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HomeMy WebLinkAboutIntertie Meeting 1993SONI DI: LL7OUTDO shiv doAn + us aul CLOUINIV™ ous QOL ODIDO,# 1/190 Chugach onons 5601 Minnesota Drive Anchorage, Aleska 90816-6500 FACSIMILE TRANSMITTAL SHEET Phone: 907-563-7494 a ill | DATE: November 30, 1993 } TO: William R. Snell, Executive Director | COMPANY: AIDEA | | LOCATION: 480 W, Tudor, Anchorage, AK 99503 | FAX NO.: 561-8998 FROM: David L. Highers, Executive Director SUBJECT: Memos to Board COMMENTS/MESSAGE: Faxed for your information are two memos to Chugach Board of Directors, the first dated November 23 regarding November 18 intertic meeting with managers and attorneys, and the second, November 24 regarding Anchorage-Kenai intertie. OL DI TO: FROM: SUBJECT: 22 UU uu yaasuunm » WLU LLU” wul YUL QuUuUIT es 1U CHUGACH ELECTRIC ASSOCIATION, INC. Anchorage, Alaska November 23, 1993 Board of Directors David L. Highers, General Manager! Report on November 18 Intertie Meeting with Managers and Attorneys The parties to the negotiations made only slight progress at the November 18 meeting. In general, the five utilities consisting of ML&P, MEA, HEA, AEG&T and Seward want: Chugach to build the line. IPG to manage both construction and operation by committee with officers. Chugach to be liable for even simple negligence. No margin or sweetener included for the builder as an upside potential to counter increased exposure to liability. Chugach to make its system available for interconnection to be operated as a single transmission systen. Very low wheeling rate for reliance on and use of Chugach system with a very long term guarantee that it will not rise significantly. NO agreement that they will actually pay the wheeling rate. They want to be free to argue that they have found a route which "bypasses" Chugach's system and do not want to pay for loop flows over Chugach system, Chugach to agree to build the line if all other participants decline to participate. There was a small amount of movement on some of these issues. OLIVE Die a2 UU uv saaecunm + Wawa LUI” wul vu OuUuUIT uF LU Board of Directors November 23, 1993 Page 2 Liabjlity Notably, Norm Story took a position contrary to Roger Kemppel that the building utility should be relieved from exposure to liability for simple negligence. There was some sentiment expressed in favor of Chugach's position on this but no one committed to a different standard. IPG oversight This area did not get much attention because other issues overshadow it. However, Chugach indicated that the proposed IPG oversight is still too cumbersome and therefore expensive. Whether the Chugach board will accept this oversight in building the line depends on how streamlined the oversight can be made and whether we are able to protect Chugach from the exposure to liability. It may be possible to move them further on this issue. Northern Line One bright spot was the possibility that the Northern line might be built at just $20 to $25 million over the grant. This is preliminary and Mike Kelly does not want to be held to it. He also proposed after discussion that anyone who remained in the Northern line could be allowed to withdraw after the line becomes commercially operable and after paying only one year of costs after notice of withdrawal is given. He has also expressed some interest in trading his Bradley Lake share to Chugach in return for power out of Beluga. Wheeling The wheeling rate issue was explosive. Tom Stahr had indicated in an earlier meeting without his attorney present that he would be willing to accept a rate equal to half of that set out in the Bradley Lake Services Agreement. Currently the charge is .3333 of the fully allocated costs of a defined Chugach transmission network computed per kwh transmitted (except economy energy). The charge is now 2.2 mills per kwh. At this November 18 meeting, however, he said that what he actually meant was 2.6 mills per kwh "levelized" over the life of the project. Considerable discussion took place and it became clear that the ML&P led group wants not only a very limited wheeling charge but also a wheeling rate formula which excludes additional oc! OI: Li-Vu-dU ii tUAM UNLUAUIT LLLUINIL™ oul JUL OUDOrt t/ 1d Board of Directors November 23, 1993 Page 3 expenditures necessary to maintain or improve Chugach's transmission system over the years. Furthermore, it is clear that even if the ML&P led group agrees to a wheeling rate, it intends to retain the ability to try to find a route which allows them to argue that they have "bypassed" the Chugach system and should not be required to pay wheeling at all. No agreement was reached on wheeling or routing issues. Build without Chugach option The Chugach negotiators repeatedly indicated the Chugach Board's preference that the remaining utilities build the line with Chugach allowing free use of its transmission system if the builders of the new line allowed Chugach the same use. There seems to be no interest in that approach. Incidentally, there were comments critical of the Chugach negotiators since we are careful to keep the Chugach board well informed and receive direction from the board. ‘The others seemed to resent the fact that we knew and felt free to express what our board was and was not willing to accept for terms. Next. steps The parties settled on December 6 as the next date for a meeting of the managers and attorneys. Obviously, the self-imposed November 30 deadline will not be met. Chugach could have met sooner but that was not possible for some of the other parties. Chugach has met internally and is developing a set of alternatives which it will propose as a last effort to allow the Southern Intertie to be built. These options will include: ° The basic Chugach proposal which requires least project cost routing, a wheeling rate equal to 50% of the rate in the existing Bradley Lake Services Agreement and a very limited role for the IPG. ° The "legislative" approach; Chugach will build and own the line as part of its system for the benefit of the other utilities but without the extra burdens of the current draft Participation Agreement. Wheeling must be paid for use of Chugach's system and to compensate for loop flows. Costs of the new line would be paid through rates, wheeling rates, Participant share contributions or a combination