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Annual Report Southeast Conference Energy Committee 2004
Southeast Conference Energy Committee 2004 Annual Report one| FIGURE 1-2 Southeast Alaska Existing and Proposed Transmission Lines bem Southeast Alaska Intertie Study Saas Southeast Alaska Intertie Project with existing & planned segments Prepared by Dave Carlson Southeast Conference Intertie Coordinator Vision Our vision for Southeast Alaska is to reduce, to the maximum extent possible, the use of diesel as a primary fuel source for the generation of electricity. This will be accomplished through the utilization of the region’s plentiful hydroelectric potential and the development of an interconnected transmission system to share these resources throughout the region. Page 2 2004 was a very good and productive year! Significant progress was made on a couple of the Southeast Alaska Intertie project segments. Foundations for approximately 70% of the towers were installed on the 57-mile Swan Lake to Lake Tyee Intertie. Permits are in hand and the installation of poles and conductor on Admiralty Island along the ‘A’ road from Youngs Bay to Hawk Inlet, a portion of the Juneau to Hoonah segment, was completed. Planning studies are underway for the Kake to Petersburg segment. Kwaan Electric Transmission Intertie Cooperative, Inc. (KWETICO), the owning and operating entity for specific segments of the Southeast Alaska Intertie Project, has been formed and is operating. Formation documents were completed and a board of directors and officers has been elected. Additional federal funding for Juneau — Hoonah and Swan — Tyee Intertie segments was included in the Omnibus bill passed by Congress in December, 2004. The name of the Intertie Committee has been officially changed to the Energy Committee. The Energy Committee will now be addressing all electric energy issues in Southeast Alaska, not just Intertie-related issues. Progress was made on other energy projects in Southeast. This 2004 Annual Report will provide project updates and work accomplished this past year by the Southeast Conference Intertie/Energy Committee working with the communities and utilities within the region. Page 3 The Southeast Conference Intertie Committee was formed to explore the concept of building a network of electric transmission lines connecting most of the communities in Southeast Alaska. In 1997, Southeast Conference commissioned a study, completed by Acres International, which evaluated previous studies and provided updated cost estimates and timelines for the development of the Southeast Alaska Intertie system. Southeast Conference, along with its member utilities and communities, pursued federal legislation authorizing the project. In 2000, federal legislation was enacted that authorized federal funding of up to $384 million dollars to assist in the construction of the “Southeastern Alaska Intertie system” as generally identified in SEC’s 1997 study by Acres International. In 2001, Southeast Conference began exploring options for creating a single legal entity that would own, operate, construct and manage the Intertie segments. Various meetings were held in 2001 and 2002 and this issue was discussed and debated without final solution. In 2002, Southeast Conference determined that the hiring of a full-time ‘Intertie Coordinator’ to pursue entity formation and continue to develop the Intertie Project would best move this process forward. The Conference was successful in obtaining a legislative grant and Dave Carlson was hired as the Intertie Coordinator for Southeast Conference. Southeast Conference Intertie Committee meeting in Juneau — November, 2002 The Southeast Conference Intertie Committee met in November, 2002 and voted to prioritize the Juneau to Hoonah and the Petersburg to Kake segments as next to be added into the system while acknowledging the Swan-Tyee Intertie which was already under development. The Intertie Committee, however, wanted to update the original Acres International feasibility report and also confirm that the two prioritized segments were technically and economically feasible. In 2003, Southeast Conference received funding from USDA — Rural Development to conduct this study. D. Hittle & Associates was retained to complete the study. The study was broken down into two phases; the first phase specifically addressed the Page 4 Juneau to Hoonah and the Kake to Petersburg segments and phase two evaluated the entire Southeast Alaska Intertie project including updated construction and operation & maintenance cost estimates and recommended segment phasing. This study was completed in late 2003. This study confirmed the economic viability of the Juneau to Hoonah and the Kake to Petersburg segments. quit tnt AST COMTLRENC §900.000.00 Bill Allen, State Director, USDA — Rural Development (right), presents a $100,000 check to J.C. Conley, President of Southeast Conference (left), to fund the Southeast Alaska Intertie Study completed in 2003 Southeast Conference, along with representatives from utilities and the Intertie Committee traveled to Washington, DC and presented Alaska’s congressional delegation with a consolidated funding request for the Swan-Tyee, Juneau-Hoonah and the Petersburg to Kake Intertie projects. Southeast Conference Intertie Committee members meeting with Senator Stevens in the Spring of 2003 (Clockwise — Paul Reese, Windy Skaflestad, Tim Bourcy, Senator Ted Stevens, Vern Rauscher, Corry Hildenbrand) Page 5 2004 Accomplishments Federal funding was received for Southeast Alaska Energy Projects: Through the hard work of Alaska’s Congressional delegation, $6.0 million was made available for Southeast Alaska energy projects. These funds were allocated as follows: ¢ $2.0 million - Juneau to Hoonah Intertie segment ¢ $200,000 - Kake to Petersburg Intertie segment ¢ $1.8 million — Swan to Tyee Intertie segment ¢ $2.0 million - Kasidaya Creek Hydro project near Haines. Permitting activities commenced on the Juneau — Greens Creek portion of the Juneau to Hoonah Intertie segment: With the receipt of federal funds, permitting activities accelerated for this segment. Southeast Conference agreed to act as the temporary permit applicant pending successful formation of the owning/operating entity. Permitting agencies included the U.S. Forest Service, Corps of Engineers, City & Borough of Juneau and others. An Environmental Assessment prepared by Alaska Electric Power & Light Company (AEL&P), acting as the permitting agent for Southeast Conference, was released for public and agency comment in June, 2004. A ‘Decision Notice & Finding of No Significant Impact’ was signed by Denny Bschor, Regional Forester, on August 9, 2004. It is significant to note that no adverse comments were received during the comment period. Map depicting the Juneau to Hoonah Intertie Project Page 6 Construction of the overhead transmission line on Admiralty Island along the ‘A’ road completed: Plans and construction documents were completed and a contract was awarded for the construction of the overhead portion of the transmission line along the ‘A’ road between Youngs Bay and Hawk Inlet on Admiralty Island. Also included in the bid was the termination yard preparation work. Construction commenced in September, 2004 and was completed the following month. Funding for this project was provided through a grant from the Denali Commission. Alaska Electric Light & = Power (AEL&P) acted as "4 the construction agent for Kwaan Electric ¢ Transmission Intertie Cooperative, Inc (KWETICO). The first pole is installed along the ‘A’ road on Admiralty Island This line is owned and will be operated and maintained by KWETICO. The submarine cable between Douglas Island and Admiralty Island still needs to be installed along with the overhead transmission line from Hawk Inlet along the ‘B’ road to the Greens Creek Mine. This will complete the first portion of the Juneau to Hoonah Intertie. RFP for manufacture and installation of submarine cable released in December, 2004: AEL&P developed a Request for Proposals to manufacture and install the submarine cable from North Douglas Island to Youngs Bay on Admiralty Island. This RFP was distributed to the primary submarine cable manufacturing and installation firms. Most