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HomeMy WebLinkAboutSwan Tyee Intertie Discussion 1998Qeuus ‘ALL! 5 DEAN! DERNIS ISwo~ as ede — Lode Tyee now MEMORANDUM TO: David Ramseur, Deputy Chief of Staff Office of the Governor THRU: D. Randy Simmons, Executive Director Alaska Industrial Development and Export Authority FROM: Keith Laufer, Financial & Legal Affairs Manager Alaska Industrial Development and Export Authority DATE: October 5, 1998 SUBJECT: Swan Lake-Lake Tyee Intertie and the Southeast Alaska Regional Electrical Generation and Distribution Grid Introduction This memorandum is provided as background for discussions regarding the Swan Lake-Lake Tyee Intertie and the Southeast Regional Electrical Generation and Distribution Grid (Electrical Intertie System “Plan”). At the recent Southeast Conference, the regional communities adopted the Plan and Resolution 99-03. The Plan deals with a regional wide transmission system, including the Swan Lake-Lake Tyee Intertie. The Resolution urges the Governor and his administration to: 1. Join with the regional communities supporting implementation of the Plan. 2. Support financing of Phase 1 (Swan Lake-Lake Tyee Intertie) by legislation for a State bond, funded by the 40% Four Dam Pool debt service allocated since 1993. 3. To join with the State, Alaska Congressional Delegation, and the regional communities in supporting Federal authorization and funding of the Plan. An Executive Summary from the “Plan”, Resolution 99-03, and the KPU draft-funding plan for the Swan Lake-Lake Tyee Intertie are attached. CONFIDENTIAL Deliberative Process David Ramseur, Deputy Cnief of Staff October 5, 1998 Page 2 Discussion Phase 1 Swan Lake-Lake Tyee Transmission Line The proposed Phase 1 Intertie would connect the Tyee Hydroelectric Project (which serves Wrangell and Petersburg and is a part of the Four Dam Pool) with the Swan Lake Project which serves the City of Ketchikan (also part of the Four Dam Pool). Unused surplus power from the Tyee project would be transmitted via the transmission line to Ketchikan. Currently, Ketchikan’s primary source of power is the Swan Lake Hydroelectric Project. The Swan Lake Hydroelectric Project does not supply sufficient power to cover all of Ketchikan’s power needs and therefore Ketchikan Public Utilities (KPU) supplements Swan Lake power with diesel generation. The proposed transmission line would allow for load growth in Ketchikan and reduce the need for diesel generation. The proposed Phase 1 Intertie would, for the first time, link two of the Four Dam Pool projects. The linked systems could then be used more efficiently by allowing Tyee’s currently unused energy to be utilized in Ketchikan. This would create additional Four Dam Pool energy sales and ultimately increase the state’s “debt service” payment from the Four Dam Pool (although under KPU’s current proposal this would not occur for many years). Overall, we view the proposed Intertie as a positive improvement to Alaska’s energy infrastructure. A second stage of Phase 1 is a transmission line connecting Ketchikan-Metlakatla. However, there are a number of Phase 1 related issues that should be considered in determining state priorities for federal funding. The key issues are: Amount of Federal Funds Required — The attached current KPU plan requires additional federal grant funds of approximately $7.5 million. It’s unclear if KPU can realistically expect this amount. The balance of funding comes from previous State and Federal grants ($21 million) and proposed bonding of $45 million. Any decrease in the projected federal funds will create a deficiency in the project budget. In FY 1997, KPU had requested $20 million in federal grant funds but only received $10 million. The attached draft KPU plan describes the funding plan. Agreement on Power Cost — Under the Power Sales Agreement for the Four Dam Pool, the wholesale power rate for power transmitted over the Intertie to Ketchikan must be agreed to by all of the Four Dam Pool parties (including AEA). KPU has proposed that the amount paid to the Four Dam Pool for the power be substantially less than the approximately 6.8 cents per kWh uniform rate paid by the purchasing utilities for non- surplus power. KPU’s proposal is that the actual rate paid by KPU be 6.8 cents less all costs incurred by KPU related to the Intertie (both capital and operational). Under this approach, there would be no payment to the Four Dam Pool for at least ten years because of the recovery of capital and operational costs. It is unclear if any of the other Four Dam Pool parties (including AEA) will agree to this approach. An agreement regarding the power rate is essential before the feasibility of the Intertie can be determined. Proposed State and AIDEA Interim Financing - KPU’s proposal is that the State bond for $45 million for the transmission line and to use the 40% Four Dam Pool legislative allocation for debt service payment. The State $20 million low interest loan would not be CONFIDENTIAL Deliberative Process David Ramseur, Deputy Chief of Staff October 5, 1998 Page 3 needed. KPU also does not want any rate increases to the KPU utility consumers. In order to accomplish this, KPU has indicated that it may seek a working capital loan from AIDEA until such time as the Intertie produces positive cash flow. This type of AIDEA loan is not traditional and would likely require statutory authorization and a vote of the citizens of Ketchikan. System Plan The System Plan describes the long-term objectives of an integrated Southeast Alaska Intertie system. Resolution 99-03 describes the Plans specific goals. These are to reduce diesel dependence, encourage economic development, and stabilize power rates. The Plan is a phased development of a transmission line system interconnecting the major communities of the Southeast. The Executive Summary describes this phased development. The Intertie System will allow a phasing of hydro project development throughout the Southeast in parallel with the phased development of the transmission system. Phase 1 is the Swan Lake-Lake Tyee Intertie. Funding A combination of State, Federal, and community funding will be required. Communities and utilities would finance new generation facilities. Regional electric utilities will operate and maintain the System transmission facilities. Sources of potential private investment will be explored. The Governor and his administration through Resolution 99-03 is urged to support the Plan. Conclusion We believe that the development of the Swan Lake-Lake Tyee Intertie would be a positive addition in the Southeast Alaska energy infrastructure. There are a number of significant issues that need to be resolved, however, before AIDEA could recommend that the state provide assistance for the project. The larger Intertie System Plan is basically a long-term development plan for energy generation and usage throughout Southeast Alaska. The Plan would provide guidance for the communities of the Southeast to proceed with hydro development consistent with a region-wide transmission system. We support long-term energy development planning. This Plan would be a valuable guide for the Southeast but its complete implementation is very dependent on regional energy growth and available funding over a considerable time. Therefore, we believe that each phase must be first evaluated on its own merits and be economically sound, and subsequently evaluated to assess whether it is consistent with the System Plan. The Plan may also enhance the formation of regional utilities replacing individual community utilities. Please let me know if you require any additional information. Attachments ce: Annalee McConnell, Director - Office of Management & Budget Ron Clarke, Special Staff Assistant - Office of the Govemor CONFIDENTIAL Deliberative Process David Ramseur, Deputy Chief of Staff October 5, 1998 Page 4 D. Randy Simmons, Executive Director - AIDEA CONFIDENTIAL Deliberative Process David Ramseur, Deputy Chief of Staff October 5, 1998 Page 5 bec: Dennis V. McCrohan, P.E. Deputy Director — Project Development and Operations CONFIDENTIAL Deliberative Process OCT. -05" 98 (MON) 10:23 KPU INISTRATION TEL:~~~ 225 1000 A RESOLUTION SUPPORTING DEVELOPMENT OF THE SOUTHEAST ALASKA REGIONAL ELECTRICAL GENERATION AND DISTRIBUTION GRID WHEREAS WHEREAS WHEREAS WHEREAS WHEREAS WHEREAS (Resolution 99-03) reliable, stable, inexpensive electric power is essential to the economic strength and social well-being of communities in Southeast Alaska, and communities in Southeast Alaska currently independently generate and distribute electric power for public, commercial, and private use, and construction of a regional hydroclectric-based electric generation and distribution (intertie) system in Southeast Alaska would result in more efficient generation, dis- tribution, and consumption of electric energy, bringing communities more reliable, stable, inexpensive electric power, and construction of a hydroelectric-based regional intertie would contribute to conser- vation of non-renewable natural resources by helping get communities off of ex- pensive diesel power and on to less expensive hydroelectric power, and Southeast Conference has prepared a plan for construction of a regional hydroelec- tric-based electrical generation and distribution system and created a standing com- mittee to bring the region's communities together to implement that plan, AND communities in the region support implementation of the Southeast Alaska Electri- cal Intertie System Plan as expressed in a letter to Governor Knowles dated NOW THEREFORE BE IT RESOLVED THAT: Southeast Conference urges Governor Knowles and his administration to embrace the Intertic System Plan and join with the region's communities in implementing the Plan by identifying it as a “priority project” for authorization and funding by the federal government. Southeast Conference urges Governor Knowles and his administration to facilitate * funding of Phase | of the /ntertie Plan (the Swan-Tyee Intertie) by supporting leg- islation for a state-issued bond funded by the 40 percent Four Dam Pool allocation authorized in 1993. Southeast Conference urges Alaska's Congressional delegation to join with the state” and the region's communities in obtaining federal authorization and funding for im- plementation of the plan ADOPTED BY SOUTHEAST CONFERENCE ON SEPTEMBER 24, 1998, Witness: Richard Smith - President Southeast Conference Attest: Beme C. Miller - Executive Director P, 002 EGEIWE \) DEC - 4 1998 Alaska tdustrial -Developrnent DEPARTMENT OF COMNPONIFY' END REGIONAL AFFAIRS DIVISION OF ENERGY December 1, 1998 Mr. John Magyar Ketchikan Public Utilities 2830 Tongass Avenue Ketchikan, AK 99901 Subject: Swan-Tyee Intertie Grant Funds Dear Mr. Magyar: TONY KNOWLES, GOVERNOR 333 WEST FOURTH AVE., SUITE 220 ANCHORAGE, ALASKA 99501-2341 PHONE: (907) 269-4500 DIRECTOR'S FAX: (907) 269-4645 ENGINEERING FAX: (907) 269-4685 ce: We Ke After accounting for the Four Dam Pool debt service received by the State earlier this year, the amount available for new grants in the Southeast Energy Fund is now $4,443,587. As provided in AS 42.45.040, this Department may issue grants from the Southeast Energy Fund to utilities participating in the Swan-Tyee intertie. At this time, the only allowable purpose of the fund is to contribute to Swan-Tyee intertie financing. Please let me know if you would like us to develop a grant agreement for issuance of these available funds. 2. nf Percy Frisby Director CG: Mike Irwin, Commissioner Dept. of Community and Regional Affairs Randy Simmons, Executive Director Alaska Industrial Development and Export Authority FEB. -12' 98 (THU) 13:34 KPu-adMINISTRATION TE 07 225 1888 P. 002 KETCHIKAN PUBLIC UTILITIES Memorandum 7 PN) To: The Honorable Bob Weinstein & City Council CY -f From: John Magyar, KPU General we dle G Meg mA) Date: February 10, 1998 Subject: Swan—Tyee Intertie Construction Sequencing and Timber Handling This is the first of a two part presentation to City Council to consider proceeding with 4%, construction of the Swan—Tyee Intertie. In this first presentation on February 19, 1998,—~ Raytheon will be offering their recommendation for the best manner in which to sequence our construction activities considering our uncertain financial situation. At the second presentation on March 5, 1998, R. W. Beck, our financial consultant, and our lobbyist will address the — ‘ financial implications of proceeding with construction. Staff is positioned to proceed with certain construction activities. We intend to seek Council direction to proceed with these construction activities at the March 5" meeting. In preparation for this discussion and decision by Council, staff will be providing the following resources: ke Construction sequencing and timber handling options: KPU only has a portion of the ’ funding necessary to complete this project. We are lobbying for additional grant funding ” but are uncertain as to what we actually would receive, or when we would receive it. Staff has asked Raytheon to propose construction sequencing and timber handling that w minimizes our risk. Specifically, we have to anticipate escalation of costs if the project sf I) construction is delayed, or mitigate the financial and environmental impact of terminating 0 the project. Raytheon has spent some effort in considering these possibilities and will be v prepared to discuss our options on February 19". * «4 Proposal for KPU development of the Swan-Tyee Intertie: This project is essentially Ye an improvement to the Four Dam Pool facilities which are owned by the State of Alaska. Q For some years we have been encouraging the State to develop this project, but without we & success. If KPU is successful in obtaining the necessary grant funds and in negotiating Yoh ye a reasonable Power Sales Agreement with the State and Four Dam Pool, there may be vo we merit in KPU ownership of this Intertie. Our Financial Consultant, Mr, Alan Dashen, \a i will present the financial aspects of this proposal at the March 5" Council meeting, - Power Supply Planning Study: KPU has asked R. W. Beck to provide a revised executive summary to our Power Supply Planning Study based on this Intertie proposal. axe ill ha enmnoring the Intartia ta tha anther cmoll hudrnalartrir and diacal antinne er FEB. -12' 98 (THU) 13:34 KP_ MINISTRATION TE 37 225 1888 P, 003 od Memorandum—Mayor and City Council, Swan—Tyes February 11, 1998 Page 2 identified in that previous study. R. W. Beck will be represented at the March 5* meeting to discuss the findings of the revised report and to respond to any questions. + Electric Load Forecast: The University of Alaska, Institute of Social and Economic x) Research has completed a revised Electric Load Forecast which takes into account the - ‘ closure of the Ketchikan Pulp Mill. The projection of future loads is a key factor in making power project decisions. This report will be distributed prior to the March 5" meeting. * Lobbying Issues: Our lobbyist, Mr. Steve Silver, has been in frequent contact with our federal delegation and their staff. He will be available on March S® to advise Council as qt to the implications g Council decision on construction may have on future Intertie grants. . He will also be addressing our lobbying strategy for the coming year. In summary, Raytheon will be discussing Intertie construction strategy on February 19". Their briefing paper is attached for your review. Staff will not be seeking Council action at this meeting. On March 5, we will be addressing financial implications of the Intertie project. We will seek Council direction that evening with regard to beginning certain construction activities. JAM:RDT:all Attachment Hi\USER\NANCYL\WPIDATA\007-G1 MEM “FEB, -12' 98 (THU) 13:35 1 ADMINISTRATION 907 225 1888 P. 004 behriary 1998 Swan Lake - Lake Tyee Intertie Run ee eee SWAN LAKE - LAKE TYEE INTERTIE REVISED CONSTRUCTION SEQUENCING & TIMBER HANDLING IL Introduction: Construction finds for the Swan Lake - Lake Tyee Intertie transmission line are not available in the amounts necessary to release the work for construction as originally planned. The sequence originally planned for procurement and construction must be revised to fit the available funds and environmental constraints. Originally it was expected that all of the project construction would be performed over a two year period under two separate construction contracts, The first contracting stage would have been for construction of the transmission line itself! That contract would have included all of the logging, clearing and installation of the transmission line elements. The scheduling of the work would have been at the contractor’s discretion to make the best use of his equipment as long as he met the required completion date. It would also make one contractor responsible for the fit and function of all equipment he installed. The second contract would have been for the construction of the terminal substation modifications and installation of the system control requirements to complete the project. In addition to the construction contracts, there would have been a number of individual material procurement contracts for major items let at the same time as the construction bidding. These would be for the transmission line towers, the conductor and hardware for the line, as well as the substation transformers, breakers and switches. The materials would have been purchased on a schedule to meet the construction contractor’s needs. The first year’s construction was expected to include all corridor logging and clearing and installation of some if not all of the foundations. It was expected that no materials to be procured by KPU for the project would be installed in the first construction season. The second construction season would include the completion of the foundations and installation of the towers, conductor etc., and the substation work. It. Current Status: The cost of the total project in, 1997 dollars for the present design and work sequencing is currently estimated at $77 million including 2 15% contingency. This estimate does not include any credit for the value of timber from the corridor. Of this, $53 million is for the direct cost of construction of the transmission line alone. The balance is for the necessary substation modifications and upgrades, KPU costs for permitting and engineering costs, construction inspection support and administrative costs. This estimate was prepared on the assumption that the transmission line construction contract would be issued as a single contract. It assumed two construction seasons with two mobilizations and de-mobilizations of field crews. To date KPU has received $11.2 million in grants for the project from the State of Alaska. KPU is in the process of applying for a $10 million federal appropriation for this project which is to be administered by the U. S. Department of Energy. This grant may lapse unless it’s funds are committed within a specific time frame. KPU is seeking an additional $30 million in grant funding Pagel Reels oa VaR ccesans Tou FEB. -12' 98 (THU) 13:35 Kiv aDMINISTRATION T 107 225 1888 P, 005 tehrane 199s Swan Lahe - Lake Tyee Intertie PRA aL et Le | from the Federal Government, as well as ani additional $20.0 million low interest loan set aside by the State of Alaska for this project (3%, 15 year). In addition, KPU will continue to seek 40% of the Four Dam Pool debt service payments. In order to minimize Tisk to the City of Ketchikan, it has been proposed that this loan not be accepted until the jremaining grants are in place. Table I presents a tabulation and total of these amounts. TABLE! [__——SSourceoffinds |S Amount ~—s| Status State grants to date 94-98 [S112 milibn J Secured and sveilable Federal grant aS ete) Nr are omminnes Adele greet | — S00 len [No ere connient — —Corat Reicha debt Sie Lage) —_S2 00 lan | Se-curens eonminen: . qin l * based upon the 1996 design level and construction plan ve I Required Changes: | abet Because of the limited finding available, and there exists ee Ticertainty as to wien funding” may be made available, it is necessary that the work be sequenced i in a way that uses the financial resources effectively and will best meet the following criteria: 1, Early environmental impacts on the. forest will be fninimized, 2. KPU can control the construction timing and iy schedule, | 3. Restoration needs would be minimal at the early phases if further financing is not obtained, 4. Projections of the cost of each contract can be reasonably estimated for each phase. When changing the timing and sequence of the work it mpst be recognized that the overall cost of the project will be greater than originally anticipated. This will be true if: e more than two construction seasons are required ® construction contracting is broken down into mulfiple small packages, ® fabrication and supply of the major materials is delayed. These increases in cost occur because each element of the work which is delayed will be impacted by inflation. The contractors will price their work to cover any elements of uncertainty. They will also have to increase costs to cover lower utilization factors for equipment and facilities i.¢., helicopters, log processing barges and personnel camp facilities when doing only a small portion of the project at any time. Multiple requirements to mobilize and demobilize equipment and crews also drives up the costs. IV, Proposed Changes in Sequence to Meet mae: The impacts stated above can be minimized, but not eliminated, by changing the sequencing of the procurement and construction work. The following revised work sequence is suggested to accomplish this: | Phase 1: | Dammann nn ean mee. em net aLsha maine materiale hnnad wean the avaiinhle Gieda Thin weneld FEB, -12" 98(THU) 13:36 ADMINISTRATION :907 225 1888 P. 006 LRU LRN We ed Swan Lake - Lake Tyee litertie Canstenctian Segue une Awarding these contracts to the limit of the financing available, Releasing the engineering work for designing the foundation pile caps that aré a part of the tower supply contract, © Withholding release of the actual fabrication of the materials and the design and fabrication of the towers until further financing is assured, @ Include an escalation and cancellation clause in each material procurement contract to allow computation of the price at the time of release for fabrication or contract cancellation should the latter be required. Phase 2: When sufficient additional funds are assured to allow work in the field to commence and be completed, proceed in the following manner: e Issue construction bidding documents for the level of construction which can be accomplished with the newly available finds. For this analysis, it is assumed that these amounts are in not less than $20 million increments. With this amount of funding, the work may be limited only to foundation work at the tower sites which, if priced acceptably and awarded, would allow the following work sequence to be carried out: © Release fabrication and delivery of the pile caps by the tower manufacturer as arranged in phase 1, ¢ Issue the selected contractor a notice to proceed to commence the specified construction work which will include: ¢@ Surveying of each tower site to set the clearing limits and the location of each tower leg and guy anchor, Logging and clearing of each tower site, Installation and testing of the foundation piling system and the guy anchors, Installation of the pile caps on the foundation piling, Surveying to record the “as-built” foundation elevations and guy locations so as to have the final information needed for release of the tower fabrication when ready. At completion of this phase, the field work remaining to complete construction of the bh 4 ¢ e Issuing bid documents for the towers, hardware and conductor, pel 2 « Issuing bids for the substation transformation equipment, “he conglit e e e+e ¢ transmission line is then reduced to clearing and logging of the balance of the corridor, the assembly and erection of the towers in the field, and installation of the hardware, insulators and conductor and testing the line. The substation work for connecting the terminals and receiving, the power would still remain to be done. apeusotd - Phase 3: It is assumed that, by the third phase, the final financing needed from the State and/or Federal Government will have been secured and that the balarice of the funds needed for construction will have been financed by completion bonds issued by the City of Ketchikan. This being the case, the work to be authorized would then be: « Release the balance of the materials ordered under phase 1 for fabrication and delivery inelidine the tawere insulatars hardware conductor transformers ete . PEB. -12' 98 (THU) 13:36 KP. JMINISTRATION TE )7 225 1888 P. 007 [DUDS Th we era? Swau Luke - Lahe Tyee Intertie eT TE Owen © Release bid documents and award a single construction contract for the balance of the logging and clearing of the corridor, installing the towers and stringing, clipping and tying in the conductors and testing the line. EA @ Issue bidding documents and award a contract for the construction of the substation upgrades at Lake Tyee, Swan Lake and Bailey substations V. Timber Handling Ze One of the areas of greatest uncertainty in the project is the work and cost of clearing and loggin, of the transmission line corridor. Depending upon what arrangements any contractor can make in timber marketing contracts, the net cost to KPU to Jog and clear the corridor can range from it almost nothing to as much as $8 to $10 million dollars if little or no recovery is made through the V sale of the timber. This variability is due largely on the timber yield, the mandatory removal Av requirements and the marketability of the timber removed. The uncertainty is further complicate: because: Be e the cost of the work is heavily dependent upon the amount of clearing and logging that i will be made available to the contractor under each contract phase V ‘ the amount and type of timber that is required to be removed is uncertain 2 » the extent of the clearing required in the corridor could change Vv the market value of the timber removed is constantly changing A mobilizations for this work are expensive, their number is uncertain equipment utilization varies greatly depending upon the scenarios to be bid To reduce the uncertainties which are related to the logging aspect as much as possible, discussions are underway with the Forest Service to clarify, in the special use permit, the types and size of timber that must be removed. Because of the fact that this work must be done largely by helicopter, the logging will be a deficit operation, i.c., the logs will cost more to remove than they will produce in market value. It is important to keep in mind that this is not a logging sale but rather a transmission line construction project requiring the removal of the timber because it is in the way. Because of this, it may be possible to obtain some relief from the Forest Service on the extent of the removal required, An example of this is the utility logs which, largely because of the closure of the mill in Ketchikan, have virtually no market value in Southeast Alaska. Under Forest Service rules for a timber sale, their removal is required because, when they are of sufficient size, they are empirically defined as “merchantable”. If there is virtually no market for them the term “merchantable” losses its meaning. Discussions are underway to try to reduce the requirements for removal of logs that fall in this category. If successfull, the cost of the logging and clearing operation may be substantially reduced, VI. An Alternate Scenario to Improve Equipment Utilization and Logging Given the fact that the sequencing of the clearing and Jogging effort has such a large impact on the cost of the project, an altemative to the second phase of the work presented above is worthy of consideration. The objective of the alternate would be to maximize the utilization factor for the equipment used while installing the tower foundation systems. It may be possible to do this by combining the clearing of the corridor and installation of the tower foundations at the same contract. This would allow the helicopters that will be moving the construction equipment to and fram the tavar cites tr he noad alen far tranenarting lan in the cama work nhace FEB. -12' 98 (THU) 13:37 KP. ..JMINISTRATION Tl 07 225 1888 P. 008 IO eRe ead Swan Lake - Lake Tyce hitertie Conver tion Sequencun If this were done, the first phase of material procurement as described previously would be retained. The second phase of the work would combine the work of logging, clearing and installing foundations into a bidding package. These would then be issued as packages for the geographical segments of the line, ie., from the Bradfield Canal to Behm Canal, Behm Canal to Shrimp Bay, and Shrimp Bay to Carroll Inlet. The sequence which would apply to the field work uner this plan would be: Phase 24: e Issue construction bidding documents for simultaneous logging and clearing of the corridor and the installation of foundation systems within selected corridor segments based upon the amount of financing available, © Ifacceptable bids are received, award a construction contract to perform this work in a single pass through each corridor segment rather than in the two step process identified earlier, Work to be done would include the following: @ Surveying of the corridor segments to mark the clearing limits, @ Logging and clearing of the corridor within those clearing limits, ¢ Surveying of the each tower site to set the clearing and grubbing limits and to set the location of each tower leg and guy anchor, @ Clearing and grubbing of each tower site within its clearing limits, @ Installation and testing of the foundation piling system and the guy anchors at the tower sites within the segment, ¢ Surveying each tower site after completion of the work to record the “as-built” pile locations and elevations to have information available for the tower suppliers in the next phase. : Depending upon the timing of the release of funding for the project, this sequence may be required to be repeated two or more times. Once the financing is known and the work schedule can be set, the above sequence may prave to be more cost effective than the first sequence proposed. After this phase of the work in each corridor section has been completed, the work remaining would be the erection of the towers, stringing tying and clipping of the conductors and testing of the line. It is assumed that this work would be bid as a single contract for the final phase of construction of the line and would consist of the following: Phase 34: e Issue bidding documents and award a contract for the balance of the transmission line construction including installation of the transmission line towers, stringing, clipping and tying the conductors etc. to complete the transmission line. e KPU release for fabrication of the towers for delivery and installation. e Issue bidding documents and sward a.contract for the construction of the substation upgrades at Lake Tyee, Swan Lake and Bailey substations. Other scenarios can be conceived, Doing so at this time is of little further value until a more anecific olan of financing has been defined. FEB. -12' 98(THU) 13:37 KPu nJMINISTRATION Tl 07 225 1888 P, 009 iO Rn we heed Nwan Lake - Lake Tyee lutertie WIN RM ee eee ee a VI. Pros and Cons of the Scenarios Each of the above scenarios will result in increased costs to the project over the original project plan for the reasons described previously. These cost increases are indeterminate until the final financing scenario is known and the sequence of the work that can be done within this financing stream is finalized. The benefits and disadvantages of the above scenarios are enumerated below: Fi ; Advantages: It will delay, to the maximum extent possible, entry into the forest resulting in the absolute minimum early forest impacts Tt will put at risk the lowest amount of money at the first phase It will allow the considerable latitude in subsequent phasing alternatives as additional financing is released regardless of the amount of future funding releases It will provide more time for resolution of financing issues before commencing field work Tt will minimize the restoration requirements should the project not proceed The construction funding currently available is close to the estimated material costs Tt would allow KPU to make better use of subsequent larger financing blocks if they were to materialize, i.e., the second contracting phase could be modified to allow better utilization of equipment Disadvantages: It will require that escalation factors and escape clauses be built into the material procurement contracts which will add uncertainty into the final cost of the materials during the balance of the financing. Tt will delay active field construction which may cause the project to lose momentum Tt will divide the responsibility between the contractors for fit of the foundations with the structures Second scenario (alternative) Advantages: Earlier entry into the field may better maintain the momentum of the project, Tt will increase the utilization factor of the construction equipment during installation of the foundations, The work packages can be tailored to the financing available if it is parceled out in small amounts while maximizing the utilization factors for the equipment, The final phase would be limited to a single concentrated effort which will specialize in the transmission line elements only. Disadvantages Impacts to the forest will occur earlier and be,greater than for the base alternative, Restoration requirements, should the project not proceed, may be slightly greater, Re-growth of the forest in the corridor will commence earlier than if this was left to the verv last element of work. This could be significant if the delay were substantial because FEB. -12' 98 (THU) 13:38 KPu ADMINISTRATION T—-07 225 1888 P. 010 tehrinny 1998 Swan Lahe- take Tyee Intertie SRT RUE ae eae VIL Conclusions The sequence of construction that can be followed is dependent upon the money that will be available in each construction season. It can be expected that issuing construction packages in smaller increments than originally planned will result in higher costs for the overal! project. Options that will minimize these impacts are available. The alternatives presented herein can allow the project to proceed with minimum risk to KPU while allowing time to secure final financing. Selecting early material procurement as the first step allows the greatest latitude to resolve these issues. Carefully sequenced bid packages can control the additional incremental cost and exposure to KPU. Once work commences in the forest, it is important that the wark proceed to completion otherwise some of the work may be overrun by re-growth before it can be put to beneficial use which would be very undesirable, Completion of the discussions with the Forest Service to finalize the constraints that will be applied to clearing and logging is essential to reducing the cost of the logging and clearing and achieving the greatest return to KPU for the value of the timber. VOL Recommendation It is Raytheon’s recommendation that KPU proceed with the procurement of the material as presented in Phase 1 of this document. The selection of the option for Phase 2 of the work is best made when the clearing requirements are finalized by the Forest Service in their special use permit and the financing plan is known and proceeding successfully. Bidding of the field construction work is best done in the fall/winter time frame to secure the most competitive bidding by contractors for this work. The time frame for this decision would then be by the end of October with bidding to take place immediately thereafter. 