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HomeMy WebLinkAboutBradley Lake PMC Meeting Thursday 04-11-2002 1BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE REGULAR MEETING AGENDA Thursday, April 11, 2002 — 10:00 a.m. (Via electronic media at AIDEA/AEA — 813 W. Northern Lights Boulevard) (Corner of Arctic and Northern Lights Boulevard) CALL TO ORDER ROLL CALL (for Committee members) PUBLIC ROLL CALL (for all others present) PUBLIC COMMENT AGENDA COMMENTS APPROVAL OF MEETING MINUTES NEW BUSINESS A. B. C. D. Overview of the Governor Repair Project Update on Needle Repair Project Update on Turbine Runner Repair Budget Subcommittee Insurance Review COMMITTEE COMMENTS A. Next Meeting Date ADJOURNMENT Haagenson March 5, 2002 Hickey HEA HEA Cunningham Haagenson * * * ® mx ALASKA INDUSTRIAL DEVELOPMENT — fi ih AND EXPORT AUTHORITY = ALASKA = ENERGY AUTHORITY xk 813 WEST NORTHERN LIGHTS BLVD. ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044 Facsimile Transmittal TO: Ste Ve Has GENS br / Sh Y COMPANY: VE A Fax #: (902) ¥SP.-575/ FROM: Shou VRL Dear DATE: Y= YO TIME: 10:15 a.m, Number of pages including cover page: ras / a Transmittal Contents: o> Lt ; mr pho? Noe pra Ye Laff J warfss Comments: — , ae /, L hase rE Ww And Ca A Ta Aeuss om Sag Lak wot Larges a Dis LF pare og , = Yak na Notice: This facsimile may contain confidential information that is being transmitted to and is intended only for the use of the recipient named above. Reading, disclosure, discussion, dissemination, distribution, or copying of this information by anyone other than the named recipient or his or her employees or agents is strictly prohibited. If you have received this facsimile in error, please immediately destroy it and notify us by telephone at (907) 269-3000. H:\ALLIERYN\Facsimile Transmittal ‘Cover Pagé.doc DRAFT BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE MEETING MINUTES Via Electronic Media @ AIDEA 813 W. Northern Lights Boulevard Anchorage, Alaska Tuesday, March 5, 2002 — 10:00 a.m. 1. 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 Tuesday, March 5, 2002, 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. 2. ROLL CALL Roll was called by Shauna Dean. The following members were present: Dave Calvert City of Seward (teleconference) Wayne Carmony Matanuska Electric Association (teleconference) Gene Bjornstad Chugach Electric Association (teleconference) Norm Story Homer Electric Association Steve Haagenson Golden Valley Electric Association Bob Day Anchorage Municipal Light & Power Art Copoulos Alaska Energy Authority 3. PUBLIC ROLL CALL Shauna Dean, Alaska Energy Authority Brenda Applegate, Alaska Energy Authority Brian Hickey, Chugach Electric Association (teleconference) Lee Thibert, Chugach Electric Association (teleconference) John Cooley, Chugach Electric Association (teleconference) Mike Cunningham, Chugach Electric Association (teleconference) Don Stead, Homer Electric Association Bob Zaharsky, Homer Electric Association Ron Saxton, AterWynne, LLP (teleconference) Doug Hall, Anchorage Municipal Light & Power Bob Price, Anchorage Municipal Light & Power 4. PUBLIC COMMENT There were no public comments. 5. AGENDA COMMENTS There were no agenda comments. 6. APPROVAL OF MEETING MINUTES — October 16, 2001 MOTION: Mr. Bjornstad moved to approve the meeting minutes of August 28, 2001. Mr. Story seconded the motion. A voice vote was taken, and the minutes were unanimously approved. if. NEW BUSINESS A. Recommendation by Budget Subcommittee for Approval of FY03 Budget MOTION: Mr. Story moved to approve the recommendation by the Budget Subcommittee for the FY03 Budget, seconded by Mr. Bjornstad. A roll call vote was taken and the motion was unanimously approved. B. Recommendation by Budget Subcommittee for Approval of FY01 Financial Statement for O&M Funds MOTION: Mr. Bjornstad moved to approve the recommendation by the Budget Subcommittee for the FY01 Financial Statement for O&M Funds, seconded by Mr. Story. Mike Cunningham noted that Parisena Stromberg felt that the special purpose financial statements fairly present and all material respects the assets, liabilities, and surplus of the project committee operating revenue funds as of June 30, 2001 and 2000. A voice vote was taken and the motion was unanimously approved. Cc. O&D Committee Report Art Copoulos noted that the O&D Committee had three projects to report on: the governor instability project, the turbine needle repair project, and the turbine runner repair project. Brian Hickey stated that they went out in the first week of February with an RFQ for the digital control system replacement, which were due in yesterday afternoon. Unfortunately they received only one respondent —- GE Global Services, and they did not provide any of the information requested in the RFQ. They are now in the process of contacting some of the vendors to see what the status is of their responses. Page 2 of 17 Chair Haagenson discussed liability. His concern was that if the needle went all the way open, instantaneously and the power tunnel collapses (noting that this was the first time they had ever stepped in and done modification work on a state owned facility). Chair Haagenson asked Ron Saxton to comment. VERBATIM SECTION (Start) Ron Saxton: The questions that Steve asked him were driven by the oddball nature of the Bradley PMC, because it’s not a legal entity of its own, not incorporated. What you are is a committee of purchasers from the project who get together to make decisions, but who also have common financial responsibilities. When you get to making decisions, whether it’s commitments on who to hire for something or commitments about purchasing things for doing the work, my point to Steve was we need to be clear about who is doing what, because if you are doing it, for instance, if one of the utilities, if Steve calls and orders some work done, the question is, is Steve doing it as agent for the whole PMC in which case when he does something all of you are equally bound by it and equally responsible in your percentage shares, or is he doing it as Golden Valley and somehow he does it wrong Golden Valley is responsible for it and the rest of you have recourse to Golden Valley. Either of those answers is possible, but you need to agree on what you are doing. So if you are having utilities do work, for instance, when Homer does work on the project under the O&M contract, Homer is doing that as Homer, they signed a contract saying that as Homer it would do that work and it accepts the responsibility for doing that work and it gets paid for doing that work and so forth. The point here is that you go into these repairs, as you start doing engineering design work, as you start making decisions about which things are going to be done, and which things