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HomeMy WebLinkAboutBPMC Meeting Weds, December 29, 2010BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE MEETING MINUTES REGULAR MEETING (via electronic media at the Alaska Energy Authority’s Board Room) Anchorage, Alaska December 29, 2010 - 10:00 a.m. A: CALL TO ORDER Secretary Bryan Carey called the regular meeting of the Bradley Lake Hydroelectric Project Management Committee to order at 10:35 a.m. on Wednesday, December 29, 2010, from the AEA Boardroom, Anchorage, Alaska, to conduct the business of the Committee per the agenda and public notice. 2. ROLL CALL Roll was called by May Clark. The following members were present: Joe Griffith Matanuska Electric Association (teleconference) Burke Wick Chugach Electric Association Harvey Ambrose Homer Electric Association (teleconference) Henri Dale Golden Valley Electric Association (teleconference) Jim Posey Anchorage Municipal Light & Power Bryan Carey Alaska Energy Authority 3. PUBLIC ROLL CALL Mike Cunningham, CEA (teleconference) Don Zoerb, MEA (teleconference) Bob Day, HEA (teleconference) Brian Newton, GVEA (teleconference) Rick Miller, AML&P Bob Price, AML&P Doug Hall, AML&P Mark Johnson, CEA (teleconference) Gary Dixon, Swalling & Associates Brian Bjorkquist, Department of Law Kirk Gibson, McDowell Rackner & Gibson pc (teleconference) Linda MacMillan, AEA May Clark, AEA Mr. Carey stated that in the absence of both the BPMC Chairman and Vice Chairman, the membership would now elect a Chairman Pro-Tem to conduct the meeting and the vote shall be in the majority. MOTION: Mr. Griffith moved to elect Bryan Carey as Chairman Pro-Tem for this meeting. Seconded by Mr. Wick. Page 1 of 4 BPMC Minutes 12/29/2010 A roll call vote was taken: City of Seward: (absent) Matanuska Electric Association: Yes Chugach Electric Association: Yes Homer Electric Association: Yes Golden Valley Electric Association: Yes Anchorage Municipal Light & Power: Yes Alaska Energy Authority: Yes The motion unanimously passed. 4. PUBLIC COMMENT There were no public comments. 5. AGENDA COMMENTS / MOTION FOR APPROVAL The memorandum dated November 12, 2010 Kirk Gibson regarding FERC Land Use Fees update was added to the agenda as item 6C. There were no objections. Mr. Cunningham requested that agenda item 6A “Request for Consent of BPMC & the Authority,” be removed from the agenda. There were no objections. 6. NEW BUSINESS 6A. Request for consent of BPMC and the Authority (Removed at the request of Mr. Cunningham). 6B. Approval of FY10 Audit Report & Refund of Surplus to Utilities Mr. Dixon stated Swalling and Associates audited the operating and revenue funds as in previous years. The financial statements are special purpose and are not intended to be a presentation in conformity with generally accepted accounting principles. The audit is performed under generally accepted auditing standards. The financial statements were prepared by AEA, who provide the accounting services. There were no significant changes in accounting policies, methods or disclosures. There were no problems or disagreements with AEA management. No adjustments to the numbers as presented were proposed. Representations on financial statements were received from Mike Cunningham of the BPMC and Linda MacMillan, AEA accountant. AEA financial statements are audited by KPMG. $280,994 will be refunded to the utilities this year. In June of 2010 $375,000 was refunded to the utilities. $380,000 has been budgeted for FERC land use fees. No other issues were encountered. The BPMC had no questions. MOTION: Mr. Posey moved that the Bradley Lake Project Management Committee approve the FY10 audit report of the Bradley Lake Project Management Committee Operating and Revenue Funds and refund the surplus of $280,994 to the utilities. Seconded by Mr. Wick. Page 2 of 4 BPMC Minutes 12/29/2010 A roll call vote was taken: City of Seward: (absent) Matanuska Electric Association: Yes Chugach Electric Association: Yes Homer Electric Association: Yes Golden Valley Electric Association: Yes Anchorage Municipal Light & Power: Yes Alaska Energy Authority: Yes The motion unanimously passed. 6C. Update on FERC Land Use Fees Mr. Gibson provided an update. The land use fee issue is winding its way through DC circuit courts, oral arguments have occurred and a ruling should occur within the next 60 days. In July FERC issued another order concerning the fees, a formula based on the same methodology and criteria the dam owners of the Western US (the “Group”) objected to in 2009. The BPMC pays about 10% of the Group’s legal fees, based upon the acreage of federal land under and around the project. There’s a new FERC attorney who may be in favor of settlement. $30,000 was budgeted in 2009 to fight the fee increase. The BPMC to date has been invoiced $25,700 for its share of the expenses and there is an outstanding invoice of $4,650 currently being processed. He suggested the BPMC consider increasing the approved $30,000 by $20,000 to cover potential expenses at least through the first two quarters of 2011. Mr. Griffith asked Mr. Gibson if he was monitoring this matter for the BPMC, or were we relying on the DC firm and when might the matter be decided. Mr. Gibson stated he monitors their work and an answer should be received in about 90 days to be remanded back to FERC. The lands include all of the federal lands under the permit to Bradley junction, including Bradley Lake and transmission. The diversion project land is state land that was transferred to the state in the early 1980s. MOTION: Mr. Griffith moved that the Bradley Lake Project Management Committee increase the budget for the land use fee issue to $50,000. Seconded by Mr. Wick. A roll call vote was taken: City of Seward: (absent) Matanuska Electric Association: Yes Chugach Electric Association: Yes Homer Electric Association: Yes Golden Valley Electric Association: Yes Anchorage Municipal Light & Power: Yes Alaska Energy Authority: Yes The motion unanimously passed. Page 3 of 4 BPMC Minutes 12/29/2010 Ts. Next Meeting Date The next meeting will be at the call of the Chair. 8. ADJOURNMENT The meeting adjourned at 10:54 a.m. ATTEST: Alaska Energy Authority, 3ecretary Page 4 of 4 BPMC Minutes 12/29/2010 K bss ee ; @@e__ ENERGY AUTHORITY A He mania BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE MEETING AGENDA Wednesday, December 29, 2010 — 10:30 a.m. (via electronic media at the Alaska Energy Authority’s Board Room 813 West Northern Lights Boulevard, Anchorage, AK) 1, CALL TO ORDER Wick 2. ROLL CALL (for Committee members) 3. PUBLIC ROLL CALL (for all others present) 4. PUBLIC COMMENT 5: AGENDA COMMENTS / MOTION FOR APPROVAL 6. NEW BUSINESS 6A. Request for Consent of BPMC and the Authority Gibson 6B. Approval of FY10 Audit Report and Refund of Surplus to Utilities MacMillan ts NEXT MEETING DATE 8. ADJOURNMENT 813 West Northern Lights Boulevard * Anchorage, Alaska 99503 www.aidea.org ¢ 907/771-3000 * FAX 907/771-3044 ® Toll Free (Alaska Only) 888/300-8534 * www.akenergyauthority.org McDowell Rackner & Gibson PC Memorandum To: BPMC From: Kirk Gibson Date: 12/23/2010 Re: |Request for Consent of BPMC and the Authority Chugach Electric Association, Inc. (CEA) has requested the BPMC consent to CEA’s pledge of its interest in the Bradley Lake Power Sales Agreement (PSA) to the US Bank National Association (CEA’s indenture trustee). After an overview of CEA’s request to the BPMC, this memorandum will address the rights and obligations of CEA and the BPMC under the PSA. CEA will be available at the BPMC meeting (now scheduled for January 29") to discuss its financing activities and obligations under the PSA in greater detail than presented in this memorandum. CEA’s Request CEA is requesting the BPMC provide consent for CEA to pledge its interest in the PSA to the US Bank National Association as security for the benefit of current and future holders of Chugach’s secured indebtedness. CEA is in the process of refinancing the