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AEL&P officials discuss rate increase

Posted: June 30, 2011 - 10:42pm  |  Updated: July 1, 2011 - 7:07am
Connie Hulbert, Secretary-Treasurer for AEL&P, speaks to the Juneau Chamber of Commerce during their luncheon at the Moose Lodge as Eric Eriksen, Vice President of Transmission and Distribution, center, and Scott Willis, Vice President of Generation, look on Thursday.   Michael Penn
Michael Penn
Connie Hulbert, Secretary-Treasurer for AEL&P, speaks to the Juneau Chamber of Commerce during their luncheon at the Moose Lodge as Eric Eriksen, Vice President of Transmission and Distribution, center, and Scott Willis, Vice President of Generation, look on Thursday.

The Regulatory Commission of Alaska could be delivering a decision on Alaska Electric Light & Power’s requested permanent rate increase mid-summer. As all or part of a 22-percent increase on energy charge components may well be approved, utility officials clarified some of the reasoning behind such raises to the businesses of the Juneau Chamber of Commerce.

“Like everyone else, we’re not immune to rate increases,” said AEL&P President and General Manager Tim McLeod as he and others explained that this is simply part of the power business here as much as any state.

He said that corporate goals — of being the lowest-cost provider in the state — remain. He said the company is also committed to providing reliable and safe power from renewable resources and utilizing electric resources efficiently, and this is part of that process.

Vice President and Generation Engineer Scott Willis said this request is necessary to recover increasing costs from operating expenses plus investment costs already incurred, in this case that means the first phase of the Lake Dorothy project. He said the idea is an electric utility only recovers actual costs through this process, not to mark up extra for profit.

“What we’re getting is return on the net plant that has been funded by equity over time,” he said, adding, “The only profit we get is on company money we’ve invested in the system.”

He said anytime a company prepares a rate increase request, there will be a component for profit and AEL&P primarily uses its profits for new plants or replacement of old plants.

On that note, Willis gave a preview of a coming phase of infrastructure. He said AEL&P is starting work on a new backup diesel generator the utility hopes to bring about in around three or four years. Willis said this addition might also bring a smaller rate increase.

He and McLeod said such backups are especially important in Juneau since, unlike most utilities in the Lower 48, this one is not connected to a grid.

“We have to have enough power so that every time we turn on the light switch, we’re sure the power comes on,” Willis said.

Willis and AEL&P Secretary-Treasurer Connie Hulbert added co-ops or municipalities also have to collect the same thing, only calling it margins or times interest earned instead of profits. They said all utilities try to bring in more money than they spend in order to invest in plants to keep operations running, as well as money to plan for the unexpected.

Hulbert said the rates are set to recover costs for providing electricity to communities through formulas that every regulated utility follows. She said the utility is allowed to recover such infrastructure costs, but the process for calculating that recovery is a complicated one.

“In Alaska, if you’re requesting a rate increase, you must calculate how much revenue requirements will be by the time these rates are in effect,” she said.

One key factor in such infrastructure planning is time. Willis said forecasts and planning must be done a long time — even 10 or more years — in advance and must take into account patterns of energy use and efficiency factors.

Hulbert also explained because the utility asks for rate increases infrequently, they also showed how things have gone up in Juneau over the last 15 years.

Using 2010 as an example of planning for costs, AEL&P had a net income of $4.2 million that year while investing $5.8 million in capital infrastructure. Willis said the average for next seven years is $6.8 million per year in capital expenditures.

Hulbert said it’s important to note this increase is for the general rate only and not for special contracts like Greens Creek and Princess.

“When we filed for our most recent increase, our special contract had already doubled rates for Green Creek and were in process of doubling to Princess,” she said.

She said those special contracts were also were tied to having Lake Dorothy come online.

Several business representatives present said they support the increase, as the utility remains one of the lower ones in the state. Hulbert produced a graph showing AEL&P as third lowest out of nine regulated Alaska utilities.

Hulbert also spoke to AEL&P’s standing as a monopoly, saying, “Utilities are different in that, as a monopoly, it makes sense to have one business to build that infrastructure than multiple companies putting in expensive generators. But there are certain rights and obligations.”

“The biggest difference is that most businesses can choose whether or not to expand but, as a utility, we’re obligated to meet all demand in that area,” she said.

Willis said while alternative suggestions, like wind power, biomass, tidal current and landfill methane have come up, Juneau’s resources do not support these projects for adequate generation.

Willis said the best plan for Juneau at this time with current technology is a combination of hydroelectricity for baseline generation and diesel for backup generation, with at least 98 percent coming from hydro each year.

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

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