February 2025 Monthly Manager’s Report

Posted: February 19, 2025, 1:27 pm

February 11, 2025

SUMMARY

Hello! Time has moved quickly since our last board meeting, and it’s hard to believe we are already well into February. This month is shaping up to be a busy time for HEA, with significant engagement at both the state and national levels.

Over the past three weeks, I attended a Regulatory Commission of Alaska (RCA) meeting in support of John Sims, president of Enstar, participated in the Cooperative Finance Corporation’s (CFC) Strategic Planning Meeting in Georgia—where I narrowly avoided being stranded by a major winter storm—and took part in the Alaska Power Association’s (APA) Legislative Conference in Juneau.

Below is a summary of HEA’s recent business activities and progress toward our strategic goals. A more detailed report will be provided during the board meeting.

SAFETY

Unfortunately, we did have an Occupational Safety and Health Administration (OSHA) recordable incident in January. The full safety report is included in this month’s Board packet. In addition, our year-end 2024 4th quarter safety scorecard, along with all strategic plan scorecards are included in this month’s Board packet.

FINANCIAL OVERVIEW

Financial Update – The HEA Finance Department has been actively engaged in year-end closing activities. Unaudited financial statements for both Alaska Electric & Energy Cooperative (AEEC) and HEA have been completed, and preparations for the annual audit are well underway. On-site fieldwork is scheduled to begin on February 18, 2025. As noted in last month’s report, a draft audit report will be presented at the March board meeting, and a managing partner from the audit firm, BDO USA, LLP, will review audit practices during the executive session.

In December, HEA reported revenues of $9.92 million and a cost of service of $9.71 million, resulting in a positive operating margin of $211,000. Unaudited year-to-date total margins for 2024 stand at $2.27 million, with a Modified Debt Service Coverage (MDSC) ratio of 1.41. As of Dec. 31, 2024, HEA’s equity ratio is 44.1%.

As discussed in previous board meetings and scheduled for consideration this month, HEA anticipates the need for a base rate adjustment in early 2025. One of the key factors contributing to this need is ongoing inflationary pressures. To ensure financial stability and continue supporting operations and maintenance, we are evaluating a potential 3.0% base rate increase, effective April 1, 2025. The last base rate adjustment took effect in January 2024.

 

RELIABILITY

Generation – Unseasonably warm temperatures combined with high winds led to a significant number of outages in January, particularly across Kachemak Bay. As a result, the Seldovia and Port Graham emergency generators were used more last month than in the past two years combined. During this time, Seldovia Unit #1—which is scheduled for replacement this summer—experienced a failure and required repairs. Due to its age and the limited availability of replacement parts, the unit is now restricted to emergency use only until its scheduled replacement.

Meanwhile, work on the Sterling to Quartz Creek transmission line has kept the system islanded for most of last month (January), a condition that will continue into March. As a result, HEA relied heavily on Bradley Lake energy beginning January 6. The islanding, combined with unusually warm and wet weather, also led to increased lake levels.

Distribution/Transmission – HEA crews remained busy this month restoring power following storm-related outages across the road system and in South Kachemak Bay. These severe weather events continue to highlight the importance of vegetation management and wildfire mitigation efforts.

Progress continues on HEA’s vegetation management initiatives. The 2023 Community Wildfire Defense Grant (CWDG) and the Kenai Peninsula Borough Community Wildfire Protection Plan (CWPP) have both moved into the execution phase. Meanwhile, the 2025 CWDG application remains on hold, pending approval from the Department of Forestry.

Five-Year Outage Overview – Speaking of outages, HEA has seen a 580% increase in outages caused by trees outside the right of way from 2020 to 2024. This sharp rise has led to longer restoration times and a significantly higher wildfire risk. A detailed PDF is included in your board packet, and outlines the annual increase in tree-related outages and the mitigation efforts HEA is implementing to address this ongoing challenge.

