HomeMy WebLinkAboutSwan Lake Tyee Intertie Finacing Structure 1997Dvm Lak''s Rucusl
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KETCHIKAN PUBLIC UTILITIES
2930 TONGASS AVENUE KETCHIKAN, ALASKA 99901 TELEPHONE 907-225-1000
FAX 907-225-1888
ECEIVE November 3, 1997 D | MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER NOV 06 1997 -~
Mr. Randy Simmons, Director Alaska tndustrial 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,
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 aiid potentially shori-ierm financing
arrangements, it would be helpful to have your initial reaction to these proposals in advance of that
meeting.
incerely,
ohn A. Magyar
General Manager
JAM:nll
Enclosure
Ces Alan Dashen, Alan Dashen & Associates
John Heberling, RW Beck
Ron Saxton, Attorney for PMC
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Qect-28-97 O7:i11P
Proposed Financing Structure for the Tyee-Swan Lakc Intertie
(October 29, 1997)
Background
The development of the Tyec-Swan Lake intertie has been pursued since the hydroelectnc
projects were constructed in the mid 1980’s The intertie provides several benefits to
communities in Southeast Alaska, including:
e 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 internuptible power. The power would
be used by KPU to augment its current hydroelectne 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 Poul
Purchasing Ultiliues Ketchikan is pursuing assuming financial responsibility and
ownership. To this end, KPU has sought both federal and State grants and loans. ‘lo date,
KPU has received 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 07:11P
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 1s 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 tssue 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 D2
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 hoid
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 funds
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 agreement 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 i) i} Neither the Purchasing Utilities or the State would incur liability for construction or
costs associated with the intertie.
The cost of power to the Purchasing Utilities would not be negatively impacted by the
intertie but could be positively impacted.
The Purchasing Utilities 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:
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
¢ less intertie renewals and replacements
e less other intertie expenditures
e 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
-O4
Oct—=28-97 |'072L2P
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. The costs 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 ALDEA 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 hen 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 agreement, including amounts, maturities, and secunty are subject to
discussion with AIDEA.
.05
SWAN-TYEE INTERTIE REVENUES & EXPENSES
PMC POWER RATE INTERTIE EXPENSES NET REVENUES
Additional
Intertie Debt Service O&M Tyee State Additional Net Payment
Sales $0.04/kWh $0.022/kWh| Expense Intertie Loan Debt Development Net Carnyforwaid to
Year (MWh)(1) Fixed Escalated (2); $.0025/kWh O&M(2) $20,000,000(3) $1,328,995(4) Charges(5) | ProfifLoss of Losses(6) PMC
2000 22,509} $ 900,360 $ 541,116|/$ 56,273 $ 137,635 $ 1,675,332 $ 101,771 $ 144,148] $ (673,682) $ (673,682)
2001 24,364 974,560 603,282 60.910 141,764 1,675,332 101,771 157,784 (559,719) (559,719)
2002 25,728 1,029,120 656,168 64,320 146,017 1,675,332 101.771 168,529 (470,681) (470,681)
2003 27,005 | 1,080,200 709,398 67,513 219,609 1,675,332 101,771 178,960 (453,586) (453,586)
2004 28,646 | 1,145,840 775,081 71,615 154,909 1,675,332 101,771 192,092 (274,798) (274,798)
2005 30,856 1,234,240 859,924 77,140 159,556 1,675,332 101,771 209,416 (129,052) (129,052)
2006 33,461 1,338,440 960,498 83,653 164,343 1,675,332 101,771 229,894 43,946 43,946
2007 36,390 1,455,600 1,075,913 90,975 169,273 1,675,332 101,771 253.151 241,010 241,010
2008 39,592 1,583,680 1,205,701 98,980 415,057 1,675,332 101,771 278,938 219,303 219,303
2009 42,789 1,711,560 1,342,151 106,973 250,026 1,675,332 101,771 305,371 614,239 614,239
2010 45,795 1,831,800 1,479,533 114,488 257,527 1,675,332 101,771 331,133 831,082 831,082
2011 48,271 1,930,840 1,606,313 120,678 265,253 1,675,332 101,771 353,715 1,020,404 1,020,404
