when its Eklutna plant comes online, according to a petition to intervene submitted to the RCA by the law firm of Crowell & Moring on behalf of MEA.

“The transmission aspects of Chugach’s filing have the potential to raise complex operational and financial issues that could affect other interconnected Railbelt utilities in different ways,” the petition says.

Contact reporter Greg Johnson at greg.johnson@frontiersman.com or 352-2269.