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BPMC Meeting June 30, 1988 2
RECORD LOPY a) ~ FILE NO PRO SL in, — = bsoJes BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE ” ; INITIAL MEETING AGENDA THURSDAY, JUNE 30, 1988 BEGIN AT 9:45 A.M. a Approval/Modification of Agenda II. Four Dam Pool PMC Experience - Ron Saxton TIr. Discussion of Responsibilities of the Committee A. Duties During Construction B. Duties Following Commercial Operation TVs Project Status Report - David Eberle, Project Manager A. Construction Timetable, Contracts Status B. Technical Coordination Committee Ve cael tetent of Meeting Schedule VI. Election of Interim Officers vil. Assignments for Preparation_of Draft Rules of Procedure VIII. Other Agenda Items as Proposed rx. Adjournment Meeting location: Chugach Electric Association, Inc. Training Room 5601 Minnesota Drive Anchorage, Alaska 99519 (907) 563-7494 clay Vv. vI. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE INITIAL MEETING AGENDA PRO_S- 1.1 ef 6/3/56 v THURSDAY, JUNE 30, 1988 BEGIN AT 9:45 A.M. Approval/Modification of Agenda F/nahe- friret Four Dam Pool PMC Experience - Ron Saxton Discussion of Responsibilities of the Committee A. Duties During Construction B. Duties Following Commercial Operation Project Status Report - David Eberle, Project Manager A. Construction Timetable, Contracts Status B. Technical Coordination Committee Establishment of Meeting Schedule Election of Interim Officers Assignments for Preparation of Draft Rules of Procedure VASE. Other Agenda Items as Proposed IX. Adjournment Meeting location: Chugach Electric Association, Inc. Training Room 5601 Minnesota Drive Anchorage, Alaska 99519 (907) 563-7494 with the Authority's obligation to finance and construct the Project pursuant to Section 6(b) and the Authority's obligation under Section 6(d) to use its best efforts to complete the Pro- ject expeditiously and in accordance with sound engineering practices and with the provisions of the Bond Resolution. The Authority shall consult with the Purchasers regarding the pro- visions to be included in such supplemental Bond Resolutions, and shall use its reasonable best efforts to comply with the requests of the Purchasers with respect thereto. Unless other- wise approved in accordance with Section 11(a) (i), such supple- mental Bond Resolutions shall: (a) provide that the total amounts required for the payment of Debt Service when due shall be, on an an- nual basis, as nearly equal as practicable; (b) provide that the final maturity of Bonds issued pursuant to such supplemental Bond Resolutions shall not be earlier than twenty-five (25) years from the date when the first of such Bonds is issued; (c) be substantially in the form attached here- to as Exhibit E, except to the extent that the Authority finds that modifications are necessary to sell the Bonds on a -tax-exempt basis;.- and -- (d) be adopted no earlier than January 1, 1989. ee eo Section 13. Establishment Of The Committee. (a) Formation and composition of the Committee. The parties agree that a Project Management Committee ("Committee") shall be established on January 15, 1988, or on such earlier date as mdy’be agreed to by the parties. The Committee shall consist of the Authority and the-Pur- chasers (including as Purchasers for this purpose both Homer’ Electric Association, Inc., and Matanuska Electric Association, Inc., for themselves and for AEG&T as a Pur- chaser represented by and through those utilities). No Committee member shall obtain an additional vote through merger with, acquisition of, or assignment from any other Committee member, and AEG&T shall have no direct vote, but shall be represented by and through Homer Electric Associ- ation, Inc., and Matanuska Electric Association, Inc., each of which shall be entitled to vote as a Purchaser member for purposes of Committee procedure. Each Commit- tee member entitled to vote shall name one representative to serve on the Committee and one designated alternate for that representative. Each such member shall notify all other members in writing of the names, addresses, and tel- ephone numbers of its representative and designated al- ternate. After it is established, the Committee shall meet not less than once each quarter. Costs of the Com- mittee (other than costs incurred by the Authority) which BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 19 ‘2s is, oo ow JUN 27 1988 A ELECTRIC ASSOCIATION, INC. ALASKA POWER AUTHORITY rec: 3: enero 5601 MINNESOTA DRIVE ¢ PO BOX 196300 ¢ ANCHORAGE. ALASKA 99519-6300 ¢ PHONE 907-563-7494 7 FACSIMILE 907-562-0027 June 21, 1988 PRO B-)s\ MIN Alaska Power Authority P.O. Box 190869 é /xe)s¢ Anchorage, Alaska 99519-0869 Attention: Mr. Don Shira Director of Program Development and Facilities Operation Subject: Bradley Lake Project - Project Management Committee Dear Mr. Shira: The initial meeting of the Bradley Lake Project Management Committee (BPMC) is scheduled for 9:45 a.m. June 30, 1988. Chugach is pleased to host the initial meeting in Anchorage and will provide a secretary to take minutes. A proposed agenda is enclosed, along with a copy of Section 13 of the Bradley Lake Agreement relating to the establishment of the Committee. The primary emphasis of the initial meeting will be organiza- tional matters. This will include a presentation by Ron Saxton, the attorney for the Four Dam Pool PMC, on experiences with that organization, followed by a review of the BPMC responsibilities during the construction phase of the Project and after commercial operation. David Eberle, the Bradley Lake Project Manager, will be available to provide us with a report on the construction progress and to update the BPMC on the work being done by the Bradley Lake Technical Coordination Committee and its subcommittees. I look forward to seeing you at this important first meeting of the Committee. Singerely, . E kip David L. Highers General Manager DLH/TAL/ts 659.TAL Attachment(s) cc: PMC Distributtion List Attached File 607.1 RF 3s S-—tt Gs Bradley Lake Hydroelectric Project Project Management Committee MAILING LIST Alaska Power Authority P.O. Box AM Juneau, Alaska 99811 Mr. Bob LeResche Executive Director Alaska Power Authority P.O. Box 190869 Anchorage, Alaska 99519-0869 Mr. Don Shira Director of Program Development and Facilities Operation Alaska Power Authority P.O. Box 190869 Anchorage, Alaska 99519-0869 Mr. David Eberle Project Manager, Bradley Lake Project Municipal Light & Power 1200 East First Avenue Anchorage, Alaska 99501 Mr. John Cooley Manager of Power Management Golden Valley Electric Assoc., Inc. P.O. Box 1249 Fairbanks, Alaska 99707 Mr. Mike Kelly General Manager Matanuska Electric Association, Inc. P.O. Box 2929 Palmer, Alaska 99645 Mr. Mike Yerkes Planning Engineer Homer Electric Association, Inc. P.O. Box 429 Homer, Alaska 99603 Mr. Kent Wick General Manager City of Seward P.O. Box 167 Seward, Alaska 99664 Mr. Paul Diener Utility Manager a:\f£\127.LST BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE INITIAL MEETING AGENDA THURSDAY, JUNE 30, 1988 BEGIN AT 9:45 A.M. ke Approval/Modification of Agenda rr, Four Dam Pool PMC Experience - Ron Saxton be om Discussion of Responsibilities of the Committee A. Duties During Construction B. Duties Following Commercial Operation z¥. Project Status Report - David Eberle, Project Manager A. Construction Timetable, Contracts Status B. Technical Coordination Committee Vs Establishment of Meeting Schedule VEE: Election of Interim Officers VALI. Assignments for Preparation of Draft Rules of Procedure VIET. Other Agenda Items as Proposed IX. Adjournment