Chugach Acquisition of ML&P Anchorage Assembly January 19, 2018 - - PowerPoint PPT Presentation

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Chugach Acquisition of ML&P Anchorage Assembly January 19, 2018 - - PowerPoint PPT Presentation

Jul 09, 2023 236 likes •381 views

Chugach Acquisition of ML&P Anchorage Assembly January 19, 2018 Key Considerations Structured to provide benefit to the MOA, Chugach and ML&P ratepayers Opportunity to provide benefits to MEA, consistent with January 9, 2018

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SLIDE 1

Chugach Acquisition of ML&P

Anchorage Assembly January 19, 2018

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Key Considerations

  • Structured to provide benefit to the MOA,

Chugach and ML&P ratepayers

  • Opportunity to provide benefits to MEA, consistent

with January 9, 2018 Anchorage Assembly Resolution

  • Substantial benefits realized over the long‐term
  • Cost reductions realized through time
  • Responsive to industry changes
  • Primary areas of savings
  • O&M efficiencies
  • Cost of capital
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Agenda

Key Items

Jobs No employees to be laid off as a result of the transaction Purchase Details Over $1 billion deal; a fair price Savings Operational and financing savings to result in lower electric rates Chugach Financial Strength Despite debt financing, the larger scale and amortization of new debt will result in a stronger utility through time

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Jobs

  • No employees will be laid off as a result of the

acquisition

  • Savings will be through attrition (voluntary exits and

retirements)

  • Applies to represented and non‐represented

employees of both Chugach and ML&P

  • Natural attrition is 4 to 5 percent annually; some

positions will be refilled

  • Provides consolidation of electric utility expertise
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5

Timeline

Expected Schedule

January 23rd, 2018 Assembly votes to approve ballot language April 3rd, 2018 Municipal election April ‐ December 2018 Finalize term sheet between Chugach and MOA June 2018 ‐ January 2019 File request for approval with the RCA November 2018 ‐ July 2019 Commission approval (six months following RCA filing) March ‐ September 2019 Transaction closing

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Chugach Offer

Acquisition

ML&P Debt $524,000,000 Defeasance $18,000,000 ML&P Equity $170,000,000 Subtotal $712,000,000 Annual Acquisition Payments (NPV)1 $170,300,000 Chugach Cost of Acquisition $882,300,000 Payments in Lieu of Taxes (NPV)1 $142,000,000 Total MOA Receipts $1,024,300,000

1 Net present value based on 5% discount rate, 30 years.

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SLIDE 7

30‐Year Payments to MOA

$0 $5 $10 $15 $20 $25 $30

$ Millions

Annual Payments Total NPV $312.3 million

Annual Payments in Lieu of Taxes Annual Acquisition Payments

Payment at Closing (2019)

Equity $170,000,000 Debt, including cost of defeasance $542,000,000

Total Amount Due at Closing $712,000,000

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Timing of Annual Savings and Payments

8m 9m 11m 12m 13m 15m 16m

0m 5m 10m 15m 20m 25m 30m 2020 2025 2030 2035 2040 2045 2050 2055

Annual Savings Year

Operational Savings Non‐Fuel Generation O&M Savings

BRU Property Tax

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SLIDE 9

29% 14% 16% 16% 17% 18% 18% 19% 20% 21% 23%

0% 5% 10% 15% 20% 25% 30% 35%

Current Acquisition Year Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9

Equity Raito Year

Equity $187m Equity $256m Equity $202m

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Chugach Equity Ratio

1 Current reflects actual Chugach equity ratio on November 30, 2017. 2 Assumes capital retirement rate of 50% of prior year margins. 3 Achieved equity ratios will depend on the timing of the transaction and performance of the combined utility.

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Combined Balance Sheet Strength

  • Although the combined entity will experience an immediate

reduction in equity ratio, the increased scale and larger balance sheet will position the utility to weather future challenges

  • Over time, the overall position of the combined entity will

improve:

  • (1) Competitive Position: Savings achieved through synergy will

make the combined entity more competitive

  • (2) Diversification: The combination of the two territories will widen

the customer base and expose the combined utility to less volatility

  • (3) Fuel Sources: The combined entity will be better positioned to

integrate renewables and negotiate favorable terms with gas suppliers

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Lower Cost of Capital for Customers

Year 1 Cost of Capital

Company Capital Component Capital Structure Cost Weighted Average Cost of Capital

ML&P Debt 64.6% 3.93% 2.54% Equity 35.4% 13.00% 4.61% Weighted Average Cost of Capital 7.15% Chugach

(on acquisition purchase price)

Debt 100% 5.00% 5.00% Equity 0.35 TIER 1.75% Weighted Average Cost of Capital 6.75%

  • 40 basis point advantage on cost of capital in Year 1
  • In addition, Chugach returns capital credits to its members
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SLIDE 12
  • Electric cooperative business structure
  • Retain local control through member‐elected board
  • Lower overall cost of capital
  • Capital credit retirements
  • Eliminate duplication
  • Combine functions on company‐wide basis
  • Single headquarters building / complex
  • Generation reserves
  • Oversight of Bradley Lake, Eklutna and the Southcentral Power

Project

  • Resource management and efficiency
  • Operations and maintenance activities
  • Generation engineering and project management
  • Legal, regulatory, environmental and insurance

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Key Benefits of Acquisition

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Summary

  • Unique opportunity to combine two utilities that

have adjacent service territories and natural synergies

  • Permanent cost savings will be realized through

time and reflected in electric rates

  • No job layoffs as a result of the transaction
  • No rate increases as a result of the transaction
  • Transaction structured to provide substantial

benefit within the Anchorage community