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Bradley Lake PMC Meeting-Thurs., Nov. 18, 2004 2
4 47 If you are unable to attend the meeting in person, please use the following phone instructions: TELECONFERENCE INSTRUCTIONS Thursday, November 18, 2004 — 9:00 a.m. To join the meeting, please do the following: Dial 1-800-315-6338 Enter 813# / -¢ Alaska Industrial Development and Export Auuiwiity Alaska Energy Authority BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE REGULAR MEETING AGENDA Thursday, November 18, 2004 — 9:00 a.m. (Via electronic media at AIDEA/AEA — 813 W. Northern Lights Boulevard) (Corner of Arctic and Northern Lights Boulevard) 1. CALL TO ORDER Haagenson 2: ROLL CALL (for Committee members) 3. PUBLIC ROLL CALL (for all others present) 4. PUBLIC COMMENT 5: AGENDA COMMENTS 6. APPROVAL OF MEETING MINUTES March 18, 2004 Tis NEW BUSINESS A. Audit Engagement Letter B. 2004 Policy Year Renewal- Valuation C. Legal Review of BPMC Contracts - Discussion D. AEA Electrical Assets to Railbelt Utilities -Discussion 8. COMMITTEE REPORTS / COMMENTS A. Operators Report 1. Runner Repair — Progress Report Stead 2. Digital Governor (VA Tech) — Progress Report Stead B. Next Meeting Date Haagenson 9. ADJOURNMENT 813 West Northern Lights Boulevard * Anchorage, Alaska 99503 907 / 269-3000 * FAX 907 / 269-3044 * Toll Free (ALASKA ONLY) 888 / 300-8534 * www.aidea.org BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE MEETING MINUTES 813 W. Northern Lights Boulevard Anchorage, Alaska Thursday, March 18, 2004 — 10:00 a.m. a: CALL TO ORDER Chairman Steve Haagenson called the meeting of the Bradley Lake Hydroelectric Project Management Committee to order at 10:00 a.m. on Thursday, March 22, 2004, from the Alaska Industrial Development and Export Authority’s Board Room, Anchorage, Alaska, to conduct the business of the Committee per the agenda and public notice. e- ROLL CALL Roll was called by Shauna Howell. The following members were present: Steve Haagenson Golden Valley Electric Association Joe Griffith Chugach Electric Association (teleconference) Bradley Janorschke Homer Electric Association (teleconference) Wayne Carmony Matanuska Electric Association (teleconference) Jim Posey Anchorage Municipal Light & Power Dave Calvert City of Seward Art Copoulos Alaska Energy Authority 3. PUBLIC ROLL CALL Shauna Howell, Alaska Energy Authority Brenda Applegate, Alaska Energy Authority Linda MacMillan, Alaska Energy Authority Karl Reiche, Alaska Energy Authority Doug Hall, Anchorage Municipal Light & Power Rick Miller, Anchorage Municipal Light & Power Lee Thibert, Chugach Electric Association (teleconference) Mike Cunningham, Chugach Electric Association (teleconference) John Cooley, Chugach Electric Association Brian Hickey, Chugach Electric Association Don Stead, Homer Electric Association (teleconference) Jim Walker, Matanuska Electric Association (teleconference) Bradley Lake PMC Minutes March 18, 2004 Page 2 of 6 Bob Zacharski, Homer Electric Association (teleconference) Gary Stromberg, Parisena, Stromberg & Company (teleconference) Ron Saxton, AterWynne (teleconference) 4. PUBLIC COMMENT There were no public comments. 5. AGENDA COMMENTS The agenda was changed to the following order under Item 7. The order will be A, F, E, D, C, and B. 6. APPROVAL OF MEETING MINUTES - January 7, 2004 Mr. Posey moved to approve the meeting minutes of January 7, 2004. Seconded by Mr. Calvert. Chair Haagenson noted a change on page 2, change SWAG to estimate. On page 4 of 4, in the second paragraph under Operators Report, the second sentence should read “An ongoing document control effort is ongoing in conjunction with Art’s office to categorize and catalog the drawings and publications associated with Bradley.” A voice vote was taken, and the motion passed unanimously as amended. 7A. MEMBER AND ALTERNATE LETTERS Chair Haagenson All members presented a letter stating their representative as well as the alternate. These letters were included in the packets. 7F. ACCEPTANCE OF THE FY03 AUDITED BPMC FINANCIAL STATEMENTS Mr. Stromberg gave a brief overview of the statements. They issued a clean opinion and the statements presented to the BPMC are signed and bound. MOTION #04-4: Mr. Griffith moved to accept the results of the Bradley Lake Project Management Committee Operating and Revenue Funds for Fiscal Year 2003 as presented by Parisena, Stromberg & Company. Seconded by Mr. Posey. A voice vote was taken, and the motion was unanimously approved. 7E. APPROVAL OF AMENDED FY04 O&M BUDGET Cunningham MOTION #04-5: Mr. Posey moved to amend the Fiscal Year 2004 Operating and Capital budget as presented. Seconded by Mr. Griffith. A voice vote was taken and the motion was unanimously approved. 