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HomeMy WebLinkAbout1987-01-27 Economic Development Commission SummaryECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 - 7:00 PM Kenai City Hall Vince O'Reilly, Chairman AGENDA 1. ROLL CALL 2. APPROVAL OF AGENDA 3. APPROVAL OF MINUTES of January 6, 1987 4. REVIEW OF PROGRESS TO DATE 5. PRESENTATION OF NEW MATERIAL 6. PRESENTATION OF TESTIFIERS AND/OR SPECIALISTS a. Dave Brenden, Enstar Natural Gas b. Ron Raine¥, Homer Electric Association c. David T. Smith, Sonic Cable TV d. Carl Menting, Telephone Utilities of the North 6. PUBLIC TESTIMONY 7. COMMITTEE DISCUSSION a. Budget Preparation/Approval 8. PREPARE NEXT AGENDA 9. ADJOURNMENT (9: 30 PM) ECONOMIC DEVELOPMENT COMMITTEE Minutes, Regular Meeting Held, Kenai City Hall Council Chambers Tuesday, January 27, 1987, 7:00 p.m. Presiding: Vince O'Reilly, Chairman 1. ROLL CALL Present Absent · Vince O'Reilly Jim E1 son Mike Meeks Roseanna Shelden Barry Thomson Darren Bond Jim Carter (arrived George Miller Bob Scott later) In portion attendance: Councilman Art of the meeting. McComsey was present during · APPROVAL OF AGENDA Agenda will stand approved as submitted. A~PROVAL OF,,M!NUTES - January..6,.. 1987 Chairman questioned sentence. Did not referred to. page 7, third paragraph, last understand what the "240,000" The minutes were approved. · REVIEW OF PROGRESS TO DATE Chairman O'Reilly stated committee was to hear from City Manager Brighton concerning what could be worked out with the Borough as regards to having the Planner add on to his plan or update it. It was asked if any information had been received. Answer: no. · P.~ESENTATION OF TESTIFIERS AND?OR SP.EC!.ALISTS Chairman O'Reilly explained to the testifiers present, what the committee is trying to do. Chairman O'Reilly stated: What we're trying 'to do, two-fold, first is to get a snapshot picture of the city's economy. Dealing with the private sector and the governmental sector. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -2 From that, hopefully the condition of the are on the city's economy, and then from that, second stage; this committee's charge with responsibility with making a recommendation to Mayor and the Council as to whether there should permanent commission of the City that would deal economic development matters. And, if so, what should that commission take, and what powers authorities it should have. What membership, etc.. to be able to determine what is city's economy, what restraints the the the be a with form and What life it should have. Chairman O'Reilly expressed his appreciation to persons present to testify, for coming before committee and offer their testimony. the the Chairman O'Reilly went on to explain that the committee had heard from the real estate interests and will be hearing from the Borough, Borough School and the City, in regards to tax matters, at the next meeting. Work of the committee should be finished by sometime around May 1st. All meetings are open and are on public record. a · Dav.e Brenden:..Enstar NaturaI Gas Mr. Brenden wanted to bring the committee up to the minute on what Enstar's position is to Kenai. Your probably all aware of KUSCO was bought out by Enstar back in May of 84. Enstar's operated in Soldotna, Sterling, North Kenai area. City of Kenai was operated seperately by KUSCO. We purchased them in October of 84. The Public Utility Commission approved that sale of KUSCO to Enstar with three stipulations. The three stipulations at that time were that the current rates would remain in effect. We were to maintain easily separable records, complete set of Enstar accounts versus KUSCO accounts. And the City of Kenai remain to still have the purchase option in August of 87. There's evidently some question as to the validity of the option, that either side has agreed to or disagreed to yet. But, those three conditions have been met. We've lived with them from that October 84 Commission ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -3- ruling. Things have been going pretty well. We're integrating KUSCO into the Soldotna or Enstar system. We closed down the Kenai office, this August, was met with local resistance by the City of Kenai, local citizens. However, it was done just because economy of scale. We had two duplicate operations in less than ten miles apart. We had girls in this office and three girls in Soldotna office now. The two offices were consolidated. It seems to be operating without a hitch. Like I said, there was a little bit of resistance, but, to the best of my knowledge, it's gone over very well. Then again, in November of 86, Enstar went to the Commission with a tariff filing for a rate increase. What may be called a purchase gas adjustment increase. KUSCO's contract with Marathon Oil/Union Oil expires FebruarY 1st, 1987. It was written back extremely cheap gas. wanted to be able to to Enstar's cost of This is a twenty year contract. in 67. Relatively cheap gas, Enstar, at that Commission filing convert the KUSCO customers over gas, as that, when the contract with Marathon ran out. To date, that has been approved and we will be bringing over to KUSCO customers to Enstar rates, effective February 1st of 87. What effect does this have on the community? It's got a great effect. The average residential customer's rate will probably increase in the neighborhood of 40 to 45%, depending on his consumption. It was asked if this was just in the City. Mr. Brenden answered that it was just in the City of Kenai, with the exception of the City of Kenai South of the river, that VIP, Cannery road area, has always been part of Enstar's system. So we're talking, just the City of Kenai, North of the river. Average residential user, 40 to 45% increase. Commercial user, that's probably in the neighborhood of 50% increase. Wildwood, it could go as high as 75%. The reason for this, basically, because of the cheap gas, being