Utility asks to pay refunds after all

To pay or not to pay? That seems to be the question Chugach Electric Association officials are grappling with lately.

On April 29, CEA filed a motion asking Anchorage Superior Court Judge Sen Tan to put on hold an order by the Regulatory Commission of Alaska requiring the utility to lower its rates and refund millions of dollars in overpaid costs to Matanuska Electric Association, two other Railbelt utilities and customers in its retail, small commercial class. Tan approved the stay on July 21, but CEA countered their own request with a motion to dissolve the stay and allow them to refund the money immediately.

"We decided to ask for it to be dissolved so we can go ahead and raise rates and release the funds," CEA Public Relations Manager Patti Bogan said.

Releasing the funds -- funds owed to MEA and others -- could mean MEA customers see a significant drop in their monthly bills -- by four to five percent, MEA spokesman Mike Pauley said Friday.

The RCA order states that two things must happen -- the rates for CEA's wholesale customers must be reduced and the money charged over what the commission considered just and reasonable must be returned to those wholesale customers and to its small, commercial-class retail customers, with interest. CEA may raise the rates of retail customers to help offset the costs, according to the order, but the two matters go hand in hand. When CEA asked the court to stay that order, the end result was that they didn't have to reduce rates and refund the overage, but they also couldn't raise rates to pay for the future refunds. Bogan said Chugach weighed the options and reconsidered the importance of raising more money.

"Chugach has a strong need to maximize additional revenues, which can be accomplished immediately and certainly by dissolving the stay and implementing retail rate increases immediately," CEA's motion to dissolve states.

Bogan said CEA has about $4.4 million set aside in an escrow account for refunds. They've set that money aside, she said, by reducing revenue, placing money that would otherwise go to margins into the escrow account. Although she said they won't know how much money they must pay until ordered to do so by the court, raising the rates of other retail customers -- those whose rate increases are not contested in court -- will help pay the refunds.

Bogan said residential CEA customers are likely to see their rates go up by about 1.4 percent, while large commercial customers' rates will increase by about 0.6 percent. Small commercial customers' rates will drop by about 8.9 percent, Bogan said, and wholesale customers' rates will also be reduced. Bogan said she wasn't sure how much MEA's rates would be reduced, but Pauley said the order requires their rates be reduced by 12.44 percent.

Bogan said although CEA had decided to move forward with the refunds and rate reductions, it's not prepared to drop their challenge of the RCA's order entirely. Part of that order, she said, leads to what CEA sees as an inequity between payments made by retail and wholesale customers. When the refund and rate reduction matter is decided, CEA plans to launch appeals addressing those inequities.

"What we're saying is, we now have unequal classes of customers," Bogan said. "When we continue to appeal, we're doing so for the rest of our retail customers, too, because we feel there should be more equality between all of the customer classes."

Pauley said, it appears CEA may have to refund more than $3 million to MEA. What's more, he said, the rate reduction could save MEA about $2.7 million a year. While the rate reduction is a mostly solid number, Pauley said, the refunded amount may change.

"There are a number of technical but still significant issues that have to be resolved first, such as the interest rate that will apply to the refund that is owed to MEA and other wholesale customers," Pauley said in a press release issued after CEA requested to pay the refund. "But we are much closer to seeing lower wholesale power costs, and we look forward to passing those savings on to our members."

The lower rates and refund may be seen as early as the end of the year or early next year, Pauley estimated Friday. It's likely to take that long for the court to reach a point of decision, he said.

In an order issued Oct. 9, Tan indicated he had been moving forward on determining things such as the interest rate and other escrow-related actions CEA should take when he received CEA's motion to dissolve. The escrow actions and CEA's recent motion, he said, are too interrelated to make a decision on one without the other, so he plans to consider them together and have a decision by the end of October. Oral arguments on the decision are scheduled for Nov. 7. If Tan issues an order by late November or early December, CEA could pay the money by late December, assuming Tan's order isn't challenged. But if all parties are in agreement that the money should be paid back, Pauley said, the process may move quickly.

"It looks like all participants have a motive to get this thing resolved as expeditiously as possible," Pauley said.

Pauley said MEA doesn't yet know what to do with the potential windfall coming their way. There are different ways MEA could use the money, he said -- they could do a refund, a capital credits retirement or use the money for system improvements, for example.

It's a decision that will most likely be made by the board, Pauley said, and, depending on the proposed use, may have to be approved by the RCA as well.

"The thing that we will ensure is that the money is allocated in a way that will benefit our membership," Pauley said. s"There are several ways that could be done."