7D. APPROVAL OF FY05 O&M BUDGET Cunningham MOTION #04-6: Mr. Griffith moved to adopt the Fiscal Year 2005 Operating and Capital budget as presented. Seconded by Mr. Posey. Bradley Lake PMC Minutes March 18, 2004 Page 3 of 6 Brenda Applegate and Linda MacMillan of AEA gave an overview of the budget. Art Copoulos noted that what the O&D Committee has proposed is to have contingency money available — a couple of things broke and needed immediate repairs, and we really didn’t have time to go to the BPMC to get the funds to repair them. What we would like in the future, is to have a relatively small contingency fund to deal with the immediate repairs that need to be corrected in the interest of continuing the project operation and safety. What the O&D committee has proposed is basically a three step process: 1) that when something is identified that the O&D Committee will review the request and approve or deny use of the contingency fund; 2) only unbudgeted projects with immediate operating consequences would qualify for consideration; and 3) the O&D Committee would present any activity related to that contingency fund at the next BPMC meeting. Chair Haagenson stated that it’s also wise to get the O&M Committee involved in some of these conditions, because there may be more than one solution. Mr. Carmony stated for the record: “For the same reason as Mr. Zoerb expressed at a previous meeting, we believe that the firm of AterWynne has an inherent conflict of interest and we will be voting against the budget if it includes a $40,000 commitment that would be earmarked for the firm of AterWynne. I'd just like to see it placed in the minutes in the discussion that we believe that AterWynne has this conflict of interest.” Steve Haagenson asked if there is a plan to adequately fund the governor replacement using the R&C fund mechanism, or should we be funding that — what’s the long-term plan for the R&C fund? The number is $553,596, are we depleting the R&C fund or are we planning on using it to do these governor repairs, are we going to get bonding to do that, what’s our plan to do the governor repairs and finance? Linda MacMillan responded that if you look at Schedule D of the FY05 budget packet, we did a cash flow of money going in and out of the R&C fund and where it would leave us based on current plans. She did a recap, based on HEA’s estimates for the governor work on how much should be paid out of the R&C fund and how much should be coming out of the construction fund balance. Mike Cunningham asked that the following be placed into the minutes. “Mr. Chairman, I'd like to commend Brenda and Linda for their work in pulling this budget together and arm wrestling with the committee members on the final numbers. They did a great job.” MOTION #04-7: Mr. Griffith moved to approve the FY05 O&M budget and a second by Mr. Posey. All members voted aye, with the exception of MEA for the reasons stated above. This will be noted in the minutes. 7C. INSURANCE ISSUES Cunningham Chair Haagenson stated that there is an active proposal in the street, which is pushed back a little because of the budget process. We are looking at-our insurance. One Bradley Lake PMC Minutes March 18, 2004 Page 4 of 6 concern he had was that the person doing the review didn’t think they had access to the ARECA insurance exchange books. Chair Haagenson would like to see that get resolved in the near future before it comes out. Mr. Cunningham stated that he would talk to them again and see if there has been any progress made in that area. Mr. Saxton asked if there was a deadline for that progress. Mr. Cunningham responded, stating that we have received the preliminary report and the Chairman requested that the Budget Committee review the report and given the deadline on the FY05 budget, we have decided to do the budget work first and are now going to turn our attention to reviewing the preliminary report and will be getting a summary and recommendation to the full BPMC within the next month or so. 7B. REFUND OF PRIOR YEAR BUDGET ADJUSTMENT (continuation/clarification) Chair Haagenson stated that in the minutes last month, is reference that we were going to get clarification from counsel on a form for O&D insurance. Mr. Saxton has provided that. Also, there had been a question about the auditor’s opinion about paying back the money for the Power Sales Agreement and the number that is in the budget is $900,000 and apparently on the audited information it’s about $2 million now. Chair Haagenson also stated the auditor’s report says it’s basically $2.13 million refunded per the Power Sales Agreement. In the FY04 budget, there is an analysis of effective amendment of FY04 O&M budget — the first line says budget effective FY03 surplus refund and it has a total amount refunded of $903,501. It was forecasted FY03 surplus budgeted used in budget preparation. So, that number is now moved from $900,000 to $2.013 million. Ms. Applegate explained the dollar amount. When we did the original FY04 budget, FY03 wasn’t complete yet. Part of our budget preparation is a projection of where we thought we would be at the end of FY03, and that was the surplus number we rolled forward. Now