HomeMy WebLinkAboutAPA4138Susitna Hydroelectric Project
FUTILE QUEST FOR A PlAN OF FINANCE
IN ALASKA two contemporary large·
scale engineering projects are noteworthy.
One is the development of North Slope oil
resources, including construction of the
trans-Alaska pipeline. This impressive
achievement is the work of private com·
panies and private capital. A second impor·
tant contemporary megaproject in Alaska
is one planned by a public agency of the
state-the Susitna hydroelectric project.
Planning activity on this project was re·
cently suspended, and the current prospect
for its revival is not good. Despite the un·
happy fate of this project (or perhaps be·
cause of it), the Susitna project is an
interesting case study of public sector
planning for a major infrastructure de·
velopment project.
This article considers only the finan·
cia/ aspect of the Susitna project. As it
happens, this is the critical dimension,
because the failure to devise a workabht
and acceptable financing plan led to the
project's demise. In this paper I will review
the history of financial planning for the
project from 1982 (date of completion of
the feasibility study) through March of
1986, when the project was put on the
shelf. The objectives of this review are to
explain why a workable plan of finance
was so elusive and, more important, to seek
insights from the history of the Susitna
project that may benefit future planning
for major energy projects.
PROJECT DESCRIPTION
The Susitna hydroelectric project was
to include two dams along the Susitna
Ri~ in the Talkeetna Mountains of
-mcentrul Alaska. When completed, the
by Gordon S. Harrison
project would have a combined installed
capacity of 1620 megawatts and an aver·
age annual energy yield estimated at 6200
gigawatt-hours.
The Watana Dam, intended for oper·
ation in 1996, was to be a rock structure
885 feet high and 4100 feet long, capable
of generating 1020 megawatts. At this
height, Watana would be the fifth highest
embankment dam in the world, and the
highest in North America, exceeding the
Mica Creek embankment dam in British
Columbia (794 feet) and the Oroville Dam
in California (771 feet). The Watana reser-
voir would extend upstream 48 miles; it
would be 1 to 5 miles wide, and it would
have a maximum dePth of 680 feet.
The Devil Canyon Dam, located 32
miles downstream from Wauna, was
scheduled to be operating by 2002. It was
to be a double-curved concrete arch 645
feet high and 1500 feet long, capable of
generating 600 megawatts. The dam's
height would include it among the nine
tallest arch dams in the world, including
the Hoover Dam in Arizona (725 feet)
and lnguiri in the Soviet Union (892 feet).
The reservoir for Devil Canyon would be
26 miles long, ~ mile wide at its widest
point, and have a maximum depth of 550
feet.
ALASKA POWER AUTHORITY
In the United States, major public
sector infrastructure projects are typically
built, owned, and operated by quasi·
independent public corporations. So it is
in Alaska, where the Susitna project is
under the jurisdiction of the Alaska Power
Authority (APA). The APA is a public
corporation governed by a board of direc·
tors appointed by the governor of Alaska.
It has its own professional staff but relies
heavily on consulting firms to provide
engineering and other technical expertise.
APPROACHES TO STATE
SUBSIDIZATION
Large infrastructure projects that are
developed by public corporations usually
rely on the sale of revenue bonds for
financing. Revenue bonds are debt issues
(the interest on which is usually exempt
from state and federal taxation) sold in
the national capital markets that are
secured by income generated by the proj·
ect (road tolls. electricity sales, gate
receipts, and other fees charged to users
of the project).
However, Susitna was such a large,
expensive project that it could not be fi·
nanced exclusively by conventional reve·
nue bonds. Payment of interest and
principal on revenue bonds sold to cover
all project costs would result in an exorbi·
tant price for electricity in the early years
of the project. Therefore, it was always
assumed that the State of Alaska would
need to subsidize the project.'
Two forms of state subsidy for Susitna
were proposed during the course of project
planning. One was referred to as state
"equitY" investment in the project. In this
case, state appropriations would be used
to pay some or all construction costs. and
thereby reduce or eliminate altogether the
requirement for borrowing. The second
form of state subsidy was referred to as
"rate stabilization." In this case, state aP·
propriations would be used to help make
Gordon s. Harrison w• associate dirw:tor of the Ala~ Office of Milf1II(JIImtmt and Budf}llt, MJd a dif11Ctor of the A181ka PoW'tlr
Authority from 1983 to 1986. This (}8{Hr was (},...nttld to the confllfflf)ctl on GloNIInfrastructur-. Proiectf, Alaska Pacific UniVM"·
sity, Anchorage, July B. 1986. sponsored by thelntemtJtional Ftlderation of lnstitum of Advilf1Ctld Study.
