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HomeMy WebLinkAboutGulkana Village GrantApplication5 Grant Application Application Attachment B Cost Worksheet Attachment C Grant Budget Form Attachment D Electronic version of the Proposal Attachment E Authorized Signers Form Attachment F Governing Body Resolution Attachment G Certification Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Attachment A Business Plan Attachment H Support L etter Renewable Energy Fund Round 5 Grant Application AEA 12-001 Application Page 1 of 21 7/1/2011 Application Forms and Instructions The following forms and instructions are provided to assist you in preparing your application for a Renewable Energy Fund Grant. An electronic version of the Request for Applications (RFA) and the forms are available online at: http://www.akenergyauthority.org Grant Application Form GrantApp5.doc Application form in MS Word that includes an outline of information required to submit a complete application. Applicants should use the form to assure all information is provided and attach additional information as required. Application Cost Worksheet Costworksheet 5.doc Summary of Cost information that should be addressed by applicants in preparing their application. Grant Budget Form GrantBudget5. doc A detailed grant budget that includes a breakdown of costs by milestone and a summary of funds available and requested to complete the work for which funds are being requested. Grant Budget Form Instructions GrantBudgetIn structions5.doc Instructions for completing the above grant budget form. Authorized Signers Form Authorized signers form5.doc Form indicating who is authorized to sign the grant, finance reports and progress reports and provides grantee information.  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 completion of each phase.  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 Grant Application Round 5 AEA12-001 Grant Application Page 2 of 21 7/1//2011 SECTION 1 – APPLICANT INFORMATION Name (Name of utility, IPP, or government entity submitting proposal) Gulkana Village Council Type of Entity: Fiscal Year End Federally-recognized Indian Tribe Tax ID # 92-0037705 Tax Status: For-profit or X non-profit ( check one) Mailing Address P.O Box 254 Gokona, AK 99586 Physical Address Mile 127 Richardson Highway Telephone 907-822-3746 Fax 907-822-3976 Email LClaw@GulkanaCouncil.org 1.1 APPLICANT POINT OF CONTACT / GRANTS MANAGER Name Mr. LaMonica Claw Title Tribal Administrator Mailing Address P.O. Box 254 Gokona, AK 99586 Telephone 907-822-3746 Fax 907-822-3976 Email LClaw@GulkanaCouncil.org 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) 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 A local government, or X 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. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 3 of 21 7/1//2011 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) Type in your answer here and follow same format for rest of the application. Gulkana Village Biomass Fuels 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. Location – latitude and longitude or street address or community / communities served: The Community of Gulkana, Alaska and surrounding rural homes and school businesses will benefit from this project. Gulkana, Alaska is located in the Copper River basin in the south-central interior of Alaska -- on the east bank of the Gulkana ("Kulkana") River -- at its confluence with the Copper River. The community lies at mile 127 of the Richardson Highway, 14 miles north of the regional hub community of Glennallen, Alaska at approximately 62.271390 North Latitude and -145.382220 West Longitude. (Sec. 27, T006N, R001W, Copper River Meridian.) The residents of the community of Gulkana and the residents of the surrounding region will realize the economic and environmental benefits of lower "cordwood" consumption and higher consumption of cleaner burning wood pellets for heat production. 2.3 PROJECT TYPE Put X in boxes as appropriate 2.3.1 Renewable Resource Type Wind X Biomass or Biofuels 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) Reconnaissance X Design and Permitting Feasibility X Construction and Commissioning Conceptual Design Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 4 of 21 7/1//2011 2.4 PROJECT DESCRIPTION Provide a brief one paragraph description of your proposed project. The project will be a small scale "Wood Products for Heat" (Biomass) operation with a heavy emphasis on the development of a viable small scale wood pellet production facility. The project will work to achieve the following three (3) strategic objectives (SO): 1) SO1: Displace 100% of the very expensive fossil fuels used for heat production in our community. 2) SO2: Manage our wood products for heat production operation to ensure sustainability and, 3) SO3: Create local jobs in our rural community supported by our natural resources. Small scale pellet operations do not enjoy the "economies of scale" of their larger cousins and experience higher production costs "per ton of pellets produced". This fact makes it important to identify all the production costs and manage them properly, to remain a self-supporting, on-going concern. Higher production costs in rural Alaska are not a problem unless they exceed the sales income and result in 'Jobs' in rural Alaska". This reality of the lack of "economies of scale", leads to the importance of SO2 "Sustainability": The sale of "wood products for heat", especially wood pellets must return enough financial resources (sales) to maintain, over time, the production and capital replacement costs of the operation. The operation must "Breakeven" to be sustainable. A preliminary analysis determined, based on the current market, the production costs must be at or below $120 per ton with attention to all the cost factors to sustain an on-going pellet producing operation. This cost is not set and is dependent on the level of actual sales. We currently have "unsolicited" orders for 60 tons of pellets per year for boilers being installed in the region. 60 tons won't support the operation, however it is an indication wood pellets are in demand and commodity in the region. Based on research there are 1099 housing units in the area and 31% of these units utilize some type of wood products for heat. It is expected as the global economy recovers and the cost of energy increases the use of wood for heat will increase. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 5 of 21 7/1//2011 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.) This project will install commercially available equipment to produce high heat, clean burning wood pellets This is a small scale production facility, managed for sustainability with a goal to significantly reduce the consumption of expensive diesel fuels for heat generation. The goal of this project is to displace as much fuel for heating as possible with the local biomass. Environmental Benefit: The increasing financial cost of fossil fuels for heating has lead to increases in the consumption of wood products for heat production in the Copper River Valley. Much of the wood products consumed has been and will be 'unprocessed cordwood"; trees cut into uniform lengths and used as firewood. From an economic and environmental stand point this is a "draconian solution" -- similar to burning high sulfur "dirty coal" to solve our nation's dependence on foreign oil. The use of unprocessed cordwood to mitigate the higher fuel costs simply moves the economic problem of high energy cost from a "high financial cost" to a "high environmental cost". In other words the Copper River Valley will trade low fuel costs for: "high winter smog and lower air quality" caused by smoke and the associated pollution from burning "cordwood". A recognized solution to utilizing wood products is to first convert the wood fiber into "wood pellets". Wood Pellets burn clean, have very lower emissions and the current technology for stoves and boilers burning pellets exceed current EPA standards for particulates. Gulkana Village Council (GVC) has recognized this shift from "oil to wood fuel" for heat generation and has been producing wood pellets to: mitigate the smoke and lower air quality from the use of "cordwood" and meet the current local demand for wood generated heat. By converting to wood pellets instead of burning cordwood the region will realize the full economic benefits of using wood products for heat and future energy production. Financial Benefit: There are two significant financial benefits for this project: (1) Lower fuel costs for the community and (2) Job creation exploiting the local biomass for fuel. Lower Fuel Costs: Fossil fuel costs a volatile and are expected to rise significantly over the next several years as the global economy recover. Energy costs from wood fuel is stable and only subjected to the cost of production. Although fuel and energy costs are a component of the production of fuel, the cost fluctuations will be relatively stable over time. Currently there is significant long-term financial benefit Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 6 of 21 7/1//2011 to utilizing wood pellets instead of fuel oil for heat generation. One ton of wood pellets has the heating equivalent of 120 gallons of heating oil. To compare the financial benefit: One pound of wood pellets has a BTU content of 8400 and one gallon of #2 heating fuel has 138,500 BTU. Cost per BTU produced is calculated as follows: ((Fuel Price per Unit/(Fuel Heat Content per Unit x Approx. Efficiency) x 1MBtu) The current reported fuel price for the Copper Valley region is 3.57/gallon. At this price, the fuel cost per million BTU for #2 heating with 80% efficiency is: $32.18 The current reported wood pellet price for the Copper Valley is: $300-310/ton. At this price, the fuel cost per million BTU for wood pellets at 80% efficiency is 22.32. "Cordwood", although not the primary product for this project will be part of our product mix. The current reported prices for "cordwood" in the Copper Valley is $200/cord. At this price, the fuel cost per Million BTU at 55% efficiency is $16.53. Although this is the cheaper "Financial option" the "environmental costs" are high from more smoke, particles and lowered air quality. GVC, will work to meet this market demand as it builds up their pellet operation. It is expected 'Cordwood' will continue to be in demand for a variety of reasons. 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. BUDGET CATEGORY AMOUNT One Year Operating $200,000 One Year - Feedstock 50,000 Total Operating: 250,000 Equipment 600,000 Design & Installation 175,000 Total Equipment: 775,000 Contingency 50,000 TOTAL Project: 1,075,000 GVC Contribution: Building 100,000 Equipment 125,000 225,000 TOTAL AEA REQUEST: $850,000 Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 7 of 21 7/1//2011 2.7 COST AND BENEFIT SUMARY Include a summary of grant request and your project’s total cos ts and benefits below. Grant Costs (Summary of funds requested) 2.7.1 Grant Funds Requested in this application. $850,000 2.7.2 Other Funds to be provided (Project match) $,000 2.7.3 Total Grant Costs (sum of 2.7.1 and 2.7.2) $850,000 Project Costs & Benefits (Summary of total project costs including work to date and future cost estimates to get to a fully operational project) 2.7.4 Total Project Cost (Summary from Cost Worksheet including estimates through construction) $ 1,075,000 2.7.5 Estimated Direct Financial Benefit (Savings) $771,000 2.7.6 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.) $ 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. GVC will have oversight of this Project. There are qualified and interested design engineering companies in Alaska who will be solicited to assist GVC with the installation, and production process. GVC has a working relationship with CE2 engineers and has completed funding requests with the support of WHPacific. It is expected one of these engineering companies will be selected to assist GVC with the installation, design and process to ensure the operation meets requirements for safety, production output and cost containment. 3.2 Project Schedule Include a schedule for the proposed work that will be funded by this grant. (You may include a chart or table attachment with a summary of dates below.) The Following schedule is based on a Spring 2012 AEA announcement: Grant Award Announcement May 2012 Authorization to Proceed May 2012 Verify and Complete Site Control May 2012 Equipment and Production Design-Layout June 1-15, 2012 Equipment Purchases June 15, 2012 Investigate and Obtain Permits May-August 2012 Refine Production Run and Cost Analysis August 2012 Commence Pellet Production Sept - Dec 2012 Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 8 of 21 7/1//2011 3.3 Project Milestones Define key tasks and decision points in your project and a schedule for achieving them. The Milestones must also be included on your budget worksheet to demonstrate how you propose to manage the project cash flow. (See Section 2 of the RFA or the Budget Form.) Obtain Site Control/Right of Entry/Installation Permits: GVC has site control and right of entry. There may be a need for permitting through the State for a variety of agencies. GVC will work closely with the engineering contractor to secure and complete any necessary permitting. Resolve Feedstock Supply issues: Sustainability of this operation is dependent on controlling the production costs. The cost of feedstock is critical and has to be controlled within a specified range to ensure an ongoing concern. GVC has access to Ahtna Corporation lands and their support for this operation, so the "volume of feedstock" isn't a problem. The critical factor is the quality of the feedstock. To maintain the production of a quality product -- the feedstock into the process has to be "clean, a certain size and within a specified cost range" Establishing this feedstock supply into the production process will be a critical milestone. Feedstock supply issues are expected to be resolved over time with a variety of solutions. Complete Installation and Production Design: Installing new equipment requires time to integrate and refine the production process. To keep this installation cost down, an initial design of the equipment installation will be done. The installation design report will be completed 30 days after notification to proceed. Equipment Purchases: GVC contracted engineers will order the necessary equipment based on the finalized installation report. Equipment Installations: Equipment will be installed and the production set up will be done with any assistance from the vendors and with engineer oversight. Any permits will be signed off and safety procedures completed. Any permitting that is required will be addressed at this point. Initial Production: Production costs are critical for this operation. This milestone will refine the process, set the level of production and track production costs and production output. The first run production is scheduled for August/Sept 2012. Full Production: The level of output for this operation is limited to the capacity of the equipment. This operation is designed to be a small scale pellet production facility meeting the three strategic objectives. The level of production will be refined to maximize the output at the lowest operation and maintenance costs. This refining will take upwards of 6-8 months to achieve the best production output at the lowest production cost. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 9 of 21 7/1//2011 3.4 Project Resources Describe the personnel, contractors, 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 resu mes and references for known, key personnel, contractors, and suppliers as an attachment to your application. GVC will hire an engineering contractor, (GVC has a working relationship with CE2) to complete the project milestones. Grant reporting will rest with GVC administrator Mr. LA Monica "Bry" Claw, with support for the reports to come from the contract engineer. Grant management and reporting will be done through the ANC accounting and bookkeeper. Responsibility for the implementation of this project will rest with GVC. 3.5 Project Communications Discuss how you plan to monitor the project and keep the Authority informed of the status. Weekly and monthly project coordination meetings will be held during the design, installation and initial produ ction runs to address issues as they arise. It is important to resolve the Feedstock supply, production cost and throughput issues to ensure the operation will sustain operations over time. The engineering contractor will provide quarterly reports to ANC for finalization and submission to AEA. 3.6 Project Risk Discuss potential problems and how you would address them. Site control and any concerns of permitting from the State fire marshal or other agencies with jurisdiction need to be addressed. Proper communications and any issues with permits needed from federal agencies or site control will be addressed immediately with the GVC council and federal agencies. Site control is not expected to be an issue. Feedstock supply over the duration of the production process must be ensured. Forward planning and supply contracts with local vendors will be made and any assistance they need to ensure the feedstock is adequate quality will be provided by the contract engineer. Equipment selection will be driven by the quality of feedstock available to produce commercial grade pellets. Volume of feedstock is not in question--however the quality of the feedstock into the mill has to be within a specific cost range. Equipment acquisitions There is a small risk equipment will not be available. Gulkana is on the road system and not subject to the "Barge Schedule" and it is possible to adjust the installation schedule. Risk in this case is expected to be small. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 10 of 21 7/1//2011 SECTION 4 – PROJECT DESCRIPTION AND TASKS  Tell us what the project is and how you will meet the requirements outlined in Section 2 of the RFA.  