Chugach Outlet
September/October 2001, Number 194

	General Manager's Message by Gene Bjornstad News on the rate case and fuel surcharge

September saw further developments in our first general rate case in years, as well as on a filing to reduce the fuel surcharge on your bill.

Rate case background
In July Chugach filed a general rate case with the Regulatory Commission of Alaska - the state agency that oversees {1117360 Da} regulated utilities like Chugach. It must approve the rates we propose. A general rate case provides a mechanism to analyze the costs recovered in Chugach rates, as well as review rates paid by different customer groups.

The general rate case doesn't apply to the City of Seward, since its purchases are done under a recently approved wholesale contract. We also didn't propose any changes for customers billed just for lighting services.

Our last general rate case was filed in 1987, with minor changes to base rates over the next few years. There have been no increases in the basic kilowatt-hour or demand charges paid by retail customers since 1994.

For the past several years, as our costs of doing business have increased we have been able to forego increases to base rates by containing costs and improving efficiencies. We have now come to the point where the prudent business decision is to seek rate increases in order to ensure Chugach remains a strong utility capable of providing reliable electric service.

The three main factors driving the higher rates are increased depreciation from new capital plant, higher labor costs and the need to collect additional margins to meet our financial requirements.

About rates
Your electric bill is made up of several charges. Three basic ones are the customer, energy and demand charges.

The customer charge is assessed each month without regard to the amount of electricity you use. We have proposed changing the current customer charges for most customers to more closely recover the costs of being ready and able to provide service. Some of the items covered by this charge include the cost of your service line and meter, meter reading, billing and the service center.

Another charge on your bill covers the amount of energy you actually use each month. This is assessed on a per kilowatt-hour basis. We proposed increasing the basic kwh charge for both residential and large general service customers, and lowering it for small general service customers. In addition, small decreases were proposed for wholesale customers Homer and Matanuska electric associations. This truing up of the appropriate contribution of individual customer classes is a key part of a rate case.

"Demand" is a charge paid by the largest customers on the system (large general service as well as wholesale customers). Demand is assessed per kilowatt, based upon the rate at which these customers draw power from the system during their greatest 15-minute period of use during the billing month. In our filing, {175493 Sc} we proposed increasing demand charges for large general service customers, as well as HEA and MEA, in order to bring their payments in line with the cost of services provided.

Proposed rate changes
If approved by the Commission, the basic rates we requested in our filing would raise revenue from residential rates by 8.1 percent. Revenue from small general service rates would drop 7.8 percent, while that from large general service and economic viability rates would rise 8.7 percent. Demand and energy charges would increase revenue 7 percent from HEA and 6 percent from MEA.

When we filed our general rate case, we also asked the Commission to approve interim rate increases of 4.5 percent.

Interim increases approved
On Sept. 5, the RCA approved an order that granted Chugach an across-the-board demand and energy increase of 1.614 percent on an "interim and refundable" basis. Interim and refundable rates are common in a rate case. They are usually based upon fairly straightforward and relatively non-controversial portions of the case. The terminology refers to the fact that the utility is granted the authority to begin charging them before the rate case reaches a final settlement (that's what the "interim" means). And "refundable" refers to the fact that if the utility cannot make its case, it may have to give back some or all of the new rates it charged.

Interim rates are a tool to provide financial help to a utility while the rate case is being heard - a process that can stretch out over several months.

In keeping with the Commission order, we began billing the interim rates on Sept. 14.

On Sept. 25, we filed a petition for reconsideration with the RCA. We are asking the Commission to take another look at a number of the recommendations made by the RCA staff and approved by the Commission in its Sept. 5 order. Frankly we think we can make the case that Chugach is entitled to more rate relief than was granted.

At this time, we don't know when we will have an answer to our request for reconsideration.

Fuel surcharge
On another note, we do expect to see a decrease in the fuel surcharge component of bills. That is the charge designed to recover the actual cost of fuel and purchased power on a relatively short-term basis. It is assessed per kilowatt-hour, and is over and above the basic kwh energy charge. We adjust the fuel surcharge quarterly, and the rate is in effect for three months at a time.

The fuel surcharge can go either up or down. It is largely driven by changes in the price we have to pay for the natural gas that fires our turbine-generators. As you probably know, natural gas prices rose dramatically over the past couple of years. That helped push up the fuel surcharge. In recent months gas prices have fallen, and we expect customers will see the benefit of that early next year. We use a "balancing account" to estimate a surcharge for the coming quarter, then true up once the quarter is over. A change in the balancing account led us to file for a significant decrease in the fourth quarter fuel surcharge that - if approved - will drop the average monthly bill for residential service by about 4.5 percent.

We had expected a decision by late September from the RCA on our request to decrease the fuel surcharge. The Commission asked for more time, and we now expect they will address it in early October. We are still hoping they will make a decision in time for us to apply the new surcharge {1108551 Cl} rate to all bills rendered in October.

There has certainly been fluctuation in the energy markets following the terrible events of Sept. 11. Whether there will be a long-term effect on our natural gas prices remains to be seen.

I know this is the time of year when many of you, like we here at Chugach, are developing budgets for the coming year. We will continue to give you the best information we can to help you plan for the coming year.