Meeting location: Chugach Electric Association, Inc. Training Room 5601 Minnesota Drive Anchorage, Alaska 99519 (907) 563-7494 with the Authority's obligation to finance and construct the Project pursuant to Section 6(b) and the Authority's obligation under Section 6(d) to use its best efforts to complete the Pro- ject expeditiously and in accordance with sound engineering practices and with the provisions of the Bond Resolution. The Authority shall consult with the Purchasers regarding the pro- visions to be included in such supplemental Bond Resolutions, and shall use its reasonable best efforts to comply with the requests of the Purchasers with respect thereto. Unless other- wise approved in accordance with Section 11(a) (i), such supple- mental Bond Resolutions shall: (a) provide that the total amounts required for the payment of Debt Service when due shall be, om an an- nual basis, as nearly equal as practicable; (b) provide that the final maturity of Bonds issued pursuant to such supplemental Bond Resolutions shall not be earlier than twenty-five (25) years from the date when the first of such Bonds is issued; (c) be substantially in the form attached here- to as Exhibit E, except to the extent that the Authority finds that modifications are necessary to sell the Bonds on a -tax-exempt basis;. and - (ad) be adopted no earlier than January 1, 1989. Section 13. Establishment Of The Committee. (a) Formation and composition of the Committee. The parties agree that a Project Management Committee ("Committee") shall be established on January 15, 1988, or on such earlier date as may be agreed to by the parties. The Committee shall consist of the Authority and the- Pur- chasers (including as Purchasers for this purpose both Homer’ Electric Association, Inc., and Matanuska Electric Association, Inc., for themselves and for AEG&T as a Pur- chaser represented by and through those utilities). No Committee member shall obtain an additional vote through merger with, acquisition of, or assignment from any other Committee member, and AEG&T shall have no direct vote, but shall be represented by and through Homer Electric Associ- ation, Inc., and Matanuska Electric Association, Inc., each of which shall be entitled to vote as a Purchaser member for purposes of Committee procedure. Each Commit- tee member entitled to vote shall name one representative to serve on the Committee and one designated alternate for that representative. Each such member shall notify all other members in writing of the names, addresses, and tel- ephone numbers of its representative and designated al- ternate. After it is established, the Committee shall meet not less than once each quarter. Costs of the Com- mittee (other than costs incurred by the Authority) which BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 19 are incurred prior to the Date of Commercial Operation shall be borne by the Purchasers in accordance with the Percentage Shares of each. (b) Adoption of rules of procedure. The Com- mittee shall adopt, by the affirmative vote of a majority of the Purchasers and the affirmative vote of the Authori- ty, procedural rules governing the conduct of the Commit- tee's affairs. Such rules shall address, among other mat- ters, procedures for the periodic selection of Committee officers, the conduct of Committee meetings, dispute res- olution, the approval (including possible pre-approval) of Consultants, and modification of the Committee's procedur- al rules, and, to the extent not otherwise specified in this Agreement, such rules shall also specify the applic- able voting requirements for approval of matters to be decided by the Committee. Committee approval of opera- tions and maintenance arrangements for the Project, the sufficiency of the annual budget and wholesale power rates; and the undertaking of Optional Project Work shall require the affirmative vote of a majority of the Purchas-— ers and the affirmative vote of the Authority. (c) Committee responsibilities; approval by the Authority. (i) As the legal owner and licensee of the Project, the issuer of Project debt, and the agency charged by statute with various duties affecting or affected by the Project, the Authority has certain non-delegable rights, duties, and responsibilities with respect to the Project. Subject to such non- ‘delegable’ rights, duties, and responsibilities, the Committee shall be responsible for the management, operation, maintenance, and improvement of the Pro- ject, in recognition that as take-or-pay purchasers of Project Capacity after the Date of Commercial Op- eration, the Purchasers have substantial long-term financial interests in, and service and planning re- sponsibilities affected by, the Project. (ii) The Committee shall take the follow- ing actions, subject to the provisions of the Bond Resolution, federal and state law, the requirements of licensing and regulatory agencies, and the rights of the Authority and the Purchasers under other pro- visions of this Agreement: (A) Arrange for the operation and maintenance of the Project, and the scheduling, production, and dispatch of Project power; (B) Establish procedures for the use of each Purchaser's Water Allocation in a manner BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 20 consistent with the needs and desires of other Purchasers and the capabilities of the Project; (Cc) Adopt in each Fiscal Year (and revise as necessary or prudent during such Fisc- al Year) a budget of Annual Project Costs for that Fiscal Year, which budget shall be in an amount estimated by the Committee to be suffic-—- ient to pay all Annual Project Costs; (D) Establish for each Fiscal Year the estimated Annual Payment Obligation of each Purchaser, together with a schedule for each Purchaser of equal monthly payments that such Purchaser shall be required to make during that Fiscal Year, which payment schedule shall be (I) designed to recover such estimated Annual Pay- ment Obligation from that Purchaser during the Fiscal Year, and (II) revised during such Year to reflect any revisions to the budget of Annual Project Costs for that Fiscal Year; (E) Determine after the conclusion of each Fiscal Year the actual Annual Project Costs for that Fiscal Year, the actual Annual Payment Obligation of each Purchaser for that Fiscal Year, and the amount of any additional payment required from (or the amount of any refund to be returned to) each Purchaser to ensure that the total of all payments received from each Pur- chaser for each Fiscal Year is equal to that Purchaser's actual Annual Payment Obligation for that Fiscal Year;_ (F) Evaluate and select among altern- ative methods (if any) of carrying out and fund- ing (including through issuance of bonds) Re- quired Project Work; (G) Adopt provisions to evaluate and approve Optional Project Work, and to determine the compensation (if any) to be provided in ac- cordance with Section 4(d) of this Agreement if the Committee approves any such Optional Project Work; (H) Adopt procedures consistent with Section 13(f) for the resolution of disputes that may arise between or among the Purchasers and the Authority concerning the interpretation of this Agreement, the obligations created by this Agreement, or the performance of such ob- ligations; BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 21 (I) Make an initial determination of "customary" insurance within the meaning of Section 714 of the Bond Resolution and determine the appropriate amount of, and obtain, insurance for or related to the Project, in addition to “such insurance as may be required by the Bond