November 9, 2021
SUMMARY
Greetings! The month of November looks to be quite busy as we focus on the 2022 budget, multiple activities on the Railbelt, federal legislative activities, federal pandemic related mandates, and the typical numerous weather induced outages. Although it is a busy time, toward the end of November we start the holiday season…a season that seems to start earlier and earlier every year! As we continue to migrate indoors for the winter season, I hope this finds you and your family staying healthy.
The following are brief updates on HEA’s current business activities and strategic goals that have taken place over the last month. As always, a more detailed report will be given on the day of the meeting.
SAFETY
There was one Occupational Safety and Health Administration (OSHA) lost time or recordable incident in early November. Fortunately, the employee was back to work a day later.
Employees participated in several safety training courses throughout the month of October, which included the Outside Group engaging in one of our more popular safety training programs, the Wilderness 1st Aid Certification. Additionally, and as part of Cybersecurity Month, the Inside Group completed Cybersecurity Awareness Training. The full Safety Report can be found in the Board Packet.
Lastly, Alaska Rural Electric Cooperative Association’s (ARECA) Safety and Loss Prevention Observation was completed with the final report delivered late last week. Overall, the Cooperative did very well and in the areas where potential safety issues were discovered, most of these issues will be remedied in the near future.
FINANCIAL OVERVIEW
September was a relatively cool month for the Kenai Peninsula and as we head into the fall/winter weather, the graph below indicates that kWh sales are picking up and remain slightly ahead of last year’s numbers.
In addition, revenues for the month of September were $7.8 million and cost of electric service was $8.4 million, resulting in an operating margin loss of $584,000. The operating loss is not unexpected during this time of year when energy sales typically decline while maintenance costs continue as we try to beat the winter season. As expected, our year-to-date operating margin remains strong at just over $3.2 million, which brings our operating margins to $1.6 million over budget.
As mentioned earlier this summer, the Small Business Administration (SBA) approved the forgiveness on the Paycheck Protection Program (PPP) loan in full. HEA received the final approval on the forgiveness application last month. The extraordinary gain related to the loan program forgiveness will be posted together with the extraordinary losses that were booked as they relate to required Stonehocker Creek maintenance activity and the preliminary engineering on hydro sites near Grant Lake that were not pursued.
As mentioned earlier, staff has been working hard to prepare the draft 2022 budget for Board review and consideration later this month. As usual, Sarah will be reviewing the highlights via a PowerPoint presentation. Feedback during the November Board meeting will be gathered, and an updated draft presented on November 23, 2021, during the Budget Workshop.
RELIABILITY
Distribution
Last weekend’s high winds hit our system hard. Thanks to our staff in Operations (dispatchers, lineworkers, etc.), most of the outages were of short duration and caused by trees falling into our facilities from outside HEA’s rights-of-way (ROW). If the winds had coupled with heavy snow, damage from falling trees would have been more extensive. All the outages were restored by 5:00 a.m. on Sunday, October 31. It was a spooky start to the Halloween holiday.
HEA staff and contract crews had a busy summer working on our right-of-way (ROW) maintenance plan. The 2021 distribution clearing in the Ninilchik and Anchor Point areas is 90% complete. Lastly, contract crews continue working on various service orders for out of easement spruce bark beetle kill and danger trees throughout the system. The spruce bark beetle epidemic continues to be of concern.
Generation
As mentioned last month, Nikiski Combined Cycle Plant (NCC) experienced an emergency outage that kept the plant offline, requiring the motor rebuild on the cranking diesel. On October 3rd, we were able to bring NCC back online. The new gas supply connection, due to the 414 Meter restriction and dispute, has been giving us some issue with several pressure events (line pressure exceeding 800 psi), however, we continue to work closely with Harvest and Hilcorp to resolve these issues.
On a very positive note, with the change of gas supply at NCC, we were able to make economy energy sales to GVEA of 8,635 MWh in October.
MEMBER/CUSTOMER SERVICES
As mentioned last month, HEA continues to follow the process for capturing money allocated to electric utilities in HB69. The legislature appropriated $7 million in the FY 22 budget to fund the program. Alaska Energy Authority opened the application process to apply for funds in late October. Applicants have until November 22nd at 4:30 p.m. to submit an application for reimbursement.
HEA’s 2021 Scholarship packets have been emailed to our service area schools and are also available on our website and in both offices.
ENGINEERING SERVICES | New Service Applications
I am pleased to report the number of new service jobs year-to-date through October 2021 (total: 464) is up almost 20 percent as compared to October 2020 (total: 386). The 29 new service applications in October are consistent with the past five years and conclude an excellent construction season.
LEARNING & GROWTH | INNOVATION
Battery Energy Storage System (BESS) Project
Successful collaboration between IT, Operations, Engineering, and Power, Fuels & Dispatch (PFD) on the testing and commissioning work is on-going with the controls and data acquisition side of the BESS and the development of SCADA screens, reports, and operating procedures. The remote performance testing is tentatively scheduled for early next month. As Chugach Electric Association’s construction work plan forecasts the Kenai Peninsula will be “Islanded” for approximately 60 days annually over the next decade, the BESS will be an excellent addition to our resource options.
