Voters from across the Kenai Peninsula have already cast their ballots in this week’s special election for Kenai Peninsula Borough Mayor.
But there’s another special election on the horizon on the eastern peninsula. Voters in Seward will take to the polls this spring to decide whether to sell their city-run utility to Homer Electric Association — the cooperative that, today, electrifies most of the Kenai Peninsula. Before it can make the $25 million sale, HEA will have to woo a large percentage of Seward voters — something it’s been unable to do in the past.
“One of our board’s goals is to diversify our generation portfolio, and not put upward pressure on rates,” HEA General Manager Brad Janorschke told the Seward City Council Monday.
He said the sale will benefit both utilities as they move toward more renewable sources of energy and face impending gas supply issues.
“The only way we can do that is go big,” he said.
Rates, resources and reliability
Most of the communities on Alaska’s road system are electrified by non-profit co-operatives, like HEA.
But Seward’s utility is run in house, by the city. It brought in about $2.1 million in revenue to the city in 2021.
It’s also a small operation, with around 2,900 customers. (For context, HEA has over 25,000 members.)
Rob Montgomery, general manager for Seward Electric, said that smaller customer base means it’s harder to spread the burden of upgrades and other investments.
“And so any time we need to make large or significant investments in our system, it can be a challenge,” he said. “We’re always having to weigh the investments against the impact they might have on rates.”
That’s something the city is dealing with now. It’s planning to tackle a set of deferred maintenance projects — which it said could raise rates by 10% or more in the next 12 to 15 years. The utility is doing a cost of service study now, Janorschke said at a Tuesday HEA board meeting.
In a Seward Journal op-ed, Seward City Manager Janette Bower said those upgrades would cost ratepayers more than any rate change associated with the sale.
“Currently, HEA’s residential rates are nearly three cents per kilowatt-hour higher than residential rates in Seward,” she said. “But this is only a snapshot in time, as Seward’s rates will most certainly surpass those of HEA in the not-too-distant future.”
Montgomery said it would be a boon for Seward customers to tap into HEA’s existing resources — like in-house billing services and outage maps — and the larger staff of a co-op.
“It’s really not a complicated issue for us,” Montgomery said. “It’s really about creating long-term stability in our rates, in our resources and in our reliability.”
‘Economies of scale’
Seward first put out a request for proposals from utilities last year. It also considered selling to Chugach Electric Association, the utility for Anchorage and the northern part of the Kenai Peninsula. Chugach already sells electricity to Seward Electric today, and bought another municipality-owned utility — Anchorage’s Municipal Light & Power — in 2020.
Montgomery wrote after the fact that the council chose the Homer utility because it promised Seward representation on its board of directors and that it would freeze consumer rates for the next few years. Seward Mayor Sue McClure said the city will talk about the reasons it chose HEA over Chugach at its next city council meeting later this month, amid continued interest from residents.
HEA staff say they're excited about the prospect of adding Seward's customers to its grid. Janorschke said the increase in members would allow the co-op would also spread out the burden of rate increases over more ratepayers.
“We could gain that economies of scale that meets what our customers and members want,” Janorschke said.
He said HEA will keep on Seward Electric employees and will rebrand to a name that is more indicative of the co-op’s larger peninsula-wide footprint. A member from Seward would be added to HEA’s board to represent the new customers.
But HEA will need to do more than convince the city it’s a good idea. The deal requires 60% approval from voters within Seward city limits.
Two decades ago, a similar ballot proposition fell just 8% short of that threshold. Two years later, the Seward City Council rejected a different offer to buy its utility from HEA outright, in a 5-to-1 vote.
City residents say they’re proud their utility is run in house. As it stands, the city council sets rates for Seward, not a board of directors like at the co-ops.
Seward will also have to find a way to make up for the lost general fund revenue. The city floated the idea of using money from the sale to make up for that loss; in its application, HEA suggested a fund that would resemble the state’s permanent fund, which could offset the loss in revenue every year.
When accounting for Seward Electric’s assets not included in the purchase price, the sale comes out to just over $30 million. That price is fluid, said HEA Spokesperson KeriAnn Baker, as Seward makes more investments in its system. She said the sale will be financed by HEA’s usual lenders.
Gearing up for May
HEA is planning to hold information sessions for Seward residents ahead of the vote this spring. Members of the Seward City Council agreed this week that it’s important voters have all the facts when they step into the voting booth, which some said wasn’t the case last time.
The vote will be for customers inside city limits, only — that’s even though about half of Seward Electric’s customer base is based outside city limits and will not get a vote in the special election.
Even if it does pass, the deal will need the thumbs up from the Regulatory Commission of Alaska before it becomes official. That would be later this year or early next, Janorschke said.
