HEA seeks to recoup costs for Bradley Lake power transmission

Homer Electric Association is requesting a temporary 3.25 percent rate increase, effective in February, to recover what it says is a significant loss from transmitting power for other utilities. On Friday, HEA made its case for the rate raise with the Regulatory Commission of Alaska, the state’s supervising body for public utilities.

“HEA needs an additional $4 million in revenue,” said HEA Finance Director Emily Hutchinson to the Regulatory Commission on Friday. “That’s what we based the interim refundable rate increase on — getting 50 percent of that in January 2016.”

The 3.25 percent increase is meant to raise an additional $2 million for HEA, while a proposed permanent 1.8 permanent rate increase will recover the rest of the $4 million over a longer period of time. Hutchinson said the temporary rates will be refundable. In HEA’s original request filed in Oct. 2015, the temporary increase was to be effective Jan. 1, 2016, before the Regulatory Commission delayed hearing the request.

HEA’s filing for the rate increase states that “without immediate rate relief, HEA’s financial health will deteriorate to the point that it will be in default of its mortgage,” referring to mortgages on power plants it holds from the National Rural Utilities Cooperative Cooperation.

According to its Oct. 2015 filing, HEA takes a yearly loss of $1 million from transmitting power from the Bradley Lake Hydroelectric plant on behalf of Chugach Electric Company, Golden Valley Electric Association, Matanuska Electric Association, and Anchorage’s Municipal Light and Power.

The Bradley Lake Hydroelectric plant is in a remote area on the south side of Kachemak Bay. HEA has a 12 percent share of the power generated by the state-owned plant, but power owned by the other utilities using the plant travels north on HEA transmission lines. In their Oct. 30, 2015 filing with the Regulatory commission, HEA stated that “the amount of Bradley Lake power HEA transfers across its system for (other utilities) is roughly equal to the amount of power it transmits for itself,” and that this extra transmission was an unsustainable cost.

In its current proposal to the Regulatory Commission, HEA presented two ways of recovering this cost. The first, collection from the other utilities using transmission lines from Bradley Lake, it had originally proposed in Nov. 2013. Utilities using HEA’s transmission lines opposed this motion during earlier hearings as well as at Friday’s prefiling conference, stating in a Dec. 2013 protest to the Regulatory Commission that HEA “should not be allowed to benefit from the crisis it is unilaterally creating.”

In the Dec. 2013 protest document, the four utilities state that HEA’s transmission for them is a responsibility it incurred by signing the Bradley Lake Agreements, a series of contracts between the state and Bradley Lake users. The protest states that “as a signatory to the Bradley Lake Agreements, HEA is required to give (Bradley Lake) power priority status over the transmission line running from the Soldotna substation to the Quartz Creek substation” from which power is transmitted to Anchorage, Seward, and other locations. The Bradley Lake Agreements include a formula for calculating compensation to a transmitting utility, and the protest describes HEA’s proposal as an attempt to ignore that formula and “seek to charge a much higher rate based upon an entirely different rate formula.”

Furthermore, the protest stated that decisions about Bradley Lake power were subject to the terms of the Bradley Lake Agreement, putting them under Bradley Lake Project Management Committee, outside the Regulatory Commission’s authority.

The Regulatory Commission sided with the other utilities and rejected HEA’s proposal, which HEA then took to the Alaska Superior Court. When Judge Michael Corey rejected the proposal in May 2015, HEA appealed the decision once again to the Alaska Supreme Court, where the case is ongoing.

In its Oct. 2015 Regulatory Commission filing, HEA proposed an alternative to this disputed cost-recovery method: raising user fees to compensate for the money lost in transmitting power for other utilities. The filing noted that this alternative “reflects the current practical reality — that HEA has no ability to enforce its right to recover revenues from (other utilities), and instead all costs for such services are borne by HEA’s retail customers.”

In Friday’s prefiling hearing, the Regulatory Commissioners were reluctant to consider allowing revenue recovery from other utilities because doing so could conflict with the pending Supreme Court case, and would only be possible if the Supreme Court overturns Corey’s decision. The commissioners and representatives of other companies involved in the case — Chugach, Matanuska, Municipal Power and Light, and HEA customer Tesoro Alaska — tried to narrow the debate to the proposal that HEA collect from users.

HEA representatives said that while the possibility of collecting from other utilities should not be discounted, the more urgent question was establishing interim rates that would allow it to collect the additional revenue they said HEA needs during 2016.

“As the world is at this time, I don’t think it would be prudent to tell our members that they have to be responsible for other utilities’ service when that other question is still alive,” Hutchinson said. “… It is still alive because it has been appealed. I think it’s a decision that does not have to be made right now. The decision that has to be made right now is interim rates.”

 

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.

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