HomeMy WebLinkAboutBradley Lake PMC Meeting March 25,1997 1ALASKA INDUSTRIAL DEVELOPMENT
> 4 AND EXPORT AUTHORITY f= ALASKA
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480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE
MEETING AGENDA
Tuesday, March 25, 1997 - 10:00 a.m.
Anchorage Municipal Light & Power
Commission Room - 1200 East 1st Avenue
4), CALL TO ORDER i Stahr
2. ROLLCALL L~
3. PUBLIC COMMENT rt 40)
4. AGENDACOMMENTS -~ Che”
5. APPROVAL OF MEETING MINUTES - Heel 1997 Val
6. BUDGET SUBCOMMITTEE REPORT _//
A. _ FY98 Budget Proposal and Approval ~~ Pease”
7. OPERATION AND DISPATCH SUBCOMMITTEE REPORT Sieczkowski Wel Voted (00,00? to FY00,0@ sre nocae
8. OLD BUSINESS
A. Spinning Reserves Kinde | Lovas
B. Reimbursement for Transfer Trip Scheme ue Story/McCrohan
i for HEA/CEA Late Invoices
* O tho > C. Bradley Governor Stability Funding | i McCrohan
j NEW BUSINESS Care 8 Frvk Raveden
DVKAA A. Bond Refunding »% McCrohan
~ 40. COMMITTEE COMMENTS “
A. Next Meeting Date 4 Stahr
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Bradley Lake PROJECT MANAGEMENT COMMITTEE MEETING
Macol 2&5, 1997
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Bradley Lake Budget Subcommittee notes:
The Bradley Lake Budget Subcommittee met by teleconference on
March 5, 1997 to finalize the FY98 Budget. The budget was
approved unanimously and the subcommittee recommends that the
PMC formally adopt the attached FY98 budget to meet the trustee
’ requirement of receipt of an approved budget by April 1, 1997.
The attached documents reflect the FY 98 budget for Bradley
lake, the monthly utility contributions, a summary of the
operations and maintenance budget and detailed FERC account
information on the O&M portion of the budget. PMC action will
approve the following:
Debt Service $13,389,435
O&M budget $ 2,087,200
Renewals and Replacements $ 25,000
Total FY °98 $15,501,635
The FY98 contributions will total $13,210,680 and are broken
out by Utility on page 2 of the budget report.
Additionally it has come to the attention of the subcommittee that
the opportunity exists for the refinancing of a portion of the
Bradley Lake First Series Bonds. This refinancing would yield
approximately 5% to 6.6% present value savings, which translates
to $3 to $4 million in present value terms. It is the
recommendation of the budget subcommittee that the PMC
approve a motion to have the Authority take the necessary
steps to be ready to access the market should interest rates
remain favorable.
-
ALASKA ENERGY AUTHORITY
BRADLEY LAKE HYDROELECTRIC PROJECT
REVENUES, EXPENSES & CHANGES IN SURPLUS
REVENUES
UTILITY CONTRIBUTIONS
INTEREST INCOME
FROM OPERATING RESERVE
AEA SETTLEMENT
PRIOR YEAR CORRECTIONS
TRANSFER FROM ARBITRAGE
EXPENSES
OPERATIONS
RENEWALS/REPLACEMENTS
DEBT SERVICE
RENEWALS/REPLACEMENTS,
CURRENT YEAR SURPLUS (DEFICIT)
BEGINNING SURPLUS
ENDING SURPLUS
BALANCE SHEET
ASSETS
REVENUE FUND
OPERATING FUND
LIABILITIES & SURPLUS
UABILITIES
SURPLUS
FY94
ACTUALS
FYS5
ACTUALS
DATE: 03/06/97 TIME: 08:36 AM TO: Mary Ann Pease & 9-263-5888
FY96
ACTUALS
13,919,892
1,878,861
90,000
15,888,753
2,292,875
13,388,240
15,681,115
207,638
1,019,163
1,226,801
486,443 1,516,838
et
776,480
1,226,801
2,003,281
13,919,892