aren't going to be done as you then start hiring contractors or having yourselves do any of the work — the question Steve asked, and my point back was — be real clear amongst yourselves whether you are hiring Chugach or hiring Homer, or hiring Matanuska in essence to do something and that they are acting like a contractor who then has the rights and responsibilities and risks of a contractor, or are they doing it as the agent for all of you, in which case all of you are accepting the responsibility and you are buying into the decision and if something goes wrong you are accepting the risk together. | don’t think there is a right or wrong answer — where the risk comes into it is if you don’t discuss it and you get down the road and somebody like Chugach is saying — well hold it, | was just doing it on behalf of the PMC — and somebody else says well no, you weren't you were doing it as Chugach and we're going to blame you — you just need to say out loud what the answer is. Norm Story: Just to expand on a comment that Ron made, | don’t recall ever a case where individuals that are working on behalf of the PMC were part of the PMC, taking individual risk for any of the work product or the decision being made. At least the contracts that exist today like the service contract is at cost. There is no building overhead or profit, there’s no built in insurance provisions, those sorts of things. It has always been assumed that the PMC, as a group, and as the owners, are responsible for the work that is being produced, the budgets have to be approved, the O&D has to approve the activities that go on and agree on it and back to the PMC for final approval. I’m assuming that Chugach is not in this case taken on any individual responsibility or accountability for this project, that will be third party hired out. The firm that ends up with this work will have to be carrying appropriate insurance and coverage. If there is a misunderstanding we do need to talk about that, because | can tell you that Homer Electric did not assume the risk of its activities in the nature in which Ron just described them. And | doubt Page 3 of 17 very seriously that Chugach can respond, | doubt very seriously they agreed to do this piece of work for the PMC with that assumption either. Gene Bjornstad: My comment from Chugach is | am under the impression that this was the committee that was proposing this solution to the governor problem and all the other problems there and if there is some idea that Chugach is going to be held responsible for the work we've done so far, then | guess we need to talk about it. Steve Haagenson: | guess my point is that we talk about it when we can all smile at each other than after something bad goes on. | just want to make sure we understand where we are going and how we're getting there and to make sure that the PMC has clearly directed people to do certain things so we don’t hang you out there as individuals. Gene Bjornstad: Well, as long as the topic has now been brought up, maybe we are going to have to formalize something in some kind of document if that is of concern. Steve Haagenson: Correct me if I’m wrong, | believe this is the first time this has ever happened with the PMC. | can't think of any other State facilities where they let the management group like the PMC step in and actually do modifications to the system. Ron Saxton: It probably happens fairly regularly at the Four Dam Pool, and Norm’s comment would be different than what the Four Dam Pool would assume. If the Four Dam Pool, they consider that the PMC contracts with the individual utility to serve as the operator at the project, actually the AEA contracts with them. So when Kodiak is hired to do the operations and repair work at the Terror Lake Project it is Kodiak doing it for Kodiak and if something were wrong and the project screwed up through those repair work, Kodiak would have that risk, not the whole PMC. | understand they may price their services differently, although they don’t expressly include any profits in it. I’m not saying that’s a good or bad thing, but as a legal analysis in the Four Dam Pool context, the individual utilities do do work on their projects and would be viewed as doing it as the individual utility and taking some risk. No time in the 18 years of the Four Dam Pool has anybody ever asked the utility to — it's never been a claim of asking the utility to pay money or anything, but when you say utilities working on State projects, that’s the place it’s been done and it’s been done fairly often. Bradley I’m unaware of. John Cooley: In the intertie, we added the snow load monitoring stuff, and that was a change, and also here at Bradley Lake we have modified the, we’ve done repair work at the Nuka Diversion that we’ve gone in and given direction to make changes that are owned by the State. Doug Hall: We also on the intertie put some guard structures up, directed MEA to install guard structures modifying the towers/conductors for clearances across the one road (Caswell Lake Road). Steve Haagenson: My concern is that if the PMC wants... Ron, what’s our next step forward to continue on this process? | believe that both Brian and Randy have come up with a good solution here, | think it’s going to work, and I’m not marking on them at all. Ron Saxton: If you do nothing, | think the likely analysis, as Norm said earlier, if you do nothing today the presumption is going to be is that those guys are acting on behalf of the whole PMC and that’s how it would sit and if for some reason there was something that came up later where they made a terrible mistake, | think they acted on the PMC’s behalf and the PMC is who is going to have the problem to fix. So, if you want a different answer than that, you probably need Page 4 of 17 to take some action to deal with that. If that answer is fine, and especially now that we've said it and it’s in the minutes you don’t need to do anything. Gene Bjornstad: Ron, do we need to have some kind of motion affirming what you just said? Ron Saxton: Well, it doesn’t hurt to go into the record — if you’re saying that we've asked either the committee whatever the committee is called these days or these people by name or Chugach’s employees, to say we have asked XY&Z to take the lead on this project and they are acting on behalf of the PMC, that would probably clarify it. Now, | want to go a step further with you, because | presume if you are going to do that there is some limit to how much authority you're giving them and the next steps that Steve had asked me to talk about — when you're getting to things that involve spending money, you should be very, very clear whether you have delegated that to anyone or not. So, if you’re asking those individuals or a subcommittee of the PMC to go out and