HomeMy WebLinkAboutAEA Basic Financial Statements and Schedules June 30, 2013 and 2012ALASKA ENERGY AUTHORITY
(A Component Unit of the State ef Alaska)
| Statements and Schecules Basic Fir a
June 30,2013 and 2012
(With incerendent Auditors’ Report Thereon}
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Table of Contents
Management’s Discussion and Analysis
Independent Auditors’ Report
Statement of Net Position
Statements of Revenues, Expenses, and Changes in Net Position
Statements of Cash Flows
Notes to Basic Financial Statements
Schedules
1 Schedule of Bradley Lake Hydroelectric Project Trust Account Activities
2 Schedule of Projects and Programs — Statement of Net Position
e 3. Schedule of Projects and Programs — Revenues, Expenses, and Changes in Net Position
Supplementary Information (Unaudited)
4 Schedule of Capital Assets presented under Federal Energy Regulatory Commission
5 Supplementary Organization and Project Information
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Management’s Discussion and Analysis
June 30, 2013 and 2012
Overview of the Financial Statements
The Alaska Energy Authority’s (AEA or Authority) is composed of the following programs — AEA owned
hydroelectric and intertie projects, rural energy programs, and energy development programs. Further
information on AEA’s programs can be found in note | to the financial statements.
This financial report consists of three sections: management’s discussion and analysis, basic financial statements,
and supplementary schedules. AEA’s operations are business type activities and are considered an enterprise
fund. The Authority is a component unit of the State of Alaska (State) and is discretely presented in the State’s
financial statements. The Authority’s basic financial statements are the Statement of Net Position, the Statements
of Revenues, Expenses, and Changes in Net Position; the Statements of Cash Flows; and the Notes to Basic
Financial Statements.
Basic Financial Statements
The Statement of Net Position report the Authority’s assets, liabilities, and resulting net position. The net position
is reported as invested in capital assets less debt, restricted, and unrestricted. Restricted net position is subject to
external limits such as bond resolutions, legal agreements, or statutes.
The Statements of Revenues, Expenses, and Changes in Net Position report the Authority’s income, expenses,
and resulting change in net position during the periods reported.
Both statements report on the accrual basis of accounting and economic resources measurement focus.
The Statements of Cash Flows report the Authority’s sources and uses of cash and change in cash balance
resulting from the Authority’s activities during the periods reported.
The Notes to Basic Financial Statements provide additional information required to fully understand the amounts
reported in the basic financial statements.
Management’s Discussion and Analysis
This section presents AEA management’s analysis of the Authority’s financial position and results of operations
at and for the years ended June 30, 2013 and 2012. This information is presented to help the reader focus on
significant financial issues and provide additional information regarding the activities of the Authority. This
information should be read in conjunction with the Independent Auditors’ Report, the audited financial
statements and the accompanying notes.
Financial Highlights
AEA’s assets exceeded its liabilities by $1.2 billion and $1.1 billion at June 30, 2013 and 2012, respectively. Of
the total net position at June 30, 2013, $183.1 million was invested in capital assets net of related debt,
$31.3 million was restricted and $966.6 million was unrestricted. Of the total net position at June 30, 2012,
$134.8 million was invested in capital assets net of related debt, $33.6 million was restricted, and $902.1 million
was unrestricted.
1 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Management’s Discussion and Analysis
June 30, 2013 and 2012
Financial Analysis
Financial Position
Total assets, total liabilities, and total net position at June 30, 2013, 2012, and 2011 follows (stated in thousands):
2013 2012 2011
Current assets $ 15,729 21,571 410,251 Capital assets, net 270,563 229,310 227,438
Other noncurrent and restricted assets 1,065,860 977,856 579,130
Total assets 1,352,152 1,228,737 1,216,819
Current liabilities 89,717 68,966 44,932
Noncurrent liabilities 81,288 89,143 95,978
Total liabilities 171,005 158,109 140,910
Total net position 1,181,147 1,070,628 1,075,909
Total liabilities and net position $ 13525152 1,228,737 1,216,819
Current assets were $5.8 million lower at June 30, 2013 compared to June 30, 2012 and $388.7 million lower at
June 30, 2012 compared to June 30, 2011. The change from 2012 to 2013 was primarily due to a transfer of
$3.2 million in loans from the Bulk Fuel Loan Fund to the State Department of Commerce, Community and
Economic Development (DCCED), $6.6 million increase in receivables from the State for Power Cost
Equalization (PCE) program and $8.4 million reduction in receivable from the State for general fund
appropriations. The change from 2011 to 2012 was primarily caused by $400 million due from the State at
June 30, 2012 for the PCE Endowment Fund; when received the amount became part of noncurrent restricted
cash and investments.
Capital assets were $41.2 million higher at June 30, 2013 compared to June 30, 2012 substantially due to
continued development of the Susitna-Watana Hydroelectric Project offset by depreciation of other project
capital assets. Capital assets were $1.9 million higher at June 30, 2012 compared to June 30, 2011 substantially
due to development of the Susitna-Watana Hydroelectric Project and other improvements, offset by depreciation
of capital assets and the conveyance of the Napakiak Intertie Project to Napakiak Irecinraq Power Corporation. A
summary of major activity during the years ended June 30, 2013 and 2012 relating to capital assets, net follows
(stated in thousands):
2013 2012
Susitna-Watana Hydroelectric Project development $ 46,097 10,155
Bradley Lake Hydroelectric Project improvements 3,979 2,950
Alaska Intertie Project improvements 2,963 1,640
Napakiak Intertie Project transfer _ (3,131)
Depreciation (11,786) (9,742)
Change in capital assets, net $ 41,253 1,872 bo (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Management’s Discussion and Analysis
June 30, 2013 and 2012
Other noncurrent and restricted assets were $88.0 million higher at June 30, 2013 compared to June 30, 2012 and
$398.7 million higher at June 30, 2012 compared to June 30, 2011. The 2013 increase primarily related to an
increase in cash and investments by $99.0 million and a $2.6 million increase in Power Project Fund loans offset
by a $12.7 million transfer of Bulk Fuel Loan Fund investments and loans to DCCED. The 2012 increase
primarily related to the receipt of $400.0 million restricted to the PCE Endowment Fund, along with other
restricted contributions offset by expenditures of restricted funds.
Current liabilities were $20.8 million higher at June 30, 2013 compared to June 30, 2012 and $24.0 million
higher at June 30, 2012 compared to June 30, 2011. The change related primarily to amounts due to the State and
accrued expenses.
The $7.8 million decrease in noncurrent liabilities between June 30, 2013 and 2012 was substantially caused by a
decrease in the long-term debt portion of bonds payable and a decrease in arbitrage interest payable. The
$6.8 million decrease in noncurrent liabilities between June 30, 2012 and 2011 was substantially caused by a
decrease in the long-term portion of bonds payable, offset by an increase in the noncurrent portion of arbitrage
interest payable and a decrease in other noncurrent liabilities.
Net position was $110.5 million higher at June 30, 2013 compared to June 30, 2012 and $5.3 million lower at
June 30, 2012 compared to June 30, 2011. The net changes were substantially caused by the following activity
during the years ended June 30, 2013 and 2012 (stated in thousands):
2013 2012
Operating loss $ (63,535) (61,916)
Investment income 113,415 14,050
State of Alaska appropriation for capital assets 50,605 13,481
Contributions from State of Alaska to other funds 25,871 29,020
Transfer of Bulk Fuel Loan Fund to State of Alaska (15,873) —
Change in net position $ 110,483 (5,365)
(Continued) we
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Management’s Discussion and Analysis
June 30, 2013 and 2012
Operations
Components of the Authority’s operating revenues, operating expenses, nonoperating investment income and
operating loss for the years ended June 30 were as follows (stated in thousands):
2013 2012 2011
Operating revenues $ 102,443 98,660 47,268
Operating expenses 165,978 160.576 118,676
Operating loss (63,535) (61,916) (71,408)
Nonoperating:
Investment income, net 113,415 14,050 70,897
State of Alaska contributions for capital assets 50,605 13,481 —
State of Alaska contributions to the Renewable
Energy Fund 25,871 29,020 437,200
Loss on sale of Power Project Fund loans — _ (3,850)
Decrease in contingent liability from loan sale 36 84 De
Transfer of Bulk Fuel Loans to DCCED (15,873) — —
Increase (decrease) in net position $ 110,519 (5,281) 432,861
Operating revenues increased $3.8 million during the year ended June 30, 2013 compared to the prior year and
increased $51.3 million during the year ended June 30, 2012 compared to the prior year. Components of changes
were as follows (stated in thousands):
FY 2013-2012 FY 2012-2011
Net change Net change
(Decreased) increased Federal grant revenue $ (8,794) 3,113
Fluctuations in revenue from operating plants 580 (1,256)
Increased revenue from State for PCE grant program 1,784 7,970
Increased revenue from State energy projects for
Alaska Railbelt utilities 6,915 22,429
(Decreased) increased revenue from State for Eva Creek wind farm (10,000) 10,000
Increased revenue from other State general fund
operating and capital appropriations 15,279 5,259
(Decreased) increased revenue from other State agencies (1,707) 3,877
Decreased revenue from loan interest and other miscellaneous
revenues (274) —_—
$ 3,783 S392
4 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Management’s Discussion and Analysis
June 30, 2013 and 2012
Operating expenses increased $5.4 million during the year ended June 30, 2013 compared to the prior year and
increased $41.9 million during the year ended June 30, 2012 compared to the prior year. Components of the
changes were as follows (stated in thousands):
FY 2013-2012 FY 2012-2011
Net change Net change
(Decreased) increased federally funded grant and project expenses
in active rural energy construction projects $ (8,677) 3,113
Increased State funded grant and project expenses 14,709 24,802
(Decreased) increased State agency and component unit funded
expenses for interagency contracts (3,445) 3,929
Increased PCE grant expenditures 1,201 7,719
Other expenses 1,614 2,337
$ 5,402 41,900
Nonoperating State contributions fluctuate from year to year depending on major initiatives of the state
legislature. The $117.4 million increase in nonoperating revenue in fiscal year 2013 compared to fiscal year 2012
was primarily due to increased investment income of $99.3 million and net increased contribution from the State
for capital energy assets and fund capitalizations of $34.0 million offset by a $15.9 million decrease from the
transfer of the Bulk Fuel Loan program. The $447.6 million decrease between fiscal year 2012 and 2011 was
primarily due to a nonrecurring $410.0 million State contributions to the PCE Endowment and Power Project
funds.