replaced by Enstar's blended rate of gas. Both companies, Enstar and KUSCO, back in the early 60's, contracted for gas. KUSCO had only the contract and has carried it from 67 ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -4- till current. Enstar has been most annually, throughout the years, have been purchasing additional gas. Buy gas at Kenai field. More recently at the Beluga field. The Beaver Creek field. The Pretty Creek field and the Lewis River field. So we've got more than one contract that we're living on, and enables us to keep the blended cost of gas below the current market value of gas. Some comparisons here, KUSCO cost of gas is somewhere in the neighborhood of.33 (cents) an MCF. Enstar's cost of gas is about $1.25, an .80 (cent) purchase cost adjustment will be added onto the KUSCO customers bill. That will be the reason for the 40 to 45% increase. It was asked by Committee Member Elson, if customers will be paying the same thing that Enstar customers in North Kenai or Soldotna. KUSCO the old Mr. Brenden responded, no they won't. They still won't be up to Enstar's rates, yet. Mr. Brenden worked up a comparison as to my gas bill. Mr. Brenden lives in the City of Soldotna. Last month he burned 300 ccf of gas. My bill was $98.68, that's if he'd been in the City of Kenai, under Enstar rates, and includes the 5% Borough and City tax. If he'd been with KUSCO, burning the old KUSCO gas, the bill would have been $63.13. The increase in those two was 56%, so if a KUSCO customer had gone into an Enstar customer, paid an Enstar rate, it would have been subject to a 56% increase. But, the customer's just going to an increase cost of gas, is all Enstar is going for at this time, and that amounts to a 44.8% increase. As he sees it now, Enstar probably will want to roll the KUSCO customers into Enstar customers in August of 87. And subject to the Public Utilities Commission findings, could be another rate increase at that time. To bring KUSCO customers up to where an Enstar customer is, that it was a postage stamp rates from the Mat-Su Valley, Soldotna, Kenai, where ever in the Enstar system. Committee Member Elson asked if pricing different the Soldotna customer and Eagle River. for, ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -5- Mr. Brenden indicated, no. The stamp rate. A Wasilla customer Eagle River customers, Anchorage Kenai customer. system is a postage pays the same as a customers, or North Committee Member Thomsom asked what effect this would have on the residential and more specific, the commercial users. Its seems as though the commercial users are going to have a higher increase, so the burden of the increase is going to be put on the business. Mr. Brenden stated, only because they more gas. Purchased gas adjustment strictly on the consumption. Your paying cost of gas. are consuming factor base the increase Committee Member Thomson asked if the wouldn't stay the same, in that case. percentage rate Mr. Brenden: No, because they are using more in there...the Enstar,the KUSCO rate structure is such that there's a dollar value of, the cost gas decreases as you use more. Committee Member Thomson: increase should be less. Soy therefore the percentage Mr. Brenden: Should be more, because, as you use more gas, at current KUSCO rates, the price comes down. So when you add a straight additional factor in there, for the cost gas, it's bringing that increase up. Chairman O'Reilly asked if Enstar does population projections, and/or commercial usage projections. Mr. Brenden: He did not have those figures with him, as far as consumption per residential and consumption per commercial dwelling. Mr. Brenden: He indicated his speech is not too popular. It's bringing in bad news. 40 to 45% increase is not good news in bad times. The further ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -6- develope that bad news, our new customer hook-ups, construction wise this year, is down approximately 50% over last year. The reason I base that, is the new service line hook-ups and main line construction. Both of them are very close to half, compared to 85, and 86 projections that they are going on, basing on more of a decrease in construction over last year. We ordering less pipe. Projecting 350 hook-ups this year, down to possibly 250 hook-ups next year. Thirteen miles of main addition to down to seven or eight miles of main. We're not looking for a very good construction season this year. Committee Member Elson: Is different to anyone, today. KUSCO system now? the cost for a hook-up Someone that's on the Mr. Brenden: Right, that's part of that, separate books. We've kept the KUSCO tariff City of Kenai. There's a different cost for here, than there is in the Enstar system. keeping in the hook-up Committee Member bond: More or Less? Mr. Brenden: Service line costs, about the same. Enstar is paying $20.00 for the first 100 feet and $1.00 a foot thereafter. And a KUSCO first service line, your paying the first 100 feet for free, and $1.00 a foot thereafter. So the service line is a relatively inexpensive proposition. That's if there is main in front of your house. In front of your property. Getting main line extended to your property is more expensive in Enstar system. Paying on the average of $7.50 a foot in the Enstar system, and your given a credit of $1,550.00 per hook-up. A thousand foot extension would be $7,500.00 less $850.00 per hook-up, and the balance of that would be in the form of a deposit. You deposit wi th the company and that would be refunded to you within a ten year period. As additional customers hooked-up, you get the $850.00 back, up to your original deposit amount. If you didn't have any customers hook-up in the ten year period, you get your entire amount back after ten years. The difference with the KUSCO system in that, is about $6.00 per foot for the main line extension and that's deposited with ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -7- the company and not sure of the credit to the customer. Not sure if deposit remains on the books. However, he believes Enstar has opted to go to a ten year minimum on that, just so it doesn't stay forever. It's confusing having two systems, that's why Enstar wants to go with just one system. Working one company with two separate sets of books is confusing. You'd have to ask your customer what side of the line your on. That's why the postage stamp rate. Chairman O'Reilly: Are the supplies of gas adequate? Mr. Brenden: We just signed a contract to the Beluga pipe line. Beluga to Anchorage, 100 miles of 20 inch pipe line. We contracted there for a third of the field, 13 year contract, but with the reserves that are left over there, should put us well into the 1990's to the year 2000. Chairman O'Reilly: Is that where our gas comes from, Beluga? Mr. Brenden: Right here, we are taking from five different fields. Taking from Beluga, Beaver Creek, Lewis River, Pretty Creek and the Kenai field. Committee Member Elson: Supposing during the anticipated economic cycle that we're in, it goes for the next two of three years, that we should some where in the City of Kenai, there should be a break.., for instance, if we had an industry come in and part of the extended airport lands or development out here in section 36, is Enstar in a position to respond to that? Mr. Brenden: A large increase? Committee Member Elson: Not necessarily a large increase, thinking of an industrial plant or something in that nature. Mr. Brenden: We've got the reserves or can get the reserves for just about anything you can add in here. If economic conditions are right, we can put on additional large loads of like that. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -8- Committee Member Elson: The cost of that is essentially born by the customer? Mr. Brenden: By the customer. By the consumer. Chairman O'Reilly: This all began with the City granting a right of way to Union Oil then? Mr. Brenden: As best I've been able to piece it out, yes. Chairman O'Reilly: Does that right of way remain permanent, forever? Mr. Brenden: That right of way is between Union Oil and the City of Kenai. Chairman O'Reilly: But, that was the cause of the low cost contract that we had? Mr. Brenden: There again, that's twenty years ago. Committee Member Elson: The way I understood it. For granting of the right of way, the City got the right to franchise the gas. Not quiet sure .... got the right to go in at this current market price of gas. There was at one time, a check that came in at the end of the year from Marathon and Union Oil for the gas that was sold through the KUSCO system. A franchise fee. Chairman O'Reilly: Are our rates competitive with other areas? Mr. Brenden: Our natural gas up here is probably the cheapest, if not the cheapest in the nation. That's the entire 50 states. The Alaska gas is, even with the 40% increase, will be some of the cheapest gas in the United States. Chairman O'Reilly: I gathered from what you're saying, this postage stamp rate will apply from the Mat Su down through this area. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -9- Mr. Brenden: That's correct. We have postage stamp rates now in other areas. They will all be subject to Public Utilities Commission's approval, which I wouldn't know right now whether they are going to approve it. Enstar will be able to have the same rates in Kenai as they have in the valley, Eagle River/Anchorage. It's still up before the commission. Committee Member Elson: The cost of the line extension on new service are the same in other areas? Mr. Brenden: Right. The cost of that extension, covered, is the $7.50 a foot covered. Main line extension are due. The consumers are on a hold here for now. We're not allowed to pass on the costs of the main line extension to the other consumers. That main has to be, cost justified, by the person being extended to it. Mr. Bill Thompson (Telephone Utilities of the North): If your saying by postage stamp rate, that Mat Su being the same here, then Kenai customers would be subsidized for the pipe line, Beluga, in that area? Mr. Brenden: It could be looked at that way. What your saying too, is that the larger percentage of the gas comes back here. Being used by the Enstar customer, is coming from that pipe line. As their reserves dry up here on the Kenai field and our contracts dry up, it's conceivable that someday, that the City of Kenai may be getting their gas from Beluga. Chairman O'Reilly: gas rights on them. The City, has some lands that has Mr. Brenden: I think that was why Mayor Williams thought they could buy gas at a cheaper rate than Enstar could supply it for. Enstar's rate is a blended rate. Contracts that have been purchased from 1967 to the early 60's to date. That blended is by far cheaper than the current market of gas. If we could buy gas here for the blended· rate that Enstar's buying it for, then it would be in the City's best interest to purchase that gas. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -10- Committee Member Elson: I think what we're talking about is, that the City of Kenai, with the lands that they have, if the gas is developed underneath that has a royalty of natural gas, it could be utilized for its citizens or turn in revenue. If it were so utilized. Committee Member Thomson: Do you have any idea on the revenue change that is expected to be generated before and after that change in purpose? When you increase your pricing throughout the KUSCO system, what is the change going to be in real dollars. Mr. Brenden: The sales in the City of Kenai were somewhere around five hundred and ninety thousand MCF's, we could take that and add in that additional purchase cost, gas adjustment factor, determine what increase the dollar amount that's going to be spent. Committee Member Thomson: So it has 600,000 at MCF. We're looking at $200,000.00. .33 cents an Mr. Brenden: It's going from .33 cents to $1.25. 