debt covering its utility system which is now served through a “Bullet” loan terminating in the spring of 2011. It is my understanding that CEA will retire its existing outstanding debt and have additional funds for other system uses. CEA has represented that the interest rate on the new debt is favorable compared to its current indebtedness. The PSA Under Section 17 (c) of the PSA, a Purchaser may mortgage their utility system, or assign the PSA (or any interest under the PSA) to any assignee or successor in interest, so long as it meets certain requirements. Specifically, CEA must have: (1) the assignment of its interest in the PSA be in accord with its other covenants or agreements with the holders of CEA’s bonds or other indebtedness on its utility Phone: 503.595.3922 » Fax: 503.595.3928 » www.mcd-law.com 419 SW 11" Avenue Suite 400 - Portland, Oregon 97205 December 23, 2010 system ; and (2) meet one of the requirements set forth in Section 17(c)(2)(A —D). CEA has chosen to request the consent of the BPMC and the Authority to the pledge of its interests in the PSA under Section 17(c)(2)(A). The requirement that the assignment of its interest in the PSA be in accord with its other covenants or agreements with the holders of CEA’s bonds or other indebtedness on its utility system is a matter for CEA to handle. This is CEA ‘s obligation under the PSA that must be met for CEA’s assignment to be effective under the terms of Section 18(a) of the PSA. Discussion As noted above, CEA has the right to pledge its interests in the PSA so long as it follows the requirements set forth in the PSA. Of course, the BPMC and the Authority have the right to protect their interests. Section 9 of the PSA sets forth the rights of the Authority in the event of a default by a Purchaser. This would be the effective provision should CEA fail to meets its obligations under the PSA for assigning its interests in the PSA. This section would also come into play should either CEA or its assignee fail to meet its obligations under the PSA sometime in the future. It is possible that the Authority may choose to remedy a failure by CEA (or its assignee) to meet its payment obligations under the PSA in such a way as to cause a change in the financial obligations to other Purchasers. This, of course, is a risk that exists now with respect to any Purchaser. The discussion of this possibility is limited in this memorandum because it is unlikely that, under such circumstances, another Purchaser would not step up and accept the deliveries from BPMC that would have been sent to a defaulting Purchaser. | will discuss this issue further at the meeting should any BPMC Member have any questions or wish to examine the remedies for default under the PSA in more detail. In order to protect the remaining Purchasers and the Authority under the PSA for the future, | recommend that the Motion providing consent should be conditioned on CEA’s and its lenders meeting the obligations set forth in the PSA. The attached Motion reflects that recommendation. Other Considerations While | do not offer the following information in an effort to persuade the BPMC to act one way or another, it should be noted that CEA could alternatively have its refinancing plan and revenue requirements evaluated by a consultant to certify that either CEA or the successor in interest will have: (a) substantially the same or greater ability to produce sufficient revenues to meet its payment obligations as 2 — CEA Request for BPMC Consent December 23, 2010 would CEA absent the transaction, and (b) the ability to perform all obligations under the PSA. Assuming CEA’s representations regarding the favorable interest rate, etc., to be accurate, the certifications, although costlier and more time consuming, should be achievable. The conditioning of the Motion is designed to protect the BPMC in a manner similar to the certification process. The Motion Attached to this memorandum is a draft Motion for the BPMC’s consideration and use should both the BPMC and the Authority agree to consent to CEA’s pledge of the PSA. Please be advised that under Section 17(c)(2)(A), the consent is to be in writing and approved by a majority of the BPMC, including the Authority’s representative. 3 — CEA Request for BPMC Consent May Clark From: Kirk Gibson <kirk@mcd-law.com> Sent: Wednesday, December 29, 2010 9:00 AM To: Cunningham, Mike; Johnson, Mark ‘Ce: Brian Bjorkquist; Shauna Howell; Owens, Connie; Evans, Brad; Bryan Carey; May Clark; Kirk Gibson Subject: RE: Materials for BPMC 12/29 Meeting Attachments: BPMC Motion for consent to CEA Refinancing 12_29_2010.docx Mark/Mike - Please see attached Motion for use at today's meeting. | have redrafted the Motion for BPMC to provide consent to CEA's refinancing to include the language requested by Brian Bjorkquist on behalf of AEA. | also turned the conditions into covenants to better match the enforcement language in the PSA (See Section 9). Please do not hesitate to contact me should you have any questions or desire further information. May - Please have a copy of this for the BPMC's meeting today. Thanks! Best, Kirk Kirk H. Gibson McDowell Rackner & Gibson PC 419 SW 11th Ave., Suite 400 Portland, Oregon 97205 Direct: 503-290-3626 Mobile: 503-708-1341 Fax: 503-595-3928 Email: <mailto:Kirk@mcd-law.com> Kirk@mcd-law.com<mailto:Kirk@mcd-law.com> Please visit our website to learn more: <http://www.mcd-law.com/> http://www.mcd-law.com PRIVILEGE AND CONFIDENTIALITY NOTICE: THE INFORMATION CONTAINED IN THIS MESSAGE MAY BE ATTORNEY PRIVILEGED AND CONFIDENTIAL INFORMATION INTENDED ONLY FOR THE USE OF THE INDIVIDUALS OR ENTITIES NAMED ABOVE. IF THE READER OF THIS MESSAGE IS NOT THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS COMMUNICATION IS STRICTLY PROHIBITED. IF YOU RECEIVED THIS COMMUNICATION IN ERROR, PLEASE IMMEDIATELY NOTIFY ME BY TELEPHONE OR E-MAIL, AND DESTROY THIS MESSAGE. BPMC Motion on CEA Refinancing Agenda Item: Introduction CEA is requesting the BPMC to provide consent for CEA to pledge its interest in the PSA to the US Bank National Association (CEA’s indenture trustee) as security for the benefit of current and future holders of Chugach’s secured indebtedness. Background CEA is in the process of refinancing the debt covering its utility system which is now served through a “Bullet” loan terminating in the spring of 2011. CEA intends to retire its existing outstanding debt and have additional funds for other system uses. There are four ways in which CEA can meet the requirements of Section 18 of the PSA regarding effective assignments pursuant Section 17(c) of the PSA. CEA has chosen to request the consent of the BPMC and the Authority to the pledge of its interests in the PSA under Section 17(c)(2)(A). A memorandum prepared by BPMC counsel has been reviewed by the BPMC. Consent by the BPMC Under Section 17(c)(2)(A), the consent of such an assignment is to be in writing and approved by a majority of the BPMC, including the Authority's representative. The Motion The BPMC hereby moves to provide its consent to Chugach Electric Association, Inc., (CEA) for the pledge of its interest in the Bradley Lake Power Sales Agreement dated December 8, 1987 (PSA), to US Bank National Association (US Bank), CEA’s indenture trustee, as security for the benefit of current and future holders of CEA’s indebtedness; PROVIDED HOWEVER, that this consent is conditioned upon the BPMC’s receipt of the following covenants from CEA and US Bank: (a) CEA’s pledge to US Bank does not relieve CEA of any of its obligations under the PSA; (b) the ability of US Bank to exercise the rights of CEA under the PSA is expressly conditioned upon the performance of CEA’s obligations under the PSA; (c) prior to the exercise by US Bank any rights or remedies under any mortgages or security agreements with respect to the PSA, US Banks shall give Alaska Energy Authority and the Purchasers under the PSA reasonable notice that US Bank intends to exercise such rights or