Outlook
Annual operation of the owned hydroelectric and intertie projects are per annual budgets approved by the utilities
that use the assets and pursuant to bond resolutions and other agreements. Susitna-Watana Hydroelectric project
expenditures are per State capital appropriations and legislation. Annual operations of the rural energy programs
and energy development programs and projects are per State legislation, annual appropriations, and federal grant
awards.
KPMG LLP
Suite 600
701 West Eighth Avenue
Anchorage, AK 99501
Independent Auditors’ Report
The Board of Directors
Alaska Energy Authority:
Report on the Financial Statements
We have audited the accompanying financial statements of the Alaska Energy Authority (a Component
Unit of the State of Alaska) (Authority), as of and for the years ended June 30, 2013 and 2012 and the
related notes to the financial statements, which collectively comprise the Authority’s basic financial
statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with U.S. generally accepted accounting principles; this includes the design, implementation,
and maintenance of internal control relevant to the preparation and fair presentation of financial statements
that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted
our audits in accordance with auditing standards generally accepted in the United States of America and
the standards applicable to financial audits contained in Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditors’ judgment, including the assessment
of the risks of material misstatement of the financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair
presentation of the financial statements in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management,
as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Authority as of June 30, 2013 and 2012, and the changes in its financial position
and its cash flows for the years then ended in accordance with U.S. generally accepted accounting
principles.
KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ("KPMG International"), a Swiss entity.
Other Matters
Required Supplementary Information
U.S. generally accepted accounting principles require that the management’s discussion and analysis on
pages 1—5 be presented to supplement the basic financial statements. Such information, although not a part
of the basic financial statements, is required by the Governmental Accounting Standards Board who
considers it to be an essential part of financial reporting for placing the basic financial statements in an
appropriate operational, economic, or historical context. We have applied certain limited procedures to the
required supplementary information in accordance with auditing standards generally accepted in the United
States of America, which consisted of inquiries of management about the methods of preparing the
information and comparing the information for consistency with management’s responses to our inquiries,
the basic financial statements, and other knowledge we obtained during our audit of the basic financial
statements. We do not express an opinion or provide any assurance on the information because the limited
procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Supplementary and Other Information
Our audit was conducted for the purpose of forming an opinion on the financial statements that collectively
comprise the Authority’s basic financial statements. The supplementary information in schedules |
through 3 is presented for purposes of additional analysis and is not a required part of the basic financial
statements.
Such information is the responsibility of management and was derived from and relate directly to the
underlying accounting and other records used to prepare the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic financial statements and
certain additional procedures, including comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the basic financial statements or to the basic
financial statements themselves, and other additional procedures in accordance with auditing standards
generally accepted in the United States of America. In our opinion, the supplementary information is fairly
stated in all material respects in relation to the basic financial statements as a whole.
The supplementary information in schedules 4 and 5 has not been subjected to the auditing procedures
applied in the audit of the basic financial statements, an accordingly, we do not express an opinion or
provide any assurance on it.
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated October 24,
2013 on our consideration of the Authority’s internal control over financial reporting and on our tests of its
compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters.
The purpose of that report is to describe the scope of our testing of internal control over financial reporting
and compliance and the results of that testing, and not to provide an opinion on internal control over
financial reporting or on compliance. That report is an integral part of an audit performed in accordance
with Government Auditing Standards in considering the Authority’s internal control over financial
reporting and compliance.
KPMG LIP
October 24, 2013
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Statement of Net Position
June 30, 2013 and 2012
(Stated in thousands)
Assets 2013
Current assets:
Grants receivable $ 2,465
Loans receivable (note 6) 92
Operating revenue receivable 1,673
Due from State of Alaska 10,455
Accrued interest receivable 1,044
Total current assets 15,729
Noncurrent assets:
Restricted cash and cash equivalents (note 3) 17717
Cash and cash equivalents designated for specific purposes (note 3) 116,552
Restricted investments (note 3) 20,624
Investments designated for specific purposes (note 3) 905,814
Loans receivable, net of allowance (note 6) 5,153
Capital assets, net of accumulated depreciation (note 4) 270,563
Total noncurrent assets 1,336,423
Total assets $ 153525152
Liabilities and Net Position
Current liabilities:
Due to State of Alaska $ 37,823
Accounts payable 41,533
Bonds payable — current portion (note 5) 7,300
Arbitrage interest payable — current portion (note 5) 657
Accrued interest payable 2,404
Total current liabilities 89,717
Noncurrent liabilities:
Bonds payable — noncurrent portion, net (note 5) 80,117
Arbitrage interest payable — noncurrent portion (note 5) 484
Other liabilities 687
Total noncurrent liabilities 81,288
Total liabilities 171,005
Net position:
Invested in capital assets, net of related debt 183,146
Restricted for debt service 20,908
Restricted by agreements with external parties 10,463
Unrestricted 966,630
Total net position 1,181,147
Commitments and contingencies (notes 7 and 9)
Total liabilities and net position $ 153522152)
See accompanying notes to basic financial statements.
2012 2 U2 Wot 5)
1 on 10,093 3.824 1.084
2S
19,370
96,874
20.880
838.211
2,521
229,310
1,207,166
1,228,737
22,235
37,241
6,880
2,610
68,966
87,607
813
723
89,143
158,109
134,823
20.163
13°5385
902.107
1,070,628
1,228,737
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Statements of Revenues, Expenses, and Changes in Net Position
Years ended June 30, 2013 and 2012
(Stated in thousands)
2013 2012
Operating revenues:
State of Alaska appropriations $ 74,260 60,283
Revenue from operating plants 16,937 16,357
Federal grants 6,077 14,871
Revenue from state agencies and component units 4,892 6,599
Interest on loans 277 302
Other revenue —_ 248
Total operating revenues 102,443 98,660
Operating expenses:
Grants and projects 99,634 97,047
Power cost equalization grants 40,100 38,899
Depreciation 11,786 9,742
General and administrative 5,291 5,267
Interest expense 4,618 5,032
Plant operating 4,363 4,501
Provision for loan loss (note 6) 186 88
Total operating expenses 165,978 160,576
Operating loss (63,535) (61,916)
Nonoperating:
Investment income, net 113,415 14,050
State of Alaska appropriations for capital assets 50,605 13,481
State of Alaska contribution to the Renewable Energy Fund 25,871 26,620
Decrease in contingent liability on sold loans 36 84
Transfer of Bulk Fuel Loan Fund to State of Alaska (15,873) —_—
State of Alaska appropriation to the Emerging Energy Technology
Fund —_— 2,400
Total nonoperating 174,054 56,635
Increase (decrease) in net position 110,519 (5,281)
Net position — beginning 1,070,628 1,075,909
Net position — ending $ 1,181,147 1,070,628
See accompanying notes to basic financial statements.
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Statements of Cash Flows
Years ended June 30, 2013 and 2012
(Stated in thousands)
2013 2012
Cash flows from operating activities:
Receipts from federal grants $ 6.864 13,558
Receipts from customers and users 17,164 13,018
Receipts from State of Alaska appropriations 59,186 69,715
Receipts from state agencies and component units 6.048 6.449
Other operating receipts _ 250
Payments to suppliers (18,266) (25,836)
Payments to grantees (130,976) (112,890)
Net cash used for operating activities (59,980) (35,736)
Cash flows from noncapital and related financing activities:
Net unremitted interest returned on State appropriation advances a 7
PCE contribution from State _ 400,000
Emerging Energy Technology contribution from State 2,000 4,800
Renewable Energy Fund contribution from State 25,871 26,620
Bulk Fuel Loan Fund transfer to DCCED (9,158) _
Subrecipient grant advances 7,034 (8,114)
Net receipt related to operating loans from AIDEA (2,668) 3,992
Net cash provided by noncapital and related financing activities 23,079 427,300
Cash flows from capital and related financing activities:
Principal paid on bonds (6,880) (6,495)
Interest paid on bonds (5,014) (5,416)
State of Alaska appropriation for capital assets 72,215 14,655
Purchase of capital assets (45.544) (9,044)
Net cash used for capital and related financing activities 14,777 (6.300)
Cash flows from investing activities:
Purchase of investments (234,092) (504,092)
Proceeds from sales and maturities of investments 270,951 140.467
Interest received from investments 9,266 17,288
Principal collected on loans 6,408 12,061
Interest collected on loans 237 308
Loans originated (12.621) (14,661)
Net cash provided by (used for) investing activities 40.149 (348.629)
Net increase in cash and cash equivalents 18,025 36,635
Cash and cash equivalents at beginning of year 116,244 79.609
Cash and cash equivalents at end of year Ss 134,269 116,244
Reconciliation of operating loss to net cash used for operating activities:
Operating loss $ (63,535) (61,916)
Adjustments to reconcile operating loss to net cash used for operating activities:
Depreciation 11,786 9,742
Provision for loan loss and bad debt expense 186 88
Bond interest expense 4.618 5,032
Interest on loans (277) (302)
Conveyance of intertie to local utility included in grants and projects _ 3,131
Changes in assets and liabilities that provided (used) cash:
(Decrease) increase in due to State of Alaska (7.360) 12,326
Increase in due from the State of Alaska (7,294) (2.784)
Decrease (increase) in grants receivable 787 (1.313)
Decrease in operating revenue receivable 797 1,053
Increased (decreased) in operating accounts payable 312 (793)
Net cash used for operating activities $ (59.980) (35,736)
Noncash capital and related financing and investing activities:
Amount included in accounts payable for capital asset additions $ 14,078 6,582
Transfer of Bulk Fuel Loan Fund loan and interest receivable, net of allowance to DCCED (6,715) —
Net increase (decrease) in fair value of investments 107,317 (20,536)
Conveyance of intertie project — (3,131)
See accompanying notes to basic financial statements.
