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HomeMy WebLinkAboutRed Devil Status Reports, Trip Reports, & Field Notes 1985ALASKA POWER AUTHORITY 334 WEST 5th AVENUE - ANCHORAGE, ALASKA 99501 Phone: (907) 276-0001 October 8, 1985 Mr. Ken Selby Selby Consulting Service 6421 Reed Lane Anchorage, Alaska 99502 Subject: Red Devil Loan Application Dear Ken: Qur Planning directorate has reviewed the Middle Kuskokwim Electric Cooperative's (MKEC) application and has the following comments: 1) 2) The cost estimate presented seems very preliminary. In order to establish a more accurate estimate of project costs, we feel that either a firm bid for construction of the entire project should be solicited from a contractor or that a cost estimate should be prepared by a Professional Engineer. An example of our concern is in the amounts allocated for administration (seems excessive) and engineering (seems low). The operating budget includes no provision for unscheduled repairs. Only $1,640 has been budgeted annually for parts; this amount seems only adequate to cover expenses such as filters and lubrication, with no provision for repairs. Written commitments to purchase power should be obtained from Targe customers. The economic feasibility of the project is largely dependent upon the purchase of power by the Kuspuk School District and the Vanderpool Road House, which account for almost 83% of projected revenues. Written commitments from these future customers would help assure that the project is feasible. Generators may be too large. One 40kW and one 50kW unit have been proposed for Red Devil. Based on the projected system's loads (110,000 kwh), we feel these units may be too large, resulting in poor fuel efficien- cy. 1453/460 Mr. Ken Selby October 8, 1985 Page 2 Our staff will be happy to meet with you to discuss these problems and to help identify solutions to them. Sincerely, Ze Ernie Whitney Auditing Manager EW: it cc: R.E. Etheridge, Alaska Power Authority i rit Susan White, Alaska Power Authority 1453/460 To: Thru: From: ALASKA POWER AUTHORITY Memorandum Ernie Whitney November 19, 1985 Auditing Manager Edwin L. Morris Assoc. Exec. Diréctor/Planning } § Brent N. Petrie ®e Director/Systems Planning Peter N. Hansen BM The Middle Rural Systems Engineer Kuskokwim Electric Cooperative (MKEC) Loan Application I have reviewed the Middle Kuskokwim Electric Cooperative (MKEC) loan application for a $250,000 loan from the Power Project Loan Fund. The loan cannot be considered secured by assets once the project has been completed. Only a small fraction (10%) of the funds could be recovered through the sale of salvageable materials such as generators in case of an economic failure of the project. Additionally, the generators should not be expected to last until the loan has been repaid. Due to the small size of the generators it will not be realistic to expect more than 10 years of service from these units. It does not appear that MKEC has sufficient collateral located in other villages served by MKEC in order to secure this loan. The security of the loan depends entirely on the future operation of the project. The current management of MKEC seems very capable of operating a small rural utility and thus the proposed system can be expected to be in operation as long as sufficient loads exist in Red Devil. At the present time the loads must be considered marginal for the operation of a utility. In the loan application budget assumes that the School will use 57% of the power produced by the utility and provide 51% of the cash flow for the utility. Another 22% will be used by the local Road House/Store which in return is expected to provide 20% of the cash flow for the utility. Thus, the budget is very sensitive to any fluctuation in the amount of power purchased by these two customers. The School presently has an enrollment of 10 students with an average attendance of six students. Earlier plans to close the School seem to have been at least temporarily suspended. The loan application only identifies 11 residential customers who are scattered over a fairly large area on both sides of the river. This explains the relatively high cost of the project. 1957/497 Ernie Whitney November 19, 1985 Page 2 My conclusion must be that from a purely economic stand point the project is questionable. The loan can not be considered secured through assets. The loan can be expected to be repaid only through continued operation of the utility. This operation obviously depends on the presence of the School and the Road House/Store. The argument has been presented that the availability of firm power in Red Devil will help stabilize the community and provide the basis for slow but steady growth. The stabilization of the community could provide the basis for keeping the School in operation thereby securing the feasibility of this project. This argument could be expected to be correct; however, it can not be substantiated at the present time. I am under the impression that the proposed river crossing and the distribution system on one side of the river will serve only three residential consumers. The river crossing is a very costly element of the project. MKEC should be required to investigate the feasibility of deleting the river crossings from the project. No recommendation is made concerning the MKEC loan application for $250,000 for the electrification of Red Devil. EW/fs 1957/497 ALASKA POWER AUTHORITY 334 WEST 5th AVENUE - ANCHORAGE, ALASKA 99501 Phone: (907) 276-0001 July 10, 1985 Mr. Max Gifford Administrative Assistant Office of Senator John C. Sackett c/o 1024 West Sixth Avenue Anchorage, Alaska 99502 Dear Max: This is in follow-up to our phone conversation regarding a possible electrification loan for the Village of Red Devil. As I indicated, the Power Authority administers