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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