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HomeMy WebLinkAboutTazimina Hydro Project 199421-P1LH ~ State Capitol, Room 125 WALTER J. HICKEL, GOVERNOR 1 P.O. BOX 112100 - JUNEAU, ALASKA 99811-2100 eee PHONE: (907) 465-4700 DEPARTMENT OF COMMUNITY AND FAX: (907) 465-2948 REGIONAL AFFAIRS 0) 339 W. 4THAVENUE, SUITE 220 ANCHORAGE, ALASKA 99501-2341 PHONE: (907) 269-4500 OFFICE OF THE COMMISSIONER ; FAX: (907) 269-4520 "April 5, 1994 ene iy The Honorable George Jacko 1°? 7 E y e in) ue Alaska State Senator APR 41 1902 Juneau, Alaska ae Ala xa Indust ial O-untnemant Subject, - oRStention of Interest Earnings -- King Cove and TaAffingsPert Authority Dear Sexdtor Jacko: Thank you for your letter of March 19, 1994, requesting that funds now held by the Department of ee and Regional Affairs (DCRA) for the King Cove and Tazimina hydro projects be transferred to the Alaska Industrial Development and Export Authority (AIDEA). The purpose of such a transfer would be to allow interest earnings on the appropriation balances to be expended for the benefit of the projects. The Division of Energy has initiated a request with the Department of Law to draft a transfer agreement, patterned after the agreement between AIDEA and the Department of Administration with respect to the Railbelt interties, that would move the Tazimina funds from DCRA to AIDEA and provide for interest retention. At this point, we are unsure whether such a transfer is necessary for purposes of retaining interest. Further, we have not yet consulted directly with AIDEA on this matter, nor have we made a final decision to approve such interest retention. However, please be aware that we are actively working on the issue in cooperation with the Department of Law as well as with Iliamna-Newhalen- Nondalton Electric Cooperative. Should we reach agreement to implement a plan to retain interest earnings for the Tazimina project, we will consider extending the same treatment to the City of King Cove. Thank you for your inquiry on this matter. Sincerely, Chi- Edgar Blatchford, Commissioner cc: Shelby Stastny, Office of Management and Budget Herv Hensley, Division of Energy Riley Snell, AIDEA Brent Petrie, Iliamna-Newhalen-Nondalton Electric Cooperative Larry Ostrovsky, Department of Law ym SENATOR GEORGE JACKO STATE CaPIToL, ROOM 125 JUNEAU, ALASKA 99801-1182 (90. 465-4942 Fax: (907) 465-2997 Conmrt TEE CHAIRMANSHIPS COMMITTEE MEMBERSHIPS Rules, Chair Judiciary Finance, Vice-Chair Legislative Council FinanceSubcommittees Finance Subcommittees DC&RA, Chair Public Safety DM&VA, Chair Fish & Game Revenue, Chair University S Qu % ve March 19, 1994 __ 5 " * " aan Commissioner Edgar Blatchford Department of Community & Regional Affairs : P. O. Box 112100 Juneau, Alaska 99811-2100 Dear Edgar: I respectfully request your agreement to transfer the appropriations for two capital projects from the Division of Energy (DOE) to the Alaska Industrial Development Export Authority (AIDEA) at the earliest possible date. s I read the opinion from Lawrence Ostrovsky, Assistant Attorney "General for:Governmental Affairs, it would be entirely proper for you to ~*~ transfer funds for the Tazimina and King Cove hydrdelectric projects to sowworerec oven“ TONKA With the tnderstanding that the elratrcad and incidental interest~ ~~ earnings could only be used for the intended purpose of the appropriations. Both construction projects are progressing with all Cue speed and short term interest rates are very low. Even so, investing cash balances at interest is a prudent hedge against inflation and increased costs due to unanticipated project delays. If there are no delays, the interest earnings will be insignificant. On the other hand, any amoui:: of interest earnings would provide a reserve to meet unexpected project :.ceds. Thank you for your timely consideration of this requ..st. Please contact my office if any additional information is required. Sincerely, = Gs George Jacko ce; Shelby Stastny, Office of Management & Budg :t GJ/s District T: Adak, Akiachak, Akiak, Akutan, Aleinagik, Amehitks, Atks, Atmautnak, Atta, Belkofuki, Bethel, Chefor:. xk, Chemodaki, Chignik, Chi gnil Lagoon, Chignik Lake, Clask's Point, Cold Bay, Dillingham, Dutch Harbor, Bek, Bacgik, Exuk, Ekwok, Falte Punt, Fort Glonn, Goodnews Hay, Ivansf Bay, Karigluk, King