May 14, 2024
SUMMARY
Good afternoon! It feels great to have hosted another successful Annual Meeting. There's always a sense of relief after such a big event and this year was no different, with high attendance and everything running smoothly— all thanks to the hard work and dedication of our employees. We also received a warm welcome and saw active participation from many of our members in attendance in Homer and it was great to interact with our members again especially since we missed the opportunity for an in-person meeting in Homer three years ago during COVID.
Congratulations to Mike, Robert, and Louie, who were re-elected to the Board to represent their districts. A big thank you to everyone who ran for a seat on the HEA Board of Directors. Your willingness to participate shows the unique and valuable nature of our cooperative.
Due to my membership presentation last week, I will keep this month’s report brief.
SAFETY
We had a very safe April and for the second month in a row, HEA experienced no Occupational Safety and Health Administration (OSHA) recordable incidents. The full safety report is included in this month’s Board packet. In addition, the 2024 Quarter 1 safety scorecard, along with all strategic plan scorecards are included in this month’s Board packet.
FINANCIAL OVERVIEW
March operating revenues of $9.75M bring year-to-date (YTD) revenues to $30.15M and reflect sales performing about one percent above budgeted expectations. Operating revenues exceed the total cost of service yielding YTD operating margins of $2.27M. Interest income and the $0.32M 2023 patronage allocation from ARECA Insurance Exchange (AIE) further contribute toward margins performing above budgeted expectations with total net margins through March 31 of $2.66M. HEA's total energy usage in April clearly reflects the additional 4.8 MW load that the Marathon refinery coordinated with Generation to supply, which is expected to continue throughout the summer. This will mainly result in additional revenues offsetting additional fuel usage but will also generate a small contribution towards HEA’s fixed expenses as outlined in their Special Contract.
RELIABILITY
Generation - Early in the month, efforts focused on collaborating with contractors and vendors to secure all necessary parts and services onsite in preparation for the outage at Nikiski Combined Cycle (NCC). Emphasis on outage coordination, procurement, and systematic staging of parts remained a high priority until the start of the outage. On April 19, the scheduled major overhaul began at NCC. This included significant service to the Combustion Turbine with a rotor replacement, minor maintenance to the Combustion Turbine Generator, comprehensive service to the Steam Turbine, Heat Recovery Steam Generator (HRSG) inspection and repairs, a control retrofit of the Steam Turbine, and various other maintenance activities. Plant operators continue to engage in maintenance and repairs, supporting contractors and vendors. Additionally, personnel from the Nikiski Fire Department underwent site orientation and primary response training to enhance their emergency response capabilities.
In other updates, as part of the Battery Energy Storage System (BESS) Tesla Battery Module Replacements, Megapack Group 1 replacements were completed between April 8 - 26 and were restored to service. Megapack Group 2 was taken offline on April 19 for battery module discharge, with the replacement process starting on April 29 and projected to finish by May 15. These efforts aim to minimize generation costs while maintaining system reliability.
As mentioned above, the Marathon refinery increased its load significantly starting April 7, raising its average load from 10.0 MW to 14.8 MW following a reduction in self-generation. This adjustment, which was anticipated, is expected to continue through September.
At Bradley Lake, an outage occurred on Unit 2. Inspection of the pole connections revealed a damaged or cracked leaf-style connection in a location that prohibited onsite repair, leading to the replacement of the pole with one of the three spares. The equipment failure is believed to have been caused by the system attempting to compensate for the high impedance on the rotor, which was corrected by changing out the pole.
Lastly, a brief update to the NCC Alaska Pollutant Discharge Elimination System (APDES) renewal efforts. The Department of Environmental Conservation (DEC) provided a draft permit for a 10-day review on April 10. The draft was circulated among HEA managers, HEA staff, contractors, and Cook Inlet Environmental. The HEA team and contractors noted improved limits and felt the draft met their expectations. By the end of the month, the DEC had moved the draft to a 30-day public review and comment phase.
CUSTOMER SERVICE
Engineering Services, New Service Applications - Through the month of April, 107 new service applications were received by the Engineering Services department.
