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HomeMy WebLinkAboutBPMC Meeting November 30, 1989 1; FILE Copy BPMC Minutes, November 30, 1989 page 1 of 8 FRO=T Tat BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE ~ NOVEMBER 30, 1989 MINUTES OF MEETING 1. CALL TO ORDER Chairman Kelly called the Bradley Lake Project Management Committee Meeting to order at 9:15 a.m. in the Training Room of Chugach Electric Association, Anchorage. 2. ROLL CALL The roll was called and a quorum established. In attendance were the following representatives: Alaska Energy Authority Brent Petrie - Alternate Chugach Electric Association Tom Lovas - Alternate City of Seward eo None present. Golden Valley Electric Association Michael Kelly - Representative Homer Electric Association Kent Wick - Representative Sam Matthews - Alternate Matanuska Electric Association Ken Ritchey - Representative Myles Yerkes - Alternate Municipal Light and Power Thomas Stahr - Representative John Cooley - Alternate Others present: Don Shira - Alaska Energy Authority Dave Eberle - Alaska Energy Authority Ron Saxton - PMC Utilities Marcey Rawitscher - Alaska Energy Authority Joe Griffith - Chugach Electric Association Dan Bloomer - Chugach Electric Association Denise Burger - Alaska Energy Authority e@ 3. PUBLIC COMMENT There being no public comment, Chairman Kelly continued on to agenda item 4. BPMC Minutes, November 30, 1989 page 2 of 8 4. MODIFICATION OF AGENDA Mr. Petrie requested an item, 8.d., Stone and Webster Errors and Omission Insurance be added to the agenda. There being no objection, item 8.d. was added to the agenda. 5. APPROVAL OF MINUTES The minutes of the October 19, 1989 meeting were approved as written. 6. BOND FINANCE TEAM REPORT Mr. Petrie reported that closure of the first bond issue was completed. Mr. Petrie explained there is some question of possible tax liability (loss of tax exemption) should the Bradley Lake Project become commercially operational significantly earlier than originally anticipated (September 1991). Mr. Saxton and Ms. Rawitscher further defined the tax issue stating that interest is capitalized up to October 1991 but cannot be capitalized more than a short period of time after commercial operation begins without exceeding the 5 percent limit for non-project costs and threatening the entire transaction. An additional potential problem could also surface if commercial operation began before July 1, 1991, in that the bond resolution would require the final O&M budget to be in place a year earlier (April 1, 1990 rather than April 1, 1991.) Mssrs. Wick and Yerkes explained that the SCADA process and Stability Problem may result in an extended test period, which could delay commercial operation. Mr. Saxton suggested that the test period be defined, which may require an arrangement between the utilities and the Energy Authority. Mr. Griffith suggested discussions with the IRS may be appropriate, however Mr. Petrie commented that such action was premature. Mr. Petrie reiterated Mr. Saxton’s suggestion to establish a definition for "test period" and address arrangements for the use of power generated during the test period. Mr. Petrie further recommended that Bond Counsel, Ron Saxton, Dave Eberle and the Technical Coordinating Subcommittee (TCS) work together to formulate acceptable definitions and solutions to present at the January PMC meeting. Mr. Eberle added it may be necessary to redefine "commercial operation." After further discussion Chairman Kelly summarized by stating the consensus was a preference to stay with the current schedule, with commercial operation after July 1, 1991. Ms. Rawitscher will also be consulting with the tax lawyer on 12/1/89 to determine if it is possible to redefine interest dollars. Mr. Ritchey suggested that the budget process might begin now to avoid a possible bind later. Mr. Petrie commented that a dry run of the budget process has already begun and, if necessary, could be nearing completion by the April 1990 date. Chairman Kelly stated that no action was required at this time and further discussion on the issue should be included in the next PMC meeting after additional information was available. 7. TECHNICAL COORDINATING SUBCOMMITTEE REPORT (TCS) Mr. Yerkes stated that due to a delay by Power Technologies Inc. (PTI) on the Surge Tank Analysis there is no information to report on this item. The TCS is scheduled to meet December 14, 1989 and expects to review the draft report at that time. Mr. Yerkes noted that there was a proposal to reduce the amount of lining in the power tunnel, however upon review by the BPMC Minutes, November 30, 1989 page 3 of 8 contractor, the savings were determined to be insignificant. (Further discussion by Mr. Eberle under item 11.) 