Cove, King Salmon. Kipnuk, Koliganek, Kongiganuk, Kwethiuk, K.wigillingok, Levelock, Manckotak,Nakook, Nupakiak, Napaskiak, Nelann La goon, Now Sa: ybok, Nikalakl, Nunasicchule, Ogcarville, Paulotf Harbor, Pedra Bay, Perryville, Pilot Point, Platimum, Port Haiden, Port Moller, Portage Crock, Quinhagak, Sand Point, Senak, Shanys. South Naknek, Squaw Harbor, St George Island. $i. Pacl land. 1c: b.eBegre 959 File — Faeminve HOM Pras ECEIVE MAR 09 1994 Alaska Industrial Development March 4, 1994 and Export Authority John Olson Director, Development Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Subject: Tazimina Hydroelectric Project Dear John: I appreciated the time that you, Dennis McCrohan, and Dave Eberle took on March 2nd to meet with Mark Dalton of HDR Engineering, Inc. and me to discuss financing options for the Tazimina hydroelectric project. Your comments were informative and I always enjoy discussing project management options with you and others at AIDEA. Enclosed is a brief summary of the project that was prepared last year, so that you, Dennis and Dave have a written summary of the project. As I mentioned at the meeting, we will be conducting a refinement of project design, update of cost estimates, and preparation of a project management plan over the next eight to ten weeks. Upon completion of that exercise, we will have a more precise estimate of project costs and schedule to present to financing entities. We will consider AIDEA/AEA financing capabilities for this project as well as other financing options. I expect we will make an appointment with you in about two months to explore options in more detail. Thank you, Dennis and Dave, again for your time and advice. Sincerely, Brent N. Petrie General Manager Attachment N:\07250.003\26-OLSON Tazimina River Hydropower Project The Proposed Project The Iliamna-Newhalen-Nondalton Electric Cooperative (INNEC) plans to construct a 700 kW hydropower project on the Tazimina River. INNEC currently provides electricity to the interconnected communities of Iliamna, Newhalen, and Nondalton, which are located on or near the north shore of Lake Iliamna approximately 175 miles southwest of Anchorage. The area INNEC services has approximately 480 residents. Purpose The purpose of the proposed Tazimina River project is to replace INNEC’s existing diesel-powered electric generators with a renewable energy source and to reduce electric rates. After an expected initial rate increase when the hydroelectric power comes on line and consumers begin financing project construction, rates could drop to nearly half the cost of diesel-generated electricity. Much, if not all, of this initial rate increase is expected to be offset by a state grant which was appropriated by the Alaska Legislature in 1993. Location The proposed project is located on the Tazimina River at Tazimina Falls. The falls are about 12 miles northeast of the community of Iliamna on Iliamna Natives Limited land within Lake Clark National Preserve. The 100-foot Tazimina Falls isolates the upper Tazimina River drainage by barring all boat travel and fish passage. Description The proposed Tazimina River project, which would rely on_ run-of-the-river hydropower technology, has no dam or storage reservoir. As designed, a_ diversion approximately 250 feet upstream of Tazimina Falls directs some of the river flow to an intake and an underground penstock, which extends 270 feet to an 18 foot by 30 foot powerhouse. As currently proposed, two 350 kW turbines are buried 100 feet below the powerhouse at the bottom of a bored water column and lineshaft assembly. All flow returns to the river channel via a tailrace tunnel at the base of the falls. The project features are shown on an overlay on the attached depiction of the falls. Less than five percent of the high volume flows of summer will be diverted to turn the generator’s turbines. In winter, the project will divert a much larger percentage of flow—up to 100 percent—due to lower volumes of water in the river and higher energy demands in the villages. INNEC will construct a six mile access road to the project site and lay a 24 kV buried cable adjacent to the road to transmit electricity from the powerhouse to its existing distribution system. Background The Tazimina River project is the culmination of over 14 