HEA scheduled to raise rates beginning Feb. 1

Rates paid by Homer Electric Association users will rise by 3.25 percent beginning Feb. 1. The Alaska Regulatory Commission, which permits rates charged by public utilities, allowed the rate raise on Friday.

HEA Manager of Regulatory Affairs John Draves said the temporary increase will be in effect until HEA can negotiate other ways of recovering costs — either with the permanent 1.8 percent rate increase that HEA is currently proposing to the Regulatory Commission, or by charging other utilities that transmit power over HEA lines.

Draves said HEA seeks a yearly revenue of approximately $99.6 million in order to fund maintenance, capital investments, and the mortgages it holds on its gas-fired generating plants in Soldotna and Nikiski.

“Like every other business, there’s general inflation that we have to contend with,” Draves said. “We just put the new assets in place for Nikiski and the new Soldotna plant. We’re beginning cost recovery … we’re taking depreciation for them. This is a recognition of the end of the build program, and now this is the steady state. Now we need to recoup the investment that we made.”

Another expense is the use of its transmission lines to move power from the state-owned Bradley Lake hydroelectric plant on behalf of the city of Anchorage and the Chugach, Golden Valley and Matanuska electric associations.

Draves said HEA is currently falling short of its $99.6 million revenue goal by approximately $4 million, which it seeks to make up through user rate increases or by charging the other Bradley Lake utilities for what HEA representatives have called uncompensated use of its transmission lines. Drake said about $2.9 million of HEA’s yearly transmission system costs came from use by the other Bradley Lake utilities.

An HEA request for compensation from the other companies was denied by the Regulatory Commission in 2014 and again upon appeal by the Alaska Superior Court. It is currently being appealed again to the Alaska Supreme Court.

Draves said if the Superior Court decision is overturned and HEA is able to collect $2.9 million from other Bradley Lake utilities, HEA would only have to extract $1.9 million from users in order to recover the revenue it seeks.

An electric cooperative originally buying electricity through a wholesale contract with the Anchorage-based Chugach Electric Association, HEA became a generating utility in 2013 with the construction of its Nikiski generating plant, along with a 12 percent share it owned of the energy produced at Bradley Lake. 

HEA owns the lines that carry power from Bradley Lake, though they were managed by Chugach Electric Association under lease from HEA. The lease expired in Jan. 2014, and HEA began managing the transmission lines at the same time it was creating its own generating capacity. In late 2013 it began seeking compensation from the other Bradley Lake utilities, which opposed HEA’s compensation request and continue to do so.

A 2013 document filed by the four other Bradley Lake utilities in opposition to HEA states that Chugach spent $300,000 per year operating the transmission lines from Bradley Lake during their management contract. Draves said he didn’t know precisely how much HEA spends on transmission from Bradley, but said Chugach’s operating costs for the transmission lines — which he said were cited near the end of Chugach’s lease — were not comparable to the $2.9 million HEA wants to recover for use of the line by other utilities.

“If you leased a car, with 6 months left on the lease, do you think you’d still be doing as much maintenance as if you owned it and still had 5 years to go?” Draves said. “The expenses at the end we suspect may have been understated relative to what would have been the norm.”

When asked about the source of the extra expense associated with transmitting power for the other Bradley Lake utilities, Draves said it arose from the connectedness of electrical transmission lines.

“The transmission network is essentially an integrated machine,” Draves said. “The Bradley utilities are essentially utilizing the entire HEA system, and the entire HEA system is needed to support that movement of power from Bradley Lake.”

 Ben Boettger is a reporter at the peninsula Clarion. He can be reached at ben.boettger@peninsulaclarion.com.