Resolution; (J) Adopt maintenance schedules for the Project that do not interfere unreasonably with the operations of the Purchasers; (K) Adopt and implement procedures relating to electric power reserves for the Pro- ject in accordance with Section 5; and (L) Consider the need for and approve any additional amount to be added to the Renewal and. Contingency Reserve Fund over and above the r Renewal and Contingency Reserve Requirement pro- vided under the Bond Resolution. (iii) If and when no Bonds are outstanding under the Bond Resolution, and the Bond Resolution is therefore no longer effective, the Committee shall provide for the establishment of such accounts and the taking of such actions as may be necessary to Manage the Project. (d) Payment obligation unimpaired. Notwith- standing any Committee action or inaction under this Ag- reement, each Purchaser's obligation to make the monthly Payments necessary to pay its Purchaser's Percentage Share of Debt Service, costs of operation and maintenance, and all other amounts to be paid by Purchasers under this Ag- reement shall be absolute and unimpaired. (e) The Authority's ability to take Required Action. In the event the Committee fails to take any of the actions set forth in Section 13(c) (ii) (C)-(E) in a timely fashion, or fails to take any other action which the Authority believes to be a Required Action, and as a result the Authority determines that it will be unable to meet any of its obligations imposed by statute, by the Bond Resolution, by this Agreement, or by any licensing or regulatory agency, then the Authority may (i) adopt a bud- get of Annual Project Costs, (ii) estimate the Annual Pay- ment Obligation of each Purchaser, (iii) require each Pur- chaser to make payments on the basis of such estimated Annual Payment Obligation, and (iv) take such other action as the Authority deems necessary to meet such obligations. Failure of the Committee to adopt an Annual Project Budget by the ninetieth (90th) day prior to the beginning of a Fiscal Year shall permit the Authority to adopt an Annual BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 22 Project Budget pursuant to this subsection. All actions and determinations under this Section 13(e) shall be taken and made in accordance with Prudent Utility Practice. (f) Purchasers' duties and rights of review. Each Purchaser shall make payment as required by the Auth- ority as a result of any action taken by the Authority under Section 13(e), but such payment shall not constitute a waiver of any Purchaser's rights under this Agreement. Any Purchaser may seek review of such action in accordance with the dispute resolution procedures adopted by the Com- mittee, or may seek to enforce this Agreement judicially in accordance with Section 9(d) if no applicable dispute resolution procedures have been adopted. Section 14. End Of Project (a) Authority's declaration. The Authority shall declare the Project ended, and the Authority's ob- ligations to make power available to the Purchasers and to operate and maintain (or to assure the operation and main- tenance of) the Project shall also end, if and when (i) such a declaration is required under Section 14(b), or (ii) the Project can no longer be operated in accordance with Prudent Utility Practice. (b) Consultant's report. The Authority shall make the declaration described in Section 14(a) if all of the following conditions are met: (i) the Project cannot be operated at full capacity ina manner consistent with Prudent Utility Practice absent repairs, modifications, or additions ("Repairs") to the Project; (ii) a Consultant retained by the Commit- tee concludes that such Repairs are not cost- effective in comparison with other power supply alt- ernatives then available to the Purchasers; and (iii) Committee members who are Purchasers and whose Percentage Shares total eighty percent (80%) vote that such Repairs should not be undertak- en. (c) Consequences of Authority's declaration. After the Authority has declared the Project ended, each Purchaser shall complete its payment obligation for Pro- ject Capacity and associated energy delivered to such Pur- chaser before the Project ended, and shall do so by paying its Percentage Share of Annual Project Costs until all Bonds have been paid or provision has been made for the payment of the Bonds in accordance with the Bond Resolu- tion; provided, that from the date on which the Authority BRADLEY LAKE PROJECT POWER SALES AGREEMENT Page 23 Yee SENT BY:Xerox Telecopier 7020 i) 7-21-88 | 13:55 | > AK POWER AUTHORITY: # 2 Alaska Power Authority a 20 June 1988 v)3o/sr Re: : To: From One of our first considerations as a committee should be a look at our financing options. We should discuss two topics related to financing at our organizational meeting on the goth — praparation, or laying the groundwork for the financing, whenever it occurs; and, timing of the bond issue, as it relates to interest rates, and to tax and- political considerations. Preparation ~ Regardless of when we finally decide to enter the bond market, it is important that we begin this summer to lay the groundwork for the eventual issue. Primarily, this will involve: 1) Acquainting the rating “agencies” (ia: Moody's and Standard & Poor's) with the project and the financial capabilities of the Power Authority and the purchasing utilities; and, 2) similarly acquainting the bond Insurance companies with the project and our financial status. In order to actually sell the bonds, it is necessary that the Power Sales Agreement is in final form, and that the PSA and the ancillary agreements (the Transmission Sharing and “Servioes" Agreements) have recelved the necessary approvals (ia: from REA). In addition, all the major contracts for project construction must have been let, and the project must be proceeding with no instance nor reasonable expectation of delay or cost overruns. These factors (if what I'm hearing regarding REA is basically true) should all be in place by November of this year. @3 S-+.F 6-88 SENT BY:Xorox Tolecopior 7020 + 721-88 +: 13:55 ; > AK POWER AUTHORITY: # 3 Alaska Power Authority It is pot necessary that these things occur before we make our initial approaches to the raters and bond insurance companies, however. In fact, | think It Important that we begin this summer to describe the project and the parties to these entities. We have already arranged for copies of the agreements to be sent to these people, and should probably follow up with visits no later than August or September of this year. Even If we delay actual issuance of bonds until late 1990, this will be time well spent. ideally, representatives of all purchasers should participate in this effort, each coming prepared to give an overview of his utility, its financial condition, markets, and capabilities ....... much as one would approach a new bank to establish a relationship. lf not all purchasers can participate, It is critical that the largest purchasers -- Golden Valley, Anohorage ML&P and Chugach -~ do involve themselves directly, along with the Power Authority and our bankers. It may also be helpful if officers of your governing bodies would want to participate in the effort. With concurrence of the committee, | will begin to put such a trip together, and coordinate it with whatever committee members agree to participate. Timing of Bond Issue — Although we have all been proceeding as though we will Issue the bonds at the end of our "grandfathered" private activity tax-exempt window (December 31, 1990) there Is nothing that prevents our converting our VRDB's to term financing at any