If history repeats itself, in the next month fewer than one in ten members of Chugach Electric will vote to decide who will fill two seats on the cooperative’s Board of Directors. (If you pay your bill to Chugach, that’s you!)
Chugach is a billion dollar company – that we the members own. If you care about reliable and affordable power, it’s important to vote; and yet more than 90% of Chugach owners don’t. The Chugach election gets relatively little attention. It’s easy to take electricity for granted; but the results of this election determine who will direct a billion dollar entity with an annual budget soon to rival the Municipality of Anchorage. Chugach’s mission statement is to provide “safe, reliable and affordable electricity through superior service and sustainable practices.” I think it is an accurate statement of a valuable purpose, but a statement is easier said than done when it comes to balancing reliability and affordability.
In an election like this, with low turnout and even less media coverage, even well-informed voters can be left scratching their heads. Didn’t all the parties approve the Municipal Light and Power (ML&P) merger? What does the board even do? How do I know a good director when I see one?
I earned my Certified Cooperative Director (CCD) during my three years on the Chugach Board (2003 to 2005) and then went to work as a public advocate for the Department of Law, appearing regularly before the Regulatory Commission of Alaska (RCA). For a decade I argued on behalf of Alaska ratepayers, and worked in constant collaboration with financial analysts who crunched the numbers for all proposals to raise rates. That experience, understanding utility finances from both perspectives, shapes my understanding of the issues the Chugach Board will face over the next two years and that will shape the longer-term future of the cooperative.
Voting in Chugach elections is important and the choice of directors matters. The issues before us today are the result of past decisions made under different circumstances. What we really want to do is choose a board that will make the decisions we want them to, on issues we don’t yet know. In my first term on the Chugach Board, I learned some very valuable lessons from two notable Alaskans who served the cooperative well and who influenced how I approach decision making to this day.
The first of these was, like me, a lifelong Alaskan, proud to be raising a family here – Chris Birch. Chris and I disagreed on many things, sometimes quite vehemently. But as directors, we came to agree on many issues. It turned out we shared similar values – the same Alaskan values he so eloquently voiced in his last address before the legislature. It turns out that wanting our grid to be stable and forward looking, providing low cost, reliable power to our kids and grandkids, looks very similar regardless of politics. In working together, I think we both learned a bit about looking past superficial differences on an issue to find common ground and shared priorities that would serve the best interests of the whole community. Taking that approach led us to agreeing on the best answer rather than fighting over the “right” answer.
The other colorful character was former Lieutenant Governor Red Boucher. Red was a WWII vet who served as a weatherman on an aircraft carrier. He came to Alaska and did colorful things like run a sporting goods store, manage the Gold Panners baseball team, and “sell” the idea of the trans-Alaska pipeline to newspapers and opinion makers on the east coast. At nearly 80 he became concerned with the cyber-security of our railbelt electric grid, and ran for the Chugach Board. With no formal training in the field, he became one of the best informed, most forward-thinking cyber security experts in the state. Even at an age when we think of people as being “set in their ways,” he was the most “unafraid of change” decision maker I have ever met. He counseled me not to worry about today, it is what it is, but to look ahead to where today is going to deliver you into tomorrow, and make the best choices so you can end up where you want to be then, not where you wish you were now.
I am glad to have known both, and I look forward to bringing those lessons back with me if I am selected to return to the board. We are at an interesting historic junction, and it looks to me like we will be making decisions in the next ten years that will fundamentally shape how Chugach does business.
What does the Chugach Board do?
In general, board directors provide oversight, working with Chugach senior management to set policy. These policies translate into decisions on expensive questions, decisions that will determine the cost of electricity. Each of the board’s decisions – regarding system reliability, Chugach’s relationship to its sister utilities in the railbelt, or the environment – shows up in the rate structure.
In 2018, Chugach generated over $200 million in revenues. ML&P generated another $181. By comparison, the same year, the Municipality (including ML&P) had an operating budget of $506 million. The next Chugach Board is likely to be overseeing a budget comparable to the City of Anchorage.
