The URL can be used to link to this page

Home My WebLink AboutKetchikan Public Utilities Electric Load Growth Sudy 1998UNIVERSITY OF ALASKA ANCHORAGE 3211 Providence Drive Anchorage, Alaska 99508-8180 COLLEGE OF BUSINESS AND PUBLIC POLICY INSTITUTE OF SOCIAL AND Division of Economics and Public Policy ECONOMIC RESEARCH (907) 786-7710 FAX (907) 786-7739 Email: ayiser@uaa.alaska.edu January 30, 1998 Rich Trimble Ketchikan Public Utilities 2930 Tongass Avenue Ketchikan, Alaska 99901 Dear Mr. Trimble, I am pleased to send you 30 copies of the Draft of the Ketchikan Public Utilities Electric Load Growth Study. The study contains three sets of projections of generation and sales through the year 2025. In all three CASES generation falls modestly in the near term in response to the restructuring of the Ketchikan economy after the closure of the Ketchikan Pulp Mill. Growth in generation subsequently resumes in all CASES as other sectors of the diversified Ketchikan economy continue to expand, following their own growth patterns. The summary projections of generation, which is defined in the study to include KPU diesel and hydroelectric generation, are presented in the first report table, Table A. You will notice that the values are marginally lower than those that I sent to you in late December. I have tried to be conservative in the development of these projections of generation and you should keep that in mind as you use them. The LOW CASE projection probably represents a “worst case scenario” for Ketchikan as it combines an assumption of almost total elimination of the timber industry with one of practically no growth in other sectors of the economy. For this reason I think it forms a most unlikely lower bound on the range of possible future generation levels. The BASE CASE should be interpreted as a median projection. That is it is the case which has a 50 percent likelihood of being less than and a 50 percent likelihood of being greater than the actual future generation level. Your planning should obviously take into consideration the fact that the cost to the utility of underestimating generation requirements is greater than the cost of overestimation. The BASE CASE excludes some elements that might be relevant in considering total generation requirements. First, projected generation is based upon average weather conditions. A DIVISION OF THE UNIVERSITY OF ALASKA STATEWIDE SYSTEM OF HIGHER EDUCATION Since an estimated 15 percent of residential customers in your service territory heat with electricity, and an unknown portion of commercial and industrial customers also use electricity for space heating, total generation and the winter peak load will be higher in a colder than average winter. Second, we have not explicitly included sales to new heavy industry in the generation projection. This assumes new timber based industry may self generate. Whether that would actually be the case depends upon what the size and scope of these new activities might actually be. I have chosen to exclude any sales to new heavy industry since at this point in time to do so would be speculative. Third, I have assumed no extension of your service territory. Although there are no plans at present to expand, it is a future possibility. Finally, in the BASE CASEI have assumed no growth in the share of the Ketchikan housing stock that heats with electricity. With the exception of growth in the electric space heating share of the housing stock these same considerations apply to the HIGH CASE. As a consequence actual generation could be higher than projected in the HIGH CASE. The review of large and potential customers did not reveal any surprises. I have attached a summary sheet with the relevant comments from the detailed interviews. I can send you the detailed interviews if you like, but they do not contain any additional information. For the final report I would like to include data through the end of 1997. For this I will need data for each month in 1997 from the Monthly Revenue Summary and the Generation and Distribution Report. Finally you will see that in this report I have characterized the difference between “Sales” and “Generation” as the sum of “Large Industry Sales (sales to Ketchikan Pulp)”, “Unaccounted For’, “Line Loss” and “Utility Use”. “Unaccounted For” includes uncharged accounts but is too large in most years to be entirely uncharged accounts. I assume that the remaining residual is distribution loss. It would be good to clarify and verify that for the final report. If you feel it would be beneficial, I would be happy to schedule a trip to Ketchikan at your convenience to discuss the draft in advance of preparation of the final report. Sincerely, ayy Apldeclh Scott Goldsmith Professor of Economics attachment Ketchikan Public Utilities DRAFT : Electric Load Growth Study KETCHIKAN PUBLIC UTILITIES ELECTRIC LOAD GROWTH STUDY DRAFT Table of Contents Ts SUMMARY «cress s «rere siioiies Kao Gls ssiaelcinte cileles IIE hE steele sess GaRIRGS = 1 2. HISTORICAL REVIEW OF THE KETCHIKAN ECONOMY AND POPULATION ..... 5 2iAy | ECONOMIC SUCHE ere aiaiere 1 eieioic ole of) eet ielo1 5121-1 fers 21 <)iie to) stor sieleie ies =1eleleysl cto 5 2.b; 9 Basic|Sector Growth Since 1980) cic.5.. -1)sec0 soe sir sate -\riceeye sr aien 2 550 3 2.c. Pattern of Response and Change in Support Employment .................... 13 2.d. | Composition of Population and Households ............... 0. cece eee eee eee 20 3. PROJECTIONS OF THE KETCHIKAN ECONOMY AND POPULATION ........... 23 Sia; ‘The(Current Economic'Situation) -). 55.066 s soswies 5. jeje eeeeieisie 46191656 2121s) ere 23 Siby Mimber/Scenarios) <i-r. oc: « syarvaiors srs av hele cnseet loiete astro 1 IA alee fol cf elFotel #) AIS 23 3.c. | Assumptions for Other Economic Sectors .......... 0... e eee eens 28 3:0, Total Projected Employment (. eacrerisis « «1-10 «ore crctaieioye's a aieleis 11 eliele Poel + =I 29 Bie. ‘Time Profile of: Employment. (7. 3.2... sam cetes 2 ime or eet «1am ee) aioe r ale 33 Sf. Projected|Population) o..7. 5 sce + soars eller ee aE ei) -ieles= eh ee a 37. 3.g. | Comparison with Sitka and South central Alaska ...................00 eee uee 40 4. HISTORICAL REVIEW OF KETCHIKAN ELECTRICITY REQUIREMENTS ....... 50 4a, Residential FlectriciSales ox <5 sccjec ss omites corer uelors or saiole A Aaroolels «i sii eile 1) 91 50 4b. ‘Commercial Electric|Salesin.=< a5... - tices ss deee «seer «seis e samme sale 56 4c, Total ElectriciSales) c 2... cy smerw = 2SaR ess aie eseiepe sh peistere § TNO O Rw ci e/ cies s 1a) 58 A:d, Generation <0 e cee lamer = Saori sli ee SAME e VIE Vsissees Jee * te 64 5. PROJECTION OF KETCHIKAN ELECTRICITY REQUIREMENTS ............... 68 Sia SUMM Ary, cease ere wen + ewes ss eoee © AA 6 cence le e/veleta sera Aeitows 5 ose ore) = 68 5:b. Residential Sales 7 sierys rarer « svmieiers o-oo ciel AW ie) =| A eeis * stleiee sets: 68 5.c. Non-Residential (Commercial and Other) Sales and Unaccounted for Use ....... 77 5.0, Warge Industrial Use) oe «ya aiteie « eneioioieis) s1ol-Parelels)ei es) eele |e lente ais 4) ic) + twee 82 Sie, Reviewofi Large Users) sciew saci; « -reicicie s SO 0EE FASE # viotsjaieiee ose aa MG 83 Sf Distribution oss) «3 ccjeee erect 6 se 8 6c ore ote = oy aoe + HAMM + sone» Seo 85 Sg, Utility Use jcc aes wocier = Vom. sie slg doee + sammie) rcnsirate Jaen sae 85 Ketchikan Public Utilities DRAFT . Electric Load Growth Study KETCHIKAN PUBLIC UTILITIES ELECTRIC LOAD GROWTH STUDY 1. SUMMARY Ketchikan Public Utilities (PU) asked the Institute of Social and Economic Research to project electricity sales and generation requirements in Ketchikan in the coming years. Rather than one set of projections we have estimated a range of likely future growth, given different assumptions about important factors influencing the economy and electricity use. Throughout that range of likely growth--the LOW, BASE, and HIGH CASES— we project that electricity generation by KPU will temporarily drop but subsequently begin growing again, although at a slower rate than in the past. KPU asked for these projections because it is facing decisions about whether to increase its generating capacity, either through an intertie that would increase available hydropower, or through construction of more diesel-powered facilities. Estimating how electricity use in Ketchikan might grow in the future is complicated by the present uncertain status of the Ketchikan economy which will take several years to resolve through restructuring. During the transition it is natural to focus attention on immediate and often negative events. In this study we attemp not only to consider these near term events, but also what factors will be important in determining electricity use in the longer term. We believe that our projections are realistic since they are based on a conservative interpretation of historical patterns and trends in the Ketchikan economy and in electricity use patterns in Ketchikan. A number of factors will influence electricity generation requirements in the future, including: . the health of the timber industry in the region . development of new large scale processing facilities for timber and seafood . extent to which new industry self generates electricity for their own needs ° growth of other sectors of the economy including tourism, seafood, federal government, state government, regional center activities, and household income from nonwage sources . relative attractiveness of electric space heating, and ° potential expansion of the service territory We anticipate only a small reduction in electricity sales in the near term for several reasons. First, we anticipate that the support sector employment decline will be small as support businesses attempt to “tough it out” during this period of uncertainty. Second, we expect the (KETCHLOAD.wpd) January 29, 1998/DRAFT Page 1 Ketchikan Public Utilities DRAFT _ Electric Load Growth Study percent decline in population to be less than that of employment as some people move out of the work force but remain in the community. Third, since residential sales are primarily a function of the housing stock which we do not expect to decline, we anticipate that residential sales will not fall significantly. Fourth, Commercial and Industrial electricity sales directly to the timber industry form a very small share of the total, so the direct effect of a recession in the timber sector on electricity sales will be small. (Sales to Ketchikan Pulp Company (KPC) is a separate category and not included in Commercial or Industrial Sales.) Fifth, in a recession we expect commercial sales to be related to the number of businesses rather than jobs. In the BASE CASE projection we adopt a set of conservative assumptions regarding the future direction of the factors influencing growth. We assume that after several years of uncertainty, employment in the timber industry stabilizes at 45 percent of the 1996 level and that non-timber employment grows at a 1 percent annual rate. The large scale processing facilities associated with the new uses of the pulp mill neither purchase nor sell electricity to KPU. Furthermore we assume no increase in the share of the housing stock heating with electricity and no extensions of the utility service territory. In the BASE CASE annual generation (combined generation of KPU diesel and hydroelectric capacity) falls from a peak in 1995 of 159 thousand MWH to 145 thousand MWH in 1998. This is the result of reductions in residential and non-residential sales as well as the termination of the sale of electricity to the KPC. (A temporary dip in 1997 to 139 thousand MWH is the result of temporary sales by KPC to KPU.) Growth resumes in 1999 and averages about 1.2 percent annually after that. This rate of growth is below the historical growth rate in generation due to the drag on the economy imposed by the reduction in the timber industry. The 1995 level of generation is reached in 2007. (Table A.) In the HIGH CASE we assume that the timber industry stabilizes at an employment level 60 percent of the 1996 level, and that non-timber employment grows at an annual rate of 2 percent. As in the BASE CASE we assume that the large scale processing facilities associated with the new uses of the pulp mill neither purchase nor sell electricity to KPU. Consistent with the historical trend we assume in this case a modest increase in the share of the housing stock heating with electricity, but as with the BASE CASE that there are no extensions of the utility service territory. Generation in this CASE recovers to the 1995 level by 2002 as a result of more rapid economic growth and more intensive use of electricity. In the LOW CASE we assume that the timber industry stabilizes at an employment level only 15 percent of the 1996 level, and that non-timber employment grows at an annual rate of .5 percent. At this level of activity in the timber industry there are no large scale processing facilities associated with the pulp mill that could either purchase or sell electricity to KPU. We assume no increase in the share of the housing stock heating with electricity and no extensions of the utility service territory. In this CASE generation growth is very slow and only returns to the 1995 level in 2019. (KETCHLOAD.wpd) January 29, 1998/DRAFT Page 2 Ketchikan Public Utilities DRAFT Electric Load Growth Study FIGURE A. KETCHIKAN PUBLIC UTILITIES PROJECTIONS OF ELECTRICITY GENERATION (MW#) GENERATION GENERATION RESIDENTIAL SALES NON-RESIDENTIAL SALES NET GROSS AND UNACCOUNTED FOR HIST BASE HIGH Low HIST BASE HIGH Low HIST BASE HIGH Low 1970 61,121 27,128 1971 63,252 29,246 — 1972 66,086 30,797 1973 68,709 0,958 1974 68,171 NA 1975 NA 32,838 1976 NA 35,059 1977 NA 35,082 1978 NA 36,754 1979 NA 37,462 1980 84,227 39,135 42,423 1981 86,077 42,864 44771 1982 96,052 43,164 50,505 1983 97,006 44,961 49,040 1984 107,966 51,292 48,867 1985 113,487 49,236 53.40 1986 105,499 46,795 54,475 1987 111,501 46,904 $5,325 1988 134,953 49,269 63,872 1989 129,190 52,812 65,691 1990 139,443 $4,115 70,304 1991 142,387 56,031 74,080 1992 149,757 $4,277 73,371 1993 138,643 53,188 1994 150,794 58,594 1995 154.232___159,008 159,008 __159,008 $5472___S5A472__—«S5A72__—*S5.472 89,380 89,380_—89.380 1996 158,267 158,287 158,287 59,264 59,264 _—«59,264 89,169 69,169 89,169 1997 139,039 139,039 __ 139,039 56,560 __—56,560__—$6,560 85,230 85,230__—85,230 me) 145,242 146,703 144,948 35,440 36,000 56,000 C215 . . 1999 145425 148,176 143,174 56, 56,840 $5,440 83,832 85,637 «82.227 2000 146,584 152,191 142.453 $6,560 $8,834 $5,440 84,387 87,504 81,54 2007 148,430 156,795 142,490 37,120 60,310 55,440 85,602 Corrs] BS 2002 150,921 161,479 142,849 $8,257 61,824 $5,440 86,860 93.444 81,914 2003 152,733 165,912 143,269 58,839 © 63,376 = $5,440 88,019 96,155 82,318 2004 154,478 170,150 144,391 59428 64,967 $6,000 89,108 98,639 82,837 2005 156,243 174,373 145,517 60,022 66,597__—$6,560 90,212 101,069 83,360 2006 158,030 ‘178,705 ‘146,646 60,622 68,269 5 1, 103; x 2007 159,838 183,149 148,079 61.228 69,982 57,968 92.462 106,122 84.415 2008 161,668 187,708 148,935 61,841 71,739 $8,258 93,609 108,750 84,948 2009 163,520 192,385 149,796 62459 73,540 $8,550 94,772 111,446 85,485 2010 165,395 197,183 150,662 63,084 75.385 58,842 95,950 114.214 86,025 2011 167,292 202,106 151,533 63715 77,278 59,136 97,143 117,055 66,568 2012 169,212 207,155 152,410 64,352 79,217 $9,432 98,352 119.970 87,116 2013 171,156 212,335 153,292 64,995 81,206 9.729 99,578 122,963 87,666 2014 173,123 217,650 154,179 65,645 83,244 60,028 100,819 126,035 88,221 2015 175,113 223,101__ 155,071 66,302 85.333_—_—60,328 102,077 __129,187__—_—«88.779 2016 177.1 x 155,969 66,965 8747S 60,630 103,351 132,423 89,341 2017 179,167 234,432 156,873 67.634 89,671 60,933 104,642 135,745 89,906 2018 181,231 240,319 157,782 68311 91,922 61,238 105,950 139,154 90.476 2019 183,320 246,358 158,696 68,994 94.229 61,544 107,276 142,653 91,049 2020 185435 252,553 159,616 69,684 96,594 61.851 108,619 146,245 91,626 T 187,574 , 160, 70,381 88,018 62,161 109,979 749,932 92,206 2022 189,740 265,429 161,473 71,084 101,504 62,472 111,358 © 153,716 = 92.791 2023 191,932 272,119 162,410 71,795 104,052 62,784 112,755 157,601 93,379 2024 194,151 278,981 163,352 72,513 106,663 63,098 114,170 161,588 = 93,972 2025 196,396 286,022 164,301 73,238 109,341 63.413 115,604 165,680 94,568 ANNUAL GROWTH RATES 1970-1980 3.3% 37% - 1980-1990 5.2% 3.3% 5.2% 1990-1995 2.0% 0.5% 49% 1995-2000 “1.6% 0.9% 22% 04% 1.2% 0.0% “1.1% 04% 1.8% 2000-2005 1.3% 28% 0.4% 1.2% 2.5% 0.4% 1.3% 2.9% 04% 2005-2010 1.1% 25% 0.7% 1.0% 2.5% 0.8% 1.2% 25% 0.6% 2010-2025 1.2% 25% 0.6% 1.0% 25% 0.5% 1.3% 25% 0.6% GENERATION PROJECTION CONSISTENT WITH SYSTEM GROSS GENERATION FROM GENERATION AND DISTRIBUTION REPORT OF KPU. HISTU4.WK4 (KETCHLOAD.wpd) January 28, 1998/DRAFT Page 3 Ketchikan Public Utilities DRAFT Electric Load Growth Study FIGURE A. (part 2.) KETCHIKAN PUBLIC UTILITIES PROJECTIONS OF ECONOMIC VARIABLES ‘TOTAL EMPLOYMENT POPULATION (INCLUDES SELF EMPLOYED & MILITARY) HIST BASE —- HIGH Low HIST BASE HIGH Low 1970 ° 10,200 , 1971 ° 10,200 1972 ° 10,300 1973 ° 10,500 1974 ° 10,700 1975 ° 10,900 1976 ° 11,200 1977 ° 11,400 1978 ° 11,600 1979 ° 11,800 1980 7,048 11,316 1981 6,824 12,042 1982 7,103 12,268 1983 7,322 12,459 1984 7,214 12,438 1985 7,663 12,623 1986 8,128 12,729 1987 8,880 12,793 1988 9,372 12,594 1989 9,680 13,259 1990 10,397 13,828 1991 9,892 14,261 1992 9,874 14,536 1993 10,258 14,535 1994 10,419 14,638 1995 10,733 10,733___10,733_10,733 14,771 14.771 14,771 44,71 1996 10,600 10,600 10,600 14,701 14,701 14,701 1997 10,109 10,109 10,109 14,360 14,360 14,360 19968 9,894 9.919 3.719 14.210 14,228 14,089 1999 9.885 10,020 9,666 14,204 14,512 14,053 2000 10,009 10,335 9,504 14,46 14,803 13,941 2001 10,117 10,693 9,508 14,490 15,099 14,010 2002 10,228 10,953 9,538 14,635 15,401 14,080 2003 10,330 11,187 9,575 14.781 15,709 14,151 2004 10.425 11,399 9.621 14,929 16,023 14,221 2005 10,522 11,606 9.668 15,078 16,343 14,293 2006 10,619 11,817 9,714 15,229 16,670 14,364 2007 10.718 12,032 9.761 15,381 17,004 14.436 2008 10,817 12,252 9,809 15,535 17,344 14,508 2009 10,918 12,475 9,856 15,690 17,690 14,581 2010 14,019 12,704 9.904 15,847 18,044 14,653 2011 11,921 12,937 9,952 16.006 18,405 14,727 2012 11,225 13,174 10,000 16,168 18.73 14,800 2013 11,329 13,416 10,049 16,327 19,149 14,874 2014 11,435 13,663 10,098 16,491 19,532 14,949 2015 11,542 13,915 10,147 16,655 19,922 15,023 2016 11,649 14,173 10,196 16,822 20,321 15,099 2017 11,758 14,435 10,245 16,990 20,727 15,174 2018 11,868 14,702 10,295 17.160 21,142 15,250 2019 11,979 14,975 10,345 17,332 21,565 15,326 2020 12,091 15,253 10,395 17,505 21,996 15,403 2021 12,204 15,537 10,446, 17,680 22,436 15,480 2022 12,318 15,827 ‘10,496 17,857 22,884 15,557 2023 12434 16,122 10,547 18,035 23,M2 15,635 2024 12,550 16.423 10,599 18,216 23,809 15,713 2025 12,668 16,730 10,650 18,398 24,285 15,792 ANNUAL GROWTH RATES 1970-1980 ERR 1.0% 1980-1990 4.0% 2.0% 1990-1995 0.6% 1.3% 1995-2000 “.A% 0.8% 24% 0.6% 0.0% 1.2% 2000-2005 1.0% 2.3% 0.3% 1.0% 2.0% 05% 2005-2010 0.9% 1.8% 0.5% 1.0% 2.0% 0.5% 2010-2025 09% 1.9% 0.5% 1.0% 2.0% 0.5% HISTUA.WK4 (KETCHLOAD.wpd) January 28, 1998/DRAFT Page 4 Southeast Intertie Direct Current Transmission Concept Recent advances in high voltage direct current transmission (HVDC) technology by ABB Power Systems may have some application in the potential development of the Southeast Intertie. As the name implies, direct current intertie systems transmit electrical power in a direct current rather than in a conventional alternating current (AC). In order to convert the direct current to conventional useable alternating current, interface converters are installed at the end of direct current transmission lines. Historically, the high cost of the converters has rendered HVDC less economic than conventional AC systems. New technology developed by ABB Power Systems, one of the world’s largest electrical equipment manufacturing companies, has reportedly resulted in lower cost interface converters. Although this technology has been commercially demonstrated in one application, it still should be viewed as in its evolutionary stage of development. According to the literature, application of HVDC systems offer some capabilities that appear to be well suited to use in small power level, widely separated systems, similar to what now exists in Southeast Alaska. The key advantages claimed for the system are lower equipment cost (particularly with long distance lines), lower installation costs and fewer impacts to the environment than for equivalent AC lines. Furthermore, it is suggested that due to a lighter line weight and the requirement for two conductors versus three for an AC line that a submarine line could be installed for at a lower cost than a conventional AC system. ABB indicates that “low impact” overhead designs could be used in lieu of high tension, tall tower designs required for AC systems thus minimizing both visual and environmental impacts. From an operations standpoint, HVDC offers significant advantages because it allows for isolation of generation systems thus eliminating AC system concerns of voltage and frequency control. This advantage could represent significant savings, especially in the context of an electrical interconnection of all Southeast Alaska. Based on a limited literature review, the primary concern related to development of HVDC system stems from lack of operating history and experience. Due to ABB’s aggressive marketing efforts coupled with the numerous benefits associated with this technology, there are, in addition to the initial commercial demonstration project, two projects (one now under construction) that will employ HVDC technology in the next two years. The rate of development and incorporation of this technology to proposed transmission projects will likely be significantly influenced by manufacturer warranties. With regards to use of HVDC technology for the Southeast Intertie, AP&T’s proposal includes a new routing alignment for the proposed intertie that would include lengthy underwater sections versus high-tension overhead lines. If this technology, as proposed, is selected the following is a listing of both the benefits and concerns: Benefits: e Minimize environmental impacts e Less visual impact e Narrower right-of-way e If applicable, greater portions of the line could be located offshore e Lower cost (dependent upon line distance) e Reduces operational problems associated with connecting isolated generating sources Concerns: e New, commercially unproven technology e Lack of operating history e Increase risks with submarine crossings e Additional maintenance complexities e Increase in repair cost e Increase in the duration of down time/outages, if any MAY-10-99 MON 14:30 03 FAX NO, 02 P. 01 2501 K Stinat NW , Sulle 9A « Washington D.C. 20037 + (202) 342-1669/Fax (202) 342-2066 FAT Feith Shanl, Suille 302 6 » Jaman, AK 99001» (907) 463 163G/T nx (907) 463 3611 Tea ry Company Marling Adidiass P.O Box 244902 « Anchoraye, AK 99524 4902 7 To: bilby [Corby From: LARRY MARKLEY Fan: Pages: us, Ge chediag coven) Phone: Date: sfle [42 Res : CC: 0 Urgent C) ror Review U Please Comment © Comments: con | P.@2 CW KETCHIKAN study: Proposed intertie KPU; city says AIDE 3 include all f not considersome sdlevant infortnation'» ot Teast thy @5-10-1999 @8:@0AM sials say nent and Q 2 ae nine whether the inleste is a visble f _Manage#Karl Amylonine memoto the ‘AIDEA study;” project; dekd City of Ketchikan and KPU or the'iong-terma benefits would tap ‘surplis power ¢ dam near ra ACtOLS © “Bleed oy the coumiti20U be Yevgeny «beet. ithe 57-mileintertie since: “.” e-eatty 1980s., The project. the Bradfield Ketchiken's growirg state bonds. Pe ear ite eat onde “4 Consultant CH2M Fill and financial advisor Pat Clancyofthe Portland Ore., scenmtios, ~ more costly a 50-year period. oe Fete kan consumers. In-all but ome scenario, the ite "Ses “hratertia study, “page = t: “Under nost gro’ the intertie is sabstantix than the other @ernative *.- CH2M Hill also forecast the alter _.. tives’ adffecl on power rates paid by Ket: 20'd “Teebt NAL RA-AT—LHL Fn c0 ‘ON XU P.03 Cul KETCHIKAN TO FROM AP&T WIRELESS, INC. ——= Intertie study: — @5-18-1999 @8:01AN would increase KPU iiies, ac- ‘option — cording to the report-Intertierates would-—momic developmen be dower than“the diesel’ opfion in’ a always ‘that at full cost, the intertieis not the mostcost-effecive be Sst +~ 2 Trimble wrote. wat Lecter grants reduce the cos: of Grants don‘ sequire repayment, sould be sed to compare the interfie's. ee, temative--~ ‘One of ADDEA‘ Sbcenarios did con : sider $17-4:nillion in federal grants, but” Tsleniiousid Secheal eatwey weal prob-. - ably total a Jeast $3) nnillioh-an amount: . that would decrease the intertie’ 8 com parison cost further. - = “KPU's Salrelieson ial ing bonds to obtair the remaining non- grant montyjup to444.fznillion) needed .-tolbuild the pre ject tan eens spview indicated that KPU's funding Proposa woulan'. ‘provid’ a ‘sufficient structure” for’ issuing the 2h the shady he listed changes that he . believes:.ere needed. Mary. of those ‘were challenged by City 0: Ketchikan ——e eee ~d e familiar with the intectie rire ein conasians of the AIDSA report, ad ’ Newell. "The infestte is pot and never will be foomomicslly feasible in apore financial ‘aease,” Newell wrote, noting that KP U's ~ Tie strongest and correc! argument ” trinsic inte ” ayégiorial power ionisthatente——shouldn't be-consideredt the ast The intartie is importanl = the eco- tof som nemrSoath= * east Alaska, tad for the developmert af id; Said Newell. He fsresrectur procs aicamarpet infrastructure pro} ~ aC Bs airpcets, highways and the fexry system - -weren'te Astisinthesbert term but are vital to the communities. In Amylon's written comments tothe City Council, he seid the AIDEA tex* of the intertie, "If nothing else, the AIDEA report ‘reinforces my Delef thal the project onty nom-grant fundiny -: cannot be vonsideredin isolation and om. ~ultimate decision as to-whether to pro- =< ar aed, ors, “Those factors tnckade the potential of: meee federal gran: a realistic: lysis of the future’ costs of diesel: setter theadincts atthe svat’ sale x Four Dam = facilides, ve on building the mlestic;-2; ““foture feder'al authorization of a South: east-wide power end: and an appraisal of an ‘Alasca Bos one =i pesal to. build anint Bre technclogy ana sbinaine rane naission fine, * Alaska Power & Telephone also is a Pay at wins alate ty at Mahoney Laie. The compan ako wants to have an agreement! to Ss KPU: bsfore: it builds: the Lake fi ~ Ketchikan Elec ae fering to sel the powrer at afixed - ~rate for however icaga term that KPU ~ might want, Negotiations between KPU and Ketchikan Electric have been slow, how- ever, The sucking point hasbeen whose power would be used first. Po Kelehikan- Electric’ ‘s — pe KPU to buy eae Een Ea ft wor —beer— * ictchilin iectie'spataersany “Support the KPU efforts 6 Build the intertie because ithaslong.lerm merits, ~ Yet they = the AIDBA report as “<a Scming position regarding imlertie‘s costs anc its-potential affects - on power rates. "It’s always nice to sée an indepen- dent third ae ‘what vous, Gigante, CEO of Cape Fox Meanwhile, “We don't feel'a deci- sion on the Mahoney project should be delayed while the i intertic is pursued," Rerchitan Blecic's 's craven! dBi of a 6.5 cente-per-megawatthour could change ¥isiorest minerceo Sgustas2 teed increasing the cost of build:ng- the Mahorey Lake project, said Gigante * and: Bob’ Grimm, ‘presidentiof AP&T and general manager of Ketelitkan Elec! *% tric. --“What we have on the table can’t y therelorever,* Grimumsaid, “Things ‘hybrid A thik no reeds: digeussions witk Ketch: KanBie ‘surplus Metlakatla Power & Tapht elzotricity.to. Ketchikan, * “KPU might find thatits best optionis = tocompettively bia ba ‘a bulk sower sales said. aR Se ound said Ite aboutthe during its Thursday nicet- tg ty Nerabet Tom Friesen ately : Ni Peal @ part o: « Four group that met wilh Alaski's corigres- sional delegation and Saeenet ces eae the ee ‘mehappy to re; track with our ‘popes a token their 100 percent support,“ Eriesensaid. Presideat Clinton's energy budget contains $20;niillion for Powter projeas Lake -and * also with Metiutcatia about t link briag- : partoer in the Ketchikan Electric Com-- ing: | JOU AR-NT-KYL Cantina a ae S they” ists want the federal-gove frerdo ‘enothér Baviroas al Gapact State ment process for the intertle - which Fresen said would essentially x the _ project, During -the- “meeting's: lie: come ~ Toents, Hummel, ‘director for the Tongess Conservation: Society, said the organization is cono:rned about chez thee Intactes secre ager ara policy decisions are made in Ketchi ‘Hummel said the project sulipeckdto loa comoy asta ety priori eral ad oben ord being highlighted as a “backdoor” Way to obtain “a road corridor off Revillegigedo Island: The reed corridor. ek eroad pee Z mil = a Proiect or is it a power Pewjece” be asked. . =A fummel' proposed that the city and: __ KYU take''a few steps back,” enlist the = community's , and clearly de- >< fine what and yw" mach Ketchikan 2 would be paying fer the intertie. - a City Meyer ob Weinstein responded — : because was ally-unfeatibhe, .2°*". ~ Also, the AIBZA report does act peo Fide defintive answers ebout the inier- Ge Said-‘Weinstein, ~“° - Council Member Tom anin- tote goerst Krnocked. the project ae oat atk the-pablic is gullfsle enough to believe the —— siege bball? Coyne sai, en'd . tAY- 4-99 TUE 17:43 03 FAX NO, 02 P. 01 250! K Stinel NW , Suite 9A « Washington 0.C. 20037 + (202) 342-1669/F ax (202) 342-2066 21 Pemultly Strael, Suite 302 © » dmenu, AK 99001 (907) 46.3 3636 ax (907) 46.) 