years of evaluating power alternatives for the Bristol Bay region, where the residents currently rely on costly diesel fuel for power generation. In 1979, the U.S. Department of Energy (DOE) explored numerous energy alternatives for the Bristol Bay region, including hydropower, geothermal, coal, oil and gas, wind, tidal, solar, and biomass energy. The DOE study found hydroelectric power to be the most viable source of energy to supplement or replace diesel generators in the Bristol Bay area. It recommended a variety of potential small-scale hydropower projects to serve the area’s villages and a dam at Tazimina Lake on the Tazimina River to provide power to the entire region. Between 1980 and 1987, the Alaska Energy Authority (AEA) completed numerous studies to further assess the technical, economic, and environmental feasibility of the recommended power alternatives. A subregional hydropower project at Tazimina Falls was eventually selected as the preferred alternative in the region based on technical, economic, and environmental feasibility. In 1987, the ABA assessed a variety of subregional run-of-the-river projects at Tazimina Falls and recommended the specific project that INNEC now plans to construct. FERC Licensing INNEC has obtained a preliminary permit from the Federal Energy Regulatory Commission (FERC) for the project, securing for the utility a priority position for hydropower licensing and development on the Tazimina River. INNEC is now seeking a formal exemption from FERC licensing for the Tazimina River project. In reviewing exemption applications, FERC evaluates the project’s environmental impacts, based in large part on the comments of regulatory agencies. Public and Agency Involvement INNEC has distributed a draft "Initial Consultation Document" for the project. That document introduces the Tazimina River project to the agencies and the public and summarizes earlier environmental studies completed for it. As part of the initial consultation process, INNEC held joint public and agency meetings in Anchorage, Newhalen/Iliamna, and Nondalton in November, 1992, to discuss the project and any concerns regarding its potential impacts. The local communities expressed strong support for the project at that time. Environmental Studies Numerous studies conducted over the past 14 years have created a sizeable library of information on the area’s resources and the project’s potential impacts. INNEC is currently developing work plans for studies required to meet any additional information needs of the agencies reviewing the project. Studies scheduled to begin in the summer of 1993 will require approximately a year to complete and will investigate impacts to water quality, fish and wildlife habitat, historical and archaeological resources, and aesthetics. Scheduled Completion Final engineering design will occur concurrent with environmental studies. After completing project studies and design, INNEC will prepare a draft and final license application for public review and submission to FERC. Construction of the Tazimina River project will begin after the project is exempted by FERC. Project Cost FERC Licensing Completion of FERC licensing, including necessary field work, is estimated to cost $250,000. © Construction The proposed project is estimated to cost $10,453,964 to design and construct. This estimate of probable cost is detailed in the table below. eTotal Project Cost. The total cost for completing all aspects of the project, including licensing, design, and construction is estimated at $10,703,964. ~ - MEMORANDUM Qtate of Alaska Department of Law To: Edgar Blatchford dare: February 11, 1994 Eile Commissioner — Dept. of Community & FLENO: 6 61-94-0404 hea ‘ Regional Affairs _ TELNO: 269-5159 \ Qi wi SUBJECT: Interest Retention on Project Grants FROM: Lawrence Ostrovsky Assistant Attorney “General Governmental Affairs-Anchorage INTRODUCTION You have asked us whether interest earnings on unexpended grant funds for the Tazimina and King Cove hydo projects may be retained for the benefit of the projects. You have also asked us whether the Department of Community and Regional Affairs (DCRA) may place the grant funds with a trustee who would retain interest. for the benefit of the projects, or in the alternative, whether the grants for the two projects can