10
(1)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Organization and Operations
The Alaska Energy Authority (Authority or AEA) was created by the Alaska State Legislature in 1976.
AEA is a public corporation and a component unit of the State of Alaska (State). AEA’s mission is to
reduce the cost of energy in Alaska through various energy infrastructure projects and energy programs.
Pursuant to legislation enacted in 1993, the members of the board of the Alaska Industrial Development
and Export Authority (AIDEA) also serve as the board of directors of AEA. The AIDEA provides
personnel services for AEA (per statute, AEA has no employees) and has a borrowing arrangement to
provide working capital funds to AEA. AIDEA and AEA have separate executive directors, both
employees of AIDEA. There is no commingling of funds, assets, or liabilities between AIDEA and AEA
and there is no responsibility of one for the debts or the obligations of the other.
The following is a description of AEA’s existing projects and programs:
(a)
(b)
(2)
Bradley Lake Hydroelectric Project
The project has 120 megawatts of installed capacity and transmits its power to the State’s main
power grid via two parallel 20—mile transmission lines. The project, which cost in excess of
$300 million, went into commercial operation in 1991. The project is now operated by Homer
Electric Association under contract with AEA. Bradley Lake serves Alaska’s Railbelt from the Kenai
Peninsula to Fairbanks as well as the Delta Junction area.
The Authority is in the process of amending the Federal Energy Regulatory Commission (FERC)
license for a diversion of Battle Creek into the Bradley Lake project to provide increased energy of
about 36,000 - 42,000 megawatt hours. The amendment is likely to be received in 2014 with
construction completed the fall of 2016.
Alaska Intertie Project
The Alaska Intertie is a 170—mile transmission line, designed for 345 kilovolts and is operating at
138 kilovolts. It runs between Willow and Healy, and interconnects the power systems in the
Anchorage and Fairbanks areas. The Intertie reduces the number of black/brownouts throughout the
system by enabling power to move either north or south when major system disturbances occur. The
Alaska Intertie allows Golden Valley Electric Association (GVEA) in Fairbanks to purchase lower
cost electricity produced by Chugach Electric Association (CEA) and the Municipality of
Anchorage, d/b/a Municipal Light and Power (ML&P). It also allows Southcentral Alaska utilities to
purchase power from Fairbanks during power shortages. AEA contracts with the above Participating
Utilities for operations and maintenance. These duties are overseen by the Intertie Management
Committee (IMC) and AEA under the Alaska Intertie Agreement.
Susitna-Watana Hydroelectric Project
The Alaska Legislature appropriated $170 million in funding to AEA for the development of a large
hydroelectric project to be built in the Railbelt Region. AEA is currently in the process of obtaining a
FERC license for this project.
11 (Continued)
(@)
(2)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
As currently envisioned, the proposed project would be located approximately half-way between
Anchorage and Fairbanks on the upper Susitna River and would include a single dam with a
estimated installed capacity of 600 megawatts (MW) that would produce 50% of the Railbelt’s
electrical demand.
Rural Energy Programs
The rural energy programs include Bulk Fuel Storage Upgrades, Rural Power System Upgrades,
PCE Grant Program, Utility Training, and Technical Assistance, two active loan programs funded
from the Bulk Fuel Revolving Loan Fund and the Power Project Fund, and one inactive loan
program. The PCE Endowment Fund provides the PCE program a long-term stable financing source
in order to reduce electricity costs for residential and community facility customers in otherwise
high-cost service areas.
Pursuant to legislation, effective January 1, 2013, the Bulk Fuel program (all outstanding Bulk Fuel
loans, and the Bulk Fuel Revolving Loan Fund that provided the program’s funding) was transferred
from AEA to the State’s DCCED. The Bulk Fuel program had a carrying amount of $15,873,000 at
the time of the transfer.
Energy Development Programs
The energy development programs include the Renewable Energy Grants and Recommendation
Program, alternative energy and energy efficiency programs, and the Emerging Energy Technology
Fund Grant Program.
The purpose of the Renewable Energy Grants program is to finance renewable energy projects in
Alaska. The purpose of the Emerging Energy Technology Fund is to promote and provide financial
assistance to applicants to test, conserve, and improve emerging energy technologies.
(2) Summary of Significant Accounting Policies
(a) Basis of Accounting — Enterprise Fund Accounting
As a component unit of the State and for the purpose of preparing financial statements in accordance
with U.S. generally accepted accounting principles, the Authority is subject to the accounting
requirements as set forth by the Governmental Accounting Standards Board (GASB).
The accounts of the Authority are organized as an Enterprise Fund. Accordingly, the financial
activities of the Authority are reported using the economic resources measurement focus and the
accrual basis of accounting, whereby revenues are recorded when earned and expenses are recorded
when goods or services are received or the related liability is incurred.
Operating Revenue and Expense
The Authority considers all its revenues and expenses, except investment income, the sale of
program loans, fund transfers with the State and conveyance of capital assets, to be part of its
principal ongoing operations and therefore classifies these revenues and expenses as operating in the
12 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
statement of revenues, expenses, and changes in net position. State appropriations to fund operating
grants and projects are included in operating revenue.
(b) Capital Assets
Capital assets are stated at cost and depreciation is charged to operations by use of the straight-line
method over their estimated useful lives.
The estimated economic lives of the assets are as follows:
Utility plant Life in years
Intangible 30-50
Production 30-50
Transmission 20-40
General 5-30
The Authority recognizes impairment losses for long-lived assets whenever there is a significant
unexpected decline in service utility. AEA recognizes intangible assets per the guidance of
GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets.
(c) Cash and Investments
All of AEA’s cash and investments are restricted or designated as to use. For the purposes of the
statement of cash flows, cash and cash equivalents consist of cash, short term commercial paper, and
money market funds.
AEA’s marketable securities are reported at fair value in the financial statements. Unrealized gains
and losses are reported as components of the change in net position. Fair values are obtained from
independent sources.
(d)_ Loans and Related Interest Income
Loans are generally carried at amounts advanced less principal payments collected. Interest income
is accrued as earned. Accrual of interest is discontinued whenever the payment of interest or
principal is more than ninety days past due or when the loan terms are restructured. The Authority
considers lending activities to be part of its principal operations and classifies it as operating in the
statement of revenues, expenses, and changes in net position. For purposes of the statement of cash
flows, the loan program activities are treated as investing activities.
(e) Allowance for Loan Losses
The allowance for loan losses represents management’s judgment as to the amount required to
absorb probable losses in the loan portfolio. The factors used by management to determine the
allowance required include historical loss experience, individual loan delinquencies, collateral
values, economic conditions, and other factors. Management’s opinion is that the allowance is
currently adequate to absorb known losses and inherent risks in the portfolio.
13 (Continued)
(9)
(h)
i)
@
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Environmental Issues
The Authority’s policy relating to environmental issues, including pollution and contamination
remediation obligations to address the current or potential detrimental effects of existing pollution by
participating in pollution remediation activities such as site assessments and cleanups, is to record a
liability when the likelihood of Authority responsibility for clean-up is probable and the costs are
reasonably estimable. At June 30, 2013, there were no outstanding environmental issues which met
both of these criteria and, accordingly, no provision has been made in the accompanying financial
statements for any potential liability which may result.
Income Taxes
The Internal Revenue Code provides that gross income for tax purposes does not include income
accruing to a state or territory or any political subdivision thereof which is derived from the exercise
of any essential governmental function or from any public utility. AEA is a public corporation of the
State performing an essential governmental function and is therefore exempt from State and federal
income taxes.
Appropriations and Grants
The Authority recognizes appropriations and grant revenue under the provisions of GASB Statement
No. 33, Accounting and Financial Reporting for Nonexchange Transactions, whereby revenue is
recognized when all applicable eligibility requirements, including time requirements, are met.
Estimates
In preparing the financial statements, management of the Authority is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent
assets and liabilities as of the date of the Statement of Net Position. These estimates impact revenue
and expenses for the period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In December 2010, the GASB issued GASB Statement 62, Codification of Accounting and Financial
Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
(Statement 62). Statement 62 incorporated into the GASB’s authoritative literature certain
accounting and financial reporting guidance that was previously contained elsewhere. Statement 62
also eliminated the election for enterprise funds and business-type activities to apply
post-November 30, 1989 standards of accounting and financial reporting issued by the Financial
Accounting Standards Board (FASB). However, enterprise funds and business-type activities can
continue to apply FASBpronouncements that do not conflict with or contradict
GASB pronouncements as other accounting literature. The Authority’s adoption of Statement 62
during the year ended June 30, 2013 did not have a significant impact on the Authority’s financial
statements.
