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HomeMy WebLinkAboutBlue Lake Grant Application 6Renewable Energy Fund Round 6 Grant Application AEA 13-006 Application Page 1 of 30 7/3/2011 Application Forms and Instructions This instruction page and the following grant application constitutes the Grant Application Form for Round 6 of the Renewable Energy Fund. An electronic version of the Request for Applications (RFA) and this form are available online at: http://www.akenergyauthority.org/RE_Fund-6.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 satisfied 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. 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. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 2 of 30 7/3//2012 SECTION 1 – APPLICANT INFORMATION Name (Name of utility, IPP, or government entity submitting proposal) City & Borough of Sitka (CBS) Type of Entity: Fiscal Year End Tax ID # 92-0041163 Tax Status: For-profit or X non-profit ( check one) Mailing Address 100 Lincoln Street Sitka, Alaska 99835 Physical Address Same Telephone 907-747-1808 Fax 907-747-7403 Email jimdinley@cityofsitka.com 1.1 APPLICANT POINT OF CONTACT / GRANTS MANAGER Name Christopher Brewton Title Utility Director, Electric Department Mailing Address 105 Jarvis Street Sitka, Alaska 99835 Telephone 907-747-1870 Fax 907-747-3208 Email chrisb@cityofsitka. 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 An electric utility holding a certificate of public convenience and necessity under AS 42.05, or An independent power producer in accordance with 3 AAC 107.695 (a) (1), or X 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 its project by its 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. YES 1.2.4 If awarded the grant, we can comply with all terms and conditions of the attached grant form. (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. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 3 of 30 7/3//2012 SECTION 2 – PROJECT SUMMARY This is intended to be no more than a 1-2 page overview of your project. 2.1 Project Title – (Provide a 4 to 5 word title for your project) Blue Lake Hydroelectric Expansion Project 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. The project is located on Sawmill Creek, formerly the Medvetche River, in the Borough of Sitka, Alaska. The project currently occupies a total of 1,676 acres of federal lands administered by the U.S. Department of Agriculture, Forest Service (U.S. Forest Service), and under the City of Sitka’s proposal, it would occupy 1,798 acres of federal lands. 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. Blue Lake, Sitka, Alaska 570 3’ 55.36” - 1350 11’ 54.39” 2.2.2 Community benefiting – Name(s) of the community or communities that will be the beneficiaries of the project. The immediate beneficiary of the project is the community of Sitka, Alaska. 2.3 PROJECT TYPE Put X in boxes as appropriate 2.3.1 Renewable Resource Type Wind Biomass or Biofuels X Hydro, including run of river Transmission of Renewable Energy Geothermal, including Heat Pumps Small Natural Gas Heat Recovery from existing sources Hydrokinetic Solar Storage of Renewable Other (Describe) 2.3.2 Proposed Grant Funded Phase(s) for this Request (Check all that apply) Pre-Construction Construction Reconnaissance Design and Permitting Feasibility X Construction and Commissioning Conceptual Design Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 4 of 30 7/3//2012 2.4 PROJECT DESCRIPTION Provide a brief one paragraph description of your proposed project. The City & Borough of Sitka proposes to raise the project dam from spill elevation 342 feet mean sea level (msl) to elevation 425 feet msl; construct a new powerhouse containing three 5.3-megawatt (MW) units; install new intake works and a surge chamber; and modify the power conduit to accommodate higher hydraulic pressure and connect new or relocated project features. In addition, the existing 0.670-MW fish valve unit generator would be replaced with a new 1-MW unit and the existing 0.870-MW pulp mill feeder unit would be decommissioned. The total authorized capacity of the project would rise from 7.5 MW to 16.9 MW. 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, etc.) The levelized annual cost of the City of Sitka’s proposed action, including its environmental measures, would be approximately $8,554,000 annually. The City of Sitka estimates that operation of the modified project would result in an increase in annual generation of approximately 32,000,000 kWh. Using a regional estimated alternative energy value of $350/MWh, based on replacement of project energy with diesel-fuelled generation, which is the only locally available fuel source, this additional generation, would be valued at $11,200,000 annually. Therefore, the net benefit of the licensee’s proposed action, including total capital costs and generation benefits, would be approximately $2,646,000 annually. Full utilization of this additional capacity would eliminate over 2.285 million gallons of diesel-fuelled generation. 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. With the revised bids for the Blue Lake Project, the estimated total cost of the Project is approximately $145 million. To date, the City has $21 million from the sale of the 2010 Bonds and $49.5 million in a grant from the State of Alaska. This leaves approximately $75 million to be financed. The City is planning to apply for an additional funding including grants, from the State for at least a portion of this amount. Any remaining costs will need to be funded from additional bonds. 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 $4,000,000 2.7.3 In-kind match to be provided $0 2.7.4 Other grant applications not yet approved $0 2.7.5 Total Grant Costs (sum of 2.7.1 through 2.7.3) $4,000,000 Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 5 of 30 7/3//2012 Project Costs & Benefits (Summary of total project costs including work to date and future cost estimates to get to a fully operational project) 2.7.6 Total Project Cost (Summary from Cost Worksheet including estimates through construction) $145,000,000 2.7.7 Estimated Direct Financial Benefit (Savings) $2,646,000 2.7.8 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 your application (Section 5.) $ N/A SECTION 3 – PROJECT MANAGEMENT PLAN 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). 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. A Request for Proposal (RFP) was issued to for construction management services for the Blue Lake Expansion project on January 18, 2012. There were three proposals submitted and on April 10, 2012 the CBS awarded a construction management contract to McMillen LLC. Professional credentials, staffing, and project schedules for McMillen and other staff are enclosed. 