MEA gets $2.9 million refund

PALMER -- There was no giant check, no Publisher's Clearinghouse vans parked in the parking lot, and no surprise cameras at Matanuska Electric Association's monthly board meeting.

In fact, the announcement that the company had received a check for just over $2.9 million was met with no jumping, clapping or exuberant hugging, just a few mild questions from the board.

The check, a payment ordered by the Alaska Superior Court in Anchorage, was from MEA's power supplier, Chugach Electric Association. It is the result of about two years worth of legal wrangling, beginning with a rate filing by Chugach before the Regulatory Commission of Alaska in 2001.

"We weren't expecting this would be resolved so quickly," MEA spokesman Mike Pauley said Tuesday. Judge Sen Tan, he said, had scheduled oral arguments in the Chugach v. RCA case for Nov. 7. But just a few days before the hearing, Tan reconsidered and issued an order stating Chugach must pay the overcharges within 10 days.

"Up until that last week, we were still getting ready," Pauley said.

As part of Chugach's 2001 rate filing, the RCA granted Chugach a temporary rate increase, allowing them to increase rates while the filing was considered, with the understanding that, if the rate increase was not approved, Chugach would be responsible for refunding the overcharge. That's where the $2.9 million is from, but MEA's Director of Administration Don Zoerb said it wasn't all MEA had requested. MEA's estimates of what it would receive differ from Chugach's by about $160,000, Zoerb said, but the difference is still a matter of dispute by the two cooperatives.

"The bulk of the money has been paid, and we're very happy about that," Zoerb told the MEA board Monday.

The more-than-$160,000 difference, Pauley said, is part of a dispute between MEA and Chugach over a calculation method the RCA ordered Chugach to use to determine the amount to repay. The dispute will be settled by the RCA, he said.

Also still under consideration, he said, is the amount Chugach owes those who overpaid in interest payments. The interest, he said, could add up to several hundred thousand dollars.

MEA, as Chugach's largest customer, pays about 60 percent of its budget -- last year about $33 million -- to Chugach each year for power under its wholesale power agreement. As Chugach's largest consumer, MEA received a larger refund than other Railbelt utilities, but it wasn't the only co-op that received a check Monday. According to information from Chugach, Homer Electric Association receiving close to $1.8 million and Seward Electric System will be getting more than $100,000, bringing the total wholesale refund to about $4.8 million. Chugach's small commercial customers will be refunded about $500,000.

Chugach may have complied with Tan's order to issue the checks, but that's not to say they agree with the ruling.

"Chugach believes that the rate orders are unfair to its retail customers and put a disproportionate burden of the costs of margin earnings on retail customers," a press release from Chugach stated last week. "Chugach's desire to protect its customers and maintain the true nature of a cooperative has resulted in an appeal that has been filed in state Superior Court."

There is a possibility that the lower rates proscribed by the RCA will be overturned. Pauley said he doesn't believe it's likely -- but if it is, customers need not worry the $2.9 million MEA received will be given back to Chugach.

"Even if they win at the end of the day … what it would mean is they would get to raise their rates, but it doesn't mean they would get to recover those rates retroactively," Pauley said. "They're foregoing any opportunity to get those funds back."

That's not the only savings MEA will see as a result of a decision by the RCA to deny Chugach's request for a rate increase and lower considerably the rate it charges wholesale customers. Pauley estimated that the lower rates will save MEA between $2.6 and $2.7 million each year for as long as the rates are in effect. The new rates will go into effect in January 2004, Pauley said, but it's not clear yet how much of a reduction customers will see on their bill.

"The reduction in what MEA pays to Chugach will be about 12 percent," Pauley said. "How that will manifest for customers depends on what class of customer they are."

Residential customers, he said, will see a different rate of return than small commercial customers or other customer types.

MEA General Manager Wayne Carmony, at the board's Monday meeting, asked Zoerb to estimate how much was spent in attorney fees on the effort to plead with the RCA to lower Chugach's rates across the board and return money paid to Chugach through the interim rate increase. Zoerb said when he had last estimated the amount spent earlier in the year, the total came to about $500,000 -- about half for expert witnesses and about half for attorney fees. Since that time, Zoerb said, an additional $50,000 to $75,000 has likely been added.

There was no discussion Monday about where the nearly $3 million refund would be spent. Pauley said MEA staff will be working on different scenarios, and will present them to the board at its December meeting, slated for Dec. 8.

A number of scenarios have been discussed, Pauley said, and at least two will likely be discussed at that meeting. One would allow the funds to be used as credit against future electric bills, Pauley said. Another scenario, he said, is that MEA staff could research each customer's account, and how much each customer overpaid during the two-year period the interim rates were in effect, and cut individual refund checks. Both scenarios have flaws -- the first wouldn't provide for a repayment method for customers who overpaid during the two years' time but are no longer MEA customers. The second scenario, Pauley said, is time- and labor-intensive. Pulling up each of MEA's more than 40,000 customer accounts, portioning out the payment to Chugach -- and the percentage of that which was overpaid -- and sending out refund checks is quite a process, Pauley said.

Board member Bill Folsom said he looked forward to seeing a new comparison of MEA and Chugach's rates, noting that the lower rates, coupled with MEA's efforts to reduce rates, will likely show a wider disparity between the two co-ops.

"Our efforts were to get our rates to where they were equitable with CEA and we accomplished that prior to this," Folsom said. "I hope to see another comparison … the deviation was close, now it should be spreading."