time that the requisite conditions for the market are met. Conceivably, were we to agree to do 80, we could issue term financing at the end of 1988, assuming that nothing elips from the schedule between now and then. There are several considerations we must take into account as we make the timing decision, any one of which could mean millions of dollars to the ratepayers if certain events 2- Bradley Lake Hydroelectric Project Financing SENT BY:Xerox Te ecopier 7020 + 7-21-88 ; 13:56 : > AK POWER AUTHORITY: # 4 Alaska Power Authority transpire. Interest Rates - Today, interest rates on the type of debt we will Issue stand at about 8.0 to 6.25%, implying an annual debt service component of $13.8-$14.2 million wera we to convert at that rate in December 1990. The effects to be expected from an increase or decrease in these rates between now and 12/80 are depicted in the attached charts. As you can see, the effects of waiting and the effects of changes in interest rates are contradictory, due to Interest During Construction and loss of arbitrage earnings. For example, were the interest rata to stay the same for the 24 months after 12/88 (say, at 8%), our debt service would drop from $15.006 million annually (If financed this year) to $13.810 million (financed in 1990), a decrease of 8%, achieved by delaying term financing. By the same token, were interest rates to rise one point (to 9%) between 12/88 and 12/90, debt service would be $15.404 million If the bonds were issued in 1990, or 2.7% higher than If we financ:. this year. Simply put, an increase of one point in Interest rates between 1988 and 1990 more than eats up all the savings possible (through arbitrage and avoided IDC) from delayed financing. if interest rates rise by the end of 1890 more than about 75 basis points, we could save money by financing as soon as possible. Refinancing Possibilities -- We will attempt to issue the bonds with as benign call protection as is possible. If we succeed in this, we oan protect ourseives in the case of an early financing (absent any changes in tax law ~ see below) to a large extent against the loss of benefits that would accrue 1) were interest rates to fall substantially (two points is the rule of thumb regarding when refinancing is profitable); or, 2) were the legislature to finance the project with the railbelt fund at a low interest rate. Thus, early financing would not preclude taking advantage of future lower interest rates were they.to become..avallable. 3- Bradiey Lake Hydroelectric Project Financing SENT BY:Xerox Te ecopier 7020 + 7-21-88 + 19:57 5 > AK POWER AUTHORITVi#@ 6 Alaska Power Authority Of course, cash financing after bond financing has been paid for means an unnecessary expenditure for the bond iseuse, which is not recoverable.d Tax Law Considerations — We have assumed throughout that the special consideration granted to this project in the Tax Reform Aot of 1886 would remain effective through the end of 1990. While there is a high probability of this ooouring, there is also the possibility that Congress will change the rules in future tax reform legisiation -- legislation whioh some presume will be an annual event over the next few years. Attached are memoranda from Wohlforth Flint & Gruening (October 17,1886) and Katten Muchin & Zavus (Nuveen's Underwriters Counsel, dated June 7, 1988) which describe our status under the tax laws. The latter points out that the trend in Congress has been to ellminate such special provisions (ef: current legisiation regarding Native Corporation NOL sales), to continually narrow the scope of exemptions, and to expand the application of the Alternative Minimum Tax ("AMT") provisions -- all of which would hurt us. Nona of this is to say that our favored tax status Is in immediate danger, but | do see the present trend in congress as a continuing cloud that must be considered in our decision. Completion Risk — Contrary to what we heard during hearings on the Bradley Lake Bills, the underwriters now tell me that issuance as soon as all major contracts are let (33 months from completion) will likely not command a significant penalty in the market when compared to issuance in 199C, nine months from completion). Thus, this is apparently not a consideration at this time. Politics = You can read this one either way. The way | see it, we should all be more comfortable to have the project “wrapped up” in terms of signal public events, the last of which will be the term financing. Once long-term bonds are issued, there Is littie anyone in Juneau can do io change things. Before that time, who knows what what someone might ie Bradiey Lake Hydroelectric Project Financing SENT BY:Xerox Telecopier 7020 ; 721-88 ; 13:58 + AK POWER AUTHORITY:# 6 Alaska Power Authority think up on reading Howard Weaver's latest snide remark? As for holding off pending final disposition of the Rallbelt Energy Fund, | think we all have better uses In mind for that fund than cash financing of Bradiey at 6%. Further, | think that notion reached its high-water mark during the last session, and that It Is pretty thoroughly discredited in most legislators' minds at this point. Nevertheless, if that should once again become your fallback position, such a loan could be used to defease the bonds, or to take them out, even if they have already been issued. In eummary, we should disouss the pros and cone of early issuance of the takeout financing for the project. | would hate to see the committee presume to second guess the future course of interest rates, but | would also hate to see us miss an opportunity if all indications point to a rapid and continued rise in rates. | don't think that is the case today, but | do think that prudence dictates that we do all things necessary to prepare to finance on short notice if the situation does arise. | think we've got to do the work necessary to be poised to finance, and then watch the situation carefully and think through our options on a regular, formal basis as the project proceeds. REL:sw cc: PMC Members Eric Wohlforth, Wohiforth Fling & Gruening Don Grimes, First Southwest Jim Seagraves, John Nuveen & Co. Terry McGuire, Dean Witter APA Directors 5- Gradiey Lake Hydrosiectric Project Financing DEN! BT ASrOx 'S/eCOp.er FULZU +s TRZINBH i 15°90 | * AK POWER AUTHORITY: # 7 Effect of Date of Financing on Annual Debt Service Debt Service ($000) $18,000 $16,000 $14,000 ITT CSTE ee es erty | eer OLN 7 7.8 8 8.8 9 9.8 10 #105 11 Interest Rate - % Bradley Lake Hydroelectric Project Financing 1988 1989 1990 SENT BY:Xerox Te'ecopier 7020 ; 7-21-88 ;: ~ ~~ “_ a®* 7 73 8. fi 2° Sisn © —, & uywe CAF an a 13:59 Annual Debt Service ($000) $13,062 $13,520 $14,008 $14,500 $15,006 $15,524 Siete $17,1 $17,738 $18,958 $18,833 $19,554 $20,190 Bradley Lake Hydroelectric Project Financing $12,674 $13,087 $13,508 $18,999 $14,378 $14,627 Hie $16,229 $16,715 $17,211 $17,717 $18,299 $16,758 $19,287 919,728 mw es $12,314 $12,678 $13,050 $13,427 $19,610 $14,198 112488 $15,404 $15,818 $16,238 $16,664 $17,096 $17,534 $17,070 $18,430 2.06 + AK POWER AUTHORITY: & 8 SENT BY Xerox Telecopier 7020 , 7-21-86: 13-58: > AK POWER AUTHORITY. @ 9 = e Law aa WOHLFORTH & ERIC B. WOHLFORTH & PROFERSIONAL anal S ih sernone ROBERT BPLINT 900 WEST Be AVENUE. 