1,923,471
250,000
1,756
16,095,119
2,125,894
13,391,285
15,517,179
577,940
1,226,801
1,804,741
481,305 2,004,613 295,918
681,177
1,804,741
2,485,918
13,054,836
1,924,479
25.465
15,004,780
2,253,690
13,390,725
15,644,415
(639,635)
1,804,741
1,165,106
960,604
660,152
395,650
1,165,106 1,560,756
1,620,756
FY97
BUDGET
12,984,178
1,841,500
14,825,678
2,394,154
13,390,560
15,784,714
(959,036)
1,059,036
100,000
100,000
100,000
100,000 100,000
PAGE: 002-007
FY97
REVISED
FORECAST
12,984,178} 13,210,680
1,893,000 1,799,998
14,877,178 | 15,010,678
2,060,767 2,087,200
25,000
13,390,560 | 13,389,435
15,451,327 J 15,501,635
(574,149)] (490,957)
1,165,106 590,957 coe
183,998 100,000
406,959 590,957 | 700,000,
590,957 100,000 500,967 | 100,000 |
OTHER INFORMATION
OPERATING RESERVE
MONTHLY CONTRIBUTIONS
i 535,000
1,159,991 1,159,991
535,000
1,087,903
Page 1 of 6
535,000
1,082,015
535,000 CO 535,000
1,082,015 1,100,890
3/6/97/8:28 AM, 98 Bradley Budget
DATE: 03/06/97 TIME: 06:36 AM TO: Mary Ann Pease # 9-263-5888 PAGE: 003-007
BRADLEY LAKE
FY98 BUDGET
MONTHLY UTILITY CONTRIBUTION
PERCENT FY96 FY97 FY98 Fyos8
POWER PURCHASER SHARE TOTAL TOTAL TOTAL INCREASE
CHUGACH ELECTRIC 30.4% 3,968,670 3,947,190 4,016,052 68,862
MUNICIPALITY OF ANCHORA 25.9% 3,381,203 3,362,902 3,421,560 58,658
AEG&T 25.8% 3,368,148 3,349,918 3,408,360 58,442
GOLDEN VALLEY ELECTRIC 16.9% 2,206,267 2,194,326 2,232,600 38,274
CITY OF SEWARD 1.0% 130,548 129,842 132,108 2,266
100.0% 13,054,836
12,984,178] 13,210,680
PERCENT FY96 FY97 FY98 FY98
POWER PURCHASER SHARE MONTHLY MONTHLY MONTHLY 2,087,200
CHUGACH ELECTRIC 30.4% 330,723 328,933 334,671 5,738
MUNICIPALITY OF ANCHORA 25.9% 281,767 280,242 285,130 4,888
AEG&T 25.8% 280,679 279,160 284,030 4,870
GOLDEN VALLEY ELECTRIC 16.9% 183,856 182,861 186,050 3,189
CITY OF SEWARD 1.0% 10,879 10,820 11,009 189
1,100,890
1,087,904 1,082,016
COMPONENTS OF INCREASE IN CONTRIBUTIONS
FY97 ANNUAL CONTRIBUTION 12,984,178
DECREASE IN BUDGETED INTEREST EARNINGS 41,502 —~
DECREASE IN BUDGETED O&M COSTS (306,954) /
INCREASE IN BUDGEDTED RENEWAL AND REPLACEMENTS 25,000 ~
DECREASE IN DEBT SERVICE (1,125)
DECREASE IN BUDGETED USE OF PRIOR YEAR SURPLUS / 468,073,“
FY98 ANNUAL CONTRIBUTION 13,210,680
(“SS tS
Page 2 of 6
3/6/97/8:28 AM, 98 Bradley Budget
DATE: 03/06/97 TIME: 08:36 AM TO: Mary Ann Pease @ 9-263-5868
BRADLEY LAKE OPERATIONS & MAINTENANCE
FY98 BUDGET
SUMMARY
HEA O&M Contract Total
CEA Dispatch and Substation/SVC Maintenance
Other O&M
Insurance Costs
Regulatory Costs
Administrative Costs
FY96 FY97
ACTUALS PROJECTED PROJECTED
796,034 693,100
212,060 85,000
413,997 453,492
323,605 318,396
142,747 197,400
1,888,443 1,747,388
365,248 313,379
2,253,691 2,060,767
Page 3 of 6
PAGE: 004-007
CHANGE FY98 FROM BUDGET PROPOSAL
142,500 835,600 “ 835,600
(47,500) 37,500 . 37,500
9,408 462,900
11,904 329,700
(42,900) 154,500
72,812 1,820,200
(46,379) 267,000
26433 2,087,200 JY
3/6/97/8:28 AM, 98 Bradley Budget
DATE: 03/06/97 TIME: 08:36 AM TO: Mary Ann Pease ¢ 9-263-5868
BRADLEY LAKE OPERATIONS & MAINTENANCE
FYs8 BUDGET
CHANGE Fys8
FY96 FY97 FROM BUDGET
ACTUALS PROJECTED PROJECTED PROPOSAL
FERC 535 - Operation Supervision & Engineering
HEA O&M Contract 107,658 97,700 22,800 120,500
Other
107,658 97,700 22,800 120,500