In June 2011, the GASB issued GASB Statement 63, Financial Reporting of Deferred Outflows of
Resources, Deferred Inflows of Resources, and Net Position (Statement 63). Statement 63 provided
14 (Continued)
(3)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
financial reporting guidance for deferred outflows of resources and deferred inflows of resources,
and amended the net asset reporting requirements to rename that measure as net position. The
Authority’s adoption of Statement 63 during the year ended June 30, 2013 did not have a significant
impact on the Authority’s financial statements, other than to retitle what was previously known as
“Fund Equity” as “Net Position.”
In March 2012, the GASB issued GASB Statement 65, /tems Previously Reported as Assets and
Liabilities (Statement 65). Statement 65 establishes accounting and financial reporting standards that
reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were
previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of
resources, certain items that were previously reported as assets and liabilities. The new standard is
effective for periods beginning after December 15, 2012. The Authority is currently evaluating the
impact the adoption of Statement 65 will have on its financial statements.
Cash and Investments
Pursuant to various agreements, appropriations and statutory requirements relating to its operations, AEA
has established accounts for assets restricted to construction, operation, and financing activities (as used
throughout this footnote, Fund means a separate account established by the State legislature and does not
refer to a separate group of self-balancing accounts as contemplated by U.S. generally accepted accounting
principles).
At June 30, 2013 and 2012, the Authority’s carrying amount of deposits (all of which were restricted or
designated for specific purposes) was $134,269,000 and $116,244,000, respectively. The total of all bank
balances on the same dates was $139,755,000 and $118,175,000, respectively.
The restricted cash and cash equivalents and investments were held in trust accounts for the following
activities as of June 30, 2013 and 2012 (stated in thousands):
2013 2012
Bradley Lake Hydroelectric Project $ 9,704 9,490
Trans-Alaska Pipeline (TAPL) Appropriation 6,855 9,481
Alaska Intertie Project 1,158 399
Total restricted cash and cash equivalents $ 17,717 19,370
Bradley Lake Hydroelectric Project $ 20,624 20,880
Total restricted investments $ 20,624 20,880
15 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
The designated cash and cash equivalents and investments were held in trust accounts for the following
activities as of June 30, 2013 and 2012 (stated in thousands):
2013 2012
Renewable Energy Grant Program $ 29,733 46,316
Funds advanced from State and federal agencies 57,401 31721
Rural Energy and Energy Development Programs 73 211
Emerging Energy Technology Fund 782 _
Rural Energy Loan Funds 26,911 16,264
Power Development Fund 1,650 2,356
Power Cost Equalization Endowment Fund 2 6
Total designated cash and cash equivalents $ 116,552 96,874
Emerging Energy Technology Fund $ 4,800 4,800
Renewable Energy Grant Fund 50,795 44,588
Rural Energy Loan Funds 10,006 37,048
Power Cost Equalization Endowment Fund 840,213 751,775
Total designated investments $ 905,814 838.211
Investment Holdings
Power Cost Equalization Endowment Fund, Renewable Energy Grant Fund and Emerging Energy
Technology Fund — The Power Cost Equalization Endowment Fund (PCE Fund), created under Alaska
Statute 42.45.070, the Renewable Energy Fund (RE Fund), created under Alaska Statute 42.45.045, and the
Emerging Energy Technology Fund (EET Fund), created under AS 42.45.375, are under the fiduciary
authority of the State Department of Revenue, Treasury Division (Treasury).
State investments, including those managed by Treasury for the Authority, are managed in pools. PCE
Fund assets are held in the State’s internally managed Short-term and Intermediate Fixed Income Pool and
the Conservative Broad Market Pool (which consists solely of investments in the Broad Market and
U.S. Treasury Fixed Income Pools), as well as the State’s externally managed Domestic Equity account
and International Equity Pool. RE and EET Fund assets are held in the State’s internally managed General
Fund and Other Non-Segregated Investments Pool (GeFONSI). The GeFONSI consists of investments in
the State’s internally managed Short-term and Intermediate-term Fixed Income Pools. The complete
financial activity of the funds is shown in the Comprehensive Annual Financial Report available from the
Division of Finance in the State Department of Administration.
Fixed income and international equity securities are valued each business day using prices obtained from a
pricing service. The Domestic Equity account is valued each business day by the Trustee Committee in
good faith and pursuant to procedures established by the Trustee. Securities expressed in terms of foreign
currencies are translated into U.S. dollars at the prevailing exchange rates.
16 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
The accrual basis of accounting is used for investment income. Income in the other fixed income pools and
the International Equity Pool is allocated to pool participants daily on a pro rata basis. Domestic equity
income is distributed quarterly.
At June 30, 2013, AEA had the following cash and investments in the PCE, RE, and EET Funds (stated in
thousands):
Investment type
Commercial paper
U.S. Treasury bonds
U.S. Treasury bills
U.S. Treasury notes
U.S. Treasury strip
U.S. government discount notes
U.S. government agency
Mortgage-backed
Deposit
Other asset-backed
Municipal bonds
Corporate bonds
Yankee:
Government
Corporate
Domestic equity
International equity
Total invested
assets
Pool related net liabilities
Other pool ownership
Net invested assets $
Cash Investments at fair value
RE and EET
PCE Fund Funds PCE Fund
Short and Broad market
intermediate- and U.S.
Short-term terms and Treasuries
fixed liquidity fixed fixed
income pool income pools income pools Equity Total
386 1,132 —_— a= _—
— — 4,283 _— 4.283
3.894 18,590 _— _ _
_ 17.990 60.130 —_— 60.130
— 148 895 _ 895
1 2 _— — _
_ 804 5,982 _ 5,982
20 594 66,426 _ 66.426
198 580 (2) cd (2)
3.946 12,255 6.921 — 6,921
> 19 _— _ _
472 3.420 41,507 — 41,507
_— 97 1,987 _ 1,987
124 726 8.930 _— 8.930
_ _ _ 428.020 428,020
= — _— 211,837 211,837
9.046 56,357 197,059 639.857 836.916
(159) (762) (5,796) 208 (5,588)
(8.885) _— 8.885 Sond 8.885
2 55.595 200,148 640.065 840.213
17 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
At June 30, 2012, AEA had the following cash and investments in the PCE, RE, and EET Funds (stated in
thousands):
Cash Investments at fair value
RE and EET
PCE Fund Funds PCE Fund
Broad market
Short and and U.S.
Short-term intermediate- Treasuries
fixed terms fixed fixed
Investment type income pool income pools income pools Equity Total
Commercial paper $ 948 827 314 — 314
U.S. Treasury bonds — a 13,439 _— 13,439
U.S. Treasury bills 14,715 17.742 2.764 — 2.764
U.S. Treasury notes a 14,457 52,017 _ 52,017
U.S. Treasury strip _ 13 — — _
U.S. government agency 333 1,335 9.618 _ 9,618
Mortgage-backed 236 1,005 84.149 _ 84,149
Deposit lll 96 _ _ —
Other asset-backed 9.812 8,520 6,452 —_ 6.452
Corporate bonds 2,535 5.453 48,478 _ 48.478
Yankee:
Government _ 132 5,112 — 5,112
Corporate 583 501 11.411 _— 11.411
Domestic equity = _ _ 348,086 348.086
International equity _ — a 159,036 159,036
Total invested
assets 29,273 50.081 233,754 507,122 740.876
Pool related net liabilities (795) (693) (17,573) — (17,573)
Other pool ownership (28.472) — 28,472 — 28,472
Net invested assets $ 6 49.388 244.653 507,122 751,775
Other AEA Cash and Investments — Bradley Lake Hydroelectric Project investments are substantially
invested pursuant to investment agreements with JP Morgan Chase Bank that guarantees annual interest
earnings of 7.38% or 7.41% per annum that end the earlier of July 1, 2021 or the date of repayment of the
Bradley Lake Power Revenue Bonds, First Series.
Under the Internal Revenue Code of 1986, as amended, certain earnings in excess of arbitrage yield on the
Bradley Lake bonds must be rebated to the U.S. Treasury. The bulk of the Bradley Lake investments are
subject to rebate computation.
18 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
All other AEA assets are managed by internal staff for liquidity and minimal risk. There is no AEA board
approved investment policy, but staff follows AIDEA’s board approved investment policy for internally
managed investments. The AEA managed portfolio consists of the following eligible securities:
. Debt instruments issued or guaranteed by the U.S. government, its agencies and instrumentalities,
and Government Sponsored Enterprises (GSEs); and
° Money market funds collateralized by U.S. Treasury and agency securities.
At June 30, 2013 and 2012, the fair values of AEA’s cash and investments in its other funds (stated in
thousands) were:
Investment type 2013 2012
Deposits $ 116 827
Money market funds 134,151 115,412
U.S. Treasury notes 10,006 37,047
Investment agreements 20,624 20,880
Total invested assets $ 164,897 174,166
Interest Rate Risk — Interest rate risk is the risk that changes in interest rates will adversely affect the fair
value of an investment. Duration is a measure of interest rate risk. It measures a security’s sensitivity to a
100-basis point change in interest rates. Treasury uses industry—standard analytical software developed by
The Yield Book Inc. to calculate effective duration. The software takes into account various possible future
interest rates, historical and estimated prepayment rates, call options and other variable cash flows for
purposes of the effective duration calculation. Duration for the AEA managed investments are as reported
on Bloomberg.
