Below are my written comments to the RCA regarding GVEA’s desire to transfer its generation and transmission assets to a separate company, called GVEA G&T.

I didn’t have the benefit of any revised organizational structure which the board may have just received a draft. Since comments were due, I went with the facts as presented thus far to the RCA by GVEA / G&T.

Links to other documents filed in this case can be found in my blog entries from a month or two ago.

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STATE OF ALASKA
THE REGULATORY COMMISSION OF ALASKA

Before Commissioners: Kate Giard, Chairman
Dave Harbour
Mark K. Johnson
Anthony A. Price
Janis W. Wilson

In the Matter of the Application Filed by GOLDEN VALLEY ELECTRIC ASSOCIATION GENERATION AND TRANSMISSION COOPERATIVE INC. for a Certificate of Public Convenience and Necessity for Authority to Provide Wholesale Electric Generation and Transmission Service to GOLDEN VALLEY ELECTRIC ASSOCIATION U-06-69

Testimony of Gary Newman
34 year member, Golden Valley Electric Association
1083 Esro Road,
Fairbanks, Alaska 99712
(907) 488-2001 gary@chena.org

Sept. 22, 2006

On June 29, 2006, Golden Valley Electric Association Generation and Transmission Cooperation (G&T) filed the above application, which is to enable Golden Valley Electric Association (GVEA) to transfer their entire transmission and distribution assets to this separate cooperative of one, itself, called Golden Valley Electric Association Generation and Transmission Cooperation (G&T).

The logical question of how a single entity can be a cooperative seems as odd as a single individual being tried for conspiracy (City of Chicago v. Bobby Seale 1969). However, I will assume this is legally possible in order to address the application itself and what it means to the member-owners of GVEA.

This G&T was created December 16, 2003 by GVEA staff. Bylaws and the Articles of Incorporation of the G&T were submitted to the RCA as part of the filing of U-06-069.

I have substantive concerns about this proposal as presented to the RCA and to the membership of GVEA.

1. Organizational structure of the G&T

A quick review of these documents revealed to me an almost amateur attempt to cut and paste some other organization’s documents without any apparent thought as to maintaining the connection of the GVEA board and membership to the G&T. There are numerous structural defects, confusing language, and more that would make it near impossible for GVEA membership to have any input or or the board any functional control over this separate entity to which several hundred million dollars of GVEA assets are proposed to be transferred.

I brought up a number of these issues in extended discussion with GVEA staff and also to the GVEA board of directors. At their most recent regular meeting, though not on the agenda, the board passed two resolutions. There is no formal record available yet to members, though I was present and attempted to clarify the motions with executive staff following the meeting.

The GVEA board resolved that the G&T board would be the same as the GVEA elected board. They also resolved that the membership would have the same rights and access to the GVEA G&T organization as the membership currently have with GVEA.

These resolutions don’t fix anything of course, as it takes the G&T board to make any changes to the Articles of Incorporation or Bylaws (with a bare majority vote, most unusual in my experience, as bylaws and articles of Incorporations shouldn’t be so easily modified). To my knowledge and after asking executive GVEA staff, there have been no meetings of the G&T and attorneys on retainer are reviewing the documents. They don’t expect formal changes to be made until late October or November 2006, too late for me to provide input, as comments to the RCA are due Sept. 22, 2006.

If the attorneys reviewing the G&T documents are the same ones that wrote the original ones, I remain seriously concerned that they can accomplish their assigned task in the interests of the membership. The board and GVEA staff had 2-1/2 years to review these documents before submitting them to the RCA and nobody appears to have had any concerns about them until I brought it to their attention. They seemed unaware of the specific contents as they asserted to the membership and the GVEA board (ref. Ruralite , for example, that the board of the G&T would be the same board as the ones that GVEA members elect, which was not the case. I thus request the right to submit further comments following submission of amended documents by GVEA and/or G&T in the matter of U-06-069. If necessary, I will file a formal petition.

GVEA is proposing to bring this transfer of assets before the membership in November 2006 in accordance with its bylaws Article VIII, Section 2. It is of course an easier bar to achieve by creating a cooperative to receive the G&T assets.

SECTION 2. Other Disposition
The Cooperative may not sell, lease or otherwise dispose of more than fifteen percent of the Cooperative’s total assets, less depreciation, as reflected on the books of the Cooperative at the time of the transaction, unless the transaction is authorized in the manner specified in this Bylaw. If the transaction involves a sale, lease or other disposition to another cooperative or to the State of Alaska, and otherwise conforms with the requirements imposed by State law, it must be approved by the affirmative vote of a majority of the members voting on the issue in an election in which at least ten percent of the eligible voters return ballots. If the transaction involves a sale, lease or other disposition to an entity other than another cooperative or the State of Alaska, and otherwise conforms with the requirements imposed by State law, it must be approved by the affirmative vote of not less than
two-thirds of the members voting on the transaction if the number of members voting to approve it constitutes a majority of all the members of the Cooperative.

