HomeMy WebLinkAboutMahoney Lake AEA REF Round VII Application 9-2013Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Application Page 1 of 49 7/2/2013
Application Forms and Instructions
This instruction page and the following grant application constitutes the Grant Application Form
for Round VII of the Renewable Energy Fund. A separate application form is available for
projects with a primary purpose of producing heat (see RFA section 1.5). This is the standard
form for all other projects, including projects that will produce heat and electricity. An electronic
version of the Request for Applications (RFA) and both application forms is available online at:
http://www.akenergyauthority.org/REFund7.html.
If you need technical assistance filling out this application, please contact Shawn Calfa,
the Alaska Energy Authority Grant Administrator at (907) 771-3031 or at
scalfa@aidea.org.
If you are applying for grants for more than one project, provide separate application
forms for each project.
Multiple phases for the same project may be submitted as one application.
If you are applying for grant funding for more than one phase of a project, provide
milestones and grant budget for each phase of the project.
In order to ensure that grants provide sufficient benefit to the public, AEA may limit
recommendations for grants to preliminary development phases in accordance with 3
ACC 107.605(1).
If some work has already been completed on your project and you are requesting
funding for an advanced phase, submit information sufficient to demonstrate that the
preceding phases are completed and funding for an advanced phase is warranted.
If you have additional information or reports you would like the Authority to consider in
reviewing your application, either provide an electronic version of the document with
your submission or reference a web link where it can be downloaded or reviewed.
In the sections below, please enter responses in the spaces provided, often under the
section heading. You may add additional rows or space to the form to provide sufficient
space for the information, or attach additional sheets if needed.
REMINDER:
Alaska Energy Authority is subject to the Public Records Act AS 40.25, and materials
submitted to the Authority may be subject to disclosure requirements under the act if no
statutory exemptions apply.
All applications received will be posted on the Authority web site after final
recommendations are made to the legislature.
In accordance with 3 AAC 107.630 (b) Applicants may request trade secrets or
proprietary company data be kept confidential subject to review and approval by the
Authority. If you want information is to be kept confidential the applicant must:
o Request the information be kept confidential.
o Clearly identify the information that is the trade secret or proprietary in their
application.
o Receive concurrence from the Authority that the information will be kept
confidential. If the Authority determines it is not confidential it will be treated as a
public record in accordance with AS 40.25 or returned to the applicant upon
request.
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SECTION 1 – APPLICANT INFORMATION
Name (Name of utility, IPP, or government entity submitting proposal)
City of Saxman (Saxman),
in partnership with Cape Fox Corporation (CFC) and Alaska Power & Telephone (AP&T), dba Ketchikan Electric Company
(KEC)
Type of Entity: Public-Private Partnership: Local Government (Saxman); Power & Communication Utility; and ANCSA
Corporation (CFC) Fiscal Year End: June 30th
Tax ID # 92-0041226 Tax Status: For-profit Non-profit x Government ( check one)
Date of last financial statement audit:
Mailing Address
City of Saxman
Rt. 2, Box 1 – Saxman
Ketchikan, AK 99901
Physical Address
2841 S. Tongass Highway
Ketchikan, AK 99901
Telephone
907-225-1950 x 33
Fax
907-225-6450
Email
Jason.c@aptalaska.com
1.1 APPLICANT POINT OF CONTACT / GRANTS MANAGER
Name
Jason Custer
Title
Business Development, Alaska Power & Telephone
Mailing Address
Telephone
907-225-1950 x 33
Fax
--
Email
Jason.c@aptalaska.com
1.2 APPLICANT MINIMUM REQUIREMENTS
Please check as appropriate. If you do not to meet the minimum applicant requirements, your
application will be rejected.
1.2.1 As an Applicant, we are: (put an X in the appropriate box)
X (AP&T) An electric utility holding a certificate of public convenience and necessity under AS
42.05, or
X (AP&T) An independent power producer in accordance with 3 AAC 107.695 (a) (1), or
X
(Saxman)
A local government, or
A governmental entity (which includes tribal councils and housing authorities);
Yes
1.2.2 Attached to this application is formal approval and endorsement for the
project by the applicant’s board of directors, executive management, or
other governing authority. If the applicant is a collaborative grouping, a
formal approval from each participant’s governing authority is necessary.
(Indicate Yes or No in the box )
Yes
1.2.3 As an applicant, we have administrative and financial management systems
and follow procurement standards that comply with the standards set forth in
the grant agreement (Section 3 of the RFA).
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Yes
1.2.4 If awarded the grant, we can comply with all terms and conditions of the
award as identified in the Standard Grant Agreement template at
http://www.akenergyauthority.org/veep/Grant-Template.pdf. (Any
exceptions should be clearly noted and submitted with the application.)
Yes 1.2.5 We intend to own and operate any project that may be constructed with grant
funds for the benefit of the general public. If no please describe the nature
of the project and who will be the primary beneficiaries.
SECTION 2 – PROJECT SUMMARY
This section is intended to be no more than a 2-3 page overview of your project.
2.1 Project Title – (Provide a 4 to 7 word title for your project). Type in space below.
Mahoney Lake Hydroelectric: Phase III-IV
2.2 Project Location –
Include the physical location of your project and name(s) of the community or communities that will
benefit from your project in the subsections below.
2.2.1 Location of Project – Latitude and longitude, street address, or community name.
Latitude and longitude coordinates may be obtained from Google Maps by finding you project’s location on the map
and then right clicking with the mouse and selecting “What is here? The coordinates will be displayed in the Google
search window above the map in a format as follows: 61.195676.-149.898663. If you would like assistance obtaining
this information please contact AEA at 907-771-3031.
Latitude: 55°24'59.95"N
Longitude: 131°31'47.33"W
The Mahoney Lake hydroelectric project is located in the Ketchikan Gateway Borough, approximately 5
miles northeast of Ketchikan, Alaska. The project is located approximately 4 miles from existing
transmission lines at the Silvis Lakes / Beaver Falls hydroelectric project (owned and operated by
Ketchikan Public Utilities, or KPU), and approximately 5 miles from the Swan-Tyee Intertie (owned by
the Southeast Alaska Power Agency, or SEAPA). The site of the project’s proposed powerhouse is
connected to the Ketchikan region’s road system, and is accessible via Cape Fox Corporation’s privately
owned White River road system. The project is located on lands owned by the Cape Fox Corporation and
the US Forest Service (USFS)
2.2.2 Community benefiting – Name(s) of the community or communities that will be the
beneficiaries of the project.
Primary -- The project has the potential to benefit the City of Ketchikan, the City of Saxman, the
Ketchikan Gateway Borough, Wrangell, and Petersburg by providing renewable energy via existing
transmission lines.
Secondary -- The project can eventually benefit communities such as Metlakatla and Kake, which seek to
construct new transmission lines allowing them to connect to the SEAPA-region system. In the event that
southeast Alaska constructs additional transmission lines between communities, the Mahoney Lake
project will function as an important component of a more extensive regional electrical grid.
Tertiary – Outlying rural communities such as those found on Prince of Wales Island share strong
economic ties with Ketchikan, and would benefit from new economic growth in the Ketchikan region.
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Mahoney Lake has the potential to play a critical supporting role to industries such as mining (ex: ore
processing in the Ketchikan area), advanced manufacturing (ex: expansion of Alaska Ship & Drydock),
growth of tech-based industries, the visitor industry (allowing cruise ships to “plug-in” and purchase
energy from the regional utility grid, at lower financial and environmental cost than relying upon diesel
generators), and others. The benefits of this economic growth will extend to neighboring rural
communities.
2.3 PROJECT TYPE
Put X in boxes as appropriate
2.3.1 Renewable Resource Type
Wind Biomass or Biofuels (excluding heat-only)
X Hydro, Including Run of River Hydrokinetic
Geothermal, Excluding Heat Pumps Transmission of Renewable Energy
Solar Photovoltaic Storage of Renewable
Other (Describe) Small Natural Gas
2.3.2 Proposed Grant Funded Phase(s) for this Request (Check all that apply)
Pre-Construction Construction
Reconnaissance X Final Design and Permitting
Feasibility and Conceptual Design X Construction and Commissioning
2.4 PROJECT DESCRIPTION
Provide a brief one paragraph description of the proposed project.
The 9.6MW Mahoney Lake hydroelectric project (FERC License P-11393) will provide
Ketchikan and SEAPA-region residents and businesses with 41,743,000 KWH (41.7 GWH) of
renewable hydropower per annum, allowing for continued economic and community growth
while displacing use of diesel fuel. Approximately 17,900,000 KWH (17.9 GWH) of power is
available between November and April as winter storage. The most recent (June, 2012) cost
estimate for the project is $46,000,000 +/- 20%, making the Mahoney Lake hydroelectric project
one of southeast Alaska’s most affordable options for new hydropower. This alpine lake tap
project does not require construction of a dam. This application proposes State participation in
the project through grant-funded cost-sharing in remaining Phase III Final Design and Permitting
tasks, and initial IV construction tasks, which will help assure the Mahoney Lake can be
constructed in a manner which benefits the Alaskan public, and provides the additional benefits
of supporting new economic growth and job creation.
2.5 PROJECT BENEFIT
Briefly discuss the financial and public benefits that will result from this project, (such as reduced fuel
costs, lower energy costs, local jobs created, etc.)
Reduced reliance upon diesel generation of electricity and heating oil
Responds to regional growth, and growing regional demand for affordable energy
Responds to increased conversion to electric heat by residential, commercial, industrial,
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municipal, and non-profit sectors
Reduces operating costs for resident businesses, supporting growth and expansion
Cuts operating expenses for schools and non-profit organizations by supporting addition
of or conversion to electric boilers, reducing regional tax burdens
Supports construction of new community facilities requiring additional energy
Assures availability of clean, renewable energy for resident ratepayers
Affordable energy rates and abundant supply of renewable energy attracts new
businesses, and support new economic opportunities
Keeps southeast Alaska competitive with peer/benchmark communities competing to
attract new businesses and jobs (ex: British Columbia, Puget Sound, etc.)
Supports new economic development and rapidly emerging opportunities in priority
industries, such as Ketchikan-based ore processing, mining industry development, and
growth of the regional maritime industry sector
Provides enhanced stability to region-wide system
Could help provide electricity to cruise ships, lowering environmental impact of the
visitor industry, and assuring compliance with federal environmental quality
standards/regulations. (SEIRP forecasts 35,529 MWH annual demand by
Ketchikan/Wrangell/Petersberg-area cruise ships)
Reduces dependence on foreign oil
Growth in Regional Demand for Electricity
Demand for electricity has been increasing substantially in the Ketchikan and SEAPA regions. The
Southeast Alaska Integrated Resource Plan (SEIRP) states: “The number of [Ketchikan area] customers
increased from 7,347 in 2008 to 7,418 in 2010. Most of the customer increases have been due to high
growth in commercial and industrial activities. Unlike other areas in Alaska, Ketchikan has seen a recent
spurt in commercial and industrial activities which has led to new customers coming into the area.”
In January of 2012, Ketchikan Public Utilities experienced new peak demands for electricity, with peak
demand exceeding the prior record by 13.7%, and total kWh delivered in a 24-hour period exceeding the
prior record by 14.3%.
Growing Demand in Ketchikan – New January, 2012 Peak Demand
Source: Interview with Ketchikan Public Utilities Staff
In addition to meeting the current growing demand for electricity, investment in new hydroelectric
resources will support new private sector investment and job creation in an array of industry sectors,
which will help assure that Southeast Alaska has a bright future characterized by a healthy, diverse
economy. Southeast Alaska’s most promising industry sectors – shipbuilding and repair; mining / ore
processing; the seafood industry; the maritime industry; and tech-based enterprise – all require significant
amounts of affordably-priced electricity to assure growth and long-term prosperity. Private sector
business owners understand that “time is money,” and will not “wait” for southeast Alaska to build
infrastructure capacity necessary to support proposed business activities; if the infrastructure they need is
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unavailable, they will operate and create employment in better-prepared communities.
2010-2011 SEAPA Region Population Growth
Source: 2012 Alaska Department of Labor Report http://labor.alaska.gov/research/pop/popest.htm
Market Conditions – As Oil Costs Continue to Rise, so will Consumer Demand for Clean,
Reasonably-Priced Hydroelectricity
Businesses, residents, and non-profit organizations all seek to purchase the most affordable energy
available. Rising heating oil costs have caused many Ketchikan-region residents and businesses to
convert to more affordable electric boilers, which see heaviest use during winter months, when storage
hydro projects are not receiving new flows. At present, the SEAPA region’s growing demand for
renewable electricity exceeds supply; a trend which is unlikely to change.