1998 Update Power Supply Planning Study Ketchikan, Alaska February 23, 1998 1998 UPDATE POWER SUPPLY PLANNING STUDY TABLE OF CONTENTS TABLE OF CONTENTS INTRODUGTION resessscccsccescucsascecavcssessavestecesacavesvsvssesssnteecssesatecesscssecstesseccsoconssonsazsansen 1 POWER’SUPRIY, REQUIREMENTS icctecceccsssecesecasssarsasnacsucsasenssssevssoasvassssasusscesvonsntssessss 1 FUTUREIPOWER'SUPPREY ©RTIONS Sacccccsocesecenssveaceccsvecssvecctacecacssassstsvcsetacseccesecceeascees 5 RESOURCE SCENARIOS woioccccccccaceeascetsconssacaecsss¢ceesecese.sscFacsevaceeatsussvcncsecsnscssvevesvasenasers 6 Diesel Scenario isesesexeccenccrscoccsccocscacesssvsnguscsacensassuscaacturiavestvensessctsesvscscceaseesceecsensecs 6 Irnt@rtie! SCe Mari O\scececcezssescceacecees 2-1 cccecsecessssss-cezcusrssc-neeesssessnsonsesssssencessonccursccssussuaeses Ze Mahoney) lake srsrrcsecacrevsacsxcncavacorsrocovasssnesstor orsrerscososssasorarcvesesesasarscasevestotvststsucccctss 8 Small Hydro Projects (Whitman Lake, Connell Lake and Carlanna Lake).............. 8 Metlakatlat Interconnection Scenario =recccccsssscscsescscacsvececcccorescsccssocsacssss scsscssussusceses, 9 ECONOMIC ANALYSIS OF RESOURCE SCENARIOS .......ceeseeseeeseeeseeseeeeeeceeeeeeeeenees 10 COMPARISON OF RESULTS... COST OF POWER ANALYSIS... COMPARISON ORIRESUIETS arecceceeascoucensscoasecccvecscenesssccsssecsucsnssescssapncsecnsscottsuswoseosers 16 GOINGEUSIONS tectssssesnacconrevssecscse-tcesscccascecsccecsesccccsncvacesceccsosecasancarcascotsossonscaceonsstnced 22 This report has been prepared for the use of the client for the specific purposes identified in the report. The conclusions, observations and recommendations contained herein attributed to R. W. Beck, Inc. constitute the opinions of R. W. Beck, Inc. To the extent that statements, information and opinions provided by the client or others have been used in the preparation of this report, R. W. Beck, Inc. has relied upon the same to be accurate, and for which no assurances are intended and no representations or warranties are made. R. W. Beck, Inc. makes no certification and gives no assurances except as explicitly set forth in this report. Copyright 1998, R. W. Beck, Inc. All rights reserved. IV KETCHIKAN PUBLIC UTILITIES TABLE OF CONTENTS List OF TABLES Table 1 KETCHIKAN PUBLIC UTILITIES FORECASTED ENERGY REQUIREMENTS (MWAH) .......ccssessesesesesesesescsceseessesessescsesessassesesseseseeseseesases 2 Table 2. ALTERNATIVE HYDROELECTRIC PROJECTS ESTIMATED GENERATION CAPABILITY, AND CAPITAL AND OPERATING COSTS vssssionsensssesasesusvsensesessossextsouesseustostosseasesvasesessasvsssasonensunssssssnseunsnnsnecesess 6 Table 3. CUMULATIVE PRESENT VALUE OF COMPARABLE POWER SUPPLY COSTS FOR ALTERNATIVE POWER SUPPLY SCENARIOG........... 14 Table 4. FIRST-YEAR AND LEVELIZED COST OF POWER BY RESOURCE............+5 18 KETCHIKAN PUBLIC UTILITIES Page ii TABLE OF CONTENTS LIST OF FIGURES Figure 1 PROJECTED ENERGY REQUIREMENTS AND EXISTING HYDROELECTRIC RESOURCES (AVERAGE) .......csssesessssssssseseseeeseseneseseeneees 4 Figure 2. PROJECTED CAPACITY REQUIREMENTS AND EXISTING CAPACITY RESOURCES ......sesessssssessesesssesssesesseseueseseessssseseeneseseasseseseseneees 4 Figure 3 CUMULATIVE PRESENT VALUE OF COMPARABLE POWER SUPPLY COSTS FOR RESOURCE SCENARIOS. ......ssssssessssesesesesseseseseneeeees 14 Figure 4 20-YEAR LEVELIZED COST OF POWER BASED ON FULL GENERATION USAGE EACH YEAR - MEDIUM LOAD GROWTH.........4+ 19 Figure 5 20-YEAR LEVELIZED COST OF POWER BASED ON PROJECTED RESOURCE USAGE - MEDIUM LOAD GROWTH .......scsssssssseseseesesesesenees 20 Figure 6 COST OF POWER FOR RESOURCE SCENARIOS MEDIUM IGROWGIEIICASES sssscscsscesesvsveesxssescs esses serecessersssvsasesvassatasesesesemsesesessurvests 21 Figure 7 COST OF POWER FOR RESOURCE SCENARIOS LOW GROW UCASES os ssesasesecasuseonesessonsssossuasssasasase s0av0s0svasusss0=vs 03500 s56s0s00005s 21 Figure 8 COST OF POWER FOR RESOURCE SCENARIOS HIGH GROWTH (CASES ss csscccssecscs osevessrsscssxssasisecvesevssevsnsstasusnsssnenensusUsUs00s SOSST<50 22 KETCHIKAN PUBLIC UTILITIES Page iii 1998 UPDATE POWER SUPPLY PLANNING STUDY INTRODUCTION In December 1996, R.W. Beck submitted the Initial Draft of a Power Supply Planning Study (the “Initial Draft’) for Ketchikan Public Utilities (KPU) which provided a comprehensive review of the various power supply resources available to KPU and performed economic and financial analyses to determine the lowest cost alternatives to supply KPU’s power requirements in the future. At the time it was undertaken in early 1996, the overall power supply planning effort envisioned periodic updates of the Initial Draft to incorporate new information and analysis. This report summarizes the findings, assumptions and methodol- ogy of the first update to the Initial Draft. Since the Initial Draft was released, several changes have occurred that have a significant impact on the results of the power supply planning study. Principal among these are completion of a new electric load growth study for KPU in January 1998 and completion of feasibility studies for three potential hydroelec- tric facilities in the Ketchikan area. In addition, financing assumptions for the Lake Tyee to Swan Lake transmission line (the Intertie) have been revised somewhat and interconnection with Metlakatla has been included as another potential power supply option. Further, all cost estimates previously provided in the Initial Draft have been updated to current (January 1998) cost levels, fuel price projections were updated to conform with recent State of Alaska projections, and the 20-year analysis period has been adjusted to begin in 1998. This report is provided in the form of a summary of the changed assumptions and conditions and the presentation of revised results of the study. Unless otherwise noted in this report, the descriptions of the power supply resources and the analytical methodologies used have not been changed from the Initial Draft. POWER SUPPLY REQUIREMENTS During 1997, a new electric load growth study was prepared for KPU by the University of Alaska’s Institute of Social and Economic Research (ISER). A draft report summarizing the ISER load growth study dated January 26, 1998 was recently submitted to KPU. The new load forecast provides low, base and high growth scenarios and factors in projected economic activity, demographic patterns and trends in the use of electricity to the projection of electric power requirements. In general, the ISER study concludes that KPU’s power require- ments will “temporarily drop but subsequently begin growing again, although at a slower rate than in the past.” oN KETCHIKAN PUBLIC UTILITIES 1998 UPDATE - POWER SurPLY PLANNING STUDY The Initial Draft was developed using an electric load forecast prepared by ISER in 1990. This older forecast, with certain explicit adjustments, was deemed adequate for the power supply study in 1996 since in general, the forecast remained relatively consistent with actual results through 1995. Closure of the Ketchikan Pulp Corporation pulp mill in early 1997 as well as other significant changes in the timber industry, however, accelerated the need for a new load forecast. Base Case results of the new load forecast indicate that KPU’s total energy requirements for 1998 are now projected to be approximately 16% lower than had been projected in the 1990 forecast. This difference between the two forecasts remains relatively constant through at least 2010. The new load forecast projects KPU’s total power requirements in 1998 to be 145,242 MWh for the Base Case. Total power requirements are projected to increase between 1998 and 2008 at an average annual rate of 1.1%, 0.3% and 2.5% for the base, low and high growth scenarios, respectively. Forecasted total power requirements are summarized in the following table. Table 1 KETCHIKAN PUBLIC UTILITIES FORECASTED ENERGY REQUIREMENTS (MWH)(1) Base (Medium) Low High 1998 145,200 144,900 146,700 2003 152,700 143,300 165,900 2008 161,700 148,900 187,700 2013 171,200 153,300 212,300 2018 181,200 157,800 240,300 2023 191,900 162,400 272,100 (1) Source: Ketchikan Public Utilities, Electric Load Growth Study, Institute of Social and Economic Research, University of Alaska Anchorage, Draft Report, January 26, 1998. The ISER forecast did not include a projection of peak load which is needed for the power supply analysis in order to evaluate generating capacity requirements. For the purpose of this update, a projection of peak load has been developed using the ratio of peak to average generation requirements as provided in the 1990 forecast. Based on this approach, KPU’s peak load in 1998 is projected to be 27,600 kW. The peak load each year is highly dependent on weather conditions. KETCHIKAN PUBLIC UTILITIES R. W. Beck 2 1998 UPDATE - POWER £_. PLY PLANNING STUDY KPU provides for all of its power supply needs with generation from its own hydroelectric and diesel generation plants and with purchases from the State- owned Swan Lake hydroelectric project. The total capacity of the generating units presently available to KPU is 46,700 kW with Swan Lake representing 22,500 kW of this amount. KPU is installing a new 10,530 kW diesel generating unit at the Bailey powerhouse which, when complete, will increase KPU’s total available generating capacity to 57,230 kW. The new diesel unit is scheduled to be available August 1998. For purposes of the power supply planning study, KPU’s generating reserve capacity is specified as the total capacity estimated to be delivered over the Swan Lake transmission line at the time of peak load. Essentially, this means that KPU needs to maintain generating capacity capable of supplying its peak load if the transmission line to Swan Lake is unavailable. Total generating capacity requirements are consequently the sum of KPU’s peak load and the reserve capacity. In 1998, KPU’s total capacity requirement is estimated to be 50,100 kW indicating that a surplus generating capacity of 7,130 kW (after including the reserve requirement) is presently available. Applying the generating capability of KPU’s existing resources to the forecasted loads results in the projected net power supply requirement. This is the power supply requirement that KPU must supply with new generating resources. The net requirement is determined separately for capacity and energy loads and is shown graphically in Figure 1 for energy (MWh) and in Figure 2 for capacity (kW). The net power supply requirement is the area between the forecasted load and the generating capability of the existing resources shown on these two figures. The energy generation capability of the existing diesel generating plants is not included in Figure 1 because using diesel generators for energy production is one of the power supply scenarios. As can be seen in the figures, the net power supply requirement varies depending on the load growth scenario being considered. The net requirement for capacity, when accounting for reserves, would not include the pee Swan Lake project in Figure 2. . \ ee Oe KETCHIKAN PUBLIC UTILITIES R. W. Beck 3 1998 UPDATE - POWER SurPLY PLANNING STUDY Figure 1 PROJECTED ENERGY REQUIREMENTS AND EXISTING HYDROELECTRIC RESOURCES (AVERAGE) 250,000 225,000 200,000 175,000 150,000 ns c Ot 19.298 SS STS 125,000 100,000 Energy (Megawatt-hours) 75,000 50,000 4 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 + 2008 2009 2010 2011 2012 2013 + 2014 2015 2016 2017 Figure 2 PROJECTED CAPACITY REQUIREMENTS AND EXISTING CAPACITY RESOURCES 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 {i 20,000 4¥ 15,000 | 10,000 5,000 4 Capacity (kilowatts) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 KETCHIKAN PUBLIC UTILITIES R. W. Beck 4 1998 UPDATE - POWERS ~—>LY PLANNING STUDY FUTURE POWER SUPPLY OPTIONS All of the power supply alternatives previously identified in the Initial Draft are still considered as potential resources for consideration in this update. Included among these are diesel generators, the Intertie and various hydroelectric projects. The estimated construction and operating costs for all of the resource options have been updated to acknowledge experienced escalation in price levels between 1996 and 1998. Unless noted otherwise, no other changes have been made with regard to the individual power supply options. Further, adjustments for wind, solar, tidal energy and conservation have not been made as part of this update. KPU has recently completed feasibility studies of the Whitman Lake, Carlanna Lake and Connell Lake hydroelectric projects. Cost estimates, project configura- tions and estimated energy generation capability for these projects have been explicitly adjusted to conform with the estimated values provided in the feasibility studies. The power supply options included in the update are as follows: m= New diesel generators with a new powerhouse m= Transmission interconnection to the Lake Tyee hydroelectric project (Intertie) m= Mahoney Lake hydroelectric project as proposed by the Cape Fox Corporation Mahoney Lake diversion to Lower Silvis Lake Mahoney Lake diversion to Upper Ketchikan Lakes Upgrade of Beaver Falls hydroelectric generator Unit No. 1 Construction of a dedicated penstock for the Ketchikan powerhouse Relocation of the dam at Ketchikan Lakes Upgrade of the existing tunnel from Fawn Lake Construction of a dedicated diversion from Granite Basin 5.3 MW hydroelectric generator at Whitman Lake assuming the penstock option as defined by Wescorp in its Whitman Lake Hydroelectric Project Feasibility Study dated January 1998 m New 1.2 MW hydro generator at Carlanna Lake as defined by Wescorp in its Carlanna Lake Hydroelectric Project Feasibility Study dated January 1998 m New 1.9 MW hydroelectric project utilizing the existing pulp mill water supply pipeline from Lake Connell as defined by Wescorp in its Carlanna Lake Hydroelectric Project Feasibility Study dated January 1998 = Construction of a transmission interconnection with Metlakatla Power & Light (MP&L) and the purchase of surplus hydroelectric energy generation from MP&L KETCHIKAN PUBLIC UTILITIES R. W. Beck 5 1998 UPDATE - POWERS °LY PLANNING STUDY Several resource options identified in the Initial Draft are not included in this update. Among these are the Lake Grace hydroelectric project which was previously determined to be a relatively large, high cost resource and the two small Whitman Lake turbines which are essentially precluded by the large Whitman Lake project. Also, the tidal stream, and conservation estimates included in the Initial Draft have not been updated since no new information has been obtained or developed regarding these options. The estimated capacity, annual energy generation capability and capital cost for each of the power supply options are shown in Table 2. The on-line year shown in Table 2 represents the earliest year that the project is estimated to be available if development were undertaken in the near future. Table 2 ALTERNATIVE HYDROELECTRIC PROJECTS ESTIMATED GENERATION CAPABILITY, AND CAPITAL AND OPERATING COSTS On-line Annual Capital Cost Annual O&M Project Year kw. MWh (98$000) (98$000) Mahoney Lake (CFC) 2001 10,000 41,740 28,790 277.0 Mahoney Diversion - Silvis | 2003 6,000 25,500 28,270 225:5 Mahoney Diversion - Silvis I! 2003 4,300 20,800 6,750 105.6 Mahoney Diversion - Ketchikan 2003 8,700 41,900 29,920 274.7 Upgrade Beaver Falls 2002 1,000 2,080 2,480 -12.3 Ketchikan PH Penstock 2002 - 3,600 8,540 23.5 Ketchikan Dam Relocation 2002 - 7,700 9,850 25.6 Ketchikan Tunnel Upgrade 2002 - 2,000 1,290 3.2 Ketchikan Granite Basin Div. 2002 - - 3,910 9.6 Whitman Lake 5.3 MW 2002 5,300 19,880 7,086 175.0 Carlanna Lake 2002 1,200 6,665 4,180 159.0 Connell Lake 2002 1,900 12,200 5,376 198.0 RESOURCE SCENARIOS Several alternative resource scenarios were defined at the time the Initial Draft was prepared from which to base the comparative analysis. The resource scenarios are essentially the same in this update with the exceptions that the specified timing for installing new resources is adjusted accordingly with the new load forecast. All of the resource scenarios are designed to provide the full power requirements of KPU and take the reserve requirement into account. The resources scenarios included in the update are described as follows. DIESEL SCENARIO For the Diesel Scenario, low-speed diesel generators are to be added in or near Ketchikan on a periodic basis as needed in increments of 6,400kW. Diesel KETCHIKAN PUBLIC UTILITIES R. W. Beck 6 1998 UPDATE- POWERS LY PLANNING STUDY generators will be used to supply KPU’s net energy requirements throughout the analysis period. The location of the new generators is not known for certain but it is presumed that they will not be placed at the Bailey powerhouse because of a lack of space at that site. Consequently, the costs of a new powerhouse located elsewhere will need to be included as part of this scenario. In addition to the 10,530 kW new diesel generator currently being installed, for the base case load forecast, a new low-speed diesel generators is projected to be needed in 2010 (6,400 kW) and the new diesel power plant would be installed in 2010 also. For the low load case, no new diesel generators are needed through the study period, other than the 10,530 kW unit being currently installed. For the high growth case, new 6,400-kW diesel generators would be needed in 2005, 2011 and 2017. INTERTIE SCENARIO The Intertie Scenario includes the addition of the Tyee-Swan Intertie and the purchase of power surplus to the needs of Wrangell and Petersburg from the Lake Tyee hydroelectric project. The Intertie is assumed in this report to be commercially operable in 2001. Since power deliveries from Lake Tyee to Ketchikan will be dependent upon a single transmission interconnection, KPU will also need to install local backup generating capacity as needed to maintain sufficient reserves. The backup generating capacity will be made up of existing and new diesel generators, the existing hydroelectric plants owned by KPU and potentially other relatively small generating alternatives. For the purpose of this analysis, new 6,400 kW high-speed diesel generators are assumed to be installed in a new power plant in Ketchikan as needed to provide sufficient backup for the Intertie and the Swan Lake transmission line. For the base case load forecast, 6,400 kW of new diesel capacity would need to be added beginning in 2010, excluding the 10,530 kW new unit presently being installed. Roy For the low load case, no new diesel generators are needed, and, for the high load case, 19,200 kW of new diesel generator capacity will be needed through 2017, No een Qeard excluding the 10,530 kW new unit. piers 4< It is assumed that KPU will pay the Four Dam Pool power sales rate for power ool. purchased from the Lake Tyee project and that there will not be an explicit charge meg wee for transmission. Debt service and O&M costs associated with the Intertie will be Do one direct obligations of KPU but are proposed by KPU to be offset by reduced energy payments to the Four Dam Pool and in deficit years by short-term financing from oD pe rate for power from Four Dam Pool projects is assumed in this report to be proximately 6.4 cents per kWh. Deca? dP at eeu ay n alternative case for the Intertie scenario involves the projected power quirements of PMP&L. The base Intertie scenario case assumes medium forecast PMP&L load growth. PMP&L’s current power requirements appear to be KETCHIKAN PUBLIC UTILITIES R. W. Beck 7 1998 UPDATE - POWERS __ LY PLANNING STUDY tracking closer to the high forecast rather than the medium forecast. For this reason an alternative scenario using high case power requirements for PMP&L has been developed. MAHONEY LAKE This scenario would include the construction of the 10,000 kW Mahoney Lake hydroelectric project as the primary new resource. At the present time, Mahoney Lake is proposed to be developed as an independently owned project that would sell power to KPU beginning in 2001. For the purpose of the economic analysis the total annual costs of capital recovery and O&M are to be included as costs to be paid by KPU in this scenario since KPU is the only practical user of Mahoney Lake output. Mahoney Lake is proposed to transmit power to KPU’s system over an alternative transmission line through Beaver Falls. This means that the delivery of Mahoney Lake power to KPU is not dependent upon the existing Swan Lake transmission line and as a result, the capacity of the Mahoney Lake project can be used as backup to the Swan Lake project. Operation of the Mahoney Lake project as presently anticipated by Cape Fox, however, will not necessarily maintain sufficient water in the reservoir to produce full capacity at all times. Conse- quently, it may be necessary to provide additional backup to the Mahoney Lake project. SMALL HYDRO PROJECTS (WHITMAN LAKE, CONNELL LAKE AND CARLANNA LAKE) This scenario includes the construction of a 5.3 MW hydroelectric facility at Whitman Lake and the addition of other small hydroelectric projects as needed. The Whitman Lake project consists of a surface penstock, powerhouse and other associated facilities. This project is estimated to provide an average of 19,880 MWh of energy annually to KPU and would deliver power at the south end of KPU’s system. Although the project is estimated to be available in 2002 for this analysis, this may be an optimistic time-frame. As needed, the 1.9 MW Connell Lake and 1.2 MW Carlanna Lake hydroelectric projects can be added in the future as loads grow. For the medium and low load forecast scenarios, the Whitman Lake project would provide sufficient capacity to supply KPU’s excess power supply requirements through 2017, the end of the study period. The Connell Lake project is specified to be installed in 2009, however, to supply additional energy. For the high growth scenario, additional capacity and energy is forecasted to be needed beginning in 2009 at which time the Connell Lake project is estimated to be installed. Also in the high growth scenario, the Carlanna Lake project would be installed in 2011 and a new 6.4 MW diesel generator and powerhouse would be needed in 2013. KETCHIKAN PUBLIC UTILITIES R. W. Beck 8 1998 UPDATE - POWERS __ LY PLANNING STUDY METLAKATLA INTERCONNECTION SCENARIO Metlakatla Power & Light (MP&L), which serves electric power to the Metlakatla area on Annette Island, has investigated the possibility of constructing a 34.5-kV transmission line between Metlakatla and Race Point with a submarine cable crossing to KPU’s Mountain Point substation. MP&L presently provides electric service primarily to residential and commercial customers including the Annette Hemlock Mill (AHM). Existing diesel and hydroelectric generating resources owned and operated by MP&L exceed the power requirements of MP&L’s customers and could be used to supply power to KPU if the two utilities were electrically interconnected. MP&L has also identified several new hydroelectric projects that could be developed near Metlakatla to provide additional sources of electric energy. The electric power requirements of MP&L’s customers, excluding AHM, are presently estimated to be approximately 17,250 MWh annually. This level of power requirement is not expected by MP&L to increase in the near future. AHM’s load on MP&L is estimated to be 3,640 MWh per year through the end of 1999 at which time the mill is expected to close. The average annual energy generation capability of MP&L’s two existing hydroelectric projects, Purple Lake and Chester Lake, is estimated to be 27,540 MWh. After AHM shuts down, the average annual hydroelectric energy generation surplus to the needs of MP&L will be approximately 10,300 MWh. In addition to its hydroelectric projects, MP&L has 5,165 kW of diesel generation and 100 kW of battery energy storage installed. MP&L’s diesel generators could be used to provide additional backup capacity as well as an estimated 37,600 MWh annually to KPU if a transmission interconnection were available. Studies completed in 1997 for MP&L, indicate that an additional 3.0 MW of capacity could be installed at the Chester Lake project (currently the capacity is 1.0 MW) and with the installation of a siphon intake at nearby Edgecombe Lake, the average energy generation capability of the Chester Lake project could be increased by approximately 14,800 MWh per year. A 1.0 MW hydroelectric project at Tamgas Lake and a 4.0 MW hydroelectric project at Triangle Lake could also be developed and would provide estimated average annual energy genera- tion of 4,520 MWh and 17,650 MWh, respectively. The estimated cost of the MP&L transmission line is $6,900,000 in 1998 cost levels based on a preliminary cost estimate prepared in 1996. MP&L believes that the cost of constructing the transmission line could be reduced, however, due to the construction of a road by the U. S. Army Corps of Engineers (COE), which is presently underway, along much of the transmission line’s proposed overland route. As part of the road project, all right-of-way clearing for the transmission line will be provided. MP&L also indicates that the-COE has agreed to perform a substantial amount of work toward construction of the transmission line including the installation of poles. MP&L currently estimates its net cost of construction of the transmission interconnection is $3,500,000. KETCHIKAN PUBLIC UTILITIES R. W. Beck 9 We wie pyr 1998 UPDATE - POWERS ‘LY PLANNING STUDY The road project will interfere with the Chester Lake powerhouse and as a result, some modification will be needed. MP&L indicates that pursuant to an agreement with the highway department, the COE and MP&L, a new penstock with provisions for a second hydro unit bay and a new switchyard and substation will be provided to MP&L. These modifications will reduce the estimated cost of the Chester Lake upgrade including the Edgecombe Lake siphon from $2,469,000 to $1,533,000, as provided by MP&L. For purposes of the power supply planning study, a MP&L Interconnection scenario has been developed that includes construction of the MP&L transmission line and the purchase of surplus hydroelectric power from MP&L by KPU. A second scenario has also been developed to include the Chester Lake project upgrades. Although the Tamgas Lake and Triangle Lake projects could be developed in the future, they are not included in the analysis since they would most likely not be needed by KPU for several years. For the MP&L Interconnection scenarios, it is assumed that KPU would pay the cost of constructing and operating the transmission line and the Chester Lake upgrades. KPU is also assumed to pay 2.0 cents/kWh for power purchased from MP&L’s existing hydroelectric resources. This power purchase rate was “suggested by MP&L for purposes of the analysis but would be subject to negotiation. An alternative power purchase rate of 4.0 cents/kWh has also been used in the analysis to determine the sensitivity of the results to the assumed rate. The transmission line between KPU and MP&L is assumed to be initially available in 2001 and the Chester Lake upgrades are assumed to be operable in 2003. An important assumption made for the MP&L interconnection scenario is that MP&L’s surplus generating capacity, estimated to be approximately 6,000 kW, could be used by KPU as backup to the Swan Lake transmission line and other KPU resources. Having this generating capacity available to KPU would delay the need for KPU to construct new generating facilities for backup purposes in the future. ECONOMIC ANALYSIS OF RESOURCE SCENARIOS The economic analysis conducted for this update is identical to that performed for the Initial Draft with a few exceptions as described below. The basic analytical process undertaken as part of the overall power supply study entailed two primary functions; 1) an annual evaluation of capacity and energy provided by each resource scenario and, 2) an economic analysis that calculates KPU’s cost of power for each year of the analysis period for each resource scenario. In addition to an annual computation of comparable power costs, the economic analysis also provides a cumulative present value of all costs over the analysis period for each resource scenario, a value which is suitable for comparing the total costs among the various scenarios over a comparable period. KETCHIKAN PUBLIC UTILITIES R. W. Beck 10 1998 UPDATE - POWERSU —’ PLANNING STUDY The economic analysis determines the cumulative present value of the costs for each of the alternative resource scenarios over a 50-year period, 1998 through 2047. This period generally corresponds to the economic lifetime of the alterna- tive hydroelectric resources and the Intertie. Upon determination of the sources and amounts of power from each source, the analysis derives the estimated costs of power to KPU in each year of the analysis. These costs vary from case to case and include capital recovery on new generation additions and operations and maintenance (O&M) costs. Costs that are the same for all scenarios, such as O&M on the existing system, are not included in the analysis. Costs included in the analysis have no inflation applied in the future, however, real escalation in fuel costs are assumed to be applied. After the first 20 years of the analysis period, all power requirements and costs are held constant. This procedure generally limits the impacts associated with potential but very uncertain load growth and cost escalation many years in the future. The cumulative present value for each alternative scenario is calculated using an inflation free discount rate of 3.0% as has typically been used by the State of Alaska in similar power supply life-cycle economic evaluations. Several assumptions have been made in conducting the life-cycle economic analysis. Except for the adjustment of cost estimates to 1998 price levels, the adjustment of on-line dates for new resources and the projection of future fuel oil prices, the assumptions used in the update are the same as used for the Initial Draft. Although most of the assumptions have not changed, they are restated as follows because of their importance to the overall analysis. 