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Manufactured doubts obscure a no-brainer on ML&P sale

  • Author: Charles Wohlforth
    | Opinion
  • Updated: March 11
  • Published March 11

Don't vote against the merger of Anchorage's power companies because you are doubtful or confused. Large transactions are always complex, but once you understand this deal, there's no good argument against it.

I could speculate on the motivations of opponents emerging on the eve of the mail-in election who have raised process issues to create doubt. The sale is seen as a win by Mayor Ethan Berkowitz, whose bid for re-election is on the same ballot.

But there's no need to get into the politics. A reasonable person who understands the facts would vote yes regardless. So here are the facts.

Anchorage grew up with two utilities serving distinct areas. Municipal Light & Power serves within the old city limits, boundary lines that were erased 43 years ago. Chugach Electric serves outside that area.

Residents own both companies. ML&P is owned by the Municipality of Anchorage. Chugach is a co-op of ratepayers.

Both companies are regulated monopolies. There is no competition in the electric business.

But while the companies don't compete, they do duplicate, and that has been very costly for Anchorage.

Day to day, we pay for two entire management and administrative staffs. Even more expensively, we pay for duplicative facilities we don't need.

In a city the size of Anchorage, it makes no sense to build power plants a few miles apart. Experts say a recent building spree in our region may have wasted $300 million in extra electrical capacity. Power users will be paying for that for a long time.

Consolidating these utilities has been a holy grail for local leaders for decades. The benefits are too painfully obvious for disagreement.

With that substance solid, opponents have focused on process.

Getting process right is important. But process issues here would have to be serious and fundamental to outweigh the benefits of the merger.

Consider the issue of competitive bidding. Is the city getting a fair price?

Berkowitz hired Goldman Sachs to calculate the utility's value. The price Chugach is offering matches that number. The Municipality also asked other potential buyers what they might pay. None provided numbers substantially better than what is on the table.

If those moves had been made in the open, opposition to the sale would be weaker. But the city released the documents only after public records requests from ADN.

Businesses commonly demand non-disclosure agreements before talking. Municipal Manager Bill Falsey agreed to those terms because he thought doing so would yield more information. But he told the companies that open records law would require release of the documents on request.

I think Falsey made the wrong call. Transparency should be a condition of working with the Municipality. But no harm other than voter distrust has resulted — all the same information is public now.

In fact, the price doesn't matter much. We are selling the company to ourselves.

Electric bills paid to Chugach will cover the purchase price. That money will go to the Municipality to pay off ML&P's debts and offset taxes.

A higher price means higher electric rates and lower taxes. A lower price means the opposite. The proposed deal keeps the balance as close as possible to what it is now. That seems reasonable.

Some critics have said the Municipality should have put ML&P up to bid and sold it for top dollar, regardless of the winner.

An outside buyer might have brought more money to the Municipality. But it wouldn't have solved the problem of having two utilities serving a small area and duplicating services.

Also, remember who is paying for all this. If an outside firm paid twice as much for ML&P, all that money — plus that company's profit — would come from our pockets as ratepayers.

Former Mayor Dan Sullivan wrote recently he would vote no because the sale violates the spirit of the Anchorage Charter (it doesn't violate it legally).

Sullivan's arguments don't make sense if you understand the charter's history.

Past controversies about selling utilities junked up the charter with a lot of language that is no longer relevant. I was in the middle of some of those issues and I wrote the official history of Anchorage, so I know what I'm talking about.

For example, the charter contains a provision requiring a 60 percent majority vote to sell a utility.

The Charter Commission, meeting in 1974 and '75, inserted that provision to persuade voters to unify to the old city with the rest of the bowl. City residents who had paid for the utilities were afraid the new Municipality would sell them to unfairly reap their value. The 60 percent requirement would prevent that.

Those concerns went away decades ago. Now the 60 percent requirement serves no purpose. Meanwhile, the Alaska Constitution says 50 percent can amend the charter, so the 60 percent rule isn't operative legally, either.

Sullivan also pointed to language in the charter about competitive bidding.

That provision was added during a fight over selling the city's phone company, ATU. In 1991, a company from Washington that wanted to buy ATU got the charter amendment on the ballot using hired signature gatherers from California.

That company eventually did win ATU with a high bid. Later events proved it paid too much. That was good for Anchorage, because we pocketed the sale price while competition held down rates.

But this is different. ML&P is a monopoly. Excessive bids would eventually come out of the hides of ratepayers.

Besides, why would we let an old, irrelevant petition initiative stop us from unifying electric service in Anchorage? Only a sale to Chugach can achieve that goal.

Berkowitz was diplomatic when I asked him about the source of the opposition.

"We're so conditioned here to finding problems, that I fear people have forgotten how to say yes," he said.

If so, that would be a shame. The prize is large. We could complete the unification of Anchorage begun generations ago.

But this moment may be brief. Interest rates are rising.

"There's a window here," Berkowitz said. "Deals don't stay on the table forever."

The views expressed here are the writer's and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser.

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