It is particularly difficult to alter consumer behavior; with all other factors being equal, consumers will
always follow the lowest bottom line. Responding to Southeast Alaska’s existing homeowner and private
sector demand for affordably priced renewable electricity offers the most effective approach to supporting
continued community and economic growth, and expanding Southeast Alaska’s tax base.
A 2011 Energy Audit completed for the Ketchikan Gateway Borough School District projects that the
cost of heating oil is rising at 6% annually. Section 5 of the SEIRP presents ISER-generated heating oil
price projections which were developed using historical heating oil prices, imported crude oil prices from
the AEO, and the CORAC. The SEIRP’s “Medium Case Scenario” for the cost of Ketchikan heating oil
in 2037 is $14.57 / gallon (expressed in nominal 2012 dollars, not adjusted for inflation). The SEIRP’s
“High Case Scenario” is $22.56 (nominal 2012 dollars, not adjusted for inflation). The SEIRP’s “Low
Case Scenario” is $6.75 per gallon. In June of 2012, the price of heating oil in Ketchikan was
approximately $5/gallon (Source: June 2012 Ketchikan Gateway Borough / City of Ketchikan
Cooperative Relations Committee Meeting Notes).
Ketchikan Heating Oil Cost Projections: 5, 10, and 25 Years (In Nominal 2012 Dollars)
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Source: Ketchikan Gateway Borough School District 2011 Energy Audit and Southeast Alaska
Integrated Resource Plan
The Ketchikan Gateway Borough School District’s October 2011 Energy Audit for Ketchikan High
School, funded by the Alaska Housing Finance Corporation and conducted by Alaska Energy
Engineering, LLC (Juneau) recommends adding electric boilers to assist the school district in lowering
heating oil consumption and operating costs. The School District desires to add electric boilers at
regional schools so that it can provide a more cost-effective education system, but is challenged by
regional energy shortages; as a result, taxpayers must bear the burden of costlier oil bills via taxes. The
School District Superintendent reports that KGBSD still plans to convert to electric boilers, and
anticipates that following conversion, KGBSD would purchase $500,000 of electricity per annum.
Proximity to Opportunities – In the 1990s, the collapse of Southeast Alaska’s robust forest products
industry devastated southern southeast Alaska’s economy. Currently, the region’s future is looking
brighter due to proximity to emerging opportunities.
Southern southeast Alaska has the potential to contribute substantially to new private sector economic
activity, including: ore processing; mining; growth of advanced manufacturing (shipbuilding and repair);
serving as a supply/support sector to Arctic offshore oil and gas fleets seeking ice-free winter moorage in
communities with well-developed supply chains; State-wide growth of maritime activity; technology-
based business; and more. Southeast Alaska must have infrastructure already in place to support these
emerging opportunities. Southeast Alaska’s infrastructure capacity will make the critical difference
between these jobs remaining in Alaska, and jobs being exported to other states or nations with greater
foresight.
Affordable electricity is an area of common need shared by all business types. Because demand for
electricity currently outpaces supply, it should be prioritized as an area requiring immanent investment;
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otherwise, southeast Alaska runs the risk of seeing jobs exported to communities and nations which are
better able to respond to private sector demand.
Social Benefits:
The Mahoney Lake Hydroelectric Project will produce enough energy to displace 3,105,000 gallons of
diesel per annum. Over the initial term of its existing FERC license, the project would displace
142,830,000 gallons of diesel. The avoided cost of the diesel in nominal dollars is $3 billion, and in 2011
dollars is $530 million. Total carbon dioxide emissions avoided over the initial term of the existing
FERC license would equal 1.8 million metric tons, valued at $67.7 million in 2007 dollars.
(Assumptions: 8% Discount Rate. Initial operating term of FERC License begins 2016, ends 2061. KPU
fuel efficiency = 14.81 kilowatt-hours per gallon of diesel #2. Mahoney Lake average annual energy =
41.7 GWH, per the FERC License P-11393. Fuel price projections from Black & Veatch, under contract
with AEA for SE Alaska Integrated Resource Study. Carbon Dioxide emissions from Department of
Energy and EPA, July 2000 Social Cost of Carbon per Metric ton of Carbon Dioxide Emissions from
Interagency Working Group on Social Cost of Carbon, February 2010. This study concludes the cost is
$24.3 in 2016 and increases to $44.9 per metric ton in 2061 in 2007 dollars.)
The project reduces dependence upon foreign oil, allowing Alaskans to invest half of a billion dollars of
their hard-earned money locally, rather than sending it overseas where much of it will end up in the hands
of hostile regimes. By supplanting “dirty” diesel fuel with clean, renewable energy, Mahoney Lake will
help avoid 1.8 metric tons of carbon dioxide emissions, valued at $67.7 million in 2007 dollars.
Mahoney lake will support new economic activity, jobs, and prosperity which will increase family
sustainability, expand the regional tax base, and allow southeast Alaska’s young residents to remain
within their communities as gainfully employed, successful adults. The project will result in lower
energy costs for businesses, families, non-profit organizations, and community facilities.
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Mahoney Lake Socioeconomic Benefits
Support for a Growing Community – Ketchikan’s population is growing, and with it, the community’s
array of facilities. New projects in varying stages of planning and development include the new
Ketchikan library, PeaceHealth Medical Center Expansion, Community Connections’s new facility,
Saxman Harbor, a redeveloped Saxman Seaport, Ketchikan Indian Community’s SSEATEC, the
Ketchikan Performing Arts Center, Ketchikan Aquatic Center, Alaska Ship & Drydock’s new Assembly
Hall, a new Women’s Shelter for WISH, Saxman Harbor, and more.
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2.6 PROJECT BUDGET OVERVIEW
Briefly discuss the amount of funds needed, the anticipated sources of funds, and the nature and source
of other contributions to the project.
Summary of Funds to Date:
In the mid-90s, CFC and AP&T invested approximately $2 million cash each, plus significant
unquantified staff time, in completion of Phase I and Phase II tasks for the project, which resulted in
issuance of a FERC license, and construction of roads to the site of the project’s future powerhouse.
If adjusted for inflation using a Bureau of Labor Statistics Consumer Price Index Inflation Calculator
(1995 to 2013), the value of private sector investment in the project, expressed in 2012 dollars, is
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approximately $6,320,000.
(Source: http://www.bls.gov/data/inflation_calculator.htm/)
A stay was placed on the Mahoney Lake project’s FERC license for the purpose of assuring completion
of the Swan-Tyee Intertie. The stay is still in effect, until request of the license holder. Because existing
permits are stale-dated, Mahoney Lake’s permits require renewal – and in the case of USFS permits –
may require reissuance.
In SFY2014, the City of Saxman received $200,000 in State of Alaska Capital Appropriations funds to
begin to update the conditions of the Mahoney Lake hydroelectric project in advance of construction.
These funds represent only 20% of the full amount of $1,000,000 requested by Saxman for this task.
Work on initial activities which can be addressed within the $200,000 budget made available to Saxman
was initiated in August of 2013.
The terms and conditions assumed in this request are based upon the outcome of previous permitting.
While we hope that there are not new issues or permit conditions which arise from the renewal and
reissuance process, the Mahoney Lake partnership recognizes the importance of completing remaining
permitting-related activities as soon as possible, so that the Mahoney Lake hydroelectric project can be
developed in a timely fashion.
2.7 COST AND BENEFIT SUMARY
Include a summary of grant request and your project’s total costs and benefits below.
Grant Costs
(Summary of funds requested)
2.7.1 Grant Funds Requested in this application $ 4,000,000
2.7.2 Cash match to be provided 1. New Match to New State
Investment:
$ 4,000,000
2. Match to Date:
$4,000,000, which has been used to
date in completing Phase I and Phase II
tasks.
3. Match (Subsequent Activities)
The Mahoney Partnership
anticipates financing the
remainder of the project’s
construction cost from an
additional funding source. While
the remaining cost of constructing
the project could be considered as
match, for administrative reasons,
AP&T is hesitant to encumber the
full capital cost of the project as
match to $4m State investment.
2.7.3 In-kind match to be provided $
2.7.4 Other grant funds to be provided $ None identified at this time.
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2.7.5 Other grant applications not yet approved $ None at this time.
2.7.6 Total Grant Costs (sum of 2.7.1 through 2.7.4) $ 12,000,000
Project Costs & Benefits
(Summary of total project costs including work to date and future cost estimates to get to a fully
operational project)
NOTE: Ratio of benefits to cost is presented as a ratio of total project cost – including all State
and private investment – to project benefits. This benefit-cost ratio does not attempt to adjust to
reflect total ratio of benefits generated by investment of State monies only.
Considering that the State has capped maximum allowable contributions to energy projects via
the REF Round VII funding mechanism at $4m, the level – and accordingly, the ratio – of benefits
which are leveraged for the public through State investment would in fact be much higher than the
figures presented below.
2.7.7 Total Project Cost Summary from Cost Worksheet, Section
4.4.4, including estimates through construction.
$ 51,000,000
($46m construction, plus
$800,000 remaining pre-
construction work, plus $4m
pre-construction to date, plus
$200k SFY14 investment)
2.7.8 Additional Performance Monitoring Equipment not covered
by the project but required for the Grant Only applicable to
construction phase projects.
$--
2.7.9 Estimated Direct Financial Benefit (Savings)
Methodology:
$0.22 per KWH diesel generation cost (2008 KPU estimate quoted in 2008
Renewable Energy Grant Fund application) minus $0.073 per
KWH cost of Mahoney Lake energy (target power cost, assuming
50% State investment), times 41,760,000 KWH of potential
annual fuel displacement = $6,136,221 per annum, expressed in
2012 dollars.
The rising costs of heating oil and diesel fuel will result greater savings
over the initial 50-year license period of the project.
$ 6,136,221 per annum.
(Expressed in 2012 dollars.)
$306,811,050 over initial 50-
year license period of the
project. (Expressed in 2012
dollars.)
Direct Benefit-Cost Ratio:
6.0 (Potential fuel
displacement savings divided
by estimated capital
construction cost)
2.7.10 Other Public Benefit If you can calculate the benefit in terms
of dollars please provide that number here and explain how you
calculated that number in Section 5 below.
Methodology:
Will support addition of 60-100 ore processing jobs, and growth of the
mining industry supply chain, marine industry sector, shipbuilding &
repair -- high quality jobs in priority industry sectors, paying at or above
the regional median household income level. Estimated 200 jobs x
Ketchikan Gateway Borough MHI of $61,695 = $12,339,000 in new annual
payroll. Assuming these 200 jobs are present in year 10 of operations, and
sustained over the 40 year period of the project, total value in 2012 dollars
Economic Development / Job
Creation Benefit --
$651,499,200
(Total Payroll – direct,
indirect, and induced –
supported by Project.)
$651,499,200
Economic Development
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is $493,560,000. Employer receipts / profit margins, tax payments to local
government, etc. not included. In a “no build” scenario, many of these
benefits would likely be realized by communities in British Columbia.
IMPLAN modeling conducted by the McDowell Group for AIDEA in
January of 2010 indicates a payroll multiplier of 1.32 for Alaska Ship and
Drydock, meaning that every $1 in payroll at ASD generates an additional
$0.32 of payroll as ASD payroll recirculates within the local service and
supply sector. (There is significant room for growth, as nationally, the
payroll multiplier is 2.6) Research by the Ketchikan Marine Industry
Council, which was been confirmed by McDowell Group researchers in
June of 2011, indicates that this multiplier will grow to 1.52 over the next
10-20 years, as the local supply chain matures around the needs of the
shipyard. IMPLAN-modeled indirect/induced benefits for mining,
manufacturing, technology, and offshore oil/gas tend to be much higher.
If one assumes an average payroll multiplier of 1.32 (same as the current
Alaska Ship & Drydock multiplier) for the 200 new jobs supported by
Mahoney Lake’s renewable energy, present in year 10 of the project’s
operations, and sustained over the 40 year period of the project,
$12,339,000 in new annual payroll will result in $3,948,480 in
induced/indirect annual payroll.
