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HomeMy WebLinkAboutBPMC March 21, 2013 3BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE MEETING REGULAR MEETING Alaska Energy Authority, Anchorage, Alaska March 21, 2013 a: CALL TO ORDER Chair Evans called the regular meeting of the Bradley Lake Hydroelectric Project Management Committee to order at 1:30 p.m. 2. COMMITTEE MEMBERS ROLL CALL Cory Borgeson Golden Valley Electric Association (phone) (GVEA) Bryan Carey Alaska Energy Authority (AEA) Brad Janorschke Homer Electric Association (phone) (HEA) Brad Evans Chugach Electric Association (CEA) Joe Griffith Matanuska Electric Association (MEA) James Posey Anchorage Municipal Light & Power (AML&P) John Foutz City of Seward (SEW) 3. STAFF/PUBLIC ROLL CALL Richard Miller (AML&P); Burke Wick (CEA); Robert Day (HEA); Kathy Harris (CEA); Jeff Warner (AML&P); Brian Bjorkquist (Department of Law); Larry Jorgensen (HEA); Kelli Veech, Teri Webster, and Sandie Hayes (AEA). Participating by phone: Len Thompson (GVEA); Kirk Gibson (McDowell Rackner & Gibson PC). 4. PUBLIC COMMENT There were no public comments. 5. AGENDA COMMENTS/MOTION FOR APPROVAL The agenda was approved as amended. 6. APPROVAL OF PRIOR MEETING MINUTES -— September 26, 2012 The September 26, 2012 meeting minutes were approved as presented. 7. OLD BUSINESS TA. Battle Creek Diversion Amendment Mr. Carey indicated the second stage consultation started November 5" when AEA filed with Federal Energy Regulatory Commission (FERC) the draft amendment application for Bradley Lake. There is a 90-day period for agencies to comment and during that time a few comments were received from the U.S. Army Corps of Engineer and FERC. The comments are minor and can be resolved in the final amendment application. Alaska Department of Fish and Game, National Marine Fisheries, and U.S. Fish & Wildlife are still working on their comments and are expected by the end of the week. Once these are received, a meeting will be set up a meeting to discuss them. This information will be part of the final draft amendment to FERC. After it reaches FERC, it takes about seven (7) months to get BPMC Minutes 03/21/2013 Page 1 of 3 the license order. If the amendment is sent in late May or the first part of June, it is estimated to receive the license order around January of next year. This still is enough time to look at the terms and conditions from FERC that would make it onerous. One potential term or condition is if FERC requests a significant amount of water going downstream during the summer and that obviously would affect the amount of energy it is estimated to see from the project and have substantial changes. Assuming there are no roadblocks, AEA could move forward and do the bidding on the project and the contractor would be able to start work next summer. A spreadsheet was given of estimated cost of energy based on principal and interest for a 30-year term. It does not include O&M. Two different interest rates, 3 percent and 5 percent, were used in the spreadsheet as an estimate of what the cost might be. This spreadsheet is for information purposes only and does not, in any way, show what is expected from funding. Chair Evans asked how the current budget looks. Mr. Carey stated the budget looks good and will carry us through the rest of the calendar year. The geotechnical investigation, the drilling, and the helicopter time all came in under budget saving a couple hundred thousand dollars. Some of this may be spent on the permitting process but it should be minimal. 7B. FERC Land Fee Update Kirk Gibson (McDowell Rackner & Gibson, PC) gave an update on the FERC land fee. He stated that in January the final order was sent out by FERC to revise the methodology for calculating the FERC land fees. Back in 2009, there was an enormous 800% increase in fees for BPMC for the Bradley Lake Project and it was because FERC used a BLM methodology and applied it to the way they calculate the FERC land use fees. BPMC joined a group of hydro facilities ownership utilities throughout the country that represented approximately 60% of all the dam owners. They were able to stop the rules being implemented and had a victory in the DC circuit court in 2011. Because the circuit court stayed the implementation of the new rates, BPMC saved about 2.1 million dollars during that period because they were not paying the higher charges. The fees paid were approximately $58,000 which were attorney fees. The present end rate is higher than the 2009 rate but not as high as it could have been. Chair Evans asked if the budgeting committee was clear on what the fees would be for the budget. It was confirmed there is $175,000 allocated in the budget for the FERC land use fees. 8. NEW BUSINESS 8A. Approve the fiscal year 2014 Operating and Capital Budget Robert Day (HEA) indicated the operating budget proposal has been reviewed and approved by the Operations & Dispatch Committee. It then went to the budget sub-committee which also reviewed and approved. There was a question on Schedule A1, DCS Security Interface for Data Access, $125,000 that needs more detail. Mr. Day explained this has been budgeted for an internet security system. This system not only provides a sophisticated firewall but also allows for a contractor to be able to access the system remotely. Members Posey and Griffith stated there is real concern on this issue. An in-depth look at the control system at Bradley and what degree of security is needed should be done as a group with AEA and the other utility. Chair Evans said he will need to take this issue up with the Intertie Management Committee because they are the ones with the operating tools for most of the utilities. He stated the need for a system-wide approach. He will make an assignment for this. Mr. Borgeson asked how the budget procedure works when a proposed item is not expended in the year it was budgeted. Mr. Jorgensen explained that capital budget items that are not spent or received by the end of the fiscal year (June 30) are moved to the next year’s budget. BPMC Minutes 03/21/2013 Page 2 of 3 More discussions about the budget procedures and where the items should be in the schedules ensued. Chair Evans made the assignment to the finance committee to make sure there is a system capable of budgeting across multiple years. Chair Evans asked for more detail on the telephone replacement. Mr. Day explained the existing telephone system was installed in 1991. Problems have occurred with frost heaves which have damaged the underground analog cables. Communication has been lost to the fire alarm system and the barge dock. A wireless system will eliminate these issues. Chair Evans asked Mr. Day to provide a project description and scope of work to be brought to the next meeting. Chair Evans inquired about the Generator Partial Discharge Monitor line item. He asked if there was a concern about partial discharge. Mr. Jorgensen said the original plant was installed with an ozone monitoring system which is outdated and failed a few years ago. They are looking at current technology to protect the generator and also anticipate any problems they may have with it. Member Griffith indicated the Operations & Maintenance, Schedule B