3G11 WETS & PeyeTiiy TaN Mailing Adthess, P.O Box 244902 » Ancharaya, AK 99524 4902 To: fenby Aen. From: LARRY MARKLIEY Fax: Pages: 4 Gi fe diss Coven) Plrone: Date: x) 4/44 Re: CG: U urgent UO For Review UO Please Comment @ Comments: / Frit, aa Lhe do AAAS 7 “ ae —_ mo Any -MAY- 4-98 TUE 17:43 03 FAX NO, 02 MAY-684~-99 85:04 PM KETCHIKAN PUBLIC UTILITIES OFFICE OF THE GENERAL MANAGER Karl R. Amyton, General Manager ey, L, Olsen, Executive Secretary Ronald L. Settje, Administrative Manager Richard D. Trimble, Power Projects Manager 10; ‘The Honorabis Mayor end City Council FROM: Kar R. Amylon, General Manager DATE: April 26, 1959 RC: Swan Lake/Lake Tyee Infertie Update - Alaska industrial Developmant and mort Authority (AIDEA) Project Review Attached for City Counctl review Is a copy of the analysis of KPU's proposal for funding and constructing the Swan Lake/Lake Tyee Intartie, which was performed by tho Alaska Industrial Ronen. end Export Authority (ADEA). If accapted at fuce value, the report does not provide a favorable opinion regarding the conatruation of the Intertie 8S Cpposed 10 pursuing other energy allernafives that may be available to the groater Ketchikan community, At the same time the analysis addressed the Issua from very specific perspectives and, as a reauit, does not necessarily provide an objective assessment of KPU’s position and efforts to date. While staff has no: had an opportunity to do an in-depth analysis of AIDEA's report, some immediate concerns are briefly outlined in the attached mamorandum from the Power Projects Manager, Richard Trimble. As a relative ‘newcomer to the discussions regarding the Intertle, from my perspective the AIDEA repori does not resolve the issue of whether the Interlie should or shauld not proceed, It clearly should not be considered the “last chepter” regarding tha Intertie. If nothing #lse, the AIDEA rapori reinforcas my belief that the project cannot be considered In Isolation and an ultimate decision as to whether to proceed will be influenced by a number of external factora: Additiang! fecterel funding of the project; 8 $20,000,000 authorization for the project Is contalned within the current Clinton Administration Energy _ Bil. The AIDEA report did not give full Consideration to federal and stata funding obtalned (0 date, or the possibility of future funding. The development of a realistic analysis of the fulura cost of diese} generation that the Utility will have to incur. The likelihood of divestiture of tre Four Dam Pool end what, if any, (appa dietatalncal ecprejerecrtiskemsen eee cone aan te P. 02 P.82 Wd 86:89 SNL 88-bO-a¥h _MAY- 4-99 TUE 17:43 03 ‘ MAY-84-s39 95:54 PM net ne P.o8s 20'¢ Hd CS:8) Sl 86-b0~-Ati, Qi ca) Pager Southeast Conference's attempts to secure 2 federal! autheriz.ailon for the Southeast Alaske electrical grid of which the Swan Lake/Lake Tyee Intertia would be the first jeg. A realistic asseasment of alternstive technolagy being proposed by Alaska Power and Telephone which, if viable, could reduce the cost of tne intertis. Such technology wauld have to be evaluated against the cost of any new permitting requirements and/or the possibilty of demanstratian grants. Tanai etannoaan omen aN, Whila one could a that many of these issuee may noi be resolved in the rear future, It Is my bellef that the next eighteen to twanty-four months will determine whether or not the Intertia Is a viable project. In the interim staff Is pursuing the ticensing of Connell and Whitman Lakes. Al the sare tima nothing prockades Ultitty from continuing dlcussion with Cape Fox and Alaska Power end Telephone regarding th yoney Lake project or with Metiakatia.Qt may be in the end tha Utilty may find Its a option s to compotitivaly bid a bulk power sales agreement, bir rer us we ee 225-454! ? AGENDA - 90/99 * KFUMRA 80 'c Wd (9:89 SNL 6B~b0-A¥). .MAY- 4-99 TUE 17:43 03 FAX NO. 02 MAY-64-99 95:84 PM P, 04 P.o4 $b (4) ny 3 oe ELK AN PUBLIC UTILITIES, Memorandum Tot Karl Amylon, City Maneger From: Richard Trimble, Power Projects Maneger 7 Date: April 27, 1999 Subjects Initial Response to AIDEA Southeast Jnterile Review The principal difference between AIDEA’s analysis and our own evalsatfons 4s in the trcatment of grant funds. ‘This report "ignores the funding sources for the vatious projects and instead compares the total capital and operations costs of the projects.” AIDEA's Viewpoint in that “the total societal cost” should be considered. So from this perspective, it is an inevitable conclusion that at today’s fuel prices, diesel combined with small local hydro is a cheaper alternative than a $77 million Intertic, KPU and the Four Dam Pool have always acknowledged that at full cost, the Intertle is not the mast cost effective energy resource. However, our perepective has always been that both srare a/ud federal grant funds reduce the caplre! cost, Grant funds are neither a loan, nor an investment requiring a return. Tt is the remaining unfurtded cost that must be Corpared to our diesel/xmall hydra alternative, not $77 million, In fact, our goal has been to obtain sufficient state and federal grant Cunding to make the Intertio more economical than the alternative of diese! augmented with small local hydro, ATDEA did create two other scenarids that credited some grant funds against the Interdie’s capital cost (tho “Incremental” and “Incremental State" costs), but both stopped short of crediting all grant funds. Further, AIDEA understated the amount of federal funda potentially available to this project, med $17.4 million in tral federal furiding. We believe the total ig likely to be at leasf$30 The other key varlable leading to a small hydra/diesel conclusion is the assumed cost of diesel fuel. AIDA assumes the cost of diese] will inctease from 58 cents per gallon in 1999 to 66 cents in 2018, They consider separately a high cost case at 85 cents per gallon. Unfortunate)y, these costs are unrealistically low. Zhe average cost of 42 diesel in the State of Alaska over she pust twenty years has been 95 cents per gallon, Bven a purchase by KPU ‘earlier this month wax ata cost of 83 cénts por gallon. Assuming lower costs for the neat twenty yeara Is lmprudent at bes. There are other economic assumptions and findings we question. Ont example Is an assumpuion that KPU pay an amount greater than the wholesale rite for energy. Our view is that an interruptible sale should be at a lesser rate than the firm wholesale rate, Another ts the assumption that the project would not qualify for tax-exempt bonding, We believe it Is premature tg rule oyt % tax-exempt bonding, which would decrease the interest rate from 7% to 5% significantly improving the economtes of the project. 1g bf £0'd Hd 00:69 SAL 66-bO-20' MAY- 4-99 TUE 17:44 03 FAX NO, 02 ‘ MAY-24-99 e5:05 PM P.O 4AY~04-G9 TUE 09:12 PH 1 ; 4. —~ ‘ Aside from putely economic considerations, "the total societal cost" of the Intestie is well balanced by the total societal value, The AIDEA report notes that this is the first step {a the creation of a Southeast Alaska electrical grid, While the report conakders this 8 “distant prospect,” tha reliability and efficiency of a transmission grid is enjoyed by the Alaskan Ratibelt, and most of North America, Rather than being downplayed, the leadership of Southeast Alaska is actively pursuing the grid as the key to the economic vitality of the region. A policy decision to abandon this project Jn favor of diesel generation is short sighted, While the report notes {he various local hydro projects that could be developed, it docs not clearly portray the limited capacity of these projects, They are all Inadequats and must be sugmented by dieyel generation in the near-term. A decision against the Intertie is a décision in favor of diese! generation, . MAY- 4-99 TUE 17:44 03 “_May-@4-99 es:es pm . FAX NO. 02 P. 06 P.686 9b (4s) KETCHIKAN PUBLIC UTILITIES OFFICE OF THE GENERAL MANAGER Keri R. Amyion, Genera) Manager Korry L. Olsen, Executive Secretary Ronald | Satie, Administrative Manager . Richerd D. Trimble, Power Projecte Manager TO ‘Tha Honorable Mayor and City Counall FROM: Karl R, Amylon, General Manager DATE: Apiil 40, 1998 RE: Swan Lake/Lake Tyee iIntertie Update - Alaska Industrial Development and Export Authority (AIDBA) Project Review The attached memorandum from the Finance Oireetoy, Bob Newell, was recelved by my office after the agenda raport regarding AIDEA’s asse¢sment of the Intertia had been submitted to the City Clerk. Mr. Newell raises some interesting points and confirms my belief that 8 final decision regarding the Interti« Is fikaly to be at least elghtven to twenty-four months away. AGENDA - §/6/89 « KPUMRA(s) S b0'c Hd 66:89 301 66-b0-AYK MAY- 4-99 TUE 17:44 93 MAY=B4-99 @5:e5 PM FAK NO. 02 ’ P.07 “AY-04-08 TUE 08:11 PN ?,01 aie . 4b (4S) Pased Memorandum To: . Karl R. Amylon, KPU General Manager from. Bob Newell, Finance Director’ Date: April 29, 1999 ( I Subject: Initial Reviow of the AIDEA Analysis of the Swan Lake-Lake Tyee Interle Project ‘The conclusions of the AIDEA report shuvid come as no surprise jo anyone that has been following the Swan Lake-Lake Tyee Intertle Project (the “interie’), The Intertle Is hot and never will be economically feastole In & pure financial sense, Our own financial advisor, Alan Dashen, reached the same conclusions In February 1998 when he issued hie financial analysis. ie Aster reviewing @ number of different financial snalyeee prepared by Alan Dashen, K.W, Back and now the AIDEA repori, | think everyone agrees thal tho numbers just aren't there ta support the Intertle. Hawever, | bolteve If a long-term perspactive |¢ applied, the Project Ie still important for the fulura economic development of the Aemmunilies located within Sqtem Southesat Alaska and the development of a Southeaut Alaska powy) orld. jo Ig an excellent way to achieve two of (he Stais’s primary goals of attaining power cost equalization and daveloping a power grid for Southeast Alaska. As | understand Jt, the Intertle will become part of the proposed power grid. Tho devalopment of the power grid wit allow high-cost power communkies td purchase power from low-cost power communitias. Thic ls a very rations! and reasonable approach to powdr cost equalization. The strongest and correct argument for the Intertie continues to be long-term economic development, The Slate of Alaska hag conetructed major Infrastrusture py In ro co ory wien tothe economic wal being of raliibiasiians sees by the Conelder, for example, highways, airports and fetty systems. Many of these projects were expensive to develop and construct, were nol evonomicelly feasible at the thne they wore concoived, and some of ther etilt required operating and mainlenance subsidise, The AIDEA report was put together by well respected professional firme, and In many inctances, the sonclusions reached In the report were similar to ihose that have been reported by our own consullants, There wera, howaver, a few conclusiorie that | found to be inconsistent with other Information In the raport of (hat | view differently, ° Treupeiets does not conaider the additional federal ($20 milan leas $7.5 millon) and state funding ($4.44 millon) fer the {ntertie that the City Is anlicipating, If this funding dose materialize, the economle justifieation for issuing the AIDEA revonue bonde |mproves significantly. ¢ The analysis Indicates that, in order for ADEA to Issue Invasiment grade bonds, there must be 2 suificiant revenue stream avaliable to provide for adequate debt MAY- 4-99 TUE 17:45 93 MAY-@4-99 95:96 PM FAX NO. 02 P. 08 'P.o 8 9b (as) Page 2 _— Karl R, Amylon April 29, 1999 Page 2 service coverage, As fhe analysi¢ noted, annual debi service would amaunt to about $4.13 million. As you ara aware, 40% of the Four Dam Pad! revenues (debt service compenent) have been “pledged” to the Southeast Energy Fund, aubject to an annual appropriation by the State Legisisture, This revenue atream gould be used to provide for tho debt service on the AIDEA bonds. The analys's rasehed a aimilar cenclusion, put further noted thel, among other things, that this revenue stream would amount to approximately $4.3 million In flecal year 1989. 41 wes thelr opinion that the avaliable revenue stream would net provide for adequate debt sorvice coverage. {reached a different conclusion. A typloal debt service coverage ratio for investment Grade bonds would mogt likely range between 1.10 fo 1,25 times annual debt \w pQrabdle cteay, service, Assuming coverage of 1.25 Gimes annual debt service debt, a revenue Stream of $5.16 million woukd be required, On the surface, It looks like AIDEA would not be able to Issue investment grade revenue bonds. However, | belisve the 2) |: 10 /¢- 2s analysis overlooked the polential revenues to the State of Alacke from Lake Tyco Coverteg ee salee fo KPU. 11 Would seem remsonable that the amount available for debt senice should Include the present 40% revenue stream plus 100% of the Lake Tyee sales , ta KPU, Considering both revenue streams, the medium and high energy sales 3S Earns ys On forecasts would generate adequate dabt service coverage. 1 should also be nated Kee cok that the 40% revenue does indeed fluctuate as the analysis noted. The most the we Chy has received undar this program was $4. million. @) stab ben. F plosse refer fo the discussion in the third paregraph on page eloca v 12 ‘able the AIDEA report. The report noted thera were two potential ravanue etraaims, but it did not consider them together, a noted that the Project nol be eligible for tax-exempt financing, itis my understanding that the Intertie will be used by KPU to purchase power from Lake Tyee for the purpose of providing energy to all KPU rate payere and to allow KPU to sell pawar to the rate payers of Wrangell and Peteraburg, Under thie arrangement, | question whether tax-exempt financing should be ruled out. | would ; Guggest that the tax-axempt Issue be reviewed again. A tax-exempt bond issue could reduce annual debt service by $400,000 to $500,000 and significanlly improve the economics of the Intertle. « In several scenarios the financial analysis was favorable towards the Mahoney Lake Project. However, Swan Lake and Mahoney Lake share the agme watershed, From the perspective of managing power generation resources etd ensuring that tho community of Ketchikan hae @ sulficiont éupply of powar to maet Its needs, sharing the same watcrshed may Impact the Mahoney Project's ability to contribute to cur energy load requirements. Pot example, { Swan Lake is down due to inadequate supply of water, Mahoney may also experience similar operating problems, Even if Mahoney Is a low-cost alternative under certain load forecasts, It bacomes # very high-cost alternative If it unable to ganerate pawer when it ls needed. 90'c Wd 6b:8) WL 6R~r0-A¥K mM ' MAY- 4-99 TUE 17:45 03 FAX NO, 02 May-84-99 a5:06 PM Oey MHY-04-99 TUE C8! 12 PM 3, . s, 7 Karl R. Amylon 9604 J Peat ; April 28, 1999 Page 3 A similar argument, albet to a leener degree, could be made regarding the decision tg bring the Intertie in at Swan Lake. If the Swan Lake transmisejon !ine fails, power from Lake Tyee Is oseontally cut-off. Conekeration ghould be given to changing tho location of where the Iniertie connects t6 our system. - Changing the location may Cefer the need te acquire addilional diesel generation. « The analysis for the diesel silemnative Is partially Nawad beseuse the projected cosle for diesel fuel do not appear to bear any semblance to market prices nor has any adjustment been mada to recognize the volatility of diesel fuel prices, However, K should be noted that KPU’s own consultants also used prices which did not appesr lo be reflective of the markat. « The analysis suggested that the debt gervice needs to be guaranteed by s sufficiently creditworthy entity. Can the State of Alaske guarantee the debt service? Can the State of Alaeka issue it own general oblidation bonds to finance the Intertie? The City hae successfully Issued genera! obligation bende for enterprise fund activition that arc lypically financed with revenue bonds, This strategy has resulled in lower interest costs, no reserve requirements, and lower annus! debt service payments. « On page 13 of the AIDEA report, 4 statement was made that a plan nesds to be developed fo ensure the bondholders that sufficient Funds are available te pay for the foplacement cost of the tntertle. While this te not = significant lesue, | think bondholders would be more Interested in the payment of operations, maintenance and repair coate, As long 9a (he intertle |s being well maintained during the term of the bonds, replacement should not be @ major issue for the bondholders, The above comments are based on 2 cursory review of the AIDEA report. Please let me know # you have any questions or If you want @ more In-depfh snalysia. dust for your information, | have been advised by Alan Dashen that the four Dam Pool has angsged him to review the AIDEA report and prepare & response. | guggest that we wait until Dashen completes his review before staf undertakes any further analysis, Ve ALASKA POWER & TELEPHONE COMPANY (C CE (E | f] P.O. BOX 222 ¢ 191 OTTO STREET D iC i | PORT TOWNSEND, WA 98368 (360) 385-1733 © (800) 982-0136 March 1, 1999 FAX (360) 385-5177 | \ 3 1999 Alaska Industrial Development Randy Simmons, Executive Director and Export Authority Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Dear Mr. Simmons: One of the problems you are facing with the proposed Swan/Tyee Intertie is the overall cost of the project. We have been investigating other construction methods and technologies now available that offers a cost advantage over the proposed method. In the early 1980’s high voltage direct current (HVDC) transmission facilities were studied as a means of interconnecting southeast Alaska. HVDC has many advantages when compared to traditional alternating current transmission. However at the time the prior studies where conducted HVDC was only used for very high capacity transmission facilities. The primary reason driving this was the very high cost of the AC/DC converter stations required at each end of the facilities. Recently, ABB Power Systems has developed a new design that is based upon voltage sourced converters. This has significantly lowered the cost and thus, allows the economic use of HVDC for the transmission of smaller loads (20 to 30 mW). This technology also uses cable, either buried or submarine, or low impact overhead, rather than high tension transmission that requires tall towers. These require large right-of-ways reducing both the land resources consumed and the visual impacts of the faculties upon the remaining land. We have been working with ABB and have studied several different routes that would connect the Swan Lake and Tyee Lake Projects. The four alternatives studied range in prices from $40 to 50 million. This represents substantial saving over the current 138 kV high-tension design of $77 million. If these savings are extended to all of the electrical interconnections currently under consideration the savings are enormous. In addition, fiber optic technology can be easily and economically incorporated into the design that will allow the construction of not only an electrical grid throughout southeast but also a broad band network capable of providing high capacity voice and data services. I have enclosed a proposed route map and background information developed by ABB that describes this technology. In addition, we prepared a cost estimate that provides a fixed-price turnkey amount for each of the routes. We based our estimate primarily on a submarine with short overhead sections that cross the Cleveland Peninsula at three different locations. We understand that the Cleveland Peninsula is a sensitive area and further investigation will be needed to determine the best crossing point. Also the current EIS issued by the Forest Service for the Swan/Tyee Intertie will need to updated or supplemented. Because the impact upon the National Forest of the HVDC alternative is only a small fraction of that documented for the 138 kV high-tension design we do not view this as a significant problem, if agreement can be reached among the interested parties. One of the concerns we have had in regards to the HVDC concept is the lack of operating history and experience; some still view this technology as experimental. We have done significant research and are convinced that this concern can be overcome. ABB is one of the largest companies in the world and is willing to provide satisfactory warranties. In addition, IEEE is now (Feb. 1999) balloting on a standard that will be included in the specifications of all HVDC converter stations. This standard documents the best practices that have been used worldwide for the last 29 years in the purchase, operation and maintenance of high voltage direct current installations. We believe this is an exciting development that may help us all to interconnect southeast Alaska. We believe HVDC is superior to the existing design electrically, has a smaller impact upon the resources of the area, and does so at a substantially lower cost. We remain willing to work with KPU, the Intertie Committee of the Southeast Conference, Alaska Municipal League, and others to move the interconnection of Southeast Alaska forward. Please let me know if you would like additional information. Robert S. Grimm, Ce Mayor Weinstein, City of Ketchikan Berne Miller, Southeast Conference Jerry Ingersol, USFS Enc. ABB Information Route Map +- 51 kV Cost estimate PROPOSED SUBMARINE/ OVERHEAD ROUTES SWAN/TYEE INTERTIE +51kV HVDC/40MVA LEGEND: A: —f - fede es | B:eeeeeee F:—-——— Swan/Tyee Intertie Routes: A Ward Cove to Helm Bay Helm Bay to Meyers Chuck Meyers Chuck to Wrangell Island South B Leask Lake to Naha Bay Naha Bay to Yes Bay Yes Bay to Santa Anna Santa Anna to Wrangell Island South Cc Leask Lake to Naha Bay Naha Bay to Port Stewart Port Stewart to Vixen Inlet Vixen Inlet to Wrangell Island South D Leask Lake to Naha Bay Naha Bay to Helm Bay Helm Bay to Meyers Chuck Meyers Chuck to Wrangell Island South E Ward Cove to Thorne Bay Thorne Bay to Wrangell Island South F Swan/Tyee 138 Kv Overhead Quoted Cost Fixed-price $47,000,000 $40,000,000 $40,000,000 $46,000,000 $60,000,000 $73,200,000 per Mile $681,159 $727,273 $714,286 $666,667 $750,000 $1,370,787 Revised Southeast Intertie Plan Alaska Industrial Development and Export Authority (AIDEA or the Authority) Authority recent review and analysis of Ketchikan Public Utilities’ (KPU) Southeast Intertie proposal have caused it to reexamine the potential altemative funding concepts and recent technological advances in electrical transmission technologies. This review has resulted in the formulation of a revised Southeast Intertie development and finance plan. This plan differs from prior proposals because it utilizes a different, recently developed, electrical transmission technology that among other things will likely lower construction costs, follows a different route, will have less impact on the environment, requires less state and federal grant money and minimizes operational problems. Consistent with the conclusion of the Authority’s recent Southeast Intertie review, the optimum means of providing Ketchikan with near to mid term low cost reliable power is through the private development of the Mahoney Lake Project. This project, being proposed by Ketchikan Electric Company (KEC), a joint venture between Cape Fox and Alaska Power and Telephone (AP&T) could be on-line in the next 18 months and could provide sufficient power to cover KPU’s near term energy requirements. Therefore, the first step of this revised plan is for KEC to enter into a long-term power sales agreement (PSA) with KPU. Execution of the PSA would allow for project financing and construction of the Mahoney Lake Project. Ketchikan’s power needs could be amply provided in the next 4 to 5 years by Mahoney Lake while design, permitting and construction of an intertie is completed. The revised Southeast Intertie plan is, in part, based on recent advances in high voltage direct current (HVDC) transmission technology that appear to have excellent application in the potential development of the Southeast Intertie. As the name implies, direct current intertie systems transmit electrical power in a direct current rather than in a conventional alternating current (AC). Although this technology has been commercially demonstrated in one application and is under development in three areas, it still should be viewed as in its evolutionary stage of development. Application of HVDC systems offer some capabilities that appear to be well suited to use in small power level, widely separated systems, similar to what now exists in Southeast Alaska. The key advantages claimed for the system are lower equipment cost (particularly with long distance lines), lower installation costs and fewer impacts to the environment than for equivalent AC lines. Furthermore, it is suggested that due to a lighter line weight and the requirement for two conductors versus three for an AC line that a submarine line could be installed for at a lower cost than a conventional AC system. HVDC can utilize “low impact” overhead transmission structure designs could be used in lieu of high tension, tall tower designs required for AC systems thus minimizing both visual and environmental impacts. From an operations standpoint, HVDC offers significant advantages because it allows for isolation of generation systems thus eliminating AC system concerns of voltage and frequency control. This advantage could represent significant savings, especially in the context of an_ electrical interconnection of all Southeast Alaska. The primary concern related to development of HVDC system stems from lack of operating history and experience. Technology risks can be mitigated by obtaining appropriate technology and other guarantees from the developer and technology holder. With regards to use of HVDC technology for the Southeast Intertie, AP&T, the HVDC technology holder for this project, has proposed a new routing alignment for the intertie that would include lengthy underwater sections versus high-tension overhead lines. Although undersea crossings are inherently more risky than overland sections, the risks can be, in part, mitigated by undersea surveys and through operating guarantees from the developer. Although detailed engineering analysis of a HVDC Intertie have yet to be preformed, initial indications are that costs could range from $40 to $50 million, a potential savings over the original plan of a least $20 million dollars. The following summarizes one potential means of funding an HVDC Intertie: State Grants Received but not yet committed: $ 3,100,000 Federal Grants Authorized/Received: 9,900,000 FY 99 proposed Southeast Energy fund grant: 4,400,000 Proposed additional federal funding 20,000,000 Additional state grant-DCRA authorized loan release 8,000,000 Total available funds (excluding interest) $45,400,000 The revised funding plan for the intertie is, in part, reliant on federal and state grants. In anticipation of this project’s funding, the state has previously appropriated money for a loan and has allocated a portion of the debt service from the Four Dam Pool for Intertie development. A large portion of the States contribution would be derived from a $20 million appropriation provided to DCRA in 1993 for a low interest Southeast Intertie loan. This money would be re-appropriated to provide $8 million (plus interest earned) to the Southeast Energy fund to be used for intertie grants and the remaining $12 million would be placed in the Power Cost Equalization (PCE) Fund. Grant funds from the $8 million would only be released upon AIDEA’s approval of a finance plan that demonstrates that the Intertie can be completed. After approving the Intertie’s financing plan the $12 million plus the 40 % share of the Four Dam Pool debt service component now allocated to the Southeast Energy fund would be reallocated to the PCE fund to help offset the high cost of electricity in rural Alaska communities. A key component of the revised funding plan is a $20 million dollar federal appropriation. Initial inquiries reflect a predisposition by the Clinton Administration for the development of a Southeast Intertie that incorporates the environmental friendly aspects of HVDC technology. This interest could enhance the potential for securing a federal appropriation for an HVDC intertie. Although an appropriation bill has yet to be introduced, an energy bill already introduced by the Clinton Administration includes $20 million in authorization for the Southeast Intertie. ~~ f f ee THY Avda Qu) Keith Laufer i ccoeeennanttniteememment From: Bob Brooks [bob.brooks@woridnet. att.net] Sent: Friday, April 30, 1999 12:48 AM To: klaufer@aidea.org Subject: KPU Diesel Fuel Prices Fuel prices.xls The short answer to your question is that the diesel fuel costs shown in KPU's avoided cost study (e.g., $.79/gal in 2007) are nominal dollars, while our economic analysis is in real terms (zero inflation). The attached table shows the figures used in the analysis for both the base and high fuel price forecasts, in real and nominal terms. You will see that $.66/gal in 2018 represents a nominal figure (assuming 2.7% inflation) of $1.12/gal. You will note that, for some reason, we assumed a slightly higher real price escalation rate after 2005 (0.5%, as opposed to 0.3% before 2005). !'m not quite sure why there was this change, but it favors KPU's position. Please let me know if you have questions or want to discuss this further. Regards. Bob Brooks Assumed KPU Diesel Fuel Prices Base Forecast ! High Forecast 7 Real Nominal Real Nominal Real Nominal Year Escalation Inflation Escalation Price Price Price Price 1998 0.63 0.63 0.85 0.85 1999 -8.6% 2.7% -6.1% 0.58 0.59 0.85 0.88 2000 5.1% 2.7% 7.9% 0.61 0.64 0.85 0.90 2001 0.3% 2.7% 3.0% 0.61 0.66 0.85 0.93 2002 0.3% 2.7% 3.0% 0.61 0.68 0.85 0.96 2003 0.3% 2.7% 3.0% 0.61 0.70 0.85 0.99 2004 0.3% 2.7% 3.0% 0.61 0.72 0.85 1.01 2005 0.3% 2.7% 3.0% 0.61 0.74 0.85 1.05 2006 0.5% 2.7% 3.2% 0.62 0.76 0.85 1.08 2007 0.5% 2.7% 3.2% 0.62 0.79 0.85 1.11 2018 0.5% 2.7% 3.2% 0.66 1.12 0.85 1.45 Notes: 1 Source: KPU Avoided Cost Study, R.W. Beck, November 1998 (through 2005); assumed 0.5% real escalation rate beyond 2005. 