On Oct. 30 Chugach Electric Association announced that it had closed its acquisition of Anchorage based Municipal Light & Power. As a consequence there is now one rather than two electric utilities serving residents and businesses in Anchorage. The concept behind the takeover is the minimization of the cost of electricity through economies of scale, the elimination of duplicated business functions and the optimum use of the most efficient power generation capacity. Chugach Electric is a member owned cooperative, regulated by the Regulatory Commission of Alaska.
Chugach Electric said that the combined operations for the consolidated utility would begin on Nov. 4, at which point erstwhile ML&P customers would be invited to become Chugach Electric members.
A complex deal
Although simple in principle, the specifics of achieving the deal proved extremely complicated, requiring years of negotiation and a very lengthy Regulatory Commission of Alaska review. In December 2017 then Anchorage Mayor Ethan Berkowitz proposed the sale of municipality-owned electric utility ML&P to Chugach Electric. In April 2018 Anchorage voters gave the municipality the authority to proceed with the sale. Subsequently the two utilities worked out the details of the deal, filed the proposed deal with the RCA and participated with other stakeholders in the RCA hearing.
On May 28 of this year the RCA issued its approval of the purchase, subject to some specific changes to the deal. Subsequently the utilities have been able to complete the utility consolidation.
An historic day
“This is a historic day, and I am grateful for the hard work and efforts of so many,” said Chugach Electric CEO Lee Thibert on Oct. 30. “We could not have done this without the support of the employees, our board of directors, the administration and Anchorage Assembly, and the citizens of Anchorage. This has truly been a community effort.”
During an Oct. 30 press conference Acting Anchorage Mayor Austin Quinn-Davidson reflected on the total transaction value of $986 million, characterizing this as the biggest deal in Anchorage history.
“After three and a half years of hard work, overwhelming approval by voters and a vigorous review by the Regulatory Commission of Alaska, it is an honor to be able to announce that the acquisition of ML&P by Chugach Electric is complete,” Quinn-Davidson said.
Benefits to the municipality
As a consequence of the deal several hundred million dollars will be deposited into the municipality’s trust account, as a means of generating future revenue. And $15 million from the deal will be dedicated to addiction treatment services in the municipality - Quinn-Davidson said that the municipality anticipates purchasing the Best Western hotel at the corner of 36th Avenue and the New Seward Highway in Anchorage, to convert the building into a treatment facility.
“For the past three years we as a board have been working hand in hand with our very hard working and dedicated management team on this acquisition,” said Bettina Chastain, Chugach Electric board chair. “We can make a real difference in the lives of the people in our community by having success in this transaction. I am really proud to be part of this historic time.”
Outgoing ML&P general manager Anna Henderson thanked the many people and organizations, including ML&P employees, Anchorage residents, Railbelt utilities and government agencies, that had all help to make the deal happen.
Characterizing the deal as retaining democratic control of the power supply services through customer membership of Chugach Electric, Bill Falsey, Anchorage municipal manager, said that closure of the deal is a signature moment for the municipality.
“This is one of the longest talked about, dreamed about, largest transactions in municipal history, with real benefits to ratepayers,” Falsey said.
Immediate benefits
Quinn-Davidson mentioned immediate rate reductions that ML&P customers will see as a consequence of a rate relief provision built into the deal.
“The efficiencies created today will provide immediate benefits in savings to people in a time of great need,” said Christopher Constant, Anchorage Assembly member for the downtown district.
Thibert said that a rate reduction mechanism included in the settlement of the deal should result in all Chugach Electric members seeing a reduction in the fuel cost component of their electricity bills at the beginning of 2021. On the other hand, the base rates for electricity will not immediately change, with a new rate case probably not being filed until 2023, Thibert said.
Chugach Electric has upheld a commitment to offer jobs to all existing ML&P employees.
Four major components
The deal has four major components: an upfront payment to close the purchase; payments in lieu of tax to the municipality over a period of 50 years, as compensation to the municipality for the loss of tax revenue from ML&P as a municipality-owned entity; a commitment to purchase electricity from the Eklutna hydroelectric power facility from the municipality for 35 years; and an agreement relating to benefits associated with ML&P’s part ownership of the Beluga River gas field in the Cook Inlet - both Chugach Electric and ML&P owned portions of the field.
RCA stipulations
In order to approve the deal, the RCA required three conditions that alter some of the provisions of the proposed deal. Firstly, the commission required a single rate structure for all ratepayers in the consolidated utility, rather than a separate rate structure for ratepayers in what had been the ML&P service area. Secondly, the commission required the use of a single cost of power adjustment associated with the use of gas from the Beluga River field. And thirdly, the commission required that Chugach Electric and Matanuska Electric Association form an agreement for the implementation of security constrained merit order dispatch across their service areas.
That third condition would enable Chugach Electric and MEA to minimize electricity costs through the continuous use of the most efficient available power generation across the region that the two utilities serve.
The parties to the deal agreed to the RCA’s conditions, hence enabling the deal to proceed to closure. Thibert commented that the RCA’s requirements had resulted in a deal that is better than the one originally presented to the commission.
“I think really, at the end of the day, the commission looked at the best interests of the member or the ratepayer, and we actually came up, I think, with a better agreement,” he said.
Thibert cited the implementation of a common rate structure for the entirety of Chugach Electric’s expanded service area, and the use of a common gas fuel price, to be particularly beneficial. He also said that Chugach Electric anticipates a ruling from the RCA next week regarding the proposed power pooling agreement with MEA.
“We will be working with them to complete that agreement and hopefully get it rolling within the next year,” Thibert said.