has increased approximately $215,000 and inquired about the increase. Mr. Jorgensen explained there are several large items that make up this increase (1) ARC Flash Study to become compliant with regulations (2) oil was contaminated by water and therefore all the reserve oil was used and had to be resupplied (3) contract labor increases (4) Grant Aviation’s discontinued travel to Homer. Mr. Griffith moved that the Bradley Lake Project Management Committee (BPMC), approve the fiscal year 2014 Operating and Capital budget as presented. Motion was seconded by Mr. Janorschke. The motion passed unanimously. Mr. Janorschke suggested having a future meeting at the Bradley Lake facility since some committee members have not been there in several years. Mr. Borgeson expressed interest as well. No date was set. 9. Adjournment There being no further business for the committee, the meeting adjourned at 2:42 p.m. BPMC Minutes 03/21/2013 Page 3 of 3 BPMC Minutes March 21, 2013 a C Roll Call for committee members Ly #5 Agenda Comment Quick update on FERC land Fee Update. Budget committee have a chair? Will make an assignment #6 Meeting Minutes Approved #7A Battle Creek — Bryan The second stage consultation started November 5" when we filed with FERC the draft amendment application for Bradley Lake. There is normally a 90 day time-frame in there for agencies to comment. Ninety days came and went and we had a couple comments from the Corp and FERC both. The comments are pretty minor comments that we could just resolve in the final amendment application. We did not receive any comments on the draft from Fish & Game, National Marine Fisheries, and Fish & Wildlife. We know that they are working on comments it’s just that they have been sidetracked on other issues or other type projects. Joe Griffith asked if they can wait until later to submit their comments. Bryan explained at this point we need their comments before we move forward to the final because under the amendment application, it is a three stage consultation process and when we put the draft in, that was the second stage. So once we get their comments, we have a meeting with them to try and resolve comments that may or may not occur. This would be the third consultation. It is my understanding that we should have at the close of business today, the comments from Fish & Wildlife. Generally, Natural Marine Fisheries usually tracks closer so there is a good chance that once we get Fish & Wildlife we will have an idea what the agencies are looking at. Fish & Game are working on their comments so we expect to receive within a week or so. Once we receive the comments from those agencies, one copy is forwarded on to the General Managers and two will likely be scheduling a meeting with the agencies to go over the comments and it could involve at that point taking about potential P M &E’s mitigation or enhancement at that point. We do not need to have the comments from National Marine Fisheries so long as we have it from Fish & Wildlife and Fish & Game. That will be enough to schedule the meeting and move forward on that. Once we complete the meeting then we would document what was said or discussed and that will be part of our package that we put in as the final draft amendment to FERC. Prior to doing that we would circulate the draft amendment to the different utilities for any comments on that. At the point where it reaches FERC, looking at probably about seven (7) months or so until we get the license order. So if we send it in late May or first part of June, we would expect to receive the license order around January of next year. This would still be enough time at that point to look at the terms and conditions on it that would make it onerous. One potential term or condition like that is if FERC had it where we had to have a significant amount of water going down during the summer and that obviously would ruin the amount of energy that we would expect to see from the project and make some substantial changes. Assuming that there is no roadblocks in terms of 1 that, then AEA could move forward and do the bidding on it and the contractor would be able to be there next summer working. | sent around this morning a quick spreadsheet which is just a given idea of where some of the cost of energy would be. That spreadsheet is just on the basis of principal and interest for a 30 year term. It does not include O & M. O&M might tend to believe that we would have to have one gage on the Battle Creek that would be low down that we would maintain. We already have the gage up near the diversion point which would be well, compared to the gages we have right now we’d actually be able to drop one gage from that standpoint. But at least that gives an idea of the cost. | had two different interest rates in the spreadsheet; one was 3% and one was 5% and the reason | did that is if AEA goes out and gets commercial bonds, 5% is probably a reasonable number for what the rate could be from discussions we’ve had. The 3% | threw in just as there is the possibility that AEA could go through RUS on this and RUS if | remember correctly, is a cooperating agency on this. We have not discussed with them in regards to what their requirements would be and so we have not got in to detail with anything with them but it’s just a possibility out there and being that the rate tends to be around 3% that’s why | threw that number in. So it just gives it kind of a range of what the cost would be. Chair Evans: Bryan, where are you at on budget right now? Budget at this point for the six (6) months or least to get to the end of the year at which point we would receive what would be the terms and conditions from FERC , | believe we are pretty good on budget wise. Chair —so that would carry you through this entire year? That process is going to be the rest of this calendar year? Correct. Joe Griffith said the rest of 2013? Correct. When we had the budget before to R&M that was doing geotechnical investigation type work, they were able to complete the geotechnical investigation, the drilling and helicopter time all came in under budget and so with the savings in terms of what the helicopter and drilling cost is actually a savings of a couple hundred thousand and the USGS gages are already paid for. Chair — Well you are going to be burning through that during the permit process right? Not necessarily, because once we put the final amendment in you know we have a budget for the license stuff and pretty much for the permit | mean the amendment has already been written there’s going to be with additional meeting coming up there will be additional changes in terms of how it was written the amendment — those are not necessarily big ticket items. Once we put it in unless FERC has a whole lot of questions coming back for additional data of which that would be provided, we probably won’t be burning that much budget between the point that we place it in and the end of the year. The big ticket items would be if something came up about doing fisheries investigation of which there’s no way we can go back this summer and you know we are not going to do a fisheries investigation or anything else under environmental so once we put it in until the point we receive the license