submarine cables are manufactured overseas and a long lead-time is required. The cable is scheduled to be installed in 2005. Page 7 . Tower foundation work commenced on the Swan-Tyee Intertie Project: THE FOUR DAM POOL Power Agency Swar-Tyee Intertie A contract was awarded to Wilson construction to install foundations along this Intertie segment. This 57-mile segment, owned by the Four Dam Pool Power Agency, will connect the Lake Tyee and the Swan Lake hydroelectric projects. When completed and operational, the transmission line will be in place from Ketchikan to Petersburg. Right-of-way clearing is essentially complete. Approximately 75% of the foundations were installed before the project was shut down for the year because of weather and available funds had been expended. Map of the Swan-Tyee Intertie segment The Swan — Tyee Intertie is through unroaded portions of the Tongass National Forest. Construction requires total helicopter support and is a very difficult, and thus expensive, project to build. The picture to the left was taken out of a helicopter in August, 2004. Hilda Gay Legg, National Administrator for Rural Utilities Service, made a 3 or 4-day tour of Alaska and stopped in Ketchikan on her way north to tour the Swan — Tyee Intertie and gain an appreciation of some of the geographical challenges. The ROW is readily identifiable. Note the steep side slopes on the left of the lake. Page 8 Formation of Kwaan Electric Transmission Intertie Cooperative, Inc: A significant milestone was achieved with the formation of the owning/operating entity for specific Intertie segments in Southeast Alaska. The Southeast Conference Intertie Committee devoted a great deal of time and effort to accomplish this goal. Highlights of this formation effort follow: e In February 2004, Southeast Conference retained the firm of Kemppel, Huffman & Ellis (KH&E) to provide an analysis of legal options available for the owning/operating entity. e Funding for this effort was obtained through a grant from the Denali Commission. e The Intertie Committee and the Legal Entity Formation Subcommittee met and recommended ‘goals and characteristics’ for the new entity. e KH&E completed this analysis in late March. A memo was provided to the Intertie Committee along with a matrix of distinguishing advantages and disadvantages of each option. e At the Southeast Conference mid-winter summit in March, the Intertie Committee and the Southeast Conference Board of Directors authorized the formation of a member-owned cooperative corporation to own, operate and manage the Intertie segments. e« USDA- Rural Development again provided funding to accomplish the formation of a new cooperative. e¢ Kemppel, Huffman & Ellis was retained to continue the legal work required to complete the formation efforts. e The Legal Entity Formation Subcommittee prepared draft Articles of Incorporation for the cooperative, the name of which is Kwaan Electric Transmission Intertie Cooperative, Inc. (KWETICO). e On June 29, 2004, upon the recommendation of the Intertie Committee, the Southeast Conference Board of Directors voted in support of the KWETICO incorporators filing the Articles of Incorporation with the State. e The Legal Entity Formation Subcommittee continued to meet to develop the substantive provisions to be contained in KWETICO’s bylaws. « AMemorandum of Understanding was developed and signed by President of KWETICO and the President of Southeast Conference laying out the respective roles of each entity going forward. A copy of this MOU along with the Articles of Incorporation and substantive provisions of KWETICO’s Bylaws are attached as an appendix to this report Page 9 Developed RFP and issued contract for the Kake to Petersburg Planning study: Southeast Conference received, in April of 2004, a $200,000 grant passed through the Denali Commission to conduct a comprehensive planning study for the Kake to Petersburg Intertie segment. Kake presently relies on fossil fuel generation to meet their power requirements. This Intertie segment would tap into the existing Map of the Kake — Petersburg Intertie Project. Maps depicts two or the several routes currently under evaluation. transmission line feeding Petersburg from the Lake Tyee hydroelectric project owned and operated by the Four Dam Pool Power Agency. Several potential routes will be evaluated as a part of this study. A Kake to Petersburg Steering Committee was formed to guide and oversee this study which was awarded to D. Hittle & Associates. Unlike the Swan — Tyee Intertie, Forest Service roads are in place on Mitkof and Kupreanof Islands. Although the roads are not presently linked between the two towns, the transmission line will parallel these roads wherever possible. This should significantly lower construction and O&M costs for this Intertie segment. The final report from D. Hittle is scheduled to be completed by May, 2005. Typical Forest Service road on Kupreanof Island Page 10 Southeast Intertie Projects slated to receive additional Federal funding: Representatives from the Southeast Conference Intertie Committee traveled to Washington, DC to meet with Senators Stevens and Murkowski and Congressman Young. A consolidated appropriation request was submitted for the Swan-Tyee, Juneau-Hoonah and the Kake-Petersburg Intertie segments. Intertie Committee members meet with Congressional delegation in Washington, DC — March, 2004 (Left to Right) Mayor Paul Reese — Kake, Tom Lovas - Four Dam Pool, Walter Sapp - Four Dam Pool, Jodi Mitchell — IPEC, Jerry Medina - Hoonah, Windy Skaflestad - Hoonah, Senator Ted Stevens, Dave Carlson & Corry Hildenbrand —- AEL&P The Omnibus bill passed in late November contained $16.2 million dollars for two Intertie segments under development in Southeast Alaska. $13 million is for the Juneau to Greens Creek portion of the Juneau to Hoonah Intertie segment. The Swan Lake to Lake Tyee Intertie also received $3.2 million for continued construction activities on that segment. Our Congressional delegation needs to be thanked for their dedication and commitment to these projects. Intertie Committee’s name changed to Energy Committee with expanded Mission: The Southeast Conference Intertie Committee is now the Energy Committee. The Energy Committee will be addressing the electrical energy needs for all communities in Southeast Alaska regardless whether they are Intertie-related. With the completion of the D. Hittle “Engineering & Economic Analysis of the Southeast Alaska Intertie Project” report in 2003, there are regions and communities in Southeast Alaska which will not benefit from the Intertie project for decades, if ever. The Intertie Committee membership and the SEC Board of Directors felt that communities that were outside the proposed Intertie project should have their electrical energy concerns and issues addressed by the Committee. Page 11 This new Energy Committee is comprised, at least in part, of representatives from utilities who have a vast knowledge of electric utility issues including hydroelectric generation and transmission distribution. It is the goal of the Energy Committee to share this knowledge throughout the region and assist communities with their power generation and transmission projects. Gustavus Electric Company receives FERC license for the Falls Creek Hydro Project: Gustavus Electric Company received the FERC license for the Falls Creek Hydro project in October. This project, when completed, will enable Gustavus to generate electricity from hydro displacing existing diesel generation. This project has been bitterly opposed by the Sierra Club and other environmental organizations. The D. Hittle report, commissioned by Southeast Conference in 2003, evaluated the technical and economic feasibility of running an Intertie from Hoonah to Gustavus. The study results showed this potential segment to be uneconomic because of the small loads in Gustavus and long distance between Hoonah and Gustavus. Thayer Creek Hydroelectric project near Angoon: The Thayer Creek run-of- the-river hydro project near Angoon on Admiralty Island would supply Angoon with hydropower displacing existing diesel generation. Initial public meetings on the project were held in Angoon and in Juneau in October. The project proponent is