22 The Northern Enol-. Vol. 18, No.2 end 3
~nts of principal and interest on
revenue bonds. Thus, state subsidy would
be used to service debt rather than reduce
the overall amount of debt.
State subsidy to the project in the
form of loans was among the financing
mechanisms considered by project plan·
ners. but loan alternatives were never
fully developed and incorporated into
financing plans for Susitna.
The two main financing concepts of
equity and rate stabilization can be illus·
trated graphically. Line AE in Figure 1
represents the real wholesale price of
electricity from a large, hypothetical hy·
droelectric project that is financed entirely
by debt. This line gradually slopes down-
ward to point E because hydro projects
are typically built to accommodate load
growth (resulting in lower unit costs). and
because of the eHect of inflation on level
nominal debt service. At point E. the initial
debt is retired and the price of power
thereafter is based on operation and main-
tenance costs. 2
line 80 in Figure 1 represents the pro-
jection of wholesale electricity prices that
would prevail without the hydro project.
In the case of Susitna, this line represents
the wholesale price of power in the Rail belt
from gas-and coal-fired thermal plants.
This projection assumes real price increases
due to rising fossil· fuel prices and other
costs of operations.
Line BF in Rgura 1 represents the whole-
sale price of electricity 'trom the hydro
project with a combination of revenue
bonds and state equity. In this case. the size
of the state's equity investment reduces
the amount of debt to that level which
produces an entry price of power from the
hydro project equal to the price of power
from the thermal alternative (point 8). In-
creasingly larger equity investment in the
project would further reduce the price of
hydropower. If the project were entirely
financed bY cash grants from the sUte-
100 percent equity financing-the whole-
sale cost of power would not have a debt
service component, and it would represent
the variable costs of operation and main-
tenance only (this scenario is not shown
in Figure 1 ).
Figure 2 illustrates how rata stabiliza-
tion works. Here, state contributions to
the project do not reduce the amount of
debt; rather, they reduce the price of
hydropower (line AC) to the level of the
thermal alternative (line BC) until the two
are the same (at point C). Customers will
pay for electricity along the line BC, with
the state making up the difference through
Tha Northern Envl.-r. Vol. 111, No.2 and 3
EQUITY FINANClNG
Coot
P"kwh
....
8
Hydro ..;u, .,boidy 0 ._ ____________________________ __
v ....
FJvuN 1. Providirlt ~taU .,t.idy in ttt. fonn of M~Uitv .-.duces ttt. rwquit"Mt..,t for dM!t flnancint.
In tfli1 fltunt, ttt. tlhacMd -rwprwtenU the amount of M~Uity nMCMd to mMa ttM w+MI.._,. price
of hyciropoo!Mr equal tO tfla wflolatale price of pow..-from rlMo tharmal .mrn.tt-.
RATE STABIUZAnON
0~----------------------------v ....
Fitur• 2. Prowidint Jt81e .,t.icfy throutfl nrta mobillutlon requira utilitie to pay for hydropow.,
akmt ttM ~ cu.-.. of ttM ~I altarnatiYa until tfw crowo....-point C It raachad. Thil
flnanclnt ...,.,_,. il mont datirabla tMn tha aqutty approach from tha lltfla'l poim of vi.ew.
rate stabilization. At the cross<Wer point C.
hydropower becomes cheaper than the
alternative, and no further subsidy is re-
quired (customers then pay along the line
CE). An underlying assumption of this ap-
pra.ch is that customers will not be willing
to pay more than they would otherwise
pay for eltctricity, notwithstanding future
saYings that the project will create.
It is wident from the rel.tive size of
the sh.ded area in these two frgures that
less rtate subsidy is involved with rate
stabilization than with the equity ap-
proach (on the basis of the general assump-
tions underlying these curves). AJso, it is
no doubt evident that utility customers
would prefer to pay along the line BF in
Figure 1 than BCE in FiQtJre 2.