1. The analysis period is the assumed economic lifetime of the hydroelectric resources of 50 years. All costs and loads are held constant after 20 years, however. 2. General inflation is 0% per year. 3. Capital costs associated with future resource additions are to be funded with tax-exempt borrowings with an interest rate of 3% and are to be recovered over a 20-year period for diesel generators, a 50-year period for hydroelectric resources and a 50-year period for transmission facilities. These repayment periods are the assumed economic lifetimes of these resources. 4. Estimated future annual costs are discounted to January 1998 using an annual discount rate of 3.0%, a discount rate that acknowledges the inflation-free environment. 5. Projected delivered fuel oil costs are based on the current approximate cost of $0.75 per gallon escalated at the rate of general inflation. In addition, the fuel oil component of $0.55 per gallon (current cost excluding the delivery component) is assumed to be adjusted for real price escalation of -2.8% in 1999, -2.1% in 2000 and 0.5% per year thereafter. The real annual price escalation of the fuel oil component is based on the Fall 1997 Base Case projection of the State of Alaska Department of Revenue (DOR). It should be KETCHIKAN PUBLIC UTILITIES R. W. Beck 11 10. a. 13; 14. 15. 1998 UPDATE - POWER St _!Y PLANNING STUDY noted that the Fall 1997 DOR forecast also projected oil prices to decrease 14.6% between 1997 and 1998. Fuel consumption of diesel generators is .0714 gallons per kWh (14.0 kWh per gallon). Diesel generation in the future will be supplied for the most part, by new units. The capital costs for new diesel generators is $1,300 per kW for low-speed units and $400 per kW for high speed units, both in 1998 dollars. The new 10-MW diesel generator currently under development by KPU will be available for operation in 1998. The estimated cost of a new diesel power plant is $9,030,000 in 1998 dollars, excluding the cost of new diesel generator units. The power plant will need to be constructed at the time the first new diesel generator unit is needed. Variable O&M costs for diesel generation is 1.0 cent per kWh and fixed O&M is $4.00 per kW, both in 1998 dollars. The fixed O&M component is in addition to the O&M costs associated with operating and maintaining the existing system. For purposes of this analysis, it is assumed that KPU will retire one of its existing 3,500 kW diesel generators in 2003. Although the retired unit will remain in place it will not be available to serve load at any time. The actual year of decommissioning will depend on a variety of operational considera- tions. . For the Intertie scenario, the annual average energy generation capability of the Lake Tyee hydroelectric project is 134,400 MWh and the capacity of the project is 20 MW. Petersburg’s municipal hydroelectric system with a capacity of 2 MW is capable of generating 10,000 MWh annually on average. Petersburg and Wrangell will continue to have first priority for the power generation capability of Lake Tyee if the Intertie is constructed. Annual O&M for the Intertie is estimated in 1992 dollars to be: $108,650 in each of the first four years of operation; $158,650 in year 5; $108,650 in years 6-9; $158,650 in year 10; $136,270 in years 11-14; $236,270 in year 15; and $157,000 in years 16-19. While these costs will be an obligation of KPU, they are proposed to be offset by reduced energy payments to the Four Dam Pool. The estimated capital cost of the Intertie is $73,200,000 in 1998 dollars and it is to be funded with a combination of State grants, federal grants and State loans. Debt service on the State loan is to be paid by KPU but is proposed to be offset by reduced energy payments to the Four Dam Pool and in deficit years by short-term financing from AIDEA. For the Intertie scenario, the Intertie is assumed to be on-line in 2001. Transmission losses of 1% are applied to all power transmitted to KPU from Swan Lake, Lake Tyee and Mahoney Lake. KETCHIKAN PUBLIC UTILITIES R. W. Beck 12 1998 UPDATE- POWERS __ LY PLANNING STUDY 16. Station service power usage of 2.2% is applied to all power generated at existing KPU hydro facilities. Station service at diesel facilities is 3%. 17. Annual royalty payments associated with power purchases from Mahoney Lake are assumed to be $300,000 in 1998 dollars. 18. The estimated cost of the transmission interconnection with MP&L is $3,500,000, after accounting for work to be provided by others during construction of a road along the transmission line route. 19. The estimated cost of the upgrade to MP&L’s Chester Lake powerhouse, including installation of a siphon tap to Lake Edgecombe, is $1,553,000 after acknowledging modifications to the existing Chester Lake powerhouse to be provided by others. COMPARISON OF RESULTS The results of the economic analysis are summarized in Table 3 which shows the cumulative 50-year present value for each of the resource scenarios under the three alternative load growth scenarios. The cumulative present value is the total present value amount that would be paid by KPU for power supply under each of these alternative cases, excluding costs common to all cases, over the 50-year analysis period. The values for the load growth scenarios should be compared only among other scenarios in the same load growth column (e.g., the high growth diesel scenario should be compared to the high growth Intertie scenario). As can be seen in Table 3, the Small Hydro scenario provides the lowest cumula- tive cost power supply for all of the load growth scenarios followed closely by the Metlakatla Interconnection scenario. Both the Intertie and Mahoney Lake scenarios provide a lower cumulative cost than the Diesel scenario for all load forecast Scenarios.*fhe Intertie scenario would provide a relatively low cumulative cost of power for the low load growth scenario, however, with low load growth fas pecker berina SFpaig ge aie Gio bite may be ood chat REO need to pay a rate higher than ed 1 sales rate for power purchased over the Intertie. This has not been factored into the economic analysis at this point. For the high growth case, the Mahoney Lake scenario provides a cumulative cost for power supply comparable to that for the Small Hydro and Metlakatla Interconnection scenarios. The cumulative cost of power for the Intertie scenario is relatively high for the high growth scenario because of the need to install a ‘Significant amount of new diesel generation to back up purchases over the Intertie. It is important to note that the evaluation of the results of the economic “analysis should also consider the results of the cost of power analysis shown subsequently in this report. It should also be noted that alternative configurations of the resource scenarios (e.g., combining the Intertie scenario with the Metlakatla Interconnection scenario) as well as using alternative assumptions would provide different results for the economic analysis. KETCHIKAN PUBLIC UTILITIES R. W. Beck 13 ~ 1998 UPDATE - PO\W=2n SUPPLY PLANNING STUDY Table 3 CUMULATIVE PRESENT VALUE OF COMPARABLE POWER SUPPLY COSTS FOR ALTERNATIVE POWER SUPPLY SCENARIOS ($000) Load Scenario Resource Scenario Low Medium (Base) High Base Diesel 45,622 88,960 172,634 Intertie Medium PMP&L Load (1) 44,739 87,052 168,788 High PMP&L Load (2) 44,739 87,215 170,660 Mahoney Lake 66,088 66,423 132,041 Small Hydro 36,051 47,433 122,547 Metlakatla Interconnection wie Power Sales at 2.0¢/kWh 37,499 48,169 125,466 Power Sales at 4.0¢/kWh cot 42,236 52,906 130,202 (1) Assumes that PMP&L loads increase at the forecasted medium growth rate and that power sales to KPU from Lake Tyee are priced at the Four Dam Pool power sales rate. (2) Assumes that PMP&L loads increase at the forecasted high growth rate and that power sales to KPU from Lake Tyee are priced at the Four Dam Pool power sales rate. Figure 3 CUMULATIVE PRESENT VALUE OF COMPARABLE POWER SUPPLY COSTS FOR RESOURCE SCENARIOS 180,000 160,000 140,000 Di Low Loads Medium Loads OHigh Loads 120,000 100,000 80,000 (1998 Dollars 000) 60,000 40,000 20,000 Diesel Intertie Mahoney Small MP&L T- Lake Hydro Line (2.0 (Whitman) ¢/kWh) KETCHIKAN PUBLIC UTILITIES R. W. Beck 14 1998 UPDATE - POWER SurrLY PLANNING STUDY COST OF POWER ANALYSIS The cost of power analysis provides the annual costs of power to KPU for the various resource scenarios using current financing conditions and with inflation applied. It uses the same load and resource calculations used for the economic analysis but, whereas the economic analysis is concerned with the calculation of the cumulative present value of life-cycle costs, the financial analysis is designed to more closely evaluate cost of power impacts over a shorter time frame. Although not a rate analysis, the results of the financial analysis can be used to estimate the impacts of the various resource scenarios on the cost of power to KPU and its customers. For purposes of this study, the financial analysis consists of two parts: (1) a calculation of the annual power cost for each of the alternative resources considered as part of this study and (2) a calculation of the annual power cost for each of the previously defined resource scenarios. Since the resource scenarios are defined to provide all of KPU’s power requirements using alternative mixes of resources, the annual cost derived for these scenarios is representative of KPU’s total melded power cost. It is also useful to calculate the cost of power from each resource individually for comparison but these costs must be factored together with the individual resource’s contribution to total power requirements. Consequently, the two parts of the analysis are combined together to fully explain the effects of the various resources. For many new power supply resources, the first few years of project operation are the most difficult from a cost impact basis. This is especially true for hydroelectric resources which are very capital intensive and are often sized larger than the immediate load can use. The cost of power analysis identifies what these early cost impacts are and can be used to help determine what level of State assistance or other funding mechanisms might be requested to mitigate these cost impacts. If needed, the cost of power analysis can be adjusted very easily to accommodate alternative assumptions for sensitivity analyses. The cost of power analysis uses many of the same basic assumptions and procedures used in the economic analysis. Costs are derived on an annual basis for the period 1998 through 2017. For the calculation of individual resource power costs, two primary power costs are shown. The first is the “full use” annual power cost that calculates annual costs assuming that the power generation capability of the resource is fully used. Some of the larger hydroelectric resources are capable of producing far more energy than KPU is projected to need at the present time. The cost of power that will eventually be incurred is a useful value to derive. The second cost shown for each resource is the 20-year levelized cost. This calculation acknowledges the variance from year to year in the use of power from the individual resources assuming the medium load growth case. It presents the cost of power on a constant dollar, levelized basis for the 20 year period, a value suitable for comparison among all the other resources. KETCHIKAN PUBLIC UTILITIES R. W. Beck 15 1998 UPDATE - POWER SurPLY PLANNING STUDY The cost of power values for the individual resources include annual capital recovery costs and annual operations and maintenance expenses for the particular resource. Assumed inflation is applied to these costs as appropriate and the interest rate used in calculating capital recovery costs is representative of KPU’s assumed tax-exempt bond interest rate. All of these costs are totaled for each year separately and divided by the usable energy generation from the project in that year to determine the cost of power on a cents per kWh basis. For the levelized cost of power value, the present value of all annual costs over the 20-year period are accumulated and then levelized using a capital recovery factor. For the resource scenarios, the total cost of power for all resources used to supply KPU’s power requirements in each year are calculated. These costs include capital recovery on new resources, and O&M for new and existing resources. The resources vary among the different scenarios and consequently the costs are different depending on what resources are used. This analysis does not include capital recovery costs for KPU’s existing resources, however, the cost of all power purchased from Swan Lake is included. Most of the assumptions identified for the economic analysis are also applied in the financial analysis. A principal difference, however, is that assumed inflation of 3.0% per year is applied to all costs and an interest rate and discount rate representative of KPU’s cost of capital, assumed to be 6.5% is used. The interest rate used in the analysis is the assumed rate that KPU would incur if it were to issue tax-exempt bonds to finance capital costs. All power supply investments are assumed to be financed through the issuance of bonds except for the Intertie, which is assumed to be funded by the State or the Four Dam Pool. Potential state investment is not included for any other projects. The Mahoney Lake project is assumed to be financed by Cape Fox Corporation. CFC has indicated that it may have sources of low-cost funds available to finance the project construction costs and it is assumed that the interest rates associated with these funds would be approximately the same as for KPU revenue bonds. A royalty payment, or equivalent, to CFC is included in the annual costs for power purchases from Mahoney Lake. For purposes of the calculation of the “full use” cost of power case for the Intertie, the full use annual energy generation available over the Intertie is assumed to be 50,000 MWh. This amount will vary depending on PMP&L and WML&P demands on the Lake Tyee project. COMPARISON OF RESULTS The results of the financial analysis are summarized in the following tables and figures. Table 4 shows the estimated “full-load” annual cost and the 20-year levelized cost for each of the alternative power supply resources. Figure 4 shows the 20-year levelized cost of power from each of the resource options assuming full use of the power capability of each project in each year of the projection KETCHIKAN PUBLIC UTILITIES R. W. Beck 16 1998 UPDATE - POWER SurrLy PLANNING STUDY period. Figure 5 shows the levelized cost of power based on the projected usage of the generation from each project during the projection years. The cost of power for the resource scenarios is shown graphically in Figure 6, Figure 7 and Figure 8 for the medium, low and high growth scenarios, respec- tively. As can be seen in Table 4 and in Figure 4, the power supply resource with the lowest first-year full-load cost and the lowest 20-year levelized cost is the Whitman Lake hydroelectric project. The next lowest cost resource is the Ketchikan Lakes tunnel upgrade followed by the Connell Lake project. Based on full generation capability, the cost of power from nearly all of the resources including the Intertie is lower than diesel generation costs. It should be noted that Table 4 and Figures 4 and 5 include several resource options that are described in detail in the Initial Draft. As an example, the cost of power from new diesel generation is shown with and without the addition of a new powerhouse to indicate the cost impact of adding the powerhouse which is expected to be needed when KPU adds its next diesel generating unit in the future. For the purpose of evaluating the resources, the 20-year levelized cost of power based on projected use of the respective projects’ generation capability is probably more appropriate. Some of the larger hydroelectric projects have much greater energy generation potential than will be used in the near future and although this should be acknowledged, the cost per kWh of usable generation for these projects could be very high in the early years of project operation. As can be seen in Figure 5, the Connell Lake hydro project, the Whitman Lake project, the Ketchikan tunnel upgrade, the Carlanna Lake hydro project, the Intertie and the upgrading of the Beaver Falls project are all lower cost than diesel generation. It should be noted that the cost of power for the Intertie is assumed to be the Four Dam Pool power sales rate. KPU may actually pay less than this rate for ere purchases over the Intertie. and o Intertie are assumed to be paid by the State or the FourDam Pool. Note that ro values shown in Figure 5 are calculated assuming medium load growth. The values in Figure 6 indicate that under the medium load growth case, the Small Hydro and Metlakatla Interconnection scenarios provide the lowest cost of power for most of the forecast period through 2017. The Metlakatla Interconnec- tion scenario would provide slightly lower power costs in the first few years of operation than in either the Diesel or Intertie scenarios. The cost of power from the Mahoney Lake scenario drops below the costs for the Diesel and Intertie scenarios beginning in 2010 when KPU is assumed to require a new diesel power plant for the Diesel and Intertie scenarios. The cost of power for the Mahoney Lake scenario is relatively high in the early years of the forecast period because it is assumed that full debt service related to financing of this project will be paid by KPU from the start of project operation. KETCHIKAN PUBLIC UTILITIES R. W. Beck 17 1998 UPDATE - POWER SurrLY PLANNING STUDY For the low load growth case, the Intertie and Diesel scenarios provide the lowest annual power costs early in the study period. The cost of power from the Small Hydro and Metlakatla Interconnection scenarios becomes lower in about 2009. This is shown in Figure 7. In the low load case there is no need for additional diesel generators for either base load or backup purposes. The highest cost of power in the low load case is seen with Mahoney Lake. It should be noted that the projected cost of power for the low load growth case of the Intertie scenario does not consider the potential impact of additional costs to KPU resulting from lower than anticipated energy purchases from the Four Dam Pool. For the high load growth case, the costs of power from the Small Hydro and the Metlakatla Interconnection scenarios produce the lowest cost of power for most of the forecast period. Table 4 FIRST-YEAR AND LEVELIZED COST OF POWER BY RESOURCE Cost of Power (¢/kWh) Projected Usage (1) Full Usage (2) First 20-Year First 20-Year Year (3) _ Level (4) Year (3) Level (4) Diesel (Low Speed w/ Powerhouse) (5) 24.8 16.3 10.7 11.6 Diesel (Low Speed w/o Powerhouse) 6.9 7.9 6.6 7.8 Diesel (High Speed w/ Powerhouse) 20.7 Sst 10.6 11.7 Diesel (High Speed w/o Powerhouse) 10.6 10.3 8.3 9.5 Intertie (Tyee at 4DP) 6.6 67 a) 6.7 Mahoney Lake (CFC) 34.3 16.5 G3 7.1 Mahoney Diversion - Silvis | 2915) 14.6 10.3 9.7 Mahoney Diversion - Silvis | & II B72) 17.6 7A 6.7 Mahoney Diversion - Ketchikan Lakes 7; 15.0 6.7 6.3 Upgrade Beaver Falls 8.7 7.8 8.7 7.8 Ketchikan Powerhouse Penstock 19.4 17.9 19.4 17.9 Ketchikan Lakes Dam Relocation 10.4 9.6 10.4 9.6 Ketchikan Lakes Tunnel Upgrade 5.2 4.8 52 4.8 Ketchikan Granite Basin Diversion - - - - Whitman Large - 5.3 MW 8.8 4.9 4.0 8:9 Carlanna Lake 75 75 7.5 7.5 Connell Lake 75 5.6 aS 5.4 (1) Assumes project generation is used to supply net requirements in each year as projected. (2) Assumes full project generation capability is fully utilized. (3) Cost of power in first year of project operation, assumed to be 2001 for this analysis. (4) Levelized cost of power over the period 2001 through 2020 using a discount rate of 6.5%. Cost is shown in 1998 cost levels. (5) Diesel generation costs are shown with and without the cost of a new powerhouse to indicate the cost impact of the powerhouse which is expected to be needed if and when KPU installs a new diesel generator in the future. KETCHIKAN PUBLIC UTILITIES R. W. Beck 18 be 1998 UPDATE - POWER SL. . LY PLANNING STUDY Figure 4 20-YEAR LEVELIZED COST OF POWER BASED ON FULL GENERATION USAGE EACH YEAR - MEDIUM LOAD GROWTH Ketchikan Powerhouse Penstock Diesel (High Speed wpowerhouse) Diesel (Low Speed w/powerhouse) Mahoney Diversion - Silvis | Ketchikan Lakes Dam Relocation Diesel (High Spd wo powerhouse) Upgrade Beaver Falls Diesel (LowSpd wo powerhouse) fj Carlanna Lake Mahoney Lake (CFC) Mahoney Diversion - Silvis | & ll Intertie (Tyee at 4DP) Mahoney Diversion- Ketchikan Lakes jj Connell Lake Ketchikan Lakes Tunnel Upgrade ff Whitman Large-5.3MW [iia T T T T T 20 40 60 8.0 10.0 12.0 Levelized Cost of Power (cents per kWh) 14.0 16.0 KETCHIKAN PUBLIC UTILITIES R. W. Beck 19 18.0 Ketchikan Powerhouse Penstock Mahoney Diversion - Silvis |& Mahoney Lake (CFC) Diesel (Low Speed w/powerhouse) Diesel (High Speed w/powerhouse) Mahoney Diversion - Ketchikan Lakes Mahoney Diversion - Silvis | Diesel (High Spd wo powerhouse) Ketchikan Lakes Dam Relocation Diesel (Low Spd wo powerhouse) Upgrade Beaver Falls Carlanna Lake Intertie (Tyee at 40P) Connell Lake Whitman Large - 53 MW Ketchikan Lakes Tunnel Upgrade 1998 UPDATE - POWER S Figure 5 20-YEAR LEVELIZED COST OF POWER BASED ON PROJECTED RESOURCE USAGE - MEDIUM LOAD GROWTH LY PLANNING STUDY 60 80 10.0 120 Levelized Cost of Power (cents per kWh) 14.0 16.0 18.0 KETCHIKAN PUBLIC UTILITIES R. W. Beck 20 1998 UPDATE - POWER duPPLY PLANNING STUDY Figure 6 COST OF POWER FOR RESOURCE SCENARIOS MEDIUM GROWTH CASES 10.0 -——__— = = = a S z a 5 2 & é g 3 OTS meric 2Opee Jeeete S26 sa aeele dseecsce 4 35 ===" Mahoney === Small Hydro (Whitman) LO St aie e ie lea Weel Wl P&L T-Line 0.0 + + + + + 41 2 a oS - | 2 zx wo Se} y 2 Dp o - N om t+ on © Nn Figure 7 COST OF POWER FOR RESOURCE SCENARIOS LOW GROWTH CASES 9.0 5 ————$$$_______— = = 2 c vo & o é = Oe Note: Costs for the Interie | —= Diese! ie . scenario may potentially be —= I ntertie 8 higher due to low energy 2.0 purchases from the Four |~~ ~~~ ~~~ ~~ ~~" Mahoney Dam Pool. === Small Hydro (Whitman) OT ool We ae heh oi —"MP&L T-Line 0.0 —— +—_+—+ +—++ +— +— 2 Qa So - Xx a x= wo yo yb 2 a oO = N oa wT wo wo nN *& S88 SSBSRBSBBSBSESESEESESESE SB = = N N N N N N N N N N N N N N N N N KETCHIKAN PUBLIC UTILITIES R. W. Beck 21 1998 UPDATE - POWER SurPLY PLANNING STUDY Cost of Power (cents/kWh) Figure 8 COST OF POWER FOR RESOURCE SCENARIOS HIGH GROWTH CASES DO eee le Diesel ==" intertie Mahoney DO ii mm) mem fa lh asm) me etn rm folie at oe) ty at me be) ad mpm fl === Small Hydro —" MP&L T-Line BOf--- 2-2 rere eee eee BN el ns ee dl ll Hl le 0.0 2016 +4 2017 £ 2007 + 2008 + 2009 2010 4 2011 + 2012 2013 + 2014 2015 1998 1999 2000 2001 2002 + 2003 4 2004 4 2005 2006 + CONCLUSIONS iL KPU’s recently completed electric load growth study forecasts base case total annual energy requirements to be approximately 16% lower than had been forecasted for the base case in the previous load growth study. As a result, KPU’s net annual energy requirement (defined as total load less existing hydroelectric energy generation capability) is lower than had been projected in the Initial Draft of the Power Supply Planning Study. In 2001, KPU’s net energy requirement assuming average water conditions would be 8,900 MWh, 3,800 MWh and 16,100 MWh for the base (medium), low and high load growth scenarios, respectively. Without the addition of the Intertie or any other new generating resources, this net energy requirement would be supplied with generation from KPU’s existing diesel generators. Based on the new load growth study and with completion of the installation of the new 10,530-kW diesel generator, KPU’s existing generating capacity is sufficient to supply projected base case capacity requirements, including reserves, through 2008. KPU may be constrained in its diesel generation usage by pollutant emission limitations defined in its diesel operating permit. These potential constraints have not been factored into this analysis but should be considered by KPU in its future planning. —_—____ KETCHIKAN PUBLIC UTILITIES R. W. Beck 22 1998 UPDATE - POWER SL... LY PLANNING STUDY 10. ie Recently completed feasibility studies of the Whitman Lake, Connell Lake and Carlanna Lake hydroelectric projects indicate that in general, the average annual energy generation capabilities of these projects would be higher than had been estimated in the Initial Draft of the Power Supply Planning Study. Based on the base case projection of usable energy from the alternative new resources, the 5.3 MW Whitman Lake hydroelectric project would provide the lowest levelized cost of power over the 20-year analysis period. The Connell Lake project, power purchases over the Intertie, the Mahoney Lake project and the Carlanna Lake project, as well as several upgrades to existing KPU hydroelectric facilities, would all provide a lower levelized cost of power than the fully allocated cost of diesel generation. The resource scenarios considered most appropriate for evaluation in this update include diesel generation; the Intertie; the Mahoney Lake hydroelec- tric project; a small hydroelectric scenario including projects at Whitman Lake, Connell Lake and Carlanna Lake and a transmission interconnection with Metlakatla Power & Light. For all load growth cases, the Small Hydro scenario would provide the lowest life-cycle cost of power supply. For this scenario, KPU would only need to construct the Whitman Lake and Connell Lake projects if loads were to grow at the low or medium growth rates through 2017. The Carlanna Lake project as well as some additional generation would be needed in the future if loads were to grow at the high growth rate. Construction of the Intertie will provide certain benefits in addition to access to surplus Lake Tyee energy that should be considered in the overall evalua- tion of resource options. Included among these additional benefits are the, interconnection of KPU’s electri tem with the systems of Petersburg and Wrangell and the ability to develop generating resources in the future from a much larger area to serve all communities. For the Intertie scenario, this study assumes that KPU will purchase gurplus power from the Lake Tyee project at the Four Dam Pool power sales rate and that there will be no other costs related to the Intertie paid by KPU. KPU should carefully evaluate how its proposed plan to finance the construction and operation of the Intertie will affect the cost of power purchased over the Intertie particularly with regard to the forecasted range of KPU’s future power requirements. The cost of power projected for the Metlakatla Interconnection scenario is reasonably comparable to the Small Hydro scenario, the lowest cost resource alternative. The estimated cost of constructing the transmission interconnec- tion as well as the estimated cost of certain hydroelectric project improve- ments and additions have been provided by MP&L. KPU may want to conduct additional independent review of these cost estimates. KETCHIKAN PUBLIC UTILITIES R. W. Beck 23 FEB. -US 98 (TUE) 10:98 KPU ADMINISTRATION TEL:907 225 1888 P. 004 FER- 3-96 TUE 10:47 RW /SEATTLE CONSULT =» FAX NO. 208 = 4764 P.02 * y SS FYD eel Mr. Richard Trimble February 2, 1998 AD Pp 2 Page 4 wae — Load Scenario Resource Scenario Low Medium (Base) __ High ~ Diesel $50,386 $96,534 $181,036 Intertie Medium PMP&L Load 48,584 92,931 174,196 bligh PMP&L Load 94,832 Mahoney Lake 68,526 80,439 143,558 Whitman/Cannell/Carlanna 36,266 56,411 135,586 Table 5-2 of the initlal study showed the Muhoney Take scenario to have the lowest cumulative present value cost for the medium load growth scenario. The Whitman Lake scenario is now significantly lower in cost than the other resource scenarios. A few sclected oulput pages trom the power supply analysis mode! are allached ta this letter for your reference. I look forward to your comments on this information during this week so that we can proceed juwards completion of the Update, Fram a prescntation perspective, I am beginning to think that the Update may bost be presented jn the form of a scparate Update report seotlon (basically a now executive summary) along wilh reviscd pages to the report, As always, ploase call me at (296) 695-4414 if you have any questions. Sincerely, N R, W. BECK, INC. puen Be low cadk aromatic John L. Heberling Executive Engineer JLH: 8q Attachments 6; Alan Dashen cc; ORS rE FEB @3 ’98 17:86 . 