Kootznoowoo, Inc. South Fork Hydro on Prince of Wales Island and Kasidaya Creek near Haines/Skagway: Construction has commenced on the South Fork project and final design is underway on the Kasidaya Creek project. Both projects will supply hydropower to the region and are being developed by Alaska Power & Telephone. Transmission line from Metlakatla to Walden Point on Annette Island: The road is presently under construction by the Military’s Innovative Readiness Training (IRT) Program. The City of Metlakatla approached the military to set power poles and string conductor as a part of their IRT training. Metlakatla also submitted a funding request to the Denali Commission for the purchase of the poles, conductor and related supplies. Southeast Conference sent a letter to the Denali Commission in support of this request. Metlakatla currently has surplus power available from existing hydroelectric projects and has potential to increase hydroelectric generation on Annette Island. The picture shows the proximity between Walden Point on Annette Island and Mt. Point south of Ketchikan. Page 12 Potential Interconnection into British Columbia and Cascade Creek FERC filing: The State of Alaska continues to pursue a potential road link into British Columbia through the Bradfield Road corridor. A transmission line could also be added thus linking Southeast Alaska to the North American grid. Cascade Creek, LLC filed an application with FERC to develop an 80 megawatt hydropower project called Cascade Creek in Thomas Bay which lies about 15 miles north of Petersburg. Work on a run-of-the-river hydro project directly east of the Bradfield Canal in British Columbia has commenced. A transmission line running south from that project linking up with the existing BC grid is planned. The completion of the Bradfield Road and Intertie provide an access to export hydropower from Southeast Alaska, such as the Cascade Creek power and other hydro resources along the existing or planning interties, into the B.C. grid and ultimately into the lower 48. Page 13 i Challenges Moving Forward into 2005 and Beyond We are blessed in Southeast Alaska. The fuel source (water) for hydroelectric generation is abundant and also free. Our vision of continuing the development of additional hydroelectric facilities while developing an interconnected transmission system in Southeast so these resources can be shared throughout the region is sound and makes sense. In spite of these abundant resources, we still have communities and regions in Southeast Alaska that have extremely high electricity rates because their generation is fossil fuel based. This is the challenge the Southeast Conference Energy Committee will face in 2005 and beyond. While planned or future Intertie segments may be a long-term solution for some communities or regions, there are other communities that won't be interconnected for decades, if ever. The Southeast Alaska Intertie Project is a regional infrastructure project and will take decades to complete. It’s an ambitious project not unlike the transportation plan for Southeast Alaska which has been under continual development and evolution by the State Department of Transportation. The challenge before the Committee and Southeast Conference will be to continue to move this project forward, wherever possible, while working with communities in Southeast assisting them in meeting their energy requirements and lowering their energy costs. Some specific and short-term challenges are these: 1. KWETICO, the new transmission cooperative, is up and running. However, it will not have any revenue flowing into the coffers to meet its annual expenses until power is flowing to the Greens Creek mine. In the meantime, KWETICO will have to operate from loans and/or grants which is unacceptable in the long-term. It is essential that completing the Juneau to Greens Creek portion of the Juneau to Hoonah Intertie is completed as expeditiously as possible. 2. A funding solution to complete the Swan-Tyee Intertie segment needs to be developed. This segment provides the ‘backbone’ to the southern Southeast interconnection from Ketchikan to Petersburg and eventually to Kake. This will most likely require a combination of State and Federal sources. 3. The Energy Committee needs to develop a program or methodology for assisting and supporting local hydro projects such as the Falls Creek project in Gustavus, the Thayer Creek project near Angoon and other projects in Southeast communities. The Southeast Conference Intertie/Energy Committee has come a long ways since its inception in the 1990's. Intertie segments are under construction, hydro projects are being developed and Kwaan Electric Transmission Intertie Cooperative, Inc., the owning/operating entity for Intertie segments, has been formed. The foundation has been laid for a bright energy as we move forward into the 21st century. Page 14 Southeast Conference Energy Committee Membership Member Jon Bolling (Co-Chair) JC Conley (Co-Chair) Bob Grimm Charlie Walls Corry Hildenbrand David Lawrence Gordon Jackson Jerry Medina Duff Mitchell Gary Williams Mayor Paul Reese Dick Olson Vern Rauscher Mayor Ted Smith Bob LeResche Pedr Turner Dick Levitt Jodi Mitchell Gordy Wrobel Thom Fisher Affiliation City of Craig Service Auto Parts, Inc Alaska Power & Telephone City of Sitka Alaska Electric Light & Power Company Baxter, Bruce & Sullivan Central Council City of Hoonah Kake Tribal Corp Organized Village of Kake City of Kake Thomas Bay Power Authority Inside Passage Electric Cooperative City of Petersburg Four Dam Pool Power Agency City of Gustavus Gustavus Electric Company Inside Passage Electric Cooperative Community of Elfin Cove Whitewater Engineering Legal Entity Formation Subcommittee Membership Corry Hildenbrand Dick Olson Vern Rauscher Gordon Jackson Alaska Electric Light & Power Company Thomas Bay Power Authority Inside Passage Electric Cooperative Central Council Kake to Petersburg Intertie Segment Steering Committee Dick Olson Gary Williams Mayor Paul Reese Mayor Ted Smith Vern Rausher Bob LeResche Thomas Bay Power Authority Organized Village of Kake City of Kake City of Petersburg Inside Passage Electric Cooperative Four Dam Pool Power Agency Page 15 | Kwaan Electric Transmission Intertie Cooperative, Inc Officers President Tim McLeod, AEURP ||| TNT Vice President Vern Rauscher, IPEC Secretary Connie Hulburt, AEL&P Treasurer Jodi Mitchell, IPEC Page 16 File No 87801 D State of Alaska Department of Community and Economic Development Division of Banking, Securities and Corporations CERTIFICATE OF INCORPORATION Electric and Telephone Cooperative Corporation The undersigned, as Commissioner of Community and Economic Development of the State of Alaska, hereby certifies that Articles of Incorporation of KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. have been received in this office and have been found to conform to law. ACCORDINGLY, the undersigned, as Commissioner of Community and Economic Development, and by virtue of the authority vested in me by law, hereby issues this Certificate of Incorporation and attaches hereto the original copy of the Articles of Incorporation. IN TESTIMONY WHEREOF, | execute this certificate and affix the Great Seal of the State of Alaska on JULY 2p. 2004. Edgar Blatchford Commissioner Filed for Record State of Alaska JUL 2 0 2004 Department of Community And Economic Develoomer! ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. These Articles of Incorporation are executed pursuant to Alaska Statutes, Title 10, Chapter 25, (AS 10.25) in order to incorporate Kwaan Electric Transmission Intertie Cooperative, Inc. (the “Cooperative”). ARTICLE I NAME The name of the Cooperative shall be Kwaan Electric Transmission Intertie Cooperative, Inc. ARTICLE I] DURATION The duration of the Cooperative shall be perpetual. TICLE Il PURPOSES This Cooperative is formed for the following purposes: A. To extend the availability of low cost and reliable electricity in Southeast Alaska through the acquisition and construction of electric transmission interties between communities in Southeast Alaska, as was generally envisioned by the Southeast Conference, an Alaska nonprofit corporation, and its Intertie Committee, as part of the Southeast Conference’s Southeast Alaska Intertie Project; B. To acquire, construct, own, operate, and maintain plant, facilities, and equipment, including substation facilities (referred to herein collectively as “Intertie Segments”), for the transmission of electric power and energy, and to use the Intertie Segments to provide electric transmission and substation services in Southeast Alaska; G To acquire, construct, own, operate, and maintain telecommunications plant, facilities, and equipment, including fiber optic cable, that is collocated with and incidental to its Intertie Segments, and to use such plant, facilities, and equipment to provide telecommunications services; D. To do and perform any other act and thing, and to have and exercise any and all powers, that may be necessary, convenient, or appropriate to accomplish any or all of the foregoing purposes; and fs\Formation\A&B\FINAL (7-6-04) E, Any other lawful purpose as may be permitted by the statutes under which the Cooperative is formed, as such statutes may be amended from time to time, including, but not limited to, becoming a member of other cooperatives or other legal entities and acquiring ownership interests in such entities. ARTICLE IV FUTURE INTERTIE SEGMENTS In furtherance of the purposes for which the Cooperative is formed, one of the basic functions of the Cooperative shall be to continue to acquire, construct, own, operate, and maintain additional Intertie Segments in Southeast Alaska in the future when it is reasonably determined that an additional Intertie Segment will be “economically feasible.” The Cooperative’s Bylaws shall set forth a uniform methodology to be used for determining whether and when an additional Intertie Segment will be economically feasible. The Cooperative’s Bylaws shall also provide for cooperation and consultation with the Southeast Conference regarding the timing, planning, and economic feasibility of future Intertie Segments to facilitate the build-out envisioned by the Southeast Conference’s Southeast Alaska Intertie Project and to advance the regional, public interest goals of reducing the cost of electricity in Southeast Alaska. ARTICLE V NONPROFIT OPERATION Section 1. The Cooperative is not organized for profit and shall not have the authority to issue capital stock. Section 2. The Cooperative shall provide services to members under the “operation at cost” principle, under which revenues from members will be used to meet current losses and expenses and maintain reserves to meet the reasonable business needs of the Cooperative. To the extent practicable, the operation at cost principle shall be applied uniformly to each individual Intertie Segment operated by the Cooperative, as shall be more particularly set forth in the Bylaws. ARTICLE PRINCIPAL OFFICE The principal office for the transaction of the business of the Cooperative shall be at Juneau, Alaska, and such business may be carried on in such city, and elsewhere within the state, at the discretion of the Board of Directors. The post office address of the present principal office is P.O. Box 35466, Juneau, Alaska, 99803. ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 2 of 12 fs\Formation\A&B\FINAL (7-6-04) ARTI Vu REGISTERED AGENT The registered agent for the Cooperative shall be KH&G Service Company, Inc., with offices at 255 E. Fireweed Lane, Suite 200, Anchorage, Alaska 99503. ARTICLE VIII MEMBERSHIP Section 1. The Cooperative is formed without any purpose of pecuniary profit to itself and shall have no capital stock. However, membership may be evidenced by a certificate of membership as may be provided by the Bylaws. Membership shall be nontransferable. Section 2. Each member shall be entitled to one (1) vote and no more upon each matter submitted to a vote at a meeting of the members. At all meetings of the members at which a quorum is present, all questions shall be decided by a vote of a majority of the members voting thereon in person, except as otherwise authorized by law and provided in these Articles or the Bylaws. Section 3. The Cooperative may have one or more classes of members. The designation of such class or classes, the manner of election or appointment, the qualifications and rights of the members of each class, and any provisions for termination or forfeiture of membership and any allocations to members of capital credits shall be set forth in the Bylaws. Provisions relating to the imposition of membership fees, assessments, or other charges to members shall be set forth in the Bylaws. Section 4. The initial membership of the Cooperative shall be constituted of the following two (2) members, represented by a natural person designated thereby: Inside Passage Electric Cooperative, Inc. Alaska Electric Light and Power Company Section 5. In addition to satisfying other requirements and qualifications that may be set forth in the Bylaws, a person may become a member of the Cooperative only when the following requirements and qualifications are satisfied: A. the person is a public utility, as defined in AS 42,05.990(4); and either (1) has a certificate of public convenience and necessity issued by the Regulatory Commission of Alaska for the provision of electric utility service, or (2) is a joint action agency established under AS 42.45.310; ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 3 of 12 fs\Formation\A&B\FINAL (7-6-04) B. the person agrees to use, and has the legal and operational capacity to use, the electric transmission services of the Cooperative when they are made available through an Intertie Segment of the Cooperative; cS it has been reasonably determined that the Intertie Segment through which that person will use the Cooperative’s electric transmission services will be economically feasible; and D. it has been reasonably determined that the acquisition of, or the commencement date for permitting and construction of, the Intertie Segment is “sufficiently imminent,” based on uniform criteria set forth in the Bylaws. Section 6. In addition to other events of termination of membership set forth in the Bylaws, a member’s membership in the Cooperative shall terminate if, and to the extent that, the Intertie Segment serving that member is decommissioned and taken out of service, or otherwise ceases to provide electric transmission service due to lack of demand for service or economic infeasibility. In the event a member’s membership in the Cooperative is terminated for any of the reasons set forth in this section, that person’s membership shall not be reinstated with respect to the Intertie Segment at issue until all of the requirements and qualifications set forth in Section 5 of this Article and the Bylaws are satisfied. Section 7. The private property of the members of the Cooperative shall be exempt from execution for the debts of the Cooperative and, in accordance with AS 10.25.410, no member shall be individually liable or responsible for any debts or liabilities of the Cooperative. ARTICLE IX BOARD OF DIRECTORS Section |. The number of directors of the Cooperative shall in no event be less than five (5). In the event there is only one (1) member of the Cooperative, the Board of Directors shall consist of five (5) natural persons nominated by and representing the member of the Cooperative. During all such times as there are two (2) members of the Cooperative, the Board of Directors shall consist of three (3) natural persons nominated by and representing each member of the Cooperative. During all such times as there are three (3) or four (4) members of the Cooperative, the Board of Directors shall consist of two (2) natural persons nominated by and representing each member of the Cooperative. During all such times as there are at least five (5) members of the Cooperative, the Board of Directors shall consist of one (1) natural person nominated by and representing each member of the Cooperative. Section 2. Consistent with the provisions of these Articles, the Bylaws shall prescribe the number of directors, their qualifications other than those prescribed by law, the manner of holding meetings of the Board of Directors, and the manner of electing successors to directors who resign, die, or are otherwise incapable of acting. The Bylaws shall provide for the ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 