REAL AND NOMINAL DOLLARS
Because of the long time involved in
debt repayment, It is MCessary to account
for the effects of inflation when analyzing
the cost of any major project. Thus, fi-
23
nanca planners and economists distinguish
between real (or connant) dollars, which
exclude inflation. and nominal dollars,
which include the effects of inflation. In
those terms, the cost of the Susitna project
was estimated to be about $5 billion at
prices prevailing in 1985 (real dollars), but
more than $12 bi Ilion at the prices ,xe-
vailing when the expenditures Ktually
would be made (nominal dollars).
REVIEW OF FINANCE PLANNING
A review of finance planning for the
Susitna project is best approached chrono·
logically, beginning in 1982 when a major
feasibility study was completed.
1982
In 1982 a feasibility study of the proj-
ect was completed and three financing
options proposed. During this time, how·
ever, the long-term oil price outlook was
deteriorating.
Acrn Am¥icM1 report. In March 1982,
the firm Acres American released a major
feasibility study of the Susitna project.
The firm had been under contract to the
APA since late 1979. The Acres American
report proposed the two-stage construe·
tion schedule described above under
"Project Description." This project con·
figuration and the supporting analysis
became the basis for APA's license appli·
cation to the Federal Enervy Regulatory
Commission (FERC).
With regard to financing, the Acres
American report proposed three options:
(1) 100 percent state appropriation of the
total cost of construction, estimated to
be $5.1 billion in 1982 dollars; (2) a state
appropriation of $3 billion (1982 dollars),
with the remaining project cost financed
Table 1. Fin.nce Plans for the Susitrna Project
with revenue bonds; or (3) a minimwm
state appropriation of $2.3 billion ( 1982
dollars) with the remaining project cost
financed with revenue bonds. (The Acres
Americ.1n and ott-oer major financing
proposals an1 summarized in Table 1.) It
is noteworthy that one of the financing
options was a cash grant from the state
for the full cost of the project. At this
time, it was widely presumed that Alaska's
statewide hydroelectric development pro-
gram would be funded entirely by state
grants.
The other two financing options are
variations of the equity appra.dl shown in
Figure 1. An equity contribution of S3 bil-
lion would represent an entry rate for the
project somewhat below point B in the
figure; an equity contribution of $2.3 bil-
lion was ctlculated to represent an entry
rate at point B (i.e., at a price equal to the
Total CO$tJ (billiond Finance aptiom
Connant S Nominal S
Construction Construction Financing
Acr~ American
Feasibility Study
(Mar. 1982)
F ERC License
Application
(Feb. 1983)
Kentco Report
5.1
IJan. 1982 $)
5.1
(Jan. 1982 Sl
for the Anchorage
Chamber of Commerce
(Jan. 1984)
!5.1
(1983 $)
APA Economic
and Financi.JI
Up-date (Feb. 1984)
Draft FERC
License
Amendment
(Nov. 1985)
APA Draft Plan
of Finance
(Jan. 20, 1986)
5.4
(Jan. 1983 S)
5.4
(.l.ln. 1985 $)
5.4
(Jan. 1985 $)
15.3 0.0
15.3 1.6
15.3 1.7
15.3 2.0
13.4 3.4
11.8 5.2
11.8 4.4
12.7 7.8
12.7 7.8
Total
16.3
16.9
17.0
17 .J
16.8
17.0
16.2
20.5
20.6
1AII rii)Orts are evailable at the Aleka Po-Authority, Anctton~g~.
R~nue
loreast
DOR mean
Sept. 1983
DOR mean
Dec. 1983
Connant $ (S.me year • "Conrtant $'"column)
1. 100% st.Jte appropriation of total capital cost
l$5.1 billion). Consistent with SB25.
2. State appropriation of $3 billion with residual bond
financing.
3. Mlnimym state appropriation of $2.3 billion with
residual bond financing.
State appropriation of $1.8 billion with residYal
bond financing,
Stolte appropriation of $800 million In equity and
$778 million in note subilintion. Remaining
financing requirements met by combination of A EA
guo~rantlll!d loan and municipal bonds.
1. State appropriation of $1 .5 billion in equity and
$400 million in rate stabilization fur>ds (RSF).
2. State appropriation of $1.7 billion In equity and
$350 million In RSF, plut an REA-guaranteed loan
of $1.5 billion, with residual bond financing,
DOR mean State appropriation of $220 million for rate stabii-
Jura 1986 ization, with revenue bonding of full project COlt.