remedies; and (d) CEA’s pledge will not adversely affect the tax exemption of interest on any bonds outstanding under the Power Revenue Bond Resolution dated September 7, 1989. RII I III RIKI II III III ISI III III ISI IIIS III ISI III IIIS IIIS IIASA ISI III IAI SI III II AISI ASIII SAIS ISI ISSA ASIII AAAS AIH Move: Second: Certification: The Secretary to the BPMC hereby certifies that this Motion has been approved by a majority of the members of the BPMC, including the Authority's representative and therefore meets the requirements of Section 17(c)(2)(A). By: Secretary McDowell Rackner & Gibson PC Memorandum To: BPMC From: Kirk Gibson Date: 12/23/2010 Re: Request for Consent of BPMC and the Authority Chugach Electric Association, Inc. (CEA) has requested the BPMC consent to CEA’s pledge of its interest in the Bradley Lake Power Sales Agreement (PSA) to the US Bank National Association (CEA’s indenture trustee). After an overview of CEA’s request to the BPMC, this memorandum will address the rights and obligations of CEA and the BPMC under the PSA. CEA will be available at the BPMC meeting (now scheduled for January 29") to discuss its financing activities and obligations under the PSA in greater detail than presented in this memorandum. CEA’s Request CEA is requesting the BPMC provide consent for CEA to pledge its interest in the PSA to the US Bank National Association as security for the benefit of current and future holders of Chugach’s secured indebtedness. CEA is in the process of refinancing the debt covering its utility system which is now served through a “Bullet” loan terminating in the spring of 2011. It is my understanding that CEA will retire its existing outstanding debt and have additional funds for other system uses. CEA has represented that the interest rate on the new debt is favorable compared to its current indebtedness. The PSA Under Section 17 (c) of the PSA, a Purchaser may mortgage their utility system, or assign the PSA (or any interest under the PSA) to any assignee or successor in interest, so long as it meets certain requirements. Specifically, CEA must have: (1) the assignment of its interest in the PSA be in accord with its other covenants or agreements with the holders of CEA’s bonds or other indebtedness on its utility Phone: 503.595.3922 » Fax: 503.595.3928 » www.mcd-law.com 419 SW 11" Avenue Suite 400 - Portland, Oregon 97205 December 23, 2010 system ; and (2) meet one of the requirements set forth in Section 17(c)(2)(A —D). CEA has chosen to request the consent of the BPMC and the Authority to the pledge of its interests in the PSA under Section 17(c)(2)(A). The requirement that the assignment of its interest in the PSA be in accord with its other covenants or agreements with the holders of CEA’s bonds or other indebtedness on its utility system is a matter for CEA to handle. This is CEA ‘s obligation under the PSA that must be met for CEA’s assignment to be effective under the terms of Section 18(a) of the PSA. Discussion As noted above, CEA has the right to pledge its interests in the PSA so long as it follows the requirements set forth in the PSA. Of course, the BPMC and the Authority have the right to protect their interests. Section 9 of the PSA sets forth the rights of the Authority in the event of a default by a Purchaser. This would be the effective provision should CEA fail to meets its obligations under the PSA for assigning its interests in the PSA. This section would also come into play should either CEA or its assignee fail to meet its obligations under the PSA sometime in the future. It is possible that the Authority may choose to remedy a failure by CEA (or its assignee) to meet its payment obligations under the PSA in such a way as to cause a change in the financial obligations to other Purchasers. This, of course, is a risk that exists now with respect to any Purchaser. The discussion of this possibility is limited in this memorandum because it is unlikely that, under such circumstances, another Purchaser would not step up and accept the deliveries from BPMC that would have been sent to a defaulting Purchaser. | will discuss this issue further at the meeting should any BPMC Member have any questions or wish to examine the remedies for default under the PSA in more detail. In order to protect the remaining Purchasers and the Authority under the PSA for the future, | recommend that the Motion providing consent should be conditioned on CEA’s and its lenders meeting the obligations set forth in the PSA. The attached Motion reflects that recommendation. Other Considerations While | do not offer the following information in an effort to persuade the BPMC to act one way or another, it should be noted that CEA could alternatively have its refinancing plan and revenue requirements evaluated by a consultant to certify that either CEA or the successor in interest will have: (a) substantially the same or greater ability to produce sufficient revenues to meet its payment obligations as 2 — CEA Request for BPMC Consent December 23, 2010 would CEA absent the transaction, and (b) the ability to perform all obligations under the PSA. Assuming CEA’s representations regarding the favorable interest rate, etc., to be accurate, the certifications, although costlier and more time consuming, should be achievable. The conditioning of the Motion is designed to protect the BPMC in a manner similar to the certification process. The Motion Attached to this memorandum is a draft Motion for the BPMC’s consideration and use should both the BPMC and the Authority agree to consent to CEA’s pledge of - the PSA. Please be advised that under Section 17(c)(2)(A), the consent is to be in writing and approved by a majority of the BPMC, including the Authority's representative. 3 — CEA Request for BPMC Consent Audited Financial Statements and Other Financial Information BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Years ended June 30, 2010 and 2009 SWALLING & ASSOCIATES Certified Public Accountants & Business Advisers BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Financial Statements and Other Financial Information Years ended June 30, 2010 and 2009 Contents Report of Independent Auditor Balance Sheets Statements of Revenues and Expenses Statements of Cash Flows Notes to Financial Statements Report of Independent Auditor on Additional Information Statements of Expenses 5-10 11 12 SWALLING & ASSOCIATES Certified Public Accountants & Business Advisers REPORT OF INDEPENDENT AUDITOR Bradley Lake Project Management Committee Anchorage, Alaska | We have audited the accompanying special-purpose balance sheets of the Bradley Lake Project Management Committee (a project management committee) Operating and Revenue Funds as of June 30, 2010 and 2009, and the related special-purpose statements of revenues and expenses, and of cash flows for the years then ended. These financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special-purpose financial statements were prepared for the purpose of complying with, and in conformity with the accounting requirements specified in Note A, and are not intended to be a presentation-in conformity with generally accepted accounting principles. In our opinion, the special-purpose financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee Operating and Revenue Funds.as of June 30, 2010 and 2009, and its revenue and expenses and its cash flows for the years then ended, on the basis of accounting described in Note A. ; This report is intended solely for the information and use of the Bradley Lake Project Management Committee and is not intended to be and should not be used by anyone other than this specified party. ruatlog FE Aeaecuty | lt December 14, 2010 3201 C Street. Suite 405 : Anchorage, Alaska 99503 ndependent member of nternati -a worldwide association ME Tindcheedtet: aceaudtine. fies. and, business, Taavisers Ph 907.563.7977 - Fax 907.561.7683 - www.swallingcpas.com BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 2010 and 2009 ASSETS Current assets: Investments (Note B) Other receivable Prepaid expense Total assets LIABILITIES AND SURPLUS Current liabilities: Due to other funds (Note D) Accounts payable Payable to utilities (Note E) R & C repayment (Note A) Total liabilities See accompanying notes to the financial statements. 