The level of information will vary according to phase(s) of the project you propose to undertake with grant funds.  If you are applying for grant funding for more than one phase of a project provide a plan and grant budget form for completion of each phase.  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. Based on current fuel costs for heating oil in the Copper River Valley ($3.57/gallon) and the cost per Million BTU of $32.18 the development of this project will displace fuel oil with a biomass fuel with current reported wood pellet price for the Copper Valley of: $300-310/ton and fuel costs per million BTU (for wood pellets) at 80% efficiency at $22.32/MBTU. The Proposed energy resource is the local biomass. This resource will displace a significant volume of diesel fuel in the community and surrounding residential and commercial as well government owned buildings. Initial annual fuel displacement estimates for a small scale sustainable pellet operation is: 216,000 gallons of fuel oil per year. at current prices: 3.57 x $216,000 =$771,120 of annual displacement. This represents $771,000 of new money into the local economy. The largest advantage to utilizing locally produced biomass is the creation of local jobs. The production costs for this project will financial resources kept in the local and regional economy. 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. In the Gulkana Community there are 36 Housing units and 3 Public facilities. The current configuration for these residents is fuel oil furnaces and wood stoves. Most of these units were built or brought in during the 1990's. 100% of Gulkana will be serviced by this project. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 11 of 21 7/1//2011 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. Gulkana residents and surrounding communities use a combination of heating oil and wood products for heating. Heat generated by wood is done with a combination of 'cordwood stoves, pellet stoves and pellet and cordwood fired boilers. No survey information in the exact number of each type of stove or boiler is being utilized has been done for the Copper Valley. 4.2.3 Existing Energy Market Discuss existing energy use and its market. Discuss impacts your project may have on energy customers. The market is: residential, commercial and government facilities; consumers heating their homes, businesses and government installation in the Copper River Valley. There are 1099 occupied housing units and 336 major business facilities in the region. 32% of the residential units have "Wood" as their primary or supplemental heat source. The Copper River School District is making investments to convert a large percentage of their heating load from fossil fuels to fuels from wood products. There are a substantial number of for profit commercial operations that use wood products as a fuel source for heat. Virtually any building -home, business or government facility in the Copper River Valley is our target market. NOTE: The strategic objectives are to displace fuel, create local jobs and remain sustainable - Achieving these goals will determine the output and size of the facility. There are no plans to "grow this operation" into a "24/7 60,000 ton national producer of wood pellet" 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 BIOMASS: GVC based on the existing market for wood products, will complete the installation of equipment to produce premium grade wood pellets and provide seasoned cordwood to displace diesel fuel for heat generation. (Replace Diesel fuel in the region for wood products fuel). Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 12 of 21 7/1//2011 Optimum installed capacity: The optimum output of wood products will be determined by the market demand, currently there are 1099 residential homes in the Copper Valley region with 32% utilizing some type of wood fuel for heat generation. Assuming a 25% market share, GVC will configure their operation to provide $600,000 of annual sales of wood products; cordwood and wood pellets for the first year of operation. NOTE: The market will consist of direct sales, supply distribution to local retailers and supply contract for wood pellets. Anticipated Capacity: The production facility will be configured to produce 3 cords of seasoned wood and 2 tons of pellets. These levels are attainable with the current known feedstock and will provide for adequate return of the production costs. It is anticipated the levels of production and sales will rise significantly (Production is slated to begin September 2012) and the capacity and output refined to optimize output within a specified range of production costs. (see attached financial analysis) Anticipated annual generation: When the production is refined and pellet operation matures the expected BTU production will displace 145-200,000 gallons of diesel fuel. This represents 1,200 - 2000 tons of wood pellets. This anticipated annual generation will take 36 -60 months to achieve. This is due to the installation of pellet fired equipment in the region - both residential and commercial installations (stoves and boilers installed by homes, business and government). Anticipated barriers. There is a risk of not securing public support for this project based on the "conventional wisdom" -- Pellet plants need to have "economies of scale " to be successful. To be successful in a small scale pellet operation - "sustainability " is the key factor and "Production Costs = Jobs". It is important to highlight this fact at every opportunity. Proper analysis of the variable and fixed costs and the market is essential to the success of a small scale wood pellet operation. Basic integration concept: Building up a small scale pellet operation is a stand-alone operation with no integration into an existing plant. Delivery: Supply contracts will be delivered by truck or loaded directly at the plant site in Gulkana. 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 land and site are owned by GVC and there are no anticipate issues. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 13 of 21 7/1//2011 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 Permitting will be determine by the engineering contractor. The design and installation of equipment report will provide application to any required permits. 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 The production plant will be located on the outskirts of Gulkana. There will be minimal excavation (if any) so no anticipated permits are required. 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 The total project cost is as follows: BUDGET CATEGORY AMOUNT One Year Operating $200,000 One Year - Feedstock 50,000 Total Operating: 250,000 Equipment 600,000 Design & Installation 175,000 Total Equipment: 775,000 Contingency 50,000 TOTAL Project: 1,075,000 Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 14 of 21 7/1//2011 Contributions: GVC will contribute -- Building. The Building was erected in 2009. GVC also will contribute purchased equipment valued at 100,000 Equipment 125,000 Proposed Production Facility: Financial Projection Goals: "Proving the Market and Creating a Budget" Is a small wood products for heat operation in Interior Alaska sustainable? 31% of residents reported by the "Selected Housing Characteristics 2005-2009 Dataset: Copper River Census Subarea" are utilizing wood products for heat in the Copper River Basin.  There are a substantial number of business and government facilities utilizing or converting to wood products for fuel - an example is, a major user of fuel in the area, Copper River School District, is converting Kenny Lake School to a biomass boiler fueled with wood pellets.  The demand for heating fuel in the region is "inelastic" meaning as the price of fuel rises the level (volume) of consumption will remain constant. In this case alternative fuel with a lower and consistent cost will be selected for consumption. In this case it would be "biomass".  The "Wood Products for Heat" market is projected to support a small biomass operation and Gulkana Village Council is positioned to capture at least 25% of the market by providing wood pellets and seasoned cordwood.  Based on the market, to sustain this operation, GVC will need to generate annual sales of $320,000 to meet variable and fixed operating costs by producing and selling: Three (3) cords of seasoned wood and two (2) tons of pellets per day. Sustainability: Breakeven level Account: Cordwood - Cord Wood Pellets - Tons Annual - Breakeven Sales Revenue $161,478 $158,373 Annual - Breakeven Sales Units 807 528 Monthly production 67 44 Daily - (240 Workdays per year) 3 2 Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 15 of 21 7/1//2011 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.) Major costs associated with wood products for fuel are: (1) Feedstock and (2) production costs. Feed stock for this operation are logs available for cutting and splitting and an adequate and viable supply of wood chips to maintain a pellet operation. There is plenty of feedstock and the cost of acquiring it is accounted for as a variable cost. For these projections the following assumptions are being made: Major Cost Drivers: Variable Cost Drivers Cost Feedstock - Wood Pellets $50/ton Feedstock - Cordwood $30/cord Fixed Cost Drivers Annual Cost Wages & Salaries $138,998 Fixed Operating Costs $191,100 Projected Sales a: Annual Product Volume Revenue Wood Pellets 920 Tons $240,000 Cordwood 1,200 Cords $276,000 Production Crew: Production Crew Cost Foreman 48,000/Year 2 Full time Production Workers $16/Hour 1 Part-time Production Workers $16/Hour Equipment Operator $18/Hour a NOTE: The objective of this analysis is to show the market demand for "wood products for fuel" is viable. The product mix in this case would highly variable. Since the market for wood fuel is a combination of cordwood and wood pellets, both of these products will be offered. The ratio of cordwood and pellet sales will be determined by the market demand. It is the intent of GVC to market the pellet operation and work to increase the demand for pellets. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 16 of 21 7/1//2011 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 There are no power purchase agreements 4.4.4 Project Cost Worksheet Complete the cost worksheet form which provides summary information that will be considered in evaluating the project. Download the form, complete it, and submit it as an attachment. Document any conditions or sources your numbers are based on here. Business plan & Related Plan Research 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 (gal and $) 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 Fuel Displacement: One ton of Wood Pellet will displace 120 gallons of diesel fuel. This sustainable operation, when fully refined and when the production of pellets is 80% of the output will produce 1,800 tons of pellets and displace 200-225,000 gallons of diesel fuel. Annual Revenue: The anticipated revenue from this operation will be $516-625,000 annually. The Job Creation: Operation and Maintenance -- Total Salaries and Wages to the local economy will begin at $140,000 annually and grow steadily at a 5% annually. An annual payroll when the operation mature is expected to be near $200,000 annually. It is important to note this payroll represents money INTO the local economy for a sustainable small scale wood pellet operation. There are also a variety of tax credits and other incentives; green tag sales, carbon offsets to add to the annual revenue stream this will be determined. As the project progress into the design stage these figures and the benefit of the installations will be more evident based research. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 17 of 21 7/1//2011 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: GVC will keep the wood products operation as a separate entity. This will allow for proper accounting of the operation. Sustainability is an important objective. In this case GVC will manage our production costs to meet the existing demand for our products - both cordwood and pellets. How you propose to finance the maintenance and operations for the life of the project: An analysis was completed to determine the cost of production and a range for the variable and fixed costs. Strict adherence to the cost production will be closely managed to ensure the revenue stream will service future operation and maintenance costs. (see business plan for further discussion). Identification of operational issues that could arise: Managing variable and production costs is important. If there are increases of feedstock costs over a specified range then there will be a problem with sustainability. A description of operational costs: Operation Costs are Variable, Salaries & Wages and Fixed Costs (See Business Plan for a detailed budget) Following is an iteration of proposal costs: Account Year One Year Two Year Three Revenue 516,000 561,000 623,400 Cost of Sales 72,800 78,400 85,460 Gross Margin 443,200 482,600 537,940 Salaries and Wages 138,998 143,168 147,463 Fixed Costs 191,100 200,655 170,557 Other Expenses 140,079 141,104 141,104 Net Income (26,977) (2,326) 78,817 Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 18 of 21 7/1//2011 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. "Experience" Producing wood pellets is a learning process. GVC has been developing the process to convert the local biomass into wood pellets for several years. Many of the issues hampering a wood pellet operation in rural Alaska have been resolved or mitigated. This includes the composition of the feedstock, the necessary processes to produce high BTU low emission pellet and the operation has become well known in the region; unsolicited requests for wood pellets purchases have been made to GVC. To date GVC, without any advertising or marketing has standing orders for 50 tons/year. Although this amount is insignificant to maintain a production facility the orders represent the level of market demand and shows the development of a healthy wood pellet market in the Copper Valley. A mockup operation with each process defined and developed was completed in 2008-9 and can be seen online at: http://www.youtube.com/watch?v=SDGWxh3S- QY. This effort determined high quality pellets could be produced in the region. As a practical matter the operation wasn't intended to meet demand, but to demonstrate a process to successfully produce high heat, low emission wood pellets from the local biomass. To date GVC has erected a production building and purchased some pellet production equipment - these purchases were made outside the design and installation report to be done before equipment is purchased. The existing equipment will be evaluated and either installed or sold. "Operational Budget:" The "Roadmap" to manage the operational expenses is important to ensure an on- going concern. Following are the account groups and the limits for each account category. This includes Salaries and Wages and the Fixed Costs. The attached spreadsheet will show the monthly account limits. Following is the annual budget: (next page). Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 19 of 21 7/1//2011 ANNUAL BUDGET: Salaries and Wages Year One Year Two Year Three Plant Foreman - - - Salaries 48,000 49,440 50,923 Full-Time Employees 62,400 64,272 66,200 Part-Time Employees 18,720 19,282 19,860 Independent Contractors - - - Payroll Taxes and Benefits 9,878 10,174 10,479 Total Salary and Wages 138,998 143,168 147,463 Fixed Business Expenses Advertising 21,600 22,680 19,278 Car and Truck Expenses - - - Commissions and Fees - - - Contract Labor- Acct/Payroll 22,200 23,310 19,814 Garbage Service 900 945 803 Customer Discounts and Refunds - - - Dues and Subscriptions - - - Vault Pumping-Sewage - - - Insurance & Bond (Liability and Property) 15,000 15,750 13,388 Internet 1,800 1,890 1,607 Legal and Professional Fees - - - Office Expenses 1,800 1,890 1,607 Postage and Delivery 3,600 3,780 3,213 Rent (on business property) - - - Rent of Vehicles and Equipment 9,600 10,080 8,568 Repairs and Maintenance 51,000 53,550 45,518 Fuel 30,000 31,500 26,775 Telephone and Communications 3,600 3,780 3,213 Travel - - - Utilities 30,000 31,500 26,775 Total Fixed Business Expenses 191,100 200,655 170,557 The level of maintenance is set at 10% of the equipment costs. The other major categories: Overhead maintenance/accounting, fuel, electricity and advertising. These are projected costs and will vary - They are set at the maximum levels and will probably be less. An example is "Advertising" currently this is set as a "percentage of Sales" and to date GVC is receiving inquiries into orders for wood pellet. The probably is high for reduced advertising expenses. NOTE: These expense budget categories were set at the maximum levels and there is substantial opportunity to lower these categories as the operation is commenced. Renewable Energy Fund Grant Application Round 5 AEA12-001 Grant Application Page 20 of 21 7/1//2011 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. At this stage of the project there is no reported opposition to the project. The project is widely known throughout the local community and region. AHTNA Corporation is offering a commitment to collaborate with this project and they will be invaluable to establish a reliable source of feedstock as the wood pellet operation matures (18 months) 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. Include an estimate of budget costs by milestones using the form – GrantBudget5.doc BUDGET CATEGORY AMOUNT One Year Operating $200,000 One Year - Feedstock 50,000 Total Operating: 250,000 Equipment 600,000 Design & Installation 175,000 Total Equipment: 775,000 Contingency 50,000 TOTAL Project: 1,075,000 GVC Contribution: Building 100,000 Equipment 125,000 GVC Contributions 225,000 TOTAL AEA REQUEST: $850,000 We are requesting $850,000 to complete the design and installation of equipment for our wood products for fuel production operation. TASK Total Obtain Site Control/Right of Entry/Installation Permits $10,000 Resolve Feedstock Supply issues 25,000 Complete Installation and Production Design 75,000 Equipment Purchases: 600,000 Equipment Installations 80,000 Initial Production: 30,000 Full Production: 30,000 TOTAL: $850,000 Grant Application Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Attachment A Business Plan Copper Valley Wood Products BUSINESS PLAN Producing high quality -- high heat -- low emission "premium grade" wood pellets to meet the wood products market demand for heat and energy production in the Copper River Valley. Gulkana Village Council P.O. Box 254 Gakona, Alaska 99586 Phone: 907-822-3746 Fax: 907-822-3976 Making the Case: The Economic Realities of a Small Scale Wood Pellet Operation in Rural Alaska Gulkana Village Council: Copper River Valley Wood Products - Business Plan Contents 1.0 Executive Summary .............................................................................................. 