amendment we shouldn’t be burning a lot. They may request a little bit more information on hydrology or interpretation but those are not necessarily big ticket items. Joe —So you don’t charge your time to this account? Mine even if it goes is very minor. I’m very cheap. Chair — As long as you don’t give cheap advice. Just kidding ya. sa, a b goe (4 indicated that the spreads fos g Le Alo SAC \ ES Member Griffith — Mr. Chairman if we are finished with that topic may | ask a couple questions on the spreadsheet? Sure — that’s what it was for. | asked him to put together some indicative numbers up there for discussion. Why did you use principals up to well first let me ask are you still sticking to your 53 or 54 estimate on the project? The reason why | put ina range is when the cost estimate is done, cost estimators do it on what current market conditions are and so they will invariably say that between now and next year if the price of diesel fuel goes up to $5 a gallon then obviously there is substantial changes in their cost estimate and not only the cost of diesel fuel but market conditions too. If you get a lot of work that’s hitting people that are bidding on different projects are going to have the prices higher versus if it’s a slower economy, people that bid on projects will be much more hungry and will drop their prices. The estimate is current conditions, market conditions and fuel prices and it is not trying to estimate what it will be a year from now. Member Griffith — Maybe I’m confused about what your numbers are supposed to mean. It was my understanding we were going to fund this just like we did Bradley Lake so the utility share would be if your 54 million is good, 26.5 million and that’s what is in the Governor’s budget or the request through CAPSIS right now, is 23.5 million under State grants and that the idea was to balance it 50/50. So that would mean that we would fall somewhere in the 20-30 million financing and | just didn’t understand why you went 50-60 million. Are you figuring we might have to fund the whole thing ourselves? Bryan — This doesn’t show in any way in terms of what | expect funding or costs necessarily to be - it’s for information and rather money comes from the state government or not —| have no idea and not been involved in any discussion on that. Posey — but he has. (Indicating Gene Therriault) Bryan — he would know better than | do. Griffith — okay, | just wanted to make sure you weren’t passing the whole bill to us because | thought the deal was 50/50. Posey — It is as | understand it. Chair — | don’t think there’s a “deal”. Griffith — Well there will be eventually. Somebody’s going to.... Chair —- Somebody agrees with what we’re lobbying for there will be a deal but right now there is no deal. Griffith — Well, | have not seen a lot of push back on that number we have in there and everybody says, “Yeah, it should have been in there”. Chair — Well didn’t the Senate just re wick the taxes today? Gene Therriauilt - Maybe | can just jump in here —| think it is just like when we ran the numbers on Susitna - we run the numbers without the State financing in there because it’s a policy that we the Agency Authority don’t make. We understand the request is in; we understand the way that the model would work but when we’re just crunching numbers we don’t jump to the conclusion that there’s going to be any particular level of state participation. Griffith- Well Gene, it’s a chance for you to step right up to the plate and be somebody. Posey — He used to have that job but that’s not his job now. Chair — Well if that were to happen Joe, | guess this brackets that event. Griffith — Yes it does and that is why | was wondering. Chair — If we’re lucky we will be somewhere between 27-40 dollars. Griffith - If we’re lucky, if not.... Chair — We get high energy and he stays on budget. Griffith - That’s all my questions on that Mr. Chairman. Chair - Any other questions on that? | just asked Bryan to give us some idea of where — is he still staying with his predictions and what would the range be. Bryan — And | expect that once | receive comments from Fish & Wildlife and Fish & Game and it gets sent out then there will need to be perhaps a small meeting or otherwise just a talk prior to the meeting with the agencies — we'll need to discuss some matters about strategy. Griffith — Right now we’re just twiddling out thumbs waiting for the agencies to come in and even though they have let the deadline pass. Bryan — Yes. We’re waiting. Griffith - Does somebody call them up and say “ where.... Chair — The rules aren’t for them Joe. The rules are for us. Griffith - oh of course, what’s the matter with me? Bryan — They have been bugged. Yesterday | was told from Fish & Wildlife that it would be coming today and | know Fish & Game is working on it and called again today. | expect | should have both of those by the end of the week. Chair —| didn’t say what item that was for the recording. People it’s going to be 7B and | just asked Kirk to be prepared to answer any questions — I’m not sure that everyone in the room was up with where we left off on the FERC land fee issue and whether or not there is going to be anymore events on the horizon. So Kirk I’m going to turn the floor over to you to just refresh everybody’s memory and see where it goes from there. If we don’t have any questions, we’ll move on to the next agenda item. Kirk — Sure, in mid-January the final order was sent out by FERC that revised the methodology for calculating the FERC land fees. Back in 2009, there was an enormous 800% increase in fees for BPMC for the Bradley Lake Project and it was because FERC used a BLM methodology and implied it over to the way they used to do the FERC land use fees. So we BPM joined a group of hydro facilities ownerships utilities throughout the country and | think it represented at the end something like 60% of all dam’s owners of at least the capacity. We were able to stop the rules being implemented, they had a victory in the DC circuit court in about 2011. Then there was a hiatus for the longest time but the nice thing about the stop at the circuit court was that it put our fees back to what they were before this thing started in 2009. Then they finally started a rule making which the group commented on and was in a sense fairly successful in crafting a rule that is fairer. Now because the circuit courts stayed the implementation of the new rates, BPMC saved about 2.1 million dollars over that period because they were not paying the higher charges. The fees as | have been told are about 58 thousand dollars which went to DC counsel and some to me but it mostly was theirs. But they didn’t do everything the group wanted them to do in Alaska they didn’t adopt the group’s recommendation for Alaska; now FERC did tweak some of the areas, the high sensitive areas in Anchorage and Juneau but basically they treated Alaska like they did the lower 48 and pointed out that Alaska was treated uniquely since way back in’87 and they were being charged at an artificially low rate so they just sort of brought them back in. They asked the group if they wanted to appeal anything and there was no appetite to do that but in the end even if BPMC thought they