of these. oc! DI- Li7vuU-OU sLl-tlAM y UNLUAUTL LLLUINIL™ oul JUL ODDO1F Y/1ld Board of Directors November 23, 1993 Page 4 . Sale of contract path to the ML&P led group which could operate in lieu of wheeling under either of the above options. ° Let the ML&P led group build it without Chugach with each side forgiving the other side's loop flows, OLIV DI Li -UU- UU yds tinn » UNUUALITT LLLUINIU™” oul JUL O00 Us LY CHUGACH ELECTRIC ASSOCIATION, INC, Anchorage, Alaska November 24, 1993 TO: Board of Directors je FROM: David L. Highers, General Manager N SUBJECT: Anchorage-Kenai Intertie Attached is a summary of the Anchorage-Kenai Intertie options which was prepared for us by Eric Redman. We will be presenting these to the managers/attorneys at the next meeting on December 6. I wanted you to be aware of our positions. If you have any comments, please let me know. Attachment o ee o ‘ O00O1;# (/19 . Lir-vu-du sii 41 AM + UNUUALIT LLLUINIU gulf 901 0000 = Soe bIenchLcn CONMAW ‘E'meaoroo © reg ’ £U0GH 1U0RU7 VNVUAVA ECLEVINGV I «& ANCHORAGE-KENAI INTERTIE OPTIONS — UPDATED 11/23/93 A. Introduction & Summary) The Dispute In & Nutshell Digagreementa about the Participation Agreemant reflect a fundamental disagreement about the nature and purpose of tha Anchorage-Kenai Peninsula Intertie (the "A-K Line"). Chugach palieves that: (1) Re na er network, The A-K Line will be a strand of this network -—- an important strand, but a atrand nonetheless. The new line cannot and will not "bypass" the existing transmission net=- work, will not "bypasa" Chugach’s portion of that network, and will instead be an integral part of that network. (2) The reason to build the A-K Lire is to strengthen She entire network for the benefit of 1) interconnected whilities. It would be misguided, as well as silly, to think of the new line as creating "independent trananission paths" for individual utilities. The actual transmission of alectric power already relies upon, and will continue to rely upon, the entire natwork. Inatead of danying this reality, we should Yeacogniza and he guided by it. (3) Additions to the transmission network should be built pe ineyvmensively as possible. Because the new line will be simply ona strand of a network (not an alternative to that network), there is no justification for designing or building the A-K Line with any unneceseary costs or bureaucracy. The new line is a construction project, and should be completed at the lowest reasonable project cost. OLIV DI 2k UU uu saartenn » Ww LLU Ini vu vu OQuUuLIT UF LU SENT BY+HELLER EHRNAN M2989 | 120 1 2OBALTARAG = CHUGACH ELECTRIG& 3 (4) The burdens of the transmission network, net just the network's benefits, should be shared, Specifically, the costa of the network, net just of the strand to be added to it, should be borne equitably among utilities the natwork banefits. Ideally, the costs of the network may ultimately be pooled. Inthe meantime, gome cost-sharing -- in the form of reasonable wheeling rates or other compensation -=- muat be paid (a) by those utilities the network benefits, (b) to thosa utilities tnat own major portions of the network and bear the expense of building and maintaining it, These principles lead Chugach to advocate a least=-cost stan- dard for the A-K Line routing and construction -- including con- struction management -- and podest wheeling rates for access to/from the Intertie ovar Chugach’s aystem {pending the potential creation of a Railbelt transmission pool). The same principles also allow Chugach to accept -- although the legislation funding the Intartie does not contemplate thie -- that the A-K Line may be owned jointly by the Participating Utilities as tanants in common. Chugach’s views are not universally shared. In particular, Anchorage Municipal Light & Power ("ML&P") appears to view tha A-K Line conceptually and contractually more as a pipeline connecting two points than as a strand in a network. MLEP does not agree that the line/sa routing or end points should necessarily be chosen to minimize project costs. Instead, ML&P insists on consideration of routings -- including potentially nore expensive routings ~- that MLEP imagines will create an “independent” transmigsion path that , : , re 6 vue yuuvrr uray an UU ww fas - ser OLIVE wae SENT BYSHELLER EHRNAN i-23-85 6 022" 2064470868 | CHUGACH ELECTRIGIS 4 will "bypass" the Chugach eyatem (which, ML&P arques, would there- fore avoid any neaad to pay wheeling charges to Chugach). Alterna— tively, MLEP proposes that Chugach accept now and for the next 30 years an essentially fixed wheeling aven lower than the cost—based wheeling rate Chugach haa offered for the first 5-10 years of the A#K Lina‘s operation. These ond other NL&P positions, as well as powitionsa some ether potentia] Participants advocate, add up to a "worst case" acenario under which, if Chugach accepted the views of the other utilities, the following woulda occur: (1) Chugach would build the A-K Line and pay the largest g@ingla share of the Line’s costs -- at least 30 percent -= yet the antire effort would be "supervised" by other utilities threugh an Intertie Participants Group ("IPG") with its own elected officars. (2) The Line’s routing and end points would be chosen by the IPG, not necessarily on the basis of least cost, and perhaps despite Chugach’s objection. (3) If construction went well, Chugach would earn no xavard, but if any problems arose, Chugach would be obligated to hold harmless and indemnify the other othar utilities not only against the costes of Chugach’s own intentional misconduct or gross negligence as builder of the line, but also Chugach’s simple negligence. (4) Chugach would have to agree in advance to a fixed and very low wheeling rate, and even that rate might not be 1 bt Li-uu vv siavtunam y UNUUALIL LLLUINIL uur JUL OuUOFLUs LU ou 1 eat! UIeNCLLEN GONMAN ch tegeys i Td) GG 208644708494 CHUGACH ELECTRIC+& 6 paid if a routing were devised to "bypass" Chugach’s systen, and the IPG would actively investigate alternative routings for this purpose. (5) If a routing were selected that the other utilities believed "bypassed" Chugach’s system, not only would no wheel- ing rate be paid (voluntarily) to cnugach, but in addition all loop flow and otner use of or reliance on Chugach’s system would be ignered and uncompensated. (6) Once the A~K Line were completed and its costs ware fixed, however, other utilities would have the right toe with- araw from further participation and Chugach would potentially be obligated to pay all the costs of the Line in excess of grant funds, i.a., several million dollars per year.’ The foregoing agenda ia different from that of Chugach. Chugach has no interest in paying the lion’s share of an unnacas- sarily expansiva addition to the existing transmission network undar the pretense that, thanks to the extra cost, an “indepandent transmission path" hag been created. For whatever reason, however, Chugach has so far not succeeded in persuading MLEP, and perhaps other utilities, to accept Chugach’s point of view. Consequently, in early November, Chugach indicated to the other utilities that Chugach would prefer that the others go ahead and build the new A*-K Line on their own, if they are willing and 1In addition, the other utilities expect Chugach to sign up for -- at least initially -- a 30 percent share of the Healy= Fairbanks Intertie, at a potential cost of $600,000 to $1,000,000 per year. di-vu vu siistuAm + UNUUALIL LLLUINIU™ woul JUL OUUOFL1/ 1d Sats vi eiibEbE ENNMAl 1 ZOTeS *22 2U86S705497 GHUGACH ELECTRICi# 6 abla to do ao, without Chugach am a Participant. To this end, chu- gach offered to waive any wheeling or other charges if the A-K Line (owned by others) crossem the Chugach system. Chugach also pro- posed coordinated maintsanance scheduling and the like to reduce Operating costs for the A-K Line and Chugach’s system alike. Ags a “safety net," Chugach restated its willingness to proceed with construction of the A-K Line in the manner contemplated by the authorizing/funding legislation if the other utilities chose nat to proceed without Cchugach.? In mid-November, the othar utilities indisated to Chugach their inability or unwillingness to "go it alone” with respact to the A-K Line. Yet, at the same time, ML&P (at least) does not currently accept Chugach’s position on least-cost routing and construction, wheeling rates, and related matters that Chugach considers to be “deal breakers." This state of affaira requires Chugach to review its options again, B. Alternative #1: The Basic Ghugech Proposnl (Modified) 1. The Participants Agreament would require the IPG to select the Least-cost (reasonable) routing and and points for the A-K Line project. 2. A modified Chugach wheeling rate and related services proposal would apply (gee Attachment 1). Basically, the nonfirm whealing rate would be one-half (50%) of the rate computed under *Although Chugach is named by atatute as tha intended racip= lent of the A-K Lina grant, under applicable State law the Gover- nor could name another recipient (or recipients) if Chugach de- clineg to participate. OLIV Die ai UU uv saastram » WIWUAU LELUINIL © vul YUL OUUOITLes lv SON! SY HELLER CANMAN i7T™ZITII 1 “4s 8 EVDES I UOKE7 VNVUUAYN CLOVINivie ¢ the existing Services Agreement, but with an agcead "kick-in" date and with a cost-centrol procedure to assure wheeling and wholesale customers that the costs of bulk power natwork transmission facili-= ties only are included in the rate. The rate formula could be re- opened after an agreed period of time (and would cease to apply if Railbelt transmiseion pooling were implemented earlier) .’ 3. The IPG would not be established as a new Railbelt utility organization with elected officers, etc. Tha IPG would instead be streamlined and simplified during the Project’s design and con- atruction phase, and thereafter would be conveanad only when dis- putes arige or major decisions bacome necessary for the Project. c. ue i s 1. Chugach would build and own the line for tho benefit of all participating utilities, on a least-cost basis. Participating utilities could each purchase a proportionate share of the A-K Linea’s capacity, and Chugach would "cover" for any utility that daciinesd to participate by buying that utility’s share (if others did not want it). 2. The project would be designed, routed, and built in accor= dance with a least-cogst project standard. This would include minimizing the costs of reasonable design and construction over- Sight. For example, although Chugach’s selection of routes, end points, and design would be subject to IPG review to assure that ‘Chugach is still investigating whether the gale of a "con- tract path” over Chugach’s ayeten might reasonably substitute for a whealing rate (a potential cutcome contemplated by tha Servicers Agreement) . we “SENT BYinELLER EHRMAN the least-cest project atendard is actually met, no IPG or other permanent oversight organization would ba created. 3. Wheeling and related services would be provided in accor- dance with Attachment 1 hereto. D. Alternative #31. Let others Build tf i. Other utilities would be the Participants in the A~K Line; Chugach would not. Chugach would instead own and maintain its Quartz Creek line, agp today. The two separately owned lines would be operated in parallel, 2. Chugach would agrea that tha A=K Line can cross tha Chugach system on tha Kenai Feningula (e.g., at Soldotna or Bernice Lake) and in Anchorage (e.g., at South Anchorage or Worongof or other locations); the Participants could select the route and the crossing points. 3. No one would pay whseling or other compensation to anyone else on any portion of the Chugach syatem or the other utilities’ aystanms: the "Super Freeway" concept would apply, even at those times when the Intertie or the Quartz Creek line is out of service, (HEA would algo agree to re-aggume cost responaibility for HEA substations and transmission facilities currently leased by Chugach from HEA.) 4. Tha IPG (not including Chugach) and Chugach would work together to coordinate maintenanoe gechaduling, breaker settings, etc., for the benefit of the owners of both lines. tye-o3-93° 7 T1523 20642708494 CHUGACH ELECTRICi# ¢ wuts wae ae UU ww faa arin + NOVY 22 '93 @d:S4PM HELI FR EHRMAN ea a wu vua Youve aU P.9714 1. “Half the Services Agreement” nonfirm wheeling rate. We propose that, for the time being (see below), "R" in any given year should be set to equal a rate that represents fifty percent (50%) of tha Services Agreemant wheeling rate for that year. The "ramp- ing in” feature of the rate would continue. So the ultimate wheel- ing rate would take more than a decade to become fully "rampad in," and even then would only be about forty-five percent (45%) of a fully allocated cost transmission rate. There would be three additional points: (a) “Kiok-in" The new rate formula would begin to apply on a date certain when the A-K Line is current- ly and reasonably expected to be in commercial operation (perhaps 1997 or 1998), even if commercial operation is in fact delayed. (b) "No geen" provision. The naw rate would not "drop" from the old level, but there would probably be a “plateau” period before rates under the new formula reached the level of the former rate. In other worde, "R" would never be less than the Services Agreement rate that was in effect in the yaar when the new formula first began to apply- (c) Cost control provision. Before adding the costs of any new transmission investment to the cost portion (i.