2 Environmental Benefit ............................................................................................. 3 1.1 Products and Services ........................................................................................ 4 1.2 The Financing .................................................................................................... 4 1.3 Mission Statement ............................................................................................. 5 1.4 Key Management Team ...................................................................................... 5 1.5 Sales Forecasts ................................................................................................. 5 Estimated Sales and Market Share: ......................................................................... 5 1.6 Expansion Plan .................................................................................................. 6 2.0 Company and Financing Summary .......................................................................... 6 2.1 Owners ........................................................................................................... 6 2.2 Required Funds ................................................................................................. 6 2.3 Investor Equity .................................................................................................. 7 3.0 Products and Services ........................................................................................... 8 Wood Pellets ........................................................................................................ 8 Good Old Fashioned "Cordwood" ............................................................................. 9 Wood Pellet Fired Stoves ....................................................................................... 9 Electrical Generation ............................................................................................. 9 4.0 Strategic and Market Analysis .............................................................................. 10 4.1 Economic Outlook ............................................................................................ 10 One Small School ............................................................................................... 10 Stable Energy Demand ........................................................................................ 11 Growing Region for Wood Products ....................................................................... 11 4.2 Industry Analysis ............................................................................................. 12 A Typical Biomass Pelleting Operation ................................................................. 12 PELLET PRODUCTION COSTS .............................................................................. 13 Regional Analysis ................................................................................................ 16 Initial Capital Investments ................................................................................... 16 4.3 Customer Profile .............................................................................................. 16 4.4 Competitive Analysis ........................................................................................ 17 5.0 Marketing Plan ................................................................................................... 17 5.1 Marketing Objectives ........................................................................................ 17 5.2 Marketing Strategies ........................................................................................ 17 5.3 Pricing ............................................................................................................ 17 6.0 Organizational Plan and Personnel Summary .......................................................... 17 6.1 Organization Gulkana Village Council.................................................................. 17 Organizational Capacity- GVC ................................................................................. 19 Organizational Capacity- Wood Products .................................................................. 20 6.2 Organizational Budget ...................................................................................... 20 6.3 Management Biographies - ............................................................................... 22 7.0 Strengths, Weakness, Opportunities and Threats .................................................... 22 7.1 The Strengths - Why this Project is Viable.......................................................... 22 7.2 The Weaknesses - The Achilles Heels ................................................................ 23 7.3 The Opportunities - Jobs, Jobs, Jobs! ................................................................ 23 7.4 The Threats - The "Monkey Wrenches" .............................................................. 24 Summary ............................................................................................................. 24 Page 1 8.0 Financial Management Analysis ............................................................................. 25 Breakeven Analysis- Combined Product ...................................................................... 26 Financial Projection ................................................................................................. 30 9.0 References ......................................................................................................... 58 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 1.0 Executive Summary In the Cooper River Basin 31% of the residents and a substantial number of business and government facilities utilize wood products to generate heat. (US Census). The majority of this heat production is from "cordwood" and over time it is expected wood pellets will replace cordwood as the primary fuel source. Cordwood production is a simple process of harvesting and cutting wood to size. However wood pellet production becomes a challenge when developing small scale operation. The scale of wood pellet production ranges from large "24 hour 365 day" commercial operations producing 100,000 tons per year to small proprietors p roducing enough pellets to meet their needs on a farm. The objectives of these two operations are clear. The large commercial production goals are to realize the greatest "economies of scale", keeping the cost per ton to a minimum and generating the greatest profit. In the small rural farm the objective is to service their needs and generate savings by utilizing their crops residual biomass for bedding or heat. This plan offers analysis and justification for Gulkana Village Council (GVC) to develop a very small scale and sustainable wood products for fuel operation in the Copper River Valley in Alaska. This operation includes the production of cordwood and a wood pellet operation to meet the growing demand for wood pellets in our local community and surrounding area. The Strategic Objectives (SO) of our small scale operation are: 1) SO1: Displace 100% of the very expensive fossil fuels used for heat production in our community. 2) SO2: Manage our production operation to ensure sustainability and, 3) SO3: Create local jobs in our rural community supported by our natural resources. Small scale pellet operations do not enjoy the "economies of scale" of their larger cousins and experience higher production costs "per ton of pellets produced". This fact makes it important to identify all the production costs and manage them properly, to remain a self- supporting, on-going concern. Higher production costs in rural Alaska are not a problem unless they exceed the sales income and result in 'Jobs' in rural Alaska". This leads to the importance of SO2 "Sustainability": The sale of wood pellets must return enough financial resources to maintain, over time, the production and capital replacement costs of the operation. The operation must "Breakeven" to be sustai nable. A preliminary analysis determined, based on the current market, the production costs must be at or below $120 per ton with attention to all the cost factors to sustain an on-going pellet producing operation. Following is a table of the cost driver associated with a typical pellet operation. Page 2 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Key cost objects to maintain "Sustainability": % of process per ton of production Pellet Process Operations - Cost Objects Capital Cost ($/t) Operating Cost ($/t) Total Cost ($/t) Percent Cost Distribution Raw material[a] 0.34 19.39 19.73 39.02 Drying operation 2.46 7.84 10.30 20.37 Hammer mill 0.25 0.70 0.95 1.88 Pellet mill 1.43 1.88 3.31 6.55 Pellet cooler 0.13 0.21 0.34 0.67 Screening 0.11 0.05 0.16 0.32 Packing 0.56 1.37 1.93 3.82 Pellet Storage 0.07 0.01 0.08 0.16 Miscellaneous equipment 0.42 0.33 0.76 1.50 Personnel cost 0.00 12.74 12.74 25.19 Land use and building 0.21 0.05 0.26 0.51 Total cost 5.99 44.58 50.57 100 Source (ECONOMICS OF PRODUCING FUEL PELLETS FROM BIOMASS S. Mani, S. Sokhansanj, X. Bi, A. Turhollow) Environmental Benefit This project will provide a substantial environmental benefit. The increasing financial cost of fossil fuels for heating has lead to increases in the consumption of wood products for heat generation in the Copper River Valley. Much of the wood products consumed has been and, unless another alternative is readily available, will continue to be 'unprocessed cordwood"; 'cordwood' is simply trees cut into uniform lengths, dried and used as firewood. From an economic stand point, since cordwood produces so much air quality issues, is a draconian solution for lower energy costs -- similar to burning high sulfur dirty coal to solve our nation's dependence on foreign oil. The use of this unprocessed cordwood to mitigate the higher fuel costs simply moves the economic problem of high energy cost from a "high financial cost" to a "high environmental cost". In other words the Copper River Valley will trade low fuel costs for: "high winter smog and lower air quality" caused by smoke and the associated pollution from burning "cordwood". A recognized solution to utilizing wood products is to first convert the wood fiber into "wood pellets". Wood Pellets burn clean, have very lower emissions and the current technology for stoves and boilers burning pellets exceed cur rent EPA standards for particulates. The community of Gulkana Village Council (GVC) has recognized this shift from oil to wood and has been producing wood pellets at small operation -- gaining the most of the surrounding wood products. The purpose of this business plan is to raise funds to increase the capacity of Gulkana Village Council's existing wood pellet production facility and offer high quality, high heat wood pellets to local and regional consumers a s they convert to biomass as an alternative to high cost fossil fuels for heat and electrical generation. By converting to wood pellets instead of burning cordwood the region will realize the full economic benefits of using wood products for heat and energy production. Page 3 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 1.1 Products and Services Our products and services will be: (1) Production of "Premium Grade" wood pellets for heating, (2) "Cordwood" to meet the existing market demand for wood fuel and (3) position our production operation to address probable future wood pellet demand for the generation of electricity in the Copper River Valley. Our goal, over time is to expand and meet the local market for wood pellets. Pellets is the best option for "wood for fuel" and following is the pellet equivalent for other fuels: (Source: "Wood Pellets" Introduction to their Production and Use - David Jones Mississippi State University" One ton of pellets is equal to: 120 gallons of heating oil 170 gallons of propane 16,000 ft3 of natural gas 4,775 kilowatt hours of electricity Wood Pellets: for producing heat are all not all: "Created Equal". Some pellets produce more heat than others, or result in more harmful emissions, contribute to more air pollution and produce more soot and by-products than other pellets when they are burned. We are fortunate to have vast tracts of "White Spruce", a soft conifer wood, well suited for wood pellet production. In our area, these large tracts of "White Spruce" can be used to produce some of the best graded wood pellets. Electrical Generation: Our community's electrical service is provided by Copper River Electric Association (CVEA) though a regional intertie. The sources of electricity are from a combination of hydro-electric and diesel powered generators. With a recent increase in load, CVEA now generates 50 percent of its annual electricity requirements from fossil fuel and, as a consequence, the cost of power CVEA members pay on their electric bill remains high. For this reason, CVEA is working toward its vision "to reduce or eliminate our dependence on fossil fuel and stabilize the Cooperative’s cost of generation with regional, sustainable resources". Biomass fuel may be an important contribution to the generation of electricity in our area and we will remain interested in supporting biomass fuels for electricity and as this opportunity develops take steps to meet the market demand for pellet fueled generators to produce electricity. 1.2 The Financing Gulkana Village Council is seeking to raise funds from a variety of public and when the opportunity and financial position warrants, private sources. This business plan assumes GVC will receive public funding support. The funding will be used for the following: Expand our current "Wood products for fuel" operation with and emphasis on our pellet operation: Installation of Pellet Mill equipment with enough capacity to meet the local pellet market to completely displace fossil fuel for heat in our community. Page 4 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 1.3 Mission Statement Our mission statement for this venture is: "Capture the greatest economic benefit by exploiting the local biomass for energy and heat production." Harvesting, processing and utilizing the local wood resource for heat not only displaces fuel, but had a tremendous economic impact to the entire region; the money expended in the region for heat -- remains in the region -- and the money is re-circulated in the area and expended on other goods and services. 1.4 Key Management Team Pellet Mill Manager Provide direct supervision for the Pellet Plant operating staff and will be responsible for the safe operation of the plant. Tribal Accountant/Admin Assistant Administrative support for the project, including oversight of accounting/grant management and marketing. Tribal Administrator Project oversight - provide administrative support; manage public and private funds; grant compliance. Production Workers Day to day operation of the wood pellet plant; experienced staff to operate and maintain the pellet process. 1.5 Sales Forecasts GVC expects the expansion of their wood pellet operation to be a welcome addition to the region. It will produce premium grade wood fuel and GVC expects to capture at least 25% of the "wood products for heat" market. This is based on the research of the residential and commercial market utilizing wood products for heat. Although wood pellets are not 100% of the market we will be supplying "cordwood" as the market transitions into cleaner burning pellets. The following estimates are based on the "2005-2009 American Community Survey 5 Year Estimates" and the reported active businesses in the Copper region reported in the Copper Valley Development Association 2009 publication. Estimated Sales and Market Share: Type of Structure Annual Heating Cost # of Units % of Units w/ Wood Heat Total $ expended for Wood Heat % of Market Share Annual Income Residential * $ 3,500 1,099 30% $1,153,950 25% 288,488 Commercial $ 7,500 300 30% 675,000 25% 168,750 Large Commercial $ 35,000 36 20% 252,000 25% 63,000 $2,080,950 Projected Annual Sales: $ 520,238 * 2005-2009 American Community Survey 5 Year Estimates Page 5 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 1.6 Expansion Plan There are no plans for expansion into the state-wide or national wood pellet market. The intent of this project is to establish the GVC wood pellet operation in the local and regional market to meet the three important objectives: (1) Displace expense fuel oil with clean burning wood pellets, (2) establish a market to maintain and sustain our production operation and (3) Create long-term renewable energy jobs for our community. 2.0 Company and Financing Summary 2.1 Owners "Copper Valley Wood Products" will be owned by Gulkana Village Council (GVC). GVC is the Federally recognized tribe representing the members in Gulkana. Gulkana Community is located in the Copper River basin in south-central interior Alaska at mile 127 of the Richardson Highway. The Copper River basin is a large interior drainage basin approximately the size of the state of Ohio with approximately 3,000 residents in several small settlements and communities scattered throughout the basin. A regional hub community is located 12 miles south. The Community is connected by the Alaska highway system to other communities on the road system and “urban” areas of Alaska. Our site is situated approximately 200 road miles east of Anchorage on the Glenn Highway, and approximately 250 road miles south of Fairbanks on the Richardson Highway. 