AEL&P should use its own savings

Posted: Wednesday, May 14, 2008

Alaska Electric Light & Power Co. is unique among Alaska utilities in that it is a privately owned, for-profit business.

In normal years, the owners of AEL&P will earn a hefty profit. In 2007, AEL&P reported $5.8 million in net income on its annual report (you can find this on the Regulatory Commission of Alaska Web site). Normally, a for-profit business has a right to those profits because it has put up equity capital that is at risk. AEL&P appears to think it has a right to a riskless profit.

It is clear that AEL&P has more than enough equity to cover the entire temporary rate hike without passing on the pain to Juneau customers. On this same annual report, AEL&P reported total book assets of $200 million-plus compared to total debts of approximately $140 million, leaving equity capital of $60 million-plus as of year-end 2007. Furthermore, this equity is probably vastly understated, since the assets do not appear to have been adjusted for the increase in real estate value or the cost of materials (e.g. copper) since projects were put on the books, in some cases decades ago.

When a "normal" for-profit business takes a bad risk like the one made by AEL&P of not securing or insuring its transmission lines, the equity capital is there to take the hit.

Essentially, AEL&P rolled the dice by self-insuring and lost. This loss should come out of the savings (equity) of AEL&P and not the equity (savings) of rate payers. If there is not enough equity, the company should raise new capital by issuing stock or file for bankruptcy (in a bankruptcy, AEL&P shareholders, not rate payers would be harmed).

AEL&P has no problem asking Juneau businesses and residents to break into our savings to pay its gambling debts, but it is unwilling to do the same.

AEL&P should do the right thing and pay for the mess it created by using the equity it has accumulated over the years and not ask the citizens of Juneau to bear the brunt of its mistakes.

Bill Bishop


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