AEL&P's rate increase could bring the company millions

Posted: Sunday, July 04, 2010

The New Lake Dorothy Hydroelectric Project came in millions of dollars over budget, perhaps even tens of millions of dollars, but should assure Juneau ample hydroelectric power for years to come.

Now, Alaska Electric Light & Power wants millions more from its ratepayers, and is trying to persuade the Regulatory Commission of Alaska that it deserves to collect an extra $15.8 million or more in additional revenue after finishing the project. The utility has said it only wants $12.6 million of that now and the rest can come later.

The RCA startled both AEL&P and members of the Juneau People's Power Project, a group opposed to the increase, by denying an interim rate increase request last month, at the same time raising questions about the merits of the increase.

The RCA also scheduled a hearing Tuesday for AEL&P to further explain its request.

"They've given us an opportunity to go back and provide them with some more information," said AEL&P President Tim McLeod, who said he was encouraged by RCA's acknowledgment that some increase is likely justified.

AEL&P's rate increase request is based on a somewhat complicated calculation of the amount of profit that the RCA believes AEL&P deserves to make on its own investments, and how much it deserves to make on money the utility borrowed to invest in the company.

AEL&P's conclusion, based on what is called a "revenue requirements study," is it should be allowed to collect $43 million from ratepayers. That's up from the $27 million it collected from firm-power customers in 2009. The company says it has a revenue "deficiency" of $16 million.

AEL&P said it will temporarily forgo collecting about $3.2 million of that so as to not impact consumers and businesses too much, too soon. It wants to collect an additional $6 million per year now, the company's RCA filings to support the rate increase show.

An additional $6.6 million will come from selling excess Lake Dorothy power to Greens Creek Mine.

AEL&P estimates that its rate increase, if approved, would bring in an additional $12.6 million compared to 2009.

The company estimates that will raise typical power users' bills 22.1 percent when the permanent increase is adopted. The rate customers pay for power, called "energy" and "demand" charges, would increase 24 percent, but the customer base charge will not change, reducing the overall impact of the rate increase.

The more power used, the closer to a 24 percent increase bills would be, while light users would wind up with a smaller increase. AEL&P said it based its calculations on an average customer usage of 750 kilowatt-hours per month.

The two different numbers have led to some confusion in Juneau as to the precise rate increase, and some have questioned the company's numbers.

"I've never averaged 750 kilowatt-hours per month and we follow conservation practices and are on 100 percent compact fluorescent light bulbs," said Cheryl Moralez of the Juneau People's Power Project.

Power bills in Juneau vary greatly, with about one-fifth of AEL&P customers using electricity for heat.

At Tuesday's hearing, AEL&P expects to have to defend the merits of the Lake Dorothy project to the RCA commissioners. A witness and topic list filed with the commission last week shows that company executives expect to have to justify their decision to go forward with the challenging project.

McLeod told the commission that was a good decision, and was made years ago to protect Juneau for the long run.

"AEL&P was on the verge of using all of its available hydro energy in an average water year, with a chance of needing significant amounts of diesel in a dry water year," he said.

Lake Dorothy was originally expected to cost $35 million, but when construction began in 2005 the price tag was estimated at $50 million. McLeod said it eventually cost $70 million, after a number of problems arose during construction, many of them related to the rugged terrain and remote location.

Among the questions the RCA will have to answer is whether the rates AEL&P is seeking are "just and reasonable," as mandated by state law.

That's something that RCA spokesperson Grace Salazar may take a year or more to determine, though the commission has promised an interim decision by mid-July.

"The RCA has a long-standing record of denying rates that are unjust and unreasonable, and approving only those that are just and reasonable to provide adequate and reliable utility service," Salazar said.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@

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