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 Project License & Permits FERC Capacity Related Amendment 11/23/2010 5/30/2012 Contract 1 ($13,215,727) Turbine Generators 9/14/2010 2/02/2013 Contract 2 ($684,000 est.) Switchgear 10/31/2012 7/01/2013 Contract 3 ($761,431) Intake Gate & Bulkhead 7/13/2012 4/09/2013 Contract 4 ($927,975) Penstock Manifold 10/25/2011 1/08/2013 Contract 5 ($1,330,000 est.) Transformer 10/15/2012 10/10/2013 Contract 6 ($288,885) Bridge Crane 6/14/2011 8/01/2013 Contract 7 ($1,185,648) Steel Building 8/09/2011 12/01/2013 Contract 8 ($1,530,000 est.) Debris Management TBD TBD Contract 9 ($92,975,300) Construction 11/01/2012 12/31/2014 Contract Award ($4,328,394) Construction Management 4/10/2012 12/31/2014 Contract Award ($822,650) Construction Engineering 12/27/2011 12/21/2014 Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 6 of 30 7/3//2012 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 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. All major equipment procurements, with the exception of Contracts 2, 5 & 8 have been competitively bid and awarded. Contracts for construction management and construction engineering have been competitively bid and awarded. In addition, a contract has been issued to A. Dashen & Associates to provide assistance in refining the project finance plan to accommodate the unexpected increase in construction bids. A contract has been issued to Utility Financial Solutions LLC to provide updated rate studies reflecting the higher than expected construction bid. Currents Consulting has been under contract for the duration of the project as Consulting Engineer. C. Mike Prewitt has been under contract for the duration of the project as FERC Licensing Consultant. Project construction will be accomplished under Contract 9 and Barnard Construction was issued a Notice of Award on September 10, 2012. The following summarizes non-equipment project resources: Contractor Principal Service C. Mike Prewitt, LLC Mike Prewitt FERC Licensing and Environmental Consulting Currents Consulting Paul Carson Project Engineering & Construction Consultant Utility Financial Solutions Mark Beauchamp Cost of Service Study & Electric Rate Analysis A. Dashen & Assoc. Alan Dashen Financial Advisor & Bond Consultant Hatch Energy Stephen Hart Construction Engineering Design Services McMillen & Assoc. Richard Linden Construction Management Services 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. In accordance with the approved construction management plan, scheduled progress reports, Requests for Information, pay schedules, schedule modifications, and change orders will be produced by McMillen. The Authority will receive monthly progress and financial reports. 3.5 Project Risk Discuss potential problems and how you would address them. This is a project that has been designed with the best available information, assessing risk to the best of our ability. However, risks of all manner do exist that will require attention as the project moves through construction. Bids were received for the Blue Lake Expansion Project general construction contract on July 31, 2012. The three bid proposals were $84 million, $93 million, and $101 million, vs. the Hatch (design engineer’s) construction cost estimate of $49 million. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 7 of 30 7/3//2012 The bids are well in excess of the Hatch engineer’s estimate, but are bunched together with the two high bids being 10% and 20% higher respectively, than the low bid. We received complete proposals from three construction firms who we believe researched and understood the bidding documents adequately. Review of the engineer’s estimate and the bids for Blue Lake show that: a. Across almost all bid items, the engineer’s estimate is low, suggesting that the estimate did not adequately consider the cost of work in Southeast Alaska. b. The engineer’s estimate likely did not adequately consider the difficult access constraints and unique construction methods required for the Project. c. The unit costs for supply and installation of concrete, steel, fuel and materials were likely underestimated by the engineer. d. Following a request by the City, Hatch provided a letter in which they attribute their low estimate to a combination of: 1) hourly labor rates that were too low; 2) not including a construction camp in their estimate for the project; and 3) risk contingencies they feel were added by the bidders. The design drawings and specifications (attached) for the construction are detailed and essentially complete. We believe that the bid prices we received represent a true cost to construct the project that was designed by Hatch and that acquiring additional financing to complete the project is the best alternative for the City. However, to fairly evaluate all possible options, we also considered two other options; canceling the project in its entirety or rejecting all bids and rebidding the project. Option for Canceling the Project The City could reject all construction contract bids and cancel the Blue Lake Expansion Project. We are not yet financially obligated to any construction contractor and would not incur any direct cost from them. Cancelling the project would also involve early termination of the Project supply and service contracts. It is possible we could cancel the contracts we have (with a total current obligation of $33 million) for something less than $15 million. It is unclear what risk or obligation we might have for the suppliers’ lost profit or cancellation charges. Combined with the engineering and licensing costs, the City and Borough would suffer a net sunk cost of about $20 million to $30 million to cancel the Expansion Project. Canceling the project would require the City to conduct discussion with State of Alaska regarding grant monies already expended. Whether repayment to the state would be required is unknown. The Blue Lake Expansion Project has been under planning and design for six years. If we cancel the Project we must re-define a less costly expansion of Blue Lake or we must pursue another electric generation resource for the Sitka community. It is likely that a new resource could not be planned, licensed, designed and developed for 5 to 15 years. We could possibly add new diesel generating units in 3 to 5 years. We have determined that the current cost of diesel generation to the ratepayer is about $0.43/ kWh. This is about 2-3 times the power cost anticipated with the present, unexpected higher bid prices of the Blue Lake Expansion Project. Constructing the Takatz Lake hydroelectric project could require 10 to 20 years and considerably more money than the Blue Lake Expansion cost we are now faced with. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 8 of 30 7/3//2012 Other electric generating resources, including modifications to the Blue Lake Expansion plan, new diesel generation, or new hydropower generation could experience increases in capital cost as the U.S. economy improves, prices increase, and contractor bidding opportunities increase. Option for Rejecting bids and Re-bidding the Construction Contract The City could reject the current bids and re-advertise for new contractor bids. If we re-bid the existing design we have no reason to expect that bid prices will be lower. Our construction management firm, McMillen LLC has noted an up-tick in steel, fuel, and cement prices in the past few months that we would expect to increase the project cost on a re-bid. McMillen’s opinion is that this same project could cost up to $10 million more if bid a year from now. If we re-bid with sufficient time to allow new contractors to bid the project (other than the 4 bidders we had in July) we expect that the contract award cannot be made before spring, 2013. This would mean that we will lose a year in the project schedule as the selected contractor needs to start work at the site in the winter so they can be in full swing during the low lake level period of April and May. The hidden costs of delaying a complicated construction project of this nature for a year are significant. When the project is delayed the supporting engineering and administration efforts do not completely stop. The construction management effort will continue to respond to equipment supplier’s RFIs, comments and requests from agencies, and additional requests from the FERC. Demurrage must be paid on equipment or special equipment mobilized to off load and store equipment at the