I find that this is ill-timed because the membership will not have the benefit of all the comments by the RCA, the Public Interest section of the Dept. of Law, nor will all the relevant documents be available to the membership to allow adequate time for review or education. I ask that GVEA be enjoined from holding the required election under Section 2 until such time as the RCA makes a final ruling on GVEA’s application.

2. The operation of the GVEA G&T

GVEA has stated (Ruralite, board meetings) that the G&T will operate the assets transferred to them the same way that GVEA does now. There will be no difference in accounting costs and minimal legal expenses. They assert that GVEA members will realize a $31.1 million savings from reduced margin requirements when borrowing money. Despite requests, GVEA has thus far not been willing to say what members might realize in actual savings from this organizational change e.g. how much per kilowatt/hour. They indicate concern that members might actually expect this savings instead of realizing that the savings would just contribute to reducing future rate increases due to fuel increases (Bradish to Newman). This concerns me on several fronts.

Fuel increases are part of the “fuel adjustment surcharge” which is independent of the tariff and part of the wholesale cost of power, yet the application expects that GVEA would continue this responsibility. Maybe there is a way to work this out, but it seems odd.

Determination of the $31.1 million in savings was made by a consultant to GVEA, RW Beck, of which G&T submitted a one page summary as part of this application. There has been no validation of this. The RCA should request, review, and validate the background documentation and justification of purported savings to GVEA members in the interests of the membership of GVEA.

What major capital expenses would G&T plan beyond the current ambitious projects of new generation in North Pole, paying off BESS and the second Healy-Fairbanks tie-line, substantive extra power requirements from such as Pogo and Delta-Greeley military operations, and continued discussion (and potential financial investment) over the Healy Experimental Coal Plant that would tend to dilute any potential savings? Did RW Beck reflect any real world scenarios?

3. Regulatory challenges with GVEA members’ assets split.

While members have been generally very trusting of GVEA management and board in the past, this proposal by GVEA has some serious defects and raises a number of questions. I want to insure that the RCA will still be able to play a part in working with both elements of GVEA and G&T as seamlessly as GVEA purports the dual organizations will function. From two rate requests of 8% and simplified rate filing, I see attempts by GVEA to reduce regulation. While I recognize there is a cost to regulation, such regulation such as the APUC and now the RCA have played a valuable function in providing expert guidance to GVEA on behalf of the membership (most of the population of Interior Alaska) and the public.

GVEA indicates there will be no difference and the RCA has experience in dealing with this sort of a split organization. I would assume that the RCA can best make that determination.

GVEA members have the feeling that residential and small business consumers pay much more for electricity than the larger commercial/industrial consumers. I realize that the RCA has looked at this, as has GVEA. But to a certain extent, the cards are stacked against the smaller consumers when additional generation is needed (along with the loans required) due to new large commercial/industrial consumer needs. With this increased separation of the generation from distribution, will this make it more difficult to determine true cost by consumer class?

4. GVEA misrepresented facts about the G&T to membership

GVEA first presented a substantive discussion of this in the August 2006 Ruralite magazine sent to all GVEA members. In my view, there was a lot of non-factual material presented. I offer as Exhibit 1 the August 2006 Ruralite article.

a. The boards of GVEA and G&T would be the same (not the case at the time the article was written).
b. The board of GVEA was fully in support of the proposal. (I found no record of this in the minutes and it appeared to still be under discussion in executive session at the most recent board meeting.
c. If approved by the membership, the G&T would be operational by Jan. 1, 2007. This seems odd as this falls before the RCA is expected to rule on U-06-069. (“The commission will issue a ruling in this docket no later than January 2, 2007”). Not to quibble on a day, but presumably some bureaucratic details would need to be taken care of that might take at least a few days.
d. The only difference in operating a separate G&T will be reduced revenue requirements. I mentioned this earlier, particularly as more extensive legal costs will need to be incurred with power sales agreements needing to be approved, different office expenses from letterhead to timekeeping, differential filings for RCA, RUS, IRS, etc. The operation of two separate boards of directors (even if the same people) will take separate notifications, increased meeting costs for which board members are compensated. While they may pale in comparison
e. After the 5 years of estimated $31.1 savings, what then?
f. There have been, to my knowledge, no fall town hall meetings or any mention of this featured on the gvea.com website. I’m not pushing for them, as I think members need the benefit of the discussion that will take place in the course of the filing of U-06-069.

Conclusion

There are serious defects in the G&T organization that need restructuring and modification prior to approval by the RCA or by the membership.

GVEA and G&T will presumably be presenting some additional submissions and modifications to the RCA to try to rectify some of the structural defects of the G&T organization. Any such modifications will need to be reviewed by the RCA and by the GVEA membership.

Any vote of the membership on this proposal should take place AFTER the membership can benefit from the regulatory input and decision of the RCA Commissions, contributing RCA and Public Advocacy staff and public comment on record.

As I understand it, all of this effort on the part of the various utilities that GVEA indicates in its filing have gone through this effort could be avoided if the lender recognized the disparity in lending requirements. I would recommend that the utilities expend some efforts toward educating the lender, should this be an option, saving all these utilities from having to re-structure their organizations.