FERC 537 - Hydraulic Expenses
HEA O&M Contract 12,239 5,900 14,100 20,000
12.239 5,900 14,100 20,000
FERC 538 - Electric Expenses
HEA O&M Contract 147,140 152,900 1,200 154,100
147,140 152,900 1,200 154,100
FERC 539 - Misc. Hydraulic Power Generation Expenses
HEA O&M Contract 114,919 108,300 40,700 149,000
DIS Voice/Data Circuits - Bradley 95,599 107,400 1,800 109,200
DIS 2-way Radio Circuits - Bradley 29,624 40,800 (1,600) 39,200
Other (15)
240,127 256,500 40,900 297,400
FERC 540 - Rents
Bradley Lake FERC land use fees 62,024 55.532 5,468 61,000
62,024 $5,532 5,468 61,000
FERC 542 - Maintenance of Structures
HEA O&M Contract 17,606 7,600 7,400 15,000
17,606 7,600 7,400 15,000
FERC 543 - Maintenance of Reservoirs, Dams & Waterways
HEA O&M Contract 2,033 200 7,800 8,000
Other '96 / Nuka Diversion Repairs '97 1,350 5,000 5,000
3,383 5.200 2.800 8.000
FERC 544 - Maintenance of Electric Plant
HEA O&M Contract 283,734 228,100 32,900 261,000
283.734 228,100 32,900 261,000
FERC 545 - Maintenance of Misc. Hydraulic Plant
HEA O&M Contract 95,205 86,700 12,300 99,000
Martin Airstrip Access Rebuild 0 0 0
95.205 86,700 12,300 99,000
FERC 556 - System Control & Load Dispatching
HEA O&M Contract 15,500 5,700 3,300 9,000
CEA Dispatch & Softwar 103,157
NOAA Weather Service 5,741 6,000 0 6,000
SCS Snow Measurement 10,931 12,500 0 12,500
UAA Seismic monitoring 50,000 53,000 2,000 55,000
USGS Minimum Flow Study 38,000 38,000 QO 38,000
USGS Streamguaging 120,210 119,260 740 120,000
Northern Ecological Minimum Flow Study 0 0
343,539 234.460 6,040 240,500 i SS
PAGE: 005-007
Page 4 of 6 3/6/97/8:28 AM, 98 Bradiey Budget
DATE: 03/06/97 TIME: 08:36 AM TO: Mary Ann Pease ¢ 9-263-5688 PAGE: 006-007
BRADLEY LAKE OPERATIONS & MAINTENANCE
FYs8 BUDGET
CHANGE Fyss
FY96 FY97 FROM BUDGET
ACTUALS PROJECTED PROJECTED PROPOSAL
FERC 562 - Station Expenses
CEA SVC/Substation Maintenance Contract 108,903 85,000 47,500) 37,500
108,903 85,000 47,500) 37,500
FERC 571 - Maintenance of Overhead Lines
HEA Overhead Line Maintenance 533 16,000 6,000 22,000
533 16,000 6,000 22,000
FERC 920 - Administrative Expense
AEA Admin Fee 275,000 212,079 (12,079) 200,000
Workers’ comp refund (24,600)
AEA Administrative Costs 250,400 212,079 (12,079) 200,000
PMC Costs
Bradley Lake Audit fees 22,602 15,000 0 15,000
Bradley Lake PMC Legal 65,470 62,500 (32,500) 30,000
Bradley Lake Arbitrage Report 3,000 1,800 200 2,000
Budget, recording, courier 5,464 0
Bradley Lake Trustee fees 18,312 22,000 (2,000) 20,000
PMC Costs 114,848 101,300 (34,300) 67,000
TOTAL FERC 920 365,248 313,379 (46,379) 267,000
FERC 924 - Property Insurance
Bradley Lake PMC Insurance 7,808 7,800 700 8,500
Insurance Premiums 267,594 260,296 6,704 267,000
Homer Electric Insurance 29,112 31,100 3,900 35,000
RSA with Risk Management 19,091 19,200 oO 19,200
323,605 318,396 11,304 329,700
FERC 928 - Regulatory Commission Expenses
FERC administrative fees 116,029 120,000 6,000 126,000
Contractual Engineer - Bradley FERC Licensing 27,098 28,500 0 28,500
Reimbursement from Const. Fund (airstrip, waterf (7,163)
Contractual Engineer - Perform 5 year Inspection 6,783 28,900 (28,900) 0
Contractual Engineer - inspection follow-up 20,000 ‘20,000 0
142.747 197,400 ‘42,900 154,500