Short-Term Fixed Income Pool — As a means of limiting its exposure to fair value losses arising from
increasing interest rates, Treasury’s investment policy limits individual fixed rate securities to fourteen
months to maturity or fourteen months expected average life upon purchase. Floating rate securities are
limited to three years to maturity or three years expected average life upon purchase. Treasury utilizes the
actual maturity date for commercial paper and twelve-month prepay speeds for other securities. At both
June 30, 2013 and 2012, the expected average life of individual fixed rate securities ranged from three days
to 34 years and the expected average life of floating rate securities ranged from 14 days to 22 years.
Short-Term Liquidity Fixed Income Pool — Treasury’s investment policy limits individual fixed rate
securities to six months to maturity. These constraints apply to trade date, except for securities bought at
new issue, for which settlement date applies. At June 30, 2013, the expected average life of fixed rate
securities ranges from 46 to 67 days.
19 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Intermediate-Term Fixed Income Pool — Through its investment policy, Treasury manages its exposure to
fair value losses arising from increasing interest rates by limiting effective duration of the
Intermediate-term Fixed Income Pool to + 20% of the Barclays 1-3 year Government Bond Index. The
effective duration for the Barclays 1-3 year Government Bond Index was 1.87 years at June 30, 2013 and
2.66 years at June 30, 2012.
Broad Market and U.S. Treasury Fixed Income Pools — Through its investment policy, Treasury manages
its exposure to fair value losses arising from increasing interest rates by limiting the effective duration of
its other fixed income pool portfolios to the following:
Broad Market Fixed Income Pool: + 20% of the Barclay’s Capital U.S. Aggregate Bond Index. The
effective duration of the Index at June 30, 2013 was 5.49 years. The effective duration of the Index at
June 30, 2012 was 5.07 years.
AEA Internally Managed Investments — There is no written policy for interest rate risk for AEA’s internally
managed investments, but AIDEA’s policy is followed. The duration for investments is 2 years or less. The
maximum maturity of any issue is 3 years from the date of purchase.
Treasury has no policy with regard to interest rate risk for the money market balance held in the
International Equity Pool.
20 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
At June 30, 2013 and 2012, the effective duration by investment type (not including the investment
agreements) was as follows:
Managed by Treasury
U.S. Treasury notes
U.S. Treasury strip
U.S. Treasury bills
U.S. Treasury bonds
U.S. government agency
Mortgage-backed
Other asset-backed
Municipal bonds
Corporate bonds
Yankees:
Government
Corporate
Portfolio effective duration
U.S. Treasury notes
U.S. Treasury strip
U.S. Treasury bills
U.S. Treasury bonds
U.S. government agency
Mortgage-backed
Other asset-backed
Corporate bonds
Yankees:
Government
Corporate
Portfolio effective duration
Money market
U.S. Treasury notes
Portfolio effective duration
Intermediate- Broad
term market
fixed income fixed income
pool pool
2013
2.04 5.10
4.43 4.89
0.11 —_
— 19.69
1.70 8.23
1.45 4.13
0.59 1.37
4.41 —
2.42 731
2.06 5.17
1.85 3.99
1.77 5.23
2012
2.78 5.23
5.26 _
0.30 0.43
— 15.53
1.24 5.40
1.28 1.70
2.43 1.89
1.62 6.93
1.72 7.30
2.63 4.20
2.23 4.28
2013
Managed by AEA
2012
0.11 0.11
1.41 0.78
0.20 0.27
(Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Credit Risk — Credit risk is the financial risk that an issuer or other counter party to an investment will not
fulfill its obligations. Treasury’s investment policy has the following limitations with regard to credit risk:
Short-Term Fixed Income Pool — Short-term Fixed Income Pool investments are limited to instruments
with a long-term credit rating of at least A3 or equivalent and instruments with a short-term credit rating of
at least P-1 or equivalent. Commercial paper must be rated at least P-1 by Moody’s and A-1 by Standards
and Poor’s. Asset-backed and Nonagency mortgage securities must be rated A3 or equivalent. The A3
rating is defined as the median rating of the following three rating agencies: Standard & Poor’s
Corporation, Moody’s and Fitch. Asset-backed and Nonagency mortgage securities may be purchased only
if they are rated AAA.
Short-Term Liquidity Pool — Short-term Liquidity Pool investments are limited to U.S. Treasury
obligations or other U.S. Government securities issued in full faith or guaranteed by agencies and
instrumentalities of the U.S.Government, obligations of foreign governments, sovereign states,
supranational entities, and their instrumentalities denominated in U.S. dollars, and the State’s internally
managed Short-Term Fixed Income Pool.
Intermediate-Term and Broad Market Fixed Income Pools — \ntermediate-term and Broad Market Fixed
Income Pool investments are limited to securities with a long-term credit rating of at least Baa3 or
equivalent and securities with a short-term credit rating of at least P-1 or equivalent. Asset-backed and
Nonagency mortgage securities must be rated investment grade. The investment grade rating is defined as
the median rating of the following three rating agencies: Standard & Poor’s Corporation, Moody’s and
Fitch. Asset-backed and Nonagency mortgage securities may be purchased if only rated by one of these
agencies if they are rated AAA.
There is no written policy with regard to credit risk for investments managed by AEA. Since AEA only
invests in highly rated money markets and U.S. government and agency securities and GSEs, credit risk is
minimal.
The Bradley Lake Hydroelectric Project investments are substantially invested in guaranteed interest
accounts collateralized by federal obligations, which minimize credit risk. tN tr (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
At June 30, 2013, the Pools managed by Treasury and the investments managed by AEA consisted of
investments with credit quality ratings issued by nationally recognized statistical rating organizations as
follows (using Standard & Poor’s Corporation rating scale).
Short-term Short-term Intermediate- | Broad market
fixed liquidity fixed term fixed fixed AEA
Investment type Rating income pool income pool income pool income pool managed
Money market AAA —% —% —% —% 81%
Commercial paper Not Rated 4 _ _— _— _—
U.S. Treasury notes AA - _ 70 30 6
U.S. Treasury bills AA 44 100 vi — _
Treasury strips AA _ — 1 1 _—
U.S. Treasury bond AA _ _— _ 2) _
U.S. government agency AA _ — 3) 1 _
U.S. government agency not rated a = — 2 —
Mortgage-backed AAA = — 1 3 —
Mortgage-backed AA _ — 1 28 _
Mortgage-backed Not Rated _ = _ 2 _
Other asset-backed AAA 40 _ 2 2 _
Other asset-backed AA 1 _ —= 1 _
Other asset-backed Not Rated 4 _ 1 1 _
Other pool ownership Not Rated _— _ 6 4 _
Corporate bonds AAA = a — 1 —
Corporate bonds AA 2) - z 5) —
Corporate bonds A 3) _ 5 12 _
Corporate bonds BBB — — 1 5 —
Yankees — government AA = a = 1 —
Yankees — corporate AAA = _ —_ 1 _
Yankees — corporate AA 1 — 1 1 _
Yankees — corporate A 1 — _ 1 _
Yankees — corporate BBB _ _ _— 1 —
No credit exposure (2) = qd) (3) ad
Investment agreements Not Rated — = _ _ 13
Deposits 2) — —_— a _
100% 100% 100% 100% 100%
23 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
At June 30, 2012, the Pools managed by Treasury and the investments managed by AEA consisted of
investments with credit quality ratings issued by nationally recognized statistical rating organizations as
follows (using Standard & Poor’s Corporation rating scale).
Short-term Intermediate- Broad market
fixed term fixed fixed AEA
Investment type Rating income pool income pool income pool managed
Money market AAA —% —% —% 67%
Commercial paper Not Rated 3 — — _
U.S. Treasury notes AA — 65 20 21
U.S. Treasury bills AA 52 8 1 _
U.S. Treasury bond AA — _ 5 —
U.S. government agency AA 1 5 1 _—
Mortgage-backed AAA _— 2 3 _
Mortgage-backed AA — 1 27 _—
Mortgage-backed A — _ 1 —~
Mortgage-backed Not Rated _ 1 3 _
Other asset-backed AAA 26 _— 2 —-
Other asset-backed AA 2 _— — _
Other asset-backed Not Rated 6 _ _ _
Other pool ownership Not Rated — 2) i
Corporate bonds AAA — 1 1 _
Corporate bonds AA 5 8 3 _
Corporate bonds A 4 3 10 _
Corporate bonds BBB — 1 5 _—
Yankees — government AA _ 1 _— _
Yankees — government Not Rated — — 3 —
Yankees — government AAA — 1 1 _—
Yankees — corporate AA 2 1 1 _
Yankees — corporate A 1 _ 1 _
Yankees — corporate BBB — — 1 —
No credit exposure (2) — — —
Investment agreements Not Rated — _ — 12
100% 00% 00% = 10%
Custodial Credit Risk — Custodial credit risk is the risk that deposits may not be returned in the event of a
bank failure. Treasury’s policy with regard to custodial credit risk is to collateralize State deposits to the
extent possible. At June 30, 2013, AEA’s deposits managed by Treasury were uncollateralized and
uninsured.
With respect to AEA managed investments, amounts totaling approximately $124,447,000 at June 30,
2013 and $105,921,000 at June 30, 2012, are held in money market funds not registered in AEA’s name.