2012 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
2013 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
2014 55,896 2,235,840 2,032,527 139,740 358,341 1,675,332 101.771 426,837 1,566,376 1.566,376
2015 58,503 | 2,340,120 2,191,144 146,258 369,060 101,771 453,126 | 3,461,049 3.461.049
2016 61,145] 2,445,800 2,358,799 152,863 380,132 101,771 480,460 | 3,689,373 3,689,373
2017 63,621 2,552,840 2,535,892 159,553 391,536 101,771 508,873 3,926,999 3,926,999
2018 66,532 | 2,661,280 2,722,921 166,330 1,158,090 101,771 538.420 | 3,419,590 3,419,590
2019 69,278 | 2,771,120 2,920,364 173,195 517,827 101,771 569,148 | 4,329,542 4,329,542
2020 69,901 2.796.040 3,035,025 174,753 533,362 101,771 583.106 | 4,438,073 4,438,073
2021 68,847 | 2,753,880 3,078,939 172,118 549,363 101,771 583,282 | 4,426,286 4,426,286
2022 67,778} 2,711,120 3,122,066 169,445 565,844 101,771 583,319 | 4,412,808 4,412,808
2023 66,692 | 2,667,680 3,164,202 166,730 1,557,850 101.771 583,188 | 3,422,343 3,422,343
2024 65.589 | 2,623,560 3,205,227 163,973 600,303 101,771 582,879 | 4,379,862 4,379,862 2025 64,469] 2,578,760 3,245,009 161,173 618,312 101.771 582,377 | 4,360,137 4,360,137
2026 63,332 2,533,280 3,283,412 158,330 636,861 101.771 581.669 4,338,060 4,338,060
2027 62.178 2,487,120 3.320.291 155,445 655,967 101,771 580,741 4,313,487 4,313.487
L_2028 61,006 | 2,440,240 eect 152,515 2,994,269 101,771 579,568 1,967,555 1,967,555
TOTAL 59,099,230 57,438.123 d2Z2t:20 46-82-73°C 90
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.
Beginning Current Interest Ending
Carryforward (Loss) on Carryforward
Amount Profit Balance Amount
$ : $ (673.682) $ - $ (673,682) (673,682) (559,719) (40,421) (1,273,822) (1,273,822) (470.681) (76,429) (1,820,933) (1,820,933) (453,586) (109.256) (2,383,775) (2,383,775) (274.798) (143,026) (2,801,599) (2,801,599) (129,052) (168,096) (3,098,746) (3,098,746) 43,946 (185,925) (3,240,725) (3,240,725) 241,010 (194,444) (3,194,159) (3,194,159) 219,303 (191,650) (3,166,505) (3,166,505) 614,239 = (189,990) (2,742,257) (2,742,257) 831,082 (164,535) (2,075,710) (2,075,710) 1,020,404 (124,543) (1,179,848) d21:40 26-82-3770 Lo
i ALASKA INDUSTRIAL DEVELOPMENT
AND EXPORT AUTHORITY = ALASKA
iE = ENERGY AUTHORITY
480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
MEMORANDUM
TO: D. Randy Simmons
Executive Director
FROM: Dennis V. McCrohan, P.E. fu
Deputy Director — Project and Operations
DATE: September 18, 1997
SUBJECT: AIDEA Participation
Southeast Intertie
| have received calls from Rich Trimble and Alan Daschen regarding the Southeast Intertie.
Attached are Ketchikan Public Utilities’ (KPU) memos describing the status of the project. KPU
will be approaching AIDEA for assistance of some manner in their financing plan. The
background information is:
15 The current project cost is estimated to be $73M. The fund sources will be: a
current $11M from PDRLF from the 40% share of the 4 Dam Pool debt service,
one or two additional years of 4 dam Pool 40% debt service, $20M approved
State loan, $20M Federal grant assured by KPU lobbyist to be in this year’s
Federal budget, and $20M less certain Federal grant in next year’s budget.
2s KPU wants to start construction next year but will not have the final $20M
commitment from the Federal source and will not have adequate cash reserves
on hand to fund the project.
3. In the first 5 years of operation, the Intertie will not generate sufficient revenue to
pay for the O&M costs and debt service.
4. KPU will propose in the next 4 Dam Pool meeting a very significant reduction in
the wholesale power rate specific to the Southeast Intertie. This could vary from
nil to O&M cost only.
5: KPU will be requesting from AIDEA, directly or through legislation, a loan to
bridge fund the first year of construction until the second Federal grant is
received.
We will be receiving in the very near future a project description and related financial pro forma.
| stated that we would review the information. | would make sure that Randy Simmons received
the information so that AIDEA may consider if such a loan were feasible under AIDEA
guidelines.
In addition, we need to discuss internally AEA’s response to any proposals on a special
wholesale power rate for the Southeast Intertie.
Please let me know if you have any questions.