When discussing utility operations, people like to say “the story is in the numbers.” For example, in the last year, with 84,510 meters over the course of 8,766 hours, Chugach provided over 740 million hours of service. To provide that service, Chugach owns and operates $700 million in plant (‘plant’ refers to durable assets a company uses to produce revenue), and another $100 million in other assets. When you add ML&P’s assets to Chugach, it will be a cooperative worth well over a billion dollars in net plant.
Together, the two utilities generate over $350 million in revenues. That’s a lot of money flowing through our local economy every year. It is the responsibility of the board of directors to navigate the cooperative so that it will continue delivering reliable and affordable power. Every one of our sixty-nine thousand members has the right to vote for directors. Votes are not weighted based on usage – each co-op member gets one, and only one vote. Last year 9.7% of the members voted; the year before that it was 9.9%. Given the responsibility of balancing the need for reliability against the costs of achieving it, you might want to be one of the 10% who will decide board leadership.
Without a doubt, the biggest immediate issue before Chugach is the acquisition of ML&P’s assets and service territory. With the addition of the ML&P generation fleet, and gas supply from Beluga, as well as the downtown customer base, Chugach is poised to become a billion dollar vertically integrated utility. The potential for long-term savings and economic benefit to the city of Anchorage is considerable. While some may quibble over short term impacts, few disagree that over the long term, the people of Anchorage will benefit. As you may have heard, the process of merging is almost complete – the proposal has been negotiated, voted on, and accepted by all parties. The RCA is scheduled to issue its decision approving the acquisition (I’m optimistic) in late May. With a change of this scale, there are likely to be unexpected twists, conditions, or challenges.
Once the RCA issues approval, the work of integrating ML&P into Chugach can begin in earnest. Two systems – payroll, warehouses, operations, billing, etc. – becoming one, will move from theoretical to applied. Chugach will evolve into one of the biggest member-owned electric cooperatives in the country. This will be an exciting time to be part of Chugach, and lots of decisions will need to be made in what to keep, what to integrate, and what to abandon.
Employee relations are a perennially challenging issue for the cooperative, and the acquisition of ML&P will involve onboarding hundreds of new Chugach employees. As a condition of the merger, Chugach has committed to retain ML&P workers, while anticipating gradual attrition. Other than the membership itself, our employees are our most valuable asset. Whether in a bargaining unit or exempt positions, our employees are notable for their excellence. For decades, Chugach and ML&P employees have built these two businesses as compatible side by side systems – their experience and understanding of what we have and how it works is essential for integrating two good systems into one great one.
The appropriate balance between reliability and cost of service isn’t obvious. Interruptions to service may be inconvenient for some customers but disastrous for others. The longer the interruption, the more complicated and severe the consequences. For the first few minutes of an outage, it’s not so bad – lights go off, clocks might stop. But the gas fired furnaces that keep our houses warm have electric switches that don’t work when the power is off. And if an outage is persistent, cash registers don’t ring; frozen food thaws; and traffic lights go dark; computer systems and switchboards shut down.
In 2018, the average Chugach customer went without power for 3.8 hours over the course of the year. That means Chugach power was 99.95% reliable. In industry terms, the gold standard is “four nines” — reliability of 99.99%. At that level, the average Chugach customer would not lose power for more than an hour. With the excellent workforce at Chugach, “four nines” is an attainable goal. To achieve it, the board directors must confront difficult, fact-intensive questions: how much system redundancy is warranted to ensure more reliable service? What is a reasonable cost to achieve “four nines” reliability?
Chugach in the Marketplace
Aside from navigating a merger, the board routinely evaluates and updates the role Chugach plays in the local economy. Not only is Chugach the largest electric utility in the state, but it plays a major role in the local natural gas market. That role will expand as it takes ML&P’s assets in the Beluga River Unit gas field. That in turn will form an even closer relationship with Enstar.