two loan funds from which Red Devil might be interested in pursuing financing. Both the Power Project Loan Fund and the Rural Electrification Revolving Loan Fund (RERLF) are available for application to rural communities. Power Project Loan Fund monies provide financing for a wide range of energy projects, including construction and equipping of small-scale power production facilities (power plant and generators, fuel storage, etc.). The attached statutes and administrative regulations define and provide guidelines on the applicable uses and terms of these loans. The RERLF provides 2 percent financing for rural utilities for the purposes of paying capital improvement costs which extend the electric utility's transmission and distribution system to new customers. Loan proceeds from this fund may not be used for construction of elec- tric power generation facilities. A copy of the statutes and administrative regulations applicable to this fund are also attached. Considering the provisions of the above two loan funds, it appears that the Power Project Loan Fund is most appropriate to Red Devil's immediate electrification needs. A loan from the RERLF would be a consideration after power generation facilities are constructed and in operation. A legislative grant to the village through the Power Authority, for the extension of electrical lines is another sug- gested means for providing future funding. Should a power project loan be desired by the village, a decision will have to be reached as to what entity will assume obligation for the loan. Power Authority statutes provide that the Power Authority may make loans to a number of qualified borrowers, including electric utilities, regional electric authorities, village corporations and councils, etc. In Red Devil's case, the village council or Middle Kuskokwim Electric are the two appropriate entities; considering Red Devil's small population and limited revenues, Middle Kuskokwim would 82/365 Mr. Max Giffo.. July 10, 1985 Page 2 appear to be in a better financial position to assume debt repayment on a power project loan. At this time, to include Red Devil within their service area, Middle Kuskokwim would have to file an application of amendment to their Certificate of Public Convenience and Necessity with APUC. I spoke with APUC and was advised that Middle Kuskokwim had recently filed for their Certificate of Public Convenience and certification approval date is anticipated towards the end of August. The village of Red Devil should address their desire and need for electrification financing to the Power Authority as soon as pos- sible. Communication between the Village of Red Devil and Middle Kuskokwim Electric should also be initiated, if the village so desires, in the very near future, as the certification amendment process does take time. The General Manager of Middle Kuskokwim is Dennis Thomas of Crooked Creek. Max, I hope the information I have provided is helpful. At this time, the loan scenario is the only way we could finance Red Devil's system. Please let the village know that we are interested in hearing from them on their intentions. I wish there was an easier way, unfortunately the project coordination and loan process will be time consuming, but it is a means for funding. For your information, Clarrisa Quinlan (344-2631) has been assisting with Middle Kuskokwim's application for certification, and has been advising the utility on an informal basis. On a closing note, if Red Devil so desires, we may be in the position to offer them technical assistance as far as surveying their power needs and providing a recommendation on the most appropriate generation facilities to accommodate these needs. If I can be of further assistance, please give me a call. Sincerely, eer Susan White Special Assistant to the Executive Director SW/amh ee Pot. Heath 82/365 A) ALASKA POWER AUTHORITY 334 WEST 5th AVENUE - ANCHORAGE, ALASKA 99501 Phone: (907) 276-0001 October 8, 1985 Mr. Ken Selby Selby Consulting Service 6421 Reed Lane Anchorage, Alaska 99502 Subject: Red Devil Loan Application Dear Ken: Our Planning directorate has reviewed the Middle Kuskokwim Electric Cooperative's (MKEC) application and has the following comments: 1) The cost estimate presented seems very preliminary. In order to establish a more accurate estimate of project costs, we feel that either a firm bid for construction of the entire project should be solicited from a contractor or that a cost estimate should be prepared by a Professional Engineer. An example of our concern is in the amounts allocated for administration (seems excessive) and engineering (seems low). 2) The operating budget includes no provision for unscheduled repairs. Only $1,640 has been budgeted annually for parts; this amount seems only adequate to cover expenses such as filters and lubrication, with no provision for repairs. 3) Written commitments to purchase power should be obtained from Targe customers. The economic feasibility of the project is largely dependent upon the purchase of power by the Kuspuk School District and the Vanderpool Road House, which account for almost 83% of projected revenues. Written commitments from these future customers would help assure that the project is feasible. 4) Generators may be too large. One 40kW and one 50kW unit have been proposed for Red Devil. Based on the projected system's loads (110,000 kwh), we feel these units may be too large, resulting in poor fuel efficien- cy. 1453/460 Mr. Ken Selby October 8, 1985 Page 2 Our staff will be happy to meet with you to discuss these problems and to help identify solutions to them. Sincerely, ZL Ernie Whitney Auditing Manager EW: it cc: R.E. Etheridge, Alaska Power Authority Ed Morris, Alaska Power Authority Peter Hansen, Alaska Power Authority Susan White, Alaska Power Authority 1453/460