Member Services - As mentioned previously, the Annual Meeting and the election were successful. The overall satisfactory member survey results have been compiled along with historical voting statistics and detailed election reports, which will be provided to the Board for review. Any suggestions or changes you may have or have heard to make next year’s 75th Annual Meeting of the Members even better, are welcome.
BUSINESS & COMMUNITY RELATIONSHIPS
Legislative Update - With only a few days left in their regular session, lawmakers are prioritizing last-minute bills they want passed. As the session ends, many bills will be set aside as the focus shifts to top-priority issues. Michael Rovito’s weekly Friday updates are a good source of material concerning what bills are currently in play as the end of session presents a very dynamic situation in Juneau. As is usually the case, anything can happen the last few days of the session and this year is no different.
Committees in both the House and Senate looked at several energy-related bills that if passed, will impact our industry. These bills, and their amendments, include creating a Railbelt Transmission Organization (RTO), implementing an Open Access Transmission Tariff, creating Community Solar projects that are focused on low to middle income participants, potentially taxing S Corporations (including Hilcorp), Royalty Reduction, creating Carbon Storage regulations, Natural Gas Storage regulations and establishing a Renewable Portfolio Standard (RPS) to name a few.
The House of Representatives passed the FY25 capital budget on May 8th in a 39-1 vote. The vote total was a rare moment of House unity on a budget bill. Since the capital budget originated in the Senate, it must go back to that body for a concurrence vote. Per an agreement between the House and Senate on the next fiscal year’s budget, the Senate is expected to concur with the changes made by the House, sending the bill to the governor for his consideration.
The latest draft from the House Finance Committee’s FY 25 capital budget proposes increasing funds for the Renewable Energy Fund (REF) from $4 million to over $14 million. This change means the first seven projects from a list of 23 could be funded, compared to only funding for two projects in the earlier Senate-approved budget.
Regulatory Commission of Alaska (RCA) - Secondary Service Fee/Credit (SSF/SSC) – The New line extension rates for 2024 were approved by the RCA effective May 6, 2024. The SSF/SSC increases from $5,800 to $6,000 for single-phase service and from $17,400 to $18,000 for 3-phase services. A significant driver for this increase is the escalating cost of transformers.
Chugach Rate Case – HEA, GVEA, and MEA are coordinating efforts to propound discovery on Chugach’s reply testimony filed on May 3. This effort will wrap up on May 24, 2024. CEA’s rate case hearing is scheduled to commence on June 25 and will run through approximately July 19. Early discovery efforts identified errors in Chugach’s calculation of transmission and ancillary services rates which resulted in Chugach filing an errata (a list of errors and their corrections found in printed or published material) with the RCA, reducing their transmission cost of service by 7.7 percent. While each utility has individualized concerns, we are all united in preventing ML&P acquisition costs being foisted onto Transmission tariff users since the ML&P acquisition did not include any transmission backbone assets.
Electric Reliability Organization (ERO) – Settlement discussions continue among the intervening parties on the ERO’s 2024 Surcharge filing. The main outstanding issue is related to timing. Greatly simplified, the ERO has collected costs it has not managed to spend due to the timing of its executive staff hires. The state of Alaska through Regulatory Affairs and Public Advocacy (RAPA) initiated discussions that would require the ERO to spend down that reserve in 2024 instead of using it as a contingency balancing account.
BOARD OF DIRECTORS' MEETING APPROVALS | May 14, 2024
Regular HEA Board Meeting
- Regular Meeting Minutes of April 9, 2024
- Resolution 45.2024.03, Scholarships
- Board Policy 209, Board Member Fees and Reimbursement of Expenses – Annual review completed, and housekeeping revisions approved.
- Board Policy 214, Review of General Manager Expenses – Periodic review completed, and housekeeping revisions approved.
- Board Policy 218, Election of Officers – Periodic review completed, and housekeeping revisions approved.
- Quarterly Board & General Manager Expenses
Regular AEEC Board Meeting
- Regular Meeting Minutes of February 13, 2024
- Official Notice of the AEEC Annual Meeting