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HomeMy WebLinkAboutAEA Board Meeting Oct 2022Alaska Energy Authority BOARD MEETING MINUTES Wednesday, October 26, 2022 Anchorage, Alaska 1. CALL TO ORDER ALASKA ENERGY AUTHORITY Chair Pruhs called the meeting of the Alaska Energy Authority to order on October 26, 2022, at 8:30 am. A quorum was established. Chair Pruhs informed that Vice -Chair Kendig will arrive late. 2. ROLL CALL BOARD MEMBERS Members present: Chair Dana Pruhs (Public Member); Vice -Chair Bill Kendig (Public Member) (Arrived Late); Julie Sande (Commissioner DCCED); Albert Fogle (Public Member); Deven Mitchell (SOA-DOR); Bill Vivlamore (Public Member); and Randy Eledge (Public Member). 3. AGENDA APPROVAL MOTION: A motion was made by Mr. Fogle to approve the agenda, as presented. Motion seconded by Mr. Vivlamore. The motion to approve the agenda passed without objection. 4. PRIOR MINUTES —August 3, 2022 MOTION: A motion was made by Mr. Fogle to approve the prior minutes of August 3 2022, as presented. Motion seconded by Mr. Vivlamore. The motion to approve the minutes of the August 3, 2022, passed without objection. S. PUBLIC COMMENTS (2 minutes per person) There were no members of the public online or in -person who requested to comment. Chair Pruhs asked Jennifer Bertolini, AEA, to inform him if any members of the public come online later in the meeting and wish to make a public comment. 6. NEW BUSINESS A. Resolution 2022-03 - Appointment of Tim Sandstrom as Assistant Secretary/Treasurer Curtis Thayer, Executive Director and Secretary -Treasurer, advised that Tim Sandstrom was recently appointed as Chief Operating Officer (COO). The duties of COO include the position of • • O. O. 813 W Northern Lights Blvd, Anchorage, AK 99503 - Phone: (907) 771-3000 • Fax: (907) 771-3044 - Email: info@akenergyauthor4.org Assistant Secretary -Treasurer. Mr. Thayer discussed that the resolution reviews the Bylaws supporting the appointment. He encouraged the Board's approval. MOTION: A motion was made by Mr. Fogle to approve Resolution 2022-03 to appoint Tim Sandstrom as Chief Operating Officer and Assistant Secretary -Treasurer of the Authority, as presented. Motion seconded by Mr. Vivlamore. Chair Pruhs expressed appreciation to Mr. Sandstrom for his endeavors and looks forward to working with him as a valuable asset to the organization. A roll call was taken, and the motion to approve Resolution 2022-03 passed unanimously, with Vice -Chair Kendig absent. B. Resolution 2022-04 - Castner Law Suit Settlement Mr. Thayer reviewed that at the previous Board meeting, August 3, 2022, discussions occurred regarding the settlement with Ken Castner concerning the Open Meetings Act and the Board's passage of a motion to accept the terms of the agreement. Mr. Thayer informed that the Department of Law (DOL) has prepared an official Resolution 2022-04 acknowledging the lawsuit and the written settlement agreement. The written settlement agreement only requires a motion and a roll call to go in and out of executive session. Mr. Thayer advised that this resolution officially ratifies the approval of the settlement and ratifies the Board's motion of approval on August 3, 2022. MOTION: A motion was made by Mr. Fogle to approve Resolution 2022-04, ratifying the August 3, 2022 Settlement Agreement between Kenneth Castner, the Alaska Energy Authority, and Alaska Industrial Development and Export Authority. Motion seconded by Mr. Vivlamore. Mr. Mitchell asked if this particular motion is only for AEA and if AIDEA should be included. Mr. Thayer informed this motion is for AEA, and an identical motion will be proposed at the AIDEA meeting. He informed that the motion was drafted by DOL. A roll call was taken, and the motion to approve Resolution 2022-04 passed unanimously, with Vice -Chair Kendig absent. C. Resolution 2022-OS - Energy 49 PPF Loan Mr. Thayer explained that Resolution 2022-05 approves a Power Project Loan application from Energy 49, LLC, for a proposed 6 MW solar farm within the Matanuska Valley, outside of Houston, Alaska. Mr. Thayer informed that AEA's Manager of Planning, Conner Erickson, and Karen Bell, have been working directly with the project. He introduced Jenn Miller and Chris Colbert, co - owners of Renewable IPP, and reminded the Board that AEA previously funded Renewable IPP's Willow Solar Farm, which was the largest in the state at that time. Mr. Thayer informed that this project will become the largest solar farm in the state. Mr. Thayer introduced borrower Alaska Energy Authority Page 2 of 20 CleanCapital's representatives; Justin Roberts, Project Analyst, Winston Chen, Director of Capital Markets, and Julie Bell, Chief Commercial Officer. Mr. Thayer invited Mr. Erickson to review the application and the process. Mr. Erickson discussed the resolution is related to a loan requested on behalf of Energy 49, LLC, an Alaskan limited company that was initially owned by Renewable IPP. He noted that Renewable IPP has since been sold to an equity partner, CleanCapital of Delaware, LLC. Their main mission is to provide institutional capital for solar and renewable energy projects across the nation. CleanCapital is familiar and diligent in their selection of company participations and hold substantial investments of over 370 MW across the U.S. Mr. Erickson discussed that the application was received on May 27, 2022, and analysis work has been ongoing with the parties. The loan request amount is $4,994,500 for a 25-year term at the statutory prevailing rate of 3.05%. Mr. Erickson informed that AEA's in-house engineer and a supervising engineer reviewed the project. They found no material deficiencies and believe it is poised to produce the anticipated energy amount. Mr. Erickson reviewed the benefits of the panel structure that will be utilized. He noted that the debt service coverage ratio of the project is healthy. Sensitivity analysis occurred and no issues were identified. Construction has begun, utilizing equity contributed by CleanCapital. The hope is to complete construction by the end of July 2023, and begin operation in August 2023. The project has an established agreement with Matanuska Electric Association (MEA) with a power purchase rate that is about 10% below MEA's current costs. This will help stabilize the cost of energy within the Southcentral region and allow for the further integration of renewable energy. Mr. Erickson informed that work is ongoing with the parties regarding the terms of the guarantee so that the State of Alaska is guaranteed in the event of default. Mr. Erickson reviewed the substantial backing by CleanCapital investors. He noted that the resolution is based on preconditioned terms and grants the Executive Director the ability to enter into the loan agreement, as required for any loans above the $2 million threshold. The Loan Committee met on October 7, 2022 and approved the loan and term sheet attached in Exhibit B. Staff recommends the project for approval today. Mr. Eledge noted the language states that all required permits shall be attained or applied for prior to closing. He asked Mr. Erickson to discuss if any permits have been applied for and have not yet been approved. Mr. Erickson requested that Ms. Miller and Mr. Colbert respond. Ms. Miller, CEO Renewable IPP, stated that at the time of the application, the