had a chance on changing Alaska idea — what it did was solved their new rule that would bring Alaska in to conformance with other states so it would certainly pass the reasonable status. So that is sort of the summary. It was a good thing to do and for once you have been associated with where delays save you a lot of money. | would also say that the end rate that you have now is higher than your 2009 rate but not as high as it could have been. Chair — We don’t have any more ratcheting then do we on the fee? Kirk — What they did was because of the size of it, the group was able to convince FERC that that they should calibrate it in or faze it in so this year’s fees are not as high as the next year’s will be and then it will be stuck for a while. They will be set at that level. So we have another break in this fiscal year and then it will go up to what it’s going to be for a while. Chair — So the budgeting committee was clear on what the fees would be for the budget? Kelli — As far as, | think Bryan entered... Bryan — Yes, it is around 131 thousand. Chair — Do we have confidence that what you’ve budgeted is what it’s going to be is what | want to be clear on. Kirk —1 think it is 162 thousand but let me look at this chart here... | can get that number for you though. | think the 131 thousand is this year and then it goes up to 162 thousand and stays. Voice — for how long? Kirk — Well until they decide that they are not going to ask for money... the other one went from 1987 to 2009 so there is a good chance that it will stay for a while. Richard Day — Its 540 is the line item in schedule B. Bradley Lake FERC land use fee. Griffith —- 175 thousand in the budget. Bryan — Yes, that would have been the full cost. This first year | think their doing about % cost so it would be the 132 thousand. Posey — So it’s apparent that you Kirk, don’t work as cheap as the AEA staff. Kirk — Well you know all | can say is we’re both working. Posey —| just wanted to make the point. You know looking at numbers. But you don’t make as much as the DC set of lawyers Kirk — Not even close. Griffith- Who is the DC law firm? Kirk — Van Ness Feldman. And you'll recall about a week or two weeks ago | sent you a letter where they have now sent us a letter firing us a client and they want to be clear on that. So | believe they are working with AEA on the Susitna-Watana Hydro Project and they don’t want to have any potential or conflicts with the Railbelt utilities because | assume at some point — this is more of an AEA question — because they will be working on power sales agreements, etc. Posey — Well they should have done it for free. Kirk —| agree. Chair — Any further discussion on that? Any more questions for Kirk? Hearing none we will move on to agenda item 8A >Approve the fiscal year of 2014 Operating and Capital Budget and there is a motion attached. Griffith - Move that the Bradley Lake Project Committee approve the fiscal year of 2014 Operating and Capital Budget as presented. Phone Voice (minutes 00:26:15.000) - Second Chair — I’m assuming there will be a lot of discussions so who is the guru? Is it you Bob? Robert Day — Well we’re left in a little loss — we lost our head of the budget person. Posey — But this is your operating and your capital Bob — We are happy to answer any questions that the group might ask us. Chair — Well between you and the budget committee, can somebody just start going down through the — and the appropriate person can answer. Bob — Well let me give you a little history - HEA proposed this operating budget and capital budget in January. We worked with the O&D committee to gain their approval and acceptance of the budget as presented. It then went on to the budget sub-committee which reviewed it and we made some additions and tweaks under their direction and | believe what you have before you is a combination of all the things that both the O&D and the budget sub-committee wanted and approved of so this, in my opinion, has passed muster from all of those sub-committees. Griffith — And it was the recommendation of the finance committee that it does pass? Day —| believe that is correct but | don’t want to speak for them. Voice (minutes 00:27:43.845) — | would say yes but there was something on Schedule Al down near the very bottom DCS Security Interface for Data Access, $125 thousand — | had asked for some more detail on that. Griffith — Well | have a question mark beside it also. Voice — So we did get an article written by the contractor and | thought we were going to get some more detail supporting that but | haven’t seen any additional detail. Day — What this item is and it really runs afoul of security and security concerns. You have seen a lot in the news lately about computer viruses that cause issues for computer systems. In order for the DCS system to provide any kind of data link or information to move that from the DCS system to any kind of system that is connected to the public internet to provide that data in a business environment, it requires much more sophisticated firewalls. It’s not the world we lived in 5 years ago. Larry — Also, this includes for a contractor to be able to bring updates or do anything with the system remotely. Otherwise they have no access presently and the only way we could do it is we would have to contract to bring them here on site in order to do that work. By instituting this, it was called a Waterfall Project which is the name of a company they first contracted with for doing this work in Canada that has done this in other facilities mostly nuclear facilities. We have been in negotiations with them to get the price better because we told them the price was a little onerous and needed to be better than it is but they are still working on this because this is relatively new, this is not something that’s been widely implemented but NERC (?) is driving that we get it going in this direction for all sides. We are just trying to get where we can become compliant, where we can have the vendor work on the equipment remotely and be able to access the data. | do not believe it will end up being that full price because we are working with them to get that lower and | don’t know where that will be. Griffith - Mr. Chairman | think this whole cyber security thing is a huge issue and any time you’re on the internet or using wireless or anything like that, | think we’re vulnerable to the many nuts that are out there and while $125 thousand may be the right answer, | think I’ve spent three times that already getting my dispatch center somewhat secure and I’m still not confident we got it so | don’t know what the right number is but cyber security worries me a lot and the nuts could get in there and trip those generators and then what do you have? Day — To add to Joe’s comment, | mentioned SUXNET and this is the one that was apparently designed to attack the centrifuges in Iran and make them run fast while it showed proper operation on the operators screen. So it’s not just the crazy people out there doing things to kind of just write their name on the wall, its people actively trying to disrupt the systems and destroy the structure. It is a problem. Griffith — In the vein Mr. Chairman, | think we ought to have an in-depth