$493,560,000 -- New Direct Payroll
$157,939,200 – New Indirect/Induced Payroll
$651,499,200 -- Total New Payroll (Direct, Indirect, and Induced)
Benefit Cost Ratio: 12.7
(Total payroll creation
benefit divided by estimated
capital construction cost)
Total Project benefits
(potential annual fuel
displacement savings plus
total payroll creation):
$958,310,250
Total Benefit Cost Ratio:
18.8
[Potential annual fuel
displacement savings + total
payroll creation] divided by
estimated capital
construction cost
Total Anticipated Project Cost:
KEC
Alaska SFY14
Capital
Appropriation
AEA Round
VII
(Proposed)
Source to be
Determined
Expenditures to Date $4,000,000 0 0
Ongoing Work 0 $200,000 $0
Phase III $800,000 0 0
Phase IV $3,200,000 $0 $4,000,000
Subsequent
Construction
(Estimated) $38,800,000
Color Meaning
Proposed Funding Request
Proposed Match
Subsequent Expenditure -- could be considered as match, however, due to administrative
concerns, AP&T is hesitant to encumber the full capital cost of the project as match to $4m
State investment
.
SECTION 3 – PROJECT MANAGEMENT PLAN
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Describe who will be responsible for managing the project and provide a plan for successfully
completing the project within the scope, schedule and budget proposed in the application.
3.1 Project Manager
Tell us who will be managing the project for the Grantee and include contact information, a
resume and references for the manager(s). In the electronic submittal, please submit resumes
as separate PDFs if the applicant would like those excluded from the web posting of this
application. If the applicant does not have a project manager indicate how you intend to solicit
project management support. If the applicant expects project management assistance from
AEA or another government entity, state that in this section.
Project Management Team:
Robert S. Grimm – Alaska Power & Telephone Company
360-385-1733 x 120
Bob.g@aptalaska.com
Resume and references attached.
Jason Custer – Alaska Power & Telephone Company
907-225-1950 x 33
Jason.c@aptalaska.com
Resume and references attached.
Leona Haffner – City Administrator, City of Saxman
907-225-4166 x 15
cityclerksaxman@kpunet.net
Resume and references attached.
3.2 Project Schedule and Milestones
Please fill out the schedule below. Be sure to identify key tasks and decision points in in your
project along with estimated start and end dates for each of the milestones and tasks. Please
clearly identify the beginning and ending of all phases of your proposed project.
Please fill out form provided below. You may add additional rows as needed.
Milestones Tasks
Start
Date
End
Date
Review and revise conceptual design
Site visit
Obtain new topographic mapping
Obtain new bathymetric mapping
Geotechnical investigations
Review potential for HDD penstock
const.
Review transmission line alignment
Evaluate potential for additional storage
Determine the installed capacity that is
most appropriate for the changes to
the conceptual design and anticipated
power utilization
Summary report
7/1/13
7/1/13
7/1/13
7/1/13
7/8/13
7/8/13
9/2/13
11/4/13
12/9/13
7/5/13
8/30/13
8/30/13
11/1/13
8/9/13
8/9/13
11/1/13
12/6/13
1/3/14
Review, revise, and resubmit permit Evaluate current status of all permits 7/1/13 8/30/13
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applications Prepare environmental plans as
required
Prepare and file revisions to permits
applications as necessary
1/6/14
1/6/14
5/9/14
3/7/14
Obtain permit approvals Respond to agency requests and obtain
approvals
3/10/14
12/5/14
Revise and resubmit final design
documents
Prepare drawings and specifications
Prepare design report
Submit documents to FERC and USFS
Obtain FERC and USFS approvals
1/6/14
7/7/14
9/8/14
9/9/14
7/4/14
9/5/14
9/8/14
11/9/14
Prepare final cost estimate
In-house cost estimate
Contractor estimate
Summary report
7/7/14
7/7/14
9/8/14
9/5/14
9/5/14
9/19/14
Update economic and financial
analysis
In-house analysis
Contractor estimate
Summary report
9/8/14
9/22/14
12/1/14
10/10/14
11/28/14
12/12/14
Power sales evaluation
Identify and meet with potential
purchasers
Summary report
9/8/14
12/1/14
11/28/14
12/12/14
Prepare business and operational plan Develop plan 12/15/14 1/16/15
Mobilization
Initial mobilization of equipment and
personnel
Periodic materials procurement
4/1/16
6/30/16
6/30/16
12/31/17
Compliance Monitoring Environmental compliance monitoring
Quality control inspection
4/1/16
4/1/16
12/31/17
12/31/17
Construction Support Staff 4/1/16 12/31/17
Roads and Right-of-way Repair and upgrade road, as needed 4/1/16 4/30/16
Transmission Line
Survey and clear ROW
Install poles
Install conductors
6/1/16
9/1/16
7/1/17
8/31/16
6/30/17
8/31/17
Penstock Excavate and install lining (HDD or
tunnel and raised bore) 5/1/16 8/31/16
Lake Tap Excavate tunnel, install equipment and
facilities, shoot final round 7/1/16 9/30/17
Powerhouse Building
Excavate powerhouse site
Construct foundation
Install building superstructure
9/1/16
10/1/16
4/1/17
9/30/16
12/31/16
5/31/17
Powerhouse equipment Procure equipment
Install equipment
1/1/16
6/1/17
5/31/17
8/31/17
Substation(s) Construct powerhouse substation
Construct interconnection substation
6/1/17
7/1/17
7/31/17
8/31/17
Tailrace Construct tailrace 6/1/17 6/30/17
Communications Install communication equipment 8/1/17 8/31/17
Permitting Maintain permits, modify as necessary 1/1/16 12/31/17
Start-up and Testing Test project components for 16-30 days 10/1/17 10/31/17
Demobilization
Remove materials and equipment from
site, final erosion control measures and
revegetation
11/1/17 12/31/17
3.3 Project Resources
Describe the personnel, contractors, accounting or bookkeeping personnel or firms, equipment,
and services you will use to accomplish the project. Include any partnerships or commitments
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with other entities you have or anticipate will be needed to complete your project. Describe any
existing contracts and the selection process you may use for major equipment purchases or
contracts. Include brief resumes and references for known, key personnel, contractors, and
suppliers as an attachment to your application.
Non-Construction Activities:
The majority of remaining non-construction activities will be completed by contractors.
Contractors will be selected based on criteria to include:
Cost
Experience
Ability to undertake and complete work in a timely manner
Familiarity with Mahoney Lake project
Successful work performed on Mahoney Lake project to date
Successful existing and/or recent working relationships with the City of Saxman,
Alaska Power & Telephone, and/or Cape Fox Corporation
Contractors have not yet been selected. Potential contractors include:
Topographic mapping ........................................................................ Aerometric Alaska
Geotechnical investigations ............................................................. GeoEngineers, Inc.
HDD evaluation ....................................................................... CompleteCrossings, Inc.
Cost estimating .......................................................................................... Kiewit Pacific
Economic analysis .................................................................................... Mike Hubbard
Northern Economics
The project will also leverage private sector resources, and employ the extensive knowledge, skills,
and experience of Alaska Power & Telephone, a founding Mahoney Lake partner. Key AP&T
personnel include:
Bob Grimm ...................................... Power Sales Negotiations and Business Planning
Jason Custer…….…Business Development, Technical Writing, and Administration
Vern Neitzer ........................................................................................... AP&T Manager
Bob Berreth ........................................................................................... Electrical Design
Ben Beste .......................................................................................... Mechanical Design
Larry Coupe ................................................................................................. Civil Design
Glen Martin .................................................... Permits and Environmental Assessment
Karl Wood ..................................................................................................... Accounting
Construction Activities
Mobilization…………………………………………………………………………AP&T
Compliance Monitoring…………………………………Contractor yet to be identified
Construction Support Staff……………………………..Design Staff Mentioned Above
Roads and Right-of-way………………………………..Contractor yet to be identified
Transmission Line…………………………………………………………………AP&T
Penstock……………………………………………………………Contractor or AP&T
Lake Tap…………………………………………………Contractor yet to be identified
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Powerhouse Building………………………………………………Contractor or AP&T
Powerhouse Equipment……………………………………………………………AP&T
Substation(s) ……………………………………………………….Contractor or AP&T
Tailrace………………………………………………………………Contractor or AP&T
Communications……………………………………………………Contractor or AP&T
Permitting……………………………………………………………………………AP&T
Start-up and Testing.………………………………………………Contractor or AP&T
Demobilization………………………………………………………Contractor or AP&T
Initial Construction Phase Activities:
Mobilization
Initial mobilization of equipment and personnel
Periodic materials procurement
Roads and Right-of-way
Repair and upgrade road, as needed
Powerhouse Equipment
Procure equipment
Install equipment
3.4 Project Communications
Discuss how you plan to monitor the project and keep the Authority informed of the status.
Please provide an alternative contact person and their contact information.
Project team will adhere to AEA quarterly reporting requirements, and will make itself available
on a continual basis to address any additional needs, concerns, or requests for information from
the AEA.
As a municipality, the City of Saxman is accustomed to these tasks and performs them on an
ongoing basis. The City has the systems and personnel in place for monitoring projects and
keeping stakeholders informed of their current status.
The City of Saxman recently worked with the Alaska Energy Authority to successfully complete
a grant-funded Energy Efficiency Community Development Block Grant project, and complied
fully with all reporting, performance, and inspection requirements, including stringent
requirements specific to American Reinvestment and Recovery Act (ARRA) funding. The City
of Saxman has successfully completed and administered a number of projects funded via State of
Alaska direct capital appropriations, and administered by the State DCCRA.
AP&T has extensive State-wide experience in successful partnership, application of grant funds,
communication, and reporting in association with the Alaska Energy Authority. AP&T maintains
a capable and experienced staff with diverse skill sets well suited to performing all management,
accounting, administrative, and other requirements.
At the completion of the project, AP&T and Saxman will provide the AEA with a copy of the
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final design drawings, specifications, and a report on successes, lessons learned, and
recommendations for similar projects which may be constructed in the future.
3.5 Project Risk
Discuss potential problems and how you would address them.
Pre-Construction Phase Risks:
Pre-construction phase activities are intended to help reduce the level of risk and uncertainty
associated with initial construction activities:
New Permitting Requirements – Pre-construction activities will help address any new
permitting requirements / updates necessary.
Cost Uncertainty – Pre-construction activities will help update project construction cost
estimates, and reduce cost uncertainty.
Lead time – Pre-construction activities will identify supply times for major components
to reduce uncertainty with the project development schedule.
Power Sales – Pre-construction activities (ex: cost-estimate update) will support
development of more accurate project cost and energy rate projections needed to finalize
power sales agreements and other business relationships. State investment will support
lower rates for end line users, will help attract additional new investment, and will bolster
confidence of entities which are currently considering power sales agreements and/or
other arrangements for Mahoney Lake power.
Acceptance of Independent Power Producers (IPPs) -- At present, IPPs in southeast Alaska are
forced to overcome the significant obstacle of seeking approval from incumbent municipal
utilities, which may prefer the convenience of developing their own projects – or partnering with
other incumbent municipal utilities -- to partnering with new entities including private sector
businesses, ANCSA corporations, and tribal partners. The Ketchikan region is certainly no
exception. While SEAPA has represented that its new Request for Offers (RFO) process creates
an opportunity for independent power producers to meet regional demands for affordable energy
by selling into the regional system, the Mahoney Partnership is concerned by a number of critical
omissions which differentiate SEAPA’s procurement process with that of most other serious
procurement efforts conducted by utilities. These omissions are unusual, and create significant
business risks which Saxman, AP&T, and CFC must weigh carefully as they determine whether
or not they are able to respond. Saxman believes that dedication of State funds to support
construction of Mahoney Lake will help eliminate these risks, and encourage SEAPA to
engage in productive discussions with the Mahoney partnership, and other IPPs.
Seismic – Geotechnical investigations will be conducted to provide an adequate level of
knowledge about seismic and other geotechnical risks. Project components will be
designed appropriately for seismic activity, since the Project will be located in a
moderate-risk seismic zone. Structures will be buried as much as possible to minimize
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seismic impacts.
Site Control – Saxman will apply to the Forest Service for an investigative special use
authorization to conduct any work on National Forest land.
Construction Phase Risks:
Inclement Weather – Working conditions in the Upper Mahoney Lake area can be very
harsh during the winter. The proposed schedule assumes no work during the winter at the
lake. If it appears likely that a harsh winter would occur and extend for an unusually long
time period, AP&T and its contractor(s) can consider options such as double-shift work
during long summer days, or completing limited work during winter months, such as
boring holes for transmission line poles.