2.2 Required Funds GVC's existing small pellet production facility has generated orders from all over the Copper River Valley Basin and towns and communities from Valdez to the extreme south to Fairbanks at the north end of the Richardson Highway. This demand is due to the quality of our pellets; high heat, with low emissions! To meet this demand and develop a sustainable operation, GVC will request funds to acquire the following: Equipment and "Year One" Production Costs: Cost Object Amount Capital Cost - Equipment: $ 282,000 Capital Costs - Installation: $ 140,000 Total Equipment: $ 422,000 One Year Feedstock @ $25/ton $ 40,000 One Year Operating: $ 198,000 Total Operating: $ 238,000 Contingency: $ 40,000 Total AEA Application Request: $ 700,000 Page 6 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Equipment Descriptions: Equipment Description: Cost 3 Pellet Mill @ $52,000 $156,000 3 Hammer Mill @ $11,000 33,000 3 Air Filtration @ $10,000 30,000 3 Conveyors @ $1,000 3,000 3 Augers@ $2,500 7,500 2 Lift Elevators @ $6,000 12,000 2 Belt Dryers @ $20,000 40,000 Equipment Total 281,500 Installation @ 50% 140,750 Total Capital Cost $422,250 2.3 Investor Equity GVC owns the land and building for the wood products operation. The asset values are set at "cost", $115,000. This valuation is for the purposes of making "In-Kind" contributions and the market value hasn't been established, however its assumed to be substantially higher. GVC will own the operation and keep the management and accounting separate from their tribal operations. There will be an initial contract relationship with GVC for the accounting, bookkeeping and payroll functions and some other management, consulting and advertising support. As the operation grows these functions will become independent functions. Any partnerships, joint ventures or other business combinations will be at the discretion of the tribal council. None are planned. The primary purpose of this project is to displace expensive fossil fuels with heat generated from local biomass. There may be grant provisions to adhere to or consider if the operation is expanded into a strictly commercial operation for profit or sold to an outside interest. It is unknown, if any what grant criteria must be met to secure public funds to meet the primary objective of "lower energy costs". Wood Pellet Hammer Mill Page 7 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 3.0 Products and Services Wood Pellets Our primary product will be "Wood Pellets. During recent years, standards for the characteristics of wood pellets have been and are being developed in an effort to "standardize" the wood pellet fuel industry. The product our company will produce; wood pellets from "White Spruce" is recognized as "Premium Grade" wood pellets. The premium grade was documented during January and February 2010 from testing at the Alaska Mill Company in Delta Junction and the test results were published in the July 2011 General Technical Report PNW-GTR-845. The report was titled: Production of Wood Pellets From Alaska- Grown White Spruce and Hemlock. The research was completed by: Allen M. Brackley and Daniel J. Parrent. (Appendix A) Our wood pellet product will be used as fuel for our local heating needs and this will move our goal forward to eventually displace 100% of our heat and thermal loads produced from fossil fuels -- diesel fuel, with inexpensive and renewable energy from our "Premium grade" wood pellets. GVC will actively engage in the production and distribution of wood pellets (by the ton), which are produced from local wood resources. The Company will acquire inventories of wood products from local and regional sources including: Regional land owners and forest products companies engaged in the tree harvesting business from State of Alaska timber sales. GVC has support from Athna Corporation, a large land owner in the area. Once acquired, the GVC pellet mill will produce high grade wood pellets that are commonly used in small free standing household furnaces and commercial boilers being installed in the region. Wood pellets are a near carbon neutral source of renewable bio fuel used for both heat and power generation:  Home and commercial heating systems can be easily fit or retrofit with pellet burning furnaces (small and medium scale use);  Existing diesel fired boilers can be replaced to utilize wood pellets with minimal capital investment.  Wood pellets are readily transportable by sea, rail, and road. This leaves few markets, if any, inaccessible. Source: "Production of Wood Pellets From Alaska Grown White Spruce and Hemlock" Page 8 Gulkana Village Council: Copper River Valley Wood Products - Business Plan  As a clean, renewable, high energy density, portable, and easy to use energy source, wood pellet demand is expected to increase steadil y over the next decade.  Wood Pellets will eventually be utilized for electrical generation; current pellet powered generators meet or exceed current EPA air quality standards and technology is expected to keep pace with future EPA air quality standards. A January 2008 Standard & Poor’s Industry Survey on the paper and forest products sector noted opportunities in bio-fuels and scale production of biomass as “one of the more promising opportunities for the forest products industry,” particularly given rising fossil fuel prices and increasing environmental concerns. When compared to all wood products utilized for heat and power, Wood Pellets appear to be the best alternative. To meet this demand we are constructing a facility to manufacture wood fuel pellets utilizing local wood and biomass that has no other commercial value and would normally go to waste as feedstock. Our operation will involve harvesting, chipping, and processing the material into wood fuel pellets for residential and commercial markets. The first phase of the project is under construction. We are erecting a 30’ by 40’ metal building for the pellet plant. The first pellet production line will be installed in the building. We will shortly be accepting delivery of the equipment for this first line, which will produce one ton of pellets per hour. Good Old Fashioned "Cordwood" The market for wood products in the region isn't 100% wood pellets. There are stoves and boilers fueled by seasoned cordwood. The processing of cordwood is straight forward with producing a variety of sizes and volumes. This is the low grade "option" for our products and we'll be pushing the conversion of wood pellet stoves and pellet fired boilers to our customers. However, it is a viable market and GVC will meet the demand for cordwood as it works to develop and expands the pellet operation. Wood Pellet Fired Stoves The largest percentage of our customers will be residential users. We will also be looking into retail opportunities for selling wood pellets stoves and pellet fired boilers or providing information on the advantages of pellets over cordwood for fuel. This strategy will expand demand for our wood pellets. Electrical Generation A potential renewable resource in the Copper Basin is biomass electrical generation. This could be either through a cogeneration-type operation that utilizes waste heat from a wood product manufacturing operation or by directly utilizing wood products in a generation plant. CVEA has been contacted by a local native corporations with significant land and timber Page 9 Gulkana Village Council: Copper River Valley Wood Products - Business Plan resources that are interested in pursuing a relationship to study the economic case of a wood fueled biomass plant. There are significant challenges to address before wood products for electrica l generation can be utilized. Emerging EPA regulations may require that BACT standards to be utilized in all aspects of a generation plant. "BACT" Standards is the acronym for "Best Available Control Technology" and is a pollution control standard mandated by the United States Clean Air Act. The U.S. Environmental Protection Agency (EPA) determines what air pollution control technology will be used to control a specific pollutant to a specified limit. When a BACT is determined, factors such as energy consumption, total source emission, regional environmental impact, and economi c costs are taken into account. It is the current EPA standard for all polluting sources that fall under the New Source Review guidelines and each operation is determined viable on a case-by-case basis. EPA has the authority to require the BACT Standard to be adopted any organization with a Title V Permit. CVEA has three Title V. Permits so EPA has authority over their emissions of the Glennallen Diesel Plant, Valdez Diesel Plant and the Cogen Plant. Since technology changes constantly through time, EPA can force CVEA to adopt the BACT standard as it becomes available (even if we flawlessly meet all our Title V permit standards as written today). Those standards would have significant impacts on the economic viability of a biomass plant. Even without the emerging EPA regulations, there are significant air quality issues that must be addressed when licensing a biomass plant. Technology advances have accelerated and cleaner wood burning equipment will be developed as the cost of fossil fuel continues to rise the eventual use of wood products for electrical generation will eventually commence. We will plan our pellet operation to meet the increasing demand for wood products and explore and cooperate with CVEA to explore options to displace fossil fuels with wood product 1. Copper Valley Electric Association Strategic Issues Paper 2011 4.0 Strategic and Market Analysis 4.1 Economic Outlook One Small School Supplying one small school with wood pellets results in an increase of $300,000 in annual economic activity for the region. The increase in economic activity was determined by an analysis completed by the Cooper River School District. Every 165 tons of pellet production contributes approximately $46,000 of new money into the economy2. It is important to note the infusion of this $46K used to purchase local wood pellets, generates $150 to $300,000 of new economic activity in the region. This project will displace fossil fuel use, fuel purchases for fossil fuel is a complete money drain for the entire region -- since the fuel is imported and the money left the region -- with locally produced wood pellets, the production activity for pellet and their sales will attract new financial resources (money) into the area. 2. Copper Valley School District: "Kenny Lake School - Fuel Oil v. Wood Pellets Analysis Page 10 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Stable Energy Demand Heating and electrical generation is considered relatively "inelastic" This means the demand is remains unchanged regardless of the price. The level of consumption will stay about the same from year to year regardl ess of the price of energy. In other words "People need heat and lights". This inelastic demand is why higher energy prices are detrimental to the economic, social and welfare of the consumers. As prices rise people will reduce buying other items to maintain the same level of consumption of energy. Although Gulkana is on the road system, the community is still relatively isolated and subject to higher energy costs than other urban areas of the state. The US economy also has a direct effect on the cost or energy in rural Alaska. During the recent recession energy prices dropped and this price decrease was enjoyed as a respite from the record high prices of 2008. As the recession ends and economic recovery accelerates the price of energy will again go higher. As the economy recovers in the U.S -- the price of fuel oil will rise and the consumption of wood products for energy and heat production becomes more economical. The economic recovery and associated higher oil prices (energy) over the next decade will result in higher use of wood products in the region for heat and electricity production. Growing Region for Wood Products Residential Market: The latest survey indicates there are 1099 Occupied Housing units in the region 3. Of these a full 339 or 30.6% utilize wood products for heat. 62.7% use fossil fuels and the remaining housing units use some type of natural gas/propane or electric heat. Commercial Market: There are 360 commercial and government facilities listed on the Copper River Development Associations internet site 4. Each of these sites are larger facilities and represent a good market for selling our wood products for heating. Providing wood pellets to this market will have a substantial and positive economic impact for the region. As the cost of fuel increases -- users of fossil fuel will migrate to wood products as a cheaper fuel alternative. The best option for this conversion is to premium grade wood pellets. 3. 2005-2009 American Community Survey 5 Year Estimates 4. Copper Valley Development Association Inc. http://www.coppervalley.org/business Wood Pellet Mill Page 11 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Pellet Production Building 4.2 Industry Analysis Within the United States, there are more than 3,800 companies that specialize in the production of wood products. Approximately 10% of these companies have production capabilities to produce wood pellets. Aggregately, these businesses generate more than $25 billion of revenue per year while providing jobs to more than 110,000 people. Aggregate payrolls in each of the last five years have exceeded $3.5 billion. This is a mature industry, and the excepted future growth rate is expected to mirror that of the general population and economic growth. Being a mature industry offers advantages for GVC to: easily buy and sell commercially produced equipment for the pellet operation. In the event the operation experiences costs over and above a sustainable operation GVC can quickly exit the operation with little or no loss for equipment purchases. A Typical Biomass Pelleting Operation Figure 1 shows the unit operations and the flow of biomass in a typical biomass pellet production operation that consists of three major unit operations: (1) drying, (2) size reduction (grinding), and (3) densification (pellet). The biomass is dried in the rotary drum dryer. After drying, a hammer mill equipped with a screen size of 3.2 to 6.4 mm reduces the dried biomass to a particle size suitable for pellet production. The ground biomass is compacted in the press mill to form pellets. The individual pellet density ranges from 1000 to 1200 kg/m3. The bulk density of pellets ranges from 550 to 700 kg/m3 depending on size of pellets. Pellet density and durability are influenced by physical and chemical properties of the feedstock, temperature and applied pressures. Page 12 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Figure 1: Schematic of Typical Wood Pellet Production Operation PELLET PRODUCTION COSTS The cost of pellet production includes fixed (capital) and operating costs. All capital cost components follow the economy of scale, i.e. expansion of the unit size with respect to its characteristics dimensions will reduce the capital cost, non-proportional to the actual size of expansion; in layman's terms -- the cost per ton of production goes down as the number of tons is produced. This project will demonstrate the feasibility of producing wood pellets with a scaled production facility. While high volume production facilities produce pellets at far less cost per ton, the small remote market in Interior Alaska where there is an abundance of available feedstock deserves serious considerations. The objective of a large commercial wood pellet operation is to maximize profit, the objective of this project is to: (1) create jobs in rural Alaska by (2) utilizing the biomass to (3) reduce the cost of producing heat. Production costs in a large commercial operation are looked as an expense to produce profits, the production costs in this case translate to badly needed jobs where jobs are scarce! As mentioned before the objective is to develop a sustainable and on-going concern. It makes no sense to make an investment with no plan for the operation to sustain the operations over the long-term. The volume of sales and production cost must meet a certain thresholds to "Breakeven", and the production costs must be within a specified range to make this operation viable. Page 13 Gulkana Village Council: Copper River Valley Wood Products - Business Plan To be a viable ongoing concern the maximum production costs cannot exceed $117/ton to meet a projected market demand of 1,678 tons. This assumes a market price of $300/ton. The per ton price is critical to be competitive with "Just shipping in Pellets". The imported pellet price is $6-$8 per 40 pound bag or $350 - 400/ton. Based on the breakeven analysis, supported by verifiable research on the number of housing and commercial operations utilizing wood products in the Copper Valley region for the generation of heat and the quoted current market price of wood pellets, this production facility should have no problems remaining an "On-Going concern and meeting the 3 strategic objectives of (1) displacing fuel, (2) remaining an on-going operation and (3) creating badly needed jobs in a rural Alaska community. GVC made an initial application to the Alaska Energy Authority and an analysis of the production costs were done. The original AEA proposal created jobs, met the market demand for wood pellets, but due to high production costs was unsustainable over time. The result of this analysis resulted in configuring the operation to meet the three strategic objectives for jobs, meeting current and growing pellet demand and sustainability. Costs. The Challenge for GVC is to control the "Cost of Production" The capital costs of the plant depend on the type of material used. Material with moisture content of greater than 12% will need drying. A dryer can cost up to 40% of the entire capital costs. In addition capital will be required to overcome the time it takes to achieve profitability. Many pellet plants take 6 to 18 months to refine the process before becoming profitable. This report compares the costs of various sizes of plant. 