TOTAL BRADLEY LAKE BUDGET 2 691 2,060,767 26433 2,087,200
Page 5 of 6 3/6/97/8:28 AM, 98 Bradley Budget
BRADLEY LAKE BUDGET
ACTIVITY BY ACCOUNT
Rev Fund O&M Fund Debt Fund Op Reserve Sch Maint R&C Cap Reserve Total
Lae ees
Balance 6/30/96 900,604 660,152 2 535,000 : 7,087,209 13,392,890 22,575,856 I LS ET
FY97 Projection -
Revenues 12,984,178 12,984,178
Interest 1,893,000 - 22,000 1,915,000
Transfers to O&M (2,203,224) 2,203,224 :
Transfers to Debt Service —_ (13,390,560) 13,390,560 5
96 O&M Requisitions (395,650) (395,650)
97 O&M Reauisitions (2,060,767) (2,060,767)
Debt Payment 1/1/97 (6,110,280) (5,110,280)
Debt Payment 7/1/97 (8,280,280) (8,280,280)
Projected Balance 6/30/97 183,998 406,959 2 535,000 - 7,109,209 13,392,890 21,628,057
FY98 Budget -
Revenues 13,210,680 13,210,680
Interest 1,799,998 - 1,799,998
Transfers to O&M (1,705,241) 1,705,241 fe
Transfers to Debt Service = (13,389,435) 13,389,435
98 O&M Requisitions (2,087,200) (2,087,200)
98 Renewals/Replacements (25,000) (25,000)
Debt Payment 1/1/98 (6,004,718) (5,004,718)
Debt Payment 7/1/98 (8,384,718) (8,384,718)
Projected Balance 6/30/98
5% of Annual O&M Budget 26% of Annual O&M Budget
Page 6 of 6 3/6/97/8:28 AM, 98 Bradley Budget
888S-£97-6 #2 Osweg UUy AZPH ‘OL WY 9:80 :SHIL 16/90/E€0 ‘alva L00-L00 ‘39vd
03/24/97 07:49 9073434370 MOA INT. AUDIT @oo1
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Aubih Horde
Post-It™ brand fax transmiltal memo 7671 | # of pages >
WORKING DRAFT
Not Intended for Reproduction,
Attribution or Distribution
Internal Audit Report 97-xx
Bradley Lake Hydroelectric Project
Alaska Energy Authority Charges
Municipal Light and Power
Introduction. We were requested by Municipal Light & Power (ML&P) and the Bradley Lake
Project Management Committcc to perform an audit of charges to the Bradley Lake Hydroelectric
Project (Project) by the Alaska Energy Authority (AEA) formerly known as the Alaska Power
Authority (APA).
According to APA’s Management Plan released in 1984, APA chosc to take a different approach to
managing the Bradley Lake Project than it had for previous projects. This approach required
providing more staff to manage and oversee the Project tor increased control over costs and
increased coordination of scheduling tasks for the successful and timely completion of the Project.
Scape. The objective of our audit was to determine whether costs charged to the Project by
APA/AEA were within the scope of the Project. Specifically:
1. We reviewed the procedures used by APA/AEA to process Project expenditures.
AEACOST1.WPD, March 20, 1997 (1:04pm)
03/24/97
Internal Audit 97-xx
07:49 9073434370 MOA INT. AUDIT
aes ae i renitoae Lheiact WORKING DRAFT Alaska Energy Authority Charges . Municipal Light and Power Not Intended for Reproduction, March xx, 1997 Attribution or Distribution
2. We reviewed the list of contracts charged to the Project by APA/AEA to determine
whether they were within the scope of the Project.
. We sclectively reviewed the description and amount of expenditures charged to the
Project by APA/AEA through June 30, 1996 for reasonableness and applicability to the
Project.
. We totaled APA/AEA’s charges by fiscal year and budget category to assist us in our
analysis.