2; It io —_ > $ 3,122,820 5,640 $3,128,460 $ = 1,414,920 280,994 1,432,546 $3,128,460 it iS iS No $ 2,412,592 68,204 6,200 $2,486,996 $ 79,892 820,899 284,745 1.301.460 $2,486,996 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUES AND EXPENSES Years ended June 30, 2010 and 2009 2010 Variance Favorable 2009 Budget Actual (Unfavorable) Actual Revenues: Utility contributions, net of surplus refund $17,270,100 $16,989,106 $ (280,994) $ 16,596,797 Interest receipts 1,852,623 1,780,630 (71,993) 1,717,305 Other miscellaneous - 700 700 1,000 Total revenue 19,122,723 18,770,436 (352,287) 18,315,102 Expenses, fixed asset replacements, transfers and debt service: Operations and maintenance 5,766,377 5,396,561 369,816 5,549,003 Debt service 12,395,150 12,402,072 (6,922) 12,268,950 Arbitrage transfer 220,000 216,349 3,651 325,576 Fixed asset replacements 675,196 689,454 (14,258) 166,573 Interfund transfer 66,000 66,000 - 5.000 Total expenses, fixed asset replacements, transfers and debt service 19,122,723 18.770.436 352.287 18,315,102 Excess of revenues over expenses, fixed asset replacements, transfers and debt service $ - §$ - § - § - See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS Years ended June 30, 2010 and 2009 2010 2009 Cash flows from operating activities: Excess of revenues over expenses, fixed asset replacements, transfers and debt service $ - $ - Adjustments to reconcile excess of revenues over expenses, fixed asset replacements, transfers and debt service to net cash provided by (used in) operating activities: Decrease (increase) in accounts receivable 68,204 (53,130) Decrease in prepaid expense 560 2,932 Increase in accounts payable 594,021 564,791 (Decrease) increase in amounts due to other funds (79,892) 75,247 Decrease in payable to utilities (3,751) (455,522) Increase (decrease) in R & C repayment 131,086 (20,897) Net cash provided by operating activities 710,228 113,421 Available cash and cash equivalents, beginning of year 2,412,592 2,299,171 Available cash and cash equivalents, end of year $_ 3,122,820 $2,412,592 Supplemental disclosure of cash flows information: Interest paid $6,127,050 $ 6,344,400 See accompanying notes to the financial statements. 4 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project (the Project), which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). AEG&T assigned its rights pertaining to Homer Electric Association, Inc. (HEA) under the Power Sales Agreement to Alaska Electric and Energy Cooperative, Inc. (AE&EC) in 2003. HEA and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T and AE&EC have no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual Project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest transferred from other funds, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund when the fund balance is $5,000,000 or greater. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while transfers to Debt Service Fund and Excess Earnings Funds are recognized when the transfer is made. At the end of June 2010 an additional transfer of $131,922 was made to the Debt Service Fund for July 2010 interest on Series 5 Bonds defeased in early August 2010 with proceeds of Series 6 Bonds issued in early July 2010. The transfer was made per a Committee approved budget amendment. Purchases of fixed asset replacements are expensed when purchased. The Operating Fund reimburses the Renewal and Contingency Reserve Fund (R & C Fund) for capital costs over a four year period. Transfers to the R & C Fund for repayment of funds withdrawn for capital costs are equal to the cumulative total of one-fourth of the amount of expenditure incurred each year. The balance due to the R & C Fund at June 30, 2010 and 2009 is $2,022,296 and $2,668,930, respectively. Estimates: The preparation of the special-purpose financial statements of the Operating and Revenue Funds requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The FERC land use fee for the year ended June 30, 2010 has not been billed due to litigation regarding methodology used to determine the amount of the fee. Therefore, the amount of the expense and related liability has been estimated to be the amount budgeted for the year ended June 30, 2011 based on the actual expense for the year ended June 30, 2009. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. Therefore, the Committee had no deferred tax liabilities or assets or tax carryforwards as of June 30, 2010 and 2009 and no current or deferred tax expense for the years then ended. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements with JP Morgan Chase Bank through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38% per annum. Balances at June 30, 2010 and 2009 are as follows: 2010 2009 Operating Fund $ 972,947 $ 445,820 Revenue Fund 2.149.873 1,966,772 Total investments $_ 3,122,820 $_ 2,412,592 Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) On behalf of the Committee, the AEA entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with CEA on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association, Inc. and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association, Inc. The agreement, as amended effective July 1, 2008, is through June 30, 2013 and automatically continues in successive five year terms thereafter unless terminated by either party as set forth in the amended agreement. Generally, to avoid an automatic, successive five year term extension, notice of termination by either party must be given two years in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. In June, 1999 the transmission agreement was again amended to require HEA to provide communication services in addition to the other services. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 2010 and 2009, costs incurred under the various contracts with related parties described in Note C were as follows: 010 2009 Homer Electric Association, Inc. — operation, maintenance, communications and fixed asset replacements $ 2,571,939 $ 2,163,079 Chugach Electric Association, Inc. — substation service maintenance $ 181,933 $ 229,627 Alaska Energy Authority — administrative fees $ 200,000 $ 200,000 For the years ended June 30, 2010 and 2009, Chugach Electric Association, Inc. provided dispatch services to the Committee at the agreed upon amount which is zero. Amounts payable to related parties at June 30, 2010 and 2009 were as follows: 2010 2009 Included in accounts payable: Homer Electric Association, Inc. $ 638,763 $ 445,032 Chugach Electric Association, Inc. $ 73,594 $ 25,649 Due to other funds: Alaska Energy Authority — short-term borrowings for vendor payments $ - $ 79,892 NOTE E: SURPLUS REFUND AND UTILITY CONTRIBUTIONS RECEIVABLE The $284,745 surplus at June 30, 2009 was refunded to member utilities in fiscal year 2010 pursuant to the Power Sales Agreement and direction of the Committee. The $280,994 surplus at June 30, 2010 will be refunded to member utilities in fiscal year 2011 pursuant to the Power Sales Agreement and direction of the Committee. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE F: SUBSEQUENT EVENTS The Committee has evaluated subsequent events through December 14, 2010, the date the financial statements were available to be issued, and did not identify anything requiring additional disclosure. 