February 8, 2022
SUMMARY
I hope this report finds everyone doing well. We made it to February…always an achievement in Alaska while enduring the cold and dark month of January, not to mention the heavier than normal snowfall during the past month. Thankfully, with February comes longer days and brightened spirits.
The following are brief updates on HEA’s current business activities and strategic goals that have taken place over the last month.
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 2021 4th quarter safety scorecard, along with all strategic plan scorecards are included in this month’s Board packet.
FINANCIAL OVERVIEW
The HEA Finance Department has been very busy with year-end closing activities. The unaudited financials are complete for both AEEC & HEA. Audit preparations are in full swing and on-site fieldwork begins on February 14, 2022. A draft audit report will be presented at the March Board meeting. In addition, during this month’s meeting a managing partner from the auditors will be reviewing audit practices during executive session.
Revenues for the month of December were $10.4 million and cost of service was $13.9 million, resulting in an operating margin loss of $3.5 million. Although, December’s retail energy usage was the highest we have seen since 2017 (see graph below), the high cost of restoration efforts due to storms along with year end write-offs of several aging jobs resulted in the monthly loss. Even with the loss, year-end operating margins of $1.9 million were near the $2.1 million budget.
HEA’s unaudited 2021 year-to-date total margins are $9.25 million, resulting in a Modified Debt Service Coverage (MDSC) of 1.36. The unaudited financials include $1.57 million patronage capital from AEEC margins. As of December 31, 2021, HEA has an equity ratio of 46.0%.
RELIABILITY
Distribution
As mentioned last month, the storm experienced between January 1 – January 5, 2022, resulted in 175 outages and affected 10,575 meters and caused significant storm damage to the system. Most of the outages were due to high winds blowing trees from outside the right-of-way into the line. During the storm, crews replaced five overhead transformers, six cutouts, and four poles, as well as continued to make repairs to the damaged 115 kV line after the storm.
The 2022 distribution clearing schedule includes the areas of Beaver Creek and Pollard Loop/South Kasilof area with work scheduled to begin the week of February 14. Notifications have been sent to members. Regarding transmission line maintenance, there are currently 18 poles that require replacement with work to replace the most critical poles, mostly in swampy areas, expected to begin in February 2022 with completion this spring.
Generation
The Nikiski Combined Cycle (NCC) plant ran the entire month without issue. Additionally, NCC used fuel coming from the 414-proxy meter as well as withdrawals from CINGSA to support high season loads. Due to these high season loads; we did not make any economy sales to other Railbelt utilities. We continue to work on the 414-meter project and meet regularly with Hilcorp. We have received quotes and issued a Purchase Order for the design of the cathodic protection system for the gas pipelines we own. Planning is underway for the spring 2022 borescope outage which is currently scheduled for May 16th – May 23rd. We are actively ordering consumable, maintenance and repair items and issuing required Purchase Orders as soon as possible to avoid potential delays and shortages. I am pleased to announce that NCC remains in compliance with effluent discharge limits relating to the Copper Discharge Permit.
Lastly, we have been able to secure a new manager for the Bradley Lake Hydro Facility to replace the retiring Bob Day after 16 years of service.
MEMBER/CUSTOMER SERVICES
The Member Relations team is busy with the community outreach associated with the Annual Meeting. Currently, scholarship program applications are available on the HEA website and at all service area high schools, and at both HEA offices. The deadline to submit scholarship applications is March 1, 2022. In addition, the Safety Poster Contest will continue for third and fourth graders within our service area. Lastly, the return of the Youth Rally Leadership Camp looks to be a possibility! After two years of cancellation due to the pandemic, 2022 looks to be promising. A decision to move forward with the event will be coming in mid-February.
ENGINEERING SERVICES | New Service Applications
The chart below plots new service applications, for non-HEA jobs only, over the last five years. The 14 new service applications in January are slightly below the average number (18.2) for the previous five years.
LEARNING & GROWTH | INNOVATION
CYBER SECURITY | COMMUNICATIONS | INFORMATION TECHNOLOGIES
HEA is seeing a massive increase in cyber-attack attempts related to the Russian & China political environment. Considering the recent Log4J cyber vulnerability impacting the Internet, CCIT reminds us to please update all devices immediately including phones, apps, computers, smart home devices, watches, TV’s, iPad’s, etc. to the latest software release to ensure continued protection.
Lastly, over 250 million people use Microsoft Teams daily. As you know it is the heart of our video conference presentation system used in our board rooms, as well as by our employee’s. Microsoft’s new version of Team’s scheduled for release shortly will add new capabilities to the system including new features assisting in executive session management & remote caller ID identification.
STRATEGIC SERVICES
The five Alaska Energy Authority (AEA) Renewable Energy Fund grant applications as presented during last month’s board meeting were completed and submitted.
In addition, there were ongoing discussions with RIPP as they continue to work on their proposed property tax exemption. The Director of Strategic Services attended the Borough Assembly Finance Committee meeting, provided testimony, and answered questions regarding a property-tax exemption for Independent Power Producers selling energy to cooperative utilities in the Kenai Peninsula Borough. Lastly, we continue to follow and review the CINGSA rate-case filings and work with outside counsel to develop HEA’s testimony to the RCA.
Extensive activity continues on strategic initiatives and a brief update will be provided during executive session.