8. INSURANCE SUBCOMMITTEE REPORT Mr. Saxton stated the Insurance Subcommittee was directing its emphasis toward preparation of insurance alternatives for the dry run budget. a. Report on Collective Business Interruption Insurance Not addressed at this time. b. Report on Pooled Insurance Coverage Mr. Saxton commented steady progress was being made on the possibility of pooling with the Four Dam Pool. c. Risk Assessment Mr. Petrie stated the Energy Authority was proceeding to use Stone & Webster Engineering Corporation (SWEC) to update estimated damage costs. After discussing the option and added expense (increased amount of time as well as dollars) of hiring an independent consultant, Risk Management agreed that SWEC could best make the required estimates for the necessary "modified risk assessment." The contract does require the retention of an independent consultant for this purpose after project commercial operation begins. Other options for insurance were discussed, Mr. Petrie noting the possibility of self insurance. There being no objection, the PMC supported AEA'’s approach to proceed with finalizing a work order for SWEC to perform the task. d. SWEC Errors and Omissions (E&0) Insurance Mr. Petrie stated that E&O insurance had become an issue the Energy Authority felt should be presented to the PMC for consideration as it would be classified a project cost. Mr. Eberle gave a brief history of the attempts to attain E&O insurance beginning in 1985, stating it was generally not obtainable at all until recently. Mr. Eberle described the proposed coverage as $850,000 for a $10 million policy with $500,000 deductible, pointing out that the deductible was per occurrence and that any problem areas discovered to date would be excluded from coverage. Mr. Eberle noted that given the advance stage of construction, the proposed policy may not be worth the expense. Mr. Eberle suggested self insurance might be an alternative option to consider at this point. Mr. Saxton stated that funds could possibly be made available for this purpose through the issue of additional bonds. After further comments, Mr. Ritchey motioned, seconded by Mr. Stahr, to approve the purchase of E&O insurance. Without further discussion, the motion was defeated in a roll call vote, the vote being as follows: Messrs. Ritchey, Kelly, Highers, Wick, Petrie, Lovas voting NO; Mr. Stahr voting YES; City of Seward representative ABSENT. BPMC Minutes, November 30, 1989 page 4 of 8 9. BUDGET AND FINANCE SUBCOMMITTEE REPORT Mr. Saxton reported the committee has identified a detailed list of the components and sources of the budget, however would like to continue working on it before presenting it to the PMC. Mr. Saxton identified one item for the PMC to consider; the benefit of handling the Chugach and Homer Electric wheeling agreements by the PMC. Chairman Kelly commented there seemed to be notable benefit to design these agreements under the umbrella of the PMC. Mr. Lovas stated that Chugach Electric has already performed a substantial amount of work in regard to the rates and scheduling and would not want to relinquish it to the PMC, rather would prefer to use the PMC to review that work. Mr. Saxton stated it was the committee's intention to finalize the budget items and to present it to the PMC at the January meeting, beginning the gathering of necessary information after that time. 10. OPERATING AND DISPATCH AGREEMENT SUBCOMMITTEE REPORT Mr. Shira distributed copies of minutes for the November 1, 1989 meeting held at the project site (attachment 1). An additional meeting was held November 28, 1989. Mr. Shira stated the committee, working with Frank Moolin & Associates (FMAA) is making good progress on discussions of resolutions for several issues (detailed in the November 1, 1989 meeting minutes.) Chairman Kelly requested continued reports on subcommittee progress at future PMC meetings. Mr. Petrie noted that the Operating and Dispatch Agreement Subcommittee has had need for the services of a consultant. Mr. Petrie suggested that the PMC consider allocating $100,000.00 under Section 31 Costs for continuing consulting needs, as he felt it was to the benefit of the purchasers. Mr. Lovas concurred that some further mechanism should be provided for the committee to retain consultant services to alleviate the necessity for the committee to request funds from the PMC for each task. Mr. Petrie offered the service of AEA as a vehicle for the contracting, as a matter of convenience to the utilities. Chairman Kelly expressed potential concerns he had heard regarding the performance of the current consultant (FMAA). Mr. Shira commented that, in general, FMAA was performing well and recommended FMAA be allowed to continue. Mr. Wick motioned to extend the contract with FMAA for an amount up to $25,000. An amendment offered by Mr. Lovas to increase the amount to $100,000 died for lack of a second. The original motion, having been seconded by Mr. Petrie, passed by a unanimous roll call vote of all those representatives present. Mr. Petrie requested clarification for the source of these dollars, stating preference for Section 31 as utility costs. After some discussion, it was concluded that until the initial O&M agreement has been finalized, such costs should be project costs. Mr. Shira expressed his appreciation for the contribution that Marvin Riddle of GVEA made toward developing the Technical Standards for the Four Dam Pool, noting after the first of the year, work would begin on the Technical Standards for Bradley Lake. 11. REVIEW OF PROJECT STATUS Mr. Eberle reported that the project is about 61 percent complete overall. BPMC Minutes, November 30, 1989 page 5 of 8 All tunneling is now complete with the exception of a 