HomeMy WebLinkAboutRes 2014-02 Haida Energy-ReynoldCreekLoanTO:
FROM:
DATE:
SUBJECT:
MEMORANDUM
Board of Directors
Alaska Energy Authority
Sara Fisher-Goa~~
Executive Director -PtJV
April24, 2014
Resolution No. 2014-02
Haida Energy Inc, Reynolds C reek, Power Project Fund Loan
Resolution 2014-02 proposes action on the Power Project Fund (PPF) loan application from
Haida Energy, Inc. for the proposed Reynolds Creek run of river hydro project located on Prince
of Wales Island approximately 10 miles east of Hydaburg. Additional information about the
project is available in the attached document "PPF Loan Committee Recommendation" attached
as Exhibit A. The PPF Loan Committee recommends the loan terms proposed by Haida Energy
be turned down as unacceptable and that the Counterproposal Loan terms proposed by the AEA
Loan Committee, Exhibit B, be approved.
Ownership
The facility will be owned by Haida Energy, Inc., a Joint Venture of the Haida Corporation and
Alaska Power and Telephone (AP&T). Alaska Power Company, a subsidiary of AP&T and the
local electric utility provider, will construct and operate the plant on behalf ofHaida Energy, Inc.
Land that the project infrastructure will occupy is owned by Haida Corp. and Sealaska Corp.
Background and Purpose
The proposed Reynolds Creek hydro facility will feed power into the interconnected Prince of
Wales power transmission system that serve the majority of residents on the island. The total
electric demand for the island is supplied by diesel fired generation and the following two
existing hydro facilities:
Black Bear Lake 4.5 MW with storage capability
South Fork 2.3 MW run-of-river
Completion of the Reynolds Creek project is intended to allow the communities on the
interconnected Prince of Wales electric system to meet all oftheir yearly electric needs with
hydroelectric power.
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Res 2014-02 - Board Memorandum
April 24, 2014
Page 2 of 4
The Loan Request
Haida Energy is requesting a loan from the Power Project Fund in the amount of $20,000,000
that will be used in conjunction with grant funds and limited equity contributions to finalize the
design and construct the project and associated transmission connection.
Application History
Haida Energy, Inc. originally received AEA Board approval for a $9 million loan to construct
Reynolds Creek on August 11, 2010. However, due to an increase in the projected project cost,
that loan was never finalized. After receiving legislative authorization to apply for an increased
loan amount in 2011, Haida Energy, Inc. submitted a new loan PPF loan application and has
been discussing possible terms with AEA. On March 13, 2014, the AEA Loan Committee met
and forwarded proposed loan terms that it felt comfortable taking to the AEA Board of Directors
for consideration. Haida Energy, Inc. determined the Loan Committee offer to be unacceptable
and instead requested consideration of terms based on a term sheet sent to AEA in January of
2013. Both sets of terms are addressed in the attached PPF Loan Committee Recommendation,
Exhibit A.
Project Information
The Reynolds Creek project is a 5 MW run of river hydro-electric project located 10 miles east
of Hydaburg. Haida Energy, Inc. has FERC authorization to construct the project at the selected
site through the FERC license issued to the Haida Corporation. The topography at the project site
is ideal for a hydro storage project but the present projected demand does not justify the
additional expense of constructing the project with this capability at this time. The project
proponent has agreed to evaluate the cost and benefit of constructing the project in such a way
that storage can be added in a cost effective manner in the future.
Financial Feasibility
As part of the loan analysis, AEA examined the applicant’s ability to repay the loan. AEA has
determined that the project has a positive net present value and the ability to repay the AEA
Power Project Fund Loan based on the applicant’s projected sales and savings associated with
displaced diesel generation.
Although there is risk associated with electric load growth on Prince of Wales Island, assuming
either the Black and Veatch Southeast Integrated Resource Plan reference load growth
projections or projections based on historic sales and trends, the expected use of the proposed
infrastructure will generate adequate savings to cover the cost of repaying the loan principal and
associated interest.