Stormwater Pollution Prevention Plan, SWPPP, and the Construction General Permit were not complete. Those permits are now complete. Also completed are the FAA review, the State's structural plan review, and Houston's Driveway Permit. Ms. Miller noted that the State will complete its electrical plan review this winter. Mr. Mitchell commented on the good timing for securing the loan rate. He requested additional information regarding the projection of increased debt service coverage through the life of the loan and the expected 10% to 15% degradation of the solar production. Mr. Colbert noted that Alaska Energy Authority Page 3 of 20 the panels have a 30-year warranty. The degradation warranty is at .45%. and degradation is modeled at .5%. Consistent monitoring of the panel production efficiency will continue through the life of the project. There is opportunity for the project to utilize other portions of the currently leased lands and to potentially expand with an additional 40 MW to 60 MW. Ms. Miller noted that a significant expense for the project is the property taxes. The depreciation of the asset each year and decrease in solar production capability each year helps the expense profile as production declines. She informed that the cost and expense of tax equity investors will eventually decrease. The tax equity investors are involved in the initial portion of the project and will be bought out later in the project. Commissioner Sande requested additional clarification regarding the terms of the guarantee. Mr. Erickson noted that a draft guarantee has been provided to the Board. He explained that CleanCapital is the parent company and would be entering as part of the guarantee along with the other guarantors. CleanCapital financials were provided and reviewed and can financially account for the cost of the loan. Mr. Erickson requested Wendy Horton, DOL, to provide additional comments. Ms. Horton asked Board members if they have specific questions regarding the guarantee. Commissioner Sande requested clarification regarding the terms of the guarantee that were to be detailed later. Ms. Horton noted that part of the term sheet includes conditions of the loan that required guarantees are in place. The draft guarantee includes the top tier holding and parent corporation of Energy 49 as a guarantor for recourse in the event of a default. Chair Pruhs expressed appreciation to Mr. Erickson for the presentation. He asked if MEA is taking all power that is produced. Mr. Erickson agreed that MEA intends to purchase all power produced at the site, which is Mat -Su Borough land that is under lease to Renewable IPP, and subleased to Energy 49. Chair Pruhs inquired as to the disposition after 32 years. Ms. Miller noted that the lease agreement with the Mat -Su Borough includes an option for a lease extension, and requires decommission and removal of all items from the site at the end of the lease. Chair Pruhs asked if the lease extension is open to everybody to bid on the property. Ms. Miller expressed that her understanding is the option to extend the lease is exclusive for Renewable IPP, but the rate terms are not set. Chair Pruhs suggested that Ms. Miller verify that her understanding is accurate, as he has not previously encountered an exclusive lease extension on public property. Chair Pruhs discussed that in his experience with commercial financing and leased property is that the lease term requires 1.5 times the loan term, meaning for example, a 25-year note would require a 37-year lease. He inquired as to the reasons that this lease term is less than 1.5 times the loan term by 5.5 years. Mr. Erickson advised that factor was reviewed and was not an item of concern. He stated that the land had been vacant for a long period of time, with no particular interest by other parties. Chair Pruhs commented that interest in the land is not the issue. The issue is protecting the organization in case of default, and therefore, receiving the assets, taking over the lease, and Alaska Energy Authority Page 4 of 20 further action. Mr. Erickson informed that the item, as a risk to AEA, was not considered to be an issue that would prevent staff's recommendation. Chair Pruhs inquired as to the liability to remove the panels in the event of a default. Mr. Erickson explained that the loan and assets would be covered under a UCC filing. AEA would assume ownership and liability of the panels. Chair Pruhs asked, for the record, if there is a reserve account for reclamation or removal. Mr. Erickson noted there is no reserve account at this point. He informed that a reserve account could be added as a precondition of the loan. Chair Pruhs requested confirmation that construction has begun. Ms. Miller agreed that construction began at the end of July 2022, and 200 foundation piles are now complete. The construction of the uprights for the racking system is anticipated to be completed this week. The racking installation will begin in April 2023, and the project is targeted to be online by August 1, 2023. Chair Pruhs asked if the loan is a draw or if it is a refinance of the construction. Mr. Erickson explained there is a line of credit for 12 months and then will convert to a term note at project completion. Chair Pruhs asked if there is a completion bond. Mr. Erickson informed there is not a completion bond. Chair Pruhs recommended staff consider requiring a completion, performance and payment bond as the loan is drawn. The bond guarantees that this expenditure of the public's money will result in the completion of the project. Chair Pruhs asked Mr. Thayer if a performance and payment bond could be added to the requirements. Mr. Thayer indicated that a conversation can occur to consider the requirement for the term sheet. Chair Pruhs noted that a performance and payment bond would not be necessary if the guarantors funded the project and then requested a refinance loan from AEA. Chair Pruhs highlighted the risk of funding construction and reiterated that the bond offers protection in case of default during construction. Mr. Erickson informed that the decision regarding the bond can be addressed within Section 6. of the resolution. Mr. Thayer read Section 6. of the resolution. Chair Pruhs asked Ms. Horton if Section 6. of the resolution covers the requirement of a performance and payment bond, as discussed. Ms. Horton agreed. Chair Pruhs requested the requirement of a performance and payment bond for construction funding. Mr. Eledge asked if the panels can be landfilled at the end of their life. Ms. Miller indicated that the industry is working towards the viable option of recycling the panels at the end of life rather than using a landfill. Mr. Eledge asked if there is any material in the panel that is restricted from landfills. Ms. Miller noted that most of the panels are silica. Mr. Colbert stated the panels contain no toxic substances. The frames are either aluminum or steel, and the wiring is mainly copper. Panels can be landfilled, but the hope is that recycling can occur as the industry matures and advances. Commissioner Sande commended the project for locking in the low interest rate. She asked, for the record, if the statute includes that the interest rate is locked in at the time of the application. Mr. Erickson agreed. Commissioner Sande expressed appreciation to the staff