UTILITY SALE COULD BE DECIDED BY ONE PERSON’S VOTE
The proposed $1 billion sale of Anchorage’s Municipal Light & Power to Chugach Electric Association will be before voters starting in mid-March, when the mail-in ballots are sent out.
Most voters will mark their ballots without having thought through the questions, because the electrical grid is not their area of expertise.
- What is the background of the proposed sale of ML&P to Chugach Electric?
- Why is the city charter being changed so the $1 billion sale could pass by a single person’s vote?
- How did Mark Begich, representing Chugach Electric, and Mayor Ethan Berkowitz put this sale together behind closed doors?
- Does the IBEW stand to benefit?
BACKGROUND
In March 2017, the Anchorage Economic Development Corporation convened a working group to look at a possible merger of the two companies, something that had been discussed since the 1990s.
The group met in open session twice, and then in closed session to discuss findings and recommendations. It decided the 295,000 citizens in Anchorage would be better served with one electric company, rather than two.
The group pointed to economies of scale issues: A city like Anchorage is too small to support two separate utilities, and in a letter to Mayor Ethan Berkowitz the group expanded on that thought:
- Capital costs are increasing for both power generation and maintaining the grid. These items are expensive and the two companies are making duplicate investments.
- Operational costs are increasing; that could be reversed by merging the companies.
- A merged company could take better advantage of opportunities in renewable energy, micro-grids, net-metering, and the ability to diversify fuel sources.
- And, “the alignment of development strategies with political and consumer priorities would provide more efficient future development of the Anchorage electric grid.”
By June, the Anchorage Assembly had passed a resolution urging the Municipality of Anchorage, ML&P, and Chugach to begin to develop the merger.
However, Chugach was not the only entity interested in ML&P; it’s just the only one we know about. The public doesn’t know what kind of interest was expressed by at least two other “bidders.”
But others would have trimmed the workforce, and the powerful IBEW, which controls Chugach, was having none of it. The merged entity must include no workforce layoffs, according to the deal.
On Dec. 21, Mayor Berkowitz announced he will put the sale of ML&P to Chugach onto the mail-in ballot for the election that ends April 3. This is something he and former Mayor/Senator Mark Begich had been working on for months, although he did not bring up Begich’s involvement.
He told the Assembly that Chugach had proposed a “competitive” price for the purchase price of ML&P, had agreed that rates would not be raised as a result of this sale, and had assured the mayor there would be no layoffs.
If the sale of ML&P is approved by voters, the transaction will take place over the following 18 months and must be approved by both the Assembly and the Regulatory Commission of Alaska.
Chugach would pay $712 million, which includes $524 million of ML&P debt, $18 million for debt defeasance, and another $170 million in ML&P equity. There is an additional $170.3 million in annual acquisition payments.
Then, for the next 30 years, former ML&P customers would payments in lieu of taxes totaling $142 million, even though an electrical cooperative doesn’t have to pay property taxes.
MAJORITY PLUS ONE BALLOT QUESTION
The second part of the ballot question would lower the voter threshold for approving the sale. It would make it a simple majority vote, rather than the 60 percent that is normally required by city charter.
That means 50 percent plus one vote is needed, which all but guarantees passage.
Normally, such sales or acquisitions require 60 percent by the city charter, but that difference — lowering the voting threshold by close to 20 percent — is not revealed in the ballot explanation, nor is the reason for suddenly lowering the required “yes” votes to the 50+1 majority.
MARK BEGICH, SHADOW MAYOR OR CHUGACH DEALMAKER?
Mark Begich has a contract with Chugach to ensure the sale goes smoothly, and he’s been back and forth from Chugach to his old haunt at City Hall for months, helping put the finishing touches on the deal with Mayor Berkowitz.
How much Begich and his Northern Compass Group is being paid by Chugach ratepayers and the IBEW to grease the skids is unknown; presumably he will get a handsome cut.
But a confidential report obtained by the Anchorage Daily News shows that the $1 billion price tag established by Begich and Berkowitz is at the upper limits of what ML&P is believed to be worth.
Voters also won’t know what the ballot term “competitive price” means without being shown the other “bids” from interested parties. Is there another bid of higher value? How much money did Mayor Berkowitz and Mark Begich leave on the table?
They’ll have to trust Mayor Berkowitz, Mark Begich, and the left-dominant Assembly, which has seen at least some of the documents, but is under a confidentiality agreement to not discuss them.
UNION APPROVED
The IBEW, already influential in politics in Alaska, has an interest in the deal going through. Chugach Electric is a cooperative whose board is highly influenced by union politics.
The highest paid employees in the muni are IBEW workers, and they’ve received a promise of no layoffs, even as the proponents of the deal promise economies of scale. A journeyman meterman in Anchorage can expect more than $50 an hour in wages, and at least that much in benefits. All of that will be preserved under the IBEW-approved deal.
This has looked entirely suspect to me from the beginning. The concept of reducing redundancies, perhaps especially in the shrinking Walker economy is plausible. But that should not require new debt. Debt means lots of cash around, always a bad idea with government – especially so in election years. Who gets the cash (beyond the underwriting syndicate and consultants)? Why sell bonds to reduce redundancies (why does taking advantage of savings require bonds)? Why does supposedly saving money take new debt? And who pays the debt back? (Well, the consumers of course.) But where does charging the consumers more to service the debt sit in the equation to reduce redundancies? A deal engineered by Begich and Berkowitz, supposedly on different sides of the deal, and someone possibly protecting IBEW’s House Majority Leader Chris Tuck in the bargain has to give anyone pause. Especially concerned might be consumers who will be on the hook for the debt and for any other aspects of the deal. Will the underwriters – individuals being paid from bond proceeds – make campaign contributions? Have those underwriters been selected; if so how and by whom? Will the interest rate (the price paid for the bonds actually) be set by a competitive bid or in a meeting behind closed doors? Is there additional risk to the consumers who will be on the hook in making the decision to do this Begich-Berkowitz deal through a very new election methodology? Without a doubt the consumers will have their full faith and credit – to pay the fare no matter the amount – pledged so the bondholders will be repaid come what may. The consultants and underwriters will be paid immediately from bond proceeds. This deal is far too much Newark, Providence and Chicago, and too far little Alaska for me. We sent our hometown high school graduate to Washington for one term and he came back a financial wheeler-dealer. Why worry?
One other thing to consider. Currently with two entities the IBEW has two contracts with disparate terms and end dates. With a combined entity there will only be one contract. Now one of the utilities could work with other railbelt utilities via the Intertie to meet demand in the event of a strike. A merger will enhance and consolidate the union’s power. ( pun intended)
Has anyone thought to ask what the Muni intends to do with the funds from this sale? I’d sure like to know that too, before voting on this!
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