By BOB MAIER
Filed on April 1, 2019 with the Regulatory Commission of Alaska, Chugach Electric’s application to purchase Municipal Light & Power remains unresolved after one full year.
Extending their decision deadline until May 28, 2020, the issues remaining for further study have centered on the agreed-upon purchase price for ML&P of $1 billion.
ML&P has a net book value of $715 million.
That $285 million difference is what is known as an “acquisition premium.”
Alaska State Statute 42.05.441(b) denies the RCA from allowing the recovery of an ‘acquisition premium’ in a purchase price unless specific criteria are met. With Chugach Electric seeking recovery of all transaction costs including that acquisition premium, by use of future rates, another issue arises.
On the April 03, 2018, Anchorage Municipal Ballot Proposition 10 proposing the sale of ML&P to Chugach Electric passed by a 65% to 35% margin. Stated in that ballot language was “No Increase in Base Rates.”
Chugach Electric’s website ‘Power Anchorage’ further states “Chugach has affirmed, and it was part of the ballot language, that base rates will not increase as a result of the transaction.”
Now two years after that election, discussions center whether the average voter understood what a “Base Rate” actually is.
Did the average voter interpret this ballot language to mean no rate increases at all due to the sale? Those 65% voting ‘yes’ will be surprised what their electric bill will look like if this billion-dollar sale is completed. Factoring in that price tag, the cost savings advertised to ratepayers of combining ML&P and Chugach appear to evaporate.
Another concern of the sale of ML&P is the effect on the Anchorage Water and Wastewater Utility ratepayers. Title 42 of Alaska State Statute identifies the reason that AWWU is a regulated Utility. If ML&P is sold, the Anchorage Assembly becomes the rate making authority for AWWU, replacing the RCA. By not informing the voters prior to the April 2018 election, this aspect of the sale has caused additional conversation at the RCA hearing.
By having Anchorage Electric Utility ratepayers pay Anchorage Municipal government the $1,000,000,000.00 price tag for ML&P through Chugach Electric’s increased rates, the Municipality gains revenue, which is otherwise constrained by the tax cap.
In this scenario, the property taxpayers of Anchorage, who are also the electric utility ratepayers, lose the benefits of ownership of a Municipal asset.
This is not Warren Buffett writing a $1 billion check for ML&P. This is ourselves purchasing ML&P from ourselves and giving it to Chugach Electric.
Moving forward … dissolving both ML&P and Chugach Electric and forming one new electric utility is the path to follow. Without the electric utility ratepayers having to pay a purchase price provides benefits that include a different managerial structure along with the legacy labor contacts having a fresh set of eyes reviewing them.
Either this whole thing is about what is best for the ratepayers or it is not.
Bob Maier is an Anchorage utility ratepayer who has provided to both the RCA and the Anchorage Assembly on the sale of ML&P.
Just another instance where the voter did not research nor understand the Ballot issue and therefore voted yes on something that is now coming back to Haunt them. Kind of like Ballot initiative 13 and the advertising campaign that says funds will be dedicated when the Municipality Charter contradicts the message.
Honestly, no one is surprised at this outcome. Those who read the ballot proposal, and read their electric bill knew a way would be found to make up the shortfall. Can you say “ML&P acquisition surcharge” as a new line on your Chugach bill?
Ever notice the FIWR charge and say “hmmm, I didn’t vote to have Fire Island wind recovery on my bill.” Nor did I expect a private company to force ML&P and Chugach to buy its product at a higher rate than what gas is paid for.
So the Assembly & Spendowitz find a way to unload a utility, have an opportunity to raise rates on another utility and come out nearly $30M ahead. Typical shady, money grabbing deal by Spendowitz and his rubber stamp assembly.
“By having Anchorage Electric Utility ratepayers pay Anchorage Municipal government the $1,000,000,000.00 price tag for ML&P through Chugach Electric’s increased rates, the Municipality gains revenue, which is otherwise constrained by the tax cap.”
The article states the surcharge is for acquisition costs with no mention of surcharge duration. Which is it?
At one time on either the Chugach or MLP website (I cannot remember which) there was a bill of sale from George Soros purchasing that utility for about $500k +- in the early 1990’s. I wished I had printed that at the time I found it about six years ago. I had read an article saying he owned all the electrical utilities in the country. I’m not in favor of this merger.
I guess it is April fools day
I knew it. The muni always does not tell the full complete truth. Also a little mouse told me sometime back it was not Chugach who has the money for this transaction; it’s ML&P. And the Muni wants to use the ML&P facilities for the homeless.
“Now two years after that election, discussions center whether the average voter understood what a “Base Rate” actually is.”
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The discussions should include whether: (a) the “Base Rate” terminology was misrepresented or obfuscated deliberately, (b) using the mail to communicate misrepresentation or obfuscation of “Base Rate” constituted prosecutable mail fraud, and (c) the ballot question should therefore be invalidated.
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