987 225 1888 PAGE. 84 FEB. -US YB{TUE) 16:98 KPU ADMINISTRATION TEL: 907 225 1888 P. 000 FEB= 3-98 -TUE 10:48 RWB ‘SEATTLE CONSULT FAX NO, 206 4784 P03 P < $ 2 hea Th ‘Lake Grace intertie ogipnpasana ae fs see mate ete eee tam L102 o1 ; ; ' ' ; ! | ‘ : S10r i : ! ! viv? | : ' ; ‘ ' ‘ i | : : ; 1.102 ! ' ' ' Zz N ' ' ' ; 110% uc ' i . t 8 : { \ i O10 % i ; a : ‘ 002 & iw : { ' \ wz ' i : \ 2007, \ ; ; ! ! ! Nor ‘ ' t : ' : sour ' ' ' i : 02 t { ‘ : ' ‘ ' ! ' eur i t ; t | ' : ' ' tour i : t ‘ : ‘ 1 ; , ; ' 00% | ‘ i : | ' ' \ \ Nooz : i ; ! { ! ' | ! Gohl ! ! ‘ { | pam enn yeep 1 Renee nn aes tenes ayemeesees ad Biothh (YWMeYsIW3>) 4am04g JO ys0D FEB @3 °98 17:06 907 225 1888 PAGE. @S Page 1 FORD. vv s¥\ivey avivy tek Vevey eee vee FEB- 3-98 TUE 10:48 RH BEOY “SEATTLE CONSULT FAX NO, 206 °°" 4764 P, 04 LH seme eranteee cman coumaceenmapes eeenemess ecpammes ota mies mewsate ay ZUNE y { Qu? : t : : \ 1 £402 i : { ' : : ve ' : i \ f ' it i E107 ‘ ‘ ' 7102 : ' ' i ‘ ‘ 5 A ' ! : bb07 3 eA 5 , ‘ Our i 2 ' ‘ b0uz & LC t : : wane ' ' t i : ! f ' 20u7, : t \ q ' ' i i 90ur ' 1 ' ‘ 1 \ 7 ' LiMn? i s y { p ' ; . pad? i i : 8007 | : : : ‘ : 7002 1 ‘ ‘ : i 4 i t i ' ' i bn0z 7 ; i ‘ { : { { i , : ' : oun? ' t ! ; t i F ' ‘ ' N66I. : C : ' ; ‘ : t Tt ES NP we oie a me meme oi od Bots} ° So ° oe S m s r a (ymry/siund) Jamin, Jo {sap FEB @3 ’98 17:06 907 225 1888 PAGE. @6 Page 1 Figure 6-5 Chant 2 (YAAW/S14d9) 4DMOg JO {sD FEB @3 °98 17:06 . (a er = . _ "hep: 3-08 TUE 10:48 RW BECK/SEATTLE CONSULT FAK NO, 208 05 4764 907 225 1888 P, 05 mo) inciiey settereiincser ZLOCI S107 $102 vloz Chor 7402 LLoz 102 GUO Page 1 WAN £002 uur Sanz voz $N0e 7n0z 1007 Qanz bOGb NO6L PAGE. 27 : Ovm X Lak's Rucust KAL KETCHIKAN PUBLIC UTILITIES 2930 TONGASS AVENUE KETCHIKAN, ALASKA 99901 TELEPHONE 907-225-1000 FAX 907-225-1888 November 3, 1997 E 6 E V E MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER NOV 0 6 1997 Mr. Randy Simmons, Director Alaska Industrial Development Alaska Industrial Development and Export Authority and Export Authority 480 West Tudor Rd. Anchorage, AK 99503 Dear Mr. Simmons: Ketchikan Public Utilities is considering financing and constructing the Swan Lake—Lake Tyee Intertie. We indicated this at the August 14, 1997 Project Management Committee meeting in Kent and suggested the concept of an interruptable power sales agreement that would allow KPU to cover debt, operations and maintenance before making power purchase payments. KPU refined this concept in a presentation made to the Project Management Committee on October 23, 1997. The general consensus of this discussion, as summed up by Chairman Lewis, was that this interruptable sales agreement was a viable concept from the utilities’ perspective. The purpose of this letter is to seek AIDEA’s position with regard to this power sales concept. In particular, we need to know if AIDEA will agree that this sale would be “interruptable” and, N o therefore, not directly addressed by the long-term power sales agreement (PSA). Past examples include interruptable sales to the Wrangell Saw Mill and the Ketchikan Pulp Company. In addition, KPU is seeking a short-term financing mechanism to mitigate the impact of negative cash flows in the initial years of the project and potentially assist with construction cash flow. We would like to meet with you and your staff at your earliest convenience to discuss these issues. As we noted at the October 23“ meeting, it is our intent to seek direction from our City Council at their November 20, 1997 meeting regarding solicitation of right-of-way clearing bids. Although we “anticipate it will take some time to conclude power sales ‘and potentially short-term financing arrangements, it would be helpful to have your initial reaction to these proposals in advance of that meeting. incerely, dy Ihegge- ohn A. Magyar General Manager JAM:nll .) Lr G \ams i We. Enclosure ‘ mn ‘ ce: Alan Dashen, Alan Dashen & Associates : \ g He Woone arratan oO John Heberling, RW Beck Lae © Ron Saxton, Attorney for PMC mM - : Cc H:\USER\NANCYL\WP\DATA\OO7-T3.COR “em WAS Oct-28-97 07:11P « ‘ » / Proposed Financing Structure for the Tyee-Swan Lake Intertie (October 29, 1997) Background The development of the Tyee-Swan ake intertie has been pursued since the hydroelectne projects were constructed in the mid 1980’s The intertie provides several benefits to communities in Southeast Alaska, including: © allowing current excess capacity from the Tyee Project to serve a portion of the load of Ketchikan Public Utilities (KPU); ¢ interconnecting the electric systems of Ketchikan, Petersburg and Wrangell allowing for sharing of reserves and combined resource planning; ¢ providing a first step toward interconnecting other Southeast cities with Ketchikan, Petersburg, and Wrangell; and * optimizing water usage at Swan Lake, increasing the firm generating capacity of that project. The Tyee capacity used by KPU would be only that which is excess to the needs of Petersburg and Wrangell and would be considered interruptible power. The power would be used by KPU to augment its current hydroelectric power supply and reducc its use of diesel generation. The amount of intertie power purchased by KPU would depend on water conditions at its other hydroelectric projects and at Swan Lake, and on the load growth of the Ketchikan area. It is not expected that the full energy production of Tyee would be used by Wrangell, Petersburg and Ketchikan for several ycars. Ownership and Funding The design engineer for the project is Raytheon in Bellevue, Washington. According to~ Raytheon, the estimated cost of constructing the intertie depends on the construction schedule. If the intertie can be constructed in two years, the cost is approximately $72 million. If construction requires a third season, the total cost is approximately $80.2 million. While a two year schedule is possible, availability of funding makes a three year construction period more likely. After pursuing alternative ownership scenarios — primarily the State or the Four Dam Pool Purchasing Utilities Ketchikan is pursuing assuming financial responsibility and ownership. To this end, KPU has sought both federal and State grants and loans. To date, KPU has reccived approximately $11 million in grants from the State and has a commitment from the State for a $20 million loan. KPU also will receive a Federal grant for $10 million. Oct-28-97 O7:11P . » , a , The Federal grant was awarded with the expectation that construction would start in 1998. This grant was originally $20 million, but last minute budget cuts reduced the amount to $10 million. KPU plans on applying next year for an additional federal grant sufficient to complete the project. The City’s lobbyist believes that the likelihood of receiving the additional grant is improved significantly if construction is underway. The State loan is for 15 years at an interest rate of 3%. Unless the Purchasing Utilities or the State want to be responsible for repayment of this debt, this loan would become a debt of KPU and would need to be voted on by the City’s electorate. Under the current schedule, the City would place this issue on the ballot in early 1998. The following summarizes the current and required additional funding, assuming a three year construction period: Funds available to date $11.0 million State Loan 20.0 1998 Federal Grant 10.0 Additional Federal Grant (1999) 39.0 Other Funding 2 Total $80.2 million The Other Funding shown, if needed, would be additional borrowing of KPU to finance any Costs not otherwise covered. Schedule KPU has developed a schedule for construction to begin in 1998. The City is not committing to spend any funds. except for grant funds, until financing for the entire project is assured. This will occur at the earliest in the fall of 1998, limiting construction expenditures for 1998 to the approximately $10 million current federal grant. If additional funds are not made available in 1998, KPU would put the project on hold until more funding is available. To meet the 1998 start date, KPU has developed the following schedule: November 1998 Mail RFP for contractor Surplus Power Sales Agreement presented to State and Four Dam Pool Participants January 1998 Agreement in principle on Surplus Power Sales Agreement February 1998 City of Ketchikan bond election Award of construction contract -O3 . Oct-28-97 07:12P Fall 1998 Receipt of additional grant tunds Spring 1999 Restart construction to be completed in the Fall of 1999 or in 2000 Proposed Interruptible Power Sales Agreement The intent of the proposed interruptible power sales agrecment is that power from Tyee should be the same cost to KPU as Swan Lake power, adjusted only for the increased risk and liability that KPU is assuming. The basic price elements of the proposal include: 1. Neither the Purchasing Utilities or the State would incur liability for construction or costs associated with the intertie. 2. The cost of power to the Purchasing Utilities would not be negatively impacted by the intertie but could be positively impacted. ta The Purchasing Utilities will incur long term benefits from the sale of surplus power from Tyee and increased power production at Swan Lake. 4. Payment for power from Tyee delivered to KPU would be paid in accordance with the following: e Cost of Power charged to all utilities (currently approximately 6.2 cents/k Wh) e less Ketchikan O&M and A&G associated with the intertie e less debt service e less intertie renewals and replacements e less other intertie expenditures « less any carry forward losses ¢ less Ketchikan development charges The enclosed table shows the intertie revenues and expenses, based on estimated intertie energy sales and estimated operating and debt service. -~O04 Oct-28-37 07:12P Startup Financing During the early years of operation, the total costs of the intertie are projected to exceed the cost of power which KPU and the other Purchasing Utilities would expect to pay under the Power Sales Agreement. T sts also exceed the costs which KPU would expect to pay for alternative sources, primarily diesel generation. To avoid a potential rate increase by KPU for development of the intertie, KPU is requesting a startup loan from AIDEA which would cover any short term “operating deficits.” If such a loan is agreed to, it also would need to be voted on by the City Based on the enclosed spread sheet, the maximum cumulative “operating deficit” is $3,240,725, occurring in 2007, and the loan is repaid completely in 2012.. This is shown on footnote (6) to the table. However, a more realistic loan amount would be up to $10 million for fifteen or twenty years. KPU may also want to use this loan to cover any small construction financing deficits (ie, the $0.2 million Other Funding discussed above). KPU proposes that the loan would be secured by a pledge of revenues from KPU, with such pledge junior in lien to the senior lien bonds created by KPU’s bond resolution. Although junior in lien, the bonds are still secured by a full pledge of revenues, including a rate covenant to raise rates, as necessary, to repay the debt. Details of the loan agrcement, including amounts, maturities, and security are subject to discussion with AIDEA. -OS Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 SWAN-TYEE INTERTIE REVENUES & EXPENSES PMC POWER RATE INTERTIE EXPENSES Additional Intertie Debt Service O&M Tyee State Additional Sales $0.04/kWh $0.022/kWh] Expense Intertie Loan Debt Development Net Caryforwaid {MWh)(1) Exed Escalated (2)) $.0025/KWh 0&M(2) $20,000,000(3) $1,328,995(4) Charges(5) | ProfivLoss of Losses(6) 22,509} $ 900.360 $ 541,116)$ 56,273 $ 137,635 $ 1,675,332 $ 101,771 $ 144,148]$ (673,682) $ (673,682) 24,364 974,560 603,282 60,910 141,764 1,675,332 101,774 157,784 (559.719) (559,719) 25,728 1,029,120 656,168 64,320 146,017 1,675,332 101.771 168,529 (470,681) (470,681) 27,005 | 1,080,200 709,398 67,513 219,609 1,675,332 101,771 178,960 (453,586) (453,586) 28,646 | 1,145,840 775,081 71,615 154,909 1,675,332 101,771 192,092 (274,798) (274,798) 30,856 | 1,234,240 859,924 77,140 159,556 1,675,332 101,771 209,416 (129,052) (129,052) 33,461 1,338,440 960,498 83,653 164,343 1,675,332 101,771 229,894 43,946 43,946 36,390 1,455,600 1,075,913 90,975 169,273 1,675,332 101,771 253,151 241,010 241,010 39,592 1,583,680 1,205,701 98,980 415,057 1,675,332 101,771 278,938 219,303 219,303 42,789 1,711,560 1,342,151 106,973 250,026 1,675,332 101,771 305,371 614,239 614,239 45,795 1,831,800 1,479,533 114,488 257,527 1,675,332 101,771 331,133 831,082 831,082 48,271 1,930,840 1,606,313 120,678 265,253 1,675,332 401,774 353,715 1,020,404 1,020,404 50,780 } 2,031,200 1,740,499 126,950 273,210 1,675,332 101.771 377,170] 1,217,266 1,217,266 53,321 2,132,840 1,882,420 133,303 681,370 1,675,332 101,771 401,526] 1,021,959 35,375 986,584 55,896 | 2,235,840 2,032,527 139,740 358,311 1,675,332 101.771 426,837 1,566,376 1,566,376 58,503} 2,340,120 2,191,144 146,258 369,060 101,771 453,126 | 3,461,049 3,461,049 61,145] 2,445,800 2,358,799 152,863 380,132 101,771 480,460 | 3,689,373 3,689,373 63,821 2,552,840 2,535,892 159,553 391,536 101,771 508,873 | 3,926,999 3,926,999 66,532 | 2,661,280 2,722,921 166,330 1,158,090 101,771 538.420 | 3,419,590 3,419,590 69,278 | 2,771,120 2,920,364 173,195 517,827 101,771 569,148 | 4,329,542 4,329,542 69,901 2,796.040 3,035,025 174,753 533,362 101,771 583.106 | 4,438,073 4,438,073 68,847 | 2,753,880 3,078,939 172,118 549,363 101,771 583,282 | 4,426,286 4,426,286 67,778 | 2,711,120 3,122,066 169,445 565,844 101,771 583,319 | 4,412,808 4,412,808 66,692 | 2,667,680 3,164,202 166,730 1,557,850 101.771 583,188 | 3,422,343 3,422;343 65.589 | 2,623,560 3,205,227 163,973 600,303 101,771 582,879 | 4,379,862 4,379,862 64,469] 2,578,760 3,245,009 161,173 618,312 101,771 582,377 | 4,360,137 4,360,137 63,332 | 2,533,280 3,283,412 158,330 636,861 101,771 581.669} 4,338,060 4,338,060 62.178 | 2,487,120 3,320,291 155,445 655,967 101,771 580,741 4,313,487 4,313,487 61,006 | 2,440,240 _ 3,355,438 152,515 __—2,994,269 101,771 579.568 1,967,555 1,967,555 TOTAL 59,099,230 57,438.123 LO 46-82-3720 d2t 90°d Footnotes: (1) Net kWh energy which is available from Tyee after Wrangell & Petersburg loads which can be used by Ketchikan. (2) Based on an assumed inflation rate of 3.0%. (3) $20,000,000 repaid over 15 years at an interest rate of 3%. (4) Assumed financed over 30 years at an interest rate of 6.5%. (5) Estimated at 10% of PMC power rate. (6) Losses assumed carried forward at an interest rate of 6% until funds are available for repayment. Cc $ Beginning arryforward Amount (673,682) (1,273,822) (1,820,933) (2,383,775) (2,801,599) (3,098,746) (3,240,725) (3,194,159) (3,166,505) (2,742,257) (2,075,710) Current (Loss) Proftt $ (673.682) $ (559,719) (470,681) (453,586) (274.798) (129,052) 43,946 241,010 219,303 614,239 831,082 1,020,404 Interest on Balance (40,421) (76,429) (109,256) (143,026) (168,096) (185,925) (194,444) (191,650) (189,990) (164,535) (124,543) Ending Carryforward Amount $ (673,682) (1,273,822) (1,820,933) (2,383,775) (2,801,599) (3,098,746) (3,240,725) (3,194,159) (3,166,505) (2,742,257) (2,075,710) (1,179,848) 40 26-82-7370 aat ZO JKR KKK KKK 00K OOOO OOOO OOOO OOOO OOK TOTAL 3M 365 PAGES: 8 ORK K KK KK KKK KK KKK KK KK KKK KK KK KKK KK KKK KKK KK KK KKK KKK KKK KKK KKK KK KK KKK KKK KKK KKK KKK KK KK x P, O1 x x TRANSACTION REPORT x : re NOV-07-97 FRI 03:13 PM x X ; SEND (M) x x k DATE START — RECEIVER TX TIME PAGES TYPE NOTE Mt DP x oom X k NOV-07 03:09 PM 915032211560 3°36" 8 SEND (M) OK o92—tsi x x XK X x x X X X X ALASKA INDUSTRIAL DEVELOPMENT = > ¢ AND EXPORT AUTHORITY {= ALASKA @@K ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044 Facsimile Transmittal TO: “Pat lane. comPANY:____(ardiner + Clancy Fax #:(503) dal -|5G0 Number of pages including cover page: & ~_- em i ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY /2 ALASKA im =ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044 Facsimile Transmittal TO: COMPANY: From: AV vol. Date: A ove tsi 1497 Time: 3:06 Ye Number of pages including cover page: F Transmittal Contents: Comments: Notice: This facsimile may contain confidential information that is being transmitted to and is intended only for the use of the recipient named above. Reading, disclosure, discussion, dissemination, distribution, or copying of this information by anyone other than the named recipient or his or her employees or agents is strictly prohibited. If you have received this facsimile in error, please immediately destroy it and notify us by telephone, (907) 269-3000. FEB. -27' 98 (FRI) 16:06 KPL_ MINISTRATION TEL 7 225 1888 P. 001 KETCHIKAN PUBLIC UTILITIES SWAN LAKE - LAKE TYEE TRANSMISSION LINE INTERTIE PROJECT 2930 Tongass Avenue, Ketchikan, Alaska 99901 (907) 225-1000 (907) 225-1888 Fax 2/27/98 FAX TO: = Randy Simmons AIDEA (907) 269-3044 Dennis McCrohan AJDEA (907) 269-3044 Comm. Mike Irwin DCRA (907) 465-2948 Percy Frisby DCRA (907) 269-4645 Bennie Reinhart USDOE (208) 526-0969 John Heberling R. W. Beck (206) 695-4764 Alan Dashen Dashen & Assoc. (425) 452-9552 Dennis Lewis PP&L/PMC (907) 772-9287 Dave Carlson PP&L/PMC (907) 772-3064 William Privett WL&P/PMC (907) 874-3952 Scott Seabury WLE&P/PMC (907) 874-3952 Walt Sapp KEA/PMC (907) 486-2441 Robert Wilkinson © CVEA/PMC (907) 822-5586 Ron Saxton Ater, Wynne, et al. (503) 226-0079 Steve Silver Robertson, Montague, et al. (703) 527-0421 Jeff Paine Raytheon (425) 451-4648 Ellen Hall Foster-Wheeler (954) 382-2237 Brad Powell USFS Ketchikan Area (907) 228-6292 Jim DeHerrera USFS Ketchikan Ranger Dist.(907) 225-8738 Senator Robin Taylor (907) 465-3922 Representative Bill Williams (907) 465-3793 FROM: RICH TRIMBLE “2 SUBJECT: SWAN-TYEE INTERTIE CONSTRUCTION We are seeking direction from our City Council to proceed with construction activities on the Swan-Tyee Intertic. That memorandum to our City Council is attached for your information. Please call if you have any questions. Thanks, Rich e le / OE Att FEB. -27' 98 (FRI) 16:06 KP! MINISTRATION TE 7 225 1888 P. 002 KETCHIKAN PUBLIC UTILITIES Memorandum To: The Honorable Rob Weinstein & City Council From: John Magyar, KPU General Manager Ae Smee Date: February 25, 1998 Subject: Proceeding with Construction Activities for the Swan-Tyee Intertie KPU staff is seeking Council direction to proceed with construction activities for the Swan-Tyee Intertie at the March 5, 1998 Council meeting. In support of this decision, staff has provided Council with an updated Zlectric Load Forecast (draft), Power Supply Planning Study and Intertie Financing Plan which is attached (attachment 2). Our consultants and lobbyist will be making presentations to you on March 5" regarding these studies. In addition, we are providing a KPU staff opinion regarding our power supply strategy (attachment 1). Under staff's proposal, KPU would accept debt for both a $20 million low interest state loan G% with 15 year a Both would require voter approval. In order to minimize the City's risk, 088 be accepted until after the remainin: are in place * Therefore. we would not need voter approval for these debts for at least a year or two. However, Council may wish yoter concurrence with this project before committing public funds to construction activities. If this is the case, it may be a challenge to negotiate final terms for the AIDEA Short term loan in time for the 1998 general election, but staff can proceed in this manner if so directed by Coungil. In addition to seeking Council's direction as to whether or not to proceed with construction, we also are seeking direction as to whether or not to begin field activities (clearing and foundation installation). Raytheon presented an option whereby we could use our grant funding to begin material procurement, and delay actual construction. The option of proceeding with field work might gain some efficiency as well as send a signal that we are committed and construction is commencing. If directed to proceed with construction, a could have = available for consideration by Council a award this summer. Plea aren for the $10 million feders ‘ant bu chase rr a ae | v Recommended Mations: (1) 1 move that the City Council direct the KPU General Manager to prepare and issue a Request for Proposals for selected field construction of the Swan-Tyee Intertie as grant funding allows. Or (2) T move that the City Council direct the KPU General Manager to prepare and issue a Request for -27' ; | TE 7 225 1888 P. 003 FEB. 27° 98(FRI) 16:07 KP! = MINISTRATION Steed KETCHIKAN PUBLIC UTILITIES Memorandum To: The Honorable Bob Weinstein & City Council From: John Magyar, KPU General Manager OP, _— Date: February 27, 1998 Subject: Power Supply Options—Staff Opinion There are two basic hydroelectric strategies that staff has been pursuing. One is construction of the Swan-Tyee Intertie which will allow us access to surplus energy at the Lake Tyee project. The ather is a combination of local small hydroelectric projects. Staff recommends that Council Continue 10 pursue the-Interie:swategy while developing the small hydroelectric alternative, suing licensing efforts for the Whitman, Connell and Carlanna projects, considering proposals for Metlakatla and Mahoney power sales and developing the most cost effective construction sequence for these options will provide us a backup plan if the Intertie fails to abtain necessary funding or voter approval. While this memorandum address staff opinion with regard to both Swan-Tyee Intertie and small hydroelectric strategies, action requested by staff at the March 5, 1998 Council meeting simply relates to the timing of initial construction activities of the Intertie using grant funds. Unless explicitly directed by Council to the contrary, staff will continue to pursue the Imertic as the _Pprimary strategy and small hydroelectric as an alternative strategy. If we are unable to proceed with full construction of the Intertie for lack of funding, we would be in a position to make a full commitment to the small hydroelectric alternative with a bond election for the Whitman project in the year 2000. Staff recommends that we use these next two | years to seek a complete funding package for the Swan-Tyee Intertie. A discussion of the Intertie and small hydroelectric strategies follows. Swan-Tyee Intertie: Staff continues to consider the Swan-Tyee Intertie as the strategy that would best meet the energy needs of Ketchikan over the long term. In the early 1990's, the Intertie was investigated aS a means to make surplus available at Lake Tyee to meet the hydroelectric shortage in Ketchikan. In 1993 the State enacted legislation which provided a combination of annual grants and $60 million in loans and bonds to KPU for the project. This funding allowed us to begin the engineering and permitting efforts in 1994, nm. oA ~ Wi 6 FEB. -27' 98 (FRI) 16:07 KPC AINISTRATION TE] 7 225 1888 P. 004 Tv la Mayor and Council, Power Supply Options—Staff Opinion Febmary 27, 1998 Page 2 proposition for Ketchikan as a customer and a member of the Four Dam Pool, allowing us to supply our ratepayers with low-cost hydroelectriciry while enjoying a portion of those revenues through the Four Dam Pool, The Intertie will allow us the reliability and flexibility of sharing regional resources, giving us the same of benefits the Bonneville Power Administration given the Paci orthwest. Access to large regional hydroelectric resources will allow Ketchikan to avoid dependency on fossil fuel generation for decades into the future. Finally, we would be taking advantage of our delegations’ strong position in Washington D.C. as well as a sympathy factor there for the harm done to the Southeast Alaska timber industry, a combination of events we are unlikely to ever see again. With the news of the pulp mill closure in Seprember of 1996, we were no longer able to depend on enough revenue to fund the Intertic. What is worse, we also were losing the backup generating capacity that the mill was often able to offer us. Without the mill, the loss of Ketchikan's single largest generation facility (Swan Lake) would put the community into a rotating blackout simation. The Ketchikan voters in October of 1996, the month after the mill closure was announced, voted to approve a $13.7 million bond issue for a diesel generator. This generator will allow us to provide sufficient backup power to avoid blackouts when Swan Lake is off-line. Ketchikan's energy demand had not diminished but we had lost generating capacity and revenue to fund the Intertie with the closure of the pulp mill. With that in mind, City Council approved a lobbying plan to seek federal funding for the Intertie. Due to the efforts of Senators Stevens and Murkowski, and Representative Young, $10 million was provided for the Intertie in the FY98 federal budget. Another $30 million will be sought in FY99_— Since this project became a regional priority in the late 1980's, City Council has been asked on numerous occasions—Do we continue with the Intertie or stop now? We are at another decision point. Do we proceed with bidding first year construction? Senator Stevens and his staff were very clear when we visited last year—the federal government budgets one year at a time, if you are seeking federal funding you've got to recognize that you must proceed on faith. In turn, our lobbying group responded that we ided that we are not obligated to spend local dollars until the last year of construction. Staff believes that a decision not to proceed will result in the loss of the existing $10 million federal allocation, Senator Stevens needs to know by mid- March whether the Intertie is going forward in order to seek FY99 funding. _If one is optimistic about the Ketchikan economy, the Swan-Tyee Intertic is clearly our most “Cost effective power strategy for the furure—While we have commissioned and distributed an Electric Load Forecast that considers the closure of the pulp mill, there is significant difference between the high, base and low forecasts. Staff recommends that in planning for future power supply infrastructure that we act conservatively and consider how we might meet the higher demands, In particular, Council should note that the “base” case does not assume new demands from new industry at the pulp mill site, or our need to supply energy to the KPC saw mill resulting from their recently announced closure of their nower house. t ack FEB. -27' 98(FRI) 16:08 KPU —AINISTRATION TEL 7 225 1888 P, 005 Mayor and Council, Power Supply Options—Staff Opinion , 8 Febmary 27, 199 LE\0 is] i ac ae C2 4 ANG Page 3 ~Z BIOTA hegis. A ppsoat = eh Despite the advantages just noted, staff does have some unresolved concerns about the Intertie. One major concern is the risk associated with low load growth. Under our current proposal, a short-term loan through AIDEA would allow us to meet our expenses during years of low load in the first years of Intertie operations. But we are depending on Joad growth in later years to pay back that loan. If the load growth does not develop, we could he left with a significant debt at the end of the loan term. Another concern is the risk associated with project cost overruns. We will definitely experience cost increases if the project is delayed for lack of additional grant funding. In addition, as with any construction project, there is always the risk of cost overruns for other difficulties such as unknown field conditions, weather, etc. In either case, KPU would bear the risk of cost overruns or be forced to terminate the project after considerable expense of public funds. Unless otherwise directed, Staff will continue to seek loan and power sales terms that will mitigate these risks. In addition, staff suggests considering an escalation of lobbying efforts to_ seek State development of the Swan-Tyee Intertic. It has always seemed appropriate to have the _ owner of the Four Dam Pool (the State of Alaska) develop and own this improvement to their ——. AER= VO Small Hydro Alternative: BADER — EB ancid 4 Staff opinion is that the most logical alternative to the Swan—Tyee Intertie is phased development of local small hydroelectric projects. These would include Whirman Lake, Lake Connell, Carlanna Lake, a Metlakatla Intertic, Mahoney Lake and upgrade of Reaver Falls. The recommended approach would be to develop the most cost effective projects first and proceed with future development as demand grows. Under the ISER medium load growth case for example, we could commission the Whitman Lake project in 2003 and the Lake Connell project in 2009. In 2016 we could seek a power purchase agreement with Metlakatla or Cape Fox since both offer similar energy capability. Under the medium load growth scenario, this combination would offer hydroelectric energy beyond the year 2030. An advantage of this strategy is that these projects could be developed as needed. So if Whitman Lake were the first to be developed, our only near term obligation would be the construction cost of $7.5 million. If in fact we experience the ISER forecast low load growth, we would have no additional capital requirements until 2025 when we would need to commission the next project. Therefore, if low loads are considered a possibility, this approach minimizes our risk. The primary disadvantage of this strategy is that we will eventually be in need of an Intertie when our local small hydroelectric resources are exhausted, Under the ISER high load growth case, all local hydroelectric options would be fully exhausted in 2022 (assuming development of Whitman, Connell, Carlanna, Metlakatla, Mahoney and an upgrade of Beaver Falls). At that FEB. -27' 98(FRI) 16:08 KPC MINISTRATION TEL 7 225 1888 P. 006 Mayor and Council, Power Supply Options—Staff Opinion February 27, 1998 Page 4 point, we would need the Swan-Tyee Intertie to access the next major cost effective hydroelectric resource. With respect to the individual projects, staff offers the following comments, The Whitman Lake project turns out to be surprisingly cost effective under the design concept offered by WEScorp (4.8 cents per KWH). The Lake Connell project provides less energy at a slightly higher price (6.7 cents per KWH) but is the next most cost effective option. Staff is not as enthusiastic about Carlanna Lake as it is even smaller and more expensive (9.1 cents per KWH). However, we recommend that any hydroelectric option at a cost Jess than diesel not be abandoned at this point. The two largest ne bie options are the iar Intertic and Mabon Lake. Our initial ! as e energy of the two projects, but we lack firm ace to sare this. Our t major ci concern is the lack of an Eelepenient review of the proposed improvements to the Metlakatla system. On the other hand, we have had substantial review of the Mahoney Lake data. It appears that Mahoney Lake energy would be more expensive than Whitman or Connell, but less expensive than Carlanna. Staff has two noteworthy concerns regarding Mahoney at this point. The first is cost risk associated with the significant amount of underground work, Unlike our other alternatives, a lot of this project cost is loaded into underground work which is more difficult to estimate with certainty. The second is the highly encumbered license obtained by Cape Fox for this project. Pursuing this as a PURPA project has placed Cape Fox in a more difficult position with respect to negotiating terms with the regulatory agencies. If this project were to be pursued, KPU would probably be in a better position to have the existing license vacated and negotiate a new license with FERC. It should be noted however that both Metlakatla and Cape Fox have indicated an interest in negotiating a deal with KPU. Understanding that we may not realize the funding necessary to complete the Intertie, staff believes it is in the best interest of the rate payers to entertain proposals from both of these groups. Our view is that proceeding with the preparation of certain construction activities for the Swan-Tyee Intertie in no way interferes with our efforts to position the most cost effective smal] hydroelectric projects for development in the event they are needed. JAM: RDT:all Attachment HAUSER\NANCYL\WPIDATA\OO7-D1.MEM HYDROELECTRIC ENERGY SUPPLY AND DEMAND 300 250 200 }- 10 | 100 |- Thousands \ IDEMAND MEGAVVAI [-HOURS (MWH) 50 0 Pd ee ey ft HIGH pd Li Lt 1975 1980 1985 1990 1995 2000 2005 2010 YEAR SWAN-TYEE INTERTIE (2000)] 2015 2020 2025 60:91 (1¥d) 86 L2- aad” Ndi NOLLVYLS INI! Tal 8881 $2? 00 ‘d HYDROELECTRIC ENERGY SUPPLY AND DEMAND FOR LOW LOAD GROWTH 300 250 + = 200 |_— MEIUM ) : 4 ¥DRO |_| > § [owes — Low = @ 150 - Oo 7 F ‘\ = DEMAND 5 100 L } J : 50 0 trtttiaritirsirtigottigiy gitytisririt {ii ttt ee ee 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 YEAR YHITMAN (2003), CONNELL (2025) 60:91 (14d) 86 L2- “add” \d¥ NOTLVYLS INI aL 8881 $72 2 800 ‘d | HYDROELECTRIC ENERGY | SUPPLY AND DEMAND FOR MEDIUM LOAD GROWTH 100 150 ‘00 au 50 00 50 0 ceee ee ee 1975 1980 1985 19909 1995 2000 2005 2010 2015 2020 2025 YEAR \N (2003), CONNELL (2008), METLAKATLA (2016)} 60:91 (14d) 86 2- “Bad \d¥ NOLLVLSININ (aL 8881 St L 600 ‘d HYDROELECTRIC ENERGY SUPPLY AND DEMAND FOR HIGH LOAD GROWTH MEDIUM 300 ] A _~ 250 r z | = = idYDRO = 200 UPPLY te i) P=.) 