for the thorough presentation. Alaska Energy Authority Page 5 of 20 Vice -Chair Kendig advised that he has a conflict with the resolution. The MEA Board has already taken action and his signature is included. Vice -Chair Kendig recused himself from voting on the resolution. Chair Pruhs noted that Vice -Chair Kendig did not participate in the discussion of the resolution. MOTION: A motion was made by Mr. Fogle to approve Resolution 2022-05, approving the Power Project Fund Loan for the Energy 49, LLC, Houston Solar project, as presented. Motion seconded by Mr. Vivlamore. A roll call was taken, and the motion to approve Resolution 2022-05 passed unanimously, with Vice -Chair Kendig abstaining. D. Resolution 2022-06 - Power Revenue Bonds for Required Project Work Mr. Thayer informed that this resolution has taken almost three years to develop. He explained that the resolution authorizes AEA to bond up to $270 million. Mr. Thayer discussed that the $270 million threshold was the anticipated cost of the project. He noted that because of the markets, there is not $270 million in bonding capacity, but this amount is in line with the resolutions provided by the six utility boards. Vice -Chair Kendig recused himself from voting on or discussing this resolution because he is on the MEA Board and they have taken action on this item. There was no objection. Mr. Thayer informed that those available for discussion today include Ms. Horton, Les Krusen, bond counsel from Orrick Herrington & Sutcliffe, Fred Eoff, PFM financial advisor, and Tony Izzo representing the utilities and the Bradley Lake Management Committee (BPMC). Mr. Thayer noted that Mr. Eoff assisted in the original bonding of the Bradley Lake Project 32 years ago. Mr. Thayer reviewed that the market is closer to approximately $170 million in bonding capacity at a 6.25% interest rate. Another federal interest rate increase is expected on November 2"d, and he believes the markets today are reflecting that expected increase. Mr. Thayer advised that discussions have occurred with the lender and the rate can be locked immediately following today's Board meeting to try and avoid any type of discrepancy. Mr. Thayer reviewed the items listed on the agenda and included in the Board packet. i. Memo from Executive Director - Included in packet ii. Resolution 2022-06 Power Revenue Bonds For Required Project Work - Included in packet iii. Tenth Supplemental Resolution - Included in packet iv. Loan Agreement - Included in packet V. BPMC Resolution 22-08 Financing of the Proposed Transaction - Included in packet vi. Utility Resolutions - Included in packet Alaska Energy Authority Page 6 of 20 vii. BPMC Resolution 22-04 Development of the Required Project Work- Included in packet viii. Consultant Opinion of Required Project Work - Included in packet ix. Department of Law Opinion of Required Project Work - Included in packet X. Letter from BPMC to Department of Law - Required Project Work - Included in packet Xi. Power Sales Agreement - Included in packet xii. Board Action and Media Coverage for Required Project Work Power Revenue Bonds - Included in packet Mr. Thayer discussed that DOL issued opinions that deemed the proposed projects to be required project work for Bradley Lake. If the projects were found not to be required project work, then the funds would have to be returned to the State of Alaska's General Fund. The required project work determination included a series of questions that took approximately nine months for DOL to complete. DOL concurred that funds can be used to upgrade the SSQ Line and can be used to add battery storage to the Bradley Lake Project and in the Kenai Peninsula, Anchorage, and Fairbanks. However, there is not adequate funding for all of the determined required project work. Mr. Thayer reviewed that the BPMC has determined that the focus of the required project work will be on AEA's ownership of the SSQ Line, including the design, planning, and engineering of Bradley Lake to Soldotna Sterling, and an initial battery in the Kenai Peninsula. Consideration will be given to the ability to add supplemental batteries. Mr. Thayer explained that bonding funds are owned by AEA and any purchases or upgrades made with bonding funds will be owned by AEA. DOL required AEA to have a third -party consultant determine if the proposed project work was prudent utility practice. Mr. Thayer indicated that the two reports included in the packet from the engineering and consulting firm GDS Associates, concluded that the proposed projects are indeed prudent upgrades. Mr. Thayer reiterated that the included Power Sales Agreement of 1989 establishes the fact that required project work can occur. He discussed that the utilities were paying the debt service on the Bradley Lake bonds. The bonds were paid off in June of 2021, which allowed for the availability of $12.1 million for the next 28 years. The additional funding was to reimburse the State for the direct appropriation into Bradley Lake and provides a debt service against which the bonds can be borrowed. Mr. Thayer explained that conducting the bond finance in this way and using the current debt service will not raise the consumer rates because the debt service has been built into the rates for the last 31 years. Additionally, the bond financing will not raid the State Treasury because no monies in this tranche are being requested from State's General Fund. Alaska Energy Authority Page 7 of 20 Mr. Thayer discussed the included list of Board action and media coverage for the power revenue bonds, which dates backs to August 6, 2020, which was the date that the Board approved the purchase of the SSQ Line. Mr. Thayer noted that this has been a long public process, during which time the public has had opportunities to comment. The subject has been on the agendas of AEA Board meetings, the various utilities' Board meetings, as well as on the agenda of multiple meetings for the City of Seward. Mr. Thayer explained that the map displayed at today's meeting shows the service areas of the utilities in different colors. The proposed required project work is focused on the Kenai Peninsula from Bradley Lake through the Homer Electric Association (HEA) territory up to the Soldotna Sterling area to the Quartz area to the Chugach Electric Association (CEA) lines with a 230kV connection to Anchorage. Mr. Thayer invited Mr. Izzo to comment on behalf of the BPMC, and noted that Bryan Carey, AEA Director of Owned Assets, is available to discuss Bradley Lake oscillation issues and battery storage. Chair Pruhs requested that Mr. Thayer discuss, for the record, the benefits to the public for going into this amount of debt. Mr. Thayer reviewed that the lines that serve Homer were built to serve from Anchorage to Homer. Bradley Lake went into operation 31 years ago and the lines were never upgraded from taking 120 MW power north to Anchorage. There is current line loss and the line is no longer sized correctly. These upgrades have been needed for a long time. Additionally, the lines do not have the capacity to introduce and supply the expected renewable power north from projects and potential projects such as the Dixon Diversion project, tidal power, solar farm power, and wind power on the Kenai Peninsula. Mr. Thayer discussed that after this line is increased from 115kW to 230kW, then