@., the numerator) of the wheeling rate formula under the Services Agreement, Chugach would provide advance notica of the pro- posed addition to its wheeling and wholesale customers, and provide an opportunity to meet and discuss whether the invest- ment in fact constitutes bulk power network transmission facilities. If a diapute arose, a joint utility board process guch as that set forth in Section 9 of the Chugach/AEGéT/MEA Tripartite Agreement would be uaed to air and, if possible, resolve such dispute prior to Chugach making its final deci- gion and submitting its proposed rate change to the APUC for review. 2. Sunset provision (reopener). The foregoing rate formula would apply only for an initial period of years (5? 10?) selected by ML&P and/or the other Participants. (The rate would also cease to apply if wheeling were replaced with a Railbelt transmission pooling scheme.) After the agreed initial period, if no transmis-— sion pooling scheme is in place, then either Chugach or any of the wheeling utilitias could elect to reopan the rate provision and compel negotiation of new rate(s). Any new rate would be aubmitted to the APUC for review and approval. OLIVI Die 22 UU ww yaarauam + wwunus Leu ini - NOV 22 '93 @4!SSPM HELLER EHRMAN wul vuL OuUVITius LU P.10/14 3. bdimited applicability. The foregoing rate would apply only (a) to Participants in the A-K Line, and (b) with respect to power from currently existing generators. Chugach would agree to make a new rate, on request, for anyone contemplating a new genera- tor. 4. Bate applies even during Intertie outages. "R” would apply to transmission even when the Anchorage-Kenai Intertie is out of service and the Quartz Creek line alone ie available for wheal- ing services. (The reason for this is that Chugach, which will control maintonance schedules and breaker settingz on the Quartz Creek line and also the dispatching of Bradley Lake, will thereby effectively control maintenance schedulas and breaker settings on the A-K Line -~ subject to IPG ovarsight -- and Chugach does not want other Participants to feel that the maintenance schedules are influenced by wheeling rate considerations. } 5. Other services. Consistent with its obligations under the Services Agreement, Chugach will continue to provide (a) assured wheeling services, for periods of up to two waeks at a time, at a rate aqual to 1.15 times the new R (the same rate concept as under the Services Agreement), and (b) displacement purchase services for any wheeling utility’s power that would otherwise be "stranded" on the Kenai Peninsula. Chugach would net continue to provide free reservoir storage for such power in Cooper Lake. 6. Raegiprocal services. The Participating Utilities would each agree that, 20 long as the foregoing rate formula applies to Chugach, they will make wheeling services available to Chugach in accordance with the same formula, namely: R = C/EBXK Where "C" and "E" are computed uging individual utility data, and "K" = the effective "K" for Chugach under the formula above. TO: FROM: SUBJECT: Fre, mek er 2 ue pe fi 4 RKOLIVE CHUGACH ELECTRIC ASSOCIATION, ING, Anchorage, Alaska 0 1993 November 23, 1993 NOV 3 Alaske industri: Development / and Excne Authority | Board of Directors ‘\ \ | A : tye David L. Highers, General Manager'~ | Report on November 18 Intertie Meeting with Managers and Attorneys The parties to the negotiations made only slight progress at the November 18 meeting. In general, the five utilities consisting of ML&P, MEA, HEA, AEG&T and Seward want: Chugach to build the line. IPG to manage both construction and operation by committee with officers. Chugach to be liable for even simple negligence. No margin or sweetener included for the builder as an upside potential to counter increased exposure to liability. Chugach to make its system available for interconnection to be operated as a single transmission system. Very low wheeling rate for reliance on and use of Chugach system with a very long term guarantee that it will not rise significantly. No agreement that they will actually pay the wheeling rate. They want to be free to argue that they have found a route which "bypasses" Chugach's system and do not want to pay for loop flows over Chugach system. Chugach to agree to build the line if all other participants decline to participate. There was a small amount of movement on some of these issues. Board of Directors November 23, 1993 Page 2 Liability Notably, Norm Story took a position contrary to Roger Kemppel that the building utility should be relieved from exposure to liability for simple negligence. There was some sentiment expressed in favor of Chugach's position on this but no one committed to a different standard. IPG oversight This area did not get much attention because other issues overshadow it. However, Chugach indicated that the proposed IPG oversight is still too cumbersome and therefore expensive. Whether the Chugach board will accept this oversight in building the line depends on how streamlined the oversight can be made and whether we are able to protect Chugach from the exposure to liability. It may be possible to move them further on this issue. Northern Line One bright spot was the possibility that the Northern line might be built at just $20 to $25 million over the grant. This is preliminary and Mike Kelly does not want to be held to it. He also proposed after discussion that anyone who remained in the Northern line could be allowed to withdraw