Summary of Findings. Based on our limited tests and selective review of records, we found
no instances where the costs charged to the Project by APA/AEA were outside the scope of
the Project. Charges to the Project by APA/AEA were generally processed through the State
of Alaska Statewide Accounting System. Costs were then reimbursed to APA/AEA by the
Trustee from the Construction Fund after certification that the costs were proper. As of June
30, 1996, a total of $17,939,474 was charged by APA/AEA to the Project. This was 5.5%
of total Project costs and approximately 20% of APA/AEA's agency costs during this period.
The charges consisted of the following:
Operating Costs: executive office, accounting and administration, Bradley Lake
Project, operations and engineering, and program development (see Attachment A for
a schedulc of costs by year). $12,389,467
Services Costs: consulting, legal serviccs, risk management, land rights, Automated
Maintenance Management System, financial and economic analysis, insurance, auditing,
AEACOSTI.WPD, March 20, 1997 (1:05pm) “Ze
Qoo2
03/24/97 07:50 99073434370 MOA INT. AUDIT Qoo3
Internal Audit 97-xx
Bradicy Lake Hydroclectric Project aie eee WORKING DRAFT
Municipal Light and Power Not Intended for Reproduction, March xx, 1997 Attribution or Distribution
bond counsel, Project Management Committee, turbine and governor tests, stream
gauging and other. $2,208,953
Miscellaneous Contract: Bradley Lake Board of Consultants, Disputes Review Board,
hydraulic data collection, legal services, seismic monitoring, stream gauging, various
animal habitat studies and other. $3,341,054
Discussion With Responsible Officials. The results of this audit were discussed with responsible
officials on March xx, 1997.
Audit Staff:
Amy McCollum
AEACOST1.WPD, March 20, 1997 (1:04pm) -3-
Operating Costs Charged To Bradley Lake Project By APA/AEA
Personal Travel Contractual | Supplies & [Equipment &j Interest Paid] Sale of Bid TOTAL Services sera Machinery on Retention} Packages
8,659 2,223 4,500 $14,775
1,052 4,303
77,684 12,232
10,932
43,825
4,408 |
4,730
6,988
52,900
$27,683
“$191,371
201,270 20,590 14,5641 4,655 $243,394
646,201 48,392 ~ 133,532 24,290! $862, 163
744,122| 53,307
955,932| 70,992 2] 265,497
~ at
211,528 9,463
14,509
2,315
al :
12,831 |
12,457] (17,625)
$1,031,251
~ $1,387,905
1,172,487 113,581 317,447 22,351) 110,556] (36,960) $1,699,462
1,037,883 139,584
1,242,974| 165,134) 264,536)
i 4. — —_ 1,427,715 72,670
152,785 3,128
+ 28,450 148
3,053 0
457,281! 46,537]
203,227
304,511
56,523 |
3,238
6,058
35,509 | LIS 36,726
48,212
67,526
46,641 |
;
22,612
2,973 |
208,770
ant
| 2,405
=e 81,673),
98,785
(66,682
125,734
0
0
$1,414,547
$1,825,880
$2,635,829
$749,070
$333,784
$34,656
$40,967|
$752,821 ~ $1,880,943
c:\officewabbinreports\reports\AEAATTCA.WK4
~ $239,442 ~ $550,468 $753,059
ATTACHMENT A 26/F2/C0 ' 7 0S:L0 OLcrercLo6s LIGnv “INI VOK r00B
. ALASKA INDUSTRIAL DEVELOPMENT
=”, AND EXPORT AUTHORITY {= ALASKA
im =ENERGY AUTHORITY
480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
March 25, 1997 6D)
Mr. Thomas R. Stahr, Chairman
Bradley Lake Project Management Committee
Anchorage Municipal Light and Power
1200 E. First Avenue
Anchorage, Alaska 99501
SUBJECT: Construction Fund Residual Balance
Bradley Lake Project
Dear Mr. Stahr:
Attached is a letter from Mr. Ken Vassar of Wohlforth, Argetsinger, Johnson, and Brecht concerning
disposition of any Bradley residual construction funds. This issue was raised in the January 24,
1997, PMC meeting where AEA was requested to transfer $350,524 (an estimate of the residual
Utility contribution to the Construction Fund balance) plus interest to the PMC. The purpose of the
letter from Mr. Vassar is to provide a legal opinion on an acceptable method for distribution of the
Construction Fund balance. | have provided a copy of this letter to Mr. Ron Saxton.
We suggest that Mr. Saxton and Mr. Vassar discuss this matter. A final construction completion list
including contingency was previously approved by the PMC. At the March 25, 1997, PMC meeting
we will be prepared to address the Transfer Trip Scheme invoices and the Bradley Governor Stability
supply study as potential additions to the construction completion list. This will require an amended
construction completion list to be agreed and reduce the balance of construction funds.
