Seward approves contract from Homer Electric, with election a month away
Most Alaskans aren’t thinking about who’s providing their power and keeping their lines up and running when they flip on the light switch.
This May, voters in the city of Seward are going to have to think about just that when they decide whether or not to sell their city-run electric utility to Homer Electric Association, which today provides power to a large part of the Kenai Peninsula.
Officials at the city say the sale would be a good thing for Seward Electric's 3,000 customers on the eastern peninsula. This week, the city council approved an amended purchase agreement that laid out the terms of the $25-million sale.
The city has been tight-lipped about the details of the sale, so far. Mayor Sue McClure said now that they’ve approved the contract, they can come out with more information and answer more of the questions Seward residents have.
“I think the two things people are really concerned about is what’s going to happen to the rates, and why didn’t we choose Chugach [Electric Association],” she said.
Over the next month, Seward and HEA will have to convince 60% of Seward voters that the sale is a good idea. That 60% threshold has been a sticking point in the past — in 2000, voters rejected a sale to HEA by just 61 votes.
The utilities are trying again this year, as Seward anticipates making what Utility Manager Rob Montgomery said are necessary upgrades to Seward’s transmission systems and substations.
“I’ve been in the industry for 25 years. I’ve worked for some large companies,” he said at the city council meeting Tuesday. “And I know we’re not structured today to handle what’s coming.”
Last year, Seward considered offers from both HEA and Chugach Electric Association, the utility for Anchorage and the northern part of the peninsula.
Ultimately, after talking about those applications in executive session, city council members chose HEA.
Some Seward voters said that surprised them. It surprised Chugach Electric CEO Arthur Miller. At a meeting about upgrades in Cooper Landing last month, he told Cooper Landing ratepayers he thought Chugach put out a better deal.
“If you go back and look at the slide about rate levels, there’s a significant difference,” he said.
McClure said even if Chugach’s rates are better, there were other parts of HEA’s offer that drew them in — like the promise of a seat on the co-op’s board and a new voting district. She said the city council also liked that HEA was adamant about keeping Seward’s employees and that it had made cybersecurity upgrades that impressed them.
“So that was very attractive – the fact that cybersecurity is becoming more and more of an issue with electric companies,” she said. “And we really liked the fact that Homer Electric Association was on top of that, where others aren't.”
HEA’s offer is for about $25,250,000.
But there’s more that goes into the overall purchase amount. Seward will take the proceeds from that sale to help pay off $16 million in bond debt. At the same time, Seward will be paying for infrastructure updates, at an estimated $15 million, which HEA would reimburse at the time of closing. Another $11 million will come into the city over a 10-year period.
The city’s also considering a permanent fund that would put an annual contribution toward the city’s general fund, to make up for lost revenue that the city would normally get directly from Seward Electric. That money could also be invested into the utility, as needed.
The dollar figure of rates, for now, remains a bit of a question mark. That number hinges on a rate study that Montgomery said will start in late summer and come with an increase in January, likely in the range of 12.5% to 14% on top of today’s base rates to help meet bond obligations. Then, HEA has promised to freeze Seward customers’ base rates for three years.
Base rates per kilowatt hour are one part of the rate equation. The cost of fuel is another, and comes as pass-through on customers’ bills through the cost of power adjustment. Customers at every utility pay a different amount for that cost of power adjustment depending on how much their utility pays for natural gas and other sources of power.
Phil Kaluza, of Seward, said he’s concerned about what could happen to those fuel costs as the sun sets on HEA’s current contract with oil and gas company Hilcorp. Hilcorp provides the utility with the vast majority of its power supply and has said it can’t guarantee contracts beyond the current cycle.
“Do we really want to be selling our utility during all this uncertainty?” he said at the meeting Tuesday.
Montgomery, for his part, said he’s worked closely with other Railbelt utility leaders and that he's not very concerned.
"I am aware of different alternatives that are being discussed and feel comfortable that the issue will get resolved," he said, adding that without the sale, Seward Electric would need to up the rates much more substantially — as much as an additional 12.5% to 15% on base rates in 2026 or 2027.
The city will have to make its case to voters before the sale goes through. HEA is holding information sessions in Seward ahead of the election.
Seward voters have until Sunday to register to vote in the May 2 special election. After that, the Regulatory Commission of Alaska gets the last word on the sale.
KDLL’s Riley Board contributed reporting.