after the line becomes commercially operable and after paying only one year of costs after notice of withdrawal is given. He has also expressed some interest in trading his Bradley Lake share to Chugach in return for power out of Beluga. Wheeling The wheeling rate issue was explosive. Tom Stahr had indicated in an earlier meeting without his attorney present that he would be willing to accept a rate equal to half of that set out in the Bradley Lake Services Agreement. Currently the charge is .3333 of the fully allocated costs of a defined Chugach transmission network computed per kwh transmitted (except economy energy) . The charge is now 2.2 mills per kwh. At this November 18 meeting, however, he said that what he actually meant was 2.6 mills per kwh "levelized" over the life of the project. Considerable discussion took place and it became clear that the ML&P led group wants not only a very limited wheeling charge but also a wheeling rate formula which excludes additional Board of Directors November 23, 1993 Page 3 expenditures necessary to maintain or improve Chugach's transmission system over the years. Furthermore, it is clear that even if the ML&P led group agrees to a wheeling rate, it intends to retain the ability to try to find a route which allows them to argue that they have "bypassed" the Chugach system and should not be required to pay wheeling at all. No agreement was reached on wheeling or routing issues. Build without Chugach option The Chugach negotiators repeatedly indicated the Chugach Board's preference that the remaining utilities build the line with Chugach allowing free use of its transmission system if the builders of the new line allowed Chugach the same use. There seems to be no interest in that approach. Incidentally, there were comments critical of the Chugach negotiators since we are careful to keep the Chugach board well informed and receive direction from the board. The others seemed to resent the fact that we knew and felt free to express what our board was and was not willing to accept for terms. Next steps The parties settled on December 6 as the next date for a meeting of the managers and attorneys. Obviously, the self-imposed November 30 deadline will not be met. Chugach could have met sooner but that was not possible for some of the other parties. Chugach has met internally and is developing a set of alternatives which it will propose as a last effort to allow the Southern Intertie to be built. These options will include: e The basic Chugach proposal which requires least project cost routing, a wheeling rate equal to 50% of the rate in the existing Bradley Lake Services Agreement and a very limited role for the IPG. ° The "legislative" approach; Chugach will build and own the line as part of its system for the benefit of the other utilities but without the extra burdens of the current draft Participation Agreement. Wheeling must be paid for use of Chugach's system and to compensate for loop flows. Costs of the new line would be paid through rates, wheeling rates, Participant share contributions or a combination of these. Board of Directors November 23, 1993 Page 4 e Sale of contract path to the ML&P led group which could operate in lieu of wheeling under either of the above options. e Let the ML&P led group build it without Chugach with each side forgiving the other side's loop flows. Ty ge 2. CHUGACH ELECTRIC ASSOCIATION, INC. , * ie ff Anchorage, Alaska non ki 0 i953 November 24, 1993 NOV 30 iss f Ales ; TO: Board of Directors \ a N FROM: David L. Highers, General Manager : 3 SUBJECT: Anchorage-Kenai Intertie Attached is a summary of the Anchorage-Kenai Intertie options which was prepared for us by Eric Redman. We will be presenting these to the managers/attorneys at the next meeting on December 6. I wanted you to be aware of our positions. If you have any comments, please let me know. Attachment SENT BY*HELLER EHRNAN 1923993 1 T1195 2Ub4a7U0SY> UMUYAUM CLOVINGviw 6 ANCHORAGE-KENAI INTERTIE OPTIONS -—- UPDATED 11/23/93 A. L & 2 te sh Disagreements about the Participation Agreement reflect a fundamental disagreement about the nature and purpose of the Anchorage-Kenai Peninsula Intertie (the "A-K Line"). Chugach believes that: (1) ns i st QF network, The A-K Line will be a strand of this network -- an important strand, but a strand nonetheless. The new line cannot and will not "bypass" the existing transmission net- work, will not "bypass" Chugach’s portion of that network, and will instead be an integral part of that network. (2) rea il -K Lin e oe @ work he al nnec utilities. It would be misguided, as well as silly, to think of the new line as creating “independent transmission paths" for individual utilities. The actual transmission of electric power already relies upon, and will continua to rely upon, the entire network. Instead of danying this reality, we should recognize and be guided by it. (3) tio: et net wid built ag ineypensively as possible, Because the new line will be wimply one strand of a network (not an alternative to that network), there is no justification for designing or building the A-K Line with any unnecessary costs or bureaucracy. The new line is a construction project, and should be completed at the lowest reasonable project cost. SENT BY+HELLER EHRMAN $14=23-93 : 11520 5 20644708495 GHUGAUM ELEVINLU® 9 (4) 2.0 issio x the network's benefits, should be shared. Specifically, the coata of the network, net just of the strand to be added to it, should be borne equitably among utilities the network benefits. Ideally, the costs of the network may ultimately ke pooled. In the meantime, some cost-sharing -- in the form of reasonable wheeling rates or other compensation -- must be paid (a) by those utilities the network benefits, (») to those utilities that own major portions of the network and bear the expense of building and maintaining it. These principles lead Chugach to advocate a least-cost stan- dard for the A-K Line routing and construction -- including con- struction management -- and modest wheeling rates for access to/from the Intertie over Chugach’s system (pending the potential creation of a Railbelt transmission pool). The same principles also allow Chugach to accept -- although the legislation funding the Intertie does not contemplate this -- that the A-K Line may be owned jointly by