8U 176.0401 PETER ARGETBING: ROBERT M. J6-NGON ANCHORAGE, ALASKA 00 KENNETH E. VASBAR LECOPIER THOMAS F, KLINKNER : * 1985 7) 276.5093 ROGER A. LUBOVICH ALAS sistas t coeur eet soe JANIGE GOLEMAN GRAHAM" * amurtven ie ate veer OnLy MEMO. UM TO: Michael Eubbard ; Finance Manager Alaska Pewer Authority FROM: Thomas F. Klinkner DATE: October 17, 1986 SUBJECT: Status of Bradley Lake Refunding Bonds Under the Tax Reform Act of 1986 The following reviews the status of the Bradley Lake Refunding Bonds proposed to be issued by the Alaska Power Authority (the "Authority" ) under the provisions of the Tax Reform Act of 1986 (the "1986 Act"). ‘de Refunding Bonds The beginning point for analysis is Section 1313 of the 1966 Act concerning transitional rules relating to refundings. Section 1313(a)(1) provides that, with certain exceptions, the amendments to Section 103 of the Internal Revenue Code of 1954 (the "1954 Code”) in Section 1301 of the 1986 Act do not apply to any bond whose proceeds are used exclusively to refund (other than to advance refund) a bond issued before August 16, 1966, if (1) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond, and (2) the average maturity of the refunding dasue does not exceed 120 percent of the average reasonably expected economic life of the facilities that the issue finances, The Bradley Lake Refunding Bonds will be subject to the transitional rule in Section 1313 (a)(1). The original Bradley Lake Bonds were issued before August 16, 1986. Pre- sently the Authority is not contemplating an advance refunding of the original Bradley Lake Bonds. Under the terms of its proposed Power Sales Agreement with purchasing utilities, the principal amount of the refunding bonds for Bradley Lake will net exceed $200 million - less than the $267,500,000 principal amount of the original Bradley Lake Bonds that are expected to be outstanding at the time of the refunding. The average SENT BY:Xerox Te:ecopier 7020 ; 721-88 ; 14:00 : > AK POWER AUTHORI7Y: #10 Michael Hubbard Financial Analyst October 17, 1986 Page 2. maturity of the Bradley lake Rafunding Bonda is not expected to exceed 120 percent of the reasonably expected economic life of the Sradley Lake Hydroelectric Project (the “Project"). Notwithstanding the transitional rule in Section 1313(a)(1), several provisions of the 1986 Act will apply to the Bradley Lake Refunding Bonds under Section 1313(a)(3) of the 1986 Act. The Bradley Lake Refunding Bonds will be subject to (1) the public approval requirements for private activity bonds under Section 147(f£) (but only if the maturity date of the refunding bonds is later than the maturity date of the refunded bonds); (2) the reatriction in Section 147(g) on issuance costs financed by the issue; (3) the arbitrage requirements of Section 148; (4) the information reporting requirements under Section 149(@); and (5) the requirements in Section 150(b) concerning changes in use. ae Tax tion Under the 1954 Act Since Section 1313(a)(1) of the 1986 Act limits the application of the 1986 Act to the Bradley Lake Refunding Bonds as described above, their tax-exempt status will be determined principally by their tax-exempt status under the 1954 Code. Because it is expected that the Bradley Lake Refunding Bonds will be secured by sales of electric energy generated by the Project, and most of such energy will be purchased a electric cooperatives who are not exempt persons under the 1954 Code, the Bradley Lake Refunding Bonds are industrial development bonds under the trade cr business test and LE interest test in Section 103(b)(2) of the 1954 Code Tadley Lake Refunding Bonds become tax-exempt industrial develie ent bonds because their proceeds will be used to provide facilities for the local furnishing of electric energy under Section 103(b)(4)(E) of the 1954 Code. The Project is included in definition of "facility for the local furnishing of electric energy” for the purpose of Section 103(b)(4)(E) by Section 645 of the Deficit Reduction Act of 1984: For the purpose of section 103(b)(4) (E), facilities for the local furnishing of electric energy also shall include a facility that is part of a system providing service to the general populace-- (i) df the facility was initially authorized by the Federal Government in 1962; A70586 ' , SENT BY:Xerox “e ecopier 7020 : 721-88 + 14:00 ; > AK POWER AUTHORITY: #1 Michael Hubbard Financial Analyst Octoper 17, 1986 Page 3. (43) 4£ the facility receives fi- mancing of at least 25 percent by an exempt person: (411) 4f the electric energy generated by the facility is purchased by an electric cooperative qualified as a rural electri¢ borrower under 7 U.S.C. section 901 et seq. and if; (iv) the facility is located in a noncontiguous State. In particular, the Froject meets the criteria in (ii) and (iii) of this section. At least 25 percent of the cost of the Project is being financed by appropriations from the State of Alaska, an exempt person. The electric energy from thse Project will be purchased either by exempt persons (municipa- lities) or electric cooperatives qualified as rural electric borrowers under 7 U.S.C. Section 901 et seq. Purchases by municipalities (or by more than one electric cooperative) of electric energy generated by the Project, although not within the literal language of the exemption, should not defeat the exemption. The purpose of Section 645 is to expand the scope of the local furnishing rule, not to defeat the tax exemption otherwise available for bonds financing a facility to generate electric energy for sale to exempt persons. Similarly, sales to multiple electric cooperatives would not violate the purpose of the exemption. To effect the intent of Section 645, the interest of each purchaser of power from the Project should be treated as a separate property interest, the tax exemption of whose financing should be separately analyzed. See Private Letter Ruling 8327090. a Volume Limitation As industrial development bonds, the Bradley Lake Refunding Bonds would have been subject to the volume limita- tion in Section 103(n) of the 1954 Code if issued prior to the effective date of the 1986 Act (1954 Code, Section 103(n) (7)). However, an elective carryforward of 1984 volume limitation in the amount of $170,662,500, was approved for the ; Project under Section 103(n)(10) of the 1954 Code on February 1, 1985. Under Section 103(n)(10)(C) of the 1954 Code, any bonds oe" to the volume limitation that were issued for the Bradley Lake Hydroelectric Project in an amount hot exceeding the carryforward during the 3 calendar years following 1984 would not have been taken into account in determining whether the aggregate amount of bonds subject to A70586 SENT BY'Xerox Te!ecopier 7020 | 7-21-88 + 14:01 : > AK POWER AUTHORITY: #12 Michael Hubbard Financial Analyst October 17, 1986 Page 4. the volume limitation issued in such subsequent calendar year exceeded the volume limitation for such bonds in that year. Section 1315(a) of the 1986 Act provides that no carryforward under Section 103(n) of the 1954 Code shall be recognized for bonds issued after Auguat 15, 1986. Hence the carryforward previously approved for the Project does not survive enactment of the 1986 Act. However, Section 1315(c) ef the 1986 Act provides that the new volume limitation under Section 146 of the 1986 Code does not apply te a band (1) that ‘ig issued for a facility described in Section 1315(d) of the 1986 Act; and (2) if the bond would not have been subject to the volume limitation under Section 103(n) of the 1954 Code (determined with ragard to any carryforward eleetian made before January 1, 1986) if such bond had been iaauad bafore August 16, 1986. The Project is deseribed in Section 1315(d)(2) of the 1986 Act because the Preject is described in Paragraph (35) of Section 1317 of the 1986 Act: (35) EXTENSION OF CARRYFORWARD PERIOD. -- (A) In the case of a carryforward under Section 103(n)(10) of the 1954 Code of $170,000,000 of bond