that FY03 is complete, our audited financials are done, the number was really the $2 million dollar number. Our projections during the FY04 budget preparation, the original budget, were off. The majority of that was due to the R&C fund and us not spending as much as we thought we would out of that. The true surplus that is going to be refunded is the $2 million. Mr. Saxton stated that the most literal reading of the contract if it says at the end of the year you recalculate and return any surplus, is to write a check and return it. It would be taking that overpayment from the proceeding year and applying it to the current year obligation. Once you have finalized determining what that surplus amount is, each utility will state that they want theirs through a check or would rather have it applied to our current years obligation. Bradley Lake PMC Minutes March 18, 2004 Page 5 of 6 Ms. MacMillan responded that a check can be sent; however, the checks you pay goes to a trust account at US Bank. A check on your behalf with your surplus could be sent. Mr. Posey stated that from an accounting standpoint, it probably is cleaner, and it just makes it simpler. It may be more difficult for others to get the money to roll back in, but his auditors are telling him to get a check. Ms. Applegate responded that the FY04 amended budget that we just approved is calculated based on us actually writing that check back to everyone now, which is what we thought we decided at the last meeting. Mr. Saxton stated that there will be different choices by different utilities. Just be on the record that you have authorized the return of the annual adjustment, but that each utility will be notifying AEA how they wish to receive it. Mr. Calvert stated that the City of Seward would like to roll it over and to consider that notification. Ms. MacMillan stated that she will need an email of who wants a rollover and who wants a check. 8A. Committee Reports / Comments Haagenson Martin River: Mr. Copoulos discussed the Martin River application. The license amendment application to FERC was submitted and received approval from the Army Corps. Preliminary concerns were raised regarding the Fish and Game’s concern about closing the airstrip according to Federal air regulations, and subsequent conversations with them indicate that they are okay with what we have proposed. We don’t anticipate any problems getting this amendment approved through the agencies and through FERC, and expect to complete this work as proposed in the amendment and according to the timeline and budget. O&D: Bob Zacharski reported that there had been a battery explosion at the microwave site. A new battery bank is on order as a new charger, and spill clean up should be completed next week. Cable failure happened in late January. They were able to repair it, and will come back with ideas for re-routing that cable so it is more accessible for maintenance purposes. Preventative maintenance tasks are on schedule. They augmented the operations staff at Bradley to get more electrician help at the plant and clean up the outstanding task under the preventative maintenance. Chair Haagenson asked about the SVC training. There is a lot of discussion on the level of training and who is going to be responding and how many people are going to be training on the top and maintain the SVC. Did that get resolved or did the whole thing go into the budget unscathed? Mr. Hickey stated that they have not done major maintenance on the facility since it was installed. There is a series of major maintenance that has come due, and unfortunately because they were both installed at the same time, it all comes due at the same year, Bradley Lake PMC Minutes March 18, 2004 Page 6 of 6 give or take 18 months. They have five relay techs and they all get trained and we have three substation techs and four substation linemen who get trained. They are on a much larger list. Mr. Hall also noted that part of this is for ABB to come up and tell us what we need to look at replacing so we don’t get in a position where we are with the Intertie SVCs. They will tell us where we are obsolete and what we need to be looking at replacing. Operator Report: Bob Zacharski reported that they are at 1,128 in terms of water level. Governor Replacement: Don Stead reported that the hydraulic transient analysis has been complete and is under review and the State is hiring a third-party to review the results. The way it’s stated now, it will need to be increased by 60 seconds from the current 90 seconds. The change is going to require FERC approval. Change order #1 has been issued to VA Tech, so we got the $100,000 discount. Data collection is in progress. Model test design is currently in progress, and the factory acceptance test is projected for July 9" through the 15". New Control Algorithm has been delivered and the conversion is in progress. The outages are at 35 days each, and probably need to be increased to 45 days each, and also should be slipped from March into April in order to accommodate the changes for the jet dividers. The delay is on Change Order #1, once they complete the model and they develop the model test results, they then have to go into design of the new jet dividers and design of the shield and the operating mechanism. That design pushes delivery to the site to April 16", which fits right into the middle of the second outage. In order to fit it up with that schedule for Change Order #1, you actually need to slip the outages back into April so the material will be available for the first unit. 8B. Next Meeting Date The next meeting will be at the call of the Chair. 