Risk of Non-Development:
Saxman believes it is critical that Mahoney Lake’s FERC license; investment made by Alaska Power &
Telephone and Cape Fox; and $200,000 SFY2014 investment by the State of Alaska are leveraged for the
benefit of the region through timely construction of this project. Lack of interest in the project by the
State of Alaska or municipal utilities will produce conditions where another entity seeking to meet
demand in the SEAPA-region will be required to repeat the FERC licensing process for Mahoney Lake,
or another project. Such a licensing process would be a high-cost, 9+ year process comprised of
significantly redundant work which, of a municipal utility or governmental entity, would come at a cost to
the public, the State, and/or ratepayers, who will in some combination shoulder the cost of these
redundant activities. Because the licensing process for new hydroelectric projects is so lengthy,
ratepayers would be forced to rely upon more costly diesel fuel until an alternative project can be licensed
and developed.
SECTION 4 – PROJECT DESCRIPTION AND TASKS
The level of information will vary according to phase(s) of the project you propose to
undertake with grant funds.
If some work has already been completed on your project and you are requesting funding for an
advanced phase, submit information sufficient to demonstrate that the preceding phases are
satisfied and funding for an advanced phase is warranted.
4.1 Proposed Energy Resource
Describe the potential extent/amount of the energy resource that is available.
Discuss the pros and cons of your proposed energy resource vs. other alternatives that may be
available for the market to be served by your project. For pre-construction applications, describe the
resource to the extent known. For design and permitting or construction projects, please provide
feasibility documents, design documents, and permitting documents (if applicable) as attachments to
this application.
Work on Previous Phases: A substantial amount of pre-construction work has already been
accomplished, and Saxman has received a FERC license for the project.
The following documents can be provided to AEA to demonstrate that considerable reconnaissance,
feasibility, design, and permitting work has been completed.
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R.W. Beck and Associates, Inc. June, 1977 Appraisal Report Swan Lake, Lake Grace, and
Mahoney Lake Hydroelectric Projects.
R.W. Beck and Associates, Inc. March 1986 Appraisal Study 1985 Update Future
Hydropower Resources Ketchikan, Petersburg, Wrangell, and Quartz Hill.
HDR Engineering, Inc. 1993 Mahoney Lake Hydroelectric Project Feasibility Report
City of Saxman and HDR Engineering, Inc. May 1996 Application for License for Major
Unconstructed Project Mahoney Lake Hydroelectric Project (3 volumes).
City of Saxman and HDR Engineering, Inc. May 1996 Preliminary Supporting Design
Report Mahoney Lake Hydroelectric Project (3 volumes).
Robert B. Forbes Sept. 1998 Geotechnical Reconnaissance of the Mahoney Lake Project
Area, Ketchikan District, Alaska
Alaska Power & Telephone Co. July, 2001 Mahoney Lake Hydroelectric Project, FERC
Project No. 11393 Technical Specifications for FERC Review Per Article 303
Alaska Power & Telephone Co. July, 2001 Mahoney Lake Hydroelectric Project, FERC
Project No. 11393 Supporting Design Report for FERC Review Per Article 303
Alaska Power & Telephone Co. July, 2001 Mahoney Lake Hydroelectric Project, Ketchikan,
Alaska General Construction, Contract No. 1 (design drawings)
Saxman is aware of other studies of the Mahoney Lake site by the Corps of Engineers, but does not
have documentation.
Phase III: Remaining Pre-Construction Work: Although much design and permitting work has
been completed, Saxman believes that additional work is necessary and prudent for the following
reasons:
FERC review and approval of the submitted design documents was not achieved before a stay
was placed on Mahoney Lake’s license. It is likely that the Mahoney Lake partners will need
to provide additional information to FERC before the agency will consent to the use of
horizontal directional drilling (HDD) for the penstock as proposed, since that is an untested
technique in the hydropower industry.
The HDD industry has advanced considerably in the decade since the license was stayed, and
it now appears that the design could be modified substantially to reduce costs.
The Mahoney partners now believe the project transmission line should interconnect to the
Swan Lake line near the White River (north of the Mahoney powerhouse) rather than to KPU
system at the Beaver Falls substation. This should reduce environmental impacts, as the line
will follow existing roads rather than cut through forested land. Nevertheless, it will require
an amendment to the FERC license and modification of other permits.
Cost increases in many of the materials and equipment to be used for the Project have been
substantial in the decade since the license was stayed, and 2012 bid openings on
hydroelectric projects in Southeast Alaska have shown that engineers’ costs estimates can be
very low. A detailed review of the estimated construction cost is warranted, including review
and/or preparation by a construction contractor.
The following tasks are anticipated to be included within Phase III work; these are aligned with the
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milestones specified in the grant application instructions:
Review and revise conceptual design
o Site visit to assess current conditions and potential changes to the design concept
o Topographic mapping of currently unmapped areas
o Bathymetric mapping of lakes above Upper Mahoney Lake
o Geotechnical investigations associated with potential changes to the design concept
o Evaluate the feasibility of a partially-line HDD penstock and an HDD alignment that
avoids the long drill-and-blast lake tap of the current design
o Review proposed new transmission line route and site of Swan Lake line interconnection
o Evaluate the feasibility of additional storage, by lowering the lake tap of Upper Mahoney
Lake and/or developing storage in two existing lakes upstream of Upper Mahoney Lake
o Review the proposed installed capacity and mode of operation to determine the optimum
o Prepare a report summarizing the results of the conceptual design review
Review, revise, and resubmit permit applications
o Coordinate with FERC staff to determine the extent of license requirement for the revised
design concept (license amendment, environmental assessment)
o Coordinate with USFS staff to determine potential issues with current land use designation
o Review current status of all required permits and mitigation plans, and determine extent of
any necessary modifications
o Revise and submit mitigation plans and permit applications as required for the revised
design concept and/or stale dating of existing permits
Obtain permit approvals
o Respond to information requests from permitting agencies
o Review permit conditions when issued
Revise and resubmit final design documents
o Revise drawings and specifications as necessary for the revised design concept
o Revise design report as necessary
o Submit drawings, specifications, and design report to FERC and USFS
o Respond to FERC and USFS requests and comments
Prepare final cost estimate
o Determine construction quantities and estimate unit costs
o Solicit cost information from major equipment suppliers
o Independent review of unit costs by a qualified construction contractor
o Summary report
Update economic and financial analyses
o Develop pro forma economic and financial analysis based on the final cost estimate,
expected financing parameters, and preliminary power purchase rates
o Independent review of the economic and financial analysis by a qualified economics
consultant
o Summary report
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Power sales evaluation
o Meet with potential power purchasers to ascertain their level of interest and associated
power purchase rates
o Summary report
Prepare business and operational plan
o Prepare preliminary plan based on the results of the economic and financial analysis
and power sales evaluation
Phase IV: Construction Activities:
Mobilization
Initial mobilization of equipment and personnel
Periodic materials procurement
Compliance Monitoring
Environmental compliance monitoring
Quality control inspection
Construction Support Staff
Roads and Right-of-way
Repair and upgrade road, as needed
Transmission Line
Survey and clear ROW
Install poles
Install conductor
Penstock
Excavate and install lining (HDD or tunnel and raised bore)
Lake Tap
Excavate tunnel, install equipment and facilities, shoot final round
Powerhouse Building
Excavate powerhouse site
Construct foundation
Install building superstructure
Powerhouse Equipment
Procure equipment
Install equipment
Substation(s)
Construct powerhouse substation
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Construct interconnection substation
Tailrace
Construct Tailrace
Communications
Install communication equipment
Permitting
Maintain permits, modify as necessary
Start-up and Testing
Test project components for 16-30 days
Demobilization
Remove materials and equipment from site, final erosion control measures and
revegetation
Amount of Energy Available: Previous analyses for the project have determined a potential
average annual generation of 41.7 GWh for the licensed capacity of 9.6 MW, with approximately 18
GWh available during the critical winter months. This information was developed by HDR
Engineering under contract to Saxman in the late 1990’s. As part of the proposed Phase III work, the
Mahoney Lake partners will evaluate the potential for increasing the Project storage to shift more of
the generation into the winter months and to determine if the currently licensed capacity is optimum -
- in the near term, a smaller capacity may generate almost as much usable energy at a lower cost.
Phase IV construction will respond to and reflect any relevant changes.
Comparison to alternative energy sources: The Southeast Integrated Resource Plan (SEIRP)
identifies several alternative energy sources for the SEAPA-connected systems, including new
hydroelectric projects, biomass, and others. The SEIRP does not evaluate the many individual hydro
projects because of an inconsistent level of data quality, therefore, its conclusions cannot be reliably
used to guide funding decisions on the individual hydro projects. The SEIRP does focus on DSM/EE
and biomass space heating for the Southeast region to negate the conversion to electric space heating
that the region’s utilities are currently experiencing.
The SEIRP acknowledges that some new hydroelectric projects will be built, including “committed”
projects that are well along in the development process, such as the Whitman Lake project promoted
by KPU. The Mahoney Lake project was not considered to be a “committed” project for reasons not
clear to Saxman and its partners. Mahoney Lake is the only unconstructed hydro project in the
SEAPA area with a FERC license other than Whitman Lake; all other potential projects will not be
available for many years due to the time-consuming licensing process.
Bids were recently in 2012 for KPU’s Whitman Lake project. The lowest bid was approximately
twice the cost of the estimate provided by KPU’s consulting engineering firm, Hatch Acres. Saxman
intends to have the cost estimate for Mahoney Lake developed and/or reviewed by a knowledgeable
construction contractor, rather than a consulting engineer, to provide greater reliability in results.
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Saxman believes it is critical that Mahoney Lake’s existing FERC license, investment by Cape Fox
Corporation and AP&T, and $200,000 SFY2014 investment by the State of Alaska are leveraged for
the benefit of the region through construction of this project, rather than being allowed to going to
waste. Repeating the FERC licensing process is anticipated to take nearly 10 years, at a cost
exceeding original licensing costs. It is likely that an entity attempting to repeat the FERC licensing
process would need to seek State funding support to repeat the scope of work which has already
funded by the project’s current development team.
Saxman is aware that SEAPA is currently considering increasing the storage in Swan Lake by adding
gates to the spillway. While neither Saxman nor KEC has had an opportunity to complete a thorough
review of the design concept, the project would appear to have significant technological and
regulatory hurdles to overcome with regard to assuring dam safety.
Saxman is also aware that Metlakatla is developing a transmission intertie to the KPU system, also
with the aid of State grant funding. The amount of power available to KPU from Metlakatla is not
known at this time, nor is the likely cost.
4.2 Existing Energy System
4.2.1 Basic configuration of Existing Energy System
Briefly discuss the basic configuration of the existing energy system. Include information about the
number, size, age, efficiency, and type of generation.
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All info below is provided from the Southeast Alaska Integrated Resource Plan (SEIRP).
Primary:
Ketchikan – Ketchikan Public Utilities (KPU) buys, generates and resells all of the electricity
consumed in the City of Ketchikan / Ketchikan Gateway Borough area. KPU owns the Ketchikan
Lakes hydro and Beaver Falls hydro projects (including Silvis Plant), totaling 11.5 MW. KPU
operates the 22.5 Swan Lake hydro project, which is owned by the Southeast Alaska Power Agency.
KPU also owns and operates a four-unit diesel plant with a capacity of 23 MW. As of March 2010,
the residential electric rate was 9.58 cents per KWH.
Petersburg – Petersburg Municipal Power & Light buys the majority of its electrical requirements
from the Tyee Lake Hydro Plant owned by SEAPA. Additionally, the city owns a hydro facility at
Blind Slough (Crystal Lake) and a small diesel plant. As of March 2011, the rate for residential
electric service is 11.8 cents per KWH.
Saxman – The City of Saxman’s power is provided by Ketchikan Public Utilities (see above).
Wrangell – Wrangell Municipal Light & Power (WMLP) buys the majority of its electrical
requirements from the Lake Tyee Hydro Plant owned by SEAPA. WMLP also owns a diesel plant
which is used for backup. As of March, 2011, the residential electric rate was 12.6 cents per KWH.
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Secondary:
Kake – Electric service for the area is provided by the Inside Passage Electric Cooperative with
diesel. 2010 electric rates were 56.08 cents per KWH, reduced to 19.78 per KWH by power cost
equalization.
