Chugach Electric rate case outcome is a mixed bag

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by Marge Stoneking, Associate State Director of Advocacy for AARP Alaska

More than a year ago, AARP Alaska intervened in the Chugach Electric Association’s rate case to fight for residential customers. AARP argued that Chugach’s proposed cost allocation and rate design favored commercial customers and disproportionately shifted costs and rate increases to residential customers.

The Regulatory Commission of Alaska (Commission) issued its final order on the Chugach Electric Association rate increase proposal in October, giving Chugach and the 12 intervening parties, AARP included, a final decision in the year-long legal proceeding. The rate case was precedent-setting as the first since the acquisition of Municipal Light & Power by Chugach in 2020, and because of the looming gas shortage in Cook Inlet likely to cause significant future increases.

The outcome can be summarized as better than it could have been, but not as good for residential customers as if regulators had adopted AARP’s recommendations.

In a utility rate case, an overall revenue requirement is set to determine the necessary rate increase, which includes a justifiable profit margin. Selecting a cost-of-service methodology is a policy choice made by the utility and the regulators which determines the way that cost increases are shared between residential, commercial, industrial, and other customers. Once a cost burden for each customer class is determined, there is another policy choice in how to split that between fixed customer charges and volumetric charges based on energy usage.

Residential customer rates consist of a fixed customer charge, a flat monthly fee billed before any electricity is used, and the actual energy usage charge. There will be changes in both, owing to the Commission’s cost-of-service methodology choice, changes in customer charges, and the unification of North (ML&P legacy) and South (Chugach legacy) districts.

The Commission denied Chugach's request to increase its profit margin. That proposed change would have increased the overall revenue requirement by another $7.7 million and further increased the rate for all customers. The Commission said the current allowable profit margin is enough for Chugach to stay financially stable and borrow money at reasonable rates. This important outcome means that the overall rate increase is lower than it could have been at 4.3%, versus the nearly six percent proposed by Chugach. That’s good news for the intervening parties, their stakeholders, and residential customers of all ages.

However, the rate increase burden may still fall more heavily on residential customers compared to commercial because of the way the Commission has directed Chugach to design their rates (their cost-of-service methodology).

During the proceedings, AARP objected to Chugach’s cost-of-service study methodology, which used the one highest demand hour of the whole year to set the rate and would have disadvantaged residential customers and burdened them with more of the overall cost of service.

AARP recommended that the Commission order a method that looked at the highest peak energy demand hour out of each of the 12 months. Factoring in 12 data points throughout the year would have better reflected seasonal energy demand fluctuations, providing a more reasonable and accurate cost causation for all customer classes.

The Commission’s final order directs a cost-of-service study methodology of 3CP, which bases rate design on three peak-hours of the year. While the specific outcome of the 3CP rate design burden is unclear, it may still lean more heavily on the residential class without the incorporation of year-round seasonal changes.

AARP also recommended unifying the fixed customer charge and keeping it low at $10 with the balance of the rate increase coming from energy charges, which would have been fairer for low-usage customers, such as seniors and small households and given customers more control over their electric bills.

Chugach originally proposed a fixed charge of $13.68 for both legacy Chugach areas and former ML&P service areas to start unifying the rates. In response to the proceedings and the Commission’s decision, Chugach proposed a final $12.79 customer charge for all residential customers, which will actually be a reduction for former ML&P customers.

The Commission ordered immediate unification across the North and South districts for both the fixed customer charge and the energy usage rate. An energy rate increase for South district residential customers is anticipated, while North customers will likely see a reduction.

Those changes go into effect with the December billing cycle.

Because the Commission’s final decision ordered an overall permanent base rate increase for Chugach of 4.3%, which is a 0.9% reduction to the interim rates (5.2%) in place since September 2023, customers will see a one-time bill credit on their January 2025 electric bills for the overpayment (Chugach Electric press release).

That January bill credit will soften the initial blow of the rate increase and be welcome in the height of winter darkness. Utility bills contribute to overall housing costs, which are already soaring in Anchorage. Utility rates are an essential pocketbook issue for older Alaskans and their families, many of whom struggle to pay their utility bills and other household expenses like food and medicine.

To estimate how the new permanent rate will impact your monthly bill, Chugach has a billing rate calculator for residential customers.

Utility rate increases always post a significant impact on fixed and/or low income households. Chugach Electric Association’s board of directors allocates a pot of money for electric bill assistance each calendar year, which is administered through the Anchorage Aging and Disability Resource Center (907-343-7770). The 2024 program budget has been exhausted; their 2025 budget is under review and expected to be decided soon.