2Fz | LO 2 8 150+ J af r 2 ¥ be <x e = 100 |- o DEMAND = 50 - | 0 tare fopislay ptiietiees Lerititiurtet Lit 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 YEAR WHITMAN and CONNELL (2003), METLAKATLA (2006) 010 ‘d MAHONEY (2015), CARLANNA and BEAVER FALLS (2022) OT:9T (1¥d) 86 L2- “Gad \di NOTLVYLSINIT (aL 8881 $72 2 FEB. -27' 98 (FRI) 16:10 KP MINISTRATION TE! 7 225 1888 P. 011 —> Attachment 2 Financing Plan Update for the Tyee-Swan Lake Intertie February 23, 1998 1956, prepared by (yp ig A. Dashen & Associates ee Do Nee The purpose of this paper is to update the City of Ketchikan on the current financing plan for the Tyee-Swan Lake Intertie. The financing plan was developed to provide sufficient funds to construct the intertie and with the objective that the net cost of power from the _intertie be no more than the cost of power from the Swan Lake Project (the “Four Dam Pool rate”). The financing plan is dependent on receiving substantial additional federal grants to make the project cost effective. It also is dependent on electrical load growth so that the intertie is sufficiently used. Since the financing plan was first develaped by Ketchikan Public Utilities (KPU), the City has had a load growth study prepared by the Institute of Social and Economic Research (ISER), University of Alaska Anchorage The load growth study provides low, base and high cases. The analysis herein uses the Base Case forecast, which is lower than the medium load forecast that KPU previously had been using. Due to fixed costs, with lower load growth, the cost of electricity over the intertie increases, and with higher load growth the cost of electricity over the intertie decreases. The City has retained R. W. Beck to update its resource planning study which compares the intertie to other alternatives potentially available to the City. The R. W. Beck study assumes that the cost of power from the intertie is the same as Swan Lake. To the extent that the intertie power is more expensive, alternative sources of power will look more attractive to the City. Background Lake Tyee and Swan Lake are two of four projects comprising the Four Dam Pool, which were constructed or acquired by the Alaska Energy Authority in the mid 1980's. Power from each of the projects is sold at a “postage stamp” rate whereby each community pays the same amount for power regardless of the costs of the individual projects. The power rate consists of a fixed component of about 4.0 cents per kilowatt hour (kWh) and a variable component, currently about 2.2 cents per kWh. Power from the Lake Tyee Project is dedicated to serve the electric loads of the cities of Petersburg and Wrangell. The generating capability of the project significantly excecds the current electric requirements of those cities, and the intertie will allow this excess ee PR ah A LO eee Th Be nt nemnntnd thane the fill anaes FEB. -27' 98(FRI) 16:10 KP! MINISTRATION TE = 7-225 1888 P. 012 production of Tyee would be used by Wrangell and Petersburg for many years, WU Zara providing a good long term resource to KPU. \ The power would be used by KPU to augment its current hydroelectric power supply and aa ez reduce its use of diese] generation. The amount of intertie power purchased by KPU would depend on water conditions at its other hydroelectric projects and at Swan Lake, and on the load growth of the Ketchikan area. In addition to providing additional generating capacity available to KPU, the intertie will provide other benefits to communities in Southeast Alaska, including: © interconnecting the electric systems of Ketchikan, Petersburg and Wrangell allowing for sharing of reserves and combined resource planning; ® providing a first step toward interconnecting other Southeast cities with Ketchikan, Petersburg, and Wrangell; and * increasing the generating capability at the Swan Lake project by allowing more optimal usage of the water at that site. Ownership and Funding While there is general agreement that the intertie will benefit Southeast Alaska and the City of Ketchikan, the intertie is expensive and requires significant grant money to make it a cost effective resource for the City. After pursuing alternative ownership scenarios — primarily the State or the other Four Dam Pool Participants - KPU is considering assuming financial responsibility and ownership by itself. To this end, KPU has sought both Federal and State grants and loans. To date, KPU has received approximately $11 million in grants from the State and has a commitment from the State for a $20 million loan. The State loan is for 15 years at an interest rate of 3% and, as currently contemplated, would be a debt of KPU, payable from electric revenues and requiring a vote by the City. The City also has requested a $40 million Federal grant for the intertie and ta date has received $10 million. In addition to receiving the fully requested Federal loan, the City will still need additional finds of about $6 million. Source of these funds could include timber sales from right-of-way clearing and additional federal or State grants. Assuming an intertie cost of $77 million (expressed in 1997 $), excluding any value from timber sales, the following table shows the sources of funds for construction: - PEB. -27° 98(FRI) 16:11 KP IMINISTRATION TE )7 225 1888 P. 013 Sources of Funds for Intertie Funds available to date $11.0 million State Loan 20.0 1998 Federal Grant 10.0 Additional Federal Grant (1999) 30.0 Timber Sales/Additional Grants 6.0 Total $77,0 million To the extent construction costs increase due to escalation, or other reasons, additional grant money or loans will be needed to complete construction. Proposed Power Sales Agreement When the intertie is completed, KPU will need to buy the excess power from the Tyce Project from the Four Dam Pool. The draft proposal discussed with the ather Four Dam Pool participants is that KPU would pay the Four Dam Pool rate for power over the intertie, adjusted for the intertie cost of ownership and operation and adjusted for a risk factor of KPU (referred to as a KPU “development charge”. Under the proposal: 1. Neither the other Four Dam Pool participants or the State would incur liability for construction or costs associated with the intertie. 2. The cost of power to the other Four Dam Pool participants would not he negatively impacted by the mtertie but could be positively impacted. 3. The other Four Dam Pool participants will incur long term benefits from the sale of surplus power from Tyee and increased power production at Swan Lake. Payment for power from Tyee delivered to KPU would be paid in accordance with the following: ¢ the Four Dam Pool cost of power charged to all utilities (currently approximately 6.2 cents/kWh) less O&M, A&G, and renewals and replacements less any additional generation expenses less debt service on the $20 million State loan less any carry forward losses leas KPU development charge The KPU development charge proposed is 4 10% reduction in the cast power from the FEB. -27' 98(FRI) 16:11 KPU — AINISTRATION TEL 7 225 1888 P. 014 Requested Start Up Loan from AIDEA During early years of intertie operation, the fixed and variable intertie costs, on a per kWh basis, exceed the Four Dam Pool rate, even with no payment for the power. As electrical loads grow, the intertie is more filly utilized, reducing tho cost per kWh of power. To allow KPU to pay the same net rate as the Four Dam Pool rate during these early years, KPU has discussed with AIDEA a startup loan. This loan could be used during the early years to pay a portion of the costs of the intertie and then repaid in later years when iS 1 the intertie is more fully utilized. a a but recognizes the value of the i As currently conceived, this loan would be secured from electric revenues of KPU. This means that if sufficient load growth does not occur, KPU need to use other sources of funds and, if necessary, would be required to raise its rates to ensure repayment of the debt. Like the State loan discussed above, this AIDEA loan also will probably require a vote of the City. Projected Results While conceptually a good financing plan, the cast of intertie power could exceed the Four Dam Pool rate if loads do not develop at least to about the Base Case level. The enclosed projected intertie operating results are based on the Base Case ISER forecast and assuming that KPU does not credit itself with the 10% development credit. The “Net Profit/Loss” shows how much money the intertie produces based on the Four ™M Dam Pool rate. The net losses in the early years are offset by the AIDEA loan, so that the I }o cost of power does not exceed the Four Dam Pool oo The “Cumulative Balance on State Loan” sho’ v loan_ineri revenues are sufficient to start paying it back In 2021, the AIDEA loan is completely repaid and only then does KPU start paying the Four Dam Pool for power. If KPU retains the 10% development charge, the starting power payment date is later. Under higher load growth cases, the intertie economics improve and the pay back period is shorter. Under lower load growth scenarios, the net cost of pawer over the intertie will end up being higher than the Four Dam Pool rate, potentially resulting in an electric rate increase by KPU. Summary and Conclusions Based on the intertie cost of power equal to the Four Dam Pool rate, the R W. Beck study shows that alternative projects may result in lower costs of power to KPU over the study period shown. However, if KPU is successful in receiving all of the grant money requested, KPU believes that this provides a unique opportunity to construct the intertie, FEB. -27' §8 (PRI) 16:12 KP MINISTRATION TE 17-225 1888 P. 015 and that similar assistance may not be available in the future. This type of resource is referred to as a “lost opportunity” resource and is often given special consideration in Tesource planning. Because of the “lost opportunity” aspect of the intertie, the City may consider proceeding, with it even at a slightly higher cost. The higher cost, measured in terms of average electric rates should be compared to the long term advantages of the intertie, in making this determination. It is clear that the intertie construction requires grant money to be cost effective, and the economics would be improved significantly with more grant money than currently requested. If the decision is made to continue with the intertie, we would recommend that the City pursue financial assistance beyond that already received or requested, both on a Federal and State level. These additional finds could be used to offset any cost increases over the $77 million used herein, to reduce the $20 million loan from the State and to teduce or eliminate the AIDEA startup loan. The financing plan discussed above will result in power equal to or below the Four Dam Pool rate at the Base Case or higher load growth case, and that with lower load growth the intertie would be more expensive. Consequently expectations about future growth need to be considered in the intertie decision. The Four Dam Pool power sales agreement and the AIDEA loan are both in the discussion stage. A concern raised by the Four Dam Pool participants, the Alaska Energy Authority and ATDEA is the timing of when finds would actually be available to the Four Dam Pool. Under the Base Case forecast, as used for the projections herein, this timing i years away which may, or may not, be acceptable. If not, alternative funding mechanisms will need to be considered further. SWAN-TYEE INTERTIE REVENUES & EXPENSES MEDIUM LOAD GROWTH MEDIUM PMP&L INTERTIE FOUR DAM POOL RATE 71:91 (1Ud) 86 2- “Bad PMC POWER RATE INTERTIE EXPENSES intertia | Debt Service O&M State Cumulative Net — 5 Bales $0.04/Wh $0.022/kKWh intertie Loan Development Net Balance on = ar (MWhy4)) Fixed Escalated (2)} $.0025/Wh O&M{2} $20,000,000(3) Cherges(4) | Profitfloss AIDEA loan Pood S 2001 + +8900]$ 358,000 $ . 22,250 $ 141,764 $ 1,675,332 $ $ (1,262,971) $ = = 2002 11,000 440,000 280,544 27,500 146,017 1,675,332 (1,128,305) 1,326,120 wa 2003 12,600 504,000 330,881 31,500 219,809 = 1,875,332 (1,091,450) 2,577,145 S 2004 14,100 554,000 381,507 35,250 164,909 1,875,332 {B19,084) 3,852,025 3 2005 15,600 824,000 434,755 38,000 150,558 1,675,332 (615,133) 5,010,509 Ss 2006 17,100 884,000 490,855 42,750 164,343 1,675,332 (707,569) 6,117,028 2007 18,700 748,000 552,687 46,750 189,273 = 1,675,332 (590,458) 7,165,828 2008 20,300 812,000 618,199 50,750 415,057 1,875,332 (710,940) 8,144,111 2009 21,800 876,000 686,042 54,750 250,026 = 1,675,332 (437,178) 9,207,BD4 2010 23,500 840,000 759,232 58,750 257,527 = 1,875,332 (292,377) 10,200,730 2011 25,100] 1,004,000 835,252 82,750 265,253 1,875,332 (164,083) 11,017,782 2012 26,800] 1,072,000 818,578 87,000 273,210 = 1,675,332 (24,865) 11,740,636 2013 28,500] 1,140,000 1,008,154 71,250 681,370 1,675,332 (281,801) 12,354,186 2014 30,100] 1,204,000 1,004,516 75,250 358,311 1,675,332 188,623 13,267,797 2015 31,900] 1,276,000 1,194,768 79,750 389,080 2,021,857 43,732,083 = 20168 33,600] 1,344,000 4,286,192 84,000 380,132 2,176,060 12,285,532 = 2017 35,400] 1,416,000 1,406,599 88,500 391,536 2,342,563 10,625,551 a 2018 «37,100 | = 1,484,000 = 1,518,372 82,750 4,158,030 1,751,532 8,697,137 S 2018 + 38,900] 1,556,000 1,639,801 97,250 517,827 2,580,724 7,292,885 ~ 2020 «© 40,800] 1,632,000 1,771,491 102,000 533,362 2,768,129 4,947,768 21 42,700} 1,708,000 1,909,607 108,750 549,363 2,861,484 2,288,621 672,873 a 2022 44500} 1,780,000 2,049,809 111,250 565,844 3,152,715 3,162,715 = 2023 48,800} 1,864,000 2,210,027 116,500 1,557,850 2,400,587 2,400,587 © 2024 48,800} 1,955,000 2,389,663 122,250 600,303 3,623,110 3,623,110 2025 51,100) 2,044,000 2,572,088 127,750 618,312 3,870,026 3,870,028 026 «©53,300] 2,132,000 2,763,309 133,250 636,861 4,125,197 4,125,197 2027 55,500 2,953,687 138,750 655,867 4,388,870 4,388,870 57,700 3,173,502 144,250 __—-:2,994,269 2,343,083 2,343,083 910 ‘d PEB. ~27" 98 (FRI) 16:13 KP! MINISTRATION TE 17 225 1888 P. 017 Footnotes: (1) Net kWh energy which is available from Tyee after Wrangell & Petersburg loads. (2) Based on an assumed inflation rate of 3.0%. (3) $20,000,000 repaid over 15 years at an interest rate of 3%. (4) Estimated at 10% of PMC power rate. (5) State loan borrowing to maintain cost of pawer at Four Dam Pool Rate. Cumulative balance shown is beginning of year and assumes a borrowing rate of 5%. ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY f= ALASKA iE ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044 MEMORANDUM TO: D. Randy Simmons Executive Director Keith A. Laufer Financial and Legal Affairs Manager , FROM: Dennis V. McCrohan, P.E. Coco Deputy Director — Project Development and Operations DATE: March 9, 1998 SUBJECT: Ketchikan Council March 5, 1998 Meeting Southeast Intertie The meeting was opened with public comments. Relevant comments were: i: Bob Grimm, Ketchikan Electric Company. Alaska Power and Telephone and Cape Fox have formed a joint venture special purpose company to design, construct, and operate Mahoney Lake. They will submit an unsolicited proposal to KPU. The plant would be completed by August 2000. A description is attached. R.W. Beck subsequently stated in informal discussions that Ketchikan Electric had assumed that Mahoney Lake would replace some of the Swan Lake generation and that this was not in compliance with the State (4<DP PSA). We should verify this matter. 2: Citizens Power. The new local manager of Citizens Power testified against the Intertie, as conceived by KPU, on general terms concerning economic viability. 3: Item _7B Southeast Intertie. Allen Dashen, John Heberling, and Steve Silverman testified. Each cautioned the Council that financing and funding were not assured. All stated that the Intertie was not the low cost option, but did have the most potential for a “long term” energy solution. Memorandum March 9, 1998 Page 2 Attachment John Magayar proposed motion “KPU proceed to prepare material and construction documents, issue RFP’s, and make awards. However, material fabrication and construction would not proceed until a better understanding of Federal funding was obtained. The staff was further directed to work with Ketchikan Electric to further consider Mahoney Lake and the other low cost options including small hydro and the Metlakatla transmission inter connect.” Discussions were held regarding the timing for a public vote on the Intertie but no conclusions were reached. The motion passed 5 to 1. AIDEA/AEA did not participate. However, as noted in my phone message, the local paper construed KPU’s financing plan to include a $20M low interest loan from AIDEA. This was not said in the meeting, nor presented in any material. | asked Rich Trimble to inform the paper of their error. cc: Dick Emerman Senior Economist, Division of Energy - DCRA File: Southeast Intertie KETCHIKAN PUBLIC UTILITIES SS Mee nd gate amit if... wee . oie oe Memorandum ee Tos = 20: The Honorable Bob Weinstein & bed Counc tom , John Magyar, KPU Gael Manager Date: March 4, 1998 ) Subject: . Ketchikan Electric Company (KEC) Information ; The attached information was delivered to me on ieee by Doug Campbell, Cae Fox Corporation, and Bob Grimm, Alaska Power & Telephone. I understand that they also have been in touch with some of you. KPU staff has not had the genoemnny! to maa ie oo in any sort of detail.) oe Bo: : Based on brief dlecussions with Mr. Campbell and Mr. Grimm, Pat seem to be promoting the construction of the Intertie while asking KPU to buy power from the Mahoney project rather than Swan Lake power. Based on my understanding, the Four Dam Pool Power Sales Agreement does not permit this but I have asked the City Attorney for his opinion. - Their communication raises numerous questions. Some things are certain, however. If KPU significantly reduces its purchases of Swan Lake power as KEC seems to be proposing, all Four Dam Pool operating utilities will experience a significant Four Dam Pool rate increase—KPU rate payers will share in that increase; it will be unlikely that the PMC ever will approve the KPU proposed power sales agreement for Tyee power and without it the Intertie cannot be built. Thus, even though the KEC information seems to be supportive of the Intertie, I believe that the effect is just the opposite. Both Metlakatla and Cape Fox have indicated an interest in negotiating a deal with KPU. Staff believes it is in the best interest of the rate payers to entertain proposals from both of these groups and stands ready to do so. We believe it is important to position the most cost effective small hydroelectric projects for development in the event they are needed. I will provide additional information as it comes available. JAM:ail CC DRS Attachment ad L H:AUSER\NANCYL\WP\DATA\O07-C4.MEM KETCHIKAN ELECTRIC COMPAN MAHONEY LAKE PROJECT Cape Fox Corporation and Alaska Power & Telephone Company have formed a joint venture to develop the Mahhoney Lake Hydroelectric Project, for which a Federal Energy Regulatory Commission (FERC) license was recently issued. The project is a “Qualifying Facility” under PURPA The joint venture has obtained a fixed-price construction contract at $17.5 million dollars, more than $10 million below the estimated cost used in the RW Beck Power Supply Planning Study 1998 Update. The 9.6 megaWatt project will . produce between 40 million and 46 million kWh of energy annually. Ketchikan Electric believes that Mahoney lake will add major benefits to Ketchikan’s present and long-term energy picture, and will provide an important boost to efforts to build the Swan-Tyee intertie. We believe this for the following reasons: ¢ Cheap energy, no take-or-pay obligation — Ketchikan Electric Company will offer Mahoney Lake Energy to KPU, on a take-and-pay basis, for approximately the price KPU pays for Swan Lake energy — presently about 6.2¢ per kWh. ¢ Immediate needs — With Mahoney Lake energy, KPU can meet its immediate and mid-term energy and capacity needs solely from existing KPU hydro, Swan Lake, and Mahoney Lake. e All Hydro — KPU will be able to meet its capacity, energy and stand-by reserve requirements for many years without using diesels. This will minimize retail rates in Ketchikan for many years to come. ¢ No new public investment — KPU will have access to Mahoney Lake energy and capacity without making any further investment in new hydros. The investment will be made by Ketchikan Electric, without any local public funding. ¢ Enhanced funds available for Intertie — Mahoney Lake will free up all of KPU’s cash and credit for use on the intertie project by eliminating the need for investment in other generating projects. e Enhanced economic development with Intertie —- Mahoney Lake will provide important electrical stability to the KPU system once the intertie is on line. When this occurs, Ketchikan’s long-term access to low-cost all hydro capacity and energy resources will put the cty in a preeminent position to attract economic development. ¢ Immediate local economic development — Mahoney Lake will be a local project, within the KGB. It will provide local construction and operating jobs, and will be owned by a local corporation. \ Ketchikan Energy & Resources 1995 2000 2005 2010 2015 2020 2025 Mahoney 12 0 11 19 28 39 46 Swan 81 81 81 81 81 81 81 KPU Hydro 66 66 66 66° 66 66 66 ISER Load 159 147 158 165 175 185 198 Chart 1 [="ISER Load EJKPU Hydro mliSwan [-JMahoney| Ketchikan Energy & Resources W-Hr 250 a 200 150 100 50 0 1995 2000 2005 2010 2015 2020 2025 Mahoney 0 40 40 40 40 40 46 Swan 81 40 52 59 69 79 81 KPU Hydro 66 66 66 66 66 66 66 ISER Load 159 147 158 165 175 185 198 Chart 2 Ses ee eee A. DASHEN SOCIATES August 17, 1998 Bi | JECEIVE ID) AUG 2 = 1998 MEMORANDUM KPU Manager's Office TO: Robert E. Newell, Jr., CPA ihainiiiinbieiichahaninsa John Magyar Rich Trimble FROM: Alan Dashen SUBJECT: Ketchikan Public Utilities Debt for the Tyee-Swan Lake Intertie Included in the financing plan developed for KPU to finance the Tyee-Swan Lake Intertie are two loans which would be secured by a pledge of revenues of KPU and would require a vote of the City. The first loan is for $20 million from the State of Alaska and is repayable over 15 years at an interest rate of three percent. The second loan, while not committed to, was planned to be from AIDEA and would be used as a start-up loan. This start-up loan would be used to finance a portion of the cost of the intertie debt and operations during the first years of operation so that the net cost of power from the intertie would not exceed the cost of power that KPU currently is paying for Four Dam Pool power from Swan Lake. As shown on Enclosure 1, using the City’s base load growth forecast, the AIDEA loan balance would increase annually to a maximum of $11,416,873 in 2014 and would not be repaid until 2020. This includes the assumption that the City would receive no “development charges” for proceeding with the intertie. It is, at best, unlikely that such a loan agreement would be agreed to by the City, AIDEA, and the Four Dam Pool Participants who must approve any power purchase agreement, and, when this was discussed with the Ketchikan City Council in February, we recommended that the City pursue additional grant money to reduce or eliminate the $20 million State loan and the AIDEA start-up loan. These loans also will affect KPU’s ability to issue additional debt, and this memorandum is in response to your request of an analysis of this impact. While the intertie provides KPU with a good long term power supply, presumably at the same cost of power as Swan Lake, the financing plan as presented negatively impacts KPU and the Electric Utility. These negative impacts include the following: Tet 425-452-9550 }FANX.425-452-9552 203 BELLEV Hos NE~ SUITE No. 14 BELLEVUE, WA 9800+ Pd il In the near term, the actual cost of power to the Electric Utility may increase with the Intertie. The Intertie power initially will offset diesel power, and, while diesels are not a good long term solution to the City’s power supply, the short term impact of utilizing Intertie power rather than the City’s diesels is slightly higher generation costs. The current Four Dam Pool power rate is approximately 6.8 cents/kWh, of which 4.0 cents/kWh is fixed. Since the variable portion was recently increased, we have assumed that the variable portion will escalate at 3.0% annually starting in 2000, The incremental diesel fuel cost to generate power currently is approximately 4.8 cents/kWh, based on 14.07 kWh/gallon of fuel and a fuel cost of $0.67/gallon. In addition, R.W. Beck estimates variable O&M at 1.3 cents per kWh. The projected KPU Intertie purchases range from 8,900,000 kWh in 2001 to 57,700,000 kWh in 2028. In 2002, the year used herein for comparison purposes, intertie purchases are projected to be 11,000,000 kWh. In that year KPU would pay $776,560 for intertie power compared to $671,000 for diesels. Note that this does not assume an increase in diesel fuel above $0.67 per gallon. As of December 31, 1997, KPU had outstanding $36,925,000 in debt. The $20 million State loan significantly increases the debt of the system. A ratio used by Moody’s Investors Service to measure the leverage of a utility is long term debt to net utility plant plus current assets. Based on 1997 year end financial statements for KPU, this ratio (expressed as a percentage) currently is approximately 38%. If the debt is increased by $20 million, the ratio increases to 60%, which while still acceptable reflects a more highly leveraged utility. Under the financing plan, KPU would have outstanding both the $20 million State loan and the startup loan. However, as the start-up loan increases, the State loan decreases. Further, the startup loan probably would not be viewed as long term debt so it would not affect the above ratio. Consequently, only the long term State loan is included in this calculation. The additional borrowing will have an effect on debt service coverage, assuming that the State and AIDEA loans are on parity with KPU’s outstanding debt. Conceptually, the only portion of the State loan which should be included as debt service is that part not paid by the start-up loan. In practice, however, a rating or bond insurance analyst will be skeptical of a deal where a start-up loan is used to finance the intertie for so many years, with repayment based on continued load growth. A more conservative analytical approach would be to not consider the start-up loan and analyze the impact of the State loan assuming that it is repaid from revenues of KPU. Enclosure 2 shows the effect on debt service coverage for both approaches. Alternative (A) shows the income statement and debt service coverage for 2002 as forecast in the official statement for KPU’s 1997 revenue bonds. Alternative (B) assumes that only that portion of debt service not paid by the startup loan is included, and Alternative (C) assumes that all the State loan is included. Also included in Alternatives (B) and (C) is the slightly higher assumed power cost with the intertie. The original forecast of debt service coverage, Alternative (A) is 1.59. This decreases to 1.44 for Alternative (B) and 1.25 for Alternative (C). If KPU pursues these loans as part of the intertie financing, we would recommend that the loans be made junior in lien to the system’s outstanding debt. This will significantly mitigate the impact of these loans on the ability of KPU to issue additional debt. With the loans as junior lien, the debt service coverage on the senior lien debt would not be directly impacted. However, rating analysts typically will also calculate debt service coverage based on total debt outstanding, both junior and senior lien. Clearly, utilizing the State loan will have an impact on KPU’s ability to issue debt, both for the reasons outlined above and because of the potentially very long pay back of the startup loan. The intertie is a more viable power supply to the City if additional grant money is available to reduce or eliminate the State and AIDEA loans. While this analysis has focused on the intertie, any new power supply resources financed by KPU will affect future powering of the utility. However, because the intertie is a large investment with a slow pay back, other resources may have less of an impact on KPU future borrowing. SWAN-TYEE INTERTIE REVENUES & EXPENSES BASE LOAD GROWTH MEDIUM PMP&L INTERTIE FOUR DAM POOL RATE SALES PMC POWER RATE INTERTIE EXPENSES NET REVENUES Additional Debt Service O&M Tyee State Ending Net Payment $0.04/KWh =$0.028/kWh Expense Intertie Loan Development Net Balance on to Fixed Escalated (2) | $.0025/kWh 0&M(2) $20,000,000(3) Charges(4) ProfitfLoss AIDEA loan Pool 356,000 440,000 336,560 22,250 $ 141,764 $ 1,675,332 $ 27,500 146,017 1,675,332 - $ (1,218,970) $ 1,279,918 (1,072,289) 2,469,818 504,000 397,080 31,500 219,609 1,675,332 - (1,025,361) 3,669,938 564,000 457,681 35,250 154,909 1,675,332 - (843,810) 4,739,435 624,000 521,562 39,000 159,556 1,675,332 - (728,326) 5,741,149 684,000 588,864 42,750 164,343 1,675,332 - (609,561) 6,668,246 748,000 663,281 46,750 169,273 1,675,332 - (480,074) 7,505,737 812,000 741,633 50,750 415,057 1,675,332 - (587,506) 8,497,905 876,000 824,090 54,750 250,026 1,675,332 - (280,018) 9,216,819 940,000 910,826 58,750 257,527 1,675,332 - (140,783) 9,825,482 1,004,000 1,002,025 62,750 265,253 1,675,332 - 2,690 10,313,932 1,072,000 1,101,988 67,000 273,210 1,675,332 - 158,446 10,663,261 1,140,000 1,207,047 71,250 681,370 1,675,332 - (80,905) 11,281,374 1,204,000 1,313,055 75,250 358,311 1,675,332 - 408,162 11,416,873 1,276,000 1,433,324 79,750 369,060 1,675,332 - 585,181 11,373,276 1,344,000 1,554,999 84,000 380,132 - 2,434,867 9,385,330 1,416,000 1,687,452 88,500 391,536 - 2,623,416 7,100,010 1,484,000 1,821,542 92,750 1,158,090 - 2,054,702 5,297,573 1,556,000 1,967,216 97,250 517,827 - 2,908,139 2,508,905 1,632,000 2,125,201 102,000 533,362 - 3,121,839 - 612,933 1,708,000 2,290,893 106,750 549,363 - 3,342,781 3,342,781 1,780,000 2,459,089 111,250 565,844 - 3,561,995 3,561,995 1,864,000 2,652,390 116,500 1,557,850 - 2,842,040 2,842,040 1,956,000 2,866,801 122,250 600,303 - 4,100,248 4,100,248 2,044,000 3,085,651 127,750 618,312 - 4,383,589 4,383,589 2,132,000 3,315,052 133,250 636,861 - 4,676,940 4,676,940 2,220,000 3,555,440 138,750 655,967 - 4,980,722 4,980,722 2,308,000 3,807,267 144,250 2,994,269 - 2,976,748 2,976,748 L aunsojouy Footnotes: (1) Net kWh energy which is available from Tyee after Wrangell & Petersburg loads. (2) Based on 6.8 cents/kWh in 1998, escalated at 3.0% annually starting in 2000. (3) $20,000,000 repaid over 15 years at an interest rate of 3%. (4) Estimated at 10% of PMC power rate. (5) State loan borrowing to maintain cost of power at Four Dam Pool Rate. Cumulative balance shown is end of year and assumes a borrowing rate of 5%. Operating Revenues Existing Revenues Electric Telephone Water Other Subtotal existing revenues Additional Operating Revenues Electric Water Subtotal additional revenues Total Operating Revenues Operating Expenses Electric O&M Telephone O&M Water O&M Customer service Insurance Administrative Allocated City expense Total Operating Expenses Operating Income (Loss) Non-Operating Revenues Interest earnings Revenues available for debt service Debt Service Outstanding Bonds The Bonds Additional Bonds State Debt Total Debt Service Available for other purposes Payments in lieu of taxes Net Cash Flow Debt Service Coverage on All Bonds Ketchikan Public Utilities Projected rating Results Enclosure 2 _ (A) @) (c) With Portion With All of of New New As Forecast State Loan State Loan 2002 2002 2002 $14,430,230 $14,430,230 $14,430,230 10,030,660 10,030,660 10,030,660 1,567,539 1,567,539 1,567,539 210,202 210,202 210,202 $26,238,631 $26,238,631 $26,238,631 $ 2,597,441 $ 2,597,441 $ 2,597,441 282,157 282,157 282,157 $ 2,879,598 $ 2,879,598 $ 2,879,598 $29,118,229 $29,118,229 $29,118,229 $11,183,049 $11,288,609 $ 11,288,609 3,549,000 3,549,000 3,549,000 1,226,160 1,226,160 1,226,160 725,719 725,719 725,719 608,619 608,619 608,619 678,828 678,828 678,828 1,181,786 1,181,786 1,181,786 $19,153,161 $19,258,721 $19,258,721 $ 9,965,068 $ 9,859,508 $ 9,859,508 $ 472,704 $ 472,704 $ 472,704 $10,437,772 $10,332,212 $ 10,332,212 $ 3,322,375 $ 3,322,375 $ 3,322,375 730,515 730,515 730,515 2,528,000 2,528,000 2,528,000 : 603,043 1,675,332 $ 6,580,890 $ 7,183,933 $ 8,256,222 $ 3,856,882 $ 3,148,279 $ 2,075,990 $ 710,635 $ 710,635 $ 710,635 $ 3,146,247 $ 2,437,644 $ 1,365,355 1.59 1.44 1.25 Oct-08-98 02:06pm © From-OFFICE ’ — VERNOR 9074653532 T-648 P.02/03-F=740 weal File October 7, 1998 The Honorable Dennis Egan Mayor of the City and Borough of Juneau and Chairman of the Southeast Alaska Conference of Mayors 213 Third Street, Suite 124 Juneau, AK 99801 Dear Mayor Egan and Members of the Southeast Alaska Conference of Mayors: Thank you for your letter regarding the concept ofa Southeast intertie grid. I agree economic growth cannot be sustained for long without low-cost, reliable electric power. Further, I believe there is no fundamental conflict between economic growth and environmental protection. The evidence is abundant throughout the world that prosperity is one of the surest paths to long-term environmental health. There is every reason to believe the economy and population of Southeast Alaska will continue to grow given its energetic people, its resources, its temperate climate, and natural beauty. Existing hydroelectric projects already supply power to most of the population in the region; but the capacity of these projects is already strained in many cases and will, to an increasing extent, be outstripped by demand as time goes on. One of the great resources of Southeast Alaska is its hydroelectric potential: there are many additional hydroelectric prospects throughout the region that can be developed as the economy grows, but they are not necessarily located where the power will be needed. An intertie grid will allow the most cost-effective projects to be developed in the future, regardless of their location, by providing the means to deliver power wherever the demand for it arises. Oct-00-88 02:07pm —From-OFFICE IVERNOR 9074653532 