Attachments
cc? Keith A. Laufer, Finance and Legal Affairs Manager
Robert Poe, Business Development Manager
James A. McMillan, Deputy Director — Credit
@9-17-1997 13:25 907 225 1888 KPU #1 P.O1 Pow rexnete 7671 [977 /p eae Z| open Mekariael [Rucw Teumecd |
KETCHIKAN PU [PF ¥-7-209-eu7 = = ere
EVE
Memorandum
To: Honorable Alaire Stanton & City Co
From: John A. Magyar, KPU General Manager
Date: September 14, 1997
Subject; _ | Swan-Tyee Intertie Schedule
The Forest Service has announced the release of the Record of Decision for the Swan-Tyee Intertie. This
brings us near conclusion of the 3 year and $2 million permitting effort. The decision reached by the Forest
Service permits construction of the most direct route (alternative 2),
Staff is continuing to plan for 1998 - 1999 construction by KPU of the Swan-Tyee Intertie as noted at the
last Council meeting. Our intent is to provide Council the information necessary at the November 6
meeting to proceed with the project, specifically:
1) Status of agreements with AIDEA and the Four Dam Pool for financing and power sales,
2) Intertie revenue/cost assessment by our financial consultant, Alan Dasiien.
3) R. W. Beck opinion comparing this project to the alternatives.
4) Institute of Social and Economic Research (University of Alaska, Anchorage) opinion regarding future
electric load growth.
If the City Council approves the resolution for a special election, staff intends to solicit bids for
construction beginning in November. Bid opening would occur in January. Council would have the
opportunity to consider award of this contract in February, shortly after the special election.
In support of a February decision to fund and authorize the construction contract, Staff is providing notice
to R. W. Beck to perform an update to the Power Supply Planning Study. This update will be based on a
revised electric load forecast by the Institute of Social and Economic Research. We anticipate distribution
of this update in early January.
In summary, there are two key decision points for the City Council in authorizing KPU construction of the
Swan-Tyee Intertie. The first is in November when staff will seek a Council resolution authorizing a special
election for KPU funding. The second will be in February, shortly following the special election, awarding
the construction contract.
Ha USER\RICHT\WINWORD'TEMPS.DOC
@9-17-1997 13:26 907 225 1888 KPU #1
KETCHIKAN PUBLIC UTILITIES
Memorandum
To: Honorable Alaire Stanton & City Council
From: John A. Magyar, KPU General Manage
Date: August 28, 1997 )
Subject: Swan-Tyee Intertie Update
The purpose of this memorandum is to update you regarding various aspects of the Swan-Tyee
Intertie project.
Ownership
The State legislation passed in 1993 set up certain financing for KPU to design and construct the
Swan-Tyee Intertie. Considering that both the Swan Lake and Lake Tyee projects are owned by
the State of Alaska, we have suggested in the past that the State (or a divested Four Dam Pool)
own and operate this project rather than KPU. Now that we are anticipating additional grant
assistance, and given the uncertain future ownership of the Four Dam Pool assets, staff suggests
there may be economic advantage to the City to own and operate this project.
Financing
Raytheon and KPU are planning for a construction contract bid period in December with award
in February, 1998. Construction would occur over a two year period, with completion in late
1999. Total project cost with financing phased over the two year construction period is $73
million broken down as follows. The 1998 coustruction cost is about $36 million. The 1999
construction cost is the remaining $25 million. Other costs (permitting, engineering, construction
management, etc.) are about $12 million.
We are planning to cover construction costs with nwo $20 million federal grants (over FY 1998
and FY 1999) and a $20 million State of Alaska loan at 3% over 15 years. Other costs are
planned to be covered by our existing Stare of Alaska grants totaling $11.2 million with perhaps
another year or two of State grants from 40% of the Four Dam Pool debt service payments.
There are certain issues which have to be resolved for this plan to work. This does entail a $20
million debt by the City of Ketchikan, with associated voter approval, at some point in this
project. Our objective is to arrange our cash flow and financing such that we do not incur this
debt until we are certain of the FY 1999 federal grant in mid-1998. Since the early years of the
project have the lowest energy sales, we need to arrange our power sales agreement and our debt
service to mitigate our costs in the early years.