2 Highest average annual price paid by KPU over past 6 years; assumed constant in real terms. Fuel prices.xls 4/30/99 sree ELCHIKAN PUBLIC UTILITIES, Memorandum To: Karl Amylon, City Manager From: Richard Trimble, Power Projects Manager £727 ~~ Date: April 27, 1999 Subject: Initial Response to AIDEA Southeast Intertie Review The principal difference between AIDEA’s analysis and our own evaluations is in the treatment of grant funds. This report ‘ignores the funding sources for the various projects and instead compares the total capital and operations costs of the projects.” AIDEA’s viewpoint is that “the total societal cost" should be considered, So from this perspective, it is an inevitable conclusion that at today's fuel prices, diesel combined with small local hydro is a cheaper alternative than a $77 million Intertie. KPU and the Four Dam Pool have always acknowledged that at full cost, the Intertie is not the most cost effective energy resource. However, our perspective has always been that both stare and federa! grant funds reduce the capital cost. Grant funds are neither a loan, nor an investment requiring a return, It is the remaining unfunded cost that must be compared to our diesel/small hydro alternative, not $77 million. In fact, our goal hag been to obtain sufficient state and federal grant funding to make the Intertie more economical than the alternative of diesel augmented with small local hydro. AIDEA did create two other scenarios that credited some grant funds against the Int:rtie’s capital cost (the “Incremental” and “Incremental State” costs), but both stopped short of crediting all grant funds. Further, AIDEA understated the amount of federal funds potentially available to this project. They assumed $17.4 million in total federal funding. We believe the total is likely to be at least $30 million, The other key variable leading to a small hydro/diesel conclusion is the assumed cost of diesel fuel. AIDEA assumes the cost of diesel will increase from 58 cents per gallon in 1999 to 66 cents in 2018, They consider separately a high cost case at 85 cents per gallon, Unfortunately, these costs are unrealistically low. The average cost of #2 diesel in the State of Alaska over the past twenty years has been 95 cents per gallon. Even a purchase by KPU eaflier this month was at a cost of 83 cents per gallon, Assuming lower costs for the next twenty years is imprudent at best. There ure other economic assumptions and findings we question. One example is an assumption that KPU pay an amount greater than the wholesale rate for energy. Our view is that an interruptible sale should be at a lesser rate than the firm wholesale rate, Another is the assumption that the project would not qualify for tax-exempt bonding. We believe it is premature to rule out tax-exempt bonding, which would decrease the interest rate from 7% to $% significantly improving the economics of the project. Aside from purely economic considerations, “the total societal cost” of the Intertie is well balanced by the total societal value. The AIDEA report notes that this is the first step in the creation of a Southeast Alaska electrical grid, While the report considers this a “distant prospect,” the reliability and efficiency of a transmission grid is enjoyed by the Alaskan Railbelt, and most of North America. Rather than being downplayed, the leadership of Southeast Alaska is actively pursuing the grid as the key to the economic vitality of the region, A policy decision to abandon this project in favor of diesel generation is short sighted. While the Teport notes the various local hydro projects that could be developed, it does not clearly portray the limited capacity of these projects. They are all inadequate and must be augmented by diesel generation in the near-term. A decision against the Intertie is a decision in favor of diesel generation. - a Pi = =e } t TONY KNOWLES Tens t” GOVERNOR STATE OF ALASKA OFFICE OF THE GOVERNOR WASHINGTON, 0, FAX _ N-2@:99Q . a TO: Boats Si mente’ _ ASF BUS 0247 Ror Uowte Sot NUS 3 ga FROM: __ wJSohhn — ee — _ SUBJECT:___ “>&_ stv ker bye ee NUMBER OF PAGES (including this cover) : _ HALL of the STATES-—-Suite 336--444 North Capitol Street N.W. (202) 624-5858— Fax (202) 624-5857 DRAFT CONFIDENTIAL To: Randy Simmons From: Keith Laufer Re: Initial Response of KPU to Southeast Intertie Review You have requested that I respond to some of the issues raised in Ketchikan Public Utilities (KPU’s) initial response dated April 27, 1999 to the Southeast Intertie Review. This memo is in response to your request. KPU objects to the CH2M Hill Economic/Resource Analysis’ consideration of grant funds as a cost of the project. The Incremental Cost analysis performed by CH2M Hill is consistent with the methodology typically performed by the State in examining energy projects. By creating the Incremental State Scenario that ignores proposed federal funds, CH2M Hill actually created a scenario that was more generous to the Southeast Intertie than is typical in these types of analysis. KPU states that “our perspective has always been that both state and federal grant funds reduce the capital cost.” KPU’s position is understandable in light of the fact that it is proposing that the entire capital cost of the Intertie be paid for from state and federal grants. From the State’s perspective however the fact that KPU’s proposal requires a substantial and continuing capital investment by the state should not be ignored. CH2M Hills Economic/Resource Analysis appropriately considered state and grant funds. KPU suggests that AIDEA understated the amount of federal funds potentially available. In the proposal submitted by KPU to AIDEA for consideration, KPU projected $17.4 million in federal funds. AIDEA did not modify KPU’s proposal. While additional federal funds are speculative, the AIDEA’s report noted that if additional federal funds could be obtained this would reduce the amount of state bonding required. Additional federal funds would impact the Incremental State Analysis but would have no impact on the Incremental Analysis or the Rate Impact Analysis performed by CH2M Hill. [discussion of diesel costs] KPU objects to the fact that CH2M Hills Rate Impact Analysis utilized a rate greater than the Four Dam Pool wholesale power rate. KPU states that “Our view is that an interruptible sale should be at a lesser rate than the firm wholesale rate.” In the materials provided to AIDEA however, KPU indicated that it believed energy would be sold at or near current Four Dam Pool rates. For this reason, CH2M Hill utilized the current Four Dam Pool rate in its analysis adjusted only by a small component for Intertie R&R costs. As noted in the report, even at this rate, the additional state revenues generated by Intertie sales are insufficient to pay for the cost of the Intertie. {maximizing revenues reasonable in light of key state commitment} KPU suggests that the AIDEA report suggests that the Intertie project be abandoned in favor of diesel generation. KPU states that “While the report notes the various local hydro projects could be developed, it does not clearly portray the limited capacity of these projects.” The AIDEA report does not make a recommendation with respect to the Intertie. Moreover an objective examination of the material in the report would suggest that even under a high growth scenario, if the Mahoney project were developed followed by the other local hydro projects additional diesel generation would not be required for __ years. MAY- 3-99 MON 12:32 03 FAX NO. 02 P. 01 2501 K Shel N.W., Suite 9A + Washingt D.C. 20037 « (202) 342. 1G69/Fax (202) 342.2066 21 Fowntly Sheet, Sule 307 © + hmenu, AK 9980 t- (907) 463 3636 ax (907) 463 36H ETA & PLoS r= aN Manfing Addhess: P.O. Box 244902 » Anchornge. AK 99524 4902 To: Coody ds ee From: LARRY MARKLEY Fax: Pages: FT Ge chudansy caver) Phone: Date: 6/2/44 Re: cc: C] Urgent U For Review U Please Comment ® Comments: Herts Ge Kaylee alee - g of . _MAY- 3-98 MON 12:32 03 FAX NO. 02 P, 02 APR 28 99 (WED) 19:30 KPY AOMINISTRATION TEL:907 225 looG P. 001 ‘| 8FR.26.1995 12:2@FRN RAYTHEON ENGINEERS NO. B64 P2733 ' 12733 Raytheon Infrastr.éture ine. Raytheon Enginoars 48 Raytheon & Constructors AOOS ; : Plaza Cantar auilding wsfieae) 10909 NE, Oth Street ai Suite 500 R.3 Sallevue, WA 98004-4405 me 425.43} .4800 425.451.4989 fax JE April 26, 1999 bm RS SL Mr. Rich Trimble Intertie Project Manager Ketchikan Public Utilities 2930 Tongass Avenue Ketchikan, AK 99901 Dear Rich: SUBJECT: SWAN LAKI-LAKE TYEE TRANSMISSION LINE INTERTIE PROJECT AP&T MESSAGE OF APRIL 20, 1999 REGARDING BVDC CONCEPTS This responds to your request that I review the information you received in a document from Mr, Robert Gramm of Alaska Power and Telephone (AP&T) dated April 20, 1999 which is unaddressed but titled SwarvTyee Intertie Project. In this document Mr. Grimm provides commentary on my letter to you of March 24, 1999 on the same subject, { Before proceeding, it is essential to clarify Raytheon’s position with respect to our analysis of the AP&T HVDC alternative. Raytheon does not want to be, nor should it be, cast in the position of a “combatant” with AP&T. It must be understood that Raytheon undertook the desiga of the Swar Lake, Lake Tyee transmission line in 1994 following a cost competitive selection process by KPU who was seelcng the services of an engineering firm to design and provide the constuction support for a transmission line that's basic route and concept had been developed through numerous studies for the Alaska Power Authority over many years. The study that established the basic route aad concepts that have now been designed by Raytheon was prepared for the APA by the firm of R. W. Beck and Associates and was finalized in 1993. By reference, this plan was made a part of Raytheon's work scope with KPU. The design of this line is now virtually complete, Raytheon has designed the line to reliayly withstand the harshness of the environment and to be constructable using tried and true design techniques and concepts. Because of the atteation to detail provided in the design and the fact that the towers are steel instead of wood, outages due to mechanical failures of the system are expected to very minimial. Furthermore, because it ig an overland Jine, any such outages should be able to be located and repaired relatively quickly and the line restored to service promptly. The permitting and environmental evaluations have been completed, The remaining hurtle now is to secute financing for its canstructiox. \ , APR - 28" * OPR,26.1999 12:20PM RAYTHEON ENGINEERS NO. 864 P.g/it MAY- 3-99 NON 12:32 03 FAX NO. 02 P. 03 “99(WED) 10:32 KPU ADMINISTRATION TEL:907 228 1000 P. 002 Lr. 3, Paine to R. Trimble April 26, 1999 Page 2 of 7 Admittedly, it is an expensive line to construct on a per mile basis becauye of the fact that it has been designed to withstand both harsh weather and the rugged terrain, Other factors that contribute to its high cost are the remoteness of the area in which it is to be built and the multi season work sequencing and costly staging that will be required to construct il. These are facts of life’ when constructing such a line in southeast Alaska and in many other areas within Alaska, AP&T’s proposed HVDC altemative to this ransmission Jine is vastly different than any of the previously studied alternatives and of this recently completed design, The proposal is based upon the application of recent research by ABB to develop a low cost, high voltage, direct current transmission system to compete with alternating current transmission systems for relatively short, interconnecting lines that may be used to transfer relatively small amounts of power between small but separated utihties, Without having studied this new coacept in considerable detail Raytheon is not in a position to critique it in depth but, as stated previously, we recognize the concept may have some benefits with tegard to the electrical interface of one system to anather. While those benefits relate to better system isolation, and independence when interconnected, some of the benefits of a combined system locked together in synchronism cannot be achieved by this method. It’s acceptance within the utility community is still to be proven. While we have limited technical information on the proposal and for this reason are not able to critique the system being suggested in detail at this time, as an advisor to KPU we can identify questions for which answers should be provided before a decision is madg to abandon 2 solid, conventional design ° which is based upon many years of experience and application throughout Alaska and the world in favor of an emerging technology which is in the demonstration phase. ‘ In Mr. Grimm’s message of April 20, he clarifies that their proposal woutd follow a totally different route than the one for which the design and environmental assessments have been completed. AP&T's proposal includes route options through and or around the Cleveland Peninsula. Bach opdon will tie the northern end of the interconnection line into the existing Tyee to Wrangeil line at the south end of Wrangell Island, The southern end of the interconnection line would be tied in to KUP’s system at Ward Cove or apparently somewhere near Leask Lake on the existing 115kV line from Swan Lake to the Bailey Substation. The degradation of the multiple generation fax copy of the map of the route altematives and tabular list of the line elements by length provided to me for review made it difficult to interpret clearly what the proposal really is. There are no technical details contained in the proposa! only simple alternative routings and a table of line types and lengths. It appears to be more of a “tryst me’’ type of proposal than one that is aimed at providing a clear level of detail to build confidence in its technical suitability. Haying worked now for several years with KPU staff, ] am certain that many more details will be required to be provided before a recommendation to proceed with this alternative would be considered prudent. Because this proposal is set forth so forcefully and with an apparent hard money price, I feel that it is in KPU’s best interest to seek immediate answers to the following comments and questions: @ There is a notable lack of any electrical one Jine diagrams of the configuration. Such ciagrama would normally be available to assess such a technical proposal, especially one that has already been priced, KPU should determine if such a diagram exist. Ifso KPU should secure this for review, If it does not exist, one should be required to be provided before proceeding fisher, ‘ MAY- 3-99 MON 12:33 03 FAX NO, 02 P. 04 APR. -2@° GJ(WED) 10:33 KPU ADMINISTRATION TEU: 907 225 1000 P. aos , 2PR, 25.1955 12:21PM RAYTHEON ENGINEERS NO, 854 P.4741 Lr. J. Paine co R. Trimble April 26, 1999 Page 3 of 7 ¢ Mr. Grimm, in his April 20 document, says that the real issuo is submarine versus overhead. I concur that this is a major issue and deserves considerable attention, However, it is not the only significant issue, A second essential issue is not mentioned or resporided ta by Mr, Grimm and that is that the technology being proposed is currently only operating as a demonstration at an ABB project in Sweden, When considering the application of a developing technology, KPU and AIDEA will recall their reluctance to accept solid dielectric cables for the submarine options considered for the Belum Canal crossing option even though they have been applied with somo regularity in Europe. All participants should be made fully aware of the level of development of this technology. While a demonstration project can be intcresting to be involved in, it also means being the testing point for the early application of the technology, sometimes with good results, sometimes with the opposite. AP&T shauld be required to disclose to AIDBA and KPU complete information on the status of the development process, where these facilities have been installed, how long they have been operating, the problems that haye been experienced, the Jife expectancy of the equipment, the advancements that are likely, how similar any demonstration project has been to the purposed of this project, and what level of acceptance has been generated among utilities here and elsewhere in the world. An occasional result of such a test program is that it is found to be unsuitable and is abandoned which would appear to result in an untenable situation. ¢ IfLhave properly interpreted the information, it would appear that the underwater routes for the suggested configurations will require, at a minimum, some 27 miles cf continuous underwatss cable if the Swan Lake to Bailey line js intercepted near Leask Lake, In any other of the alternatives, the shortest submarine cable is estimated to be 4 minimum of 30 miles in length and for one case up to 43 miles (see attached Table 1, and the composite scaled regional map marked with the alternative routes both of which were recreated from the almost illegible route information available to me). The shortest total underwater length is 43 miles. Given this information it will be apparent that these are long underwater circuits from any viewpoint, Such a cable will undoubtedly require multiple splices which are always a concern from a reliability standpoint, for eny type of cable constuction. Manufacturers are supremely confident in their ability to fabricate and splice these cables, however, things do happen. The information I haye seen contains no details regarding the technical features of the cable, its performance in salt water, its ability to resist nautical and marine environment accidents, ie., anchoring in busy marine waters, unstable slopes in the water Way, etc. These are real issues. The longer an underwater line is, the more potential it has to be impacted by these types of problems, Because of the heavy reliance this proposal makes on underwater rou\es, KPU should seek specific details on the design of the cable to be provided, the extent of the bathymetric studies that will be undertaken to design the installation, how the cable will be installed to prevent premature failure and accidents, how it will be protected electrically and mechanically and how failures will be located and repaired. ¢ AP&T should also be required to provide details about experience they have with such lines, particularly of this length in submarine applications, where they have installed them and the experience they have in locating and repairing failures should they occur, It should be noted that directly buried installations are not equivalent to submarine applications. An important decision to MAY- 3-98 MON 12:33 03 FAX NO. 02 P, 05 APR -28: Q99(WED) 10:35 KPU ADMINISTRATION TEL: 907 225 1000 P. aaa * RPR.26.1599 12121PM RAYTHECN ENGINEERS NO. 864 P.S/11 Ltr. J. Paine ta R. Trimble Apri} 26, 1999 Page 4 of 7 be made will be to determine who will be responsible for the routine maintenance of these long underwater lines, This should be addressed. ¢ Mr, Grimm indicates that ABB will provide guarantees for the equipment. I expoct that the life of the project is intended to far exceed the guarantee timeframes that ABB will provide, Overhead lines are relatively easy to repair and their repairs are fairly “low tech", Locating failures and repair of long underwater lines is certainly not “low tech”, It should be noted that if de:erioration of the cable occurs in any portion of its length because of salt water and alectrolytic corrosion, which I expect can be a real problem for DC systems, the likelihood is that the entire cable will have been affected meaning that the entire length may need to be replaced under such circumstances. This should be addressed. ¢ Mr, Grimm speaks of the good track record that the State has experienced with submarine cables. It miust be kept in mind that, heretofore, such cables have traditionally been meticulously designed and installed at the shortest possibie lengths to minimize all of the aforcmentioned problems and exposures. The proposal here is totally different and is based upon the premise that long underwater circuits should be used to ayoid other types of construction costs and maintenance proble:ns related to conventional overhead circuits, A change in paradigms ig required (o accept this as the solution -without a great dea] more infornation, ¢ The equipment to be used at the terminal points to convert from AC to DC and visa versa is also not common to the maintenance or operating staffs at Wrangell or Ketchikan. In conyentional! overhead facilities and interface substations, the equipment and its features are generally common to most utility maintenance workers. Routine maintenance and troubleshooting is relatively easy and when a failure occurs, with proper backup relaying, it is often possible to bypass a switch or breaker under emergency conditions and restore the system operation relatively quickly. I doubt that one can bypass a converter urider any conditions. Failures and repairs of this equipment will require a different level of knowledge and skill than is presently in place. KPU should know what experience AP&T staff offer to maintain this equipment should it be installed. KPU should also know ifa maintenance contract was to be placed with AP&T, what its cost will be and the timeframe to have support available under severe emergency conditions, i.e, winter holidays at night. AP&T may not have that ability itself, It may require a contract with ABB, This should be examined. ¢ KPU should know where the terminals are to bs located at the north end and at the south end. Locating the northern terminal point at the south end of Wrangell Island as proposed would acem to defeat one of the critical goals that was desired for the line at its inception, that is to be connected at the primary source of the generating resource. The proposed location on the south end of Wrangell Island wil] require total reliance upon the existing overhead line from the Tyee plant to the tap point and then into Wrangell. It will be instalied as an intermediate tap point and, to allow sectlonalizing and fault isolation, will require a three way switching system with breckers which will reduce the reliability of the connection that now exists to Wrangell. KPU should’know how this tap point will be designed and how the line will perform electrically for all possible fault scenarios. @ The AC line which has been designed interconnects at existing terminuls at Tyee and at Swan Lake. Both locations are presently manned or staff is readily able to get to these plants and communicate from them. KPU should know the intent with respect to crew availability to the terminal sites if they MAY- 3-99 MON 12:34 03 FAX NO, 02 P. 06 APR. -29° 99(WEDI 10.36 KPU ADMINISTRATION TEL:907 228 1000 P. 005 ' APR.26.1999 127226 RAYTHEON ENGINEERS NO.954 P.6711 Ltr. J. Paine to R. Tumble April 26, 1999 Page 5 of 7 are to be remote unmanned sites, If the sites are to be unmanned, how will they be monitored and operated under normal and during emergency conditions? * Itis understood that the long term goal for Ketchiltan and Southeast Alaska in general is to develop a strong interconnection grid between its major citiea. This DC link if constructed provides the ability to move power between otherwise isolated cities but does nothing to provide the stability or “strength” that comes from all systems being tied together synchronously. KPU should be sure to understand the implications of this decision if'a DC link is the only iitertie that will ever be constructed, * The environmental issues are another important topic. KPU has gone through a lengthy environmental review process for the overhead line. This resulted in an approval to allow construction of the overhead line as designed. AP&T has taken the position that the environmental issues are insignificant for the methods proposed here, As KPU knows however, this is a very involved pracess and waterways have their own requirements which ‘differ substantially from land based issues, While I expect that the issues are substantially different I don’t know that it iy wise to say they are non-existent. AP&T should provide some proof to KPU that they can in fact get the approvals needed to proceed with such a project, ¢ AP&T scems willing to say that the line is not a critical link because each separated utility has all of the resources needed to run independently during the period that the jine may be out of service thus they dismaiss the problems of an extended outage due to failure of the submarine cable, During its design, the overhead circuit was not considered to be expendable for long periods, Considerable effort was given to designing the AC overhead line to minimize failure, Furthermore, helicop‘er landing sites will be provided and maintained to allow prompt access ta any line segment for quick repair, KPU should have some quantitative answer from AP&T about the length of time that will be required to find and repair a failure in such long submarine lines. This should be backed up by references to real experiences AP&T has had under similar conditions. There are many more questions that can be asked. Ag can be seen by thase presented above however, there is much to still to be known about the plan, It is essential that the parties to any such agreement have a thorough understanding of the proposed plan and the implications to the growth of the area if this concept is to be adopted. If such a project is to be undertaken in liew of the already designed overhead AC line, specifications should be prepared and the proposal of AP&T adjusted to comply with those Specifications, A sole source lump sum proposal from one party on a “trust me” basis that does not respond to a carefully thought out plan and specifications satisfactory to al] parties, can result in two or more very disappointed participants. The prozosal, is submitted as if the concept is intuitively simple and unquestionable. While a low cost proposal wil: always have an appeal, it ig critically important that the implications of procecding with this concept, especially as an experimental demonstration, de carefully and fully evaluated to be sure that the long tecm goals of a stable grid system for Southeast Alaska are not jeopardized, MAY- 3-89 MON 12:34 03 FAX NO, 02 P. 07 APR. -28 99(WED) 10:38 KPU ADMINISTRATION TEL:907 228 1000 P. 006 .APR.25.1999 127 22PM RAYTHEON ENGINEERS , NO. 664 P.774i1 Lr. J. Paine to R. Trunbla April 26, 1999 . Pase 6 of 7 Thope this helps you as you evaluate this alternative, Should you have ary questions about this information, please feel freo to call me at 425-451-4206 or fax me at 425-451-4648, Very truly yours, Rofo Jeffaine Project Manager cc: G, Brewer MAY- 3-99 MON 12:35 03 APR. 728° 99(WED! 10:38 KPU ADMINISTRATION » SPR.25.19985 12:22PM Lt: J, Peine to R. Trimble Apr) 26, 1999 Page 70f7 Table | Route Alternative and Elements Ward Cove to Helm Ba Helm Bay to Meyers Chuck Meyers Chuck to Wrangell island South Sub Totals: Total Route Miles, if oOo ~ Leask Lake to Naha Ba Naha Bay to Yes Ba Yes Bay to Santa Anna Inlet Santa Anna niet to Wrangall Island South Sub Totals: Tota! Route Miles: | oO Qa Zy- a + a wo a S 70 o a a a = oO Qa a Ul S| [R ask Lake to Naha Ba’ Port Stewart to Vixen Inlet Vixen Inlet to Wangell Island South Sub Totais; Total Route Miles: RAYTHEON ENGINEERS Ul FAX NO, 02 Miles By Type of Construction a» w& an ao a = N > o Leask Lake to Naha 8a Naha Bay to Helm Ba Helm Bay to Meyers Chuck Meyers Chuck to Wrangell Island South Sub Totals: Total Route Miles: ™“N orm Ward Cove to Thorne Bay Thorre Bay to Wrangell Island South Sub Totals: Total Route Miles: o So a a F 69 TEL: 907 228 1000 NO. 86 12} $40,000,000 $40,000,000 Swan Laxe / Lake Tyee Overhead AC 5 MN 3 . | Quoted Cost . (Fixed) P, 08 P.007 4 P.e711 Unit Cost Overail $73,200,000 | $1,277,487 vy oO S; = 2s <x tn a a Fae vs Pn we ve deus 2501 K Steet NW, Suite 9A AWachington, OO 20037 # (202) 342-1689/Fax (202) 342-2068 21) Fourth Street, Suite 302-0 # Juneau, AK 9801 # (907) 463.9636F ax: (907) 453.9611 MAIL: POR 244002 # Anchorage, AK 99574-4902 # (907) 245-2252/F ax: (907) 248.4873 Wire le tMam erie tli nY ax To: Dave Russell, Lisa Sutherland From: LARRY MARLEY Fax: 202-224-2354/202-228-0248 Pages (including cover sheet): 24 Phone: Date: 4/28/99 Re: Southeast intertiefMahoney Lake Project cc: O urgent O Fer Review O Please Comment @ Comments: Here is the 15-page executive summary of the Tye2-Swann Lake intertie report released Monday by the State. My client, Ketchikan Electric Company (a joint venture of Cape Fox Corporation and Alaska Power & Telephone Company), wants to develop the Mahoney Lake Hydroelectric Project but has supported and continues to support const/uction of a Tyee-Swann Lake intertie. Contrary to what you may hear, this support is straight-forward. It does not represent some devious plan to delay and destroy the intertie. Period. What we are suggesting is that we can have our cake and eat it, too, energywise in the Ketchikan area. We have said this to everybody all along and we believe it. Here's why: Mahoney Lake is a 10-megawatt hydro project that is fully licensed by FERC and ready to go. It can be built for $17.5 million within 14 months by the private sector with no focal or state financial support. Power will be offered to Ketchikan Public Utilities at a flat rate of 6.5 cents/kilowatt hour for the life of the contract. This is lower than the 6.8 cents/kilowatt hour proposed for intertie power. Any federal assistance will further Jower the Mahoney rate. Only about four miles of line will be needed to connect the project to the existing KPU system, and reliability to Ketch{kan residents will be enhanced because there will be an additional power source and a separate line for it, A Mahoney Lake fact sheet is also attached. The intertie is necessary as long-term regional infrastructure (much as a road or water line) that could be part of a Southeast intertie system stretching from Ketchikan to Juneau. They key here is to get the cost down. The current cost, using conventional high-tension AC technology, is $77.2 million, for which we understand there are about $21 million in grants on hand ($10 million federal, $11 million state). We continue to add our voice to those who hope at lest another $20 million in federal grants can be obtained. What we believe can make all this come together for the intertie is the use of much less expensive “HVDC Light’ transmission technology, which would bring the cost cown from the current $77 million to as little as $40 million. (For $60 million, an all-submarine cable rcute could also connect Prince of Wales Island.) The HVDC technology, which is more environmentally benign than AC, would Wa Gu vy me ave vy ron we ve April 28, 1999 welcome any serious, independent review. The new technology has teen developed and is warranted by AAB, a $30 billion intemational consulting engineering firm. There is more than one way to skin any cat, and interties are no exception. Aitached is a letter on the HVDC alternative. As | said, the proponents of this option welcome any meting, with anybody, at any time. It appears that one of the problems here is that all the parties aren't communicating effectively with each other. » UO sua cvulvy WEY 1LUtOYy ug THA NU. Uc Fr. Uw KETCHIKAN ELECTRIC COMPANY, LLC Owner ang Developer of the Mahoney Lake Hydro Project April 22, 1999 * Both the Mahoney. Hydoelectric Project and the Swan-Tvee Interti e buill Mahoney Lake is fully licensed and can be built by the private sector without state cr local financial support. Using advanced technology, the intertie can be built for between $40 to $50 million. well below the present estimate of $77 million. * Mahoney rate is lower than Four Dam Pool rate Four Dam Poo] rate is currently 6.8 cents per kilowatt-hour (kWh). KEC’s offer to KPU is at 6.5 cents per kWh fixed for the term of the contract (10 to 35 years). * Timing is now! Mahoney is ready to go, Intertie is 4 to 5 years away Mahoney can be operational by the fall of next year. while work progresses on the intertie. * Why import if it is cheaper to produce power here locally The Intertie should not be viewed strictly as a source of power for Ketchikan. Ketchikan should consider all local possibilities for hydropower first and view the Intertie as the regional infrastructure that allows the power to flow freely in either direction throughout Southeast. * Mahoney Lake Hydro will reduce the number of power outages and brown outs Connecting Mahoney Lake via the Beayer Falls transmission line means increased reliability for the power into Ketchikan. If Swan Lake or the Intertie goes down, there will still be significant power available via Mahoney Lake through the Beaver Falls line. * Mahoney Lake Hydro supports the Intertie The Intertie is a basic infrastructure for Southeast Alaska similar to building a hig\iway project. It serves important economic development objective to connect different parts of Southeast Alaska. The electric needs of SE Alaska over the next 20 to 30 years will require efficient electric gencration such as Mahoney Lake, which will flow over intertics such as Swan-Tyee * Mahoney will supplant fossil fuels 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 by Ketchikan KPU will have access to Mahoney Lake energy and capacity without making ans further investment in new hydros. The investment will be made by Ketchikan Electric Company. a joint venture of Cape Fox Corporation and Alaska Power & Telephone Company. * 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. ¢ Enhanced economic development with the 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 city in a pre-eminent position to attract economic development. * Immediate local economic development ; ; Mahoney Lake will be a local project within the Ketchikan Gateway Borough. It will provide local construction and operating jobs, and will be owned by a local corporation. ° Intertie support KEC has supported and will continue to support the intertie. min cu vy my ivivy vs roa we uc mr. Ut ALASKA POWER & TELEPHONE COMPANY P.O. 3OX 222 ¢ 191 OTTO STAEET PORT TOWNSEND, WA 98368 March 1, 1999 mora eo) EEN Randy Simmons, Executive Director Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Dear Mr. Simmons: One of the problems you are facing with the proposed Swan/Tyee Intertie is the overall cost of the project. We have been investigating other construction methads and technologies now available that offers a cost advantage over the proposed method. In the early 1980’s high voltage direct current (HVDC) transmission