HomeMy WebLinkAboutAPA137MAT E R I AL
MARCH 24,1983
ON
COMMITTEE REPORT
THE SUSITNA PROJECT
SENATE STATE AFFAIRS COMMITTEE
SENATE BILLS 681 69,70,AND 71
ADD I T ION AL
'.'-.~AlAskA STATE LEGISLATURE
SENATE STATE AFFAIRS COMMITIEE POUCH V,JUNEAU 99811
SENAlDR VIC FISCHER,CHAIRMAN (CXJ7)4654954
Representatives from utilities and members of the public
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PAGEISSUE
RA.S1VIlJSOl'J LIBRARY
Administration Position
APA Background
FERC Role
Interim Financing
Tyee
General Remarks
Financing
Financing
Bond Market Situation
Economic Feasibility
Economic Feasibility
Oil Revenue Forecasts
OMB Review
Revenue Estimates
Revenue Situation
Marketability
Power Sales Contracts
APUC Role
SRI Study
Schedule
Review of "Obstacles"
Land Status
Fisheries Data
TABLE TO SUSITNA MINUTES
WITN,ESS
FEBRUARY 26
Governor Sheffield
Eric Yould/Ray Benish
William Wakefield
Tom Singer
Panel
FEBRUARY 24
George Rogers
Eric Yould
APA Financial Advisers
Eileen Titmuss
Eric Yould/Robert Mohn
Gregg Erickson
Lee Gorsuch
MARCH 1
MARCH 3
George Matz
Milt Barker
Robert Heath
Robert Mohn/Ray Benish
Harrison Ca!1
Carolyn Guess
Dick Emmerman
Robert Mohn
I David Rogers
AI Carson
Dennis Kelso
ALA'S 'rCA
kFA
l~\Ll~
Sl.\~
\983
SV,f?l.
Members Present:
Members Absent:
SENATE STATE AFFAIRS
STANDING COMMITTEE
February 24,1983
1:30 p.m.
Senator Vic Fischer,Chairman
Senator Rick Halford
Senator Arliss Sturgulewski
Senator Tim Kelly
Senator Pat Rodey
COMMITTEE CALENDAR
No specific bills were under consideration
at this meeting.Instead the time was used
as a background briefing_on hydroelectric
power asH relates to the legislation
before the Senate.
WITNESS REGISTER
Mr.Eric Yould
Alaska Power Authority
No address or phone prpvided.
Position Statement:Answered questions from committee members
and offered testimony regarding hydro
construction and financing.
Bill Sheffield,Governor
State of Alaska
Pouch A,Juneau,Alaska 99811
465-3500
Position Statement:Answered questions from committee members.
Representative Tony Vaska
Alaska State Legislature
Pouch V,Juneau,Alaska 99811
465-4914
Position Statement:Committee draft doesn't reflect his
testimony.
Senator Rick Halford
Alaska State Legislature
Pouch V,Juneau,Alaska 99811
465-4958
Position Statement:Asked questions of Eric Yould.
PREVIOUS ACTION
No previous action to record.
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TAPE#1 for 2/24/83
Recording
Number 000
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ACTION NARRATIVE
The meeting of the Senate State Affairs
Committee was called to order at 1:30 p.m.
with member Senators V.Fischer,Ray,
Sturgulewski and Kelly present.Senator
Rodey was absent.
Chair V.Fischer calls the meeting to order.
Today's meeting is to provide background
information for the series of hearings.The
administration's views are going to be heard
from Governor Sheffield.
Governor Sheffield testified that power was
one way we can develop Alaska.He felt that
if Susitna met certain criteria,then it
would be a good deal.,He has come up with a
checklist for the Susitna project consisting
of the following:we must know 1)the cost,
2)the financing from start to finish,3)
who wil'buy the power,4)100%of the
design,S)final pre-construction cost
estimate,and we must have 6)Federal Energy
Regulatory Commission license,7)external
review planning,8)tax exempt status in
place,9)legislative authoriazation,and
10)APA approval.He felt that Bradley Lake
was also part of the overall picture as it
could come on line before Susitna and could
supplement the railbelt needs by providing
peak power to Anchorage.He envisions a
total intertied system within the railbelt
area receiving power from three locations
where all consumers would pay the same
price.State money would be involved,with
the state getting its money back over a
long,long time.In rural Alaska we
subsidize diesel fuel,although there are
lots of possibilities for power other than
diesel fuel--,hydro,gas,wind,thermal.
Under Commissioner Dick Lyon we are going to
try to develop long range plans while we
have some money with which to do it.In
Southeastern Alaska,Governor Sheffield
envisions two power grids consisting of
northern and southern sections.He named
other options like coal,and the wind mills
which are used in Unalakleet,and felt that
we need to be able to store up that power.
Governor Sheffield's overall view was to
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generate a long term plan consisting of two
parts--one large scale and one small scale.
It was his view that they all help to get
our money back.He felt that Susitna looks
right 50 years down the road.In any case 5
in order to develop our energy resources 5 we
need to store up large amounts of money--as
the Alaska Investment Fund would do.
Chair V.Fischer asked what the energy
network was under the Administration,and
how it all fits together.
Governor Sheffield responded that the Alaska
Power Authority is housed under the
Department of Commerce and Economic
Deve10pment~but that it is run by an
independent board.
Governor Sheffield said that he saw himself
becoming more involved with the Alaska Power
Authority than the previous administration
and wants more direct contact with it.
Policy decisions will be up to Commerce.
Commissioner Lyon,Department of Commerce
and Economic Deve10pment 5 said that the
Department wants to be closer to all the
entities under its umbrella.
Chair V.Fischer asked how fast they saw the
decisions being made.He also asked if the
Commissioner thought they would proceed down
the checklist and then decide on the
project.
Governor Sheffield would like to speed up
the process of the checklist."I don't have
a time frame yet.n
Chair V.Fischer said that the committee has
before it several bills affecting Susitna
financing.Governor Sheffield said that he
would be looking at alternative financing.
Eric You1d 5 APA executive director 5 gave an
overview of the Alaska Power Authority.One
of the goals of APA would be to put into
place a long term scenario that would
implement the views of the Governor.He
agreed that he worked very closely with the
new administration.He felt close
Administration supervision was in the best
interest of the state.He continued to
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explain that the purpose of the Alaska Power
Authority was to provide economic
development to the state through the lowest
cost power,and that the APA took a longer
term view.He felt that we are developing
very cost effective projects.
CHANGE TAPE TO SIDE 2.
Eric Yould introduced Mr.Ray Benish.
Mr.Ray Benish testified on the APA's
ability to study and implement power
plans.The goal of the APA is to remain
small,and they contract out most of their
work.1/2 billion dollars worth of
construction has been funded under APA.
Other programs include power cost assistance
in rural areas,where the State picks up
part of the costs for electricity.Current
program cost is $10 million per year.
Another program is the revolving electric
loan fund.It allows utilities to get 2
percent loans which enables them to provide
electricity to areas otherwise unserved.
Power production loan fund has been used in
the past to fund some hydro studies.He
concluded by saying that all these programs
must report back to the Legislature.
Next came a slide show on various Alaska
Power Authority projects including Bradley
Lake,Green Lake,Swan Lake,Terror Lake,
Tyee,Solomon Gulch,Anchorage/Fairbanks
intertie,waste heat projects,Silver Lake,
Susitna,Kiseralik,and Tazimina.
BEGIN SIDE 2,TAPE 1.
Senator Halford asked why the Susitna camp
is in the only swamp around?
Eric Yould answered that the camp was put in
during the middle of winter.The decision
has proved embarrassing.
Question.
Eric Yould testified on the system undergone
with power projects.The process on the
projects begins with a reconnaisance study
process,and proceeds with a review of
energy needs,a comparison of life cycle
costs,a review of the costs of resources,
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and a study of alternatives to diesel fuel
generation.Mr.Yould said that the Alaska
Power Authority had been criticized for
bringing forth too many projects,but
actually APA rejects many projects which are
not feasible.APA has just completed the
feasibility stage on Susitna.He said that
if the conclusion proves that Susitna is
technically feasible,APA still can't go
forward until the Legislature authorizes
construction.Alaska Power Authority
initiated the Tyee project with state funds.
It had to have interim financing~This is
also true for Swan Lake and Terror Lake
projects.
Senator Sturgulewski wanted an overview of
what will happen for the rest of the
presentation and the other hearings on Hydro
that have been sheduled by this committee.
Chair V.Fischer responded that they would
follow the printed agenda.
Chair V.Fischer asked what was the
incentive for a "good"project like Green
Lake to pool with higher cost projects.
Eric Yould answered that the lower cost
projects will not wish to be included in the
pool and higher cost ones will want in.
Present pooling system may not be workable.
May affect bonding.
Chair V.Fischer asked if the Alaska Power
Authority was looking at ways of financing
some of these other projects •.
Eric Yould responded that they were.
Chair V.Fischer asked what kinds of power
sales agreements do we now have with Swan
and Terror Lake?
Eric Yould responded that the power sales
agreements were written around S8 25 and
specify that they are "subject to existing
state 1aw.II They wi 11 now have to be
changed,and the APA is looking for a
standard to adopt.Petersburg and Wrangell
have recently balked at the power sales
agreements offered them for Tyee power.
Senator Sturgulewskisaid that there was a
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lack of a specific method of legislative
oversight and that it was frustrating.She
asked if A.P.A.could provide data for
unexpended amounts on various projects?
Eric Yould answered that yes they could.
Senator Sturgulewski asked if A.P.A.had a
method to report its findings on projects.
Eric Yould answered that a long term energy
plan was a good vehicle for that purpose.
Senator Sturgulewski said that this
information was not available or perhaps not
asked for in the past.She felt that we
needed better legislative oversight.
William Wakefield,Federal Energy Regulatory
Commission (FERC)testified.His office has
developed a "Susitna Status Report"which
was distributed to the Committee.FERC is
charged with determining whether or not the
Susitna project is in the best interest of
the public.FERC·s process for that
determination consists of public notices,
sixty to ninety day comment period,and a
three pronged analysis.An Environmental
Impact Study is prepared.There may be a
hearing before an administrative law judge.
Intervenors may present evidence.A staff
recommendation is made.Commissioners review
the record.The three criteria for issuance
are is the project 1)Needed?2)Stable?3)
Environmentally sound?The status report
lays out timetable for Federal Energy
Regulatory staff decisions.
Chair V.Fischer:What criteria do you use
to determine the need for power?
William Wakefield answered that they use the
application and other data."Hydroelectric
Power Evaluation"is a document used by FERC
to make-these decisions,and was provided to
the committee.IIAny conclusion we make we
must defend in public."
Chair V.Fischer said that Alaska has a
policy of promoting power development.He
then asked how Mr.Wakefield would evaluate
Alaska's long term plan for the future.
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William Wakefield answered that such
economic development is speculative and very
difficult to evaluate.FERC makes
independent analyses.
Chair V.Fischer said that he was trying to
get a feel for the relationship between the
F.E.R.C.and the State.
Senator Sturgu1ewski asked what was the long
range price of other energy sources.She
asked if FERC used the same assumptions as
the Finance Committee.
William Wakefield answered that they look at
the State's analysis,and they look at their
analysis,and make an independent judgement
if they don't agree.He said that there was
a mechanism in place whereby the conclusion
made by FERC could be challenged.In
reviewing the application,however,they
don't discuss the merits of the information,
only the sources and explanations.
CHANGE TAPE TO TAPE 2 for 2/24/83.
William Wakefield:FERC is speaking on the
feasibility of the projects.Their opinion
can be challenged in court but not while
they are in the review process.
Senator Sturgu1ewski asked where the FERC
representative would physically be located?
Mr.Wakefield answered Washington,D.C.
Senator Sturgu1ewski asked if they would
have on-site personnel.Wakefield answered
yes.
Senator Sturgu1ewski asked what was the last
major dam built in the last few years?
William Wakefield (FERC)said there hadn't
been any for quite some time.
Chair V.Fischer asked if FERC looked at
power purchase agreements,or does FERC
assume that it can be done.
William Wakefield answered that the power
sales agreement had to come before the
licensing.He further concluded that FERC
assumes the need for power is very clearly
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defined.
Chair V.Fischer asked Mr.Wakefield if the
state could assume that when FERC issues an
order that they have okayed the project and
that the state could then go ahead with the
project.Senator Fischer also asked what
questions the state should still ask after
we have received the FERC approval.
William Wakefield answered that the State
doesn1t have the final design yet,so FERC
reviews what the State has and they stay in
touch in an on-going process.He commended
the APA.He also said that unless FERC has
all the information,they cannot go through
their process.
Chair V.Fischer asked if FERC would throw
the application away if it was missing some
pertinent information.
William Wakefield said FERC would ask for
more information.
Chair V.Fischer asked at what point the
state needs to give full and formal Susitna
approval.
Mr.Wakefield said that FERC is going on the
assumption that the project is already
approved.
Senator Sturgulewski answered that only the
filing of Susitna with FERC has been
approved.
Mr.Wakefield said that if FERC has any
indication that the state is not going on
with the process,they won1t want to commit
time and money to it.
Chair V.Fischer asked at what point do we~
have to have money on the line?
Mr.Wakefield answered that construction
must commence within two years of licensure.
You must have power sales contracts before
licensing,which assumes financing in-place.
Chair V.Fischer asked about the FERC
commission order that approved a cost for
Tyee of $64.1 million,in contrast to the
$132 million we now have in the project.
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Does FERC use a sensitivity analysis
regarding costs and to what extent does FERC
track power costs after licensure?
Mr.Wakefield answered that economic
analysis is subject to change by its very
nature,and that Tyee has been a moving
target.
Senator Sturgulewski asked if FERC continued
its oversight once the process is complete,
license is issued,and the project comes to
fruition.
Mr.Wakefield said that the FERC analysis is
complete with licensure,and that they only
do inspections later.
Senator Sturgulewski asked if FERC would
take any preventive action.
Mr.Wakefield answered that they do not.
Chair V.Fischer said that the next
testimony is from Erickson and Associates.
They are going to speak on interim
financing.
Chair V.Fischer introduced Tom Singer from
Erickson and Associates.
Tom Singer read his testimony.See
testimony from Erickson &Associates
memorandum.This memorandum is attached to
Senate State Affairs Committee copy of
minutes only.Not available on computer
network.
Senator Kelly returns to meeting.
Several witnesses discussed the Tyee Project
including Ernie Haugen (Thomas Bay Power
Commission),Rich Underkofler (City of
Petersburg),Kenneth Mason (City of
Wrangell),George Matz (OMB),and Ernie
Meuller (former APA board member)•.
Eric Yould passed out a chronology of the
Tyee project.He said that Tyee was
originally undertaken in 1978 by Thomas Bay
Power Commission.Originally·the cost was
$39 million,one half cost was in the
transmission line and one half in civil
engineering portion.In 1979 the Alaska
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Power Authority took over.In 1980 costs
were revised from $39 million to $51
million.APA Board was concerned.
Independent cost estimates were completed in
June 1981:$97 million present dollars or
110 million at time of completion.APA
needed additional funding;they turned to
interim financing for $50 million.APA
indicated plan to Legislative Budget and
Audit.Ultimate cost will be between $115
and $125 million.The financing statutes
have changed year by year.
BEGIN TAPE 2,SIDE 2.Eric Yould continues.
Cost for Tyee power has been estimated at
30¢per kilowatt hour.
Ernie Mueller said that APA once considered
firing the engineering firm that gave poor
cost estimates.
George Matz,Office of Management and
Budget,gave an historical perspective on
the Tyee project,and passed out a memo
detailing the historical milestones.OMB
analysis had raised questions about the
project's feasibility,but at the time there
was no process for an independent cost
analysis.
