Politicians, stakeholders want conditions for Juneau utility sale

  • The damming of Long Lake south of Juneau allowed for the construction of the Snettisham Hydroelectric project in the 1960s, which has provided low-cost power to the state capital ever since. A pending sale that could allow the dam to become owned by a Canadian utility is drawing objections from across the state and its lone U.S. Rep. Don Young. (Photo/Courtesy/Alaska Industrial Development and Export Authority)

Alaskans with addresses from North Pole to Washington, D.C., are objecting to the proposed sale of the Juneau electric utility by its current Washington state-based owners to a large Ontario utility.

The cause for the North American geography mini-lesson is what will happen if the Regulatory Commission of Alaska approves the sale including the 78-megawatt Snettisham hydroelectric facility that provides up to 75 percent of Juneau’s base load power supply.

In July, Toronto-based Hydro One Ltd. and Spokane, Wash.-based Avista Corp. announced that Hydro One would buy Avista for $5.3 billion in cash to form one of the largest utilities in North America with a combined asset value estimated at more than $25 billion.

Avista bought Alaska Energy and Resources Co., the parent to Juneau’s electric utility Alaska Electric Light and Power, in a deal that closed in 2014 for $170 million. Prior to being under Avista, a Juneau family held majority ownership of AEL&P.

The Juneau utility operates and maintains the Snettisham facilities located about 30 miles southeast of Juneau, but the hydro project was built by the U.S. Army Corps of Engineers in the 1960s and subsequently expanded multiple times.

Snettisham was sold to the state-owned Alaska Industrial Development and Export Authority in 1998 as part of a broader federal move to divest from local utilities nationwide. The state investment bank financed the purchase with $100 million in revenue bonds, which will be paid off in 2034, according to AIDEA.

The sticking point in the sale is what happens when those bonds are paid off and AIDEA owns the hydro facilities and the associated 44-mile transmission line free-and-clear.

At that point, the owners of AEL&P have the option of purchasing the energy-producing infrastructure for $1, a condition of the 1998 purchase by AIDEA, according to a letter from Rep. Don Young to the RCA.

Young’s Dec. 4 letter to the commission — submitted during the public comment period on the proposed Avista to Hydro One sale of AEL&P — urges the RCA to condition the sale to require the Snettisham facilities remain in state or local ownership.

“The Snettisham assets were transferred to the State of Alaska at below construction and replacement value to help insure low electric utility rates in Juneau. I can (assure) you that it was never Congress’ intent that this asset be transferred for the potential profiteering by Canadian government interests,” Young wrote.

“At this point, a foreign government entity could ‘hijack’ this public asset initially built to produce low-cost power and pledge, monetize or refinance this asset cashing in the equity at the U.S. taxpayer and Alaskan ratepayer expense without recourse,” he continued. “A Hydro One sale, without divesture of this asset option, could pre-empt Juneau from reaping the benefits of Congress’ intended purpose.”

Young concluded by clarifying he does not object to the sale other than to ensure Snettisham remains in public ownership.

Hydro One, Canada’s largest electric transmission and distribution utility according to its website, was formed by the Ontario Legislature in 1906. It became a publicly traded company on the Toronto Stock Exchange in late 2015 as the provincial government began divesting the utility.

The government of Ontario currently owns 47.4 percent of Hydro One shares, according to the international investment research firm Morningstar Inc.

Alaska Independent Power Producers Association Director and Juneau-area resident Duff Mitchell said in an interview that Snettisham power currently costs a little more than 5 cents per kilowatt-hour and once the bonds are paid off that rate could drop to less than 1 cent per kilowatt-hour.

If Hydro One is allowed to own Snettisham it could refinance the project, monetize its equity or use it as collateral for other projects and potentially impact future rates in Juneau, Mitchell stressed.

He said the $1 purchase option also applies to Avista, but wasn’t generally known when its purchase of AEL&P was pending in late 2013-14.

“It’s a very simple fix; it doesn’t hurt Hydro One. Juneau will get its rates reduced and it keeps a foreign government entity from playing games with the asset,” Mitchell said.

Alaska state Rep. Tammie Wilson, R-North Pole, reiterated Young’s sentiments in comments to the RCA, contending that, “If Hydro One is successful in obtaining RCA approval with the Snettisham asset rights, this would set a bad precedent that Alaska is for sale and that it is open season to plunder our state. This is a bad message.”