600,000 MCF going from .33 cents up to $1.25. And that's just the gas portion of the bill. The operating and maintenance portion of the bill is not going to be increasing. Chairman O'Reilly: In other words to be predicated more upon Enstar's local current market. the gas rates seem situation than the Mr. Brenden: Ail Enstar is trying to do is recover their cost of gas, and no more. KUSCO rates right now are .33 cents an MCF. Our blended cost of gas is $1.25 an MCF. The current market value for gas is probably $2.10 an MCF. Committee Member Elson: Enstar was aware of the situation when they purchased KUSCO, as far as converting KUSCO to the Enstar system. There must have been some type of calendar, of bringing the price of gas up. Are you on target with that conversion? ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -11- Mr. Brenden: Yes. This rate increase is more based on the Utility Commission stipulations. Couldn't raise our rates until they are justified. And now there justified, because the contract expires wi th Union/Marathon. Our next target date is August of 87, where the City of Kenai's option expires on KUSCO. It's completely up the Public Utilities Commission rulings. They could expand beyond that. Chairman O'Reilly: Is there anything that the City should be doing , either as a City or it ' s business/residential community, that would have a lowering effect on gas rates? Mr. Brenden: If the City could sell it's citizens gas at below current market value, below Enstar's blended market value of their gas, you could reduce your rates. Chairman O'Reilly: Are you finding anything in your billing or your delinquencies that have changed here in the last six months, a year and a half. Mr. Brenden: It hasn't shown up yet. We have seen a little increase in our delinquent rates. A good portion of accounts are being paid for by the banks. The mortgage companies are picking up the energy bills, which in turn is being paid by Alaska Housing. Enstar is currently has a program of financing home conversions. In the past, have been lenient on credit. We are taking measures to prevent any possible increase in credit problems. Chairman O'Reilly: program. There used to be some state energy Mr. Brenden: There still is. Some low cost energy programs, state assistance programs, state grants. Committee Member Thomson: It appears that utility costs for an average business is probably anywhere between 2% to 3% of their gross revenues. If 2%, that would mean that 50% increase would make that cost 3%, which would mean a 1% drop in profit for an average ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -12- business operating in the City of Kenai. Is that going to flow back through and observed by the owner or past on to the customers. Will this be a significate effect in the community. The commercial users will be hit harder. Mr. Brenden: The City of Kenai has low gas prices in the past few years. had artificially b. Ron Rainey, Homer Electric Association Mr. Rainey: Move to Kenai is ahead of schedule. KCL underground rebuild project is half complete. We're rebuilding all the downtown system and half of that was completed this summer. The other half will be completed next summer. Depending on economic forces, may delay a portion of that underground for next summer, but main thing, the bulk of the problem has been converted at this point in time, and the remainder of what we think will be somewhat critical, will be done next summer. Rates. I think an economic development committee possibly should focus on comparisons rather than high cost of what you or I think rates are in this area. I phoned Phoenix this afternoon to get where they are. They have gone through plant expansion, rapid growth as we have here. The residential rate in the Phoenix is .10 cents kwh. Ours is .9.5 cents kwh. The commercial and industrial cost per kwh is from 8% to 9 cents. For a large user like Tesoro we get down to .9 cents. Quiet a bit under what they are in the Phoenix area. The point trying to be here is, if you have an industrial prospect come into the area, I think what we have to avoid doing, as an economic development committee, is having someone say the electric rates here are horrible. There are not horrible. There are much higher than your used to paying, compared to Phoenix or New York City or many places that maybe this industrial firm is looking at to locate. That what needs to focuses on. Capacity, in spite of Bradley Lake, no matter which way it goes, we will have the capacity to serve. We would rather have Bradley Lake, we think the long term benefit of a facility like that is ridiculous not to put it on line. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -13- Possibly we got some negative reaction from the Kenai City Council. I was disappointed to see that. Any permanent power source, like that, even as small as it may be, it will have a stabling effect for rates over the next hundred years, shouldn't be tied. I think it would be a mistake for the City of Kenai or anybody not to support the project. We have a small portion of that project. Power Reserves. We're buying almost all of our power from Chugach. We have a partial contract at this time and we have a commitment for 80 kw of power from Chugach, and that's about what our peak was this year. We have Soldotna #1 on line now. It has a capacity for 38 megawatts. We could bring in another Tesoro tomorrow if we needed to. There's going to be talk of excess capacity, depends on who's opinion, hind sight is 20-20. Without an economic slow down, we would probably have been a problem without Soldotna #1. That's basically where we are with power generation. I ran other comparisons. From the Phoenix area, I asked them, what's a gallon of milk; $1.79, $3.19 here. Electricity is cheaper. Bone in round roast; $1.69, $2.69 here. We got a pretty good price on electricity. A good price on gas. A lot of good energy values here. 