limit for calendar year 1984 for a project described in subparagraph (B), elauma (i) ef setion 103(n)(10)(C) of the 1954 Code shall be applied by substituting "6 calendar years" for "3 calendar years", and such carry- forward may be used by any authority designated by the State in which the. facility is located. (B) A project is described in this eubparagraph if -- (i) such project is a facility for local furnishing of electri= eity described in section 645 of the Tax Reform Act of 1984, and (id) construction of -such-facile— . ity commenced within the 3-year period fellowing the calendar year in which the carryforward arose. A70586 SENT BY:Xerox Te ecopier 7020 : 7-21-88 : 14:02 ; > AK POWER AUTHORITY: #13 Michael Hubbard Financial Analyst October 17, 1986 Page 5. $170,662,500 of Bradley Lake Refunding Bonds would not have been subject to the volume limitation under Section 103(n) of the 1954 Code (determined with regard to the February 1, 1985 carryforward election for that project) if such bonds had been issued before August 16, 1986. Hence, that amount of Bradley Lake Refunding Bonds is not subject to the volume limit in Section 146 of the 1986 Code. The Conference Report on the 1986 Act indicates that any amount of Bradley Lake Refunding Bonds in excess of the amount not subject to the volume limit will be subject to the volume limit in Section 146 of the 1986 Cede: Second, if the bond~financing facilities satisfy one of the transitional exemptions, bonds that are subject to a State volume limitation under present law (i.e., most other IDBs, all student loan bonds, and qualified mortgage bonds), and that are issued after August 15, 1986, are not subject to the new private activity bond volume limitations to the extent that the bonds are issued pursuant to a carryforward election allowed under the current State volume limitations of bond authority for 1984 or 1985, and that carryforward election was filed with the cw | Department before November 1, 198 which carryforward elections are not allowed under present law (e.g., quali- 5 fied mortgage bonds and qualified small-issue bonds) are subject to the new volume Limitations if issued after August 15, 1986. Conference Report, pp II-742 to I1+743 (emphasis added). A70586 SEN™ BY:Xerox Telecopier 7020 : 7-21-88 + 14:02 ; + AK POWER AUTHORITYi#14 Michael Hubbard Financial Analyst October 17, 1986 Page 6. Tt is not clear what effect the transitional rule for the Project in Section 1317(35) of the 1985 Act has, given the existence of the volume limit exemption under Section 1315(c) of the Act, discussed above. Section 1317(35) presents two difficulties. First, it purports to extend the duration of the carryforward for the Project under Section 103(n)(10) of the 1954 Code, while Section 1315(a) of the 1986 Act provides that no carryforward under Section 103(n) of the 1954 Code shall be recognized after August 15, 1986. Second, Section 1317(35) of the 1986 Act purports to extend the carryforward for the Project to six calendar years, while the preservation of carryforward under section 1315(c) of the 1986 Act appears to be of indefinite duration. These two transitional rules are interdependent, because the application of Section 1315(c) to the Project depends upon the description of the Project in Section 1317(35). This interdependence indicates that, notwithstand- ing the ambiquity of these two provisions when read together, Congress intended that the Project have the benefit of the 1984 volume limitation carryforward. However, it also indi« cates that Congress may have intended, despite Section 1315(¢) of the 1986 Act, that the Project have the benefit of the 1984 carryforward only for the six calendar years following 1984. At least. that would be the more prudent interpretation of these two sections. A70586 SENT BY: Xerox Telecopler 76206 , 7=2/-88 « !4:08 . ~ AK POWER AUTHORI™. .@!8 Cpeejsey Cine il KaTTEN MucHIN & Zavis (BorRGE AND PITT) £0 WEAT HARK AVEXUE ELMHURBY, (LUINCIS @OINO' 4207 TELEPHONE (218) B30+7970 S26 WEST MONROE STREET + SUITE 1800 seal tapeicammce orhact CHICAGO. ILLINOIS 60808-3603 serarnone Goyreasane esuett a” sl TELEPMONE (2:8) SO8-reoe warren’ Cinze? iat MUMOCA Gens 4 OaLLER “ELECOMER (312) BOR-iGe) 902-5418 (eS + a7) TELEX BOBEGS ATLAW UR June 7, 1988 Mr. Robert E. LeResche Executive Director . Alaska Power Authority B.O. Box AM ; Court Building Juneau, Alaska 99811 Re: ALASKA POWER AUTHORITY Bradley Lake Project Dear Bob: Jim Seagraves has asked me to provide you with a memo- randum regarding the unique tax-exempt status of the Bradley Lake financing. I've found in my files a memorandum from Eric's firm, dated october 17, 1986, that describes the status of the proposed Bradley Lake Refunding Bonds under the current provisions of the Internal Revenue Code of 1986. I've enclosed a copy of that memo- randum, Ags noted in paragraph z2 of the memorandum, the “local furnishing rule" was liberalized in 1984 to include the Bradley Lake Project. This special provision was acknowledged in a footnote to the Conference Committee Report on the 1986 Tax Act. The tax-exempt status of the Bradley Lake Refunding Bonds is dependent upon the continued existence (as of the date of issuance of the Bonds) of the "local furnishing rule” as part of Section 142 of the 1986 Code, which governs "Exempt Facility Bonds." [In the 1986 Tax Reform Act, Congress restricted the use of Exempt Facility Ronda hy eliminating, amanda ngher phynase annrta facilities, convention and trade show facilities, parking facilities and pollution control facilities from the list of exempt facilities. Congress may further restrict the list to eliminate provisions that benefit private businesses and in this regard it should be remembered that the "local furnishing rule” primarily benefits investor owned utilities. Accordingly, we A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS SENT BY:Xerox “elecopier 7020 ; 721-88 5 14:04 * AK POWER AUTHORITY: #16 KATTEN MUCHIN & Zavis Mr. Robert E. LeResche Page 2 June 7, 1968 should not assume that the “local furnishing rule" will remain in the Internal Revenue Code for many more years. The 1986 Tax Reform Act also subjected private activity bonds to the Alternative Minimum Tax ("AMT"), Under present law, the Bradley Lake Refunding Bonds would not be subject to the AMT by virtue of a special exception for refunding bonds. Congres-— sional tax writers are not satisfied with the limited application of the AMT to municipal bonds. They would like to broaden its scope, and eliminating the exception for refundings is a possible change. Bonds that are subject to the AMT incur an interest rate penalty of 1/4 of 1% to 1/2 of 1%. Pinally, regarding the volume cap limitation, I don't see that as a major problem so long as the Bradley Lake Refunding Bonds are issued prior to 1991. If you have any questions concerning this matter, please feel free to contact me. Very trujyp yours, is Greenbaum LG/be Enclosure ec: Eric E. Wohlforth, Esq. Mr. James Seagraves Ms, Lorna C. Ferguson Mr. Sterling Gallagher 4 La PARTNERSHIP INCLUDING PROFESSIONAL. CORPORATIONS 1001 Fourta AVENUE PLaza (Szarirst Bupo.), Suite 3200 SEATTLE. WASHINGTON 98154 (206 623-4711 2011 Eve Street. N. W. Wasuinoton, D. C. 20036 (202) 296-3006 Linpsay, Hart, NEIL & WEIGLER LawYERS Suite 1800 222 S.W. CotumBIaA PORTLAND, OREGON 97201-6618 TELEPHONE (503) 226-1101 TELECOPIER (503) 226-0070 TELEX 404-7032 June 14, 1988 Dear Bradley PMC Members: RECORD Vr FILE NO Pro 3-h! min i aiaanietae tac JEFFERSON PLace 950 N org. Suite 400 ¢,/20/ 6% Boise. Ipano 83702 (2081 336-8824 fh 945 CaLIPoRNiIA