CUSTOMER SERVICE

Member & Public Relations – HEA Scholarship and Youth Rally applications are now open and updated on the HEA website. Additionally, HEA was also represented at the Annual Soldotna Chamber Scholarship Fair, where we were able to connect with other groups who will be sharing our scholarship and leadership opportunities with students. The Scholarship Program is funded by the interest earned on unclaimed capital credits, while the Youth Rally is a collaborative effort between Homer Electric Association, Alaska Power Association and the hosts, Idaho Consumer-Owned Utility Association. Each year, HEA:

    • Awards scholarships to high school seniors and returning students to further education at a college or trade school. Applications are available now on our website. The deadline to apply is Sunday, March 30, at 11:59 p.m.
    • Provides full scholarships for two high school sophomores/juniors to a weeklong Youth Rally leadership camp in Idaho. Applications are available now on our website. The deadline to apply is Tuesday, April 15, at 5 p.m.
    • Sponsors the Electric Safety Poster Contest. Information will be distributed in the next week to all third and fourth students in our service territories.
    • Participates in Engineers in the School during Engineering Week along with Marathon Petroleum and the Challenger Center. Engineering week begins on February 17.

SAVE THE DATE! The following important dates were approved for the 2025 Annual Meeting:

  • Date: Thursday, May 1
  • Location: Kenai Central High School, 9583 Kenai Spur Hwy
  • Membership Meeting: 6 p.m.
  • Board of Directors Candidate Packet Submission Deadline: 5 p.m. – February 28
  • Election Ballots Mailed to the Membership: March 28
  • Ballots must be received by mail no later than: 5 p.m. – April 30
  • Election Results: May 1

Engineering Services, New Service Applications – The chart adjacent illustrates new service applications and provides a historical comparison.

 

CYBER SECURITY & INFORMATION TECHNOLOGIES

Artificial intelligence (AI) is increasingly being used by nation-state cyber threat groups to enhance their attack capabilities. These groups are leveraging AI to make cyberattacks more sophisticated, difficult to detect, and quicker to execute with greater precision.

With this evolving threat landscape, it is important to be cautious when using personal AI accounts for work-related tasks. Personal accounts often lack the same security protections as corporate-approved platforms, making them more vulnerable to cyber threats. To help safeguard sensitive data, always use approved tools and platforms when handling work-related information.

BUSINESS & COMMUNITY RELATIONSHIPS

Alaska Power Association (APA) Legislative Conference – Chief Strategy Officer Keriann Baker and I, along with Director Duffield, Director Levine, and Board President Furlong, recently traveled to Juneau for the APA’s Annual Legislative Conference. The trip was productive, allowing us to meet with all legislators representing members in our service territory, as well as several others from outside the Kenai Peninsula who are working on issues that could impact our membership.

As expected, legislators appreciated the updates on key issues affecting our cooperative, including the ongoing Cook Inlet fuel supply challenges, supporting the funding/financing of hydro projects, and reducing utility risk from catastrophic wildfires. Keeping them informed on these matters helps ensure our cooperative’s priorities remain part of the broader energy discussion. Included in your board packet is the Legislative Priorities flyer, which was shared with the delegation during our meetings.

Cook Inlet Natural Gas Supply – KDLL Radio Roundtable – Radio station KDLL in Kenai conducted a roundtable with key stakeholders to discuss the Cook Inlet natural gas supply shortage. The stakeholders participating included HEA Chief Operating Officer Rob Montgomery, Enstar Natural Gas President John Sims, and Kenai Peninsula Borough Mayor Peter Micciche. Ashlyn O’Hara of KDLL was the host and moderator. The group covered topics related to the natural gas shortage, HEA’s six-year contract extension with Enstar, the status of importing liquefied natural (LNG) gas into Alaska temporarily until a longer-term solution is identified, and ongoing challenges to finalizing the import of LNG. The hour-long segment is expected to air next Wednesday, February 12.

Legislative Update—With the legislative session underway, activity at the state capitol is picking up. Lawmakers appear focused on addressing education early in the session, but energy remains a key topic of discussion. With months left in the session, it is still too early to determine how various issues will unfold.

