CHUGACH ELECTRIC ASSOCIATION INC - FORM 10-Q - XML - IDEA: XBRL DOCUMENT - May 11, 2012

4. REGULATORY MATTERS

 

Petition to Establish Depreciation Rates for the SPP

 

On February 22, 2012, Chugach submitted a filing to the RCA requesting approval to establish depreciation rates for the Southcentral Power Project and related transmission plant.  If approved, the depreciation rates will be effective on the commercial operation date of the SPP, which is currently expected by year-end 2012.  Chugach expects a decision no later than August 20, 2012.

Seward Power Sales Agreement

 

Effective March 1, 2012, the RCA approved Amendment No. 2 to the 2006 Agreement for the Sale and Purchase of Electric Power and Energy between Chugach and the City of Seward (2006 Agreement).  Amendment No. 2 allows Seward to accept power from Small Power Projects on terms that are financially neutral to both Chugach and Seward for wholesale power service provided to Seward, without changing Seward’s status under the 2006 Agreement as a partially interruptible requirements customer of Chugach.  In addition, Amendment No. 2 facilitates Seward offering net metering service from eligible on-site generation sources to its retail customers without attendant compensation to Chugach.  Chugach and Seward have structured the net metering conditions to be consistent with the net metering regulations adopted by the RCA.

 

Fire Island Wind Project

 

On October 10, 2011, the RCA issued an order approving Chugach’s request for assurance of cost recovery associated with a new power purchase agreement (PPA) between Chugach and Fire Island Wind, LLC (FIW), a special purpose entity wholly-owned by Cook Inlet Region, Inc.  The PPA is a 25 year agreement whereby Chugach purchases the output of the facility over a 25 year term, commencing January 1, 2013.  The Fire Island Wind project is comprised of eleven 1.6 megawatt wind turbine generators with a total nameplate capacity of 17.6 megawatts which are expected to generate approximately 50,000 MWh per year.  The generators will be located on the southern part of Fire Island in Anchorage, Alaska.  The project is expected to become commercially operational before October 1, 2012.  An affiliate of FIW is responsible for the construction of the interconnection between the project and Chugach’s transmission system.  Chugach is the recipient of a grant in the amount of $25.0 million appropriated from the State of Alaska.  The grant will be used to offset construction of the transmission line.  Construction expenditures applied against the grant were $2.6 million in the first three months of 2012 and $6.6 million in total.  Chugach is not expected to incur any unreimbursed capital costs associated with this line, but will acquire the line once construction is completed. 

 

Chugach submitted a project status report on March 30, 2012, and a specific rate recovery plan on April 2, 2012.  The rate recovery plan addressed customer intergenerational impacts resulting from purchases made under the PPA’s fixed pricing structure.  The plan levels the effective rate for purchases made under the PPA, establishes the deferral of any differences between purchases made under the PPA contract price and the scheduled FIW rate changes proposed by Chugach, establishes routine rate true-up procedures to account for differences between expected generation and actual purchases and ensures full recovery of costs appropriately allocated to the customer classes participating in the PPA.

 

Regulatory Asset

 

On January 11, 2012, Chugach issued $75.0 million of First Mortgage Bonds (2012 Series A, Tranche A) at an interest rate of 4.01 percent, $125.0 million of First Mortgage Bonds (2012 Series A, Tranche B) at an interest rate of 4.41 percent and $50.0 million of First Mortgage Bonds (2012 Series A, Tranche C) at an interest rate of 4.78 percent.  The proceeds of the 2012 Series A Bonds were used for the purpose of repaying outstanding commercial paper used to finance the SPP construction and for general corporate purposes. 

 

On March 12, 2012, Chugach submitted a petition to the RCA requesting authorization to create a regulatory asset for deferred recovery of interim interest expense associated with SPP financing and also requested approval to recover the financing transaction costs in future electric rates over the life of the 2012 Series A Bonds.  Chugach’s request included the approval to defer the interest expense on the portion of the proceeds not immediately expended on the SPP and recover it in future electric rates over the life of the bonds, or between 20 and 30 years.  Chugach estimates the remaining balance of proceeds will be completely expended on the project by November of 2012.  The deferral of interest for the portion of the 2012 bonds not immediately expended totaled approximately $1.1 million. The RCA is expected to issue a final order no later than September 8, 2012.

 

December 31, 2011 Test Year Simplified Rate Filing

 

On March 30, 2012, Chugach submitted a Simplified Rate Filing (SRF) to the RCA and requested a system demand and energy rate decrease of 0.08 percent, or approximately $0.8 million on an annual basis.  The filing was based on the December 31, 2011 test year for proposed rate adjustments effective in May 2012.  On a customer class basis, Chugach requested demand and energy rate increases of 1.3 percent to Chugach retail customers and decreases of 2.9 percent to its wholesale classes.  The RCA is expected to issue a letter order no later than May 14, 2012 approving the filing.  If so, the updated rates will become effective May 15, 2012.

 

Economy Energy Sales and Transmission Wheeling Service

 

On April 23, 2012, Chugach submitted a filing to the RCA requesting approval to update its economy energy and transmission wheeling services tariffs to reflect current costs and operating conditions associated with transactions at the bulk power supply level.  If approved, the rates and conditions of service associated with these transactions will align with Chugach’s current operating environment.  Chugach requested the proposed changes take effect 45 days after the filing date.  If approved, based on historical economy sales and wheeling transactions, annual revenue would increase approximately $2.8 million.  Economy energy margin and wheeling revenue is treated as an offset against fuel and purchased power expense recovered through the quarterly fuel and purchased power process and thus does not impact margins.