Fairbanks Daily News-Miner

GVEA PLAN: The Golden Valley Electric Association is seeking approval from its members for a fundamental change in the way the electric utility operates, though the change has more to do with administration than generation.

The idea is to divide the association into two cooperatives. The power plants and the major transmission lines, representing 60 percent of the company’s assets and debts, would be split off and placed in a new cooperative known as the “GVEA Generation and Transmission Cooperative.”

The G&T cooperative would then sell power to the GVEA distribution cooperative, which would consist of the lines that run to homes and businesses, smaller transmission lines and other facilities, representing 40 percent of the company’s assets and debts.

The GVEA board of directors is backing this plan, which requires a vote of the members under the utility’s bylaws. The ballots are to be mailed next week and are due back at GVEA by Dec. 11.

GVEA plans a town hall meeting Wednesday at 6:30 p.m. in the Noel Wien Library to discuss the move to establish a new relationship between GVEA and its member-owners. The transfer plan is complicated and its pros and cons deserve to be examined in detail before the vote.

The plan would take away some of the power that members now have through their ability to vote on certain issues facing the utility. It would also give more power to the seven-member board of directors, who would continue to be chosen by a vote of those who get power from GVEA.

One way to look at this is that it’s a trade-off between savings and direct control.

The change would allow GVEA to reduce the amount of money it is required to collect from members under rules set by the lending institutions that do business with GVEA.

The savings to residential consumers would amount to roughly a $4 per month, GVEA estimates.

In another sense it would be a smaller reduction than that, because GVEA is a nonprofit and the surpluses it takes in for “margins,” amounts that exceed the cost of providing power, are refunded to members 20 years in the future in the form of “capital credits.”

Under the new plan, capital credits would be reduced in the future because the money won’t be collected in the first place. On the GVEA Web site, at www.gvea.com, the proposal is headlined “G&T to save members millions.”

In exchange for the lower revenue requirement, which the utility says would add up to savings of $30 million over the first five years, GVEA members would be giving up some of their authority to directly control the utility.

Under the current rules, GVEA must seek a vote of its members if it decides to sell or transfer more than 15 percent of its assets. That authority would be transferred to the GVEA board under the proposal for the G&T assets.

As GVEA member Gary Newman puts it, “If GVEA members approve this transfer, it is the last vote GVEA members will have on anything to do with these assets.” Newman, a 34-year member of GVEA, has set up a blog at http://comity.blogspot.com expressing his opposition to the plan.

GVEA managers and five of the six current board members endorsed the proposal.

In an interview last week with board members Dan Osborne and Bill Nordmark and GVEA executives Steve Haagenson, John Grubich and Tom Irwin, they gave three main reasons for supporting the G&T plan.

They said it would “align GVEA with the industry standard model” for generation and transmission cooperatives, while saving $30 million in the first five years and increasing GVEA’s financial flexibility.

While a G&T cooperative is an industry standard, it is not standard for the cooperative to be made up of a single member, which is what is proposed here.

Grubich said he knows of only “one or two” single-member cooperatives in the United States. I was in error Monday when I wrote that GVEA officials said they know of no other G&T cooperative with just one member.

GVEA does not fit the industry standard model because we are in the unusual position of owning a cooperative that has distribution, generation and transmission facilities.

Irwin said that he can’t speak for the bankers, but he summarized his view why a G&T cooperative qualifies for more favorable rates this way: “A banker wants to be able to protect his loan. If you’ve got big generation or transmission equipment, a banker can go out, if you default, and grab tangible asset and generate energy and make money off it.”

“They find these miles of distribution line a lot less favorable to go make money off it,” he said.

To satisfy the IRS and the bankers, there has to be an appearance of having two separate companies, so the owner-members of GVEA can not have the same degree of direct authority as they have with the current system. The managers talked of how they plan to design a “corporate veil” as a firewall between the two cooperatives.

The proposed G&T cooperative would be run by a new board, but to begin with it will look a lot like the old board.

“Initially the GVEA G&T Board will be comprised of GVEA’s seven elected board members. In the future the board could bring in others due to the complexity of generation and transmission issues,” GVEA said in a Ruralite article this month.

It’s not clear how long that would remain the case, however, because the proposed bylaws for the new G&T board say only that at least 40 percent of the G&T board members have to be from the GVEA board, or the board of some other cooperative that may join the G&T in the future.

The information posted on the GVEA Web site says the bylaws were adopted in October, but Newman said one sign of the confusion created by the two boards is that the G&T bylaws have yet to be approved by the G&T board, which last met in 2005.

Newman said he doesn’t think it makes sense to “give away control of our assets” for a savings of $40 to $50 a year per residential member.

Grubich said the plan protects GVEA members who would be swapping “ownership control for economic control” if they approve the measure.

The power sales agreements between the two cooperatives are the key, he said.

“Clearly, moving assets over there has made everyone nervous, the board on through staff,” said Grubich.

“If we write power sales agreements that bind the economic value of those assets back to our members for the useful life of those assets they get the economic benefit no matter whether it’s in the G&T or in the current configuration,” he said.

“That’s how our members maintain the economic benefit and actually the economic control of the generation and transmission assets. You craft the power sales agreement so that the new entity has an unfettered obligation to provide energy back to the distribution co-op. The distribution co-op has an unfettered obligation to pay at the price that makes sense for us for the economic life,” he said.

Osborne said that while the owner-members have the authority now to approve or disapprove a large sale or transfer of assets, they already delegate the responsibility for most large decisions

–such as building new power plants

– to their elected board.

“The only control the members have is through the ballot box and electing directors today. It isn’t going to be much of a change in the future if we do this split,” he said.

To submit items for his column, please contact Dermot Cole at cole@newsminer.com or 459-7530.