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Providence hospital fights Anchorage utility over rate increase

Suzanna Caldwell,Nathaniel Herz

One of the largest commercial customers of Municipal Light and Power is challenging the city-owned utility's proposal for a steep rate increase, saying it failed to take measures to soften a sharp rise in prices.

In filings before the Regulatory Commission of Alaska, Providence Health and Services argues that ML&P isn't making full use of its revenue and savings to offset heavy spending on a pair of new power plants. And, Providence says, more robust energy efficiency and conservation measures by the public utility could have entirely headed off the need for the newest plant, a $325 million East Anchorage project that broke ground last month.

ML&P is asking the RCA to approve a two-phased plan that would raise prices by 22 percent for its 30,000 residential and commercial customers by early 2016, primarily to cover costs of the power plant it recently finished building with Chugach Electric Association off Minnesota Drive and International Airport Road.

ML&P's filings with the commission forecast that customers will likely be hit with more rate increases when the East Anchorage plant is done: a 25 percent jump in 2017 and 6.5 percent in 2019.

That means Providence Alaska Medical Center's annual energy bill could go from $4.4 million in 2012 to $8.6 million in 2019, a net increase of 90 percent, according to the hospital's filings. The largest hospital in the state, Providence is also ML&P's second-largest customer, falling behind only Joint Base Elmendorf- Richardson in power consumption.

It's unclear how Providence calculated its figures. A spokesperson for the organization declined to comment beyond saying that it stood by its figures, and a separate analysis of ML&P's filings by the Daily News shows a net rise of no more than 72 percent through 2019 -- though that doesn't account for expected savings from the increased efficiency of ML&P's new infrastructure.

Municipal officials declined to grant interviews with ML&P officials, citing the ongoing commission proceedings. But ML&P spokesperson Veronica Dent said in an email that Providence's figure "significantly overstates the actual impact" of the proposed rate increases, and that it's too early to predict exactly how much rates will rise.

The utility's financial practices are prudent, Dent said, and ML&P needs its newest power plant so that it can provide "safe, reliable and affordable power to its customers."

"The plant was appropriately sized and configured based on extensive review of all options," Dent said.

Providence pushback

In testimony pre-filed with the RCA earlier this month, Richard Beam, system director for energy management services for Providence, had harsh criticism for ML&P's proposed rate increase, saying it would have a "severe detrimental impact" on the services the hospital provides in Alaska.

Hospital officials and their consultants argue that ML&P could soften the increase with spending measures, like using some of its savings or cutting down on the dividend the utility pays to the municipality each year.

Municipal code allows ML&P to pay Anchorage a dividend of up to 5 percent of the utility's annual revenues; last year, that dividend amounted to $6 million.

The money goes into a city general fund, and spending from that account isn't limited to projects that benefit ML&P customers.

Providence pointedly asked whether the utility's management "had ever discussed the possibility that it might not be prudent to continue making dividend payments to the (city) of approximately $6 million per year, after it realized that its entire production fleet had become obsolete and would need to be replaced as soon as possible."

Dent, the ML&P spokesperson, said the utility is required to operate on a for-profit basis. It can't force customers to pay for the dividends by raising rates, she added.

Then there's the issue of ML&P's savings account, which currently holds $70 million earned selling gas from a Cook Inlet field it partially owns.

The money is earmarked for future gas field investments or to buy the natural gas that ML&P uses to generate its power. But the utility is asking the RCA for permission to make a one-time $5.5 million payment from the account to help offset the proposed steep rise in rates.

Dent said ML&P's request for the one-time payment is "reasonable and prudent."

Providence's consultants, however, want the RCA to remove the restrictions on the account so ML&P can use interest from the cash to help offset rate increases.

The change would reduce the utility's revenue requirements by nearly $6 million every year, the consultants said -- a significant chunk of the $25.5 million annual revenue gap the proposed rate increase is aimed at closing. And ML&P could still use the account to pay for gas field improvements later, according to the consultants.

Energy efficiency?

Providence also charges ML&P with failing to implement robust programs to increase its customers' energy efficiency and reduce demand.

Beam argues in his testimony that ML&P was unwilling to even consider allowing Providence to install money-saving cogeneration units that would supply heat and power to the hospital, saying the issue was rejected out of hand at a meeting with ML&P last August.

Beam called the incident an example of ML&P's inability to work with its largest customers to reduce the need for a huge capital construction campaign.

Chugach Electric Association, by contrast -- which provides power to customers just across Tudor Road from Providence -- allows customers to generate their own power without the restriction of having to buy the power back at a higher rate, Providence added.

Dent responded that "ML&P is not opposed to customers generating power." But ML&P says in its commission filings that allowing its customers to generate their own power would "unreasonably shift costs" to others.

Providence maintains that all customers benefit from energy efficiency efforts because they reduce the need for new power plants like the one ML&P is currently building. But the utility doesn't give customers energy efficiency grants on the grounds that the consumers benefiting from such investments should have to pay for them.

Providence also charges that ML&P has rushed to build its new plant without fully exploring alternative programs that could have reduced customers' need for power.

"ML&P could have spent a tiny fraction" of the $325 million construction cost on energy efficiency and initiatives to shift customers' demand for power away from peak times, Beam said.

In its filings, ML&P argues that customers' demand for power has actually been falling anyway, thanks to a new plant that uses gas from Anchorage's landfill to create electricity for JBER.

Jennifer Johnston, who chairs the Anchorage Assembly's committee overseeing ML&P, didn't directly deny that there may have been ways to avoid building the new plant. In fact, she said, she examined last fall whether it was possible to stop construction.

"But we've signed a contract -- I don't see us being able to go backwards," she said. "We're down this road, and I just don't see where we can pull the plug."

Plus, at the time the decision was made to build the new power plant, Johnston said, natural gas supplies were tight, and utilities were considering imports. The equipment in the newest plant will be more efficient and will reduce ML&P's need for gas, even if it's costly to build.

"While I regret some of my decisions, you have to look at the environment of the time," Johnston said. "It's always easy to do 20-20 hindsight."

ML&P says it could probably get by without its new power plant over the next few years. But it also says the extra fuel costs of running older, less efficient equipment, combined with the need for maintenance and the added risk of "catastrophic failure," make the investment necessary.

"Each of these factors, by itself, would be sufficient to justify construction of the new plant," ML&P said in its commission filings.

But Duff Mitchell, executive director of the Alaska Independent Power Producers Association, argues that the utility is suffering under a lack of competition. By not allowing independent power producers like Providence in, it finds itself free from the market forces that allow for such cost overruns.

"People are saying, look, we can't be beholden to a utility with their built-in inefficiencies," Mitchell said. "It's just too expensive."

Reach Nathaniel Herz at nherz@adn.com or 257-4311. Reach Suzanna Caldwell at suzanna@alaskadispatch.com

 


By SUZANNA CALDWELL and NATHANIEL HERZ
suzanna@alaskadispatch; nherz@adn.com