Richard Underkoffler,City Manager,
Petersburg.Petersburg believes in
Hydropower.Currently,the cost of
electricity from the 48%of the load
produced by hydro power in Petersburg only
costs .7¢/kilowatt hour.Petersburg is
concerned about 1)the Tyee wholesale cost
2)the clause in the law which requires all
power projects to pay a 10%annual return if
$5 billion is not paid into the fund by
1986.The Legislature should defer the cost
of hydro projects over the life of the
project.Front end costs are great but
operation and maintenance costs are low.
Power from Tyee could be sold through an
intertie to Ketchikan or sale to U.S Borax
for their mining operation on an
interuptable basis.
Senator Kelly asked what would an intertie
with Ketchikan cost.
Eric Yould answered that it would cost
$600,000 -700,000 per mile.
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Ernie Haugen testified for in favor of hydro
generally.Load could be increased through
cheaper rates.He wanted it to be completely
understood that Tyee belongs to Wrangell
and Petersburg,and that Borax should only
recieve power in excess to the communities'
needs.
Kenneth Mason stated for Wrangell that if
Tyee power were not cheaper than diesel,
Wrangell would be hesitant to purchase it.
Senator Kelly asked why the engineers
misestimated the project cost so badly?How
do we know it won't happen again?
Eric Yould answered that the APA won't use
International again,but that they are still
on the job because you can't take them off
of design and keep continuity.Severe action
would have hurt the project.The APA now
requires a second,independent cost
estimate.
Senator Sturgulewski said that APA awarded
the major Tyee contract before APA had some
fundamental data for the project.
Ernie Meuller said that they had already
delayed the awarding thirty days.They
didn't know at the time that they would have
trouble obtaining power sales contracts.
Senator Sturgulewski asked how we could make
a viable project out of Tyee.
Ray Benish answered that there were at least
four alternatives:1)additional state
equity;2)low interest loans;3)a grant
similar in nature to power cost assistance;
4)same as three but made on a loan basis.
All would require s9me assistance from the
State~He added that HiS not true that if
power sales contracts were signed,that
would entirely solve the problem.There is a
particular problem with small communities in
that they can't assume the risk.
Chair V.Fischer adjourns the meeting at
5:00 p.m.
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Members Present:
Members Absent:
SENATE STATE AFFAIRS
STANDING COMMITTEE
February 26,1983
9:00 a.m.
Senator Vic Fischer,Chairman
Senator Arliss Sturgulewski
Senator Pat Rodey
Senator Bill Ray
Senator Tim Kelly
COMMITTEE CALENDAR
This purpose of this meeting was to receive
public comment on the Susitna project,
Senate Bills 68-71,and hydroelectric
development in general.
WITNESS REGISTER
Senator Rick Halford
Alaska State Legislature
Pouch V,Juneau,Ak 99811
465-4958
Position Statement:Discusses SB 70.
Kent Wick
Homer Electric Association
No information provided.
Position Statement:Supports Susitna with conditions.
Eric Yould
Alaska Power Authority
No information provided.
Position Statement:Gave history on choice of Susitna as an
energy source.
Bob Mellin
Wasi 11 a
No information provided.
Position Statement:Testified on SB 68,69, 70,71.
Mike Kelly
Golden Valley Electric Association
No information provided.
Position Statement:Hoped Committee would pass out hydro bills.
Jeff Bohman
McKinley PArk
No information provided.
Position Statement:Expressed concern on the long term energy
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policy of the State.
Harold Pomeroy
Self
No information provided.
Position Statement:Believes in development but oil revenues are
in decline.
Jeff Eustis
Self
No information provided.
Position Statement:Rai1be1t should bear the cost of Susitna.
Bob Penney,Chair
Energy Committee of the Alaska State Chamber of Commerce
No information provided.
Position Statement:Susitna is needed to complete the goal of
hydro power.
Mano Frey
Laborers'Union Local 341 Anchorage
No information provided.
Position Statement:Spoke on SB 10.
Joseph Henry,Attorney
Resource Development Council
No information provided.
Position Statement:Testified that 10,000 members want project
to go forward right away.
Jim Ayers
Self
No information provided.
Position Statement:Addressed the lack of a clear economic plan
for State.
Jim Sykes
Self
No information provided.
Position Statement:Testified that we need to know final costs
of Susitna project.
Doug Stark
Self
No information provided.
Position Statement:Testified that it isn't desireab1e to move
ahead on Susitna.
George Sk1ada1
Self
No information provided.
Position Statement:Favored hydro.
Ron Kuzek
Self
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No information provided.
Position Statement:Testified that Susitna was feasible.
Bill Holton
Self
No information provided.
Position Statement:Spoke against Susitna.
Brian Boyd
Self
No information provided.
Position Statement:Related the high costs of Susitna.
Mark Beltz
Self
No information provided.
Position Statement:Related his interest in our energy future.
Earl Finkler,Director of Planning,
CSM
No information provided.
Position Statement:He was concerned about energy needs in rural
Alaska.
Chuck Konigsburg
Self
No information provided.
Position Statement:Spoke on the factor of political power in
relation to funding of hydro projects.
Lisa Moorehead
Self
No information provided.
Position Statement:Testifi~d against SB 68, 69,and 71.
Paul Lowe
Self
No information provided.
Position Statement:Supported the renewable use of energy
replacing non-renewable uses of energy.
Larry Underwood
Self
No information provided.
Position Statement:Spoke against Susitna.
Wayne Beckwith,Vice-Chair
Anchorage Chamber of Commerce
No information provided.
Position Statement:Spoke on power to consumer.
Budd Goodyear,Manager
Matunuska Electric Association
No information provided.
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Position Statement:Gave history of MEA.
Tom Stahr,Manager
Municipal Light &Power
No information provided.
Position Statement:Testified that the load growth forecasts for
Susitna are too low.
Lee Worham
Susitna Power Now
No information provided.
Position Statement:Susitna was a window of opportunity.
Liz Gilbert
Chugack Electric Association
No information provided.
Position Statement:Read board policy adopted february 16.
Sharon Odell
Resident
No information provided.
Position Statement:Spoke in favor of Susitna.
Nancy Lee
Citizen
No information provided.
Position Statement:Expressed it was foolish to support the
bills with oil revenues declining.
Mary Pat Haberle
Self
No information provided.
Position Statement:Testified against Susitna.
Victor Mittasch
Self
No information provided.
Position Statement:Didn't oppose Susitna but does oppose
additional funding.
Keith Treseder
Self
No information provided.
Position Statement:Spoke against Susitna.
Judy Zimicki
Northern Alaska Environmental Center
No information provided.
Position Statement:Gave overview of Institute of Science and
Economic Research report.
PREVIOUS ACTION
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TAPE#
Recording
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Please refer to S.State Affairs Committee
minutes dated 02/24/83.
ACTION NARRATIVE
The meeting of the Senate State Affairs
Committee was called to order at 9:20 a.m.
with member Senators V.Fischer,
Sturgu1ewski,Rodey present.Senators Ray
and Kelly were absent.The meeting was in
the Alaska Room at the Anchorage Westward
Hotel.Approximately 40 people were in
attendance.
Chair V.Fischer begins the meeting and
gives introductory remarks concerning the
scope of the meeting and its backround.
Senator Sturgu1ewski gives introductory
remarks concerning the need to address the
tough economic and financing issues.
Senator Rodey gives introductory remarks
summarizing the bills before the committee.
Senator Halford discusses SB 70.He relates
that it is actually a system bill.This bill
would reallocate Permanent Fund Dividend
monies into energy fund.Susitna is the best
potential for hydro power in the State.
Eric You1d gives a history on the choice of
Susitna as an energy source.The result of
the two-year study by Acres American was
that Susitna was feasible.The legislature
has approved submittal of a FERC license and
appropriated $25.6 million for the current
fiscal year for continued work and analysis.
The Governor has made it clear that
construction of the project will not begin
until power sales contracts are in place.
Senator·Sturgu1ewski asked what review Mr.
You1d saw necessary in the Governor's
checklist.How do we get meaningful
information?
Eric You1d answered that he felt it would
take concerted effort between APA and the
Governor's office to make review.Susitna is
closely tied to the state's future oil
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revenues.
Kent Wick from Homer Electric Association
related the 6%load growth expected in the
Peninsula.Homer Electric supports Susitna
with four caveats:1)Bradley Lake is built
according to schedule,2)the project is
feasible and costs of power are lower than
alternatives,3)prudent engineering,and
4)reasonable environmental concern.See
letter 1 attached.
Senator Sturgulewski asked what main
concerns with Bradley were?
Kent Wick answered Homer Electric is
concerned with the effect of the Enstar gas
contracts and the way in which they affect
feasibility.A base-load project of 60 MW
may be more feasible than a 135 MW peaking
facil ity.
Senator Halford asked what information Homer
Electric wanted to know before they would
sign a take-or-pay contract to purchase
power.
Mr.Wick answered that they would want to
know the cost of the power to the greatest
degree possible,at least to know the
finance plan and the proportions of state
equity and bonds.
Bob Mellin,citizen of Wasilla,testified on
SB 68,69,71.He is opposed on any advisory
vote to amend our Constitution.To use the
Constitution in this manner,he felt,was a
violation of public trust.Regarding SB 69,
he felt that APA had ignored alternative
energy technologies.He expressed concern
about the language in SB 71 that would allow
revenue bonds to be backed by the resources
of the state.He summed up·by saying that no
other state in the union has sought to bind
its people to such a project as Susitna on
such nebulous grounds.
Senator Halford asked which alternative
energy sources should be further explored?
Mr.Mellin answered that the steam
generation plant (coal)that was proposed
for Sutton in the 1960·s is one example.
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Mike Kelly,general manager of Golden Valley
Electric Association,spoke.He said that
they support SB 69 at a cost of $5.4
billion.He said that the 1982 load growth
for G.V.E.A.was 12%.He related the power
needs of the Fairbanks area.He felt that
the growth was going to continue.
CHANGE TAPE TO SIDE 2.Mi ke Kelly was sti 11
testifying.
Mr.Kelly felt that to peg our future energy
needs on oil,gas,etc was risky at best.He
felt that predicting the cost of hydro was
possible,while you can't do that for non-
renewable resources.He hoped that the
committee would pass the hydro bills out
with good recommendations.
Chair V.Fischer asked if GVEA would sign a
take-or-pay contract.
Mr.Kelly answered that his utility would
have problems with signing power contracts
at this time.
Senator Sturgulewski asked what we are going
to do to market the bonds?Who is going to
take the risk?
Mr.Kelly answered that the WPPSS example
has been blown out of perspective.GVEA
prefers not to sign any agreements with
suppliers.
Senator Rodey asked what would happen when
Susitna comes on line and you have existing
debt on other facilities.
Mr.Kelly answered that GVEA has a number of
small peaking units.They can shut down the
peaking units except for actual peaking and
reserve requirements.
Senator Sturgulewski asked what the plans
were for the intertie before Susitna.
Mr.Kelly answered that as soon as the
intertie was developed they would want to
take advantage of it to buy gas-fired power
from the Anchorage area.
Jeff Bohman,citizen of McKinley Park,
expressed his concern on the long term
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energy policy of the State.He disapproved
of the bias of people who feel that those
against Susitna are somehow shortsighted.He
asked why people overlook coal and gas as
alternatives.He felt that hydro power in
general may be viable,but asked what was
the sense of getting the cheapest power on
sale if we don't need the power.He felt
that the most prudent approach would be to
develop our power sources in-step with our
needs.For the per capita cost of Susitna
McKinley Park is now able to provide
alternatives,demonstrating their relative
feasibilitiy.SB 70 may be more equitable.
Senator Halford and Mr.Bohman discussed the
per capita cost of Susitna.
Mr.Harold Pomeroy said he believes in
development,but that he can't get away from
economic fact.Oil revenues are in decline,
and we're facing an appalling state deficit.
Mr.Pomeroy read from a prepared paper.See
attachment #2.The State should not
subsidize the Susitna project.He added
that the pursuit of energy should not
revolve around enthusiasm for one project.
We can't commit to major expenditures when
we're facing near-insolvency.
Chair V.Fischer said that the Legislature
is taking a closer look at it.
Jeff Eustis,speaking for himself,asked
where should we place our money --Susitna
or elsewhere?Should Susitna be a State risk
or a rail belt risk?If the railbelt wants to
go ahead with the project,they should bear
the cost.He questions the good sense of the
project.He asked what we should do about
the downturn in State revenue?Where are we
going to get our money?Susitna will not
produce a single dollar.It will supply
needs for rail belt energy but not for
further growth.Questionableness of project:
1)some-of the assumptions taken into count
when first considering Susitna are no longer
valid;2)when speaking on load forecasts he
related that the APA doesn't even support
its own conclusions on the load forecasts.
Bob Penney,Chairperson of the Energy
Committee of the State Chamber of Commerce,
explained that SB 68,69,and 71 were
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developed by the Chamber and .introduced at
their request.He felt that Susitna was
needed to complete the goal of hydropower
throughout the state.He said that if
Susitna were finished today,the cost to the
public would be the same as for natural gas.
The state contribution of 1.8 billion was to
make hydro competitive in the early years.
CHANGE TAPE TO TAPE 2,SIDE 1
Bob Penney still speaking.
For Susitna and other capital projects,he
suggested using the other half of the
permanent fund earnings (not the dividends).
He said that the Chamber is putting together
a Blue Ribbon Committee to develop a finance
plan--this information would be available by
the next session.
Chair V.Fischer said that inflation
proofing the permanent fund was the number
one priority for the legislature.He
further related that the legislature was
going to be very squeezed on the use of the
Permanent Fund earnings.He asked Mr.
Penney what he thought of foregoing housing
subsidies and applying those funds to the
Susitna project.Mr.Penney said that he
couldn1t answer for his committee.Senator
Sturgulewski said that there was a study
going on in Legislative Budget and Audit on
debt management.Senator Sturgulewski asked
if Susitna could financially stand on its
own two feet,and felt that should be a
major consideration when making a decision
as to whether to go ahead on the Susitna
project.
Senator Halford said that he felt that
inflation proofing the Permanent Fund was
not a political but ideological question.
He did not see the approach of using the
dividend portion for Susitna as being
viable •.
Mano Frey,Laborers'Union Local 341 in
Anchorage,spoke on SB 70.He said that the
Permanent Fund Dividend program should be a
permanent program.He felt that the Union
membership would prefer to see it in the
form of energy as it would result in more
benefits for future generations.He didn't
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want the State to become involved in any
cost-plus contracts.He suggested that the
State enter into hard core contracts because
then the best workers would become involved
in the Susitna project.Senator
Sturgulewski wanted to know how to better
utilize residents in State labor force.
Mano Frey assured her that Alaska residents
would be on the highest union list.
Joseph Henry,Anchorage attorney for the
Resource Development Council,said that
10,000 members would like to see the project
go forward right away.On how to fund the
project,he wanted the Permanent Fund to be
invested in Susitna.He doesn't think that
the Permanent Fund needs to be liquid if it
is used on Susitna as it would be considered
an investment.He didn't feel that it would
be advisable to have power districts.He
questioned why FERC needs to look at Susitna
at all.He thought that Susitna had already
been studied to death,and said that it had
been ready since 1952.
In summation,Mr.Henry stated that he hoped
the State would act quickly to put Susitna
on line.
Jim Ayers,speaking as a private citizen,
addressed the lack of a clear economic plan
for the state.Consideration of Susitna,he
said,should assume 1)that the State has a
clear economic development plan,2)that the
State has commitments from the industry to
buy the power,3)that the State has a
completed Fish and Game update on the impact
of the project,and 4)that the State has a
plan for equitable distribution of money to
railbelt citizens.Speaking on SB 70,he
said inflation proofing the Permanent Fund
was of utmost importance.He felt that the
State should consider heavily what other
State programs we would have to forgo,to
invest $230 million into hydro this year.