further deliberation will occur regarding the redundancy of two lines off the Kenai. There are $60 million of competitive grant funds within the Infrastructure Bill (ILIA) available to Alaska for continued construction of the line. He commented that the amount lost in the market over the last year is roughly the amount that is likely to be available through IIJA. Chair Pruhs asked if these upgrades relate to the recent Battle Creek Diversion work that occurred at Bradley Lake. Mr. Thayer noted that these upgrades do not relate to the successful and small Battle Creek Diversion project, which electrified 5,000 homes. Conversely, the completion of the Dixon Diversion project would integrate 24,000 to 30,000 homes. However, the current line and this upgrade do not provide the capacity needed for the major Dixon Diversion project. Chair Pruhs asked if the Battle Creek Diversion project was bonded. Mr. Thayer explained that Battle Creek was bonded at $47 million at time of service two years ago, and is paid for by the utilities. Chair Pruhs discussed the total amount of upgrades that are guaranteed by the utilities, excluding the $60 million in grant funding, is over $200 million. Mr. Thayer agreed. Chair Pruhs asked, for the record, if this is the largest project that AEA has bonded since Bradley Lake. Mr. Thayer agreed. Alaska Energy Authority Page 8 of 20 Chair Pruhs welcomed Mr. Izzo to provide additional information. Mr. Izzo indicated that he is the CEO of MEA, which serves the state's second largest population center of approximately 100,000 Alaskans. He noted that Bradley Lake project serves approximately 2/3 of the state's population and is the largest hydro project in the state. Mr. Izzo expressed his support of the project. He reiterated that there is only one line that serves the majority of the utilities with Bradley Lake power. He does not believe this is an optimal design, and in larger population centers in the Lower 48, for example, there are a minimum of two lines. Mr. Izzo discussed that the Swan Lake fire was the catalyst for this particular line to be purchased and for these upgrades to be implemented through this bonding. From MEA's perspective, this one line helps provide about 15% of MEA's power, which is approximately the same amount provided across the Railbelt. When the line was down due to the Swan Lake fire for the 12-week period, the cost to the northern utilities to replace that Bradley Lake power was over $12 million higher than the normal cost. The rate payers were impacted and had to absorb that extra cost. Mr. Izzo commented that this upgrade, along with battery projects, will ensure more secure and reliable delivery of power. He views this project as one phase of many, including potential federal funding and discussions with AEA and the Administration, and leading to a second line. Mr. Izzo emphasized the importance of this project and that it is critical to have a reliable upgraded single line. He discussed that this upgrade will positively benefit approximately 2/3 of the state's population as rate payers. Mr. Izzo reiterated that this process is directly related to commitments from over 30 years ago that the utilities continue to make the payments for the initial bonds and to continue to make excess payments to pay off the principal. The communication and understanding was that those funds were to be used for the benefit of the Railbelt. However, Mr. Izzo indicated that if this process does not move forward, the funds will get swept on an annual basis into the General Fund. Mr. Izzo commented that it is critical that these funds are used for their intended purpose to benefit the rate payers. He explained that there will be no increase in rates because the rate payer is already obligated. Chair Pruhs requested Mr. Izzo to state the percentage of ownership of the BPMC and Bradley Lake power utilities for the record. Mr. Izzo gave the approximation of MEA at 13.8%, HEA at 12%, CEA at 53% or 56%, Seward Electric at 1 %, and the differential is Golden Valley Electric Association (GVEA). Chair Pruhs asked if the utilities share power back -and -forth based on conditions of the day. Mr. Izzo agreed and noted there are a variety of circumstances in which that occurs. He highlighted the importance of keeping the line operational in the wintertime and especially in the coming years with the recent news of the declining Cook Inlet natural gas supply. Mr. Mitchell noted that the bonds are being sold to the National Cooperative Services Corporation (NCSC). He asked for the reason they are the purchaser, rather than an open market transaction. Mr. Thayer indicated they were the original bond seller for Bradley Lake and they specialize in hydro projects. Mr. Mitchell expressed that the 6.25% rate with no call option seems like a high Alaska Energy Authority Page 9 of 20 rate. He explained that if in 10 years, the rate has decreased to 4%, the bonds cannot be refinanced for savings to the current market rate because there is no call option. If the bonds were to be refinanced, a make -whole call payment would have to be made to the current bond holders that makes them whole for any disparity. He noted that 1% of $130 million is $1.3 million per year. Mr. Mitchell inquired if there is room to negotiate the make -whole call to some form of call option. He believes it is worth having the conversation with PFM regarding that potential. Mr. Thayer indicated that discussions and negotiations regarding the terms did occur with the bond seller and with the CFOs and general managers of the utilities. He requested Dona Keppers, Chief Financial Officer, and Mr. Eoff to respond as well. Mr. Eoff explained that it is possible that the characteristics of the call feature can be improved. The point has been negotiated, along with many other provisions, and NCSC has not been willing to concede that point. It is not uncommon for a taxable transaction to refuse the make -whole call because there is rarely an economic benefit from a make -whole call. Mr. Eoff noted that he will continue to reiterate the point during negotiations between now and the finalization of the terms. He agreed that there may be a tradeoff with the rate. Mr. Mitchell encouraged continued discussions because this rate may be at a potential peak that could normalize. He emphasized the potential value of negotiations, especially if rates decline in 10 or 15 years and it becomes more likely to exercise a call option. Chair Pruhs asked if there is a rush to go out for the bonds now or if the $12 million expected annual payment can be used to conduct required project work and wait until the interest rate declines. Mr. Mitchell commented that interest rates could just as easily continue on an upward trajectory. The market is difficult to predict and time, and there is no way of knowing when interest rates will be lower. He believes that if an organization is on a critical path with a project as their primary goal, then they should continue on that path and move forward. Mr. Mitchell explained that his suggestion is to obtain concessions for a possible future rate decline, rather than to time the market. Chair Pruhs commented on his understanding that $100 million of opportunity has been lost in the last year and he would like to find a way to recover that amount. Mr. Mitchell suggested