MEA reduces rates

MAT-SU -- Matanuska Electric Association recently unanimously approved a one-percent rate decrease and, pending approval by the Regulatory Commission of Alaska, the decrease will mark the seventh in as many quarters.

Don Zoerb, MEA's director of administration, discussed what led to the decrease proposal with the board.

"We came on strongly in fourth-quarter '01 and first-quarter '02 in terms of sales," Zoerb said. "In fact, our level of achievement has passed through the threshold …"

Zoerb explained that the proposed decrease had not been scheduled into MEA's budget, but unexpected revenue and stable operating expenses made it necessary to reduce rates.

Under Alaska Administrative Code, a cooperative can adjust rates to stay on track with its target TIER, or times interest earned ratio, a formula that helps co-ops determine fair rates. In 1999, MEA adopted an equity management plan that set the TIER at 2.00, a ratio that allowed the co-op to operate with stability while providing for annual capital credit retirements and reasonable rates. MEA's TIER is currently at 2.11, just over five percent above the target ratio. Administrative Code directs cooperatives to maintain TIERs within five percent of their target ratio, so the decrease will help MEA operate within state directives.

"We have to file [rate filings] every quarter," MEA spokesman Mike Pauley said. "If we were to file without a rate reduction, it would probably be rejected."

The decrease, Pauley said, was largely due to an uncontrollable factor -- Alaska's weather.

"The temperature, specifically, has a huge, huge impact on the revenue that comes in," Pauley said. "Unfortunately, that's probably the largest variable that we can't predict. What you can't plan for is whether the average temperature in December is going to be 25 degrees or if it's going to be zero."

He added that there is a second factor that comes into play when considering the jump in revenue over the past two quarters.

"It's a combination, both of the cold weather and our efforts at helping keep expenses under control," Pauley said. "We've had two quarters of strong sales because of cold, dark weather, but what we didn't have was storm damage."

Pauley explained that MEA's aggressive right-of-way clearing stance has decreased the amount of calls they get in bad weather from lines downed by fallen trees. That means fewer service calls -- calls Pauley joked inevitably occur during the middle of the night or on weekends, when workers are paid more to fix the outage.

The increased efficiency is evidenced by lower TIER numbers as well. In 1993, MEA set its TIER rate at 2.20. When a cost of service study was performed in 1995, the results showed MEA could operate at a lower TIER rate so, over the next three years, the co-op reduced rates to fall in line with the 2.00 TIER.

It hasn't always showed up as a decrease on member bills, Pauley said, because Chugach Electric Association, MEA's energy provider has raised rates in the past, offsetting MEA's reductions. But if this decrease goes into effect, Pauley said, bills may actually reflect the drop, as CEA recently announced plans to lower fuel surcharge costs, thereby decreasing their portion of member bills as well.

The one-percent decrease, according to Zoerb's calculations, will reduce MEA's 2002 budget by $226,000. But MEA general manager Wayne Carmony said the decrease is just one of 13 instituted since 1996, a practice that he said has saved customers a significant amount.

"MEA's continued rate decreases since May 1996 will result in MEA members saving more than $4.5 million this year, compared to what they would pay if the board had simply kept rates flat since," Carmony said in a press release issued after Monday's meeting. "I cannot overstate the contribution of MEA's employees in making it possible for us to pass along rate decreases in each of the past seven quarters. The co-op's employees should be commended for doing such a great job for our members."