He supported providing jobs for Alaskans,
but felt that the State should be wary of
plans that create jobs for the masses.
Paul Lowe,private citizen,supported the
renewable use of energy replacing non-
renewable uses of energy.But he felt that
this goal should not be confused with smart
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planning.He said that the State can't
afford Susitna.He reminded the committee
that the original plan for Susitna was to
pay cash which is unavailable today.He
said that another reason why the State can't
afford Susitna was because of what the
repercussions would be on the bonding
capacity of the State which would be to
decrease the bonding capacity for other
State projects.The bonding of Susitna
would put the residents of Alaska into hock
up to their ears.He also felt that we need
the money for other purposes.He asked
everyone there to remember that there are no
free lunches.He summarized his statement
by saying that a vote for Susitna was a vote
to bankrupt the State of Alaska.
The morning portion of the hearing was
concluded at 12:00
The hearing resumed at 1:30
TAPE 2,side 1 #557 Larry Underwood spoke
against Susitna because he felt that the
State can't afford it,and because he wasn't
convinced that the State could predict the
costs of these projects.Senator Fischer
asked what alternatives Mr.Underwood would
support.Mr.Underwood answered that he
would support the use of coal.
Wayne Beckwith,Vice Chair of the Anchorage
Chamber of Commerce Energy Committee,spoke
on power capacity,and the costs of power to
the consumer.He suggested that the
consumers of power would save money when
hydro came on line because it would replace
other inefficient means of power.He added
that Susitna will be expensive but that the
benefits are long-term.He supported SB 68,
69 and 71.
CHANGE TAPE TO TAPE 2,side 2.Senator
Fischer remarked on the need for creative
thinking as the State's oil revenues
decline.Senator Sturgulewski asked what
would happen if we were to take away the
black mail law?Wayne Beckwith said he had
no problem with getting rid of the clause.
Budd Goodyear,general manager of Matunuska
Electric Association,gave a history of the
MEA.He supported Susitna.He read a
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resolution passed by MEA that gave full
support.The question,he said,is whether
we want price stability (Susitna)or
continually-rising prices.Senator Vic
Fischer asked Mr.Goodyear what the stand of
MEA was concerning power sales agreements.
Mr.Goodyear answered that they were
considering it,but that they had no stand
on it yet.Senator Vic Fischer related that
it was a prerequisite,and that both the
Governor and FERC would insist upon it
before the Susitna project could go through.
Tom Stahr,general manager of Municipal
Light and Power,said that the load growth
forecasts that have been made for Susitna
are too low.ML&P has had a 10%annual
growth since 1950 and 12.7%in 1982.He
suggested that there was no possible future
scenario under which Susitna output could
not be fully utilized.The State would have
to commit to construct the project before
utilities will sign power contracts.
Lee Worham,Susitna Power Now,said that the
Susitna Dam project was a window of
opportunity that must be seized now.He
added that it was like a perpetual motion
machine that will make money for years.He
felt that it would be a crime to use fossil
fuels and waste renewable resources.His
view was that the key to equitable
distribution was in S8 70.He said that
Susitna Power Now was not ready to endorse
any specific financing plan.He was opposed
to an advisory vote.He also thought that
it was unrealistic to expect utilities to
commit to power sales agreements now;that
question should only be asked after the
funding mechanism and costs have been nailed
down.Senator Sturgulewski asked what bills
should move foreward.Lee Woreham answered
that they didn't support revenue bonds as
the sole method of financing--only as one
part.
Liz Gilbert,Chugach Electric Association
board member,read the board policy adopted
on Feb.16."Chugach Electric Association,
Inc.supports hydro power as an efficient,
reliable source of power production and
would be willing to consider it as a source
of electrical power for our members provided
it was the most efficient,low-cost,
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reliable source of power available.1I The
primary concern of Chugach Electric was for
long term price stability.
Ms.Gilbert related that hydro electric
power has held down the costs for N.W.coast
electricity.She believed that the take-or-
pay contracts would be signed when the costs
are known.She suggested that if Susitna
turns out to be the lowest cost of power,
then Chugach Electric would support it.
Senator Rodey returned from lunch.
Sharon Odell,resident,spoke in favor of
Susitna.She felt that it should proceed
without too much delay,and that local hire
should be assured.
Nancy Lee spoke as a private citizen and
expressed that it was foolish to support
these bills when the funds available to the
State of Alaska were decreasing at the
current rate.She felt that other sources
of energy were more appropriate.
Mary Pat Haberle,resident,testified
against Susitna,but generally supported the
use of hydro-electric power.She felt that
it fit into the State's energy needs.On
Susitna,she felt that the short term job
benefits did not outweigh what the costs
might be.She felt that there needed to be
clear cu~financing.
Keith Treseder,resident,spoke against
Susitna because he felt that further study
was needed.He was concerned about the
costs.
CHANGE TAPE TO TAPE 3 for 2/24/83.TAPE 3,
side 1
Victor Mittasch,speaking for himself,said
that he didn't oppose Susitna as a whole,
but that he did oppose additional funding--
especially from the permanent fund.He felt
that the permanent fund belongs to all the
people of Alaska and not just those who live
in the railbelt.He was also concerned that
the people of Alaska didn't know the total
costs of a project of such magnitude as
Sustina.Senator Halford reminded Mr.
Mittasch that there were energy programs and
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projects in other areas of the State from
which the people in Anchorage do not
benefit.
Judy Zimicki,Northern Alaska Environmental
Center,testified on the latest report by
the Institute of Social and Economic
Research,"Sustainable Spending Levels from
Alaska State Revenues."The major emphasis
of her testimony was that the State will
experience a fiscal crisis by the year 1988
as the State revenues fall below the State
spending limit.Susitna must be considered
in this light,as we prioritize
expenditures.
Jim Sykes,speaking for himself,felt that
we needed to know the final costs of a
project such as Susitna.He suggested that
all the information on Susitna be pulled
together,and that the general public be
educated.He supported hydro power,but
felt that each individual project must stand
on its own.He opposed SB 68, 69,and 71
because he thought that they were
inappropriate.He said that there were
three questions that should be asked about
Susitna:1)is it needed,2)is it
economically feasible,3)is it
environmentally sound.He though that SB 70
seemed 1 ike a good idea.·H€added that he
would not like to attach any specific
project to a a service area.He felt that
the public should have the final say through
a binding referendum.He was against an
advisory vote--this year.He suggested that
Susitna may be cheaper in real terms later.
He felt that the bottom line was that all
the facts weren't yet in.
George Skladal,speaking for himself,
favored hydro.He wasn't sure,however,that
we need hydro on such a large scale.We
might be better served by incremental and
decentralized facilities.We have other
needs,such as education.
Doug Stark said that it's desirable to move
ahead with Susitna.The utilities need to
make commitments for new generation,so they
need to know if the project is going or not.
Exportables,like coal and gas,should be
exported,while we serve our energy needs
with hydro.
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Ron Kuzek,for himself,concluded that
Susitna was feasible,and it should be
built.
Mark Beltz related his interest in our
energy future,and said that he supports
Susitna.
Bill Holton spoke against Susitna.He felt
that it was too expensive,and that
alternative sources of energy were more
preferable options.He submitted written
testimony.
Brian Boyd,speaking for himself,related
the high cost of Susitna ($12,000 per
capita).He wondered what the State would do
about the down turn in State revenue,and he
wondered where the State was going to get
the money for Susitna.He added that one of
the problems with Susitna is that it won't
produce one dollar.He suggested that
Sustina would only provide energy for the
railbelt area.He said that Susitna will
probably not be a basis for further growth.
He felt there were some questionable aspects
of Susitna.One of his concerns was that
some of the assumptions taken into
consideration when first looking at Susitna
were no longer valid.The bonding provisions
also caused Mr.Boyd some concern.He
reminded the committee that bond holders
could go after the assets of the State of
Alaska.He added that the bonding
provisions would encumber the ability of the
State to finance other projects.
Earl Finkler,director of planning for the
firm CSM,was concerned about the energy
needs in rural Alaska.He urged the
committee to consider all state energy
needs.
Chuck Konigsburg,for himself,spoke on the
factor of political power.With a project as
large as Susitna,you give the responsible
agency enormous political power.It then
develops its own political constituency.He
cited the examples of TVA and BPA.
CHANGE TAPE 3 TO SIDE 2.
Lisa Moorehead testified against SB 68,69
and 71.The project should be decided on the
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facts,not on popularity.The assumptions
used by Acres are out-dated.
The hearing was adjourned at 3:45.
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Don Grimes
No information provided.
Position Statement:Testified.
Steve McAleer
No information provided.
Position Statement:Testified.
COMMITTEE CALENDAR
WITNESS REGISTER
The purpose of this meeting was to review
the Governor's criteria for Susitna go
ahead.The two major issues for discussion
today were feasibility and financing.All
testimony is from invited witnesses.
Senator Vic Fischer,Chair
Senator Arliss Sturgulewski
Senator Tim Kelly
Senator Bill Ray
Representative Mitch Abood
Representative Ron Larson
Representative Walt Furnace
Representative Richard Shultz
Representative Mike Miller (Juneau)
Representative John Cowdery
Senator Pat Rodey
Representative Tony Vaska
SENATE STATE AFFAIRS
STANDING COMMITTEE
Joint Meeting of State Affairs Committee
March 1,1983
1:30 p.m.
Members Absent:
Eric Yould
Alaska Power Authority.
No address or phone provided.
Position Statement:Gave historical perspective.
Ray Benish
Alaska Power Authority
No address or phone provided.
Position Statement:Gave general remarks about financing.
George Rogers
No information provided.
Position Statement:Made general remarks on hydro.
Members Present:
PREVIOUS ACTION
Sterling Gallagher
No information provided.
Position Statement:Testified.
Tony Merritt
No information provided.
Position Statement:Testified.
ACTION NARRATIVE
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The meeting of the Senate State Affairs
Committee was called to order at 1:30 p~m.
with member Senators V.Fischer,
Sturgulewski,Kelly,Ray and Representatives
Abood,Larson,Furnace,Miller (Juneau),and
Cowdery present.Senator Rodey and
Representative Vaska were absent.
Chair V.Fischer called meeting to order.
Please refer to S.State Affairs Committee
minutes dated 02/01/83,02/24/83 and
02/26/83.
Number 001
Gregg Erickson
Erickson &Associates
No information provided.
Position Statement:Answered questions from committee members
and gave overview of report from their firm.
Robert Mohn
No information provided.
Position Statement:Testified.
Gervin Wernock
No information provided.
Position Statement:Testified.
Eileen Titmuss,Vice~President,
Drexel
No address or phone provided.
Position Statement:Testified.
Lee Gorsuch
Institute of Social &Economic Research
No information provided.
Position Statement:Testified.
TAPE#1 for 3/01/83.
Recording
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Chair V.Fischer made some introductory
remarks:reviewed Governor's criteria for
Susitna go ahead--cost,financing,
marketing,and common sense.The two major
issues for discussion were economic
feasibility and financing.
George Rogers,economist,made general
remarks on the parameters within which to
evaluate hydro projects.He discussed past
proposed projects including Ramparts dam and
projects as catalysts for development.
Infrastructure development may not be
necessary as a precondition for development
and does involve opportunity costs.
Eric Yould,Executive Director of the Alaska
Power Authority.He gave an historical
perspective on how APA got to where it is
today.He compared Susitna to what would
occur ifSusitna is not developed.He used
several charts on coal alternative,gas
alternative and coal/gas alternative.(The
charts,in reduced form,are part of the
committee record.)The Acres study,when it
was completed 18 months ago,concluded that
Susitna is the best alternative from a life-
cycle cost perspective.Fuel cost
assumptions affect the analysis,discount
rate affects feasibility.
Senator Ray had a question relating to
inflation.
Eric Yould responded.
Rep.Miller (Juneau)had a question relating
to inflation.
Eric Yould discussed load forecast,discount
rate,capital costs,fuel price escalation.
Senator Sturgulewski had a question on
capital costs.
Senator Ray had a question on inflation.
Eric Yould discusses Susitna costs in 1982
dollars as $3.58 billion for the Watana
phase only.Watana could be on line by 1993,
Devil Canyon by 2002.
Senator Kelly discussed APA recommendations.
Susitna is economically attractive over a 60
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1983 $160 million
1984 $222 mi 11 ion
1985 $276 mill ion·
1986 $318 mi 11 ion
1987 $345 mill ion
1988 $378 mi 11 ion
1989 $120 mi 11 ion
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year period.
Senator Sturgulewski had a question
concerning feasibility.
Senator Kelly had a question on smaller
scale options.
Eric Yould testified that these options will
be ready to discuss by May.
Yould reviewed the APA recommendations of
April 1982:l)continue pre-construction
activities,2)submit FERC application,
3)initiate design work.
Ray Benish,Director of Finance for the APA,
introduced APA financial advisors Don
Grimes (First Southwest),Steve McAleer
(First Boston),Sterling Gallagher (John
Nuveen)and Tony Merritt (Acres American).
He made general remarks concerning financing
and listed three prerequisites:1)a finance
plan,2)power sales agreements,and 3)
resolution of the tax-exempt issue.Acres
has concluded that the project would need a
state appropriation of $1.8 billion in order
to provide power at a marketable price.The
funding must be of a dedicated nature rather
than incremental.
Senator Ray had a question on cash
requirements.
Benish listed the amount of appropriation
that would be needed each year to provide
the necessary state funding:
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Don Grimes testified that we must maintain
State's credit rating.The rule of thumb is
that only 5%of unrestricted revenues can
safely be required for debt service
payments.At the 30th percentile of
revenues,our debt capacity for Susitna
would only be $565 million.At the 50th
percentile,the capacity could be $900
million.In addition,G.O.bonds are of
limited usefulness because their payback
must fall within the oil revenue curve.He
recommended revenue bonds backed by a moral
obligation of the state rather than general
obligation.He recommended that the state
put in the required lI equ ity ll before
incurring debt for the project.
Chair V.Fischer asked Grimes for his
opinion of the IIdouble-barrel ll bonds in the
legislation.
Don Grimes doesn't recommend this type of
bonding.
Chair V.Fischer asked what was being done
to resolve the tax-exempt financing
question.
Steve McAleer said that they were working on
it.
Chair V.Fischer asked when a finance plan
would be completed.
Ray Benish answered that the options have
been laid out,and the APA will continue to
tailor them.He emphasized the need for
substantial state equity.
Chair V.Fischer asked if the APA would
advise on where to get the required equity.
Ray Benish answered that that wasn't the
role of the APA.They have not determined if
the state can afford this project.
Senator Sturgulewski commented that the
Dept.of Revenue is doing a debt study.
Sterling Gallagher testified that the State
shouldn't commit more than 5%of
unrestricted revenues to general obligation
bond debt service.
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Senator Sturgulewski asked if the APA needed
any statute changes to facilitate bonding.
Don Grimes answered that they would
encourage a dedicated revenue stream.
Rep.Abood asked if we assume worst case
scenario,can we afford Susitna?
Don Grimes answered.
Rep.Abood had a question.
Ray Benish answered.
Chair V.Fischer discussed a document which
projects costs.
Senator Sturgulewski asked what about the
court decision in the Washington State power
sales contract case?What makes a definitive
contractual commitment?
Steve McAleer answered.
Rep.Cowdery asked how does the gas line
affect feasibility?
Ray Benish:Can't answer.
Eileen Titmuss,bond analyst,vice-
president,Drexel Burnham,&Lambert,New
York.She addresses lessons to be learned
from WPPSS (Washington Public Power Supply
System).She gave a short history of WPPSS.
(An edited transcript of Ms.Titmuss'
testimony is attached.)WPPSS became vehicle
for financing a series of nuclear plants.