15 foot rock plug which will remain in place until the tunnel is ready to be watered-up. The hydrotest of the penstock and manifold is scheduled within the next few days. Mr. Eberle explained the test would be performed to the extreme of 150 percent of working pressure, about 950 psi. Lining has begun in the upper tunnel to be followed by the lower tunnel and vertical shaft this winter. Mr. Eberle added that the powerhouse is enclosed and Unit 2 spiral case for the turbine has been embedded in concrete. Two major shipments for the Turbine/Generator Components are arriving this month. After earlier shipping problems, Mr. Eberle stated Fuji is taking several measures to insure the safe arrival of these shipments. Mr. Eberle suggested the PMC schedule a meeting at the Project site later this winter or early next spring to review the project status. In response to a question on the progress of the transmission line, Mr. Eberle stated currently work is being done on the foundations. Most of the pilings in the Fox River Valley have been driven and the contractor is preparing to move onto the Caribou Lake plateau. Mr. Wick updated the PMC regarding HEA'’s progress on their portion of the transmission line. At present, HEA is working south from Bradley Junction to Fritz Creek and has approximately one mile of poles in place on the thirteen mile segment. Mr. Wick noted that mechanical problems with the only helicopter of proper size available in the state may require that the poles be hauled in overland. However, Mr. Wick still anticipates this work will be done by Summer 1990. Mr. Eberle referenced Mr. Yerkes earlier comment on the tunnel lining, explaining the original design was for 100 percent tunnel lining. The better than anticipated geology (rock quality) provided an opportunity to consider deleting some of the liner in hopes of a significant ($2 to $3 million) financial savings. The contractor’s estimated cost difference however showed little or no savings due mostly to the added cost of ending and restarting the sections of lining. Mr. Eberle stated the result of the review was to continue with the original plan for full tunnel lining. 12. OLD BUSINESS a. Report By Power Technologies, Inc. (PTI) In reference to the PTI Surge Tank Analysis report previously mentioned by Mr. Yerkes, Mr. Eberle added that he expects to receive the rough draft by December 7, 1989. The TCS will review the draft report at their December 14, 1989 meeting and completion of the final report is anticipated by the next PMC meeting. b. Report on the Four Dam Pool FERC Fee Appeal Mr. Saxton noted that FERC has denied the request by the Alaska Energy Authority and the Four Dam Pool utilities for exemption from annual fees and a motion for reconsideration has been filed. FERC initially denied the request stating that although the Energy Authority was not earning a profit on the sale of the power, it felt the utility companies were. Therefore, the utilities did not meet the required non-profit standard. Mr. Saxton does not expect a positive result on the motion and anticipates the Four Dam Pool to decide next year on BPMC Minutes, November 30, 1989 page 6 of 8 whether or not to continue this process in court. Mr. Saxton noted that if there is a judicial appeal, Bradley Lake may be requested to (or desire to) participate in some way. c. Review of Reimbursable Cost Items by Utilities from Grant Funds or Bond Proceeds Mr. Ritchey motioned that the list of utility costs prepared by Mr. Saxton be released to all PMC members at this time. Mr. Wick seconded the motion. Without discussion, all members present unanimously approved the motion. Prior to passing out the prepared list, Mr. Saxton noted that all costs reported were not entirely comparable. Mr. Saxton reminded the PMC that the purpose for gathering together these (Section 31) costs was to provide the utilities the opportunity for reimbursement from the tax exempt bond proceeds. Mr. Saxton warned the committee that there is current debate on whether there is sufficient money to reimburse all expenses and recommended that as a group the PMC decide which costs are appropriate. Mr. Saxton distributed copies of the list of utility cost items titled "Unreimbursed Bradley Lake Costs, Project Costs" and a second list titled "Section 31 Costs" (Attachment 2) explaining that there were substantial differences of dollar amounts among the utilities. Mr. Saxton noted discrepancies in legal fees were probably due to the amount of legal work each utility required. Mr. Saxton also addressed discrepancies in the TCS cost amounts stating he had received detailed billing from HEA and clarified their cost did not include any staff labor. Responding to a question from Chairman Kelly, Mr. Saxton stated the money for these reimbursements was coming out of the second bond issue and this current review of the costs would help determine how to size it. Again Mr. Saxton expressed doubt that all Section 31 costs could be reimbursed. Ms. Rawitscher requested the committee address the costs of issuance (items Al, A2, and A3 of "Unreimbursed Bradley Lake Costs, Project Costs".) Mr. Petrie motioned, seconded by Mr. Stahr, that the Committee approve the costs of bond issuance, items Al, A2, and