Additionally, Alaska Chamber CEO Curtis Thayer, former legislators Cathy Munoz and Lesil McGuire and numerous Juneau residents joined in support of conditioning the sale of AEL&P.

Hydro One and Avista wrote in a joint response to the public comments Dec. 11 that they agree with Young that Snettisham “should be preserved for the benefit of Alaskan utility rate payers so that it can continue to provide low cost power for Juneau” and should remain in local ownership.

They argue, however, that the concerns are already addressed and conditioning the sale is unnecessary.

Utility operations will stay the same when the deal closes, according to the companies.

“As it does today, AEL&P will continue to manage the utility and will continue to have certain rights and obligations relating to Snettisham,” they wrote. “Avista has not inserted itself into AEL&P management and neither will Hydro One, because the structure of the merger leaves in place local control.”

Former AEL&P director Neil MacKinnon wrote to the RCA that he supports the sale as-is because, among other things, it makes no difference who owns the hydro facilities given the power can only go to the Juneau area and the commission has to approve any rate changes. The expertise a large owner company provides the small utility is extremely valuable as well, according to MacKinnon.

(This story has been amended to correctly note that former Alaska Electric Light and Power director Neil MacKinnon supports the Avista-Hydro One transaction without stipulations. The original version of the story incorrectly stated MacKinnon requested the RCA condition the sale.)

The RCA rejected the utility companies’ first sale application in Nov. 8 on procedural grounds. They reapplied Nov. 21 and the commission has until May 20 to issue its decision.

Wilson, who has championed open access for small, often renewable power producers to utility-owned transmission lines in the Legislature, also urged the RCA stipulate Hydro One provide open access to the Snettisham transmission line that runs from the generation facilities to Juneau.

“The RCA, by conditioning Hydro One, can send a public interest message to the utility industry that if multi-state or multi-national corporations want to take over Alaskan utilities and do business in Alaska that they will have to treat Alaskan energy developers with the same nondiscriminatory transmission interconnection rights and privileges that they are required to provide energy developers in other jurisdictions,” Wilson wrote.

The Federal Energy Regulatory Commission requires Lower 48 electric transmission owners to provide all power producers equal access to transmission infrastructure.

Current Alaska laws and regulations do not, according to Mitchell, which has been a growing source of contention between renewable power startups in the state and the utilities that own or manage large segments of Alaska’s transmission lines.

Hydro One sells power to Lower 48 utilities and as a result operates under FERC regulations in many instances despite being a Canadian company.

Hydro One spokeswoman Tiziana Baccega Rosa wrote in an emailed response to questions that the benefits of the Snettisham facility will remain in Alaska and that AEL&P is already subject to the RCA’s open-access requirements and will continue to comply with them.

However, Wilson and McGuire, of Anchorage who retired from the state Senate in 2016, further noted that Juneau Hydropower Inc. has been trying to gain access to the Snettisham line from AEL&P for several years without success.

Juneau Hydropower, also led by Alaska Independent Power Producers Association head Mitchell, has regulatory approval to construct the Sweetheart Lake hydro project south of Juneau but needs to secure transmission capacity before it can start construction.

The 20-megawatt hydro project would supply power to the Kensington gold mine north of Juneau, which currently runs on diesel-fired generation.

Kensington’s owner company Coeur Mining also urged the RCA to condition the Hydro One sale on an access agreement with Juneau Hydropower, which has been trying to get such an agreement since 2012, according to the filings.

The Sweetheart Lake condition was a request of AIPPA as well.

Mitchell acknowledged that his company would stand to benefit from such terms, but said the stance is in line with what the association has sought for years in other similar instances across the state.

“I believe our state is the breadbasket of renewable energy and we have manmade problems keeping those developments from happening. It’s not a question of financing; it’s not a question of natural, God-given resources. It’s a question of legislative and regulatory problems,” Mitchell said. “I have always been — Juneau Hydropower and AIPPA has always been — consistently for open access and non-discriminaatory access to transmission lines in Alaska.”

He also noted that Sweetheart Lake, by getting Kensington off diesel, would cut Juneau-area greenhouse gas emissions by about 8 percent.

“I’m doing what America is supposed to do,” Mitchell emphasized. “If you can offer a better product — this transmission issue does affect Juneau Hydropower but it also affects every independent power producer in Alaska.”

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
01/18/2018 - 11:07am

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