4 of 12 fs\Formation\A&B\FINAL (7-6-04) removal of directors from office for cause and for the election of their successors. At each annual meeting of the members, directors shall be elected by the members to fill the positions of directors whose terms have expired or are expiring, and to hold office for the term for which elected and until a successor is elected and qualifies. Section 3. The Bylaws may provide for the division of the territory served or to be served by this Cooperative into two or more districts for any purpose, including without limitation, the nomination and election of directors and the election and functioning of district delegates. Such delegates may nominate and elect directors if so provided in the Bylaws. The Bylaws shall prescribe the boundaries of the districts or the manner of establishing such boundaries, the manner of changing such boundaries, and the manner in which such districts shall function. No member at any district meeting and no district delegate at any meeting shall vote by proxy or by mail. Section 4. Directors shall not receive salaries for their services as directors of the Cooperative and, except in emergencies, may not receive salaries for their services on behalf of the Cooperative in any other capacity without the approval of the members. Section 5. The initial directors named below shall hold office until the next annual meeting of the members and until their successors are elected and qualify. The names and addresses of the initial directors of the Cooperative are as follows: Name Address Liv Gray P.O. Box 415, Hoonah, Alaska 99829-0415 Jodi Mitchell P.O. Box 210149, Juneau, Alaska 99801 Vern Rauscher P.O. Box 210149, Juneau, Alaska 99801 Corry Hildenbrand 5601 Tonsgard Court, Juneau, Alaska 99801 Tim McLeod 5601 Tonsgard Court, Juneau, Alaska 99801 Connie Hulbert 5601 Tonsgard Court, Juneau, Alaska 99801 ARTICLE X OFFICERS The officers of the Cooperative shall be those authorized by the Bylaws. The officers shall be elected annually by the Board of Directors from among its members. The first officers of the Cooperative shall be elected at the first organizational meeting of the Cooperative. ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 5 of 12 {s\Formation\A&B\FINAL (7-6-04) ARTICLE XI BYLAWS The Board of Directors shall adopt the first Bylaws of the Cooperative as soon as is practicable following incorporation of the Cooperative. The Bylaws shall set out the rights and duties of members, district delegates, if any, and directors and may contain other provisions for the regulation and management of the affairs of the Cooperative consistent with law and with these Articles of Incorporation. ARTICLE XI ISSOLUTION AND LIQUIDATION Upon dissolution of the Cooperative, the Board of Directors shall wind up and settle the affairs of the Cooperative, collect sums owing to it, liquidate its property and assets, pay and discharge its debts, obligations, and liabilities, other than those to members and former members arising by reason of their patronage, and do all other things required to wind up its business. After paying, discharging, or adequately providing for the payment or discharge of all of the Cooperative’s debts, obligations, and liabilities, other than those to members and former members arising by reason of their patronage, the Board of Directors shall distribute any remaining sums, first, to members and former members for the pro rata return of all amounts standing to their credit by reason of their patronage and, second, to members and former members for the pro rata repayment of membership fees, if any. Sums then remaining shall be distributed among the Cooperative’s members and former members in proportion to their patronage of services offered by the Cooperative, except to the extent participation in the distribution has been legally waived. In the event of the lawful liquidation, through transfer or sale, of all the property and assets of the Cooperative, the proceeds of such liquidation, transfer, or sale shall be distributed in the same manner as provided for herein with respect to distribution upon dissolution. ARTICLE XIII AFFILIATES With respect to the Cooperative, there are at present no affiliate non-resident aliens or affiliate corporations incorporated outside of the United States of America. ARTICLE XIV SEVERANCE If any provision of these Articles of Incorporation is held void or illegal, it shall not impair or affect the remainder of these Articles of Incorporation, and the incorporators hereby declare that they would have signed and executed the remainder of these Articles of Incorporation without such void or illegal provision. ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 6 of 12 fs\Formation\A&B\FINAL (7-6-04) ARTICLE XV AMENDMENTS Section |. Except as otherwise provided for in Section 2 of this Article, Amendments to these Articles of Incorporation may be adopted as follows: A, the proposed amendment shall be presented to the members or district delegates at a meeting or by written notice; if the proposed amendment is presented at a meeting, the notice of the meeting must set out or have attached to it the proposed amendment, and B. if the proposed amendment, with any changes, is approved by the affirmative vote of not less than two-thirds of the members or district delegates of the Cooperative, the presiding officer of the Board of Directors shall execute and acknowledge Articles of Amendment on behalf of the Cooperative, and the officer designated by the Board of Directors shall affix and attest to the seal of the Cooperative; if the Cooperative accepts ballots both at a meeting and by mail, a member may vote by mail or at the meeting. Section 2. Notwithstanding Section | of this Article, the Cooperative may, upon authorization of either the Board of Directors or the members of the Cooperative, change the location of its principal office in accordance with the procedures set forth in AS 10.25.230. ARTICLE XVI IN T The names and addresses of the incorporators of the Cooperative are: Name Address Alaska Electric Light and Power Company 5601 Tonsgard Court, Juneau, Alaska 99801 Inside Passage Electric Cooperative, Inc. P.O. Box 210149, Juneau, Alaska 99801 Wilbur Brown P.O. Box 228, Kake, Alaska 99830-0228 Liv Gray P.O. Box 415, Hoonah, Alaska 99829-0415 Kimberley Strong P.O. Box 286, Haines, Alaska 99827-0286 DATED this Bhs of July, 2004, at Juneau, Alaska. ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 7 of 12 {s\Formation\A &B\FINAL (7-6-04) ALASKA ‘CTRIC LIGHT AND POWER COMPANY, Incorporator By: Tim McLeod, President Date:_7-]7- 6¥ STATE OF ALASKA ) 21885 FIRST JUDICIAL DISTRICT ) The foregoing Articles of Incorporation of Kwaan Electric Transmission Intertie Cooperative, Inc., were acknowledged before me this LG= day of July, 2004, by Tim McLeod, President of ALASKA ELECTRIC LIGHT AND POWER COMPANY, an Alaska corporation, on behalf of that corporation. Notary Public in and for the State of Alaska My commission expires:_¢?//Z ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 8 of 12 fs\Formation\A &B\FINAL (7-6-04) j aS INSIDE PASSAGE ELECTRIC COOPERATIVE, INC., Incorporator By: Vernon Rauscher, General Manager Date 72-7 J -O STATE OF ALASKA ) ct. FIRST JUDICIAL DISTRICT ) The foregoing Articles of Incorporation of Kwaan Electric Transmission Intertie Cooperative, Inc., were acknowledged before me this__/~3 day of July, 2004, by Vernon Rauscher, General Manager of INSIDE PASSAGE ELECTRIC COOPERATIVE, INC., an Alaska corporation, on behalf of that corporation. p syst, N SEC hey, ARTICLES OF INCORPORATION OF Notary Pane in and for the State of Alaska My commission expires: Le. Lif, ZL ara KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 9 of 12 fs\Formation\A &B\FINAL (7-6-04) Yilbur Brocer, WILBUR BROWN, Incorporator Date: fo JS = 8 7 STATE OF ALASKA ) 3)58. FIRST JUDICIAL DISTRICT ) The foregoing Articles of Incorporation of Kwaan Electric Transmission Intertie Cooperative, Inc., were acknowledged before me this __/ fA day of July, 2004, by WILBUR BROWN. Willa, wy AN Og na : SG Ree, Notary Public in and for the State of Alaska 2° QOTAR, .S= My commission expires: => * 2H =i. 3s MY COMMISSION Exp = * Fuad Ss JULY 16, 2007 Ze, Stews ee ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 10 of 12 fs\Formation\A&B\FINAL (7-6-04) kL fa, LIV GRAY, Incorporator / Date: WY OY STATE OF ALASKA ) : 88. FIRST JUDICIAL DISTRICT ) The foregoing Articles of Incorporation of Kwaan Electric Transmission Intertie Cooperative, Inc., were acknowledged before me this l s day of July, 2004, by LIV GRAY. er , Viblrreel” Notary Public in and for the State of Alaska My commission expires:_©.2 - /- OX ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page II of 12 {s\Formation\A&B\FINAL (7-6-04) STATE OF ALASKA ) FIRST JUDICIAL DISTRICT ) The foregoing Articles of Incorporation of Kwaan Electric Transmission Intertie Cooperative, Inc., were acknowledged before me this Le day of July, 2004, by KIMBERLEY STRONG. ree A Notary Public in and for the State of Alaska STATE OF ALASKA My commission expires:__3 ~- ( 7- OF OFFICIAL SEAL Corlene Rose ow NOTARY PUBLIC eREP My Commiss.on Expires » -\G- 0B ARTICLES OF INCORPORATION OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 12 of 12 {s\Formation\A &B\FINAL (7-6-04) PORE MEMORANDUM OF UNDERSTANDING between KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. and SOUTHEAST CONFERENCE This Memorandum of Understanding (“MOU”) is between Kwaan Electric Transmission Intertie Cooperative, Inc., an Alaska nonprofit electric cooperative corporation (“KWETICO”), and Southeast Conference, an Alaska nonprofit corporation (“SEC”). | KWETICO and SEC are referred to in this MOU individually and collectively as “Party” or “the Parties,” respectively. Section 1. Purpose. The purpose of this MOU is to memorialize the good faith intentions and understandings of the Parties with respect to future cooperation between the Parties and their future roles in planning for the acquisition, construction, and expansion of electric transmission facilities (“Intertie Segments”) between communities in Southeast Alaska to help reduce the cost of electricity in Southeast Alaska. Section 2. History. A. The combination of high precipitation levels and mountainous terrain has made significant quantities of low-cost hydroelectric power available in some locations in Southeast Alaska. However, the mountainous, island environment of Southeast Alaska has also limited the development of electric transmission facilities and prevented the distribution of low-cost hydroelectric power to the region as a whole. This has resulted in significant reliance on diesel electric generation in many Southeast Alaska communities, despite the existence of significant hydroelectric resources in the region. Reliance on diesel electric generation has presented a number of problems, including high, volatile retail electric rates; potential interruptions of fuel delivery; and environmental concerns related to fuel handling, air pollution, and noise. ' B. In recent years, the economy of Southeast Alaska has been negatively impacted by various factors, including reduced economic activity in the timber, fishing, and seafood processing industries. For decades, the availability of lower cost electricity has been identified as an important element in attracting diverse commercial activities for stabilizing and expanding the economy of Southeast Alaska. GC; SEC is a regional, nonprofit corporation that advances the collective interest of the people, communities, and businesses of Southeast Alaska by striving to help develop and maintain a stable and diversified economy throughout the region. SEC’s mission is to undertake and support activities that promote strong economies, healthy communities, and a quality environment in Southeast Alaska. SEC’s members include municipalities, Native corporations and village councils, public utilities, other regional and local businesses, civic organizations, and individuals throughout the region. In 1987, SEC first fs\SEC\Formation\SEC Final (6-29-04) proposed a concept of building a network of electric transmission lines connecting most of the communities in Southeast Alaska. In 1997, SEC commissioned a study by Acres International, which compiled information from previous studies and provided estimated costs and timelines for development of a Southeast Alaska intertie system. In 2000, federal legislation was enacted that authorized federal funding of up to $384 million to assist in the construction of the “Southeastern Alaska Intertie system” as generally identified in SEC’s 1997 study by Acres International. Dz. In 2001, SEC obtained funding to study options for forming a single legal entity that would receive federal and other funds for the acquisition and construction of various Intertie Segments and own, operate, maintain, and manage those segments. The form, goals, and attributes of the legal entity were discussed and debated among SEC members and within the SEC Intertie Committee at various meetings in 2001 and 2002. In 2002, SEC hired an Intertie Coordinator to facilitate continuation of the process of forming a legal entity for the project and to facilitate the identification of Intertie Segments that can begin the planning and permitting process. E. The SEC Intertie Committee met in November 2002 and voted unanimously to prioritize the Juneau to Hoonah and the Petersburg to Kake segments as the next Intertie Segments to be added to the Southeast Alaska Intertie system. In 2003, SEC obtained funding from the U.S. Department of Agriculture, Rural Development (“USDA-RD”) to commission the Southeast Alaska Intertie Study. That study was completed by D. Hittle & Associates, Inc. in December 2003, and provided engineering and economic analyses of future Intertie-Segments, including an update to SEC’s 1997 study. The Study was divided into two phases: Phase 1 analyzed the two segments prioritized by the SEC Intertie Committee (Juneau to Hoonah and Petersburg to Kake); Phase 2 provided an in-depth analysis of all the segments of the Southeast Alaska Intertie Project. The Study did not include an analysis of the Swan Lake to Lake Tyee Intertie segment, which is presently under development and construction by the Four Dam Pool Power Agency.. The Study estimated the costs and benefits of eight new Intertie Segments, assuming that the capital costs of the Intertie Segments will be grant-funded, and provided a proposed timeline for completion of.construction of those segments based on estimates of when each segment would be “economically justifiable.” The study results confirmed that the Juneau to Hoonah and the Petersburg to Kake Intertie Segments were presently “economically justifiable.” The first proposed Intertie Segment (“SEI-1”) was estimated to be completed by 2007 and consists of transmission facilities connecting Juneau, Kennecott Mining Company — Greens Creek Mine (“KMC-GC”), and Hoonah. The second proposed segment (SEI-2) is the Petersburg to Kake segment, which will extend transmission facilities from the current Lake Tyee to Petersburg transmission line to Kake. In future years, it is expected that the six additional new Intertie Segments will be constructed, and that other, existing Intertie Segments could be acquired if they satisfy “economic feasibility” requirements. F. Existing Intertie Segments are presently in place and owned and operated by other public utilities, including the Four Dam Pool Power Agency (“FDPPA”), MEMORANDUM OF UNDERSTANDING BETWEEN KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. AND SOUTHEAST CONFERENCE Page 2 of 6 fs\SEC\Formation\SEC\Final (6-29-04) | a | Alaska Electric Light & Power, Inc. (“AEL&P”), and Alaska Power Company (“APC”). It is expected that some or all of these existing segments will continue to be owned and operated by the present owners. However, it is also envisioned that KWETICO could acquire ownership of one or more of these segments if the current owner of such a segment desires to divest itself of ownership and if acquisition of the segment satisfies economic feasibility requirements. G. In 2003, the SEC Intertie Committee formed a Legal Entity Formation Subcommittee and obtained funding through the Denali Commission to complete the analysis of available legal entities to own and operate the Intertie Segments based on goals and characteristics identified by the SEC Intertie Committee in 2002 and 2003. In March 2004, the legal entity selection analysis was