Sitka’s ‘buy more to pay less’ electric dilemma

Electricity is more expensive in Sitka now, and the best way to lower rates may be for consumers to buy more.

Sitka electric director Bryan Bertacchi explained this economic dilemma — and some of his department’s other challenges — to the Sitka Chamber of Commerce.

Downloadable audio.

Sitka’s publicly-owned electric utility is experiencing load growth of over 3-percent per year — a good thing, according to electric director Bryan Bertacchi.

Bertacchi recently told the Sitka Chamber of Commerce (6-6-18) that the community faced an unusual paradox: Although power is somewhat more expensive now because of Sitka’s investment in the Blue Lake Hydro expansion, the best way to lower rates is to buy more.

View Bertacchi’s PowerPoint slides here.

This is not typical business logic, to expect customers to buy more of something when you raise the price. But the consequences of buying less, Bertacchi believes, are pretty dire. He does not want to see rates go any higher.

My concern is that rates will get above replacement generation, where it becomes cheaper to run a gas or diesel generator at your house, than it is to pay for your Electric Fund. And that’s the death spiral that often Mim (Mayor McConnell) and the assembly talked about: If rates get high enough, and people start using less and less, you’ve got to keep charging more and more to pay all these fixed costs, and there’s no good way out of it. So that could become a serious problem.

Former Mayor Mim McConnell was in the chamber audience.

Almost half of Sitka’s $18 million Electric Fund is spent on Blue Lake debt, hence the recent rate increase to an average of $.15 per kilowatt-hour. And there’s a slight “overcharge” as Bertacchi calls it, to save up to pay for new equipment.

Bertacchi’s been with the Electric Department for about 3 years. Except for the new dam infrastructure, he inherited an old system. And it sounds like it’s costing him some sleep. The Marine Street Substation may be his biggest nightmare.

The Marine Street Substation. It serves 80-percent of all of us in this town. If it goes down, there is little way to restore power to the rest of the community. When I came in, we had one spare transformer, but it was no good. So we bought a new spare, and we bought another spare, but the major other components in there called the switch gear lineup is 40 years old. If we had a fire in that switch gear we would have no power downtown for 4-6 months. So that’s one of our number one projects we’re working on right now is to put in some redundancy there so that we can also work on the old substation. Because you’ve got to realize that to even do maintenance on it you’ve got to shut it down. And we can’t shut it down for a month at a time with downtown, so the new redundant station that will be a part of it will allow us to shut down the 40-year old one, do the maintenance, and then have redundancy for 80-percent of our total load.

Thanks to the Blue Lake Hydro expansion, Sitka currently has excess generation capacity — between the Blue and Green Lake projects — of 30 percent. He sees a possible new hospital at SEARHC or the expansion of the Coast Guard presence in Sitka as likely sources of new load, that could consume most of that excess in the next 5-7 years. Electric rates — getting back to the paradox — then would likely drop, and the Electric Department might start encouraging conservation.

A solution? Bertacchi said the much-discussed Southeast Intertie would put Sitka in a position to sell power outside of town. “If we had the intertie,” Bertacchi said, “We’d be selling electricity today, we’d be making a ton of money, and rates would be a lot lower.”

On privatizing Sitka’s utility, or at least detaching it from the General Fund

Bertacchi also touched on another other factor in the Electric Department which is more or less unique to Sitka: There is an annual transfer from the Electric Fund to the General Fund to pay for administrative overhead. Lately, it’s $1.5 million per year. Bertacchi says that when Sitka voters opted not to raise property taxes in 2016, it forced the General Fund to lean more heavily on enterprise funds like the Electric Fund for revenue. He thought this type of accounting was unwieldy and complicated, and suggested that it might be possible to detach the Electric Fund from the rest of municipal government, and create an autonomous oversight board.

But he wouldn’t go as far as recommending privatizing Sitka’s non-profit, publicly-owned utility. “It’s got too much debt ($140 million) , and a lot of old infrastructure,” he said. “There’s not a private company that would want to touch that.” Bertacchi said that municipalities could carry debt for longer periods at lower interest rates than private companies. Forming a co-op was also possibility, but the amount of regulation involved would probably not be economic for the community.