Please let me know if you have any questions.
Sincerely,
PUM GAA
Dennis V. McCrohan, P.E.
Deputy Director - Energy
Attachment
ce: Ken Vassar, Esq.
Keith Laufer, Esq.
Valorie Walker, Deputy Director - Finance
Randy Simmons, Executive Director
Ron Saxton/Ater Wynne EON
WOHLFORTH, ARGETSINGER, JOHNSON & BRECHT
A PROFESSIONAL CORPORATION JULIUS J. BRECHT TELEPHONE CHERYL RAWLS BROOKING (907) 276-6401 CYNTHIA L. CARTLEDGE BARBARA J. DREYER ATTORNEYS ATLAW FACSIMILE ROBERT M. JOHNSON (907) 276-5093 BRADLEY E. MEYEN 900 WEST 5TH AVENUE, SUITE 600 KENNETH E. VASSAR E-MAIL
ERIC E. WOHLFORTH ANCHORAGE, ALASKA 99501-2048 wajb@alaska.net
OF COUNSEL PETER ARGETSINGER
March 24, 1997
Dennis McCrohan
Alaska Energy Authority
480 West Tudor Road
Anchorage, Alaska 99503
RE: Bradley Lake Construction Fund Residual Balance
Our File No. 5379.0801
Dear Mr. McCrohan:
You have asked that | prepare this letter for distribution to the members of
the Bradley Lake Project Management Committee (the "PMC") regarding options
for distribution of the remaining amounts in the Bradley Lake Construction Fund.
As you know, | have previously written to Elaine McCambridge (letter dated
August 5, 1996) on this subject, and this letter will reiterate the option mentioned
previously in the letter to Ms. McCambridge. It is my understanding that the PMC
and AEA have agreed on the construction completion list and an adequate budget,
including contingency to complete the work.
| understand that the PMC believes the residual amount in the Construction
Fund should be used to redeem or purchase outstanding bonds that have been
issued by the Alaska Energy Authority to finance the construction of the Bradley
Lake project. However, the relevant provisions of the bond resolution clearly do not
permit that use.
While we cannot use the amount in the Construction Fund to pay principal
of the bonds, the bond resolution does permit this amount to be used to pay
interest on the bonds under certain circumstances. The resolution includes the
following as a permissible "Cost of Acquisition and Construction" which may be
paid from the Construction Fund:
Interest accruing in whole or in part on Bonds prior to
and during construction and for such additional period
as the Authority may reasonably determine to be
necessary for the placing of the Project . . . or any
Dennis McCrohan
March 24, 1997
Page 2
facility thereof in operation in accordance with the
provisions of this Resolution.
Thus, under this provision, if the Authority reasonably determines that it is
necessary to do so for the placing of the Project in operation in accordance with the
provisions of the bond resolution, the Authority could reach an agreement with the
PMC that a portion of the remaining amount in the Construction Fund would be
used to pay interest accruing on the outstanding bonds. If this money is so used,
it would reduce the payment obligation of the utilities under the power sales
agreement. Concurrently a payment will be remitted to the State for the residual
balance.
If the money in the Construction Fund is not used for this or another purpose
authorized under the resolution, then the resolution requires that it be delivered to
the State.
| hope this has addressed your question. Please let me know if you would
like further assistance.
Sincerely,
WOHLFORTH, ARGETSINGER,
JOHNSON & BRE
Kenneth E. Vassar
cc: D. Randy Simmons
Executive Director
Alaska Industrial Development and Export Authority
Keith Laufer, Esq.
Assistant Attorney General
Attorney General's Office
State of Alaska
AFFO5683/5379.0801
ALASKA INDUSTRIAL DEVELOPMENT
: > ¢ AND EXPORT AUTHORITY a> ALASKA
@@— ENERGY AUTHORITY —_—
480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
March 14, 1997
Mr. Thomas Stahr
Chairman
Bradley Lake Project Management
Committee
Anchorage Municipal Light & Power
1200 E. First Avenue
Anchorage, Alaska 99501
Dear Mr. Stahr:
The purpose of this letter is to pass along some information regarding a financial
opportunity which may be of interest to members of the Bradley Lake Project
Management Committee (“PMC”). Market interest rates are significantly lower today
than they were when funding of the Bradley Lake First and Second Series Bonds (the
“Bonds”) was completed. This, in combination with the ability included in the original
financing documents to call the Bonds, creates an opportunity whereby the Alaska
Energy Authority (“AEA”) could refund the Bonds and reduce debt service costs.
