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Chugach vows to fight refund order

Posted: Wednesday, February 26, 2003

ANCHORAGE (AP) -- Chugach Electric Association, the state's largest electric power supplier, says it will appeal an order from the Regulatory Commission of Alaska, that it lower its rates and refund customers more than $7 million.

The order was issued late last month after a comprehensive review of Chugach's finances and operations.

Anchorage-based Chugach provides electricity to homes and businesses in Anchorage and sells power wholesale to utilities from Homer to Fairbanks. The rates it can charge customers are approved by the RCA using a complex formula that allows Chugach to cover its costs and earn a profit.

It filed a formal request to raise rates in July 2001 and sought permission to change the method of accounting used to determine its rates.

In its original filing, Chugach had asked for a rate increase of 6.5 percent. In April 2002, it lowered that request to 5.7 percent.

On Jan. 31, the RCA denied Chugach's request for both the rate increase and the change in how rates are calculated. Instead, the commission ruled that Chugach had been charging too much and ordered it to lower its rates and refund the overcharge to customers.

The refund, according to a document Chugach filed with the Securities and Exchange Commission this month, would amount to roughly $6 million for 2002 and $1.1 million for 2001.

Chugach said the order could result in its reporting an operating loss of $2 million for last year and might put it in a financial position that would violate contracts it signed with lenders.

''Our bond indentures say that we will charge rates sufficient to achieve certain financial targets, and under the order that came out, we have some concerns about our ability to achieve those financial targets,'' Chugach spokesman Phil Steyer said.

It also could slow Chugach's scheduled return of profits to members, Steyer said.

Chugach allocates past profits to its members based on its profit margin and the amount of electricity a member bought. The utility typically holds onto those credits for more than a decade and each year retires credits to members.

''If we're restricted by the commission in the amount of margins (profits) we can earn on an annual basis, it's going to slow down the capital credit rotations,'' he said.

An average monthly household usage of 700 kilowatt hours costs about $74 now, Steyer said. He could not say how much less it might be under the new rates set in the RCA's order.

On Friday, Chugach plans to petition the RCA to reconsider its decision, Steyer said. An RCA spokeswoman could offer no time table under which it is expected to rule on the matter.

Agnes Pitts, a spokeswoman for the RCA, said the order was suspended pending Chugach's appeal.

Among other things, Chugach argues that it needs the higher rates to cover higher labor costs and the cost of major maintenance projects at its Beluga and Cooper Lake power plants.

Ray Kreig, head of a consumer advocacy group called Chugach Consumers that has criticized Chugach management, said the utility should focus on cutting costs instead of asking for higher rates.

''They could go back to the RCA and ask for more money, or they can look more carefully at their own costs,'' said Kreig, a former president of the cooperative's board.



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