Project site. The most significant cost of a one year delay in construction is the loss of continuity in every aspect of the work. When you back burner a project the thought process stops and if the people working on it don’t move on to other work they forget the details of the work and are not able to resume where they left off. We estimate that these hidden costs of delaying the project would range from $3 million to $9 million. Overall, we expect a re-bid to result in higher, not lower, bid prices. We believe that reducing the project cost will require either: 1. Modifying (reducing) the project scope, by re-engineering the design, or 2. Working with a selected contractor after contract award to “value engineer” the contract to reduce the cost of construction. This would be a combination of changes in scope and schedule and risk sharing to reduce the construction cost. The Construction Management team has identified only a few elements of the project that could be redesigned to lower the project cost. These include details such as the surge chamber arrangement and the tunnel concrete liner. The CM team feels that these changes could result in only a modest reduction in the Project cost. On September 10, 2012 the Sitka Assembly conducted a work session to discuss these options for the Blue Lake Project. On September 11, 2012 the Assembly met in Executive Session to discuss the available options and risks for the project. The Assembly voted on a 7-0 margin to approve Notice of Award and continue with the project. Immediately following the contract award, we will evaluate opportunities for reducing the project cost through reduced scope items, reduced risk and value engineering proposals from the selected contractor. On October 23, 2012 the Project team will be presenting the final, best estimate for construction costs to the Assembly for their approval for Notice of Award and formally authorizing project construction. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 9 of 30 7/3//2012 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. Economic Justification for Increased Hydroelectric Power The City and Borough of Sitka received an unpleasant surprise on July 31 when bids for the major construction contract for the Blue Lake Hydroelectric Dam and Powerhouse were opened and found to be far in excess of the engineer’s estimate. Even though this caused unanticipated complications in the project and it’s financing, this increased cost has not changed the compelling underlying justification for increased hydroelectric power. It is widely accepted that the City and Borough of Sitka has been approaching maximum electricity production capacity, and consumption, for some time. The proximity to capacity has been a limiting factor in the continued economic development of Sitka. One major private sector expansion in Sitka, with associated jobs, was cancelled due to the unavailability of guaranteed power. A commonly shared view by civic leaders is that electric power will be the cornerstone to any meaningful future economic development. Given this shared view, it then becomes a question of not if, but how, to acquire additional electricity generation capacity in Sitka. At this point in time, there are realistically two viable options for generation – burning fuel oil in our diesel generators or adding new hydroelectric resources. The characteristics of fuel oil generation make it a much less desirable option. While the cost of the physical plant for fuel oil generation, that being diesel generation units, is much lower in cost than hydroelectric dams, diesel generators require expensive fuel. The cost of producing extra generation capacity through diesel generation would be very expensive given existing diesel prices. Also, the purchase of diesel fuel can’t be financed through the issuance of bonded indebtedness, which would allow the cost to be evenly spread over decades of time. Finally, the cost of diesel fuel, when forecasted over the decades approximating the life of a hydroelectric dam, is expected to rise continuously and significantly. The high cost of generating electricity through the burning of fuel oil is masked by the fact that hydroelectric generation is low cost and we presently generate power through a combination of the two. If the cost of fuel oil generation is isolated to just itself, the cost per kilowatt hour generated is excessive – 43 cents per kWh at a fuel cost of $4.10 per gallon, with an inevitable rise in the future. Even in a worst case funding scenario, hydroelectric generation can be fixed at a cost of 15 cents per kWh provided power consumption is not decreased below existing levels. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 10 of 30 7/3//2012 1 Includes 670 kW Campground hydro and 870 kW Filter Plant hydro. For these reasons, hydroelectric is the lowest cost source of additional electricity generation. Its fuel, water, is essentially free and will remain so. The cost of the hydroelectric infrastructure can be locked in at today’s prices, and at today’s low interest rates, avoiding escalating future costs for fuel. In summary, additional hydroelectric generation capacity is the best and most viable solution for Sitka’s energy needs in the long run. This is because the cost of other viable alternatives is prohibitive and subject to uncontrollable escalations in the future. 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. Sitka’s existing power plants are: Blue Lake, hydro1 Green Lake, hydro 18 MW 61,000 megawatt-hours - commissioned 1979 8 MW 63,000 megawatt-hours – commissioned 1958 Jarvis Street, diesel 12 MW Supplemental/Stand-by as required (3 ea) 8 MW Fairbanks-Morse – commissioned 1968-1971 (1 ea) 4 MW Caterpillar – commissioned 2000 ========== Total 38 MW 124,000 megawatt-hours hydroelectric - average water year 90,000 megawatt-hours - low rainfall year 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. In fiscal year 2011, Sitka’s total gross hydroelectric generation was 118,426,000 kWh. The net hydroelectric energy delivered to the Power Transmission and Distribution System was 111,259,904 kWh. In addition to hydroelectric generation, due to a low water year and system load growth, Sitka also produced 3,805,000 kWh of diesel generation at an additional cost of $1,038,452. Consumers are reacting to volatile heating oil prices by shifting from oil to electric space heat. Sitka’s average hydroelectric generation capability is currently estimated at 124,000,000 kWh and will typically range from 90,000,000 kWh in a dry year to 134,000,000 kWh in a wet year. As a result, considering a low rainfall year capability of about 90,000,000 kWh, Sitka has now used up its firm hydroelectric energy supply and the growth in load will be increasingly met with supplemental diesel generation until additional hydroelectric capability can be brought on line. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 11 of 30 7/3//2012 4.2.3 Existing Energy Market Discuss existing energy use and its market. Discuss impacts your project may have on energy customers. The present cost of No.2 heating oil used for space heating in Sitka is $4.13/gal. This is equivalent to a cost of $0.13/kWh for electric space heating. As we have seen over the past three years, if it is cheaper to heat with electricity than with fuel oil, our electric loads will grow. Conversely, if our electric rates rise above 13 cents per kWh and fuel oil costs remain the same, we should expect that electric consumption in the City to decrease. Therefore, an electric rate of $0.13/kWh is a key threshold above which we should expect electric power demand in our system would decrease. As fuel oil prices increase, the electric threshold sale would also rise. For all the cost that the City might endure for this Project, we will end up with a hydroelectric system that can generate about 154 million kWh in an average water year. This 154 million kWh annual energy exceeds our fiscal year 2012 system energy demand of 112 million kWh by 42 million kWh. This increased capacity will not be consumed by our existing customer base for a number of years, until we see population and industrial growth or until more of our customers convert from fuel oil to electric heat. In the early years of the Expansion Project’s operation the City will have a key opportunity to increase our power sales to increase revenues. These higher revenues could be used to add to the City’s Electric reserve fund or to moderate our customers’ electric rates. Specifically, the City will pursue an expansion of the number of interruptible/ surplus electric heating customers. A possible target of 10 million kWh of interruptible sales at $0.10/kWh should be considered. This target sale amount represents: • $1 million additional annual electric system revenue • Replacement of about 314,000 gallons of Sitka area fuel purchases each year with hydro- electric power (314,000 gallons of fuel oil = 10 million kWh). • An average interruptible load of about 1.1 MW (this would be an average increase in system load of about 9%, from 12.8 avg. MW to 13.7 avg. MW). In our present electric system we have only 3 interruptible power sales customers. These customers have a connected heating plant capacity of about 2 MW. When interruptible power is available, we sell 5,000,000 kWh of interruptible power to them. The City will also use the additional energy capacity of the system to advocate for economic development by offering reduced electric rates for new or expanded loads. The City might also consider selected adjustments in the electric rate structure to temporarily increase customer electric usage over the first few years of Project operation. Note that none of the bonding and electric rate analyses in this package consider the possible increased electric system energy sales. Any additional sales via load growth or interruptible sales could be used to bolster the City’s electric reserve fund or to possibly reduce electric rates in the future. Also, if these sales are via the interruptible sales program these sales can be cut off in low water years or if the underlying system electric consumption grows to match the new generating capacity. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 12 of 30 7/3//2012 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 The community of Sitka and the Blue Lake Project are located on Baranof Island, an isolated area of Alaska. Hydroelectric generation from the project is used to displace diesel-fueled generation. The City of Sitka’s September 2008 electrical load growth forecasts for the Sitka service area indicate a range from 1.2 to 1.9 percent in annual load growth is anticipated during the 2010–2030 period. With hydroelectricity, the Blue Lake Project displaces the need for other power plants, primarily diesel-fueled facilities, thereby avoiding power plant emissions and creating an environmental benefit. The present and future uses of power from the Blue Lake Project, its displacement of fossil- fueled generation, and contribution to a renewable generation portfolio support a finding that the power from the project would help meet both the short and long-term energy needs for Sitka. The proposed expansion of the Blue Lake Project would increase installed capacity by 9.36 megawatts (MW) from 7.54 MW to 16.9 MW and increase average annual generation by 32,000,000 kWh from 63,680,000 kWh to 95,680,000 kWh, wh ich would help the CBS meet its projected loads and provide needed energy that might otherwise be provided by fossil-fueled generation. Although a very complex project, the expansion is an extension of the existing Blue Lake project and integration of the electrical control and protection systems is fairly straight forward. In preparation for this project the Electric Department has completed the following actions to ensure reliable electric service is provided for the duration of the project: a. Designed and completed configuration of a ring bus for the Blue Lake switchyard. This will allow multiple switching arrangements to ensure Blue Lake & Green Lake power can be routed to the grid, independent of each hydro facility. b. The CBS has added additional Supervisory Control and Data Acquisition (SCADA) terminals at the Jarvis Street Diesel plant to allow this facility to operate as the backup control center during Blue Lake outages. In addition, the City has conducted extensive training for the Blue Lake Powerhouse Operators to qualify these operators for the diesel units as well. c. The CBS has designed and installed a 12.47kV construction power circuit to the remote dam site. This will allow the contractor to immediately have access to commercial power and allow construction to begin upon mobilization to the site. d. The CBS has signed and funded a Memorandum of Agreement with the Alaska Department of Transportation and Public Facilities (ADOT&PF) to install communications conduits in conjunction with an ADOT&PF road project. This will allow the installation of a complete fiber network for the entire utility system substantially improving SCADA security and operations. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 13 of 30 7/3//2012 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 currently occupies a total of 1,676 acres of federal lands administered by the U.S. Department of Agriculture, Forest Service (U.S. Forest Service), and under the City of Sitka’s proposal, it would occupy 1,798 acres of federal lands. Under the proposed action, the City of Sitka would inundate an additional 362 acres of land, creating an additional storage volume of about 122,000 acre-feet in Blue Lake. In response to requests from the Federal Energy Regulatory Commission (FERC) and the U.S. Forest Service, Sitka has prepared a Mitigation and Monitoring Plan (attached) that addresses land issues. This plan is attached. The project boundary falls within a U.S. Forest Service Designated Roadless-Rule area and actions taken to facilitate approval for the project are noted with the enclosed attachment. 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 The primary regulatory authorization for the Project was receiving the Order Amending the original license (attached) from the Federal Energy Regulatory Commission (FERC); we received the order from the FERC on May 30, 2012, authorizing the proposed construction to take place. The next step is to address Articles of the Amendment Order which address environmental and other conditions that the City must observe during and after construction. These Articles are derived from implementing terms and conditions identified in the Environmental Assessment (attached). Article plans include: Quality Control Inspection Plan Temporary Emergency Action Plan Owners Dam Safety Program Flood Routing Article Public Safety Plan Hazardous Substances Plan and SPCC Safety During Project Construction and Traffic Safety Plan Mitigation Plan Monitoring Plans (Cultural, Grassland, Wildlife and Fisheries) Noxious Weed Management Plan Erosion Control Plan Environmental Compliance Monitor Revegetation Plan Construction and Long Term Water Quality Monitoring Plan Rehabilitation Plan Reservoir Inundation Plan Bear Safety Plan Reservoir Access Control Plan Wildlife Disturbance Avoidance Plan Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 14 of 30 7/3//2012 Coinciding with the License articles are various permits, certifications and authorizations that must be obtained. Permits included are: USACOE Section 404 Permit Application and Public Notice CBS Building Permit and Comments USFS Special Use Authorization ADOT&PF Approach Road Permit ADF&G Fish Habitat Permit Alaska Coastal Management Program Review of Geotech Investigation Attached is a spreadsheet explaining current status of the plans and permits. Many of the plans and permits require input from the general contractor which was identified as Barnard Construction Company, Inc. on September 11, 2012. The City team and Barnard will work together to address each issue with permitting and plan completion throughout the pre-and early construction period. 