News from Patrick Flynn

As mentioned previously, on November 1 the Assembly spent some quality time with representatives from Anchorage’s five utility enterprises to discuss their 2011 budgets, as well as future projections.  We had some interesting discussions and below are some of the highlights.

Solid Waste Services:

SWS is actually two different utilities; the disposal unit that operates the landfill and transfer stations, and the collection unit that provides curbside residential and business/multi-unit residential dumpster service in northwest Anchorage.  The former seeks a $3 per ton rate increase for 2011 and anticipates a 3% drop in volume, while the latter would absorb that increase in its operating plan.  But wait, there’s more;

Revenue tons accepted by the disposal unit have declined from a high of 349,267 in 2007 to 308,695 in 2009 with 2010 projected to be roughly steady.  SWS hasn’t been able to achieve significant cost savings as landfill management costs haven’t dropped with the reduced tonnage, though reduced labor associated with moving material from transfer stations to the landfill has resulted in a decrease in annual overtime from 10,000 hours in 2007 to 6,000 hours in 2009.  SWS officials attribute the decline in volume to lower levels of economic activity as a primary factor, with increased recycling as a secondary cause.  And, despite the increased rates, if the anticipated decline in volume materializes they project a small operating loss.

We had some questions regarding the SWS disposal budget, including their equipment replacement budget and schedules, with the underlying feeling there might be some cost savings available from some adjustments.  Also, the landfill has a $2 million grant to harness methane emissions and commercialize that gas, and SWS is negotiating with the apparent high-bidder for that energy source.  The expectation is that project will come on line in 2012 and provide revenue to support landfill operations.

Over on the refuse collection side the utility continues to generate small profits, in part because of reduced tonnage and in part because of the move to curbside recycling.  Since the collection utility pays the disposal utility for each ton they send to the landfill, fewer tons mean lower costs.  “Disposing” of recyclable materials (actually, paying for those materials to be bundled and shipped south for sorting and sales to re-users) costs roughly half of disposing of trash so the diversion of those materials has reduced costs on the collections side, and recycle rates (by weight) are running at about 21%.  Reduced economic activity shows up in the level of dumpster material collected as well.

Anchorage Water & Wastewater Utility:

Once again, AWWU is actually two utilities; one that provides water to homes and business (Anchorage Water Utility, or AWU) and another that treats and disposes of wastewater (Anchorage Sewer Utility, or ASU).  Believe it or not, some properties receive one service but not the other and, of course, many more rural properties receive neither service.  Both entities are capital intensive and have growing demands for infrastructure repair and replacement, which translate into higher costs.  Here’s a disturbing demonstration based on their projected rate increases in coming years:

• 2011 – AWU, 8.0%; ASU 15.0%
• 2012 – AWU, 9.5%; ASU 9.5%
• 2013 – AWU, 9.5%; ASU 9.5%
• 2014 – AWU, 9.5%; ASU 9.5%
• 2015 – AWU, 7.5%; ASU 8.2%
• 2016 – AWU, 5.7%; ASU 8.9%

Or, to summarize, ouch!  And it gets worse, AWWU’s projections show the dollars collected under that scenario to be insufficient to address total capital needs over the coming decades.  But all is not (entirely) lost.  While the capital needs are real our conversation touched on two ways to mitigate impacts.

1. Increased capital scrutiny: I raised concerns about AWWU’s intention to purchase their own ERP system at the same time MOA intends to update theirs and asked for additional information.  I’ll spend more time on this issue and suspect, at the very least, we need to pause AWWU’s pursuit of their system to see if they can be incorporated into MOA’s.  Because AWWU is semi-autonomous I’m sure they’ll chafe at the suggestion but I feel we owe it to rate payers to carefully review this capital budget, especially aspects not directly connected to service delivery, prior to authorizing projects.
2. Service integration: currently new water and wastewater systems are incorporated into AWWU’s network if they conform to the operating/engineering standards of the network and are paid for by those developing, for example, a new subdivision.  What that fails to take into account is the additional capacity required by larger service lines, so those costs are borne by all rate payers.  Meanwhile the Anchorage Fire Department pays AWWU for the costs associated with the added capacity they consider necessary to service their firefighting needs, leading me to the conclusion that new entries into the AWWU network need to be responsible both for their neighborhood infrastructure and the incremental costs to the overall network.  Because we had several AWWU board members present I asked that they report back to us on that matter by mid-2011.

