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AEL&P rate hearings begin

Posted: May 9, 2011 - 9:24pm

The hearings to determine what, if any, rate increase Alaska Electric Light & Power is entitled to began Monday with opening statements before the Regulatory Commission of Alaska. Three sides were represented: AEL&P, the attorney general’s office and Juneau People’s Power Project.

AEL&P attorney Dean Thompson opened with a description of AEL&P’s requested permanent rate increase of 22 percent for energy charge components, which would be about a 3.33 percent increase over the current interim rate. AEL&P’s request is for an across-the-board raise in energy and demand charges.

Thompson said the increase request stems from rising costs while firm electric sales have stayed relatively constant. He said costs have risen even without the Lake Dorothy hydroelectric project. He said the first phase of this project in August 2009 did introduce new costs, but only affects a small amount of the rate increase.

He added that rate recovery from costs is important to further state and federal goals to encourage renewable energy supplies.

Furthermore, he said the proposed increase is largely because the company’s rates were relatively low beforehand when compared to other utilities. He said this is predominantly due to AEL&P’s use of hydropower.

Thompson pointed out the main disputes will include Lake Dorothy, allowance for funds used during construction (AFUDC), return of equity and reasonability of including Lake Dorothy in the rates. He said AEL&P’s proposal will recover a year’s worth of Lake Dorothy’s costs while the attorney general’s lower increase proposal would only recover five months worth of those costs each year.

Thompson also challenged the attorney general’s proposal for a rate redesign if a rate increase exceeds 5 percent, saying the attorney general’s proposal is inconsistent and unreasonable.

Thompson also commented on JPPP’s stance, saying it will argue that Lake Dorothy is not useful and its costs exceeded its original estimate.

Senior Assistant Attorney General Steven DeVries said the requested raise is unreasonable and represents a windfall for the utility. He said the evidence will show Lake Dorothy plays a much bigger role in the proposed rate increase than AEL&P indicated. He added AEL&P is attempting to piggyback on prior RCA orders and is not asking to use a year-end rate base in this case.

He cited a number of precedent orders to his case, saying this could lead to the company using ad hoc rule-making.

DeVries said RCA must focus on what each expert says and examine witness’ credibility this week, as each party has its own motivation. He said AEL&P’s motivation as a company is to its shareholders and not the ratepayers. He commented this is not wrong for a company, only that it is a factor in the request.

Randy Sutak of JPPP agreed in his opening and said the evidence will show the majority of the increase is to pay for the Lake Dorothy project. He also agreed that the credibility of the witnesses is crucial.

He said there needs to be accountability for when labor or capital is used and there should be a reasonable rate of return. He also said the evidence will show discrepancies in Lake Dorothy and that ratepayers are being asked to pay for that.

The latter part of the hearing was used to start calling on the witnesses. David Gray, a consultant with CH2M Hill, gave his opinion over the telephone. This consisted a lot of discussing the variance for rate classes. He said it was his judgment that a 10 percent variance is more appropriate than 5 percent in allowing latitude for research and considering other factors.

He said the point of a 20 percent rate increase is to not make any single rate class pay more than anybody else unless there are other compelling reasons to do so. He said an across-the-board increase would reduce customer confusion, especially with such a large increase.

The next witness was AEL&P’s Vice President of Generation Scott Willis. He denied Sutak’s indication that there have been energy excesses. He said the company makes projections on surplus, then sells that surplus to interruptible customers.

He said that hydro programs also cost more initially to build but are cheaper to run because of the free water resource. He also said the company has had to supplement hydropower with diesel during years of less rain.

In his opening, Thompson said AEL&P’s last rate increase was filed in 2005, resulting in 4.41 percent increase. There was a 3.65 percent increase in 2000.

The hearings are expected to continue throughout the week at the City and Borough of Juneau Assembly Chambers.

• Contact reporter Jonathan Grass at 523-2276 or at jonathan.grass@juneauempire.com.

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