1.5 ton per hour - $ 145,000.00 USD 4.5 ton per hour - $ 275,000.00 USD 20 ton per hour - $ 20 million USD Capital costs of a three and ten ton/hour pellet plant. $CDN Dryer: 700,000.00 - 3,550,000.00 Hammer Mill: 120,000.00 - 530,000.00 Pellet Machine: 280,000.00 - 890,000.00 Cooler: 19,000.00 - 360,000.00 Storage Conveyors, Separators: 430,000.00 - 1,290,000.00 Peripheral Equipment: 740,000.00 - 640,000.00 Buildings: 810,000.00 - 1,520,000.00 Total: $ 3,100,000.00 - 8,780,000.00 SOURCE: (WOOD PELLET PRODUCTION PROCESS ANALYSE Costs The capital costs of) Page 14 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Gulkana Village Council: Wood Pellet Production Costs Description Rate Hours Round IV Production Cost Round V Rate Round V Hours Round V Production Costs Operating Expense: Personnel Project Manager 23.48 2080 $ 48,838 $ 22.00 2080 $ 45,760 Project Assistant 16.90 2080 $ 35,152 $ - Project Foreman 20.16 2080 $ 41,933 $ - Pellet Plant Worker 16.00 2080 $ 33,280 $ 16.00 2080 $ 33,280 Pellet Plant Worker 16.00 2080 $ 33,280 $ 16.00 2080 $ 33,280 Pellet Plant Worker 16.00 2080 $ 33,280 $ 16.00 1040 $ 16,640 Pellet Plant Worker 16.00 2080 $ 33,280 $ - Pellet Plant Worker 16.00 2080 $ 33,280 $ - Pellet Plant Worker 16.00 2080 $ 33,280 $ - Heavy Equipment Operator 18.00 500 $ 9,000 $ 18.00 500 $ 9,000 Total Personnel: $ 334,603 $ 137,960 Tribal Administrator 28.15 624 $ 17,566 $ 28.15 52 $ 1,464 Accountant 22.89 416 $ 9,522 $ 22.89 104 $ 2,381 Administrative /Marketing (Rd.V) 15.13 208 $ 3,147 $ 16.00 200 $ 3,200 Total Indirect: $ 30,235 $ 7,044 Total Direct & Indirect: $ 364,838 $ 145,004 Fringe Benefit: SSN/Medicare/401K 0.2 $ 80,264 $ 31,901 Operating Expense: Supplies Equipment Fuel - 2,000 gallon @ 3.75/gal $ 16,294 $ 7,500 Utilities $ 50,160 $ 12,000 $ 66,454 $ 19,500 Total Operating Costs: $ 511,556 $ 196,405 Expected Market Demand $ 1,678 $ 1,678 Operating Cost per Ton $ 305 $ 117 Page 15 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Regional Analysis Alaskan rural communities of the State are facing difficult social, economic and environmental choices caused by rising energy costs and these high costs of energy are leading to new opportunities to exploit and develop local renewable energy resource previously not economically feasible. In some area the renewable resource is wind, in other areas, solar and in yet other areas of the State, geo-thermal opportunities are being developed. In interior Alaska, scaled forest products industries and markets to mitigate these high energy costs and provide positive economic development and sustainability for our regions communities are being developed. As this new forest development takes shape, partnerships and mutual effort to meet differing goals are highlighted as an advantage for a variety of user groups and managers; collaborative efforts seeking opportunities to support and utilize wood energy while responding to "forest management" needs related to: thinning, insect outbreaks, and community wildfire protection are logical. Improvements to the economic well -being of communities and the region will certainly be realized, however the vastness and large expanse of the Interior forest will result in marginal benefit in regards to "forest management" Initial Capital Investments Developing the local and regional biomass for energy and heat production will save communities money, create local economic opportunities, and address associated issues like wildfire management, insect mitigation and thinning to create areas of healthier forest land. A major issue is the initial fiscal investment required to successfully and economically develop the forest; fiscal resources required for the initial investment to transition from fossil fuels to wood/wood-chip/wood-pellet burning infrastructure can be substantial and coordination of public and private investment will be necessary to realize the full potential of the biomass resource. 5 5 US Forest Service, Western Forestry Leadership Coalition 4.3 Customer Profile Our customers are residential, commercial and government facilities; consumers heating their homes, businesses and government installation in the Copper River Valley. There are 1099 occupied housing units and 336 major business facilities in the region. 30% of the residential units have "Wood" as their primary heat source. The Copper River School District is making investments to convert a large percentage of their heating load from fossil fuels to fuels from wood products. There are a substantial number of for profit commercial operations that use wood products as a fuel source for heat. Virtually any building -home, business or government facility in the Copper River Valley is our target market. Page 16 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 4.4 Competitive Analysis 5.0 Marketing Plan There are several retail outlets in the regional hub Glennallen and in nearby Valdez where agreements for pellet distribution can be made. Some stores are in the process of importing pellets from Oregon. The pricing of the GVC wood pellets are competi tive at $5- $7 for a 40 pound bag. We will make the case for selling locally produced pellets; more local jobs mean more local spending at any of the local retail outlet stores. 5.1 Marketing Objectives Currently we are "turning customers away". There are standing orders for pellets: 44 tons and 15 tons from only two users in the Copper Valley. It is anticipated the market demand will far surpass the capacity of our operation. The current level of advertising is set at $21,600 for print, radio and targeted television advertising to introduce our products to the Copper Valley market. This level of advertising is expected to drop immediately after demand meets or exceeds our production capacity. 5.2 Marketing Strategies There are 2 markets we will approach, the consumer and the distributors. Brochures and other sales literature will be produced to showcase the facility, the pricing, and the operations of the pellet plant when seeking to develop new ongoi ng retail opportunities for our products. Print advertising and direct mails may be done to consumers in strategic areas to inform consumers of the locally produced pellets. 5.3 Pricing The market price for imported wood pellets is currently $6-8 per 40 pounds or $350-400 per ton. The commercial market for bulk is $310/ton based on prices to the local school boiler. Wood Pellets, although graded as "premium grade" are a commodity. The lower the price the more sales. Price is everything in the energy market. The lower priced product will be bought. We will set prices to match or beat the competitors, especially product imported from out of the State. 6.0 Organizational Plan and Personnel Summary 6.1 Organization Gulkana Village Council Gulkana Village Council (GVC) is the federally-recognized tribe for Gulkana, Alaska. GVC is listed as a federally recognized tribe in the March 22, 2007, Federal Register (Volume 72, Number 55) Notice titled “Indian Entities Recognized and Eligible to Receive Services from the United States Bureau of Indian Affairs”. The tribe qualifies for federal services and Page 17 Gulkana Village Council: Copper River Valley Wood Products - Business Plan benefits under the BIA, the Federal Highway Administration, the Environmental Protection Agency, and other federal agencies. The wood products business will have an independent business identity and may be formed and incorporated under the State of Alaska. The business will rely on the existing accounting and bookkeeping of the traditional council and there wil l be a contract relationship with the council to provide the overhead function until business activity prompts a business formation. Gulkana Village Council Organization Chart The GVC is the governing body of the tribe, duly elected by tribal members and is authorized and directed by the tribal members to exercise the tribe’s inherent right to self - determination. In this capacity, the GVC has ultimate authority for governance of the tribe and to execute legal agreements on behalf of the tribe. The GVC has delegated authority to the Tribal Administrator to conduct the day-to-day business of the tribe, including executing legal agreements excepting only those that require tribal ordinances, resolutions, or similar GVC action to implement. The goal of the GVC is to become self-sufficient by utilizing the talents and capabilities within the tribe. The Council works aggressively to achieve this goal. Page 18 Gulkana Village Council: Copper River Valley Wood Products - Business Plan The GVC has successfully negotiated and administers a P.L. 93-638 self-determination contract with the Bureau of Indian Affairs, which now totals $571,461. The GVC administers several other programs, including the EPA IGAP grant ($110,000 for the cur rent year), a wildfire fuels reduction project ($155,000), a dump assessment project ($70,000), and a Native American Lands Environmental Mitigation Program ($80,000) funded by the Department of Defense that is oriented toward assessment and clean up as ma y be necessary of old military sites. The GVC has in the recent past administered and completed the requirements of a $322,000 P.L. 93-638 contract for the design and engineering phase of a project to upgrade and pave Village roads, and install street lighting. Consequent to the successful completion of this contract, the Village has been awarded $2.9M for the construction phase of the project. The GVC is currently acquiring rights-of-way, completing required preliminary work or projects that will impact the road paving project (i.e. upgrade of existing sewer system), and negotiating terms of necessary contracts to complete the project. Other major projects that GVC has secured are: A $1.0M renovation of the Village water storage tank, with a new water sou rce and treatment plant. This project is on tap to be completed within the next year. A $1.2M renovation and upgrade of the Village sewer system. This project included replacement of damaged or failed sections of sewer mains, extension of other sewer mai ns to provide sewer service to residents that previously did not have it, and installation of a new, large capacity septic system and leach field. This project was completed just this month (July 2007), however, work to tie the new system in with the old revealed the old system had deteriorated to the point of imminent failure and needs to be completely replaced. In addition, the GVC in the recent past has completed a BIA Water Resources grant ($40,000), and implemented an ongoing ICWA program ($38,000 per year). And, as has been discussed previously, the tribe recently completed a project to assess the viability and status of the tribe’s native language (an $80,000 project, $61,000 provided by an ANA grant). Organizational Capacity- GVC The management systems and accounting practices employed by the GVC are subject to evaluation by an independent auditor through the annual single agency audit report that is required by current statute and OMB Circular A-128, and as stated in CFR 25 §900.40 (b). Just this past year, the tribe reached the $500,000 federal funding expenditure level that requires an audit. Consequently, the tribe is currently undergoing its first ever single agency audit. Results from this audit will not be available until about the end of April. However, the GVC ICWA program has been audited in the recent past with no substantial findings, and in 2006, the tribe was audited by the IRS with no findings. Page 19 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Organizational Capacity- Wood Products The wood products business will be a separate enti ty with GVC council oversight through the Tribal Administrator. The production side of the business will be managed by the plant supervisor, who will have the day to day responsibility for the operation. GVC has relationships with engineers who will assi st in the development, installation and commissioning of the plant and equipment. The engineer will also have recommendations for the hiring of a Plant Supervisor. There will be 2 full time and 1 part time production worker(s) and an Equipment Operator available as needed. The Accounting will be done as either a new company class or have their own separate accounting books depending on the scale of the operation. A larger scale operation where demand is recognized to be growing and production needing to ramp up will create more operating costs. In this event a new legal entity may need to be formed with its own bookkeeping function to provide payroll, accounting and management reports. Pellet Operation- Organization Chart 6.2 Organizational Budget The production costs for the first year is set at the production rate to meet the expected first year sales. The following is the process we determined the operational budget: 1. Determined the market for wood utilized for heat it the Copper Valley region. 2. Calculated the expected sales for the region based on the market demand. 3. Determined the total production costs to maintain a sustainable operation. Plant Supervisor Production Worker GVC Council Production Worker Part Time Equipment Operator Part-Time Production Worker Accountin g Page 20 Gulkana Village Council: Copper River Valley Wood Products - Business Plan The total production costs to maintain sustainability is the total available for the first year of operations. The per ton cost should be maintained at or below $117/ton to match the expected revenue. Production costs are the major cost for the operation. Feedstock costs are assumed to be capped at $25/ton. (See discussion on Feedstock). Within a quarter the operation should be able to determine how the success or failure of the operation. Based on the order to our facility the pellet operation should be very successful and it's anticipated the number of employees will be increased to meet the higher deman d for pellets. The Organizational Budget is show on the "Production Budget - Year One" Table: Production Budget Estimate - Year One Production Costs at: $117/ton. Description Production Budget -Year One Operating Expense: Personnel Rate Hours Project Manager 22.00 2,080 $ 45,760 Pellet Plant Worker 16.00 2,080 $ 33,280 Pellet Plant Worker 16.00 2,080 $ 33,280 Pellet Plant Worker 16.00 1,040 $ 16,640 Heavy Equipment Operator 18.00 500 $ 9,000 Total Personnel: $ 137,960 Tribal Administrator 28.15 52 $ 1,464 Accountant 22.89 104 $ 2,381 Administrative /Marketing (Rd.V) 16.00 200 $ 3,200 Total Indirect: $ 7,044 Total Direct & Indirect: $ 145,004 Fringe Benefit: SSN/Medicare/401K $ 31,901 Operating Expense: Supplies Equipment Fuel - 2,000 gallon @ 3.75/gal $ 7,500 Utilities $ 12,000 $ 19,500 Total Operating Costs: $ 196,405 Expected Market Demand $ 1,678 Operating Cost per Ton $ 117 6.3 Management Biographies - (See attached resume file) Page 21 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 7.0 Strengths, Weakness, Opportunities and Threats 7.1 The Strengths - Why this Project is Viable "Location, Location, Location" is the conventional wisdom for retail operations. In this case for the "wood products for heat" business, having an operation located in the heart of recognized biomass resource is a tremendous strength. GVC Operations are located in the "Heart of the Biomass" -- On the Road system, surrounded by accessible trees suitable for a "Wood for heat" operation. Captive Local Market: It is expected the "entire town" of Gulkana will participate in this project and when GVC begins production of a less expensive alternative fuel for the generate heat, most of the community will configure their heating systems to utilize locally produced wood products for heat. "Experience" Producing wood pellets is a learning process. GVC has been developing the process to convert the local biomass into wood pellets for several years. Many of the issues hampering a wood pellet operation in rural Alaska have been resolved or mitigated. This includes the composition of the feedstock, the necessary processes to produce high BTU low emission pellet and the operation has become well known in the region; unsolicited requests for wood pellets purchases have been made. To date GVC, without any advertising or marketing has standing orders for 50 tons/year. Although this amount is insignificant to maintain a production facility the orders represent the level of market demand and shows the development of a healthy wood pellet market in the Copper Valley. A mockup operation with each process defined and developed was completed in 2008-9 and can be seen online at: http://www.youtube.com/watch?v=SDGWxh3S-QY. This effort determined high quality pellets could be produced in the region. As a practical matter the operation wasn't intended to meet demand, but to demonstrate a process to successfully produce high heat, low emission wood pellets from the local biomass. Regional Support: GVC has regional support from their Regional Alaska Native Claims Settlement Act corporation: Ahtna Corporation. "Ahtna" has significant and accessible biomass resources and has committed to work collaboratively to meet the primary strategic objectives of displacing fossil fuels, sustainability and job creation. (See Support letter) "Feedstock" Accessibility is not recognized as a problem for this operation. The challenge for the cordwood operation is small, GVC would simply purchase round logs and process the logs though a sizing, splitting and seasoning operation. For the wood pellet operation the challenge will be to "cost effectively" process cordwood into proper sized chips with low contaminates to produce high quality pellets. With GVC's experience this challenge can be met and managed to ensure a sustainable small scale wood pellet operation. Page 22 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 7.2 The Weaknesses - The Achilles Heels To be successful -- as many of the weaknesses to this project must be identified and mitigated or resolved all together. There are two obvious weaknesses to this project: (1) the lack of "economies of scale" and (2) managing the cost of the feedstock for the pellet operation. Production costs for the wood pellet operation are expected to be near $120/ton. In large scale wood pellet operations, where profit is the primary driver, the per ton production costs are kept as low as possible. In this small scale operation, production costs = local jobs, and since the primary objective is to exploit the biomass to displace fossil fuels the operational costs can be well over "Large Scale Operation". However, there is a limit to the cost of production and managing these costs will be an important consideration. To mitigate this weakness, proper budgeting and accounting should be maintained throughout the year to monitor cost, sales and ensure sustainability over time. Although the market demand for wood pellets is expected to grow the supply of pellets is not limited to local production and GVC will be constrained by the c market price as well as volume demand for pellets. "Feedstock" Costs Feed stock is a variable cost for production and while accessibility to local feedstock is not an issues, converting the feedstock to usable chips for a pellet plant operation is a significant weakness. Building up a production capacity may be limited if quality chips cannot be produced within a specified "cost per ton". For the purposes of this analysis the cost per ton was set at $40/ton. If this costs rises, then other production costs must be adjusted to keep the total production costs within a range to ensure a sustainable operation over time. c NOTE: The scale of the operation will be determined by the product demand. The most favorable scenario is: "... the market demand surpasses GVC's production capabilities." In this case, if production capacity is below the market demand then, prices usually rise, however due to other operations in the state and the price of 'imported pellets' (Oregon) stable over time the price s for GVC's products are not expected rise due to limited production capacity - Like oil prices, the price for wood pellets is established by 'foreign producers'.. in this case national producers. 