Bonneville Power Administration agreed to
purchase power and bill through a complex
procedure known as net billing.The bond
market believed that the bonds carried a
federal guarantee and thus gave them a warnl
acceptance,based on that rather than the
underlying economics.Eventually buyers
became aware that Bonneville did not have a
direct line to the treasury.Bonneville had
to raise rates to cover costs •.
CHANGE TO TAPE 2,SIDE 1.Eileen Titmuss is
still speaking on WPPSS.Rate payers were
led to believe that everything was okay;
actually they were simply not represented.
Another problem was the fact that Bonneville
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Number 198
made its own forecasts,the state did not do
it.The state didn't become involved until
$2.25 billion had already been spent.
Because of WPPSS,bond buyers are now
expected to take a severe look at the
sanctity of the contracts and the underlying
project economics.Titmuss suggests that
participants (utilities)put money up front
so they have an interest in the project.
Taken into consideration should be the
future credit rating of the State.The State
should have its own way of monitoring
changes in the needs of power.The people
ultimately paying for this should be
cognizant of their obligation.The liens
should be understood--who gets paid first.
The State should be meticulous about
monitoring the agency's activities.
Eric You1d and Robert Mohn speak on the
feasibility of Susitna.The base case
assumptions last year included 2%real
escalation in oil over planning period.The
outlook for oil suggests a recovery over
time for oil prices.The years until 1993
are important as they relate to financing
Susitna.Conditions,including gas prices,
have changed since last year.APA is doing
an update due in May.Important are the new
estimates of undiscovered Cook Inlet gas
reserves.They are less than previously
projected by USGS.The proven reserves will
be exhausted by the year 2000.Load
forecasts suggest an annual growth 'rate of
2%.Load growth was high last year in
ra i1be 1t a rea.
Tony Merritt,of Acres,said that the basic
substance of their analysis will not be
changed.The forecast of the oil price will
be consistent with their study.
Gervin Wernock,of Acres,spoke on how
important it is to have accurate estimates.
For Susitna they have applied a rigorous
analysis of capital cost overruns.73 -75%
chance of an under-run and only 25%chance
of an overrun.He said it would be in best
interest of Alaska to be prepared to proceed
with Susitna.
Chair V.Fischer asked to what extent their
projections have taken into consideration
economic analysis.
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Mr.Mohn answered that they were using ISER.
They could have a rough draft by April.
Senator Sturgulewski said that they won't
have the ability to begin construction until
1986,because of the time necessary to
receive a FERC license •.
Eric Yould related the fluctuating tendency
of the economy.He said APA felt it was
important to go ahead with plans.
Gregg Erickson,economist.(See attached
edited transcript.A series of charts that
were referenced are also part of the
committee record).He discussed Acres
American study.Susitna costs are 34¢per
kilowatt.Large power demand is necessary to
make Susitna economically feasible.The cost
of the project is critical as are interest
rates.State's investment is not in the form
of a loan and this may never be paid off.He
discussed Cook Inlet gas reserves and
prices.
CHANGE TAPE TO SIDE 2.
Gregg Erickson continues.He discussed cost
history of APA hydro projects.
Senator Halford asked the question,would
any hydro project have been built if we used
Erickson's analysis?
Gregg Erickson answered that he can't make
that kind of conclusion because he hasn't
done the research.
Chair V.Fischer asked,is there an
alternative way to spend 1.8 billion which
would benefit the railbelt's energy needs?
Gregg Erickson responded that the best idea
would be for the state to keep its hands off
and let -the marketplace choose.Then the
capital costs of whatever was chosen could
be subsidized.
Rep.Miller (Juneau)asked whether natural
gas from the North Slope might be a viable
alternative.Erickson answered that it was
being studied.
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Lee Gorsuch,Institute of Social and
Economic Research,discussed projected oil
revenues."(See edited transcript.)Peak year
of available revenues is 1983.Each
succeeding year is substantially less.There
will be a large gap in the 1990's.Wellhead
oil prices could fall as low as $12/barrel.
There's an urgent need for more public
information.
Senator Sturgulewski had a question.
CHANGE TAPE TO 3,SIDE 1.
Lee Gorsuch response.
Senator Halford asked what should happen
with the Permanent Fund dividends.
Lee Gorsuch answered that more revenues
should be invested,and spending should be
reduced •••
Chair V.Fischer adjourned meeting at 4:50
p.m.
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-1-
George Matz,
Office of Management and Budget
No address or phone provided.
Position Statement:Testified.
Mi 1t Barker
Legislative Finance Division
No information provided.
Position Statement:Discussed memo from 2/21 on funds available
for capital projects.
WITNESS REGISTER
SENATE STATE AFFAIRS
STANDING COMMITTEE
March 3,1983
1:30 p.m.
COMMITTEE CALENDAR
"An Act establishing the Alaska energy
dividend fund and providing for the use of
Alaska permanent fund income to finance
electrical generating facilities in the
State;and providing for an effective date."
"An Act relating to bonds issued by the
Alaska Power Authority;and providing for an
effective date."
"An Act authorizing an advisory vote on a
method of financing the Susitna river
hydroelectric project;and providing for an
effective date."
"An Act approving and authorizing the
Susitna river hydroelectric project;and
providing for an effective date."
Senator Vic Fischer,Chair
Senator Ar1iss Sturgu1ewski
Senator Tim Kelly
Senator Bill Ray
Senator Pat Rodey
Robert Heath,Commissioner
Department of Revenue
No information provided.
Position Statement:Testified on Administration1s view of
financial aspects of Susitna.
Members Absent:
Members Present:
SB 71
SB 70
SB 68
SB 69
Robert Mohn
Alaska Power Authority
No information provided.
Position Statement:Spoke on marketability.
Ray Benish
Alaska Power Authority
No information provided.
Position Statement:Testified.
Harrison Call
RMI Pacific Northwest
No information provided.
Position Statement:Spoke on various types of power sales.
Carolyn Guess
Alaska Public Utilities Commission
No information provided.
Position Statement:Gave overview of Commission1s role in power
contracts.
Dick Emmerman
Office of Management and Budget
No information provided.
Position Statement:Summarized OMBls study to committee members.
David Rogers
Senate Advisory Council
No information provided.
Position Statement:Reviewed a list of obstacles to Susitna.
Al Carson
Department of Natural Resources
No information provided.
Position Statement:Testified that Department of Natural
Resources had a Susitna Valley Land Use
Planning effort.
Dennis Kelso
Department of Fish &Game
No information provided.
Position Statement:Testified that Department1s role has been to
provide technical data.
Jeff Weltzin
Fai rbanks
No information provided.
Position Statement:Expressed concern over fish and wildlife
impacts.
Terry Berre"
Anchorage
No information provided.
Position Statement:Testified that we have other need more
-2-
TAPE#1 for 3/3/83.
Recording
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important to consider before Susitna.
PREVIOUS ACTION
No previous action on these bills.For more
information on hydroelectric projects
particularly Susitna please refer to S.
State Affairs Committee minutes dated
03/01/83, 02/26/83,02/24/83 and 02/01/83.
ACTION NARRATIVE
The meeting of the Senate State Affairs
Committee was called to order at 1:30 p.m.
with members Senators V.Fischer,
Sturgul ewski,Kelly and Ray present.Senator
Rodey was absent.
Chair V.Fischer called meeting to order and
made introductory remarks.
George Matz,Office of Management and Budget
gave review of feasibility studies.The
studies included the Susitna Hydro Plan,
1978,Corps of Engineers;Acres -American
Study,1979;Battelle study-"Railbelt
Alternatives Energy Study".The changing
conditions in the energy scenario of the
State are:l)drop in the price of oil;
2)state revenues are less;3)Susitna load
forecast is less;3)cost of thermal is less;
4)inflation is less;5)the State's risk is
higher;and 6)the State's equity (subsidy)
requirements are higher.The Office of
Management and Budget is trying to define an
economic window for Susitna.
Chair V.Fischer asks when up-dated
information will be available?
George Matz said load forecasts will be
available by May.Capital costs estimates
will come from engineering firms.Another
factor is discount rates.
Senator Sturgulewski asked what will be the
role of the Office of Management and Budget
review process.
George Matz replied that the statutes set
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out the review process requirements.
Senator Sturgulewski asked what is Office of
Management and Budget's role in generation
of financing plans.
George Matz stated that financing is a
policy decision to be made by the
Administration and the Legislature.OMB
provides info and analysis.
Milt Barker,from Legislative Finance
Division,discussed memo of 2/21 on funds
available for capital projects.He felt that
it reflected conservative estimates given
trend in oil prices.He said that revenues
are not adequate to fund all the proposed
capital projects.
Commissioner Robert Heath,Department of
Revenue,gave testimony on the
Administration's view of the financial
aspects of the Susitna project.He related
that the Administration is nervous about it.
He said that they really wanted to see the
LB&A study on debt before they make a
recommendation.
Senator Fischer asked what the relationship
is between the state's bonding capacity and
the State's credit and ability to pay back
the funds.
Commissioner Heath answered that the
Administration had just begun to look at the
relationship.
Chair V.Fischer asked when they would have
that information.The answer was by April.
CHANGE TAPE TO SIDE 2.Senator Sturgulewski
asked if the Administration had a
contingency plan for falling revenues.
Commissioner Heath answered that the plan
was to present the legislature with the
facts just as soon as they're available.
Robert Mohn and Ray Benish of the Alaska
Power Authority spoke on marketability.Mr.
Benish said that there was a willingness of
utilities to keep up longterm discussions
with APA over buying the electricity.From
utilities'perspective they have to provide
power to consumers.He ~elt that they would
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be able to agree on an entry price.
Senator Sturgulewski asked whether the
decision was strictly an economic one on the
part of utilities.Who do you turn to when
discussing marketability?
Ray Benish said that they turn to the
utilities,and their members in the case of
co-ops.The purchaser and the provider of
power both take risks when take-or-pay
contracts are involved.It's critical that
co-op members have input into the decision.
Chair V.Fischer asked what the timing was
for obtaining power sales contracts.When
must they be signed to keep the project on
track?
Ray Benish answered that they would have
power sales contracts in place before going
to the market.It's a long process,and in
order for the utilities to sign they must
have a high opinion of the data on which
costs are based.World oil prices will have
a lot to do with it,and Chugach will be
looking very closely at the gas alternative.
Senator Fischer asked whether a public vote
on the projects should be before or after
the contracts.
Mr.Benish answered that he felt that the
vote should come first.The utilities will
be looking for a strong commitment from the
state.
Harrison Call of RMI Pacific Northwest,a
Portland,Oregon consulting firm,gave a
general review of power sales contracts.He
said that there were two kinds of wholesale
power sales.One type was a systems sale and
the other was a project specific sale.Mr.'
Call said that these sales are made under
two basic kinds of categories,"take and pay"
based on power availability and "take or
pay"which obligates the utility to pay
whether the power is available or not.Power
sales contracts are the cornerstones to
which the bondholder looks for security.
Power sales contracts have not been executed
in Alaska prior to construction as the state
hasn't yet gone to the bond market.There
are two vintages of Alaskan power sales
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contracts,exemplified by Solomon Gulch and
Tyee.He understands that all contracts will
eventually be of the take-or-pay nature of
Tyee.He suggested that the APA wants to
sell power and that the utilities want to
buy power,but they want to minimize their
risks.A key point is that many people are
waiting to see how much money they can get
out of the state before they sign contracts.
They are also concerned about the effect of
future projects on rates.He felt that at
some point in time HB 9 should be amended to
allow for non-firm and perhaps capacity
energy rates.
Chair V.Fischer asked what happens in
situations where only some utilities within
a project area are willing to.sign?Is there
any way to get them all to sign?Mr.Call
answered that it was a rather unique
situation because the state was putting the
project together rather than utilities.The
state could direct those utilities which
were its "creatures",but not the
independent REA utilities.
Carolyn Guess,Chair of the Alaska Public
Utilities Commission,gave an overview of
the Commission's role in approving utility
contracts and rates.She believed that the
Commission does have the power to review the
power sales contracts.The APUC regulates
all of the railbelt utilities except for the
Fairbanks municipal utility.The APUC has no
jurisdiction over the Power Authority.
CHANGE TO TAPE 2.Carolyn Guess is speaking
on the APUC.They must approve any result
from a power sales contract.
Senator Fischer asked who initiates a
request for APUC approval.She answered that
utilities usually do.A consumer may also
file a complaint.
Chair V.Fischer noted that Senator Rodey
was present and had been for sometime.
Senator Sturgulewski asked whether there was
a need to make relations between APUC and
APA more clear.
Carolyn Guess answered that she felt she
understood the relationship.
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Dick Emmerman,Office of Management and
Budget,summarized the OMB study by Stanford
Research Institute on the affect of
electricity price and availability on
attracting industry to the railbelt.In
order to attract industry,Alaska would have
to match the rates available to electric
intensive industries in the other parts of
the United States,i.e.3¢per kilowatt.He
said that the prospects for attracting this
type of industry is low.Susitna power is
too expensive (14¢-24¢per kilowatt).He
said that other costs,e.g.labor and
transportation are also more expensive.He
suggested that to attract industry,electric
rates would have to be very low to offset
these other costs.He related the
possibility of a transmission intertie to
lower 48 for power sales.Mr.Emmerman
suggested some possibilities for the use of
the power generated from the Susitna Dam.
Some of the problems were that capital costs
are too expensive.Not economic to electrify
the Alaska Railroad.Good potential for
using Susitna power for space heat in the
railbelt but would quickly use up all excess
capacity.
Chair V.Fischer summarized that the
conclusion of the study was that the best
use of Susitna energy would be for
residential use rather than for new
industry.
Robert Mohn,APA,said that the APA board
will soon review the level of intensity for
proceeding with Susitna.He said that 1985
was the best target date for beginning
construction.Land acquisition can take two
years and FERC licensure will take 2-4
years..
Chair V.Fischer asked whether 1985-or 1986
was more realistic.
Robert Mohn testified that they can start
construction immediately after securing the
license.They're attempting to fast-track
the project for licensure in 1985 but that
can only be met if there are no deficiencies
in the application and no hearing is
required.They do not plan to borrow funds
until they are well into construction.
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Chair V.Fischer asked what would be the
implications of redesign or reconfiguration
of the project.
Robert Mohn answered that it would depend on
the environmental impact of the design
change.
Senator Sturgulewski asked for clarification
of what happens between now and 1986.How do
we keep the data current?Do we have good
models?
Robert Mohn said the APA was working closely
with the Administration to that end.
Chair V.Fischer asked how much money and at
what rate would it be spent between now and
1986-87?
Robert Mohn answered that $20 million is
needed in FY84 just to continue with the
license requirements.$47 million is needed
for license requirements,design,and land
acquisition.The APA board will consider at
their next meeting how much to request this
year.
David Rogers,from the Senate Advisory
Council,reviewed a list of "obstacles"to
Susitna that were identified last year in a
study that was done by the law firm of
Birch-Horton for the Senate.Robert Mohn
responded to each point.
Concerning land acquisition problems,Robert
Mohn said they needed 241 sections of land,
some of which now belong to Native
corporations.He further related that there
was difficulty on how to deal with "state
selected suspended lands".
Dav;d-Rogersaskedabout wa terri ghts.
Robert Mohn answered that surface water
rights are not a great problem.Water right
application was submitted to Department of
Natural Resources in 1982.
David Rogers asked what has APA done to
insure adequate coordination between the
regulatory agencies?
Robert Mohn answered that they were working
-8-
CHANGE TAPE TO SIDE 2.
Robert Mohn said that additional data needed
to be collected regarding mitigation
measures.
David Rogers asked if the APA had a plan to
maximize public information and
participation?
RASMUSON LIBRARY-9-
Al Carson,Department of Natural Resources,
testified that the Department had a Susitna
Valley land use planning effort due in six
months in draft form.
Robert Mohn said the APA had a public
participation plan.
David Rogers asked what the policy was
regarding land use in the project area.