A3. Mr. Stahr verified ML&P legal expenses (A2). Mr. Ritchey suggested that the actual cost of in-house legal service be included in this item. There being no objection, the motion passed unanimously by a roll call vote of all those representatives present. Mr. Saxton suggested further discussion of TCS cost items. Mr. Wick clarified HEA’s TCS expenses stating that approximately $18,000 was paid to Black & Veatch for studies on the impact of the Bradley Lake project and approximately $8,000 was paid to Gilbert Commonwealth for evaluation of stability problems. Mr. Wick stated those expenditures were necessary to HEA because of its proximity to the project. Chairman Kelly recommended item A5, TCS expenses, be included in the previous motion approving items Al, A2, A3. There were no objections, however discussion between Mr. Eberle and Mr. Matthews resulted in the determination that the ($18,000) Black & Veatch cost was not a TCS related expense, but rather an O&M cost. Mr. Petrie and Mr. Lovas recommended that the original motion for approval be amended to exclude the ($18,000) Black & Veatch cost. By consensus, the original motion was made to read: Mr. Petrie motioned, seconded by Mr. Stahr, that the committee approve the costs of bond issuance, items Al, A2, A3 and BPMC Minutes, November 30, 1989 page 7 of 8 Ms. the TCS costs, item A5 (having been determined to exclude the Black & Veatch cost.) Further discussion by committee members resulted in the reclassification of HEA'’s Black & Veatch cost as a Section 31 cost. Chairman Kelly noted, as a general guideline, future studies to be considered for reimbursement should be approved by the PMC in advance. There was no objection. Section 31 Costs Mr. Stahr motioned, seconded by Mr. Lovas, that the Section 31 costs be approved (as adjusted to include the $18,864.29 HEA Black & Veatch cost previously removed from item A5 of Project Costs.) Concern was expressed by Mr. Ritchey about the negotiation costs. Mr. Saxton stated that 97 percent to 99 percent of the listed amounts were actual attorney fees. Mr. Lovas requested that CEA’s footnoted cost of $22,700 (in-house attorney fees) be included as part of item Bl, Negotiation Costs. There being no objection or further discussion, the motion was passed unanimously by a roll call vote of all those representatives present. Mr. Petrie requested the Chairman provide a letter to the Energy Authority clarifying the revised numbers for "Section 31 Costs" and "Unreimbursed Bradley Lake Costs, Project Costs." d. Reconsideration of DFI Surge Tank and Intertie Study Costs Mr. Petrie distributed a letter stating the Energy Authority’s position after further review of these two items (attachment 3). Mr. Petrie stated the Energy Authority was now agreeable to include the DFI Surge Tank Study (for $10,000) as a project cost. The motion to include the DFI Surge Tank Study was made by Mr. Petrie and having been seconded, passed by a unanimous roll call vote of all those representatives present. It was determined that ARECA should be reimbursed $10,000 for the DFI Surge Tank Study. Rawitscher requested clarification regarding the source of the compensation amount of $600,000 to HEA for the Fritz Creek - Soldotna Transmission Line. Chairman Kelly recommended a review of past meeting minutes to clarify how that cost was intended to be handled. 13. NEW BUSINESS a. Contingency Plan for early Bradley on-line b. Disposition of Bradley Test Power Chairman Kelly noted that these items had been discussed earlier (reference item 6, Bond Finance Team Report.) Mr. Saxton stated his understanding was that the project would not be going on line (as commercially operable) before July 1991. Mr. Eberle added that in the most optimistic scenario, the earliest the project could produce 90 mega watts would be April or May of 1991, however the test period could extend to July 1991. BPMC Minutes, November 30, 1989 page 8 of 8 14. c. Benefits of Coordinated Dispatch Chairman Kelly stated a meeting had taken place between Mr. Brooks, Dr. LeResche, and the railbelt managers at Chugach’s office. The goal being to obtain money through the legislature from the Railbelt Energy Fund, it was determined to send a memorandum of understanding between the Energy Authority and utilities to work toward coordinated dispatch to optimize savings. In addition, it was decided an effort should be made to assure the legislature that this was a one time request for funds. Chairman Kelly stated a third concept discussed was a 2 mil usage toll on the line to produce a repayment stream to the Energy Authority. Mr. Lovas noted that CEA had agreed to prepare the frame work of a wheeling agreement, extension intertie agreement at that meeting. Currently, this work is in the initial draft stage. d. Schedule Next Meeting The next meeting was scheduled for Wednesday, January 17, 1990, 9:00 a.m. in the training room at Chugach Electric. COMMUNICATIONS There being no communications or further comments at this time, Chairman Kelly continued to item 15. 3, ADJOURNMENT All business before the committee being complete, the meeting adjourned at 11:51 a.m. THY A. Chairman Kelly Attest: A Bick Alaska Energy Authority, Secretary Approved at BPMC meeting held JQ). /8 , 1990