H:AUSER\NANCYL\WP\DATAW00?-23.MEM
AW ou
@9-17-1997 13:27 907 225 1888 KPU #1 P.@3
Memorandum—Mayor and City Council, Swan—Tyes Update August 28, 1997
Page 2
Construction Management
As noted during Raytheon’s presentation to Council last mouth, KPU is working with them to develop an acceptable plan for inspection. An outline of that plan is attached for your review. This inspection schedule is more comprehensive than originally envisioned when our contract
with Raytheon was executed, but we are anxious to avoid the kind of problems that have occurred during construction of other major transmission lines in this region. The additional cost
of this program is still being negotiated but is expected to be well within the contract
contingency,
Near-term activities
We continue to anticipate the release of the Final EIS and Record of Decision by the USFS
shoriy. KPU will be working with the Finance Director and various consultants over the next
couple of months to refine the construction financing plan, including the schedule of voter
approval and acceptance of the $20 million State loan for Council’s consideration and approval.
KPU also will be working to develop a draft power sales agreement with the Four Dam Pool.
In October, KPU will conduct a review of the draft Raytheon design, which is expected to be
released for bidding in late November.
JAM:RDT:all
Amachments
H:\USER\NANCYL\WPIDATAW7-Z3. MEM
* oe * @ ALASKA INDUSTRIAL DEVELOPMENT fi AND EXPORT AUTHORITY «==> ALASKA 8255 ENERGY AUTHORITY
xk * 480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
MEMORANDUM
TO: David Ramseur, Deputy Chief of Staff
Office of the Governor
THRU: (We Kanone Executive Director
Alaska Industrial Development and Export Authority
FROM: eith Laufer, Financial & Legal Affairs Manager
Alaska Industrial Development and Export Authority
DATE: December 26, 1997
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 Governor'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
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
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.
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 6.4 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 6.4 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 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.
ce: 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. OFFICE-JUNEAU- i# 2/7
tax no, David-17464 Bol
iz[10lG7 4
CITY of WRANGELL, ALASKA
INCOAPORATED JUNE 15. 1953
BOX B31, 99929 «OT! €74-T381
FAXL (ROT) £74-30EE ADerraD AVGYAT baTa
December 1, 1897 eoehe memes i t The Honorable Govermor Tony Knowles P.O, Bex 110001
Juneau, AK 99611-0001
Dear Governor Knowles:
At thelr regular meeting, November 25, 1897, the Wrangell City Counall adapted Resolution #4 1-97-706, which requests thet the Swan Lake-Lake Tyee ieeieeten Line {atartie Project, be placed on the priority list for federal Ing.
Enclosed ts &@ copy of that resolution. Your help In this matter will be most
appreciative, Thank you for your assistance.
ly,
Scott Seabury Cty Manager
88:¢j
Ene.
cco: John Magyar, KPU
* SENT RY: 12-15-97 511:22AM 3 GOV. OFFICE-JUNEAL~ at oy? _-DEC-U1~87 MON 05:57 PH FAK HO, P. 02/03
z elF Dated,
CITY OF WRANGELL, ALASKA 7Y (4
RESOLUTION NO._11-97~706__ ATTACH ME hy
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 City of Ketchikan for years has been in need of additional
hydroelectric capacity to support its current economy and has recently been
relying on high cost diesel generation; and
WHEREAS, the City of Ketchikan has been activaly 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 our 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 this
project while still teaving us with a hydroelectric shartfall; 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
locally 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 Tyee Transmission Line Intertie Is 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-JUNEAU- MEU-UI-9 1 TUN UDibs rn FAX NO.
WHEREAS, all the communities of the Four Dam Poo! will benefit from
the construction of the Swan Lake - Lake Tyee Transmission Line Intertle
through reduced cost of power, and
WHEREAS, the Swan lake ~ 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 anergy to the people of Alaska and as a source of
funding for Power Cost 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
ares Chit fame ees
Christie L. Jamlason, City Clerk
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P, 03/03
* SENT BY: 12-15-97 311:24AM ; GOV. OFFICE-JUNEAU>
David-17574 | 2/10/97
ce: Marilyn ; OMB
alone 4 ys
RECEIVED
The Honorable Tony Knowles DEC = 5 1997
Governor of Alaska 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 Tcrrot 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
Totertic Project and recently adopted the attached Resolution 468-97 requesting your consideration
of placing the Swan Lake - Lake Tyce Transmission Line Intertie Project on the Priority List for
Federal funding. a
Thank you for your consideration and have a very Merry Christmas and Happy New Year.
Sincerely,
Edn k ht
Edwin K, Kozak, P.E.