facilities were studied as a means of interconnecting southeast Alaska, HVDC has many advantages when compared to traditional alternating current transmission. However at the time the prior studies where conducted HVDC was only used for very high capac ity transmission facilities. The primary reason driving this was the very high cost of the Acc converter stations required at each end of the facilities. Recently, ABB Power Systems has developed a new design that is based upon voltage sourced converters, This has significantly lowered the cost and thus, allows the economic use of HVDC for the transmission of smaller loads (20 to 30 mW). This technology also uses cable, either buried or submarine, or low impact overhead, rather than high tension transmission that requires tall towers. These require large right-of-ways teducing both the land resources consumed and the visual impacts of the faculties upon the remaining Jand. We have been working with ABB and have studied several different routes that would connect the Swan Lake and Tyee Lake Projects, The four alternatives studied range in prices from $40 to 50 million. This represents substantial saving over the current 138 kV high-tension design of $77 million. If these savings are extended to all of the electrical interconnections currently under consideration the savings are enormous. In addition, fiber optic technology can be easily and economically incorporated into the design that will allow the construction of not only an electrical grid throughout southeast but also a broad band network capable of providing high capacity voice and data services. I have enclosed a proposed route map and background information developed by ABB that describes this technology. In addition, we prepared a cost estimate that provides a fixed-price tumkey amount for each of the routes, We based our estimate primarily on a submarine with short overhead sections that cross the Cleveland Peninsula at three different locations. We understand that the Cleveland Peninsula is a sensitive area and further investigation will be needed to determine the best crossing point! Also the current EIS issued by the Forest Service for the Swan/Tyee Intertie will need to updated or supplemented. Because the impact upon the National Forest of the HVLC alternative is only a small fraction of that documented for the 138 kV high-tension design we do not mren-cu gv Wey 1LUrv¥ vo PHA NU Uc r. Uo view this as a significant problem, if agreement can be reached among the interested parties. One of the concerns we have had in regards to the HVDC concept is the lack of operating history and experience; some still view this technology as experimental, We have done significant research and are convinced that this concern can be overcon‘e. ABB is one of the largest companies in the world and is willing to provide satisfactory warranties. In addition, IREE is now (Feb. 1999) balloting on a standard that will be izicluded in the specifications of all HVDC converter stations. This standard documents the best practices that have been used worldwide for the last 29. years in the purchase, operation and maintenance of high voltage direct current installations. We believe this is an exciting development that may help us all to interconnect southeast Alaska. We believe HVDC is superior to the existing design electrically, has a smaller impact upon the resources of the area, and does so at a substantially lower cost. We remain willing to work with KPU, the Intertie Committee of the Southeast Conference, Alaska Municipal League, and others to move the iuterconuection of Southeast Alaska forward. Please let me know if you would like additional information. Sincerely; Lf, Robert S. Grimm, Predident Ce Mayor Weinstein, City of Ketchikan Beme Miller, Southeast Conference Jerry Ingersol, USFS : Enc. ABB Information Route Map +- 51 kV de Cost estimate MPR~co 99 Wey 1Uo4 us THA NU h US r. UO Swan/Tyee Intertie ie i | Fixed-price Mile Routes: A Ward Cove to Helm Bay Helm Bay to Meyers Chuck Meyers Chuck to Wrangell Island South $46,822,280] $47,000,000} $681,159 B Leask Lake to Naha Bay Naha Bay to Yes Bay Yes Bay to Santa Anna Santa Anna to Wrangell Istand South $39,951,680} $40,000,000) $727,273 Cc Leask Lake to Naha Bay Naha Bay to Port Stewart Port Stewart to Vixen Inlet Vixen Inlet to Wrangell Island South $40,336,640] $40,000,000] $714,286 Oo Leask Lake to Naha Bay Naha Bay to Helm Bay Helm Bay to Meyers Chuck Meyers Chuck to Wrangell Island South $45,348,920 $46,000,000] $666,667 E Ward Cove to Thome Bay Thorne Bay to Wrangell Island South $60,576,800 $60,000,000} $750,000 F Swan/Tyee 138 Kv Overhead i $73,200,000 $1,370,787 Sitka/Kake/Petersburg Sitka to Warm Bay Springs 13 oh Warm Springs to Kake 35 sub Kake to Duncan Canal 26 oh Duncan Canal to Mitkop Island 27 sub 101 $54,235,720} $55,000,000] $544,554 APR CU 99 Wey 1U104 Us FHA NU. Uc ir Ul PROPOSED SUBMARINE! OVERHEAD ROUTES SWAN/TYEE INTERTIE + 51kV HVDC/4QMVA LEGEND; 4 Aim] fe Ee Sa Breaetaaes Fie — m= ou =“SQUNQ oe SHH SS D: ~——-— P. 01/03 _ APBz28-89 WED 11:50 AM - ‘TONY KNOWLES acveraton > STATE OF ALASKA - OFFICE OF THE GOVERNOR WASHINGTON, D.C. amen 4-3 99° TO: HF-2A- ROY, | eats baueapact -465- 31494 ST ee Sa [wer - 228-542-072 FROM: ane MN. D 4 se LAN SUBJECT: t ALAN dents Co Arnpre a air ne CLoatipicas Fae ents COMMENTS: ENE NUMBER OF PAGES (including this cover) : > HALL of the STATES —-Syite 3 36—444 North Capicol Streec N.W. —(202) 624-5858—-Fax (202) 624-5857 APR-28-99 WED 11:51 AM territory and complies with rules issued ey, the Secretary of Energy wer quality standards. ‘URAL AND REMOTE COMMUNITIES ELECTRIFICATION GRANTS. tion would amend the Rural Electrification Act of 1936 to authorize the Secretary , in consultation with the Secretary of Energy, to provide grants for the purpose of energy efficiency, lowering or stabilizing electric rates to end users, or providing or ing electric facilities for rural and remote communities and Indian tribes. ECTION 407. INDIAN. TRIBE ASSISTANCE. ; This section would amend the Energy Policy Act of 1992 to require the Secretary of Energy to establish a grant and technical assistance program to assist Indian tribes to meet their electricity needs. Among other things, the program could provide assistance in planning and constructing electricity generation, transmission, and distribution facilities. SECTION 408. OFFICE OF INDIAN ENERGY POLICY. AND PROGRAMS. This section would authorize the Secretary of Energy to éstablish an office within the Department of Energy to coordinate and implement energy, energy sare aie and energy conservation. programs for Indian tribes. SECTION 409. SOUTHEAST ALASKA ELECTRICAL POWER.’ This section would authorize appropriations as necessary to ensure the availability of adcquate electric power to the greater Ketchikan area in southeast Alaska, including an intertie. TITLE V-- REGULATION OF MERGERS AND CORPORATE STRUCT URE SECTION 501. REFORM OF HOLDING COMPANY REGULATION ‘UNDER PUHCA. This section would-repeal the Public Utility Holding Company Act of 1935 (PUHCA). In addition, FERC and State regulatory commissions would be given: greater-access to the books and records of holding companies and affiliates. SECTION 502. ELECTRIC COMPANY MERGERS. This section would amend the FPA by conferring on FERC: ‘jurisdiction over the merger or consolidation of electric utility holding companics and generation-only companies. This section also would streamline FERC's review of mergers. In addition, this section would require that FERC consider the effect a merger could have on wholesale and retail electric generation markets. SECTION 503. REMEDIAL MEASURES FOR MARKET POWER, i ‘This section would amend the FPA to authorize FERC to remedy’ market power in wholesale markets. This section also would authorize FERC, upon petition from a State, to remedy market power in retail markets. a P. 03/03 APR-28-99 WED 11:51 AM 12 13 14 15 16 17 18 19) 20° 21 SEC. 409, SOUTHEAST. ALASKA. ELECTRICAL POWER. There is authorized to be appropriated to the Department of Energy up to a total sum of $20,000,000 for the purpose of providing financial assistance to the State of Alaska as necessary to ensure the availability of adequate electrical power to the greater Ketchikan area in southeast Alaska, including the construction of an intertie. TITLE V. REGULATION OF MERGERS AND CORPORATE STRUCTURE SEC. 501, REFORM OF HOLDING.COMPANY REGULATION UNDER PUHCA., Effective 18 months after the enactment of this Act, the Public Utility Holding Company Act of 1935 is repealed and the following is enacted in its place. "SECTION 1. SHORT TITLE. "This Act may be cited.as the *Public Utility Holding Company Act of 1999". “SEC. 2, DEFINITIONS. “For purposes of this Act — Noe 1 yD rye ATTY GEN OFC JUNEAU ID:907-465-2520 APR 20°99 15:59 No.009 P.O1 CONFIDENTIAL STATE OF ALASKA DEPARTMENT OF LAW P.O. Box 110300 - Juneau, Alaska 99811-0300 Phone: (907) 465-3600 Fax: (907) 465-2520 ‘ LEGISLATION / REGULATIONS SECTION ! FACSIMILE TRANSMITTAL : | THE INFORMATION CONTAINED IN THIS FAX IS CONFIDENTIAL AND/OR PRIVILEGED. THIS FAX IS INTENDED TO BE REVIEWED INITIALLY BY ONLY THE ! INDIVIDUAL NAMED BELOW. JF THE READER OF THIS TRANSMITTAL PAGE IS NOT THE INTENDED RECIPIENT OR A REPRESENTATIVE OF THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY REVIEW, DISSEMINATION, OR COPYING OF THIS FAX OR THE INFORMATION CONTAINED HEREIN IS PROHIBITED. IF YOU HAVE RECEIVED THIS FAX IN ERROR, PLEASE IMMEDIATELY NOTIFY THE SENDER BY TELEPHONE AND RETURN THIS FAX TO THE SENDER AT THE ABOVE ADDRESS. THANK YOU. - PLEASE DELIVER THE FOLLOWING PAGES TO: TOTAL NUMBER OF PAGES FOLLOWING COVER PAGE 2 ies . sD COMMENTS: S$ _ pae sent: 4-20-99 me; ALOO om. | © Deborah E, Behr, Legislation Attorney D Steve Weaver, Assistant Attormey General | gr. Jordan, Lézal Text Editor C Kevin Messing, Legal Text Editor : OC Jean Feakes, Legal Secretary ATTY GEN OFC JUNEAU ID:907-465-2520 APR 20°99 16:00 No.009 P.02 4/20/99 DRAFT DEPT. OF LAW DRAFT —__— BILL NO. IN THE LEGISLATURE OF THE STATE OF ALASKA TWENTY-FIRST LEGISLATURE - FIRST SESSION BY THE RULES COMMITTEE BY REQUEST OF THE GOVERNOR Introduced: Referred: A BILL FOR AN ACT ENTITLED 3:53p 1-GB1064.B 4/20/99 "An Act relating to the power cost equalization and rural electric capitalization fund; relating to the four dam pool transfer fund; and providing for an effective date." BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: * Section 1.- AS 42.45.050(b) is amended to read: (b) Subject to appropriation, the department shall transfer the balance of the four dam pool transfer fund cach month in accordance with this subsection. Subject to appropriation (1) 60 [40] percent of the balance in the four dam pool transfer fund shall be transferred to the power cost equalization and rural electric capitalization fund to be used for power cost equalization and rural electric projects; and (2) 40 percent of the balance in the four dam pool transfer fund (A) _ except as provided in (B) of this paragraph, shall be transferred to the Southeast energy fund to be used for power projects for 15 Now Text Underlined {DELETED TRXT BRACKETED) Sal “ ATTY GEN OFC JUNEAU ID:907-465-2520 APR 20°99 16:00 No.009 P.03 \ | 4/20/99 / DRAFT DEPT. OF LAW DRAFT 3:53p 1 Utilities participating in the power transmission intertie between the Swan Lake | 2 and Tyee Lake hydroelectric projects; 3 (B)_as of the date of any Alaska Industrial Development and 4 Export Authority approval of a plan of finance for the power transmission | 5 |ntertie between the Swan Lake and Tyce Lake hydroelectric projects that | 6 onstrates that all o: t 7 ‘ansferred nd_under (A) of this h_is 8 not required to complete the intertie, that sum is instead transferred to the 9 power cost equalization and rural electric capitalization fund to be used 10 for power cost equalization and rural electric projects [; AND 11 (3) 20 PERCENT OF TIIE BALANCE IN THE FOUR DAM POOL : 12 TRANSFER FUND SHALL BE TRANSFERRED TO THE POWER PROJECT FUND 13 TO BE USED FOR STATEWIDE UTILITY PROJECTS]. 14 * Sec. 2. AS 42.45.100 is amended by adding new subsections to read: 15 (d) Subject to appropriation, at least 40 percent of the amount made available 1 16 by the Alaska Industrial Development und Export Authority under AS 44.88.088 shall 17 be tranéferred to the fund when available. 18 (e) If the initial project described in AS 44,83,398(a) is sold, the Alaska 19 Energy Authority shall, subject to appropriation, transfer to the fund 60 percent of the 20 net proceeds from the sale. 21 * Sec. 3. APPLICABILITY. AS 42.45.100(d), enacted by sec. 2 of this Act, applies to the 22 || amount made available by the Alaska Industrial Development and Export Authority under 23 || AS 44.88.088 for fiscal years after fiscal year 2000. 24 || *Sec. 4. This Act, this Act takes effect July 1, 1999. «2 New Text Underlined [DELETED TEXT BRACKETED] Electric power transmission to distant loads by HVDC Light Gunnar Asplund.', Kjell Eriksson” and Birger Drugge® ‘Power Systems Technology Manager, ABB Power Systems AB, Box 703 S-771 80 Ludvika Sweden "HVDC Light Project Manager, ABB Power Systems AB, Box 703 S-771 80 Ludvika Sweden >High Voltage Cables Technology Manager, ABB High Voltage Cables, Box 546 S-371 23 Karlskrona Sweden Summary HVDC Light represents electric power transmission by HVDC based on voltage source converters. This newly developed technology has various interesting characteristics that make it a very promising tool for transmission of electric power to distant loads, where no other transmission is possible or economic. The technology briefly presented here is based on converters with many seriesconnected turn on/turn off semiconductors of IGBT type. A pilot transmission in the middle of Sweden for 3 MW +/-10 kV DC has been put into operation in the beginning of this year and an extensive test program has shown the excellent performance of the technology. Emphasis is on the characteristics that are of importance for feeding of networks or loads without own generation. This refers specifically to the generation by internal control of the phase voltages in the inverter, that could serve the loads in the connected AC network. New DC power cables based on a modified triple extrusion technology and a specially designed DC material have been developed. DC power cables with ratings 30 MW at 100 kV can be accomplished weighting only 1 kg/m. Such cables can be installed at low cost by e.g. ploughing techniques. Voltage source converters together with these cables constitute an excellent tool for providing power to any distant location.In such a transmission the reactive power can be controlled independently in the two stations and independent of the active power and can be used for fast AC voltage control. Thereby the advantages of a large network can be brought to basically any place. A few applications are presented to show this. For the moment the technology considers designs that work within the power range of 1-60 MVA and with direct voltages up to around +/-100 kV. A converter station for 20 MW and below +/- 30 kV will occupy an area less than approximately 250 square meters. For the future both powers and voltages will increase and extension to pure DC networks will be possible. The development of power semiconductors, specifically IGBT’s and extruded DC cables has led to that small scale HVDC in combination with cables can offer a number of new applications to serve the needs of utilities. Such installations have several characteristics that make them very attractive. ° Opportunity to transmit almost any amount of power long distances via cable Opportunity to connect to passive load Separate control of active and reactive power No contribution to short circuit currents No need of fast communication Low complexity thanks to few components HVDC Light lof2 [ABB Power Systems! S epee Ebest se beh ee Bey BS td bio Claas Puc ants: Roe eae gies http://www.abb.se/pow/lite1.htm 2h 82 &P FADED HVDC Light HVDC Light is an alternative to conventional AC transmission or local generation in many situations. Possible applications include the feeding of distant loads and the connection of distant generation plants. By feeding a remote load from the main grid, it is feasible to shut down small, expensive and possibly polluting local generation plants, as well as eliminate the associated fuel transport. This makes HVDC Light a very attractive choice from the environmental point of view. Layout of the Gotland HVDC Light station Just awarded: Directlink, Australia Commercial installations: Gotland HVDC Light, Tjaereborg HVDC Light In operation: Hellsj6n Transmission Letter of intent: ABB to apply new technology in Estonia-Finland power link ABB can now present a new DC transmission technology, HVDC Light, based on voltage source converters (VSC) with series connection of modern semiconductor device, the IGBT. This technology extends the economical power range for DC transmission downwards to just a few MW. The new converter technology also opens up new, hitherto unseen possibilities for power quality improvement in AC power networks. A VSC converter for HVDC Light is compact and robust, both electrically and mechanically. The main equipment is contained in a small movable housing and is 4/12/99 3:55 PM HVDC Light 2 of 2 http://www.abb.se/pow/lite1.htm delivered fully assembled and factory tested. A 10 MW converter station occupies less than 200 m2 and has a total weight of around 20 tonnes. The delivery time can be as short as 6 months from order date. The HVDC Light transmission is easy to operate since it is fully automatic and can be provided with remote supervision. Regular maintenance has been reduced to a minimum. Read more about Electrical power transmission to distant loads by HVDC Light (Acrobat file, 99 kB) or just the summary (Acrobat file, 8 kB) Read more about DC transmission based on Voltage Source Converters , from the CIGRE SC14 Colloquium in South Africa 1997(Acrobat file, 141 kB) 4/12/99 3:55 PM wer GtEee 11:24AM FROM AP&T WIRELESS, INC. TO 19872693044 P.@1 ec | ee ALASKA POWER & TELEPHONE COMPANY Qeaas | t | | P.O, BOX 222 « 191 OTTO STREET PORT TOWNSEND, WA 98368 | (360) 385-1733 ¢ (800) 362-0136 { FAX (260) 385-5177 Swan/Tyee Intertie Proposal April 20, 1999 Public Utiliti les from Jeff Paine of Raytheon Engineers and Constructors. The subject of the letter. was & review of the letter I sent to Randy Simmons, Executive Director of AIDEA on March }, | 1999. In the letter ‘we suggested that a combination of low impact overhead line combined with | kaneis cable coupled with the use of HVDC technology could substantially reduce both the cost Ireceived a sory of 4 letter written to Mr. Rich Trimble, Intertie Project Manager, Ketchikan and environmental i inppacts of the proposed Swan/Tyee Intertie. offer advantages ovet conventional AC transmission. The real comparison that needs to be done is submarine verses ovarhead. Unfortunately, Raytheon devotes only a few words comiparing'the respective merits of dverhead and submarine lines. We believe a submarine cable installation offers : Significant advantages especially when the overhead route is characterized by rugged, rocky and ' | I | | | \ | | | We are pleased that Raytheon confirms some of our own findings that this HVDC technology.may mountainous terrain. EF i | AP&T does hot propose to follow the route established by Raytheon and KPU using low impact | | overhead construction. We agree that this route is not conducive to the low impact overhead we | propose. The difficulty of the KPU route is why we proposed several entirely new routes that i : i c ine cable runs with short sections of low impact overhead across the Cleveland Peninsula. | Any overhead line will experience outages based upon snow, wind, and blowdown. Lacking road) access maintenance will be expensive and time consuming. This makes it difficult to justify i t Concent feat overhead construction from a reliability standpoint. Buried or submarine cables have tremendous advantage in this regard; however, charging current associated with AC: drastically yells distance. in any eventit is that outages will occur no matter what type of system, is used. We believe that ‘the overhead system jwill incur significantly more outages and require on-going right-of- ~way © maintenance, The submarine/overhead system we recommend would incur substantially fewer | outages although thejduration of any outage would be longer on the'submarine portion. ‘With the submarine configuration recurring right-of-way costs would also be minimize. : ' ‘ Since the intertie co amunities maintain individual power generation capacity to be used for standby purposes,. intertie system that yields the lowest number of outage hours will-result in the highest reliability. Based upon our research and the record of the AEA’s own submarine cables, we expect superior réliability from the submarine/overhead system we recommend. : a I We believe the combination of submarine and overhead we propose has significant advantages in. initial cost, environmental impact, reliability, and operation. In addition, we reocmnmsane utilizing j hy | | 4-28-1999 11:25AM FROM AP&T WIRELESS, INC. TO 19872693044 P.@2 HVDC as opposed to HVAC. The DC system has no length restriction based on cable capacitance and is the only logical choice if one wants to take advantage of reliability of underground or ° submarine transmissi n construction in longer distances. The DC system also pffers several advantages in operation over the!AC system. With the AC system, interconnection requires that either Tyee Lake or Swan Lake operate in droop mode for proper parallel operation. A line outage results in one of the systems operating either above or below synchronous speed. Both systems are subject to voltage and speed excursions from the other. i s each system for the other with regard to voltage and frequency: Both Tyée i ® isochronously and at independent voltage levels without regard to the load’ transfer and ee load curves. This isolates each system from the other with respect to voltage | believe that this is a valuable advantage, especially in the context of an | As-to cost, we are not comparing apples to oranges as suggested by Raytheon. urd cost inches all costs to deliver 40 miVA of electric power from the existing Tyee-to-Wrangell transmission line - : now operating at 69kv, to the Swan-to-Ketchikan transmission line now operating at 115 kV.’ However, there could be internal weak link within KPU's distribution system that would need to be! upgraded before that}system could accept the full 35 mw from the intertie we propose. These costs ' | would need to be in prior to those components reaching their rated capacity. We would be: i | glad to investigate d provide prices for correction of these weak links upon request. - ineering, substations, licensing, permitting and installation, We have based: al numbers developed from our experience developing the aines/Skagway Our cost includes j our estimates on i “‘Intertie and have utilized quotations from ABB for the HVDC converters and cable, ABB will be offering warranties gn the equipment and cable. As you may know ABB is one of the largest ' companies manufact ing electrical equipment in the world with $30 billion in annual revenues. We are confident that we can achieve these results. In addition, if the State of Alaska does not wish to assume direct ownership, AP&T would be glad to own, operate, and maintain the facilities: on a | Tautually acceptable contractual basis for the AEA or for the affected utilities for the reasonable life of the facilities. President: | TOTAL P.@2 “APR. -18' 99(THU) 14:37 KPU ADMINISTRATION TEL:907 225 1000 P. 001 . Raytheon Engineers & Constructors Plaza Center Building 10900 NE, 8th Streer Sulle 5U0 Bellevue, WA 98004-9405 425.451 4500 425.451.4940 Jax ugsy Raytheon March 24, 1999 Mr. Rich Trimble SCD Intertie Project Manager TE Ketchikan Public Utilities Q¢c. ab 2930 Tongass Avenue es Ketchikan, AK 99901 KRY RSimmonsS Dear Rich: DMNeCroher Buavinsein SUBJECT: SWAN TAKE -LAKE TYRE TRANSMISSION LINE INTERTIE PROJECT 8. Miller DC TRANSMISSION CONCEPT i Inge) At your request, I have explored the concept of the HVDC transmission altemative for the ie 5 Lake, Lake Tyee Intertie presented in the letter from Alaska Power & Telephone Company dated March 1, 1999. This letter was addressed to Randy Simmons, Executive Director of Alaska Industrial Development and Export from Alaska Power and Telephone Company. The information contained in the letter suggests that new advances made by ABB Power Systems in High Voltage Direct Current (HVDC) transmission, if used for the referenced intertie, could substantially reduce its cost and environmental impacts. The letter’s content is very general in nature and limited in technical detail and unsupported in its conclusions about cost, I contacted ABB to explore their recent advances in the application of DC to transmission systems which they are marketing under the trade name “HVDC Light’. The concept is apparently exclusive to them at this time. They provided me some technical literature about it. They see this system being particularly suited to using HVDC lines to interconnect relatively small, widely separated loads or energy sources. The concept involves “breakthrough” technology in the application of “Voltage Source Converters” which they have successfully adapted ta use for their HVDC linc interface converters. According to the literature, the application offers some interesting capabilities that could be well suited to use in small power level, widely separated systems. The technology is at the evolutionary stage in its development. ABB has one demonstration system in operation now which is near ils headquarters in Sweden, It is reported to be working well. It is marketing the concept aggressively throughout the world with the hope to install several sites in the next couple of years. The key advantages claimed for the system are lower cost equipment, lower installation costs and fewer impacts to the environment than for an equivalent AC line. Further it is suggested that the lines could be installed underground or underwater at much lower costs than for a conventional AC system, It is also indicated that “low impact” overhead designs could be used in lieu of high tension, tall tower designs required for AC systems. It must be remembered however, that the route over which this line is to be constructed is characterized by rugged, and very rocky, mountainous country which would realistically eliminate the potential of burying the “APR. -15' 99(THU) 14:38 KPU ADMINISTRATION TEL:907 225 1000 P, 002 Lin. J, Palia 1a R, Trimble March 24, 1999 Page 20f 3 conductors. An all under water route for this intertie would be very long and difficult to implement too because of the geographical constraints between the terminal ends of the line. To build any circuit overhead will require spanning between ridges and over valleys to minimize the number of structures and clearing of the right of way that is not spanned above the trees. The terrain is not like the relatively flat and clean terrain what would be suitable for an economical low tension system. If an underwater route was to be given serious consideration, the complexities of maintaining such a circuit, if it is to be a critical connection link between resources with minimal downtime, must be considered, Rapid repair of underwater systems is virtually impossible. While the teliability problem may be reduced by adding contingent cables, the economics begins to be quickly impacted. Because only two conductors are required for a DC line instead of three for an AC line, it may be possible to reduce the width of the right of way if the HVDC line were constructed overhead, however, the savings to be achieved becanse of the technology are not likely to be as great as one would hope. This is due to the fact that the primary cost of constructing anything in this rugged area is tied to the logistics required to work in such a remote location. A key element of the construction costs is the cost to stage crews and construct foundations for the supporting towers for the conductors from floating bases. Access to the work areas is limited largely to helicopters regardless of the design. Although the foundations required for a two conductor, overhead line may be slightly less complex, the logistics of getting to the tower locations with the tools and equipment to install them is still the biggest cost component and remains a requirement regardless of the design concept. The additional costs of the equipment to convert AC to DC may offset the additional conductor and right of way costs. In terms of line miles, the route currently considered most suitable is approximately 57 miles in length. It is probably the least length of line that could be constructed and comply with the agency requirements for impact to streams etc, As stated earlier, because of the rocky, rugged nature of the terrain, a buried line, the construction of which is also very destructive in sensitive terrain, is not a practical consideration in this area. Any overhead line will require a cleared right of way to maintain the line’s integrity. While two conductor DC line would be narrower than a three conductor AC line, it would not be a great deal narrower thus the incremental savings in clearing would not be expected to be an overriding factor. With respect to the costs of constructing the line, the estimates developed during the course of the project give a range of costs to construct only the line, without substations, licensing, permitting and other necessary costs is approximately $53 million. These other costs, when added in, result in a total project cost of nearly $77 million, The figure of $53 million must be compared to the cost of the work stated in the letter which range from $40 to $50 million rather than comparing this to the $77 million amount which contains much more than just the construction of the line. Further more, much of that money has already been spent on the environmental assessments and detailed design, neither of which were considered in the costs presented in the letter. The conclusion must be that the costs of the two systems are not that far apart, 80 the savings to be gained by application of this new technology, in this area specifically, will not be nearly as significant is represented. “APR. -15' 99 (THU) 14:38 KPU ADMINISTRATION TEL:907 225 1000 P. 003 Lr, J, Pring jo R Trimble March 24, 1999 Page 1 of 3 In summary, while there may be interesting technical features to the concept, it must be considered developmental at this time. For us to recommend that you consider the application of this technology now would not be inconsistent with our intent to provide you tried and true concepts rather than experimental ones. Furthermore, the costs presented in the letter, which are offered without details, do not appear to represent savings anywhere near as significant as those indicated, Certainly, they should not be considered firm without further careful evaluation. I will be available to answer any questions you may have regarding the above. Please feel free to call me at 425-451-4206, Very truly yours, Jeff Paine Project Manager IP\RT990324L.doc DC CONCEPT REVIEW.doc ce: J. Elkins G. Brewer APR-13-99 TUE 03:49 PM AIDEA FAX NO. 9072693010 <schoniy a AY /& mi ‘ AINES» @ ‘ Ae \ ¢' SX. Ne ee Ae 0 \ AB le < oy ae PAT gee Ih GOW: ae 2S soul iE ki D ie otto QoNaH \ tem ae “ orothy (Phase iil) ee ein sf NZ Snettisham pene Semeteeeee| ‘ renner SR aye Phase ot ~~ Re. we i : > aC woe z ¥ wt, SITKA. ¥f aed Scenery Lake (Phase v) = 2 nA oa = 5 WY / YY oe ey wt F, ~~ Swan Lake ie be Takatz Lake (Phase IV)- has 4 Existing Intertie ‘New intertie A nS TEs #U Southeast Alaska Utilities ELECTRICAL INTERTIE SYSTEM PLAN Figure 1 OB MUNSSR P27 ALEGANE “YBE-ORQCO( ATL: IK = ORAYN Bay (CVERHEAD TRANSMISS ‘ON LINE REFERENCE: U.S G.8. TOPOGRAPHIC MAP ‘BRADFIELD CANAL, ALASKA - CANADA"(1955); AND ‘PETERSBURG, ALASKA - CANADA" (1960), 1:230,000 Figure 1 ROUTE MAP TYEE TRANSMISSION LINE POWER EMGIMEERS | WYER TLE PHASE IL/ AK. Golder Associates wane ‘ON XW OIOEASZ/0R 20d APR-13-99 TUE 03:35 PM AIDEA FAX NO, 9072693010 P, 02 Figure S-2 Swan Lake—Lake Tyee Intertie Project Area + To Wrangell/ U , Petersburg ¢ ) ae : z z - g 2 — SUMMARY I S-5 MAHONEY LAKE AND THE INTERTIE ARE THE IDEAL COMBINATION FOR CONSUMERS AND ECONOMIC DEVELOPMENT Ketchikan is the most fortunate community in Alaska when it comes to electrical energy resources for today and into the far future, if only Ketchikan Public Utilities (KPU) will seize the opportunities before it. These opportunities are: ¢ The Mahoney Lake Project, to be built by Ketchikan Electric Company (KEC) with no local or state funding, will provide 10 megawatts capacity and over 40 million kilowatt-hours of energy a year at a fixed rate lower than the cost of Swan Lake energy, and, ¢ A redesigned transmission line between the Swan Lake and the Tyee Lake Hydro Projects, which can be built at 50-60% of KPU's $77 million cost estimate for the intertie. Last year alone, KPU produced about 27 million kilowatt-hours of energy by diesel generation, demonstrating that the utility is in need of a major increment of hydroelectric generating capability. The Mahoney Lake project will displace diesel generation and allow KPU to meet Ketchikan’s immediate and mid-term electrical needs solely from renewable, non-polluting hydroelectricity, including the existing Swan Lake project. As I said, Mahoney is a privately financed project, requiring no Ketchikan public funding and no State funding. KPU will have access to Mahoney energy and capacity with no new investment or bond issues, which would be required for the much smaller Connell and Whitman Lakes projects KPU is spending money to investigate. Al the investment and risks will be borne by KEC, a private company owned by Cape Fox Corporation and Alaska Power & Telephone Company (AP&T). KEC has offered KPU energy at a rate of 6.5 cents per kilowatt-hour, with no escalation for the life of the contract, which is contemplated to last for 10-35 years. KPU now pays the Four Dam Pool Rate of 6.8 cents for Swan Lake energy, and the Four Dam Pool estimates that rate will rise annually to over 7.5 cents by the year 2007. ’ The Mahoney Lake Project will begin producing power 14 months after KPU executes a contract. The Federal Energy Regulatory Commission (FERC) has already licensed the project, and KEC can build it for $17.5 million, a bargain for a 10-megawatt hydro plant. The project is largely on Cape Fox lands, and only four miles of intertie will be needed to connect it to the KPU system at Beaver Falls. AP&T, Cape Fox's partner in KEC, built the Black Bear Lake project (serving Prince of Wales Island communities) and Goat Lake project (serving Haines and Skagway) within the past five years, on time and within budget. AP&T provides electric service for 20 communities in Southeast and Interior Alaska, and telephone service for 19 communities. Mahoney Lake will not only fill Ketchikan’s immediate need for hydroelectric power, but will enhance the viability of the proposed Tyee-Swan Lake intertie, which KPU has been pursuing to meet long-term demand and to connect with an envisioned Southeast Alaska power grid. I believe that recent discussions of the intertie have been too narrowly focused, tending to view the intertie strictly as a source of power for Ketchikan, and Mahoney Lake as an unwanted competitor. I believe that it is more beneficial to seriously consider local possibilities for hydropower — especially those that are privately financed - and to view the intertie as long-term infrastructure that allows power to flow freely in either direction throughout Southeast. This is particularly important to Ketchikan, given that Mahoney Lake hydropower is cheaper for Ketchikan consumers than would be Tyee power imported on the intertie. If Mahoney energy is not accessed by KPU ahead of intertie energy, Ketchikan consumers could shoulder a disproportionate share of the risks and costs of the intertie. This would be most unfair, given that the intertie is a basic long-term infrastructure investment, like a highway system, which will benefit all Southeast Alaska communities. The lowest possible rates for electrical energy are vitally important for those living in Ketchikan today, and equally important in attracting new economic development to the area. Mahoney Lake will not only have a positive impact on consumer costs and economic development, but when the intertie is built, Mahoney will provide an even greater level of invaluable electrical stability and dependability to the KPU system. Connecting Mahoney Lake via the Beaver Falls transmission line means increased reliability for Ketchikan. If either Swan Lake or the intertie goes down, the Mahoney line will remain in operation. Over the past several years, KPU has spent millions of dollars on studies of a traditional high tension, tall-tower intertie between the Swan and Tyee projects, now projected to cost about $77 million. As the years have passed, costs have escalated, and a viable financing program for the intertie continues to elude KPU. I have had the opportunity to review a concept for a redesigned transmission system, employing high voltage direct current (HVDC) facilities, projected to cost only $40-$60 million, depending on the route. This concept was prepared by AP&T in collaboration with ABB Power Systems, one of the largest electrical engineering companies in the world. ABB has developed new HVDC technology in recent years, allowing this technology (used for years throughout the world for high capacity lines) to be used to economically transmit smaller loads such as Swan-Tyee. ABB warrants the operation of this new version of HVDC transmission, backed by their huge corporate resources. In addition to the significantly lower cost, HVDC transmission requires smaller rights- of-way than traditional high-tension transmission, readily accommodates submarine cable, and employs low impact overhead sections, thus consuming fewer land resources and reducing visual impacts. An added bonus is that this type of HVDC line can easily and economically incorporate fiber optic cables, as is the case in the new Haines- Skagway intertie built and financed by AP&T. This could allow not only an electric grid throughout Southeast Alaska, but also a broad-band network for high capacity voice and data services. I envy Ketchikan sitting on the threshold of these two projects. One, Mahoney Lake, can provide a new source of hydropower, at no public risk and cheaper than the Four-Dam Pool rate, within little more than a year. The redesigned intertie, constructed under a more realistic plan of finance, could be in place within four or five years, when Ketchikan's growing power requirements will require it. When both projects are completed, Ketchikan's long-term access to local and regional all-hydro energy will put the city in a pre-eminent position to maintain the lowest achievable cost of living, and to attract vigorous economic development. As the CEO of Sealaska Corporation, I manage our considerable investments and jobs in Southeast Alaska, and am responsible for considering future corporate development in our region. I would urge city officials and citizens alike to direct KPU to seize the day, and take advantage of these ripe opportunities to provide cheap and efficient hydroelectric power as a major incentive for future economic development in Ketchikan and throughout Southeast Alaska. Robert W. Loescher is President and CEO of Sealaska Corporation and a member of the Boards of Directors of the Alaska Industrial Development and Export Authority (AIDEA) and the Alaska Energy Authority. t O——- DV, 00 “iro! "CONFIDENTIAL INTEROFFICE MEMORANDUM TO: BILL CORBUS FROM: DAVID BUSS SUBJECT: HIGH VOLTAGE DIRECT CURRENT TRANSMISSION SYSTEMS DATE: 10/29/98 cc: CORRY HILDENBRAND, SCOTT WILLIS ABB has developed new technology in High Voltage Direct Current (HVDC) transmission systems. ABB’s new product line is called HVDC Light. The advancements in DC transmission systems have come in the voltage source converters and DC power cables. The voltage source converters have been improved by use of seriesconnected turn on/turn off semiconductors of IGBT type. This new technology allows HVDC Light to use smaller and less expensive converter stations. New DC power cables have been developed that allow a DC power cable with ratings 30MW at 100kV to weigh 1kg/m. (I have attached a summary description of HVDC that goes into a little more detail) This technology is fairly new. ABB has been running a pilot system since March 1997 that has been positive. The first HVDC Light transmission system is planned for the Swedish Island of Gotland. The commission date is scheduled for July 1999. It will have the following specifications: 65MVA, 50MW, + 80kV, and 2 x 70km land DC cables. I have taken the budgetary numbers supplied by ABB to APT and created a graph. The graph uses $6,500,000 for each converter station, $300,000 per mile for the cable, $3,000,000 for other costs, 2% duty on the converters and 5% duty on the cable, as outlined in Bob Grimm’s memo on 10/15/98. $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 30 HVDC Light costs 40MVA, 35MW 60 70 80 90 Cable Length in Miles 100 110 120 130 (CONFIDENTIAL | — Cost per mile . Introduction a. Purpose of Memo b. Scope of AIDEA Study (i) CH2M hill (1) Resource Analysis (2) Rate Analysis (ii) Clancy (1) Financing Issues Analysis . Background a. Description of Project b. Benefits of Project c. Alternatives to Project . Original Proposal a. Description of Proposal (i) 1993 Legislation (1) $20 million DCRA Loan (2) 40% revenue stream to Southeast Energy fund (ii) | Federal Grants (iii) | Modified rate (less than uniform 4DP rate) b. Original Plan Dead (i) KPU FA advises -- no capacity for additional debt . New KPU Proposal a. State Owns b. KPU pays regulars 4DP rate c. $40-50 million in bonds supported by 40% Southeast energy fund share of 4DP revenue stream d. Additional Federal Grants approx. $7.5 million . CH2M Hill Analysis a. Alternatives compared (i) All diesel (ii) Mahoney (iii) Small Hydro b. Resource analysis (i) What is a resource analysis (ii) | Assumptions ran (1) Full cost (2) Incremental cost (3) Incremental State cost (4) Various Load scenarios (iii) — Findings (1) Intertie higher cost than alternatives c. (2) In high load forecast only — state incremental cost beats high cost Mahoney — and small hydro Rate Impact Analysis (i) What is rate analysis (ii) Assumptions (1) Intertie power at 4DP rate (2) Mahoney power at 6.5 cents (3) Small Hydro at assumes tax exempt financing/ KPU owns and operates[?] (iii) | Findings (1) Under all cases analyzed — Intertie would result in rate increase to all diesel case (2) Mahoney and Small Hydro result in rate decreases execpt in low load cases in which case rate increase less than for intertie 6. Clancy Analysis a. b. Existing 40 % revenue stream not stable (i) Vary with production (ii) Can be interrupted by self-help Alternatives to structure to deal with revenue stream (1) Amend PSA (2) State Backing (3) KPU Step up Legislation required (i) To redirect 40% (ii) | To allow AEA ownership (iii) | To provide bonding authority 7. Conclusions a. b. CH2M hill analysis Resource and Rate analysis indicate Intertie not the preferred choice Current Intertie alternative (i) Requires significant state investment (40% state revenue stream to pay bonds) (ii) Results in higher rates than other alternatives Mahoney Lake (i) Requires no state funds or bonding (ii) Results in lower rates than intertie Intertie is part of a long term Grid plan for SE Alaska that may have long term benefits for region not reflected in the financial analyses now performed If Intertie proceeds under current proposal: (i) KPU should be required to stand behind bonds (ii) No moral obligation or general obligation should be provided from the state (iii) | KPU should be required to pay 4DP rate and a sufficient amount to cover R&R for intertie ce FAL’ ALASKA POWER & TELEPHONE COMPANY P.O. BOX 222 ¢ 191 OTTO STREET PORT TOWNSEND, WA 98368 (360) 385-1733 (800) 982-0136 March 4, 1999 FAX (360) 386-5177 Mr. Dennis Lewis, Chairman Project Management Committee Four Dam Pool C/o Petersburg Municipal Power & Light P.O. Box 329 Petersburg, Alaska 99833 Re: Four Dam Pool Divestiture Dear Mr. Lewis: At the ARECA Legislative Conference it appeared that several of the purchasing utilities were interested in working toward divestiture of the Four-Dam Pool Projects. Over the years several divestiture solutions have been explored but none have been universally accepted by all of the affected parties. The owner appears to be a willing seller provided that the price is fair. A fair price, according to the owner, ranges form $84 to 106 million. The purchasing utilities latest offer was valued at $66 million. This creates a value gap of $18 to 40 million. I have attached worksheets that develop allocation factors among the individual projects. The worksheet should be re-calculated with updated values once they are available. The worksheet also calculates the debt service associated with the allocated purchase price under several different scenarios. When analyzed, it appears that divestiture will benefit many of the communities and, under the plan suggested below, provide a safe harbor for the remainder. While preliminary, it indicates that divestiture may be beneficial in the near term while providing adequate funds for long-term renewal and replacement. The historical objective of State ownership was to insure that the projects were successfully developed and that the communities associated with the projects would receive affordable energy. These goals where accomplished. The goal of divestiture from the State’s standpoint is to transfer at a fair price, eliminating the long-term responsibility for major repairs, and to capture the wealth associated with the prior investment. If this can be accomplished, while insuring that the projects continue to operate and produce energy at affordable rates, a solution is at hand. Each of the purchasing utilities and the associated projects pose different questions when attempting to determine if they can pay fair value, as determined by the State, and achieve affordable and stable rates for energy. Two of the purchasing utilities are electrical cooperatives owned by their customers; the other three are municipalities operating electric utilities as enterprises on behalf of the residents. The cooperatives have access to funds from Rural Utility Services at attractive rates, and have other resources through specialty banks that work with cooperatives. The electrical cooperatives should have access to the necessary funds through these entities, provided that it can be demonstrated that there is adequate revenue to cover the debt service. The municipals have access to funds by selling municipal bonds either directly or through the municipal bond bank. Again, the bonds should be readily marketable if the revenue associated with the asset to be purchased is sufficient to cover the debt service and associated reserves. Generally, municipalities have elections that pre-authorize the sale of these bonds. Even if all of the parties have agreed upon an overall purchase price to be paid the current owner and agreement is reached on a fair allocation of that overall price to the individual projects, a problem remains. The entire package could self-destruct if one of the communities does not wish to assume the risks of direct ownership or if voter approval for the issuance of the bonds is unsuccessful. I suggest that a back-up plan be developed early in the process. I propose that an investment group be created that is pre-qualified and fit willing and able to purchase any of the projects not wanted by the communities. The goal of this group would be to purchase the projects at the agreed upon allocated price and offer energy to those communities at rates and terms at least as good as now enjoyed under the PSA. This would allow the transaction to occur regardless. For example, if one of the communities does not wish to assume the risks of direct ownership or the bond issue fails, the community’s energy needs can be met by the investment group at the rates and terms currently enjoyed. Alaska Power & Telephone Company is willing to pursue and take a leadership position in the creation of this investment group. However, the creation of the entity, development of the business and financial plan, operating strategies, and regulatory approvals is not an endeavor easily or cheaply accomplished. This is especially true if the purchasing utilities, communities, and /or the State feel it is an unwanted intrusion. Our goal would be to work with the PMC towards a successful plan of divestiture. We believe the best solution would be one that transfers ownership to the communities now served by the projects. However, in the event that one or more of those communities are unable to perfect ownership, the investment group would be positioned to insure that the transaction proceeds. One might question why we would want to be involved. We believe it may represent an investment opportunity, and would also create additional funds that may be available for other energy issues (PCE) within the State. Please let me know if our assistance is welcomed. If additional information is required, I would be glad to meet with you or the Opportunity Committee to discuss this issue. i Enc. Break downs for Four-Dam Pool Projects : Page 1 Developed different factors to allocate total purchase price to each project: including a composite that averages all factors used. Then developed an average annual payments based upon assumed rate of interest and term. Then related this to a cost per Kw-hr based upon historical Kw-hr sales from the individual projects. | then assumed 2.4 cents for O&M to develop wholesale rate. Please remember that the wholesale rate shown does not include any reserves for renewal and replacement. However, most of the projects have significant savings that could be used for this purpose. 7 = Swan _ Solomon _ Terror Tyee | Total Capacity (MW) 20 12 20 24 76 % 26% 16% 26% 32% 100% Sales (Kw-hr) 67,958,180 46,476,653 108,935,738 42,536,667 265,907,238 % 26% 17% 41% 16% 100% Energy Potential Harza,1996 (Kw-hr) 70,100,000 52,900,000 117,000,000 109,000,000 349,000,000 % 20% 15% 34% 31% 100% Average % 24% 16% 34% 26% 100% Purchase Price Allocated $90,000,000 Allocated upon Average Sales Capacity Potential Energy Swan $21,587,655 $23,001,390 $23,684,211 $18,077,364 Solomon $14,527,676 $15,730,669 $14,210,526 $13,641,834 Terror $30,242,315 $36,870,814 $23,684,211 $30,171,920 Tyee $23,642,354 $14,397,126 $28,421,053 $28,108,883 $90,000,000 $90,000,000 $90,000,000 $90,000,000 Annual Payment Calculation Interest (%) Term (yrs) 7.00% 30 Average Allocation Swan Solomon Terror Tyee Sales Allocation Swan Solomon Terror Tyee Capacity Allocation Swan Solomon Terror Tyee Potential Energy Allocation Swan Solomon Terror Tyee $1,739,671 $1,170,733 $2,437,119 $1,905,252 $1,853,599 $1,267,678 $2,971,286 $1,160,213 $1,908,625 $1,145,175 $1,908,625 $2,290,350 $1,456,790 $1,099,346 $2,431,447 $2,265,194 $7,252,776 $7,252,776 Debt Service $/Kw-hr $0.0256 $0.0252 $0.0224 $0.0448 $/Kw-hr $0.0273 $0.0273 $0.0273 $0.0273 $/Kw-hr $0.0281 $0.0246 $0.0175 $0.0538 $0.0214 $0.0237 $0.0223 $0.0533 estimated O&M $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 $0.0250 Page 2 Wholesale Rate $0.0506 $0.0502 $0.0474 $0.0698 $0.0523 $0.0523 $0.0523 $0.0523 $0.0531 $0.0496 $0.0425 $0.0788 $0.0464 $0.0487 $0.0473 $0.0783 Current Annual State savings $0.068 $1,182,530 $0.068 $827,763 $0.068 $2,247,117 $0.068 ($76,176) $0.068 $1,068,602 $0.068 $730,818 $0.068 $1,712,950 $0.068 $668,864 $0.068 $1,013,576 $0.068 $853,321 $0.068 $2,775,611 $0.068 ($461,274) $0.068 $1,465,412 $0.068 $899,150 $0.068 $2,252,790 $0.068 ($436,117) P.O. Box 222 191 Otto Street Alaska Power & Port Townsend, WA. 98368 Telephone Company 1-800-982-0136 ext. 120 fax 360-385-7538 Cell 360-531-0320 : bobapt@olympus.net Employee-owned and Community Minded. To! GvesT- Fax To: Dennis Lewis From: Bob Grimm Fax: 907-789-1969 Pages: S Phone: 907-789-9700 Date: 04/06/99 Re: Answer to My letter Cc: OUrgent (OForReview CO Please Comment X Please Reply UC Please Recycle @ Comments: Dear Dennis: Enclosed is a copy of a letter sent to you on March 4, 1999. | have not received a response to date. Please advise if a response will be forthcoming? Bob Grimm ; MAR. -12'99(PRI} 15:43 KPU ADMINISTRATION TEL: 907 225 1000 P. 002 KETCHIKAN PUBLIC UTILITIES _ LINICIPALLY OWNED ELECTRIC TELEPHONE WATER March 11, 1999 Mr. Dennis McCrohan Deputy Director, Energy AIDEA 480 West Tudor Road Anchorage, AK 99503-6690 Subject: Response to your draft Swan-Tyee Intertie study assumptions Dear Dennis: Thank you for the opportunity to review a draft of the assumptions being considered for your evaluation of the Swan-Tyee Intertie. I believe that this evaluation by AIDEA has greater potential of either making or breaking this project than any prior study, including our $2 million EIS! So] trust you will weigh my comments carefully as ATDEA’s recommendation will have significant implications to Ketchikan, Southeast Alaska, the Four Dam Pool communities and the State. The sale of surplus energy from Tyee to Ketchikan will result in additional Four Dam Pool and State revenues. The Four Dam Pool revenues will act to reduce kWh rates significantly to all the Four Dam Pool communities (see attached), The additional State revermes can apply to debt service payments, PCE or whatever, The former should clearly be taken into account in your economic evaluation of the Intertic. The latter should at least be noted in this period of budget shortfalls. You note that your Mahoney scenario does not require new diesel. This leads me to believe that your period of analysis is relatively shart, perhaps just twenty years? <A shorter period of analysis will lend jtself to 4 lower capital approach. Under such an analysis, we never would have built Swan Lake becanse diese! would have looked better in the shorter term. I urge AIDEA to insure that the period of analysis ig at least as Jong as the economic lifetime of the projects in question, We can all acknowledge that the Intertie is not a short-term (i.e. twenty year) project. The assumption that firel will cost 66 cents per gallon in 2018 certainly leads to a diesel conclusion, whether or not it is augmented by the small hydro potential we have locally. I understand the math behind escalating today’s price of 58 cents by inflation to get the future price, but that doesn’t do our ratepayers any good when the price jumps back up to the level they were just two years ago, Our average fuel costs were between 82 and 85 cents for the four years prior to 1998. Is it really prudent to assume they only escalate from 58 to 66 cents in the next MAR. -12' 99(PRI) 15:44 KPU ADMINISTRATION ; TEL:907 225 1000 P. 005 Dennis MeCrohan, ADEA March 11, 1999 Page 2 twenty years? To have any basis in reality, your analysis has to include reasonable assumptions for fuel price increases based at least on what we have historically experienced. Also, I suspect the projected diesel usage is not taking into account aur current permitted limit. Your spreadsheet model probably increases diese! generation unti! limited by capacity and plant factor, However, our current permit will only allow the following generation: Units #1 and #2 combined: (1650 hours)x 3.55MW= 5,775 MWh Unit #3: (2900 hours) x 5.5 MW = 15,950 MWh Unit #4: (4450 hours) x 10.5 MW = 46,725 MWh Total permitted annual diesel: 68,450 MWh If the model exceeds this amount in any of the scenarios, the costs associated with increasing our permitted operation need to be taken into account. This would include professional services (the emissions modeling was not cheap), capital improvements and emissions monitoring, The scenarios noted on your fax are basically diesel, Intertje, Mahoney and small hydro. I request that you labe] the last two scenarios as Mahoney/diesel and small hydro/diesel. Even ina twenty year projection of load, you know that these scenarios rapidly rely on base loaded diesel. The decision makers (many of whom may not read past the titles and graphs) need to understand that a decision to develop local hydro is 3 decision to rely on future diese] generation. Tyee energy is assumed to be sold at the Four Dam Poo] rate plus O&M and R&R. Does this mean that Ketchikan is paying O&M and R&R in addition to PMC wholesale rates? This is at least inconsistent with our proposal. From Ketchikan's point of view, this will be am interruptible agreement. We should pay less for interruptible Four Dam Pool power than we currently do for firm power. The energy availability fom Tyee is not mentioned in the assumptions. The latest and most comprehensive evaluation of Tyee energy availability was an audit performed by R, W, Beck dated October 9, 1998. They conclude that 129 GWH is our best assumption. This is likely what you are using, but J wanted to make sure it was mentioned as I have heard different numbers mentioned. Finally Dennis, and perhaps most importantly, the addition of the Swan-Tyce Intertie to the Four Dam Pool infrastructure allows the sale of a significant amount of surplus energy. To overlook the value this adds to an asset of the State would be a big mistake. I have attached my list of benefits associated with construction of the Intertie. I hope all of these points find their way into your report, In earlier discussions with Randy he indicated that both he and T would look at the Intertie as a project that in the long-term offers significant benefits; and he mentioned that that point might not be sellable in the political arena. I hope this report addresses the future and not current political thought. I tuly believe that not taking advantage of current federal dollars is a huge mistake that will be regretted in the future (if people remember) particularly when you consider the strong commitments repeatedly expressed by Senators Steven's and Murkowski and Renresentative Yorme. T algo home von noint out if von arrive at a MAR. -12' 99 (FRI) 15:44 KPU ADMINISTRATION TEL:907 225 1000 P. 004 Dennis McCrohan, AIDEA March 11, 1999 Page 3 negative conclusion regarding the Intertic that the Southeast Alaska Electrical Grid is evan more difficult to justify. Thanks again for the opportunity to review your assumptions. As I've indicated, I am concemed that these are tailored to a short-term conclusion and overlook other benefits to the State and Four Dam Fool. J trust AIDEA will work hard to make this a fair review of the issues. incerely, John A. Magyar Genera] Manger JAM:RDT:klo Artachments MAR -12' 99(FRI) 15:45 KPU ADMINISTRATION TEL:907 225 1000 P. 005 PMC RATE REDUCTIONS WITH SWAN-TYEE INTERTIE SALES PMC wholesale kWh rate: $0.068 Intartie interruptable kWh rate (3): $0,088 Interiia O&M at (1): $133,626 FY 1988 Projected PMC sales: 258802 Contracted forecast kWh sales (2): 277343 1899 |NTERTIE INTERTIEC&M INTERTIEQ&M = INTERTIF O&M RATE RESULTING MWH SALES COMPONENT COMPONENT COMPONENT REDUCTION 1999 REVENUE REVENUE (2) REVENUE LESS OVER ALL PMC RATE AT $0,028 AT $0.038 INTERTIE O&M PMC SALES a $0 $0 ($133,828) ($0.001) $0.069 s000 $140,000 sa $6,374 $0.000 §0.068 10000 $280,000 $o $146,374 $0.001 $0.067 18000 §420,000 s0 $286,374 $0.001 $0.067 20000 $518,148 $55,442 $440,964 $0,002 $0.066 25000 $519,148 $245,442 $630,064 $0,002 $0.066 26798 $518,148 $313,766 $609,288 $0.002 $0,086 (4) 30000 $519,148 $435,442 $820,064 $0.003 $0,065 35000 $519,148 $625,442 $1,010,064 $0.003 $0,065 40000 $519,145 $815,442 $1,200,964 $0,004 $0.064 45000 $519,148 $1,005,442 $1,390,964 $0.005 $0.063 §0000 $519,148 $1,185,442 $1,580,964 $0,005 $0.063 §5000 $519,148 $1,385,442 $1,770,964 $0.006 $0.062 60000 $519,148 $1,575,442 $1,960,064 $0,006 $0.062 €5000 $519,148 $1,765,442 $2,150,964 $0.007 $0,064 7aaao $518,148 $1,955,442 $2,340,964 $0.007 $0.061 75000 $519,148 $2,145,442 $2,530,964 $0.008 $0.080 60000 $519,148 $2,335,442 $2,720,964 $0.008 $0.060 65833 $518.148 $2,549,686 $2,935,208 $0,009 $0.05 (5) Natas: (1) Intertia firat year O&M basad on R. W. Beck 1292 feasibility study at $108,650 escalated fram 1992 ta 1999 at 3% (2) From Pawer Salas Agreement exhibit D. Sales aver this amount are at 3 rather than 4 cants/cWh debt service, (3) Intertie sales at same rate and debt se;vice as firm sales. Interruptable agreement would likely have differant tarm (4) KPU diesel generation in calendar year 1998. (5) Maximum Tyee Interruptable sale in 1888 would have heen 128,000 - 43,362 MWh projected firm sales. Assumptions: {a} Intertie is entirely grant funded. (b) This analysis is based on FY 1899 PMC projactad sales and current rata of $0.068/kWh R.D. Thimble, PE 9 3/1209 MAR -12'99(FRI) 15:45 KPU ADMINISTRATION TEL:907 225 1000 P. 006 Swan-Tyee Intertie With nearly half of Ketchikan's power coming from Swan Lake in a typical year. This project has by far the greatest potential for reducing KPU's wholesale and retail power rates in the future. A fully utilized Tyes Project has the potential of reducing the Swan Lake wholesale rates from the current 6.8 cents to the 6 cent per kWh range. Additionally, as an intermptible Tyee power consumer a special negotiated price below the standard Four Dam Pool wholesale rate is likely for KPU. This project is supported by the Four Dam Pool comnumities since it ir the only possible way of reducing the power purchase rate under the power sales agreement with the state. The state is curently analyzing the project to determine if they ars willing to bond for this project, A state divestiture of the Four Dam Pool projects (something that has been sought intermittently by the Four Dam Pool communities and the state for years) and acquisition of Swan Lake by KPU will allow power (20 years ont) to be a bargain like Ketchikan Lakes, Silvis lake and Beaver Falls power is today with generation costs under 2 cents per kWh, This project will open up the poasibility of future generation sources in the Petersburg area, and is the first phase in a SB Alaska grid. The EIS is complete. Record of Decision has withstood appeals, This project is ready to construct. Must be developed and have priority over other future gencration projects in order to hold on to the federal funding now in hand. This project is less attractive economically if it falls behind other resources such as Mahoney, Metlakatla or Whitman. The Governor has repeatedly stated that hia support is tied ta the economics of the project. Unless we think he is fooling us, we cannot believe the contention that the intertie will be built by the state just because it's good infrastructure. Under the Four Dam Poo! power sales ggreement with the state and the other Four Dam Pool Communities, KPU is obligated to buy avaijable power from the Four Dam Pool initial projects immediately after our existing hydro resources. Ketchikan should honor that commitment. Certainly, if mother resource, such as Mahoney, has available power and Ketchikan needs it, we should buy such power at reasonable prices but we should not sign. an agreement that directly conflicts with an existing agreement. Construction of this project will provide an economic boost for the community with jobs, and materials/service spending. GAUSERUOHNM\WINWORDAPUBLICVT90212.D0C SEP 14 199g (I) HIKAN PUBLIC UTILITIES SHIRAINSHDASKA 99901 TELEPHONE 907-225-1000 FAX 907-225-1888 2c. Over MUNICIPALLY OWNED te chsh, ELECTRIC TELEPHONE WATER September 8, 1998 KAL “Clu Randy Simmons AIDEA 480 W. Tudor Road Anchorage, AK 99503-6690 Dear Mr. Simnf6ris: 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. incerely, John A. Magyar General Manager JAM:klo Attachment G:\USER\KORRYO\WINWORD\DATA\007-CSLT.DOC 2 al ee ee rot “ee A. DasEy 2 Apsociarts August 17,1998 - [JECEIVE |p) AUG 2 = 1998 MEMORANDUM KPU Manager's Office TO: Robert E. Newell, Jr., CPA REN a AUC UIT 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: 203 BELLEVUE Way NE Suite 40. 