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 On January 12, 2012 the Federal Energy Regulatory Commission (FERC) issued notice of the Final Environmental Assessment for the Blue Lake Expansion Project. All environmental issues are addressed in this document which is attached. 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 • Projected capital cost of proposed renewable energy system • Projected development cost of proposed renewable energy system Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 15 of 30 7/3//2012 Sitka is engaged in a long range strategy to decrease its dependence on oil by developing its renewable energy resources, particularly the known hydroelectric resources on Baranof Island. This project is ready for the construction phase and we anticipate the Notice of Award to begin construction will be issued on November 1, 2012. At present, the estimated cost to complete the project, including licensing, design, and construction is $144,799,938, including $5,128,415 in construction contingency funds, and $3,500,000 in reserves. The City is actively engaged with the construction contractor, Barnard Construction, to evaluate schedule/scope changes including value engineering, to determine possible cost reductions for the construction portion of the project. To further reduce project capital costs, the City is also considering removing the estimated $1,200,000 in diesel generation fuel costs from the project and recovering those costs through the established fuel surcharge rate program. The Blue Lake cost estimate and cash flow analysis is attached. With the exception of Contracts 2, 5, and 8, all project costs are firm and under contract. Total Estimated Project Cost: $145,000,000 (including contingencies and cost of Issuance) Expenditures to Date: $16,067,005 Additional Encumbrances: $17,236,373 Funding Sources: AEA Grant #1: $20,500,000 Grant Funds Received To Date: $10,984,207 AEA Grant #2 $28,500,000 Grant Funds Received To Date: $ 0 CBS Capital Project Funds $ 5,440,937 Expended to date: $ 1,988,787 CBS 1st bond Issue $21,000,000 Expended to date: $ 3,094,011 CBS Additional Funding Requirements $75,000,000 (estimated) CBS is planning for two to three additional revenue bond issues in order to raise the funds necessary to complete the project. To assist the Municipality in planning for the proposed bond issues, the CBS has hires its own financial Advisor, A. Dashen and Associates. The first bond issue is planned for February 2013 and will probably be in the range of 50 million dollars. It is anticipated that proceeds from the issuance will be required by mid-spring of 2013. The bonding process for the first bond has already been initiated. The first key step in the bonding process is Assembly approval of a bonding application which is scheduled to take place at the first Assembly meeting in October. In addition to the planned bond issuance(s), the City has requested $43,000,000 in funding be included in the Governor’s Budget for FY2014 to facilitate completion of the project. The request letter is attached. It is also our intent to request a $43,000,000 direct legislative funding request for the project in the City’s annual Legislative Request process. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 16 of 30 7/3//2012 2 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. 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.) Sitka will fund all O&M costs for the Blue Lake Expansion through the sales of electric energy through rates approved by the Sitka Assembly. Sitka’s rate consultant completed an Electric Cost of Service and Rate Design Studies in December 2011. These studies recommended specific areas in which the present rates should be modified. The objective is to collect adequate revenue by each rate class to ensure utility fixed costs were recovered. On July 10, 2012, the Sitka Assembly approved new rates that follow recommended cost of service principals, particularly the implementation of a customer charge to recover fixed costs, and the first in a series of rate increases to fund the Blue Lake Expansion Project. The Ordinance implementing these rates with an effective date of September 1, 2012 is attached. 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 All project energy would be sold at retail rates through the Sitka Assembly approved rates. It is our intent to promote an aggressive interruptible service rate to encourage increased sales and revenue for the utility yet not over-prescribe the new hydroelectric capacity. 4.4.4 Project Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. Please fill out the form provided below Renewable Energy Source The Applicant should demonstrate that the renewable energy resource is available on a sustainable basis. Annual average resource availability. 100% (hydroelectric with reservoir) 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 Railbelt 2 grid, leave this section blank) Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 17 of 30 7/3//2012 i. Number of generators/boilers/other Six hydroelectric units, four diesel units ii. Rated capacity of generators/boilers/other 26 MW hydro + 12 MW diesel = 38 MW total iii. Generator/boilers/other type Francis Turbines iv. Age of generators/boilers/other Hydro 1958 & 1979, Diesel 1968 - 2000 v. Efficiency of generators/boilers/other Various b) Annual O&M cost (if system is part of the Railbelt grid, leave this section blank) i. Annual O&M cost for labor $3,908,578 – Cash Outlays for Salaries & Benefits – FY2013 ii. Annual O&M cost for non-labor $8,030,674 – Non-Personnel Operating Outlays – FY2013 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] 118,426,000 kWh gross hydro, 3,805,000 kWh diesel, 900 kWh Solar Pilot Project, 1,101 kWh Wind Pilot Project– FY2012 ii. Fuel usage Diesel [gal] 299,136 gallons in FY 2012 for supplemental diesel generation Other iii. Peak Load 24 MW on January 17, 2012 iv. Average Load 13.9 MW v. Minimum Load 10.9 MW vi. Efficiency Hydro 85-90%, 1968 vintage diesels 13.2 kWh/gal vii. Future trends Hydro 85-90%, 2000 vintage diesel 14.5 kWh/gal d) Annual heating fuel usage (fill in as applicable) i. Diesel [gal or MMBtu] 3.9 million gallons – space heating - estimated ii. Electricity [kWh] 115,064,904 kWh total retail sales - FY2012 iii. Propane [gal or MMBtu] unknown iv. Coal [tons or MMBtu] N/A v. Wood [cords, green tons, dry tons] 800 cords - estimated vi. Other N/A 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] 16.9 MW b) Proposed annual electricity or heat production (fill in as applicable) c) i. Electricity [kWh] 32,000,000 kWh ii. Heat [MmBTU’s] N/A c) Proposed annual fuel usage (fill in as applicable) i. Propane [gal or MMBtu] N/A Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 18 of 30 7/3//2012 ii. Coal [tons or MMBtu] N/A iii. Wood [cords, green tons, dry tons] N/A