Anchorage utilities, mayor announce $1B consolidation deal
Anchorage’s mayor and electric utilities will ask the city’s voters to approve a $1 billion deal that would consolidate the two utilities and save ratepayers “hundreds of millions of dollars” over many years, according to utility officials.
Mayor Ethan Berkowitz and the leaders of Chugach Electric Association and Municipal Light and Power held a joint press briefing Thursday morning to announce their plan for Chugach to buy city-owned ML&P for roughly the $1 billion figure.
“It will benefit taxpayers over the long haul and in the short haul. It will benefit ratepayers. It also does a lot for the municipality in terms of stabilizing our revenue picture moving ahead, which is very critical in terms of making sure that our economy is on a firm footing regardless of what happens at the state level,” Berkowitz said.
The prospect of a single electric utility in Anchorage has long been discussed; Chugach CEO Lee Thibert said this is the third time it has been analyzed in his 30-year career with the cooperative.
The presumption has been that the duplicative overhead needed to run two utilities in a city with a current population of about 300,000 is unnecessary.
“There’s lots of things that are very identical with the two organizations and it just makes sense to put this all together,” Thibert said.
City-owned ML&P services Downtown and Midtown Anchorage, as well as Joint-Base Elmendorf Richardson. Chugach, a member-owned cooperative utility, covers the remaining majority of the city and small portions of the northern Kenai Peninsula Borough.
Because the municipality owns ML&P selling it requires voter approval, Berkowitz will ask the Anchorage Assembly to put a proposition on the April 2018 municipal ballot to allow the sale.
The Chugach Board of Directors will also vote on the sale and, as a result of nearly all of Chugach’s member-customers being Anchorage residents, they will get their say through the city vote as well.
What Anchorage residents will think of the plan is unclear, but the utility officials said they haven’t heard from anyone who thinks it is a bad idea.
If approved by voters, the Regulatory Commission of Alaska would then have its say, an approval process that can take up to six months. That likely puts a final closing date sometime in very early 2019, Thibert said.
He estimated the aforementioned savings would be wrought over 30 to 40 years by basically by having one of everything an electric utility needs instead of two — likewise for repetitive operational activities.
Industry experts have said the six Railbelt utilities from Fairbanks to Homer have about as many customers as an average Lower 48 utility, albeit over a comparatively vast geographical region.
“Obviously when you put to organizations together you get efficiencies that generate revenue that you wouldn’t get otherwise; it’s a reduction in cost so you can maintain the rate levels the way they are and (decrease rates) over time.” Thibert added.
ML&P General Manager Mark Johnston said the rates the utilities charge are usually very similar.
“We kind of trade back and forth who’s number one and who’s number two in best rates,” he commented.
It was stressed at the press briefing that no layoffs will be associated with the deal, should it go through. Thibert said Chugach would whittle the combined workforce through attrition and reorganization, noting each utility currently has a fair amount of vacant positions.
Specifically, Chugach would take on $695 million of debt, make incremental payments to the city totaling about $170 million and continue making the municipal utility service assessment payments, which are essentially ML&P’s payments to the city in-lieu of property taxes, according to Thibert.
He also noted that current low interest rates lessening Chugach's borrowing costs make the deal all the more appealing now.
Berkowitz said it would allow the city to pay down about $525 million in debt and make additional contributions to its trust fund.
Part of debt Chugach would take on would cover a $170 million direct payment to the Municipality of Anchorage, while the rest would be assuming ML&P’s outstanding obligations.
They said a series of meetings held by the Anchorage Economic Development Corp. last spring examining how to lower electric rates helped restart the consolidation conversation. At those meetings, a national utility consultant said merging the utilities is the single biggest step that could be taken to capture savings.
Subsequent to that the Anchorage Assembly passed a resolution in June encouraging the utilities to examine a merger.
Berkowitz said it quickly became clear a straight merger wasn’t feasible because of the inherent challenges in blending a member-owned cooperative with a government-owned utility so discussions evolved into what it would take for Chugach to buy ML&P.
The deal, while not expected, is almost a natural evolution considering the multiple ways Chugach and ML&P have partnered in recent years.
In January, Chugach, ML&P and adjacent Matanuska Electric Association announced a voluntary power pooling agreement through which the three will trade power down to the hour based on demand requirements.
Pooling demand and generating capacity allows the utilities to more fully capture the fuel savings and other operational efficiencies provided by the new generation plants each has put into service since 2013.
In 2016 they bought into the Cook Inlet Beluga River natural gas field to gain a reliably priced long-term fuel supply.
The two also jointly own the west Anchorage Southcentral Power Project generation plant built in 2013.
Elwood Brehmer can be reached at email@example.com.