Frontiersman (Wasilla, Alaska) -- 2/11/03
MEA celebrates rate ruling as victory
By RINDI WHITE, Frontiersman reporter

MAT-SU - Matanuska Electric Association officials are claiming victory after the Regulatory Commission of Alaska handed down a decision in the recent tariff revision, requesud by MEA's wholesale power supplier, Chugach Electric Association.

"There were three major areas in this decision that we think are very positive, from the point of view of MEA ratepayers," MEA spokesman Mike Pauley said Friday. "We see this decision as really an immensely positive decision for MEA ratepayers."

When asked to comment about the matter, Arthur Miller, Chugach's manager of pricing said co-op officials are still analyzing the data.

"We are still in the process of evaluating the impact of the commission's order," Miller said. "We're not finished going through our own internal process of evaluating and quantifying the impact."

All in all, according to information in the commission's order, Chugach customers can expect lower rates in the future. According to information presented in December to the commission, Chugach requested a rate design that would bring in about $16 million in margins, or the amount left over after expenses are paid.

According to information from Pauley and MEA's chief financial officer Don Zoerb, the rate design approved by the commission will yield much less. According toMEA's figures,  Chugach's margins would be about $7 million, a difference of about $9 million.

That amount, according to information filed by Chugach with the Securities and Exchange Commission, is similar to Chugach's margin levels in the, past. In 2001, Chugach yielded $5.5 million in margins, a drop from 1999 and 2001, when the co-op yielded about $9.6 million.

In setting out an accepted rate design, the commission denied Chugach's proposal to incorporate a new rate structure, called a rate base/rate of return methodology, stating that the methodology was not appropriate for a cooperative.

"The rate of return for investor-owned utilities must be competitive with other investment opportunities so that the [investor-owned utilities] can attract capital from investors who have a choice about where to put their capital," the order states. "In contrast, cooperatives are nonprofit organizations that operate for the benefit of their members with the specific intent to keep rates as low as reasonably possible."

Along those lines, the commission ordered Chugach to use TIER, or times-interest earned ratio methodology and recalculated Chugach's request into a TIER format. According, to the commission, Chugach's rate request would have been at a TIER level of 1.47 - greater than Chugach's current TIER rate of 1.35. In the request, Chugach argued that the increase was necessary to give the co-op greater financial flexibility and, therefore it could return capital credits on a reasonable rotation schedule.

The commission did not agree, stating that Chugach's current level of financial flexibility has afforded them an excellent bond rating. They instead set an overall TIER of 1.30 for Chugach's retail customers, with a 1.10 TIER for wholesale customers.

"We set the TIER at a level we are confident will meet our statutory obligation to ensure debt service coverage and provide for Chugach's future financial health," the order states.

Zoerb said the TIER level is not only a significant decrease from what Chugach's previous rates were, the decrease is more significant in light of a successful plea by Chugach for interim rate relief.  In 2001, Zoerb explained, MEA's TIER rate as a wholesale Chugach customer was 1.15.  As part of the rate revision, Chugach filed a request for interim rate relief that raised MEA's TIER considerably, with the understanding that, if the rate relief request was deemed unnecessary, Chugach would be responsible for refunding the overcharge.

"What we are looking at is a reduction from 1.35 to 1.10," Zoerb explained.

Zoerb said he didn't yet know how much money Chugach would have to refund, or how the refund would play out for the average consumer.

"While it's too soon. to know exactly how much we're talking about," Pauley added, "It will be a significant chunk of change."

Zoerb pointed out that the commission's decision does not necessarily mean the check is in the proverbial mail. As Miller pointed out, Chugach is still assessing the order and deciding how to respond. The order requires Chugach to file a recalculated revenue requirement, cost-of service study and any necessary refunds by Feb. 20, implementing the commission's decisions. And the process may not end there.

Chugach, Zoerb said, now has several options. It can ask for a reconsideration of the decision by the full five-member commission - only three commissioners heard the case in November and December. An appeal could be filed in Superior Court, or it could choose to adopt the commission's full scope of recommendations.

In what Zoerb and Pauley agreed was a well-reasoned and carefully written decision, Pauley said it was gratifying to see strains of arguments and reasoning used both by MEA attorneys and expert witnesses MEA asked to testify in the many-faceted case.

He said he couldn't determine what the legal fees in the case had amounted to so far, but said he thought they were justified.

"Whatever the costs have been in legal fees and staff time," Pauley said, "It's very small, both in terms of refunded costs and costs we're going to avert, which stretches well into the future."