'That's what we need to focus on. Before someone asks, I will tell you where we are on Tesoro. Everyone is concerned about that and it's a big concern of ours. It could have a real domino effect on all of us. Tesoro has a tremendous advantage in generating electricity, because they can use the waste heat in their process, which most business cannot do. Tesoro can bring in a unit, much like we have in Soldotna #1, and they pay the gas, a pay a little bit more than we do for the gas, but, the benefit they get, is they use that waste heat. And so, they can produce electricity cheaper than we can sell it to them for. But we have two things going for us at this time. We're before the APUC for a rate hearing. We've presented our side of the rate case to the working people, the working staff of the APUC. In essence, ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -14- they've agreed with us, that Chugach is charging us too much for electricity. They have recommended to their board, that Chugach reduce their wholesale rates to us by 12%. This isn't guaranteed. The APUC will look at that and make a determination, and we think that they will make a decision some place between 6 and 10% reduction from Chugach to HEA. This will allow us to reduce the rates to Phillips and Tesoro some. Not quite enough. The second part of this scenario is, we are going to the APUC with a cost of service study. What we hope that this study will show, is that it cost much less to serve a Phillips or Tesoro than it does you or me per kilowatt hour. Therefore, we should reduce their rate a little further. We got to reduce it enough, to where it nears their production costs for electricity. If we don't, if we lose them, then is has a domino effect. If we lose Tesoro, we got to make up that revenue some place. They are 16% of our revenue. That means, we raise everybody else's rates by 5 or 6 or 10%. Then, Phillips can produce it cheaper. That raises another 10% and before we know what's happening, everybody that can generate their own electricity, is doing so, and our rates have gone up 50%. It very crucial that we keep those lows, Tesoro and Phillips. We're working hard to do so. I think both of those companies realize the predicament we're in. I think the APUC realizes the same thing and we are working on it daily. I feel good that we keep those. I don't think that we are going to lose them. Chairman O'Reilly: Population projection. Mr. Rainey: As far a projection goes .... Committee Member Jim Carter: It sounds like a real lock-in situation. We have to buy 80 megawatts, we've already agreed to that because of the requirements that we had in HEA, which part of the requirements were Tesoro and Phillips and some on. And now, HEA can't get out of that contract with Chugach. They've got to stick with that 80, and it's been a matter of circumstances that has boost that cost up, not by a desire of HEA, and I understand it, and if they go and do these things, then it's a "catch 22" situation. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -15- Mr. Rainey: We have provided the loads to serve Tesoro and Phillips and now they are threatening to pull out and we still have the base cost that they have created. We have a contract with Tesoro and we feel it's an all requirements contract. But, we don't want to have to get it down to a legal battle. We want them to be our customer, because we can serve them economically. Chairman O'Reilly: Ail requirements contract? Mr. Rainey: It means they have to buy from us. Chairman O'Reilly: Like we have to buy from Chugach? Committee Member Carter: The problem is, the contracts don't run concurrent. Mr. Rainey: Basically, we're trying to get down to an economical level so that they want to stay with us. So, we don't have to go through that kind of thing. Chairman O'Reilly: Population? Mr. Rainey passed each committee member a hand-out prepared by HEA, which covers the years form 1982 to 1986, reflecting; new services connected, total services, KWH sold, high yearly peak and total miles of line energized. Mr. Rainey, speaking on the new services connected, which was 915 for 1986, indicated that for this year HEA will go under the 915 figure. He thinks it will go between five and six hundred new connects. That figure is 50% of what they were doing for 1985. (Hand-out attached) A question was asked if this new connect meant new facilities. Mr. Rainey indicated new facilities, not re-energizing existing facilities. This is not a net figure. They would be losing some. Probably, net growth would be less than that. ECONOMIC DEVELOPMENT January 27, 1987 Page -16- COMMITTEE It was asked if stated this was Ridgeway District, this was Kenai the entire, or total system. area. Mr. Rainey, what is called the Committee Member Carter: The wholesale power adjustment is because we're buying 80 megawatts have to distribute that amount among all the users. cost and Mr. Rainey: Yes, that's part of the reason, and its a blended rate. The electric usage is also a blended rate. We buy a big part of our power from Chugach and they adjust their power production costs by what they are paying for gas, which is a blended rate over there. So, whatever they are pulling from, and I'm told they buy gas from different fields and different times, and so, their costs of generating that electricity changes from one month to the next. And their allowed to change their wholesale power sales to us. Their figure based upon where their buying that gas to generate the electricity. The other factor is; we brought Soldotna #1 on line and we started the amortization of that plant three months ago. That has impacted your bill and until these plants are more fully utilized, it has a peaking effect. Rates have jumped like 10% to put this capacity on line, but