T-648 =P.03/03--F~740 The Honorable Dennis Egan October 7, 1998 Page 2 The Southeast intertie concept is technically sound. I’m encouraged by and supportive of the possibilities it opens up for Southeast communities. An intertie grid would consist of many individual links, each of which could be built as the opportunity arises. I appreciate your continuing support for this important objective. Sincerely, S/S Tony Knowles Tony Knowles Governor ce: Lonnie Anderson, Mayor of the City of Kake Albert Dick, Mayor of the City of Hoonah Stan Filler, Mayor of the City and Borough of Sitka Jerry Lapp, Mayor of the City of Haines John “Jack” Shay, Mayor of the Ketchikan Gateway Borough Maxine Thompson, Mayor of the City of Angoon Bob Weinstein, Mayor of the City of Ketchikan Jim Shull, Acting Mayor of the City of Saxman Paul Anderson, Deputy Mayor of the City of Petersburg TK/JV/MV/TT/jk/te 2101.DCRA Misc. 27257.doc SEP. -18' 98(FRI) 15:41 KPU © “INISTRATION TEL 225 1000 P. 001 vs a> Fike, KETCHIKAN PUBLIC UTILITIES SWAN LAKE - LAKE TYEE TRANSMISSION LINE INTERTIE PROJECT 2930 Tongass Avenue, Ketchikan, Alaska 99901 (907) 225-1000 (907) 225-1888 Fax FAX TO: Dennis McCrohan 9/18/98 AIDEA K (907) 269-3044 1001 _ FROM: Rich Trimble AZ SUBJECT: Swan-Tyee Intertie - Expenditures to Date and Estimated Project Cost Dennis: T understand your objective is to compare our actual grant encumbrances and expenses against the project estimate. I am probably giving you much more detail than you care to have, but I preferred that you be aware of my assumptions in comparing our costs to the project estimate, The most recent project estimate breakdown is attached. Assuming a domestic timber credit, the project cost is $71.8 million in 1997§. Raytheon escalated that to $73.2 million in 1998$ earlier this year, bul I do not have the breakdown of that estimate so I am Sorced to reference the earlier estimate in 1997$. Just note that we have tried to be consistent in referencing $73.2 million as our most recent 1998$ estimate. $71.8 is nor the current project estimate. If you wish to make further use of the project estimate in your own in-house analyses, let mo know and J will ask Raytheon to provide an updated breakdown of their $73,2 million 1998$ estimate. A rough comparison of our actual encumbrances and expenses to the project estimate follows: Estimated Cost Cost to Date 1997$ The following detail is provided in case you wish to understand how I have allocated our costs: Our licensing/permitting contract with Foster-Wheeler is $2.17 million with about $0.25 million budgeted for environmental services during construction. While we have yet to bid construction management services, I believe it is appropriate to allocate all services during construction against that line item so that is how I handled the $0,25 million, Additional licensing/permitting casts are the EIS related Power Supply Planning Shide at C962 67 a Take Grace altermatives ctidu at $54 4NN and TISFS ensts of $47 291 Tealenlate nre- cc. WE PRS SEP. -18' 98 (FRI) 15:42 KPU ~~ INISTRATION TEL ~~~ 225 1000 P. 002 Our engineering contract with Raytheon is $5.42 million with $1.07 million budgeted for engineering services during construction. Again, I would allocate that $1.07 million against the construction management line item. Our separate geotech contract would add $0.14 million to the cngincering line item. Pre-construction costs are $5.42 - $1.07 + $0.14 = $4.49 million. If you agree with my logic, construction management would have actual encumbrances to date of $1.07 + $0.25 = $1.32 million for the engineering and environmental assistance during construction included in current contracts. For what it is worth, Raytheon has proposed an increase of $1.17 million to their contract to provide the remaining construction management services. KPU has expressed a desire to solicit bids for this service, but if Raytheon’s offer were accepted it would bring our total construction management costs to $1.32 + $1.17 = $2.49 million. This is close to the construction management line item estimate of $2.55 million. You should note that some of the Owner’s Costs should fall into engineering or permitting categories (meteorological investigations for example) but because they are relatively small in magnitude, I have not separated those out for this discussion, Let me know if you would like me to refine that allocation. The result wauld be a slight decrease in owner’s costs to date and slight increases in the other categories. A more specific breakdown of our encumbrances and expenditures to date follow: Encumbered | Expended to Comments date Engineering (Raytheon) $5,420,901 $4,186,184 | Remaining balance mostly construction related. Permitting (Foster-Wheeler) $2,165,362 $1,924,214 | Remaining balance mostly construction related. Power Supply Planning Study $258,357 $165,438 | Remaining balance mostly future (R. W. Beck) updates to report. Geotechnical (Dames & Moore) $139,297 $139,297 | Micropile design resulted in canceling further geotech. Lake Grace Alternatives Study $54,600 $54,600 | Complete. (R. W. Beck) USS. Forest Service review $57,291 $45,574 | Continuing. All other expenditures Meteorological, timber cruise, other prof. services, KPU costs, etc. TOTAL EXPENDED TO $7,118,963 DATE (7/31/98) SEP. -18' 98 (FRI) 15:42 KPU ~IINISTRATION TEL 225 1000 P. 003 } . KS2L0 } : (OC: | LAKE TYEE - SWAN LAKE TRANSMISSION LINE INTERTIE Ce. ee PROJECT CAPITAL COST ESTIMATES (1997$) AD Fey cos | January 1008 Estimate With minimum With maximum vi ear | domestic imber / export timber credit credit Construction Costs A. Transmission Line (57.5 miles) Segment 1: Tyee Lake - Ball Arm $20,203,988 $20,203,988 $20,203,988 Segment 2: Bell Arm - Behm Narrows $4,213,145 $4,213,145 $4,213,145 Segment 3: Behm Narrows - Shrimp Bay $9,665,300 $9,665,300 $9,665,300 Segment 4: Shrimp Bay - Swan Lake $18,955,976 $18,955,976 $18,955,976 Subtotal of A. $53,038,410 $53,038,410 $53,038,410 B. Switchyards / Substations Tyee Lake Switchyard $300,000 $300,000 $300,000 Swan Lake Switchyard $1,200,000 $1,200,000 $1,200,000 Bailey Substation $750,000 $750,000 $750,000 Subtotal of B. $2,250,000 $2,250,000 $2,250,000 Subtotal 1 (construction costs A + B) $55,288,410 $85,288,410 $55,288,410 C. Patential credit for timber , ($4,300,000) ($11,300,000) Subtotal 2 (construction costs A + B +C) $55,288,410 $50,988,410 $43,988,410 Other Costs ™ Licensing/Penmitting $2,000,000 ~* $2,000,000 $2,000,000 ™ Engineering/Investigations $5,500,000 $5,500,000 $5,500,000 Const. Mgmt. at 5.0% of Const. Cost: $2,764,420 > $2,549,420 $2,199,420 Right of Way Costs (Stumpage) $48,000 $48,000 ' $48,000 Contingency at 15.0% of Const. Cost: $8,293,261 $7,648,261 $6,598,261 Subtotal 3 (construction + other costs) $73,894,092 $68,734,092 $60,334,092 ne Owner's Cost at 4.5% of Subtotal 3 $3,325,234 ‘* $3,093,034 $2,715,034 Subtoral 4 (constr. + ather + owner costs) $77,219,326 $71,827,126 $63,049,126 OTAL ESTIMA CT COS’ $77,219,326 $71,827,126 $63,049,126 Assumes project Is bid in spring of 1998 for two years of construction, Assumes work will be done under four independent contracts. The four contracts would be broken down to three for the tranémission line and one for the substation work, Ae Ae OU ey by Came SEP. -18' 98(FRI) 15:42 KPU °°“ INISTRATION TEL: "~~ 225 1000 P. 004 , , > LAKE TYEE - SWAN LAKE TRANSMISSION LINE INTERTIE PROJECT CAPITAL COST ESTIMATE (1897$) (By assumed contracting breakcewn) oe tone son ctcwm coe | corve| sar] smal nasa) ao se tte at Subtotal by Contract Package: Subtotal all construction related costs: $69,331,686 Fored Owner Cost Elaments Licansing/Permitting 2,000,000 Engineering/Investigations §,500,000 Stumpage 48,000 Owner's cost @ 4.5% of fixed costs 339,680 Subtatal Owner Fored Cost Elements: 57,887,860 Total Project Cost On Above Basis With No Timber Credit, 577,218,326 Considering Credit for Timber: " @: $4,300,000 571,827,126 @: $11,300,000 . $63,049,126 * Note: Considering timber credit au stated the contract package for clearing will be reduced to a range between $8.8 million and $54,663 on the above basis. LAKE TYEE - SWAN LEKF TRANSMISSION LINE INTERTIE PROJECT ESTIMATE SUMMARY 19975 (2/98) TOTAL TOTAL CheS1 (1ad) 86 81- “das MATERIAL | LABOR & EQUIP SUBCONT [HELICOPTERS $-AMOUNT +H total unit total mh I total total total as 3EGMENT NO.1 20,203,988 a ae S508 Bae 445 | 46,555,947 | 69,621 | 6,150,892, 4,141,234 6,263,620) = iEGMENT NO2 | 16,059 | 3,430,561 1,458,797 1,332,294. SEGMENT NO.3 8,665,300 ma 1 Sa = 8,036,002 3,187,993 | 1,506,296 3341}: i‘EGMENT NO.4 68,355} 3,107,606 15,648,370 [ 68,356 | 6,240,436 | 3,344,080 65,263,855] = ‘OTAL >>>>>>> 189,898 | 9,167,530 585 [43,670,B80 [189,026 | 17,038,118 9,631,079 | 17,207,683 — <= we fob & demab L 7420779[ 2400] 280,000 1,140,779] 2400[ 227,779 813,000 45 ‘OW, Clearing L 2879,787| 27,508] 71,B16| 2,807,972 | 27,508] 2,610,733 197,239 ZS icropite foundations : 7,121,548 7,121,548 a Ae ile Caps : 6,013,800[ 23,362] 2,3563,740f ~—Sss—s«|: «3,650,060 [ 23,362] 2,217,208 1,432,851 teel pote struc; ave.wt per struc = 11086 Ib 11,070,405 | 70,909] 3,943,757 7,126,648 | 71,461 | 5,880,217 430,800 755,631 sulator_units: 4,076,137 9.228] 200,326 875,841] 9,228] 875,814 ond & insul hdwre assemblies: 2,203,132} 24,211] 190,039 2,013,094 | 21,211 | 2,073,094 \iscellaneous assemblies : 1,183,575 8.030] 421,426 762,149[ 8.030] 762,149 ‘ounding assemblies: 487,603 1,622 33,700 453,903 | 1.6227 153,903 | onducior. 3,438,047 |__ 15,037 | 1,522,727 71,915,320 | 75,037 | 1,427,108 250,843 237,600 ali ds 467,342 Boo] 140,000[ 93.526] 327,342] 2800] 265,742 28,000 33,600) ages: ST & equipment 629,81 6.588 628,88D 629,880 , slicopters: 7,242, a | 7,242,000 7,242, wo aging (removal logs net helicopler) [610437478192] S«8, 104,374] 8,104,374 < Total: $53,038,410 oa . Ss = o ~ => = uw ALASKA1412jp.xis COMMUNITY OF KETCHIKANDRAFT SOUTHEAST ALASKA - ELECTRIC INTERTIE Funding Sources Requested $ 4,400,000 Matching/Local Total - Annual $ 4,400,000 PROJECT SUMMARY: The SE Alaska Intertie is a proposed 57 mile transmission line connecting the Four Dam Pool hydroelectric projects at Swan Lake on the Upper Carroll Inlet and Lake Tyee on the Bradfield Canal. STATEMENT OF NEED AND SUPPORT: e The SE Intertie has been rated the number one regional priority by the community of Ketchikan since the late 1980s. The electrical power so badly needed by Ketchikan is readily available as surplus at Lake Tyee. e Surplus energy sold at Lake Tyee will directly benefit utility rate payers in the Four Dam Pool communities of Kodiak, Copper Valley, Petersburg, Wrangell and Ketchikan. e It will help reduce dependence on back-up diesel generation and the attendant air emissions. e It is universally supported by southeast Alaska operating utilities and communities, by the Southeast Conference, by the Four Dam Pool operating utilities and communities, by Ketchikan Electric Company which is the co-venture firm of Cape Fox Corporation and Alaska Power & Telephone. e It is the first leg in a regional electrical grid that will provide efficient and reliable electrical power to the residents of southeast Alaska from Juneau, to Sitka, Petersburg, Kake, Wrangell, Ketchikan, Metlakatla, and eventually Prince of Wales Island communities. PROJECT STATUS: The EIS for the SE Intertie is complete and the US Forest Service has issued its Record of Decision which has withstood appeal. Design work is complete. Other permits from the Corps of Engineers, Coastal Zone Management and other regulatory agencies are in the final stages. The two-year construction phase can begin as soon as a complete funding program is in place - as early as the summer of 1999. FUNDING STATUS: Estimated Intertie Cost with Domestic Timber Credit $73,200,000 State Grants Authorized/Received $11,200,000 Federal Grants Authorized/Received 9,900,000 State Loan Authorized (has not been accepted by voters) 20,000,000* Federal Grant Anticipated in FY99 Budget 7.500.000 Total Funding Available/Anticipated 48.600.000 Funding Needed $24,600,000 *Funding Needed (If $20 million loan declined by Ketchikan) $44,600,000 LEGISLATIVE DISTRICT SENATE A HOUSE 1 DRAFT ¢ Only the funding shortfall is standing in the way of SE Intertie construction. Ketchikan is asking the state to bond for the $45 million to build the intertie and to utilize 40% of the Four Dam Pool - debt service payment (approximately $4.4 million per year) to create a revenue stream for payment of this bond. (This is not new funding. In 1993 the Alaska State Legislature passed and the governor signed into law legislation allocating 40% of the Four Dam Pool debt service payments to fund the SE Intertie). e The state has set aside $20 million as a low interest loan for the construction of the SE Intertie. Ketchikan will not need or accept this loan if the state assumes bonding responsibility for the SE Intertie; and, the $20 million can be put to other state efforts. PROPOSED FUNDING SOLUTION: LEGISLATIVE DISTRICT SENATE A HOUSE 1 OCT. -02' 98(FRI) 15:16 KPU —fINISTRATION TEL ' 225 1000 P. 001 KETCHIKAN PUBLIC UTILITIES 2930 a Avenue PHONE: (907) 225-1000 FAX: (907) 225-1888 FACSIMILE TRANSMITTAL olin 'Magyar/Rich Trimble ober 2, 1998. | DRS OCT. -02' 98 (FRI) 15:16 KPU 1 { { = 4 t t ! { { { { wuwuvuvvvwwewwwwwweewweww~w - ~ ~~ -~- - NISTRATION TEL: 225 1000 P, 002 Executive Summary The purpose of this report is to present technical information in support of a proposed electrical intertie system to interconnect presently remote isolated load centers; increase system reliability; reduce or avoid diesel dependence; encourage ccanomic development; and stabilize and equalize power rates. This report presents a proposed SYSTEM Plan to assess final feasibility; prepare detailed design and construction documents; and construct and operate an integrated electrical intertie system in Southeast Alaska. “The communities of Southeast Alaska support the concept of a southeast electric grid as a means of reducing or avoiding diesel dependence, encouraging ecanomic development and stabilizing and equalizing power rates. The communities intend to prioritize the development of a regional intertie system, in accordance with individual communities' power needs. The next step is to seck the necessary funding on a partnership basis with the state and federal governments.” ("White Paper”, July 1997, as revised in December 1997) Southeast Alaska is comprised of thousands of islands known as the Alexander Archipelago. The region offers significant natural resources and a quality of life conducive to attract new clean economic development to the area, With few exceptions, no roads or bridges connect islands. People travel between islands by boat, floatplane, and/or wheeled plane. Current limitations imposed by a lack of infrastructure and related availability of low-cost clean energy restrict development of economic development and related improvement in basic quality of life in the participating Southeast Alaska communities. The participants have determined that an integrated electrical] transmission grid will enhance delivery of reliable and low-cost electric service; and support development of an integrated energy, communications, and transportation infrastructure to serve regional needs and attract new economic opportunities to the region. The communities, acting through the Southeast Conference, contracted with Acres Intemational Corporation (Acres) to prepare a Southeast Alaska Electrical Intertic SYSTEM Plan (SYSTEM Plan) that integrates development of proposed intertie segments with new hydroelectric generation capacity designed to serve the needs of the region. The SYSTEM Plan provides a "living" plan that can be updated as the participants proceed through development of the SYSTEM. Participating entities include: Alaska Electric Light and Power Company (AEL&P), Alaska Power & Telephone Co. (AP&T); City and Borough of OCT. -02' 98(FRI) 15:16 Executive Summary KPU —_INISTRATION TEL 225 1000 P. 003 —as~ mince Se me 0 + cane etn Juneau; City of Kake; City of Ketchikan; Ketchikan Public Utilities (KPU); Metlakatla Power & Light (MP&L); City of Petersburg / Petersburg Municipal Power & Light (PMP&L); City and Borough of Sitka; Tlingit & Haida Regional Electrical Authority (THREA); and City of Wrangell. Copies of Resolutions in support af the Intertie System are included at Appendix A. Southeast Alaska electric utilities currently operate isolated systems. The existing clectric transmission facilities in Southeast Alaska are a collection of remote communities solely dependent on their own resources to meet load. With the exception of existing connections between Petersburg and Wrangell there are no interconnections ta import or export power among Southeast Alaska communities and electric utilities. The planned intertic between Swan Lake and Lake Tyee will add Ketchikan to the Petersburg/Wrangell interconnection, AP&T also plans to interconnect Skagway and Haines in 74- 1998. Lacking transmission interconnections to other electric systems, each utility must plan independently to provide full power requirements to meet customer needs. The opportunity to develop a regional system through joint planning will avoid the need to come in Jater and try to fix problems similar to those inherent in the interconnected systems in the "lower 48". Joint planning and system operation will facilitate open access to regional SYSTEM facilities at fair and non-discriminatory rates. SYSTEM ownership could be available to all interested parties - utilities, municipalities, independent power project owners, and large industria] custamers. Users of the SYSTEM would fimd operation and future improvements. Joint ownership and operation would reduce the potential for monopoly control and related potential discrimination, and related costly lengthy litigation regarding alleged abuse of monopoly power, that have restricted efficient use of existing facilities in the "lower 48." Southeast Alaska provides an opportunity to "do it right" the first time by facilitating development that requires joint planning and operation. The challenge of competing in an ever increasing sophisticated marketplace for sales of products demands a more efficient production and delivery system and related infrastructure to support Southeast Alaska products. Increasing dependence on computer based technology demands improved power quality and integrated telecommunications / internet access services. » Traditional and new industries will increase demand for energy production, energy distribution systems, and a better transportation system for the region 99 BOE CoCe __ OCT. -02' 98 (FRI) 15:17 KPU | { { { fieeien(e t wwwwwww ewe wwe w ~ - - - - - — qeerpery Serer Executive Summary INISTRATION TEL 225 1000 P, 004 > The ability to attract new industry and to modemize traditional industry is dependent on enhanced telecommunications, fibre optic networks, intemet access, and efficient transportation systems. » Existing hydroelectric projects are inadequate to serve future growth; isolated load centers will site additional diesel generation to meet immediate needs. » Communities need reliable, cost effective, long-term sources of energy for the future that provide stable electric rates and employment and reduce environmental impacts within the region. One of the critical issues facing the Participants is availability of adequate funds to Completing to support the level of professional engineering and construction services and related physica] features to construct the proposed intertie SYSTEM. Participants recognize that a combination of State, Federal, and Commumity fundin will be required. Communities and utilities would finance now . Regional electric utilities will operate and maintain SYSTEM transmission facilities, Sources of potential private EEE investment will also be explored. The central policy question regarding future generation in Southeast Alaska is whether it is better to continue to develop many load-specific small hydropower projects and additional diese] generation units, or to develop a long-term collective solution to meet future energy demand with larger regional hydropower plant that develop the generation potential of sites with fewer cumulative environmental impacts, Alaskans are interested in protecting air quality and are therefore reluctant to continue to add fossil-fuel- fired generation in highly scenic areas that draw tourists from around the globe and provide a significant source of revenue to local communities. Developing regional power projects to meet future demand will require a regional grid. Normally, the phasing of hydroelectric projects within a power system grid is based largely on the estimated cost of each respective potential project. By nature, hydroelectric projects are capital cost intensive and are generally very site specific. The selected new projects have very similar characteristics consisting of lake taps at perched lakes with tunnels of reasonable length leading to powerhouses at tidewater. Therefore, development costs can be expected to be comparable and consistent with others recently developed in the region. Accordingly, it is appropriate to phase project development on the basis of projected needs for the intertie itself coupled with due consideration to the load Acras Intarnational Camoratian ESs-3 OCT. -02' 98 (FRI) 15:17 Executive Summary KPU _IINISTRATION TEL 225 1000 P. 005 growth in the region as a whole. Thus, the intertie is the key factor in the phasing of hydro generation projects. A regional intertie will enable full utilization of each project as it would come on-line without the particular needs of the respective nearby communities. We interviewed leaders in a number of municipalities and utilities to identify existing studies and plans, and discussed their vision and expectations for an integrated regional electrical system. Based on our interviews and information provided by the participants, review of existing documents, and our analyses, we present this proposed SYSTEM Plan in five phases as discussed below and as shown on Figures 1 and 2. Figure 1, Southeast Alaska Utilities ELECTRICAL INTERTIE SYSTEM PLAN, presents a map of Southeast Alaska depicting load centers, existing and proposed new interties, and existing and proposed new hydroelectric generation facilities. Figure 2, Southeast Alaska Utilities ELECTRICAL INTERTIE SYSTEM PLAN: LOADS AND RESOURCES presents a schematic diagram showing phasing of new generation as loads grow and the transmission intertie SYSTEM is constructed, PhaseI 1995 - 2010 Construct interties connecting Swan Lake and Tyee Lake hydroelectric projects to Ketchikan Public Utilities’ (KPU's) electrical system; and construct an intertie connecting Metlakatla Power & Light to KPU's electrical] system. The Swan-Tyee intertie segment is expected to utilize current surplus generation available from Lake Tyee. As shown in Figure 2, the existing generation resources of the respective utilities in an interconnected grid will be adequate to supply the gross annual loads of the system through the year 2010, Therefore, no additional hydroelectric resources are required during this period, Preliminary cost estimates for development of intertie segments specified during Phase I are $69,772,000/1996$ for the Swan Lake - Lake Tyee Project and $8,785,000/1996$ for the Ketchikan Metlakatla intertie. Estimated costs were presented in documents prepared by others and reviewed by the Actes team during the course of this assignment and do not represent an independent assessment. Z Phase JT Construct interties connecting Sitka and Kake to Petersburg, Ketchikan and Metlakatla, Again the existing resources match reasonable well the overall loads of the interconnected system, thereby requiring no further hydropower development through the year 2015. Preliminary cost estimates for development of i intertie segments specified during Phase II are $19,734,600/ Anema Tmae aan AnAitanrm fl. Valen { { | cer) ea Say? fea near at et Sew a nee | Se es OCT. -02' 98(FRI) 15:18 Executive Summary KPU INISTRATION TEL: 225 1000 P. 006 others and reviewed by the Acres team during the course of this assignment and do not represent an independent assessment. Phase IT : Construct interties connecting Angoon, Tenakee Springs, Hoonah, Green's Creck and Juneau to Sitka, Kake, Petersburg, Ketchikan and Metlakatla (North-South Grid). At this point the load growth for Juneau becomes the major factor in determining the needs of the interconnected system. If mining loads develop during the next few years, Lake Dorothy may be brought on-line before 2015. Further, based on the load growth as projected for Juneau, the system loads can also fully utilize the proposed Swan Lake project within the 2015 - 2020 time frame. Preliminary cost estimates for development of intertie segments specified during Phase Il are $173,788,000/1996$ for the Tenakee Springs/Angoon/Hoonah/Greens Creek/Juneau Intertic. Estimated costs were presented in documents prepared by others and reviewed by the Acres team during the course of this assignment and do not represent an independent assessment, Phase IV Construct interties connecting Skagway, Haines, and Kensington to Narth- South Grid. Construct Takatz Lake Hydropower Project, By 2020, either the Takatz Lake project or the Scenery Lake project could be added to the system. Takatz Lake is shawn on Figure 2 as a part of Phase IV on the basis of the proposed road interconnection from Warm Springs and the transmission system to Sitka as factors in reducing the environmental effects and cost of development. Preliminary cost estimates for development of intertie segments specified during Phase IV are $79,160,000/1996$ for the Juneau - Skagway Intertie. Estimated costs were presented in documents prepared by others and reviewed by the Acres team during the course of this assignment and do not fepresent an independent assessment. Phase V Construct intertie connecting Prince of Wales Island to North-South Grid. With this addition im 2025, the cumulative load projections of the respective communities indicate that the output of Scenery Lake would be fully utilized in its first year of operation. Preliminary cost estimates for development of intertie segments specified during Phase V are $39,089,000/1996$ for the Ketchikan - Prince of Wales Intertie. Estimated costs were presented in documents prepared by others and reviewed by the Acres team during the course of this assignment and do not represent an independent assessment. The general evolution of analyses presented in the 1987 Intertie Study is entirely appropriate for the purpose of progressively narrowing down the weet enn te Bab ab HR td dante wn Unease we idantifiad a OCT. -02' 98(FRI) 15:18 KP|___ MINISTRATION TEL 7 225 1000 P. 007 Executive Summary number of specific concerns that should be questioned in further analyses, and the need to elaborate on some of the cast functions used in the comparison of proposed line segments. The main issue in developing an integrated electrical system is optimal timing of transmission extensions, and ultimately the timing - of future generation additions. Recommended investigations and analyses to complete this SYSTEM Plan include: aa » Update information available and relied on in preparing this Report as noted above. ~ » Review basic designs for transmission lines and substations presented in existing reports for adequacy. Develop a level of detail adequate to provide a stronger foundation for developing refined cost estimates. » Develop generic designs for stand-alone diesel generation supply stations _ and for backup generating stations. Use stand-alone stations in refined Base-Case development plan; assume standby installation as grid is extended to each community. » Conduct a "fatal flaw" environmental assessment for each of the selected line segments concurrent with engineering feasibility investigations to determine whether an environmental issue of significant magnitude would preclude construction and operation of a line segment, even though reasonable mitigation measures could be implemented. >» Update economic parameters and assumptions used in evaluating = alternatives presented in the 1987 Study and apply in furure analyses regarding the proposed Southeast Alaska Electrical Intertie SYSTEM. = » Prepare revised Joad forecasts for participating systems recognizing phased development identified in this SYSTEM Plan. Identify potential new large loads and determine each potential new large load's energy plan with regard to self-generation and interconnection with local utility to provide backup. Identify conservation program actions to be implemented by potential new large loads. » Investigate economies of scale available through multiple use corridors ~ electricity transmission - communications and fibre aptics ~ + transportation OCT. -02' 98(FRI) 15:19 KPU —_INISTRATION TEL 225 1000 P, 008 Executive Summary Proposed Sequencing and Cost Estimates for PHASE NEW LINE SEGMENTS LOAD CENTERS Southeast Alaska 1 Swan Lake - Lake Tyee (KPU, Jnitial Draft Power Supply Petersburg, Wrangell Transmission Grid Planrung Study, 1996) & Ketchikan Segments - 57 mi 138-KV line connects Swan-Tyee hydroe Status: Finaj EIS/ USFS Record of Decision issued 8/97. Construction bids to be requested in [ate 1997. Estimated cast: $69.772,000/1996$ s I Ketchikan - Metlakatla (Alaska Power Authority, Southeast Peteraburg, Wrangell, Alaska Transmission Inertia Study, 1987) Ketchikan & 15 mi 34.5 KV line (14 aa OH / | mi submarine) Comnoct KPU's Motlekatla Mountain Point Sub / Race Point, MP&L. Status: Final documents to be prepared once Swan-Tyce line is under construction. Estimated cust; $8,785,000/1996$* 0 Petersburg - Kaka - Siticn Sitka, Kake, II-A - Petersburg - Kake (DCRA. Division of Energy, Xake- Petersburg, Wrangell, Petersburg Intartie Feasibility Study, 1996) Ketchikan & 46.7 mi 69 KV (44.3 mi OH / 2.4 mi submarine) capable of Medakaila upgrade to 138 KV, Status: 1996 update to 1987 appraisal level engmecring / environmental review. Estimated com: $19.734,600/1996$ TI-B - Kake ~ Slilen (Alaska Power Authority, Southeast Alaska Transmission Interne Srudy, 1987) 55.4 mi 138 KV (20.2 mi OH 35.2 mi DC submarine) cablo Stams: Reconnaissance engineering / environmental. Estimated cost; $45.489.000/1996S* m Sitka - Tenakee Springs/Angoon - Hoonah - Greens Creek - Sitka, Angoon, Junean (Alaska Power Authority, Southeast Alaska Transmission Tenakes Springs, Intertie Study, \987) Hoonah, Groens 148.6 mi 138 KV (120.8 oxi OH / 27.8 mi AC submarine) Creck, Juneau to Stams: Appraisal level engineering / environmental review. Petersburg, Wrangell, Estimated cost: $173,788,000/5]996* Ketchikan, Metlakatta - > (North-South Grid) Iv Juneau - Skagway (Alaska Power Authority, Haines-Skagway Connects Skagway, Region Feanbility Srudy, 1981) Haines, end 70.5 mi (6.5 milea 69 KV OH / 64 miles 100 KV DC submarine) Kensington, north of Staruc: Appraisal level engineering / environmental review. Juneau, to North- Estimated cost: $79.160,000* South Grid £ v Ketehikan ~ Prince of Walea Island (Ajaska Power Authority, Connects Thome Bay, Black Rear Feasibility Report, 1981) Kasaag, Klawock, 19 mi 69 KV or 115 KV (1 mi OH/ 18 mi submarine) Hollis, Craig, and Status: Appraisal Jevel engineering / environmental review. Hydaburg to North- Estimated Cost: $ 39.089.000" South Grid SYSTEM 243.8 mi OH/ 148.4 mi submarine TOTALS 3922 tatal miles Construction Cost Extimate $435,817,000/1996 * Indicates com prepared using standard cost curves to excalate carlier estimase. KETCHIKAN pusbe Stirs Memorandum To: The Honorable Bob Weinstein & City Council From: John A. Magyar, KPU General Manager Date: September 19, 1998 Subject: SE Alaska Intertie (Swan-Tyee) Funding Request This is to request City Council authorization to seek funding from the State of Alaska generally as set forth in the attached Community of Ketchikan Legislative Liaison project document and to seek support for this funding approach from other interested parties in southeast and throughout the state of Alaska. In answer to some questions you may have: e Why would the Four Dam Pool communities/operating utilities support this? Because construction of the intertie will permit full utilization of the Tyee Project and reduce per kWh operating costs to these utilities and their rate payers. Four Dam Pool support for the intertie is greater than it has ever been and, I believe is sellable. ‘ e Why would the state consider bonding for the intertie? Because construction of the intertie will: (1) improve efficiency and future revenue generation of the Four Dam Pool projects which is strongly supported by the voters in the Four Dam Pool communities and the operating utilities; (2) begin construction of a SE Alaska electrical grid that is universally supported by communities and utilities throughout SE Alaska (including Cape Fox Corporation and Alaska Power and Telephone); (3) allow construction of the intertie to go forward with just a little more funding help from state/federal sources; and, (4) allow $20 million to be freed up for PCE, rail belt utilities or other state uses. e Why would such entities as Cape Fox Corporation and Alaska Power and Telephone support the intertie? Because is will serve as a highway for future electrical generation from the Lake Mahoney Project and perhaps other sources controlled by them into a diverse market and enhance their ability to generate and sell energy at a profit in the future. it also opens the door for AP&T to participate in construction of this line. It is my intent to seek a resolution from City Council supporting this funding plan after further discussions with the PMC, Southeast Conference, etc. Recommended Motion: I move that the City Council direct the KPU General Manager to seek funding from the State of Alaska generally as set forth in the attached Legislative Liaison project document. Attachment LEGISLATIVE DISTRICT SENATE A HOUSE 1 TO: Randy and Keith FROM: Dennis DATE: November 20, 1998 SUBJECT: Southeast Intertie Considerations I have attempted to review and summarize relevant issues and questions which have not been answered by the Beck cost of power analysis, the Beck Tyee water availability analysis, and the ISER energy growth reports, and the Daschen financial plan. The cost of power analysis and the energy growth analysis are approximately a year out of date. A new financial plan is being considered but not documented. I have grouped the questions into State, regional, and Ketchikan categories. The majority of the quantitative questions have been answered in the existing reports. However there is no single summary, which makes overall conclusions on the economical viability of the project. Qualitative questions should be answered in a combined report. Many of the questions below are qualitative but should be addressed. State/AIDEA Questions ‘1; What is the long term benefit to the State of the SE Intertie. 