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HEA proposed rate restructure mulled in testimony

Posted: July 31, 2011 - 8:00am

Homer Electric Association’s proposed rate restructuring is moving forward, with testimony filed that supports some – though not all – of the utility’s desired changes.

In testimony filed with the Regulatory Commission of Alaska earlier in July, Janet Fairchild from the Attorney General’s office said she reviewed the utility’s books at the end of June, looked at the mathematical formulas they used and provided an overall analysis of the proposed changes.

Her testimony wasn’t particularly surprising, said HEA spokesman Joe Gallagher.

“Our rate restructuring proposal covers a lot of ground and we expected that there would be questions and differences of opinion on some of the proposed changes,” Gallagher said in an email. “So, no, in general we are not surprised.”

Homer Electric is working to change how each customer’s electric bill is calculated to more fairly represent the costs the utility has in getting energy to customers, the utility has said, and this testimony is the next part of that process. Gallagher has said the utility's major proposed changes would decrease the energy base rate, create a minimum monthly energy charge and increase the customer charge from $11 to $15.

Fairchild is a Public Advocate Utility Analyst. Her recommendations include approving a customer reclassification, approving changes to how the pass-through costs from power producer Chugach Electric Association are handled, and approving a seasonal reconnection fee. She suggested rejecting the minimum usage charge, and other changes to the utility’s proposal.

Gallagher said the utility will file a response with the commission on August 23.

“As of now, HEA does not think that Ms. Fairchild’s testimony is sufficiently persuasive to modify any of what we are requesting, but it is still actively being internally reviewed,” Gallagher said in an email.

Fairchild’s analysis of the minimum energy charge said that such a charge could be allowed, but also notes it is contrary to the requirement that rates be designed to encourage conservation. She also said that basing the minimum charge on a kilowatt level rather than a dollar level is not an appropriate mechanism.

“Her findings do not rule out a minimum energy charge, but do recommend rejecting a minimum charge based on kilowatt hour rate times usage,” Gallagher said.

Fairchild did support the proposal to eliminate block rates saying that those are contrary to conservation, and supported the reconnection fee.

In its restructuring proposal, HEA outlined changes to the customer class structure. The changes would reduce the number of classes from eight to six by making one residential class, and altering the commercial classes. In her testimony, Fairchild says that those changes are reasonable and allowable.

Gallagher noted that Fairchild supported grouping all residential customers together, rather than having two rates depending on location.

Fairchild also supported HEA’s proposal to rename the Wholesale Power Cost Recovery Adjustment to Cost of Power Adjustment. That charge allows the utility to pass along the cost of buying power from Chugach Electric. Under the proposal, it would change so that only the fluctuating cost of power — not the base costs of the contract — would be included.

In her testimony, Fairchild did not support the overall amount HEA was including as part of its rates. She suggested altering the revenue requirement by almost $200,000.

Revenue requirement is the total amount of money that can be recovered in rates to operate the utility, Gallagher said.

Fairchild’s proposed changes to the RR included basing storm-related expenses on one test year rather than an average of several years, and other similar changes to how the value was derived. Her testimony also said the RR included expenses that shouldn’t be allowed in the RR, including costs for scholarships, prizes, gifts, meeting refreshments and other such costs. Her list of disallowed items totaled $193,932.98.

Gallagher said the utility believes those items are allowable, but will review Fairchild’s finding and respond to it in reply testimony.

Joshua Garvey also testified on behalf of Lands End Acquisition Corporation that the rate structure was too complicated to be an effective billing mechanism.

Gallagher said the utility understands that it can be confusing, but that HEA isn’t doing anything out of the ordinary.

The regulatory commission decided earlier this year to allow the attorney general’s office and Lands End to participate in discussions regarding HEA’s proposed changes.

Gallagher said HEA will talk to both parties to try and negotiate their differences between Aug. 23 and Sept. 26. A hearing on the changes is scheduled to begin Sept. 26, and Gallagher said that will happen if a settlement is not reached.

The commission is charged with finishing the decision-making process on HEA’s proposal by January 26, 2012. Gallagher said it usually takes the body about three months to come up with a decision after a hearing is held.

 

Molly Dischner can be reached at molly.dischner@peninsulaclarion.com

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