9. ADJOURNMENT The meeting was adjourned at 11:05 a.m. BY: Steve Haagenson, Chairman ATTEST: Alaska Energy Authority, Secretary Nov-05-04 05:48pm = From-GVEA Admin‘-*--tion 9074585951 7-840 «=P.006/010 F218 . © A Professional Corporation Cernfied Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tel, (907) 563-4547, FAX (902). 96 1: 7683 October 21, 2004 Bradley Lake PMC — Budget Subcommittee Attn: Mike Cunningham, Chair Dear Mike: Please find enclosed the engagement letter for the audit of your financial statements for the year ended June 30, 2004. The original should be signed and promptly returned 10 our offices. A copy should be retained for your files. The engagement fee for the audit was increased by approximately 2.7 percent - the increase in the consumer price index over last year. Should you have any questions, please do not hesitate to give us a call. Thank you. Sincerely, (hep orl, Gary Stromberg Principal GS Enclosures Nov-05-04 08:47pm = From-GVEA Admin’ * tion 9074585951 T-840 =P.003/010 = F-218 RECEIVED 1 oe O04 Pousenc, Srombery. & Company act 29 a A Professional Corporation Certified Public Accountants 3201 C Street, Suite 405 Anchorage, Alaska 99503 Tal..(907) 563-4547 FAX (907) 561-7683 October 21, 2003 AUDIT ENGAGEMENT LETTER Mike Cunningham, Chair Bradley Lake PMC - Budget Subcommittee We are pleased to confirm our understanding of the services we are to provide for Bradley Lake Project Management Committee for the year ended June 30, 2004. We will audit the balance sheet of Bradley Lake Project Management Committee as of June 30, 2004, and the related statements of operation and fund balance for the year then ended. The objective of our audit is the expression of an opinion about whether your financial statements are fairly presented, in all material respects, in conformity with generally accepted accounting principals. Our audit will be conducted in accordance with generally accepted auditing standards and will include tests of your accounting records and other procedures we . consider necessary to enable us lo express such an opinion. If our opinion is other than unqualified, we will discuss the reasons with you in advance. If, for any reason, we are unable.to complete the audit or are unable to form or have not formed an opinion, we may decline to express an opinion or to issue a report as a result of this engagement. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected customers, creditors, and banks. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our audit, we will require certain written representations from you about the financial statements and related matters. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; therefore, our andit will involve judgment about the number of transactions to be examined and the areas to be tested. Also, we will plan and perform the audit lo obtain reasonable assurance about whether the financial statements are free of material misstatement. Because of the concept of reasonable assurance and because we wil] not perform a detailed examination of all transactions, there is a risk that material errors, fraud, or other illegal acts, may exist and not be detected by us. In addition, an audit is not designed to detect errors, fraud, or other illegal acts that are immaterial to the financial statements. However, we will inform you of any material errors that come to our attention and any fraud that comes to our attention. We will also inform you of any other illegal acts that come to our attention, unless clearly inconsequential. Our responsibility as auditors is limited to the period covered by our audit and does not extend to any later periods for which we are not engaged as auditors. Nov-"5-04 =05:47pm = From-GVEA Admin‘=*r-tion 9074585951 7-840 =P.004/010 F218 wie Page 2 Mike Cunningham, Chair Bradley Lake PMC - Budget Subcommittee Our audit will include obtaining an understanding of internal control sufficient to plan the audit and to determine the nature, timing, and extent of audit procedures to be performed. An audit is not designed to provide assurance on internal control or to identify reportable conditions, that is, significant deficiencies in the design or operation of internal control. However, during the audit, if we become aware of such