that a call option is incorporated into the bond so that it is possible to refinance. Chair Pruhs asked if the call option could be a requirement or if that would hinder the agreement. Mr. Eoff commented that if a call option is made a requirement of the Board's approval now, and the bond lender does not provide concession on that point, then the agreement will come back before the Board. Mr. Thayer discussed that according to the Power Sales Agreement, all of the funds have to be expended or the funds will return to the State. If the bonding package does not move forward by June 30, 2023, the $12.1 million would revert back to the State Treasury and would not be available for the project. Chair Pruhs asked if batteries, hard assets, could be purchased with the funds. Ms. Keppers indicated that the terms within the Power Sales Agreement only allow the excess payments to be Alaska Energy Authority Page 10 of 20 applied toward debt service and not to hard assets, which is why there was an early pay -down during the last fiscal year on the bond debt. Chair Pruhs asked if there is any funding that can be loaned to the project in order to utilize the $12 million. Mr. Fogle requested clarification on his understanding that market conditions today are not allowing AEA to buy a callable bond. Mr. Thayer agreed that Mr. Fogle's understanding is correct and that current negotiations were unsuccessful on that point. Mr. Fogle commented that there is agreement that it would be nice to have a callable bond, but the money will be lost if action is not taken. Commissioner Sande noted that the funding would be lost if action is not taken by June. She asked if it is likely that circumstances may change between now and June that would affect the conversation. Mr. Thayer reported that it has taken 18 months to get to this point in the discussion in front of the Board. Mr. Vivlamore inquired as to the timeframe for spending the bonded amount. Mr. Thayer explained that the spending most likely will be phased over multiple years. The purchase of batteries may occur first, and the logistics, including supply chain timing, will vary. The utilities will incur any cost to upgrade the batteries from the agreed upon base style. Additional engineering and planning need to occur for the SSQ line upgrades. Mr. Vivlamore asked if all of the bonds will be issued up front. Mr. Thayer indicated that a long topic of discussion occurred on Monday with the BPMC and the utilites' CFOs. A vote was taken and the determination was made to take the funds up front. Chair Pruhs commented that included in the packet was a table showing AEA's financial information. He asked, for the record, if AEA and bond counsel have conducted a thorough review and fiduciary due diligence of the financial condition of the BPMC utilities who will be paying the $12 million a year for the bonds, and ultimately the $160 million to $270 million. Mr. Thayer agreed. He noted that in 31 years, they have never been late with a payment and have even paid ahead. Mr. Thayer commented that they would be considered the golden collateral and among the best within both AEA and AIDEA's portfolios. Chair Pruhs inquired as to the anticipated project completion date, based on this bonding approval. Mr. Thayer discussed that the batteries are anticipated to be purchased first within the next 24 months. BPMC has set aside approximately 35% of the available bonding for batteries and 65% for transmission upgrades. Currently, CEA is reviewing the section of the SSQ line from Quartz Creek into Anchorage. The anticipation is that multiple construction projects will occur simultaneously during the summer seasons for approximately five. to 10 years. Mr. Thayer reported that the lead time for transformers was previously six months and the lead time now is up to two years. Chair Pruhs asked if the projects will be conducted by AEA or by BPMC. Mr. Thayer explained that the projects are owned by AEA. Coordination of the work and projects will occur with the utilities and in conjunction with the BPMC. Mr. Thayer informed that included in the resolution is a Alaska Energy Authority Page 11 of 20 provision that all projects must be competitively bid. The BPMC members will utilize AEA's procurement code for competitive bid. Mr. Fogle expressed appreciation to Mr. Thayer for all of the information on this great project. He asked if the AEA Board will receive a project management flowchart and project completion updates on a regular quarterly or biannual basis. Mr. Thayer agreed and noted that the information can be provided on a biannual basis, and sooner than that for the current plans. Chair Pruhs requested a brief at -ease. There were no objections. The Board reconvened its regular meeting. Chair Pruhs requested Mr. Thayer to continue the discussion regarding the construction schedule, deliverables, and the procurement methodology. Mr. Thayer noted that the goal is to complete the proposed work within the next five years, notwithstanding the unknown supply chain logistics as prefaced in previous comments. Mr. Thayer reminded members that when the SSQ line was purchased, negotiations with the Refuge occurred regarding right-of-ways to allow for this upgrade and work is ongoing reviewing the removal of the 69kV poles. The intent is to be ready to move faster on the projects once the bonding proposal came forward. Mr. Thayer requested Mr. Izzo provide additional information on the federal infrastructure funding opportunities that are available to utilities that AEA will be administering for Department of Energy (DOE). Mr. Izzo highlighted the utilities are sincerely collaborating on available federal funds from the Infrastructure Investment and Jobs Acts (IIJA) and the Inflation Reduction Act (IRA) through active discussions with DOE and other federal agencies. The goal of grid efficiency would include a second line off the Kenai and an overall budget of upwards of $2 billion. These funds are not available for utilities to receive directly from the federal government and a State agency, AEA, is needed to administer and coordinate the process. Mr. Izzo discussed that the utilities' effort and direct involvement is the $165 million to $170 million bonding to mitigate the loss of the line and substantially decrease oscillations through battery use, which is considered as preventative maintenance. Chair Pruhs asked if Bradley Lake has ever had a major capital expenditure upgrade in its 30-plus years of operation or if there is a future plan for a major upgrade. Mr. Izzo discussed that accelerated maintenance has occurred and additional facility upgrades are planned. He noted, in particular, that there is a section of the line that is responsible for 40% of the line loss and upgrading the line will eliminate that issue. Mr. Izzo commented that the timing with the economy and interest rates is not good. He reassured AEA that the BPMC feels that this is the best opportunity overall, even though the interest rates are not good. The efforts would not be effective if individual utilities try and fund the upgrades with the $12.5 million a year, and obtain additional financing and interest rates through different lenders. He noted that $12.5 million is approximately the cost of 25% of a battery. Chair Pruhs asked if Mr. Izzo foresees that Bradley Lake will incur