As you know, “private activity bonds” such as the Bonds cannot be advance refunded.
Instead, the most common technique is a “forward refunding” in which a buyer commits
today to buy a series of current refunding bonds on the first legal date (basically 90
days before the first call date) at a yield level fixed today.
Goldman, Sachs & Co., has for some time been monitoring the potential for such a
forward refunding transaction. Their current analysis (see enclosed summary
memorandum dated February 18, 1997) shows that savings levels associated with
refinancing portions of the Bradley Lake First Series Bonds would yield approximately
5.0% to 6.6% present value savings as a percentage of refunded bonds. This would
translate to $3.0 to $3.9 million dollars in present value terms. Since most issuers of
tax exempt debt establish a savings target level of approximately 4% to 5%, the
potential Bradley Lake forward refunding on February 18” was at a savings level which
would make it worthwhile to pursue.
The market has been quite volatile and many forecasters are concerned about rising
rates; meanwhile with no transaction documents prepared we could not now access the
market. If you are interested in having the Authority further investigate the potential of
Mr. Thomas Stahr
March 14, 1997
Page Two
this transaction, the next step would be for us to explore the actual steps and work
required to execute such a transaction. Essentially, the idea would be to figure out
exactly what needs to be done and outline a plan for determining when and if a
transaction should occur.
Although the Authority is the issuer of the Bradley Bonds, the participating utilities are
responsible for meeting debt service payments. The PMC will reap any benefits from
the lowering of rates on the Bradley Bonds via a refunding. We are providing you with
the enclosed information to determine the PMC’s interest in having the Authority
proceed. The Authority is willing to explore, on your behalf, the forward refunding
transaction if the PMC pays for the out-of-pocket costs, through a budget amendment,
incurred on its behalf. The Authority will consider committing to such a financing that
would result in reduced future payments to the participating utilities, assuming that any
legal obstacles can be overcome and that details can be worked out between the
Authority and the PMC, and provided that the Authority is not adverse'y affected in any
way. Additionally, prior to proceeding in this vein, there are several open items that
must be resolved between the Authority and the PMC, among which is the appropriate
amount of outstanding bonds.
If you have any questions, please contact either myself or Valorie Walker at
(907) 269-3000. If you have questions you would like Goldman, Sachs to address
directly, you may call either Jeff Brown or Paul Bloom at (415) 393-7765, but | would
appreciate your keeping AIDEA/AEA staff informed of the substance of such
discussions. We look forward to working with you on this.
[
D. Randy Simmons
Executive Director
Sincerely,
DRS bjf
hiallibjfifinance\vfwibpmce bonds
cc: Valorie F. Walker, Deputy Director - Development
Dennis McCrotian, Deputy Director - Energy
Mary Anne Pease, ML&P (w/attachmenit)
BEES 2 LMCI Se Ee a eT
Memorandum
Date: February 18,1997
To: Randy Simmons
Valorie Walker
Keith Laufer
From: Jeff Brown
Paul Bloom
Subject: Refunding Analysis of Bradiey Lake First and Second Series Bonds
As we discussed on the phone with Valorie the other day, please find attached a refunding analysis of the
Bradley Lake Bonds which reflects market conditions on Tuesday, February 18, 1997. As you know, these
Bonds cannot be refunded using a traditional approach (current or advance refunding). However, they are
worth watching as the current call date for the First Series is only two years away, and there are a number of
techniques available for refunding bonds in advance of the call date when a traditional advance refunding is
not an option. Two of the most straightforward are a Municipal Forward and a Forward Swap or “Hedge
Swap”. Enclosed is our analysis applying each of these two approaches to the Bradley Lake Bonds.
Both techniques achieve essentially the same end, that is locking in a rate today which will effectively be used
to currently call the bonds on the call dates of July 1, 1999 for the First Series and July 1, 2000 for the Second
Series. A Municipal Forward can be thought of just like a traditional refunding with a very long period between
pricing and closing. You price today and settle the transaction just before the call date. In order to lock ina
rate today for bonds that are delivered in the future, you pay investors a “forward premium” which is driven
primarily by 1) the length of time between pricing and the call, and 2) the relationship at pricing between short
term and long term yields. The longer the forward period, the higher the premium. Our analysis assumes a
forward premium over today’s spot rates of roughly 75 basis points on the longest maturity for the First Series
Bonds.
