The state’s utility regulators struck down a 69.92% electricity rate increase proposed by the Upper Lynn Canal’s electric utility.
Alaska Power Company, the region’s lone electricity supplier, first sought a rate increase from the Regulatory Commission of Alaska a year and a half ago to pay for a costly replacement of an underwater transmission cable between Skagway and the nearby Kasidaya Hydroelectric Plant.
The Skagway Borough challenged the increase, arguing that costs should be borne by the company’s shareholders, rather than its customers, and that the company was entitled to “no more than a 5.38% increase in rates.”
After months of testimony and deliberation, the regulatory commission, in a May 13 ruling, sided largely with Skagway, rejecting the company’s proposal. The new rates are not yet set, and Alaska Power must submit new proposed rates based on the findings in the case to the regulatory commission for approval by next week.
Customers have been paying an interim rate while the case has been open, 40% higher than 2023 rates.
The commission has said the new rate will be lower than that interim rate, and customers will be refunded the difference.
Jason Custer, the company’s VP of Corporate Development and spokesperson, did not immediately respond to a request for comment.
At the heart of the dispute was a question of who would be held liable for the underwater cable damages, which occurred in 2019. The repair project, finished in 2023, cost a total of $12.3 million, of which $8.1 million was covered by an insurance payout.
The company had argued the lack of full insurance coverage was due to COVID-19-related inflation and supply chain issues that unexpectedly increased the cost of cable replacement.
Skagway Borough lawyers argued that the company had the responsibility of maintaining an insurance policy able to cover the full cost of a replacement, and that any uninsured costs were therefore the company’s to bear.
The regulatory commission sided with that argument, pointing to 2011 emails in which company executives discussed estimates of the cable’s replacement cost at $13.6 million. That was well above the $8 million of insurance coverage the company maintained from 2011 through 2019.
According to the commission’s decision, a different 1997 commission order required the company — specifically Alaska Power’s Goat Lake Hydro subsidiary, which operates the Upper Lynn Canal’s hydroelectric facilities — to fully insure infrastructure as a condition of its status as a public utility. The commission also rejected some of the company’s other rationale for the nearly-70% increase. The company had included in its rate proposal the cost of two pieces of now-offline infrastructure: the Lutak hydroelectric plant, which has been shut down since 2020 landslides, and an undersea transmission cable that was installed in 1998.
State regulations require that for infrastructure costs to be paid for by customers, the infrastructure must be “used and useful in providing utility service during the period the rates are in effect.”
In proving the infrastructure was used, the company argued that the Lutak plant would provide generation capacity for future demand or energy storage increases in the region. It also pointed to repairs being done to the plant that would enable it to come back online. As for the damaged, but still in place 1998 cable, the company argued it served as a backup should the currently-used cable fail.
The commission rejected those arguments and ruled the costs of the two pieces of infrastructure not be included in rates. On the Lutak plant, the commission called future demand and storage increases cited by the company “prospective and uncertain.” For the 1998 cable, the commission’s decision called it “illogical” that the cable would be too damaged to use, liable to fail without warning, but also still useful as standby equipment.
Even with the rate case now largely settled, there remain questions about the company’s energy infrastructure. The now-replaced cable at the heart of the case is currently not insured, and Alaska Power Company vice president Jeffrey Rice testified that the company has been “unable to find an insurer that will provide insurance for the cable system at a reasonable cost.” He also acknowledged that the company had not attempted to insure the cable since 2022.
Meanwhile, the equipment seems to be in a somewhat precarious position. According to Rice’s testimony, the undersea cable that connects Haines to hydroelectric plants is facing a “growing risk” of failure. On top of aging equipment, his testimony said the cables traverse terrain in the Lynn Canal unusually deep and difficult for short transmission cables.
In the event of such a failure, the company “would immediately need to raise significant capital,” and “customers in the Haines service area would be forced to pay higher power costs related to APC’s diesel generation, which would cause significant rate shock,” Rice wrote.
With the current lack of insurance, the regulatory commission is recommending creating a dedicated repair and replacement fund for the equipment, funded by both shareholders and customers. Pending a future commission decision, Lynn Canal ratepayers will likely see a new surcharge for the so-called R&R fund. The commission is also requiring the company look for insurance on the cable system at least once per year.
There may also be other costs for Haines residents from the borough level: mayor Tom Morphet is proposing the borough government voluntarily contribute to the Skagway Borough’s legal fees on the rate case.
In the last three years, Skagway taxpayers have spent $911,000 in legal fees opposing Alaska Power Company rate increases for the entire Upper Lynn Canal, without any contribution from the Haines Borough. A motion by Morphet for Tuesday’s assembly meeting proposes a $64,000 payment by the borough.
“We are compelled by good faith and the dictates of honor to share some portion of the cost of these efforts,” wrote Morphet in a memo this week.
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