now they will level off for the next few years, and that's what we're trying to show Tesoro and the rest of our large users, that our rates are flatting off now. And that we're going to be there for a while and we're still competitive with the rest of the country. Committee Member Thomson: How that Tesoro has the capability their waste heat, and how long about it? long has it been known of generating power in have they been thinking Mr. Rainey: That's an industry known that. Ail plants, such as utilization capabilities. trend. They've always that, have waste heat ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -17- Committee Member Thomson: Wouldn't it have been possibly feasible for HEA to look at this as an alternate source of capacity, if they can over produce and in fact, possibly have some excess to sell back to the system. Mr. Rainey: It would have been, had it been coordinated several years ago. Right now, no. Because we purchased this block of power from Chugach. We've built Soldotna #1, and now we're between a rock and a hard place. We can't negotiate with them, we don't need anymore right now. They may have been willing to build that capacity several years ago, and had we done that possibly, instead of Soldotna #1 or whatever we were negotiating with Chugach, that's hind sight. It wasn't done and we can't go back and change that. Chugach sent HEA a letter two years ago, saying that they could not continue serving us as an all requirements wholesaler of power. Saying, in other words, you got 80 megawatts, that all we can give you. Any excess capacity is yours. And at that time, the Board of Directors had to make a decision, where are we going to get the other power. We couldn't get it from our supplier, so we had to go our own way. We had to buy the power someplace and hence, Soldotna #1, they were forced into doing that. It wasn't a choice they wanted to make. Chairman O'Reilly: When you refer to jobs on the hand- out, what are you referring to. Committee Member Elson: It's not meters because some jobs would be to put in a single line to an apartment house and a number of meters, that would be considered one job. But at the same time, just putting a service line to single family dwelling, that would be considered one job. One location one job. Committee Member Thomson: Kenai shows that last year Kenai had 11%% if the jobs, and now their down to 9.5% of the jobs. Which indicates that this, not only being ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -18- a total drop off of total numbers, it's also being a percentage drop off. Kenai shows a larger decrease in growth and is being effected. Chairman O'Reilly: What about projections? Mr. Rainey: We make ten year forecasts and then something like this happens and you throw them out the window and start over. So, we are going to start our planning process over again. And no projections, all of them we have now, are based on different criteria. Committee Member Thomson: Planning for 87-88? Mr. Rainey: The planning, we have transformers, wire and capacity for the next year and we can get that on the yearly basis. We're set for construction season next year, through the summer. Generation capacity is there, our short term planning is basically done. Long term planning, we're going to have to look again. The inner-tie would help. Possibly move some power around. Re-sell some power. I think that's important to th is area at th is time. Chairman O'Reilly: Hopefully, with our local utilities and local business interest, is there something there you care to offer us as to what direction to go on that. Mr. Rainey: We support Bradley Lake, even as small as it is, it stabilizes our power costs over the long term. We strong support the rail belt inner-ties, which would allow us to move blocks of power around more readily. Like the pipe line from up North down to here. I think those are the two biggest things in the generation and transmission side of the business. The other thing that I think Alaska lagged behind on, is Chugach is trying to be the daddy of generation here in the state and I think that was a mistake and the other utilities have drawn away from that. I think now that we need to draw back together and look at years from ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -19- now. You have to look at coal. Those are big plants. They're 150 megawatt or larger plants. They're up to 455 megawatt plants and that's going to take a lot of utilities together to get the economy to scale on units like that, then we can bring coal and natural gas can be used for other things. The hydro for the base for this area. There is a lot of long term planning that we need to do but the inner-tie being one of the keys at this point in time. Chairman O'Reilly: Are there any restraints that the city, by city action or by the business community, are putting on you people, that could be removed? Mr. Brenden: To mention one to Kenai, is the reimbursement for utilities for relocation. Mr. Rainey: We still have not resolved that issue with the City of Kenai. I think the City Attorney is too hard to deal with. It could be resolved and I think everybody has wasted a lot of money and in fairness to all our other consumers, I think the City of Kenai has been too hard-nosed about that. We all should do it the same. Everybody should not pay for re-location or they all should. The City of Kenai has taken the position that we want some of the system, so we're not going to pay for it. That's not, in my opinion fair, because you gave or sold or whatever the system, and now won't pay us for doing what you want us to do with the streets. So that throws the burden on the other consumers. Mr. Brenden: We're riding the coat tails of HEA on this issue. We've done a lot of construction projects since we took over KUSCO and are depending on the out come of HEA's lawsuit regarding the reimbursement for the relocation. That's not to say we might not come in and step in and increase our efforts to recover that money. Your talking a large chunk of change. Every time you improve street, we've got to relocate a facility on the right or way to make room for that street. With modifications, we've got a hundred thousand, two hundred thousand dollars in jeopardy right now. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -20- Mr. Larry Hyatt: To give a good example, last year in 86, we relocated in the City of Kenai to tune of over seventy thousand dollars, non-reimbursable, that was spread back over every consumer. Mr. Rainey: Whereas the City of Soldotna, they will even move the center line of their street to avoid having to relocate these facilities. They are working with us better. Their philosophy seems to be more easy for us to work with than the City of Kenai. Mr. Brenden: Probably decreasing the unit cost of construction to the contractor. The City of Soldotna is probably getting a better price on their contracts than the City of Kenai. Strictly because the contractors here have to mess with the utilities. Soldotna areas will be reimburse the utilities for relocation. You don't have to mess with us. We're taken care of before the project hits the street. Committee Member Carter: In a situation like this, isn't there another element that if there was a wave of harmony that, it should be looked at, what's going to cost the consumer the most. Whether it's the City paying for 'it, or HEA paying for it, or Enstar paying for it, or the telephone company paying for it. It's the user, the person that going to be effected in the long run. Committee Member Darren Bond: When you talked about the larger industrial users are cheaper to run, cheaper for you to service and you can offer them a discount. How do you qualify that. How are you approaching the Public Utility Commission then. Mr. Rainey: The key to it is load factor. Like Tesoro, probably has a 90 or 95% load factor. They use their facility all the time. consumer, use them less than 50% generation capacity is totally facilities between the generator utilized and that's what makes serve for kilowatt hours. Whereas, you as a of the time. So our utilized and all the and Tesoro is totally it a lot cheaper to ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -21- Committee Member Bond: case bases. So, you'll take it on a case by Mr. Rainey: Class by class commercial, large commercial or basis. Residential, industrial. Diversified demand for your house if probably 10 kw. We have to have that available to you 24 hours a day, where you only use it, and maybe hit that peak one time during the day. Your using probably 2 or 3 kw the rest of the time. Tesoro, their demand is being used all the time. Chairman O'Reilly: Since reliance with Chugach, are generation adequate. we have such terrific their gas reserves for Mr. Rainey: Not qualified to answer. Co Mr. Bill Thompson and Mr. Utilities of the No~'th Larry Hyatt - Telephone Mr. Hyatt: through a from 1982 long range broken i t throughout Looking at Basically, I'll break it down. We do go forecasting process. We basically forecast through 1993. We use ten years, we look at planning for five year period. We have down by exchange. We have approximately 70 the state. With right at 49,500 customers. capitol construction dollars, in 86 versus what we're looking at in 87. 86 we spent $1,580,000. projected for specific projects that we're going to be doing, but were aware of now, that the expended dollars for 86. For 87, we looking at 1.19 one million throughout the state on specific projects that we know we are going to build this. coming year. That's not counting routines. What we call a routine job; small subdivision goes in, small project are not specified in those amount--s. Kenai, as an example, last year we spent $271,000., almost $272,000., this coming year we're looking at $238,000. to $239,000., that's projects that we have already specified is going to be done this coming year. Last year we spent $70,000. on relocates just in Kenai alone. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -22- We're predicting that these calculations in dollars spent, we don't see any projects not coming to pass, that we wouldn't build those. Those specific projects. We've broken down our access line and forecasts by the two different companies that we operate. Telephone Utilities of Alaska is basically Southeast, some of the bush communities. Juneau/Douglas and Fort Wainwright. Telephone Utilities of the Northland, Inc., takes in the Aleutian Chain, Kodiak, all of the Kenai Peninsula and North Pole. We're spread over a wide area and part of the Yukon Territory. Looking at the forecast and the growth that we've had in the past, and I leave this book with you (attached). Not totally updated, but to give an example, Kenai itself. 1985 we had an 85.3% growth rate. 1986 we had a-4% growth rate. We lost customers in 1986. Committee Member Carter: What had you projected for 86? Mr. Hyatt: Just a guess, right at 5%. We hit pretty well on them, up until June. Kenai, as an example, back in 82, we had 8.2% and 83/10.7%, 84/.16% and then 85/5.3%. Some of the exchanges are growing. All of them are coming down on the Kenai Peninsula. Homer has been one of our highest growth areas. 