General Manager
KK: tf
cc; KBA Board of Directors
John Magyar, Ketchikan Public Utilities
rwamry orgoveyt. [27
i# 5/7
SENT BY: 12-15-97 311:25AM ; GOV. OFFICE-JUNEAU-
KODIAK ELECTRIC ASSOCIATION, INC,
KODIAK, ALASKA
RESOLUTION
468-97
Page 1 of 2
Calling on Governor Knowles to place the Swan Lake/Lake Tyee Transmission Lina
WHEREAS,
intertie Project on the Priority List for Federal Funding
the City of Ketchikan has bccn in need of additional hydroelectric capacity to
support its currem economy and has recently been relying on high cost diesel
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 energy available at the Tyee 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 Mill 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 recoyery 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-Tyce
Intertie; and
the City has requested assistance from the Federal government to construct the
Swan Lake/Lake Tyee Transmission Line Intertie; and
the Federal government has responded by appropriating $10 million which will
assist the City in beginning construction activity; and
additional Federal funding will be cssential 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: 12-15-97 311:254M 3 GOV. OFFICE-JUNEAU+
KODIAK ELECTRIC 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 Intertie through reduced cost of power;
and,
WHEREAS, the Swan Lake/Lake Tyee Transmission Line Intertie will reduce the amount of
water spilled at Lake Tyee; and
WHEREAS, cvery gallon of watcr that spills at Lake Tyee is forever lost ax a source of
electrical energy to the people of Ketchikan; and
NOW, THEREFORS, 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.
CRRTIFICATION
1, Kathleen Balemper do hereby ecrtify that [ nm elected Secretary of Koditk Dectrit Amonidiion, Jot. an aledirical sonra ft copperstire
membership corporation aganized tnd exlating under laws of tic State of Alaska; tert the dorogoing ls x compict: Rad correct copy sdopred
4 mecting of Gr Board of Dirsotore of thi corporation, dnty und properly called and acid on the Zist day of November, £997; mua quovom was prtseht at the meeting: thal the resolution ia sct forth in the minutes of the meeting and bes not been rescinded or modified.
IN WITNESS WITEREDY, I teeve hereunto mibscetbed my nane and alfixed the seal of this corporation tile twenttytLirst day of
November, 1997. =
(seat) J Secretary, Katt. LEAL 5; eee as
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eek WL 7 i=
12-29-1897 16:48 907 225 1888 KPU #1 . P.@1
KETCHIKAN PUB
Memorandum
To: The Honorable Bob Weinstein & City Council ee
From: John Magyar, KPU General Manager APE geprary
Date: December 29, 1997
Subject: Swan—Tyee Intertie Update
On December 18, 1997, the Regional Forester denied the appeal and upheld the Record of
Decision allowing construction of the Intertie. Earlier in December, KPU filed construction
permit applications with the U.S. Army Corps of Engineers, U.S. Forest Service, Alaska
Department of Natural Resources, Department of Environmental Conservation and Department
of Governmental Coordination.
The $10 million federal grant is being administered through the Department of Energy. We
received a substantial grant application package from them earlier this month and are in the
process of preparing that application.
A challenge we have been addressing is how to take advantage of the 1998 construction season
with the funding we have available, but having no assurance as to the timing of the future
federal grants necessary to complete the project, Normally, our first step in construction would
be to clear the right of way. However, if there is some delay in receiving the additional $30
million we need in grant funding, there could be significant regrowth along the cleared right-of-
way. One solution may be to just clear the small areas needed to install structure foundations,
But however we sequence construction, it must be done efficiently so we don’t raise the project
cost. Raytheon has been tasked with seeking the most efficient construction strategy and
presenting that to the Council in early Spring.
Aside from lobbying for additional federal funding, there are other financial issues we have been
addressing. KPU has proposed a power sales agreement concept to the Four Dam Pool which
allows zero cost power until KPU’s costs are covered. The Four Dam Pool utilities concur withy
this concept and we are hoping to receive AIDEA's approval when we meet with them in’
January. Our next step is to prepare a draft power sales agreement for consideration. Our
financial consultant, A. Dashen & Associates will be forecasting our expected expenses and
revenues which he will be presenting Council in early Spring. _
R. W. Beck is in the process of updating the Power Supply Planning Study. They will be
modifying the Intertie alternative to consider development of the project by the City (it had
previously assumed development by others with energy sales to KPU at Four Dam Pool rates).
They will be incorporating our new electric load forecast being completed by the University of
Alaska, Institute of Social and Economic Research which takes into account the closure of the
HAUSER\NANCYL\WPIDATA\007-J6.MBM
C DRI
12-29-1997 16:49 907 225 1888 KPU #1 P.@2
Memorandum=-Mayor and Council, Swan—-Tyee Update
December 29, 1997
Page 2
Pulp Mill. They also will be incorporating the feasibility studies being completed for the
Whitman, Connell and Carlanna projects. These updates should make the Power Supply Planning
Study a valuable and comprehensive reference for us as we approach key project decisions in
the near future.
