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September 28, 2006 at 7:57pm

Chugach filing for lower retail rates

Chugach Electric Association will be asking the Regulatory Commission of Alaska to adjust rates in an attempt to better balance the margins earned from its different business activities. The Chugach board approved filing the general rate case at a special board meeting Sept. 27.

Key issues in the rate case are expected to be the margins earned from different business activities and whether those activities pay an appropriate share of the system costs, including depreciation.

"Margins" is the term a not-for-profit cooperative like Chugach uses to describe what another business would call profits. One key difference is that margins belong to the members who paid bills in a given year and – after being invested in the company for a number of years – are returned to them via a capital credits distribution.

For cooperatives to remain financially strong and be able to borrow at the lowest possible rates, it is important they earn an appropriate amount of margins each year.

Chugach is a utility that generates and transmits power to utilities (including its own distribution operation) that provide retail service to individual customers. In the utility industry, generation and transmission activities are referred to as "G&T", while retail service and all associated functions are referred to as "distribution".

Chugach serves as a G&T utility that makes and moves large amounts of power for resale. This power is delivered to utilities up and down the Railbelt that then move it through the wires and substations of their respective distribution systems for delivery to individual customers. Chugach also has a distribution function that takes power from the Chugach G&T. Chugach distributes power to its retail customers at more than 79,000 metered locations.

This month a Chugach residential customer pays about 13 cents for a kilowatt-hour (including the fuel surcharge). Of that, about half goes for the G&T cost of the power and about half covers the cost of running the distribution business. Both the G&T rate and the distribution rate contain a component to cover margins for the separate utility activities. The current approved margin rate on the distribution activity is about six times the size of that of the G&T margin rate.

The rate case is less about the overall margins earned by the utility than about setting rates that recover costs and earn appropriate margins from both the Chugach G&T and Chugach distribution functions.

Chugach has taken a close look at its business operations in recent years and feels that not enough margins are being earned on its G&T power sales while at the same time its distribution customers are being asked to contribute too large a share of the margins. In the rate case, Chugach is asking that the RCA set rates that provide a more equitable balance between the business activities when it comes to margins.

If successful, Chugach will wind up with rates that earn more margins from its G&T sales, but lower margins from its distribution sales. While each Chugach distribution customer would pay more for the portion of their bill that goes to cover G&T costs, the decrease in the distribution margins would mean that the overall bill would be smaller. The impact on bills would range from a more than 1 percent decrease for some very large commercial customers to more than an 8 percent decrease for some small commercial customers. If successful, Chugach predicts that a residential customer using 700 kilowatt-hours of service would see about a 2 percent reduction in their monthly bill.

Rate cases can take months or years to resolve. Chugach will not be requesting any interim rate adjustments while this rate case is underway.

Chugach is the largest electric utility in Alaska, providing power for Alaskans throughout the Railbelt through retail, wholesale and economy energy sales.

For more information, contact Phil Steyer , 762-4766 (desk) 242-1417 (cell)