Over the past few months there has been a concerted effort by Homer Electric and the City of Seward Administration to convince us to vote on approving the sale of our electric utility, which our community has owned for 85 years. Mostly, it's been the warm fuzzy stuff they’ve been peddling, along with a little fear mongering like looming cyber-security risks and out of control future costs to maintain our system – important yes, but no different than the many hundreds of small utilities across the country. Yet, today as we approach voting day, we are given no independent rate comparison – present and future to understand the long term economics of the choice being presented. Why?
As a residential ratepayer and heat pump owner in Seward, I am mostly focused on our residential rates, and in particular, our Seward’s unique lower winter rate that benefits year-round residential and small business ratepayers. Our Seward winter electric rate is extremely helpful for lower and fixed income residents and small businesses who struggle to pay their bills and keep their doors open year-round. Winter is when the majority of our residential power is consumed. This winter rate is especially beneficial for homeowners and businesses who have installed, or plan to install, a heat pump to lower their heating bill, or plan on purchasing an electric vehicle (EV) in the future. If we sell to a regulated utility, there will no longer be a beneficial winter rate, period.
Here is a comparison I presented to the City Council recently of overall rates between Homer Electric and Chugach Electric.
I averaged the published kWh rates of the 4th quarter of 2022 between residential and small and large general of both Chugach and Homer Electric to get a reasonable estimate of an overall average cost per kWh. The difference between those two averaged rates was 7¢ per kWh more for Homer Electric. I then multiplied that 7¢ per kWh cost difference by the 55 million kWh Seward utility sold in 2022. The result was $4.2 million dollars more per year for power from Homer Electric vs Chugach Electric. No one has yet disputed this result.
Multiply that annual $4.2 million dollar additional Homer Electric cost by 10, 20, 50 years, and the long term economic loss to Seward’s economy is huge by choosing Homer over Chugach’s lower rates. With Homer Electric’s higher natural gas prices and less efficient generators, it is hard to imagine the cost difference between the two utilities will ever be much less.
What about the Seward Electric upgrade costs and proposed rate increases? According to our utility manager, our electric rates are facing around a 12-15 percent increase in our base rate this year and anticipating an additional increase in the near future. Sounds bad right? But what does a 15 percent increase in base rate even mean? Why did they use a term so few understand? Why not provide the increase in annual dollars or cost per kWh? You probably guessed it, so I dug a little deeper into what that percentage figure amounts to. Hang with me for more simple math.
Our base rate is the Seward Utility Charge on our electric bill, currently 8.51¢ per kWh. This portion of the electric rate represents less than half of the total cost per kWh of our winter rate.
Multiplying our current residential winter utility charge of 8.51¢ per kWh times the 15 percent estimated increase adds a 1.3¢ per kWh to our winter rate. This increases our total rate, including the power adjustment, from approximately 20.4¢ to 21.7¢ per Kwh.
Seward’s summer rates with the 15 percent will still be lower than Homer’s current 24.6¢ per kWh.
While still maintaining a lower rate than Homer Electric, we would substantially increase the value and reliability of our own electric utility. Worth thinking about.
Another way to estimate the rate increase required to pay for our current upgrades is to take the annual bond payment we need to pay for the upgrades and divide it by the annual sales to determine the rate increase needed to cover the bonds. Again, simple math.
Using our City Manager’s quote in this newspaper, she was anticipating a $1.2 million bond payment after completing the phase I and II upgrades. Dividing $1.2 million bond payment by the 55 million kWh annual sales in 2022, results in an increase, across the board of all ratepayers, of only 2¢ per kWh to cover the annual bond payment, still significantly less than Homer Electric. Certainly not the end of the world as we are being led to believe.
If you take into account the increased savings to be realized from reducing our excessive line-losses with the transmission upgrades, touted as a benefit of the upgrades by the utility manager, add the increased sales revenue from all the new housing under construction, new heat pumps, EV charging, and shore power to the cruise ships, etc. the rate increase needed for our upgrades and future improvements may well be eliminated entirely. This will allow us to keep our utility and maintain lower rates than Homer Electric. Plus, unlike Homer Electric, Seward Electric can continue to contribute indefinitely to our city operating funds by millions of dollars a year.
For those of us concerned about climate change and the environmental damage of burning oil for space heating and gasoline to run our cars, switching to heat pumps and EVs are two of the most significant measures we should consider. The cost of electricity is critical in the economics of using heat pumps and driving an EV. For example: comparing our current total kWh winter electric rate, when heat pumps are primarily used, to Homer Electric’s total kWh rate of 20¢ vs 25¢ per kWh, Homer Electric’s higher rate will substantially reduce the heat pump savings by half over current oil prices. This can help explain why Seward has ten times more heat pumps installed than in the much larger Homer Electric region. Operating costs matter.
To maximize the climate benefits of electrifying our homes and transportation, we need the most efficient generation possible. Homer Electric’s smaller natural gas generators are 15 percent less efficient than Chugach’s larger generators. Thus, Homer Electric must burn 15 percent more natural gas to produce the same kWh of power – creating a larger negative impact on climate change.
Renewable energy is our future. We are running out of Cook Inlet gas. Importing liquified natural gas will significantly increase gas prices. Generation efficiency becomes even more critical. Large scale wind, small hydro, and tapping geothermal or tidal power will require huge investments and risk. A smaller utility like Homer Electric can and should add renewable energy to their mix but will unlikely be able to compete on larger more cost-effective renewable projects as Chugach Electric.
I do not think we must sell our utility just because we need to invest in maintaining it properly. Seward has been here before, and residents made the investments and successfully kept the lights on for 85 years.
But, if I were to be convinced we should sell our valuable cash-cow asset, I would suggest we voters be presented with transparency, unbiased, and honest economic rate comparisons, and all the facts – pro and con – to make an informed decision. In the meantime, we can continue to enjoy lower rates, move to a more sustainable energy future by electrifying Seward, and retain a much improved and valuable electrical system at a lower annual cost than the alternative being given.
I urge you to fully consider that a “Yes” vote on the sale to Homer Electric is forever - no getting it back. A “No” vote keeps our future options open and an opportunity to get all the facts of any proposed sale before making a critical decision on Seward’s energy future.
Phil Kaluza is a retired energy efficiency and building science consultant and trainer with over 40 years’ experience. He served for six years as the Alaska State Energy Program Manager from 1996-2004 and has been a home energy rater in Nome, Anchorage, and Seward. He served on the Governor’s Energy Policy Task Force under Tony Knowles and served two terms as an elected member of the Nome Joint Utility Board Member, as well as two terms on the Nome City Council.