We expect to have draft feasibility reports on Whitman, Connell and Carlanna available shortly. This was scheduled to coincide with an agreement we made with KPC to consider acquisition
of the Lake Connell dam, pipeline and filtration plant. We will be bringing consideration of that
issue to you in the near future. Staff has also prepared applications for state grant funds for
hydro projects which we will also be bringing to you in the near future.
JAM:RDT:nll
HAUSER\NANCYL\WPADATA\O07-J6.MEM
Randy Simmons
From: Dennis McCrohan
Sent: Wednesday, January 14, 1998 9:35 AM
To: Keith Laufer; Randy Simmons
Ce: Elaine McCambridge; Stan Sieczkowski
Subject: February 4, 1998 4 Dam Pool Meeting
Keith and Randy
Some critical issues which we need to strategize when you return from Bradley refunding are listed below. | will set up a meeting date. The 4 Dam Pool PMC meeting is February 4 in Anchorage.
1. Potential deficit in FY 1998 budget which, if sufficient funds are not available to meet O&M costs, violates the PSA
and could result in decreased debt service payment. We are doing revenue projections now and should have an approximation of the deficit and the necessary rate increase to bring the budget in balance.
2. Position of AEA on wavier of revenues for the SE Intertie until SE Intertie operates with a positive cash flow. My understanding is that the other utilities likely will vote for the wavier. From our viewpoint, the question is wavier of debt
service and R&R deposit resulting from increased use of Tyee. KPU on January 27 will meet in our office discuss their financial needs and requests. In addition KPU is looking for AIDEA assistance to make up a possible short term or long term funding deficits depending upon the amount of Federal assistance which they receive.
3. AEA position on operating improvements to reduce costs for the 4 Dam Pool. The utilities have of course interpreted our Board report to mean that we would provide financial assistance to explore O&M reduction opportunities.
Our immediate suggestion is remote operation of Tyee and pooling of management, dispatch, and administrative functions
among KPU and Petersburg and Wrangell. Needless to say this means reduction in jobs and probably in Wrangell.
4. Self help projections, timing of fund uses, allocation of Terror Lake costs, and legislative approvals. At the February 4 meeting we will be proposing a Tyee schedule which has the physical work being done over the 1999 summer.
Stan will be discussing with KEA on January 20 the schedule for the Terror Lake work and the outage compatibility with their new generation installation. Also at the 4 Dam Pool meeting we will be discussing the impacts of having both Tyee
and Terror Lake down during the summer of 1999 and whether the Terror outage should be shifted to 2000 to balance out
the revenue impacts. | do not plan proposing allocation of Terror Lake costs at this meeting since the funding amount is very dependent upon the schedule of the outage and repairs.
5. Process for developing self help projections for future years.
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Four Dam Pool PMC Meeting Minutes Spcemngiille = allo,
Page 11 of 16
September 11, 12, and 14, 1990
that such sales could have been made in a firm sales mode. The advent of just such an event from fiscal 1989 demonstrates the risk involved by KPU. Such risk with a cost benefit of 1/3, 1/3, 1/3 will not be a fair and reasonable distribution in consideration of the risk involved.
2. In light of the fact that the PMC members do not want to identify the Lake
Tyee/Swan Lake intertie, there is no incentive to the rate payers of KPU to give up their
portion of the surplus sales agreement with KPU.
Mr. Petrie indicated AEA could take a new split in the interruptible sales proceeds to their bank and
ask.for approval, but this approval would need to be obtained before sales could occur.
Mr. Sapp suggested reexamining the split. Mr. Petrie pointed out the difference Mr. Stevenson was
disputing was 75 percent versus 66.66 percent. Mr. Bursey indicated Resolution 87-20 provides the selling
utility approximately 41 or 42 percent when their one-third split is combined with a pro rata share of the
O&M offset through the one-third paid to the PMC. Mr. Saxton indicated a midstep during the workshop
was 50 percent to the utility and 25 percent each to AEA and PMC. Mr. Petrie suggested reexamining the
reservoir elevation levels in an interruptible sales agreement. This would remove the utility’s risk.
ii. Wrangell
Mr. Maple indicated he plans to stay with the terms of Resolution 87-20 when presenting his
interruptible sales agreement to the PMC in October. He will probably seek a five-year renewal of the original
contract and prices. The new agreement will need to be changed to allow the customer to generate their own
power as they now have boilers.