hire an engineering firm, or you ask them to hire someone to do some plans or you are actually ordering some hardware of some sort, | would strongly urge that those money decisions be brought back to the PMC, even if it’s just a short phone call. No one is authorized to go spend money on your behalf, and that you expect to be approving money decisions and that you should be clear about that. If that’s not the case, if you are authorizing people to go out and hire contractors and make orders then you should have a motion and make clear what the scope of their authority is. Gene Bjornstad: | thought that’s what we did, | think the minutes reflect a couple of years ago that the PMC authorized us to go out and hire consultants to do some of this preliminary work. It seems like it was $800,000 worth. Brian Hickey: In June of 2000. Ron Saxton: Okay, but | understood that there was now discussion of taking some further steps and I’m just saying that if there are further steps beyond what was authorized, you ought to be clear whether there’s another delegation, where again authorization you all to go forward and spend some additional money or do some additional work or you are going to now have the PMC acting on it. Brian Hickey: Ron, for the benefit of the entire committee, clarify the process that we're thinking of and moving into right now. The intent is that we obtain qualifications from a number of vendors who have experience in pelton turbine deflector load frequency control and we select the most qualified top three of those. We provide them with a functional spec, as opposed to a specific/direct specification. The functional spec outlines the performance of the piece of equipment they provide, not how they provide it. We get each one of those people to fill out a table of compliance with respect to that specification. Once we select one of the three to do the work, we negotiate a statement of work from that table of compliance and then we would come up with a commercial contract, which we would bring back to the PMC to approve at that point. Actually spending money on acquiring the hardware and doing the engineering and installing it, would in the process that the O&D is heading down right now, would require additional authorization from the project management committee and | would expect if we can stay on tract, that to occur sometime in late April of this year. Norm Story: | have made the assumption that the work that Brian is doing is being work through the O&D committee. We have a representative on the O&D committee and that there is consensus amongst the O&D committee as we move through the process. And then at a point, a formal request for a specific contract which would then house the E&O insurance, any Page 5 of 17 indemnification that we need to hire a third party contract would come back to us for final approval with the dollars of cost and move forward. Brian Hickey: That’s correct Norm, the intent is to bring — for the O&D to actually negotiate the statement of work and the O&D would make a recommendation to the PMC and would provide you with a commercial contract and a functional specification and a recommendation to approve the funding. Steve Haagenson: What's the pleasure here, do you want to have a motion that basically says what Brian talked about — going to get qualification, select the three, functional spec, table of compliance — do we want to do that or just want to assume we're okay? Wayne Carmony: I’ve got a question. We seem to be co-mingling making decisions about activities and questioning ourselves as we go along about whether as purchasers we have individual liability associated with activities or whether we have collective liabilities associated with liabilities. Do we need to seek some independent advice, do we need some other form of insurance collectively, I’m getting a little bit confused. Steve Haagenson: What Ron said was that if the PMC makes an affirmative choice and says go out there and do this, | think they are acting on our behalf. | think what Brian was saying was that all this liability will be passed through the functional spec to the supplier. Brian Hickey: Certainly the functional spec will require the vendor to provide a stable control system. | think, though there may be some mechanical, for example, the turbine pit at Bradley Lake has a certain amount of noise in it that probably is a result of the design of the turbine pit. | don’t believe we’re going to be able to transfer that responsibility to the vendor — he’s not going to rebuild the turbine pit for us. That's something we bought when we bought the project. | just want to clarify that the vendor would be responsible for providing us with a stable controller. There are inherent problems with the Bradley Project that are there from the Stone and Webster days and | don’t know if the State’s liable for that or the PMC is liable for it, but I’m certain that the vendor is not going to accept that liability. Ron Saxton: Let's be clear with everybody. The State has no further responsibility, we've been through that, we had a lawsuit, they gave us money for this repair and they now have no further responsibilities. If Bradley Lake dies today, if it just falls apart into pieces, and just doesn’t work anymore, the utilities are the ones who have the financial risks for that and you still have to pay off the bonds for construction and so forth. You all effectively own this project together and you have some debts left to pay on it and you have the operating costs and you have the risks of things breaking just like you would if the individual utility owned it. No State risk here. In terms of some of those risks, you do carry insurance, you carry a fair amount of insurance and pay quite a bit for it and so some of those risks are covered by insurance. You certainly could buy more insurance if you wanted, although I’ve participated in the insurance committee quite a bit over the years, and | think you carry the insurance people consider commercially reasonable so if you wanted to buy more insurance it would probably be more expensive. So you as a group are collectively left with risks of the project being inefficient, you're left with the risks of it going off-line for periods of time for repairs and so forth. When you do a discreet project here, if you hire an outside engineering firm and they do some kind of professional malpractice, you are going to have a claim against that professional firm for that malpractice. If you hire a construction firm and they come in and make repairs and do the work they are going to have some obligations for the quality of their work and if they do an unsatisfactory job you have some recourse against them. | think the question that Steve started with is, if you have one of your