HomeMy WebLinkAboutStatus Report on the Green Lake Project City and Borough of Sitka, AK 1980lT-G
04
SJT-61
oo"i
Status Report on the Green Lake Project
City and Borough of Sitka, Alaska
Prepared by
Dillon, Read & Co. Inc.
November 18, 1980
This report :!.s submitted solely for the use of original
purchasers of the $54,000,000 City and Borough of Sitka,
Alaska, Hunicipal Utilities Revenue Bonds, 1979 Revenue
ffi1d Refunding Series. Information contained herein is
based on sources believed to be reliable. However, Dillon,
Read & Co. Inc. makes no representation as to the accuracy
or comoleteness of this information. The infor:nation is
not to-be constru2d as an offer or the scliciration of an
offer to sell or to buy the securities mentioned herein.
Status Report on the Green Lake Project
City and Borough of Sitka, Alaska
The Gre~n Lake Project, being constructed by the City and
Borough of Sltka, Alaska, is a hydroelectric power facility with
two turbine units having an aggregate nameplate rating of 16.5
~egawatts and a maximum capab~lity of 18.5 megawatts. The project
ls expected to produce approxlmately 46,500,000 kilowatt-hours of
firm energy annually and is capable of producing approximately
74,000,000 kilowatt-hours in a year with average water.
Project Description
The project will consist of three major features: a dam, a
powertunnel, and a powerhouse, as well as a reservoir, access road,
and associated transmission facilities. For details of the project
design, see the Official Statement dated June 14, 1979 (the "Official
Statement") of the City and Borough of Sitka, Alaska prepared in
connection with the sale of $54,000,000 Municipal Utilities Revenue
Bonds (the "Bonds") issued primarily to refund all the previously
outstanding bonds of the municipal utili ties system, to provide
construction funds for the project and to provide certain con-
tingency and reserve funds.
Construction Status
As of October 31, 1980, R.W. Beck and Associates, Inc., Design
and Construction Engineer ("Beck") estimated that the project was
approximately 60% completed with the power tunnel virtually com-
pleted, the dam approximately 10% completed, and the powerhouse
approximately 40% completed. Beck currently estimates that initial
testing of the first turbine unit will begin in December, 1981,
that testing of the second unit 'tvill begin in January, 1982 and
that all construction will be completed in late winter or early
spring of 1982. These estimated dates assume that all concrete
will be placed in the dam by July, 1981, that the reservoir will
be satisfactorily cleared by August, 1981, that filling of the
reservoir will begin in late August, 1981 and that the reservoir
will be filled by the end of 1981. These are the critical dates
and events in the schedule and Beck believes it is reasonable to
assume that they can be met.
These dates are later bv several months than those estimated
in June, 1979, at the time the Bonds were sold. At that time, the
project was estimated to be ready for service by October, 1981 and
projections of operating results assumed commercial service began
January 1, 1982. The delays are attributable to one major problem
area, the very steep left abutment of the dam. Beck had anticipated
that some of the rock of the left abutment would need stabilization
-2-
and reinforcement. However, the extent of the weak rock had
not been anticipated. More excavation and reinforcement than
expected has been required. The additional excavation and
reinforcement has not been technically difficult; however, it
has required additional time and has delayed the pouring of
concrete in the dam, a critical event in the time schedule.
All excavation on the project has now been completed and the
engineers are dealing with known physical constraints. As a
result, the likelihood of new unforeseen events or construction
delays due to physical problems is very small.
Cost of Construction
All contracts for the project were awarded as of late
October, 1980. 7he total of the bid amounts awarded, $38,914,000,
exceeded the estimate set forth the Official Statement by
$1,091,000. The increase was primarily attributable to an under-
estimate in the cost o£ the transmission line from the project
to downtown Sitka. Additionally, the contractors will be entitled
to change orders for unanticipated costs, such as the additional
costs attributable to the weak rock on the left abutment of the
dam. Change orders executed as of the end of October, 1980
totaled approximately $3,853,000. Thus,of the contingency allow-
ance of $5,674,000, $4,944,000 has already been expended or
committed. Costs of reinforcing the left abutment and other claims
of contractors in progress will consume the rest of the contingency
and possibly as much as $6,000,000 more. The major unknown
cost at the present time is the size of the contractors'
existing and future requested change orders and it is quite
possible that the final settlement of some of the change orders
will be a long and protracted process.