look at the control system at Bradley on what is the degree of security that we have there for dispatch and | suppose that takes it all the way back to Burke’s things to see what happens when he hits buttons. Some of the stuff I’ve seen absolutely scares the hell out of me and what people are able to do and they have done it several utilities within the last thirty days. Going into substations and turned off sections - I’ll quit whining. Posey —| think it’s critical that we do what we have to do — this all started a year and a half ago, we found out that the FBI was trying to find out data about all of our systems and back doors and everything else - | think we worked with AEA to close the back doors and the rest of the utilities had 7 dial-ins on the back of some of our units where we collectively controlled state assets so | think it is something that AEA and the utilities as a group need to make some real investment and know what we have because we are not part of the NERC system and let’s make that clear and if anybody tries to sell us anything that their doing in the lower 48 and it works, our SCADA system is not connected to the internet system like they are in the lower 48 so | don’t mind buying a good GMC truck but | don’t need a Cadillac Escalade in order to do something where we have a different kind of risk in Alaska. Griffith — | thought that was what you guys are buying this year for the city. Posey — No. That’s the SAP Program - No, that’s a German system operated by Black & Veech. And you know what kind of problems that has. That’s a different story — but | would propose that we do this but | would like for all of us working with the RCC and others, to truly work together with the folks at Eureka and APPA and make sure that we are following along the lines of what we need to do to protect our system because all of us indirectly or directly serve military bases so we’re going to get caught up in it but our “in it” should be paid for by the people who are requiring us to put up these walls that are much bigger than they probably need to be and | am the first one to say cyber security is important but | would like to work with AEA and the other utilities as a group to continue to work on this to make sure we’re protected from something that might happen. Our systems should not ever go into the internet. | really have a concern about that. Griffith —- Yeah —| do too and it sounds like Bob that’s what you were saying is that this system is going to be on the internet. Larry — Actually, if | may, explain how this is set up. What they do is in order to ensure security, they institute what they call a uni-directional serial link. It doesn’t pull data, it only streams data out and the only way you get access to data is you mirror a server on the internet site and you only have this high speed serial link that updates that server. You can’t request all the way back through, you can only request to the mirrored server. So you have a separation so there are no ravable (?) packets — there is no way to direct commands or anything back because all of the flow of information will only travel in one direction and the idea and the difficulty of this is how to update a server that you’re accessing and make it appear and act like the real thing but still not be connected to the DCS. Griffith —- That was exactly where | was headed. How do you update the machine? Larry — The way that they do it is the software in place periodically has a program in place that it spools out all this data and all it does is send it out. It does not receive anything back so there can’t be any commands sent in to it. Once it is started up it just continues to run and keeps the mirrored server up to date and any communication that do from the outside world only touches the mirrored server it can’t get back anywhere else and this is how they do the same thing with the SCADA system — how they put links in it and this is the accepted security routine in order to secure those systems. You make sure there are no ravable (?) packets so there is no way for it to be directed to do things that it wouldn’t normally do. Griffith - So then someone on site goes into the mirrored system and pulls out whatever they need to upgrade the settings. Larry — Yes. Day — Not to berate this but It’s complicated because if we allow external systems like Chugach Electric’s dispatch system to access this (the DCS) directly, we have inadequate knowledge to know that their system is properly connected so you have this cascading effect so we’ve got to isolate ourselves from everybody and we would expect Chugach or ML&P to do the same but then we don’t build these dependencies on our various systems so that if one is compromised, the other would not be. That’s the name, The Waterfall, it’s just like a big waterfall and can’t go upstream, and the salmon or the data packets can only come downstream. ge Chair — | guess to answer the question, I’ll take this to the INC (?) because they’re the ones with the operating tools at least for most of the utilities. Because you really need a system wide approach, you can’t just approach security from one power plant. We’ve passed every audit we have had on it but doesn’t mean you still can’t be breached. We simulate attacks on ourselves all the time and we have similar things like their talking about as well. We need to approach this on a system wide basis not a singular basis —| will do this on an assignment. The question on the telephone system? Corey Borgeson —| have a few questions on the Schedule A1. If something has been budgeted in previous years and not spent but doesn’t show up on the fiscal year 2014 proposed budget. Does that mean it is off and wouldn’t be expended in 2014? First one is the Emergency Stand by Diesel Generator was budgeted — maybe it’s going to be spent in 2013 still. Larry —It has already been spent. Corey — Can you give me some explanation of things that have been proposed previously that are not on the on the proposed budget for 2014 and haven’t been expended in 2013. Posey — The way | understand it Corey is it closes out every year and that’s why we do an audit every two years and all the money is refunded back to you and it gets budgeted the next year and goes forward as part of that budget. If it isn’t spent there is no carry-over. Larry — Unless it’s a large item and is in the R&C fund. Corey — Okay because there’s been money expended in 2013 according to this chart that weren’t in the 2013 budget. Chair — Well they do have the ability to move money around up to a certain limit. We’ve given them some latitude on that but if it exceeds 5% | believe they have to come back and get approval. | don’t know if that’s the type of money he is talking about or not. Can you give us a line item Corey that you are referring to? Corey — Yes, it’s the test equipment. Small amount, there was $17 thousand budgeted —| don’t know what was budgeted in 2012 — nothing budgeted in 2013 yet $1300 was spent. Griffith — | think that was a party Bob threw down there wasn’t it? Larry - My understanding is that of course this was spent — it was fiscal year 2012 budget and it crossed the line of the June 30 and it just didn’t get delivered in time. We actually have $20 thousand budgeted for it and we only spent $17 thousand to hit that budget. The other part hit 2013 budget because it didn’t get delivered until after June 30. Corey —Alight. The next question | have is on the Replace of Fish Water Valve Actuators. There was $20 thousand budgeted and it looks like we spent $14,636 but we’re budgeting another $20 thousand. Is this something that is costing more than we anticipated? Larry — We have seven fish water valves and each fish water valve we get costs about $7,000. We’ve replaced two of them and we need to continue to replace the rest of the valves so we are only doing a couple each year. So we could cut it down a little bit but price increases is what we have run into so we just left it at the level where it was at. We are only planning on doing two each year until we get them finished. Corey — Going back towards the top DCS & Vibration System was budgeted in 2013 at $108 thousand and we have spent $186 thousand. Maybe there was a budget adjustment for that item? Larry — Well originally the outage was supposed to be in May but it got pushed back across the fiscal boundary to July and so the expenses show up in the following year. Chair —| think Carey’s question is where did the $6000 or the $5800 come from? Larry — The whole budget was much larger than that which was the whole system together, the DCS migration. The total was 1.3 million and so | guess | can’t say | understand where those two numbers came from in the whole project. Because the project was much larger than that and | would have to do some research to be able to tell you. Corey — Yeah, maybe we could just get an understanding of that and | had mentioned this already, the Emergency Stand by Diesel Generator that was budgeted, is that going to be expended in 2013? Larry — It has already been purchased and is setting in the HEA yard waiting for the next barge to deliver it to Bradley. Corey — But there is nothing in the year to date so that just didn’t get in there? Larry — It was purchased and delivered in January and this was as the end of December. Chair — Is the reason the larger money not in here is because it was funded by the R&C fund? Because these are just capital purchases that are not funded by that fund. Day — To the Chair, | may be able to shed some light on this. | can’t answer your question directly about the $108,875 and the $186,937 but Larry speaks true — if you look at schedule D that is kind of the historical on the R&C under Replace Plant and SCADA Controls and as you look across there you will see $1.008 million and then $400,000 in the next year so the total project of replacing the DCS and the vibration was about a $1.4 million dollar project which has been accomplished. | can’t speak to that $186,937 but it’s probably just the late invoices that come in one projects. 10 Chair — But that’s not going to come back to Schedule D though Bob, is it? The $186,937? Bob do you think that money should have been over on Schedule D? Not that its part of the budget we’re approving so it’s kind of academic. Day — that’s really my point is that it is past. Chair — But we still want it in the record properly and correct where the money... Larry — It should have all been a part of Schedule D of the project. Chair — Well maybe the authors of this can put this where it belongs. Corey —| appreciate it. The bigger questions I’m trying to get to is how much is being expended or budgeted in 2013 is going to get rolled over into 2014? Because it goes over the calendar or fiscal year | guess. Larry — To answer that the one thing we had planned for our outage to be at the end of May this year but it got pushed back into the middle of July so we have an electrical mechanical relay project that’s going to be pushed back to there and some outage expenses so there are going to be some costs pushed into the next fiscal year because of that change that was made. Chair — And those are capital ones identified already in the 2013 budget? Larry — They should be as capital items and R&C items for the 2013 budget. On Schedule B Chair — So there’s not really that many of those, | mean if you look down there, a lot of the capital doesn’t have a history and there are only a few line items that have a - is any of the FY13 budget for utility vehicles going to roll over to FY14? Larry — No. Chair — Okay, is any of the Replace Fish Water Valves Actuators going to roll over into FY14? Larry — No. Day — Not a roll over but a new... Chair — Well you know, you didn’t spend it so you’re going to roll it in hopes to finish the project? Larry — As | go down these things I’m not seeing anything that we should be rolling over except for .... Chair — That’s where | was heading with that. It seems to me like it’s a good point and everything but it’s not affecting the 2014 budget or what you plan on spending. Except for telephones, we haven’t talked about telephones yet. Larry — One item is replacing the JEM meter with ION meters, that’s part of this outage project and we have expended part of the funds but the rest of them will be finished when they actually do the installation. Chair — Which line item is that? Larry — It’s about a % of the way up from the bottom on Schedule A-1. It says Replace JEM meters with ION meters. The remaining budget there will roll over into the next fiscal year. 17, ‘Chair — And you don’t have anything budgeted in 2014 so that would not be a concern for the 2014 again. Larry — It will be paid out in 2014. | Chair — Is that the way you want to do it? Puta line item in there for 2014? | Larry — It’s whatever works best for the accounting. Kelli — If it’s not going to be spent by June 30, 2013 it should go in the 2014 budget. Corey — That would really help understand what we are going to be expending in 2014. One other question and then Ill stop but there is a note on the forklift with outside capability. The note says previously approved in FY10 and not completed — no money spent. Is that note outdated? Larry — That is an outdated note. There was an original budget several years ago it wasn’t done and so we actually completed that this last fall. Corey — Well we appreciate you coming in under budget on that. buying this, is it issued into inventory, is that the thing and you guys administratively are taking the charge from inventory and who is holding the inventory and all that stuff because you don’t just go out and buy two of these at a time, you buy what you need and you put them into inventory and then issue them to the project right? mM N v ~ ‘ Chair —- Well | have a question if we go back to the Conversion of Metering Equipment. Aren’t you a } Day - To the Chair and Corey’s question, this is a problem for us because we put together this project to 5 / replace the meters. We have done the design, we have done engineering, and we have bought Ss ii materials so those are the expenditures you see here. Our plan was to do that in May in our annual vr | outage. Due to other constraints, asked by the other utilities, we moved that outage to July, into the | next fiscal year. So we’ve started this project, we’ve begun it, it’s been authorized, it’s in progress and in | order for us to answer the questions as to how much money we’re going to move into 2014 for that \ project, we kind of have to know how much money we’re going to spend before we move into the next | year and sometimes that’s not known real well to us. Chair — Well | think everybody has that problem Bob. We handle it and therefore this group should handle it too. You just have to have your project manager estimate where you’re at and what’s not going to get done. It’s all an estimate. Larry —- The monies that were spent were to buy the meters and that’s what we are doing. Chair — That was my point. The meters were purchased but do we have a system where we purchase them into inventory and then issue them into the project? Or when you purchase it’s billed right to the project right there at the date of receipt? Larry — Correct. Chair — Well that’s a little different, it’s okay | guess but... Larry — Well it’s because everything for the project belongs to the State it doesn’t belong to the utility. 