Robert Mohn said that it was a difficult
issue,and that they had decided to defer a
decision concerning public access after
construction for 10 years.
Chair V.Fischer asked what the effects of a
reduction in Watana Dam height would be.
Robert Mohn said that a 200-foot reduction
could result in 20%cost savings.He said
that updated information on the feasibility
of that option would be available in May.
Chair V.Fischer said that testimony on
resource issues would be limited to
discussion of the "readiness"issue on the
agenda.Consideration of detailed resource
issues should be reserved for the Resources
Committee.
Chair V.Fischer asked if it was going to be
DNR's plan or APA's plan?
Al Carson answered that it would be DNR's
plan.However the plan is for the entire
river basin,not just the dam project.
Chair V.Fischer asked what were the
critical issues regarding land use
on a regulatory management system.
David Rogers asked if the social and
environmental data bases were adequate?
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acquisition.
Al Carson said that State selections being
.held in abeyance pending village selections.
Chair V.Fischer asked if the lands at
construction site were in state ownership?
Al Carson answered that no,it belonged to
the Cook Inlet Region,Inc.
Chair V.Fischer asked what the problems
wer~concerning the quantities and the
qualities of water.
Al Carson answered that there is a
significant need for in-stream flow studies,
and that the flow release schedules were not
developed in consultation with the resource
agencies.They commented to the APA in
January but don't know how their concerns
are reflected in the FERC application.
Chair V.Fischer asked if state agencies
have input into APA planning?
Al Carson said that the vehicle was the Su-
Hydro Steering Committee,the intent of
which was to work with the APA in an
advisory manner to head off potential
problems.
Chair V.Fischer asked how useful that was.
Al Carson answered that the agencies can
identify the issues among themselves but
that they've been disappointed dealing with
the APA.They were negotiating with the APA
to strengthen the advisory role,but that's
been put on hold with the new
administration.
Dennis Kelso,Alaska Department of Fish and
Game,said that the Department1s role has
been to provide technical data as opposed to
policy.He gave a short summary of their
Susitna baseline data which he generally
felt to be inadequate.He reviewed the
salmon escapement data:escapements were 3
times as great in 1982 as in 1981,
demonstrating the need for several years'
worth of data.The interests of the
fishermen are great.Impacts can't be known
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until flow release are,and they need to
know the impacts before they can plan for
mitigation.
Dennis Kelso felt mitigation planning is the
most important issue from Fish and Game's
standpoint.They should include preventive
and supplemental mitigation for fisheries
and enhancement of wildlife habitat.
Chair V.Fischer asked whether the
mitigation measures would be incorporated by
the APA into their planning.
Dennis Kelso answered that some of them
would be but that not all of the impacts
could be discovered and therefore,there
would have to be some compensatory
mitigation.Fish and Game works under
contract to provide technical information
and has no control over how the data is
used.
Chair V.Fischer invited public testimony
over the teleconference system.
Jeff Weltzin,individual from Fairbanks,
expressed concern over when fish and
wildlife impacts would be considered.He
sai~that the only forum seemed to be at the
FERC level,and that that might result in a
longer process there to compensate for the
lack of state consideration.He asked what
was the insurance policy if we find we can't
afford Susitna,and suggested that we go
forward with the Chakachamna project at the
same time so that we would be ready to go
with it.
Terry Berrell,Anchorage:Public utilities
commonly experience high cost overruns.No
one knows how much Susitna will cost.There
doesn't seem to be a need for it that can't
be met from other sources at less expense.
We have other needs,like education and
health.
Chair V.Fischer adjourns meeting at 5 p.m.
-11-
TRANSCRIPTS OF TESTIMONY
TESTIMONY OF EILEEN TITMUSS,BOND ANALYST,
DREXEL,BURNHAM AND LAMBERT,NEW YORK CITY
It is an honor to be here today and thank
you for the opportunity to come before you to speak.I'm a
vice-president with Drexel Burnham Lambert,and one of my main
responsibilities in·my job to advise our institutional clients as to
my perception of changing trends in the credit market and
changing tendencies among various competitors in the capital
market for access to capital.I was specifically asked to address
two lines of inquiry today.I was asked to address potential
implications and the lessons to be learned from the experi-
ence with the Washington Public Power Supply System and I
was also asked to review briefly and assess some of the
different funding mechanisms that have been suggested as
potential alternatives that might be used in the Susitna
program.
By way of review,have become familiar with the
Washington situation or WPPSS,as I like to call it and
would like to review with you my perceptions of what hap-
pened and where we are now.
WPPSS was an agency created in 1957 by the State of
Washington,by their own state legislature and empowered
to,among other things,enter into long-term power sales
contracts for the building of thermal generation plants.
They had,at that time,owned one small hydroelectric facil-
ity and they operated an II Nil reactor that was owned by
the Atomic Energy Commission,now the Department of En-
ergy.They had never had any experience up until this
point in any kind of large-scale construction program and
certainly,had not been involved as a construction manager
of any major facilities.
In 1968,the Bonneville Power Administration,a federal
agency,and the northwest delegation got congressional
approval for an ambitious hydro-thermal program which
envisioned construction of at ·Ieast 8,and conceivably more
large-scale thermal-generation projects.The first three of
these were the WPPSS plans #1,#2,and #3.Because Con-
gress had never expressly authorized Bonneville Power
Administration to construct plants--in fact they were limited
to the construction of transmission facilities under the 1937
Act by which they were created --they needed another
vehicle for financing.And,at this point,it was decided
that WPPSS would become the umbrella organization and
Transcripts of Susitna Testimony,Page 1
construction vehicle for the building of the WPPSS projects.
Out of this came,what I consider to be,one of the real
potential genetic flaws in the way this agency began and
progressed in its construction program.
What developed was a complex billing arrangement which is
known as "net billing.II And,I think it's worth going into
some detail here to explain this to you because I think
there are a lot of lessons that can be learned from it.
Because Congress did not permit Bonneville to build,what
they did permit --and never expressly authorized,by the
way,it only appears in committee reports was never actual-
ly authorized by Congress what happened was that
Bonneville came in and agreed to purchase the capacity
from the participants and they would bill it through a com-
plex arrangement,whereby participants,who were all pref-
erence customers of Bonneville,would receive credits for
what they had purchased in anyone given year from the
hydro system and that money would be placed directly into
the debt service fund of the supply system--and,in fact,
bypasses Bonneville entirely.The idea was that,in year
one,the time that payment on debt service would begin,
that the participant would hopefully be purchasing an
amount equal in hydro power to what they in theory would
owe on their pro rata share of the construction program;
so that,if in year one,they purchased $100 million in
hydro purchases from Bonneville and they owed WPPSS $100
million,it would pass right through to the WPPSS debt
service account and the account would be even.In the
event that they purchased $100 million again theoretically in
hydro purchases but they owed $120 million in debt service
to WPPSS,Bonneville Power Administration was responsible
for paying that difference and it was called a II net bi IIing II
deficiency that Bonneville had to guarantee to make up.
Now,there was a widespread misconception in the market
place that this guarantee by Bonneville was the equivalent
of a full.faith and.credit guarantee of the United State
Government,since Bonneville was an agency of the federal
government.I think this perception was perhaps com-
pounded when,in 1974,Congress amended the Bonneville
statute under the 1974 Transmission Act and created a di-
rect Bonneville revenue fund,so that monies collected by
Bonneville no longer went directly to the Treasury and
were appropriated out but went directly rather to
Bonneville.Bonneville was empowered,therefore,to raise
its rates and to manage its own business.
Now,investors didn't understand at this time that the real
Transcripts of Susitna Testimony,Page 2
security behind these bonds was the ability of Bonneville to
raise rates within its rate base and,as a result I think,
that there was some unusual market acceptance of the name.
It received a Triple A credit rating from both of the rating
agencies,which is the highest rating and it became a wide-
ly accepted name in the credit market.
Before the net billed projects were very far under way,the
supply system --because I think it had received such
generous market acceptance --went ahead with two further
projects --WPPSS Projects 4 and 5.Now,according to the
1968 Expenditure Control Act,there was a change in what
would be permitted by a federal agency in terms of tax
exemption.It was no longer possible for a federal agency
to contract for power or for capacity in the way that it had
with the WPPSS projects and have the issuing body receive
tax exemption.
to go without the benefit
guarantee.As a result,
bond market.They were
the two rating agencies
their marketability,upon
or "hell-or-high water"
out of the northwest
was the primary securi-
Therefore,projects 4 and 5 had
and protection of the Bonneville
they received lower ratings in the
rated A-I and A+respectively by
and were dependent,in terms of
the sanctity of their "take-or-pay "
clauses.(This nomenclature grew
experience on dam systems.)This
ty on these bonds.
Because 4 and 5 were started later,because they were
lower rated,and because they came at much higher interest
costs they were much more vulnerable to the impacts of
inflation.These projects became very difficult to finance as
there became some real market hesitation in terms of con-
tinuing to accept the name.Since they were in the market
so often the portfolios of major institutional investors be-
came satu rated with the name,and it therefore became
difficult for WPPSS to continue to come to the market.
In the spring of 1981,therefore,the new,or relatively
new,director of the supply system,recommended to the
Board that they "mo thball the projects"and take them out
of the market for some time.It was hoped that this would
increase the market acceptabi lity of #1,#2,and #3,as they
would no longer be competing in the market place with one
another for capital.In addition,it was hoped that WPPSS
could demonstrate an ability to successfully complete a
project.
I postulate that,even if #4 and #5 had been started at the
same time,as long as they didn1t enjoy the benefit of this
Transcripts of Susitna Testimony,Page 3
net billing guarantee that had a marketing and financing
problem arisen that they would have been the projects to be
cancelled,whether or not they were more expensive.The
reason I think this is because--again getting back to my
conception of the genetic flaw--there was an intrinsic weak-
ness here and that was the buyers were less concerned --to
a large extent--about the fundamental,underlying economics
of the projects and were more concerned about the
Bonneville guarantee.In other words,it didn't matter so
much whether or not the projects made sense,whether or
not they were economically viable,whether or not they were
needed,whether or not there was a market for this power
because there was this gilt-edge guarantee behind them;
and,I think that,in some respects,not enough homework
was done to examine the real project feasibility.
Now,ultimately,this misperception or misunderstanding has
come home to really haunt the market place.Ultimately,
people have become to understand that net billing depends
on the rates collected from Bonneville from its partici-
pants --and since the participants are WPPSS,you're in a
large circle with one another;it1s really a Catch 22,be-
cause as rates have risen,demand has fallen,so that the
net billing deficiencies--if you go back and look at the
early (each year Bonneville submits to Congress --its not
really a budget,its an estimate of what they need to raise
in revenues to cover their costs land if you look at the
years following the year in which the application is filed,
you see that they project zero net billing deficiencies time
and time again and,if you go back and look at the actuals,
you see that net billing deficiencies continue to rise over
the years.
So,what buyers have now become painfully aware of is that
Bonneville does not have a direct line to the Treasury for
payment of net billing deficiencies;Bonneville can borrow
from The Treasury for transmission facilities and under the
1980 Power Act,which was passed in December,1980,can
borrow for conservation purposes but not for coverage of
net billing deficiencies.So they're now confronted with a
problem very much in the papers this week-that Bonneville
is proposing a new 45%rate increase to cover its costs
since its revenues are substantially down from what they
had hoped.They work on a fiscal year that ends in Sep-
tember and the first four months of this fiscal year have
been devastating to them in terms of their projected reve-
nues.They're facing a situation where,if they do raise
rates to the extent that they would need to cover their
costs,assuming already that they are behind in their
repayment to the federal treasury on their investment in
Transcripts of Susitna Testimony,Page 4
the federal dam system,they simply can't raise rates and
keep aluminum companies in business.So,what the
Bonneville Power Administration has essentially had to de-
cide to do is to curtail--after already having curtailed con-
struction on Project #1 --to slow down construction on Proj-
ect #3 and,has stated publicly that in the event that
Project #2 does go ahead and is completed on time,it's not
certain whether or not they'll be able to start it up without
some kind of continued negotiations for long-term contracts,
probably export contracts,outside the region.
So,the underlying economics now matter terribly to the
holders of these net billed bonds as they're suddenly faced
with a potentially depreciated security in terms of their
value in the market place,and suddenly,what seemed
unworthy of attention to has become extremely important.
In fact.,it wasn't until the market really began to balk at
the acceptance of the WPPSS name in the market place,that
the State actually intervened.They put together an inquiry
report which was published in January of 1981 and I would
highly recommend it to the members of this committee as a
working document which specifies the things that can go
wrong in a public large-scale project,such as the one that
is now being proposed.
There are other genetic flaws that I see inherent in the
.WPPSS program that I think are useful heuristically.One
was that not using marginal prlcmg.Let's assume that the
price of power from the net billed plants and from Projects
4 and 5 at some eventual point,would be melded into the
existing cost structure of the federal dam system which was
extremely low-cost power.This disguises the full impact of
the marginal costs of these facilities which was veiled
against the lower costs of the existing facilities.So that,
to the consumer there was a veiling of the true cost of
what these projects were really ultimately going to cost.
One could argue that this caused a higher investment in
very high cost facilities and mortgaged the future of exist-
ing low cost facilities which,perhaps,with better power
planning,might not have occurred.
Also,I think what was of critical impact here was that on
Projects 4 and 5,especially--although it was true on all
plants--interest was capitalized;that is to say,interest
during construction was funded out of bond proceeds dur-
ing the construction phase of the program.Now,the dates
at which this practice was to stop was (on the net billed
projects)dates called dates certain.This was the date that
BPA and \VPPSS expected these plants to become operation-
al.Those dates have long since passed and the cost of
Transcripts of Susitna Testimony,Page 5
capitalized interest has been incorporated into the rate base
--in 1977 for Project I,in 1980 for Project 2,and in March
of 1982 for Project 3.This accounts,to a large extent,for
the large wholesale rate increases that Bonneville has had
to enact over the last five years.
On Projects 4 and 5,
continue to be funded
were operational or,
curred first.
it was expected that interest would
out of bond proceeds until the plants
believe until 1988,whichever oc-
When the projects were terminated,it was the first time
that the 88 participants who had signed on had to ultimately
put money up front.When the mothballing proposal was
suggested,it required lone termination money to be raised
by the participants and obviously,the promise to begin to
raise rates and collect monies to fund the revenue bond
fund and the interest reserve accounts of their 4 and 5
bond accounts.
Vihat happened was that,faced with having to put money
up front (that the supply system requested)WPPSS re-
ceived only about one-third from the participants.The
participants again balked and ultimately,the plans were
terminated.It had been a painless ride up until that point
as they had been issuing debt.Now putting money up
front,these costs were suddenly going to be absorbed in
the rate base.
Now,I think that the lack of some kind of investment up
front on the part of the participants also contributed to the
rate shocks that appeared in the 1980 l s because,as
Bonneville incorporated the costs of 1,2,and 3 into the
rate base,4 and 5 also had to be incorporated into rate
base,so that in a very short period of time,you had a
tremendous,tremendous increase in rates to the consumer.
The WPPSS debt <.lid not appear on the balance sheets of
the participant's financial statements of the,so the full
extent of the liability was not seen to someone just taking a
look at an annual report of a participant.Ultimately,
whatls more important is what this means to the flow of
funds.By putting WPPSS costs on the income statement,it
is unclear whether or not this is an operation and mainte-
nance expense or whether it is a debt item.And if it1s not
a debt item,it doesn't require a vote.
So,voters were circumvented in the local election process
in terms of participating in WPPSS.
And ultimately,think that what happened with WPPSS can
Transcripts of Susitna Testimony,Page 6__.4._
be largely viewed as an issue of taxation without
representation as much as an issue of mismanagement of a
power project;that is to say,that rate payers were sud-
denly faced with a large change in their expectations in
terms of electric bills and believed--despite the fact that
they elected many of their public utility district leaders
that they had had very little to say about the commitment
to this process.