iv. Other N/A Project Cost a) Total capital cost of new system $113,936,928 b) Development cost $30,863,010 c) Annual O&M cost of new system $878,960 estimated d) Annual fuel cost $0 Project Benefits a) Amount of fuel displaced for i. Electricity 2,285,714 gallons at full project utilization ii. Heat N/A iii. Transportation N/A b) Current price of displaced fuel $4.13 gallon – $9,434,000 at full project utilization c) Other economic benefits d) Alaska public benefits Contribution towards State Renewable Energy Goals Power Purchase/Sales Price a) Price for power purchase/sale N/A Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 19 of 30 7/3//2012 Notes: 1. Cost to construct Blue Lake Hydroelectric Project Resource assessment/feasibility/conceptual-preliminary design $ 1,400,000 Final design and FERC licensing $ 10,600,000 Construction Equipment & Materials $ 17,866,628 City Performed Work/Incentives $ 3,095,000 Construction Contract $ 92,975,300 Construction Management/Engineering $ 6,974,594 Contingency $ 5,128,416 Temporary Services - Water/Diesel $ 3,260,000 Construction Subtotal $129,299,938 $129,299,938 Reserve Account $ 3,500,000 ========== Grand Total $144,799,938 2. Annual Blue Lake Hydro Project costs of ownership Interest3 Depreciation 2.0% 2.0% 1.8% (64% grant – 36% debt) 2.5% (50% debt - 50% grant) O&M 1.0% 1.0% Insurance 1.0% 1.0% === === Fixed charge rate 5.8% 6.5% If 65% grant funded, then: Annual costs = $52.2 million X 5.8% = $3.026 million per year (36% debt financed) $3.026 million / 32,000 MWh = $0.0946 cents per kWh at full utilization If 50% grant funded, then: Annual costs = $72.5 million X 6.5% = $4.713 million per year (50% debt financed) $4.713 million / 32,000 MWh = $0.1473 cents per kWh at full utilization 3 Interest rate is assumed to be 5%. Project Analysis a) Basic Economic Analysis Project benefit/cost ratio 2.37+; i.e.: $11.2 million annual avoided diesel gen / $4.713 million annual Blue Lake cost Payback (years) 11.33 years; i.e.: $6.4 million/yr net savings X 11.32 yrs = $72.5 million Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 20 of 30 7/3//2012 4.4.5 Proposed Biomass System Information Please address the following items, if know. (For Biomass Projects Only) • What woody biomass technology will be installed (cord wood, pellets, chips, briquettes, pucks). • Efficiency of the biomass technology. • Thermal or electric application. • Boiler efficiency. • Displaced fuel type and amount. • Estimated tons of wood pellets or chips (specify) to be used per year, and average moisture percentage. • Estimated cords of wood to be used per year, specify whether dry or green and the moisture percentage. • Ownership/Accessibility. Who owns the land and are their limitations and restrictions to accessing the biomass resource? • Inventory data. How much biomass is available on an annual basis and what types (species) are there, if known? 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 Sitka currently consumes about 6 million gallons of diesel fuel and 3 million gallons of gasoline per year, for a total of 9 million gallons for all purposes (power generation, heating, and transportation (boats & vehicles). Currently, the retail electric rates are lower than the equivalent heating oil cost for space heating. The retail electric rates are also lower than the equivalent gasoline cost in a passenger car. If these cost relationships continue into the future, there is significant potential to displace land based diesel fuel and gasoline consumption for heating and ground transportation in Sitka over the next twenty years. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 21 of 30 7/3//2012 With completion of the Blue Lake Expansion Project, over 2 million gallons of diesel and gasoline consumption in Sitka could be displaced by hydroelectric energy. Displacing 2 million gallons of fuel per year represents an avoided fuel cost of about $9.52 million dollars per year in 2012 dollars ($4.76018 per gallon per EIA Juneau medium projection for 2014). The benefit to the environment of displacing 2 million gallons of fuel with clean, renewable hydroelectric energy would be a reduction in green house gas emissions of about 22,200 tons of carbon dioxide per year. A project design life of 30 years equates to 60 million gallons of fuel oil displaced by zero-emission hydro and elimination of over 666,000 tons of carbon dioxide. Based on the historical average load growth, we would expect to see approximately 2,120,000 kWh of addition load each year which would result in approximately $300,000 in additional revenue each year based on current rates. However, depending on the ultimate financing package for the project, we anticipate modest rate increases over the next 5 year period. In addition to cost-based rates, Sitka will promote an aggressive strategy to increase our interruptible rate customers. With an additional 10,000,000 kWh in interruptible sales, the City could easily increase revenues by $1,000,000 per year from interruptible sales alone. Potential tax credits could significantly impact the economic feasibility of the project. However, we are unaware of any potential tax credits that may be available for hydroelectric projects at this time. Sitka has funded ($100,000) and implemented an Energy Star rebate program to encourage wise and efficient use of our limited hydroelectric resources. The program was created while the City was operating diesel generation and was intended to reduce system load by encouraging consumers to replace outdated, inefficient appliances as well as replacing existing electric heat with Energy Star approved heat pumps. To date, we have provided 111 rebates for appliances and 17 rebates for heat pump installations. As you are aware, AEA has recently funded Renewable Energy Alaska Project (REAP) to work with select Southeastern communities, including Sitka, to implement Demand Side Management and Energy Efficiency measures identified in the Southeast Alaska Integrated Resource Plan (SEIRP). We have met with REAP and look forward to the opportunity to continue our energy efficiency measures. We are particularly hopeful the program will lead to increased State support for the replacement of oil heat with heat pumps. Specifically, this would be an ideal program for Sitka as it would increase system electric sales, lower customers’ energy costs despite the need to raise electric rates, and of course reduce the amount of hydrocarbons burned in the community. In addition to the economic benefits, the City & Borough of Sitka fully supports the reduction of greenhouse gases, mitigating climate change, and reduction of hydrocarbons consumed. Resolutions are attached. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 22 of 30 7/3//2012 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 The Alaska Public Utilities Commission issued Certificate of Public Convenience and Necessity No. 100 (attached) on December 31, 1970, to the City of Sitka authorizing it to operate as a public utility to provide Electric Service. The CBS has efficiently provided electric service to the community since that date. The Blue Lake Hydroelectric Expansion Project will be integrated into the existing electric utility system owned and operated by the City & Borough of Sitka. The plant will be operated via the Blue Lake Powerhouse SCADA system. Operations and maintenance costs will be included in a cost-based rate designed to encourage maximum utilization of the facility while maintaining reasonable energy costs. The new Blue Lake project will be operated identically to the existing facility. Blue Lake Powerhouse is the primary control center for the utility, and as noted in Section 3.4.1 in this application, the CBS is engaged in other system upgrades to improve system functionality and reliability. The Jarvis Street Diesel Plant will serve as the standby control center when construction activities require the Blue Lake Powerhouse to be taken off-line. Completion of this project will not result in reduction or elimination of any existing resources, with the exception of the existing Filter Plant Generator. This 870 kW unit will be decommissioned as a result of the Blue Lake Expansion Project. The CBS has received State funding for the addition of new diesel generation to address the serious lack of emergency generation. There is only 12 MW of emergency diesel generation available with system winter loads exceeding 24 MW. During the majority of the year, loss of the transmission line or a hydroelectric unit would result in rolling blackouts for the community. This event last occurred in October 2010 when a storm downed trees resulting in rolling blackouts for 3 days while the line was repaired. The CBS has completed the required Alaska Department of Environmental Conservation (ADEC) permitting process to increase diesel operations and is preparing to issue Requests for Proposal for new diesel generation by the end of 2012. This will allow permitting, design, and installation of new diesel generation by the scheduled Blue Lake outage date in September-October 2014. The City & Borough of Sitka is fully committed to a reduction in hydrocarbon usage and full utilization of all economically viable hydroelectric projects and will complete all administrative measures to meet all regulatory and financial requirements. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 23 of 30 7/3//2012 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. In late 2007, shortly after completing all Federal Energy Regulatory Commission (FERC) studies, analysis and other regulatory requirements to re-license the Blue Lake Project, it became apparent that Sitka would soon exceed all available hydroelectric capacity. This problem was exacerbated by the exponential rise in fuel oil prices and consumers switching from oil to electric heat. 0 1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000 Residential Commercial Harbor Public Authority Sawmill Cove Industrial ParkKilowatt HourskWh Increase in Last 10 Years 1 1 –Comprehensive Annual Financial Report After analysis of all possible options to increase system generation it was obvious that increasing the capacity of Blue Lake project was the best alternative for Sitka’s long-term renewable energy needs. Further, by utilizing the studies completed for Blue Lake Relicensing, the CBS was able to move fairly quickly and economically through the FERC license process. Concurrent with this process, the CBS contracted consultants and an engineering firm to design the Blue Lake Expansion. Although, the Engineer’s Estimate was substantially underestimated we believe the project as designed, maximizes the energy available at Blue Lake with the lowest possible cost. The financing model for the project anticipated a 50/50 spilt utilizing State and municipal funds. With the escalating cost of the project, the CBS is pursuing additional funding opportunities, including this grant application. To date the CBS has received the following grants and has met all administrative and financial reporting obligations, and will continue to do so for all future grant funds. Grant Agreement Number: Amount of Funds: Date Issued: 2195311* $20,500,000 July 7, 2012 7910002 $24,850,000 Approved but not issued *This is an increase of $8,000,000 which consolidated DCCED grant 11-DC-352 with this grant. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 24 of 30 7/3//2012 SECTION 8– LOCAL SUPORT Discuss what local support or possible opposition there may be regarding your project. Include letters of support from the community that would benefit from this project. There has been overwhelming community support for the Blue Lake Expansion Project. The CBS has been actively engaged in keeping the community informed of progress on the project and it is a common topic in many community forums. One of the interesting elements that surfaced to support the project was the production of a short video, Rain Power, to advocate, on the Federal level, for the recognition of hydroelectric projects as renewable energy. This production was a community, grass-roots effort that included many members of the community from all walks of life; environmental organizations, fisherman, department staff, and others to promote our hydro project. This movie was particularly effective in convincing U.S. Forest Service officials in Washington, DC to act quickly and approve our Roadless Rule Determination. A copy of Rain Power is included for your review. The CBS included an “advisory” ballot measure for public support to issue necessary bonds to fund and construct the Blue Lake Expansion Project during the October 2010 general election. The community support for this project was significant and the ballot measure passed with almost 90% voter approval. Results of this ballot measure are attached. Attached are specific letters of support from the Sitka Chamber of Commerce, Sitka Economic Development Association, and the Sitka Global Warming Group. SECTION 9 – GRANT BUDGET Tell us how much you want 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. Prior to the opening of bids for Contract 9, the main construction contract for the Blue Lake Dam Hydroelectric Project, the City and Borough of Sitka (CBS) was anticipating the overall cost of the Blue Lake Dam construction project to be $102 million dollars. This was based on the Design Engineers estimate of $49M for construction. In planning for the financing of a total project cost of $102 million, the CBS had anticipated issuing $32 million in additional electric revenue bonds in the late summer of 2013 (FY2014). In preparation for the issuance of these bonds, the CBS had participated in preliminary meetings with the Alaska Municipal Bond Bank Authority (AMBBA) and its Bond Counsel, K&L Gates, LLP. The CBS had also engaged a consulting firm, Utility Financial Solutions, LLC, to complete a Cost of Service Study and Rate Structure Analysis, both of which were instrumental in determining the rate structure and required rate increases, necessary to pay for the increased debt service which would arise from the anticipated additional bonding. The rate increase presented to, and subsequently passed by the Assembly was the first of five anticipated rate increases necessary to pay for the debt service required to fund a project at a total cost of $102 million dollars. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 25 of 30 7/3//2012 When the bids for Contract 9 were opened and it was apparent that the cost of construction on the project was far in excess of the Engineer’s Estimate, it was readily apparent that the existing financing plan would no longer be sufficient to pay for the increased cost of the project. After conferring with its Bond counsel, the CBS acted upon the advice of its counsel and engaged an independent financial advisor recommended by Counsel, A. Dashen & Associates from Bellevue, Washington. A. Dashen & Associates has a specialty in financing electric utility generation projects and has both worked in Southeast Alaska (with the Southeast Alaska Power Agency) and has an existing working relationship with the AMBBA and its financial advisor, Western Financial Group. In engaging A. Dashen and Associates, the CBS specifically asked them to investigate options for project financing that would allow the project to go forward without placing undue rate burdens on the utility’s rate payers. Following the July 31, 2012 construction contract bids and the Bid Evaluation team’s selection of Barnard Construction as the best responsive Bidder, the estimated total construction cost for the Project is now estimated at $145 million. This includes approximately $5 million in contingencies for cost increases in procurement and construction during construction. Based on this revised total project cost, and total additional funding of $71 million needed, A. Dashen and Associates developed possible financing scenarios as outlined in the next section. Alternative Project Financing Scenarios Evaluation by A, Dashen & Associates, led to discussions with AMBBA and its legal counsel over the past several weeks. These analyses and discussions have identified three possible funding alternatives for the Blue Lake Expansion Project. There has not been enough time since the July 31 bid opening to resolve which funding scenario is most likely. A final funding program will be determined by the amount of any additional State support for the Project along with responses from the AMBBA and its legal counsel. Consequently, the three scenarios are described below, with the understanding that the final funding arrangement will be selected over the coming months. Scenario Description 1 Additional State grant, phased rate increases allowed for the “Bond Test” 2 No state grant, phased rate increases allowed for the “Bond Test” 3 No state grant, no phased rate increases allowed for the “Bond Test” Note: The “Bond Test” is a confirmation that net revenues from electric sales will be at least 1.25 times the bond debt service payments. Phased rate increases allow annual rate increases to meet bond covenants. No phased rate increases means rates must be increased to meet new bond covenants the year of bond issuance, which results in a large one-year rate increase. Scenario 3 is the most onerous alternative which assumes no added State support and requires that all needed electric rate increases are in place at the time of the bond sale. City staff is investigating, with the help of the AMBBA, opportunities for different bond sale programs which would allow a series of bond sales and a sequence in electric rate increases. All scenarios assume an additional $71 million will be needed to complete the Project. The impact on Sitka’s electric rates for each of these scenarios are described below: Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 26 of 30 7/3//2012 FISCAL YEAR ENDED JUNE 30 % Increase Cents/kWh % Increase Cents/kWh % Increase Cents/kWh 2012 9.8 9.8 9.8 2013*12.3%11.0 12.3%11.0 **26.0%12.4 2014 12.3%12.4 12.3%12.4 10.3%13.6 2015 7.3%13.3 11.3%13.8 10.3%15.0 2016 7.3%14.2 11.3%15.3 3.3%15.5 2017 3.0%14.7 3.0%15.8 1.7%15.8 SCENARIO 1 SCENARIO 2 SCENARIO 3 * Adopted rate increase effective Sept 2012 ** For Scenario 3, an additional required rate increase of 13.7% is required in Feb 2013 With no additional State funding, our electric rates would rise to $0.158/kWh in 2017. This assumes the City bonds for all additional funds, no reductions in cost for the project (through negotiations with the selected contractor), and no increase in energy sales within the City’s electric system. Any of these additions in funding, energy sales, or cost reductions would reduce the electric rates indicated above. To help reduce overall project costs and mitigate rate impacts to our customers, the City requests $4,000,000 in AEA Renewable Energy Round VI funds. Applications should include a separate worksheet for each project phase that was identified in section 2.3.2 of this application, (Reconnaissance, Feasibility, Conceptual Design, Design and Permitting, and Construction). Please use the tables provided below to detail your proposed project’s budget. Be sure to use one table for each phase of your project. If you have any question regarding how to prepare these tables or if you need assistance preparing the application please feel free to contact AEA at 907-771-3031 or by emailing the Grant Administrator, Shawn Calfa, at scalfa@aidea.org. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 27 of 30 7/3//2012 Milestone or Task Anticipated Completion Date RE- Fund Grant Funds Grantee Matching Funds Source of Matching Funds: Cash/In- kind/Feder al Grants/Oth er State Grants/Oth er TOTALS Project Phase - Construction Design/Feasibility Studies 11/23/2010 $ $ $ 1,150,000 Bid Documents 5/30/2012 $ $ $ 10,850,000 Equipment Procurements 10/31/2012 $ $ $ 17,866,628 Contractor Selection & Award 9/11/2012 $ $ $ 21,958,010 Construction – Contract 9 4 12/31/2014 $4,000,000 $4,000,000 Bond $ 24,298,900 9a - Dam 22 $ $ $ 19,527,450 9b – Scour Wall 3 $ $ $ 1,038,750 9c – Drainage Tunnel 9 $ $ $ 3,785,200 9d – Intake Tunnel 6 $ $ $ 4,500,000 9e – Intake Structure 8 $ $ $ 2,700,000 9f – Gate Shaft 2 $ $ $ 4,500,000 9g – Tunnel Modifications 16 $ $ $ 14,600,000 9h - Penstock 3 $ $ $ 1,575,000 9i – Penstock Drain 1 $ $ $ 400,000 9j – Water Treatment Mods 2 $ $ $ 200,000 9k - Powerhouse 20 $ $ $ 14,800,000 9l – Fish Valve Unit 3 $ $ $ 350,000 9m – Switchyard Mods 8 $ $ $ 700,000 Integration & Testing 11/01/2014 $ $ $ In Contract 9 Decommission Old Systems 9/01/2014 $ $ $ In Contract 9 Final Acceptance & Start-Up 01/31/2015 $ $ $ In Contract 9 Operations Reporting Monthly $ $ $ 0 TOTALS $ $ $ 144,799,938 Budget Categories: Direct Labor & Benefits $ $ $ Travel & Per Diem $ $ $ Equipment $ $ $ Materials & Supplies $ $ $ Contractual Services $ $ $ Construction Services $4,000,000 $4,000,000 Bond $ 8,000,000 Other $ $ $ TOTALS $ $ $ 8,000,000 4 Sub-project completion dates are months required to complete that particular phase. The final construction schedule has not been finalized at this time. Renewable Energy Fund Round 6 Grant Application AEA13-006 Grant Application Page 28 of 30 7/3//2012 Project Milestones that should be addressed in Budget Proposal Reconnaissance Feasibility Design and Permitting Construction 1. Project scoping and contractor solicitation. 2. Resource identification and analysis 3. Land use, permitting, and environmental analysis 4. Preliminary design analysis and cost 5. Cost of energy and market analysis 6. Simple economic analysis 7. Final report and recommendations 1. Project scoping and contractor solicitation. 2. Detailed energy resource analysis 3. Identification of land and regulatory issues, 4. Permitting and environmental analysis 5. Detailed analysis of existing and future energy costs and markets 6. Assessment of alternatives 7. Conceptual design analysis and cost estimate 8. Detailed economic and financial analysis 9, Conceptual business and operations plans 10. Final report and recommendations 1. Project scoping and contractor solicitation for planning and design 2. Permit applications (as needed) 3. Final environmental assessment and mitigation plans (as needed) 4. Resolution of land use, right of way issues 5. Permit approvals 6. Final system design 7. Engineers cost estimate 8. Updated economic and financial analysis 9. Negotiated power sales agreements with approved rates 10. Final business and operational plan 1. Confirmation that all design and feasibility requirements are complete. 2. Completion of bid documents 3. Contractor/vendor selection and award 4. Construction Phases – Each project will have unique construction phases, limitations, and schedule constraints which should be identified by the grantee 5. Integration and testing 6. Decommissioning old systems 7. Final Acceptance, Commissioning and Start-up 8. Operations Reporting