the Participating Utilities as tenants in common. Chugach’s views are not universally shared. In particular, Anchorage Municipal Light & Power ("ML&P") appears to view the A-K Line conceptually and contractually more as a pipeline connecting two points than as a strand in a network. ML&P does not agree that the line’s routing or end points should necessarily be chosen to mininize project costs. Instead, ML&P insists on consideration of routings -- including potentially more expensive routings ~- that ML&P imagines will create an "independent" transmission path that SENT BY:HELLER EHRNAN P4-29999 5 12" 20644708495 CHUGACH ELEVIKIUi# & will "bypass" the Chugach system (which, ML&P argues, would there-~ fore avoid any need to pay wheeling charges to Chugach). Alterna- tively, ML&P proposes that Chugach accept now and for the next 350 years an essentially fixed wheeling even lower than the cost—based wheeling rate Chugach hae offered for the first 5-10 years of the A-K Line’s operation. These and other ML&P positions, as well as positions some other potential Participants advocate, add up to 4 "worst case” scenario under which, if Chugach accepted the views of the other utilities, the following would occur: (1) Chugach would build the A-K Line and pay the largest single share of the Line’s costs -- at least 30 percent == yet the entire effort would be "supervised" by other utilities through an Intertie Participants Group ("IPG") with its own elected officers. (2) The Line’s routing and end points would be chosen by the IPG, not necessarily on the basis of least cost, and perhaps despite Chugach’s objection. (3) If construction went well, Chugach would earn no reward, but if any problems arose, Chugach would be obligated to hold harmless and indemnify the other other utilities not only against the costs of Chugach’s own intentional misconduct or gross negligence as builder of the line, but also Chugach’s simple negligence. (4) Chugach would have to agree in advance to a fixed and very low wheeling rate, and even that rate might not be SENT BY:HELLER EHRMAN 1129-93 1 Tat 20644708494 CHUGACH ELECTRIC+# 5 paid if a routing were devised to "bypass" Chugach’s systen, and the IPG would actively investigate alternative routings for this purpose, (5) If a routing were selected that the other utilities believed "bypassed" Chugach’s system, not only would no wheel- ing cate be paid (voluntarily) to cnugach, but in addition all loop flow and other use of or reliance on Chugach’s system would be ignored and uncompensated. (6) Once the A-K Line were completed and its costs were fixed, however, other utilities would have the right to with- draw from further participation and Chugach would potentially be obligated to pay all the costs of the Line in excess of grant funds, i.e., several million dollars per year.’ The foregoing agenda is different from that of Chugach. Chugach hag no interest in paying the lion’s share of an unneces- sarily expensive addition to the existing transmission network under the pretense that, thanks to the extra cost, an "independent transmission path" has been created. For whatever reason, however, Chugach has so far not succeeded in persuading ML&P, and perhaps other utilities, to accept Chugach’s point of view. Consequently, in early November, Chugach indicated to the other utilities that Chugach would prefer that the others go ahead and build the new A-K Line on their own, if they are willing and 'In addition, the other utilities expect Chugach to sign up for -- at least initially -- a 30 percent share of the Healy- Fairbanks Intertie, at a potential cost of $600,000 to $1,000,000 per year. SENT BY:HELLER EXRMAN 5923993 1 122 20544709499 CHUGACH ELECTRIC: # 6 able to do so, without Chugach as a Participant. To this end, Chu- gach offered to waive any wheeling or other charges if the A=K Line (owned by others) crosses the Chugach system. Chugach also pro- posed coordinated maintenance scheduling and the like to reduce operating costs for the A-K Line and Chugach’s system alike. As a "gafety net," Chugach restated its willingness to proceed with construction of the A-K Line in the manner contemplated by the authorizing/funding legislation if the other utilities chose not to proceed without Chugach.’ In mid-November, the other utilities indicated to Chugach their inability or unwillingness to "go it alone" with respect to the A=K Line. Yet, at the same time, ML&P (at least) does not currently accept Chugach’s pogition on least-cost routing and construction, wheeling rates, and related matters that Chugach considers to be "deal breakers." This state of affairs requires Chugach to review its options again. B. iterna 3 Chugas: a 1. The Participants Agreement would require the IPG to select the least-cost (reasonable) routing and end points for the A-K Line project. 2. A modified Chugach wheeling rate and related services proposal would apply (gee Attachment 1). Basically, the nonfirm wheeling rate would be one-half (50%) of the rate computed under 7Although Chugach is named by statute as the intended racip= ident of the A-K Lina grant, under applicable State law the Gover- nor could name another recipient (or recipients) if Chugach de- clines to participate. SENT BY‘HELLER EHRMAN 8429-93 5 19823 5 20642708499 CHUGACH ELECTRICi# 17 the existing Services Agreement, but with an agreed "kick-in" date and with a cost-control procedure to assure wheeling and wholesale customers that the costs of bulk power network transmission facili- ties only are included in the rate. The rate formula could be re- opened after an agreed period of time (and would cease to apply if Railbelt transmission pooling were implemented earlier) .° 3. The IPG would not be established as a new Railbelt utility organization with elected officers, etc. The IPG would instead be streamlined and simplified during the Project’s design and con- struction phase, and thereafter would be convaned only when dis- putes arise or major decisions become necessary for the Project. Cc. * isia es 1. Chugach would build and own the line for the benefit of all participating utilities, on a least-cost basis. Participating utilities could each purchase a proportionate share of the A-K Line’s capacity, and Chugach would "cover" for any utility that declined to participate by buying that utility’s share (if others did not want it). 