STREET Suite 2200 J iL J ALASKA POWen AUTHORITY Enclosed is a memorandum prepared at Mike Kelly's request for your consideration prior to the June 30 organizational meeting of the Bradley PMC. I would be happy to discuss any of these thoughts with any of you prior to that time. At that meeting, I will also be prepared to talk about some of the practical "nuts and bolts" details of committee organization. RLSder301 Encl. Very truly yours, / uh A gM Ronald L. Saxton Distribution: John Cooley, ML&P Mike Kelly, GVEA Mike Yerkes, MEA Kent Wick, HEA Dave Highers, CEA Tom Lovas, CEA Paul Diener, SPU cc: Bob LeResche, APA Brent Petrie, APA XC, D-Shwre D-Code 1001 FourTH AVENUE PLAza (Sgartrst Bupa), Suite 3200 SEATTLE, WASHINOTON 98154 (206) 629-4701 2011 Eve Street. N. W. Wasutnoton, D. C. 20036 (202) 296-3006 TO: BRADLEY PMC MEMBERS FROM: RON SAXTON DATE: JUNE 14, 1988 RE: THOUGHTS ON ORGANIZATION OF COMMITTEE As many of you are aware, Linpsay, Hart, NEIL & WEIGLER LAWYERS Suite 1800 222 S.W. CotuMBIA PORTLAND, OREGON 97201-GG618 TELEPHONE (503) 226-1101 TELECOPIER (503) 226-0070 TELEX 404-7032 MEMORANDUM JEFFERSON PLACE 350 N. OTH, SUITE 400 Boise. IDAHO 83702 (208) 336-6844 345 CaLiroRNIA STREET Suite 2200 Sax FRANCISCO, CALIFORNIA 04104 (415) 064-5858 I have been involved with the Four Dam Pool Project Management Committee (4DP PMC) from its inception and have represented the collective Purchasing Utili- ties since shortly after the PMC's creation. experience, Mike Kelly has asked me to pass on some of the "lessons" from that group and to offer my thoughts on an organi- zational scheme for the Bradley PMC (BPMC). ideas, I have consulted with Brent Petrie, representative on the 4DP PMC. Based on that In outlining these who is the APA's Brent's insights are excellent and he should be a major player in developing the BPMC procedures. I have also consulted with Eric Redman, who was very active in the organizing of the 4DP PMC. Eric is a principal author of both the Four Dam Pool and Bradley Power Sales Agreements. My comments in this memo are in the nature of broad principles that should guide committee structuring. really the first order of business. These are After we have agreement on the structure and purpose of the BPMC, the next step will be preparation of actual rules of governance (rules of procedure, dispute resolution, open meeting guidelines, etc). Rather than reinventing these various documents, I suggest that we try to utilize the work of the 4DP PMC and modify those documents to reflect the Bradley circumstances. First, the two situations. is not yet built. it is important to note some differences between Many of you are aware that the 4DP PMC has had a high level of activity since its creation three years ago. The most important advantage you have is that Bradley Lake The 4DP PMC was created after their projects were completed and the history of contract negotiation and execution is one of tremendous tension and mistrust. Because that committee played no role in the construction phase, subsequent consideration of issues related to the level of project completion costs, maintenance standards, risk of poor project performance, etc., have been controversial and time Linpsay, HarT, NEIL & WEIGLER TO: BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 2 consuming for the 4DP PMC. The fact is that the 4DP PMC had no lead time to prepare for project operation and had to start deal- ing with budgets, insurance, O&M standards, etc., from its very first meeting and APA and the utilities had widely different expectations. The BPMC has an important opportunity to gear up prior to operation and avoid the backlog of issues that the 4DP PMC has faced. The authors of the Bradley Lake Agreements (both utility and APA negotiators) benefited from the 4DP PMC experience and drafted the Bradley Lake Agreements to narrow potential areas of conflict. A second advantage you have is that the BPMC is managing only one dam, on which no utility is dependent. The 4DP PMC deals with four separate hydroelectric projects which produce essentially all of the power required by the purchasers. Additionally, the Alaska Intertie Agreement has allowed the Bradley Lake parties to gain experience working together ina constructive mode. Having said that, I have a number of ideas to make the BPMC work efficiently and at a reasonable cost (both of people's time and money). 1. Know the Power Sales Agreement. A large part of my role for the 4DP PMC is to explain the Power Sales Agreement and its history and the "intent" of the drafts. It is important that the active partici- pants in the BPMC know and understand the Bradley Lake contract. One issue the 4DP PMC has had to grapple with is insuf- ficient guidance in the Power Sales Agreement on how to implement various contract provisions. The 4DP PMC Power Sales Agreement assigns rights and duties with broad general statements. The situation with the BPMC is quite different. The Power Sales Agreement has much more detail about the respective rights of the parties and is augmented by the detail in the Bond Resolution. The Services Agreement also provides considerable detail on the financial operations of the committee and limits much of the committee's discretion. Because the Four Dam Pool projects have no bond financing, that group is free to consider many issues and ideas that are simply not available to a bond financed project like Bradley. Linpsay, Hart, NEIL & WEIGLER TO; BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 3 2. Develop a Positive Working Relationship Between Purchasing Utilities and APA. Bradley Lake, just like the four projects which the 4DP PMC oversees, is owned by the APA. It is crucial to under- standing the role of the respective PMCs to understand that these are state-owned projects and that the utility rights to partici- pate in management derive exclusively from the Power Sales Agreements. Simply put, in exchange for the utilities agreement to purchase power from Bradley Lake, the APA has relinquished to the BPMC a number of areas of control which would otherwise belong to APA. The parties have agreed to cooperatively manage Bradley Lake for the benefit of all participants. Both the utilities and the APA must remember that the responsibility for Bradley management is shared. A positive working relationship between parties is critical because the interests of the APA and the purchasers will be inconsistent on occasion. The parties must be prepared to debate and disagree on various issues while still maintaining a high degree of mutual trust and respect. This will take some effort. The history of the Four Dam Pool negotiations is one of extremely long, protracted and often very adversarial negotia- tions. The 4DP PMC has worked to "heal the wounds," and has made substantial progress. However, that committee has had to deal with the legacy of mistrust, etc. The BPMC has no such history. The actual negotiations leading to the final Power Sales Agreement were quite smooth (at least in comparison to the Four Dam Pools experience) and had a minimum of controversy. The BPMC starts its existence with generally cordial relationships between all parties. The smooth operations of the BPMC depend on working hard to maintain a positive relationship. While APA and the purchasing utilities will frequently have different perspectives or issues, a good faith approach by all parties should allow issues to be resolved amicably in most instances. 