Metlakatla – Metlakatla Power & Light generates electricity at the Purple Lake and Chester Lake
hydro sites. They also operate the Centennial Diesel Plant. The residential electric rate is 9.2 cents
per KWH.
4.2.2 Existing Energy Resources Used
Briefly discuss your understanding of the existing energy resources. Include a brief discussion of
any impact the project may have on existing energy infrastructure and resources.
Existing energy resources are described in Section 4.2.1. (above)
Impacts:
Will augment existing resources to help serve a growing regional demand load
Will reduce production of electricity from diesel generators, lowering production costs of
other regional utilities.
Will support trend of residential, commercial, industrial, municipal, and non-profit
conversion to and use of electric boilers, reducing production of heat from costly heating oil.
Will support a more stable regional electrical system.
4.2.3 Existing Energy Market
Discuss existing energy use and its market. Discuss impacts your project may have on energy
customers.
Existing Energy Use
The SEAPA-region’s energy use and market is described in great detail within the Southeast Alaska
Integrated Resource Plan in Section 8.2, “Southeast Alaska Power Agency” (pages 8-29 through 8-
51). This section of the SEIRP is included as an attachment to this application.
Link to document:
http://www.akenergyauthority.org/PDF%20files/seirp/Volume%202%20-
%20Southeast%20Alaska%20IRP.pdf
Additional Notes
While the Ketchikan region’s current “per kilowatt hour” billing rate is relatively low ($0.0897 per KWH),
residents and businesses also pay “diesel surcharge fees,” which are not reflected in the per KWH rate quoted
by regional studies and analysis. The Ketchikan Gateway Borough School District Superintendent reports that
regional schools are unable to add or convert to electric boilers (as recommended by third party energy
auditors), due to limited available of electricity in the Ketchikan region; the School District’s higher cost of
burning heating oil is subsidized through property taxes – an additional “hidden” energy cost not reflected in
the per KWH billing rate. Similarly, many regional businesses, residents, and non-profits utilize costly heating
oil when an abundance of renewable hydroelectric energy could support increased use of electric boilers, at
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lower expense to regional energy consumers.
Impacts on Energy Customers
Provides a reliable local supply of affordably-priced renewable energy
Supports more stable regional electrical system
Reduced dependence on diesel will lower customer energy costs
Provides additional capacity to support conversion to electric heating systems, reducing
heating oil costs
Supports new job creation and economic/community growth
4.3 Proposed System
Include information necessary to describe the system you are intending to develop and address
potential system design, land ownership, permits, and environmental issues.
4.3.1 System Design
Provide the following information for the proposed renewable energy system:
A description of renewable energy technology specific to project location
Optimum installed capacity
Anticipated capacity factor
Anticipated annual generation
Anticipated barriers
Basic integration concept
Delivery methods
Renewable Energy Technology: The project will be a storage-type high-head hydroelectric project, which is
a mature technology in comparison to many other renewable energy technologies. The storage component will
be provided via a lake tap of Upper Mahoney Lake. While uncommon, lake taps have been successfully
constructed in Alaska (e.g. Snettisham, Lake Dorothy). In its design submittal to FERC in 2001, KEC
proposed to construct the penstock by horizontal directional drilling (HDD), which to Saxman’s knowledge
has not been used before for a penstock. As part of the proposed work, KEC intends to reevaluate the use of
HDD in light of progress that industry has made in the last decade, with the goal of simplifying the process
and the overall project arrangement.
Optimum Installed Capacity: The project is currently licensed for an installed capacity of 9.6 MW. As part
of the proposed work, KEC intends to reevaluate the installed capacity to determine if a slightly smaller
capacity might allow a significant decrease in construction cost without a significant decrease in utilized
generation.
Anticipated Annual Generation: Previous operations studies during the feasibility analysis and licensing of
the project determine a potential average annual generation of 41.7 GWh. Since the project will supply energy
to an isolated system, the actual utilized generation will be limited by the system loads, which will change over
time.
Capacity Factor: The Mahoney Lake Project’s capacity factor when fully utilized will be about 0.50, typical
for a storage product. For comparison, the Swan Lake project operates at a 0.42 plant factor, and the combined
KPU-owned hydroelectric projects operate at 0.63 plant factor.
Anticipated Barriers:
The most significant barriers to development which are apparent to Saxman include the following:
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Load-generation imbalance -- Due to seasonal runoff patterns and loads, and the relatively small
amount of reservoir storage, much of the Mahoney Lake project’s generation will be during summer
months when there is already a surplus of hydro energy. During the proposed Phase III work,
Saxman will evaluate methods of increasing the storage to shift an increased proportion of generation
to winter months of high demand. Saxman will also evaluate the potential for direct sales to industrial
customers with load profiles which may match project generation patterns.
Economic – During proposed Phase III work, Saxman will finalize economic and financial
evaluations, and perform a reliable cost estimate update. These activities will determine power sales
rates, and levels of financial support necessary for the project to be feasible.
Environmental -- Most environmental issues with the Project have been resolved through FERC’s
licensing process. Saxman anticipates that changes made to the project design, which may require a
license amendment, will be environmentally neutral or beneficial. Saxman realizes that unanticipated
issues may arise during this process.
KPU attitude: In the past, KPU has opposed Saxman’s development of the project, for reasons not
clear to Saxman. Saxman hopes to develop a better working relationship with KPU during the
proposed State-funded work, as Saxman believes the Project will be beneficial for both parties, and
ratepayers throughout the region.
Acceptance of Independent Power Producers (IPPs) -- At present, IPPs in southeast Alaska are
forced to overcome the significant obstacle of seeking approval from incumbent municipal utilities,
which may prefer the convenience of developing their own projects – or partnering with other
incumbent municipal utilities -- to partnering with new entities including private sector businesses,
ANCSA corporations, and tribal partners. The Ketchikan region is certainly no exception. While
SEAPA has represented that its new Request for Offers (RFO) process creates an opportunity for
independent power producers to meet regional demands for affordable energy by selling into the
regional system, the Mahoney Partnership is concerned by a number of critical omissions which
differentiate SEAPA’s procurement process with that of most other serious procurement efforts
conducted by utilities. These omissions are unusual, and create significant business risks which
Saxman, AP&T, and CFC must weigh carefully as they determine whether or not they are able to
respond. Saxman believes that dedication of State funds to support construction of Mahoney
Lake will help eliminate these risks, and encourage SEAPA to engage in productive discussions
with the Mahoney partnership, and other IPPs.
Basic integration concept: The Mahoney Lake hydroelectric project will provide energy to existing hydro-
based utility systems. Integration of an additional hydro project should not provide any technical challenges.
Delivery methods: Project will deliver energy to SEAPA-connected systems via conventional transmission
lines and substations.
4.3.2 Land Ownership
Identify potential land ownership issues, including whether site owners have agreed to the project or
how you intend to approach land ownership and access issues.
The project is located on private land owned by the Cape Fox Corporation and Federal public land
administered by the US Forest Service (USFS). Cape Fox Corporation is a primary partner in the Mahoney
Lake partnership, and has invested approximately $2 million in the project to date.
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Use of the Federal public land will be authorized by a special use authorization from the USFS. KEC will
review the status of the special use authorization with the USFS during the proposed pre-construction work
and modify its application or submit a new application as appropriate.
4.3.3 Permits
Provide the following information as it may relate to permitting and how you intend to address
outstanding permit issues.
List of applicable permits
Anticipated permitting timeline
Identify and discussion of potential barriers
List of applicable permits:
Saxman anticipates the following permits will be required:
FERC license
USFS special use authorization
USCOE Section 404 permit and Section 401 water quality certification
ADFG fish habitat permit
ADNR water rights permit
ADNR storm water permit
The Coastal Zone Consistency Review process has lapsed in Alaska, but could resume through future
legislative action, in which case an additional permit or review process would be required.
Anticipated permitting timeline: KEC is considering changes to the project design that might
require modifications to existing permits and environmental plans. KEC expects to complete any
conceptual design modifications by the end of 2014 and submit revised permit applications during the
spring of 2015. Permit approval time will vary with agency, but permits are generally expected to be
issued by the end of 2015. The project timeline could be extended if the proposed design changes
require new field studies or NEPA documentation; at this time KEC does not believe either will be
required.
Potential barriers: KEC plans the following actions for the identified potential barriers.
FERC design review – FERC’s licensing process requires submittal of design documents for
review by FERC. Mahoney Lake’s license was stayed before FERC had responded to KEC’s
previous submittal. Because FERC is generally quite conservative, KEC anticipates FERC
could have reservations regarding the use of horizontal directional drilling (HDD) for the
penstock. If KEC’s design review during the proposed Phase III work confirms a desire to
use HDD for the penstock, KEC expects to have a technical meeting with FERC staff and
KEC’s HDD consultant to familiarize FERC with this technology, and the low level of risk
associated with its application in development of the Mahoney Lake project.
USFS special use authorization -- The USFS previously indicated they would not undertake
consideration of a special use authorization until KEC completed a finance plan as required
by the FERC license. KEC intends to begin fresh consultations with the USFS after finalizing
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the design concept, and submit an application for a special use authorization. KEC assumes
that the USFS will act in a professional manner in accordance with their administrative rules
and regulations.
USFS land use designation – The Mahoney Lake project area is currently designated as
Semi-Remote Recreation. While that designation does not necessarily restrict project
development, it may hinder it. KEC knows that restrictive land use designations are a
problem for many proposed hydroelectric projects in Southeast Alaska, and expects to
participate in the development and review of the Tongass Land Management Plan update
scheduled for 2013 so that hydroelectric development is better addressed than in the current
plan.
4.3.4 Environmental
Address whether the following environmental and land use issues apply, and if so how they will be
addressed:
Threatened or endangered species
Habitat issues
Wetlands and other protected areas
Archaeological and historical resources
Land development constraints
Telecommunications interference
Aviation considerations
Visual, aesthetics impacts
Identify and discuss other potential barriers
With the exception of “telecommunications interference” and “aviation considerations,” all
environmental and land use issues listed were addressed in the FERC Environmental Assessment
issued in November, 1997. The FERC license includes many articles that provide protection for the
environmental resources. Saxman expects similar provisions to be included in new Federal and state
permits.
Saxman does not believe that “telecommunications interference” and “aviation consideration” issues
apply to the Mahoney Lake project.
4.4 Proposed New System Costs and Projected Revenues
(Total Estimated Costs and Projected Revenues)
The level of cost information provided will vary according to the phase of funding requested and any
previous work the applicant may have done on the project. Applicants must reference the source of
their cost data. For example: Applicants records or analysis, industry standards, consultant or
manufacturer’s estimates.
4.4.1 Project Development Cost
Provide detailed project cost information based on your current knowledge and understanding of the
project. Cost information should include the following:
Total anticipated project cost, and cost for this phase
Requested grant funding
Applicant matching funds – loans, capital contributions, in-kind
Identification of other funding sources
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Projected capital cost of proposed renewable energy system
Projected development cost of proposed renewable energy system
Total Anticipated Project Cost:
KEC
Alaska SFY14
Capital
Appropriation
AEA Round
VII
(Proposed)
Source to be
Determined
Expenditures to Date $4,000,000 0 0
Ongoing Work 0 $200,000 $0
Phase III $800,000 0 0
Phase IV $3,200,000 $0 $4,000,000
Subsequent
Construction
(Estimated) $38,800,000
Color Meaning
Proposed Funding Request
Proposed Match
Subsequent Expenditure -- could be considered as match, although AP&T is hesitant to encumber
the full capital cost of the project as match to $4m State investment.
The estimated construction cost ($46,000,000) is based on escalating the 1998 feasibility level cost estimate,
and is believed to be accurate to ±20%. The cost estimate will be updated during the proposed pre-
construction work
Requested grant funding
The City of Saxman requests $4,000,000 State investment to assist with initial construction activities.
$4,000,000 match (1:1 ratio) would be provided through a combination of expenditures on remaining pre-
construction activities, and initial construction activities. Initial construction activities are anticipated to
include the following tasks:
Mobilization
Initial mobilization of equipment and personnel
Periodic materials procurement
Roads and Right-of-way
Repair and upgrade road, as needed
Powerhouse Equipment
Procure equipment
Install equipment
Identification of other funding sources
Saxman has not applied for any other loans or grants to fund the proposed work, but it may do so in the future
if appropriate programs are identified. The Mahoney Lake partners will fund their proposed match from
private and possibly public funding sources.
