Chugach Outlet
May/June 2001, Number 192

General Manager's message: Rate increases likely

If you attended the annual meeting in April, you heard the news that we plan to file for increases to base rates later this summer. While we don't yet have all the details, I'd like to share what I can so you can be prepared for events.

Chugach has not filed a general rate case with the state regulatory commission since the mid-80s. A general rate case provides a mechanism for a full and thorough discussion of expenses, rates and the appropriate cost-sharing between different classes of customers. We are currently billing using base rates structured in the mid- to late-1980s, and last adjusted in 1995.

When I refer to "base rates", I'm talking about the basic per-unit energy and demand charges. We bill for each kilowatt-hour of energy a customer uses, plus a demand charge our largest customers pay based upon the maximum amount of power they take (or "demand") from the system each month.

Chugach base rates have been extremely stable for many years. Base rates for retail customers have not increased since 1994. Base rates for wholesale customers have not gone up since 1996.

In the intervening years, expenses have increased for Chugach. One that we have talked about quite a bit in the past year is the price of the natural gas we use to run our power plants. We have a separate fuel surcharge to help us recover these costs relatively quickly in time. It is a number of other expenses (everything from labor costs to interest expense) that puts pressure on base rates.

The board and staff have worked hard to hold down expenses and stave off rate increases. We have tried to hold base rates steady while only adjusting the fuel surcharge. As the record shows, we have been successful in this strategy {141149 BE} for many years.

Now we have come to the point where a rate increase is in order. The Regulatory Commission of Alaska has ordered Chugach and other utilities to file general rate cases this year. We expect to file our case by June 30, and when we do we will be filing for rate increases.

It is too early to know exactly what the final outcome will be, but it now looks like we will ask for interim, refundable rates to take effect in September of this year. We think the overall increase to demand and energy charges from these rates will probably be about 7 percent.

It can take a year or more to settle a rate case, and when the final orders are issued at the end of the process, there could be additional increases and even adjustments in the overall costs paid by different customer classes. It is also possible that any initial increase that was granted during the hearing would be revised downward, which would result in rate refunds to customers (hence the term "interim, refundable").

We know no one likes to hear that rates are going up, but we must ensure Chugach remains financially strong and healthy so that it can continue to provide reliable electric service to Alaskans. It is important to look for efficient ways to do business and cut costs. It is equally important to recognize when a rate increase is in order. We believe we are now at the point where increasing base rates is necessary to ensure customers continue to receive reliable electric service from a utility that is financially stable.

Obviously this is a topic you'll be hearing more about as the rate case works its way through the system.