3. Separate Policy and Technical Responsibilities. During the committee's start-up, and at times thereafter, the BPMC will need to consider "policy" issues. These will include adoption of procedural rules, determination of "required" project work as opposed to "optional" actions, final approval of annual budgets, etc. Consideration of an "early" Linpsay, Hart, NEIL & WEIGLER TO: BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 4 issuance of the long-term bonds is one issue we know will need to be addressed. I suggest that these issues be addressed by manager level representatives of the parties. After committee start-up, the majority of issues requir- ing attention will probably be "technical." These issues are of tremendous importance and are best dealt with by utility staff with appropriate expertise. One lesson of the 4DP PMC is that no single utility representative (or pair of utility representa- tives) can adequately deal with the incredible range of issues that arise during the course of project operations. The 4DP PMC has found itself involved in technical details relating to insurance standards, maintenance schedules, accounting issues, etc. The BPMC can add a number of other technical issues such as water allocation and scheduling. After attempts to deal with these through the committee as a whole, it has become evident to the 4DP PMC that such issues should be dealt with in subcommit- tees. The 4DP PMC has had subcommittees responsible for insur- ance, technical standards, supervision of trustee banking arrangements, emergency repair financing, and other matters. Membership on the subcommittees is not limited to PMC members or alternates, and typically is intended to take advantage of the expertise of utility staff people other than the committee members. The procedural rules of the 4DP PMC provide that subcommittee activities terminate at the end of each fiscal year unless such committees are reappointed by the 4DP PMC chairman. The point is that putting technical issues in the hands of those who will have to make the system work will avoid a great deal of misunderstanding later on. CAVEAT: While I urge the use of technical experts whenever possible, it is a truism that major policy decisions are hidden in the details. The work done by subcommittees should always be subject to final approval by the BPMC in order to assure consideration of policy implications. 4. Utilize Existing Utility Staffs -- Don't Hire PMC tstatF.™ The 4DP PMC is composed of predominantly small utilities which are physically remote from each other. For these reasons, and a variety of others relating to the complexity of the issues associated with those particular projects, the group has utilized a number of outside experts. I am retained to provide legal services to the group and Ernst & Whinney provides the accounting and financial services on an ongoing basis. The group has from time to time retained engineering firms to advise on technical standards and insurance consultants to deal with Linpsay, Hart, NEIL & WEIGLER TO: BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 5 risk management. The 4DP PMC is currently debating whether to hire some type of staff administrator to assist with coordination of meetings, retention of records, etc. The situation facing the BPMC is quite different and affords opportunities for greater efficiency. I strongly urge the BPMC to utilize the staffs of the respective participants as much as possible. Within this group there is tremendous expert- ise, and each participant should be willing to lend its people to the committee as necessary. This will be much more efficient than bringing in outsiders or hiring permanent staff. As an example, I do not think the BPMC needs to hire a new group attorney. Each of the participants has a competent attorney who is familiar with the contractual documents and the relevant legal and political constraints. As the group believes it has need for legal input, the committee can determine which existing attorney or attorneys is best suited to offer assistance. Individual utilities will continue to call on their respective attorneys as issues arise and all parties should have attorneys generally familiar with the committee's activities. The committee can decide to reimburse the cost to the relevant utility if the magnitude of legal costs borne by any individual utility becomes disproportionate. Other issues should be dealt with by spreading the work out among qualified utility staff. For example, an insurance committee could be made up of two or three or four of the people who handle insurance questions for the participants, as I believe is done for the Intertie. Dispatchers could compose a committee dealing with scheduling, etc. Si The Structure - A Hub and Spokes. The BPMC should be a manager-level, policy-oriented body akin to a board of directors. It should meet quarterly. The committee would have the usual officers, each of whom would rely on their own staff for administrative support. After committee start-up activities, the tasks for the BPMC should actually become pretty limited. The BPMC should be responsible for appointing appro- priate committees, charging them with their tasks, and acting on recommendations of those committees as appropriate. The majority of work would then be carried on by individuals or subcommittees, which would report to the PMC at each of the quarterly meetings, if appropriate. Linpsay, Hart, NEIL & WEIGLER TO: BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 6. 6. Remember the Open Meeting Act. The BPMC is subject to the requirements of AS44.62.310 which requires all meetings to be open to the public. All votes must be in public, etc. The statute provides for limited subjects which can be discussed in executive session. This obligation was imposed on the Bradley Lake parties by the last Legislature in SCS CSHB 356 (res). While the language of the legislation is arguably vague and susceptible to varying readings, I understand the intent of the legislation to be that the BPMC should be required to give public notice and hold all meetings in public. The committee should adopt rules of procedure that assure compliance. (The 4DP PMC devoted a lot of time to this issue). Ts Closing Comments. The BPMC must undertake to develop rules of procedure, elect officers and assign initial tasks (such as construction oversight, etc.). The committee has duties which include: a. arranging for O&M; b. arranging for the scheduling, production and dispatch of power; Cc. establishing procedures for water allocation; d. budgeting; e. determining annual payment obligation of each purchaser and any true ups necessary after the completion of a budget year; £. consideration of Required and Optional Project Work and option of dispute resolution rules; g. determination of insurance coverage; h. determination of maintenance schedules; ae consideration of whether to have any reserve arrangements; j. consideration of sufficiency of reserve funds. Linpsay, Hart, NEIL & WEIGLER TO: BRADLEY PMC MEMBERS FROM: RON SAXTON June 14, 1988 Page 7 The 4DP PMC has procedures for dealing with many of these tasks and Brent and I will be happy to provide those and help "customize" them to reflect the will of the Bradley group. An early question to be resolved is the scope of the APA's "veto" over BPMC activities. Stated differently, which BPMC tasks require the affirmative vote of APA's representative in order to be approved. Brent Petrie and I are working on developing a proposal on this issue and are progressing smoothly. I look forward to discussing the organizational issues on June 30 and would be happy to talk with any of you who have additional questions before that time. RLSder290