Cold water and hot air: those were the issues up for debate at the Sitka Assembly on Tuesday night, as members discussed the Blue Lake hydro project, heat pumps, and how to manage the city’s electric future.

By the end of the night, the assembly had decided not to offer rebates for homeowners who install energy-efficient heat pump systems in their homes. But their path to that decision had less to do with heat pumps than with concerns about the city’s long-term electricity use.

Utility director Chris Brewton had proposed offering rebates for residents who switch their home heating systems from diesel stoves or boilers to electric heat pumps. His goal, he said, was to encourage people to migrate from fuel-based systems to electric ones – and increase the city’s electricity sales.

“The purpose is to really try to manage your system load in the most efficient way,” Brewton said. “That’s why we’re trying to generate more electric use and less fuel use to generate more revenue.”

With the expansion of the Blue Lake dam, the city will have more hydroelectric generating capacity — and it needs to sell more of that electricity right away to pay back the costs of the project, Brewton said.

The proposal would have offered homeowners $1,000 toward the cost of a heat pump system; the systems themselves cost from $3,000 to $6,000, Brewton said. The full program would have cost Sitka about $50,000, but Brewton said the city would have earned that back in increased electricity sales within a year and a half.

Several assembly members started the night supporting the rebate, arguing that heat pumps are more energy efficient than other home-heating systems, and will make good use of Sitka’s new hydroelectric capacity.

But Assembly Member Mike Reif objected.

“I don’t think we need to jump-start this program, this program is jumping all over,” Reif said. “People know what it can do for them.”

Reif argued that the city doesn’t need to encourage people to switch to heat pumps because the market incentive is already there.

Reif himself took advantage of an earlier city rebate program a few years ago, to install a heat pump. He said the rebate was a good idea at the time, because the systems were relatively new and people didn’t understand how they worked. Now, he said, it simply isn’t necessary.

“I’m basically saving $3,800 a year,” he said. “I’m paying back those two units in two years. That’s an incentive. That’s a huge incentive. That’s driving this market.”

But the larger issue, Reif said, is that he isn’t sure the city should be encouraging more electricity use in the first place. According to projections from 2011, the city was then on track to outgrow the capacity of the expanded Blue Lake hydroelectric dam by about 2025. That estimate is likely out of date, but Reif said the city needs a strategy to make sure it doesn’t exceed Blue Lake’s capacity. Otherwise, Sitka will have to look at hydroelectric projects, like a dam at Takatz Lake, that are prohibitively expensive.

“Blue Lake was our biggest construction project ever,” Reif said. “Takatz is going to blow that right out of the water. You hear $400-million, $500-million, half a billion dollars! We can’t afford it…I think as a community, as an assembly, we should start looking at a strategy of how we are going to control our demand.”

Brewton agreed that, long term, the city needs to manage its electricity demand. But he said that must be balanced, in the short term, with the need to pay back the costs of the Blue Lake project.

“The other part that I’m deeply concerned about is what I call our utility death spiral,” Brewton said. “If our rates start going so high that people are forced to conserve — to the point of sitting in the cold with a blanket wrapped around them because they can’t pay it! — then our sales go down and we have to ratchet up the rates again. And it’s a death spiral.”

The assembly was split on the issue. Deputy Mayor Matt Hunter spoke for several members when said he wished he could vote both ways.

“I walked in here convinced this was the best idea and now I wish I didn’t have to make a decision here in the next couple minutes,” Hunter said.

In the end, only member Ben Miyasato voted yes, saying he thought the rebate would help many people in town.

The proposal failed, six to one.