reportable conditions, we wil] communicate them 10 you. We understand that you are responsible for making all financial records and related information available to us and that you are responsible for the accuracy and completeness of that information. We will advise you about appropriate accounting principles and their application and will assist in the preparation of your financial statements, but the responsibility for the financial statements remains with you. This responsibility includes the establishment and maintenance of adequate records and effective internal controls over financial reporting, the selection and application of accounting principles, and the safeguarding of assets. Management is also responsible for identifying and ensuring that the entity complies with applicable laws and regulations. We understand that Alaska Energy Authority will prepare the schedules that we request and will locate any documents selected by us for testing. We expect to begin our audit approximately October, 2004 and to issue our report no Jater than November, 2004. We estimate that our fees for these services will approximate $8,800 for the audit, You will also be billed for travel and other out-of-pocket costs such as report production, typing, postage, etc. The fee estimate is based on anticipated cooperation from your personnel] and the assumption that unexpected circumstances will nor be encountered during the audit. If significant additional time is necessary, we will discuss it with you and arrive at a new fee estimate before we incur the additional costs. Our invoices for these fees will be rendered each month as work progresses and are payable on presentation, We appreciate the opportunity to be of service to you and believe this letter accurately summarizes the significant terms of our engagement. If you have any questions, please let us know. If you agree with the terms of our engagement as described in this letter, please sign the enclosed copy and return it to us. Very truly yours, PARISENA, STROMBERG & COMPANY — Qeenenen , Mareen ot Casey fiPe Nov-05-04 = 08:48pm = From-GVEA Adminin**-tion 9074585951 T-840 P.005/010 = F-218 t a Page 3 Mike Cunningham, Chair Bradley Lake PMC - Budget Subcommittee RESPONSE: This letter correctly sets forth the understanding of Bradley Lake Project Management Committee. Officer Signature: Title: Date: Nov-05- “04 08: 4pm From GVEA Admin‘ -*~-- tion 9074585951 NUP og BUNT AREGA INSURANGL JXCH CEIWE I 7-840 =P.010/010 F218 | 703 W. Tudor, Suite 101 NOV 01 2008 Hi Anchorage, Alaska 99503 (907) 561-8106 (907) 581-6206 FAX ke, October 29, 2004 m cto ui Br ale Ke Mr. Art Copoulos oe Ee Project Manager Alaska Energy Authority 813 West Northem Lights Blvd Anchorage, AK 99503-6690 RE; Bradley Lake Dear Art: Thank you for your assistance with the 2004 policy year renewal for Bradley Lake, ARECA Insurance Exchange (AIE) values Alaska Energy Authority’s (AEA) business and is pleased to have the opportunity to once again provide coverage for the Bradley Lake facility. Warren, McVeigh and Griffin, Inc., in its capacity as risk consultant to the Bradley Lake PMC; recommended in its report that-AEA update the property statement of values dated 2001 or consider having a property inventory and valuation performed, ARECA Insurance Exchange concurs with the consultant's recommendation. Premium for the 2004 policy year is based on a 1991 valuation with a 2-3% annual trending factor, No recent breakdown has been provided for the appurtenant structures to be included in the policy. In revising your property inventory, keep in mind that the AIE policy has exclusions for certain support facilities ATE is committed to providing competitive pricing and the best possible product ta ABA. In keeping with that commitment, we recommend that ARA provide a current property valuation that includes a breakdown of values on individual structures at the facility. Thank you for your cooperation. Sincerely, Erica Nelson: «|: saan PS a ae eS Wal PSUR ies Iriuranog Coordinatar Slr syle (orn ae asec ete ei tay aaa tee asin ioe 2; Ke Da, ORO'ARBCA inmarince Becangs i Seat ce -Bric-Yould;\CEO-Alaska PowerAssociation’ 2.0 Uy we gE Nov-05-04 05:48pm = From-GVEA Admin‘~**-tion 9074585951 7-840 «=P.O007/010 = F~218 3 Braflley Lake activities rage russ Steve Haagenson From: Stead, Donald (Don) [dstead @ HomerElectric.com] Sent: Friday, November 05, 2004 2:52 PM To: Janorschke, Brad; Haagenson, Steve; Joe Griffith; Jim Posey; Dave Calvert; Wayne Carmony Ce: Zacharski, Bob; Hickey, Brian; Day, Robert H. Subject; Bradley Lake activities The past weeks | have been working on design of the shipping stand to move the turbine runner to Tacoma for repair, starting a specification for a new runner, coordinating activities for changes to the Hydraulic Transient Analysis, started a presentation for the BPMC meeting on Switzerland trip and things we learned, normal routines, and started next years budget. | issued a letter