GVEA Queries Anchorage on Utility’s Sale to Lock-in Low Price of Gas-generated Electricity

Feb 21, 2018

Golden Valley Electric Association floated two letters of interest late last year suggesting the co-op was interested in buying the Municipality of Anchorage’s electric utility, Municipal Light and Power, for up to a billion dollars. Municipality officials have instead accepted a purchase offer by Anchorage-based Chugach Electric Association. But Golden Valley’s top executive says GVEA’s offer was mainly motivated over a concern the sale could increase ratepayers’ monthly bills.

Golden Valley President and CEO Cory Borgeson says two letters of interest he sent to Municipal Light and Power’s general manager late last year were meant not so much as hard-and-fast purchase offers as they were requests for a seat at the table where the sale was being negotiated.

ML&P's new George M. Sullivan Plant 2A, located on Anchorage's east side, uses natural gas to generate 120 megawatts of electricity.
Credit ML&P

“I wouldn’t say there was never any thought about we wouldn’t buy ML&P,” Borgeson said in an interview last week. “But I also thought that it might lead to other aspects of the sale that we would be interested in.”

He says the management team’s main concern was that the buyer of ML&P’s would raise the price of natural gas-generated electricity that it sells to Golden Valley.

“That is a very important motivation – to make sure that we can protect the opportunity to buy economy energy from the Anchorage utilities and not somehow have the price affected as a result of the sale,” he said.

Borgeson says Golden Valley gets about 20 percent of its electricity from ML&P. He says last year the co-op bought about $21 million worth of ML&P’s gas-generated electricity, which he says is cheaper than any other type of fuel except coal. He says Golden Valley officials are now talking about the price of that power and other concerns with Chugach Electric, which has offered to buy ML&P for about a billion dollars. That’s about the same amount Borgeson offered in his second letter of interest, sent in December.

“Golden Valley is in discussions with Chugach (Electric) about what will happen after the sale,” he said. “And there’s lots of questions, regarding transmission issues and the Bradley Lake interest.”

The Alaska Energy Authority's 120-megawatt Bradley Lake Hydroelectric Project, located near the head of Kachemak Bay on the Kenai Peninsula. The facility, completed in 1991, generates about 9 percent of the Railbelt’s electric supply. The AEA says the 4-cents-per-kilowatt electricity is the cheapest source of power for Railbelt utilities.
Credit UAF

Borgeson says Golden Valley wants to buy some of ML&P’s assets, including some or all of its 25 percent ownership share of the Bradley Lake Hydro Project. Golden Valley now owns 17 percent of the facility, located on the Kenai Peninsula.

Chugach Electric spokeswoman Julie Hasquet says the utility is aware of Golden Valley’s interest in the ML&P sale, but she says concerns over the fiscal impact of the deal is premature, because it faces several political and regulatory hurdles.

“I think people are getting a bit ahead of themselves here,” she said last week. “We still have to get through an affirmative vote, with the voters of Anchorage, in April. If that happens, we would work out a final deal with the Municipality of Anchorage. And any final terms would have to go back to the Chugach (Electric) board of directors, the Anchorage Assembly and ultimately the Regulatory Commission of Alaska.”

Consumer and renewable-energy advocate Chris Rose says the purchase of ML&P isn’t likely to boost the price of its gas-generated electricity, because that’s spelled-out in the contract. But he says the price could rise when the contract comes up for renewal – or if demand increases or the supply decreases.

Golden Valley Electric Association President and CEO Cory Borgeson, left, and Chris Rose, executive director of Renewable Energy Alaska Project, or REAP.
Credit KUAC file photos

“There’s no guarantee for anybody who’s buying electricity on bilateral contracts, like Golden Valley, that the price isn’t going to change,” said Rose, the executive director of Anchorage-based Renewable Energy Alaska Project. He says other factors are more likely to push up the cost of electricity for Golden Valley’s ratepayers.

“I think a greater concern is just whether or not natural gas prices are going to go up,” he said. Or “whether the transmission tariffs from moving electricity around the Railbelt is going to go up. I think a bigger concern for the entire region is whether or not we have the most efficient generators running at any given moment.”

Rose says those issues and others mainly result from six separate utilities stretched over a vast and rugged territory serving a relatively small customer base. He says the costly inefficiency of having two utilities competing for Anchorage’s customers is what finally drove ML&P to seek a buyer. He says further consolidation is needed, as well as greater coordination in planning and pooling resources.

“Right now, we’ve got six voices,” he said, referring to the six Railbelt utilities. “They don’t always get along, they don’t always agree. If you have five voices, I guess you just increase your chances by a little bit that you’re going to be able to get consensus on how to move forward.”

Rose says that’s why his organization and others have been lobbying the utilities and state officials to take a step toward coordinating utilities’ resources by establishing a single independent system operator to manage utilities’ power-transmission assets. He says a consortium of five utilities that includes Golden Valley has hired a Georgia-based company to help set up a organization called the Railbelt Reliability Council to work toward that end.

A news release issued in January by the consortium, called the Alaska Railbelt Cooperative Transmission and Electric Company, or ARCTEC, says the consultant will put together a document over the next six months that will outline the new organization and its responsibilities and authority