7.3 The Opportunities - Jobs, Jobs, Jobs! There are ample opportunities for the community to exploit the biomass for fuel. Since the production cost will be managed to create local job while displacing expensive fossil fuels and lowering energy costs in the region this aspect of the proposal should be forwarded at every opportunity, especially when seeking public financial support. This small scale operation, when operated at the lowest level to ensure "sustainability" will produce 3 full-time permanent positions and 2-4 part-time opportunities. It is expected the operation will grow sufficiently to create 4-6 permanent jobs and offer support for suppliers of raw feedstock - wood cutters, small logging operations or provide a market for existing and future companies interested in logging state land. Page 23 Gulkana Village Council: Copper River Valley Wood Products - Business Plan 7.4 The Threats - The "Monkey Wrenches" "The rumored 'All Alaska Gas line'" Someday, possibly in the next 50 to 100 years, there will be a natural gas pipeline snaking its way through the region providing natural gas to every community located on the road system. Although not a 'threat' to the overall economy of the State, it is a threat to the immediate and near future plans of any organization or business planning to invest capital to exploit the local biomass for heat and electrical generation. Political Considerations: There are privately funded operations being developed in the Fairbanks area and developing a pellet operation in the heart of the Copper Valley may be perceived by State agencies as: "Uneconomical under any circumstances" To secure public support for this project a viable case has to be made in light of the State's desires to see private business exploit the resources, rather than support a questionable operation in rural Alaska. Every effort should be made to advance the opportunities for job creation for rural communities interested in lowering their energy costs. Summary There are significant reasons to proceed with this project; lower fuel costs and job creation. These aspects should be forwarded and highlighted for any funding requests. Particular attentions will be necessary to control the cost of production and every advantage such as accessibility and regional support advanced to make a case for public support. Near Gulkana, Alaska on the Richardson Highway - "Look at all that accessible biomass" Page 24 Copper Valley Wood Products Producing high quality -- high heat -- low emission "premium grade" wood pellets to meet the wood products market demand for heat and energy production in the Copper River Valley. Gulkana Village Council P.O. Box 254 Gakona, Alaska 99586 Phone: 907-822-3746 Fax: 907-822-3976 MEETING MARKET DEMAND FOR WOOD PELLETS IN THE COPPER RIVER VALLEY 8.0 Financial Management Analysis Page 25 Gulkana Village Council Financial Management Analysis Breakeven Data 3 Augers@ $2,500 2 Lift Elevators @ $6,000 40,000.002 Belt Dryers @ $20,000 12,000.00 30,000.00 3,000.00 7,500.00 Feedstock Production Costs Costs required to produce the first unit of a product.Costs that vary directly with the production of one additional unit. Cost 25.00 117.05 3 Pellet Mill @ $52,000 3 Hammer Mill @ $11,000 3 Air Filtration @ $10,000 3 Conveyors @ $1,000 156,000.00 33,000.00 BREAK-EVEN ANALYSIS Break-Even Units:1,676 Number of units of the product projected to be sold over a specific period of time. The amount of money charged to the customer for each unit of a product or service. Fixed Costs Variable Unit Costs Definition Definiton Cost Unit Selling Price:310.00 Expected Unit Sales:1,678 Page 26 Gulkana Village Council Financial Management Analysis Breakeven Analysis 281,500.00 142.05 1,678 310.00 Revenue ProfitUnits 100.00 200.00 -264,704.73 -247,909.45 1,676.07 Fixed Cost Variable Cost Total Cost 1,200.00 1,300.00 1,400.00 1,500.00 400.00 500.00 600.00 700.00 800.00 900.00 170,456.72 184,661.45 198,866.18 213,070.91 295,704.73 309,909.45 324,114.18 338,318.91 352,523.64 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 1,600.00 1,678.19 1,000.00 1,100.00 300.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 281,500.00 14,204.73 28,409.45 42,614.18 56,818.91 71,023.64 85,228.36 99,433.09 113,637.82 127,842.54 366,728.36 227,275.63 238,381.67 142,047.27 156,252.00 466,161.45 480,366.18 494,570.91 508,775.63 519,881.67 380,933.09 395,137.82 409,342.54 423,547.27 437,752.00 451,956.72 372,000.00 403,000.00 434,000.00 465,000.00 355.83 -163,933.09 -147,137.82 -130,342.54 -113,547.27 -96,752.00 -79,956.72 31,000.00 62,000.00 93,000.00 124,000.00 155,000.00 186,000.00 217,000.00 248,000.00 279,000.00 BREAK-EVEN ANALYSIS - TONS Break Even Units: Price per Unit: Expected Unit Sales: Total Variable Unit Costs: Total Fixed Costs: You will be making profit after 1,676.07 units. -63,161.45 -46,366.18 -29,570.91 496,000.00 520,237.50 310,000.00 341,000.00 -231,114.18 -214,318.91 -197,523.64 -180,728.36 -12,775.63 0 200000 400000 600000 800000 1000000 1200000 Fixed Cost Variable Cost Total Cost Revenue Page 27 Gulkana Village Council Financial Management Analysis Production Costs Description Rate Hours Round IV Production Cost Round V Rate Round V Hours Round V Production Costs Operating Expense: Personnel Project Manager 23.48 2080 48,838$ 22.00$ 2080 45,760$ Project Assistant 16.90 2080 35,152$ -$ Project Foreman 20.16 2080 41,933$ -$ Pellet Plant Worker 16.00 2080 33,280$ 16.00$ 2080 33,280$ Pellet Plant Worker 16.00 2080 33,280$ 16.00$ 2080 33,280$ Pellet Plant Worker 16.00 2080 33,280$ 16.00$ 1040 16,640$ Pellet Plant Worker 16.00 2080 33,280$ -$ Pellet Plant Worker 16.00 2080 33,280$ -$ Pellet Plant Worker 16.00 2080 33,280$ -$ Heavy Equipment Operator 18.00 500 9,000$ 18.00$ 500 9,000$ Total Personnel:334,603$ 137,960$ Tribal Administrator 28.15 624 17,566$ 28.15$ 52 1,464$ Accountant 22.89 416 9,522$ 22.89$ 104 2,381$ Administrative /Marketing (Rd.V)15.13 208 3,147$ 16.00$ 200 3,200$ Total Indirect:30,235$ 7,044$ Total Direct & Indirect:364,838$ 145,004$ Fringe Benefit: SSN/Medicare/401K 0.22 80,264$ 31,901$ Operating Expense: Supplies Equipment Fuel - 2,000 gallon @ 3.75/gal 16,294$ 7,500$ Utilities 50,160$ 12,000$ 66,454$ 19,500$ Total Operating Costs:511,556$ 196,405$ Expected Market Demand 1,678$ 1,678$ Operating Cost per Ton 305$ 117$ Page 28 Gulkana Village Council Financial Management Analysis Market Projection Type of Structure Annual Heating Cost # of Units % of Units w/ Wood Heat Total $ expended for Wood Heat % of Market Share Annual Income Residental *3,500$ 1,099 30%1,153,950$ 25%288,488 Commercial 7,500$ 300 30%675,000 25%168,750 Large Commercial 35,000$ 36 20%252,000 25%63,000 2,080,950$ 520,238 * 2005-2009 American Community Survey 5 Year Estimates 1st Year Production @310/ton 1,678 Production Output:Month 140 Daily 7.0 Copper River Region - Wood Products Usage for Heat: Current Estimate Projected Annual Sales: Page 29 Copper Valley Wood Products Producing high quality -- high heat -- low emission "premium grade" wood pellets to meet the wood products market demand for heat and energy production in the Copper River Valley. Gulkana Village Council P.O. Box 254 Gakona, Alaska 99586 Phone: 907-822-3746 Fax: 907-822-3976 MEETING MARKET DEMAND FOR WOOD PELLETS IN THE COPPER RIVER VALLEY Financial Proj ection Page 30 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets Financial Projection Goals: "Proving the Market and Creating a Budget" Is a small wood products for heat operation in Interior Alaska sustainable?  31% reported by the "Selected Housing Characteristics 2005-2009 Dataset: Copper River Census Subarea" are utilizing wood products for heat in the Copper River Basin.  There are a substantial number of business and government facilities utilizing or converting to wood products for fuel - an example is, a major user of fuel in the area, Copper River School District, is converting Kenny Lake School to a biomass boiler fueled with wood pellets.  The demand for heating fuel in the region is "inelastic" meaning as the price of fuel rises the level (volume) of consumption will remain constant. In this case alternative fuel with a lower and consistent cost will be selected for consumption. In this case it would be "biomass".  The "Wood Products for Heat" market is projected to support a small biomass operation and Gulkana Village Council is positioned to capture at least 25% of the market by providing wood pellets and seasoned cordwood. Based on the market, to sustain this operation, GVC will need to generate annual sales of $320,000 to cover their variable and fixed operating costs by producing and selling: Three (3) cords of seasoned wood and two (2) tons of pellets per day. Sustainability: Breakeven level Account: Cordwood - Cord Wood Pellets - Tons Annual - Breakeven Sales Revenue $ 161,478 $ 158,373 Annual - Breakeven Sales Units 807 528 Monthly production 67 44 Daily - (240 Workdays per year) 3 2 Page 31 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets Major costs associated with wood products for fuel are: (1) Feedstock and (2) production costs. Feed stock for this operation are logs available for cutting and splitting and an adequate and viable supply of wood chips to maintain a pellet operation. There is plenty of feedstock and the cost of acquiring it is accounted for as a variable cost. For these projections the following assumptions are being made: Major Cost Drivers: Variable Cost Drivers Cost Feedstock - Wood Pellets $50/ton Feedstock - Cordwood $30/cord Fixed Cost Drivers Cost Wages & Salaries $138,998 Fixed Operating Costs $15,925 Projected Sales a: Annual Product Volume Revenue Wood Pellets 920 Tons $240,000 Cordwood 1,200 Cords $276,000 Production Crew: Production Crew Cost Foreman 48,000/Year 2 Full time Production Workers $16/Hour 1 Part-time Production Workers $16/Hour Equipment Operator $18/Hour a NOTE: The objective of this analysis is to show the market demand for "wood products for fuel" is viable. The product mix in this case would highly variable. Since the market for wood fuel is a combination of cordwood and wood pellets, both of these products will be offered. The ratio of cordwood and pellet sales will be determined by the market demand. It is the intent of GVC to market the pellet operation and work to increase the demand for pellets. Page 32 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets INCOME STATMENT ACCOUNT GROUP: GVC will configure their operation and manage the cash flow for long term sustainability and create jobs. The net income is projected with the following major income statement accounts: Account Year One Year Two Year Three Revenue 516,000 561,000 623,400 Cost of Sales 72,800 78,400 85,460 Gross Margin 443,200 482,600 537,940 Salaries and Wages 138,998 143,168 147,463 Fixed Costs 191,100 200,655 170,557 Other Expenses 140,079 141,104 141,104 Net Income (26,977) (2,326) 78,817 b Revenue and Cost Assumptions: The current market price for wood pellets in the region is $6-$8 for a 40 pound bag or $300- $400 for pellets imported from other areas of the country --this is based on inquires to local distributors and a study of prices to supply new pellet fired boilers in the region. For Cordwood the price for cordwood in the Mat-Su Valley is $200.00/cord. It is expected the price will be slightly higher in the Copper Valley. For the purposes of this analysis the prices were set as follows: Wood Pellets: $300/ton Cordwood: $200/cord Cost of Sales The feedstock acquisition costs are set at: $40/ton for wood pellet feedstock. $30/cord (round un split logs) b. NOTE: Feedstock Costs are initial variable costs and are determined by the local market. These are estimates and other costs; salaries & wages and fixed operating costs, may be adjusted to: determine the number of workers, adjust the fixed costs and to set the sales prices to ensure sustainability. Page 33 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets Balance Sheet ACCOUNT GROUP: Period Ending: Base Period Year One Year Two Year Three Assets Current Assets Cash - 178,228 309,408 520,824 Accounts Receivable - 15,250 16,875 19,406 Inventory 41,250 41,250 41,250 41,250 Prepaid Expenses 170,000 113,333 56,667 0 Other Current - - - - Total Current Assets 211,250 348,061 424,199 581,481 Fixed Assets Real Estate 40,000 40,000 40,000 40,000 Buildings 75,000 75,000 75,000 75,000 Leasehold Improvements - - - - Equipment 425,000 425,000 425,000 425,000 Furniture and Fixtures 35,000 35,000 35,000 35,000 Vehicles 35,000 35,000 35,000 35,000 Other Fixed Assets - - - - Total Fixed Assets 610,000 610,000 610,000 610,000 - - - - Less: Accumulated Depreciation - 78,464 156,929 235,393 - - - - Total Assets 821,250 879,597 877,270 956,087 - - - - Liabilities and Owner's Equity - - - - Liabilities - - - - Accounts Payable - - - - Notes Payable - - - - Mortgage Payable - - - - Line of Credit Balance - 85,324 85,324 85,324 Total Liabilities - 85,324 85,324 85,324 - - - - Owner's Equity - - - - Common Stock 821,250 821,250 821,250 821,250 Retained Earnings - (26,977) (29,303) 49,514 Dividends Dispersed - - - - Total Owner's Equity 821,250 794,273 791,947 870,764 - - - - Total Liabilities and Owner's Equity 821,250 879,597 877,270 956,087 Page 34 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets The "Roadmap" to manage the operational expenses is important to ensure an on-going concern. Following are the account groups and the limits for each account category. This includes Salaries and Wages and the Fixed Costs. The attached spreadsheet will show the monthly account limits. Following is the annual budget: ANNUAL BUDGET: Salaries and Wages Year One Year Two Year Three Plant Foreman - - - Salaries 48,000 49,440 50,923 Full-Time Employees 62,400 64,272 66,200 Part-Time Employees 18,720 19,282 19,860 Independent Contractors - - - Payroll Taxes and Benefits 9,878 10,174 10,479 Total Salary and Wages 138,998 143,168 147,463 Fixed Business Expenses Advertising 21,600 22,680 19,278 Car and Truck Expenses - - - Commissions and Fees - - - Contract Labor- Acct/Payroll 22,200 23,310 19,814 Garbage Service 900 945 803 Customer Discounts and Refunds - - - Dues and Subscriptions - - - Vault Pumping-Sewage - - - Insurance & Bond (Liability and Property) 15,000 15,750 13,388 Internet 1,800 1,890 1,607 Legal and Professional Fees - - - Office Expenses 1,800 1,890 1,607 Postage and Delivery 3,600 3,780 3,213 Rent (on business property) - - - Rent of Vehicles and Equipment 9,600 10,080 8,568 Repairs and Maintenance 51,000 53,550 45,518 Fuel 30,000 31,500 26,775 Telephone and Communications 3,600 3,780 3,213 Travel - - - Utilities 30,000 31,500 26,775 Total Fixed Business Expenses 191,100 200,655 170,557 The level of maintenance is set at 10% of the equipment costs. The other major categories: Overhead maintenance/accounting, fuel, electricity and advertising. These are projected costs and will vary - They are set at the maximum levels and will probably be less. An example is "Advertising" currently this is set as a "percentage of Sales" and to date GVC is receiving inquiries into orders for wood pellet. The probably is high for reduced advertising expenses. Page 35 Financial Analysis Narrative: Making the Case: Small Scale Wood Products Operation Cordwood and Wood Pellets Assumptions were based on preliminary market data from:  Selected Housing Characteristics 2005-2009 Dataset: Copper River Census Subarea.  Copper Valley Business Association  Calls to current supplier of wood pellets in the region.  Internet research of Wood Pellet Industry Costs.  