Projected capital cost of proposed renewable energy system
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The capital cost is for this application considered to be the construction cost, which is estimated to be
$46,000,000 +/- 20% by escalating the estimate shown in the FERC license application. A new cost estimate
will be prepared as part of remaining pre-construction activities.
Projected development cost of proposed renewable energy system
The total project development cost – as described in the table above -- equals $51,000,000
4.4.2 Project Operating and Maintenance Costs
Include anticipated O&M costs for new facilities constructed and how these would be funded by the
applicant.
(Note: Operational costs are not eligible for grant funds however grantees are required to meet
ongoing reporting requirements for the purpose of reporting impacts of projects on the communities
they serve.)
Operational costs are estimated to be $600,000 per year in 2012, based on adjustments to AP&T
historical costs for its hydroelectric projects. Operational costs include: direct labor and benefits for
operations, maintenance, and administrative personnel; spare parts and replacements; tools; vehicle
O&M costs; helicopter services; insurance; and taxes.
O&M costs will be funded entirely through power sales.
4.4.3 Power Purchase/Sale
The power purchase/sale information should include the following:
Identification of potential power buyer(s)/customer(s)
Potential power purchase/sales price - at a minimum indicate a price range
Proposed rate of return from grant-funded project
Identification of potential power buyer(s)/customer(s)
KPU
SEAPA
At the time of this application’s preparation, Saxman did not have firm off-take agreements in place with
private sector entities for energy produced by the Mahoney Lake project; therefore, this application and
attending econometrics assume that 100% of the project’s energy would be sold to public utility firms.
Potential large-scale commercial and industrial sales could potentially provide a market for project energy
which is not needed by public utilities.
Potential power purchase/sales price - at a minimum indicate a price range
Potential price of 7.3 cents per KWH, assuming $46,000,000 construction cost, and 50% State participation in
construction.
Proposed rate of return from grant-funded project:
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It is assumed that a reasonable rate of return on private sector investment will be a function of factors
including the level of private sector investment, the level of risk assumed by the private sector, the amount of
power provided to public entities, the amount of power which may be sold directly to private sector off-takers,
and expectations of the Alaska Energy Authority. Saxman suggests identifying peer “benchmark” projects and
business arrangements, and comparing rates of return to determine a return rate which is reasonable to all
stakeholders, including the Alaska Energy Authority. Public (State) monies invested in this project will be
utilized to lower energy costs for ratepayers through power sales agreements with public utilities – not with
direct power sales agreements to private sector commercial / industrial off-takers. The Mahoney partners do
not expect to earn a rate of return on public monies invested in the project, nor do they expect public monies
invested in the project to lower energy costs in direct power sales agreements with commercial / industrial off-
takers.
4.4.4 Project Cost Worksheet
Complete the cost worksheet form which provides summary information that will be considered in
evaluating the project.
Renewable Energy Source
The Applicant should demonstrate that the renewable energy resource is available on a sustainable basis.
Annual average resource availability. 42.7 cfs average flow and 1730 feet net head
Unit depends on project type (e.g. windspeed, hydropower output, biomasss fuel)
Existing Energy Generation and Usage
a) Basic configuration (if system is part of the Railbelt1 grid, leave this section blank)
i. Number of generators/boilers/other 6 hydro projects, 17 diesel generators
ii. Rated capacity of generators/boilers/other 55.7 MW hydro, 45.7 MW diesel
iii. Generator/boilers/other type Hydroelectric with diesel backup
iv. Age of generators/boilers/other Varies
v. Efficiency of generators/boilers/other Varies
b) Annual O&M cost (if system is part of the Railbelt grid, leave this section blank)
i. Annual O&M cost for labor Unknown
ii. Annual O&M cost for non-labor Unknown
c) Annual electricity production and fuel usage (fill in as applicable) (if system is part of the
Railbelt grid, leave this section blank)
i. Electricity [kWh] 275 GWh (Source: SEIRP Table 8-1)
ii. Fuel usage
Diesel [gal] NA
Other NA
iii. Peak Load 49 MW (Source: SEIRP Table 8-2)
1 The Railbelt grid connects all customers of Chugach Electric Association, Homer Electric Association, Golden Valley Electric
Association, the City of Seward Electric Department, Matanuska Electric Association and Anchorage Municipal Light and Power.
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iv. Average Load 31.4 MW (derived from 275 GWh annual load)
v. Minimum Load Unknown
vi. Efficiency NA
vii. Future trends NA
d) Annual heating fuel usage (fill in as applicable)
i. Diesel [gal or MMBtu] NA
ii. Electricity [kWh] NA
iii. Propane [gal or MMBtu] NA
iv. Coal [tons or MMBtu] NA
v. Wood [cords, green tons, dry tons] NA
vi. Other NA
Proposed System Design Capacity and Fuel Usage
(Include any projections for continued use of non-renewable fuels)
a) Proposed renewable capacity
(Wind, Hydro, Biomass, other)
[kW or MMBtu/hr]
9.6 MW hydroelectric
b) Proposed annual electricity or heat production (fill in as applicable)
i. Electricity [kWh] 41.7 GWh
ii. Heat [MMBtu] NA
c) Proposed annual fuel usage (fill in as applicable)
i. Propane [gal or MMBtu] NA
ii. Coal [tons or MMBtu] NA
iii. Wood [cords, green tons, dry tons] NA
iv. Other NA
Project Cost
a) Total capital cost of new system $46,000,000 +/- 20%
b) Development cost $51,000,000 (including $4,000,000 investment to
date)
c) Annual O&M cost of new system $600,000
d) Annual fuel cost NA
Project Benefits
a) Amount of fuel displaced for
i. Electricity 3.1 million gallons of diesel per annum, or 142.8 million gallons total.
ii. Heat NA
iii. Transportation NA
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b) Current price of displaced fuel $3.68/gallon, equivalent to approx. $0.25/kWh
c) Other economic benefits $651,499,200
d) Alaska public benefits Assures that Southeast Alaska remains competitive with
other nations and non-Alaska communities competing for
jobs. Allows ore processing jobs to stay local to Alaska.
Supports in-state construction of the Alaska Class Ferry.
Supports visitor industry, growth of the marine industry
sector. Reduces dependence upon foreign oil, allowing
southeast Alaskans to spend and invest $459,360,000
locally, rather than purchasing oil from OPEC nations and
hostile regimes. Reduces environmental impacts of
burning diesel fuel (1.8 metric tons of carbon dioxide
avoided). Allows for stable energy rates which are more
condusive to long term business / community planning
than energy rates which may be tied to price volatility of
thermal fuel sources, which are commodities subject to
market forces. Reduces environmental liability and risk
associated with transport and use of diesel fuel.
Power Purchase/Sales Price
a) Price for power purchase/sale Will be determined based upon outcome of proposed
activities. Busbar power cost is currently estimated at 7.3
cents per kWh with 50% State funding.
Project Analysis
a) Basic Economic Analysis
Project benefit/cost ratio
Direct Benefit-Cost Ratio: 6.0
(Total potential fuel displacement savings divided by estimated capital
construction cost. This ratio would be adjusted downwards depending
on the extent of potential energy sales to commercial/industrial
customers.)
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Potential Economic Development Benefit Cost Ratio: 12.7
(Total payroll creation benefit divided by estimated capital
construction cost.)
Total Potential Benefit Cost Ratio: 18.8
([Potential fuel displacement savings + total job and payroll creation]
divided by estimated capital construction cost)
Payback (years)
Payback Period: Potential Fuel Displacement Savings to Public
Only: 7.5 years. This number would be adjusted upwards depending
on the extent of potential energy sales to commercial/industrial
customers.
Payback Period: Potential Fuel Displacement plus New Direct,
Induced, and Indirect Payroll: 8.3 Years. This number would be
adjusted upwards depending on the extent of potential energy sales to
commercial/industrial customers.
Assumptions:
Capital Construction Cost: $46,000,000 with 50% State
Participation
Potential Savings: Fuel Displacement
$0.22 per KWH diesel generation cost (2008 KPU estimate quoted in
2008 Renewable Energy Grant Fund application) minus $0.073 per
KWH cost of Mahoney Lake energy (target power cost, assuming 50%
State investment), times 41,760,000 KWH of potential annual fuel
displacement = $6,136,221 per annum, expressed in 2012 dollars.
Clarifying Economic Impact Benefit Produced by Project
Saxman does not expect public monies invested in the project to
impact energy costs in direct power sales agreements with commercial
/ industrial off-takers. State investment will only serve to lower rates
for the public. However, it is important to recognize that through
supporting this project, the State of Alaska is enabling conditions
where the Mahoney Lake project – which may not be able to sell the
entirety of its output to public utilities or other entities in its initial
years of operations – will have a surplus of marketable renewable
energy, which can help enable new jobs in priority industry sectors.
Because of this, benefits associated with these conditions are included
in benefit-cost modeling.
Economic Benefit Potential
Mahoney Lake’s construction will support addition of 60-100 ore
processing jobs, and growth of the mining industry supply chain,
marine industry sector, shipbuilding & repair -- high quality jobs in
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priority sectors, paying at or above the regional median household
income level. Estimated 200 jobs x Ketchikan Gateway Borough MHI
of $61,695 = $12,339,000 in new annual payroll. For purposes of
conservative modeling, we are assuming a “ramp up” period of 20
jobs per year over the initial 10 year period of the project’s operation.
(In reality, Heatherdale Resources has indicated that it anticipates
entering commercial production in the next 2 years – the approximate
date that the Mahoney Lake project would be constructed – meaning
that the project would begin supporting new ore processing jobs
during year 1. Similarly, new investment and major projects at Alaska
Ship & Drydock – such as construction of the Alaska Class Ferry –
will result in abrupt job increases.)
IMPLAN modeling conducted by the McDowell Group for AIDEA in
January of 2010 indicates a payroll multiplier of 1.32 for Alaska Ship
and Drydock, meaning that every $1 in payroll at ASD generates an
additional $0.32 of payroll as ASD payroll recirculates within the local
service and supply sector. IMPLAN-modeled indirect/induced
benefits for mining, manufacturing, technology, and offshore oil/gas
tend to be much higher.
For the purposes of modeling, we are assuming an average payroll
multiplier of 1.32 (same as the current Alaska Ship & Drydock
multiplier) for the new, quality jobs supported by Mahoney Lake’s
renewable energy. In reality, the payroll multiplier will increase as the
local supply chain grows to meet the growing needs of priority
industries such as shipbuilding & repair, and mining.
Mahoney Lake Hydro Project: Amortized Benefits Years 1-10
Operating
Year
Fuel
Displacement
Savings
(Assumes
diesel costs
fixed at 2012
level)
Total Payroll
Benefit
(Direct,
Indirect,
Induced
Payroll)
Number
of New,
Quality
Jobs
Payroll Value
(# of Jobs x
Ketchikan
Borough MHI)
Indirect/Induced
Payroll
Cumulative
Total
Benefit‐
Cost
Ratio
Y1 $6,136,211 $1,628,748 20 $1,233,900 $394,848 $7,764,959 0.15
Y2 $6,136,211 $3,257,395 40 $2,467,800 $789,595 $17,158,565 0.33
Y3 $6,136,211 $4,895,244 60 $3,710,700 $1,184,544 $28,190,020 0.54
Y4 $6,136,211 $6,514,992 80 $4,935,600 $1,579,392 $40,841,223 0.79
Y5 $6,136,211 $8,143,740 100 $6,169,500 $1,974,240 $55,121,174 1.06
Y6 $6,136,211 $9,772,488 120 $7,403,400 $2,369,088 $71,029,873 1.37
Y7 $6,136,211 $11,401,236 140 $8,637,300 $2,763,936 $88,567,320 1.70
Y8 $6,136,211 $13,029,984 160 $9,871,200 $3,158,784 $107,733,515 2.07
Y9 $6,136,211 $14,658,732 180 $11,105,100 $3,553,632 $128,528,458 2.47
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Y10 $6,136,211 $16,287,480 200 $12,339,000 $3,948,480 $150,952,149 2.90
Renewable Energy Source
The Applicant should demonstrate that the renewable energy resource is available on a
sustainable basis.
Annual average resource availability. 41.7 aGWH per FERC license document.
Unit depends on project type (e.g. windspeed, hydropower output, biomasss fuel)
4.4.5 Impact on Rates
Briefly explain what if any effect your project will have on electrical rates in the proposed benefit
area. If the is for a PCE eligible utility please discus what the expected impact would be for both
pre and post PCE.