Economic Viability
Reynolds Creek is an economic project because the projected benefit of the project could far
outweigh the estimated cost. The alternative to the project is continued diesel generation to meet
growing demand. AEA analysis uses the Black and Veatch diesel price projections which result
in cost savings per kWh in the first year of generation when comparing new Reynolds Creek
hydro power to diesel power. This analysis assumes Reynolds Creek is financed using the terms
recommended by the Loan Committee.
Res 2014-02 - Board Memorandum
April 24, 2014
Page 3 of 4
Technical Feasibility
AIDEA staff member, Doug Ott, previously reviewed the technical aspects of the project when
he held the position of AEA hydro engineer. Mr. Ott agrees that the future addition of storage
capability needs to be evaluated now and taken into consideration as the final project design is
completed. Doug’s assessment is that the project is technically feasible.
Findings
As required by 3 AAC 106.110, the Alaska Energy Authority hereby makes the following
determinations:
1. Both the project and the application meet the program’s eligibility criteria.
2. The project meets the needs of the area and the area will benefit from the project.
3. All necessary permits or certificates have been applied for or awarded.
4. The applicant has sufficient revenue from all sources to repay the loan.
5. Sufficient funds are available in the Power Project Fund to make the loan.
6. The project is technically and economically viable and financially feasible.
7. There are no alternatives to the project at a different site, by a different method, or by
another applicant that could be expected to provide comparable volumes of power at
lower cost which meets the needs of the area, that could be built within comparable
timeframe, that is economically viable and financially feasible.
8. That the project benefits the area by providing power from a renewable source at a stable
rate acceptable to Alaska Power Company and its customers.
Legislative approval
SLA 10, Ch. 70, Sec. 6, Page 3, Lines 17-21 legislative authorization for loan up to
$9,000,000
o Sec. 6. The uncodified law of the State of Alaska is amended by adding a new
section to read: LEGISLATIVE APPROVAL OF LOAN FROM THE POWER
PROJECT FUND. Provided the Alaska Energy Authority approves a loan for the
Reynolds Creek hydroelectric project, the legislature authorizes the Alaska
Energy Authority to loan $9,000,000 from the power project fund (AS 42.45.010)
for the Reynolds Creek hydroelectric project. This section constitutes legislative
approval under AS 42.45.010(j) for a loan from the fund that exceeds $5,000,000.
FSSLA 11, Ch. 6, Sec. 6, Page 4, Lines 23 – 28 legislative authorization for additional
loan amount of $11,000,000
o Sec. 6. The uncodified law of the State of Alaska is amended by adding a new
section to read: LEGISLATIVE APPROVAL OF LOANS FROM THE POWER
PROJECT FUND. (a) Provided the Alaska Energy Authority approves a loan for
the Haida Energy, Inc., Reynolds Creek hydroelectric project, the legislature
authorizes the Alaska Energy Authority to loan an amount not to exceed
$11,000,000 from the power project fund (AS 42.45.010) for the Haida Energy,
Inc., Reynolds Creek hydroelectric project in addition to the loan authorized by
sec. 6, ch. 70, SLA 2010.
Res 2014-02 - Board Memorandum
April 24, 2014
Page 4 of 4
Conclusion
The consortium of Haida Corporation, Alaska Power and Telephone and Alaska Power
Company possess the technical expertise to move forward with the final design and
construction of the Reynolds Creek hydro project.
The Alaska Power Company is a financially sound, well run utility that serves the electric
customers on the interconnected Prince of Wales Island electric system.
Recommendation and Conditions
The AEA Loan Committee and staff recommend the AEA Board of Directors adopt
Resolution No. 2014-02 in effect declining the loan terms requested by Haida Energy,
Inc. and approving the loan terms recommended by the Loan Committee and conveyed to
Haida Energy, Inc. by letter on March 13, 2014.
Recommended conditions are included in the Counterproposal Loan document Exhibit B.
Attachment
1. Exhibit A: PPF Loan Committee Recommendation
2. Exhibit B: Counterproposal Loan Term Sheet
ALASKA ENERGY AUTHORITY
RESOLUTION NO. 2014-02
A RESOLUTION OF THE ALASKA ENERGY AUTHORITY
REGARDING A LOAN BY THE AUTHORITY TO HAIDA ENERGY, INC.
