GVEA filed the new rate hike proposal on Jan. 12 with the Regulatory Commission of Alaska, according to the utility's Web site on Jan. 20. The earliest the rate increase could become effective is March 1, according to the press release.

Steve Haagenson, GVEA president and chief executive officer, said the rate hike is necessary "to maintain the financial health of our co-op and to stay in good graces with our bankers."

Costs for capital projects, including the Battery Energy Storage System, the Northern Intertie and the North Pole power plant expansion, were cited as contributing to the rate hike request. Inflation, from the cost of gas and transportation to transformers and insurance, has also increased expenses, the press release said.

"We're not unique in dealing with a volatile energy market," said Corinne Bradish, GVEA's spokeswoman.

In addition to base rates, the utility also collects additional revenue to cover changes in fuel costs, an adjustment to monthly bills that in past years credited members with the economic benefits of scale attributed to adding the Fort Knox gold mine to the Interior's power grid.

That $7 million annual benefit still exists, Bradish said, although instead of a credit, it now offsets by about one-sixth of a cent a fuel cost charge levied to all users. The fuel charge on top of GVEA electric tariffs currently adds about 3 cents per kilowatt hour.

The fuel cost calculation is adjusted on a quarterly basis and is designed to reflect the utility's varying costs of fuel to generate electric power, according to Bradish.

Residential users currently pay a $15 monthly charge and a base rate of 9.6 cents per kilowatt hour, according to Henri Dale, GVEA's power systems manager. The 3 cent per kilowatt fuel surcharge effectively adds about 30 percent to residential electric rates.

For large industrial users, the fuel surcharge adds about 55 percent to the base electric rate. Of the various categories of commercial users, the largest currently pays a customer charge of $180 per month and an energy consumption charge of 5.4 cents per kilowatt hour, Dale said. In addition, those industrial users also pay a demand charge of $11.88 per kilowatt hour, calculated on the peak amount of electricity they consume.

GVEA last requested a rate hike in January 2004. That increase was appealed by the Fort Knox gold mine, which draws up to 35 megawatts of non-firm power on a continual, round-the-clock basis.

Joining in Fort Knox's appeal was the attorney general, on behalf of GVEA's other customers, and Alyeska Pipeline Service Co., which plans to convert a Delta Junction area pump station on the trans-Alaska oil pipeline system to electric power.

Alyeska signed a contract with GVEA in mid-2004 to buy up to 16 megawatts of electricity beginning in late 2005. That pump station power conversion project has been delayed to September 2006, according to Alyeska spokesman Curtis Thomas.

Alyeska's delay is welcome by GVEA, Haagenson acknowledged, as the utility is already facing increased electrical demand from growth in the Interior and anticipated completion of the Pogo gold mine, another large electric user involved in a contract dispute with GVEA in 2005 and early this year.

GVEA and Teck-Pogo Inc. resolved that dispute in late January and the gold mine is currently buying firm power at the existing industrial tariff rates, according to Karl Hanneman, manager of public and environmental affairs.

On the edge

GVEA's current generating capacity meets existing demand, Haagenson said, although the system is "on the ragged edge" when considering the "first contingency" of losing the utility's largest generator, a 65-megawatt diesel-fired unit at North Pole.

GVEA's generating capacity totals 228 megawatts, including 120 megawatts at existing North Pole facilities, 36 megawatts at the Zehnder plant in Fairbanks, 27 megawatts from a recently relocated diesel plant in Delta Junction, 25 megawatts generated by a coal-fired plant about 100 miles away in Healy and 20 megawatts generated by a hydroelectric plant at Bradley Lake, near Homer, more than 600 miles away.

Not included in that count, but part of the utility's ability to meet the "first contingency" scenario, is aged diesel generation capable of producing about 6 megawatts in Fairbanks, Haagenson said.

In addition, GVEA recently signed an agreement with Aurora Energy, which operates a coal-fired power plant in downtown Fairbanks, ending a long-running dispute over rates. GVEA agreed to pay 5.2 cents per kilowatt hour for power generated by Aurora, guaranteeing purchase of all power produced in excess of that consumed within the power plant.

