Chugach Electric proposes buying ML&P in $1B deal

Mayor Ethan Berkowitz standing next to representatives from Chugach Electric Association announcing news of a potential utility sale during a press conference at City Hall (Photo: Zachariah Hughes – Alaska Public Media)

In a move several decades in the making, two of the main energy providers in south central Alaska could soon become one.

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In presentations Friday, Chugach Electric Association outlined a proposal to acquire Municipal Light and Power under an arrangement worth more than a billion dollars. But not without several rounds of approval from regulators, representatives, and residents.

Standing next to leaders from Chugach during a press conference at City Hall, Mayor Ethan Berkowitz sketched out the reasons why the municipality thinks it’s worth selling off the city’s electric utility.

“This is a momentous occasion,” Berkowitz said. “It is a process that will yield great benefits for the ratepayers and the taxpayers in the municipality, and we’re pleased to be a part of it.”

Earlier this year, the city’s Assembly authorized the administration to look into options for selling ML&P or merging the two utilities. The general terms of the sale involve Chugach borrowing money to pay off $542 million of ML&P’s debt. Other payments over the next 30 years bring the total sale price to over a billion dollars. According to Chugach’s CEO Lee Thibert, if the sale goes through it will not change utility rates right away, but will start to gradually reduce people’s monthly electric bills over time.

“We will reduce duplication on many fronts, we will take advantage of economies of scale, and everything becomes part of the cooperative business structure, which is member owned,” Thirbert said.

The administration and electric utilities say the deal will not lead to layoffs, the result of having a number a number of presently vacant positions and attrition over time.

The two entities have collaborated on energy projects in recent years, and frame the sale in terms of a progression in that relationship. Both Chugach and the administration believe there are good reasons for moving ahead with the deal now. Interest rates are low, making it relatively cheap for Chugach to borrow money. Both utilities are anticipating declining demand in coming years from more efficient technologies. And the administration believes that given the uncertain economic outlook it makes sense for the city to shed a liability.

“One of the things we’re doing here is insulating Anchorage from the effects of the state’s fiscal problems,” Berkowitz said. “The more we can stimulate business, the more we can insulate ourselves, the more we can control our own fate, the better off I think we’re going to be.”

In a committee meeting just after the press conference, Assembly members questioned the particulars of the proposed deal, but generally expressed support for the sale.

If the Assembly approves the acquisition in January, voters will weigh in on the proposal in the April 3rd election.

There is no good reason why a city the size of Anchorage needs two competing utilities, both generating roughly the same amount of power. The duplication is mostly just an accident of history.

Energy policy advocates, as well as law-makers and the Regulatory Commission of Alaska are typically in favor of utility consolidation along the rail-belt, which supports six different power companies between Homer and Fairbanks.

Many familiar with energy policy say that combining companies together can lead to greater efficiencies.

“It will be important for us to look at the details,” said Chris Rose of the Renewable Energy Alaska Project. “But generally speaking, it looks like this is going to be a good deal for the rail-belt.”

Assuming the Assembly and voters opt to go forward, the deal would still need be approved by the RCA. Chugach thinks the sale could ultimately go through in early 2019.