Analysis of the Economics of Wood Pellet plant. The following spreadsheets accompany this narrative:  Required Start-up Funds  Salaries and Wages  Fixed Operating Expenses  Projected Sales - Cordwood  Projected Sales - Wood Pellets  Cash Receipts and Disbursements  3 Year Income Summary  3 Yr Summary Balance Sheet o Y1 Income Statement (Year one Detail) o Y1 Cash Flow Statement (Detail) o Y1 Balance Sheet (Detail) o Y2 Income Statement (Year one Detail) o Y2 Cash Flow Statement (Detail) o Y2 Balance Sheet (Detail) o Y3 Income Statement (Year one Detail) o Y3 Cash Flow Statement (Detail) o Y3 Balance Sheet (Detail)  Breakeven Analysis  Financial Diagnostics  Financial Ratios  Production Requirement (Lowest levels of production to remain solvent) Page 36 Financial Statements-Projected Required Start-Up Funds 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Required Start-Up Funds Required Start-Up Funds Amount Totals Depreciation Notes Fixed Assets Real Estate 40,000$ Buildings 75,000 20.00 years Equipment 425,000 7.00 years Furniture and Fixtures 35,000 5.00 years Vehicles 35,000 5.00 years Other Fixed Assets 5.00 years Total Fixed Assets 610,000 Operating Capital Pre-Opening Salaries and Wages 150,000 Prepaid Insurance Premiums Beginning Inventory 41,250 Legal and Accounting Fees Rent Deposits 5,000 Utility Deposits 5,000 Supplies 5,000 Advertising and Promotions 5,000 Licenses Other Initial Start-Up Costs Working Capital (Cash On Hand)- Total Operating Capital 211,250 Total Required Funds 821,250$ Sources of Funding Amount Totals Loan Rate Term in Months Monthly Payments GVC Contribution 14.00%115,000 Alaska Energy Authority - Rd V Grant 86.00%706,250 Additional Loans or Debt Commercial Loan 0.00%- 9.00%84.00 $0.00 Commercial Mortgage 0.00%- 9.00%240.00 $0.00 Total Sources of Funding 100.00%821,250$ $0.00 A line of credit is also required in the amount of -$ Page 37 Financial Statements-Projected Salaries and Wages 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Salaries and Wages Salaries and Related Expenses #AssumptionsWage Base Monthly Year One Year Two Year Three Percent Change 3.00%3.00% Salaries and Wages Plant Foreman 1 -$ - - - Salaries 42000 4,000 48,000 49,440 50,923 Wages Full-Time Employees 2 5,200 62,400 64,272 66,200 Estimated Hours Per Week 40.00 Estimated Rate Per Hour 15.00$ Part-Time Employees 1 1,560 18,720 19,282 19,860 Estimated Hours Per Week 18.00 Estimated Rate Per Hour 20.00$ Independent Contractors - - - - Total Salaries and Wages 42004 10,760 129,120 132,994 136,983 Payroll Taxes and Benefits Social Security 6.20%667 8,005 8,246 8,493 Medicare 1.45%156 1,872 1,928 1,986 Federal Unemployment Tax (FUTA)0.80%- - - - State Unemployment Tax (SUTA)2.70%- - - - Employee Pension Programs 0.00%- - - - Worker's Compensation 0.00%- - - - Employee Health Insurance 0.00%- - - - Other Employee Benefit Programs 0.00%- - - - Total Payroll Taxes and Benefits 823 9,878 10,174 10,479 Total Salaries and Related Expenses 11,583 138,998 143,168 147,463 Page 38 Financial Statements-Projected Fixed Operating Expenses 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Fixed Operating Expenses Fixed Operating Expenses Monthly Year One Year Two Year Three Percent Change 5.00%-15.00% Expenses Advertising 1,800$ 21,600 22,680 19,278 Car and Truck Expenses - - - - Commissions and Fees - - - - Contract Labor- Acct/Payroll 1,850 22,200 23,310 19,814 Garbage Service 75 900 945 803 Customer Discounts and Refunds - - - - Dues and Subscriptions - - - - Vault Pumping-Sewage - - - - Insurance & Bond (Liability and Property)1,250 15,000 15,750 13,388 Internet 150 1,800 1,890 1,607 Legal and Professional Fees - - - - Office Expenses 150 1,800 1,890 1,607 Postage and Delivery 300 3,600 3,780 3,213 Rent (on business property)- - - - Rent of Vehicles and Equipment 800 9,600 10,080 8,568 Repairs and Maintenance 4,250 51,000 53,550 45,518 Fuel 2,500 30,000 31,500 26,775 Telephone and Communications 300 3,600 3,780 3,213 Travel - - - - Utilities 2,500 30,000 31,500 26,775 Total Expenses 15,925 191,100 200,655 170,557 Other Expenses Depreciation 6,539 78,464 78,464 78,464 Interest Commercial Loan - - - - Commercial Mortgage - - - - Line of Credit 412 4,948 - - Total Other Expenses 6,951 83,413 78,464 78,464 Total Fixed Operating Expenses 22,876 274,513 279,119 249,021 Page 39 Financial Statements-Projected Projected Sales -Cordwood 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Sales Forecast - Cordwood Products and Services Assumptions %May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Cordwood Price Per Unit 200.00$ 100.00% Variable Cost Per Unit 30.00$ 15.00% Gross Margin Per Unit 170.00$ 85.00% Projected Unit Sales Seasonality Factor 0.00%0.00%0.00%10.42%10.42%8.33%12.50%14.58%16.67%12.50%8.33%6.25%100.00% Year One - - 125 125 100 150 175 200 150 100 75 1,200 Year Two Growth -10.00%- - - 113 113 90 135 158 180 135 90 68 1,080 Year Three Growth -35.00%- - - 73 73 59 88 102 117 88 59 44 702 Fixed Expense Allocation 50.00% Projected Revenue 240,000$ Variable Costs 36,000 Gross Margin 204,000 Fixed Expenses 137,256 Profit 66,744 27.81% Breakeven Sales Revenue 161,478$ Breakeven Sales Units 807 Cordwood Sales to Breakeven Page 40 Financial Statements-Projected Projected Sales -Pellets 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Sales Forecast - Wood Pellets Products and Services Assumptions %May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Pellets Price Per Unit 300.00$ 100.00% Variable Cost Per Unit 40.00$ 13.33% Gross Margin Per Unit 260.00$ 86.67% Projected Unit Sales Seasonality Factor 0.00%0.00%0.00%9.24%9.24%10.87%13.59%13.59%16.30%10.87%8.15%8.15%100.00% Year One 85 85 100 125 125 150 100 75 75 920 Year Two Growth 25.00%- - - 106 106 125 156 156 188 125 94 94 1,150 Year Three Growth 40.00%- - - 149 149 175 219 219 263 175 131 131 1,610 Fixed Expense Allocation 50.00% Projected Revenue 276,000$ Variable Costs 36,800 Gross Margin 239,200 Fixed Expenses 137,256 Profit 101,944 36.94% Breakeven Sales Revenue 158,373$ Breakeven Sales Units 528 Pellet Sales in tons to Breakeven Page 41 Financial Statements-Projected Cash Receipts-Disbursements 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Cash Receipts and Disbursements Accounts Receivable Collections Percent of Collections 0 to 30 days 65.00% 31 to 60 days 30.00% More than 60 days 5.00% Total Collections Percentage 100.00% Accounts Payable Disbursements Number of Days to Pay Suppliers 0 to 30 days 100.00% 31 to 60 days 0.00% More than 60 days 0.00% Total Disbursements Percentage 100.00% Line of Credit Assumptions Desired Minimum Cash Balance -$ Line of Credit Interest Rate 7.00% Income Tax Assumptions Effective Income Tax Rate 0.00% Amortization of Start-Up Expenses Amortization Period in Years 3.00 Page 42 Financial Statements-Projected 3 Year Income Summary 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Year End Summary Year One %Year Two %Year Three % Income Cordwood 240,000 216,000 140,400 Pellets 276,000 345,000 483,000 - - - Total Income 516,000 100.00%561,000 100.00%623,400 100.00% Cost of Sales Cordwood 36,000 32,400 21,060 Pellets 36,800 46,000 64,400 - - - Total Cost of Sales 72,800 14.11%78,400 13.98%85,460 13.71% Gross Margin 443,200 85.89%482,600 86.02%537,940 86.29% Salaries and Wages Plant Foreman - - - Salaries 48,000 49,440 50,923 Full-Time Employees 62,400 64,272 66,200 Part-Time Employees 18,720 19,282 19,860 Independent Contractors - - - Payroll Taxes and Benefits 9,878 10,174 10,479 Total Salary and Wages 138,998 26.94%143,168 25.52%147,463 23.65% Fixed Business Expenses Advertising 21,600 22,680 19,278 Car and Truck Expenses - - - Commissions and Fees - - - Contract Labor- Acct/Payroll 22,200 23,310 19,814 Garbage Service 900 945 803 Customer Discounts and Refunds - - - Dues and Subscriptions - - - Vault Pumping-Sewage - - - Insurance & Bond (Liability and Property)15,000 15,750 13,388 Internet 1,800 1,890 1,607 Legal and Professional Fees - - - Office Expenses 1,800 1,890 1,607 Postage and Delivery 3,600 3,780 3,213 Rent (on business property)- - - Rent of Vehicles and Equipment 9,600 10,080 8,568 Repairs and Maintenance 51,000 53,550 45,518 Fuel 30,000 31,500 26,775 Telephone and Communications 3,600 3,780 3,213 Travel - - - Utilities 30,000 31,500 26,775 Total Fixed Business Expenses 191,100 37.03%200,655 35.77%170,557 27.36% Other Expenses Amortized Start-up Expenses 56,667 56,667 56,667 Depreciation 78,464 78,464 78,464 Interest Commercial Loan - - - Commercial Mortgage - - - Line of Credit 4,948 5,973 5,973 Taxes - - - Total Other Expenses 140,079 27.15%141,104 25.15%141,104 22.63% Net Income (26,977) -5.23%(2,326) -0.41%78,817 12.64% Page 43 Financial Statements-Projected 3 Yr Summary Balance Sheet 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Balance Sheet - Year One Period Ending:Base Period Year One Year Two Year Three Assets Current Assets Cash - 178,228 309,408 520,824 Accounts Receivable - 15,250 16,875 19,406 Inventory 41,250 41,250 41,250 41,250 Prepaid Expenses 170,000 113,333 56,667 0 Other Current - - - - Total Current Assets 211,250 348,061 424,199 581,481 Fixed Assets Real Estate 40,000 40,000 40,000 40,000 Buildings 75,000 75,000 75,000 75,000 Leasehold Improvements - - - - Equipment 425,000 425,000 425,000 425,000 Furniture and Fixtures 35,000 35,000 35,000 35,000 Vehicles 35,000 35,000 35,000 35,000 Other Fixed Assets - - - - Total Fixed Assets 610,000 610,000 610,000 610,000 - - - - Less: Accumulated Depreciation - 78,464 156,929 235,393 - - - - Total Assets 821,250 879,597 877,270 956,087 - - - - Liabilities and Owner's Equity - - - - Liabilities - - - - Accounts Payable - - - - Notes Payable - - - - Mortgage Payable - - - - Line of Credit Balance - 85,324 85,324 85,324 Total Liabilities - 85,324 85,324 85,324 - - - - Owner's Equity - - - - Common Stock 821,250 821,250 821,250 821,250 Retained Earnings - (26,977) (29,303) 49,514 Dividends Dispersed - - - - Total Owner's Equity 821,250 794,273 791,947 870,764 - - - - Total Liabilities and Owner's Equity 821,250 879,597 877,270 956,087 Page 44 Financial Statements-Projected Y1 Income Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Income Statement - Year One May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Income Cordwood - - - 25,000 25,000 20,000 30,000 35,000 40,000 30,000 20,000 15,000 240,000 Pellets - - - 25,500 25,500 30,000 37,500 37,500 45,000 30,000 22,500 22,500 276,000 - Total Income - - - 50,500 50,500 50,000 67,500 72,500 85,000 60,000 42,500 37,500 516,000 Cost of Sales Cordwood - - - 3,750 3,750 3,000 4,500 5,250 6,000 4,500 3,000 2,250 36,000 Pellets - - - 3,400 3,400 4,000 5,000 5,000 6,000 4,000 3,000 3,000 36,800 - Total Cost of Sales - - - 7,150 7,150 7,000 9,500 10,250 12,000 8,500 6,000 5,250 72,800 Gross Margin - - - 43,350 43,350 43,000 58,000 62,250 73,000 51,500 36,500 32,250 443,200 Salaries and Wages Plant Foreman - - - - - - - - - - - - - Salaries 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 48,000 Full-Time Employees 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 5,200 62,400 Part-Time Employees 1,560 1,560 1,560 1,560 1,560 1,560 1,560 1,560 1,560 1,560 1,560 1,560 18,720 Independent Contractors - - - - - - - - - - - - - Payroll Taxes and Benefits 823 823 823 823 823 823 823 823 823 823 823 823 9,878 Total Salary and Wages 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 138,998 Fixed Business Expenses Advertising 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 21,600 Car and Truck Expenses - - - - - - - - - - - - - Commissions and Fees - - - - - - - - - - - - - Contract Labor- Acct/Payroll 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 1,850 22,200 Garbage Service 75 75 75 75 75 75 75 75 75 75 75 75 900 Customer Discounts and Refunds - - - - - - - - - - - - - Dues and Subscriptions - - - - - - - - - - - - - Vault Pumping-Sewage - - - - - - - - - - - - - Insurance & Bond (Liability and Property)1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 1,250 15,000 Internet 150 150 150 150 150 150 150 150 150 150 150 150 1,800 Legal and Professional Fees - - - - - - - - - - - - - Office Expenses 150 150 150 150 150 150 150 150 150 150 150 150 1,800 Postage and Delivery 300 300 300 300 300 300 300 300 300 300 300 300 3,600 Rent (on business property)- - - - - - - - - - - - - Rent of Vehicles and Equipment 800 800 800 800 800 800 800 800 800 800 800 800 9,600 Repairs and Maintenance 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 4,250 51,000 Fuel 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Telephone and Communications 300 300 300 300 300 300 300 300 300 300 300 300 3,600 Travel - - - - - - - - - - - - - Utilities 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 30,000 Total Fixed Business Expenses 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 191,100 Other Expenses Amortized Start-up Expenses 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 56,667 Depreciation 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 78,464 Interest Commercial Loan - - - - - - - - - - - - - Commercial Mortgage - - - - - - - - - - - - - Line of Credit - 160 322 484 498 498 498 498 498 498 498 498 4,948 Taxes - - - - - - - - - - - - - Total Other Expenses 11,261 11,421 11,583 11,745 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 140,079 Net Income (38,769) (38,930) (39,091) 4,097 4,083 3,733 18,733 22,983 33,733 12,233 (2,767) (7,017) (26,977) Page 45 Financial Statements-Projected Y1 Cash Flow Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Cash Flow Statement - Year One May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Beginning Cash Balance - - - - - 12,819 27,988 51,882 83,502 123,871 155,490 171,359 Cash Inflows Income from Sales - - - 32,825 32,825 32,500 43,875 47,125 55,250 39,000 27,625 24,375 335,400 Accounts Receivable - - - - 15,150 17,675 17,525 22,750 25,125 29,125 22,250 15,750 165,350 Total Cash Inflows - - - 32,825 47,975 50,175 61,400 69,875 80,375 68,125 49,875 40,125 500,750 Cash Outflows Investing Activities New Capital Purchases - - - - - - - - - - - - - Inventory Purchases - - - - - - - - - - - - - Cost of Sales - - - 7,150 7,150 7,000 9,500 10,250 12,000 8,500 6,000 5,250 72,800 Operating Activities Salaries and Wages 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 11,583 138,998 Fixed Business Expenses 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 15,925 191,100 Taxes - - - - - - - - - - - - - Financing Activities - Loan Payments - - - - - - - - - - - - - Line of Credit Interest - 160 322 484 498 498 498 498 498 498 498 498 4,948 Line of Credit Repayments - - - - - - - - - - - - - Dividends Paid - - - - - - - - - - - - - Total Cash Outflows 27,508 27,669 27,830 35,142 35,156 35,006 37,506 38,256 40,006 36,506 34,006 33,256 407,846 Cash Flow (27,508) (27,669) (27,830) (2,317) 12,819 15,169 23,894 31,619 40,369 31,619 15,869 6,869 92,904 Operating Cash Balance (27,508) (27,669) (27,830) (2,317) 12,819 27,988 51,882 83,502 123,871 155,490 171,359 178,228 Line of Credit Drawdowns 27,508 27,669 27,830 2,317 - - - - - - - - 85,324 Ending Cash Balance - - - - 12,819 27,988 51,882 83,502 123,871 155,490 171,359 178,228 Line of Credit Balance 27,508 55,177 83,007 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 Page 46 Financial Statements-Projected Y1 Balance Sheet 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Balance Sheet - Year One Base Period End of Year One Assets Current Assets Cash - 178,228 Accounts Receivable - 15,250 Inventory 41,250 41,250 Prepaid Expenses 170,000 113,333 Other Current - - Total Current Assets 211,250 348,061 Fixed Assets Real Estate 40,000 40,000 Buildings 75,000 75,000 Leasehold Improvements - - Equipment 425,000 425,000 Furniture and Fixtures 35,000 35,000 Vehicles 35,000 35,000 Other Fixed Assets - - Total Fixed Assets 610,000 610,000 Less: Accumulated Depreciation - 78,464 Total Assets 821,250 879,597 Liabilities and Owner's Equity Liabilities Accounts Payable - - Notes Payable - - Mortgage Payable - - Line of Credit Balance - 85,324 Total Liabilities - 85,324 Owner's Equity Common Stock 821,250 821,250 Retained Earnings - (26,977) Dividends Dispersed - - Total Owner's Equity 821,250 794,273 Total Liabilities and Owner's Equity 821,250 879,597 Page 47 Financial Statements-Projected Y2 Income Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Income Statement - Year Two May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Income Cordwood - - - 22,500 22,500 18,000 27,000 31,500 36,000 27,000 18,000 13,500 216,000 Pellets - - - 31,875 31,875 37,500 46,875 46,875 56,250 37,500 28,125 28,125 345,000 - Total Income - - - 54,375 54,375 55,500 73,875 78,375 92,250 64,500 46,125 41,625 561,000 Cost of Sales Cordwood - - - 3,375 3,375 2,700 4,050 4,725 5,400 4,050 2,700 2,025 32,400 Pellets - - - 4,250 4,250 5,000 6,250 6,250 7,500 5,000 3,750 3,750 46,000 - Total Cost of Sales - - - 7,625 7,625 7,700 10,300 10,975 12,900 9,050 6,450 5,775 78,400 Gross Margin - - - 46,750 46,750 47,800 63,575 67,400 79,350 55,450 39,675 35,850 482,600 Salaries and Wages Plant Foreman - - - - - - - - - - - - - Salaries 4,120 4,120 4,120 4,120 4,120 4,120 4,120 4,120 4,120 4,120 4,120 4,120 49,440 Full-Time Employees 5,356 5,356 5,356 5,356 5,356 5,356 5,356 5,356 5,356 5,356 5,356 5,356 64,272 Part-Time Employees 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 19,282 Independent Contractors - - - - - - - - - - - - - Payroll Taxes and Benefits 848 848 848 848 848 848 848 848 848 848 848 848 10,174 Total Salary and Wages 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 143,168 Fixed Business Expenses Advertising 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 1,890 22,680 Car and Truck Expenses - - - - - - - - - - - - - Commissions and Fees - - - - - - - - - - - - - Contract Labor- Acct/Payroll 1,943 1,943 1,943 1,943 1,943 1,943 1,943 1,943 1,943 1,943 1,943 1,943 23,310 Garbage Service 79 79 79 79 79 79 79 79 79 79 79 79 945 Customer Discounts and Refunds - - - - - - - - - - - - - Dues and Subscriptions - - - - - - - - - - - - - Vault Pumping-Sewage - - - - - - - - - - - - - Insurance & Bond (Liability and Property)1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313 1,313 15,750 Internet 158 158 158 158 158 158 158 158 158 158 158 158 1,890 Legal and Professional Fees - - - - - - - - - - - - - Office Expenses 158 158 158 158 158 158 158 158 158 158 158 158 1,890 Postage and Delivery 315 315 315 315 315 315 315 315 315 315 315 315 3,780 Rent (on business property)- - - - - - - - - - - - - Rent of Vehicles and Equipment 840 840 840 840 840 840 840 840 840 840 840 840 10,080 Repairs and Maintenance 4,463 4,463 4,463 4,463 4,463 4,463 4,463 4,463 4,463 4,463 4,463 4,463 53,550 Fuel 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 31,500 Telephone and Communications 315 315 315 315 315 315 315 315 315 315 315 315 3,780 Travel - - - - - - - - - - - - - Utilities 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 2,625 31,500 Total Fixed Business Expenses 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 200,655 Other Expenses Amortized Start-up Expenses 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 4,722 56,667 Depreciation 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 6,539 78,464 Interest Commercial Loan - - - - - - - - - - - - - Commercial Mortgage - - - - - - - - - - - - - Line of Credit 498 498 498 498 498 498 498 498 498 498 498 498 5,973 Taxes - - - - - - - - - - - - - Total Other Expenses 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 141,104 Net Income (40,411) (40,411) (40,411) 6,339 6,339 7,389 23,164 26,989 38,939 15,039 (736) (4,561) (2,326) Page 48 Financial Statements-Projected Y2 Cash Flow Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Cash Flow Statement - Year Two May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Beginning Cash Balance 178,228 162,453 135,179 106,029 104,598 119,480 137,737 165,675 201,431 246,550 281,870 300,214 Cash Inflows Income from Sales - - - 35,344 35,344 36,075 48,019 50,944 59,963 41,925 29,981 27,056 364,650 Accounts Receivable 13,375 1,875 - - 16,313 19,031 19,369 24,938 27,206 31,594 23,963 17,063 194,725 Total Cash Inflows 13,375 1,875 - 35,344 51,656 55,106 67,388 75,881 87,169 73,519 53,944 44,119 559,375 Cash Outflows Investing Activities New Capital Purchases - - - - - - - - - - - - - Inventory Purchases - - - - - - - - - - - - - Cost of Sales - - - 7,625 7,625 7,700 10,300 10,975 12,900 9,050 6,450 5,775 78,400 Operating Activities Salaries and Wages 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 11,931 143,168 Fixed Business Expenses 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 16,721 200,655 Taxes - - - - - - - - - - - - - Financing Activities - Loan Payments - - - - - - - - - - - - - Line of Credit Interest 498 498 498 498 498 498 498 498 498 498 498 498 5,973 Line of Credit Repayments - - - - - - - - - - - - - Dividends Paid - - - - - - - - - - - - - Total Cash Outflows 29,150 29,150 29,150 36,775 36,775 36,850 39,450 40,125 42,050 38,200 35,600 34,925 428,195 Cash Flow (15,775) (27,275) (29,150) (1,431) 14,882 18,257 27,938 35,757 45,119 35,319 18,344 9,194 131,180 Operating Cash Balance 162,453 135,179 106,029 104,598 119,480 137,737 165,675 201,431 246,550 281,870 300,214 309,408 Line of Credit Drawdowns - - - - - - - - - - - - - Ending Cash Balance 162,453 135,179 106,029 104,598 119,480 137,737 165,675 201,431 246,550 281,870 300,214 309,408 Line of Credit Balance 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 Page 49 Financial Statements-Projected Y2 Balance Sheet Year 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Balance Sheet - Year Two End of Year One End of Year Two Assets Current Assets Cash 178,228 309,408 Accounts Receivable 15,250 16,875 Inventory 41,250 41,250 Prepaid Expenses 113,333 56,667 Other Current - - Total Current Assets 348,061 424,199 Fixed Assets Real Estate 40,000 40,000 Buildings 75,000 75,000 Leasehold Improvements - - Equipment 425,000 425,000 Furniture and Fixtures 35,000 35,000 Vehicles 35,000 35,000 Other Fixed Assets - - Total Fixed Assets 610,000 610,000 Less: Accumulated Depreciation 78,464 156,929 Total Assets 879,597 877,270 Liabilities and Owner's Equity Liabilities Accounts Payable - - Notes Payable - - Mortgage Payable - - Line of Credit Balance 85,324 85,324 Total Liabilities 85,324 85,324 Owner's Equity Common Stock 821,250 821,250 Retained Earnings (26,977) (29,303) Dividends Dispersed - - Total Owner's Equity 794,273 791,947 Total Liabilities and Owner's Equity 879,597 877,270 Page 50 Financial Statements-Projected Y3 Income Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Income Statement - Year Three May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Income Cordwood - - - 14,625 14,625 11,700 17,550 20,475 23,400 17,550 11,700 8,775 140,400 Pellets - - - 44,625 44,625 52,500 65,625 65,625 78,750 52,500 39,375 39,375 483,000 - Total Income - - - 59,250 59,250 64,200 83,175 86,100 #####70,050 51,075 48,150 623,400 Cost of Sales Cordwood - - - 2,194 2,194 1,755 2,633 3,071 3,510 2,633 1,755 1,316 21,060 Pellets - - - 5,950 5,950 7,000 8,750 8,750 10,500 7,000 5,250 5,250 64,400 - Total Cost of Sales - - - 8,144 8,144 8,755 11,383 11,821 14,010 9,633 7,005 6,566 85,460 Gross Margin - - - 51,106 51,106 55,445 71,793 74,279 88,140 60,418 44,070 41,584 537,940 Total Salary and Wages 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 147,463 Fixed Business Expenses Advertising 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 1,607 19,278 Car and Truck Expenses - - - - - - - - - - - - - Commissions and Fees - - - - - - - - - - - - - Contract Labor- Acct/Payroll 1,651 1,651 1,651 1,651 1,651 1,651 1,651 1,651 1,651 1,651 1,651 1,651 19,814 Garbage Service 67 67 67 67 67 67 67 67 67 67 67 67 803 Customer Discounts and Refunds - - - - - - - - - - - - - Dues and Subscriptions - - - - - - - - - - - - - Vault Pumping-Sewage - - - - - - - - - - - - - Insurance & Bond (Liability and Property)1,116 1,116 1,116 1,116 1,116 1,116 1,116 1,116 1,116 1,116 1,116 1,116 13,388 Internet 134 134 134 134 134 134 134 134 134 134 134 134 1,607 Legal and Professional Fees - - - - - - - - - - - - - Office Expenses 134 134 134 134 134 134 134 134 134 134 134 134 1,607 Postage and Delivery 268 268 268 268 268 268 268 268 268 268 268 268 3,213 Rent (on business property)- - - - - - - - - - - - - Rent of Vehicles and Equipment 714 714 714 714 714 714 714 714 714 714 714 714 8,568 Repairs and Maintenance 3,793 3,793 3,793 3,793 3,793 3,793 3,793 3,793 3,793 3,793 3,793 3,793 45,518 Fuel 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 26,775 Telephone and Communications 268 268 268 268 268 268 268 268 268 268 268 268 3,213 Travel - - - - - - - - - - - - - Utilities 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 2,231 26,775 Total Fixed Business Expenses 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 170,557 Total Other Expenses 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 11,759 141,104 Net Income (38,260) (38,260) (38,260) 12,846 12,846 17,185 33,532 36,018 49,880 22,157 5,810 3,323 78,817 Page 51 Financial Statements-Projected Y3 Cash Flow Statement 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Projected Cash Flow Statement - Year Three May June July Aug Sept Oct Nov Dec Jan Feb Mar Apr Totals Beginning Cash Balance 309,408 297,202 272,284 245,285 248,654 269,799 296,512 334,416 379,723 435,100 478,951 504,268 Cash Inflows Income from Sales - - - 38,513 38,513 41,730 54,064 55,965 66,398 45,533 33,199 31,298 405,210 Accounts Receivable 14,794 2,081 - - 17,775 20,738 22,223 28,163 29,989 34,950 26,123 18,825 215,659 Total Cash Inflows 14,794 2,081 - 38,513 56,288 62,468 76,286 84,128 96,386 80,483 59,321 50,123 620,869 Cash Outflows Investing Activities New Capital Purchases - - - - - - - - - - - - - Inventory Purchases - - - - - - - - - - - - - Cost of Sales - - - 8,144 8,144 8,755 11,383 11,821 14,010 9,633 7,005 6,566 85,460 Operating Activities Salaries and Wages 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 12,289 147,463 Fixed Business Expenses 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 14,213 170,557 Taxes - - - - - - - - - - - - - Financing Activities - Loan Payments - - - - - - - - - - - - - Line of Credit Interest 498 498 498 498 498 498 498 498 498 498 498 498 5,973 Line of Credit Repayments - - - - - - - - - - - - - Dividends Paid - - - - - - - - - - - - - Total Cash Outflows 26,999 26,999 26,999 35,143 35,143 35,754 38,382 38,821 41,009 36,632 34,004 33,566 409,452 Cash Flow (12,206) (24,918) (26,999) 3,369 21,144 26,713 37,904 45,307 55,377 43,851 25,317 16,557 211,417 Operating Cash Balance 297,202 272,284 245,285 248,654 269,799 296,512 334,416 379,723 435,100 478,951 504,268 520,824 Line of Credit Drawdowns - - - - - - - - - - - - - Ending Cash Balance 297,202 272,284 245,285 248,654 269,799 296,512 334,416 379,723 435,100 478,951 504,268 520,824 Line of Credit Balance 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 85,324 Page 52 Financial Statements-Projected Y3 Balance Sheet Year 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Balance Sheet - Year Three End of Year Two End of Year Three Assets Current Assets Cash 309,408 520,824 Accounts Receivable 16,875 19,406 Inventory 41,250 41,250 Prepaid Expenses 56,667 0 Other Current - - Total Current Assets 424,199 581,481 Fixed Assets Real Estate 40,000 40,000 Buildings 75,000 75,000 Leasehold Improvements - - Equipment 425,000 425,000 Furniture and Fixtures 35,000 35,000 Vehicles 35,000 35,000 Other Fixed Assets - - Total Fixed Assets 610,000 610,000 Less: Accumulated Depreciation 156,929 235,393 Total Assets 877,270 956,087 Liabilities and Owner's Equity Liabilities Accounts Payable - - Notes Payable - - Mortgage Payable - - Line of Credit Balance 85,324 85,324 Total Liabilities 85,324 85,324 Owner's Equity Common Stock 821,250 821,250 Retained Earnings (29,303) 49,514 Dividends Dispersed - - Total Owner's Equity 791,947 870,764 Total Liabilities and Owner's Equity 877,270 956,087 Page 53 Financial Statements-Projected Breakeven Analysis 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Breakeven Analysis Breakeven Analysis Dollars Percent Annual Sales Revenue 516,000$ 100.00% Cost of Sales 72,800 14.11% Gross Margin 443,200 85.89% Salaries and Wages 138,998 Fixed Operating Expenses 274,513 Total Fixed Business Expenses 413,510 Breakeven Sales Calculation 413,510 85.89% Breakeven Sales in Dollars 481,433$ Page 54 Financial Statements-Projected Financial Diagnostics 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Financial Diagnostics This sheet performs a few tests on your numbers to see if they seem within certain reasonable ranges. Remember, no computer can tell whether your projections are truly well-constructed, only a human can do that. But these tests can at least look for values that are critically out of range. Financial Diagnostics Value Findings General Financing Assumptions Owner's Cash Injection into the Business 14.00%Owner's injection might be too low in relation to the amount of money needed Cash Request as percent of Total Required Funds 0.00%Cash request seems reasonable with respect to total request Loan Assumptions Commercial Loan Interest rate 9.00%Interest rate seems reasonable Commercial Loan Term in Months 84 Loan term seems within range for this type of loan Commercial Mortgage Interest rate 9.00%Interest rate seems reasonable Commercial Mortgage Term in Months 240.00 Loan term seems within range for this type of loan Loan Payments as a Percent of Projected Sales 0.00%Calculated loan payments as a percent of sales seem resonable Income Statement Gross Margin as a Percent of Sales 85.89%Gross margin percentage seems reasonable Owner's Compensation Lower Limit Check -$ An owner's compensation amount has not been established Owner's Compensation Upper Limit Check 0.00%Owner's compensation seems reasonable Advertising Expense Levels as a Percent of Sales 4.19%Advertising as a percent of sales may be too low Profitability Levels (26,977)$ The business is not showing a profit Profitability as a Percent of Sales -5.23%The projection does not seem highly unreasonable Cash Flow Statement Desired Operating cash Flow Levels 85,324$ The financial projection does not provide the desired level of cash flow Line of Credit Drawdowns 85,324$ The business will need at least this level of a line of credit Accounts Receivable Ratio to Sales 2.96%Accounts receivable amount as a percent of sales seems reasonable Balance Sheet Does the Base Period Balance Sheet Balance?- The balance sheet does balance Does the Final Balance Sheet Balance - The balance sheet does balance Debt to Equity Ratio 10.74%The debt to equity ratio seems reasonable Breakeven Analysis Breakeven Levels 34,567$ The sales projection exceeds the projected break-even sales level Page 55 Financial Statements-Projected Financial Ratios 8/19/2011 Copper Valley Wood Fuel a division of Gulkana Village Council Financial Ratios Ratio Year One Year Two Year Three Liquidity Current Ratio 4.08 4.97 6.81 Quick Ratio 2.27 3.82 6.33 Safety Debt to Equity Ratio 0.11 0.11 0.10 Debt to Coverage Ratio 0.60 0.89 1.84 Profitability Sales Growth - 0.09 0.11 COGS to Sales 0.14 0.14 0.14 Gross Profit Margin 0.86 0.86 0.86 SG&A to Sales 0.64 0.61 0.51 Net Profit Margin (0.05) (0.00) 0.13 Return on Equity (0.03) (0.00) 0.09 Return on Assets (0.03) (0.00) 0.08 Owner's Compensation to Sales - - - Efficiency Days in Receivables 10.64 10.83 11.21 Accounts Receivable Turnover 33.84 33.24 32.12 Days in Inventory 203.98 189.41 173.77 Inventory Turnover 1.76 1.90 2.07 Sales to Total Assets 0.59 0.64 0.65 Page 56 Financial Statements-Projected Production Requirements 8/19/2011 Account:Cordwood - Cord Wood Pellets - Tons Breakeven Sales Revenue 161,478$ 158,373$ Breakeven Sales Units 807 528 Month (12 Months per Year)67 44 Daily - (240 Workdays per year)3 2 Daily Production levels -Sales to sustain the cordwood and wood pellet operation: Cordwood: 3 Cords Wood Pellets: 2 Tons Page 57 Gulkana Village Council: Copper River Valley Wood Products - Business Plan Cited References ECONOMICS OF PRODUCING FUEL PELLETS FROM BIOMASS S. Mani, S. Sokhansanj, X. Bi, A. Turholl Deloitte Wood Pellet Cost Study for the Forest of North Eastern Ontario Copper Valley Electric Association - Strategic Issues Paper 2011 Bioenergy and Sustainable Forestry - Outlook for Alaska Selected Housing Characteristics 2005-2009 Dataset: Copper River Census Subarea Kenny Lake School: Fuel Oil vs. Pellet Analysis/Round IV AEA application Page 58 9.0 References Grant Application Attachment B Cost Worksheet Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Renewable Energy Fund Round 5 Project Cost/Benefit Worksheet RFA AEA12-001 Application Cost Worksheet Page 1 7-1-11 Please note that some fields might not be applicable for all technologies or all project phases. The level of information detail varies according to phase requirements. 1. Renewable Energy Source BIOMASS The Applicant should demonstrate that the renewable energy resource is available on a sustainable basis. Annual average resource availability. 30,240,000,000 BTU Unit depends on project type (e.g. windspeed, hydropower output, biomasss fuel) 2. 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 ii. Rated capacity of generators/boilers/other iii. Generator/boilers/other type iv. Age of generators/boilers/other v. Efficiency of generators/boilers/other b) Annual O&M cost (if system is part of the Railbelt grid, leave this section blank) i. Annual O&M cost for labor ii. Annual O&M cost for non-labor 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] ii. Fuel usage Diesel [gal] Other iii. Peak Load iv. Average Load v. Minimum Load vi. Efficiency vii. Future trends d) Annual heating fuel usage (fill in as applicable) i. Diesel [gal or MMBtu] 216,000/gal 29,808,000,000Mbtu ii. Electricity [kWh] iii. Propane [gal or MMBtu] iv. Coal [tons or MMBtu] v. Wood [cords, green tons, dry tons] vi. Other 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. Renewable Energy Fund Round 5 Project Cost/Benefit Worksheet RFA AEA12-001 Application Cost Worksheet Page 2 7-1-11 3. 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] 30,240,000,000 Btu b) Proposed annual electricity or heat production (fill in as applicable) i. Electricity [kWh] ii. Heat [MMBtu] 30,240,000,000 Btu c) Proposed annual fuel usage (fill in as applicable) i. Propane [gal or MMBtu] ii. Coal [tons or MMBtu] iii. Wood [cords, green tons, dry tons] 1800 ton Pellets iv. Other 4. Project Cost a) Total capital cost of new system 1,075,000 b) Development cost c) Annual O&M cost of new system 50,000 d) Annual fuel cost 30,000 5. Project Benefits a) Amount of fuel displaced for i. Electricity ii. Heat $771,000 iii. Transportation b) Current price of displaced fuel 3.57 c) Other economic benefits d) Alaska public benefits Air Quality 6. Power Purchase/Sales Price a) Price for power purchase/sale 7. Project Analysis a) Basic Economic Analysis Project benefit/cost ratio .72 Payback (years) 5.0 Grant Application Attachment C Grant Budget Form Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Renewable Energy Fund Grant Round V Grant Budget Form 7-1-11 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 Attached Milestone list. ) Site Control & Installation Permitting June 2012 $10,000 $10,000 Feedstock - Supply Channel/Vendor Contracts August 2012 $25,000 $25,000 Small Scale Installation & Production Design August 30, 2012 $75,000 $75,000 Equipment Acquisitions August 1, 2012 $475,000 $125,000 $600,000 Equipment Installations inc Building Prep August 30,2012 $80,000 $80,000 Initial Production Sept 30, 2012 $30,000 $30,000 Refine to Full Production Sept - Dec 2012 $30,000 $30,000 TOTALS $645,000 $205,000 $850,000 Budget Categories: Direct Labor & Benefits $60,000 $60,000 Travel & Per Diem $0 $0 Equipment $475,000 $125,000 $600,000 Materials & Supplies $25,000 $25,000 Contractual Services $165,000 $165,000 Construction Services Other TOTALS $850,000 Applications should include a separate worksheet for each project phase (Reconnaissance, Feasibility, Design and Permitting, and Construction)- Add additional pages as needed Renewable Energy Fund Grant Round V Grant Budget Form 7-1-11 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 Grant Application Attachment D Electronic version of the Proposal Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Grant Application Attachment E Authorized Signers Form Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Grant Application Attachment F Governing Body Resolution Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Grant Application Attachment G Certification Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Grant Application Gulkana Village Biomass Fuels Project Renewable Energy Fund Round V AEA Application for Design, Equipment & Gulkana Village Council 8/25/2011 Installation Work Contents: Attachment H - L etter of Support