WHEREAS, Haida Energy, Inc. has applied to the Alaska Energy Authority (“Authority”) for a
loan in the amount up to $20,000,000 with a term of 50 years under the Authority’s power project fund
program (AS 42.45.010) at a variable rate of interest under AS 42.45.010(f)(2)(B) (the “Loan
Application”) and the PPF Loan Committee has recommended approval of a loan with different terms
under AS 42.45.010(f)(2)(A) (the “Counterproposal Loan”);
WHEREAS, the nature, purpose and terms of the Loan Application and the Counterproposal
Loan are described in the PPF Loan Committee Recommendation, attached as Exhibit “A”;
WHEREAS, the PPF Loan Committee has recommended that the Authority disapprove the
Loan Application, as described in the PPF Loan Committee Recommendation;
WHEREAS, the PPF Loan Committee has recommended that the Authority approve the
Counterproposal Loan, as described in the PPF Loan Committee Recommendation and in the Term
Sheet attached as Exhibit B;
WHEREAS, 3 AAC 106.110(d) requires that a loan from the power project fund be approved
by the Authority’s Board if the subject loan will exceed $2,000,000;
WHEREAS, 3 AAC 106.110(d) requires that the approval or disapproval of a power project
fund loan be in the form of a written determination that contains the findings required by 3 AAC
106.110;
WHEREAS, the PPF Loan Committee has recommended findings required by 3 AAC
106.110(d) in the PPF Loan Committee Recommendation, a copy of which is attached as Exhibit A;
and
WHEREAS, it is in the best interest of the Authority to disapprove the Loan Application; and
WHEREAS, it is in the best interest of the Authority to approve the Counterproposal Loan
amended to include a one hundred percent (100%) performance and payment bond in favor of the
Authority; and
WHEREAS, in the event Haida Energy, Inc. rejects the proposed Counterproposal Loan with
the amendment, it is in the best interest of the Authority to pursue further negotiations to attempt to
develop terms and conditions of a PPF Loan for the Reynolds Creek hydroelectric project that is
acceptable to both Haida Energy, Inc. and the Authority, with the best and final terms and conditions
re-submitted to the Board no later than thirty (30) days from April 24, 2014 to be ready for a June
board meeting.
NOW, THEREFORE, BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS:
Section 1. The written findings recommended by the PPF Loan Committee , required by 3 AAC
1 06.110(d), and contained in the PPF Loan Committee Recommendation, attached as Exhibit A, are
adopted and incorporated by reference as part of this Resolution.
Section 2 . The Term Sheet attached as Exhibit 8, is adopted and incorporated by reference
as part of this Resolution.
Section 3. The recommendation of the PPF Loan Committee to disapprove the Loan
Application by Haida Energy, Inc. for the Reynolds Creek hydroelectric project, is accepted and
adopted.
Section 4. The PPF Loan Committee's recommendation to approve the Counterproposal Loan
as amended for the Reynolds Creek hydroelectric project, as described in the Term Sheet attached
as Exhibit B, is accepted, adopted and approved.
Section 5. This Resolution is the final decision of the Authority regarding the Loan Application
and the Counterproposal Loan for the Reynolds Creek hydroelectric project.
Section 6. The Executive Director of the Authority is authorized to take such actions as may
be necessary or convenient to consummate the Counterproposal Loan as amended including, without
limitation, issuing a commitment with respect to the Loan. The Executive Director is authorized to
approve non-material changes in the terms and conditions of the counterproposal to the Loan as
amended as the Executive Director, in her discretion , determines appropriate.
Section 7. If Haida Energy, Inc. rejects the Counterproposal Loan as amended for the
Reynolds Creek hydroelectric project, as described in the Term Sheet attached as Exhibit B, the
Executive Director is authorized, in consultation with the Board, to attempt to negotiate material
changes in the terms and conditions of the Counterproposal Loan as amended , to obtain best and
final proposed terms and conditions for re-submission to the Board no later than thirty (30) days from
April 24 , 2014 .
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Secretary
AEA Resolution No . 2014-02 Haida Energy
Vice Chair
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