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Pending approval from Seward voters, Homer Electric to purchase city's electric utility

Today, Seward's utility is owned by the city. It tried to sell the utility in 2000 and 2002, though both attempts failed.
Sabine Poux
Today, Seward's utility is owned by the city. It tried to sell the utility in 2000 and 2002, though both attempts failed.

The City of Seward is again trying to sell its city-owned electric utility to Homer Electric Association. This May, Seward voters will weigh in on whether to combine the utilities into a Kenai Peninsula-wide electric cooperative under what’s currently estimated to be a $25 million sale.

Representatives from Seward said they’re unable to talk about the deal now, since that could influence the vote.

But in a presentation made before a special election date was set, Seward Electric General Manager Rob Montgomery said working under a larger utility would give Seward the resources to afford upgrades to infrastructure, including improvements to transmission lines and cybersecurity.

He said those are upgrades the city can’t currently make on its own without raising rates for its 2,900 ratepayers. Larger utilities, alternatively, can spread those expenses over many customers, keeping each ratepayer's share of that cost burden smaller. Homer Electric, for example, has more than 25,077 members in its network.

Seward has tried before to sell its utility. A sale came before voters in 2000 but failed by just 61 votes, according to the Alaska Journal, falling below the 60-percent approval threshold. In 2002, a deal failed again — this time because the Seward City Council voted down an $18 million offer from HEA.

Earlier this year, the city started that process again. In executive session, it considered applications both from HEA and 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.

In a statement published in Monday's agenda packet, Montgomery said the city council chose HEA for several reasons, including its advanced cybersecurity technologies, its promise to include Seward representation on the utility’s board and HEA’s commitment to freezing consumer rates in the short term for at least three years.

As it stands, Seward’s rates are comparable to those of HEA. But Montgomery said if voters don’t approve the sale, Seward Electric will have to consider rate increases of 10 percent or more “as the utility plays catch up with its investments in operations, infrastructure and technology.” Rates in Seward are set by the Seward City Council and not overseen by the Regulatory Commission of Alaska, unlike other utilities.

One downside of the sale for Seward is that it would lose the revenue that comes from running the utility in-house. That was $2.1 million in 2021.

One suggestion in Montgomery's letter is that the city could set up a permanent fund with money from the sale — about $30.5 million, when accounting for Seward Electric’s assets that are not included in the sale — that it could use to make a yearly transfer to the general fund.

And the utility would likely get a new name. In its proposal, HEA suggested combining the utility systems into an entity called “Kenai Peninsula Energy Cooperative, Inc.”

HEA pointed out in the letter that ratepayers from both entities would benefit from the economies of scale in a combined system amid what it said is a constantly growing complexity in the electric utility business. It said it would collaborate with the city to upgrade the city’s port to accommodate increasing cruise ship traffic.

“Although structured as an acquisition of SES, in spirit HEA views this transaction as the merger of our two systems, which will serve to strengthen our shared Kenai Peninsula Borough culture and values for years to come,” wrote HEA General Manager Brad Janorschke.

In the letter, HEA also said it would add a district to the utility’s nine-member board to represent the Seward area. Currently, there are three representatives each elected to represent three districts across the Kenai Peninsula. HEA proposes adding a fourth.

Seward city voters will decide in May in a special election whether to approve the sale. It will require a three-fifths majority to pass from city residents; ratepayers who live outside of city limits would not get to vote.

Meanwhile, the Seward City Council meets tonight at 7 and will give the city manager the official thumbs up to develop a draft contract with Homer Electric.

Sabine Poux is a producer and reporter for the Brave Little State podcast of Vermont Public. She was formerly news director and evening news host at KDLL in Kenai.

Originally from New York, Sabine has lived and reported in Argentina and Vermont and Kenai.
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