2. What are the benefits of distributed vs. inter-connected generation for the Southeast and what are the State and Southeast policies regarding this issue. 3. What is the current financing plan. If State bonding is part of the financing plan, what uses of State bonding might be displaced. If the project and therefore State financing are delayed by installation of small local hydro plants (e.g. 2007 or 2017), what State bonding uses are displaced. 4. What are the economic benefits of the Southeast transmission corridor for multiple uses such as fiber optics, communications, etc. What are the benefits of releasing the State loan dedicated for the Intertie. Is project financing consistent by AIDEA consistent with AIDEA mission and objectives. What is the State policy on independent power producers and retail wheeling. What are the specifics of the new financing plan. What legislative and municipal actions are necessary to implement the financing plan. Qa OON Regional Questions a What are the current SE Intertie project costs assumed for Four Dam Pool debt service, R&R, and Four Dam Pool O&M costs. Page 1 of 3 What is the cost of power sensitivity in Petersburg, Wrangell, and Ketchikan to extended transmission line outages, e.g. 60 days, between Ketchikan and Swan Lake and between Tyee Lake and Swan Lake. What is the cost of power impacts of extreme high and low water scenarios of Tyee and Swan Lake occurring together or in opposition. How does State divestiture of Four Dam Pool or divestiture of Terror Lake, Solomon Gulch, and consolidation of Petersburg, Wrangell, and Ketchikan impact the cost of power. How will revenues, costs, and risks be shared among the State, Four Dam Pool, Petersburg and Wrangell, and Ketchikan. What are the reductions in generation reserves for Petersburg, Wrangell, and Ketchikan resulting from the Intertie and how do these reductions impact cost of power for each city. Are there opportunities for British Columbia sales or generation purchase which are enhanced by the SE Intertie. Ketchikan Questions a 2. tl: 12. 13. 14. 15. 16. How has the actual capital and O&M cost of the new KPU diesel generation impacted the cost of power. What is the wholesale cost of power, escalation indices, reliability factors, and term of Mahoney Lake and 4 Dam Pool proposals for the power sales agreements. How do ISER load growth predictions for 1998 compare to actuals? What new industries have been included in ISER projections. What new industries may occur or be attracted to Ketchikan and what is the impact cost of power (e.g. 10MW industrial load in 2005). What is the impact (e.g. a 10 MW hydro plant) independent power producer on-line in 2005 on the cost of power. What is the impact of the transmission right-of-way maximum timber sales or no sales, storage, and disposal on the cost of power. What is the cost of power impact of failure to receive the $4M appropriation (e.g. for 2 years). What is the impact of Intertie 25% capital cost overrun and/or 25% O&M cost overrun on cost of power. What are the cost of power of impacts of necessary coordinated and limited scheduled outages on Tyee Lake and Swan Lake on the communities. What is the term of the current EIS/ROD. What are KPU action plans if they fail to receive any additional Federal grants. What is the impact on the cost of power of Tyee energy (e.g. 6.8 cents/KWH or interruptible rate, say 4.0 cents/KWH). Will compensation (SVC) be required for the Intertie. What is the cost of power impact. What is the Intertie cost of power difference between the second best alternative and the SE Intertie for low, medium, and high growth scenarios and what amount of investment does the reduction justify. Is any start-up loan required under the current financing plan. What is the cost of power impact if loan is not available. What is the impact on the cost of power of actual capital cost, shorter life, higher fuel cost, and higher O&M cost for the new diesel. What are the impacts of current and future air quality regulations and diesel emissions on cost of power and Ketchikan future growth. What is the cost of power impact of 1% vs. 3% line losses. Page 2 of 3 17. What limits does the Ketchikan financing plan place on Ketchikan’s current loans and future borrowings. 18. How will project insurance be provided and has the cost been included in the cost of power. 19. What is the security for failure to make bond payments. Please let me know if any other assistance is needed. h:\all\sdean\dennis\State-AIDEA Questions.doc Page 3 of 3 & ec: 9VM KETCHIKAN PUBLIC UTILITIES 2930 TONGASS AVENUE KETCHIKAN, ALASKA 99901 TELEPHONE 907-225-1000 FAX 907-225-1888 MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER November 4, 1998 Randy Simmons, Executive Director NOV 09 1998 AIDEA : 480 West Tudor Road Alaska Industrial Development Anchorage, AK 99503-6690 and Export Authority Dear Randy, Thank you for taking the time to meet with Tom Friesen and myself regarding funding for the Southeast (Swan-Tyee) Intertie. We appreciate you taking the time to listen to our pitch and help in developing a state supported funding mechanism. The presence of your staff and your willingness to develop relevant numbers and assumptions and pursue the funding on the state level is essential to the accomplishment of the Intertie. We will keep you advised in our on-going efforts to obtain federal funding in FY99. To than end Mayor Weinstein, our lobbyist Steve Silver and I hope to meet with Senator Stevens and Lisa Southerland in Fairbanks during the AML Annual Meeting. Thanks again. Sincerely, ohn A. Magyar General Manager JAM:klo cc? Mayor and City Council KPU Advisory Board Ceci KLE 29 G:\USER\KORRYO\WINWORD\DATA\007-WSLT.DOC DAY/SUNDAY, OCT. 17-18, 1998 'KPU turns to state for intertie KETCHIKAN, ALASKA New plan requests $45 million bond to build electrical project By SCOTT BOWLEN 7 Daily News Staff Writer Ketchikan Public Utilities has dropped a long-standing finance plan for the Swan Lake- ‘Tyee Lake electrical intertie and now is asking the state to bond for $45 million to help build the project. Securing the funding is KPU's final obstacle before construction of the 57-mile transmis- sion line can begin. The local municipal utility has completed the design, federal environmen- tal impact statement and most of the required permits. “Weare ina position to proceed — except for the dollars," said KPU General Manager John Magyar. KPU is turning to the state after an indepen- dent analysis showed that the earlier funding plan — through which KPU would own the intertie while taking on more than $20 million in debt — might actually raise KPU’s costs for electricity and hamper its future bonding abil- ity. Yhe new funding proposal asks the state to sell $45 million in bonds to help pay for the intertie, which the state would then own. The plan also identifies an existing intertie-related “revenue stream” that could be used to repay the bonds. The remainder of the project's estimated total cost of $77 million would be paid mostly by federal and state grant money already available to KPU. Sales of timber from the intertie route is expected to contribute another $3.8 million. Although it appears simple on paper, Magyar and state Sen. Robin Taylor, R- Wrangell, say the new funding plan will face a tough fight in the Legislature. Building the intertie is essential for Ketchikan's economic future, said Taylor. It's not an easy sell, though, in part because the new funding proposal could reopen a host of old energy issues and emotions on the state level “It's just impossible to talk about it without talking about all the players and factions,” Taylor said. Anelectrical transmission line between Swan Lake on Revillagigedo Island near Carroll Inlet and Lake Tyee near the Bradfield Canal has been discussed since at least 1980, when a link See ‘Southeast intertie,’ page A-4 VOL. 70 NO. 244, (USPS 293-940) 54 PAGES KPU Swan-Tyee Intertie Project Former Funding Plan Current Plan Project cost $73,200,000 $73,200,000 AuthorizedReceived to Date | eee State Grants $11,200,000 $11,200,000 Federal Grants $9,900,000 $9,900,000 State Loan ! $20,000,000 Declined Pending St Federal Grant 2 $7,500,000 l $7,500,000 State bonds ‘$o | (foal Funding still needed $24,600,000 Source No commitments to date Ownership of Finished Project "| Ketchikan Public Utilities kan voters. 7 Anticipated in federal fiscal year 1999. None required State of Alaska Source: Ketchikan Public Utilities. ! Would need approval from Ketchi- £4 "3 Southeast intertie was considered as an alternative to the proposed Swan Lake dam project. The power line would have brought Lake Tyee electricity to Ketchikan. But the line wasn't built, and in 1984 the state began constructing the Swan Lake dam, which now produces most of Ketchikan's hydro-electric power. The Lake Tyee dam, completed after the Swan Lake dam began service, pro- duces electricity used by Petersburg and Wrangell. But those communities consume only about one-third of the dam's hydroelectric potential, accord- ing to KPU information. Untapped potential That untapped potential has attracted KPU's attention at a time when Ketchikan's demand for electricity has been increasing. According to KPU pro- jections, the intertie would satisfy area demand until at least 2014 — and per- haps much longer if demand proves to be less than the highest projected level. KPU also is considering smaller hy- dro-power projects in the immediate area. They include projects at Whitman, Connell and Carlanna lakes, the Mahoney Lake project proposed by the Cape Fox Corp., an upgrade of the exist- ing Beaver Falls facility and an intertie with Metlakatla. If all of those smaller projects were completed, demand still would exceed the supply by 2022 if demand actually reached the highest projections, accord- ing to KPU. "At that point, we would need the Swan-Tyee Intertie to access the next major cost effective hydroelectric re- 4 of its hydroelectric power. started the permitting and engineering processes in 1994 and has since com- pleted most of those. To build the intertie, KPU developed a funding plan that called for the utility to take on debt to pay for some of the construction costs. Part of that debt would have been a $20 million state loan with an interest rate of 3 percent. The 15-year loan has been approved by the state, but KPU also would need the approval of local voters to accept the loan, which would be repaid by KPU electric revenues. Another debt would have been in- curred after the intertie was built. ‘I think it will be a difficult task. ... [think it will take@ significant commitment on the part of the governor, and a signification con- tribution from the interested par- ties and our state Legislature.’ — KPU Manager John Magyar source,” wrote Magyar in a memo to the Ketchikan City Council in February. Beyond Ketchikan, the utilities in Southeast Alaska view the Swan-Tyee intertie as the first major step toward a regionwide power grid that would allow energy to follow demand between com- munities. The first funding plan After a series of studies bolstered the intertie concept, the state Legislature in 1993 approved a combination of loans, ” grants and bonding for the project. KPU KPU is a member of the Four Dam Pool, a group of four municipal utilities across the state that each pay the same price for power produced at one of four state-owned dams (such as Lake Tyee and Swan Lake). Under a proposed power sale agree- ment for the intertie, KPU would pay the Four Dam Pool the usual rate minus several intertie-related costs for power received through, the project... _ w at first However, KPU forecasts that demand A view of the lakeside of Swan Lake dam, where Ketchikan gets most Staff photo by Hall Anderson for electricity would be low in the intertie's early years, and that KPU's intertie costs would be more than the utility could generate from selling inter- tie power to customers. In order to pay the Four Dam Pool for the power and some debt-related ex- penses, KPU was requesting a “start-up” loan from the Alaska Industrial Devel- opment and Export Authority. The balance of the AIDEA loan was projected to grow over time to about $13.7 million in 2015, when demand was projected to catch up and then earn enough money to repay the loan by about 2021. Debt possible However, KPU staff voiced concerns in February that the utility would have a problem if the ai. icipated demand did not materialize. “A short-term loan through AIDEA would allow us to meet our expenses during years of low load in the first years of intertie operations," wrote Magyar. “But we are depending on load growth in later years to pay back that loan. If the load growth does not develop, we could be left with a significant debt at the end of the loan term." The potential new debt load also drew a cautionary comment from A. Dashen & Associates, the Bellingham, Wash.- based financial advisory firm that re- viewed KPU's funding plan earlier this year. Several negatives Noting that KPU had nearly $37 mil- lion in outstanding debt at the end of 1997, Alan Dashen wrote that “the $20 million state loan significantly increases the debt of the system.” Dashen listed several negatives of the funding plan, including the potential of higher elect after the int might find financing fo: ing the inter The cum: tives was su the funding “At this t ask the vote $20 million cently after Ketchikan (¢ However intertie proje utility was plan. The ne The new unanimous], cil on Oct. 1 It asks th: $45 million conjunction money alre: project. The the intertie. Andrathe debt burden using a spec ing to repay The Four million annu generated by cent of that year, goes in state Legislat Swan Lake-T KPU is rec that $4.4 mil proposed $4: “We're n money,” Mag that the state arevenue str: City of ! Weinstein sa view the che setback. “I view it completing t! "...Itmay be: the rate paye the state itse The new p the other con Four Dam P Valdez and k Member Ton Friesen, w in utility issu good idea to mechanism t Overall, “1 able funding said. “I think The new + an gets most by Hall Anderson 2 low in the d that KPU's nore than the a selling inter- -Dam Pool for bt-related ex- nga “start-up” ustrial Devel- ority. DEA loan was ime to about vyhen demand and then earn the loan by le iced concerns y would have d demand did ‘ough AIDEA our expenses the first years rote Magyar. 1 load growth nat loan. Ifthe ‘lop, we could ebt at the end load also drew om A. Dashen tham, Wash.- firm that re- an earlier this ves early $37 mil- at the end of that “the $20 ntly increases 2gatives of the 1e potential of n higher electric costs in the first years after the intertie was built. And, KPU might find it difficult to obtain new financing for other projects after assum- ing the intertie debt. The cumulative weight of the nega- tives was sufficient for KPU to scuttle the funding plan. “At this time, I don’t think it's fair to ask the voters to take on an additional $20 million in debt," said Magyar re- cently after relaying the concerns to the Ketchikan City Council. ___However,-he-quickly added that the intertie project wasn't dead, and that the utility was working on another funding lan. : The new funding proposal The new plan was presented to and unanimously approved by the City Coun- cil on Oct. 1. It asks that the state issue bonds for $45 million, which would be used in conjunction with the state and federal money already in hand to build the project. The state, not KPU, would own the intertie. And rather than KPU shouldering the debt burden, the new proposal suggests using a specific existing source of fund- ing to repay the state bonds. The Four Dam Pool pays about $11 million annually to the state for power generated by the state dams. Forty per- cent of that, about $4.4 million each year, goes into a fund created by the state Legislature in 1993 to pay for the Swan Lake-Tyee Lake intertie. KPU is requesting that the state use that $4.4 million each year to repay the proposed $45 million bond debt. “We're not asking for any new money,” Magyar said. “We're asking ... that the state just take that 40: a revenue stream (to pay off the bonds). City of Ketchikan Mayor Bob Weinstein said Monday that he doesn't view the change in funding plans as a setback. “I view it as a better alternative for completing the intertie,” Weinstein said. “... It may be a win-win-win situation for the rate payer, the Four Dam Pool, and the state itself.” The new plan also has the support of the other communities involved in the Four Dam Pool (Wrangell, Petersburg, Valdez and Kodiak) said City Council Member Tom Friesen on Monday. A good idea Friesen, who has long been involved in utility issues, said Monday that it's a good idea to use the already existing mechanism to repay the state bonds. Overall, "I think it’s the mdst reason- able funding (plan) I've seen,” Friesen said: “I think it's a good funding tool.” The new plan will be included as a Continued from por lobbying item when the Ketchikan area's legislative liaison group visits with state officials later this month in Juneau. On the state level, it's the Legislature that would make the funding decision, said Magyar. KPU also will request that the governor put the intertie item in the budget he submits to the Legislature. Not an easy sell Although the project and funding plan have several benefits, Magyar said he doesn't think it will be an easy sell. "J think it will be a difficult task,” he said. "... 1 think it will take a significant commitment on the part of the gover- nor, and a signification contribution from the interested parties and our state Legislature.” Sen. Robin Taylor agrees with Magyar's assessment, saying several factors will play a part in the outcome. Some Railbelt legislators have hard feelings over long-past decisions regard- ing Railbelt energy projects — and some more recent ones regarding energy in Southeast Alaska, said Taylor. It will take some political muscle to Continued from page A-1 pull the intertie through the Legislature said Taylor: He believes that much of the outcome will hinge on the positions that he and District 1 Rep. Bill Williams, D-Saxman, will have after the Legisla- ture reorganizes following the Novem- ber elections. In the previous session, Taylor was senate majority leader and chair of the Senate Judiciary Committee. Williams who could not be reached for comment for this story, served as chair of the House Transportation Committee. Appreciates help Meanwhile, Taylor said he appreci- ates the help of the Alaska Congres- sional Delegation in securing federal money for the intertie. Noting that fed- eral money paid for much of the Lower 48's energy infrastructure, Taylor added that further federal money would be helpful. “Interties are very difficult to fund locally, and they're difficult for the state to fund," Taylor said. Magyar said KPU continues to pursu- ing further federal funding. For appointments & inf ———— ‘support ANB & ANS Camp 14-—- jurday, October 17 12 noon-3 PM 429 Deermount Tongass Regional Eye Clinic Eye Physicians & Surgeons KETCHIKAN CLINIC SCHEDULE Dr. Gordon Preecs, M.D. will be seeing patients beginni Oct. 26-30 at 3137 Tongass Ave-(he Suis Farm Bldg} rmation call 1-800-478-3700 py Wooclodiay ellie 4a P from vour wondarfill friande ~ Dennis McCrohan From: Randy Simmons Sent: Monday, November 02, 1998 2:47 PM To: Keith Laufer; Dennis McCrohan Subject: SE Intertie John Magyar left me a message today saying the $5 millions is not in the Federal budget. OCT, -09' 98(FRI) 11:11 KPU ADM@QSTRATION TEL:907 225 1000 ; P. 002 KETCHIKAN PUBLIC UTILITIES Memorandum To: Project Management Committee From: John A. Magyar, General an Date: October 9, 1998 Subject: SE Alaska Intertie (Swan-Tyee) Funding At its last regular meeting Ketchikan City Council unanimously approved the recommendation to seek funding for the Swan-Tyee Intertie from the state of Alaska as described in the attached memorandum. City Council action authorized the annual Ketchikan community lobbying effort to include this funding plan. We have passed this information on to Randy Simmons asking for his support and have asked that he communicate it to Governor Knowles. On the related issue of federal funding, we are still hopeful that there will be an FY99 appropriation for the intertie, and have asked to meet with Randy Simmons to discuss additional state funding once federal funding decisions have been finalized. This is to request that the PMC endorse state bonding of the intertie in the amount of $45 million with 40% of the Four Dam Pool annual debt service to be used as a revenue stream to pay the debt service on these bonds. As you know this 40% has been ear marked for the intertie in years when “self help" has not been invoked. ce: Tom Friesen, PMC Representative PMC Agenda Item 5.e Attachment Ce. PRE pL G:\USERUOHNM\WINWORD\PUBLIC\TB1009,.DO0C UUL,~UF JOUPNI) Led ArU AUMINISINALIUN Thy? 225 1000 ~ Pp. 005 ms e ° TELEPHONE 907-226-1000 Fax 907-225-1888 October 2, 1998 MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER Randy Simmons, Executive Director Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, AK 99503 Dear Randy, Last evening Ketchikan City Council unanimously approved my recommendation to seek funding for the Swan-Tyee Intertie from the state as described in the amached memorandum - I had provided Caitlin a draft copy at Southeast Conference last week. I want to make sure this information is in your hands and (through you) Governor Knowles' just as soon as possible, since he is scheduled to be in Ketchikan next week. On the related issue of federal funding, we are still hopeful thar the FY99 Energy & Water Development appropriations bill will include additional funding for the imtertie. Per Dennis McCrohan's suggestion, we look forward to discussing intertie funding with you once the appropriations bill has cleared congress. We do appreciate your interest in finding a way to make this project move forward. It is also heartening to be able to identify all Southeast Alaska utilities, Southeast Conference and Ketchikan Electric Company (AP&T) as supporters of this approach. Thanks, again! Sincerely, ohn A. Magyar General Manager JAM:kla Anachmcort GAUSERUOHNM\WINWORD\PUBLIC\ITB 1002 DOC OCT. -09' 98(FRI) 11:1 KPU ADMQ§PSTRAT ION TEL:907 225 1000 P. 004 _ KETCHIKAN PUBLIC UTILITIES Memorandum To: From: Date: Subject: The Honorable Bob Weinstein & C{f\Council John A. Magyar, KPU General September 25, 1998 SE Alaska Intertie (Swan-Tyee) Funding Request This is ro request City Council authorization to seek funding from the State of Alaska generally as set forth in the attached Communiry of Ketchikan Legislative Liaison project documenr and w seek support for this funding approach from other interested parties in southeast and throughour the stare of Alaska. In answer to some questions you may have: e Why would the Four Dam Pool communities/operating utilities support this? Because construction of the imertie will permit full upilizarion of the Tyee Project and reduce per kWh operating costs to these usiliries and their rate payers. Four Dam Pool support for the intervie is greater than it has ever been and. I believe this funding opproach and the possibility of speeding up the project has great support by the the Four Dam Pool communities. e Why would the state consider bonding for the intertie? Because construction of the intervie will: (1) improve efficiency and fiqure revenue generation of the Four Dam Pool projects which is strongly supported by rhe voters in the Four Dam Pool communities and the operating usilities; (2) begin construction of a SE Alaska electrical grid thar is universally supported by communities and utilities throughous SE Alaska (including Cape Fax Corporasion and Alaska Power and Telephone); (3) allow construction of the intertie to go forward with just a linle more funding help from state/federal sources; and, (4) allow $20 million to be freed up for PCE, rail belt utilities or other stare uses. e Why would such entities as Cape Fox Corporation and Alaska Power and Telephone support the intertie? Because the insertie will serve as a highway for electrical generarion from the Lake Mahoney Project. I: creates other generating and markering possibiliries and it opens the door for AP&T to participare in construction of this line. It is my inrent to seek a resolution from City Council supporting this funding plan after further discussions with the PMC, Southeast Conference, et. Recommended Motion: I move that the City Council direct the KPU General Manager to seek funding from the State of Alaska generally as set forth in the attached Legislative Liaison project document. JAM: ido Amachment GAUSER\KORRYO\WTNWORDACOUNCIL(\007-A8MM.DOC UGT, -O9 98(FRI) Lite APU ADMINISTRATION TE@pO? 225 1000 POS 2 ° ° COMMUNITY OF KETCHIKAN SOUTHEAST ALASKA - ELECTRIC INTERTIE Funding Sources ! Requested $ 4,400,000 Matching/Local Total - Annual $ 4,400,000 The SE Alaska Inrertie is a proposed 57 mile transmission line connecting the Four Dam Pool hydroelectric projects at Swan Lake on the Upper Carroll Inlet and Lake Tyee on the Bradfield Canal. STATEMENT OF NEED ANP SUPPORT: e The SE Intertie has been rated the number one regional priority by the community of Ketchikan since the lare 1980s. The electrical power so badly needed by Ketchikan is readily available as surplus at Lake Tyee. e Surplus energy sold at Lake Tyee will directly benefit utility rate payers in the Four Dam Pool communities of Kodiak, Copper Valley, Petersburg, Wrangell and Ketchikan. e It will help reduce dependence on back-up diesel generation and the attendant air emissions. © It is universally supported by southeast Alaska operating utilities and communities, by the Southeast Conference, by the Four Dam Pool operating utilities and commumities, by Ketchikan Electric Company which is the co-venture firm of Cape Fox Corporation and Alaska Power & Telephone. e Itis the first leg in a regional electrical grid that will provide efficient and relisble electrical power to the residents of southeast Alaska from Juneau, to Sitks, Petersburg, Kake, Wrangell, Ketchikan, Medakatla, and eventually Prince of Wales Island communities. PROJECT STATUS: The EIS for the SE Intertie is complete and the US Forest Service has issued its Record of Decision which has withstood appeal. Design work is complete. Other permits from the Corps of Engineers, Coastal Zone Management and other regulatory agencies are in the final stages. The two-year construction phase can begin as soon as a complete funding program is in place - as early as the summer of 1999, : EUNDING STATUS: Estimated Intertie Cost with Domestic Timber Credit $73,200,000 State Grants Authorized/Received $11,200,000 Federal Grants Authorized/Received 9,900,000 State Loan Authorized (has not been accepted by voters) 20,000,000* Federal Grant Anticipated in FY99 Budget 2,300,000 Total Funding Available/Anticipated 48,600,000 Funding Needed $24,600,000 *Funding Needed (Lf $20 million loan declined by Ketchikan) $44,600,000 OCT. -09' 98(FRI) 11:12 KPU ADMSMSPS TRATION TEL:907 225 1000 ‘ - PROPOSED FUNDING SOLUTION: Only the funding shortfall is standing in the way of SE Intertic construction. Ketchikan is asking the state to bond for the §45 million to build the intertie and to utilize 40% of the Four Dam Pool - debt service payment (approximately $4.4 million per year) to create a revenue stream for payment of this bond. (This is not new fimding. In 1993 the Alaska State Legislature passed and the govemor signed into law legislation allocating 40% of the Four Dam Pool debt service payments to fund the SE Intertie). The state has set aside $20 million as a low interest loan for the construction of the SE Intertie. Ketchikan will not need or accept this loan if the state assumes bonding responsibility for the SE Intertie; and, the $20 million can be put to other state efforts. P. 006 | 1/26/79 ee (9a —> Anador MeGmnol Ret Cloak | 1 4.0 conde fo ee | 5 ; ee biped) 4 Uero de Bley 220% pondiira,! 5. ledalar Rbae ablensydion 6, LR en nuid 2 en’ cess | 7 Lohy nde Zo | Sc t \| i | 0 WET 4s jo pegs calito, punnrdhiy, lz. Wow cotkain is te Taber cota 3. Sonata te Load aporalh Ilé. RPU propenta Dict? mut bo 42% 4 DS; whdboce Boat as 5 net am | - Pledag Dusdon Nevenul, Ie. DS Qagmact DUIUT . Maimnbousce | “gatas eee = (G ReRR taped yy DS peynowk Compo) me (owes Sha 10. 