Other genetic flaws include the fact that the State,which
created the agency,never developed its own independent
forecasting capability and never questioned the demand
forecasts that were utilized in projecting the needs for the
projects.The Pacific Northwest Utilities Conference Com-
mittee was responsible for providing forecasts that were
used in making projections for these projects.The smaller
utilities that were participating in this didn't have the
capability of providing their own forecasting so Bonneville
did it;and the State never questioned Bonneville's as-
sumptions in preparing forecasts for these smaller utilities.
Moreover,there was no elasticity in the models that were
developed for projecting demand;so,there was never any
account taken of the fact that,if you raise the costs of
electricity,the demand was going to be less than what one
might expect.
Finally,they used what's called "critical water year plan-
ning"for the basis of need which was based on drought
years that,as I understand it,occur perhaps once in 50
years and that was the basis for which the need for the
plants was predicated upon and the State never questioned
that.The State didn't become involved in monitoring man-
agement matters internal to WPPSS in terms of contract
matters and so forth until after $21 billion had already been
expended.
Now (this was hinted at earlier)the enabling legislation
that was drafted for the original contract among the 88 was
not carefully researched.There are now problems facing
the enforcement of these contracts.It is true for contracts
in Oregon and Idaho and potentially true for Washington
State as well.In answer to your question,the question of
authority on the contracts in Washington State was orig-
inally ruled in a summary judgment by Judge Coleman to be
a non-issue;that is to say,he found that there were not
questions of authority at stake and that they would not
enter into the trial.He,since that time,has reversed that
decision and it has been decided that questions of authority
will be raised in the trial this spring and is still not.clear
.whether or not the Washington contracts will be found valid
Transcripts of Susitna Testimony,Page 7
and enforceable.
Obviously,the result,as we all know,is that it's possible
that the supply system will be a technical default at the
end of the month and will be potentially defaulting on its
interest obligations any time between now and January of
1984.What is really serious here is that all bonds were
issued by the same umbrella organization namely,the
Supply System --and despite the fact that they were is-
sued under two separate indentures,the possibility of a
cross default remains;while there are $2*billion outstand-
ing for projects 4if and 5,there are approximately another
$6 billion outstanding for projects I,2,and 3.If WPPSS
does get referred to a receiver or a trustee or some form of
court receivership,this could potentially affect the bond
holders of all the outstanding bonds.Obviously,the im-
pact of this in the municipal bond market would be rather
extraordinary and could cause an interest penalty to any
new entrant into the market and could potentially,cause a
deferral of any large scale project,such as this,that's now
trying to get its feet off the ground •.
So,think that among the things that Alaska could learn
from the lessons of WPPSS is that they will be competing in
a tighter market if they do decide to go ahead with the
Susitna project.And by tighter I mean that you will be
competing for capital with other large scale project financ-
ings,such as Inter-Mountain Power Agency.There are
other joint action agencies throughout the country that also
have very·ambitious capital programs and buyers are going
to be taking a very severe look at two things:One will be
.the sanctity of the contracts--how thoroughly they have
been researched and how much of a possibility they stand
of holding up in the courts;and second,I think more
importantly,the fundamental underlying economic as-
sumptions that have gone into planning the projects.
I'd like to go on from here and address some of the specif-
ics of the financing proposals._that -I w.as asked to review
and give my opinion.
First consider the suggestion·that the state make a contri-
bution up front,whether on a dedicated basis or on an
appropriated basis.Buyers may take comfort in that and
might find that this enhances the security of the issue and
makes it more economically feasible and more acceptable in
the market place.One observation I would make --I think
one of the things that went wrong with WPPSS,as I said
before,is that the participants did not put money in up
front.I would highly suggest that if -the state puts money
Transcripts of Susitna Testimony,Page 8
Transcripts of Susitna Testimony,Page 9
SENATOR V.FISCHER Eileen,you're speaking of the
power utilities that would be the.
EILEEN TITMUSS -Yes,the ultimate persons with whom the
contracts would be signed for the capacity.
you ex-
security in
Mr.Chairman,would
The double-barrelled
The problem is that our money is(unknown)------thei r money too.
Just to reiterate,if planning and engineering design funds
are required,I would recommend again that the participants
be asked to share in the up front commitment and that any
involvement of the state be weighed against the long term
implications for the state's rating as well as the market
skepticism over the years of what you might call "props"to
try to make a project feasible.
If the state does decide,to proceed with this project,I
think again that you should·take a very close examination
of the WPPSS inquiry report and that very tight controls
should be established to monitor the internal contract man-
agement of the agency,given the large sums of money that
they will be responsible for managing.
SENATOR STURGELEWSKI.
plain your parlance there.
terms of the revenue bonds?
Since this is a two tiered project,another recommendation
might be to try to find a way of financing so that the first
stage of the financing and the second stage of the financing
EI LEEN TITMUSS.Well,they still have to decide how to
use it.I would agree that the double barrelled pledge
poses greatest risk,in terms of security affecting the po-
tential bond rating of the state.and would agree that the
moral obligation pledge would cause less potential damage
to the state's credit rating.
E.TITMUSS-That would be a revenue bond that has the
back up of the state as a back up guarantee.The moral
obligation is a pledge to fund a reserve fund in the event
that that's necessary.
up front that the participants do also in some kind of con-
certed effort together.That is to say,that if the project
is deemed to be feasible and desirable by the participants
who enter into CF it then one suggestion might be that they
put money up front so that they have a stake and an inter-
est in the project right from its inception.
are somehow legally separated so that,if,at some point
down the road,you have a situation,such as WPPSS,
where the later project is for some reason terminated or
cancelled or there's some kind of problem in the market
place then the original project would be isolated from the
possibility of any kind of cross default.
Also,I think the state should have'its own constant,in-
dependent monitoring of any changes in demand expec-
tations,such that the sum costs of a project of this kind
could be measured against future benefits of proceeding
forward and that an independent forecasting mechanism be
an ongoing part of the project.
Any money that is appropriated up front,either through
the state or through the participants,I believe from a
financial and not from a public policy point of view,should
be voted upon.In other words,the people who ultimately
who are going to have to pay for it,should be fully cogni-
zant of the obligation that is being incurred on their be-
half.
Finally,I think that the participants or the persons who
would ultimately be purchasing the power from the agency
should account for that obligation in some very clear ,dis-
cernible fashion,whether or not it's treated as O&M or
whether or not its treated as debt.Without getting into
full detail,one of the lawsuits that is now in litigation over
WPPSS is the question of the lien of the obligation of the
participants.In other words,the participants are arguing
that they have treated this as an operating expense but in
fact,it's really debt and in fact,the payment of their own
obligation precedes that of their payment to WPPSS.So
that,in a push comes to shove situation,where they might
be short of money,that they would pay down on their own
system debt before paying that which is owed to WPPSS.I
think there's a lesson to be learned there.I think that
whatever kind of contractual arrangements are established,
you want to be very clear about what.the Ilens are and who
gets paid first in the unfortunate event that there's a
shortage of funds.
In short,if Alaska does determine to go ahead with this
project,I think that they should carefully measure the
extent to which it wishes to involve itself with state monies
directly.Again,I would reiterate that if money is put up
front,that it involve the par.ticipants,that you develop
extremely meticulous methods for monitoring the agency's
internal activities,and that you continuously update your
forecasts to evaluate the project's soundness as you go
Transcripts of Susitna Testimony,Page 10
through it and ensure,to the greatest possible extent that
those responsible for debt repayment are informed to the
extent of their full future obligat.ion.
Thank you very much
END OF TESTIMONY
SENATOR V.FISCHER -Eileen,thank you for a marvelous-
ly comprehensive and thorough presentation.As you were
glvmg us the story of WPPSS which,to me,is the first
time I have really had the feeling that I really understand
what was happening because I've seen all the superficial
reports,I kept wondering "are you going to tell us what
lessons are in it for us"and you have.Are there any
Committee questions at this point?
SENATOR STURGELEWSKI --Just that it was an excellent
overview.I guess ,that in this particular case,there's.no
relationship really between WPPSS and the State of
Washington in terms of its credit rating or is there.Or is
there?Is there a separation other than,say,a perception
in the market place?
EILEEN TITMUSS-in the market place,I think there is a
perception that the State created the agency.and that,as
such,it has a responsibi Iity for its activities and I believe,
to some extent,there are people in the market place who
would believe that a state intervention in some way finan-
cially at this point would be appropriate.
TESTIMONY OF GREGG ERICKSON
ERICKSON AND ASSOCIATES,JUNEAU
[NOTE:This transcript has been edited by committee staff
and was not reviewed for accuracy by Mr.Erickson.]
My name is Gregg Erickson.11m an economic consultant in
Juneau with a practice throughout the state.
The best place to start is with the Acres feasibility study
itself.It's a good feasibility study and summarizes the essential
elements of the ec;onomic issues.I have reproduced this exactly as
it appears in the Acres study.
There are really three simple lines here.[SEE chart 1,
Plate 26--Annual Cost Comparison."]The top line is the
Transcripts of Susitna Testimony,Page 11
cost of power with no state subsidy of Susitna.The red
line is the projected cost of power under a thermal alterna-
tive,if you don't have Susitna.And the solid blue line is
the cost of power projected by the Acres and Alaska Power
Authority if the state subsidizes the project in the amount
of $2.3-2.4 billion.
The numbers along the side are expressed in mills per
kilowatt.You can think of those as cents per kilowatt
hours simply by dropping the zero off the end of them.So
this cost is 34 cents per kilowatt-hour.To put that in
context,the current generation cost for the Chugach Elec-
tric Association is somewhere in the neighborhood of 1.7
cents per kilowatt hour.
We can tell a number of'things by looking at this
chal"t.First,a large power demand is required to make the
Susitna project economic.Without large loads,the huge
fixed costs of a project as capital intensive as Susitna
would have to be spread over a much smaller amount of
electricity,and thus the unit costs would be substantially
higher.The load forecasts are thus a critical element in
this calculation of costs.
The cost of the project itself is also a critical element,
because if the cost of the project is higher,again the
amount of power that's to be sold from it has to cover that
larger cost.
Interest rates,as discussed by the APA people,are also
critical.It's important to note that the Acres analysis
assumed that real interest rates--subtracting inflation from
the interest rate that you actually pay--was assumed in the
base case of Acres'analysis to be 3%.
The Acres sensitivity analysis indicated that if real
interest rates were 5%or greater the project would be un-
economic.Today,long-term interest rates in the
tax-exempt markets are about 9%and in the corporate mar-
ket,about 12%.Long-term treasuries are at 11%.Inflation
today is essentially at zero;which means that we have a
real interest rate which is substantially higher than the
base case and substantially higher than the cut-off point
which Acres,in their sensitivity analysis,indicated would
lead us to conclude that the project is uneconomic.
Also implicit in these numbers,particularly in the
difference between the unsubsidized and subsidized projec-
tion of power costs,is the assumption that this project
needs to be subsidized.This raises some real questions
Transcripts of Susitna Testimonv _P;:tnl=>1?
Another assumption in this graph is a very rapid rise
in fuel costs shown by this very rapidly rising red line,
because you can't get from 1.7¢per kilowatt hour to 40¢
per kilowatt hour without very rapidly rising fuel costs.
There are other factors involved here,and the most
impo,~tant of them is that the Power Authority and Acres'
analysts assume that natural gas would either not be avail-
able or would have to be phased out at a fairly early date.
That would require more expensive,that is more costly in
terms of capital,coal plants.
This notion of investment,though,is a little confus-
ing,because think it should be clearly understood that
what is being discussed here is not a loan.I've never seen
any indication in the feasibility study or in any other
Acres'documents that the State's investment would be paid
off,and that,I think,is one criteria for an investment.
Another is that the money "invested"in fact come back to
you some day,presumably with interest.
and a
is the
in their discussions
notion of "economic
It always seemed to me that "economic feasibility"
meant,per se,almost by definition,that it didn't need
subsidy.However;this has been a rather confusing point,
and Mr.Yould,in a letter to the editor a few weeks ago
said that it has never been envisioned that the Susitna
project would be constructed without some level of invest-
ment from the State.They explained fairly clearly,I
think,why they believe it is necessary to lower the
front-end load costs so that a project that might be feasible
in the long run would,in fact,be feasible from its incep-
tion.
So,these two assumptions--rising fuel costs
shortage of gas--underly this .rising .red.line,.which
cost of generating under the thermal alternative.
about how the Alaska Power Authority,
of the project,deals with the statutory
feasibility."
Time is too short to go'into all of the questions that
have been raised concerning the economic feasibility of the
Susitna project.I'd like to focus on three areas:the costs
of the project,the availability of natural gas,and the
likely costs of natural gas,and power generated from it.
The availability of gas is usually discussed in terms of
reserves to production ratio.In general,reserves to pro-
duction ratios in excess of 15 (that is,where you have more
Transcripts of Susitna Testimony,Paqe 13
than 15 times your annual consumption in reserve)are
generally considered to be somewhat of a gas glut.(SEE
Chart 2,"Natural Gas Reserves to Production Ratios.")As
you can see,the Cook Inlet ration is about 19.
As we all know,the natural gas situation has
changed fairly rapidly ih the last few months.Contracts
were recently signed by ENSTAR,formerly Anchorage Nat-
ural Gas,which established a base price of $2.32 for the
additional one-half trillion cubic feet of gas that was
acquired in the Beluga fields.
There is provision in those contracts which provides
that the price of gas will be adjusted in accordance with
the price of #2 fuel oil on the Kenai Peninsula.As a proxy
for the price of #2 fuel oil,we have taken the state's pro-
jection of crude oil prices--not revenues but prices--in real
terms and we've applied these to the ENSTAR price.(SEE
Chart 3,"Natural Gas Price Projections and Effects on
Susitna Feasibility.")I've also included the severance tax,
but in terms of economic feasibility analysis,that1s money
you take out of one pocket and put in another so it
shouldn't really be in there.I've not included,however,
the 35¢deliverability charge so it's about a wash there.In
any event,precision in this area is not that critical.
What is critical is that if gas prices had been factored
into the Acres analysis at this level it would have resulted
in a negative feasibility finding on the project.In fact,
prices are going to be substantially below this level for at
least the next 18 to 20 years and probably for considerably
longer because,although this price covers the half trillio:l
cubic feet that has just been acquired,there is much much
lower cost gas available in the Beluga field and in the Kenai
field and elsewhere that is under contract to both Chugach
Electric and to the ENSTAR gas company which will,if the
gas company's rate filing is followed,be rolled in.
"RoJling in"means that if you start with half your gas,
let's sav.at 80¢and half at $2.00,the rolled in price is
mid-way between the two.
At the present time,natural gas is costing somewhere
around 1.7¢per kilowatt hour.In the the year 2006,if we
escalate the current costs of natural gas,of using combined
cycle techniques,and of non-fuel costs (including depre-
ciation,i operation and maintenance,etc.)and assume that
gas is going to cost roughly around $2--and I think that's
fairly high--as we indicated here that these prices start at
$2.50 and go down as oil prices decline to about $1.73 and
then gradually climb back up to $2.00,one can assume as a
Transcripts of Susitna Testimnnv P::lno 111
rule of thumb relatively accurately without too much preci-
sion,that every dollar per mcf of natural gas adds about a
penny to the combined cycle generating costs,when used
as a fuel.(SEE Chart 4,"Present and Expected Generation
Gosts.")
This analysis results in electricity produced from natural
gas in the year 2006 costing roughly 13¢per kilowatt hour
in that year.Susitna power with a subsidy will cost
roughly 24¢per kilowatt hour in that year and without
subsidies,something over 30¢per kilowatt hour.
Now,that's a big difference and I'm gratified that Acres,
or at least the Power Authority is reevaluating these fig-
ures.However,it's going to take considerable reanalysis
to make this project economic,even by the relatively loose
definition of that term that we've become familiar with.