a major capital expenditure in Alaska Energy Authority Page 12 of 20 the next five to 10 years. Mr. Izzo attested that the Bradley Lake project is well -run and well - maintained, but he does not have the ability to predict if an issue will occur in five or 10 years. There is an ongoing process of prudently managing the project and identifying potential concerns far in advance. Chair Pruhs encouraged BPMC to watch the trends of other dams and other legacy power generations around the world to be aware of the possibilities. Mr. Izzo agreed. He commented that the BPMC believes there are at least another 50 years to 100 years in the project. Mr. Mitchell commented on the earlier discussion regarding market timing and noted that this is also a high inflationary environment. Delays to projects at 7% to 10% annualized inflation result in significant increases in cost expectations. He noted that this factor offsets some of his concerns regarding interest rates. Mr. Mitchell reiterated his support for the potential of negotiating terms that might allow for additional flexibility on the loan in the future. Mr. Thayer discussed that Mr. Carey is the Director of Owned Assets and he has no concerns regarding Bradley Lake. A reserve account is maintained and has been used. The needles were replaced last year and are back in service. MOTION: A motion was made by Mr. Fogle to approve Resolution 2022-06, providing for the sale of not to exceed $270,000,000 of Alaska Energy Authority Power Revenue Bonds, Eleventh Series (Bradley Lake Hydroelectric Project); authorizing and adopting the Tenth Supplemental Resolution of the Authority to secure said bonds; authorizing the execution of the Loan Agreement between the Authority and the purchaser of said bonds; delegating certain authority to the Chair, the Board member Designees of the Chair, the Executive Director, and the Chief Financial Officer, and providing for related matters, as presented. Motion seconded by Mr. Vivlamore. Chair Pruhs thanked Mr. Thayer and staff for their diligent work in facilitating this challenging effort. He expressed appreciation to Mr. Izzo for his attendance today. A roll call was taken, and the motion to approve Resolution 2022-06 passed unanimously, with Vice -Chair Kendig abstaining. Mr. Thayer requested a brief at -ease to ensure that all the intended information was included in the previous resolution. There was no objection. Mr. Thayer noted that staff was conferring with bond counsel and DOL on a draft resolution. He suggested moving forward with the agenda and return to this item for an answer later in the meeting. There was no objection. 7. OLD BUSINESS A. Rural Power House Assessment Demonstration Mr. Thayer invited Mr. Sandstrom to provide the overview. Mr. Thayer recognized Cameron Dean, GIF and voiceover for the presentation. He announced the promotion of Rebecca Garrett to the Manager of Rural Programs. Alaska Energy Authority Page 13 of 20 Chair Pruhs acknowledged the efforts of Mr. Sandstrom and noted it has taken approximately five years of asking to get this information. Chair Pruhs noted that he is looking forward to the update. Mr. Sandstrom explained that the slideshow begins with an animation and brief overview of the inventory and assessment effort that staff has been conducting on over 200 rural bulk fuel facilities and power houses, including Google-mapping, 3D imagery from drones and 3D camera work inside the facilities, along with embedding the technical aspects of the O&M manuals for the facility. This represents a significant move forward in assisting with the maintenance and improvements in rural power houses. The ability to offer operators 3D imagery and embedded information about their systems substantially improves the effectiveness of the technical assistance staff can provide and decreases travel to sites and time needed for assistance. Mr. Sandstrom showed the animation. He informed that the response from the rural operators to this format has been positive and is an improvement to the previous format. Mr. Sandstrom reviewed the slide showing the locations of the technical assistance received in FY22. There were 33 onsite assistance visits and 413 remote assistance visits. Mr. Sandstrom noted that there will be over 400 bulk fuel and power house facilities inventoried upon completion of the assessments. Mr. Sandstrom discussed the SCADA system allows AEA operators to review the happenings of a particular power plant, including the alarm information. Development is ongoing so that AEA staff is alerted when an alarm is triggered so that proactive assistance can be provided to the operator onsite. Mr. Eledge requested historic data for the power plants in order to determine the trends. He discussed the possibility of using an entity that is able to input the equipment and information into a database that will predict the maintenance as a preventative measure. Mr. Sandstrom discussed that the aspiration of the program includes what Mr. Eledge outlined. The current stage is highly reactive and is limited due to money, budget, and personnel. Proactive advancements are being made primarily through technology. The end goal would be to have each of the facilities on a maintenance and preventative maintenance schedule that would be funded through their rate setting. Mr. Sandstrom highlighted the problem of training the operators, the utility managers, and the communities to be willing to set the rates at a level that fund the maintenance and preventative maintenance schedules. Mr. Eledge expressed his opinion that it is AEA's goal to assure that power in rural Alaska does not go out due to a catastrophic event. He noted that diesel is primarily used as an energy source in rural Alaska, and he commented on the previous fuel quality issues and concerns. Mr. Eledge requested additional information on the steps AEA is taking to ensure the fuel delivered to the power houses is of adequate quality. Mr. Sandstrom discussed that staff is taking several steps to address the issue. The inventory assessment allows staff to identify the facilities that have the most critical threats and to focus then specifically on those first. Fuel quality is an extremely important aspect of the facilities. Water in the fuel is one of the primary causes for failure of the high pressure rails in a diesel engine. This has been addressed by standardizing a rigorous fuel filtering system that includes water blockers and training the operators to test for and respond to water found. Alaska Energy Authority Page 14 of 20 Chair Pruhs asked if the individual communities are responsible for the purchase and delivery of the fuel. Mr. Sandstrom agreed. Chair Pruhs requested additional information regarding AEA's responsibility regarding the fuel. Mr. Sandstrom explained that technically, AEA has no responsibility, because the community owns the facility and is responsible for purchasing the fuel and the condition of the fuel. Mr. Sandstrom reiterated that this is an ongoing conundrum because AEA does not have a technical responsibility, but does have programs, if the funding is available, that may address these issues. He noted that Mr. Thayer has referenced that it is a moral responsibility to assist and protect the investment that the State and federal funding partners have provided. Chair Pruhs asked