completed by Kemppel, Huffman & Ellis, P.C. Based upon that analysis, and upon the recommendations of the Legal Entity Formation Subcommittee and the SEC Intertie Committee, SEC’s Board of Directors authorized the formation of a member- owned transmission cooperative corporation to own, operate, and manage the Intertie Segments to facilitate the build-out of the Southeast Alaska Intertie Project. In May 2004, SEC obtained additional funding from USDA-RD to fund the formation and initial operation of the transmission cooperative. SEC has provided for the services of legal counsel and SEC’s Intertie Coordinator to facilitate the formation and initial operation of the cooperative. The SEC Legal Entity Formation Subcommittee prepared draft Articles of Incorporation for the cooperative, the name of which is “Kwaan Electric Transmission Intertie Cooperative, Inc.” On June 15, 2004, those draft Articles of Incorporation were presented to and discussed with the SEC Intertie Committee. On June 29, 2004, SEC’s Board of Directors, upon the recommendation of the SEC Intertie:Committee, voted in support of the KWETICO incorporators filing the Articles of Incorporation with the State of Alaska, Department of Community and Economic Development, Division of Banking, Securities and Corporations. Section 3. Mu di A. The Parties agree that the objective of forming KWETICO was to extend the availability of low-cost, hydroelectric power in Southeast Alaska through the acquisition and construction of Intertie Segments: between communities in Southeast Alaska, as was generally envisioned by SEC and the SEC Intertie Committee as part of SEC’s Southeast Alaska Intertie Project. B. One potential concern with forming KWETICO was that, once formed, KWETICO might, over time, lose interest in continuing to pursue acquisition and construction of additional, economically feasible Intertie Segments beyond those segments that it already owns. To address this concern, the Parties agree that once KWETICO has constructed and begun operation of one or more Intertie Segments, it is expected that KWETICO will continue to acquire, construct, operate, and maintain additional Intertie Segments, consistent with the goals of the Southeast Alaska Intertie Project, when it is reasonably determined that such segments will be economically feasible. Uniform standards for determining economic feasibility will be cooperatively developed by KWETICO and SEC as necessary to fulfill the MEMORANDUM OF UNDERSTANDING BETWEEN KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. AND SOUTHEAST CONFERENCE Page 3 of 6 fs\SEC\Formation\SEC\Final (6-29-04) f mutual goals of the Parties with respect to the Southeast Alaska Intertie Project. Once developed, those standards will be included in KWETICO’s first Bylaws. G. Consistent with SEC’s 2003 Southeast Alaska Intertie Study, it is expected that the capital cost of future Intertie Segments will, to the maximum extent possible, be grant-funded, and whether an Intertie Segment is determined to be “economically feasible” will reflect that expectation. That is, SEC and KWETICO will continue to seek grant funding for the capital costs of additional Intertie Segments in the future and, to the extent those efforts are successful, the economic feasibility (including sustainability) of acquiring and constructing additional Intertie Segments will be determined based on the costs of operating, maintaining, and providing for reasonable repair and replacement reserves for such a segment, without respect to the initial capital cost of acquiring or constructing the segment. D. The Parties agree that in pursuing the goal of interconnecting the electric systems of Southeast Alaska, KWETICO and SEC will consider the acquisition of existing Intertie Segments (if and to the extent the current owner desires to divest itself of such segments) as well. as the construction of new Intertie Segments. However, the addition of an Intertie Segment will be required to meet the same general economic feasibility criteria regardless of whether the segment is anew or existing Intertie Segment. E. The Parties agree that KWETICO will be structured and governed to allow. the public utilities that purchase electric transmission service from KWETICO to become:members of KWETICO, provided they satisfy the requirements and qualifications of membership as set forth KWETICO’s Bylaws. At some point in time prior to construction or acquisition of a particular Intertie Segment, it will be necessary for the entity or entities that will purchase electric transmission service over that segment to become a member of KWETICO to allow meaningful participation in KWETICO decision-making regarding the segment. Precisely when such entity will become a member of KWETICO prior to construction or acquisition of the Intertie Segment at issue will depend.on how “imminent” the acquisition or commencement date of permitting and construction of the segment is, based on uniform criteria that will be set forth in KWETICO’s Bylaws. The Parties will cooperate regarding the development and application of those imminence criteria. F. Although KWETICO is a separate legal entity with independent duties and responsibilities to its members, both Parties agree that there will be a need for ongoing cooperation and consultation between KWETICO, SEC, and the SEC Intertie Committee (or its successor committee) to ensure fulfillment of the mutual goals of both Parties and the objectives of the Southeast Alaska Intertie Project. In this respect, each of the Parties will have the following general roles, but will cooperate and consult with one another regarding issues of mutual importance: MEMORANDUM OF UNDERSTANDING BETWEEN KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. AND SOUTHEAST CONFERENCE . Page 4 of 6 fs\SEC\Formation\SEC\Final (6-29-04). t i i i t i (1) SEC Roles. (a) Perform strategic planning and analysis regarding future Intertie Segments in Southeast Alaska, including analysis of electric generation resources and load requirements, engineering and permitting requirements, costs and benefits of interconnection between Southeast Alaska communities, and proposed prioritization of future Intertie Segments for incorporation into the KWETICO system; (b) Provide assistance and support in obtaining grant funding for future Intertie Segments to be incorporated into the KWETICO system; (c) Assist in the development and application of KWETICO’s “imminence” criteria and “economic feasibility” standards; and (d) Provide input to KWETICO regarding KWETICO planning issues that relate to economic development in Southeast Alaska, and participate on advisory committees established by KWETICO. (2) | KWETICO Roles. (a) + Cooperate and consult with SEC regarding existing and new Intertie Segments to be incorporated into the KWETICO system; (b) Plan, design, and construct new Intertie Segments that meet established criteria; (c) Acquire existing Intertie Segments that meet established criteria, if and to the extent that the current owner desires to divest itself of such segments; (d) Own, operate, maintain, and manage the Intertie Segments and telecommunications plant, facilities, and equipment collocated with the Intertie Segments; and (e) Provide electric transmission and ancillary services and telecommunications services through Intertie Segments owned and operated by KWETICO, and obtain the revenues necessary for operation and maintenance of the Intertie Segments. G. Prior to adoption of KWETICO’s first Bylaws by the KWETICO Board of Directors, KWETICO, SEC, and the SEC Intertie Committee will work together to develop mutually agreeable Bylaw provisions that are necessary to fulfill the goals and objectives of the Southeast Alaska Intertie Project and the long-term interests of current and future KWETICO members. In the future, KWETICO will consult with SEC and the SEC MEMORANDUM OF UNDERSTANDING BETWEEN KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. AND SOUTHEAST CONFERENCE Page 5 of 6 fs\SEC\Formation\SEC\Final (6-29-04) | | | | | | i | Intertie Committee regarding proposed amendments to KWETICO’s Articles of Incorporation or Bylaws which may significantly impact the fulfillment of the goals and objectives of the Southeast Alaska Intertie Project. In