A Hedge Swap locks in the long-term rate using a forward commitment by AIDEA/AEA to enter into a fixed
payor swap at the time the bonds are called. Under such a swap, AIDEA/AEA receives a floating payment and
makes a fixed payment based on today’s rates, again plus a forward premium. At the call date, AIDEA/AEA
issues variable rate bonds, and the payment is essentially offset by the floating swap payment AIDEA/AEA
receives from Goldman Sachs. The proceeds of the floating rate issues are used to call the Bradley Lake
Bonds. AIDEA/AEA is left with the fixed payment under the swap contract based on today’s low rates.
While all of this sounds rather complicated, there is another alternative under the Hedge Swap approach
which gets rid of the swap and the need to issue variable rate bonds. When the call date is reached, rather
than executing the swap and issuing variable rate debt, AIDEA/AEA can unwind the swap and simply current
refund the Bonds with fixed rate bonds at then current rates. If rates have gone down, AIDEA/AEA pays
Goldman Sachs to unwind the swap; however, the new refunding bonds are issued at then current lower rates.
If rates have gone up, Goldman Sachs pays AIDEA/AEA to unwind the swap and the new bonds are issued at
higher rates. In either case, the unwind receipt in (or payment out), in combination with new bonds issued at
July 1, 1999 rates would have an effective cost of funds virtually equal to the fixed payor rate established today
in the swap contract. Under this approach, although AIDEA/AEA unwinds the swap before it actually kicks in,
by entering into the swap contract you have effectively hedged yourself against rates going up substantially by
the time the Bonds become callable (thus the name “Hedge Swap”).
When we first showed you refunding analyses of the Bradley Lake Bonds (in 1995 and again in early 1996), all
of this was somewhat academic as under e’ther approach the savings levels were well below your target
range of 4-5%. However, current savings levels are high enough that we wanted to alert you and begin
discussions as to how to get ready to take advantage of this market opportunity should you decide it makes
sense. The results are summarized below:
Bradley Lake First and Second Series Bonds
Refunding Analysis: Market Rates on February 18, 1996
PV $ Savings/PV % Savings
(dollar in $1,000s) | Bonds | Forward | Hedge Swap
$2,975/5.03% $3,904/6.60%
$1,096/2.37% $2,325/5.03%
*Hedge swap results are typically better due the lower underlying hedging costs relating to the forward period.
As you can see, the First Series results are at a level which are well within a sensible target savings range. In
addition, as we get closer to the call date, the forward premium will decrease.We will keep an eye on these
bonds and let you know how the results look as market conditions change. Please call with any questions.
cc: Ingrassia
ALASKA INDUSTRIAL DEVELOPMENT
AND EXPORT AUTHORITY f= ALASKA
@E™ =ENERGY AUTHORITY
480 WEST TUDOR ANCHORAGE, ALASKA 99503 907 / 269-3000 FAX 907 / 269-3044
April 7, 1997
Ms. Cindy S. Carl, Owner
Executary
626 Cordova, Suite 104
Anchorage, Alaska 99501
Dear Cindy:
Please provide a summary from the enclosed tape for the Bradley Lake Project Management
Committee (BPMC) meeting minutes (send a disc of the minutes too).
The next meeting date is: May 20, 1997.
If you have any questions, please call me.
Sincerely,
Y a
Shauna M. Dean
Enclosures
_ Anchorage Daily News.
Monday, March 17, 1997. )-%
Public Notices 900 (ea
ALASKA ENERGY AUTHORITY/ALASKA INDUSTRIAL DEVELOP- MENT AND EXPORT AUTHORITY
Public Notice Bradley Lake Project Management Committee
Notice is hereby given thot the Bradley Lake Project Manage- ment Committee will hold a regular meeting to conduct the affairs of the Committee at the Anchorage Municipal Light & Power offices, 1200 East Ist Avenue, Anchorage, Alaska. This meeting will commence at 10:00 c.m. on Tuesday, March 25, 1997. For additional information, contact Thomas R. |Stahr, Chairman, Anchorage Municipal Light & Power, 1200
East Ist Avenue, Anchorage, Alaska 99501. The State of | Aloska (AIDEA), complies with Title 11 of the Americans with | Disabilities Act of 1990. Disobled | persons requiring special modi-
fications to participate should contact AIDEA staff at (907) 269-3000 to make special orrangements. Alaska Energy Authority Proiect Management Committee |Pub.: March 17, 19, 1997