if he understood correctly that communities are sometimes reluctant to charge rate payers for required maintenance and replacement costs for the functional life of the asset. Mr. Sandstrom agreed. Chair Pruhs noted that his original request for information regarded the conditions of existing facilities and the projected remaining useful life of each facility based on its conditions and its specific operator functions. He asked if staff's assessments provide that information. Mr. Sandstrom agreed, and explained that the data is revealing that a useful life of a power house should be 20 years, rather than the 10 to 12 years' useful life that is occurring now. Chair Pruhs asked if the storm has caused additional issues. Mr. Sandstrom indicated that the amount of damage was thankfully light. He noted that Alaska Village Electrical Cooperative (AVEC) communities were most affected and staff provided technical assistance to their operators. Chair Pruhs asked if there were any independent utilities that were on a critical path now that may have issues this winter. Mr. Sandstrom noted there were three communities, including Tuluksak and Arctic Village. He gave anecdotal examples of the ongoing challenges. Mr. Eledge asked Mr. Sandstrom for an approximate cost to achieve the envisioned end goal of the maintenance schedule and preventative maintenance program. Mr. Sandstrom discussed that in order to effectively utilize the program, approximately $327 million is needed to upgrade the power house facilities and approximately $864 million is needed to upgrade the bulk fuel facilities. Mr. Eledge asked if those expenses are being offset in part by the Circuit Rider Program. Mr. Sandstrom commended the underrated Circuit Rider Program staff for keeping many systems running and saving money for the communities. Mr. Eledge asked if there are both financial challenges and challenges in finding qualified personnel to complete the work. Mr. Sandstrom agreed. Chair Pruhs encouraged staff to utilize and present this visual information on rural power houses and bulk fuel to the Legislature in Juneau. He believes this is good information to share. Vice -Chair Kendig asked if the system works with all of the villages or just the specified group. Mr. Sandstrom explained that the system works with all of the villages. The focus is how well the villages can work with the system. There were no other questions. 8. DIRECTORS COMMENTS Alaska Energy Authority Page 15 of 20 MOTION: A motion was made by Vice -Chair Kendig to enter into Executive Session to discuss confidential financial matters related to the FY24 Budget, the immediate knowledge of which would have an adverse impact on the Authority. Motion seconded by Mr. Fogle. A roll call was taken, and the motion to enter into Executive Session was approved unanimously. A. Budget Overview (Executive Session: 10:36 am - to discuss confidential financial matters, the immediate knowledge of which would have an adverse effect on Alaska Energy Authority) The Board reconvened its regular meeting at 11:36 am. Chair Pruhs advised that the Board did not take any formal action on the matters discussed while in Executive Session. He expressed appreciation to Mr. Thayer and staff for their input. B. Audit Update Mr. Thayer invited Ms. Keppers to provide the audit update. Ms. Keppers informed that the teams are in Week 3 of the field work audit. Information continues to be provided to the audit firm, as requested. However, the original schedule has not been met. The final draft financial report is anticipated to be released during the week of December 19, at which time, the Board will need to meet to review and approve the report in order for the final draft numbers to be submitted to Department of Finance for inclusion into the State's Comprehensive Annual Financial Report. Chair Pruhs asked how far behind the audit is from the original scheduled timeframe. Ms. Keppers commented that the process is approximately four to six weeks behind schedule. Staff informed Department of Finance in August of the delays and provided an updated schedule for delivery in January, which has since been improved to December. Chair Pruhs inquired if the Board's approval could occur at the January 2023 meeting. Mr. Thayer suggested staff coordinate with the Department of Administration and Division of Finance regarding the date since it is near the Christmas holidays. He noted that a December meeting could occur via MSTeams. Mr. Thayer reminded the Board that the delay is due to vacancies in three key positions that have now been filled and are in the process of training. However, the comptroller position remains vacant. Mr. Mitchell agreed with Mr. Thayer regarding coordination with the State if their financials are also delayed. If the State's financials are on time, then it would be a priority to complete the work and submit the financials. Chair Pruhs expressed appreciation to staff for their hard work, considering the resource allocation issues. C. Black Rapids Grant Alaska Energy Authority Page 16 of 20 Mr. Thayer reviewed that AEA and GVEA were successful in obtaining a $12.8 million grant to extend the transmission lines from Delta to Black Rapids Training Site. He commended staff for the preparation of a strong application. The press release and letter from Department of Defense is included in the packet. Mr. Thayer informed that a request is in for federal receipt authority. There is no State match required for this grant. There were no questions. D. IIJA 40101(D) Grid Resiliency Grant Program Update Mr. Thayer discussed that IIJA Section 40101 D provides funding to states for grid resilience and Alaska is eligible to receive $60 million over a five-year period. There is a State match of approximately $10 million over the same five-year period. The DOE has revised the program and will issue guidance. AEA will complete an application and once approved, AEA will move forward with the program. The program process is expected to be modeled similarly to the Renewable Energy Fund (REF), including application, technical review, and economic analysis. Staff will continue to provide updates to the Board. There were no questions. E. Renewable Energy Grant Fund (REF) Program Update Mr. Thayer reminded the Board that the Governor and Legislature approved $15 million last year for the REF program. The Governor's appointed Advisory Board met and approved 27 renewable project grants. Mr. Thayer noted that over 80% of the projects are within rural Alaska. The information within the packet shows the current status of the projects, and includes the community, applicant's name, project name, technology, and funding level. The primary technologies are solar, wind, and hydro. There were no questions. F. Alaska Cargo and Cold Storage (ACCS) Update Mr. Thayer informed that AEA worked with Federal Highway Administration (FHWA) on the $21 million grant for an Alaska Cargo and Cold Storage (ACCS) facility at the airport. The grant was received as a BUILD grant during the Trump Administration and subsequently, morphed into a different type of grant under the Biden Administration. AEA and its private partner ACCS have been at odds with FHWA on the grant agreement. The congressional delegation is also involved in these issues. Mr. Thayer believes that FHWA is having difficulty understanding