Not slated State to provide $520 million lor rate nabilizatlon by
appropriation or pfedgi119 -ni091 from the Perma-
rant Fund. $2 billion (nominal $)of project revenue
bonds to be IICt.lred by Railbotlt utilltifl. R .. idual
bond financi09 iaued by nate and IIKUred by
Permanent Fund eamlnga.
2 Al•ka economic projection• for ertlmatll'l9 altc1rlcitv r9QUirerMnts for the RailtJelt, Vol. 9, by S. Goldsmith and E. Porter, ISEFl, Univer~ity
of Al111ka-Ancho-.ge, SeP1. 1982 AI)Ort. a.tt.lle Pacific Northwest Llbonotorin.
24 The Nonhern E111i,.r, Vol. 11t, No.2 and 3
pria<>f t!Mctricity from natural gas 9ftner·
nion at the time me project would begin
operation).
Ch~nging f'WMU. outlook. Worldwide
crude oil prices h.d esc.lated dramatical·
ly in me lftermath of me Iranian crisis of
t 979. In February 1981, me contract
price for Alaska North Slope crude on me
Gulf Coast had peaked at $.36.90 per bar·
rei, with experts predicting that prices
would steadily increese into me distant
future. Long· term revenue forecasts pre·
pared in mid·1981. consequently, indicated
that me State of Alaska would be phe-
nomenally weal my. The Acres American
feasibility study referenced the long·term
revenue fOACast published by Battelle
Pacific Northwest Laboratories as part of
a major study of alternatives to me Su-
sitna project. Table 2 and Figure 3 show
this revenue foree.Ht. Clearly, cash financ-
ing of Susitna was 1 plausible option in
1981.
In mid-1982, however, a drtmatlc de-
cline oceurred In the long-term revenue
forecast, as indicated in Table 2 and Figure
3. Full cash financing for the Susitna proj-
ect was no longer an obvious possibility,
but some form of state subsidy remained
clearly plausible.
Because of the revised revenue outlook
betwHn 1981 and 1982, some disquieting
commentary on the viability of the proi·
ect began to appear. A report by Tussing
and Erickson in September 1982, for
example, argued mat me oil prices of
1980 and 1961 were artificially high and
could not continue to be tolerated in me
marketplace; mat lower oil prices nulli·
fied most of the economic auumPtions
used to justify the SusitRa project; and
that, by implication, me SUH would not
be able to provide ma cash grants neau-
sary to finance me project.1
1983
In 1983 an application for a fltderal
license for the Susltna project was filed;
it proposed two financing oPtions. In spite
of this, however, the APA initiated new
financial and economic analyses for the
project because of continuing declines in
oil prices.
FERC appliation. On 28 Febnary 1983,
an application was flied with F ERC for a
federal license to construct and operate
me Susitna project. Witt. regard to finan-
Table 2. StJite of Alaska General Fund Rennue Forecuts, 1981 to 1986.
(In$ millions, nominal.)
...!.!!L I til I til
YEAR MAJ!.O! JUNE SEPT. DEC. M..UO! JUNE SEPT. DEC.
19U 110111 1417 lS75 l$67 2:206 29!1 }4~ l314 :WH
1916 9271 3919 (2.19 .Q61 Jm 3191 3j{)C Jl9l :1699
1917 IOI-C9 4$69 4991 4117 3769 lliS liCO 4UO 417l
1911 12179 4109 5141 4901 4111 lS40 37n 4106 <C2IO
1919 13981 5242 m2 1379 431-4 JS54 lll6 oU42 4161
1990 1~4 5141 S:WI S096 4:124 :1631 411)1 4606 5100
1991 16611 4717 692 4549 .at;) 3374 3994 4290 4911
1992 17932 4696 4166 oU41 39U 3291 3913 41j7 4163
1993 19395 4611 <1679 4235 3971 32j() 4103 41~ 4996
199-1 20326 4sn 4652 4163 3990 J2l2 4173 oj(JT7 5051
1995 20666 4261 4391 3192 3104 3092 l977 3127 4132
1996 20111 .a33 «l22 :1601 )64.4 2930 3154 )612 47U
1997 20717 Q44 4236 3716 3&19 3001 .al9 3741 .ens
1991 20520 4296 4276 3137 3119 302J 4129 3737 5110
l!U ms ..1lli...