Mahoney Lake has the potential to supplant ever-growing diesel-fired generation in the
Ketchikan / SEAPA region during times of peak demand, which would help sustain
current rates.
Adding a new customer such as Kake to the SEAPA-region grid will increase demand for
energy through the region. Mahoney Lake can help offset this new demand increment,
which would sustain current rates.
Population growth has been ongoing in the SEAPA region. This growth has been
occurring in tandem with growth in employment, wages, new business, and new
construction – indications pointing to a period of long term economic growth. Mahoney
Lake will provide additional energy which can help offset associated annual growth in
demand for electricity.
Private sector investors have gone to considerable expense to bring the Mahoney Lake
project to its current state of development-readiness. Efforts and expenditures to date
have resulted in issuance of the project’s FERC license. Lack of interest in the project by
the State of Alaska or municipal utilities will produce conditions where another entity
seeking to meet demand in the SEAPA-region will be required to repeat the FERC
licensing process for Mahoney Lake, or another project. Such a licensing process would
be a high-cost process comprised of significantly redundant work which, in the case of a
municipal utility or governmental entity, would come at a cost to the public, the State,
and/or ratepayers, who must invariably shoulder the costs. As another, related
consideration, licensing and license amendment processes take many years – oftentimes
9+ years or longer, with significant risk of a license not being issued. (Ketchikan’s
Whitman Lake was a 12 year process). Delaying development of renewable energy
projects to meet future demand will mean that Alaskan energy consumers will spend
longer amounts of time paying for diesel fuel over a greater time period, as they await
more affordable new renewable energy solutions. This alternative will result in higher
rates.
If the State of Alaska provides Saxman with a level of support which is equitable or near-
equitable to that provided to Ketchikan and other communities in Southeast Alaska in
recent years, development of the project could support sustained low rates. However, if
the State of Alaska is unable or unwilling to support this project in an equitable manner
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through grant funds, the level of debt service would be higher, and these higher costs
would be passed on to ratepayers.
SECTION 5– PROJECT BENEFIT
Explain the economic and public benefits of your project. Include direct cost savings,
and how the people of Alaska will benefit from the project.
The benefits information should include the following:
Potential annual fuel displacement (gallons and dollars) over the lifetime of the evaluated
renewable energy project
Anticipated annual revenue (based on i.e. a Proposed Power Purchase Agreement price,
RCA tariff, or cost based rate)
Potential additional annual incentives (i.e. tax credits)
Potential additional annual revenue streams (i.e. green tag sales or other renewable
energy subsidies or programs that might be available)
Discuss the non-economic public benefits to Alaskans over the lifetime of the project
Potential annual fuel displacement (gallons and dollars) over the lifetime of the evaluated
renewable energy project
The Mahoney Lake Hydroelectric Project will produce enough energy to displace 3,105,000 gallons of
diesel per annum. Over the initial term of its existing FERC license, the project would displace
142,830,000 gallons of diesel. The avoided cost of the diesel in nominal dollars is $3 billion, and in 2011
dollars is $530 million. Total carbon dioxide emissions avoided over the initial term of the existing
FERC license would equal 1.8 million metric tons, valued at $67.7 million in 2007 dollars.
(Assumptions: 8% Discount Rate. Initial operating term of FERC License begins 2016, ends 2061.
KPU fuel efficiency = 14.81 kilowatt-hours per gallon of diesel #2. Mahoney Lake average annual
energy = 41.7 GWH, per the FERC License P-11393. Fuel price projections from Black & Veatch, under
contract with AEA for SE Alaska Integrated Resource Study. Carbon Dioxide emissions from
Department of Energy and EPA, July 2000 Social Cost of Carbon per Metric ton of Carbon Dioxide
Emissions from Interagency Working Group on Social Cost of Carbon, February 2010. This study
concludes the cost is $24.3 in 2016 and increases to $44.9 per metric ton in 2061 in 2007 dollars.)
• Anticipated annual revenue (based on i.e. a Proposed Power Purchase Agreement price,
RCA tariff, or cost based rate)
The annual revenue from the sale of the project generation will be determined during the proposed Phase
III studies. If the entire Project output were to be sold at the projected cost of power ($0.073/kWh), the
annual revenue stream would be approximately $3,000,000 per year.
• Potential additional annual incentives (i.e. tax credits)
The project proponents do not believe the project will qualify for existing tax credit programs for
renewable energy, as lake tap hydropower is not currently eligible (although it technically is
renewable energy).
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• Potential additional annual revenue streams (i.e. green tag sales or other
renewable energy subsidies or programs that might be available)
The project proponents estimate the maximum annual revenue that could be derived from green
tag sales is approximately $40,000 per year.
• Discuss the non-economic public benefits to Alaskans over the lifetime of the
project
A robust economy provides the foundation upon which safe, healthy communities grow and thrive. The
emotional and financial pressures of joblessness and poverty contribute to the full spectrum of social ills.
Creation of new, quality, legacy jobs will help effect long-term improvements to Southeast Alaska’s
economic baseline, resulting in a healthier, safer community.
Tax income associated with new economic growth can help support an expanded array of community
services, amenities, and facilities.
Southeast Alaska is challenged by an aging workforce, and migration of youth and skilled workforce to
other communities, oftentimes to urban centers out of State. New, high-quality jobs in priority industries
will allow young southeast Alaskans to remain within their communities as successful adults, and will
help southeast Alaska maintain a competitive, multi-skilled workforce.
While communities such as Ketchikan, Wrangell, Petersburg, Metlakatla, and others have long-since
developed energy resources which contribute to meeting regional demand, Saxman has not yet had the
opportunity to develop its resources and infrastructure, and play an equitable role in the region’s
economy. State participation in the Mahoney Lake project would help assure that Saxman has a similar,
equitable role in meeting future regional needs for renewable energy.
5.1.1 Public Benefit for Projects with Private Sector Sales
Projects that include sales of power to private sector businesses (sawmills, cruise ships, mines,
etc.), please provide a brief description of the direct and indirect public benefits derived from the
project as well as the private sector benefits and complete the table below. See section 1.6 in
the Request for Applications for more information.
At the time of this application’s preparation, Saxman did not have firm off-take agreements in place with
private sector entities for energy produced by the Mahoney Lake project; therefore, this application
assumes that 100% of the project’s energy would be sold to public utility firms. As noted in benefit-cost
information presented above, the ratio of benefits to cost and amount of fuel displaced for public entities
would be adjusted downwards depending on the extent of potential energy sales to commercial/industrial
customers.
Public (State) monies invested in this project will be utilized to lower energy costs for ratepayers through
power sales agreements with public utilities – not with direct power sales agreements to private sector
commercial / industrial off-takers.
The Mahoney partners do not expect to earn a rate of return on public monies invested in the project, nor
do they expect public monies invested in the project to lower energy costs in direct power sales
agreements with commercial / industrial off-takers.
Clarifying Economic Impact Benefit Produced by Project
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Saxman does not expect public monies invested in the project to impact energy costs in direct power sales
agreements with commercial / industrial off-takers. State investment will only serve to lower rates for the
public. However, it is important to recognize that through supporting this project, the State of Alaska is
enabling conditions where the Mahoney Lake project – which may not be able to sell the entirety of its
output to public utilities or other entities in its initial years of operations – will have a surplus of
marketable renewable energy, which can help enable new jobs in priority industry sectors. Because of
this, benefits associated with these conditions are included in benefit-cost modeling.
Renewable energy resource availability (kWh per month) TBD
Estimated sales (kWh) TBD
Revenue for displacing diesel generation for use at privet
sector businesses ($)
TBD
Estimated sales (kWh) TBD
Revenue for displacing diesel generation for use by the
Alaskan public ($)
TBD
SECTION 6– SUSTAINABILITY
Discuss your plan for operating the completed project so that it will be sustainable.
Include at a minimum:
Proposed business structure(s) and concepts that may be considered.
How you propose to finance the maintenance and operations for the life of the project
Identification of operational issues that could arise.
A description of operational costs including on-going support for any back-up or existing
systems that may be require to continue operation
Commitment to reporting the savings and benefits
Proposed business structure(s) and concepts that may be considered.
Power sales agreements with local / regional utilities, or direct power sales agreements with large-
scale commercial or industrial consumers.
The City of Saxman, Alaska Power & Telephone, and Cape Fox Corporation would be willing to consider
any reasonable business structure(s) and concepts that would support construction of the project in a timely
manner.
Current Project Partnership Structure – In September of 2011, the City of Saxman, Cape Fox
Corporation (CFC), and Alaska Power & Telephone (AP&T) renewed a public-private partnership for
development of the Mahoney Lake hydroelectric project. The FERC license for the project is issued to the
City of Saxman. Cape Fox Corporation and Alaska Power & Telephone each have 50% ownership of
“Ketchikan Electric Company, LLC” (AK Business License # 267588) – a company formed to develop,
own, and operate the Mahoney Lake project. In the mid-90s, CFC and AP&T invested approximately $2
million each in the project, which resulted in issuance of a FERC license, and construction of roads to the
site of the project’s future powerhouse.
How you propose to finance the maintenance and operations for the life of the project
O&M costs would be financed from power sales revenues.
Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Grant Application Page 42 of 49 7/1/2013
Identification of operational issues that could arise.
Well designed and constructed hydroelectric projects generally have few major operational issues
once the inevitable initial bugs have been worked out. Operational issues are typically
replacement of worn parts. Project partner AP&T has several operating hydro projects, two of
which are similar in design and size to the Mahoney Lake project, and is thus fully capable of
providing operational services for the project.
One potential issue is that the headworks will require helicopter access for maintenance tasks, and
weather conditions can limit that access. This would be similar to AP&T’s Goat Lake and Black
Bear Lake projects. However, an advantage of the Mahoney Lake site is that it will not require a
siphon intake, as at Goat Lake and Black Bear Lake, which will significantly reduce the
headworks maintenance. During the proposed Phase III work, the design concept will be reviewed
with the goal of further reducing the amount of headworks maintenance (ex: moving the bypass
capability from the headworks to the powerhouse).
A second potential operational issue is the impact of climate change on the inflows to the project.
It is not certain what changes will occur, but there is some support for the belief that hydropower
operation in Southeast may be beneficially affected by climate change in that there will be more
precipitation in the winter as rain rather than snow, which will lessen the need for storage to meet
winter loads.
A description of operational costs including on-going support for any back-up or existing
systems that may be required to continue operation
Operational costs for the project are estimated to be $500,000 per year in 2012 dollars, based on
adjustments to AP&T historical costs. Operational costs include: direct labor and benefits for operations,
maintenance, and administrative personnel; spare parts and replacements; tools; vehicle O&M costs;
helicopter services; insurance; and taxes.
Saxman does not believe there would be any cost to the project for support for any back-up or existing
systems.
Commitment to reporting the savings and benefits
In the event of State investment, project partners would be glad to commit to reporting of savings and
benefits in a manner consistent with AEA requirements.
SECTION 7 – READINESS & COMPLIANCE WITH OTHER GRANTS
Discuss what you have done to prepare for this award and how quickly you intend to proceed
with work once your grant is approved.
Tell us what you may have already accomplished on the project to date and identify other grants
that may have been previously awarded for this project and the degree you have been able to
meet the requirements of previous grants.
Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Grant Application Page 43 of 49 7/1/2013
Work completed on the Mahoney Lake Hydroelectric project to date has resulted in issuance of a
federal FERC license, and construction of roads to the site of the future Mahoney Lake
powerhouse. The Mahoney Lake partnership is currently working to apply $200,000 in SFY2014
investment in the project to provide an updated understanding of the project’s conditions,
economics, and current prospective market, as well as negotiating business agreements for sale of
the project’s power and energy.
The Mahoney Lake partnership intends to proceed immediately upon award of grant funds to
complete any remaining pre-construction tasks required, and initiate construction of the project.
The City of Saxman has a strong history of compliance with local, State, and federal grants,
including grants administered by the AEA/AIDEA (ex: ARRA EECBG Community Block
Grants).
Alaska Power & Telephone has a significant history of collaborating with AEA / AIDEA, local
government, and tribal organizations to construct new energy projects in the State of Alaska.
SECTION 8 – LOCAL SUPPORT AND OPPOSITION
Discuss local support and opposition, known or anticipated, for the project. Include letters of
support or other documentation of local support from the community that would benefit from this
project. The Documentation of support must be dated within one year of the RFA date of July 2,
2013.
