HEA answers questions about its proposal to withdraw from RCA

Homer Electric Association officials, including board members, have been holding member outreach meetings on the Kenai Peninsula seeking support for what it calls “local control” — removing HEA from regulation by the Regulatory Commission of Alaska. But HEA also wants members to make an informed decision, said general manager Brad Janorschke.

“I think it’s more important we have dialogue and ask questions,” he said at a Homer meeting held Sept. 28.

This month, ballots started going out to HEA’s 22,892 members with a simple yes-no question: Shall Homer Electric Association Inc. be exempt from regulation by the Regulatory Commission of Alaska?

A “yes” vote means a member supports deregulation or what HEA calls local control. A “no” vote means a member wants to keep the current system of regulation by the RCA.

HEA mailed out the first ballots of its deregulation election on Oct. 5. It has hosted public meetings on the question, in Homer on Sept. 28 and at the Kenai Visitor Center on Sept. 29. Ballots are mailed alongside members’ bills, and are due 30 days after being received. The last ballots will be mailed Oct. 28.

If HEA withdraws from RCA oversight, its elected nine-member board will be able to make metering, billing and budgetary decisions without the approval of the five regulatory commissioners, appointed by the governor to oversee utility practices statewide. The RCA will finish collecting ballots in HEA’s deregulation election on Nov. 27 and the results will be announced in December 2016.

At least 15 percent of HEA’s membership must participate for the election to be official, with a simple majority of that number voting yes to make deregulation happen.

In the meantime, HEA has distributed pro-deregulation material in its monthly newsletter, the Kilowatt Courier, and HEA officials including Janorschke have made public appearances promoting it. Janorschke has said regulatory expenses cost HEA about $340,000 a year, which is distributed among members as a charge equal to about $4.55 annually for the average HEA customer.

Others have opposed HEA’s withdraw from the RCA, such as RCA chairman Robert Pickettt, who spoke at the Homer and Kenai meetings. One of the many questions in the ongoing debate is terminology: Pickettt used the term “deregulation,” while Janorschke and other HEA officials call the vote a decision on “local control,” stating that HEA’s charges will still be regulated, though by its board rather than the RCA.

In Homer, Pickett explained how the RCA works.

“The short answer is we’re like the cops on the beat. We have enforcement powers other entities don’t,” he said.

Pickett said he supported deregulation of the Matanuska Telephone Association because consumers can make choices among telecommunications providers. That’s not the case with a single public utility like HEA.

Deregulation is about the future and not about the board members have now, but the board they will have 10 years or more from now, Pickett said.

“Regulation is a proxy to competition,” he said. “This is a fairly serous decision. Reregulating is a fairly steep hill.”

If HEA is deregulated and members or the board later decide they want reregulating, another vote can be held in two years. The HEA board of directors can call for a new election. Alternately, members can call for a new election by petition. The statute also sets out the threshold for signatures — about 5,500 for the size of HEA’s membership.

Even if HEA was deregulated and consumers couldn’t take complaints to the RCA, members could still take issues to the board, Janorschke said. Three of the nine board seats stand for election annually.

Homer resident Mike O’Meara, founder of the HEA Members Forum, pointed out an error in a slide Janorschke showed comparing the process for decisions. The only difference was that RCA is out of the decision flow, Janorschke said.

A step was left out, O’Meara said.

“I don’t see Superior Court indicated there in the process,” O’Meara said.

O’Meara said the RCA acts as an intermediate source of appeal between HEA board decisions and the Superior Court.

Alaska statutes allow RCA-regulated utilities and cooperatives to withdraw from its oversight with a majority vote of their members or subscribers. According to the September 2016 issue of the Kilowatt Courier, 56 percent of Alaska’s 129 electrical utilities are unregulated by the RCA. According to the Regulatory Commission’s website, there have been 75 deregulation elections held by electrical, communications, and sanitation companies and cooperatives since 1975, 47 of them successful. Utilities that earn less than $500,000 per year are automatically exempt from RCA regulation.

Business owner Jon Faulkner spoke against those numbers at the Homer meeting. He said while the number of deregulated utilities might be high, the number of consumers affected is low. Utilities in Anchorage, Fairbanks and Juneau remain regulated, about 70 percent of the Alaska population.

“It’s uncommon to be unregulated if you’re a human being,” Faulkner said.

Janorschke cited the Kodiak Electric Association (KEA) as an example in which deregulation helped a utility achieve a goal, namely renewable energy construction. KEA’s members voted to deregulate in 2004, after two unsuccessful attempts in 1991 and 1994. Following deregulation, KEA has created a 100 percent renewable power grid, and Janorschke said Kodiak’s manager had recently told him deregulation was — in Janorschke’s words — the “most important strategic milestone” in achieving that goal in a timely manner.

HEA is also pursuing renewable power projects, including a prospective small-scale hydroelectric facility at Moose Pass’s Grant Lake and a landfill gas installation planned with the Kenai Peninsula Borough.

Unlike Kodiak, the Kenai Peninsula is not an island, and HEA’s infrastructure is not an isolated grid. Rather, it belongs to the 500-mile long region known as the Railbelt, which stretches from Homer to Fairbanks and is served by five electric utilities with interconnected transmission lines.

Pickett said that HEA’s deregulation would make it both the largest cooperative to deregulate in Alaska, as well as the only deregulated electric utility in the Railbelt.

Janorschke said two other Railbelt utilities, which he declined to name, were also considering deregulating if the results of HEA’s election are favorable.

Kate Blair, government and public affairs manager for Tesoro Corporation — whose Nikiski petroleum refinery is one of HEA’s industrial power consumers and has in the past made arguments in HEA rate cases before the RCA — said she was concerned with the fact that HEA’s withdrawal from RCA regulation would leave the Alaska Superior Court as the only recourse in disputes between the HEA board and members.

“Tesoro has used the RCA as a mediator before in rate cases, and it’s very nice to have that checks and balances system between the rate HEA has set and the rate Tesoro thinks is fair,” Blair said at the Kenai meeting. “Our fear as a commercial customer is that without that oversight process, then we could appeal to the (HEA) board, but ultimately those decisions would have to go through potentially a very costly and lengthy superior court case. So Tesoro’s position on this is that we will be voting no.”

In Homer, several HEA members also spoke out against deregulation.

“I’m against the removal of the RCA,” said Melanie Meeker, who owns several rental properties in Homer. She said she would rather pay a 37-cents a month regulatory cost than a $20 dollar a month rate increase.

At the Homer meeting, Janorschke side-stepped the effect on electric bills if HEA is deregulated. “It will reduce our costs, but a lot of the bill is driven by fuels and purchase power,” he said.

He asked members to consider the issue more as one about local control.

Attorney Rick Baldwin, who has served as a counsel for the HEA board for about 35 years, said he could think of two times when customers had brought complaints against HEA before the RCA. Janorschke, who has been with HEA since 2004, said that in his career he’d seen only one dispute where a non-industrial customer went to court. The issue was right-of-way clearing, rather than pricing, he said.

Later in a question and answer session, Nikiski resident Ben Carpenter asked about the cost of superior court litigation versus RCA dispute.

“Do we expect that solving our problems through the Superior Court only — with no RCA involvement — is going to be more or less expensive than it is to use the RCA to solve our problems?” Carpenter asked.

Baldwin answered speculatively.

“I would say that the difference would be negligible between the two, whether it’s resolved before the RCA or litigated before the Superior Court,” he said.

Ben Boettger is a reporter for the Peninsula Clarion. Michael Armstrong, a reporter for the Homer News, contributed to this story.