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The Juneau Assembly Finance Committee on Thursday approved a $3 million interest-free loan offer to Alaska Electric Light & Power.

In return, the city expects the privately owned utility to spread the five-fold rate increase over a 12-month period on customer's bills.

The offer is legal, stays within the city charter and is constitutional, Juneau Mayor Bruce Botelho said.

According to Botelho, the point is not to aid the power company but to allow customers to pay the 400 percent increase over a one-year period. The plan protects the most vulnerable people in the city, he said.

"In addition, we expect AEL&P to work with customers who have difficulty making payments," Botelho said.

The final decision rests with the full Assembly, which will consider the resolution at a special Assembly meeting on Monday.

The draft resolution says AEL&P cannot pay for the massive increase in fuel costs required to power Juneau with diesel generators without passing the cost directly and immediately to customers.

The city is powered mainly through diesel generators following the avalanches that destroyed part of the Snettisham hydroelectric project's transmission lines on April 16.

For days, AEL&P has said it could not spread the huge rate hike over time because it couldn't afford to. Botelho said the loan is contingent upon amortization.

Originally, the Assembly considered using the so-called emergency reserve to loan money directly to individuals and businesses as a way to offset the spike in electric prices and to buffer city budgets in an effort to avoid layoffs. Botelho said that after days of conversation, AEL&P said the best use of the multimillion-dollar reserve was to loan the company the money.

David Stone, chairman of the Assembly Finance Committee, recused himself from the loan discussion. Stone, a former vice president at AEL&P, has financial ties to the 115-year-old monopoly.

The city's contribution will join a larger AEL&P loan package to cover an expected $25 million fuel bill for three months of power generation.

Botelho said he didn't know if AEL&P would charge interest on ratepayer's total amount due, if spread over 12 months.

AEL&P President and General Manager Tim McLeod did not answer his cell phone Thursday night.

Alluding to the as yet unknowns surrounding the proposed loan, Assembly member Bob Doll called the loan proposal a "pig in a poke" and said he didn't want people to believe the $3 million loan would reduce the total cost of the energy disaster, which is allowed to be passed on to Juneau homes and businesses.

"We don't know how AEL&P will use it," Doll said.

• Contact reporterGreg Skinner at 523-2258 or greg.skinner@juneauempire.com.