MEA looking to expand: Cooperative seeks to consolidate with Chugach's membership

MAT-SU -- Eight years after Matanuska Electric Association customers were asked to choose whether they wanted to remain under MEA's direction or be bought out by MEA power-supplier, Chugach Electric, the tables have turned.

MEA board members heard a pitch Monday by General Manager Wayne Carmony to bring the retail distribution customers of Chugach into MEA's fold. Although MEA officials stated numerous times throughout their presentation and the board's discussion of the matter that they are not proposing a takeover of Chugach, the end result, if MEA's proposal is successful, would mean the approximately 52,000 Chugach residential and small business customers would write their checks out to MEA while Chugach would continue as MEA's wholesale power supplier.

"[Chugach]'s ability to maintain an advantage in the wholesale marketplace would be currently unscathed," Carmony said, noting that the proposal seems to fit with restructuring plans Chugach has talked about in the past. "Their proposal is and has been that they would continue to enjoy that advantage, while opening the retail side to competition. They would continue to enjoy the benefits of wholesale contracts …"

Chugach spokesperson Patti Bogan said the restructuring Carmony mentioned seemed to be part of a two-year-old proposal to deregulate. That proposal, she said, has been abandoned.

"At this point, we're not pursuing anything like that," Bogan said. "That's not even an issue."

Bogan added that she was not able to say whether Chugach would be willing to narrow its scope to just a wholesale power supplier.

"That is a question for our board and also our membership," Bogan said. "They would vote on it and that would determine what Chugach would do."

But MEA hopes the decision can be made without a vote of the Chugach membership. In order to achieve its goal, MEA management proposed to proceed into what Carmony characterized as presently uncharted territory.

The best for all

"It is our proposal to request that the RCA [Regulatory Commission of Alaska] review the option of amending the Certificate of Public Convenience and Necessity for retail (distribution) service in the area served by Chugach," according to a memo Carmony wrote to MEA board members about the proposal. "The amendment would simply replace Chugach with MEA. We believe the RCA has the authority to make this modification and that it would place us in the best position to influence establishment of a 'level playing field' for all electric utilities as the industry in Alaska is restructured."

And MEA administration, according to MEA's director of governmental and strategic affairs Tuckerman Babcock's report to the board, believes the RCA will agree that MEA has developed a history of being able to provide electrical service with a minimum of overhead to its customers over the past eight years. That commitment was a lasting effect of Chugach's proposed takeover in 1994 at a time when, according to MEA information and ads at the time, Chugach's rates were about 17 percent less expensive than MEA's rates at the time.

"It looks like we are just doing a lot better job of providing distribution services than they are," Carmony said. "We think it's proper to ask the question of the commission, 'Would it be in the best interest of the two memberships to consolidate distribution to one company?'"

Carmony pointed out that MEA, which purchases power from Chugach and is responsible for the maintenance and operations of the lines serving its 32,000 customers -- approximately 13 customers per mile of service line -- does so at between 1/3 of a percent and 12 percent, depending on the level of usage, less cost than Chugach, who serves a smaller service area, has approximately 43 customers per mile of line and provides its own power.

"It should be impossible for MEA ['s retail rates] to be cheaper than Chugach," Carmony said.

MEA, times three

If the proposal were granted by the RCA, Carmony said it's difficult to tell what MEA's internal structure would look like, as that would likely be determined by the RCA. But if one were to make a guess, he said, MEA would end up with three times the customer base, approximately three times the amount of employees, and approximately three times the number of bargaining units. And, according to studies made during the proposed 1994 takeover, MEA could generate approximately $85 million more in revenue over the course of 10 years.

Although the two board members with the longest history with MEA, Bill Folsom and Jim Hermon, spoke strongly in favor of the move, all five present had some weighty questions for MEA administration.

Board member Michael Janecek asked whether CEA was aware of the plan and, if so, what they thought.

"They obviously think it's a good idea to put the businesses together," Carmony said, "but they probably don't think it's a good idea for MEA to manage it."

Carmony and Babcock both informed board members this would be another step in a history of conflict between MEA and Chugach that has grown since the two groups agreed on a wholesale power supply contract in 1989. The two are presently engaged in a lawsuit over the terms of the contract. But Carmony said if the matter proceeds through the RCA, that body will act as mediator for this proposal.

"The debate will not be between Chugach and MEA," Carmony said. "The debate will be between Chugach and the commission and MEA and the commission."

Why mess with

a good thing?

Janecek asked whether the utility was in a position where expansion was warranted. Carmony replied that his reasons for requesting a green light on the project involve protecting MEA members from a potential price hike.

" … There's an extreme potential -- both for Chugach to restructure their residential [service] … to where the wholesale customer would subsidize retail customers," Carmony said.

Carmony and Babcock both told directors Chugach had, in the recent round of public hearings regarding an extension of the time limit for RCA's operations, testified about a plan that may threaten MEA's ability to provide affordable rates.

MEA spokesman Mike Pauley said they were troubled to hear, during the public hearings, that Chugach was hoping to move out from under the commission's oversight. Pauley's understanding of an exchange between Rep. Jim Whitaker, R-Fairbanks, and Chugach General Manager Joe Griffith was that Chugach would be comfortable performing without RCA's oversight, both in setting retail and wholesale rates. Pauley said MEA is particularly concerned with how that applies to them as a wholesale customer.

"They would conduct a rate-case hearing exactly like RCA does now," Pauley said, except Chugach's board would ultimately make the final ruling. "As far as recourse, if [wholesale customers] don't like it, they can just go to court."

Bogan said her administration had a different perspective of the exchange between Whitaker and Griffith.

"As I understand, it was asked by Rep. Whitaker 'Was it possible that we could get out from under RCA?'" Bogan said. "[The response was], yes, it was permitted in law … but we haven't determined that it's in our member's best interest at this point. We believe that economic regulation is something that the board could do, but service regulation is something that RCA could continue to regulate."

At Monday's meeting, MEA directors debated the matter and eventually agreed more information was needed before they could make an informed decision on whether or not to proceed with the filing. They agreed to schedule a work session to discuss the matter more, and directed Carmony to have his staff proceed with putting the necessary paperwork together to file. A date was not set at the meeting for the work session.