The investment agreements are collateralized. All other investment securities are registered in AEA’s name
and are held by its custodian, the trust department of a commercial bank; therefore, no custodial risk exists
for these securities.
24 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Foreign Currency Risk — The Commissioner of Revenue formally adopts asset allocation policies for
AEA’s PCE Fund at the beginning of each fiscal year, which places policy limitations on the amount of
international securities the PCE Fund is allowed to hold. The following policy was in place during fiscal
years 2013 and 2012, and invested assets included the following holdings at June 30, 2013 and 2012, for
the PCE Fund’s investment in the International Equity Pool:
Policy Actual
FY13 26%+5% 25.24%
FY12 23%+t5% 21.15%
At June 30, 2013 and 2012, AEA’s PCE Fund had exposure to foreign currency risk as follows (stated in
thousands):
Currency 2013 2012
Deposits:
Euro Currency $ _ 24
Japanese Yen 4
42 64
Investment — international equity:
Australian Dollar 1,580 3,645
Canadian Dollar 2,344 1,334
Danish Krone 649 616
Euro Currency 18,291 16,872
Japanese Yen 12,996 8,575
New Zealand Dollar 447 484
Norwegian Krone 733 _—
Pound Sterling 16,426 14,562
Swedish Krona 3,708 2,208
Swiss Franc 4,082 2,024
61,256 50,320
Total $ 61,298 50,384
Concentration of Credit Risk — Treasury’s policy with regard to concentration of credit risk is to prohibit
the purchase of more than five percent of a pool’s holdings in corporate bonds of any one company or
affiliated group. However, such prohibition does not apply to securities backed by the full faith and credit
of the U.S. government. Federal National Mortgage Association securities are not classified as corporate
bonds. AEA has no written policy with respect to concentration of credit risk for its other investments.
At June 30, 2013 and 2012, AEA did not have more than five percent of its investments in any one
company or affiliated group.
25 (Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
(4) Capital Assets
Capital asset activity for the years ended June 30, 2013 and 2012 was as follows (stated in thousands):
Balance at Balance at
July 1, 2012 Additions Deletions June 30, 2013
Capital assets not being depreciated:
Land and Right of Ways $ 11,212 — — 11,212
Construction in progress:
Intangibles 11,532 48,580 — 60,112
Other 2,195 3,518 (1,733) 3,980
Total capital assets not
being depreciated 24,939 52,098 (1,733) 75,304
Depreciable capital assets:
Infrastructure 431,116 2,650 — 433,766
Equipment 5,371 24 = 53395)
Total depreciable capital
assets 436,487 2,674 = 439.161
Less accumulated depreciation:
Infrastructure (226,874) (11,722 a (238,596)
Equipment (5,242) (64) — (5,306)
Total accumulated
depreciation (232,116) (11,786) a (243,902)
Capital assets, net $ 229,310 42,986 (5735) 270,563
(Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
Capital assets not being depreciated:
Land and Right of Ways
Construction in progress:
Intangibles
Other
Total capital assets not
being depreciated
Depreciable capital assets:
Infrastructure
Equipment
Total depreciable capital
assets
Less accumulated depreciation:
Infrastructure
Equipment
Total accumulated
depreciation
Capital assets, net
June 30, 2013 and 2012
Balance at Balance at
July 1, 2011 Additions Deletions June 30, 2012
11,212 _ — 11212
— 11,532 -— 11,532
4,443 1,479 (3,727) 2,195
15,655 13,011 (3,727) 24,939
428,860 2,256 — 431,116
5,297 74 — 5,371
434,157 2,330 — 436,487
(217,219) (9,655) _— (226,874)
(5,155) (87) = (5,242)
(222,374) (9,742) — (232,116)
227,438 5,599 (3,727) 229,310
On August 19, 2011, AEA conveyed the Napakiak Intertie assets to the Napakiak Irecinraq Power
Corporation pursuant to the federal grant agreement that provided funding for the project. The book value
of the transferred assets was $3,131,000.
(Continued)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
(5) Long-Term Debt
Long-term debt activity for the years ended June 30, 2013 and 2012 was as follows (stated in thousands):
Balance Balance
at July 1, at June 30, Due within
2012 Additions Deletions 2013 one year
Bradley Lake Power
Revenue Bonds:
First Series (a) $ 100 _ _— 100 _
Refunding, Third Series (a) 29,870 — (4,280) 25,590 4,540
Refunding, Fourth Series (a) 34,300 — (2,600) 31,700 2.760
Refunding, Sixth
Series (a) (b) 28.800 a — 28.800 =
Total bonds
payable 93,070 _ (6,880) 86,190 7,300
Arbitrage interest payable (c) 813 328 _ 1.141 657
Bond discount and deferred
interest 1.417 = (190) 1,227 =
$ 95,300 328 (7,070) 88,558 7,957
Balance Balance
at July 1, at June 30, Due within
2011 Additions Deletions 2012 one year
Bradley Lake Power
Revenue Bonds:
First Series (a) $ 100 —_— — 100 —
Refunding, Third Series (a) 33,910 — (4,040) 29,870 4,280
Refunding, Fourth Series (a) 36,755 —_— (2,455) 34,300 2.600
Refunding, Sixth
Series (a) (b) 28.800 —_— _ 28,800 =
Total bonds
payable 99,565 —_— (6,495) 93,070 6,880
Arbitrage interest payable (c) 494 319 _ 813 _
Bond discount and deferred
interest 1,606 — (189) 1.417 —
$ 101.665 319 (6,684) 95,300 6,880
(a) AEA issued the Power Revenue Bonds, First and Second Series (Bradley Lake Bonds), in
September 1989 and August 1990, respectively, for the long term financing of the construction costs
of the Bradley Lake Hydroelectric Project and refunded AEA’s Variable Rate Demand Bonds which
were issued in November 1985 to provide interim financing of the project. AEA issued the Power
Revenue Refunding Bonds, Third and Fifth Series in April 1999 to refund a portion of the First
28 (Continued)
(b)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
Series Bonds and to provide costs of issuance. AEA issued the Power Revenue Refunding Bonds,
Fourth Series in April 2000 to refund a portion of the Second Series Bonds and to provide costs of
issuance. All of the revenues derived by AEA from the operation of the project and all moneys,
securities and funds (except the excess investment earnings fund), including a capital reserve fund,
held or set aside are pledged and assigned to secure the payment of principal, redemption premium,
if any, and interest on the bonds. No other revenues of AEA are pledged as security for the payment
of the bonds. AEA has covenanted to notify the State Legislature of any failure to maintain the
capital reserve fund at its required level. The bonds, except for the Sixth Series, are further secured
by bond insurance. AEA collects from each power purchaser a percentage share of annual project
costs. The outstanding Bradley Lake bonds mature annually each July | through the year 2021 with
interest rates ranging from 2.5% to 6.25%.
In July 2010, the Authority issued $28,800,000 of Power Revenue Refunding Bonds, Sixth Series, to
refund and defease $30,640,000 aggregate outstanding principal amount of the Authority’s Power
Revenue Refunding Bonds, Fifth Series, and to pay costs of issuing the bonds. The refunding
resulted in aggregate debt service payments over the next eleven years of approximately $3,316,000
less than the debt service payments which would have been due on the refunded bonds. There was an
economic gain of approximately $2,350,000 which is calculated as the net difference between the
present value of the old debt service requirements and the present value of the new debt service
requirements, discounted at the effective interest rate and adjusted for additional cash paid. The
refunded bonds were called on August 2, 2010.
The arbitrage interest payable is due to the U.S. Treasury for the excess of investment income on the
proceeds of each series of AEA’s tax exempt Bradley Lake bonds over the related interest expense
computed in accordance with Section 148 of the Internal Revenue Code of 1986, as amended. The
accumulated arbitrage interest payable amount is computed each year, and the amount for each series
is first due after the end of the fifth bond year and every five years thereafter. AEA maintains a
separate account for each series with the trustee and each year sets aside a sufficient amount to
satisfy the liability.
The minimum payments related to all bonds for the years subsequent to June 30, 2013 are as follows
(stated in thousands):
Principal Interest Total
Year ending June 30:
2014 $ 7,300 4,589 11,889
2015 7,735 4,138 11,873
2016 8,570 3,655 12,225
2017 9,090 3,138 12,228
2018 9,555 2,590 12,145
2019 — 2021 43,940 4,695 48,635
$ 86,190 22,805 108,995
29 (Continued)
(6)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
In addition, the Authority has participated in the following debt agreements:
Other Debt — In 1982, AEA assumed $44,859,000 of 5% mortgage notes payable, which requires
quarterly principal and interest payments to the Rural Utilities Service (RUS) in connection with the
Solomon Gulch Hydroelectric Project. Concurrent with the assumption, AEA deposited with a
trustee Treasury notes sufficient to satisfy and provide for timely repayment of all principal and
interest due on the assumed RUS loans. Accordingly, the loans and related trust assets are not
included in the financial statements of AEA. At June 30, 2013, the unpaid principal balance of the
notes was $4,106,000 and the trust assets had a fair value of $4,409,000.
Conduit Financing — City and Borough of Sitka — Utility Revenue Refunding Bonds, Series 1997 and
Utility Revenue Bonds, Series 1992 — In May 1992, AEA issued $56,890,000 of tax-exempt bonds
that allowed the City and Borough of Sitka (Sitka) to refinance its 1979 municipal bonds, resulting
in significant debt service savings to Sitka. In November 1997, AEA issued $22,080,000 of tax—
exempt bonds to advance refund and defease $20,145,000 of the Series 1992 bonds (collectively
with the Series 1992 bonds, the Sitka Bonds). The Sitka Bonds are not included in these financial
statements.