LEARNING & GROWTH | INNOVATION
Battery Energy Storage System (BESS) Project
There has been a flurry of activity centered around BESS performance testing. The charge/discharge tests for Tesla were completed and all passed contract requirements. Integration of the BESS into Automatic Generation Controls (AGC) has gone well with the BESS responding as expected. However, system response issues resulted in a meeting with Tesla and a better understanding of how these issues need to be implemented to meet our requirements. In addition, the communication issues with the BESS have required firmware updates and require changing the ethernet connector ends to reduce any circulating currents. Despite these challenges, I am very happy to report that the BESS went into commercial operation on January 19th.
Grant Lake Hydroelectric Project
Land use easements and leases are being negotiated with the State and Kenai Peninsula Borough for Grant Lake Hydro project facilities, roads, and transmission corridors.
BUSINESS & COMMUNITY RELATIONSHIPS
Legislative Update
Keriann Baker, Director of Member Relations, and I travelled to Juneau in late January. The trip went very well and while in Juneau, we had the opportunity to visit with the Governor and each of the legislators’ representing members within our service territory. As expected, the common theme with our legislative delegation was appreciation for keeping them up to speed on issues that impact our cooperative, including Senate Bill 110, the Alaska Electric Utility Liability Bill; Spruce Bark Beetle Hazard Mitigation Grants; and the Renewable Energy Grants Funds.
APA Legislative Conference
APA hosted an excellent legislative conference, which was held virtually. Special thanks to the HEA Board of Directors, who represented our membership. The conference ran smoothly as several guest speakers provided the members some valuable information on topics impacting our industry.
In an E-flash update from APA, two bills introduced this week by Governor Mike Dunleavy are part of what the governor is calling “a package of energy legislation intended to promote energy independence, long-term cost reductions, and competitive markets in both urban and rural Alaska.”
The bills:
- SB 177 and HB 299 – These companion bills are aimed at streamlining the addition of micronuclear reactors to electric utility generation portfolios; and,
- SB 179 and HB 301 – These companion bills create a renewable portfolio standard (RPS) for the Railbelt, with statutory targets starting with 20 percent renewable energy resources by 2025 and ending with a required 80 percent renewable energy resources by 2040. Benchmarks are set at every five years, and the 9-page bill lays out the requirements of the RPS.
Regulatory Commission of Alaska (RCA)
Regulatory Cost Charge – A last-minute notice from the RCA on December 29th increased the regulatory cost charge (RCC) for all regulated public utilities, effective January 1st. The RCA sited declining revenues as the reason.
Electric Reliability Organization (ERO) Regulations – The RCA held a technical workshop on January 10th to discuss the ERO application being prepared by the Railbelt Reliability Council (RRC). The RRC submitted questions to the RCA prior to the meeting to address points needing clarification. In general, the RCA did not provide much in the way of guidance on how they would evaluate the application. The most important comment to take away was Chairman Pickett’s suggestion that the ERO provide ample discussion on justification for their views/interpretation of the regulation. Additionally, a two-day, in-person meeting of all stakeholder representatives has been scheduled for March 14-15, 2022 to incorporate as a non-profit by the March 28th application deadline.
2022 Load Study – HEA held a discussion with the Cooperative Finance Corporation (CFC) to discuss test data from the summer of 2021 using just TWACS meter data. Based on analyses to date CFC has achieved an accuracy up to 98.77% relative to HEA’s actual load. Additional refinements are possible to further improve the accuracy. At this stage CFC is comfortable with using TWACS meter data, plus ION meter data from HEA’s industrial customers, to perform the load study. CFC intends to begin cost of service/rate case preparation discussions later this year as the historical test year (2022) draws to a close.
EV Inception Rates – HEA submitted its inception tariff rate for EV fast chargers of $0.16441/kWh ($0.10515 current Rate 4 energy rate plus $0.05926/kWh for converting the demand charge to an energy rate at a 50% load factor per the RCA formula) plus COPA. At the current proposed COPA of $0.076/kWh this yields a total rate of $0.24041/kWh. Additional language was included to clarify tariff language surrounding sale and resale of electricity. The rates of the other utilities are as follows (ex COPA, RCC, etc.):
MEA $0.30243/kWh Load Factor 5%
GVEA $0.75930/kWh Load Factor 5%
CEA $0.13508/kWh Load Factor 34% (Legacy CEA)
$0.15274/kWh Load Factor 41% (Legacy ML&P)
AEL&P $0.1383/kWh - $0.2489/kWh (depends upon seasonality and rate class) Load Factor 10%
*A decision is due March 10th if no extensions are requested.
BOARD OF DIRECTORS’ MEETING APPROVALS | FEBRUARY 8, 2022
Regular HEA Board Meeting
- Regular Meeting Minutes of January 11, 2022
- Resolution 45.2021.02A, Establish Date, Time and Location of the 2022 Annual Meeting of the Members
- Resolution 45.2022.04, Establish Date, Time and Location of the 2023 Annual Meeting of the Members
- Board Policy 602, Annual Meeting of the Members – Periodic review and housekeeping revisions approved.
- Board Policy 712, Hiring - Periodic review and housekeeping revisions approved.
Regular AEEC Board Meeting
- Regular Meeting Minutes of December 14, 2021
- Special Meeting Minutes of January 11, 2022
- Resolution 01.2022.06, Authorizing Departure from RUS Bulletin §1767.15(q)(2)(ii)