Page 6 of 17 utility people do the design work instead of an outside firm, are you treating them like a contractor for whom you could make your malpractice claim or your claim for poor services — or are they in fact acting on behalf of the whole group and if they did something wrong you just all have to share the consequences of what they did wrong. Wayne Carmony: There's a direct cost of making a mistake to physical plant in a real mess, you would have lots of beneficial use replacement power, voltage support issues that involve a great deal of money, does that enter into this insurance issue? Or is this question about who does the work and so forth? Ron Saxton: If you are asking me Wayne, |’m not sure | followed the question. Wayne Carmony: Let's say there was a catastrophic failure of some kind as a result of the activity that was undertaken by one of the utilities. And, Golden Valley is purely a purchaser of power here, and not involved in any of the physical activity or the design activity taking place at Bradley. Would Golden Valley have a claim against the group for loss of beneficial use of the facility? In other words, what it would cost them to replace the power coming out of Bradley, and would Homer have a claim for inadequate voltage support on the Kenai and the actions and money that had to be spent to provide that voltage support in the absence of the Bradley facility? I’m wondering how far the tentacles of financial liability go, even with respect to a contractor. The contractors saying - okay | messed up $1 million of equipment, and here’s a million dollars to replace it and in the meantime maybe Golden Valley has been running a plant far less efficient that Bradley and it's cost them $3 million to replace the power. Ron Saxton: The whole question of how much can a contractor win with their liability is always a lively one in Alaska law. If you ask me as your outside lawyer for the PMC to go do something and | do a rotten job and | commit malpractice, | just completely screw it up — then you as the PMC all have a claim against me — you can sue me and my law firm, make a malpractice claim and I'll have to pay it or my insurance will have to pay it. Whereas, if one of your in-house lawyers who already works for one of these utilities as an employee of the utility, you had them do something for you like that and they made the same mistake | did, then you get this question of do you really have a claim against them, or was he just asking on behalf of all of you? That's the question that Steve was raising that we get to. Anytime you are using an outside vendor | think it’s pretty easy. You can make whatever claims you want against them and it’s going to be general principals of legal responsibility, how far the tentacles go and what sort of damages, but all of you would be free to make those claims against an outside vendor for providing services and doing a negligent job. The question that Steve is raising that we started — is when one of you in-house does it, when one of you in-house provides the engineering advice or the construction assistance or what have you. Absent you taking any action, if you do nothing, you just leave it like it is right now, | think the answer to it is that you are doing it on behalf of everybody. That the reasonable reading of it is that Matanuska did not step forward to volunteer to take on individual responsibility just because Wayne Carmony decided to take the lead on some project. The reasonable read of it, if you do nothing is you are acting on behalf of the group and the group is not going to have a claim against you. If you want the answer to that to be different, if you want to say that when Chugach or Matanuska or someone else steps up and takes on an individual task, they are effectively becoming the outside contractor for that service then you can do that, but you need to take some action to do it. We need to write it down somewhere or have a motion to do it or something that clarifies that you are acting as an outside contractor. The reason that is not a silly question, as | said earlier, that is what the Four Dam Pool does. The Four Dam Pool would say if Kodiak is making the repair, Kodiak is doing it as an outside contractor. Page 7 of 17 Wayne Carmony: We're proposing $405,000 in this new budget, do we know what that insurance covers? Do we know if that insurance would cover these situations you are talking about? Ron Saxton: | don't, I’ve not been enough in the middle of that lately, so | do not know. Wayne Carmony: What is the insurance we are buying for $405,000? Ron Saxton: It’s generally been property damage, earthquake, liability to third parties, those sorts of things. Wayne Carmony: Would that be the proper place to install the protection we need as a utility group to handle the situation you are talking about here, because | doubt very seriously whether our individual liability policies contemplate the type of coverage that for circumstances like you have described here. Ron Saxton: Your first step is to decide that you agree you want these things to be collective, that you want to agree that if Chugach takes the lead on an engineering project they are doing it on behalf of all of you, they’re not doing it as an outside party. So, if that is what you want as the answer to that, fine once you say it and agree and that’s how you have been assuming it is and so continue down that road. And then your second question is, is it a risk you care about insuring or are you just going to live with it? You don’t insure against every risk you have, so you can certainly decide that one of you guys moving forward making some engineering decisions or making some procurement decisions is a reasonable risk and if it turns out that something went wrong, you'll have to absorb it however you absorb it. But whether it’s something you wish to purchase insurance for or not, you can certainly ask the insurance committee to look at that. Generally speaking, | would not think that you guys going out and doing some repairs and doing them wrong so that things break, that’s not usually something that insurance is going to cover. Wayne Carmony: So, before we make any decisions then about doing some of this stuff in- house, or doing it by contract, do we need to resolve this issue? Ron Saxton: The only thing you have to resolve as far as I’m concerned is the issue Steve raised, which is just being clear that if you are authorizing some individuals to go forward and either hire engineers or order hardware or do anything of that sort you just ought to say in the minutes of this meeting that they are doing it on behalf of all of you, or if they're not doing it on behalf of all of you, you ought to say that they're doing it as a contractor to the group. Gene Bjornstad: My