HomeMy WebLinkAboutLtr. from Paul Fuhs 10-27-08Oct 22 07 07:17a
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PAUL FUHS
329 E TENTH AVENUE
ANCHORAGE, ALASKA 995131
907-351-0407
November, 27, 2008
Mayor Shirley Marquardt
City Council Members
City of Unalaska
Dear Shirley,
I appreciated the opportunity to speak with you in more detail about the Makushin
Geothermal project last week.
As I understood our discussion, your agenda on the 28`h was already full with pressing
issues for council deliberations, so that there would not be time for me to make a
presentation on a request for a letter of support from the City for our grant request to the
Alaska Energy Authority to further define the costs of alternative development scenarios
for the project. That is understandable and it may be that formal council action is not
necessary for you to write a letter on your own in support of the grant application so long
as they are aware of the situation_
The grant request is structured so that all of the information will be available to the City
and local residents and this information will help everyone to determine if there is a
feasible project. It will cover the contingencies of production wells either at the existing
proven test well site or production wells on the valley floor. It will examine optimal
locations for the generating plant at the head of the valley or closer to the ocean. Based
on those options, it will define specific comparative costs for infrastructure, transmission
lines, etc. This study will also use an advanced form of laser radar to identify the most
likely locations for production wells.
i hope you will agree that this information will be extremely useful to the community and
to the commercial entities that will need to make decisions about participating in the
project, including the City, fish processors, other industrial users and the Ounalashka
Corporation. A letter of support from you in this regard would be most useful. We also
hope you will appoint a representative to sit on the study oversight committee to make
sure the City is getting all the information it needs on the project.
You and I also discussed the issue of continued negotiations for royalty rates for
geothermal fluids. You asked if we were willing to continue to negotiate for these terms
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so that the City could have more certainty before proceeding on an exploratory drilling
program in the valley. The answer to that question is yes.
As I mentioned, it is very difficult to negotiate a rate before having the information
referenced in the study above and more surety over where production wells will
ultimately be located. As I reviewed the negotiating history of the parties, it appeared to
me that the approach taken by both sides would not lead to a successful conclusion. Both
sides were proposing flat rates for geothermal fluids without having clear information on
the economics of the project. If we assumed that the City's drilling program in the valley
would be successful and save substantial costs to the project, the fluids would obviously
have a higher value. However, there is no guarantee that the drilling program will be
successful so we may have to pipe the fluids down to the valley from production wells at
a higher elevation.
Therefore, I think it would be most productive if we would pursue an agreement based on
a percentage of savings to the community based on the price of diesel fuel or converted to
the equivalent cents per kilowatt hour. Much of this data is already available through the
City's annual report to the state on the Power Cost Equalization program. This approach
would focus on the savings to the community of actual avoided fuel costs replaced by
geothermal energy. This approach would also align the interests of all the parties in
finding the lowest cost development plant for the project and for seeking assistance in the
capital costs from state and federal alternative energy grants, carbon credits, production
of transportable fuels such as hydrogen and ammonia, etc.
As I promised to you over the phone, I will send to you later this week or early next week
at the latest, a proposed formula outline for valuing geothermal fluids based on savings to
the community. If you accept this outline, we would expect the negotiations to focus on
how those savings are divided between the parties. We would also welcome the
participation of AEA in these negotiations to help us come to an agreement, and also to
have them involved in the project from the start since it is clear that neither the City nor
KSLC has the capacity to finance this project and loan guarantees from the State of
Alaska will probably be required.
I have spoken extensively with the KSLC partners and we all agree that a cooperative
approach with the City is the best way to move this project forward. In that light, I hope
you will consider writing a letter in support of the grant proposal to AEA and appointing
a representative to the oversight committee.
You also mentioned the possibility of holding a special public meeting on the Makushin
Geothermal Project sometime in November and we think that is a good idea. Please let
us know the dates as soon as possible so that we can make travel arrangements to attend
and participate. Please call me anytime to discuss any element of the project. I have
attached the letter authorizing me to represent KSLC in helping develop this project.
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Paul Fuhs �A. .. �/ ,• --
r'
Oct 22 0'7 07: 17a
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Kiiguusi Suuluta Land Company, LLC
c/o t . C. Fisch
116 Delmar St.
San Francisco, CA 94117
1'etcnhune (! 1 J) 51 > ` 22b
Email:
Mr. Paul Vuhs
Anchorage Alaska
RE: Negotiations
Dear Paul=
Please accept this letter as your authorization to negotiate all matters relating to
land use and rentals, royalties and such other matters as may be related to the exploration,
development and utilization of KSLC's land and resource commonly known as the
Makushin Resource_ Your authority extends to negotiation with any person or entity with
a legitimate interest in advancing the aforesaid purposes and includes, but is not limited
to, the City of Unalaska, the State of Alaska or any of its subdivisions or agencies, the
Native organizations and fish processors. Your authority is subject only to the ultimate
approval of any transaction terms by KSLC's Board of Managers.
Si nicereiy,
jJack S. Wood
Trustee
The Wood Family Trust
Member/Manager
KSLC.LLC