Although GVEA and Aurora negotiated the amount of power to be provided under the contract, ranging from 17 to 34 megawatts, Haagenson said GVEA plans on obtaining about 20 megawatts from Aurora.

Maximum power production at Aurora's plant is 27 megawatts, according to Buki Wright, general manager. Under the new contract terms, Aurora plans to provide an average of 22.37 megawatts to GVEA in 2006. "That's up a good bit from 2005 and is right at the top of what we think is a stretch of what we will be able to do," Wright said.

The agreement with Aurora comes as GVEA's peak demand is on a sharp uphill climb. January's cold snap provided GVEA with a new peak of 204.1 megawatts required by Interior electric users, according to Dale. That's an increase of nearly 6 percent from the 192.8 megawatts cited as the system's peak demand in 2004 and a 10.5 percent increase from the 184.6-megawatt peak demand recorded in 2003.

"Pogo is in the grid, but they're barely getting started ... (demand) will be increasing as time goes on," Dale said. "We'll pick up another 5 megawatts or so."

But that late January peak came only as Pogo was drawing 3 of its planned 13 megawatts of power, and with no power being drawn by Alyeska at the pump station.

A succession of rate increases

While the state regulatory board considered GVEA's January 2004 rate request and appeal, the electric provider collected the full 8 percent increase from all of its users. When the RCA ruled in December 2005 that GVEA should only increase its rates 5.57 percent, the electric utility was forced to return the difference to its customers through adjustments to their January bills. The total refunded was more than $3 million, according to Bradish.

Now that the past rate increase has been settled, GVEA is back before its members and the RCA with another increase proposal. The 8 percent hike is the maximum amount allowed within a 12-month period. Total rate hikes within a three-year period cannot exceed 20 percent, according to the utility governing rules.

While GVEA members may oppose the latest hike proposal, it's possible that it will be followed up in the next year with another rate adjustment, Bradish said. That's because the initial approved rate hike of 5.57 percent was not enough to maintain GVEA's past levels of margins, the amount of revenues collected in excess of costs.

According to GVEA's annual report for 2004, the margin was $3.1 million, down from the $3.9 million reported for 2003. While final numbers have not yet been reported for 2005, the margins are down near zero, Bradish said.

"When we filed in 2004, the hike we needed was really 13 percent, but we could only do 8 percent," she said. "With it held up, we were not able one year later to adjust the rates again."

GVEA's margins have decreased, in part, to capital costs associated with construction of the Northern Intertie, the BESS system and the North Pole expansion project, which remains unfinished after construction stopped in September 2005 over contract disputes between GVEA and its general contractor for the project, H.C. Price.

GVEA hired Price to erect a $75 million gas-fired power plant, capable of producing 60 megawatts of power. Construction started in mid-2004 and by last September, the overall project was approximately 66 percent complete with a May 2006 completion schedule, according to a Sept. 12 statement issued by David Matthews, vice president and Alaska area manager for H.C. Price.

GVEA terminated the contract with Price in response to a change order request that "sought adjustments necessary to reflect the allocation of risks and costs of the project between the parties in accordance with the terms of the EPC contract," the statement said.

Since then, GVEA hired Fairbanks-based Griffard Steel to button up the building last fall, and was working in late January to finalize a contract with Bellingham, Wash.-based Haskell Corp. to finish the facility, according to Dale.

Completion of the power plant is part of the ongoing negotiations, Dale said, but is anticipated by the fall of 2006. "On the actual dates, we're still going back and forth."

Since 2000, GVEA has been working on the North Pole power project after a study projected the utility would need additional generating capacity in 2005. A construction bid went out in the fall of 2002, but the scope was too broad, according to Kate Lamal, vice president of power supply. The company hired NANA/Colt Engineering to further define risks and take away some of the uncertainties of the construction project, hoping to get better cost estimates, she said.