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HEA offer for Seward utility still on the table

Posted: Wednesday, July 24, 2002

Homer Electric Association's most recent offer to purchase the Seward electrical utility remains on the table after nearly four months.

In April, the electricity cooperative put together a deal of $18 million, spread out over five years, to buy the municipal electric service, but Seward city officials have yet to bite.

Following a July 8 city council meeting, City Manager Scott Janke said the council was wrestling with how to replace revenue the city receives from its utility customers.

"It's a huge issue, and they really need a lot of time to digest it," he said. "We put it up to the council, and they said they weren't happy with the offer. They indicated that although they felt like it was the right time to look (at selling), they didn't think it was 'sweet enough.'"

Janke said the council didn't pinpoint a desired price, however.

The idea for HEA to buy the Seward utility is not new. In a 510-443 vote in November 2000, Seward voters approved a sale, but the tally was 61 votes short of the required 60 percent majority. Should the purchase go through, the association would maintain the backup generation capability now in Seward and run the electric system as a division of HEA with its own name, identity and separate assets and costs. All current and future Seward customers would be full members of HEA, with all the same rights and benefits of current HEA members.

Any sale would need to be substantial enough to cover a yearly average of close to $1 million in the nearly $7 million general fund, Janke said. After analyzing the impact from the utility sale, he said he suggested putting the money from the sale into a permanent fund in which the principal would remain untouched while the interest earned would cover the subsidy to the general fund.

"Our analysis indicated that you'd have to have something in excess of 8.5 percent earnings," Janke said. "Because of the stock market, the interest rates don't seem as realistic as they did a couple of years ago. And because no one has a crystal ball on the stock market, it's hard to determine over a 10- to 20-year period if this will be worth it."

Rick Eckert, HEA manager of finance and business development, predicts the deal will reduce residential rates by 5 percent and commercial rates by 10 percent, subject to approval by the Regulatory Commission of Alaska. He said the deal would guarantee cash flow to Seward's general fund for five years.

HEA spokesperson Joe Gallagher said the cooperative has received no official word from Seward on whether the offer has been accepted or denied, but said at this point the price remains the same.

"The original offer is still the offer on the table, and no changes have been made," he said. "There is no deadline for the sale."



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