14 BELLEVUE. WA 98004 TEL.425-452-9550 FAX.425-452-9552 : 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, “7 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 Intertie | 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) Profit/Loss AIDEA loan Pool 356,000 22,250 $ 141,764 $ 1,675,332 $ $ (1,218,970) $ 1,279,918 440,000 336,560 27,500 146,017 1,675,332 (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) 4,739,435 624,000 621,562 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 | eunsojoug 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 Enclosure 2 - . Ketchikan Public Utilities Projected Operating Results (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 Town Frese Tol Ma gyonr , Avm, KA, YP Ww § RUS J ft OS Toure ned «& Mw Zow TiheL Cnt? Git Hy Mye t/ Tonk. sale a @y Pledge gt tetany eres | ae Vepurves yote by vheens @) Tis, Siecle eal aongua 7 kok hi kan wre mit Nahe 0. ahh ronal? TOW , hetare of aCe, ( ee neeoks . eo "le G WP-~ she ore ners Ko of hea LZ phd lo G) _ afehe rates bogs LLL ube we peel ties ne LW) Ot overmune ge Vo i mi ust ; () ier cit eee 3 oe oe @.) it a ‘i cal i loca Dat th (a) oe loan , ef (10) Senul soosrshron pn9S EC geal — AG LIC UTILITIES 2930 TONGASS AVENUE KETCHIKAN, ALASKA 99901 TELEPHONE 907-225-1000 Alaska indus FAX 907-225-1888 trial Development and Export Authority MUNICIPALLY OWNED October 2, 1998 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 attached 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 that the FY99 Energy & Water Development appropriations bill will include additional funding for the intertie. 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:klo Attachment G:\USERJOHNM\WINWORD\PUBLIC\IT81002.DOC KETCHIKAN PUBLIC UTILITIES Memorandum To: The Honorable Bob Weinstein & Cff~\Council From: John A. Magyar, KPU General Manager, Date: September 25, 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 this funding approach and the possibility of speeding up the project has great support by the the Four Dam Pool communities. ¢ Why would the state consider bonding for the intertie? > Because construction of the intertie will: (1) improve eng are revs ner ation 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 littie 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 the intertie will serve as a highway for electrical generation from the Lake Mahoney Project. It creates other generating and marketing possibilities and it 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. JAM:klo Attachment G:\USER\KORR YO\WINWORD\COUNCIL\007-A8MM.DOC COMMUNITY OF KETCHIKAN 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 Itis 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 a which has withstood appeal. Design work is complete. Other permits from the Corps of Engineers, ay: * 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: er > Estimated Intertie Cost with Domestic Timber Credit $73,200,000 ~- State Grants Authorized/Received $11,200,000 Y Federal Grants Authorized/Received 9,900,000 ¢ a State Loan Authorized (has not been accepted by voters) 20,000,000* rh yl Sow Federal Grant Anticipated in FY99 Budget 4500-000 — J Total Funding Available/Anticipated Spee =600.000 oe Funding Needed »680,000 *Funding Needed (If $20 million loan declined by Ketchikan) $44,600,000 2 8d0 Y7 A PROPOSED FUNDING SOLUTION: e 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). ¢ 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. DRAFT REPLY TO SOUTHEAST MAYORS RE: SOUTHEAST INTERTIE Thank you for your letter of August 27, 1998, regarding the concept of a Southeast Intertie grid. | agree that economic growth cannot be sustained for long without low-cost, reliable electric power. Further, | believe there is no fundamental conflict between economic growth and environmental protection. The evidence is abundant throughout the world that prosperity is the surest path to long-term environmental health. There is every reason to believe that 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 right 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. The Southeast Intertie concept is fundamentally sound and | support it. The intertie grid will have many individual links and it will be our task to build each link as the opportunity arises. | appreciate your continuing support for this important objective. Sincerely, Tony Knowles Governor + Fe-26-99 11:40A p Ketchikan Electric Company 2727 Tongass Avenue Ketchikan, Alaska 99901 907-225-1950 907-225-4169 fax February 23, 1999 Via Fax and US Mail Randy Simmons, Executive Director Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Dear Mr. Simmons: Thank you for making the time to meet with us today, especially on such short notice. During the meeting you asked us to provide some additional information specific to the Mahoney Lake Project. We had previously provided information to you in our letter dated February 10, 1999 (copy attached). !n that letter we provided the rates and possible terms of a power supply contract with Ketchikan Public Utilities. 1 would like to confirm that we remain prepared to supply wholesale cnergy to Ketchikan Public Utilitics at those rates and terms and further clarify we are not proposing an inflator to the flat rate. As we stated, the flat rate would remain at 6.5 cents for the term of the power sales agreement. As you can understand we can not keep our offer open forever but are willing to allow a period of 90 days for due consideration. Finally, we are not and will not be seeking any state funding assistance during the current legislative session. I also offered to provide additional information and thoughts in regards to the plan of finance for the Swan/Tyee Intertie, This information will require additional time to develop and will be forwarded to you as soon as possible, Robert 8. Grimm, General Manager cc Peter Gigante ‘ Feb-26-99 11:40 p FEB-23-99 94:49 PM KETCHIKAN ELECTRIC COMPANY 2727 Tongass Avenus Ketchikan, Alaska 98901 (807) 225-1980 (9807) 225-4169 February 10, 1989 Mr, Randy Simmons, Executive Director Alaska industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Dear Mr, Simmons: This letter is to apprise you of the status of the Ketchikan Electric Company (KEC) Mahoney Lake Hydroelectric Project, as a means of assisting your pending analysis of the proposed Gwan-Tyes Intertle project. We understand that the analysis is scheduled to ba completed in the March 1 time frame. Several recent Mahoney-related materials are enclosed as background. Que at least in part to Ketchikan's current dependence on diesel generation (27,000 mWh were generated with diesel last year), the community appears to be in Immediate need of an additional increment of power. We believe the Mahoney project fits hat need. Mahoney is fully licensed and ready for construction pending a power sales agreement. The project could be In full operation within 44 months. Unfortunately, KEC's nearly year long-effarts to engage In meaningful power sales negotiations with KPU have not progressed, presumably because Ketchikan Public Utilltles (KPU) Is concerned about how Mahoney might affect chances of ine Iniertle. “As you may know, KEC Is prepared to supply Mahoney power to KPU at a flat rate of 6.5 cents per kWh for aterm of 10 to'35 years. This is below the current Four-Dam Pool rate of 8.8 cents per kWh for Swan Lake power (which would not be preempted) snd presumably below what Tyee power would cost Ketchikan. Moreover, while the cost of FoursDam Poot power would be expected to escalate in the future, Mahoney power would remain at 6.5 cents for the term of the contract. The cost of Mahoney power could even be lowered prior to or after a sales agreement, depending on whether and how much grant funding might be obtained. Asit has been throughout, KEC’s position continues to be that the Intertle and Mahoney are different types of projects and both should be pursued and built. The Intertie represents a very worthwhile regional infrastructure project that Is at least three years off, while Mahoney is a local, largely privately financed, market-comipelitive project that could be in operation within 14 months. We belleve it would be useful to factor the status of Mahoney into your analysis, and toward that end we would appreciate the opportunity to share aur current information with your Intertle consultant. We would also like to give you a personal briefing at your earilest conveniance. KETCHIKAN ELECTRIC COMPANY MAHONEY LAKE HYDROELECTRIC PROJECT z 3 $ $ NaH REMO|Y 40 HUES Source of Four Darn Pool nate is from Table & of report prepared for KPU by RW Beck, Novernber 3, 1996 rOord Wd 6¢25£6 66-72-47 €0°d d wiv:It 66-92-9845 oe Mary-12-99 03:37P p P.ol1 were ce (CAC ; : V Ketchikan Electric Company Bim, 2727 Tongass Avenue Ketchikan, Alaska 99901 Ti, cos 907-225-1950 907-225-4169 fax To: The Honorable Bob Weinstein & City Council From: Ketchikan Electric Company Date: 2-22-99 Subject: Mahoney Lake [Jydroelectric Project John Magyar, KPU General Manager and Richard Trimble, KPU Power Projects Manager, provided the Mayor and Council Memorandums dated February 11 and 10", respectively. Ketchikan Electric would like the opportunity to respond to those presentations. The council was provided an internal KPU Memorandum from Richard Trimble, KPU Power Projects Manager, to John Magyar, KPU General Manager, that, according to Mr. Magyar, takes issuc with specilic points ip our presentation. 1. Mr. Trimble takes issue with KEC’s statement that the intertic is four or five years away. He further asserts that the intertie can be constructed in two construction scasons. The important distinction is that the Mahoney Lake Project is ready. The Federal license has been issued, our funding is in place, and once a power supply contract is signed by KPU, construction can begin immediately and be completed in 14 months. On the other hand, it is hard to see how the Swan/Tyee intertie could be in place by February 2001. First, there is no funding package in place and KPU has not reached agreement with the PMC on the modification of the existing power sales agreement. KPU does not have a firm power purchase agreement on what rate will be paid for power over the proposed intcrtie. The state has made no decision on KPU’s proposed financial plan which would necessitate legislative action to authorize increases of over $40 million in state bonds. Given the current fiscal situation of the state and the financial magnitude of the project, it is reasonable to assume that it could take several years just to put this part of the funding package together. Bid specifications have not yet been issued and a construction contract has not becn awarded. Consequently, this is why we believe it will take a minimum of four or five years for the Swan/Tyee intertie to be in operation. It is interesting to note how the estimated cost of the intertie keeps increasing’. Mahoney can be in operation within 14 months. It is interesting to note that KPU has been asking that the Mahoney Lakc Project be delayed since at least 19947 on the basis that it would adversely impact a funding package under consideration. Since that time that funding package has come 14992 RW Beck $55.6 million, 1990 Draft EIS $64.6 million, 1997 Raytheon Update 69.8 million, 1998 RW Beck Planning Study Update $73.2 million. * City of Ketchikan to Forest Dewitt City of Saxman, July, 1994. Mar-12-99 03:37P p P.o2 and gone and now another funding package is under consideration. [n the meantime, the energy needs are being met by diesel generation. Just how long should we delay this time? 2. In the fifth paragraph of the memorandum there is another troubling asscrtion that re- occurs in all of KPU’s presentations: that KPU has the ability to perform some type of magic and that KPU is the only organization that can provide for the energy nceds of our children. Government has long proven that it is not necessarily the most efficient provider of goods and services. Generally, in America it is thought that private enterprise and the free market is the most efficient provider and allocator of economic resources, Further, the role of government should encourage - not inhibit, as appears the case here - private enterprise to grow and succeed. Generally, in America when government has grown to the point that it is using public resources to inhibit or displace private enterprise it becomes part of the problem, not part of the solution. 3. In the seventh paragraph, regarding the diesel surcharge on consumers bills, KPU states that “the surcharge only proves that our budget for both diescl and purchased power did not anticipate a year of record energy sales.” While this might sound like a reasonable explanation, it does not make sense. If record energy sales were the reason a diesel surcharge was required it would appear to us that the diese/ surcharge was at the least misleading in its description. When the statement is analyzed further it would seem that KPU is saying: diesel is the lowest cost of any of its existing energy resources; diesel is used after KPU’s own hydropower resources and purchases from Swan Lake, and thus, was added last to meet the cnergy demands of the area. It would logically follow that the budget results would improve once diesel is required - not the other way around. It could be possible that if KPT] felt is was necessary to place a diese! surcharge to collect additional revenue for other reasons. However, the simple question remains, if diesel is less expensive than energy from Swan Lake, why was a diesel surcharge is necessary? 4. In the ninth paragraph of the memorandum, the basis of KEC’s energy projections for both the amount of excess power available for Tyce and the annual cnergy output of Mahoney are questioned and the memorandum indicates the KEC information is misleading. We strongly disagree. We believe that the annual energy output of the ‘Tyee Project is about 109 gWh®. We believe that the annual energy requirements of Petersburg and Wrangell are about 49 gWh. ‘This means that the excess energy available is about 60 g Wh on an annuai basis. itis very important to keep in mind that as the energy requirements of the communities of Petersburg and Wrangell increase over time that the amount of excess energy available is reduced, This is because those communities have a priority right to the energy produced by the Tyee Project. It is also interesting to note that Silver Bay Logging (now operating a sawmill in Wrangell) is requesting to purchase interruptible power from the four-dam pool. This poses the additional question of whether industry located in the Petersburg/Wrangell area should be deducted when calculating the amount of excess * Risk Assessment, Harza, Feb 1996 Mar-12-99 03:37P p energy available from the Tyce Project. In any event, based upon the Harza Report and reported actual sales form the Tyee Project, we stand by our estimate of the excess energy available at Tyee and that excess energy will decrease over time. The annual energy capacity of Mahoney Lake is 46 gWh and this is confirmed in the license issued by the Federal Energy Regulatory Commission (FERC). We used 42 gWh in our feasibility analysis to be conservative. The study done by R.W. Beck was paid for by KPU and was generally critical of our private enterprise efforts to enter the Ketchikan energy market. The Mayor and Council were also provided a KPU memorandum dated February 11, 1999. That memorandum outlines five criteria the next electric generation project should mect. ‘The Mahoney Lake Project casily meets those criteria when viewed objectively. In the third paragraph of the memorandum, statements are made about KPU’s success in keeping electrical rates down. We agree. While the comparison with Kodiak, Valdez, and Glennallen are helpful, it is also helpful to review the rates in Juneau. Juneau rates are as low or lower than Ketchikan’s and the power is supplied by an investor-owned utility. The Table comparing project summurics is helpful. We have made footnoted modifications thal we believe make the table more accurate and useful: Table Project Summaries Project Energy ST'Cost LTCost Available in Intertie 60 gwh* 6+ 8.65 4 to 5 years® Whitman & Connell to early to tell 4 to 10 years Mahoney 40 to 47 gwh 6.5 6.5 2 years Metlakatla to early to tell 4 to 10 years Existing Diesel 68 gwh 5.6 to 6.57 Ready ‘ Actual sales to Petersburg Wrangell deducted from Energy Potential determined by Harza in the Risk Assessment prepared on the Tyee Project. * Because the amount of excess energy available from the Tyee Project will decrease over time the long-term costs will be more than the short term under the scenario offered by KPU, ® Because the funding plan Is not approved, power purchase rates are not firm or approved by PMC and bid specifications, award, and contractor mobilization we remain convinced that this project is at least 5 years away, If not more. 7 Diesel prices are currently very low thus has a 90% chance of increasing. 3 -O3 Mar-12-99 03:38P p P.o4 Bullet item # 1 under the Swan-Tyec Intertie heading: indicates the potential of reducing KPU’s retail rates in the future. True, any reduction in cost or rates associated with the Four-Dam Pool Projects will benefit Ketchikan. However, KPU does not have unilateral control over these items. The PMC of the Four-Dam Pool determines rates. Even if KPU can achieve significant savings from operating expenses or sales volumes the benefit is not realized solely by KPU, The benefit, if any, is shared by al] of the purchasing utilities (Kodiak, Petersburg, Wrangell, Valdez, Glennallen, and Ketchikan). Thus, any economic benefit created by the actions and efforts of KPU are discounted and could be absorbed by increased operating expenses, used for deferred maintenance, and/or local employment in the other communities. This is exactly why it is so important for KPU to firm up the actual rates and terms associated with purchasing excess energy over the intertie. I believe that all the purchasing utilities have a vote that will make this task difficult and time consuming. Bullet item #2: An assertion is made that the rates from a fully utilized Tyee may have a favorable impact upon the rates now paid under the PSA. Again, there is always potential, while busbar cost may be reduced through increased volumes there is usually a cost associated with the gain. Even if the power could be reduced to 5.5 cents the power is still at Tyee. There will be capital costs associated with the construction of the intertie, on-going operation and maintenance costs, and cost associated with the renewal and replacement of the intertie. We believe that once the cost is recognized, the cost of this energy delivered to Ketchikan will be about what is now paid for Swan Lake energy (6.8 cents per kw-hr). Bullet item #3: ‘Ihe interruptible rate has always been available to KPU through the PSA. However, one would not want to place too much assurance upon an energy source that may be there and may not be there. It is also a two-edged sword. Currently, the Silver Bay Logging Company wants to purchase at the interruptible rate that will reduce the energy available over the intertie. In it’s lettcr to AIDA*, KPU has firmly stated that the energy needs of the Petersburg/Wrangell area will have priority prior to energy being exported to Ketchikan. Does this include industrial energy users, current and future, that are located in that arca? Based upon what we know, this very well could be the case. It is interesting to note that interruptible sales to the Wrangell Sawmill will have the same adverse effect upon the finance plan for the Swan/Tyee Intertie as Mahoney. However, they do not seem to be suffering from the negative comments as Mahoney nor are they being asked to delay the development of their sawmill. Bullet item #4: It is stated that the Four-Dam Pool supports the Swan/Tyee Intertie. I think this is truc. If the other communities (Kodiak, Petersburg, Wrangell, Valdez, and Glennallen) can possibly benefit without any downside, it is in their best interest to support it. However, this is not the question before the Council. The question is: Should Mahoney Lake energy be purchased before energy over the intertie and js this in the best ® KPU to AIDA dated 12-10-99 Mar-12-99 03:38P p P.O5 interests of the residents of Ketchikan? The best interests of the other communities (Kodiak, Petersburg, Wrangell, Valdez, and Glennallen) are not the point. Bullet item #5: Points out that the State of Alaska is currently analyzing the latest plan of finance for the proposed Swan/Tyce Intertie. The analysis by the State is a prudent and correct measure. The administration necds to consider if they support the idea of selling bonds to partially finance the intertic. It is also important that the State analyze the implication of the Mahoney Project upon the latest plan of finance. ‘lo ignore those implications could make the findings of the analysis inaccurate. We support the Swan/lyee Intertic but we fecl it is the best interest of the Ketchikan residents to purchase Mahoney Take energy prior to purchasing excess energy over the intertie. Bullet item #6: The idea of KPU purchasing the Swan Lake Project is really outside the scope of this discussion. While the eventual purchase of the project may bring with it some benefits, it is important to recognize the huge risks associated with direct ownership, The residents of Ketchikan are currently protected via the Power Sales Agreement with the State, for uninsured losses, sub-standard project performance, natural disasters, project relicensing and decommissioning costs. Bullet Item #7: Agreed, we support the intertie and the interconnection of all of southeast Alaska via a comprehensive intertie program not unlike the one being proposed by the Southeast Conference. However, we fcel that the funding for such a program must be equably spread over all of the communities that may benefit. We do not believe it is appropriate to demand or expect the Ketchikan residents to pay more than their fair share of this long-term infrastructure investment. Bullet item #8: Having the EIS on the Swan/Tyee Intertie is certainly an advantage when it comes to timing. However, an important distinction when comparing the relative status of the Mahoney Lake Project and the Swan/Tyee Intertie is funding. Our funding is in place and, once a power supply contract is signed by KPU, construction can begin immediately, Can the intertie be in place by in place by February 2001? First, there is no funding package in place nor has KPU reached agreement with the PMC on the modification of the existing power sales agreement. KPU does not have a firm power purchase agreement on what rate will be paid for power over the proposed intertie. The funding package will require legislative action to issue over $40 million in state bonds. With the current fiscal situation of the state we think this is a major decision and will take several years just to put this part of the funding package together, In addition, the bid specifications have not yct been issued nor has a construction contract been awarded. No contractor is in place or on site. It is of interest to note that KPU has been asking that the Mahoney Lake Project be delayed since at least 1994? on the basis that it would adversely impact the funding package under consideration. Since that time that funding package has come and gone and now another funding package (the latest) is under consideration. In the meantime, the energy needs are being met by diesel generation. Just how long should we delay this time? * City of Ketchikan to Forest Dewitt Clty of Saxman, July, 1994. Mar-12-99 03:38P Pp Bullet item #9: A statement is made that the federal funding requires that the Swan/Tyee Intertie be placed ahcad of Mahoney, We do not agree, We are not aware of any such covenant attached to the federal funding. If there is a written document that supports this statement we need to see it, as would the council. Bullet item # 10: No Comment; an unsupported statement in regards to the Governar’s position on the intertie. Maybe it would be useful to ask the Governor to state his opinion or position himself rather than relying upon KPU’s assertion. Bullet item #11: In this item KPU asserts that KPU is obligated under its existing power sales agreement to purchase excess power from Tyee over an intertie that currently does not exist prior to purchasing power from Mahoney. Most disturbing is that KPU apparently believes this is truc and in the public interest, Attached is a legal opinion trom our attorney that correctly finds that no obligation exists and the commitment only applies to the initial project and then only sometimes. [f KPU has a legal opinion from the City Attorney that supports their statement, perhaps a copy can be made available to Council and the public. Apparently KPU is so intent and unwilling to purchase power from a private enterprise, at a price that is below what it is currently paying, and below what it wants to pay in the future, that they are making this unsupported assertion. A verbal statement that KPU has already made a decision in regards to the obligations, if KPU may have any under the existing Power Sales Agreement with the State, is telling to say the least. I would not only be surprised but also appalled at the notion that you can sign an agreement that specifically deLined the “initia! project” and then be contractually obligated to purchase energy over transmission facilities that do not cxist. We do not believe that a legally binding obligation exists and have attached support for our position. If KPU has support for their statement, that the obligation cxists, then they should provide it. Bullet item Whitman Lake: This project is 4 to 10 years out in the future. The actual cost and energy output are not yct defined enough for these assertions to be made. However, we believe at some future time when the costs of licensing and cost estimates have been refined, the development of this project may make sense. We remain unconvinced that only KPU has the ability to perform some type of magic and that KPU is the only organization that can provide for the energy needs of our children. This type of Public vs. Private philosophy has been tried in other countries and has failed. Government has long proven that it is not the most efficient provider of goods and services. Generally, in America it is thought that private enterprise and the free market is the most efficient provider and allocator of economic resources. Further, the role of government should be limited to encouraging private enterprisc. Generally, in America when government has grown to the point that it is using taxpayer supported resources to displace private entcrprise it has grown too big and has becume part of the problem, not part of the solution. Bullet item Mahoney Lake: We are in general agreement. Bullet item Connell Lake: See our comments on Whitman Lake. However, it appears Mar-12-99 03:39P p that Lake Whitman may prove to be a better project than Connell. Bullet item diesel and other: We arc in general Agreement. Attachments: i. Letter dated February 3, 1999 from Davis Wright Tremaine, letter opinion on interpretation of Power Sales Agreement-Four Dam Pool. 2. Two page Memorandum dated February 10, 1999 from Richard Trimble to John Magyar. 