2. The project would be designed, routed, and built in accor- dance with a least-cost project standard. This would include minimizing the costs of reasonable design and construction over- Sight. For example, although Chugach’s selection of routes, end points, and design would be subject to IPG review to assure that 3chugach is still investigating whether the sale of a "con- tract path" over Chugach’s system might reasonably substitute for a wheeling rate (a potential outcome contemplated by the Services Agreement) . SENT BY+HELLER EHRNAN “8123-939 1 115235 20642708494 CHUGACH ELECTRIC+# & the least-cost project standard is actually met, no IPG or other permanent oversight organization would be created. 3. Wheeling and related services would be provided in accor= dance with Attachment 1 hereto. D. alternative #3: Let Others Build It ae Other utilities would be the Participants in the A-K Line; Chugach would not. Chugach would instead own and maintain ite Quartz Creek line, as today. The two separately owned lines would be operated in parallel. 2. Chugach would agree that the A-K Line can cross the Chugach system on the Kenai Peninsula (e.g., at Soldotna or Bernice Lake) and in Anchorage (e.g., at South Anchorage or Woronzof or other locations); the Participants could select the route and the crossing points. 3. No one would pay wheeling or other compensation to anyone else on any portion of the Chugach system or the other utilities’ systems: the "Super Freeway" concept would apply, even at those times when the Intertie or the Quartz Creek line is out of service. (HEA would also agree to re-assume cost responsibility for HEA substations and transmission facilities currently leased by Chugach from HEA.) 4, The IPG (not including Chugach) and Chugach would work together to coordinate maintenance scheduling, breaker settings, etc., for the benefit of the owners of both lines. ATTACHME! « NOV 22 ’93 @4:54PM HEL’ 7 EHRMAN P.9/14 ATTACHMENT 1 CHUGACH PROPOSED WHEELING RATES & RELATED MATTERS 1. NHalf the Services Agreement" nonfirm wheeling rate. We propose that, for the time being (see below), "R" in any given year should be set to equal a rate that represents fifty percent (50%) of the Services Agreement wheeling rate for that year. The "ramp- ing in" feature of the rate would continue. So the ultimate wheel- ing rate would take more than a decade to become fully "ramped in," and even then would only be about forty-five percent (45%) of a fully allocated cost transmission rate. There would be three additional points: (a) "“Xick=in" provision. The new rate formula would begin to apply on a date certain when the A-K Line is current- ly and reasonably expected to be in commercial operation (perhaps 1997 or 1998), even if commercial operation is in fact delayed. (b) "No a ovision. The new rate would not "drop" from the old level, but there would probably be a "plateau" period before rates under the new formula reached the level of the former rate. In other words, "R" would never be less than the Services Agreement rate that was in effect in the year when the new formula first began to apply. (c) Cost control provision. Before adding the costs of any new transmission investment to the cost portion (i.e., the numerator) of the wheeling rate formula under the Services Agreement, Chugach would provide advance notice of the pro- posed addition to its wheeling and wholesale customers, and provide an opportunity to meet and discuss whether the invest- ment in fact constitutes bulk power network transmission facilities. If a dispute arose, a joint utility board process such as that set forth in Section 9 of the Chugach/AEG&T/MEA Tripartite Agreement would be used to air and, if possible, resolve such dispute prior to Chugach making its final deci- sion and submitting its proposed rate change to the APUC for review. 2. Sunset provision (reopener). The foregoing rate formula would apply only for an initial period of years (5? 10?) selected by ML&P and/or the other Participants. (The rate would also cease to apply if wheeling were replaced with a Railbelt transmission pooling scheme.) After the agreed initial period, if no transmis- sion pooling scheme is in place, then either Chugach or any of the wheeling utilities could elect to reopen the rate provision and compel negotiation of new rate(s). Any new rate would be submitted to the APUC for review and approval. » NOV 22 ’93 @4:SSPM HEL' ™? EHRMAN P.10/14 3. Limited applicability. The foregoing rate would apply only (a) to Participants in the A-K Line, and (b) with respect to power from currently existing generators. Chugach would agree to make a new rate, on request, for anyone contemplating a new genera- tor. 4. Rate applies even during Intertie outages. "R" would apply to transmission even when the Anchorage-Kenai Intertie is out of service and the Quartz Creek line alone is available for wheel- ing services. (The reason for this is that Chugach, which will control maintenance schedules and breaker settings on the Quartz Creek line and also the dispatching of Bradley Lake, will thereby effectively control maintenance schedules and breaker settings on the A-K Line -~ subject to IPG oversight -- and Chugach does not want other Participants to feel that the maintenance schedules are influenced by wheeling rate considerations. ) 5. Other services. Consistent with its obligations under the Services Agreement, Chugach will continue to provide (a) assured wheeling services, for periods of up to two weeks at a time, at a rate equal to 1.15 times the new R (the same rate concept as under the Services Agreement), and (b) displacement purchase services for any wheeling utility’s power that would otherwise be "stranded" on the Kenai Peninsula. Chugach would not continue to provide free reservoir storage for such power in Cooper Lake. 6. Reciprocal services. The Participating Utilities would each agree that, so long as the foregoing rate formula applies to Chugach, they will make wheeling services available to Chugach in accordance with the same formula, namely: R = C/ExK Where "C" and "E" are computed using individual utility data, and "K" = the effective "K" for Chugach under the formula above. CHUGACH ELECTRIC ASSOCIATION, INC re rive Anchorage, Alaska November 17, 1993 NOV 18 1993 Masks Indige: Sevuenment TO: Riley Snell, Executive Director and E:., ” ‘ AIDA FROM: David L. Highers, General Manager SUBJECT: ML&P Southern Intertie Route Proposal The attached, for your information, is a new and different southern intertie route proposal faxed to me by ML&P. I don't know where this leaves us on the wheeling issue, but it confirms my views that routing decisions cannot be made intelligently at this time. NOV-17-93 WED 10:50 ML&P GE! © L MANAGER FAX NO. 907263520“ P, 01 \ WV \ Municipality of Anchorage Municipal Light & Power Tom Fink, Mayor 1200 East First Avenue Anchorage, Alaska 99501-1685 (907) 279-7671, Telecopiers: (907) 276-2961, 277-9272 TRANSWITTAL SIEET WUNICIPAL LIGHT & POWER AUMINISTRATIVE OFFICES PAX #: (907) 263-5204 et DATE: = 11/17/93 TO: SEE DISTRIBUTION BELOW FROM; TOM STAHR, GENERAL HWANAGER, ML&P SUBJECT: LEAST COST TESORO/FIRE ISLAND INTCRTIE ROUTE THIS DOCUMENT CONTAINS 5 SHERTS ({NCLUNING THR COVER SHERT). IF YOU WISH TO VERIFY RECEIPT OF THIS DOCUMENT CR YOU DID NOT RECEIVE ALL SHEETS INDICATED PLEASE CALL ___Anne AT (907) 279-7671, EXT. _5201 | MANY THANKS!! ERIC REDIMANN/HELLER EHRMAN/206-447-0849 RON SAXTON/ATER WYNNE/503-226-0079 GVEA/KELLY/451-5633 CEA/HIGHERS/562-0027 Putting Energy Into Anchorage R=93% 9072635204 11-17-93 10:56AM POO1 #20 NOV-17-93 WED 10:51 ML&P GE] = L MANAGER FAX NO. 907263620* P, 02 R=93% LEAST COST TESORO-FIRE ISLAND-ML&P ROUTE The Enstar ML&P route | previously sent intormation on was developed afler Rick Redman had indicated there were serious probloms with the Fire Island route. Now that the Fire Island rotita has been rehahilitated we have developed a ML&P Fire Island route. This is based on one of the alternatives Power Engineers had developed in 1987. Fortunately this route is less expensive than the Fire Island -Woronzof route which previously appeared least costly. This route starts at the HEA 115kV line near Bernice Station and then generally follows the Tesoro pipeline route to Point Possession and then crosses Tumagain Arm to the south end of Fire Island. it then goes north on Fire Island untill it reaches the place clusesl lo Point Campbell and then crosses to the mainland 4 littic north of Point Campbell. Then it follows, more or less, the south Intemational Airpart boundary fill it goes underground for the North-South runways. It then follows Raspbery Road to Arctic Bivd. extended to tie into the ML&P line at International Airport Road. The HEA line from Soldotna Station to Bemice is one of the HEA lines leased to CEA on a long term lease. Fortunately the lease is very explicit as to the cost elements so the cost of this line segment can be easily determined. Since regulatory practice fs to allow a relurn on investment but not a mark-up on expenses, and the appropriate TIER is alroady in the base lease rate CEA pays it is extremely unlikely CEA would be allowed to recover more than it's expenses on this line segment. Preferably the IPG should acquire this line segment for incorporation in to the Southem intertie. Redman in nis tour proposals has Indicated this possibility. | have not attempted to quantify the cast of acquiring or the annual lease costs of this link because only HEA has the necessary data. Nor have | tried to allocate usage between CEA and the intertie. At the ML&P end of the tine | did not snow the auto-transformer station nor did | include it's cost in the cost estimate, There arc scvcral reasons for this . One is that the line segment immediately north of Intemational Airport Road is to a considerable extent over insulated for 115kV so with little or no wark can be used for 138kV. Another reason is that it would be preferable but not essential to the ML&P system to have separate breakers fur each line direction leaving 86th and Arctic Bivd which would require a station closer to that location. As for cost sharing between ML&P and the Intertie Doug Rosenberg is presenting to the Attorneys a proposal which would essentially hold other IPG participants harmless from any costs in excess of the lowest cost route. Clearly this route could just as easily terminate at CEA's International Station and there would also be unquantified termination costs there because they would need one more breaker and a half section and a complete additional 138kV station bay. But again the principal applies there is no justification for a CEA whccling oharge because an alternative exists which requires no wheeling payments to CEA and it's cost is not higher. Ergo with a new interlie the value of CEA wheeling to Anchorage is zero. Wheeling on to the north from Anchorage as previously detailed should not exceed 2.6 milis/kWh. 9072635204 11-17-93 10:56AM Poo2 #20 NOV-17-93 WED 10:52 R=93% Preliminary Cost Estimate For Tesoro/Fire Island Route ML&P GE iL MANAGER FAX NO, 90726362C ° to ML&P Ststem at Arctice & International Link Miles 3.2A 11.50 3.3 24.75 Bln 4.7 3.6 2.8 3.8 3.0 Bernice Lake 3.7 1.0 3.25 4.0 3.41 6.8 3.42 3.2 Description Steel Single Pole Steel X Structure Steel X Structure Fire Island Steel Single Pole Steel Single bole Substation Subtotal R/W & Acquistion Design 4% CM 4% Subtotal 1 Underground Cable Underground Cable Submarine Cable & 2 Term Submarine Cable & 2 Term Subtotal 2 Utility Admin 1% (Sub 1 & 2) AEA Admin Contingency 10% (Sub 1 & 2) Estimated Total 9072635204 Cost 3,392,736. 9,210,447. 2,350,000. 826,056. 885,060. 2,300,000. 18,964,299. 2,750 000. 758,572 758,572. 23,231,443. 2,209,038. 8,073,954. 23,056,800. 13,141,995. 46,481,707. 697,132. 250,000. 6,971,323. 77,631,685. 11-17-93 10:56AM P, 03 POO3 #20 NOV-17-93 WED 10:52 ML&P GE iL MANAGER e-Kenai New 138 KV i 1_Li, Reference PEI/ML&P =. 1987/1993 PEI 1987 PEI/ML&P = =—198 7/1993 D&L/ML&EP 1993 D&L/ML&P 1993 & ML&P Systen D&L 1993 D&L 1993 D&L 1993 D&L 1993 138KV R=94% FAX NO. 90728362C * P, 04 tertie Teso Link No. 3.8 3.7 3.6 3.42 3.11 3.3 3.2B 3.2A ire Island Route ti Description 3.0 Miles O/H single pole steel 1.0 Mile u/G 2.8 Miles 0/H single pole steel 3.2 Miles submarine +2 terminals 4.7 Miles (Fire Island) steel X structure 6.8 Miles submarine + 2 terminale 24.75 Miles Steel X Structure 4.0 Miles U/G 11.5 Miles single steel pole Bernice Substation Existing 115KV 0/H Soldotna Substation 9072635204 11-17-93 10:56AM P004 #20 “NOV-17-93 WED 10 FAX NO, 90726352{ ° iL MANAGER ML&P GE 63 POOS #20 9672635204