comment is, | thought what we've been doing the last couple years in trying to come up with a fix to this governor problem and other problems down at Bradley, is the O&D committee has been looking at the situation and there has been discussion and there has been recommendations out of the O&D committee to the PMC and then the PMC authorizes them to go forward. My understanding was that the PMC was not saying to Brian Hickey that you are in charge of this thing and the whole thing is on your shoulders, if that is the understanding that some people have, then maybe we do have to clarify it. Steve Haagenson: |’m not trying to break anything, | don’t think it’s broken, | think that if we just come out and say that Chugach engineers are working on behalf of the PMC, | think we're okay with that and I’m happy to go forward in that kind of concept. Page 8 of 17 Norm Story: Mr. Chairman, let me make a motion, because | think it’s more, you’ve brought a point up that has raised questions so maybe it needs to be clear of all the functions going on. MOTION: Norm Story moved that by this motion, the PMC acknowledges that the utilities today within the PMC that’s providing services to the PMC is doing so representing the PMC. And that further, we launch a review of our risk and our insurance coverages and set up a subcommittee to go do that and bring back to us at the next meeting a report that discusses whether or not we have adequate insurance or not. Norm Story: That's covering Wayne’s question, which | think is a good one. Steve Haagenson: Do | hear a second? Gene Bjornstad: Second. Steve Haagenson: | support that motion and | think it’s a good way to go and | was never trying to imply that Chugach was going to be on the hook for any liability, but | think we should come out and say that, because after something really bad happens the attorney's get involved and it always seems to get muddled up at that point. Wayne Carmony: What would be wrong with, rather than combining those two parts of that motion, what would be wrong with just going forward with doing the investigation before we address the first of that motion? Norm Story: My only concern with about it is that we’ve got some work in progress now. We've got a dispatch agreement that Chugach is operating under, we've got an O&M agreement that Homer Electric is operating under, we have a maintenance agreement on the Bradley tie lines that Homer is operating under, and we have what is not a contract but just a verbal arrangement with Chugach to guide this process that Brian is currently involved in with O&D committee. My only concern was it would be a good acknowledgement as to past practice will continue to such time as we change it. And, | suppose | could back off of that of the first part of that motion if there is no other motion made that is contrary to that understanding. | believe Ron had indicated that if you do nothing and after discussion this being in the minutes, the PMC is accepting the responsibility, for the people who are acting on its behalf, then | can pull off the first part of the motion and just move that we have a review of our risk management of the project and the insurance requirements. Wayne Carmony: Certainly a review ought to be expedited, it’s something we should do and it would seem to me that whatever the contract language exists amongst us for various activities, is the language that governs what we’re doing today rather than some informal understanding that has not been acted upon. | don’t believe that just the absence of taking action would constitute an affirmative position. So, since the contract claims language is what governs us today, it would seem that just expediting a review in coming back to see if we want to change the contract language would be the prudent thing because | don’t think that the absence of doing something would stand as having conceded some difference or some change in those contracts. Doug Hall: We have an item coming up tomorrow for discussion at 10:00 a.m. on the O&D subcommittee that is very germane to this discussion here, and that is Homer wishes to bid on the needle rebuild that we have to have done. The O&D committee had specified we will take it Page 9 of 17 out to bid and have contractors bid on it. Homer has requested the right to bid on this work also. In a case like this, last year when Homer did a needle rebuild or replacement, they were working at the direction of the O&D subcommittee. They were ordered to swap the needle out and do it and | don’t know that anybody assumed they were doing anything but sharing the liability with everybody. But, if they choose to bid a job competing without outside vendors or contractors, what is the feeling of this body? Norm Story: Number one, | agree with you. If we were to set ourselves up as a contractor and we formally bid and we've got to build into it the profit and overheads it would take to indemnify if there is a problem with the project result. We need to talk about that. Homer reacted because we were told that we didn’t have the qualifications and the experience to do this work. But yet, we're the only ones that have done this work to date. And so, that was a reaction on our part because we felt like that ought to be a consideration. And it ought to be least cost. If it’s not, then obviously we’re wet on this and someone else should do the work. We need to talk about that issue before the O&D gets too far out there with it. It may be that what we need to do is do an assessment of cost and try to determine an estimate of doing it in-house and if you want to test that and then go out and bid. That was the reason that came up. But! agree with you, if we were to set ourselves up and actually bid on this work formally, then obviously we are contractors at that point. When our folks talk about bidding on this work, | don’t think they were talking about us setting ourselves up as a general contractor to bid competing on the open market, but an alternative estimate for doing the work in-house versus doing the work third party contractor. We need to discuss that. But | agree with you, if we were to enter in that fashion, we would have to build into it profit and overhead. Chugach may also want to contract doing the work because they have a division set up for doing that kind of work. We just haven't discussed that and we need to. That’s far different than us assuming the responsibility of doing the maintenance say of the Bradley tie line and flying it and doing every fifth hole climb every year to inspect it and then have a problem come up where somebody missed something and we have a structure burn down and we're down for a week or two days or whatever while we're trying to fix it — that kind of risk has always been assumed by this group that we’re