3. Four page Memorandum dated February 11, 1999 from John Magyar to Honorable Bob Weinstein and City Council. ~O7 May-- 12-99 O3:39P P.08 SENT BY: DAVIS WRIGHT TREMAINE. ; ; 8- 1-99 ; 2:02PM jDAVIS WRLUMI IRCMALIN" OUIGD/IG0,# Zs 4+ LAWYPRS Bi Davis Wright Tremaine Lie ANCHORAGK BRLLEVING WOYSK CHARLOTTE HOHOLULY LOS ANGELES PONTLAND RICHLAND SAN FRANCISCO SEATTLE WASHINGTON, D.C. SIIANGHAL SUITR 800 VBL (907) 257-5301 701 WRST Kissttitl AVENUE FAX (907) 257-5599 TED WELLMAN ANGITOMAUN, AK 99501-3408 www.dwecam (907) 257-8326 VIA FACSIMILE (360) 385-6116 February 3, 1999 Mr. Robert Grimm President Alaska Power & Telephone P.O. Box 222 Port Townsend, Washington 98368 Re; Interpretation of Long-Term Power Sales Agreement - Four Dam Pool Dear Bob: You have asked us to review tha Long-Tem Power Sales Agreement - Four Dam Pool (“Agreement”) to determine whether Ketchikan Public Utillties (“KPU") is obligated to purchase power from the Lake Tyee Hydro Electric Project through a d transmission line before purchasing power from the Mahoney Lake Project proposed by Ketchikan Electric Campany (“KEG”). As more fully discussed below, the proposed sighty-mile transmission line is not covered by the current Agreement. Accordingly, KPU is not currently obligated to buy power from the Tyee Project over the proposed transmission line before Mahoney Lake. Moreover, the Agreement does not override KEC’s rights under PURPA. KPU's obligation to purchase power from the Four Dam Poot is described in Section 3(c) of the Agreement as follows: £ach Party has a direct financial interest in ensuring the maximum practicable sale of power from the Initial Project under this Agreement. Therefore, to the extent that energy and capacity available to a Purchaser from the Initial Project are sufficient to meat that portion of the Purchaser's electric power load requirements that exceeds the capability of the Purchaser's existing hydroelectric resources (as shown on Exhibit C attached hereto}, the Purchaser shall not méet that portion of Its electric power load requirements or any part thereof with power generated by other electric power resources. This prohibition Mayr-12-99 03:39P p P.og SENT BY:DAVIS WRIGHT TREMAINE ; S- 1-98 5 2:03PM ;DAVYIS WRIGHT TREMAIN~ 9603857538;# 3/ 4 ia Mr. Robert Grimm February 3, 1999 Page 2 shall not apply to the extent that (i) the Authority and at least two of the other Purchasing Utilities consent in writing to the Purchaser’s use of such other electric power resources, or (ii) the Purchaser Is required by law to purchase power generated by such other resource, The term “Initia! Project” is defined as: ... collectively, the Tarror Lake, Solomon Gulch, Lake Tyee and Swan Lake Hydro Electric facilities as described in Exhibit B attached hereto and made a part nereof, together with associated equipment and facilities owned by the Authority which are used or useful for the delivery of electric power from the project to a purchaser. Section 20 (q). According to Exhibit B the Lake Tyee Hydro Electric Project includes eighty-one miles of 138 KB transmission line linking Wrangell and Petersburg. No mention is made of any other transmission line. KPU could argue that the expansive definition of initial Project noted above with its refarence to “facilities of the Authority which are used or useful for the delivery of alactric power” could include the proposed transmission line. Such an expansive reading conflicts with other provisions of the Agreement. The Agreement requires an amendment to add other facilities: Electric power sold pursuant to this Agreement is Power from tha initial Project as defined in this Agreement. The Parties recognize that additional physical facilities may be constructed in the future and considered for addition to the Initial Project, but the Parties agree that the facilities not included in the Initial Project as defined in this agreement may not be addad to the Initial Project for purposes of this agreement except by subsequent agreement of the Partles. Sectian 1(f). Even if the Parties to the Agreement did agree to add the transmigsion line to the Project, this would not eliminate KEC’s right to sell power from the Mahoney Lake Project to KPU. The requirement in the Agreement that KPU buy Its power to the extent available from the Initlal Project contains a limitation: Mar-12-99 03:40P p Pato SENT BY:DAVIS WRIGHT TREMAINE : 3- 1-99 + 2:00PM ;DAVIS WRIGHT TREMAIN- 8603857538 :# 4/ 4 yi Mr. Robert Grimm February 3, 1999 Page 3 This prohibition shall not apply to the extent that (i) the authority on at least two of the other purchasing utilities consent in writing to the purchaser's use of such other electric power resources, or (ii) the purchaser is required by law to purchase power generated by such other resources. Section 3(c) (emphasis added). As | understand it, the Mahoney Lake Project is a QF under PURPA regulations (18 CFR 292). KPU is still obligated to buy Power from KEC under PURPA at its avoided cost. In summary, the Agreement cannot.reasonably be read as including the proposed Tyee Transmission Line as part of the Initial Project. Evan if the Tyee Transmission Line were part of the Initial Project, it would not eliminate KPU's obligation to buy power from Mahoney Lake at its avoided cost. Very truly yours, VIS WRIG EMAINE LLP Ted/Wellman TWimkg \1487 1\mahoney\grimm02 \at.doc Mar - 12-99 03:40P Pp KETCHIKAN PUBLIC UTILITIES Memorandum To: The Honorable Bob Weinstein & City From: John A. Magyar, KPU General Manag Date: February 11, 1999 Subject: Ketchikan Electric Company (KEC) - Mahoney Lake Project vs Swan-Tyee Intertie At the last meeting City Council asked me to provide additional information on KEC’s Mahoney Lake Project, and implications for the Intertie. In response to that request I am providing information that, I hope, will be helpful in understanding KEC’s presentation and Ketchikan’s power generation needs. In my view Ketchikan’s next electric generation project should attempt to balance five basic needs: (1) it should be large enough to provide for economic development needs, (2) it should provide reliable generation in times of low local rain fall, (3) it should provide the lowest possible short-term power costs, (4) it should provide the lowest possible long-term power costs, and (5) it should enhance the development of low cost future power generation. I say balance, because none of the projects provides for all four of these needs. Good examples of this balancing from the past are the Ketchikan Lakes, Silvis Lake and Beaver Falls Projects. All of these projects were likely built at costs that exceeded the cost of diesel generation at the time. Today, these KPU hydro projects allow KPU to provide power to its retail customers at 8.75 cents, While customers in Kodiak and Valdez and Glenmallen are paying double those rates. And why is that? It’s because these other communities have no old, low cost generation facilities to offset power they have to buy at current market rates (diesel and Four Dam Pool). So, what next projects are available to Ketchikan? There are six: Tyee (Intertie), Mahoney, Whitman, Connell, Metlakatla surplus and diesel. Attached are information sheets that provide both comparative and project summary information ail of these projects. Also attached is Rich Trimble’s memorandum of February that takes issue with specific points in KEC’s presentation and my memorandum of February 27, 1998 that clearly shows that KPU staff's position has consistently supported the Intertic as the next project. KPU has continued to take the position that the Intertie is Ketchikan’s next generation project. This has been Council’s policy and only Council can change this policy. Attachments GAUSERUOHNM\WINWORDIPUBLIC\IT90212.D0C a le. Mar-12-99 03:41P p Project Summaries Short-term (ST) Project Energy kWh cost (Est.) Intertie (Tyee) 75-80 gWh 6+ cents Whitman & 25 gWh $+ cents Connell 10 gWh Under 7 cents Mahoney - 40-47 gWh Avoided cost or KEC market Metlakarla 44 gWh Avoided cost or (Surplus) market Connell 10 gWh 7+ cents Existing Diesel 68 gWh Market - 4.8 to 5.6 cents Long-term (LT) kWh cost (Est.) Lower than ST Lower than ST Lower than ST Avoided cost or market Avoided cost or market Lower than ST Market Power Available in 2 to 3 years 4to 6 years 4 to 6 years 2 years 2 years 3 to 4 years 1.5 to 2 years Avoided costs have been calculated by KPU’s consultant, RW Beck. Current avoided costs are in the 5+ cent range. KEC has contended that our avoided cost calculation is too low. We expected them to make such a claim. They want the avoided cost as high as possible in order to increase the rate they can charge for their power. The lower our wholesale rate is the better it is for our rate payers. GAUSERJOHNM\WINWORD\PUBLIC’T90212.D0C Ps 2 Mar-12-99 03:41P Pp Swan-Tyee Intertie e! With nearly half of Ketchikan’s power coming from Swan Lake in a typical year. This project has by far the greatest potential for reducing KPU’s wholesale and retail power rates in the future. A fully utilized Tyee Project has the potential of reducing the Swan Lake wholesale rates from the current 6.8 cents to the 5 to 5.5 cent per kWh range. Additionally, as an interruptible Tyee power consumer a special negotiated price below the standard Four Dam Pool wholesale rate is likely for KPU. This project is supported by the Four Dam Pool communities since it is the only possible way of reducing the power purchase rate under the power sales agreement with the state. The state is currently analyzing the project to determine if they are willing to bond for this project. A state divestiture of the Four Dam Pool projects (something that has been sought intermittently by the Four Dam Pool communities and the state for years) and acquisition of Swan Lake by KPU will allow power (20 years out) to be 2 bargain like Ketchikan Lakes, Silvis lake and Beaver Falls power is today with generation costs under 2 cents per kWh. This project will open up the possibility of fixture generation sources in the Petersburg area, and is the first phase in a SE Alaska gnd. The EIS is complete. Record of Decision has withstood appeals. This project is ready to construct. Must be developed and have priority over other future generation projects in order to hold on to the federal funding now in hand. This project is less attractive economically if it falls behind other resources such as Mahoney, Metlakatla or Whitman, The Governor has repeatedly stated that his support is tied to the economics of the project. Unless we think he is fooling us, we cannot believe the contention that the intertie will be built by the state just because it’s good infrastructure. Under the Four Dam Pool power sales agreement with the state and the other Four Dam Pool Communities, KPU is obligated to buy available power from the Four Dam Poo} jt initial projects immediately after our existing hydro resources. Ketchikan should honor that * ! mit commitment. Certainly, if another resource, such as Mahoney, has available power and . Ketchikan needs it, we should buy such power at reasonable prices but we should not sign vA an agreement that directly conflicts with an existing agreement. Construction of this project will provide an economic boost for the community with jobs, and materials/service spending. G:\USERVO HNM\WINWORD\PUBLICMIT90212,.D0C Mar-12-99 03:41P p Boe Whitman Lake This project will provide the lowest cost additional hydro power for Ketchikan, Development of this project now will serve to reduce the economic feasibility of the Intertie. With its low estimated cost of power, this project along with Connell can be developed if additional state/federal Intertie funding does not occur. This project should be easy to license since the dam is already in place and since City Council has been fisheries friendly by directing KPU to absorb the costs for modifying SSRRA’s facilities and lost generation capacity. Our children as owners of this project in the future will reap the benefit of low power costs once the debt on Whitman has been paid. Our low power costs today are primarily due to the debt free Ketchikan Lakes, Silvis Lake and Beaver Falls hydro projects. Development of Whitman will pass this favor on to our children. Mahoney Lake This is a good project for Ketchikan and the stock holders of Cape Fox Corporation and Alaska Power and Telephone. As with Whitman, development of this project now will serve to reduce the economic feasibility of the Intertie. This project is licensed and ready to construct. Construction of this project will provide an economic boost for the community with jobs, and materials/service spending. Connell Lake This is a good project when coupled with Whitman as an alternative to the Intertie. As with Whitman, development of this project now will serve to reduce the economic feasibility of the Intertie. DF&G has focused on Connell and costs of this project may rise significantly if fish passage and/or large stream flow requirements reduce its effectiveness. Diesel and other What has to happen if current economic development efforts are to be successful in the absence of hydro projects.. GAUSERVOHNM\WINWORD\PUBLICMT90212.00C Mar-12-99 03:42P Pp pee KETCHIKAN PUBLIC UTILITIES Memorandum To: John Magyar, KPU General Manager From: Richard Trimble, Power Projects Manager AE Date: February 10, 1999 Subject: Ketchikan Electric Company Presentation Ketchikan Electric Company has recently made statements regarding the Mahoney project at Council and in the press. At your request, I am pointing out areas where I believe we either disagree or have at least have a different perspective. KEC indicates the Intertie is four to five years away. Actually, it only requires a two season construction period. My understanding is that Mahoney also requires a two season construction | period. So aside from funding for either project, their construction periods are similar. KEC indicates the Intertie should be viewed as infrastructure, rather than a source of imported power. | realize this is a matter of perspective, but it should be noted that Ketchikan “imports” power from Swan Lake everyday. Imported power from Lake Tyee is no different than imported power from Swan Lake. I think we agree that the Intertie should be viewed as infrastructure, but AIDEA is looking strictly at the economics in making a recommendation to the Governor and the legislature, These economics vanish if we give priority to other projects to supply that energy. KEC notes that Mahoney Lake supports the Intertie. I believe we agree that if funding is not an issue, both projects are valuable infrastructure additions for Southeast. But the State has made clear that they will make their funding decisions based on the projected Intertie energy sales. Regardless of the infrastructure value of both projects, economic reality may dictate that only one project is built in the near future. KEC cites “no public funding” as an advantage. Whether or not this is an advantage is a matter of Council policy and direction. But it should be noted that prior public investment in Beaver Falls, Silvis and Ketchikan results in a significantly lower rate today. The price of energy from those facilities would be higher today if we were purchasing it from a third party at market price. In my opinion, KEC’s statement that Mahoney makes “enhanced funds available for the Intertie” is somewhat misleading. The Council’s position and our proposed funding plan do not rely on Ketchikan funding. If one considers that the State will make grants based on economic value of the Intertie, then a commitment to another project will diminish our opportunity for funding, rather than enhance it. aS a Mar-12-99 03:42P p KEC stated in the February 4 newspaper article that Mahoney at 6.5 cents is cheaper than diesel. This is not correct. R. W. Beck has calculated our avoided cost of generating diesel at 5.0 cents in 1998 and 4.8 cents in 1999. While we do not want to plan on diesel as a long-term solution, we can today generate more energy at less cost than Mahoney can provide. KEC argues that our diesel surcharge in 1998 proves diesel costs more. I believe the surcharge only proves that our budget for both diesel and purchased power did not anticipate a year of record energy sales. Purchased power from Mahoney at 6.5 cents would have required more of a surcharge than diesel in 1998. KEC stated in the February 4 newspaper article that Mahoney was cheaper than the Intertie. This could end up being the case. But in my opinion, it is premature to claim that any of our small hydro alternatives are less expensive than Intertie power until we negotiate a power sales agreement with the Four Dam Pool. This would be an interruptible sale so it would not be unreasonable to seek a lower cost than the current wholesale rate of 6.8 cents. KEC has occasionally stated that Mahoney provides 46 gigawatt-hours (gwh) of energy while the Intertie only provides about 60 gwh. This appears misleading to me. A conservative estimate of energy available at Tyee is 129 gwh. Of this amount, 83 gwh of energy would have been available as surplus in the last fiscal year. On the other hand, while 46 gwh is claimed in the FERC license for Mahoney, 42 gwh was previously derived in their feasibility study and 35 gwh was estimated by R. W. Beck on behalf of the City. Having noted these differences in perspective, I do believe that Mahoney and the other small hydro projects play a key role in our planning for the future. If the Swan-Tyee Intertie remains unfunded, we will want to reduce our long-term reliance on diesel energy as much as possible. In that event, I would foresee developing local small hydro projects in order of least cost. -16 February 17, 1999 SOUTHEAST INTERTIE Ketchikan Public Utilities (KPU) Benefits e Tap unused capacity of Tyee Lake Hydroelectric Project e KPU needs another source of power—Swan Lake at capacity Original Intertie Plan Dead e Original Plan > KPU ownership > $20 million DCRA loan > Federal Grants > 40% 4DP revenue share appropriated annually e KPU did not have capacity to incur the debt for the line New KPU Proposal State owns Bonds/financing supported by 40% 4DP revenue share Release of $20 million DCRA loan for other uses Funding Available: State Grants Authorized/Received 11,200,000 Fed. Grants Authorized/Received 9,900,000 Timber Sale Credit 3,800,000 Additional Funding Proposed: Additional Proposed Federal Grants 7,500,000 Proposed State Bond Proceeds 44,600,000 Total Estimated Intertie Cost (as of 9/98) Financing and other Fundamental Issues e 40% revenue stream is not stable KPU pays normal 4DP price for energy purchased—approximately 6.6 cents per kWh Requires approximately $7.5 million in additional federal grant funds 24,900,000 52,100,000 $77,000,000 > Revenues vary with yearly production i.e. power generation and sales > Revenues can be interrupted by self-help provision of 4DP Power Sales Agreement e Fundamental changes would be required to finance > Some or all of the following would be required to market bonds = State GO or Moral Ob. bonds = Step up pledge of KPU — backed by KPU surcharge = Waiver of Self-help provisions > Changes would be required to 4DP agreements = State would not want to own line under existing 4DP agreements > Legislation required « To re-direct and pledge 40% revenue stream = To allow AEA to own new project = To provide bonding authority/moral ob. to Authority (if elected) Other Issues No strong legislative support, strong opposition by some legislators This is only one piece of a proposed $435 interconnect plan for SE KPU already has some of the lowest power rates in the state (equals Anch. in FY96) Alternative ways to address Ketchikan energy requirements > Other projects may be lower cost alternatives—see Mahoney Lake below Unknown if project has a positive benefit/cost e Mahoney Lake Project (APT — Cape Fox)—10Mw hydro facility > Initially can’t use all Tyee excess and Mahoney—must be one or the other > Privately built with no state monies > Project proponents have offered KPU a guaranteed rate of 6.5 cents per kWh for period of 10 to 35 years (less than intertie rate) e Purchasing Utilities reluctance to take on any risks or modify PSA Status e Work Plan > CH2M Hill to analyze (first draft mid-February): = Benefit/cost = Alternative resource costs > Pat Clancy (AIDEA FA) to analyze: = Examine bonding issues e Structure requirements e Debt service requirements > Recommendation to Administration by early March e $20 million available for release now. With a positive finding, money is not needed. With a negative finding, money not needed as KPU has publicly acknowledged they cannot build intertie if they have to incur debt. e Not all information is available to make finding at this time. Based on what we know now it may be difficult to make a positive finding when you have a private company offering to build a 10Mw project without state monies and at the same time providing a rate that is less than intertie rate which will take state commitment of between $45-50 million. NORTHERN INTERTIE STATUS Golden Valley Electric Association (GVEA) Benefits e Improve the reliability of energy transmission of Bradley Lake and gas-fired opportunity energy from Anchorage to Fairbanks and additionally from the Healy Power Station to Fairbanks. e Eliminate any capacity restrictions between Healy and Fairbanks inhibiting Healy Clean Coal Project and Healy Unit 1 energy, and opportunity energy from Anchorage, flowing to Fairbanks. Page 2 H:\ALL\RSIMMONS\WIDEA\interties\Gov. Intertie Briefing 2-16-99.doc e The primary beneficiary is Golden Valley Electric Association (GVEA) since to date, energy flow has been predominantly to the north. e Original state consultant studies showed a benefit cost ratio of 1.4 without the state Grant. Status e¢ GVEA has completed all environmental engineering necessary for the Environmental Impact Statement (EIS) and preliminary engineering work. The Bureau of Land Management (BLM) has issued a positive Record of Decision (ROD). e Environmental groups have appealed the BLM ROD and requested and received from BLM an extension to the appeal period. Appeal based on route selection and not project need. The BLM may affirm the ROD, request changes by GVEA, or reject the ROD. e All Participating Utilities, excluding GVEA, have withdrawn from the Northern Intertie. Cost and Schedule e The Northern Intertie Grant is for $43,200,000. The market value of the Grant as of December 31, 1998 was $53,020,000. The current anticipated cost is $75,000,000. e Construction will start after the ROD has been affirmed. If GVEA receives the BLM ROD and the state Right-of-Entry this spring, and no stay is granted or litigation commenced (which is expected), procurement will start during the summer of 1999. The Intertie is expected to be in service by early 2001. SOUTHERN INTERTIE STATUS Chugach Electric Association (CEA) Benefits e Provide greater reliability of energy transmission (primarily from the Bradley Lake Hydroelectric Project) across the Kenai Peninsula to the Anchorage bowl. e The primary beneficiaries are the utilities participating in the Intertie. This includes the Anchorage utilities, and to a lesser extent, GVEA. e Consultant studies provided in 1996 for CEA and the Participating Utilities indicated a benefit cost ratio of 1.5 without the state Grant, and 2.7 with the state Grant. Status e The selected intertie route after numerous studies, surveys, and cost comparisons, is the Enstar route across the Kenai Wildlife National Refuge. This will be a major issue with both governmental and environmental entities. e CEA is preparing the final draft of the Environmental Analysis Report (EVAL). The EVAL will provide the technical content for the EIS. U.S. Fish and Wildlife Service (USFWS), and the Rural Utilities Service (RUS) will subsequently prepare the EIS. Page 3 H:\ALL\RSIMMONSUIDEA\Interties\Gov. Intertie Briefing 2-16-99.doc Costs and Schedule Total expenditures from the Grant to date are approximately $4,645,000. The AIDEA Board has authorized $5,900,000. CEA has advised AIDEA that the remaining authorized funds may not be adequate to complete the EIS Phase 1. Additional Grant funds would be required. Total construction cost for the preferred Enstar route is estimated at approximately $90,200,000. The Southern Intertie Grant is for $46,800,000. The market value of the grant as of December 31, 1998 was $59,020,000. All environmental and engineering work necessary to complete the draft EIS is scheduled for completion in the second quarter of 2000. The ROD is anticipated approximately one year later in the second quarter of 2001, assuming no appeals or litigation (which is unlikely). Pre-construction activities are anticipated to start immediately after the ROD with an in- service date anticipated to be in 2005. This is best case scenario. Sutton to Glennallen Copper Valley Electric Association (CVEA) Funding Status $35 million appropriation sitting in DCRA Power Project Fund. All interest earned has previously been returned to general fund. Project proponent has verbally pulled out of intertie. CVEA has reached agreement with Petro Star to build a 5Mw project at refinery. Page 4 H:\ALL\RSIMMONSUIDEA\interties\Gov. Intertie Briefing 2-16-99.doc 2. & Jt sal approved foe Prexep nsches Pov Rehee Fudir ; l, Reeage Fron THEA Lew vuerco @) ERA les coc (© clefe Gu vo uced ob) G\ KPa bes sad i$ che daexut Cu on additonal €ebaal Guduis -.€ npyroved lapses —uo% ube op popratad 3. Get OVA URS lo be bevcu @ lay keu/4oP. +. ee shh has aauce sek k Eta oan ankees Ie ghant G07 oj Ss. tbe self aly aa yolafer dy wderect Costs most be Ie Bod in Gun ot stale a. Tiduchie nen Walarey - Vehe tet d ut diter pray dr PSK oe krU a] 8 a \-3-ar_) ( rF_ phe a Teh | eet: 2 Way lahe - hhh Tyee pow oe >) Hon fo we stv feQeoL fimtlaeny’ eel 4 pore Ue -une GOLD FIBRE® GOLD FIBRE® Thepane Seope af wovle Kot glows vr bo wrodhe Tei deeininrtns heal ds de Go / C On Tesves - sear -— Re rs L j OG) Varna eck De’ CHE AONDUALACS sina £- La oe CG) Bow 3 U-UR cork wat Cs Pathan ml TS Lf ts 4 | a | ne | —————— eo lon } - 4 4 “a JL a OM Levene | pashecal eal bully : ee ate ci £- how PCE af e) Kekiliikan take or fe Ct 2nd <tabe 7 hae aut- cy ale (oe Lo in o & ® C3) Finance pies 4 PLT aLL Peete in a latin neon Aree . ay daywhle c) tacahle mn 2 Gk 4v 4) Cara ei es Finence Cos @) Aok a$ao st . wn soles $ we U cab i” & Leek ot (ece Rv enwer ae glen cats Wax pryebed > G4) w “df Cale “22m loon @ 3% stele tb hod 05+, ? (0) Hew do yer see Hr etehny Wahoay ov Othe, pryeds ? AYTEK Msi rode bil all do beh tude “ates lo tak +t dh wut Bene. z ydro prjeck ethan O | i Bs if ve ( oe ) | — - 4 ” PAGE oat | ] wt 7 oe a4 @) Corl ak Lesel qenviahon row cE @) why s chan J ie ili at US + wi sy s COvaun oka ae weed = i 1 0 fim for put o cas fe ( _ =| Loe pee mn LAL | Dyw| VAL | SE Teh ee have 440m bs ae fy ty 7 rg Vw 2) ( oe co2I Vay soy UdP é) wt type a beonSiny 7 ( Ve aelf Lelp ey) Vt easlot on TRV Re e @) The 0 ears We Ceekch) (3) take mnok u) C98) yor ¢-e0Q V2ueune bade lel goto Lbeurved ou YOR of vevemey i> no wevell ol, Reon UBRE ° IRyou Uke yor way weed e) Stale GO Beo.dk ~ Yale: vote af Zo2Hu6 Ob) Stabe veld Vive ea Te bY Whit Deer vases 0 Le . oe = For HL “7 Q) where is benaft 0 © 20m wan uof 9) coli mode 757) ns stake Aferrol v) Fn Tecves OS pad AbEM IT cap hol Gan. a) Fux: cosls ls BG b) Jayable ©) seve of a erynes Le Khe Coe Tobe. Q Gp D “ WE Sem Codd O04 KETCHIKAN PUBLIC UTILITIES 2930 TONGASS AVENUE KETCHIKAN, ALASKA 99901 TELEPHONE 907-225-1000 FAX 907-225-1888 December 10, 1998 DECEIVE } Mr. Randy Simmons, Executive Director Alaska Industrial Development & Export Authority (AIDEA) DEC 16 1998 480 West Tudor Road Anchorage, AK 99503-6690 MUNICIPALLY OWNED ELECTRIC TELEPHONE WATER Alaska Industrial Development and Export Authority Dear Randy, I want to thank you and your staff for taking the time and making the effort to review and research the possibilities relative to our proposed SE Alaska (Swan-Tyee) Intertie funding plan. Enclosed you will find our responses to the questions you posed regarding the project, its implications and the intent of our proposed plan. As you well know, we believe that this intertie is a most important piece of infrastructure for Ketchikan, Petersburg and Wrangell. We believe that it will prove to be vital for future economic development throughout southeast Alaska. We believe that the communities of Kodiak, Glenallen and Valdez as well as all of Alaska will also benefit from the construction of this intertie. We have a small window of time to make a commitment to build this intertie. The existing federal appropriation of $10 million will expire in two years. Our Congressional delegation continues to pursue additional federal funding during FY 1999. We sincerely seek your assistance in placing the proposed state bonding plan in the governor’s legislative package; and, in maintaining this intertie as a priority need. Thanks again for meeting with City Councilmember Tom Friesen and me on October 27. We are at your disposal and willing to respond to other questions or comments you may have. Rich Trimble and I remain the primary contacts for KPU on this project. Sincerely, John A. Magyar General Manager JAM: Enclosure ce: Mayor & City Council KPU Advisory Board Document3 af 9 *FEB-19-99 92:25 PM or ala. Ce OVM Cc Fre CAC , KETCHIKAN ELECTRIC COMPANY aby 2727 Tongass Avenue Ketchikan, Alaska 98901 (907) 225-1950 (907) 225-4169 February 10, 1999 Mr. Randy Simmons, Executive Director Aiaska Industrial Development and Export Authority 480 West Tudor Road Anchorage, Alaska 99503 Dear Mr. Simmons: This letter is to apprise you of the status of the Ketchikan Electric Company (KEC) Mahoney Lake Hydroelectric Project, as a means of assisting your pending analysts of the proposed Swan-Tyee Intertie project. We understand that the analysis is scheduled to be completed in the March 1 time frame. Several recent Mahoney-related materials are enclosed as background, Due at least in part to Ketchikan's current dependence on diesel generation (27,000 mWh were generated with diesel last year), the community appears to be In immediate need of an additional increment of power. We believe the Mahoney project fits that need. Mahoney is fully licensed and ready for construction pending a power sales agreement, The project could be in full operation within 14 months. Unfortunately, KEC's nearly year long-efforts to engage in meaningful power sales negotiations with KPU have not progressed, presumably because Ketchikan Public Utilities (KPU) is concerned about how Mahoney might affect chances of the Intertie. As you may know, KEC is prepared to supply Mahoney power to KPU at a flat rate of 6.5 cents per kWh for a term of 10 to 35 years. This Is below the current Four-Dami Pool rate of 6.8 cents per kWh for Swan Lake power (which would not be preempted) and presumably below what Tyee power would cost Ketchikan. Moreover, while the cost of Four-Dam Pool power would be expected to escalate in the future, Mahoney power would remain at 6.5 cents for the term of the contract. The cost of Mahoney power could even be lowered prior to or after a sales agreement, depending on whether and how much grant funding might be obtained. As it has been throughout, KEC's position continues to be that the Intertie and Mahoney are different types of projects and both should be pursued and built. The Intertie represents a very worthwhile regional infrastructure project that is at least three years off, while Mahoney is a local, largely privately financed, market-competitive project that could be in operation within 14 months. We believe it would be useful to factor the status of Mahoney into your analysis, and toward that end we would appreciate the opportunity to share our current information with your Interlie consultant. We would also like to give you a persona! briefing at your earliest convenience. Sincerel 4 Ls Robert S. Grimm, General Manager Peter Gigante, President “FEB-10-99 @2:26 PM KETCHIKAN ELECTRIC COMPANY, LLC Owner and Developer of the Mahoney Lake Hydro Project February 4, 1999 * Mahoney rate is lower than Four Dam Pool rate Four Dam Pool rate is currently 6.8 cents per kilowatl-hour (kWh). KEC’s offer to KPU is at 6.5 cents per kWh fixed for the term of the contract (10 to 35 ycars). * Timing i : : Mahoney can be operational by the fall of next year. * hy import if i uper to produce power here The Intertic should not be viewed strictly as a source of power for Ketchikan. Ketchikan should consider all local possibilities for hydropower first and vicw the Interti¢ as the infrastructure that allows the power to flaw freely in either dircction throughout Southeast. . ey Lake Hydro will reduce th ower ou aod browo Connecting Mahoney Lake via the Beaver Falls transmission line means increased reliabitity for the power into Ketchikan. Lf Swan Lake or the Intertie goes down there wil! still be significant power available via Mahoney Lake through the Beaver Falls line. « Ma 7 Hydro su e Intertie The Intertic is a basic infrastructure for Southeast Alaska similar to building a highway project. It serves important economic development objective to connect different parts of Southeast Alaska. The electric needs of SE Alaska over the next 20 to 30 years will require efficient electric gencration such as Maloney Lake. « Energy Source (Mahoney) versus Energy Intertie (Highway) Mahoney Lake will create reliable electricity locally that will improve costs and reliability. The Lntertie achieves area wide goals. which can best be paid by a combination of Federal and Slate resources. * Don’ ainst the other Ketchikan needs both the Intertic and Mahoney and can have both, ° 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. * Nonew public investment KPU wilt have access to Mahoney Lake energy and capacity without making any further investment in new hydros. The investinent will be made by Ketchikan Electric. without any public funding. ¢ Enhanced funds avail Mahoney Lake will free up all of K PU's cash and credit for use on the Intertie projecr by eliminating the need for investment in other generating projects. ¢ Enbanced economic dcyelopment with the Intertie Mahoncy 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 pul the city in a pre-eminent position to attract economic development. = Immediate local economic deyclopment Mahoney Lake will be a local project within the Ketchikan Gateway Borough. It will provide local constriction and operating jobs. and will be owned by a local corporation. P.o4 26 PM *FEB-19-99 a2 KETCHIKAN ELECTRIC COMPANY MAHONEY LAKE HYDROELECTRIC PROJECT February 4, 1999 ESTIMATED RATE COMPARISON MAHONEY LAKE VS FOUR DAM POOL Cents per Kilowatt Hour Source of Four Dam Pool rate is from Table 6 of repost prepared for KPU by RW Beck, November 9, 1998 Southeast Intertie Briefing January 27, 1999 ¢ Oniginal Intertie Plan Dead e Original Plan e e K' KPU ownership $20 million DCRA loan Federal Grants 40% 4DP revenue share Modified rate plan (KPU pays less than uniform 4DP rate) PU did not have capacity to incur the debt for the line e New KPU Proposal e State owns KPU pays normal 4DP price for energy purchased Bonds/financing supported by southeast 40% share Release of $20 million DCRA loan Requires approximately $7.5 million in additional federal grant funds Funding Available: State Grants Authorized/Received 11,200,000 Fed. Grants Authorized/Received 9,900,000 Timber Sale Credit 3,800,000 24,900,000 Additional Funding Proposed: Additional Proposed Federal Grants 7,500,000 Proposed State Bond Proceeds 44,600,000 5h 100,000 Total Estimated Intertie Cost (as of 9/98) $77,000,000 e Financing and other Fundamental Issues e 40% revenue stream is not stable Revenues vary with production Revenues can be interrupted by self-help e Fundamental changes would be required to finance Some or all of the following would be required to market bonds e State GO or Moral Ob. bonds e Step up pledge of KPU — backed by KPU surcharge e Waiver of Self-help provisions Changes would be required to 4DP agreements e State would not want to own line under existing 4DP agreements Legislation Required e To re-direct and pledge 40% revenue stream e To allow AEA to own new project e To provide bonding authority/moral ob. Authority (if elected) e Other Issues e Ramona -- “They still owe $185 million!” e This is only one piece of a proposed $435 interconnect plan for SE e KPU already has some of the lowest power rates in the state (equals Anch. in FY96) e Alternative ways to address Ketchikan energy requirements e Other projects may be lower cost alternatives Unknown if project has a positive benefit/cost e Mahoney Lake Project (APT — Cape Fox) e Initially can’t use all Tyee excess and Mahoney e Who goes first e PURPA issues Purchasing Utilities reluctance to take on any risks or modify PSA Purchasing Utilities Payment Issue e Utilities Claim increased O&M, replacement power and other costs as result of “self help” work outages e Amounts to about $300K in current fiscal year e Significantly more for future years (ie significant outages this year for Tyee phase III work) e Litigation Likely e Potential strategy for positive funding e Release DCRA loan now e 40% to be used for financing but if no fed funds w/in one year 40% share “sunsets” for other uses e Other issues listed above would still need to be resolved e Work Plan e CH2M Hill to analyze (first draft 2/15): e Benefit/cost e Alternative resource costs e Pat Clancy (AIDEA FA) to analyze: e Examine bonding issues e Structure requirements e Debt service requirements e Recommendation to Administration by early March SE Intertie Briefing 1-27-99 Page 2 14 a joint-ventuje company estab- fished by the Saxmpn-based Cape Fox :' ee aiid Alaska wer aye Mahoney Lake’ 10-0 watt erating capacity: Ocnegrwat "ee! Kat area's dverall chpacity to ° See ‘Maligney power,‘ page 5: ecly lowe 1. see ; ities wouldagree * - @2-04-1999 11:@8AM FROM AP&T WIRELESS, INC. TO 19874633611 P.