HomeMy WebLinkAbout5- IPEC August 2011 Letter Rate IncreaseINSIDE PASSAGE ELECTRIC COOPERATIVE
August 19, 2011
Dear IPEC Members:
We at IPEC are very concerned about the negative effect of high electric rates on your finances
and quality of life. We realize that many of you are struggling to pay your bills, and that high
electric rates are especially difficult for businesses.
Unfortunately, the recent spike in diesel prices has led to yet another rate increase through the
fuel surcharge (also known as the Cost of Power Adjustment, or CODA). The PCE program will
absorb most or all of the increase for residential consumers, but businesses and other customers
not covered by the PCE program will be subject to the full rate increase.
Diesel prices paid by IPEC have reached all-time highs, even exceeding the summer peaks of
2008. We all know what it's like to fuel -up our cars nowadays, so you might imagine what it's like
for IPEC to buy diesel by the tens of thousands of gallons. Fortunately, fuel prices are now on the
decline and we are hopeful that next quarter the fuel surcharge will decrease.
I want to assure you that relief is on the way, although in some cases it may take years. IPEC
has many power projects on the horizon. that will reduce and stabilize your electric rates,
including the Gartina Falls hydroelectric project for Hoonah, and an intertie for Kake that would
connect it with Petersburg hydroelectric power. Also, we are in the process of purchasing the 10
Mile Hydro for Chilkat Valley & Klukwan. Our goal is to wean IPEC from fossil fuel electric
generation, and to rely on diesel for back-up power only. Other projects we are considering for
Hoonah include geothermal power from the head of Tenakee Inlet, and the Water Supply Creek
hydro potential. Also, we are applying for grant funds to study the Walker Lake hydro potential
for Chilkat Valley & Klukwan.
We continue to support the Thayer Creek hydro project for Angoon, which is being developed by
Kootznoowoo Inc., and they have the sole rights to develop the project. This is a project that
would be owned by the village corporation, and would sell power to IPEC for distribution in
Angoon. The laws and regulations of the State of Alaska require that Kootznoowoo sign a power
sales agreement with IPPEC. My staff has advanced ideas, written a grant — and offered to write
' more — for Kootznoowoo, but so far we have no agreement. IPEC believes the Thayer Creek
project is the best and most promising renewable energy project that could lead to reduced rates
in Angoon, and we stand ready to do whatever we can to advance this project. _.
IPEC's board of directors will soon meet to discuss many issues that have an effect on your
electric rates. The first is a possible transition from our current postage -stamp rate structure,
whereby each community pays the same rates, to a community cost -based rate structure. Under
this format the costs to serve at each community will be determined, and each community's rates
will be adjusted accordingly. If this happens there will be winners and losers, but doing so will
provide a clearer focus on the areas where we can improve through power project development. In
short, the winners are likely to be those communities powered by hydroelectricity.
RO. Box 210149 Auke .Bay, Alaska 99821. (907) 789-3196 Fax (907) 790-8517
Another program IPEC's board will soon consider is an operations audit. By hiring an
independent consultant, we hope to find increased efficiencies over and above those we have
already implemented. We have made great strides in achieving near optimal efficiencies at our
power plants through our success in winning grants that have funded the installation of new
equipment. But, we hope that bringing in an expert to look at our operations from a fresh
perspective will help us to identify and implement ideas to achieve even greater cost savings.
IP.EC is one of few non-profit electric cooperatives in the State of Alaska that is regulated, since
cooperatives are, by nature, governed by their members through an elected board of directors.
The question our board will soon address is if the cost of regulation is something our rate payers
should have to bear. To give you an idea of how much regulatory review can cost, IPEC spent
about $139,013 on the most recent rate case, and then had to spend another $22,803 when one of
our members intervened and insisted on a hearing. Sometime in the future we may ask for your
vote to deregulate IPEC so that you, our members, won't have to pay these costs.
Ideally electric utilities enjoy sales growth, which in turn more than offsets increasing costs of
operations. But IPEC has experienced a long period of declining sales at the same time that costs
of providing electric service have increased. Because we are regulated, IPEC was required to
submit a .revenue requirement based on the 2008 test year. It showed that we needed a rate
adjustment to meet our rising cost of services, and to satisfy our lenders. For IPEC and our rate
payers, it seems a no -win situation: to get an increase in rates our rate payers have to bear the
costs of presenting our rate adjustment case. Top that off with the situation that developed when
a rate payer intervened, and we are all on the hook for those expenses as well.
The rate increase was implemented in .February 2009, so there will be no further increase from
this filing other than the cost of fuel adjustments, which come in the form of a fuel surcharge.
The payments we collect from our members barely meet the minimum requirements of our debt
obligations. As a member -owned non-profit electric cooperative, we don't have to worry about
making a profit, but charging any less for electricity would put our utility at risk of loan default.
Should this happen, IPEC's ability to provide our members with safe, reliable electric power
would be in severe jeopardy.
We all want the same thing: lower prices for the electricity we distribute. In a perfect world,
increasing demand would more than compensate for increased operational costs, but rural
communities throughout Alaska are losing population. At this time, our best defense is to
increase efficiencies to lower the cost of operations, and to invest in lower cost energy generation
technologies such as hydropower.
We look to you, our members, for suggestions. Please feel free to contact me.
Sincerely,
INSIDE PASSAGE ELECTRIC COOPERATIVE, INC.
6-�d1 �
Jodi Mitchell, CMA
Chief Executive Officer & General Manager