Strategic Services
Staff continues to make progress addressing the Notice of Violation (NOV) we received for higher than permitted levels of copper in our discharge permit. Efforts thus far have been successful during most modes of facility operation. Working with the Department of Environmental Conservation (DEC), HEA expects to have a long-term solution implemented over the next few months.
The staff is also busy preparing for CINGSA’s next rate case at the end of 2021 and into 2022. In addition, we intend to follow Enstar’s rate case which begins next year and hope to send a representative to hearings and hire counsel to look out for HEA interests.
Lastly, HEA staff will be making a presentation on HEA’s tidal partnership with ORPC at an upcoming REAP webinar. In addition, we will be making a presentation at the Launch Alaska Seminar on the BESS in Anchorage on November 11th.
CYBER SECURITY | COMMUNICATIONS | INFORMATION TECHNOLOGIES
Cyber Security, Communications, and Information Technologies continues to work through the Tesla communication issues with the meters; the development of SCADA screens; reports; as well as provide programming services requested to support to the Engineering and Generation departments with programming needs. Although the BESS has occupied large amounts of IT resources, we see the light at the end of the tunnel.
Lastly, CCIT will be providing a Cyber Security Protocols Presentation during executive session at this month’s board meeting.
BUSINESS & COMMUNITY RELATIONSHIPS
Alaska Power Association (APA) Annual Meeting
In early October, APA met with Casey Hammond, a consultant hired by the state of Alaska to review state departments and regulations related to utility operations. The objective is to collect suggestions on how to lessen the regulatory burden on electric utilities and support efforts to lower the cost of electricity to attract development to the state. APA requested HEA, and other member utilities, for feedback on regulations and other roadblocks to development or operations under state control. On Monday, November 1st, a draft version of APA’s synopsis was emailed for review. APA’s intent is to deliver the compendium to the consultant by close of business on Friday, November 5th. The draft commended Governor Dunleavy on his commitment to industry and infrastructure investment in the state of Alaska, as well as contained comments and/or suggestions on unwinding burdensome and costly statutes, regulations, agency culture and processes. Thank you to HEA staff for their compelling suggestions on this draft.
Lastly, save the date for the APA 2022 State Legislative Conference in Juneau on January 26 -27. This annual event puts lawmakers and administration officials front and center with attending utility members for interactive sessions focusing on the issues that matter to electric utilities in Alaska.
Legislative Updates
Alaska Governor Mike Dunleavy announced a fourth special session that began on October 4. The Governor modified the call to include an act for making appropriations for a supplemental 2021 Permanent Fund Dividend for eligible Alaskans, proposed constitutional amendment (SJR 6, HJR 7) to constitutionalize the PFD and the controversial Power Cost Equalization (PCE) program, and an act relating to measures to increase state revenues.
At the Federal level, in late September a letter was mailed to the Alaska Senators and Congressman requesting support of direct payment of Investment Tax Credit (ITC) to not-for-profit electric utilities through Reconciliation via the expansion of Hydropower Opportunities. A new direct pay system for not-for-profit organizations like HEA would significantly improve the economics for new, cooperative-owned renewable energy resources.
Regulatory Commission of Alaska (RCA)
On October 27th, the RCA released the order that will allow the cooperative to develop an EV inception rate that combines the demand component of commercial rates (kW) to be folded into the energy rate (i.e., kW rate) for the sale of electricity from a Direct Current Fast Charging (DCFC) or Level 3 charger. The rate will make it easier to price and therefore easier for investor/members to resell power to EV owners. The order also helps clarify the regulatory language surrounding sale and resale of electricity as well as whether a Direct Current (DC) station could be considered a public utility. HEA will need to file its inception rate and tariff clarifying language by January 24th. Traditionally all rate matters filed with the RCA have been supported by a Board resolution included with the filing. I plan to review action items and the language of the RCA’s order for the Board’s consideration during executive session.
HEA joined with Railbelt utilities, Anchorage Water & Wastewater Utility (AWWU), TDX Power, Alaska Electric Light & Power (AEL&P) and others in making joint comments regarding the RCA’s recently opened a rule-making docket to consider changes regarding the filing of depreciation studies and consequent implementation of rate changes, requiring a change in filed depreciation rates by a utility be in conjunction with a tariff filing (i.e., Simplified Rate Filing (SRF) or rate case). Utilities across the spectrum of ownership structures and industries have not been in support of the proposal. It can be especially problematic for HEA, since AEEC is a Rural Utilities Service (RUS) borrower and is required to file its depreciation study and new rates with RUS every 5 years. This cycle is unlikely to be in synch with either HEA’s filed rate case cycle or possible SRF increase or decrease activity. Numerous issues remain unclear particularly around how the proposed language would work with the regulations regarding the timing and implementation of SRF rate increases/decreases.
After a brief pause, the Electric Reliability Organization (ERO) will begin meeting again November 8th. We will see if the non-utilities want to move ahead in concert with HEA, CEA, MEA, GVEA, Seward and Doyon or if the utilities will need to proceed on our own.
Board of Directors’ Meeting Approvals | November 9, 2021
Regular HEA Board Meeting
- Regular Meeting Minutes of October 12, 2021
- Board Policy 303, Equity Management – Periodic review completed with housekeeping revisions approved.
- Board Policy 309, Capital Credits – Periodic review completed with no new revisions.
Regular AEEC Board Meeting
- Regular Meeting Minutes of August 10, 2021