Valley’s MEA trying to buy Anchorage ML&P

PALMER — Matanuska Electric Association has made an offer to buy Anchorage’s Municipal Light and Power.

It would be a good fit that could create efficiencies, MEA general manager Tony Izzo said in a Dec. 7 letter to Anchorage Mayor Ethan Berkowitz.

“This is not a formal proposal. It’s just meant to get our foot in the door in case the Municipality of Anchorage decides to make a change,” Izzo said in an interview.

Anchorage’s assembly is considering the future of the city-owned utility and MEA was invited to participate in the discussion, Izzo said. There had been no formal solicitation of prospective buyers from Anchorage, but “MEA has decided to proactively communicate our interest to you,” Izzo said in his letter to Berkowitz.

Kristin DeSmith, a spokeswoman for Berkowitz, said that mayor had received MEA’s letter and will be responding to it shortly.

Izzo said MEA would have no difficulty in financing the acquisition if Anchorage is interested in selling and MEA’s board likes the idea. ML&P has a customer base and its own gas supply, which are attractions.

The Anchorage utility also has a solid base of commercial customers in midtown and downtown parts of the city, and a service area that is compact, with a density of customers that MEA lacks with its large service area.

MEA’s financial condition is improving, meanwhile. The co-op has completed construction of its $330 million Eklutna power plant, which is now operating, Izzo said. A new five-year gas supply contract with Hilcorp Energy will start in April, 2018 with a 7 percent decline in the gas price, he said. The co-op’s board has also approved a 2 percent rate decrease that will be effective Jan. 2.

In his letter, Izzo cited other reasons why an Anchorage and MEA combination would be good, including that the two utilities share a border and some assets, and that 22 percent of MEA’s customers in Eagle River, or 14,983, live in the Anchorage municipality.

“To put this number in context, this is almost half of ML&P’s approximate total of 31,000 meters,” Izzo said in his letter to Berkowitz. MEA is also the only electric utility in the state that is seeing growth, which gives it financial strength.

“In addition, MEA’s new Eklutna Power Generation Station power plant provides an excellent complement to ML&P’s power generation suite with our 10 reciprocating engines that can provide small increments of power to optimize (ML&P) Plant 2A’s efficient base load power,” Izzo wrote.

The ten engines give MEA a lot of operational flexibility, allowing the utility to efficiently and quickly bring on and lay down engines to follow swings in daily power demand. “We are always in our sweet spot,” in terms of operations, Izzo said in the interview.

“Potentially most important is MEA’s internal expertise along with the proven efficiency of our operations. Current metrics reflect that MEA has double the miles of line and serves a less dense service territory with far fewer employees than our peers. For example, recent reported data indicated MEA has one employee for every 344 meters. Chugach (Electric Association) has one employee for every 275 meters, and ML&P with one employee for every 140 meters,” Izzo wrote.

The interest in ML&P by Anchorage assembly grows out of a recommendation by Anchorage Economic Development Corp. for a working group to consider a merger to consolidating the city utility and Chugach to achieve efficiencies by operating in one geographic area.

Bill Popp, AEDC’s president, said the MEA proposal, if it firms up, seems counter to that since it would leave two different operating entities serving the Anchorage bowl. Izzo pointed out that a substantial part of Anchorage is already served by MEA, referring to the Eagle River, Birchwood, Chugiak and Eklutna areas.

MEA is the state’s oldest electric cooperative. It was formed in the late 1930s by settlers in the original Matanuska Colony in Palmer and began producing power in 1941. In 1950 MEA’s services were extended to the Chugiak and Birchwood areas north of Anchorage. In 1952 an agreement to purchase wholesale power from Chugach Electric Association was signed and service was also extended to Eagle River. Expansions followed, to Talkeetna in 1963 and Big Lake in 1965.

In 2012, MEA ended its wholesale power purchases from Chugach and developed its own power generation from the new Eklutna power station, which is now operating. Today MEA maintains 4,000 miles of power distribution lines and serves 58,000 members.

ML&P has a long history, too. The city-owned utility was formed in 1932 after it purchased the small, privately-owned Alaska Power & Light Co. that previously served the small city. The utility purchased hydroelectric facilities at Eklutna from the federal government in 1943 and a larger Eklutna hydro plant in 1955.

In 1996 ML&P purchased a third of the Beluga gas field from Shell, which was selling it, and in 2013 joined Chugach Electric in building the new, large Southcentral Power Plant. The utility also built its new Plant 2A.

The notion of combining some of Alaska’s regional electric utilities to achieve efficiencies has been around for a long time. There are six along the state’s “railbelt” Interior-Southcentral corridor, and all are very small by national standards. They were formed decades ago when the communities they served, like Palmer and the early city of Anchorage, were small and geographically isolated.

Now communities, and the utilities, have grown, but various attempts at mergers over the years have been foiled by community leaders reluctant to give up local control.

A more recent idea is the sharing of facilities by regional utilities, the prime example being the Chugach Electric and ML&P joint-venture to build the large Southcentral Power Plant. A more advanced idea of forming a joint-venture company to upgrade regional power transmission systems is making progress at a glacial pace, slowed mainly by differing local priorities among the utilities.

The state’s Regulatory Commission of Alaska has ordered the utilities to develop a plan to work together but that has not yet happened.