Port of Anchorage:

Regular readers are well aware of a variety of port-related matters upon which I’ve spent a great deal of time so I’ll not delve too deeply into those details.  The data provided did provide some interesting insights and I hope you’ll indulge my editorial comments:

• While tariff rates are slated to rise in 2011, preferential berthing agreements (I call them contracts) play a far greater role in the revenues generated from the vast majority of freight that moves through the port.
• Year-to-date cement shipments dropped from about 95,000 tons in 2008 to around 49,000 tons in 2009 and are at 85,000 tons in 2010 with two cement ships still scheduled to dock later this year.  Much as I’d like to tell you this represents a rebound in the construction market I’m pretty sure that isn’t the case.  Instead I suspect two other significant factors at play.  First, in 2009 a new entry into the market used Port MacKenzie and submarined rates; their activity level declined in 2010.  Second, some of the cement previously moving into the market through other southcentral ports appears to have diverted to the Port of Anchorage (not that this is a bad thing).
• YTD petroleum shipments dropped from about 480,000 tons in 2008 to around 350,000 tons in 2009 then rose to almost 690,000 tons in 2010 with a more promising 2011 planned.  The big driver here is jet fuel imports to support air cargo traffic at Ted Stevens Anchorage International Airport and, while I haven’t talked to any of my contacts at Flint Hills recently, I suspect this means they’re still arguing with the state over royalty oil pricing and therefore restraining production at their North Pole Refinery.  In short, increased airport traffic coupled with off-shore supplies is good news for the port but reduced in-state refining is bad news for the state as a whole.
• If you by a car in Alaska it most likely passed through the Port of Anchorage so the almost-25,000 YTD vehicles in 2008 pointed to a strong economy.  The drop to around 17,500 YTD vehicles in 2009 demonstrated economic concerns while the rebound to over 20,000 YTD vehicles seems to indicate we’re on an upswing.  Here’s hoping…

One last comment; the port plans an increased outreach campaign next year to heighten awareness of their role in Alaska commerce.  I’ll let readers offer their thoughts on the utility of that expense.

Municipal Light & Power:

Unlike SWS and AWWU, ML&P is a single utility.  Similar to the others, however, they have significant future capital needs, primarily associated with replacing generation capacity dating from the 60’s and 70’s.  While I understand this need I can’t help wondering if relatively low-cost natural gas allowed our community to tolerate relatively inefficient generation longer than we might have otherwise, thereby placing a higher capital burden on future rate payers?  In any event, as before, let’s get down to the brass tacks (proposed rate increases):

• 2010: 4.01% (interim, meaning the Regulatory Commission of Alaska can order ML&P to refund some or all of the increase if they find the justification lacking).
• 2011: 2% – the remainder of ML&P’s 2010 request.
• 2012: 8%
• 2013: 8%
• 2015: 5%

More ouch!  Looking at this proposed rate schedule, and having heard from Fire Island Wind project executives expressing concern over ML&P’s reticence in signing a Power Purchase Agreement, I had to ask why we weren’t seeing more progress on incorporating this renewable resource into our future plans.  ML&P representatives indicated we’d hear from them in the next month or so and I pressed – to hear why they weren’t making the deal or why they were?  I think I heard the latter – I better have.

Merrill Field:

What makes our city-owned airport different from the other enterprise activities is that most of their costs are covered by federal dollars (capital improvement grants, flight control operations, etc).  That doesn’t mean there aren’t opportunities for further improvements.  My colleague, Bill Starr, noted that they don’t perform snow removal at night, thereby depriving medical evacuation aircraft from using the field’s direct access to Alaska Regional Hospital as much as they might otherwise.  We requested they provide some idea of the added snow removal cost in order to see if associated revenues might make it a profitable enterprise.

Since I represent surrounding neighborhoods I also asked that they look into the cost of noise monitoring stations to better ascertain whether pilots are following proscribed traffic patterns or deviating in ways that negatively impact nearby residents.  That may be an area where we can partner with the Federal Aviation Administration to evaluate the efficacy of educational efforts.

Wrapping up:

You won’t see much discussion about enterprise activities unless you have the unfortunate job that compels you to follow the Regulatory Commission of Alaska (and, even then, you’ll still miss a lot of what’s going on).  But whatever hue and cry you might, or might not, hear about the municipal budget the impact on your household budget is affected as much, if not more so, by the activities of these enterprise activities.  (For example, even if you’re not within the SWS service area their tipping fees, also known as per ton rates at the landfill, will affect your bill from whomever provides your refuse service.)  My tasking with oversight of these budgets seems to coincide with a higher level of familiarity than my colleagues generally enjoy (or suffer from) and it’s a role I take seriously.  If you have suggestions or insights I welcome them as we work to determine our fiscal plans for 2011 and beyond.

Regards,

Patrick