Mr. Stevenson moved that Resolution 87-20 be amended to read that the split of proceeds from any
surplus sale be 45 percent to the selling utility and 55 percent split equally between the PMC and the AEA.
Mr. Bursey provided the second. The motion passed with Messrs. Maple, Stevenson, Bursey, and Sapp voting
in favor of the motion and Messrs. Lewis and Petrie voting against the motion (Action 90-462).
Chairman Eberhardt indicated this change will not affect agreements signed prior to this date.
Si Ketchikan [Interruptible Sales]
Mr. Bursey moved to authorize sales under the PMC Interruptible Rate Schedule #1 as amended with
the split as provided in Resolution 87-20 from the effective date of the contract provided by KPU on February
5, 1990 through September 30 with those sales with a split as provided under the present PMC Interruptible
Rate Schedule #1 and authorize the PSA Schedule K power with an effective date of October 1 with sales as
provided under PMC Interruptible Rate Schedule #1 as amended today with the 45/27.5/27.5 split. Mr. Maple
provided the second. A roll call vote on the motion provided affirmative votes from Messrs. Bursey,
Stevenson, Petrie, Lewis, and Sapp and a negative vote from Mr. Maple. The motion failed as unanimous
consent is required for interruptible sales agreements (Action 90-463).
Mr. Palmer expressed concern about making the sale retroactive to February when rules say an
approved agreement must be in place before sales occur. Mr. Stevenson explained an energy exchange
occurred, not a sale, but that has been terminated until an agreement is secured. Mr. Saxton indicated that
there has to be a power sales agreement for all sales.
Mr. Maple expressed concern that Petersburg would seek a portion of Wrangell’s share of the proceeds
of interruptible sales to the Wrangell Pulp Mill. Mr. Lewis indicated this matter should not hold up the
Ketchikan interruptible sales approval and Mr. Maple indicated he did not see it as a separate issue.
Messrs. Stevenson and Waggoner left the meeting.
ii. Wrangell [Interruptible Sales]
Mr. Parisena indicated he did not believe the issue of how proceeds from interruptible sales to
Wrangell Pulp Mill will be split between Wrangell and Petersburg is a PMC issue. Mr. Palmer agreed.
Mr. Petrie asked that the Ketchikan interruptible sales agreement be scheduled for the next meeting
agenda.
Messrs. Stevenson and Waggoner returned to the meeting.
RESOLUTION NO. 87-20 “ae
A RESOLUTION of the Project Management Committee ("PMC") providing for the adoption of a rate schedule for the sale of certain power from the Initial Project at PMC Interruptible Rates.
WHEREAS, the Initial Projects are capable of producing energy in excess of the loads that will purchase power at the full initial Project Wholesale
Power Rate; and
WHEREAS, there are opportunities to sell additional power if such power can be made available at a rate less than the full Initial Project Wholesale Power Rate; and
WHEREAS, such sales can be accomplished so as to provide benefits to other
customers; and
WHERE, such opportunities were unanticipated at the time of execution of the
Long-Term Power Sales Agreement; and
WHEREAS, by their unanimous concurrence the parties intend to encourage sales
that are supplementary to those anticipated in the Long-Term Power Sales
Agreement; and
WHEREAS, the Alaska Power Authority ("Authority") and the utility members of
the PMC believe such sales can encourage greater utilization of existing
resources to the benefit of all consumers served by the utility members of
the PMC; and
WHEREAS, the parties to the Long-Term Power Sales Agreement oe now
desire to make such sales; and
WHEREAS, by agreement to this procedure, the Authority does not concede its
right to make supplementary sales pursuant to other arrangements consistent
with the Long-Term Power Sales Agreement.
NOW, THEREFORE, BE IT RESOLVED by the Project Management Committee as
follows:
Section 1.
The PMC hereby adopts PMC Interruptible Rate Schedule No. 1, Wholesale
Displacement Rate (Non-Residential), (Attachment A).
Section 2.
Such rate schedule shall be effective immediately upon a unanimous vote
of the PMC, and shall continue to be available until modified or rescinded by
Majority action of the PMC.
007/C5/1
Section 3.
Each utility shall negotiate a contract for each proposed sale under the PMC Interruptible Rate Schedule and shall present such contract to the PMC for approval prior to any sale of power under such contract. Each contract shall require unanimous approval by the PMC, and once approved such contract shall continue in force for such period and on such terms as are in such approved contract.