going to do a reputable job, a fair industry standard job and that there are some risks out there that we all accept. Same thing if we do the work on the floor within the plant as O&M operators that we do work directed by the O&D committee that the group is accepting their equal share of that risk. I’m assuming Chugach is always operated on the dispatch agreement the same way — there could be some dispatching complications that causes material damage... Wayne Carmony: A few years ago Golden Valley sued us for $11 million claiming that we had not honored the contract on the maintenance on our portion of the Northern Intertie, so I’m not sure that these informal understandings get the job done. Steve Haagenson: That’s why we have a motion on the table right now. Ron Saxton: Let me just throw in here, because it’s a very important comment you just made — even with the motion, unless you are intending to go farther then normal legal principals would take you, when you say that the group intends to take the responsibility or bear the responsibility when one of your utilities acts on their behalf, that still only is going to cover it when you behave in a reasonable way. If one of you wants to assert that Chugach went out and did the work on fixing the governor and they did a completely negligent, incompetent job, you are still, Chugach is still going to grab some risk there. If you want to have it that no matter how bad a job you do, there’s no way that anybody can ever come after you then you need to do some talking about how you do that, but that will not be normal interpretation of what you are talking about. Page 10 of 17 Wayne Carmony: It just seems prudent that we go ahead and quickly try to gather some information about what kind of coverage we have and whether or not we want to pursue work with the contractors and whether we want to continue some method of doing the work with our own personnel, and understand the issue more completely, is what we do today. Gene Bjornstad: The contracts that we have right now, that Homer has and that Chugach had are with the State. Right? They're not with the PMC. Norm Story: Yes, under the master agreement. Gene Bjornstad: So, | would assume, like Wayne is saying, that there is probably some language in there that attempts to address this issue — | don’t know what it is, | don’t have the contract in front of me, but maybe with all the concerns that have been expressed so far we ought to get those contracts out and look at them again. Norm Story: With the okay of the ‘second,’ I'll withdraw the motion and restate a new motion. Steve Haagenson: Is that okay with you Gene (second)? Gene Bjornstad: Yes. MOTION: Mr. Story moved that we develop a subcommittee to review our risk management to see where we are and report back with recommendations and do so within the next 30 days. Mr. Bjornstad seconded the motion. Steve Haagenson. We have a motion and a second. | have a question. This is going to be a group of who? Attorneys doing this? Norm Story: We have a budget finance committee, don’t we? That might be the ones who ought to do it. | know from our shop that’s the folks that take care of that. Wayne Carmony: | would like to have someone work on that committee, it would probably be our attorney. Norm Story: Well, | don’t think it's going to take that long for them to assess what insurance coverage we have and determine is it enough, does it cover the areas we want to cover, if they need more time, | suppose we could give it to them— my concern is that the question has been raised now — so we can begin to consider how we are going to cover it. If there is collective risk as Wayne said maybe we need to just look at some other insurance coverages that will protect us. Wayne, | was just suggesting that the finance committee risk management assessment be done they will probably need to go out and get a hold of an insurance professional to help them a little bit with that. Wayne Carmony: Norm, | was just wanting to have someone in the loop there to allow us to get an independent feel. Norm Story: I’m assuming that you have someone on the finance committee already. Wayne Carmony: No, we don't. Page 11 of 17 Gene Bjornstad: Just a comment from what I’ve been told here, the needle work that Homer is wanting to do has to get done this year, so we're going to be tight anyhow, so with all these comments here, should we just stop this whole process for 30 days? Wayne Carmony: It looks like we could go out for bid Gene. Steve Haagenson: | guess my personal opinion is that Chugach really has very, almost no risk in this control fix, and that’s because they are putting out a functional spec and all that liability is going to go to the design or engineer supplier. Gene Bjornstad: | guess we would agree with that. | don’t think we have much risk in the next month or two, but | think the needle work is what needs to get done here and from what | understand, I’ve been told here we're going to be tight getting it done this year anyhow. Steve Haagenson: Has the RFP gone out? Doug Hall: No. Wayne Carmony: How long was the bid process, Gene? Steve Haagenson: It hasn’t gone out yet. Doug Hall: When is that supposed to be out Bob, next week? Bob Zaharsky: Next week. Steve Haagenson: Would you be considering it a non-responsive bid if they came back and said we don't have liability insurance for the work we're doing? Doug Hall: Absolutely. The original intent of the O&D subcommittee was to get a contractor. Brian knows a couple of the contractors outside that have crews — they would fly crews up, bring the crews in, get the work done and get out — in the window we provide them. Steve Haagenson: As well as Homer Electric. Doug Hall: And the O&D subcommittee said yes, Homer can submit a bid. Yes, we firmly believe it should be a least cost decision. Gene Bjornstad: But Chugach is not collecting bids for this needle work, we’re not doing this. Doug Hall: No, actually the O&D subcommittee and Bob Zaharsky has been doing it for the O&D subcommittee. Steve Haagenson: None of my business, but when you submit your bid from Homer, are you going to have liability insurance? Norm Story: We're not going to submit a bid if you’re going to expect us to come as a contractor. Page 12 of 17 Wayne Carmony: | don’t know how we're going to be able to evaluate a bid that doesn’t provide any protection against one that does. It looks like we have some sort of obligation to provide equal footing or you're not even going to solicit any interest from other folks. Norm Story: This question, and | haven't talked that much with our folks, as said, this was an immediate reaction from us because the O&D committee, someone at least was driving this, it said that it did not think that Homer Electric had the expertise to do the