10 SWALLING & ASSOCIATES Certified Public Accountants & Business Advisers REPORT OF INDEPENDENT AUDITOR ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Anchorage, Alaska Our report on our audits of the special-purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for the years ended June 30, 2010 and 2009 appears on the page preceding the balance sheets. Those audits were conducted for the purpose of forming an opinion on the special-purpose financial statements taken as a whole. The supplemental special-purpose Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special-purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special- purpose financial statements taken as a whole. Snlling f Cearcenlly, PC. December 14, 2010 3201 C Street, Suite 405 . Anchorage, Alaska 99503 Ind ds b fF DFKInt ti Le ldwide association ct (adependent. accounting flems and- business advisers Ph 907.563.7977 - Fax 907.561.7683 - www.swallingcpas.com BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES Years ended June 30, 2010 and 2009 2010 Variance Favorable 2009 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 277,941 $ 232,929 ¢$ 45,012 $ 187,036 Hydraulic operation 75,698 71,844 3,854 47,347 Electric plant operation 243,733 164,045 79,688 247,189 Hydraulic power generation operation 540,059 489,116 50,943 445,827 FERC land use fees 65,000 380,000 (315,000) 378,141 Structure maintenance 263,641 209,292 54,349 194,087 Reservoir, dam, and waterway maintenance 117,095 50,032 67,063 160,743 Electric plant maintenance 296,763 264,320 32,443 450,647 Hydraulic plant maintenance 165,000 119,394 45,606 73,196 System control and load dispatching 356,479 339,665 16,814 331,892 Substation operation and maintenance 80,000 181,933 (101,933) 229,627 Overhead line maintenance 302.650 177.768 124.882 253.162 Total generation expense 2.784.059 2.680.338 103,721 2.998.894 Administrative, general and regulatory expense: Insurance 644,203 570,411 73,792 596,196 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 65,950 62,028 3,922 61,197 Regulatory commission: FERC administrative fees 229,900 186,766 43,134 184,249 FERC licensing and study 100,000 48,306 51,694 82.574 Total administrative, general and regulatory expense 1,240,053 1,067,511 172,542 1,124,216 Total operations and maintenance expenses, before capital project reimbursement 4,024,112 3,747,849 276,263 4,123,110 R & C Fund repayment 1,742,265 1,648,712 93.553 1,425,893 Total operations and maintenance expenses $5,766,377 $ 5,396,561 $ 369,816 $ 5,549,003 12 FY10 REFUND OF BUDGET SURPLUS BY UTILITY PERCENT REFUND POWER PURCHASER SHARE TOTAL CHUGACH ELECTRIC 30.4% 85,422.11 MUNICIPALITY OF ANCHORAGE 25.9% 72,777.40 AEG&T-HEA 12.0% 33,719.24 AEG&T-MEA 13.8% 38,777.17 GOLDEN VALLEY ELECTRIC 16.9% 47,487.95 CITY OF SEWARD 1.0% 2,809.94 100.0% 280,993.81 AEA Liabilitity in General Ledger Coded At: E1201-31200-00000000-00000-220201-5H 280,993.81 Audited Financial Statements and Other Financial Information BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Years ended June 30, 2010 and 2009 SWALLING & ASSOCIATES Certified Public Accountants & Business Advisers BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS Financial Statements and Other Financial Information Years ended June 30, 2010 and 2009 Contents Page Report of Independent Auditor 1 Balance Sheets 2 Statements of Revenues and Expenses 3 Statements of Cash Flows 4 Notes to Financial Statements 5-10 Report of Independent Auditor on Additional Information 11 Statements of Expenses 12 SWALLING & ASSOCIATES CatviticdaPablic Accoanteats @ Business Advisers REPORT OF INDEPENDENT AUDITOR Bradley Lake Project Management Committee Anchorage, Alaska We have audited the accompanying special-purpose balance sheets of the Bradley Lake Project Management Committee (a project management committee) Operating and Revenue Funds as of June 30, 2010 and 2009, and the related special-purpose statements of revenues and expenses, and of cash flows for the years then ended. These financial statements are the responsibility of the Bradley Lake Project Management Committee. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The accompanying special-purpose financial statements were prepared for the purpose of complying with, and in conformity with the accounting requirements specified in Note A, and are not intended to be a presentation.in conformity with generally accepted accounting principles. In our opinion, the special-purpose financial statements referred to above present fairly, in all material respects, the assets, liabilities and surplus of the Bradley Lake Project Management Committee Operating and Revenue Funds as of June 30, 2010 and 2009, and its revenue and expenses and its cash flows for the years then ended, on the basis of accounting described in Note A. This report is intended solely for the information and use of the Bradley Lake Project Management Committee and is not intended to be and should not be used by anyone other than this specified party. Funtling f Aesecutly | Fe. December 14, 2010 3201 C Street, Suite 405 Anchorage. Alaska 99503 Independent member of DFK International - a worldwide association 7 . . of independent accounting firms and business advisers Ph 907.563.7977 - Fax 907.561.7683 - www.swallingcpas.com BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS BALANCE SHEETS June 30, 2010 and 2009 ASSETS Current assets: Investments (Note B) Other receivable Prepaid expense Total assets LIABILITIES AND SURPLUS Current liabilities: Due to other funds (Note D) Accounts payable Payable to utilities (Note E) R & C repayment (Note A) Total liabilities See accompanying notes to the financial statements. 2 2010 $ 3,122,820 5.640 $3,128,460 $ “ 1,414,920 280,994 1,432,546 $_3,128.460 it iS iS oO $ 2,412,592 68,204 6,200 $2,486,996 $ 79,892 820,899 284,745 1.301.460 $_2,486,996 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF REVENUES AND EXPENSES Years ended June 30, 2010 and 2009 2010 Variance Favorable 2009 Budget Actual (Unfavorable) Actual Revenues: Utility contributions, net of surplus refund $17,270,100 $16,989,106 $ (280,994) $ 16,596,797 Interest receipts 1,852,623 1,780,630 (71,993) 1,717,305 Other miscellaneous - 700 700 1,000 Total revenue 19,122,723 18,770,436 (352,287) 18,315,102 Expenses, fixed asset replacements, transfers and debt service: Operations and maintenance 5,766,377 5,396,561 369,816 5,549,003 Debt service 12,395,150 12,402,072 (6,922) 12,268,950 Arbitrage transfer 220,000 216,349 3,651 325,576 Fixed asset replacements 675,196 689,454 (14,258) 166,573 Interfund transfer 66,000 66.000 - 5.000 Total expenses, fixed asset replacements, transfers and debt service 19,122,723 18.770.436 352.287 18,315,102 Excess of revenues over expenses, fixed asset replacements, transfers and debt service $ - See accompanying notes to the financial statements. 3 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF CASH FLOWS Years ended June 30, 2010 and 2009 2010 Cash flows from operating activities: Excess of revenues over expenses, fixed asset replacements, transfers and debt service $ - Adjustments to reconcile excess of revenues over expenses, fixed asset replacements, transfers and debt service to net cash provided by (used in) operating activities: Decrease (increase) in accounts receivable 68,204 Decrease in prepaid expense 560 Increase in accounts payable 594,021 (Decrease) increase in amounts due to other funds (79,892) Decrease in payable to utilities (3,751) Increase (decrease) in R & C repayment 131,086 Net cash provided by operating activities 710,228 Available cash and cash equivalents, beginning of year 2.412.592 Available cash and cash equivalents, end of year $3,122,820 Supplemental disclosure of cash flows information: Interest paid $_ 6,127,050 See accompanying notes to the financial statements. 