12 Chair — Well to kind of bury this cause it’s really not addressing whether or not we’re going to approve> the 2014 budget in my mind.’ I'll just refer this back to the finance committee and work with the O&M people to be sure W ve a system that we can rely on for budgeting across multiple years. To Bob’s point, there are many reasons that projects don’t get done in the year they were planned and/or they elongate out for more a multitude of reasons and we all face that all the time so the extent that might be problematic for you guys, then let’s just work out a system that works for everybody and keeps it all clean. | don’t think we need to resolve that here at his committee. Posey —1’m right with you Mr. Chairman because | think that in the past we’ve done budget revisions that wasn’t in the year and we are quite capable of doing that. We don’t have to meet to do it. We can just use the telephone and have the O&D and the accounting groups tell us what is happening and why we need to do it and we approve it so | think we have done that in the past and | don’t see a problem with doing that. Chair —| don’t see a problem either. There may be more of it because we’re in the life cycle at the plant where there is just a lot more capital replacements so | would still refer it back to them to look at it and just give these guys that are doing the projects the ability to continue to do their work without a lot of muss and fuss in the accounting end of it. We'll just leave it at that and I’ll make that assignment. eee eae Chair —| still have a questions about the telephone system. | didn’t realize — that’s a lot of money. Bob is that going okay? | mean is it really that much money — what have we got down there? Some house phones and a ring down? We’re approaching $80,000 on this. If you go back we got $42, $20, and then I’m assuming we re-budgeted in 2014 because we didn’t spend anything in 2013. It says to replace an old analog systems with digital. That just seems to be a pretty big project, | didn’t realize we had that much going on down there, Day — It is. We have an extensive telephone system throughout Bradley, it reaches all the way to the gate house system and into the conversion houses up at the dam. That’s a 1991 system so there’s a lot of infrastructure that needs to be replaced. Chair — Well | worry that if you stretch it out long enough then you’re just going to start over again when you’re done and say well that’s all outdated and | need to do it again. Larry — The problem we've been seeing at the plant is due to frost heave and other issues although the analog wires are buried under ground and we’ve run out of spares and pairs to get things communicated and we’ve had to try to go and instead are using a wireless system and using IP across wireless in order to get communications and get the information across those systems and not bury things under the ground so that we could avoid this in the future. That has been our directions to try to avoid this problem. Posey — Didn’t we just bury cables about 4 or 5 years ago? Larry — They did when they wintered cross the culvert project and unfortunately some of the sheets were damaged and that’s where we’re starting to see a lot of these issues. We lost all communications to the fire shop and the airport and we ended up having to do part of the wireless system we’ve installed that covers those areas for that very reason. is Corey — That hadn’t caught my eye until you brought it up but | think the truth is we’ve spent $62 thousand. | assume we are going to spend $20 thousand in 2013 and then another $20 thousand so we’re at $100 thousand potentially. Chair — So that is why that caveat is on there. Corey — Can the Chair request some more detail and information on the phone system? Chair — Sure. Bob, are you okay with gee UM cramer Ln Day — Yes. Chair — Probably just a project description and scope of the thing and bring that to the next meeting. Day — Will do. _— Chair —| have another questions. On the Generator Partial Discharge Monitor, are we seeing something on there that is causing us to have some concern to want to install that? Because it’s a relatively young generator and I’m not questioning it at all, | love to have more data and this is a great tool. But are we seeing something that is causing you to be concerned about partial discharge? Larry — The reason we’re looking at this is because originally the plant was installed with an Ozone monitoring system and the system had failed several years ago so we’re left in a position where we have no monitoring currently. So we have no way of knowing in anticipation of any problem. So we are looking to see what current technology there is to protect the generator other than just relaying and so this is where the Partial Discharge Monitor came in. The ozone system that was installed prior isno longer current and there are no longer parts available for it. Chair — Well just because you have partial discharge doesn’t mean you’re going to trip it — it’s a trend — you're trying to find out when you’re developing a problem so is that the idea here Bob? ————$— Day — Exactly, we are unknowledgeable, we do not suspect anything is going bad but we have no more information than just my hunch. Chair- No, it’s a good thing. You’re a long way from Anchorage and it’s a good thing to have one of these on the shelf over there in Nikiski. Day — Correct. Chair — It’s something that takes years to plan to replace so getting as much notification as you can about any problems is a good thing. Griffith —- Well you could always go around and sniff for ozone. Chair — No, I’m afraid if they got that close they’d be violating some safety rule. On the Vibration system Bob, are we thinking that we had some kind of problem that you’re trying to monitor? Day — It was a replacement for the existing system that was there and that has been accomplished. Chair — Does anybody else have any questions on the capitol side? 14 Griffith — On the utility vehicles we talked about those tracks | believe last year and you spent almost the full amount that was allocated. Did you get them on the vehicles? Are we one track short or something? Larry — The money there was to purchase the utility vehicle. After we got it, we.. well before we had talked about buying a snow cat to be able to get to the microwave or the gatehouse in the winter without using a helicopter for everything. One way we could do it is to adapt the utility vehicle and put some tracks on it so that we could go over the top of the snow in order to get there and it’s a whole lot cheaper than buying a snow cat. Griffith — And this buys the tracks. Larry — Yes it does. Griffith — | just put a set on one recently and they work fairly well. Griffith - On the O&M on Schedule B, Homer’s costs’ are up $215,785. Can we get a thumbnail sketch of what that is? Day — I’m not following where you’re at. Larry — Well there are two larger items Day — Yes, why don’t you speak on those Larry, | think those are the key ones. Larry — One is that we had asked to do an ARC Flash Study so that we could become compliant. That was $69,000 for that Another large item in addition to this is we had the issue that occurred over a year ago where water was introduced into the governor (? 