Documented Local Support
#1 SFY2015 investment priority for the City of Saxman
Investment priority supported by Southeast Conference, the Alaska Regional Economic
Development Organization (ARDOR) representing the collective interests of all
communities in Southeast Alaska.
Regional development priority on most recent Ketchikan Gateway Borough
Comprehensive Economic Development Strategy (CEDS) list – only
hydroelectric project on current list
#1 community development priority on joint City of Saxman / Organized Village
of Saxman CEDS List
Letter of support from Ketchikan Chamber of Commerce
Letter of support from Ketchikan Gateway Borough School District
Letter of support from Ketchikan Indian Community
Letter of support from Alaska Ship & Drydock
Letter of support from US Representative Don Young
Identified in the Southeast Alaska Integrated Resource Plan as Southeast Alaska’s
only currently-licensed hydro project yet to receive construction funding.
Project Opposition
Saxman is unaware of any entities or individuals who are opposed to the development of the
Mahoney Lake project. As discussed above, there is a risk that incumbent public / governmental
utilities may be resistant to the idea of working with new organizations such as Saxman, tribal
Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Grant Application Page 44 of 49 7/1/2013
entities, an ANCSA corporation such as Cape Fox, or an independent power producer such as
AP&T, and that incumbent public utilities would prefer to develop, own, and operate their own
resources in a closed market, instead. Because incumbent public utilities control transmission
line access and distribution, this risk creates potentially challenging circumstances for the
Mahoney Lake partnership. The Mahoney Lake partnership believes that because existing
infrastructure (ex: the Swan-Tyee transmission infrastructure) was funded with public monies and
State investment, this infrastructure should be available for transparent access within a
competitive, free market economic environment which supports the region’s ratepayers. Saxman
believes that increased State of Alaska financial participation in the project will encourage and
create financial incentives for incumbent public / governmental utilities to partner with the private
sector, and assure equitable access by entities such as Saxman, Cape Fox Corporation, and AP&T
for the benefit of the community.
SECTION 9 – GRANT BUDGET
Tell us how much you are seeking in grant funds. Include any investments to date and funding
sources, how much is being requested in grant funds, and additional investments you will make
as an applicant.
Provide a narrative summary regarding funding source and your financial commitment to the
project
Amount requested in grant funds: $46,000,000
Investments to date: The Applicant has invested $4,000,000 to date for Phase I-II work,
including receipt of a FERC license.
Additional investment by the Applicant: Will provide 20% matching funds (20% estimated Phase
III and Phase IV costs).
Total Anticipated Project Cost:
KEC
Alaska SFY14
Capital
Appropriation
AEA Round
VII
(Proposed)
Source to be
Determined
Expenditures to Date $4,000,000 0 0
Ongoing Work 0 $200,000 $0
Phase III $800,000 0 0
Phase IV $3,200,000 $0 $4,000,000
Subsequent
Construction
(Estimated) $38,800,000
Color Meaning
Proposed Funding Request
Proposed Match
Subsequent Expenditure -- could be considered as match, however, due to administrative
concerns, AP&T is hesitant to encumber the full capital cost of the project as match to $4m
State investment
Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Grant Application Page 45 of 49 7/1/2013
Please provide a short narrative, and cost estimate, identifying the metering equipment, and its
related use to comply with the operations reporting requirement identified in Section 3.15 of the
Request for Applications.
The Applicant shall provide the Authority with a Performance/O&M Report annually for ten
years after Project completion. The Performance/ O&M Report will include: (1) a detailed
description of Project operations and maintenance activities and issues; and (2) a detailed
description of Project performance, including: energy output; estimated fuel savings resulting
from the operation of the Project; any other relevant measures of Project performance reasonably
requested by the Authority; a description of repairs and modifications to the Project; and
recommendations for improvements for similar future projects.
The Mahoney Lake project will include a SCADA system capable of logging all relevant
operation and performance parameters, such as water level, flow rate, energy generated and
delivered, and more in order to reliably monitor and substantiate sale of energy to customers.
This SCADA system will also be able to generate much of the information required by the AEA.
The Applicant’s standard procedures for documenting staff activities will provide the necessary
information on O&M costs; therefore, the incremental cost to comply with the operations
reporting requirement identified in Section 3.15 will be negligible.
Phase III
Phase III
Milestone or Task
Anticipated
Completion
Date
RE- Fund
Grant Funds
Grantee
Matching
Funds
Source of
Matching
Funds:
Cash/In-
kind/Federal
Grants/Other
State
Grants/Other
TOTALS
Review and revise conceptual
design 1/3/2014 $250,000 $25,000 Cash, in-kind $275,000
Review, revise, and resubmit
permit applications 3/7/2014 $150,000 $15,000 Cash, in-kind $165,000
Obtain permit approvals 12/5/2014 $100,000 $10,000 Cash, in-kind $110,000
Revise and resubmit final
design documents 9/8/2014 $250,000 $25,000 Cash, in-kind $275,000
Prepare final cost estimate 9/19/2014 $50,000 $5,000 Cash, in-kind $55,000
Update economic and financial
analysis 11/28/2014 $50,000 $5,000 Cash, in-kind $55,000
Power sales evaluation 5/29/2015 $100,000 $10,000 Cash, in-kind $110,000
Prepare business and
operational plan 6/30/2015 $50,000 $5,000 Cash, in-kind $55,000
TOTALS $1,000,000 $100,000 $1,100,000
Budget Categories:
Direct Labor & Benefits $720,000 $100,000 Cash, in-kind $820,000
Travel & Per Diem $30,000 $00 Cash, in-kind $30,000
Renewable Energy Fund Round VII
Grant Application - Standard Form
AEA 2014-006 Grant Application Page 46 of 49 7/1/2013
Equipment $0 $0 Cash, in-kind $ 0
Materials & Supplies $0 $0 Cash, in-kind $ 0
Contractual Services $250,000 $0 Cash, in-kind $250,000
Construction Services $0 $0 Cash, in-kind $ 0
Other $0 $0 Cash, in-kind $ 0
TOTALS $1,000,000 $75,000 $1,100,000
Phase IV – Construction --
Phase IV
Milestone or Task
Anticipated
Completion
Date
RE- Fund
Grant Funds
Grantee
Matching
Funds
Source of
Matching
Funds:
Cash/In-
kind/Federal
Grants/Other
State
Grants/Other
TOTALS
(List milestones based on
phase and type of project.
See Milestone list below. )
$ $
Mobilization 6/30/2016 $1,000,000 $ Cash, in-kind $ 2,000,000
Compliance Monitoring 12/31/2017 $ $ $ 2,000,000
Construction Support Staff 12/31/2017 $ $ $ 2,000,000
Roads and ROW maintenance 4/30/2016 $700,000 $ Cash, in-kind $ 700,000
Transmission Line 8/31/2017 $ $ $ 5,000,000
Penstock Installation 8/31/2016 $ $ $ 10,000,000
Lake Tap 9/30/2017 $ $ $ 15,000,000
Powerhouse Building 5/31/2017 $ $ $ 3,000,000
Powerhouse Equipment 8/31/2017 $2,300,000 $ Cash, in-kind $ 4,000,000
Substation(s) 8/31/2017 $ $ $ 1,500,000
Tailrace 6/30/2017 $ $ $ 250,000
Communications Equipment 8/31/2017 $ $ $ 100,000
Permitting Modifications, etc. 12/31/2017 $ 100,000
Start-up and Testing 10/31/2017 $ 150,000
Demobilization 12/31/2017 $ 200,000
TOTALS $4,000,000 $ $46,000,000
Budget Categories:
2013 Officers
JudyZenge
President
The Plaza LLC
Nancy Christian
Vice President
Tongass Federal Credit Union
Mary Wanzer
Vice President
Coastal Real Estate Group
Ann McKim
Treasurer
Island Tile and Marble
Penny Pedersen
Secretary
Ketchikan PeaceHealth Medical
Center
Anna Shaffer
Secretary
Starboard Frames & Gifts
Miguel Torres
Past President
GCI
Doug Ward
Rep. Alaska State
Chamber
Alaska Ship & Drydock
2013 Directors
Jason Custer
Alaska Power & Telephone
Eric Nichols
Alcan Forest Products
Mary Bolshakoff
Alaska Travelers
Accommodations
Andrew Spokely
Power Systems & Supplies of
Alaska
Katherine Tatsuda
Tatsuda's IGA
Anna Marie Mestas
Kristie Karow
KYPN Representatives
Greater Ketchikan Chamber of Commerce
p.o. Box 5957, Ketchikan, Alaska 99901
Phone: (907) 225-3184
Fax: (907) 225-3181
E-mail: info@ketchikanchamber.corr
WVWI.ketchikanchamber.corr
September 10, 2013
To Whom it May Concern:
The purpose of this letter is to express the Greater Ketchikan Chamber of Commerce's support
for development of the Mahoney Lake hydroelectric project in a manner which:
a) Assures affordable electricity to Ketchikan residents and businesses,
b) Supports Ketchikan's economic growth and development, attracts new businesses,
and leads to creation of new jobs, and
c) Contributes to the Ketchikan region's overall economic health and sustainability.
Demand for electricity in the region continues to grow. An increasing number of homeowners
and businesses are using electric heating systems, and new pUblic facilities have created and
will continue to create concurrent new needs for power. Major development activities with great
economic potential for the region, such as the continued expansion of Alaska Ship and Drydock,
the possible construction of Alaska Class Ferries in Ketchikan, expansion of Ketchikan's
maritime industry sector, and future mining activities on Prince of Wales Island, will create
additional demand for electriCity. The cost of burning diesel fuel during times of high demand
cuts into businesses' bottom lines and adds to families' living expenses. .
Increased availability of affordable electricity will support the development of Ketchikan's
economy, driving business growth and making the region more attractive for new private sector
investment. Surplus, affordable power will attract new jobs and businesses to the region.
The City of Saxman owns the FERC license for a 9.6 megawatt hydroelectric project at
Mahoney Lake. The Mahoney Lake project is "low hanging fruit" capable of providing for
Ketchikan's energy needs for years to come.
The Greater Ketchikan Chamber of Commerce ~upports construction of the Mahoney Lake
project before expiration of permits and lice ing.
SincereJy,~
Chelsea J. Goucher
Business Manager
Greater Ketchikan Cham be
0: (907) 225-3184
C: (907) 220-2133
E: chelsea@ketchikanchamber.com
3801 N Tongass, P.O. Box 9470, Ketchikan, AK 99901
Phone 907.225.7199 / fax 907.247.7199 / alaskashipanddrydock.com
September 11, 2013
To Whom it May Concern,
Alaska Ship & Drydock (ASD) is a Vigor Industrial company which operates the Ketchikan Shipyard under
agreement with the Alaska Industrial Development and Export Authority (AIDEA), and is engaged
primarily in shipbuilding and repair.
The purpose of this letter is to express Alaska Ship & Drydock’s support for development of the
Mahoney Lake Hydroelectric project in a manner which assures competitively priced energy to
businesses and ratepayers in southeast Alaska. The Mahoney Lake project has already received its FERC
license through $4,000,000 in private sector investment by Alaska Power & Telephone and Cape Fox
Corporation, and has recently received $200,000 in State of Alaska direct capital appropriation funding
support to help update the project’s conditions and prepare for construction. ASD believes that it is vital
to leverage the project’s license and existing investment for the benefit of the region. ASD also believes
that market entry by independent power producers is a valuable concept, which will help encourage
more competitive energy pricing structures.
Alaska Ship and Drydock is working to develop Alaska’s infrastructure and workforce, to support growth
of Alaska’s marine transportation, resource development, fisheries, and on/off-shore gas industries
through shipbuilding and repair activities; a subsector of advanced manufacturing. Ketchikan’s shipyard
attracts marine vessel fleet owners and operators (AMHS and NOAA) to the region, and enhances
Ketchikan’s potential as a base port for commercial vessels engaged in in economic activity throughout
Alaska. Growth in demand for shipyard supplies, material, and workforce supports expansion of local
businesses, attracts new businesses, and creates new economic opportunities and diversity.
Along with other components of the region’s maritime industry sector, Alaska Ship & Drydock’s facilities
are expanding to meet increasing demand associated with expanding markets. With such growth comes
concurrent, long-term demand for competitively priced energy, which can be provided by hydroelectric
projects such as Mahoney Lake.
Sincerely,
Doug Ward