that authorized the design and manufacture of the jet dividers. Today | received a new set of electrical wiring diagrams, panel layout and logic diagrams. | was also asked to perform some additional investigation on the deflector servo motor. These will most likely fill my next two weeks. We have received the formal report on the model testing. Just received the quarterly report and attached. Have a great weekend! <<Bradley_Progress_ report_ Nov_2004.pdf>> 11/5/2004 Nov-05-04 ae 05:48pm = From-GVEA Administration 9074585951 7-840 «= P.008/010 = F-218 VATEGEH] VA TECH Hydro USA Corp. November 5, 2004 BRADLEY LAKE DIGITAL GOVERNOR PROJECT REP’ BE General After the basic engineering of VA TECH is completed we enter into the detailed engineering phase with purchasing of additional major components. Governor and Controls The governor contro! topolagy has been finalized and approved. The submitted I/O list has been updated and will be re-submitted by middle of November 2004. The governor electrical design (e.g. control cabinets, electrical schematics) was revised and re-submitted for approval on November 1st, 2004. The governor hydraulic schematics for the deflector and needles were revised, re-submitted and approval on June 2004, The existing governor pump unit and accumulator have been revised due to increased deflector servomotor volume for the Jet divider and submitted in June 2004. The deflector distributing valve assembly drawings and bill of materials were submitted on September 2004 and verbally approved. The VATECH Peltan turbine governor algorithm including the multi-jet control, needle selection and flow calculations was madeled in Matlab/Simulink and run against a simplified Bradley Lake model. The results of the most critical base cases are positive. VATECH submitted the modified algorithm on November 4th, 2004 and is in process of implementing Bradley Lake's specific operation Interaction through the HMI. VA TECH is planning to submit the governor Matlab/Simulink model and related documents by the end of November 2004. Turbine Model Test The turbine model test has been successfully performed during the week of September 6 to 10 at VATECH laboratory facilities in Zurich, Switzerland. This procedure included the testing with a model of the existing deflector as well as a model of the new divider. The model tests were witness by Mr. Donald Stead and Mr. Brian Hickey. The final report has been submitted with transmittal # 11 in seven hard copies and two back up CD's. The test results with the new VA TECH jet dividers showed a substantial improvement of the power characteristic and a significant reduction of the power oscillations compared with the existing deflector. As an immediate result the existing nozzle protection roofs can be reutilized. However, new protection roofs for the brake nozzles need to be designed, manufactured and installed. Page 1 of 2 Nov-05-04 a> 4 05:49pm = From-GVEA Adminis+rstion 9074585951 7-840 =P.009/010 F218 VAVEGH VA TECH Hydro USA Corp. The test results with the new VA TECH runner showed a potential efficiency increase between 0.5 and 3.1 % versus the existing Fuji runner. VA TECH will submit a budgetary proposal for replacement runners by the end of November 2004. VA TECH experienced substantial cost overrun during the preparation and execution of the model test as the power oscillation test turned out to be much more challenging than expected. VA TECH is preparing a detailed cost analysis and will share it with HEA with a request for review and consideration of cost sharing. Project Status VATECH has partially recuperated the time lost during the early stage of the project and continues to be committed to bring the praject back on tract. VATECH will provide a revised schedule by middle of November 2004 showing the updated project status. Major Subcontracts VA TECH extended the Matlab/Simulink governor control algorithm modeling contract with MottMacDonalds in Scotland to incorporate the addition mentioned above. The turbine madel test has been completed and VA TECH is in process of issuing the correspondent invoice. The purchase order with our sister company VATECH HYDRO in Vevey, Switzerland to design, manufacture and supply the new jet dividers, protection roofs and mounting material needs to be modified according the results of the turbine model test. The design phase is in process and the first set of drawings will be submitted by middle of November 2004 and the delivery to site is still scheduled for middle of April 2005, Events The contral cabinets factory test, needle valve assembly and divider valves are tentatively scheduled for January 2005. The contro! cabinets and needle valve assemblies test are going to be in Charlotte, NC. The jet divider distributing valve test will be performed at VA TECH's workshop in Ravensburg, Germany. The final test dates will be coordinated with the customer's representatives by the end of November 2004. Page 2 of 2