1982 was 25%, into 84/30.2, 85/7.1%, this year was 2.7%. Book left with the committee and given to secretary to file in Economic Development file at City Hall. We break it down by access line. A customer. I could break it down business versus residential. As far as any other thing that I could see that would impact the Kenai or the Kenai Peninsula I think there are some things before the commission. I don't see any rates case at all for the telephone company at this ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -23- point. Equal access will have an impact to some extent on the consumers on calling out of state. The in state long distance, that's Utilities Commission. idea. GCI has put commission for a way carriers in Alascom communities around the in front of the Alaska Public What decision, I don't have any a proposal in front of the to allow inter-state by other and still subsidize the bush state, to continue universal telephone service. I don't know where that's at, I think it's a long battle for GCI. We're seeing a big trend for our customers to use GCI for their out of state calls, to the tune of 60/40 in a lot of areas, to 80/20 in Kenai. The only issue that I see in front of the commission now is the inside wire charge to residential homes and business homes. Chairman O'Reilly: Billing and delinquency on the part of customers, have you seen any? Mr. Hyatt: We're seeing a lot more Chapter ll's this year, than we have in the past. Our billing delinquency is not anything significantly higher than it was last year. It's been a change because under Contel they're filling process was quite different than it is now under the new company. We don't take deposits like we used to. We take first payment in advance rather than deposit and you build your credit. Before you put a deposit down and then proved yourself being a good customer before getting your deposit back. We're giving back as many deposits as we can. Mr. Hyatt: In Kenai we have 3,972 customers and Soldotna we have, 5,369, year end 86. Between year end 85 and year end 86 we lost in Kenai, 68 customers. Mr. Hyatt will break down business versus for the City of Kenai on the 283 exchange to City Hall for the committee. residential and forward ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -24- Chairman O'Reilly: Is be doing or not doing? there anything the city should Mr. Hyatt: The relocates is very, very expensive. Kenai is the only city that we deal with that does not favor relocates. Committee Member Elson: Are financial limitations as far concerned that would exclude marketing from anywhere else? there any physical as communications us from that type or are of Mr. Hyatt: I wouldn't see it as being such. We're ready to build any plant that is necessary to provide service. However, understand that we are consider a local operating company. We would not provide long distance, as an example, that would be either GCI or Alascom. We are restricted in that as a local operating company are not allowed to provide long distance. Committee Member Thomson: lines. Can you provide data quality Mr. Thompson: what we try digital. We do. What the and provide. We customer asks for if are state-of-the-art Mr. Hyatt: We are going more and more toward cost causes towards cost payer. Line extensions. We give 1000 foot of cable free to every customer that we have. If they build over a thousand feet from our facilities, they have to pay actual costs from that point on. From each exchange. If we get four or five houses each get a thousand foot free. built in one area, they Mr. Hyatt: We're looking at other options, radio type systems, will help relieve some of those costs. In February, we'll be back in the telephone rental business again. ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -25- · COMMITTEE DISCUSSION a. Budget. Miscellaneous entered twice. MOTION Committee Member Carter approved as submitted. moved that the budget be Motion passed unanimously. b. Hudson Bay Company. Chairman O'Reilly reported: The summary is that the group was soberly optimistic, more at the end, than at the beginning. They have a difficult situation in the acquisition with Alaska Commercial. That is strictly between the two companies. Location within Kenai of a retail establishment: There spoke very favorable about that. As regards to the distribution center: That may get more complicated because, what is happening now, and has been a practice for a while, is that the merchandise, they talk about produce and can goods, then dry goods. But the produce and dry goods that go to the villages, go Parcel Post out of Anchorage, at subsidized mail rates. What will have to happen, for us to get ourselves postured so that we would be competitive with Anchorage on this, is some really substantial work on the part of private interests and the City. Barge line in here, air service in here and probably working with the U.S. Mail to put in some new parcel post arrangements. That's about where we're at on this one. Hudson Bay people said they don't want any money from the State, they don't want any tax forgiveness, they don't want any subsidy from the State. The way they operate in the Yukon and the Northwest Territory is that they inform the governments in those areas of what their pricing practices and patterns are going to be in those communities. Committee Member Shelden: Why would they be interested ECONOMIC DEVELOPMENT COMMITTEE January 27, 1987 Page -26- in Kenai as a distribution point. I don't understand that, it seems like they would want to be in Anchorage, that would be the logical choice. I understand the store down here, but all in business know the freight problem, shipping it here, then shipping it back out again. Chairman O'Reilly: I'm learning that. 7. PREPARE NEXT MEETING The next agenda will District, and the City. have, the Borough, School Committee will meet as scheduled on February 3rd, 1987. Chairman O'Reilly will meet with Janet Whelan to arrange a different night to meet. Chairman O'Reilly: I am concerned about whether we'll be able to get somebody from the State to discuss what happens in other communities that have tried this. Because that entire department of Commerce has been, that end of it, has pretty well been wiped out. I will check on this, and report to you on the next meeting. We will give this an over view of what they do in other commun i t i es. 8 . ADJOURNMENT Meeting was adjourned at 9:32 p.m. Niva A. Aburto dba/Niva's Clerical Services for the City of Kenai