Perspective on GVEA G&T
I attended the Healy and Delta Town Hall meetings that GVEA held last week regarding the G&T. Maybe a total of 8-12 people came to each meeting. With the input provided by attending members and the staff, I’ve prepared some talking points reflecting my view of this. I will say that, at these first two Town Hall meetiings, GVEA seemed at least willing to acknowledge some of the cons to this proposal.
Since that time, I’ve had other questions from GVEA members and I encourage anyone with question or comments make them in the comment section provided at the end of this blog entry. Just click on “comments” – they can be left anonymously or not.
The final Town Hall meeting will be at Noel Wien Library Auditorium in Fairbanks at 6:30 pm Wed, Nov. 15, 2006. Hope to see our member-owners in attendance, prepared to ask questions. I provide the following to offer my perspective to members in advance.
GVEA members asked to vote to give away $300 million of GVEA assets in exchange for $50 of savings per year and reduced capital credits
Ballots to be in mail November 20, 2006
GVEA is proposing to transfer all generation and transmission assets owned by GVEA member-owners to a new company called for short, GVEA G&T. This company is structured as a cooperative with only one member, GVEA, as represented by the GVEA Board. Approval of this proposal only requires 10% of the membership to vote and a majority of those voting to approve. You will see ballots in the mail after November 20, 2006. If approved, GVEA G&T could sell these assets, our power plants, tie-lines, and substations, whenever they want to any entity without any say by GVEA members. This proposal is complex, so let me try my best at an analogy.
As members of a condominium association, every condo owner gives title to their condo to the building manager for which they get a non-binding promise that the new owner will keep their rent down by being able to pay less interest on loans. The Condo Association directs the building manager, the condos can be sold without the residents’ approval. Complicated, yes. Does it make economic sense? Perhaps. GVEA says residential members might save $40-50/year each with this proposal. Is it worth giving away control of our assets? Personally, I think not.
IF GVEA members approve this transfer, it is the last vote GVEA members will have on anything to do with these assets. GVEA board members are not assured of a majority on the GVEA G&T. In fact the draft GVEA G&T bylaws only require 40% representation.
If approved, this will substantively reduce the capital credits program, as the margins now required and later rebated to the members will not be collected. This amount constitutes what GVEA calls a $30 million savings, but is not actual savings as this amount is now paid back through capital credits.
The model proposed for the G&T is unusual in that it is a co-op of only one member, something that occurs with only one or two other electric coops in the United States. It is possible that the G&T could choose to remove themselves from the regulation by the Regulatory Commission of Alaska (RCA) which examines utility actions in the public’s interest. This could further reduce members’ ability to decide on matters that affect our rates.
GVEA has other ways to save money, such as reducing administrative, travel, and legal expenses, equipment purchases, and less ambitious large projects. GVEA is known by the business community as always wanting things to be first class, but in lean times (GVEA lost money last year), businesses try to conserve.
While your cost of electricity has gone up dramatically partly because of increased fuel costs, GVEA has taken on a large number of expensive projects. GVEA members will have even less input into the G&T, though we will pay the cost of these projects by having to purchase power from the G&T. GVEA has actively solicited large power users such as Ft. Knox and Pogo Mines to buy from GVEA, requiring ever larger power needs. These all have been approved by your GVEA Board of Directors.
There is very little communication between GVEA members and their district representative. Some argue that GVEA members aren’t interested in their co-op except when $1000 prizes and free light bulbs are offered at the annual meeting. I’d suggest that, for all the talk about member-owners being represented by their board, the GVEA board could do more to engage the membership. All the communication you get are GVEA staff generated, such as the Ruralite, bill inserts, website, and other mailings. District meetings were abolished in favor of voting by mail for board. Why can’t board members be encouraged to meet with those they represent? While there is a Membership Advisory Committee, GVEA members have no contact information for these members and the MAC has no means to communicate with members in their district except one-one.
Ultimately, the choice on whether to give away the generation and transmission assets belongs to GVEA member-owners. GVEA must have the members’ vote – it is required by GVEA bylaws. But there is no turning back. If the members approve, these assets are out of GVEA members’ control forever. I intend to vote NO on Item 1 on the ballot.
Please note: Item 2 on the mailout ballot is to allow all but board members and their spouses to participate in GVEA’s alternative energy program. Since we want as many people as possible to participate, I recommend approval on this item only.
You’ve done a great job following this issue.
The GVEA presentation at the library did little to offset my concerns. I believe the CFO said the power sales agreement would have to be approved by the RCA. I find it hard to believe the RCA would approve a contract that locked in rates for the 30 years he kept mentioning.
The relationship GVEA Distribution and GVEA Power and Transmission to the RCA was never addressed. While both entities share personnel so administrative overhead is low, each entity will face the same RCA with the same representatives. How can the GVEA administration argue for rate settings on both sides of power production. Inflation and investment in infra structure will put different pressures on the two organizations. Rate changes on one side will affect the other. I refuse to believe the power sales agreement will protect the GVEA Distribution side from Power and Transmissions rate increases.
If Power and Transmission decides on investing in large capital projects to benefit mines or other power hungry users, the debt service will require rate increases to cover those costs.
How will that be reflected in the costs Distribution ends up paying for power?
This vote is an extremely complex question. Why has the GVEA board chosen not to discuss this concept at the annual meeting with a far larger audience in attendance, than by using this road show approach.
Thanks for bringing this issue up. I’ve been digging into this a little deeper , and I believe that the savings claimed in the Ruralite are inflated by a factor of about 4. If this is the case, there must be an ulterior motive other than savings (see my understanding of the savings below). So what’s really at stake here?
Why is the G&T board so removed in its accountability to the GVEA membership, why can the G&T board include non-GVEA members? Does GVEA have some highly controversial projects planned that benefit from working in this political vacuum? A hypothetical worst case scenario could be to replace the downtown powerplant to a nuke.
With respect to the Ruralite’s claimed savings – the utility must collect a refundable fee from its members for loans taken against capital projects. In a short/simple analysis, this fee is about 10% of the interest expenses for project loans under a G&T, and 25% for projects under a cooperative like under GVEA’s current setup. The Ruralite’s claimed savings are based on a current fee of 75%!
Thus the actual potential reduction in fees collected from a GVEA customer is 15% (i.e., 25% minus 10%). However the Ruralite claims this savings will be 65% (i.e., 75% minus 10%). Thus on a loan that has $1,000 in interest, the actual savings is $150, while the Ruralite is claiming a savings of $650!
Good point, Ed. They repeated this claim at the presentation at the Noel Wien Library on Nov. 15. I also heard that they were comparing apples and oranges (this was the next day): the 10% figure for the G&T’s loans is the minimum required, whereas the 75% figure is apparently the maximum allowed, if I understand this margin business correctly. 25% is the minimum for a full-fledged power company like GVEA. Thus, they were NOT making a fair comparison. Our supposed $30 million in savings is reflective of our maximum savings. A fairer comparison would have been of our minimum, or around $8 million, I think.
Calling the piece in the Ruralite an “article” is giving it far too much weight. The damn thing is an advertisement, a propaganda piece.
I did find a possible motivation for getting the assets away from the membership’s control: a mine. It doesn’t seem like the project will go through, but the lode is huge, the biggest in North America, so GVEA’s staff may be planning ahead. The November 2007 start date would explain the rush that the staff seems to be in…
PS: Tom Irwin would be aware of this possibility, having been the DNR commissioner and also having lots of connections to the mining industry in this state. So the staff surely knows of the potential power bonanza for GVEA. This may be why they’re so keen on getting the best rates possible for captital loans, and quickly. It could represent a lot of return. But why not tell us of this up front? I mean, even if it’s an unlikely possibility, it’s still a reason for GVEA to invest in power generation equipment, and to do so at a low rate of interest.