work with the people that we had. Now it’s the same people that did it last time. Doug Hall: Norm, | don’t know that anybody at the O&D subcommittee ever said that — what we said is that we want to get this worked up — we have to have, we've got a small window and we have to have the work done, we can’t afford to string it out because of the combustion turbine outages and such that we've got. Norm Story: Maybe that’s a misunderstanding and that’s why | say, a separate discussion that needs to be talked out, but that’s the reason that we've indicated our interest in submitting a proposal for the work. If it’s being driven by time, and the O&D committee believes that we can’t do it within that time window because of number of people or whatever, then that’s possibly a different subject. We need to discuss that and maybe that’s the best way to go — to go out for contract. We want to do it least cost, we want to do it within the timeframe that it has to be done, that’s the two goals | assume that we all want. Wayne Carmony: Norm, | think you ought to just go ahead and put the overhead on there that you need to put and certainly bid it, because even with your overhead you are looking at a situation that you're going to have some distinct advantages and it would still be the least cost proposal probably, or certainly probably will be one of the least cost proposals that we would get in. Norm Story: And that may be possible, and when | said we probably wouldn't be bidding if we had to come as a contractor, the reason | said that is because | don’t know that we're set up where we can do that that quickly. We may be able to. Obviously there has already been some discussion with some stateside contractors so, there already set up to do the work, of course they do that on a year-in-year-out basis. We may be able to. A point was we'll only do it for least cost and we wanted to do it under the umbrella of agreement with the entire group. If we have to come as independent contractors then it’s going to change the way we would...(inaudible). It’s going to increase the cost. Wayne Carmony: It’s not really a least cost evaluation if there is intangible cost associated with the individual liability being attached to the different participants. Norm Story: That's right. Wayne Carmony: My recommendation to you would be that you attempt to pursue it as a contractor so that we have the benefit of having you bid it and potentially doing the work and we also don’t have to address these other liability issues with our own insurance coverage. Norm Story: We'll consider that. But, it brings a question up — we've got out operating today doing things and a significant amount of work needs to be done this year. Having this question come up at this late date is going to create some problems for us. We can work through them, that’s why it’s very important that | set a short request for time for review of our risk associated with all these other activities. Your point is well taken, Wayne. We don’t have a problem with Page 13 of 17 considering that. If we feel we need to go out to bid, then we would have to come as contractors to the table to bid on this piece of work. Steve Haagenson: You have an O&M contract, you are the operator of the plant, right? So you are doing O&M all the time, why is this any different? Norm Story: Well, for one thing, the type of insurance we would have to cover for this kind of project, we'd have to go get. It falls outside the scope of what traditionally you would have for coverage. The PMC carries the insurance on the project through this budget. We would just have to get insurance, get bonding probably, those sorts of things in place. We will give it some consideration, but our point in this in the beginning was that we really need to assess this because unless there is an issue with time limits to do work, it would appear that if we can do it in-house that it’s going to cost us less money, than having to do it outside. Now, Wayne brings up a point that if there is some problem resulting from that work, then the whole group has to fall prey to the cost of that as opposed to a contractor carrying insurance to provide coverage. | guess another way would be that the PMC could carry the insurance for the project specific. We need to discuss that, and there is an O&D committee meeting tomorrow. | don’t know if there has been any assessment done on this project on what costs really would be in-house versus contracting, but | imagine you can figure at least 20% to 50% more to do the project if you contract it. Steve Haagenson: So, does your motion cover... Norm Story: My motion just covered pulling back the original motion and restating a motion that we have an assessment done of our risk and... Steve Haagenson: Does that include the needle? Norm Story: No, I’m just talking about just the insurance review and coverage review of our risk in dealing with any of the existing contracts or any of the proposal of work done in the future. | don’t think that’s going to be that difficult. Wayne wants to put somebody on the committee if he doesn’t have someone on the committee, and needs to get someone on that committee. | just recommend that it be the finance committee because they are already formed up and should be able to do this work. Steve Haagenson: And we have a second, so any more discussion on that? My intent wasn’t to slow any of this work down, | don’t want to screw up the whole season. So, | would like to emphasize that we need to get this resolved really fast. | know you are meeting tomorrow. Doug Hall: John Cooley, correct me if I’m wrong, we've got a six-week window or that needle work? John Cooley: We picked one from the end of June... six to nine weeks. Doug Hall: Bob Zaharsky is saying it’s eight weeks. But we have a definitive window plugged into our maintenance schedule — correct? John Cooley: At the moment. Doug Hall: We have combined cycle maintenance prior to that and | know that you have Unit 8 maintenance during that period, or right after that period. That’s my concern and that’s the Page 14 of 17 O&D’s concern at least from ML&P’s perspective. We have a tight window that we need to work in and it is a money matter to us, because that Unit, that project being down now, and the other thing we can’t allow the project to slip any more or we run the risk of spilling water because we won't be able to control the lake if we get normal inflows. If we get less than normal inflows then that’s fine. I’m not sure the needle work can slip at all without putting water at risk for spilling. Eugene Bjornstad: Mr. Chairman, maybe with the concerns that have been raised, maybe we need to have another PMC meeting in another week or so and resolve this issue about the needle work so it can go forward. You know