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Foto" for Loi 5S, All [cou Aame parity on soee te N } Paymwr te, tA peal unt Zoce 129 COU 44 CUI ee Sei wert ree, yk Yo Ne, Ban ATES “SMORESEARR” — /S, ALASKA x OK ZED ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044 MEMORANDUM W oR TO: David Ramseur, Deputy Chief of Staff - roxed ' ee Office of the Governor ‘ Rie Se Me ‘THRU: ica Executive Director (jew 4 Alaska Industrial Development and Export Authority FROM: eith Laufer, Financial & Legal Affairs Manager Alaska Industrial Development and Export Authority DATE: December 26, 1997 ht SUBJECT: — Swan Lake-Lake Tyee Transmission Line Introduction This memorandum is provided as background to aid in developing responses to the December 1997 letters sent to the Governor by Scott Seabury and Edwin Kozak regarding the proposed Swan Lake — Lake Tyee Transmission Line (the Intertie). The letters are attached for your reference. The letters request that the Governor place the Intertie on the Priority List for federal funding. Ron Clarke thought it would be helpful if we provided this memo so that you could consider where this project ranks as a federal funding priority. We believe that someone from the Govemor’s office will ultimately be responding to the Seabury and Kozak letters. If that is not the case, please let us know. Discussion The proposed Intertie (also sometimes referred to as the Southeast Intertie) would connect the« Tyee Hydroelectric Project (which serves Wrangell and Petersburg and is a part of the Four Dam Pool) with the City of Ketchikan. Unused surplus power from the Tyee project would be transmitted via the Intertie to Ketchikan. Currently, Ketchikan’s primary source of power is the Swan Lake Hydroelectric Project (also a part of the Four Dam Pool). The Swan Lake Project does not supply sufficient power to cover all of Ketchikan’s needs and therefore Ketchikan Public Utilities (KPU) supplements Swan Lake power with diesel generation. The proposed Intertie would allow for load growth in Ketchikan and reduce the need for diesel generation. The Intertie would, for the first time, link two of the Four Dam Pool projects. The linked systems could then be used more efficiently by allowing Tyee’s currently unused capability to be ine JW theta A Lio aes. ~ CONFIDENTIAL Deliberative Process _David Ramseur, Deputy Chief of Staff _ December 26, 1997 Page 2 utilized in Ketchikan. This would create additional Four Dam Pool energy sales and ultimately r increase the state’s “debt service” payment from the Four Dam Pool (although under Ketchikan Public Utilities (KPU) current proposal this would not occur for many years). Overall, we view “the proposed Intertie as a positive improvement to Alaska’s energy infrastructure. There are a number of Intertie related issues, however, that should be considered in determining state priorities for federal funding. The key issues are: Amount of Federal Funds Required — The current KPU plan requires additional federal grant funds of approximately $39 million. It’s unclear if KPU can realistically expect this amount. Any decrease in the projected federal funds will create a deficiency in the project budget. In FY 1997, KPU had requested $20 million in federal grant funds but only received $10 million. be 6.2 Agreement on Power Cost - Under the PowerSales Agreement for the Four Dam Pool, the wholesale power rate for power transmitted over the Intertie to Ketchikan must be agreed tot all of the Four Dam Pool parties (including AEA). KPU has proposed that the amoyat paid to the Four Dam Pool for the power bé substantially less than the approximatel 6.49 ents per kWh uniform rate paid by the purghaSing utilities for non-surplus power. KPU’s proposal is that the actual rate paid by KPU be ents less all costs incurred by KPU related to the Intertie (both capital and operational). Under this approach, there would be no payment to the Four Dam Pool for at least ten years because of the recovery of capital and operational costs. It is unclear if any of the other Four Dam Pool parties (including AEA) will agree to this approach. An agreement regarding the power rate is essential before the feasibility of the Intertie can be determined. Proposed AIDEA Interim Financing —- KPU’s proposal is that the Intertie not result in any rate increases to the KPU utility consumers. In order to accomplish this, KPU has indicated that it may seek a working capital loan from AIDEA until such time as the Intertie produces positive cash flow. This type of AIDEA loan is not traditional and would likely require statutory authorization and a vote of the citizens of Ketchikan. Conclusion We believe that the development of the Intertie would be a positive addition in the Southeast Alaska energy infrastructure. There are a number of significant issues that need to be resolved, however, before AIDEA could recommend that the state provide assistance for the project. ~ Please let me know if you require any additional information. CC; Annalee McConnell, Director Office of Management and Budget Ron Clarke, Special Staff Assistant Office of the Governor Attachments CONFIDENTIAL Deliberative Process * SENT BY: 12-15-97 311:22AM ; GOV. OFFICF-.ININEAL> i# 2/7 tAX NO, David-17464 | P.O ine iz{1la7 | CITY of WRANGELL, ALASK 4 INCOTPORATED JYNE 15. 1985 BOX B31, 99929 OPT} STATIS FAX: {007 874.9008 ADOPTED AVEYET bata December 1, 1857 } 5 The Honorable Govemor Tony Knowmas P.O. Bax 110001 Juneeu, AK 99811-0001 Dear Governor Knowles: At thelr regular meeting, November 25, 1897, the Wrangell City Caunall adopted Resolution #1 1-97-708, whioh requests thet the Swan Lake-Lake Tyee an Ling {atartie Project, be placed on tha priority list for federal ing. Enclosed ts & copy of that resolution. Your help In this matter will be mout appreciative, Thank you for your asalstanice. ly, Scott Seabury Chy Manager 88:4} Ene. co: = John Magyar, KPU ” SENT BY: 12-15-97 311:22AM ; GOV. OPFICE--lINEAL+ i# 3/7 “8 CITY OF WRANGELL, ALASKA [ TH RESOLUTION NO._11-97~706 ATTAC H M fe \ A RESOLUTION OF THE COUNCIL OF THE CITY OF WRANGELL, ALASKA, CALLING ON GOVERNOR KNOWLES TO PLACE THE SWAN LAKE-LAKE TYEE TRANSMISSION LINE INTERTIE PROJECT ON THE PRIORITY LIST FOR FEDERAL FUNDING . WHEREAS, the Clty of Ketchikan for years has been in need of additional hydroelectric capacity to support {ts current economy and has recently been relying on high cost diesel generation; and WHEREAS, the City of Ketchikan has been actively pursuing the development of the Swan Lake - Lake Tyee Transmission Line Intertie to allow the City access to the considerable surplus of hydroelectric energy available at the Tyee project, owned by the State of Alaska, as aur only long-term solution to this hydroelectric shortage; and WHEREAS, the decline of the timber industry and closure of the Ketchikan Pulp Mill have directly affected our economy and ability to finance thia project while still teaving Us with a hydroelectric shortfall; and WHEREAS, both the State of Alaska, the City of Ketchikan, and the City of Wrangell have encouraged recovery of the economy by actively seeking new value-added industry; and WHEREAS, there is not adequate hydroelectric resources available lacally to support the industry that both the State and the City are encouraging without the Swan-Tyee Intertie; and WHEREAS, the City has requested assistance from the Federal government to construct the Swan Lake - Lake Tyee Transmission Line Intertie; and WHEREAS, the Federal government has responded by appropriating $10 million which will assist the City in beginning construction activity; and - Lake Tyea Transmission Line Intertie ls to be built and the surplus electrical WHEREAS, additional Federal funding will be essential if the Swan Lake energy used for economic development in Ketchikan; and * SENT BY: . 12-15-97 311:23AM ; GOV. OFFICE- "NEAU> MEU-UI-91 TUN Uoibt rn FAX NO, | WHEREAS, all the communities of the Four Dam Poo! will benefit fram the construction of the Swan Lake - Lake Tyee Transmission Line Intertle through reduced cost of power, and WHEREAS, the Swan fake ~ Lake Tyee Transmission Line Intertie will reduce the amount of water spilling at Lake Tyee; and WHEREAS, every gallon of water that spills at Lake Tyee is forever lost as a source of electrical energy to the people of Alaska and as a source of funding for Power Cast Equalization (PCE). NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF WRANGELL, ALASKA, that we hereby call upon the Governor of the State of Alaska to establish the Swan Lake - Lake Tyee Transmission Line Intertie project as a State priority for Federal funding. ADOPTED: November 25 , 1997 William B, Privett, Mayor armeat faite fame ne Christie L. Jamleson, City Clerk i# 4/7 P, 03/03 10-15-97 311:24AM ; GOV. OFFICE-"™EAU+ David-17574_ |Z] 0197 ce: Marilyn; OMB RECEIVED ‘The Honorable Tony Knowles DEC = 5 1997 Governor of Alaska L State of Alaska OFFICE OF THE GOVERNOR P.O. Box 110001 Juneau, Alaska 99811-0001 Dear Governor Knowles: Kodiak Electric Association (KEA) is a member owned Cooperative suppling electric power to the area in and around the communities of Kodiak and Port Lions. The primary source of our power is the State owned Terror Lake Hydruclectric project. KEA is a member of the Four Dam Pool as are the communities of Ketchikan, Petersburg and Wrangell and the Copper Valicy Electric Association. The KEA Board of Directors are familiar with the Swan Luke - Lake Tyee Transmission Line Tutertic Project and recently adopted the attached Resolution 468-97 requesting your cansideration of placing the Swan Lake - Lake Tyce Transmission Line Intertie Project on the Priority List for Federal funding. 71+ Thank you for your consideration and have a very Merry Christmas and Happy New Year. Edwin K. Kozak, P.E. General Manager KK: tf cc: " KEA Board of Directors John Magyar, Ketchikan Public Utilities wenacy werigow aye. 127 i# 5/7 12-15-97 :11:25AM ; GOV. OFFICE “'NEAU> KODIAK ELECTRIC ASSOCIATION, INC, KODIAK, ALASKA RESOLUTION 468-97 Page 1 of 2 Calling on Governor Knowles to place tha Swan Lake/Lake Tyee Transmission Line WHEREAS, WHEREAS, WHERBAS, intertia Project on the Priority List for Fedaral Funding the City of Ketchikan has becn in need of additional hydroelectric capacity to support its current economy and has recently been relying on high cost diese] generation; and the City of Ketchikan has been actively pursuing the development of the Swan Lake/Lake Tyee Transmission Line Intertie to allow the City access to the conskicrable surplus of hydroelectric encrgy available at the Tyce project, owned by the State of Alaska, as their only Jong term solution to this hydroelectric shortage; and the decline of the timber industry and closure of the Ketchikan Pulp Mil] have directly affected Ketchikan's economy and ability to finance the project while still leaving them with a hydroelectric shortfall; and both the State of Alaska and the City of Ketchiken have encouraged recovery of the economy by actively secking new value-added industry; and there is not adequate hydroelectric resources available lucally to support the industry that both the State and the City are encouraging without the Swan-Tyee Intertic; and the City has requested assistance from the Federal government to construct the Swan Lake/Lake Tyee Transmission Line Intertie; and the Federal government bas responded by appropriating $10 million which will assist the City in beginning construction activity; and additional Federal funding will be essential if the Swan Lake/Lake Tyee ‘Transmission Line Imertic is to be built and the surplus clectrical energy used for economic development in Ketchikan; and i# 6/ 7 |” SENT RY: 12-15-97 311:25AM ; GOV. OFFICE — NEAL+ KODIAK ELECTRIG ASSOCIATION, INC, KODIAK, ALASKA RESOLUTION 468-97 Page 2 of 2 WHEREAS, all the communities of the Four Dam Pool will benefit from the construction of the Swan Lake/Lake Tyce Transmission Line Intertic through reduced cost of power; and, WHEREAS, the Swan Lake/Lake Tyee Transmission Line Intertic will reduce the amount of water spilled at Lake Tyee; and WHEREAS, every gallon of water that spills at Lake Tyee is forever lost ax a source of electrical energy to the people of Ketchikan; and NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of Kodiak Electric Association hereby call upon the Govemor of the State of Alaska to establish the Swan Lake/Lake Tyee Transmission Line Intertie project as a State priority for Federal funding. CKRTIFICATION 1, Kathleen Ballemper do hereby eertity that [nm tlected Secretary of Koditk Diectrit Atpolation, lat. un electrical pooprolt coopertire membership corporation mfganizad and exteting under laws of the Sta of Alaska; that the docogolng ls x compict: nad correct copy séopred 4 mecting of dat Board of Dicsotort of this corporation, dnty and properly called and nid on the Zist day of Noveriber, £997; mua querom was prétoht at the meeting; thal the resobution ia sct forth in the minutes of the meeting mad bes text been rescinded or racdified. IN WITNPSS WITEREDY, I taeva berounto mibecribed my mans and affixed the seal of this corporation tile tworty-first day of Nevensher, 1997. : Seat) . weil 6 stat lias , mee i# 7/7 Dennis McCrohan From: Dennis McCrohan Sent: Thursday, September 17, 1998 11:49 AM To: Keith Laufer Subject: RE: AEA Policy Outline Keith | got the wrong data. The unencumbered funds remaining are $1.9M. The unexpended funds are $3.2M. Dennis oo Original Message----- From: Keith Laufer Sent: Thursday, September 17, 1998 9:43 AM To: Dennis McCrohan Subject: AEA Policy Outline | need a couple of pieces of information from you to complete the outline. Could you let me know the unexpended amount of the Southeast Energy Fund monies. Also do you have the current estimate for the Southeast Intertie? Thanks for your help. Dennis McCrohan From: Dennis McCrohan Sent: Thursday, September 17, 1998 11:33 AM To: Keith Laufer Subject: RE: AEA Policy Outline Keith Unexpended monies for the SE Intertie from State grant funds are approximately $4M. Total project cost is approximately $73M. Dennis an Original Message----- From: Keith Laufer Sent: Thursday, September 17, 1998 9:43 AM To: Dennis McCrohan Subject: AEA Policy Outline | need a couple of pieces of information from you to complete the outline. Could you let me know the unexpended amount of the Southeast Energy Fund monies. Also do you have the current estimate for the Southeast Intertie? Thanks for your help. ie F; le Se CF ly PUBLIC UTILITIES 2930 Toncadi yee Ines q 1999 TEHIKAN, ALASKA 99901 enn ees and fg, “Stria/ D, Ex evel Port Auth, rigement MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER September 8, 1998 Dennis McCrohan AIDEA 480 W. Tudor Road Anchorage, AK 99503-6690 Dear ‘Ohan: Ketchikan Public Utilities has been investigating a possible financing scheme for the Swan- Tyee Intertie. We have been considering taking advantage of a $20 million state loan, backed by the City of Ketchikan, with the rest of the Intertie cost covered by grant funding. This plan also required additional debt in the form of a “start-up loan” as our projected sales in early years may be exceeded by our debt service obligations. Finally, this plan required some consideration for Ketchikan’s risk and expenses in a Four Dam Pool power sales agreement, which I have discussed at the PMC meetings on a couple of occasions. The City of Ketchikan retained Mr. Alan Dashen to assess the City’s ability to accept this debt service. His report to us is attached for your information, but it is fair to say that our ability to accept this level of debt is doubtful. While this is not encouraging, I am confident that with your continued assistance we can find a better scheme to finance and construct this project. As you know, if we can find a way to take advantage of the funding that has already been earmarked for the project, our rates will all benefit from the additional energy sales. I look forward to continuing the productive meetings and discussions we have had recently regarding financing of the Swan-Tyee Intertie. Please contact myself or Richard Trimble if we can provide any additional information about this report or the project. cerely, CC, DR re John A. Magyar General Manager JAM:klo Attachment G:\USER\KORRYO\WINWORD\DATA\007-CSLT.DOC Dennis McCrohan From: Dennis McCrohan Sent: Wednesday, April 01, 1998 2:14 PM To: Keith Laufer; Randy Simmons Subject: SE INtertie Keith and | spoke with John Magyar of KPU. Keith had to leave in the middle of the call. The results were: 1. KPU is committed to a continued dialogue with AP&T regarding Mahoney Lake. 2. KPU's attorney has consulted with Ron Saxton regarding AP&T's contention that the 4 DP PSA allowed Mahoney Lake to displace Swan Lake. KPU's attorney's name was Steve Schweppe and he may call Keith. Schweppe is preparing an opinion regarding AP&T's evaluation of the 4 Dam Pool PSA. 3. Based upon the current information which KPU has received from AP&T, KPU's rates would increase as a result of Mahoney Lake displacing Swan Lake. 4. KPU would seek indemnification from AP&T from any legal action by the State or the other 4 Dam PooL utilities as a result of Mahoney Lake displacing Swan Lake. 5. Magyar stated that KPU's rates are very low and it is a result of owning their own hydro, free of debt and Swan Lake. Magyar strongly supports construction of the Intertie to expand the grid, gain generation flexibility, and reduce costs. He also supports Ketchikan ownership of Swan Lake. In summary Magyar is not in favor of Mahoney Lake and thinks it would cause an increase in rates in the short term. However he cannot speak for his Board but this would be his opinion if asked today by his Board. Subsequently | talked to John Heberling of Beck who did the cost of power study for KPU. He agreed that KPU rates, as a result of Mahoney Lake, would increase in the short term based upon his report. However if a large grant became available or if Mahoney Lake costs could be reduced significantly(which AP&T claims can be done), the impacts of Mahoney Lake on KPU would change. Alternatively KEC could sell power at the Swan Lake rate and take a loss for a period of time. TO: Keith and Randy 14-Apr-98 FROM: Dennis SUBJECT: Mahoney Lake Impacts Source of Date: KEC Mahoney Lake Project-Chart 2 March 4, 1998 Magayar memo to Ketchikan City Council RW Beck February 23, 1998 Report Assumptions for Mahoney Lake: Mahoney Lake generates 40,000,000 kwh at $.071 per kwh Swan Lake generates 41,000,000 kwh at $.067 per kwh KPU hydro gnerates 66,000,000 kwh at $.042 per kwh Assumptions without Mahoney Lake: Swan Lake generates 81,000,000 kwh at $.062 per kwh KPU hydro generates 66,000,000 kwh at $.045 per kwh Impacts of Mahoney Lake: 4 Dam Pool-1998 with current load Displaces $1,600,000 of 4 Dam Pool debt service Increases 4 Dam Pool wholesale power rate by $.005 cents per kwh KPU-1998 with current load Current wholesale cost of power for KPU is $.053 per kwh in 1998 Wholesale cost of power with Mahoney Lake would be $.057 per kwh in 1998 Swan CagaeS 70, (D0, DOO Ko HH -MAR-25-98 WED 9:28 03 { Z5U1K Start M.W., Suite 9 A« Warhinglon D.C. 20037 « (202) 3942-16690 ax (202) 342-2066 711 Poult Stiget, Suite 302 6 « Junranes, AK 9900 1+ (907) 463 IGIGMax (9107) 469 IGT Markley 7 Company Mailing Addiass: P.O Box 244902 » Anchutsgo, AK 99524 4902 Tor nC hen rom: LARRY MARIKLEY BA Ummm (APPT) Fant 9643490 Pagest Caching cover) hs ee. - pater 7) 9 AP Re odor | indhecdee ct: U urgent Lor Review UJ Plense Comment FAX NO, 02 P.O1 @ Contents: , Ly £t — f° TL « MAR-25-98 WED 9:28 03 FAX NO. 02 P, 02 MAR-25-98 88:25 AM i P.e@2 Wednesday, March 25, 1998 KETCHIKAN DAILY NEWS EDITORIAL Fix infrastructure The Mahoney Lake Hydroelectric Project and the Swan Lake/ Tyee Lake poten Intertie should be developed, Ketchikan no longer can depend on Ketchikan Pulp Co. to provide additional power in times of shortages; the cman generator went the wa ff the pulp mill. Ket 's only backup is a of dies enerators, They are designed to take mene so much of the power oad and by no means provide enough for a vital and growing community, Ketchikan needs additional power if its going to recycle the pulp = ‘operty for other industry. It also can use new power Sources fe business community leaders hope to attract here to replace re which has closed its doors, Power is an important factor when businesses evaluate whether to move into a community, Cape Fox Corporation and Alaska Power i Telephone Co po re to develop at 9. eer ject on Upper Mahoney about 10 nh northeast of Ketchikan. AP&T Is a private enterprise that serves 28 communities in Southeast Alaska, It successfully has built two other hydroelectric projects — one at akagway | and another on Prince of Wales Island The Mahoney project is expected to cost $17.5 million and be completed in a couple of years, anwhile, city officials continue to pursue funding for the Swan Lake/Tyee Lake intertle, which is estimated to cost $77 million. The City Council recently voted to accept bids for intertie construction materials, But the city continues to work toward securing all of the yes ject’s funds, oth projects will boost Ketchikan’s economy and provide for the sere ‘onstruction and reer ‘jobs will be provided in addition to pid extra power capacity. AP&T's project wall not involve public funds, which is an additional plus fer it. Additionally, AP&T has orered on the project with a native sonpcnatinn tails andis likely to continue to play a partin thearea’s economy. All native corporations with thel¢ land and natural resources are or will be major players in the economy. A second example of that is the mare corporation Scalaska's Seto with Louisiana Pacific In « vencer plant at the old mill site. Ketchikan's infrastructure needs to be upgraded to handle that and other business. Power is integral; pce has tobe able toturn on the lights when it opens its doors. Saunce_'. KEC N\alsva, Wedec Praad Mord 4, 142 Meme for Meapaar_ DW Koltcbileor CX Counc Clradt ¥ —2 Suan bebe 81 ark Jue 2000 Ye 2Zeo> Chat2— Sve, Dae LO Qvw-ln Lupen 9000 % 2085 Lmpadt on ADP Debt Servi AR Cov, OBO KWAK -O4 = Hl,LAO,O80 Per Lear BARONY, Vo AS Sw Poojed? a. 4 ADP Pawn: 260,006, DOO Kish — AQ, O00,0890 ud [Wudronnn DA® | O60, Ooo T stall FcQrnoce: O \€,031, S00 — Gderdarsaea | 640,50) =~ 16,7, BOO cer Hwy Wilh Moors, sa Swen coca Mxed WS S00. *, O6555— now) Act cs oa een” bY 16,341, 300 2 BoD Net ee ee ee IME, O00 5 DOO 00D & Lyvwke pede Ow AGRO | MOADCES Walnetke Te dong sess. bole ee DOC2 RARA, Wa prune Ye pede by 4 1640, 080 pe, vgey ae gece eb tl Fae ; & Wobswse ecko | Biaglacta Aven hake, Gowen aud Zradbuw 4D0 cach \AKeD, Carrer pm ens boloale eave, acle \novuee bf *% 0055 on Wo Ha anresrcoradh ale G Nahere al. presale robe O71 comks / Kw hoy int year CLIWWLI et | ecg enee Bison ial, “3 p a Tatte+— We cau \oed) enous @® Corat dah H Pawer LA 4 Ces CDS eon Kas & a fanek gncretk Qrevides Zo So = 47% O\ Qowe O27 LOGS = LOST RI Ae oe BS 6s CORN Dawmnen KPO od WWabswy = Wa Se ENS tee ee Oa Kea) (2 apna 26D * ~ OSwatetelg KOR Coch = 4,053 Qn Kor Swen Ww Qfiwoon S97> A hah cost | -OnF th. OS2S > .062% 35 + HYUSS We 620 Li Bong \Wu dro Bee = Dwsten Sa « . COe ’ Oc?) NF pee (.062 + 005) 4:22 + ON KT + S2OKAT = OM Ane ey cart ert = Ou 17 MAR. "26 98(THU) 09:29 . SWAN LAKE - LAKE TYEE TRANSMISSION LINE INTERTIE PROJECT KPU NISTRATION TEL: 225 1000 KETCHIKAN PUBLIC UTILITIES FAX TO: FROM: 2930 Tongass Avenue, Ketchikan, Alaska 99901 (907) 225-1888 Fax (907) 225-1000 Randy Simmons Dennis McCrohan Comm. Mike Irwin Percy Frisby Bennie Reinhart John Heberling Alan Dashen Dennis Lewis Dave Carlson William Privett Scott Seabury Walt Sapp Robert Wilkinson Ron Saxton Jeff Paine Ellen Hall RICH TRIMBLE AIDEA AIDEA DCRA DCRA USDOE RW. Beck Dashen & Assoc, PP&L/PMC PP&L/PMC WL&P/PMC WL&P/PMC KEA/PMC CVEA/PMC Ater, Wynne, et al. Raytheon Foster-Wheeler (907) 269-3044 (907) 269-3044 (907) 465-2948 (907) 269-4645 (208) 526-0969 (206) 695-4764 (425) 452-9552 (907) 772-9287 (907) 772-3064 (907) 874-3952 (907) 874-3952 (907) 486-2441 (907) 822-5586 (503) 226-0079 (425) 451-4648 (954) 382-2237 SUBJECT: SWAN-TYEE INTERTIE MEMO TO COUNCIL A memorandum to our City Council is attached for your information. Please call if you have any questions. Thanks, Rich P. 001 ae ~ MAR. -26' 98(THU) 09:29 KPU INISTRATION TEL: 225 1000 P. 002 KETCHIKAN PUBLIC UTILITIES Memorandum To: The Honorable Bob Weinstein & City Council From: John A. Magyar, KPU General Manager Date: Match 23, 1998 Subject: Washington, DC Lobbying Report The attached report by Steve Silver, KPU’s Washington lobbyist, is provided for your information. Attachment MAR. -26' 98 (THU) 09:29 KPU ~~ NISTRATION TEL: ~~ 225 1000 1 SENT .BY+Xerax Telecopier 7020 e2d~98 5 10899 5 103527 7 907 | ANCHORAGE OFFICE RongrtTaon, MoNAGLE & Eastauce Wee WEET REVEND SAVANE. QUIT 1800 APROFEEAIONAL CORPORATION ANCHORAGE ALAGKA WHIOT Arromyeys ar Law PHONE; (907) 277-4684 FACSIMILE: (907) 270-1880 LEROY J. BARKER From: Steve Silver Ro: — Status Report On March 9 and 10, 1998, a delegation of the City of Ketchikan met with various officials Washington, D.C. A report on the meetings follows: project, He also will work with Sen. Stevens to obtain as much funding as possible. The necessary material for this appropriations request was given to Sen, Stevena’ staff, Con. Don Young - A good meeting. Congressman Young will work on the House side to support of this request, good meeting. Mr, Flint was invited to Alaska to yiew the project, P. 003 225 180d;% 2 WUNEAU OFFICE QO.PERLT BUILPING 10} W. 10TH STREET SUITE 300 NUNEA\, ALARA BpaD) PHONG: (R07) Sa. 9940 FACSIMILE: (907) G-Gn18 : ROVAL AROH QUNNIBON (1879-4018) HAROLD F. NOW, JF Ru. ROBERTSON (1886-1001) * JULIA B. BOCKMON MR MONAQLIN (1002-1083 NELSON HUBRELL, P.O. RAGTAUGM (10190 ATACY & STEINBERG JAMES F, CLARK WASHINGTON, D.C. AND VIRGINIA OFFICE ng ce ARLINGTON COLRTHOQURE PLAZA |) TERRY L THUABON Soccer eee PRONE! (Pod) Sareeeta ne! BTAGIE L, KRALY FAQBIMILE: (703) 897-047) peurrrme i Weneibece.as, see on ant ABMITTER IN VIRGIN, * * BRADLEY 0, GILMAN March 23, 1998 WANDUNQITON, 0.6. AND ALASKA , AUL OTHERS AMET WN ALARA To: John Magyer in Sen. Ted Stevens ~ A good meeting, Expressed support for the project and commitment to seek additional funding. He warmed us that achieving the entire $35 million in one vear will be - difficult, The necessary material for this appropriations request was given to Sen. Stevens’ staff. Sen. Frank Murkowski - A good meeting, Sen. Murkowski expressed his firm support for the get support for the appropriation. He will also contact the key members of the House to seek their Alex Flint, Staff Director Senate Subcommittee on Energy and Water - Mr. Flint heads the staff for the subcommittee which oversees the budget for this project. The meeting was intended to familiarize Mr. Flint with the project, Mr. Flint made no commitment, but the meeting was a Don McKinnon, Staff Director Senate Subcommittee on Energy and Water - Mr. McKinnon heads the staff for the subcommittee which oversces the budget for this project. The meeting was intended to familiarize Mr, McKinnon with the project. Mr. McKinnon made no commitment, MAR. “26' 98 (THU) 09:30 KPU NISTRATION TEL: 225 1000 P. 004 {SEN UT xerox lelacopier 720 — ieee—¥s j TUFdA i Musee) 14 907 225 188B8;8 3 Mr. John Magyar 23 March 1998 Page 2 Rodney Adelman, Adminiatrator, Alaska Power Administration - Mr. Adelman administers the $10 million grant received in last year’s budget. He has been very cooperative in administering the grant. The meeting was to discuss the grant and to brief Mr. Adelman on the request for this year, A copy of the request was given to Mr, Adelman. It was a good meeting, and Mr. Adelman agreed to work with us further on this grant. The APA has no position on our FY 99 grant, but Mr. Adelman will continue to work with us if the grant is provided by Congress. John Katz, State of Alaska Director - Mr. Katz is the representative of Governor Knowles in Alaska, The meeting was intended to solicit active support of the State of Alaska in this effort. Mr. Katz stated that the Governor supports the request and that the State would include it in the Governor's letter requesting appropriations to Senator Stevens, NOAA/NMFS Facility - The status of the NOAA/NMFS facility was discussed at the meetings with the Congressional delegation and the State of Alaska. There is still a great deal of uncertainty regarding the Juneau facility. The timing on funding and final decision is still up in the air. We expressed the continuad interest of Ketchikan ta work with the Congressional Delegation, State of Alaska, and Juneau concerning a satellite office of the NOAA/NMFS facility, . Status and Timing: The appropriations process will now begin in earnest. The success of our effort will become clearer in the next three months. Both the House and Senate should begin the committee consideration of the federal budget in April and May. Floor consideration of either the House or Senate will take place in June and July. Quality Services (907) 274-1056 Date FEB 28 1998 Ketchikan Daily News Client No_ Wo A - TEETH IE aemcec mec TTT TITTTTIITITTINITIINNTIN Ketchikan can DIE 4Jeh 219 220 By LONNIE HAUGHTON Down here in the arboreal reaches of the Alexander Archipelago, surrounded by the misty gray hazes of winter, it's often easy to forget that Ketchikan is not the center of the Alaskan universe. So, we may wish to excuse our dutiful civic leaders when they exuberantly plot Ketchikan’‘s future without bothering to consult the powers who represent the other 97 percent of Alaska. Still, it was a bit disconcerting to read a Daily News editorial (Feb. 7) extolling the virtues’ of thé-Swan Lake Intertie’ without bothering to note the pressure from many legislators of both parties to consider the elimination of Nhe pro- posed grant for the Intertie project in favor of continued full funding for the Power Cost Equalization program that provides subsidized electricity to more than 50 rural communities. Even more surprising has been the almost total lack of interest locally in the fate of the PCE controversy. Sure, some of the Arctic communities that benefit from PCE support are more than 1,000 miles distant, but in this era of budget- ary cutbacks the future of the Intertie project may depend on finding a resolu- tion of the PCE fiscal crisis that does not remove our Intertie grants from the budget. This is hot stuff in the rest of Alaska. It's only here in southern Southeast that the PCE problem is being ignored. Else- where, there’are a lot of people who think that the state could well afford to continue full PCE funding if we Alas- kans just ended the electrical subsidiza- tion of the Four Dam Pool communities. Amazingly, these guys seem to think that us folks here in Ketchikan are not as needy as the villagers of Nuiqsut, for example, when it.comes time to priori- tize the state's many electrical subsides. But wait! What if we just deny that we're getting any state subsides? What if we just echo the recent cry of City Council Member Tom Friesen, “Subsi- dies! We never got a subsidy...We pay the state money, not the state paying us money."? It won't work. If it walks like a duck and quacks like a duck, it's still a duck not matter what Tom decides to call it. The truth is that the Four Dam Pool is a financial quagmire of the state, which does not receive nearly enough money from us to cover the combined costs of - debt service, deferred interest, repairs, reconstruction, “self-help” and those vari- ous schemes that we a Dam Pool beneficiaries have devised to hang onto as much of our payments as we can. There is not doubt that Ketchikan's efforts to use part of our Four Dam Pool debt service disbursements to fund a grant for construction of an Intertie (to be used ‘tignore Power Cost Equalization © solely to transmit excess Four Dam Pool power from Lake Tyee to Ketchikan) is being construed elsewhere as just one more request for a state subsidy. There's nothing wrong, of course, with us asking for subsidies, but we had better be smart enough to recognize the budgetary implications of such a re- quest in a year in which oil prices are $10 per barrel lower than the year be- fore. The proposed Intertie ren or to be a great proposal if we can get bunch of free money from both the Congress and the Alaska Legislature, but Ketchikan’s civic leaders had best pay close attention to the political reali- ties of the statewide PCE si situation be- fore they make any irrevocable commit- ments in the coming weeks. (Lonnie Haughton is general man- ager of Citizens Power of Alaska, which has proposed privatization of the Four Dam Pool) , MAR. -20' 98(FRI) 10:32 KPU, numIN ISTRATION TEL, 225 1888 P. 001 KETCHIKAN PUBLIC UTILITIES 2930 Tongass Avenue, Ketchikan, Alaska 99901 (907) 225-1000 (907) 225-1888 Fax Sent a et FAX TO: RON SAXTON 3/20/98 ATER, WYNNE, HEWITT, DODSON & SKERRITT igo (503) 226-0079 3 ath g COPY; DENNIS McCROHAN AIDEA (907) 269-3044 FROM: RICH TRIMBLE A> SUBJECT: KETCHIKAN ELECTRIC C fur consultants that Ketchikan Electric Company (AP&T) was relying en GS ; ower Sales Agreement to allow them to sell Mahoney power to KPU as fully utilized. This section states “...the Purchaser is required by law to er generated by such other resource.” I am told they believe PURPA is the “law” that would require a Mahoney purchase before Swan Lake. 1 am also told that Ketchikan Electric Company has made (or wil] make?) a filing requesting our avoided cost although it was not clear whether that would be a request to KPU or the APUC. I have certainly not heard about any “filing.” Keep in mind this ia third party information (i.e. rumor) but thought this information might be of interest so am passing it along. Te it tue t Rich ce: John Magyar, KPU General Manager