4 2009 (53,130) 2,932 564,791 75,247 (455,522) (20.897) 113,421 2.299.171 $2,412,592 BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES Description of Business: The Bradley Lake Project Management Committee (the Committee) was established pursuant to Section 13 of the Agreement for the Sale and Purchase of Electric Power (Power Sales Agreement) dated December 8, 1987. The purpose of the Committee is to arrange for the operation and maintenance of the Bradley Lake Hydroelectric Project (the Project), which became operational in September 1991, and the scheduling, production and dispatch of power. The members of the Committee include the Alaska Energy Authority (AEA) and the five purchasers under the Power Sales Agreement - Chugach Electric Association, Inc.; Golden Valley Electric Association, Inc.; the Municipality of Anchorage (Municipal Light & Power); the City of Seward (Seward Electric System); and the Alaska Electric Generation & Transmission Cooperative, Inc. (AEG&T). AEG&T assigned its rights pertaining to Homer Electric Association, Inc. (HEA) under the Power Sales Agreement to Alaska Electric and Energy Cooperative, Inc. (AE&EC) in 2003. HEA and the Matanuska Electric Association, Inc. (MEA) are additional parties to the Power Sales Agreement but are included as power purchasers for purposes of representation while AEG&T and AE&EC have no direct vote as a consequence of the individual representation of HEA and MEA. Section 13 of the Power Sales Agreement delineates other Committee responsibilities, including: establishing procedures for each party's water allocation, budgeting for annual Project costs and calculating each party's required contribution to fund annual Project costs. Committee approval of operations and maintenance arrangements for the Project, sufficiency of the annual budgets and wholesale power rates and the undertaking of optional Project work requires a majority affirmative vote and the affirmative vote of AEA. The Power Sales Agreement extends until the later of: 1) 50 years after commencement of commercial operation or 2) the complete retirement of bonds outstanding under the AEA Power Revenue Bond Resolution along with the satisfaction of all other payment obligations under the Power Sales Agreement. Renewal options for additional terms exist. Establishment of Trust Funds: Article V, Section 502 of the Alaska Energy Authority's Power Revenue Bond Resolution established a Revenue Fund and an Operating Fund, including an Operating Reserve account, to be held by AEA. In actuality these funds, along with the Debt Service, Excess Investment Earnings (arbitrage), and various construction funds related to the Bradley Lake Hydroelectric Project are all held by the Corporate Trust Department of US Bank in Seattle, Washington. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) All deposits, including utility contributions and interest transferred from other funds, are made into the Revenue Fund, which transfers amounts approximately equal to one-twelfth of the annual operating and maintenance budget into the Operating Fund on a monthly basis. Additional transfers are made from the Revenue Fund to the Debt Service Fund in order to satisfy semiannual interest payments and annual principal payments on the Project's outstanding bonds payable. Interest earnings available for operations and maintenance are derived from the following funds: Debt Service Fund; Operating Reserve Fund; Operating Fund; Revenue Fund; Capital Reserve Fund; and the Renewal & Contingency Fund when the fund balance is $5,000,000 or greater. Revenue and Expense Recognition: Utility contributions are recognized as revenue when due to be received under the terms of the Power Sales Agreement. Transfers from other funds are recognized when the transfer is made and interest earnings are recognized when received. Operating and maintenance expenses are recognized when incurred, while transfers to Debt Service Fund and Excess Earnings Funds are recognized when the transfer is made. At the end of June 2010 an additional transfer of $131,922 was made to the Debt Service Fund for July 2010 interest on Series 5 Bonds defeased in early August 2010 with proceeds of Series 6 Bonds issued in early July 2010. The transfer was made per a Committee approved budget amendment. Purchases of fixed asset replacements are expensed when purchased. The Operating Fund reimburses the Renewal and Contingency Reserve Fund (R & C Fund) for capital costs over a four year period. Transfers to the R & C Fund for repayment of funds withdrawn for capital costs are equal to the cumulative total of one-fourth of the amount of expenditure incurred each year. The balance due to the R & C Fund at June 30, 2010 and 2009 is $2,022,296 and $2,668,930, respectively. Estimates: The preparation of the special-purpose financial statements of the Operating and Revenue Funds requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The FERC land use fee for the year ended June 30, 2010 has not been billed due to litigation regarding methodology used to determine the amount of the fee. Therefore, the amount of the expense and related liability has been estimated to be the amount budgeted for the year ended June 30, 2011 based on the actual expense for the year ended June 30, 2009. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE A: SIGNIFICANT ACCOUNTING POLICIES (Continued) Income Taxes: The Bradley Lake Project Management Committee is exempt from income taxation under Section 501 (a) of the Internal Revenue Code. Therefore, the Committee had no deferred tax liabilities or assets or tax carryforwards as of June 30, 2010 and 2009 and no current or deferred tax expense for the years then ended. NOTE B: INVESTMENTS Substantially all of the balances in the following funds are invested in collateralized investment agreements with JP Morgan Chase Bank through the trust department of US Bank. The specified interest rate for monies from the Operating and Revenue Funds invested in the agreements is 7.38% per annum. Balances at June 30, 2010 and 2009 are as follows: 2010 2009 Operating Fund $ 972,947 $ 445,820 Revenue Fund 2.149.873 1,966,772 Total investments $3,122,820 $2,412,592 Investments are sold as needed to cover operating requisitions submitted to the trustee and are therefore considered to be short-term and available for sale. Investments are presented at aggregate cost. For purposes of the cash flow statements, management considers the full amount of the investment balance to be cash available for operations. NOTE C: MAJOR CONTRACTS AND AGREEMENTS During May 1994, the Alaska Energy Authority entered into the Master Maintenance and Operating agreement with the Committee. The purpose of the agreement is to establish contract administration and budgeting procedures for maintenance and operation contracts of the Bradley Lake Hydroelectric Project and to provide for the lease or other use of facilities and equipment in a manner consistent with the requirements of the Power Sales Agreement. The term of the Master Agreement is indefinite, remaining in effect until termination of the Power Sales Agreement or until AEA no longer legally exists. This agreement authorizes AEA to enter into any contracts necessary to perform operating or maintenance-type services to the Project, subject to the approval of the Committee. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE C: MAJOR CONTRACTS AND AGREEMENTS (Continued) On behalf of the Committee, the AEA entered into an agreement with Chugach Electric Association, Inc. (CEA) in August, 1996, for the provision of all services necessary to dispatch the Bradley Project's electric power output. The dispatch agreement runs concurrently with the wheeling and related services contract entered into by and among the parties to the Power Sales Agreement in December 1987 and remains in effect for the term of the wheeling agreement unless CEA ceases to be the output dispatcher. In August 1996, the Alaska Energy Authority entered into an agreement with CEA on behalf of the Committee for the provision of maintenance services for the Daves Creek and Soldotna SVC Substations. An operation and maintenance agreement dated February 11, 1994, was executed between Homer Electric Association, Inc. and the Alaska Energy Authority. This agreement provides for the operation and maintenance of the Bradley Lake Hydroelectric Project by Homer Electric Association, Inc. The agreement, as amended effective July 1, 2008, is through June 30, 2013 and automatically continues in successive five year terms thereafter unless terminated by either party as set forth in the amended agreement. Generally, to avoid an automatic, successive five year term extension, notice of termination by either party must be given two years in advance of the termination date. HEA is to be reimbursed for costs associated with the operation, maintenance and repair of the Project as determined in advance through the submission of an annual budget based upon prudent estimates and anticipated operation and maintenance costs. In August, 1996, the agreement was amended to separate the maintenance of the transmission facilities from the hydroelectric project. The transmission agreement continues from year to year, except upon written notice to terminate by either party. Notice of termination must be given six months in advance of termination dates. In June, 1999 the transmission agreement was again amended to require HEA to provide communication services in addition to the other services. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE D: RELATED PARTY TRANSACTIONS During the years ended June 30, 2010 and 2009, costs incurred under the various contracts with related parties described in Note C were as follows: 2010 2009 Homer Electric Association, Inc. — operation, maintenance, communications and fixed asset replacements $ 2,571,939 $ 2,163,079 Chugach Electric Association, Inc. — substation service maintenance $ 181,933 $ 229,627 Alaska Energy Authority — administrative fees $ 200,000 $ 200,000 For the years ended June 30, 2010 and 2009, Chugach Electric Association, Inc. provided dispatch services to the Committee at the agreed upon amount which is zero. Amounts payable to related parties at June 30, 2010 and 2009 were as follows: 2010 2009 Included in accounts payable: Homer Electric Association, Inc. $ 638,763 $ 445,032 Chugach Electric Association, Inc. $ 73,594 $ 25,649 Due to other funds: Alaska Energy Authority — short-term borrowings for vendor payments $ - $ 79,892 NOTE E: SURPLUS REFUND AND UTILITY CONTRIBUTIONS RECEIVABLE The $284,745 surplus at June 30, 2009 was refunded to member utilities in fiscal year 2010 pursuant to the Power Sales Agreement and direction of the Committee. The $280,994 surplus at June 30, 2010 will be refunded to member utilities in fiscal year 2011 pursuant to the Power Sales Agreement and direction of the Committee. BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009 NOTE F: SUBSEQUENT EVENTS The Committee has evaluated subsequent events through December 14, 2010, the date the financial statements were available to be issued, and did not identify anything requiring additional disclosure. 10 SWALLING & ASSOCIATES Certified Public Accountants & Business Advisers REPORT OF INDEPENDENT AUDITOR ON ADDITIONAL INFORMATION Bradley Lake Project Management Committee Anchorage, Alaska Our report on our audits of the special-purpose financial statements of the Bradley Lake Project Management Committee Operating and Revenue Funds for the years ended June 30, 2010 and 2009 appears on the page preceding the balance sheets. Those audits were conducted for the purpose of forming an opinion on the special-purpose financial statements taken as a whole. The supplemental special-purpose Statements of Expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the special-purpose financial statements and, in our opinion, is fairly stated in all material respects in relation to the special- purpose financial statements taken as a whole. Giualling f Caawcinlly, PC. December 14, 2010 3201 C Street, Suite 405 E Anchorage. Alaska 99503 independent member of DFK International -a worldwide association 2 Pa of independent accounting firms and business advisers Ph 907.563.7977 - Fax 907.561.7683 - www.swallingcpas.com BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE OPERATING AND REVENUE FUNDS STATEMENTS OF EXPENSES Years ended June 30, 2010 and 2009 2010 Variance Favorable 2009 Budget Actual (Unfavorable) Actual Expenses: Generation expense: Operation supervision and engineering $ 277,941 $ 232,929 $ 45,012 $ 187,036 Hydraulic operation 75,698 71,844 3,854 47,347 Electric plant operation 243,733 164,045 79,688 247,189 Hydraulic power generation operation 540,059 489,116 50,943 445,827 FERC land use fees 65,000 380,000 (315,000) 378,141 Structure maintenance 263,641 209,292 54,349 194,087 Reservoir, dam, and waterway maintenance 117,095 50,032 67,063 160,743 Electric plant maintenance 296,763 264,320 32,443 450,647 Hydraulic plant maintenance 165,000 119,394 45,606 73,196 System control and load dispatching 356,479 339,665 16,814 331,892 Substation operation and maintenance 80,000 181,933 (101,933) 229,627 Overhead line maintenance 302.650 177.768 124.882 253,162 Total generation expense 2.784.059 2.680.338 103,721 2.998.894 Administrative, general and regulatory expense: Insurance 644,203 570,411 73,792 596,196 AEA administrative fee 200,000 200,000 - 200,000 PMC costs 65,950 62,028 3,922 61,197 Regulatory commission: FERC administrative fees 229,900 186,766 43,134 184,249 FERC licensing and study 100,000 48.306 51,694 82.574 Total administrative, general and regulatory expense 1,240,053 1,067,511 172,542 1,124,216 Total operations and maintenance expenses, before capital project reimbursement 4,024,112 3,747,849 276,263 4,123,110 R & C Fund repayment 1,742,265 1,648,712 93,553 1,425,893 Total operations and maintenance expenses $5,766,377 $ 5,396,561 $ 369,816 $ 5,549,003 12 FY10 REFUND OF BUDGET SURPLUS BY UTILITY PERCENT REFUND POWER PURCHASER SHARE TOTAL CHUGACH ELECTRIC 30.4% 85,422.11 MUNICIPALITY OF ANCHORAGE 25.9% 72,777.40 AEG&T-HEA 12.0% 33,719.24 AEG&T-MEA 13.8% 38,777.17 GOLDEN VALLEY ELECTRIC 16.9% 47,487.95 CITY OF SEWARD 1.0% _ 2,809.94 100.0% 280,993.81 AEA Liabilitity in General Ledger Coded At: E1201-31200-00000000-00000-220201-5H 280,993.81 BPMC Motion on CEA Refinancing Introduction CEA is requesting the BPMC to provide consent for CEA to pledge its interest in the PSA to the US Bank National Association (CEA’s indenture trustee) as security for the benefit of current and future holders of Chugach’s secured indebtedness. Background CEA is in the process of refinancing the debt covering its utility system which is now served through a “Bullet” loan terminating in the spring of 2011. CEA intends to retire its existing outstanding debt and have additional funds for other system uses. There are four ways in which CEA can meet the requirements of Section 18 of the PSA regarding effective assignments pursuant Section 17(c) of the PSA. CEA has chosen to request the consent of the BPMC and the Authority to the pledge of its interests in the PSA under Section 17(c)(2)(A). A memorandum prepared by BPMC counsel has been reviewed by the BPMC. Consent by the BPMC Under Section 17(c)(2)(A), the consent of such an assignment is to be in writing and approved by a majority of the BPMC, including the Authority's representative. The Motion The BPMC hereby moves to provide its consent to Chugach Electric Association, Inc., (CEA) for the pledge of its interest in the Bradley Lake Power Sales Agreement dated December 8, 1987 (PSA), to US Bank National Association, CEA’s indenture trustee, as security for the benefit of current and future holders of CEA’s indebtedness; PROVIDED HOWEVER, that this consent is conditioned upon the following: (a) CEA’s pledge does not relieve CEA of any of its obligations under the PSA; (b) the ability of a secured lender to exercise the rights of CEA under the PSA is conditioned upon the performance of CEA’s obligations under the PSA; and (c) CEA’s covenant that its pledge will not adversely affect the tax exemption of interest on any bonds outstanding under the Power Revenue Bond Resolution dated September 7, 1989. FOR I III IIR IR III III II II II IIIS II ASSIS SII IIIA SSSI SIS IIIA SSI SSSI IIA ISSI ISIS SII AAA SSSI SSI ISAS SSIS A ASSIS SSI SAAS ASSIA SA Move: Second: Certification: The Secretary to the BPMC hereby certifies