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Haines-Skagway utility warns of massive rate increase, asks for borough cooperation
- Chilkat Valley News
- 7 minutes ago
- 6 min read
By Will Steinfeld
Chilkat Valley News
Electricity rates for Upper Lynn Canal residents hang in the balance amid debate over a more-than-$100 million bill — and who should pay it.
Sharp rate increases have loomed ever since damage in 2019 to a key underwater transmission cable — one of the two linking Haines and Skagway to shared hydroelectric plants. The repair project stretched through 2023 and cost $12.3 million. About two-thirds of that cost was covered by insurance.
Then, about a year and a half ago, the region’s lone electricity supplier, Alaska Power Company — a subsidiary of Alaska Power and Telephone (AP&T), asked state utilities regulators — the Regulatory Commission of Alaska — to allow a nearly 70% rate increase to pay for the uninsured portion of the cable repair.
The Skagway Borough challenged that increase, arguing the company, rather than ratepayers, be held responsible, due to the company’s failure to maintain adequate insurance. The Haines Borough this year contributed money to help with Skagway’s nearly million dollars in legal fees spent fighting the rate case.
In late spring, state regulators denied AP&T’s requested rate increase, largely siding with Skagway’s legal arguments. They found that the utility had been required to fully insure the cable, and had not done so.
But still, the case isn’t closed, with the utility company appealing the regulatory decision to Superior Court. The Alaska Department of Law, separate from the independent regulatory commission, is joining Skagway in opposing AP&T’s appeal.
Now, even with Skagway and the utility still going head to head in court, the utility has asked both the Haines and Skagway boroughs to set aside differences with the utility on one specific aspect of the case and jointly petition the state regulators who decided the case.
Specifically at issue is a so-called renewal and replacement fund, or R&R fund, mandated by the regulatory commission. While the commission struck down AP&T’s request for a nearly 70% rate increase, the utility is arguing that the fund could force it into an even larger rate increase — a 112.6% increase, a surcharge totalling more than $150 million for consumers in the coming decades.
Here’s where the R&R fund comes from: In its written decision on the original rate case, the regulatory commission did indeed determine that the utility was at fault in not maintaining insurance to cover the entire cable repair, protecting consumers from sharp rate increases. But the utility said there was no insurance available to plausibly cover the entire cost. So instead, the regulatory commission called for creation of the R&R fund to address the lack of insurance.
“[The] insurance requirement served the purpose of ensuring ratepayers would not bear the cost of catastrophic cable failure. An R&R fund will ultimately achieve the same protective function through a different mechanism,” the commission wrote.
In practice, a set sum would be paid into the fund every year. Then, theoretically, by the end of the cable’s life, there would be enough money available to pay for a replacement.
While the utility’s estimated rate increases from the potential fund are much larger than the nearly-70% rate increase it proposed on its own, the R&R fund would pay for two transmission cables, while the utility’s proposed increase was to pay for the repair of only one of them.
At least two major questions remain: whether the fund is an appropriate mechanism to pay for transmission equipment, and if so, who should pay into the fund — the company or consumers.
In an email last week to Haines and Skagway borough officials, AP&T vice president Jason Custer argued the fund was an inappropriate mechanism. Attached was a form letter he asked the boroughs to send to the regulatory commission, asking it to drop the R&R fund requirement.
“This is an unusual requirement, made even stranger by the fact that the RCA created it independently of anything requested by the utility or intervenors,” Custer wrote.
That’s seemingly a new position for the utility. In the decision from the spring, the regulatory commission said that “after initially opposing a requirement to do so, (the utility) now agrees an R&R fund may be appropriate and requests that by doing so it be relieved of its insurance obligations….”
Custer said in an interview Friday he hadn’t been directly involved in the rate case and couldn’t comment specifically on the testimony.
Instead, Custer argued a more standard — and cheaper — approach, would be to maintain the current partial insurance, and then count on outside funding, like government grants, to reduce the cost of new equipment. According to a recent company filing, costs could be borne by “company provided debt and equity,” paid back over a longer period of time by customers.
“If you’re planning ahead then you would be looking to try to get other types of funds in the mix,” Custer said.
“Most (hydroelectric) and large transmission assets are built with grant support.” Having a fully funded renewal and replacement fund would disincentivize granting entities from giving money to the utility, he argued.
That system would maintain the partial-insurance, no-R&R fund state of affairs that has been in place, under which the company asked to raise consumer rates to fund the 2019 cable repair.
Custer said the company looked but did not find any grants to help cover that most recent repair. “If you have something that fails unexpectedly, it’s hard to find a grant program to fit that particular need,” he said.
According to testimony from the utility itself during the rate case, more unexpected failure is a real possibility. During the case, Alaska Power Company vice president Jeffrey Rice testified that key transmission cables faced a “growing” risk of failure and, in the Lynn Canal, faced terrain unusually deep and difficult for cables of their type.
The second question, of who, between the utility and its customers, would pay for the R&R fund, has already been partially decided by the regulatory commission.
The utility’s estimate of a 112.6% increase in residential energy rates to feed the R&R fund is based on a formula set by regulators in their decision this spring. Under that formula, the company pays for a percentage of the fund equal to the number of years it failed to maintain adequate insurance, divided by the “total useful life” of the equipment.
Assuming a 40-year useful life proposed by the utility in their recent filing, Alaska Power Company would pay for 17.5% of the fund for one of the major transmission cables, and 7.5% of the fund for the other major transmission cable. Customers would pay for the remaining portion of each.
However it breaks down, some amount of the cost increase would likely be covered by the state’s Power Cost Equalization Fund, which subsidizes rural residential electricity rates, including in the Upper Lynn Canal. In 2025, the program paid an average of $220 across the year to residential customers in Haines.
Neither borough has officially determined whether it will sign on to Alaska Power Company’s letter to the regulatory commission.
Haines borough manager Alekka Fullerton said in an email Friday she believed Custer “made some good points.” She is scheduled to meet with regulatory commission chair John Espindola and Gov. Mike Dunleavy advisor Andrew Jensen next week to discuss the issue. Fullerton, however, said she did not believe the costs were the responsibility of the ratepayers.
According to Fullerton, the two neighboring boroughs are coordinating their response. Skagway borough manager Emily Deach said in a separate email Friday that Skagway borough legal counsel would be filing an official response on September 10. But, like Fullerton, she said any R&R fund “should not be designed in a manner that causes a hardship on ratepayers.”
“Whether the R&R mechanism is appropriate, and the amount of annual collection from ratepayers, if any, that should be permitted will be addressed with the Regulatory Commission of Alaska,” Deach wrote.
The issue will likely come to the Haines borough assembly within the next month, Fullerton said.
Meanwhile, Custer said the utility’s main motive in opposing the R&R fund was protection for its customers. Especially since the company is required, he argued, under its status as a utility, to pass along capital costs to customers.
“We care about the communities we serve, and we want their energy costs to be comparable to energy costs in other communities,” he said. “[The R&R fund] creates a big disparity, and I think when you do that you’re risking economic displacement, communities getting smaller.”
“The utility will just collect this and will continue to earn the same return with or without it,” he added. “There’s not a direct financial incentive or disincentive to us either way, but it’ll hurt the economy and poses an existential threat to the communities we serve. As a utility we’re only as strong and healthy as the communities we serve.”
The regulatory commission’s statutory deadline to approve the R&R fund proposal is September 25.
The utility’s appeal in court remains underway.
• This story originally appeared in the Chilkat Valley News.