@2 ! pee Sai | # UUllities program to | cee ciato a loca residedt | cost kan Hectic... i : power source would be the 20- annually, ahd has the option of| that amount outof’s 1 ‘The: errant tote cnet Take Tyee; whichnow mo lamcver ono the cost om'tg customers, according to | bel g nhoaeyakewilbles to Power 12 and Shean. By pidge cont asi cident urtomeis she other component of te pr oe : oe toes Sail sees castes wold hove ar eof about 68 cents. is | posedpovrer' ‘order ‘ian . Ketchikan Electric Co. ‘will ' a presentation regarding inewhich RPO use Mahoney Lake Lneflgrne sy » the intertia Proposed Mahoney Lake pewer project { . ; IAT power, . ee ; Ss ready Sheraton -'The.City meeting is scheduled t start ot 7 p.in, Thursday in the, -Ketchikan Electric wants PU to. e.are int a to counell chambers, $34 Front St. } : ms ie spake nse of the generated by : ‘ha dolor ald ets a . SwanLake and ‘a ather hydroelec- eral lV John + i ‘Lake would be third | ‘ ~ealh lied By Te see gee He fait prop i 1 Shaan. gubningewa. eWraogel, “We BS it in the vital. | gga aacrcn easRenclikenees, Sat por eee ‘* to" enbure that Mahioney power.is uti-? without: > thetintertic,” witote (Grimm * fms Jom28 letter to KYU General Man- the » Sede aay $62 vial i part bodman i = would raise & oie mieeactednorne istexe dampen its i } expensive and {t woilld keep the rev! f'- oo port?’ Gigante gaid: * . deen: near or at the top of ture,’ “While they firmly bell the a fegialative list of priorities The Council is the ney Laled project choold be but for séene Sie TOTAL P.@2 FEB 1-98 HON IS 38 2 FAK NO 02 ro © © «Os KETCHIKAN ELECTRIC COMPANY 2727 Tongass Avenue Ketchikan, Alaska 99901 (907) 228-1950 (907) 225-4169 January 28, 1999 soln Magyar, General Manager Keolchikan Public Utilities 2930 Tongass Avenue Ketchikan, Alaska 99901 Dear John: As you know, Ketchikan Electric Company (KEC) is a joint venture established between Cape Fox Corporation and Alaska Power & Telephone Company, KEC was formed because a major business purpose of ours for the past seven years has been to develop the Mahoney Lake Lydrapower Project. The Mahoney Lake project is a 10 MW facilily that will provide renewable energy on an economic, wholesale basis (o the Ketchikan area through a pawer sales agreement with Ketchikan Public Utilities (KPU). As you are aware, last weck we requested aud were accorded the opportunity to ailend the City Council meeting on February 4 to update members on the status and benefits of the Mahoncy project, KEC has invested several million dollars thus far to bring Mahoney to this point of construction, pending oF course a power sales agreement with KPU. We earnestly hope efforts foward such an aurecment can commence as svon as possible. Altough we have been made acutely aware of concerns tha! Mahoney could adversely impact the chances for construction of the Swan-Tyee Lake intertie, we do not believe Mahoney and the intertie are mutually exclusive. We have consistently supported the intertic even despite a negative campaign towards Mahaney al the federal level last year by sonic members in the fours dam pool. Mahoney will meet Ketchikan’s current, near and intermediate term power needs at a cost to KPU that is cheaper than (hat now paid for four-dam pool power. Further, Mahonoy will eliminate KPU's reliance on more exponsive diesel back up generation (which produced approximately 27,000 megawatt hours last year) ard eliminate the necessity for current or future diesel surcharges to the Ketchikan ares ratepayers. Mahoney will also firm up the local systom capacity and provide more reliable redundancy by connecting at Beaver Falls rather than the 115-kilovolt line ftom Swan Lake. The highest value of the Swan-Tyes intertie, by contrast, is to provide long term, regional power supply as part of what wo hope will eventually be an intertie system connecting communitios throughout Southeast Alaska, Like the Rainbelt intertic systom, the Swan-Tyce link shauld be viewed by all concerned (including the State) as basic infrastructure much as toads, water aud sewer improvenients, none of which are subjected (o' conventional cost/feasibility criteria. As power needs grow throughout Southeast, the intertie will be a vital link in transporting available generation ftom wherever il is produced to wherever it is needed, FEB- 1-99 MON 11:40 03 FAX NO, 02 P, 03 - P.64 JAN-22-99 65:08 PM While KEC continues to support the Swan-Tyee intertie. we do not believe that Ketchikan area ratepayers should have to shoulder the expense and risks of a regional intertie. As we understand i, your current plan of finance for the intertie attompts to deal with this very concern by having the State of Alaska bond and own the facility as it docs other regional assets in the four-dam pool ——— and in the Rainbelt. We strongly support this approach and will assist as you see it We wish also to comment on the public interest outcome in the event a decision were made to place the Maloney lake power behind (hat of the long-proposed Intertie, We believe this action would perpetuate Ketchikan's dependency on imported energy for many years, which in itself will havo a negative economic impact on Ketchikan area residents and (he overall economic hoalth of the Ketchikan area. This adverse impact will be compounded further by virtue of the fact that power imported to Ketchikan via the Intertie will come at a cost thal is higher than that which can be produced locally via Mahoney, Further, not only will Mahoney power be loss expensive, it will also minimize the potential for transmission reliability probloms associated with Ionger distance lines. When we pledyed in writing to AIDEA last year that we would not assert priority aver Swan Lake power, we did so under the understanding thal Mahoney would be acqucnced ahead of Tyce, (n summary, wa believe the Mahoney Lake Project is the best solution for displacing existing diesel generation and mecting Ketchikan’s power needs for the foresecable fliture. Mahoney will keep Keichikan from becoming a “net importer” of power for some time, while ensuring that the community's next electrical increment is the most economic and reliable option, Construction of the project lisell will be a substantial local economic development project. KEC supports your efforts toward State ownership of the Swan-Tyec intertie and will assist as outlined above. We believe however, that it is in the vital economic interest of the Ketchikan area fo ensure that Mahoncy power is utilized ahead of new imported power via the intertic. Paramount among our needs is to proceed now with meaningful power sales negotiations for Mationey, We feel that both Mahoney and the intertic can move forward. John, we do appreciate your responsibilities and commitment to Ketchikan and to your four-dam pool counterparts and, recognizing that, we are grateful for your support of our efforts over the past severnl years. We look forward to continuing our working relationship for the betterment of Ketchikan. Robert §, Grimm, General Manager Kotclykpn Electric Compan Peter Gigante Ketchikan Electric Company C.C. Mr, Bob Weinstein, Mayor FEB- 1-99 MON 11:39 03 FAX NO. 02 P, 01 2501 K Slant LW , Suile 9A» Washingt D.C. 20047 « (202) 342-1669 ax (202) 342-2066 21 Fourth Stroet, Guile 307 C » dumeau, AK 998) F» (907) AGI.IGIGT ax (907) 46.3 IGN Markley & boreal retin] Marinyy Addioss P.O. Box 244902 = Anchoragn, AK 99524 4902 Tos her 4 Feces From: LARRY MARKLEY HI Font Pages: a Brake aie) Phone: l | Date: afi /45 Ne: ccr U urgent U For Review O Please Comment ® Comments: Q QinbyiSecs (907) 274-1056 Date OCT 17 KETCHIKAN DAILY NEWS Client No. 12 oA KPU turns to state for intertie fv op, New plan requests $45 million bond to build electrical project pia) 3lo 330° 20 By SCOTT BOWLEN alo Daily News Staff Writer 7 Ketchikan Public Utilities has dropped a long-standing finance plan for the Swan Lake- 30 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 Tyee Lake electrical intertie and now is asking ~electricity and hamper its future bonding abil- the state to bond for $45 million to help build the project. Securing the funding is KPU's final obstacle before constracticn 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 in aposition to proceed — except for the dollars," said KPU General Manager John Magyar. KPU is turning to the state after an indepen- 1 Yn 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 KPU Swan-Tyee Intertie.Project ‘Former Funding Plan’ ~~ | ‘Current: Plan Project cost $73,200,000 $73,200,000 Authorized/Received to Date 5 State Grants $11,200,000 $11,200,000 Federal Grants $9,900,000 $9,900,000 State Loan ! $20,000,000 Declined [Pending = HH Janet 2 ee ae Federal Grant 2 $7,500,000 $7,500,000 State bonds $0 $44,600,000 Total ke se 8 $8 600, 000 $73,200,000 Funding still needed. : $24 600, 000 $0 Source No commitments to date None required Ownership of Finished Project d ; Ketchikan Public Utilities Source: Ketchikan Public Utilities. !Would need approval from Ketchi- State of Alaska kan voters. 2 Anticipated in federal fiscal year 1999. y Southeast intertie- 216M 420A S!0 330-420 obsa 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 ca cost _— hydroelectric re- + * 3 1 ; z 7 1 A view of the lakeatia of Swan Lake rp where Ketchikan gets most 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. . I think it will take a 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 amemo 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 ee 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 minu: several intertie-related costs for.power received through:the project.=- >, Low at first However, KPU forecasts that demand Staff photo Ey, 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 anticipated demand did not materialize. “A short-term loan through AIDEA would allow us to meet our expenses during years of low loadin 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 debtload 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- jon 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 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 bd was working on another funding plan 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 percent as arevenue stream (to pay off the bonds). 7City 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. *,.. Itmay bea win-win-win situation for 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 Rett 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. “I 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 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 pers it's the most reason- - able fundin (plan) I've seen,” Friesen said: *I it's a good funding tool.” The new plan will be included asa 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 ce 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 aiScult for the state to fund,” Taylor said. Magyar said KPU continues to pursu- ing further federal funding. OCT. 05" 98 (MON) 10:23 KPU ADMINISTRATION TEL: 907 225 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 eloctric power for public, commercial, and private use, and construction of a regional hydroclectric-based clectric 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 Jess 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 communilies in the region support implementation of the Southeast Alaska Flectri- 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 Infertic 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 Jnfertie Plan (the Swan-Tyee Intertie) by supporting leg- islation for a state-issued bond funded by the 40 percent Four Dam Poo! 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 & 06 GEA BOS 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 EGEIVE!) Randy Simmons, Executive Director NOV 09 1998 AIDEA Pot 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 G:\USER\KORRYO\WINWORD\DATA\007-W5LT.DOC Oct-02-98 11:53am — From-OFFICE OF GOVERNOR 9074653532 T-522 P.O1/05 = F=340 FAX TRANSMITTAL STATE OF ALASKA OFFICE OF THE GOVERNOR OFFICE OF THE GOVERNOR PO BOX 110001 JUNEAU, AK 99811-0001 TONY KNOWLES GOVERNOR Telephone: (907) 465-3500 FRAN ULMER Fax: (907) 465-3532 LIEUTENANT GOVERNOR Date: 10/02/98 To: RANDY SIMMONS Fax No.: 269-3020 Pages: 5 Total From: Tim Towarak/te E-mail: Tim_Towarak@gov.state.ak.us Comments: TIME SENSITIVE DOCUMENT - Mr. Tim Towarak requested I send this letter from the Southeast Alaska Conference of Mayors and the “drafted” response from Govemor Knowles prepared by Commissioner Irwin’s office for your review and recommendations/comments. Ms. Annalee McConnell of OMB also recommends this be run by AIDEA and then Jim Ayers. You may reach Tim Towarak here at the Governor’s Office at 465-4025. Thank you. If you received this FAX in error, please immediately notify the sender by telephone, and return this FAX to the sender at the above address. Thank you, Ai Oct-02-98 11:53am — From-OFFICE OF GOVERNOR 9074653532 T-522 P.02/05 F~340 \ lim-£1291 cc: GOV/COS SOUTHEAST ALASKA CONFERENCE OF MAYORS c/o Southeast Conference 213 Third Street - Suite 124 Juneau, AK 99801 (907) 463-3445 The Honorable Tony Knowles fl Govemor of Alaska SEP ~ 2 1998 PO Box 110001 OFFICE CE THE G Juneau, Alaska 99811-0001 Dear Governor Knowles: The Mayors of Southeast Alaska met in Sitka on the 26" and 27" of August. While we considered several important matters, we all agreed that an Electrical Intertie in Southeast is one of the most important issues facing our communities. We want you to know the communities of Southeast Alaska support the concept of a Southeast electric grid as a means of reducing or avoiding diesel dependence, encouraging economic 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 communities, acting through the Southeast Conference, have a Southeast Alaska Electrical Intertie System Plan prepared. The System Plan provides a “living” plan that can be updated as the participants proceed through development of the system. The next step is to seek the necessary funding on a partnership basis with the State and Federal governments. Specifically, we request you to officially endorse the concept of a Southeast Alaska Intertie System. Your endorsement will enable us to get this plan before the Federal delegation while Senator Stevens is chairman of the Appropriations Committee and Senator Murkowski is chairman of the Energy and Natural Resources Committee. At the Federal level there is a growing consensus that the Rural Electric Association (REA) work is complete, meaning that the nation is all electrified. Unfortunately, this is not the case in Southeast Alaska where many communities are paying 300% above the national average for electricity, and our utility grid is 40 years behind the rest of the nation or non-existent. Page 1 of 2 Oct-02-98 11:54am — From-OFFICE OF GOVERNOR 9074653532 T-522P.03/05 = F~340 ~ ? » We therefore urge you, Governor Knowles, to endorse the concept of a Southeast Alaska Electrical Intertie System, which will encourage economic stability and growth, and equalize power rates for our region. Sincerely, ean City and Borough of Juneau (Chair man ) tan Filtér - Mayor, City and Borough of Sitka 2 Sab IG Haines C2 BA Lewe— Paul Anderson - Deputy Mayor, City of Petersburg Maxine Thompson - Mayor, City of Angoon CLR A Ovek ) Albert Dick - Mayor, City of Hoonah = f / VG Ya tee Sey Ce ~ Jim Shull - Acting Mayor, City of Saxman Pal Vhwiticn Bob Weinstein - Mayor, City of Ketchikan Page 2 of 2 Oct-02-98 11:54am — From-OFFICE OF GOVERNOR 9074653632 T-522P.04/05 = F~340 September 29, 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 of a 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 the surest path 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-02-98 11:55am — From-OFFICE OF GOVERNOR 9074653532 T-522P.05/05 = F=340 The Honorable Dennis Egan September 29, 1998 Page 2 The Southeast intertie concept is fundamentally sound and I support it. The intertie grid will have many individual links, and it will be our task to build each link as the opportunity arises. I appreciate your continuing support for this important objective. Sincerely, Tony Knowles Governor cc: Stan Filler, Mayor of the City and Borough of Sitka John “Jack” Shay, Mayor of the Ketchikan Gateway Borough Jerry Lapp, Mayor of the City of Haines Paul Anderson, Deputy Mayor of the City of Petersburg Maxine Thompson, Mayor of the City of Angoon Albert Dick, Mayor of the City of Hoonah Jim Shull, Acting Mayor of the City of Saxman Bob Weinstein, Mayor of the City of Ketchikan Lonnie Anderson, Mayor of the City of Kake TK/IV/MI/TT/jk/te 2101.DCRA Misc. 27257.doc 709° 98(FRI) lls] KPU ADMINISTRATION TEL:907 225 1000 / P. 002 KETCHIKAN PUBLIC UTILITIES Memorandum To: Project Management Committee From: John A. Magyar, General vt Date: October 9, 1998 Subject: SE Alaska Intertle (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 Poo! 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. Attachment Ce. bree pile GAUSBRUOHNM\WINWORD\PUBLIC\ITB1009.D0C § 44.88.155 State GovERNMENT 722 Sec. 44.88.155. Enterprise development account. (a) The enterprise develop- ment account is established in the revolving fund. The enterprise development account is a trust fund for the uses and purposes of this chapter. The enterprise development account consists of money or assets appropriated or transferred to the authority and other money or assets deposited in it by the authority. (b) The authority may establish in the enterprise development account the accounts it considers appropriate. (c) Money and other assets of the enterprise development account may be used to secure bonds of the authority issued to finance the purchase of loans for projects or may be used to purchase participation in the loans for projects. (d) A loan participation purchased by the authority with assets of the enterprise development account or with proceeds of bonds secured by assets of the enterprise development account approval; (2) may not be purchased unless (A) the project applicant is not, or, if the applicant is not a single proprietorship, all members of the business enterprise or enterprises constituting the project applicant are not, in default on another loan made by the state or by a public corporation of the state; and (B) at least 20 percent of the principal amount of the loan is retained by the loan originator; (3) may not be purchased if the loan to be purchased exceeds the cost of the project or 75 percent of the appraised value of the project, whichever is less, unless the amount of the loan in excess of this limit is federally insured or guaranteed or is insured by a qualified mortgage insurance company; (4) may not be purchased if the participation in the loan to be purchased is for a term longer than three-quarters of the authority's estimate of the life of the project or 25 years from the date the loan is made, whichever is earlier; however) in the case of a loan” participation for a power transmission intertie, the term may not be longer than 50 years’ (5) may be made — if < participation in the loan to be purchased contains amortization provisions; the amortization provisions (A) must be complete and satisfactory to the authority and require periodic payments by the borrower; (B) may allow the loan originator to amortize the portion of the loan retained by the loan originator using a shorter amortization schedule than the amortization schedule for the portion of the loan held by the authority if (i) in the authority’s opinion, the project financed can support the increased debt service; and (ii) the accelerated amortization schedule is required to induce the originator to make the loan; (6) may be made only if the participation in the loan to be purchased is in the form and contains the terms and provisions with respect to insurance, repairs, alterations, payment of taxes and assessments, default reserves, delinquency charges, default remedies, acceleration of maturity, secondary liens, and other matters the authority prescribes; and (7) may be made only if the participation in the loan to be purchased is secured as to repayment by a mortgage or other security instrument in the manner the authority determines is feasible to assure timely repayment under a loan agreement entered into with the borrower. (e) The authority may adopt regulations for the administration of the enterprise development account including, without limitation, provisions for fees and agreements Ataska InpustRIAL DEVELOPMENT AND Export AUTHORITY § 44.88.159 723 relating to application, loan commitment, servicing, and origination of loans by other lenders. (f) The authority may enter into agreements as to the use of the money in the enterprise development account, including without limitation, trust or custody arrange- ments with banks or trust companies. It may also pledge, assign, or grant the agreement, interests under an agreement, or interests in the enterprise development account as may be necessary or appropriate to provide for payment and security for bonds of the authority . issued to finance the purchase by the authority of loans for projects. (g) a a NT (h) The provisions of this section apply only with respect to a loan participation purchased by the authority for projects under AS 44.88.155 — 44.88.159. (§ 65 ch 106 SLA 1980; am § 38 ch 115 SLA 1981; am § 7 ch 162 SLA 1984; am §§ 21— 27 ch 42 SLA 1987; am § 32ch 141SLA1988; am §§ 12 — 14ch 123 SLA1990; am § 1ch 25SLA1991; am §§ 5 — 7 ch 51 SLA 1992; am §§ 24, 25 ch 18 SLA 1993) Revisor’s notes. — Enacted as AS 44.61.155. Re- numbered in 1980. Effect of amendments. — The 1990 amendment, effective June 15, 1990, substituted “the accounts” for “a small enterprise loan account, a loan insurance account, and other accounts” in subsection (b); deleted “and shall be held and invested by the authority in accordance with AS 37.10.071” after “projects” in sub- section (c); deleted former subparagraph (dX1XB), which provided “$500,000 if the loan is purchased under AS 44.88.158”; substituted “20 percent” for “10 percent” and inserted “as long as the loan is outstand- ing” in subparagraph (dX7XA); deleted former sub- paragraph (dX8XA), requiring a partial guarantee of a loan by the United States or an agency or instrumen- tality thereof; and made related stylistic changes. The 1991 amendment, effective June 11, 1991, re- wrote paragraphs (dX4) and (dX7). The 1992 amendment, effective June 11, 1992, sub- stituted “may be used to purchase participation in the loans” for “shall be used to purchase loans” in subsec- tion (c), rewrote subsection (d), and substituted “to a loan participation purchased by” for “to loans pur- chased or made by” in subsection (h). The 1993 amendment, effective August 11, 1993, in subsection (d), added “however, in the case of a loan participation for a power transmission intertie, the loan participation may exceed $10,000,000 with legis- lative approval” to the end of paragraph (1) and “however, in the case of a loan participation for a power transmission intertie, the term may not be longer than 50 years from the date the loan is made” to the end of paragraph (4); and, in subsection (g), added “or in order to finance a power transmission intertie project” to the end. Sec. 44.88.156. Multi-family housing loan account. [Repealed, § 44 ch 42 SLA 1987.] Secs. 44.88.157, 44.88.158. Loan insurance and loan insurance account; small business enterprise loan account. [Repealed, § 23 ch 123 SLA 1990.] Sec. 44.88.159. Interest rates. (a) The interest rate on a loan participation pur- chased from the proceeds of tax-exempt bonds or expected by the authority to be purchased from the proceeds of tax-exempt bonds is equal to the cost of funds to the authority. In this subsection “cost of funds” means the true interest cost expressed as a rate on tax-exempt bonds of the authority plus an additional percentage as determined by the authority to represent the allocable expenses of operation, costs of issuance, and loan servicing. (b) The interest rate on a loan participation purchased from the proceeds of taxable bonds or expected by the authority to be purchased from the proceeds of taxable bonds is equal to the cost of funds to the authority. In this subsection “cost of funds” means the true interest cost expressed as a rate on taxable bonds, plus an additional percentage as determined by the authority to represent the allocable expenses of operation, costs of issuance, and loan servicing costs. (c) (Repealed, § 23 ch 123 SLA 1990.] (d) The provisions of this section apply only to a loan participation purchased under AS 44.88.155 — 44.88.159. (10) a detailed estimate of the cost of construction; (11) an estimate of the number of jobs to be created or retained by this project; (12) if the loan is to be secured by real property, a narrative appraisal report acceptable to the authority estimating the fair market value of the project in a format consistent with standards established by the American Institute of Real Estate Appraisers or Society of Real Estate Appraisers, including a cost approach, a market approach, and an income approach; (13) if the !oan is for the purchase of tangible personal property, an appraisal! in a format acceptable to the authority prepared by an appraiser who is acceptable to the authority; (14) copies of leases or agreements to lease or renew a lease between the applicant and project tenants, including a list of tenants, lease rates, terms and options; (15) if required by the authority, a financial feasibility analysis satisfactory to the authority; (16) an environmental risk assessment satisfactory to the authority, followed by an environmental audit if required by the authority; and (17) any other information considered necessary by the authority to evaluate the application. (In effect before 1988; am 1/11/88, Register 106; am 11/30/90, Register 118; am 7/19/91, Register 119; am 9/25/92, Register 124) Authority: AS 44.88.080 AS 44.88.085 AS 44.88.155 3 AAC 99.330. TERMS OF REAL PROPERTY LOANS. (a) The authority will participate in a loan made by an originator to acquire land or to acquire or construct buildings, improvements, and structures on land, only if the loan satisfies the conditions prescribed in this section. (b) The amount of the authority's participation in a real property loan will not exceed $10,000,000, except that the authority will, in its discretion, participate in a real property loan in. ‘an amount greater than $10,000,000 if the loan is for the financing of a power transmission. intertie and if the Alaska State Legislature has approved the authority's participation. The principal amount of a real property loan may not exceed, (1) for the purchase of an existing project, 75 percent of either the appraised value or purchase price of the project, whichever is less; (2) for the construction of a new project, 75 percent of the appraised value of the project or 90 percent of the cost of construction of the project, including land acquisition cost, as certified by the applicant and originator and approved by the authority, whichever is less; or (3) for a loan to refinance an existing loan, the lesser of 75 percent of the appraised value of the project or the outstanding principal balance of the loan to be refinanced, plus associated costs of the refinancing. (c) A real property loan must be secured by a mortgage which is a first lien on real property in fee simple or on a leasehold estate except as provided in (i) of this section. The authority will, in its discretion, review and approve other encumbrances against the real property that do not affect the authority's security for the loan. (d) The term for a real property loan made to finance a power transmission intertie may not exceed 50 years from the date the loan is made. For a real property loan other than a real property loan described in the preceding sentence, the term may not exceed 25 years or 75 percent of the estimated economic life of the project, whichever is less, as determined by the authority. The loan terms for any real property loan must require complete amortization provisions and require periodic payments by the borrower. (e) The authority may allow the loan originator to amortize its portion of the loan using a shorter amortization schedule than the authority 12/1196 Page 12