On May 2, Seward’s citizens will make one of the most important decisions the city has faced in recent history. Special election voters will decide whether the city sells its electric utility to Homer Electric Association (HEA), or keeps it in current ownership.
As Seward’s City Manager, I encourage voters to carefully weigh the advantages and disadvantages of selling the utility. This decision will impact generations to come, so it’s important to think through the issue. In approving the special election and selecting HEA as its preferred utility provider, our city council attended three executive sessions to evaluate the pros and cons of selling the utility. These sessions included presentations from both HEA and Chugach Electric Association (CEA.) Afterward, it became clear to council members that a larger utility would best serve our community. The council made this determination by focusing on three R’s of an electric utility: rates, resources, and reliability.
Below are key points for voters to consider:
Rates
Over the next 12 to 15 years, the city’s electric system faces multiple rate increases as the utility catches up on deferred maintenance and begins updating technology to modern standards. Economic modeling shows ratepayers may see the first of these rate increases reaching 10 percent or more. This is the challenge facing a small utility without a large population for spreading costs – the city of Seward has fewer than 3,000 electric meters. When regular maintenance is postponed, eventually bigger investments are required to get back on track. This is the situation in Seward today.
Currently, HEA’s residential rates are nearly three cents per kilowatt-hour higher than residential rates in Seward. But this is only a snapshot in time, as Seward’s rates will most certainly surpass those of HEA in the not-too-distant future. Unlike Seward, HEA has invested aggressively in maintenance, dependable power generation and storage, and technology (cybersecurity). These strategic investments are moving HEA into a position of rate stability, while Seward is moving in the opposite direction. Additionally, HEA, with approximately 36,000 meters, has a significantly larger customer base for both bringing in revenues and spreading costs.
For perspective, Seward will spend $10-$15 million within the next three years to upgrade its aging infrastructure. Simple math tells us customer rates will rise much higher when those costs are spread across only 2,900 meters compared with 36,000.
Resources
A larger utility brings more resources to bear, both human and financial. Our system in Seward operates with only 10 employees, most in positions that are operations-focused. HEA operates its system with more than 130 employees. Seward’s limited staffing is unlikely ever to allow for the programs and services many of our customers have requested but that only larger utilities provide. Services like equal payment billing, heat pump rebates, energy efficiency education, low-income assistance, commercial rate alternatives, and various others, are more standard in larger utilities. Additionally, limited personnel results in coverage gaps when an employee retires or otherwise moves on from the utility. And as we all know, finding skilled new employees is often hard because of Seward’s relatively remote location.
Seward’s staffing limitations also mean the utility cannot rely on in-house expertise offered by larger utilities, especially in areas like billing, engineering, rate design, cybersecurity, and communications. Instead, Seward’s electric department relies on consultants for these services, which is expensive and inefficient and often results in project delays.
Seward’s financial resources are also restricted by the small number of customers (or meters.) Unfortunately, Seward’s number of meters has not changed much over the past two decades, making it difficult to increase the electric utility’s revenues in any meaningful way. Ironically, what makes Seward such an attractive place to live and visit – large, majestic mountains surrounding the scenic Resurrection Bay – makes it difficult for the city to expand its borders and for the electric utility to gain new customers and revenues.
Reliability
Of course, fewer human and financial resources means less system reliability, bringing us to a fourth “R”: reality. Running an electric utility is expensive. It requires regular investments in maintenance, new infrastructure, updated technology, and employee training and retention. In Seward, these investments are even harder to make with its small number of electric customers to drive revenues and stagnant system growth. These factors make ongoing upgrades difficult to achieve. Over time, this places the utility in the difficult position of weighing system investments against the impact those costs will have on customer rates, which could directly impact reliability.
But compromising relia-bility is not an option. The electric department is taking steps to catch up on deferred maintenance and has begun making significant operational investments. The utility has taken out a $10 million bond to rebuild aging transmission infrastructure, spent nearly $1 million to clear transmission rights of way, and paid approximately $300,000 to repair one of the power plant’s six diesel generators. These investments are separate from the rising costs the utility is already managing due to higher inflation.
All electric utilities have a responsibility to serve their customers with the safest, most reliable and affordable power they can deliver. The citizens of Seward deserve this same level of service from their electric provider. The city is fortunate that its small team of electric department employees is so dedicated to keeping the lights on. We can rightly be proud of their service to all of us.
In closing, I ask voters to consider this question before casting a ballot: “Are rising rates, fewer resources and services, and a potentially less reliable system what I want from my electric utility?”
Editor's Note: On Monday, Feb. 13, Homer Electric General Manager Brad Janorschke is scheduled to offer a presentation at the 7 p.m. City Council regular session regarding the company's plans for Seward in the event the May 2 vote to sell the city-owned utility is passed.