Governor Dunleavy delivered his seventh State of the State address, providing an update on Alaska’s current landscape and outlining his legislative priorities. Energy infrastructure was a key theme, with the governor highlighting several Railbelt projects and their economic impact:

  • Dixon Diversion Project: Expected to expand Bradley Lake’s capacity, this $342 million project is projected to generate 3,250 construction jobs and $584 million in economic output.
  • Sterling to Quartz Creek Transmission Line Upgrade: Part of modernizing the Railbelt grid, this project has created an estimated 460 jobs with a total economic output of $96 million.
  • Nikiski to Beluga HVDC Submarine Transmission Line: Estimated to create 1,470 jobs and result in an economic output of $332 million.

Dunleavy emphasized that these projects would contribute a combined $1 billion in economic output and create more than 5,000 jobs. He also noted progress in reforming the Railbelt transmission system and efforts to remove market-distorting wheeling charges. Looking ahead, the administration plans to introduce financial tools to support further grid modernization.

The governor also touched on rural energy, stating that 20% of income from the Alaska LNG Project could be allocated to support rural energy initiatives. To view Gov. Dunleavy’s State of the State address or read the full transcript, visit:

Additionally, the House Energy Committee has been actively engaging with state and local leaders to better understand the challenges facing Alaska’s electric utilities.

  • House Energy Committee 1-28-25 Hearing: Kenai Peninsula Borough Mayor Peter Micciche and Anchorage Mayor Suzanne LaFrance, representing the Southcentral Mayors’ Energy Coalition, addressed the committee. Micciche focused on the Cook Inlet natural gas supply and emphasized the need for an open-minded approach to solutions, aligning with APA’s state policy stance.
  • House Energy Committee 1-30-25 Hearing: APA Deputy Director Michael Rovito provided an overview of Alaska’s electric utilities, discussing Railbelt and rural energy challenges, the Renewable Energy Fund, Power Cost Equalization, and efforts to improve the Railbelt transmission system. Ed Jenkin, CEO of the Railbelt Reliability Council (RRC), gave an in-depth presentation on the RRC’s history, mission, and goals. He gave the same presentation during the APA Legislative Conference on Wednesday, February 5.

In conjunction with the APA Legislative Conference, the committee held two additional hearings featuring representatives from Golden Valley Electric Association, Homer Electric Association, Matanuska Electric Association, Chugach Electric Association, and Alaska Village Electric Cooperative.

Finally, the Senate Resources Committee heard from Clay Koplin, CEO of Cordova Electric Cooperative.

As discussions continue in Juneau, HEA will remain actively engaged to ensure the cooperative’s priorities are represented.

Regulatory Commission of Alaska – other regulatory matters on our radar:

  • HEA has filed TA468-32 to increase the net metering cap from 7% to 9% of HEA’s annual average load. This was approved by the Commission and will be reflected in the next compliance filing at the end of February.
  • HEA has filed multiple agreements with Enstar covering gas supply needs through March 31, 2031 in TA471-32. Both the one-year extension and the five-year agreement have been approved by the Commission with conditions. The terms of the conditions will be stated in the letter order slated for release on February 10th.

BOARD OF DIRECTORS’ MEETING APPROVALS | FEBRUARY 11, 2025

Regular HEA Board Meeting

  • Regular Meeting Minutes of January 14, 2025
  • Resolution 45.2025.02, Ratification of the Outside Bargaining Unit Collective Bargaining Agreement
  • Resolution 45.2025.03, Approving the Simplified Rate Filing for Test Year Ending December 31, 2024
  • Board Policy 102, Statement of Goals – Periodic review completed, and housekeeping revisions approved.
  • Board Policy 506, Energy Security & Diversification Policy – Annual review complete, and housekeeping revisions approved.
  • Board Policy 602, Annual Meeting of the Members – Periodic review completed, and housekeeping revisions approved.
  • Board Policy 712, Hiring – Periodic review completed, and housekeeping revisions approved.
  • Board Policy 723, Control and Disclosure of Related Party Transactions – Periodic review completed, and housekeeping revisions approved.

Regular AEEC Board Meeting

  • Regular Meeting Minutes of December 17, 2024
  • Resolution 45.2025.02, Budget Authorization for the Nikiski Repower Project
  • Resolution 45.2025.03, Approving Western Loop Upgrades