SUMMARY

November is shaping up to be a busy month as we focus on finalizing the 2026 budget and managing the seasonal increase in weather-related outages. As we head into the holidays, a season that seems to arrive earlier each year, I hope you and your families are staying warm and healthy.

In October, we wrapped up our evening Community Area Meetings, Member Appreciation Day, and the Strategic Planning Update Workshop. Thank you to all staff and Board members for your time and contributions to these successful events.

The following provides a snapshot of HEA’s current business activities and progress on key strategic initiatives over the past month.

SAFETY

October was another strong month for HEA’s safety performance. The cooperative has worked 81 consecutive days without an OSHA recordable or lost-time incident. This continued streak highlights the dedication of HEA’s crews and staff to maintaining a safe and reliable work environment across all operations.

FINANCIAL OVERVIEW

FINANCIAL UPDATE – Total revenue for September was about $10 million, compared to a cost of service of $10.2 million, resulting in a monthly operating loss of roughly $198,000. This decline in operating margins is typical for this time of year, as member energy use slows during the shoulder season while routine and scheduled maintenance continues in preparation for winter weather. Fortunately, non-operating margins in September helped boost the operating loss to a positive $42,000.

Year-to-date margins remain positive. Operating margins are approximately $842,000, with total margins of about $1.35 million. The modified debt service coverage ratio stands at 1.38, slightly below last year’s 1.43 but still within a healthy range for this point in the year, considering seasonal trends, ongoing maintenance, and the closeout of the 2025 construction season.

During the upcoming budget process, please expect discussion of a proposed 4.0 percent base rate increase effective January 1, 2026. Across the country, many electric utilities are moving toward smaller, more frequent rate adjustments to keep pace with today’s inflationary environment. This approach helps reduce the risk of “rate shock,” which can occur when rates are held artificially low for too long, leading to shrinking margins or deferred maintenance.

Consistent with Board Policy 301 – Cooperative Rate Design, HEA considers changes in the Alaska CPI-U when evaluating rate actions. The Urban Alaska CPI-U has increased by roughly 19% over the past five years. Even with the proposed adjustment, HEA’s cumulative base rate changes over that same period totals 10%, meaning members’ base rates have risen more slowly than local inflation.

HEA’s proposed increase would also follow similar actions by other Railbelt utilities. Matanuska Electric Association implemented a 3% base rate increase effective July 1, 2025, and Chugach Electric Association has filed a rate case, subject to Regulatory Commission of Alaska (RCA) review, that raises residential rates by  5.07%. In the Fairbanks area, the Golden Valley Electric Association Board recently approved a rate case that includes an 8.37% increase to the residential base rate, which is similarly subject to review by the RCA.

RELIABILITY

GENERATION – Weekly coordination meetings began for the Nikiski Combined Cycle (NCC) Repower Project. Proposals for the HRSG bypass damper were rejected, and the Request for Proposal for the bypass damper will be reissued with a revised installation target of 2027.

The Nikiski Plant entered a planned outage on September 29 to inspect and plan required repairs to the combustion turbine step-up transformer. The outage was extended due to an issue with the NCC combustion turbine exciter. Still, operations resumed on October 6. During this time, Soldotna and Bradley plants operated at full capacity, and the Bernice Lake facility was used for peaking generation. The battery energy storage system (BESS) was cycled instead of utilizing a Bernice Lake unit, saving approximately $40,000 in fuel costs. Several storm-related outages during the month caused temporary load losses as crews worked through restoration efforts.

Tesla completed scheduled BESS maintenance from Oct. 27–31, returning all megapacks to full operational status. In Seldovia, the new generator Unit 1, was commissioned.

The Battle Creek Diversion was shut down for the winter on October 24. A 5.4 magnitude earthquake on October 30, about eight miles from the Bradley Plant, prompted inspections that found excess water in the spillway gallery. The water was later determined to be residual from earlier core drilling work. No earthquake-related damage was found.

DISTRIBUTION/TRANSMISSION – Three significant wind events impacted HEA’s system in October, each requiring a minimum of three days for outage restoration and cleanup, totaling about 11 days of response. As a result, some previously scheduled work was postponed to accommodate storm recovery efforts.

The meter department received the final shipment of meters for 2025 and is working to complete the remaining Cannon-to-TWACS conversions by the end of November. Once complete, the Anchor Point, Kasilof, and Marathon substations will be fully converted, leaving only the Beaver Creek and Fritz Creek substations to be completed in 2026.

MEMBER/CUSTOMER SERVICE

ENGINEERING SERVICES, NEW SERVICE APPLICATIONS – The chart below shows the new service applications and provides a historical comparison.

PUBLIC RELATIONS AREA MEETINGS – The remaining Area meetings at the joint Soldotna/Kenai Rotary and the Kenai/Soldotna Joint Chamber are scheduled for this month and into December. Rob Montgomery, Chief Operating Officer, will present at these meetings, and, as always, members in attendance will have the opportunity to participate in the energy credit prize drawings. In addition to the dates listed at the end of this report, event details are available in the BoardVantage app and on the HEA website homepage.

CYBER SECURITY & INFORMATION TECHNOLOGIES

Cybercriminals love the holiday season. They’ll send fake shipping updates, gift card scams, or charity donation requests. If something seems too good to be true, like a free iPhone or a last-minute deal, it probably is. Stick to trusted websites and don’t click on suspicious links.

BUSINESS & COMMUNITY RELATIONSHIPS

Alaska Legislative session – Although the 2026 Legislative Session is still a few months away, HEA and other Railbelt utilities have begun discussions with state legislators on several energy-related issues expected to surface during the session.

On October 17, Rep. Ky Holland (District 9), co-chair of the House Energy Committee, met with HEA to gather feedback on topics including wildfire mitigation and liability indemnification related to hazard trees, a proposed Renewable Portfolio Standard (RPS), and net metering. Similar discussions on wildfire liability and the RPS were held with Rep. Donna Mears (District 21), who also serves as a co-chair of the House Energy Committee, during the Alaska Power Association Annual Conference in September.

Alaska’s 2026 Legislative Session is scheduled to convene on Tuesday, January 13, 2026.

BOARD OF DIRECTORS’ MEETING APPROVALS | NOVEMBER 12, 2025

Regular HEA Board Meeting

• Regular Meeting Minutes of October 14, 2025
• Resolution 45.2025.31, Bank and Facsimile Signatures
• Resolution 45.2025.32, Authorizing the Amendment of the Outside 401(K) Pension Plan for Homer Electric Association, Inc. REA Group 02005-003
• Resolution 45.2025.33, Approving the Simplified Rate Filing for Test Year Ending September 30, 2025
• Board Policy 217, Scholarships – Periodic review completed, and housekeeping revisions approved.
• Board Policy 705, Benefits Package for Non-Bargaining Employees – Periodic review completed, and housekeeping revisions approved.
• Quarterly Board & Chief Executive Officer Expenses

Regular AEEC Board Meeting

• Regular Meeting Minutes of August 12, 2025