be. transferred to the Alaska Industrial Development and Export Authority (AIDEA) which would retain interest for the benefit of the projects. The answer to the first question, whether interest may be retained on these grants, is also determinate of the other two questions. Absent specific authority, we believe that a grantee may not hold or delay the expendituré of grant funds for the “purpose of using the grant funds as investment capital. We atso believe that if grant funds are transferred to a trustee, or to AIDEA, DCRA must insure that grants monies are being expended for the authorized uses. This question has not, however, been addressed by courts in Alaska. If the Department chooses to transfer the full amount of the grants to the grantee, a trustee, or AIDEA, in such a fashion that interest will accrue, we strongly recommend that any agreement to transfer the grant funds strictly limit expenditures of the principal and interest for the purposes of the appropriations. Background Two appropriations are the subject of this memo. Page 5, lines 24-28, ch. 19 SLA 1993 lists an appropriation for $5 million from the general fund to DCRA for payment as a grant under AS 37.05.316 to the Iliamna-New Halen- Nondalton Electric Cooperative, for the design and construction of a hydroelectric project on the Tazimina River. 03-002 & printed on recycled paper by ri Edgar Blatchford February 11, 1994 Page 2 Page 30, line 5, ch. 5 SLA 1992 lists an appropriation, to the Alaska Energy Authority (AEA) for $2.5 million from the general fund for construction of the King Cove hydroelectric project. This appropriation was transferred to DCRA as part of its assumption of rural energy programs under ch. 18 SLA 1993. You have indicated that construction has already begun on the King Cove project. The Tazimina project is still in the design stage and the grantees are in the process of applying for a license from the Federal Energy Regulatory Commission (FERC). Discussion An appropriation sets aside a sum of money for a specified object which executive branch agencies are authorized to use for that object, and no other. Expenditures from the appropriation must be consistent with the purposes of the appropriation. 1988 Inf. Op. Att’y Gen. (Mar. 22; 661-88-0396) This department has repeatedly advised state agencies that, absent authority, "[u]se of public grant money for investment capital constitutes a diversion from the purposes assigned by the egislature for the appropriation made to finance the grant". 1987 Inf. Op. Att’y Gen. (Mar. 19; 663-87-0372), citing 1985 Inf. Op. Att’y Gen. (Mar. 18; 663-85-0341). See also 1992 Inf. Op. Att’y Gen. (Aug. 26; 663-92-0327), where we stated that it is inappropriate to advance capital project or improvement money to a contractor in advance of performance of a public contract, and 1988 Inf. Op. Att’y Gen. (Mar. 22; 661-88-0396), where we did approve of using a reappropriation for investment purposes because the funds were sought explicitly to provide "seed money". Previous opinions of the Department of Law have recognized a distinction petveen investing grant suits primarily for the purpose _ of enerating i ent Capital, an the suivants) acon of interest pending disbursement—of—grant- unds. For example, we have noted that "it is not improper for the~ Yecipient to use interest accrued on money being held after work has begun on the authorized subjects, if it is not practical to spend all the money at once, and if no undue delay in moving toward the approved purpose is involved". 1992 Inf. Op. Att’y Gen. (Apr. 24; 663-92-0501). Retention of Interest Earnings on unexpended grant funds of the King Cove and Tazimina Hydro Projects The controlling factor in the question of whether a grantee, agency, or trustee may retain interest for investment capital is the authority which the agency has with respect to the grant, not the mechanism whereby the grant funds are held and disbursed. * Edgar Blatchford February 11, 1994 Page 3 Prior to disbursement of lump sum payments to a grant recipient, DCRA must determine that funds will be spent without undue delay toward execution of the purpose of the grant. If the disbursement is made earlier than reasonably required, for purposes of reducing project debt through the investment of the grant funds, then it is a