the event a conflict arises between KWETICO, SEC, and the SEC Intertie Committee (or its successor committee) regarding such a proposed amendment, the Parties agree to work together in good faith to resolve such conflict prior to KWETICO’s members voting on the proposed amendment. Gah KEELE Date: J 8 -O% Kwaan Electric Transmission Intertie Cooperative, Inc. Qi wae, (LUZ OY President Southeast Conference MEMORANDUM OF UNDERSTANDING BETWEEN KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. AND SOUTHEAST CONFERENCE Page 6 of 6 fs\SEC\Formation\SEC\Final (6-29-04) BYLAWS OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. ARTICLE 1 MEMBERSHIP Section 1. Requirements for Membership. Any natural person; firm; association; corporation; cooperative corporation, partnership; limited liability company; joint action agency; or federal, state, or local governmental agency or political subdivision may become a member of Kwaan Electric Transmission Intertie Cooperative, Inc. (“the Cooperative”) by satisfying the following qualifications and requirements: (a) the applicant for membership is a public utility, as defined in AS 42.05.990(4); and either (1) has a certificate of public convenience and necessity issued by the Regulatory Commission of Alaska for the provision of electric utility service, or (2) is a joint action agency established under AS 42.45.310; (b) the applicant executes a written agreement to use the electric transmission services of the Cooperative when they are made available through the facilities of the Cooperative, and the applicant has the legal and operational capacity to use those services; (c) it has been reasonably determined that the Intertie Segment through which the applicant will use the Cooperative’s electric transmission services is “economically feasible” based on the criteria set forth in these Bylaws; (d) it has been reasonably determined that the acquisition of, or the commencement date for permitting and construction of, the Intertie Segment is sufficiently “imminent” based on the criteria set forth in these Bylaws; (e) the applicant has executed a written application for membership; (f) the applicant has executed, or agrees to execute, on conditions acceptable to the Cooperative, a written agreement for the purchase of electric transmission services from the Cooperative; (g) the applicant has agreed to grant the Cooperative such easements as the Cooperative shall require to furnish electric transmission services to the applicant and others without compensation; s\Formation\A&B\FINAL (8-2-04) (h) the applicant agrees to comply with and be bound by the Articles of Incorporation and Bylaws of the Cooperative and any tariffs, rules, regulations, and policies adopted by the Board of Directors that are not inconsistent with the provisions of any contracts between the members and the Cooperative; (i) the applicant pays the membership fee of $__/00.00 ; and Gj) the applicant has been accepted for membership by the Board of Directors; Section 2. Economic Feasibility. (a) Whether an Intertie Segment is “economically feasible” shall be determined by the Board of Directors based on whether it is reasonably expected that the revenues to be paid to the Cooperative for electric transmission service over that Intertie Segment will meet or exceed the costs and cash flow requirements associated with that Intertie Segment for ownership, operation, maintenance, administration, and contributions to reasonable reserves for necessary purposes including repairs, capital additions, and risk mitigation. (b) In making the determination referenced in (a), an analysis shall be performed which estimates (1) the net annual economic benefits to bulk power sellers and purchasers associated with being able to use the Intertie Segment to conduct power sales; (2) the total annual costs and cash flow requirements to the Cooperative associated with that Intertie Segment; and (3) the willingness and ability of the seller or purchaser of power to pay electric transmission charges that are sufficient to cover the Cooperative’s annual costs and cash flow requirements associated with the Intertie Segment. The analysis shall determine results on an annual basis and shall cover a projection period of 20 years or other appropriate period of time. In the event the Cooperative is not able to obtain the data necessary to make the estimates in (1), the Board of Directors may nevertheless determine that an Intertie Segment is economically feasible if an applicant for membership enters into a contract to purchase the Cooperative’s electric transmission services under rates, terms, and conditions which the Board of Directors determines will produce annual revenues that meet or exceed the annual costs and cash flow requirements associated with the Intertie Segment. {c) In addition to other data deemed relevant by Board of Directors, the analysis shall (1) estimate the minimum, maximum, and most likely level of power flows over the Intertie Segment, including peak and average flows; (2) estimate the net reductions in annual power production and power purchase costs to the power seller and purchaser that will result from use of the Intertie Segment; (3) estimate the annual costs and cash flow requirements associated with the Intertie Segment; and (4) determine whether and to what extent the initial capital cost of constructing or acquiring ownership of the Intertie Segment, including but not limited to all costs of planning, permitting, and regulatory approvals, will be funded by grants, contributions in aid of construction, debt, or other sources. BYLAWS OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 2 of 22 fs\Formation\A &B\FINAL (8-2-04) (d) If and to the extent that initial capital costs of the Intertie Segment will be funded by grant funds or other sources not requiring the Cooperative to incur any debt or expend internally generated funds, the analysis of projected annual costs shall not include costs associated with recovery of those initial capital costs so funded. However, estimated reductions in annual capital expenditures for the seller or purchaser of power related to generation facility replacements, repairs, or additions during the projection period that would be realized as a result of selling or purchasing power over the Intertie Segment shall be factored in to the calculation of the annual economic benefits to the seller or purchaser of the Intertie Segment. Section 3. Imminence of a Future Intertie Segment. (a) The construction or acquisition of an Intertie Segment shall be considered sufficiently “imminent” if: (i) the Board of Directors has determined that the Intertie Segment is economically feasible under the process set forth in Section 2; (2) preliminary analysis shows that the Intertie Segment is technically feasible and that it is likely that necessary permits, authorizations, approvals, and contracts for the acquisition or construction of the Intertie Segment can be obtained; (3) in the case of an acquisition of an existing Intertie Segment, the physical condition, reliability of operation, and expected remaining life of the Intertie Segment are sufficient for the Cooperative to own, operate, and maintain the Intertie Segment without undue future cost or risk; (4) funding sources for all costs of acquiring or constructing the Intertie Segment have been identified and it is reasonably likely that adequate funding from those sources can be obtained; and (5) it is likely that the commencement date for permitting, construction, or acquisition of the Intertie Segment will occur within twelve months. (b) | Whether the construction or acquisition of an Intertie Segment satisfies the criteria set forth in (a) shall be determined by the Board of Directors. Section 4. Membership Certificates. Membership in the Cooperative shall be evidenced by a membership certificate which shall be in such form and shall contain such provisions as shall be determined by the Board of Directors. Such certificate shall be signed by the President and by the Secretary of the Cooperative, and the Cooperative’s seal shall be affixed thereto. No membership certificate shall BYLAWS OF KWAAN ELECTRIC TRANSMISSION INTERTIE COOPERATIVE, INC. Page 3 of 22 fs\Formation\A &B\FINAL (8-2-04)