The City has not yet determined whether additional funds will
be required and, if so, their sources. Among the potential sources
is the State of Alaska. There is strong sentiment in the legislature
for additional a:i,d to hydroelectric projects and the necessary funds
for completion may be available from the State directly. Investment
income from unexpended construction funds has been greater than
anticipated and will contribute to the payment for the increased
costs. However, as discussed below, contributions from the electric
system's operations will be slightly less than expected since oil
prices and the costs of diesel fired generation have increased much
more rapidly than anticipated.
-3-
Discussion of Operations for the Fiscal Year Ended June 30, 1980
The table below provides a summary comparison of the estimated
operating results of the municipal utilities system as set forth
in the Official Statement and actual results for the twelve months
ended June 30, 1980 as provided in a preliminary draft of Sitka's
audited financial statements.
Operating Results for the
Twelve Months Ended June 30, 1980
Electric System
Electric Operating
Revenues
Operation and Mainte-
nance Expenses ex-
cluding Depreciation
Hydraulic power gen-
eration
Diesel power gener-
ation including
purchased power
Transmission, distri-
bution and customer
accounting
Administrative and
general
Electric Net Operating
Revenues
Water System
~Jater Operating Revenues
Operation and 1-'lainte-
nance Expenses
Water Net Operating
Revenues
Total Net Operating
Revenues
As Projected
in the
Official
Statement
$2,902,900
237,000
603,900
253,800
130,000
1,224,700
1,678,200
351,000
169,000
182,000
$1, 860' 200
Actual
$2,818,491
354,829
786,443
284,060
156,204
1,581,536
1,236,955
315,232
175' 36 8
139,864
$1,376,819
Increase
(decrease)
of Actual
Over
Projections
$ (84,409)
117,829
182,543
30,260
26,204
15"6,83i5
(441,245)
(35,768)
6,368
(42,136)
$ (483,381)
-4-
The major differences in the results and the estimates
are attributable to:
-An increase in the average cost of oil from an estimate
of 56.7c per gallon to an actual average of 82.5¢ per
llon. Oil is currently selling at 100.6¢ per gallon.
-A decrease in kilowatt hour sales from the 52,165,000
kilowatt hours estimated to be sold to 46,659,000
kilowatt hours actually sold, a decrease due in part
to mild weather.
-Unanticipated maintenance expense of approxi.mately
$125,000 for repair of the Unit 2 turbine at the Blue
Lake Hydroelectric Project.
Rate Increase
Rates to electric customers were increased approximately
25 percent from their June, 1979 level in September, 1979. A
second increase became effective November 1, 1980. The percentage
increase over the June, 1979 level varies depending upon type
and amount of service. For example, the bills of residental
users of 250 kilowatt-hours and 750 kilowatt-hours per month
will be 38% and 53% higher, respectively, than they were in
June, 1979 and the bills of general customers using 30 kilowatts/
6,000 kilowatt-hours and 150 kilowatts/30,000 kilowatt-hours
per month will be 77% and 75% higher, respectively, than they
were in June, 1979. This second increase is higher than that
discussed in the Off~cial Statement, an estimate of an increase
of 45 percent over the June, 1979 level. The additional increase
is required primarily because of higher than anticipated oil
costs and the desire to provide internally generated funds for
the construction costs of the Green Lake Project.
Conclusion
The Green Lake Project and the municipal utilities system
have encountered certain problems not anticipated in June, 1979.
The project and the system are economically sound, however, and
the attractiveness and viability of the project are greatly
enhanced by the system's·recent greatest problem, the dramatically
increasing cost of oil. Oil now costs 100.6¢ per gal~on whereas
in June 1979 it cost 57.7C per gallon and the operat~ng pro-
jection~ assumed oil would cost only 62.3¢ in the fiscal year
ended June 30, 1981 and only 100.3¢ per gallon in the fiscal year
-5-
ended June 30, 1986. The fuel oil cost alone at today's
price of oil for energy equal to the 46,500,000 kilowatt-hours
of firm energy to be produced annually by the project totals
$3,400,000. The comparable figure for the 74,000,000 kilowatt-
hours the project will be capable of producing in an average
water year is $5,500,000. These figures would increase to
$5,500,000 and $8,800,000 in five years if oil increases at a
10% annual rate. In contrast, annual debt service on the Bonds
ranges from $4,030,890 to $4,413,137.
Excavation of the Power House Site on Silver Bay,
Spring 1980
View of Dam Site Excavation, Existing Green Lake,
and Partially Cleared Reservoir,
Spring 1980