Section 4.
Each utility making sales under the PMC Interruptible Rate Schedule shall report to the PMC, on at least a quarterly basis, on sales made under the PMC Interruptible Rate Schedule, sales expected to be made under the PMC Interruptible Rate Schedule, and the information collected by that utility. to demonstrate compliance with the verification provisions of the PMC Interruptible Rate Schedule.
Section 5.
All monies received by the PMC under this schedule shall be applied to the Authority's administrative services costs and to the power production
costs in the proportions specified in the schedule. The revenues to be applied to power production cost shall be applied entirely to the cost
associated with Facility Operating Cost and Joint Costs of the Initial Project pursuant to Sections 5b(i)(A) and (B) of the Power Sales Agreement.
DATED this LF day of » 1987.
PROJECT MANAGEMENT COMMITTEE
ATTEST:
By: Z
Secretary
APPROVED AT PROJECT MANAGEMENT COMMITTEE MEETING HELD JULY 29-30, 1987.
007/C5/2
ATTACHMENT A
Page 1 of 2
ATTACHMENT A
PMC_INTERRUPTIBLE RATE SCHEDULE NO. 1
WHOLESALE DISPLACEMENT RATE (NON-RESIDENTIAL)
Ls Statement of Intent.
This schedule is intended to permit the sale of power from the Initial Project which is in excess of sales that can be accomplished at the Initial Project Wholesale Power Rate. Sales under this schedule are intended to be entirely supplemental to sales that would occur without this schedule. Sales under this schedule are intended to reduce the power cost component of the Initial Project Wholesale Power Rate and contribute to the Authority's administrative services costs and/or debt service payments and in no event shall sales-under this schedule result in an increase in the Initial Project Wholesale Power Rate. To the maximum extent possible, consistent with the terms of this schedule, each retail utility is intended to have the flexibility necessary to negotiate terms that meet the needs of its individual circumstances.
2. Conditions of Service.
a. Only power produced by a facility of the Initial Project and in
excess of sales that could be made by PMC Utilities at the full
Initial Project Wholesale Power Rate is eligible for sale under
this schedule.
b. All power sold under this schedule is interruptible, subject to
both Initial Project hydro and transmission availability.
c. The serving utility may negotiate to provide reserves for sales
made under this schedule. The rate and other terms for such
reserves shall be a matter solely between the serving utility and
its customers.
3. Eligible Loads.
a. Loads to be served under this schedule must be non-residential.
b. Such loads must not be presently served, on a regular basis, with
power purchased from a retail utility at a rate in excess of the
Initial Project Wholesale Power Rate.
Ce Eligible loads must be capable of being served by the customer's
existing, on-site generation or by the use of another form of
energy.
007/C5/3
ATTACHMENT A
Page 2 of 2
4, Rate. ae
a. The rate shall be established by contract between the utility and
the customer. In negotiating a rate, the utility shall consider
the best available information about the cost to the consumer of
the alternative generation of energy source.
b. The rate shall consist of three components: (1) Authority administrative service costs, (2) power production costs, and (3)
retail utility service costs. The proportion of revenue to each
component shall be: Authority administrative service costs - 1/3;
power production costs - 1/3; retail utility service costs - 1/3;
rovided, that at any time after October 28, 2000, if such payments
would act to reduce the Initial Project Wholesale Power Rate, the
Authority shall apply its share of revenue under this schedule to
reduce the purchasing utilities debt service obligations under the
Long-Term Power Sales Agreement.
c. At no time shall the retail rate paid by a customer purchasing
power under this schedule, including any amount included in such
rate for reserves pursuant to Section 2.c., exceed the
then-applicable Initial Project Wholesale Power Rate.
5. Contract Implementation.
a. All sales under this schedule shall be pursuant to individual
contracts between the serving utility and the utility's customer.
b. All such contracts shall be conditioned on prior unanimous approval
of the Project Management Committee. After such approval, each
contract shall continue in effect for such period, and on such
terms, as approved.
schedule. 30 eamaorh is C221 Tevenuesmwiychedneeat tr oe schedules) The "PMCS al pay — on a “monthly basis to the ‘Mrthor ity “the 1/3 component
of the revenues for the Authority's administrative services costs.
6. Verification.
a. The utility shall require the customer to make a_ periodic
demonstration of the customer's ability to utilize alternative
generation or energy source.
b. The utility shall have right to inspect customer facilities to
insure actual displacement occurs (alternative generation equipment
or alternative energy equipment turned off).
007/C5/4