GVEA proposes major restructuring

Utility says transferring power plants, lines to separate nonprofit cooperative will save money

By Stefan Milkowski
Published November 19, 2006
Posted in Local, News

Golden Valley Electric Association is asking its customers to approve a major restructuring plan it says will save them millions.

For the last few years, the member-owned utility has been considering transferring its power plants and major transmission lines to a separate entity to take advantage of lower revenue requirements from money lenders. Now it’s ready to go ahead with the transfer and is mailing ballots Monday for members to vote on the issue.

Meanwhile, the plan has drawn criticism from one of the utility’s board members and others, who argue the savings don’t offset the loss of control by GVEA members.

Here’s a look at the proposal, what critics are worried about, and how it would affect other GVEA projects.

The GVEA G&T

Right now, GVEA does everything. It produces electricity, transports it along high-voltage lines and distributes it among individual customers. Because it’s involved in and transmission, it’s required to maintain a higher revenue surplus than utilities that don’t also run distribution systems. By separating out the generation and transmission assets, the utility overall will need to collect less money from its members through electricity bills.

“We’re taking the bankers’ rules and trying to beat them at their own rules,” said GVEA’s chief financial officer, John Grubich, at a town hall meeting Wednesday in Fairbanks.

The utility estimates that the switch will save members about $30 million over the next five years, although electric bills will likely continue to increase because of rising fuel prices and other factors.

The GVEA board of directors has approved a plan for the new entity, called the GVEA Generation & Transmission Cooperative, and is applying with the Regulatory Commission of Alaska for a permit. It also needs approval by members.

If the G&T is approved on schedule and implemented by Jan. 1, GVEA estimates it will have to collect about $4 million — or 2.4 percent — less from its members in 2007 than it would without the G&T. Savings would continue in later years.

But in order to get those savings, GVEA would have to transfer 60 percent of its assets to the new entity. The plan is to transfer power plants in Fairbanks, North Pole, Healy and Delta Junction, as well as the Northern Intertie, BESS, and all transmission lines and substations rated above 38 kilovolts. Associated debts would also be transferred.

The new entity would also be a nonprofit cooperative, but would be different from GVEA in that utility customers would not be member-owners. The G&T would have just one member — GVEA.

At the beginning, the G&T would be run by the GVEA board of directors, but that could change as the board saw fit. Whereas GVEA members elect the GVEA directors, the GVEA board would choose the G&T directors.

According to GVEA Vice President Tom Irwin, the different organizational structure is needed to meet banking and IRS standards. He said the flexibility regarding the G&T board would allow directors to bring in professionals with engineering or banking experience.

The G&T would operate under the same roof as GVEA and use the same employees. Agreements for the sharing of employees and the sale and purchase of power between the two co-ops would have to be approved by the Regulatory Commission of Alaska. The RCA would continue to oversee requests to change utility rates and would have access to the same data in determining whether a rate increase was needed to cover utility costs, according to Irwin.

Savings vs. control

When the GVEA board of directors adopted bylaws for the G&T last month, one board member voted against them. Tom DeLong, a relative newcomer to the board, said he voted against the plan mainly because he was concerned about taking power away from members.

“It’s a balance between control and savings,” he said Friday.

As it stands now, a transfer of more than 15 percent of GVEA’s assets or a change to the utility’s bylaws requires approval by members. Under the G&T, the GVEA board could sell G&T’s assets or change its bylaws without a vote by members.

The G&T setup allows the GVEA board to bring business professionals to the G&T board or remove members from it. The way the bylaws are written, the GVEA board is allowed to remove a dissenting voice such as DeLong’s from the G&T board, he said.

Gary Newman, a computer technician who has followed the proposal, is also leery of giving up members’ power. He said he’s worried that a handful of people on the G&T board could decide major issues and could be less responsive to the wishes of GVEA members, including those relating to the use of alternative energy.

“Basically, if you trust Golden Valley to do all the right things, then you can vote for it,” he said Thursday.

At Wednesday’s meeting, Irwin stressed that the GVEA board already has the power to sell certain assets and make other significant business decisions without members’ approval. While there are no plans to sell assets, he said, the G&T board would be obligated to consider good business decisions, just as the GVEA board is now.

Irwin said Friday that the issue boils down to trust in the GVEA board of directors.

“There’s a lot of people who absolutely trust the Golden Valley board,” he said.

The GVEA board’s ability to control the new entity would diminish if the G&T decided to accept other members, which Irwin said is not an expectation but is a possibility. According to Irwin, the ability to join with other utilities could enable synergy on big projects.

GVEA officials stress that the new organization would bring the utility in line with the “national model” of separate G&Ts and distribution companies. Critics point out that G&Ts with only one member are extremely rare.

Homer Electric Association uses a one-member G&T, which spokesman Joe Gallagher said has worked out “very well” for customers.

DeLong is also skeptical of the touted savings and critical of how GVEA executives have described them. He questions the numbers GVEA is using to show bankers’ requirements for revenue surpluses, and notes that whatever extra money members pay to maintain those surpluses now is returned to members later, usually in 20 years. So under the new proposal, members would pay less now, but would also receive less later.

Technically, the savings are in having the money now rather than later.

DeLong said unanswered questions about effects of the plan also caused him to vote against it.

“There’s not an evil plan here,” Irwin said at Wednesday’s public meeting. “The effort is to get value to the members.”

Member vote

Ballots will be mailed Monday and must be returned by Dec. 11. To approve the transfer of assets to the G&T, 10 percent of GVEA’s 31,000 members need to cast ballots, and more than half need to vote for the measure.

A second issue on the ballot would allow nonspouse family members of directors to produce and sell power through GVEA’s Sustainable Alternative Natural Power program.

To learn more about both proposals, see www.gvea.com.

Staff writer Stefan Milkowski can be reached at 459-7577 or smilkowski@newsminer.com.