In December 2010, the Alaska Municipal Bond Bank issued bonds, the proceeds of which were used
to refund and defease the Sitka Bonds. The Series 1992 bonds were defeased and $8,200,000 remain
outstanding at June 30, 2013. The Series 1997 bonds were called and redeemed in January 2011.
Loans Receivable
The Authority administered the Power Project Loan Program, the Rural Electrification Revolving Loan
Program, and the Bulk Fuel Revolving Loan Program. Loans outstanding at June 30, 2013 and 2012 are
classified as follows (dollar amounts stated in thousands):
2013 2012
No. of loans Amount No. of loans Amount
Power Project Loan Program 6 $ 4,980 5 $ 2,309
Rural Electrification Revolving
Loan Program 2 427 2 483
Bulk Fuel Revolving Loan
Program = —_— 22 3,228
8 5,407 29 6,020
Less allowance for loan losses (162) (181)
$ 5,245 $ 5.839
Loans more than 90 days past due are not included in the accrual of interest. At June 30, 2013, and 2012,
there were no loans more than 90 days past due.
30 (Continued)
(7)
(8)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
An analysis of changes in the allowance for loan losses for the years ended June 30, 2013 and 2012 follows
(stated in thousands):
2013 2012
Balance at beginning of year $ 181 93
Loan transfer — Bulk Fuel Loans (205)
Provision for loan loss 186 88
Balance at end of year $ 162 181
The Authority sold to AIDEA Power Project Fund loans September 30, 2010. Under the agreement, upon
AIDEA’s request, AEA is required to repurchase any loan upon a payment default. On June 30, 2013, the
outstanding principal balance of the loans sold was $19,463,100, for which AEA has recognized an
estimated liability for potential repurchase of $584,000.
Risk Management
AEA is exposed to various risks of loss and obtains coverage for its risks through the purchase of
commercial insurance and participation in the State Risk Management Pool.
Related Parties
(a) Alaska Industrial Development and Export Authority
(b)
Pursuant to understandings and agreements between AIDEA and AEA, AIDEA provides
administrative, treasury, personnel, data processing, communications, and other services to AEA.
During 2013 and 2012, AEA paid the following for services (amounts stated in thousands):
2013 2012
Expensed services $ 6,295 6,298
Capitalized services 1,498 657
$ (AES 6,955
AEA has a borrowing arrangement with AIDEA to provide working capital funds. At June 30, 2013
and 2012, AEA had $3,538,000 and $5,128,000, respectively, payable to AIDEA for services and
borrowings.
Alaska Intertie Management Committee
AEA is party to agreement with utilities using the Alaska Intertie for wheeling of electrical power.
Pursuant to the Intertie Agreement, the IMC was established to manage the system. The IMC is
comprised of a representative from AEA and each of the utilities. AEA is reimbursed for operation
and maintenance costs on a monthly basis with an annual settlement to adjust the payments to actual
costs. AEA received $37.400 and $46,000 for fiscal year 2013 and 2012, respectively for
administrative services.
31 (Continued)
(9)
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Notes to Basic Financial Statements
June 30, 2013 and 2012
(c) Bradley Lake Project Management Committee
Effective December 7, 1987, AEA entered into a power sales agreement with entities purchasing
electric power produced by the Bradley Lake Hydroelectric Project. Pursuant to the agreement, a
Project Management Committee (PMC) was formed. The PMC is comprised of a representative from
AEA and each of the power purchasers. The participating power purchasers make monthly payments
directly to the bond trustee based on their respective percentage share of the estimated annual project
costs, including debt service and an annual administrative fee of $200,000 to AEA.
Commitments and Contingencies
In the normal course of business, AEA also has various commitments, such as commitments for the
extension of credit and award of grants. At June 30, 2013 and 2012, AEA had open loan commitments of
$1,374,000 and $9,819,000, respectively. The primary cause for the decrease of loan commitments is due
to the transfer of the Bulk Fuel Loan Fund to the State. At June 30, 2013 and 2012, AEA had committed to
grant awards to be funded by State appropriations and federal awards; the amounts committed were
$135,964,000 and $101,786,000, respectively.
32
Balance at July 1, 2012
Interest received
Bond principal paid
Bond interest paid
Operating budget surplus paid
Construction expenditures
Operating revenue received
Operating expenses paid
Transfers between funds
Balance at June 30, 2013
$
Schedule of Bradley Lake Hydroelectric Project Trust Account Activities
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Year ended June 30, 2013
(Stated in thousands)
Schedule 1
Excess
Capital Renewal and investment Operating
Debt service reserve contingency earnings Revenue Operating reserve
fund fund reserve fund fund fund fund account Total
9.490 12,779 4,671 504 911 1,176 840 30,371
345 815 373 28 279 67 58 1,965
(6,880) — — — amd a _ (6,880)
(5,014) a oo a = — _— (5,014)
_ _ (774) _ (795) _ _ (1,569)
— = (1,179) = (753) — _ (1,932)
— _ _ _ 17,208 _ _ 17,208 = — a — 654 (4,475) = (3,821) 11,763 (815) 1,537 297 (17,348) 4,542 24 —
9,704 12,779 4,628 829 156 1,310 922 30,328
See accompanying independent auditors’ report.
33
Assets
Current assets:
Grants receivable
Loans receivable
Operating revenue receivable
Due (to) from State of Alaska
Accrued interest receivable
Total current assets
Noncurrent assets: Restricted cash and cash equivalents Cash and cash equivalents designated for specific purposes
Restricted investments
Investments designated for specific purposes
Loans receivable, net of allowance
Capital assets, net of accumulated depreciation
Total noncurrent assets
Total assets
Liabilities and Net Position
Current liabilities: Due (from) to State of Alaska
Accounts payable
Bonds payable — current portion
Arbitrage interest payable — current portion
Accrued interest payable
Total current liabilities
Noncurrent liabilities
Bonds payable — noncurrent portion, net
Arbitrage interest payable — noncurrent portion
Other liabilities
Total noncurrent liabilities
Total liabilities
Net position:
Invested in capital assets, net of related debt
Restricted for debt service
Restricted by agreements with external parties
Unrestricted
Total net position
Total liabilities and net position
See accompanying independent auditors’ report
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Schedule of Projects and Programs~Statement of Net Position
June 30, 2013
(Stated in thousands)
Administration Rural Energy
Schedule 2
Bradley Lake Alaska Susitna-Watana Rural and Power and Energy
Hydroelectric Intertie Hydroelectric Energy Development Development Combined
Project Project Project Projects Fund Programs balance
$ ae = = aad 2,465 2,465
_— - = _ — 92 92
401 21 _ 1,251 1,673 a mt 10,455 10,455
Lol4 a = = 30 1,044
1,014 401 21 = — 14,293 15,729
9,704 1,158 = 6,855 17,717
- _ — 59,032 57,520 116,552
20,624 _ _ _ 20,624
_ rn oa _ _ 905,814 905,814
_— _ — 5,153 5,153
177,968 36,343 56,252 = = 270,563
208,296 37,501 56,252 59,032 975,342 1,336,423
$ 209,310 37,902 56,273 59,032 989,635 1,352,152
$ (126) (613) (10,949) 57,426 (7,915) 37,823 3,189 2,157 10,970 225 (566) 25,558 41,533
7,300 —_ _ - — 7,300
657 = — — 657 2,404 7 = i = 2.404
13,424 1,544 21 225 56,860. 17,643 89,717,
80,117 — — - = 80,117
484 = — a — 484
103 = = = = 584 687
80,704 = a = = 584 81,288
94,128 1,544 21 225 56,860. 18,227 171,005
90,552 36,342 56,252 _ — 183,146 20,908 — — — — : 20,908
3,722 16 _ - 6,725 10,463
= — (225) 2,172 964,683 966,630,
115,182 36,358 16,252 (225) 2,172 971,408 1,181,147
$ 209,310 37,902 56,273 — 59,032 989.635 1,352,152
34
Operating revenues:
State of Alaska appropriations
Revenue from operating plants
Federal grants
Revenue from state agencies
Interest on loans
Total operating revenues
Operating expenses:
Grants and projects
Power cost equalization grants
Depreciation
General and administrative
Interest expense
Plant operating
Provision for loan loss
Total operating expenses
Operating income (loss)
Nonoperating:
Investment income, net
State of Alaska contributions/appropriations, net of transfers out
Decrease in contingent liability on sold loans
Increase in net position
Net position — beginning
Net position — ending
See accompanying independent auditors’ report.