as well as | do that maintenance schedules sometimes expand and contract and so if we can get the needle work pretty well scheduled and get either Homer to do it or a contractor to do it, we need to decide that sooner rather than later. Steve Haagenson: What | was going to recommend is that we actually leave the O&D guys alone to do their job. | feel like | am kind of mucking up what they normally do all the time because we're involved in this as the PMC. I'd rather give them instructions to go out there and just go do what they do and if they want guidance on insurance we surely get that to them fairly fast, but | don’t think we should be able to tell them how to send their RFP’s out. Gene Bjornstad: Maybe if they go forward with instructions to go get bids or if Homer wants to prepare an in-house bid, and then at some point in the near future, you aren’t going to get bids tomorrow, it’s probably going to take a number of weeks for any kind of contractor to put something together. In the meantime, this review can go forward and maybe in a couple of weeks or a month, we can make a decision on all of it. Wayne Carmony: We ought to be able to do that before we award any contract. Gene Bjornstad: Right. Steve Haagenson: Okay, so we have a motion in front of us now to have the finance committee review our insurance requirements. Wayne Carmony: | assume that allows for some expansion of the finance committee to allow us to participate. Norm Story: | think it should, absolutely. Steve Haagenson: You can put your rep on there if you want Wayne. Gene Bjornstad: Call for the question. Norm Story: One other piece of discussion on that, | am assuming that this group will have to pull out existing agreements and take a look those agreements relative to the services being provided to the project to understand what is there relative to risk — that’s either accepted by the group that needs to be covered, or is expected to be provided by the service provider. Steve Haagenson: | have a call for the question. Shauna Dean: | have the first one, and then | have the restated second one that was withdrawn and it was: to develop a subcommittee to review insurance coverage and to do so within 30 days. Page 15 of 17 Steve Haagenson: All in favor of that motion signify by saying aye, all opposed? That motion is passed. The finance committee, who is the chair of that committee? Mike Cunningham: | am. Steve Haagenson: Okay Mike, it’s all yours. Wayne Carmony: Mike, should | have Steve Ellis contact you to coordinate you? Mike Cunningham: | can contact him. Doug Hall: Bob Zaharsky, when is the RFP set to go out? Bob Zaharsky: Well now that we had this discussion, | might send it to each utility to look at the cost for spill. Somehow we have to develop a penalty if that spill does occur, and that’s going to be different for each utility | would think. Doug Hall: I’m not sure what you're saying. Bob Zaharsky: Let's say the repair takes nine weeks. How do you penalize the contractor for that extra week? Every utilities damages is going to be different | would think. So, I’m not clear on how to word that section. Don Stead: | don’t think so. The O&D committee has always assumed that the water is valued at $25.00 an acre foot, in other words, $25.00 a megawatt hour. It’s right in that area, and if we just use that general number we just move on. | believe everybody has already seen that, haven't we? Several people replied no. Bob Zaharsky: At the O&D committee last time, the only person that asked to see it was Brian, so he can incorporate the changes to the orifice in the RFP. And, the State has taken a look at it. Bob Price: |’m not so sure that Bob’s analysis isn’t better that every utility would have a different cost for the loss of debt power if there was an overrun. Take Chugach for example, of you’re having to run an extra turbine because that ran over and you have Unit 8 down and you are running a very costly turbine that could be $45 water to you. Plus, the loss of capacity could change a lot because of the spin. | know that applies to us. Steve Haagenson: | guess one recommendation is that the more throw on the liquidated damages, the more you pay, they’re not going to just accept the risk. If you make it a big number they are going to charge you more for it. Wayne Carmony: You just need to make it a number that causes them to try to stick with the schedule. | don’t think trying to be made whole is reasonable because of what you just said — the numbers are so different for everybody. Gene Bjornstad: That's right. Just agree on the $25.00 or $27.00 or whatever it happens to be and use that number. Page 16 of 17 Steve Haagenson: Okay, and the O&D is working on that right? At the risk of stirring the pot again, if Homer is the O&D maintenance plant person, and this appears to be maintenance isn’t it? Why aren't we just having Homer do that? If they did it last year, isn’t that what they did it under? That's something you guys need to talk about tomorrow. Art Copoulos: The only other thing | was going to add is hopefully you guys can give us some direction on how you would want to participate tomorrow, whether that be just doing it under the normal maintenance procedures or as a contractor. Art Copoulos: The only other project is the turbine runner repair and the status of that is we are in the process of determining the depth of the crack and when we find that out that will give us some idea whether we can do the repair on location or have to send it off to Fuji. Bob Zaharsky: The calibration block that we need to do that is cast and should be on the way to the plant and we'll get a local testing firm to determine the depth of the crack. Steve Haagenson: Going back to Brian’s comment, originally, you have one RFP Brian — so you are going to continue down that path, so nothing we did today is going to stop you right? Brian Hickey: That's correct. I’m going to try to get some other people to throw their name in the hat here. If we don’t get that, then we’re probably going to have to regroup and figure out where we’re going to go from there. VERBATIM SECTION (End) D. Executive Summary Performance Report John Cooley gave a brief overview of the handouts (attached) which show generation, lake levels, historical graphs, monthly statement from Chugach regarding energy levels compared against meters, monthly totals, percentages of output each utility takes, peak outputs and energy usage by each utility and balances. 8. COMMITTEE COMMENTS A. Next Meeting Date —- Haagenson Chair Haagenson recommended that the next regularly scheduled meeting of the committee be held at 10:00 a.m. on Thursday, April 11, 2002, at the Alaska Industrial Development and Export Authority's Board Room. 9. 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