The other major issue is what will Susitna really cost?And
that is something that,of course,nobody ..really knows.We
haven't started tunnelling those rocks and,as was dis-
covered at Tyee,when you tunnel into rocks,you some-
times find conditions that you didn't anticipate.I don't
know how many miles of tunnels or thousand feet of tunnels
there is in Susitna but I know that it's a substantial num-
ber.
Let's just run through these costs.think these are im-
portant because they give us the only real factual fix on
what we might expect of the Susitna Power Project once it's
under construction.While they certainly don't prove that
Susitna costs will rise,I think they are relevant evidence
in that consideration.(SEE Chart 5,"Cost History of APA
Hydro Projects.")
The Solomon Lake project started at $29 million,rose 134%to
$68 million,and then the final construction cost came down
to $53 million.That's the unique one because it does ac-
tually decline although not to the cost of the project as
anticipated in the feasibility study.
The Swan Lake project increased 42%from the feasibility
study to the design stage and 52%overall.
The Tyee Lake Project which you've been hearing about
recently increased 53%from feasibility study to design and
increased overall 217%since feasibility to its current stage
and we really aren't certain what the final cost of that
project will be at this time.
Transcripts of Susitna Testimony,Page 15
Of the $627 per capita that is being spent for electricity
Transcripts of Susitna Testimony,Page 16
The Intertie Project,which is one that went from feasibility
to design much more rapidly and is,I suppose,not as
complex as building a dam,has a construction cost increase
of more or less 32%.
of Revenue's
been wrong in
time or anoth-
useful to look
We've heard a lot about Tyee but we haven't heard about
Terror Lake which is,the real terror in terms of these cost
overruns..The percentage increase from feasibility study
to design was 32%and its 190%overall.
But what is really interesting is that if you take this $118
million and divide it into the total number of people in the
railbelt,you get $627.Now,if the Anchorage scenarios
play out,as they suggest they wi II,the generation costs
will almost double.
All of these issues raise serious questions about the fea-
sibility of the Susitna project,but there's an important
factor that they donlt capture.That is the notion that we
really need to be considering the possibility that we won't
build Susitna and then a set of circumstances will develop
along the lines of those hypothesized by the original Acres
feasibility analysis with rapidly rising fossil fuel costs that
will create really serious problems for us and for our chil-
dren and for our childrenls children and way down the
line.
I tend to think the suggestions th~t construction costs may
not be rising as fast as inflation are correct,and it may
well be that some of these will actually decline as later
contracts are opened and if this trend does actually exist.
It's certainly possible that the Department
official price forecast may be wrong;theylve
the past and all of our forecasts have at one
er been wrong in the past.So,I think it's
at the significance of what happens if it is wrong.
The unsubsidized total per capita cost of Susitna would be
$46,000 per railbelt household;$17,000 per individual in the
railbelt,and about $12,000 for each Alaskan.(SEE Charts 6
and 7.)Itls useful in the context of this issue to evaluate
those costs in terms of what we're now paying for electric-
ity.The total cost that we are paying right now for elec-
tricity in the railbelt is $118 million,which includes gen-
eration,transmission and all other service costs.The
capital cost of Susitna alone is about 42 times this figure.
A rather wide ratio.
today in the railbelt,slightly less than one-third is ac-
counted for by generation costs or about $211 per capita.
If you double that,you bring your total electricity costs up
to $627 plus $213,or about $830-40.Now,while"that is
certainly an undesirable outcome--no one wants power costs
to rise--it still doesn't seem to be the catastrophic conse-
quence of not building Susitna that has been suggested.
When I first came in contact with the Susitna project,
enough years ago that it was a 200 megawatt project rather
than 1620 megawatt project it is now,I was convinced that
there was a sincere commitment on the part of the people
involved to assess its economic feasibility.But we have
seen the evidence accumulate unfavorably to the project
with respect to things like real interest rates,the antic-
ipated power demand,whether fossil fuel prices will actually
rise as anticipated,whether gas will,in fact,be available.
We have also seen evidence of overruns on other projects
prepared or participated in by the Alaska Power Authority.
It now seems to me that there has been a turning away
from the notion of economic feasibility and I think that is
probably demonstrated better than anything I could say by
the letter that Eric You Id,the Executive Di rector of the
Power Authority,sent to the Governor on January 17,1983:
"I believe that the decision on Susitna will have to be made
primarily on instinct,II the letter said.Mr.Yould then
went on to indicate that he believed that his instincts and
those of "the Governor and and their associates were "worth
the multitude of consultants'reports.II
Well,I certainly don't deny that instinct is important,and
that there's a whole other constellation of values that
should be taken to heart when a project as major as Susitna
is evaluated.There was a note in the paper the other day
about a gentleman with the construction union who joined
one of those organizations that are promoting Susitna.He
indicated that he really didn't know what was going to come
after the project,and admitted that perhaps at the end of
those 17 years of construction there will be a downturn but
"God bless those 17 years.II
While that is not an illegitimate consideration,it becomes
very dangerous when we let those kinds of factors com-
pletely override the notions of economic feasibility.Eco-
nomic feasibility perhaps shouldn't be the queen of all these
things,but you ignore it at your grave peril.And that's
why it was very interesting for me to hear the gentleman
from Petersburg talk the other day about how he really
believed in hydro but there's a part of him that looks hard
Transcripts of Susitna Testimony,Page 17
END OF MR.ERICKSON'S TESTIMONY
Thank you very much,Mr.Chairman
MR.ERICKSON:I can't answer that,Mr.Halford be-
cause I haven't studied all the hydro projects.
looked at coal at
was the other area
I have not done any client work on coal
time.In fact,the last analysis I did on
and I do not pretend to be particularly
I think I know enough that,for the imme-
Transcripts of Susitna Testimony,Page 18
MR.ERICKSON.
in a long,long
coal was in 1981
familiar with it.
SENATOR VIC FISCHER:Gregg,have you
all?You were talking about gas.Coal
that was talked about as an alternative.
I would say finally that the fact that things look bad today
for Susitna does not necessarily mean that things will look
bad for Susitna forever and forever.Indeed,it may very
well be that in a few years we will take another look at
these numbers.and decide that it is now time to start con-
struction.The Acres study originally indicated that
Susitna would make money on its own,without a subsidy if
we were to delay it until the year 2006.We just don't
know about the future.Until we do,I think it's important
that we keep our feet on the ground.
I believe that none of us has to be sad or hide our heads
that we have spent $67 million on a project that,at least at
the present,doesn't look feasible.It was a noble purpose
behind that but it no longer remains a noble purpose if we
chase after these "qu ick bright confus"ions"to bankruptcy.
I'd like to close by reading a few lines from "A Midsummer's
Night Dream":"Swift as a shadow,short as any dream,
brief as the lightening in the night that in the spleen un-
folds both heaven and earth and ere a man hath power to
say behold the jaws of darkness can devour.So quick
bright things come to confusion.II
SENATOR HALFORD Assuming the considerations of per
capita subsidy,whether a grant,interest rate subsidy·or
whatever,and assuming the same kind of time frame that
you put on feasibility determinations here,are there any
hydro projects in Alaska that would have been built under
that scenario or would be built in the near future?
and cold at the economics.Unless we look hard and cold at
the economics,I think we may find ourselves in some seri-
ous trouble.
Transcripts of Susitna Testimony,Page 19
SENATOR VIC FISCHER:What would happen if the State
invested $1.8 billion,say in the bond market,to just subsi-
dize energy prices for thermal generation in the future.
SENATOR VIC FISCHER:Let's say the State were able to
come up with $1.8 billion,and wanted to help the railbelt
consumer in the long run with low cost energy,is there
any alternative way that that $1.8 billion could be invested
in gas or in any other development which would yield the
consumer long-term benefits better than those that you
describe in those charts for Susitna?
The
and
respect to coa I.
haven't analyzed it
with
I
You certainly could do that
wisdom of it escapes me,but
would decline to make a jUdgment.
MR.ERICKSON It would depend on how you did it.
But it would have a couple of effects.One is that your
power demand would grow much more rapidly in Anchorage
and the railbelt than it would otherwise.In effect,be-
cause it's cheaper power that would be a coun-
ter-conservation effort
We did a little analysis just like that.The total cost
of Susitna is $5.1 billion.If you invested that in high-grade
securities along the lines of the permanent fund rather than
put it into the dam,you'd have a stream of real income at
3%--assuming 3%real return--and actually Jim sure you'd.
MR.ERICKSON:It would seem to me that,given
the prices that we're talking about the State could probably
benefit consumers most of all by'keeping its hands off of
the power developments in the railbelt.But if there's a
political imperative to use that amount of money,I suppose
that the most appropriate thing to do would be to try to
analyze what kinds of generation alternatives the market
would choose and then subsidize those,and to subsidize the
capital costs rather than the operations costs which are
relatively small.I don't think you could use up $1.8 billion
subsidizing the capital costs of a gas based electrical gen-
eration economy.
diate future,it's pretty clear that natural gas is a more
favorable generation fuel than coal.That mayor may not
continue to be the case as gas reserves become either more
expensive or more scarce.And,also,think it's well
understood,in the absence of any major State subsidy,
there is going to be difficulty in developing the coal re-
sources of southcentral Alaska without an export market
and I have looked at export markets and they're very,very
dim right now.
Transcripts of Susitna Testimony,Paqe 20
SEN.HALFORD:But those times are way off because the
$5.1 billion is over a ten or twelve year period and you're
talking in investments.
get much more than that at·this time--of $153 million.
You'll note that that's substantially greater than the total
cost of all the electricity bought in the railbelt,which was
only $118 million.(SEE Chart 7.)
not
for-
in perpetuity.
everything else
money is
is carried
value of
$5.1 bi Ilion
yield debt
by putting
is with
principal
This
the
MR.ERICKSON:
That's protecting
back in.
MR.ERICKSON.There is a study [Ebasco,for the APAj
that is under way or may be completed by now which,I
understand,addresses that issue.I haven It reviewed it
but my guess is that it would be very difficult to develop a
project that would.stand alone on its own feasibility simply
to serve the power needs,even the industrial needs,of the
railbelt.That gas,if it.came.under,those circumstances,
would be very expensive.One thing that Ido think is
perhaps important to keep in mind with respect to that gas
is that conditions with respect to world oil prices and the
conditions that have made it essentially impossible to finance
the Northwest natural gas line may change substantially by
the year 2006.I think that it is important to us that that
gas resource may in fact turn out to be coming on line,or
beginning to serve some lower 48 market,at about the same
time our oil revenue goes to zero.And it could very well
be that that eventuality will coincide with the time when
Susitna would otherwise become feasible.
SEN.HALFORD:But the time
protected in there because the
ward and it's not put in all at once.
MR.ERICKSON.You're quite right and you could put it in
a bit at a time and create a power subsidy fund.Funds
seem to be the thing to do these days and you could have
yourself a subsidy fund which would pay checks out to
people much along the lines that the power cost assistance
does right now and,I would say,with the same policy
difficulties and the problems of runaway costs that I think
we'll soon be facing.
REP.M.M.MILLER:When you talk about gas,youlre pri-
marily talking about Cook Inlet gas and southcentral gas.
If the proposed gas pipeline should go gunny sack,is there
any opportunity there for thermal generation at a lower cost
than Susitna or is that just not a feasible alternative?
mandate
to the
popular
suggests
the pro-
project's
..
TESTIMONY OF LEE GORSUCH
My name is Lee Gorsuch.I am the di rector of the
University of Alaska's Institute of Social and Economic Re-
search.I'm appearing here as a substitute for Professor
Goldsmith,who is a faculty member of the institute and who
is our resident expert on Alaska energy economics and
public finance.
As the Chairman indicated,you have before you
revised economic projections that the institute has pre-
pared.These projections form the basis on which several
Alaska energy demand studies have been conducted by
various consultants to the state.
For background,I SER was created by the state legis-
lature as a unit of the University of Alaska back in the
early 1960s.Itls principle purpose was to become a source
of knowledge and information available to the general public
and decision-makers on matters affecting the Alaska econo-
my and population.I am pleased to report that I SER has
established a good track record in the work we've done for
the state.However,one serious error that we've made in
the last several years,along with a host of other experts
throughout the country,is the oil price projections we've
used.I would like to call the committee1s attention to a
recent publication the Institute published in December enti-
tled liThe End of the OPEC Era.II In this publication,Dr
Arion Tussing,an adjunct professor of the I nstitute warns
that oil price escalation has peaked and will decline to 1978
price revels.In Alaska we could be looking at wellhead
prices below $12,with a possibility that oil prices could
crash temporarily well below the $12 wellhead price.
One challenge the institute has is to fulfill our
of providing information about the Alaska economy
general public.A recent poll conducted to assess
support for the Susitna hydroelectric project
there is an urgent need for more information on
found effects oil price changes are having on the
economic viability.
As a citizen,I've been a supporter of the goals of the
Susitna project.I felt that the project could be an oppor-
tunity to invest revenue surpluses into a renewable invest-
ment,thereby precluding the spending of surplus reve-
nues.It could provide an economic stimulus during its
construction;it could create a secure long-term source of
renewable power at less cost than other alternatives;and it
could enable us to export the energy resources we would
otherwise consume.
While these goals may be shared by many people in
Alaska,the job of the I nstitute is not to promote personal
choices but to analyze the potentials of realizing those goals
Transcripts of Susitna Testimony,Page 21
and to assess the factors that affect their success or
failure.
What lid like to do briefly this afternoon is to share
with you some of the significant effects that oil price
changes have had on the Alaska economy and on some of
the assumptions that have gone into some of our energy
assessments such as the Susitna Project.
Perhaps the most direct and apparent consequence of
falling oil prices is the direct fall in state revenues.I'm
not sure that many people are aware of the magnitude of
the potential loss of revenues to the State of Alaska as a
result of falling oil prices.In 1981,oil price assumptions
used by the state Department of Revenue produced a very
substantial flow of future oil revenues to the Alaska trea-
sury.Using the 30%probability case of the Department's
December forecast,revenue losses through the year 2000 as
a result of the revised forecast amounts to .approximately
$115 billion.Thus,if these projections prove accurate,the
State of Alaska in a very short period of time will receive
substantially less revenues than it expected two years ago.
This revenue loss will affect a host of economic activities
that the state could have engaged in had those revenues
been available.
The Governor's office has provided a fairly detailed
analysis of the flow of revenues available to the State under
this current December forecast.That forecast essentially
suggests that the peak year for state revenues is not in
the mid 1980s nor in 1990,but in FY 1983.In other
words,this is the year in which we have the largest avail-
able pool of revenues based on the latest forecast.
Under the current forecast we're looking this year at
the cr~ailability of approximately $1 billion for capital and
loan appropriations,and about $2.1 billion available for
capital and operating spending.If this is the year in which
we have peak revenues available,with revenues in each
succeeding year substantially declining (to the point where
in the mid 1990s we're looking at the availability of less
than half of what we currently have available),then the
question is:are sufficient general _fund app~opriations
available to support investments in projects such as
Susitna?In other words,if you were to commit as much as
$1 billion this year to the·Susitna project,what capital
expenditures,loan programs,or operating programs would
be cut,in a magnitude of $1 billion?Each successive year
financing the project will be even more difficult,requiring
increasingly larger cuts in the capital and operating bud-
get.
These revised revenue forecasts indicate that the
stream of per-capita revenues available to the state of
Alaska start at a high of about $7000 per person per year
Transcripts of Susitna Testimony,Page 22
for FY 1983 and fall over the course of the projection peri-
od to a low of less than $2000 per person.To illustrate
relative magnitudes,a $1 billion investment today repre-
sents a per capita expenditure of about $2600.In other
words about 1/3 of all current state spending would be
dedicated to support the first installment of a multi-billion
dollar investment in a single project.