01:02:37.956) oil and we had to use all of the reserve supply of oil that we had on site. So it was to replace that stock and re-supply it. And that was $18,000 to do that. Those are probably the two largest besides the contract labor increase that was in our union contract. Also, one other item was the fly-in contract at Grant Aviation has pulled out of Homer and no longer flies there and broke the contract with HEA for flying to Bradley. We now have a new carrier that we just got a contract with this week which is Pathfinder Aviation. In all the bids that we received, the cost for that has come up as well. Posey — Pathfinder Helicopter fixed wing? Larry — They are Helicopter right now but they are going to be leasing a Cessna 206 to provide that service to rent. So it will be a little bit smaller plane than what we were flying but it should be at least in very good condition. Voice (01:03:56.812) and those costs are allocated in Part A? Larry — Yes, they are in part of our O&M costs. Voice (01:04:04.308) — Where is the equipment they are using helicopter wise? Day — They’ve got a whole variety of vehicles. There’s Long Rangers, Jet Rangers, and the 4 bladed one — the bigger, faster one. 15 Larry — Because of their grant contract, any additional costs we are spending right now while their not flying, they are on the hook for the differential so that is supposed to be reimbursed to us. Voice (01:04:36.695) Up to when? Larry — The end of May. Day — So | think Joe to directly answer your questions, the ARC Flash Study, the Oil Replacement and the increase in aircraft, I’m sure that there are a number of other increases in there that push the values up. Griffith — Well, you’ve probably got the bulk. Thank you. Chair —- Does somebody want to speak to the regulatory cost? Corey — For Operations, by pushing the maintenance into July, the next fiscal year going to change what it’s going to look like for the Operation & Maintenance fiscal budget and put some more into the 2014? Day — | don’t believe so, a lot of what drives the maintenance costs are really the employee costs and those are pretty constant, the guys there have the same number of hours each year. We put them to work on different projects but overall they tend to average out and look the same year after year. Corey — Okay, thank you. Chair — Is there a parent for Regulatory Costs on this budget? Bryan —| guess | can talk in regards to the FERC Administration Fees. Chair — Is that something that comes out at the end of the year and just tells you that you pay your budget and at the end of the year you get a bill? Bryan — Yes Chair — And that’s why you haven’t spent the money? Kelli— We haven't spent it as of yet, | don’t know what has come in since the December... Chair — But you are going to spend it? Kelli-—yes Chair — Okay Griffith — On the Schedule B under FERC 571 Maintenance of Overhead Lines, $210,000 would be one maintenance of overhead lines in 2013 to nothing spent so far and the number just moved forward. Why didn’t anything get done on that? Day — This is the switches at Bradley Junction and again, you've touched on this scheduling of projects especially problematic at Bradley because of the fiscal year ending in the middle of the construction season. It got pushed because of this re-scheduling of Bradley and rather than cause another outage at Bradley, it’s like, let’s do those switches the same time we do the generators. That’s one of those areas. where the money moved from one year to the next. Chair — Bob those are dead brake manual switches, right? What’s wrong with them? 16 Day — They require — any time somebody goes and works on that line, for a lineman or someone to go out and open that switch, and to hang a tag on it or lock out/tag out purposes, and then at the end of the work the reversal of that so we are incurring time and helicopter time for a switch that.. Chair — What are you going to put in its place? Day — Nothing. We’re going to short them out is my guess. So that there will be no switch to switch. We can than switch at the terminus at the Bradley plant or at the Soldotna line or at Quartz (?) Creek and no more helicopter time. Chair — Okay. Griffith — That’s all my questions Mr. Chair. Chair — Do any other participants have questions? Then if we could get a roll call on the motion: Matanuska Electric Association Yes City of Seward Yes Anchorage Municipal Light & Power Yes Golden Valley Electric Association Yes Alaska Energy Authority Yes Homer Electric Association Yes Chugach Electric Association Yes Teri — Motion Passes Chair —| think | already made the assignments so we'll do that at the call of the Chair at the next meeting. So I'll entertain a motion for adjournment. Posey — So moved Griffith - Second Brad J —- Mr. Chair —| have a quick question. For our next meeting, one suggestion would be if the group wants to meet down at Bradley Lake because | assume not everybody has been there for several years now. It’s a thought. Chair — Did you paint it or something? Day — Looks good. Chair — Looked good last time | saw it. Day — Look at the budget, we’ve been putting lots of money into it. Griffith - We’ve putting a lot of money into it. Day — Well you’ve given us money and we’ve spent it. 17 Posey — You haven't solved the airplane problem as far as I’m concerned. When you solve that Brad, let us know you have a serviceable aircraft to bring us down. Brad J -— Oh we will as of May 1. Posey — Is it a brand new 206? Brad J — It’s a 206 with less than 2000 hours on the air frame. Corey — Brad | really appreciate that offer | was commenting with Lynn that we need to come down and see it. So if we don’t do it in conjunction with this meeting, we’ll be down to take a tour soon. Brad J — Yes that would be great. In addition | just want to thank the O&D Committee and the Budget Committee for their efforts on the budget and in particularly Bob and Larry for all their efforts year round on Bradley Lake. They do a great job for all of us. So thanks guys. Posey — Yeah — we beat you up pretty good but you know this is a joint asset so everyone has questions about every penny. Brad J — And their all good questions and appreciated. Chair — Okay all those in favor of adjournment say aye. Chair — Motion carried. We’re adjourned. 2:42 pm 18