energy efficiency and renewables on a grant at the airport. An agreement was not reached before the deadline expired. Mr. Thayer noted that Alaska was not the only state having issues with FHWA on the BUILD grants and the Biden Administration and Congress gave a one-year extension to resolve the issues. Mr. Thayer informed that one of the biggest issues is that FHWA wants AEA to own the project. Mr. Thayer commented that $21 million of Phase 1 does not own a $220 million cargo facility at the airport. Chair Pruhs noted that the State owns the land and asked if that can be connected to the grant, as ownership. Mr. Thayer explained that FHWA expects asset ownership for 55 years, rather than the land ownership. He expressed that these are the types of challenges and grant interpretation differences that are being addressed with the assistance of DOL. There were no additional Alaska Energy Authority Page 17 of 20 questions. G. Electric Vehicle (EV) Update - Plan Approved September 27, 2022 Mr. Thayer reported that approval was received from DOE and Department of Transportation (DOT) for approximately $52 million in National Electric Vehicle Infrastructure (NEVI) funds. Work is ongoing with DOT on a memorandum of understanding (MOU) for administration of the funds. A request for federal receipt authority has been initiated in order to begin the phased project this summer. Mr. Thayer highlighted that the total amount of funding awarded to all 50 states was $2.5 billion. He discussed that all states will be ordering equipment and availability is an issue. Alaska is standing in line and probably will not be the first to get electric chargers. Mr. Fogle thanked Mr. Thayer for the big accomplishment. He asked if these funds will be used to build out Phase 2 of the electrical grid for Alaska. Mr. Thayer explained that additional work will occur on Phase 1 to fulfill certain charging station size requirements and power requirements, after which, work will occur on Phase 2 from Tok to Glennallen, and then work will occur on Phase 3 of the marine highway system. He noted that this funding can only be used on the National Highway System. AEA has subsequently applied for a $1.6 million competitive grant for rural Alaska hub communities which are not part of the National Highway System. That process will take a few years. Mr. Fogle asked if there are any electric vehicles in western Alaska. Mr. Thayer responded in the affirmative according to the information provided by the Department of Motor Vehicle. He discussed that an upward trend for electric vehicles is occurring in the state. Mr. Fogle asked if particular focus will be paid to the areas in the Phase 1 corridor previously identified by the Alaska Electric Vehicle Association as needing charging stations. Mr. Thayer explained that the program will be administered similarly to the previous program, in which site hosts will be invited to participate. The Request for Interest (ROI) that was included in the application received over 100 interested parties throughout the corridors. An exemption was received through Glitter Gulch near Denali for the requirement that sites must be within 50 miles. Another requirement is that sites cannot be more than one mile off the corridor. Additionally, site hosts applicants must provide a 20% match. There were no other questions. H. Denali Commission Update Mr. Thayer advised that the recent competitive bid was successful for $2 million for rural power houses and bulk fuel. There were no questions. I. Juneau Hydro / Sweet Heart Lake Investment Mr. Thayer discussed the announcement and information included in the packet that Juneau Hydro received a $200 million investment from the Japanese company J-POWER to construct the Sweetheart Lake Hydroelectric Plant dam. AEA staff conducted a project overview. Mr. Thayer provided background that AIDEA owns the nearby project Snettisham and transmission lines, managed by AEA. Interconnection agreements will be needed, including between Juneau Hydro Alaska Energy Authority Page 18 of 20 and Alaska Electric Light & Power (AEL&P). Additionally, the Kensington Mine is interested in purchasing the clean power. Chair Pruhs asked if there are any other private dams in the state. Mr. Thayer indicated there are small private dams, but none of this magnitude. Chair Pruhs asked for the total budget amount of this dam. Mr. Thayer noted that information has not yet been announced. J. Electric Utility Relief Program (EURP) Update Mr. Thayer reminded the Board that this grant program was established to provide relief to electric companies for residential customers that had debt related to the COVID-19 pandemic. The first round dispersed $2.9 million. The second round dispersed $37,000. The criteria was then changed by Department of Commerce. The third round dispersed $261,117. The program is concluded and the remaining balance of $3.5 million will be returned to Department of Commerce. Mr. Thayer informed there were other entities also assisting with bad debt of residential utility bills during the COVID-19 pandemic. There were no questions. K. 2023 Proposed AEA Board Meeting Schedule Mr. Thayer noted that the 2023 proposed meeting schedule is included in the packet. Staff will work with the Chair to determine if all nine meetings are needed. He highlighted that the meeting in January is on the 18tn Mr. Fogle informed that discussion occurred at the AIDEA meeting regarding a strategic planning session for both organizations in early 2023. He hopes that session can be included in the schedule. Chair Pruhs requested that Mr. Thayer coordinate with Executive Director of AIDEA and propose a date and location to the Board. Mr. Eledge asked if the proposed dates are approved. Chair Pruhs noted that he believes the dates match the AIDEA meeting dates. L. Community Outreach Mr. Thayer gave an overview of the provided community outreach schedule included in the packet. There were no questions. M. Articles of Interest Mr. Thayer noted that included in the packet are articles of interest that have been written since the last Board meeting, many of the articles are written by in -state reporters. Mr. Thayer highlighted that the team has been tremendous and has pulled together in working with new programs and new financing sources that are outside of the normal spectrum. He commended Ms. Bertolini for her efforts in compiling all of the necessary documents, not only for Alaska Energy Authority Page 19 of 20 this meeting, but also for the upcoming close of the bonding. N. Next Regularly Scheduled AEA Board Meeting Wednesday, December 7, 2022 9. BOARD COMMENTS Mr. Fogle thanked Mr. Thayer and to staff for all of the information provided today, especially in regards to the bond information. He understands how hard everyone is working to make AEA successful and expressed appreciation for those diligent efforts. Mr. Fogle thanked Mr. Sandstrom for stepping up to his new position. Commissioner Sande expressed appreciation to the staff. Chair Pruhs echoed the thanks to staff for their rigorous efforts. He expressed congratulations to Mr. Sandstrom, and extended his assistance, if needed. 10. ADJOURNMENT There being no further business of the Board, the AEA meeting adjourned at 12:05 pm. Curtis W. Thayer, Executive Director / Secretary Alaska Energy Authority Page 20 of 20