One other issue that comes up periodically is that an
implicit goal of the project was to curb the state's insatiable
appetite by committing surplus revenues to a project that
would provide for its own future operation and maintenance
expenses and perhaps actually retire some of the potential
debt associated with its construction.This goal was par-
tially accomplished by a constitutional amendment on limiting
state spending.
Last year'it appeared that we had to have a constitu-
tional amendment to hold down state spending.Our current
fiscal analysis suggests that under current revenue projec-
tions Alaska will never reach the spending limits permissible
under the authorized constitutional amendment.Again,
FY83 represents the single most favorable year in which the
state spending of available revenues could approach the
spending limitation.Revenues fall substantially below the
spending limitation in succeeding years.
The most important issue I'd like to raise with you
regarding the potential fiscal impacts of the falling oil
prices is that it creates a much larger revenue gap in the
1980s and 1990s than we have ever imagined.This project-
ed loss of $115 billion in nominal dollars attributable to
falling oil prices simply means we have significantly fewer
dollars to finance the operation of government.Further-
more there are no prospects of any kind of economic devel-
opment or any form of taxation over the next ten to twenty
years which would finance more than a relatively small
portion of the current revenues Alaska receives from its oil
royalties and taxes.
Therefore,the most significant consequence of declin-
ing oil prices is its impact on the state's fiscal outlook.
Another issue also affected by the oil price decline is
how it impacts energy demand or projected in-state use of
energy.These projections of demand directly affect the
assessment of the viability of the Susitna Project.The 1981
revised revenue forecasts served as the basis for ISER's
base forecast figures of revenues,population and employ-
ment.The revised revenue forecast directly impacts these
earlier ISER projections and reduces significantly current
energy demand projections.
During the forecast period to the year 2000 ISER ini-
tially projected a population growth from 400,000 persons in
1980 to 674,000 persons living in Alaska in the year 2000.
Transcripts of Susitna Testimony,Page 23
Transcripts of Susitna Testimony,Page 24
is also sUbstantially reduced as a
economic forecast.The 1981 revenue
growth to 351,000 jobs in the year
206,000 in 1980.We now estimate
a result of this loss of oil revenues
The revised revenue estimates lower that estimate by over
100,000 persons.Thus,there wi II be 20%fewer people in
Alaska consuming energy.
Employment growth
result of this revised
projections produced a
2000 from the current
75-80,000 fewer jobs as
to the State of ALaska.
Revised population and employment projections signifi-
cantly modify the projected in-state use of energy re-
sources.Both the Alaska Power Authority and the Division
of Energy and Power Development are currently in the
process of incorporating some of these revised forecasts
into their analyses of the Susitna project and I understand
they will be forthcoming soon with revised projections,if
preliminary results have not already been made available to
the committee.
An additional effect of the revised population growth is
the sobering impact it will have on investment expectations.
Many major companies have expressed optimism about
Alaska's future,particularly in light of the relative re-
cession of the rest of the country.Should Alaska no long-
er be viewed as an investment haven the prospects for
additional industrial or commercial demand for power in
Alaska could be further adversely affected.
One last comment I'd like to make in terms of the
effect of declining oil prices is an issue Mr Erickson has
spoken to in much greater detail.In brief it means that the
fall in oil prices impacts the price and relative attractive-
ness of many other energy resources.Although we don't
have a firm grastJ of how oil prices will impact coal develop-
ment in Alaska,or gas prices,it's quite clear that there's
a significant relationship and interaction,even though there
may be substantial lag times before we see price and in-
vestment effects.There's no question in my mind that the
dramatic fall in oil prices will have a signi.ficant effect on
the coal prices and development which in turn will alter
Pacific Rim energy markets and the .relative -attractiveness -
of Alaska's coal.It will also impact technological investments
to clean up Alaska's coal to make it environmentally accept-
able to Pacific Rim countries.
As Mr Erickson also indicated there's no question that
the fall in oil prices will also have an impact on gas prices
and development in Alaska.We've already begun to see the
impacts in terms of firms retreating from gas Iiquifaction
projects.These projects were potential industrial users
for Alaska's natural gas.It is possible that Alaska will have
no export markets for its natural gas in the near term and
we will find ourselves in the position of having a surplus
Transcripts of Susitna Testimony,Page 25
couple of your tables,you
vs.general fund expendi-
Table 5,page 5 of the
supply of natural gas.This could be an opportunity for
local utilities to negotiate a very favorable price from the
producers for gas which previously we had assumed was
available for export.In summary,oil price declines impose
an ominous cloud of uncertainty over whether or not there
are export opportunities for the non-renewable resources
Alaska is currently producing.
Finally,I'd call to your attention that the fall in oil
prices will also impact major producers and their interest
and incentives for additional oil and gas exploration in the
state of Alaska.We had the good fortune to build TAPS at
a particularly propitious point in time.Oil price declines
will not only affect the possible exploration and discovery
of additional fields but it may also affect the development of
and production from currently producing fields.
Alaska's most promising frontier oil and gas regions
are on the Outer Continental Shelf.A sudden plunge in oil
prices will impact companies'abilities and incentives to
explore for oil and gas in expensive frontier regions,indef-
initely postponing the prospects of subsequent oil and gas
discoveries and exploration in the state of Alaska.
Alaska will also be impacted,though indirectly,from
international and national financial and economic reactions to
major price declines.There has been a great deal of news
coverage about what's going to happen in many of these
Third World countries that are heavily in debt.The poten-
tial impacts on the overall international recession;on in-
flation;and on short and long term interest rates.I have
to say there is no consensus
among the leading analysts as to what these indirect effects
are going to be,but it's quite clear that the effects are
likely to be significant.All this suggests that those who
have major investment options would be well advised to keep
their options open and to preserve their liquidity until
these effects are better understood.
In summary,I will close by saying that Alaska has had
the good fortune of riding the OPEC roller coaster at the
time when the prices were soaring to all time highs.We
are still on that roller coaster which now appears headed
for a dramatic decline.Unless Alaska holds on dearly to
those assets we have available we may face a crisis as oil
prices commence a possible steep price decline.
That concludes my remarks.
of the revised
simple calculation
Q:(Sen.Sturgulewski)On a
refer to petroleum revenues
tures •••what am I seeing on
Goldsmith letter?
A:Table 3 is a side-by-side comparison
petroleum revenues from '81 to·'82 and a
......
of the difference in those projections.
Q:Then when we look at Table 4,with the fund expendi-
tures,why wouldn't that be the same as the revenues?
What's the difference?
A:The general fund expenditures deducts essentially
those mandatory set-asides such as contributions to the
Permanent Fund and other outstanding debt.
I'm going to leave a number of issues of the latest
I SER publication,II The Alaska Review of Social and Econom-
ic Conditions,II entitled "Sustainable Spending.Levels from
Alaska State Revenues.II In essence,this article suggests
that the spending limitation doesn't get us anywhere close
to the goal of sustaining a certain level of spending.If all
state expenditures were rolled back to 1981 spending levels
and the state was willing to invest its cash balances,we
could sustain 1981 levels based on the December 30%reve-
nue forecase.The dilemma has always been the difficulties
of investing,and basically deferring pressures to spend.
Therefore I'm not sure that this review will layout a polit-
ically acceptable alternative but I think you'll find it use:'"
ful.As an economic alternative,it demonstrates that a goal
of sustaining spending levels,given essentially a relatively
stable flow of $3 billion in oil revenues to Alaska through
the balance of the 1980s could be achieved.
Q:What do you think should happen to the Permanent Fund
Dividend
A Consistent with this article,think that the state
should be investing a good bit more.Retaining the earn-
ings of the permanent fund would represent something
similar to a reinvestment of the funds back into the perma-
nent fund.I think much more money ought to be invested.
Whether or not it takes the form of simply retaining the
earnings of the permanent fund,or spending the permanent
fund earnings but·making larger contributions of the per-
manent fund is a little bit of a shell game.
I think that Alaska needs to be investing far more of
its revenues.It needs to be cutting back far more of its
spending,capital or operating,if in fact we're going to
achieve a cushion for this rapid descent in oil ..prices and
mitigate its impact on the loss of future public revenues.
Q:(Sen.V.Fischer)Thank you for your doomsday mes-
sage.
Transcripts of Susitna Testimony,Page 26
ERICKSON &ASSOCIATES
Consultants in Economics and Public Policy
526 Main Street,Juneau,Alaska 99801
Telephone 907/586-3118
MEMORANDUM
February 24,1983
To:Senate State Affairs Committee
From:Thomas Singer and Gregg Erickson
Subject:Interim Financing of Power Projects
The Tyee Lake Hydro Project illustrates the risks to the
state inherent in the Alaska Power Authority's (APA's)present
financial independence.While the state has appropriated $82
million for Tyee project,the APA has borrowed $50 million mor~
on its own.This loan comes due in 19 months.At present there
is no clear i nd i cat i on of where the money will be found.
In its agreement with lenders,the APA agreed to refinance"
by October 1,1984,any portion of the loan then unpaid.The
APA's stated intention is'to sell revenue bonds secured through
power sales contracts with the electric utilities in Petersburg
and Wrange II.
So far,Petersburg and Wrangell have been reluctant to sign
such power sa 1es contracts.The pr i ce at wh i ch power from the
project has been offered to them is much higher than the price
they now pay --or expect in the future to pay --for power from
fossil fuels,and their own small hydo.facilities.Negotiations
between the APA and I oca I ut iIi ties cont i nue.Wi thout i ronc lad
contracts committing the util ities to buy enough power at a price
suff ic i ent to meet annua I debt payments,the bonds will be
virtually imposible to sell.l
If revenue bonds cannot be sold to refinance outstanding
debt by October 1,1984,the 1enders,by terms of the loan
agreement,have recourse to the "general assets"of the APA.
Unfortunately,no one seems to know precisely what the term
"genera 1 assets"encompasses.It may be that "genera 1 assets"
include unexpended appropriations received ~APA ~being held'
~the state treasury for other projects~Or it may be that
funds appropriated but not yet disbursed from the treasury are
beyond the I enders reach,in wh i ch case the APA may have
virtually no "general assets"apart from the uncompleted projects
around the state.This is an important legal point,which the
page 2
Attorney General will undoubtably investigate in due course.
lenders,of course,are not likely to be very interested in
taking over partialy completed hydro projects,particularly in
cases like these where the value of the power to be produced
falls so far short of the revenue needed to service the debt.
Their desire will doubtless be for the state to appropriate to
the APA add i tiona 1 funds to repay the loan.The state is in no
way legally obligated to do this,but it is clearly a possibility
that the APA and the lenders had in mind from the outset:Despite
the lack of legal claim on the state,the state is nevertheless
prominently mentioned in the loan agreement as a possible source
of repaymen t.2
If the legislature allows the APA to default on its Tyee
loan,the abi 1 i"ty of the state and all of its pol itical
subdivisions to borrow money would suffer.Alaska public sector
credit ratings would undoubtedly fall,making loans both harder
and more costly to obtain.Nevertheless,the option of allowing
the APA to sink or swim on its own should not be dismissed
without careful study.
A bailout of the APA by the legislature migh~be less
painful than default,but it certainly wouldn't be painless.
Increasingly scarce funds would be diverted from other uses.
Worse,the legislature would be giving notice to bankers,
con~ractors,and the APA"that it is willing and able to come to
the rescue,even when not legally bound to do so.
Implications for the Susitna Project
These facts raise questions about legislative intent and
accountability.Did the legislature intend that the APA obligate
its "general assets"(i.e.funds earmarked to other projects)to
proceed with Tyee?Did the ·legislature intend that unforseen
problems with the project be solved by simply dipping deeper into
the state treasury?We don't know,but one thing does seem beyond
dispute:The legislature needs to understand and control large
financial transac~ions of the sort ilustrated by the Tyee example
because it and the state as a whol e-ulti mately may have to be
responsible.for them.
As legislators begin to consider the Susitna Project
involving billions of dollars,it is even more essential that
they understand and assume respons ib iIi ty for the APA.Wh i1e
th is independent pub 1ic corporat i on does not yet have author i ty
to indebt the state,as a practical matter its financial actions
have tremendous impact on the state's financial condition.
page 3
Answers to the following questions should help the
legislature in its effort to gain understanding and control:
2.Did the financial advisors,Bankers Trust Company,and
the .APA consider the state treasury to be the real security
for the Tyee loan?If so,why?
are the current prospects that long-term revenue
the project can be sold before the October 1,1984
What is the APA planning to do if bonds cannot be
3.What
bonds for
deadl ine?
sold?
1.When the $50 mi 11 ion Tyee loan agreement was
negotiated,what did the financial advisors and Bankers
Trust Company understand the APA's "general assets"to be?
How much of the APA's roughly $200.mlllion total outstanding
debt 3 is secured by their "general assets"and what is
covered by that term?
The state can undoubtedly cover a $50 million loan.It could
probably even handle problems with the entire $200 million debt
without catastrophic consequences.But the Susitna project
involves billions of dollars,and is financially much more risky.
While the AP~and its advisors may feel that the public interest
and the APA's interests are the same,we do not belive that this
is always the case.If the legislature is going to be aboard for
the crash landing,perhaps it ought to have some say in the
takeoff.
We may a 11 hope that successful negot i at ion of contracts
for Tyee power wi I1 reso I ve the APA'.s 1oom.i ng f inane ia1 cr i sis.
Unfortunately,that will not resolve the underlying problem.The
APA continues to operate independently.If it is able to·obtain
substant ia1 "genera 1 assets",we can expect such independence to
increase.
.page 4
ENDNOTES
1.Revenue bonds to repay the loan could be sold,notwithstanding
the lack of power sales contracts,if the state stepped forward
to backstop them.Double-barreled bonds'(revenue bonds backed by
the full faith and credit of the state)or even cash payments to
consumers dedicated to their electric bills are examples of many
possible ways the state could secure the bonds.(For a fuller
discussion of the options see '~ake Tyee Power Costs and Project
History:Research Request 83-39,"House Research Agency,February
11,1983.)
A third party guarantee was used to secure the outstanding
$50 mi 11 ion loan.A major New York bank,the Bankers Trust·
Company,agreed to stand beh i nd the APA (for a fee)with a $50
million "Letter of Credit"to repay the loan if necessary.
2.The security,pledged equally to repay the loan,is(l)the
project and its revenues,(2)any unspent port i on of the short-
term loan,(3)bond proceeds,(4)t~e full faith and credit of
the APA,and (5).....the proceeds of any appropriation by the
State for the purpose of paying any Cost of the Project or
repay i ng the loan or Letter of Cred it .11.
The loan agreementrelea.ses the APA from its obl igation to
issue revenue bonds.if it .....has deposited in the loan
repayment Fund an amount at least equal to the principal of the
Notes Outstandi ng•••p1us •••i nterest.1I .
3.The APA has borrowed additional funds -$35 million for
Swan Lake and $115 million for Terror Lake.Our understanding is
that power supply contracts which are not "take or pay"have
been signed for these projects,allowing local consumers to
choose not to buy power if the price is unattractive.
5 6 7 8 9 2000 01 02 03 04 05 06 07 08 09 2010 II 12 13 14 15
YEARS
r
iCOSTSAVINGSGROWINGOVER
WHOLE OF SUSITNA LIFE
L.><...
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MINIMUM STATE APPROPRIATION a=
$2.3 BILLION WITH 7%INFLAT ION
AND \0%INTEREST
§..BASE CASE THERMAL PLAN
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.!
I
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-,\..,:
SUSITNA WHOLESALE ENERGY PRICE :i
(QliLe),..'" " .
NO STATE APPROPRIATION SCENARIO
100%DEBT FINANCING
,~.,,~~~r.,\,-:";,,,'"
T~:j:i\;i::i:~;H~!:;::':'
400380
360
340
s:320
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U's 300
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