diversion from the purposes assigned by the legislature. a) Tazimina Project In the case of the Tazimina project, you state in your memo that "interest retention could potentially affect whether the balance of construction costs can be successfully financed at all". The grantee would thus like to use the unexpended portion of the grant funds for investment capital. The $5 million grant for this project, however, is for the "design and construction of a hydroelectric project". We have not found any authority for this grant to be used for investment capital. Therefore, we believe that such use would constitute a diversion from the purpose assigned by the legislature. b) King Cove Project In the case of the King Cove project, while not critical to the viability of the project, you state that interest retention of grant funds "would benefit local consumers by reducing consumer payments for project power". Similar to Tazimina, the $2.5 million appropriation for this project was for "project construction", and there is no authority for interest to be retained by the grantee in order to reduce consumer payments. Again, we believe that such use would be a diversion from the purpose assigned by the legislature. Placement of Grant Funds with a Trustee or Transfer of the Grants to AIDEA As stated above, the controlling factor in disbursement and use of grant funds is the authorized use of the funds, and not the mechanism whereby the funds are disbursed. The administering agency has the "responsibility to prevent the diversion of an appropriation for unauthorized purposes". 1985 Inf. Op. Att’y Gen. (Mar. 18; 663-85-0341) at 2. While nothing prevents DCRA from placing the grant funds with a trustee, for disbursement, or transferring the grants funds to AIDEA, DCRA must insure that the trustee or AIDEA disburses the grant funds for authorized purposes. We hope this memo has answered your questions. Please call if you need further assistance. LO:cn cc: Dick Emmermen, Division of Energy ney-21744 TUN 22:14 FAX NO. 9074652997 P,02 A). rn Ih EG a Wk Gril SENATOR GEORGE JACKO Lob daw. Clerks STATE CaPITOL, ROOM 125 JUNEAU, ALASKA 99801-1182 (9C". 465-4942 Fax: (907) 465-2997 Con it TEE CHAIRMANSHIPS COMMITTEE MEMBERSHIPS Rules, Chair Judiciary Finance, Vice-Chair Legislative Council FinanceSubcommittees Finance Subcommittees DC&RA, Chair Public Safety DM&VA, Chair ete Fish & Game Revenue, Chair University March 19, 1994 Commissioner Edgar Blatchford i Department of Community & Regional Affairs P. O. Box 112100 Juneau, Alaska 99811-2100 Dear Edgar: I respectfully request your agreement to transfer the appropriations for two capital projeets .from-the-Division-of Energy(BOE) to themhtkabmldstrial 2st i . t ‘ : . - a aaa EOE 5 ae aces poeetblondetares a... . 8 Tread the dpinionfront-Lawrénce.Ostrovsky, Asszstant Attormeyit Atiorney skeeeees"3General forGexer vAffatren iblwotitdrbei entirely Iproper-fer-youtorFirsota So transfer furds-for the Tazimina and King Cove 1c Projects.to~— nwa... sto > AIDEA With She anderstanding that the-princ: Soak areinntedest meer earnings could only be used for the intended purpose of the appropriations. oe eee eee Both construction projects are progressing with all Cue speed and short term interest rates are very low. Even so, investing cash balances at interest is a prudent hedge against inflation and increased costs due to unanticipated project delays. If there are no delays, the interest earnings will be insignificant. On the other hand, any amou::: of interest earnings would provide a reserve to meet unexpected project :-ceds. Thank you for your timely consideration of this requ..st. Please contact my office if any additional information is required. Sincerely, . Ge George Jacko ce: Shelby Stastny, Office of Management & Budg :t GJ/\s Dutrict T: Adak, Aklachak, Akiak, Akutan, Alona gilt, Amchitka, Atkx, Atmautnak, Atta, Belk ofuki, Bethel, Chefor. uk, Chemofsii, Chignik, Chi gnile La: Crignik Lake, Clask’: oo Buy, Dillingham, Dutch Harbor, Bek, Bgegik, Fuk, Ekwole, False Pum, Fort Glenn, Goodnews Hay, Ivan:f Bay, Kasighak, King Soe iingitien Kee cae ne Kongiganik, Kwethhik, K.wigillia gat, Lavelock, Masckotak, Naknek, Nepekiak, Napaskiak, Nelaon Ls goon, New Sa: yahok, Nikolakl, Nunaichuk, Ovcarville, Paulot! Harbor, Pedra ne ara wale ecm (ena OE