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Schedule of Projects and Programs — Revenues, Expenses, and Changes in Net Position
Year ended June 30, 2013
(Stated in thousands)
Schedule 3
Administration Rural Energy
Bradley Lake Alaska Susitna-Watana Rural and Power and Energy
Hydroelectric Intertie Hydroelectric Energy Development Development Combined
Project Project Project Projects Fund Programs balance
$ — — = ae = 74,260 74,260
16,176 749 aa 12 a — 16,937
— oad == _ _ 6,077 6,077
= _— = _— _ 4,892 4,892
= = = = = 277 277
16,176 749 — 12 — 85,506 102,443
_— I _— _ — 99.623 99,634
a a aa _ _ 40,100 40,100
7,598 4,188 _ _ _— cs 11,786
(226) 52 —_ — — 5,465 5,291
4,618 _ _ — _ _ 4,618
3,677 686 — at _— — 4,363
— a — a a 186 186
15,667 4.937 — = = 145,374, 165,978
509 (4,188) aa 12 _ (59,868) (63,535)
= = = ame 111,800 113,415
2,961 46,097 — _ 10,000 60.603
= = om = = 36 36
3,669 (1,227) 46,097 12 — 61,968 110,519
111,513 37,585 10,155 (237) 2,172 909.440 1,070,628
$ 115,182 36,358 56,252 (225) 2,172 971,408 1,181,147
35
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Schedule of Capital Assets presented under FERC
June 30, 2013 and 2012
(Stated in thousands)
Schedule 4
Balance at Balance at
July 1, 2012 Additions Deletions June 30, 2013
Capital assets:
Intangible $ 14 _ _ 14
Production 267,040 50,054 _— 317,094
Transmission 188,570 120 _— 188,690
General 5,802 2,865 — 8,667
Total capital assets 461,426 53,039 _— 514,465
Less accumulated depreciation:
Intangible (5) —_ _ (5)
Production (105,312) (5,932) — (111,244)
Transmission (121,556) (5,788) — (127,344)
General (5,243) (66) —- (5,309)
Total accumulated
depreciation (232,116) (11,786) _— (243,902)
Capital assets, net $ 229,310 41,253 — 270,563
Balance at Balance at
July 1, 2011 Additions Deletions June 30, 2012
Capital assets:
Intangible $ 14 — — 14
Production 254,011 13,029 — 267,040
Transmission 189,465 2,236 (3,131) 188,570
General 6,322 76 (596) 5,802
Total capital assets 449,812 15,341 (3,727) 461,426
Less accumulated depreciation:
Intangible (4) (1) — (5)
Production (100,008) (5,304) _— (105,312)
Transmission (117,206) (4,350) —- (121,556)
General (5,156) (87) — (5,243)
Total accumulated
depreciation (222,374) (9,742) — (232,116)
Capital assets, net $ 227.438 5,599 (3,727) 229,310
See accompanying independent auditors’ report.
Schedule 5
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Supplementary Organization and Project Information
June 30, 2013 and 2012
Organization and Operations
Throughout the 1980’s, AEA worked to develop the state’s energy resources as a key element in diversifying
Alaska’s economy. A number of large-scale projects were constructed; four of those projects were sold in 2002
and one was transferred to the City of Larsen Bay in the fall of 2010. The Bradley Lake Hydroelectric project
together with the Alaska Intertie help provide Interior Alaska with cheaper energy available in the Southcentral
portion of the state.
Pursuant to statute, on August 12, 1993, the board of the AIDEA, a public corporation and a political subdivision
of the State, became the board of directors of AEA. AEA continues to exist as a separate legal entity. The
corporate structure and operating assets of AEA were retained but the ability to have employees, and construct or
acquire energy projects was eliminated. Among other things, AIDEA provides personnel services for AEA. The
AEA executive director is an employee of AIDEA, but is separate and independent and is not subject to
supervision by AIDEA’s executive director. There is no commingling of funds, assets or liabilities between
AIDEA and AEA, and there is no responsibility of one for the debts or the obligations of the other.
Consequently, the accounts of AIDEA are not included in the accompanying financial statements. The 1993
legislation required AEA, to the maximum extent feasible, to enter contracts with public utilities and other
entities to carry out AEA duties respecting the ongoing operation and maintenance of the AEA owned operating
assets; this has occurred with oversight responsibility retained by AEA.
Pursuant to legislation effective July 1, 1999, rural energy programs previously administered by the former
Department of Community and Regional Affairs, Division of Energy, were transferred to AEA for
administration, as part of a larger reorganization of state agencies. These rural energy programs were originally
part of AEA prior to the reorganization that occurred in 1993. During fiscal year 2009, legislation added energy
development programs to AEA.
Effective July 14, 2011, the legislature empowered AEA to acquire, construct, own, and operate a hydroelectric
project located on the Susitna River. Under this legislative authorization, AEA is working on planning, design,
and licensing of the Susitna-Watana Hydroelectric Project.
Bradley Lake Hydroelectric Project
The project has 120 MW of installed capacity and transmits its power to the State’s main power grid via two
parallel 20—mile transmission lines. The project, which cost in excess of $300 million, went into commercial
operation in 1991. The project is now operated by Homer Electric Association under contract with AEA. Bradley
Lake serves Alaska’s Railbelt from the Kenai Peninsula to Fairbanks as well as the Delta Junction area.
The Authority is in the process of amending the FERC license by adding a new Battle Creek diversion project.
This project will divert the West Fork Upper Battle Creek into Bradley Lake. The annual energy increase to
Bradley Lake Hydroelectric Project would be about 36,000 — 42,000 Mwh. The addition includes construction of
four miles of road, a concrete diversion dam and a two mile canal to convey the water to Bradley Lake. An
engineering cost estimate at the 80% level in December 2012 was $52.3 million. The license amendment is likely
to be received in 2014. Construction is expected to be completed in the fall of 2016.
37 (Continued)
Schedule 5
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Supplementary Organization and Project Information
June 30, 2013 and 2012
Alaska Intertie Project
The Alaska Intertie is a 170-mile transmission line, designed for 345 kilovolts and is operating at 138 kilovolts.
It runs between Willow and Healy, and interconnects the power systems in the Anchorage and Fairbanks areas.
The Intertie reduces the number of black/brownouts throughout the system by enabling power to move either
north or south when major system disturbances occur. The Alaska Intertie allows GVEA in Fairbanks to
purchase lower cost electricity produced by Chugach Electric Association (CEA) and the Municipality of
Anchorage, d/b/a ML&P. It also allows Southcentral Alaska utilities to purchase power from Fairbanks during
power shortages. AEA contracts with the above Participating Utilities for operations and maintenance. The IMC
and AEA under the Alaska Intertie Agreement (Agreement) oversee an amended and restated Intertie Agreement
executed on November 18, 2011. The Agreement improves the reliability of the interconnected electrical
systems, outlines how transfer of electrical capacity and energy among the participants will be done, and
establishes the IMC. The IMC’s primary responsibility is to provide governance, control, operation, maintenance,
repair and improvement of the Intertie. The IMC is comprised of a representative from AEA and each of the
Participating Utilities.
Effective July 1, 2002, the State appropriated $20,300,000 to AEA to upgrade and extend a portion of the Alaska
Intertie. In August 2007, AEA issued a contract to ML&P for $19,500,000 for the upgrade: the work began in
September 2007.
Effective July 1, 2008, the State re-appropriated $10,000,000 of the original funds for certain specific capital
repairs on the Intertie. As a result, AEA amended the existing contract with ML&P to reduce scope of work
regarding extending a portion of the Intertie, and entered into a separate $10,000,000 contract on August 26,
2010 with ML&P to repair static VAR compensators (SVC) and a tower foundation.
Effective July 1, 2011, the State appropriated an additional $5,000,000 for substation upgrades and tower repairs
related to the Alaska Intertie. Tower foundation repairs are now completed. A contract has been let to a
contractor for design and construction of a new SVC. The estimated completion date of the SVC contract is
December 31, 2013. AEA continues to work with the Railbelt Utilities on the logical extension destination of the
Alaska Intertie.
Susitna-Watana Hydroelectric Project
The Alaska Legislature appropriated $10 million to AEA effective July 1, 2010 for the preliminary planning and
conceptual design for a large hydroelectric project to be built in the Railbelt Region. A number of hydroelectric
generation alternatives were studied and AEA issued a Preliminary Decision Document selecting what is now
known as the Susitna-Watana Hydroelectric Project as the primary large hydroelectric project for the State to
pursue.
The Alaska Legislature unanimously passed and the Governor signed Senate Bill 42 effective July 14, 2011,
which authorized the Authority to acquire a Susitna River power project. Senate Bill 46 appropriated
$65.7 million, effective July 1, 2011, to plan, design, and obtain permit of the project. With Senate Bill 18,
effective April 14, 2013, an additional $95.2 million was appropriated to the project. On December 29, 2011,
38 (Continued)
Schedule 5
ALASKA ENERGY AUTHORITY
(A Component Unit of the State of Alaska)
Supplementary Organization and Project Information
June 30, 2013 and 2012
AEA filed Notice of Intent and Pre-Application Document with the Federal Energy Regulatory Commission
(FERC) to begin the licensing process for the project. AEA is actively engaged in this FERC process. The FERC
has approved all 58 environmental study plans and AEA works with the Alaska Department of Fish and Game in
conducting these studies.
The proposed Susitna-Watana Hydroelectric Project would be located approximately half-way between
Anchorage and Fairbanks on the upper Susitna River. The Susitna-Watana dam would be located within a
steep-sided valley of the Susitna River below Watana Creek at River Mile 184 above the mouth approximately
32 miles upstream of the Devil’s Canyon rapids.
As currently envisioned, the project would include a single dam with a height providing nominal crest elevation
at 2,100 feet mean sea level with a 23,546 acre, 42.5-mile long reservoir with an average width of one to two
miles. The type and final height of the dam constructions are still being evaluated as part of the engineering
feasibility studies. Preliminary studies indicated the surface powerhouse should have an installed capacity of
600 MW. The powerhouse, dam and related facilities would be linked by transmission lines connecting the
project to the Alaska Intertie. The project would produce about 50% of the Railbelt’s electrical demand, or an
annual average of 2,800,000 mwh.
See accompanying independent auditors’ report.
Nets b F/S
- Valvaton by Asse break oof by prjet
the te in necee awhyer jn T/S , FOr exay re
ID Millay im Net & how reflected /pe as
axon vel veate YS: | «,