that this Motion has been approved by a majority of the members of the BPMC, including the Authority's representative and therefore meets the requirements of Section 17(c)(2)(A). By: Secretary GB Agenda Item: MOTION: Move to approve FY10 audit report of the Bradley Lake Project Management Committee Operating and Revenue Funds and refund the surplus of $280,994 to the utilities. Move: Second: McDowell Rackner & Gibson PC Memorandum To: BPMC From: Bill Prentice, Kirk Gibson Date: 11/12/2010 Re: FERC Land Use Fees This memorandum is to update you on recent developments with the FERC land use fees issue we have been challenging as part of a much larger group consisting of hydroelectric dam owners throughout the Western United States (the “Group”). The Group is using counsel in Washington, D.C. to represent the Group’s joint interests. The case has been going on for more than a year now. Recent Developments On July 20, 2010, FERC issued another order concerning annual land use fees. The FERC order set forth the fees that dam owners would need to pay for use of federal lands for 2010. The formula was based upon the same methodology and used the same criteria as the Group objected to with the 2009 rate schedule. The Group again petitioned FERC for a rehearing and stay of the new rate schedule because the same issues were currently being addressed in court. FERC issued an order on September 16, 2010, once again denying the Group’s request for rehearing and motion for stay. The Group then filed a second appeal to the D.C. Circuit, this one concerning the 2010 fee schedule. On September 29, 2010, in order to avoid duplication of effort in pursuing a nearly identical second case, the Group filed a motion to consolidate the two cases. The FERC’s attorney objected to consolidating a case that has already been briefed with another court that is just in the beginning stages, even if the issues are nearly identical. The FERC’s attorney is new to the matter and argued that small differences might turn out to be legally significant. Rather than challenge the position of the FERC’s attorney and risk delaying the 2009 case or interrupting preparation for oral argument, the parties struck a compromise and agreed to hold the 2010 case in abeyance. This arrangement preserves the Group’s rights to argue the 2010 case if necessary, while leaving the door open to settle it quickly if the Group prevails Phone: 503.595.3922 + Fax: 503.595.3928 » www.mcd-law.com 419 SW 11" Avenue Suite 400 + Portland, Oregon 97205 November 12, 2010 in the 2009 case. FERC has also agreed to continue using the 2008 fees until the D.C. Circuit issues a ruling. Analysis We are at status quo until the D.C. Circuit hears oral arguments and then issues an opinion. It could easily be early next year before we have a decision from them. In the interim, the BPMC can expect to be billed by FERC for the 2010 land-use fees using the 2008 fee methodology. The BPMC needs to again pay the amount “under protest.” We have advised the appropriate people at AEA to be prepared for its arrival. We should expect the decision from the court, even if favorable, to require further proceedings at FERC either to implement a mandate from the court or to reconsider FERC’s previous orders in the 2009 case and possibly the 2010 case. The last time FERC land use fees were challenged the process took several years. Thus, it is within the realm of possibility that this process could overlap FERC’s determination of the 2011 rates. If that happens, a third appeal to FERC may be necessary to preserve our rights. Fortunately, such an appeal also should be nearly identical to the first two, so the expense of submitting it should be relatively small. Budget Matters The BPMC approved a budget of $30,000 in early 2009 to fight the fee increase, as part of the Group. The BPMC pays about 10% of the group’s legal fees, based upon the acreage of federal land under and around the project. To date, the BPMC has been invoiced and paid a total of $25,700 for its share of the expenses of pursuing these challenges and appeals. There is an outstanding invoice for $4,650 which is currently being processed. By the end of this year we will have the invoices for the preparation for oral argument and hearing at the D.C. Circuit. That should be the bulk of any activity until we get an opinion from the D.C. Circuit. Since we are so close to resolution, it would be prudent to consider increasing the approved $30,000 budgeted for this activity by $10,000, to cover potential expenses at least through the first two quarters of 2011. Next Steps For now we await oral argument at the D.C. Circuit and their decision. The attorneys arguing the case will report back after oral argument, but it is difficult to predict the eventual outcome based upon the court’s actions during oral argument. We are monitoring these proceedings closely and will keep you updated on our progress and budget-related issues. May Clark From: Connie Owens <Connie_Owens@chugachelectric.com> Sent: Friday, November 12, 2010 2:09 PM To: May Clark Subject: FW: BPMC - FERC Land Use Fees Issue Attachments: FERC Land Use Fees Memo 10.29.10.doc It would help if | would forward the attachment. Have a good weekend. From: Kirk Gibson [mailto:kirk@mcd-law.com] Sent: Monday, November 01, 2010 11:52 AM To: Brad Evans Cc: Connie Owens; Bill Prentice Subject: BPMC - FERC Land Use Fees Issue Brad — Attached is an “Update Memo” on the FERC Land Use fees issue. It appears that the matter may take a huge step towards resolution after the 1* Q next year. The memo summarizes the budget issues for the BPMC members ($30k was budgeted; almost $30k will be used up after next bill is processed. In the memo, | have asked that the BPMC consider another $10k to see the result of the court’s decision and then consider whether the matter is worth continuing the pursuit. The BPMC should consider addressing the issue of whether the budget should be increased/extended by the end of year. Please note that the BPMC pays 10% of the Group’s expenses. Thanks ! Best, Kirk Kirk H. Gibson McDowell Rackner & Gibson PC 419 SW 11th Ave., Suite 400 Portland, Oregon 97205 Direct: 503-290-3626 Mobile: 503-708-1341 Fax: 503-595-3928 Email: Kirk@mcd-law.com Please visit our website to learn more: http://www.mcd-law.com PRIVILEGE AND CONFIDENTIALITY NOTICE: THE INFORMATION CONTAINED IN THIS MESSAGE MAY BE ATTORNEY PRIVILEGED AND CONFIDENTIAL INFORMATION INTENDED ONLY FOR THE USE OF THE INDIVIDUALS OR ENTITIES NAMED ABOVE. IF THE READER OF THIS MESSAGE IS NOT THE INTENDED RECIPIENT, YOU ARE HEREBY NOTIFIED THAT ANY DISSEMINATION, DISTRIBUTION OR COPYING OF THIS COMMUNICATION IS STRICTLY PROHIBITED. IF YOU RECEIVED THIS COMMUNICATION IN ERROR, PLEASE IMMEDIATELY NOTIFY ME BY TELEPHONE OR E-MAIL, AND DESTROY THIS MESSAGE. Bradley Lake Project Management Committee Meeting ALASKA ENERGY AUTHORITY Regular Meeting - Teleconference Public Notice Bradley Lake Project Management Committee Notice is hereby given that the Bradley Lake Project Management Committee will hold a regular meeting on Wednesday, December 29, 2010 at 10:30 a.m. For additional information contact Brad Evans, Chairman. This meeting will be conducted by electronic media pursuant to AS 44.62.310 at the following location: Alaska Energy Authority Boardroom, 813 West Northern Lights Boulevard, Anchorage, Alaska; The public is invited to attend. The State of Alaska (AEA) complies with Title Il of the Americans with Disabilities Act of 1990. Disabled persons requiring special modifications to participate should contact AEA staff at (907) 771-3000 to make arrangements. Attachments, History, Details Attachments Details None . Commerce, Community and Department: Economic Development Revision History Category: Public Notices Created 12/21/2010 4:22:26 AM by smhowell Suey: Modified 12/21/2010 1:22:26 PM by smhowell Loceeeamey Anshopage Project/Regulation #: Publish Date: 12/21/2010 Archive Date: 12/30/2010 Events/Deadlines: