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HomeMy WebLinkAboutSutton-Glennallen Petro Star Negotiations 1995 ats T pA VALDEZ RI Sas A JOINT VENTURE a PETRO Telephone. (997) 344-2661 201 Arctic Slape Avenue, Suite 200 Fax (907) 267-6429 Anchorage, Alaska 99518-3930 November 8, 1995 Mr. William R. Snell Director AIDEA 490 W. Tudor Rd. Anchorage, AK 99503-6690 Re: Intertie Negotiations Dear Riley: I am pleased to confirm that Petro Star Valdez Refinery has finalized the attached Memorandum of Understanding with Copper Valley Electric Association, Inc., and Chugach Electric Association, Inc. As stated in the Memorandum itself, the agreement is subject to approval by the boards of directors of the two utilities. However, I am at the present time optimistic that these approvals will be forthcoming later this month. We are confident that the Sutton-Glennallen intertie will achieve substantial benefits for the Copper Valley basin and Alaska and that it is necessary for the orderly development of the region as we move into the twenty-first century. Consequently, we strongly support approval of the intertie loan by the Governor. Please give me a call if you have any comments or questions. Sincerely, = Stephen T. Lewis Chairman of the Management Committee Petro Star Valdez Refinery ce: Mr. Jim Ayers The Hon. Ramona Barnes The Hon. Georgiana Lincoln The Hon. Gene Kubina Mr. Clayton Hurless (w/o attachment) Mr. Eugene N. Bjornstad, P.E. (w/o attachment) Ae ee / MEMORANDUM OF UNDERSTANDING AMONG COPPER VALLEY ELECTRIC ASSOCIATION, INC. PETRO STAR VALDEZ REFINERY AND CHUGACH ELECTRIC ASSOCIATION, INC. A. PARTIES The Parties to this Memorandum Of Understanding ("MOU") are Copper Valley Electric Association, Inc. ("CVEA"), Petro Star Valdez Refinery ("PSVR"), and Chugach Electric Association, Inc. ("Chugach"). B. PURPOSE The purpose of this MOU is to set forth an agreement in prin- ciple among th® Parties on the basic terms of two contracts: (1) a Power Sales Contract ("Power Contract"), under which CVEA will deliver and sell, and PSVR will receive and purchase, electric power at PSVR's facilities in Valdez, Alaska, and (2) a Cogenera- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 1 tion Deferral Contract, under which CVEA and Chugach will share the cost of assuring PSVR of the rates specified under the terms and conditions, and for the purposes, described in this MOU. Gr CONTEXT OF MOU & CONDITION PRECEDENT TO ITS EFFECTIVENESS The power sales transaction contemplated by thia MOU depends on construction of an electric power transmission line (the "CVEA Intertie") between Sutton, Alaska, and Glennallen, Alaska. The CVEA Intertie is necessary in order to allow electric power gener- ated on Chugach's system to be delivered to CVEA for resale to CVEA's consumers, including PSVR. Purchasing power from Chugach will reduce CVEA's power costs substantially. Such purchases are necessary if CVEA is to sell power to PSVR at rates acceptable to PSVR. Tf the CVEA Intertie is built, then PSVR will be able to purchase electric power from CVEA and meet its load requirements under the terms of the Power Contract, as further described below. If the CVEA Intertie is not built, however, then it is PSVR's intention to proceed immediately with installation of its own cogeneration equipment at its Valdez facilities in order to meet all or a portion of ils electric power load requirements from its own generation in the reasonably near future. CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 2 Vl wit amuiunauL, ALAuie Ce a es A rR cr a boInyv olan’ oul YUL OUUOrF 4/ OF Currently, the State of Alaska is formally reviewing whether to proceed with a legislatively approved $35,000,000 loan to aid construction of the CVEA Intertie. The Parties agree that the CVEA Intertie will not be built in time to allow PSVR to defer installa- tion of its cogeneration equipment unless the State decides to proceed with this loan. The State's decision is expected no later than November i, 1995. PSVR cannot reasonably delay beyond December 31, 1995 its own commitment to begin the process of in- stalling its cogeneration equipment. Consequently, the Parties agree that the State's decision, on or before December 31, 1995, to proceed with the legislatively approved $35,000,000 loan for the CVEA Intertie shall be a condi- tion precedent to the obligations of any Party under this MOU. No Party will otherwise be bound by this MOU beyond that date. If the State does decide by such date to proceed with the lean, then the Parties will be bound by the MOU and will proceed promptly and in good faith to draft, execute, and seek any neces- sary approvals of the contracts that the MOU contemplates. Ds POWER SALES & RATES TO PSVR UPON COMPLETION OF CVEA INTERTIE 1. From and after the date on which the CVEA Intertie com- mences commercial operation, and for a period of ten years thereaf- ter, the Power Contract will obligate CVEA to deliver and sell, and CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 3 SL Dic auVANAUL, ALANA y4t OO UD + 2UOLM » PLIKVU SIAN? DU/ DOL OUIG.F a/ UO PSVR to receive and purchase, electric power to meet one hundred percent (100%) of PSVR's electric power load requirements for its facilities at Valdez. 2. The Power Contract will obligate CVEA to make rates for PSVR on a Chugach system average cost of power pass-through basis (for energy and demand) as described below. The Power Contract will specify separate charges for demand (capacity) and energy, in order to give PSVR the financial benefit of its own load factor. In particular: (a) CVEA's “base cost" for ratemaking purposes for electric capacity (kilowatts) sold to PSVR will be CVEA's cost of Capacity purchased from Chugach but will not include any special initial demand ramp to which CVEA and Chugach may agree. (b) CVEA's "base cost" for ratemaking purposes for electric energy (kilowatthours) sold to PSVR will be CVEA's coat of energy (including the Chugach Fuel Surcharge and MEA wheeling rate) purchased from Chugach. (¢) The Margin or markup that CVEA adds to the base costs of capacity and energy in making retail rates for PSVR will Pee \ewh be 2.1 cents ,in G7 dollars. ava CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 4 CLIVE WIT UNAUL, ALA yaa vu) eruerm +» PLINY OSIANT7 ous JUL ODIO+# D/ J 3. In addition to the foregoing economic terms and condi- tions, the Power Contract will also contain provisions governing all other matters customarily dealt with in contracts between utilities and major industrial customers. E. COGENERATION DEFERRAL CONTRACT: PURPOSE AND TERMS 1. The CVEA Intertie will allow PSVR to achieve cost savings under the terms of the Power Contract once Chugach power begins to flow to CVEA. The Parties currently estimate that the CVEA Inter- tie will require at least three years to complete, however. In the interim, the difference between PSVR's current costs of electric power from CVEA and the cost at which PSVR could cogenerate and meet its own power supply needs is such that PSVR would otherwise proceed to install cogeneration equipment, but for the Cogeneration Deferral Contract described herein. If PSVR's cogeneration equip- ment is installed, the opportunity to make significant power sales to PSVR (and hence to use the CVEA Intertie to produce additional economic benefits for other CVEA and Chugach ratepayers) will almost certainly be lost, 2is The purpose of the Cogeneration Deferral Contract is therefore to create conditions under which it will be in PSVR's interest not to install cogeneration equipment, at least until the CVEA Intertie is complete. Under the Cogeneration Deferral Con- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 5 a eee i inline i ee zoiny O1AnN’ wu VUL OuUOre (/ OD tract, CVEA will provide electric power, the average cost of which per kwh will not exceed 8 cents while the CVEA Intertie is under construction. (The existing CVEA-PSVR power sales agreement will be extended, if necessary, until the CVEA Intertie is completed.) PSVR will be entitled to this rate beginning August 1, 1996 but not sooner than Necessary Approvals have been obtained. However, CVEA and Chugach shall have the right to terminate this rate reduction for PSVR by notifying PSVR that CVEA and Chugach no longer wish for PSVR to defer cogeneration or by notifying PSVR of their intent to abandon construction of the CVEA Intertie, in which event the rate reduction to PSVR shall cease on the earliest of: 1) 9 months after the first November lst date after notice is given of intent to abandon construction of the CVEA Intertie; or 2) the date PSVR installs its cogeneration project which PSVR has a duty to attempt to install as soon as reasonably possible after notice. Sie PSVR shall provide acceptable guarantees from the parent company of its majority shareholder to guarantee its obligations under this Memorandum of Understanding, the Power Contract, and the Cogeneration Deferral Contract. F, RIGHT TO CALL ON PSVR TO INSTALL COGENERATION The parties agree that development of cogeneration at the PSVR site may he desirable at some future date, and agree that prior to CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 6 Bs vue swatcauseny cemmsemreees ee roInv Olan: wul vuL YUUUIT OF PSVR proceeding to develop any cogeneration, CVEA and Chugach shall have a first right of refusal to participate in such cogeneration facility on a basis in which CVEA and Chugach shall receive the benefits of such facility in proportion to any investment. G. NECESSARY APPROVALS Both the Power Contract and the Cogeneration Deferral Contract will be subject to all necessary approvals, including but not limited to that of the Alaska Public Utilities Commission ("APUC"). CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 7 u This MOU represents the position of the representatives of the Parties, which such representatives agree to recommend to their respective governing boards for approval. The MOU shall not bind any Party until that Party's governing board has approved it. IN WITNESS WHEREOF the Parties hereto have executed this Memorandum of Understanding on October 3], 1995. CHUGACH ELECTRIC ASSOCIATION, COPPER VALLEY ELECTRIC INC < ASSOCIATION, INC. PETRO STAR VALDEZ REFINERY By: Oe Title: erreny CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 8 eee PETRO T »yR VALDEZ Rl FINERY TUTTI A JOINT VENTURE Telephone. (907) 344-2661 201 Arotic Slaps Avenue, Suite 200 Fax (907) 267-6429 Anchorage, Alaska 99518-3030 a ———e November 8, 1995 Mr. William R. Snell Director i AIDEA 490 W. Tudor Rd. Anchorage, AK 99503-6690 Re: Intertie Negotiations Dear Riley: I am pleased to confirm that Petro Star Valdez Refinery has finalized the attached Memorandum of Understanding with Copper Valley Electric Association, Inc., and Chugach Electric Association, Inc. As stated in the Memorandum itself, the agreement is subject to approval by the boards of directors of the two utilities. However, I am at the present time optimistic that these approvals will be forthcoming later this month. We are confident that the Sutton-Glennallen intertie will achieve substantial benefits for the Copper Valley basin and Alaska and that it is necessary for the orderly development of the region as we move into the twenty-first century. Consequently, we strongly support approval of the intertie loan by the Governor. Please give me a call if you have any comments or questions. Sincerely, Stephen T. Lewis Chairman of the Management Committee Petro Star Valdez Refinery ec: Mr. Jim Ayers The Hon. Ramona Barnes The Hon. Georgiana Lincoln The Hon. Gene Kubina Mr. Clayton Hurless (w/o attachment) Mr. Eugene N. Bjornstad, P.E. (w/o attachment) MEMORANDUM OF UNDERSTANDING AMONG COPPER VALLEY ELECTRIC ASSOCIATION, INC. PETRO STAR VALDEZ REFINERY AND CHUGACH ELECTRIC ASSOCIATION, INC. A. PARTIES The Parties to this Memorandum Of Understanding ("MOU") are Copper Valley Electric Association, Inc. ("CVEA"), Petro Star Valdez Refinery ("PSVR"), and Chugach Electric Association, Inc. ("Chugach"). B. PURPOSE The purpose of this MOU is to set forth an agreement in prin- ciple among th® Parties on the basic terms of two contracts: (1) a Power Sales Contract ("Power Contract"), under which CVEA will deliver and sell, and PSVR will receive and purchase, electric power at PSVR's facilities in Valdez, Alaska, and (2) a Cogenera- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 1 tion Deferral Contract, under which CVEA and Chugach will share the cost of assuring PSVR of the rates specified under the terms and conditions, and for the purposes, described in this MOU. Gi CONTEXT _OF MOU & CONDITION PRECEDENT TO ITS EFFECTIVENESS The power sales transaction contemplated by this MOU depends on construction of an electric power transmission line (the "CVEA Intertie") between Sutton, Alaska, and Glennallen, Alaska. The CVEA Intertie is necessary in order to allow electric power gener- ated on Chugach's system to be delivered to CVEA for resale to CVEA's consumers, including PSVR. Purchasing power from Chugach will reduce CVEA's power costs substantially. Such purchases are necessary if CVEA is to sell power to PSVR at rates acceptable to PSVR. If the CVEA Intertie is built, then PSVR will be able to purchase electric power from CVEA and meet its load requirements under the terms of the Power Contract, as further described below. If the CVEA Intertie is not built, however, then it is PSVR's intention to proceed immediately with installation of its own cogeneration equipment at its Valdez facilities in order to meet all or a portion of ils electric power load requirementa from its own generation in the reasonably near future. CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 2 SLE E WE EEUU, sate yas vuy ) etuim ss PLINnVv CIAN™ oul DUL OOWOrF 4/ OD Currently, the State of Alaska is formally reviewing whether to proceed with a legislatively approved $35,000,000 loan to aid construction of the CVEA Intertie. The Parties agree that the CVEA Intertie will not be built in time to allow PSVR to defer installa- tion of its cogeneration equipment unless the State decides to proceed with this loan. The State's decision is expected no later than November 1, 1995. PSVR cannot reasonably delay beyond December 31, 1995 its own commitment to begin the process of in- stalling its cogeneration equipment. Consequently, the Parties agree that the State's decision, on or before December 31, 1995, to proceed with the legislatively approved $35,000,000 loan for the CVEA Intertie shall be a condi- tion precedent to the obligations of any Party under this MOU. No Party will otherwise be bound by this MOU beyond that date. If the State does decide by such date to proceed with the loan, then the Parties will be bound by the MoU and will proceed promptly and in good faith to draft, execute, and seek any neces- sary approvals of the contracts that the MOU contemplates. Die POWER SALES & RATES TO PSVR UPON COMPLETION OF CVEA INTERTIE 1. From and after the date on which the CVEA Intertie com- mences commercial operation, and for a period of ten years thereaf- ter, the Power Contract will obligate CVEA to deliver and sell, and CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 3 BLA ort anuunauL, aLauna yan GO Ud +» 2rUOLmM » LLINV S1AN7 DU/ DOL OUYOF O/ UY PSVR to receive and purchase, electric power to meet one hundred percent (100%) of PSVR's electric power load requirements for its facilities at Valdez. 2. The Power Contract will obligate CVEA to make rates for PSVR on a Chugach system average cost of power pass-through basis (for energy and demand) as described below. The Power Contract will specify separate charges for demand (capacity) and energy, in order to give PSVR the financial benefit of its own load factor. In particular: (a) CVEA'sS “base cost" for ratemaking purposes for electric capacity (kilowatts) sold to PSVR will be CVEA's cost of capacity purchased from Chugach but will not include any special initial demand ramp to which CVEA and Chugach may agree. (b) CVEA's "base cost" for ratemaking purposes for electric energy (kilowatthours) sold to PSVR will be CVEA's cost of energy (including the Chugach Fuel Surcharge and MEA wheeling rate) purchased from Chugach. (c) The margin or markup that CVEA adds to the base costs of capacity and energy in making retail rates for PSVR will pee uk be 2.1 cents in GS dollars. wa CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 4 kok Seatac rae VU ww > eruurm » bony Olan’ OU JUL O0I01# U/ 3. In addition to the foregoing economic terms and condi- tions, the Power Contract will also contain provisions governing all other matters customarily dealt with in contracts between utilities and major industrial customers. 1. The CVEA Intertie will allow PSVR to achieve cost savings under the terms of the Power Contract once Chugach power begins to flow to CVEA. The Parties currently estimate that the CVEA Inter- tie will require at least three years to complete, however. In the interim, the difference between PSVR's current costs of electric power from CVEA and the cost at which PSVR could cogenerate and meet its own power supply needs is such that PSVR would otherwise proceed to install cogeneration equipment, but for the Cogeneration Deferral Contract described herein. If PSVR's cogeneration equip- ment is installed, the opportunity to make significant power sales to PSVR (and hence to use the CVEA Intertie to produce additional economic benefits for other CVEA and Chugach ratepayers) will almost certainly be lost. re The purpose of the Cogeneration Deferral Contract is therefore to create conditions under which it will be in PSVR's interest not to install cogeneration equipment, at least until the CVEA Intertie is complete. Under the Cogeneration Deferral Con- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 5 a we smerny come we o-- wee eee phinyv CIAN’ oul JUL ODDO (/ UD tract, CVEA will provide electric power, the average cost of which per kwh will not exceed 8 cents while the CVEA Intertie is under construction. (The existing CVEA-PSVR power sales agreement will be extended, if necessary, until the CVEA Intertie is completed.) PSVR will be entitled to this rate beginning August 1, 1996 but not sooner than Necessary Approvals have been obtained. However, CVEA and Chugach shall have the right to terminate this rate reduction for PSVR by notifying PSVR that CVEA and Chugach no longer wish for PSVR to defer cogeneration or by notifying PSVR of their intent to abandon construction of the CVEA Intertie, in which event the rate reduction to PSVR shall cease on the earliest of: 1) 9 months after the first November lst date after notice is given of intent to abandon construction of the CVEA Intertie; or 2) the date PSVR installs its cogeneration project which PSVR has a duty to attempt to install as soon as reasonably possible after notice. ac PSVR shall provide acceptable guarantees from the parent company of its majority shareholder to guarantee its obligations under this Memorandum of Understanding, the Power Contract, and the Cogeneration bLeferral Contract. le RIGHT TO CALL ON PSVR TO INSTALL COGENERATION The parties agree that development of cogeneration at the PSVR site may be desirable at some future date, and agree that prior to CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 6 Bowen a at, ak ee yas vu + etuenm +» PLINY OIAN oul DJUL OUUOre Of IO PSVR proceeding to develop any cogeneration, CVEA and Chugach shall have a first right of refusal to participate in such cogeneration facility on a basis in which CVEA and Chugach shall receive the benefits of such facility in proportion to any investment. G. NECESSARY APPROVALS Both the Power Contract and the Cogeneration Deferral Contract will be subject to all necessary approvals, including but not limited to that of the Alaska Public Utilities Commission ("APUC"), CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 7 This MOU represents the position of the representatives of the Parties, which such representatives agree to recommend to their respective governing boards for approval. The MOU shall not bind any Party until that Party's governing board has approved it. IN WITNESS WHEREOF the Parties hereto have executed this Memorandum of Understanding on October S|, 1995. CHUGACH ELECTRIC ASSOCIATION, COPPER VALLEY ELECTRIC INC. ASSOCIATION, INC. Be oe a Title: PETRO STAR VALDEZ REFINERY By: eee Title: gene CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 8 \~ ~——- PETRO T wal? 5 = A JOINT VENTURE Telephone. (907) 344-2661 201 Arotic Slope Avenue, Suite 200 Fax (907) 267-5429 Anchorage, Alaska 99518-3030 November 8, 1995 Mr. William R. Snell Director AIDEA 490 W. Tudor Rd. Anchorage, AK 99503-6690 Re: Intertie Negotiations Dear Riley: I am pleased to confirm that Petro Star Valdez Refinery has finalized the attached Memorandum of Understanding with Copper Valley Electric Association, Inc., and Chugach Electric Association, Inc. As stated in the Memorandum itself, the agreement is subject to approval by the boards of directors of the two utilities. However, I am at the present time optimistic that these approvals will be forthcoming later this month. We are confident that the Sutton-Glennallen intertie will achieve substantial benefits for the Copper Valley basin and Alaska and that it is necessary for the orderly development of the region as we move into the twenty-first century. Consequently, we strongly support approval of the intertie loan by the Governor. Please give me a call if you have any comments or questions. Sincerely, (a LG Com Chairman of the Management Committee Petro Star Valdez Refinery cc: Mr. Jim Ayers The Hon. Ramona Barnes The Hon. Georgiana Lincoln The Hon. Gene Kubina Mr. Clayton Hurless (w/o attachment) Mr. Eugene N. Bjornstad, P.E. (w/o attachment) Ny pAR VALDEZ Ri *INERY ~~ MEMORANDUM OF UNDERSTANDING AMONG COPPER VALLEY ELECTRIC ASSOCIATION, INC. PETRO STAR VALDEZ REFINERY AND CHUGACH ELECTRIC ASSOCTATION, INC. A. PARTIES The Parties to this Memorandum Of Understanding ("MOU") are Copper Valley Electric Association, Inc. ("CVEA"), Petro Star Valdez Refinery ("PSVR"), and Chugach Electric Association, Inc. ("Chugach") . B. PURPOSE The purpose of this MOU is to set forth an agreement in prin- ciple among th® Parties on the basic terms of two contracts: (1) a Power Sales Contract ("Power Contract"), under which CVEA will deliver and sell, and PSVR will receive and purchase, electric power at PSVR's facilities in Valdez, Alaska, and (2) a Cogenera- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 1 tion Deferral Contract, under which CVEA and Chugach will share the cost of assuring PSVR of the rates specified under the terms and conditions, and for the purposes, described in this MOU. c. CONTEXT OF MOU & CONDITION PRECEDENT TO ITS EFFECTIVENESS The power sales transaction contemplated by this MOU depends on construction of an electric power transmission line (the "CVEA Intertie") between Sutton, Alaska, and Glennallen, Alaska. The CVEA Intextie is necessary in order to allow electric power gener- ated on Chugach's system to be delivered to CVEA for resale to CVEA's consumers, including PSVR. Purchasing power from Chugach will reduce CVEA's power costs substantially. Such purchases are necessary if CVEA is to sell power to PSVR at rates acceptable to PSVR. If the CVEA Intertie is built, then PSVR will be able to purchase electric power from CVEA and meet its load requirements under the terms of the Power Contract, as further described below. If the CVEA Intertie is not built, however, then it is PSVR's intention to proceed immediately with installation of its own cogeneration equipment at its Valdez facilities in order to meet all ora = of its electric power load requirementa from its own generation in the reasonably near future. CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 2 SL pDictawiivnauL, ALANA yah VY» eeu + PLInYV Stan OU DUL OOUO+% 4/ Currently, the State of Alaska is formally reviewing whether to proceed with a legislatively approved $35,000,000 loan to aid construction of the CVEA Intertie. The Parties agree that the CVEA Intertie will not be built in time to allow PSVR to defer installa- tion of its cogeneration equipment unless the State decides to proceed with this loan. The State's decision is expected no later than November 1, 1995. PSVR cannot reasonably delay beyond December 31, 1995 its own commitment to begin the process of in- stalling its cogeneration equipment. Consequently, the Parties agree that the State's decision, on or before December 31, 1995, to proceed with the legislatively approved $35,000,000 loan for the CVEA Intertie shall be a condi- tion precedent to the obligations of any Party under this MOU. No Party will otherwise be bound by this MOU beyond that date. If the State does decide by such date to proceed with the loan, then the Parties will be bound by the MOU and will proceed promptly and in good faith to draft, execute, and seek any neces- sary approvals of the contracts that the MOU contemplates. D. POWER SALES & RATES TO PSVR UPON COMPLETION OF CVEA INTERTIE 1. From and after the date on which the CVEA Intertie com- mences commercial operation, and for a period of ten years thereaf- ter, the Power Contract will obligate CVEA to deliver and sell, and CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 3 o CL picaenauL, aLaAuna yaa Vu» eruuLM » PLINV SIAR? DU DOL OUIO,F O/ VU PSVR to receive and purchase, electric power to meet one hundred percent (100%) of PSVR's electric power load requirements for its facilities at Valdez. 2. The Power Contract will obligate CVEA to make rates for PSVR on a Chugach system average cost of power pass-through basis (for energy and demand) as described below. The Power Contract will specify separate charges for demand (capacity) and energy, in order to give PSVR the financial benefit of its own load factor. In particular: (a) CVEA'sS “base cost" for ratemaking purposes for electric capacity (kilowatts) sold to PSVR will be CVEA's cost of capacity purchased from Chugach but will not include any special initial demand ramp to which CVEA and Chugach may agree. (b) CVFA's "base cost" for ratemaking purposes for electric energy (kilowatthours) sold to PSVR will be CVEA's cost of energy (including the Chugach Fuel Surcharge and MEA wheeling rate) purchased from Chugach. (c) The Margin or markup that CVEA adds to the base costs of capacity and energy in making retail rates for PSVR will pee \huk be 2.1 cents ,in B/ dollars. Lva CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 4 SLE DItawiunNAUL, ALAONA yaa O WJ +» 2 uUOLmM » PLINV O1AN7 OU/ DOL OVIO.# O/ JD 3. In addition to the foregoing economic terms and condi- tions, the Power Contract will also contain provisions governing all other matters customarily dealt with in contracts between utilities and major industrial customers. 1. The CVEA Intertie will allow PSVR to achieve cost savings under the terms of the Power Contract once Chugach power begins to flow to CVEA. The Parties currently estimate that the CVEA Inter- tie will require at least three years to complete, however. In the interim, the difference between PSVR's current costs of electric power from CVEA and the cost at which PSVR could cogenerate and meet its own power supply needs is such that PSVR would otherwise proceed to install cogeneration equipment, but for the Cogeneration Deferral Contract described herein. If PSVR's cogeneration equip- ment is installed, the opportunity to make significant power sales to PSVR (and hence to use the CVEA Intertie to produce additional economic benefits for other CVEA and Chugach ratepayers) will almost certainly be lost, are The purpose of the Cogeneration Deferral Contract is therefore to create conditions under which it will be in PSVR's interest not to install cogeneration equipment, at least until the CVEA Intertie is complete. Under the Cogeneration Deferral Con- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 5 = ea! | eee a aoany cian: yur YUL OUUOIT «7 tract, CVEA will provide electric power, the average cost of which per kwh will not exceed 8 cents while the CVEA Intertie is under construction. (The existing CVEA-PSVR power sales agreement will be extended, if necessary, until the CVEA Intertie is completed.) PSVR will be entitled to this rate beginning August 1, 1996 but not sooner than Necessary Approvals have been obtained. However, CVEA and Chugach shall have the right to terminate this rate reduction for PSVR by notifying PSVR that CVEA and Chugach no longer wish for PSVR to defer cogeneration or by notifying PSVR of their intent to abandon construction of the CVEA Intertie, in which event the rate reduction to PSVR shall cease on the earliest of: 1) 9 months after the first November 1st date after notice is given of intent to abandon construction of the CVEA Intertie; or 2) the date PSVR installs its cogeneration project which PSVR has a duty to attempt to install as soon as reasonably possible after notice. an PSVR shall provide acceptable guarantees from the parent company of its majority shareholder to guarantee its obligations under this Memorandum of Understanding, the Power Contract, and the Cogeneration Deferral Contract. F. RIGHT TO CALL ON PSVR TO INSTALL COGENERATION The parties agree that development of cogeneration at the PSVR site may be desirable at some future date, and agree that prior to CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 6 u ————— tae Ye eu poInv Olan’ OUl JUL OOO Of IO PSVR proceeding to develop any cogeneration, CVEA and Chugach shall have a first right of refusal to participate in such cogeneration facility on a basis in which CVEA and Chugach shall receive the benefits of such facility in proportion to any investment. G. NECESSARY APPROVALS Both the Power Contract and the Cogeneration Deferral Contract will be subject to all necessary approvals, including but not limited to that of the Alaska Public Utilities Commission ("APUC") . CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 7 This MOU represents the position of the representatives of the Parties, which such representatives agree to recommend to their respective governing boards for approval. The MOU shall not bind any Party until that Party's governing board has approved it. IN WITNESS WHEREOF the Parties hereto have executed this Memorandum of Understanding on October 3|, 1995. CHUGACH ELECTRIC ASSOCIATION, INC. Ge aie a Title: PETRO STAR VALDEZ REFINERY By: ieee Title: grey CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 8 COPPER VALLEY ELECTRIC ASSOCIATION, INC. O“IVI DI-AWUIUNAUL, ALANA yaa Oo uw +» 42'UULm » PLINV O1LAN: oul JUL OUUOrF Lf CO > PETRO enfin VALDEZ R@INERY ———~ A JOINT VENTURE Telephone. (907) 344-2661 201 Arstio Slope Avenue, Suite 200 Fax (907) 257-6429 Anchorage, Alaska 99518-3030 November 8, 1995 Mr. William R. Snell Director AIDEA 490 W. Tudor Rd. Anchorage, AK 99503-6690 Re: Intertie Negotiations Dear Riley: I am pleased to confirm that Petro Star Valdez Refinery has finalized the attached Memorandum of Understanding with Copper Valley Electric Association, Inc., and Chugach Electric Association, Inc. As stated in the Memorandum itself, the agreement is subject to approval by the boards of directors of the two utilities. However, I am at the present time optimistic that these approvals will be forthcoming later this month. We are confident that the Sutton-Glennallen intertie will achieve substantial benefits for the Copper Valley basin and Alaska and that it is necessary for the orderly development of the region as we move into the twenty-first century. Consequently, we strongly support approval of the intertie loan by the Governor. Please give me a call if you have any comments or questions. Sincerely, LGR Co Chairman of the Management Committee Petro Star Valdez Refinery ee: Mr. Jim Ayers The Hon. Ramona Barnes The Hon. Georgiana Lincoln The Hon. Gene Kubina Mr. Clayton Hurless (w/o attachment) Mr. Eugene N. Bjornstad, P.E. (w/o attachment) AEDALIAALA AORN Ue OLVI DI-ANUNIVNAUL, ALAONKA yli- O-DD » ¢2-UOrM » POINY SIAK7? UU DOL GYYVSsF Z/ Y MEMORANDUM OF UNDERSTANDING AMONG COPPER VALLEY ELECTRIC ASSOCIATION, INC. PETRO STAR VALDEZ REFINERY AND CHUGACH ELECTRIC ASSOCIATION, INC. A. PARTIES The Parties to this Memorandum Of Understanding ("MOU") are Copper Valley Electric Association, Inc. ("CVEA"), Petro Star Valdez Refinery ("PSVR"), and Chugach Electric Association, Inc. ("Chugach"). B. PURPOSE The purpose of this MOU is to set forth an agreement in prin- ciple among th® Parties on the basic terms of two contracts: (1) a Power Sales Contract ("Power Contract"), under which CVEA will deliver and gell, and PSVR will receive and purchase, electric power at PSVR's facilities in Valdez, Alaska, and (2) a Cogenera- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 1 OLIVE DI aWUITUNAUL, ALAONA yil” O-OU » 2eUILM 9 LLINV SIAN7 DU/ DOL OVO+F D/ DV tion Deferral Contract, under which CVEA and Chugach will share the cost of assuring PSVR of the rates specified under the terms and conditions, and for the purposes, described in this MOU. GC; CONTEXT OF MOU & CONDITION PRECEDENT TO ITS EFFECTIVENESS The power sales transaction contemplated by this MOU depends on construction of an electric power transmission line (the "CVEA Intertie") between Sutton, Alaska, and Glennallen, Alaska. The CVEA Intertie is necessary in order to allow electric power gener- ated on Chugach's system to be delivered to CVEA for resale to CVEA's consumers, including PSVR. Purchasing power from Chugach will reduce CVEA's power costs substantially. Such purchases are necessary if CVEA is to sell power to PSVR at rates acceptable to PSVR. If the CVEA Intertie is built, then PSVR will be able to purchase electric power from CVEA and meet its load requirements under the terms of the Power Contract, as further described below. Tf the CVEA Intertie is not built, however, then it is PSVR's intention to proceed immediately with installation of its own cogeneration equipment at its Valdez facilities in order to meet all or a portion of ils electric power load requirements from its own gencration in the reasonably near future. CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 2 SOEIVI DI-ANUIIUNAUL, ALANA VLi— GO-GO 9) 2-0 Bi» PLInv S1ANn7 DU JUL ODDO+# 4/ TD Currently, the State of Alaska is formally reviewing whether to proceed with a legislatively approved $35,000,000 loan to aid construction of the CVEA Intertie. The Parties agree that the CVEA Intertie will not be built in time to allow PSVR to defer installa- tion of its cogeneration equipment unless the State decides to proceed with this loan. The State's decision is expected no later than November 1, 1995. PSVR cannot reasonably delay beyond December 31, 1995 its own commitment to begin the process of in- stalling its cogeneration equipment. Consequently, the Parties agree that the State's decision, on or before December 31, 1995, to proceed with the legislatively approved $35,000,000 loan for the CVEA Intertie shall be a condi- tion precedent to the obligations of any Party under this MOU. No Party will otherwise be bound by this MOU beyond that date. If the State does decide by such date to proceed with the loan, then the Parties will be bound by the MOU and will proceed promptly and in good faith to draft, execute, and seek any neces- sary approvals of the contracts that the MOU contemplates. D. POWER SALES & RATES TO PSVR UPON COMPLETION OF CVEA INTERTIE 1. From and after the date on which the CVEA Intertie com- mences commercial operation, and for a period of ten years thereaf- ter, the Power Contract will obligate CVEA to deliver and sell, and CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 3 OLVI DIsANUIUNAUL, ALAONA yLL> OOD » 2°UOLM » LLINV OILAN7 UU/ DOL OVG+F D/ Y PSVR to receive and purchase, electric power to meet one hundred percent (100%) of PSVR's electric power load requirements for its facilities at Valdez. 2. The Power Contract will obligate CVEA to make rates for PSVR on a Chugach system average cost of power pass-through basis (for energy and demand) as described below. The Power Contract will specify separate charges for demand (capacity) and energy, in order to give PSVR the financial benefit of its own load factor. In particular: (a) CVEA'S “base cost" for ratemaking purposes for electric capacity (kilowatts) sold to PSVR will be CVEA's cost of capacity purchased from Chugach but will not include any special initial demand ramp to which CVEA and Chugach may agree. {b) CVEA's "base cost" for ratemaking purposes for electric energy (kilowatthours) sold to PSVR will be CVEA's cost of energy (including the Chugach Fuel Surcharge and MEA wheeling rate) purchased from Chugach. (c) The Wargin or markup that CVEA adds to the base costs of capacity and energy in making retail rates for PSVR will pee \khwhk be 2.1 cents ,in a7 dollars. wa CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 4 SEIVE DIi-alvWuiunaAUL, ALAONA yah O OV » 2tUOLM » PLInv O1An~ oul JUL OODO1# UF I a. In addition to the foregoing economic terms and condi- tions, the Power Contract will also contain provisions governing all other matters customarily dealt with in contracts between utilities and major industrial customers, E. COGENERATION DEFERRAL CONTRACT: PURPOSE AND TERMS 1. The CVEA Intertie will allow PSVR to achieve cost savings under the terms of the Power Contract once Chugach power begins to flow to CVEA. The Parties currently estimate that the CVEA Inter- tie will require at least three years to complete, however. In the interim, the difference between PSVR's current costs of electric power from CVEA and the cost at which PSVR could cogenerate and meet its own power supply needs is such that PSVR would otherwise proceed to install cogeneration equipment, but for the Cogeneration Deferral Contract described herein. If PSVR's cogeneration equip- ment is installed, the opportunity to make significant power sales to PSVR (and hence to use the CVEA Intertie to produce additional economic benefits for other CVEA and Chugach ratepayers) will almost certainly be lost, Zi The purpose of the Cogeneration Deferral Contract is therefore to create conditions under which it will he in PSVR's interest not to install cogeneration equipment, at least until the CVEA Intertie is complete. Under the Cogeneration Deferral Con- CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 5 SLU DisawuunaAUL, aALAONA y4d Ooov » erUm » PLInyv O1An7 DUl DOL OUVO,# f/f DV tract, CVEA will provide electric power, the average cost of which per kwh will not exceed 8 cents while the CVEA Intertie is under construction. (The existing CVEA-PSVR power sales agreement will be extended, if necessary, until the CVEA Intertie is completed.) PSVR will be entitled to this rate beginning August 1, 1996 but not sooner than Necessary Approvals have been obtained. However, CVEA and Chugach shall have the right to terminate this rate reduction for PSVR by notifying PSVR that CVEA and Chugach no longer wish for PSVR to defer cogeneration or by notifying PSVR of their intent to abandon construction of the CVEA Intertie, in which event the rate reduction to PSVR shall cease on the earliest of: 1) 9 months after the first November ist date after notice is given of intent to abandon construction of the CVEA Intertie; or 2) the date PSVR installs its cogeneration project which PSVR has a duty to attempt to install as soon as reasonably possible after notice. 3. PSVR shall provide acceptable guarantees from the parent company of its majority shareholder to quarantee its obligations under this Memorandum of Understanding, the Power Contract, and the Cogeneration Deferral Contract. F. RIGHT TO CALL ON PSVR TO INSTALL COGENERATION The parties agree that development of cogeneration at the PSVR site may he desirable at some future date, and agree that prior to CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 6 OLIVE Die mwiunauL, ALAonA yal OF OU + e2ruUULm » PLINY OLAN7 OU/ DOL ODUIOs# Of DV PSVR proceeding to develop any cogeneration, CVEA and Chugach shall have a first right of refusal to participate in such cogeneration facility on a basis in which CVEA and Chugach shall receive the benefits of such facility in proportion to any investment. G. NECESSARY APPROVALS Both the Power Contract and the Cogeneration Deferral Contract will be subject to all necessary approvals, including but not limited to that of the Alaska Public Utilities Commission ("APUC") . CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 7 OLIVE DisawiivnaUuL, ALANA yi Oo ys cruemmM » PLInv O1An7 DU DOL OUIO,F WU This MOU represents the position of the representatives of the Parties, which such representatives agree to recommend to their respective governing boards for approval. The MOU shall not bind any Party until that Party's governing board has approved it. IN WITNESS WHEREOF the Parties hereto have executed this Memorandum of Understanding on October S|, 1995. CHUGACH ELECTRIC ASSOCIATION, COPPER VALLEY ELECTRIC INC. ASSOCIATION, INC. By: enh ot Title : Poa d 1s on PETRO STAR VALDEZ REFINERY CHUGACH/CVEA/PETROSTAR MEM. OF UNDERSTANDING -- PAGE 8