While Chugach generates revenue in the local economy with procurement and employee salaries, it operates as a cooperative rather than an investor owned utility. When income exceeds expenses, it registers not as a “profit” to be sent to the corporate owners as dividends, but is designated as “margins” returned to member/customers as “capital credits.” There is little precedent for utility coops the size of Chugach, and little apparent regulation of how capital credit “retirements” are to be structured. It is an economic tool that we should examine.
Integrating Alternatives into Future Generation
Many people don’t realize that the entire lower 48 is a single integrated grid. From the Florida Keys to Bellingham, Washington, San Diego, California to Bangor, Maine, it is interconnected. There are three zones – East, West, and Texas – and smaller service areas, but they’re all one system. In Alaska, the six railbelt utilities are similarly linked to form a very small grid. So even with the Bradley Lake Hydro project being down near Homer, some of that power may service loads in Fairbanks. The six railbelt electric utilities do not compete for service area – they are government granted monopolies.
Chugach should be a leader in seeking uniform regulation of all the railbelt utilities so that a single set of enforceable standards applies across our grid. That regulation should include uniform integration standards and planning and construction of future generation projects that integrates the interests and needs of the entire railbelt.
When discussing future generation, I am frequently asked what I think about renewables. That’s a deceptively simple question, and the answer is I think a lot of things. If we are talking about distributed consumer sized renewables, I think there should be uniform standards for integrating them into the grid. Right now there is no such requirement, and different utilities have different physical requirements, and have different methods of accounting for the power produced. Uniform regulation would benefit entrepreneurs who install home systems, or businesses who would like to install on-site co-gen systems. They would have a single set of standards to meet as they calculate the economics of any given system. As renewables scale up, they should be objectively evaluated based on long term economics and the triple bottom line analysis Chugach has adopted.
Right now, and for the near future, the railbelt is overbuilt and does not immediately need new utility scale generation. When the time comes for Chugach to consider new generation, it should cast a wide net in evaluating its options, including renewables. Not only should we evaluate emerging technologies based on solar, wind, tidal, and hydro, but we have to consider whether distributed or centralized plants will provide the most sustainable, cost effective, reliable power. We also have to consider how new plant will be planned for and old plant retired as obsolete. In doing so, we must coordinate with other utilities in planning our future.
Utilities are meant to be stable and predictable, so they need a relatively long planning horizon. Gas fired generators can last more than thirty years, wind farms fifty years, and dams a century or more. All are expensive assets with long service lives. If we build a generation plant that isn’t really needed, or if fuel for the plant suddenly becomes very expensive, costs jump with no improvement to reliability. Board priorities will influence the choices they make. It takes a large ship much longer to steer than it does a small boat, and Chugach is a big ship. Decisions the board makes on any given day probably won’t dramatically change the level of service or the cost in the short term, but they can continue to reverberate in the structure for a long time.
It is impossible for everyone to become an expert on all the important issues that the Chugach Board is expected to routinely deal with. That does not mean it is impossible to tell who will make the best choices. Look for someone with a sense of a positive future, someone not afraid to learn from others, who reflects the values you want to guide the decision making. On the other hand, be wary of someone who promises to always vote the “right” way, anyone too quick to pass judgment, or claim that the answers are obvious. Be especially suspicious of anyone who asserts that there is only one issue.
As a candidate, I ask for your vote. In return, I pledge that if elected I will work diligently to ensure that Chugach continues, as it has for over 70 years, to provide safe, reliable, and affordable electricity- powering Anchorage with superior service and sustainable practices.
Sam Cason is Alaska grown – born and raised in Homer. Sam served on the Chugach Electric Board of Directors from 2003-2005 and worked as an Assistant Attorney General for Regulatory Affairs and Public Advocacy in the Alaska Department of Law from 2006-2016, appearing routinely before the RCA. He is a junior nordic ski coach during winter and has practiced law and raised a family in Anchorage for the past 28 years.