Sitka Gets Creative To Pay For Its Dam

After a month of discussion, the Sitka Assembly on Monday night settled on a modest electric rate increase. Residential rates will go up by about 6 percent in the coming year, to pay for debt service on the Blue Lake dam.

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And when it comes to figuring out how a town of 9,000 pays off a $150-million hydroelectric dam, city staff are getting creative.

First, some quick history.

In an effort to find a sustainable source of electricity, Sitka decided to raise its Blue Lake dam by 83 feet. The goal was to power the island’s homes and businesses using Southeast Alaska’s most reliable and renewable resource – namely, the rain.

The catch? Those 83 feet cost roughly $150-million. Originally, the state was supposed to kick in about half of that. Long story short, it didn’t. So in the end, this city of 9,000 people borrowed about $100-million to finish the project.

And now, we have to pay back those bonds.

These bonds, by the way, are called revenue bonds. That’s because they’re backed by the revenue stream coming into the Electric Fund. Specifically, the loan agreement states that the fund must maintain a cash flow that’s 125-percent of the cost of debt service.

But Sitka had a mild winter, and oil prices are down. People used less electricity and more oil heat. The result? The Electric Department ended up with about $2.5-million less revenue than expected.

So now the city has to make up that gap.

Assembly members had two possible paths. Door number one: get that revenue through a rate increase. That would have meant raising electric rates by about 23-percent. For a household using, say, 1,000 kilowatt-hours of electricity each month, that would have been a $28 hike on their monthly utility bill.

The assembly didn’t go for that choice.

Instead, they chose door number two. This option was a little more complicated. Essentially, the city is tapping the Southeast Alaska Economic Development Fund to shore up the Electric Fund.

That transfer counts as revenue, so it satisfies the bond requirements. And the city plans to use the money to install more efficient electric heating systems in several city-owned buildings currently heated with oil. That will have the dual impact of cutting the city’s fuel costs while generating more revenue for the Electric Fund. The old oil heating systems will stay in place, to create flexibility if the city ever needs that electric capacity in the future.

The end result of all those maneuvers is a smaller rate hike. For that same household using about 1,000 kilowatt-hours a month, the increase will be about 6-percent, or $8 a month.

That’s the choice the assembly went for, by a vote of 4-3. Mayor Mim McConnell voted in favor, joined by assembly members Michelle Putz, Ben Miyasato and Tristan Guevin.

Guevin said he’d like to take it one year at a time.

“Let’s use that money to cushion the blow for individuals and families,” he said. “And then if next year and the following years we get to the point where we need to raise rates to meet our bond covenant, than I think as a body we need to do that. As a community we need to understand that that’s what we’re committed to.”

But Aaron Swanson and Matt Hunter voted against that option, saying they’d prefer to raise rates all at once. Swanson said that he expects the smaller rate increase will result in more, and more frequent increases, going forward. Hunter said it’s just putting off the inevitable.

“It’s using our savings, our economic development savings, to artificially delay our rate increase to what it needs to be to truly make the fund sustainable,” Hunter said. “I see forty dollars, or thirty dollars a month, I understand that’s tough for people. But it’s what it costs to live here.”

Meanwhile, Steven Eisenbeisz voted no as a protest against any rate increases. He opposed both rate hikes – the large and the small.

“If this is going to be crippling, that would have been devastating,” he said, adding that he feels the city may be leaving better options on the table.”

“I fully understand that something does have to happen in order to pay for the dam. Are we necessarily getting there in the correct route? That’s the debatable question.”

What would Eisenbeisz like to see Sitka do instead?

“As I said, I don’t think every option has been explored, and I don’t have anything off the top of my head that I would say will be the magic bullet for this one.”

And in the absence of that magic bullet, the assembly says this will have to do.