YEAR MAJ!.CH JUNE SEPT. DEC. M.UCH JUNE SEPT. DEC. M.AltCH
1915 ]521 )}40 :wsa no 3:m 32.5) 3266 3290 3260
1916 3701 1475 3SI4 }402 3037 2961 2954 nu m1
1917 40f2 :1921 l9SI :14-16 JOOI rm 2609 292j 1!J77
19U 41114 ll$7 4065 ll41 2764 l470 2243 2-474 1614
1919 ~ 4141 4)(,0 l290 2.694 1403 2106 2397 1454
1990 en 4175 +W l29S 26n 2324 lOCI 2310 1419
1991 4466 4237 ... 14 l:20C 2$12 W9 1926 2289 1)12
1992 4394 44)1 4$61 :ll12 25U DOl 19~ 2277 12)2
1993 4521 451'9 46lt 3163 2647 2337 19~ 2327 11$3
19114 4515 4392 -4490 3162 2551 1231 1162 2321 1096
IIIH 4510 4535 4419 3111 2A45 2160 104 2341 1045
1996 4516 4«11 +l6j Ym 23U 336) 11n 2215 997
1997 4517 4l4l ()S) 2999 %:ln 2040 17~ 2307 1013
1991 4$26 4125 4l27 29'31 2257 1991 17~ 2307 1061
-T1le 1911 ro-. wa ,._.a., 111o ...._ al s..:l.ol-.1 E..-iO ll--=tl, Uai-..ily al Alaob
roc ...... "'--l.-; .-;..ar.a. ra.e.tal,...__ .. _. rort1<r ~by
t.~ooAJab~ata.-J-19CI. n.19C:Z·I916,_,__ ~by
Alaa 0t11ct «Me c I Mil ........ oMrioooft.. kwc-.of,...,._. _..,.. .. ....S n>yMy
....,.. ..... by .. Aiab~ofl-. '"'-"-....-.. 50tlt ~ J"''Mbiiity .w-
(~ ile .... a.c. ..... ICIIIII • .._ will •-or leoo-the~ ..._l
TIM Nonhern ElllllnRf, \lol. 18. No.2 and 3 25
Millions of Dollars
$12000
STATE OF ALASKA
GENERAL FUND REVENUE FORECAST
1981-1986
$10000
1981 (Battelle Report)
$8000
$6000 March 1982 ---::::.._-
$4000 March 1984 ..
p;~~==~========--~M~.a~rch~,--------------------------------
March 1985 11 $2000 ......... ,'"""'--,_ ................
--~-----.......... . March 1986 '11
. ··-·-·····--··-,,,,., ..... _ ·-.... -... ~--... , ···~···--.
$0+---~---r---+--~--~~--~--+---~---r---+---+--~--~
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Fiscal Year
Figure 3. Stat• of Ahtlka General Fund,..,.,... forwcast, 1981·1986.
cing, the license appliQtion stated that
"costs for Watana through 1989 would be
financed by $1.8 billion (1982 dollars) of
state appropriations. Thereafter comple-
tion of Watana is expected to be accom·
plished by issuance of approximately $2.4
billion (1982 dollars) of revenue bonds."
It also stated that the Devil Canyon phase
would be financed entirely by revenue
bonds. No doubt in response to revised
revenue forecasts, the APA had dropped
the full cash financing option, and reeal·
culated the minimum state cash contribu·
tion to be $1.8 billion, or $500 million
less than the minimum contribution of
$2.3 billion identified earlier in the Acres
American report.
Concern about the future price of crude
oil-the keystone of the project's economic
and financial feasibility assessments-was
thereupon expressed by FERC's staff.
Noting several deficiencies in the state's
appfiQtion, FERC called for the APA to
inootJ»cnte upd1ted oil price forecasts in
its economic 1nd financial feasibility
~-fn response to this and to other
critiques of the existing &n.JIY'lis, as well
as to the changing oil price outlook gen· ·
eraify, the APA contriCted with the firm
Sherman H. Clark .Jnd Associates (SHCA)
28
to provide updated forecasts. In the mean·
time. a joint venture of two major engi·
neering and construction firms, Harza
Engineering and Ebasco Services (Harza-
Ebasco), had been hired by the APA to
provide engineering, design, and technical
assistance in the FERC licensing process.
Harza·Ebasco now initiated a review of
the economic and financial studies for
Susitna.
1984
During 1984 the financial dimension
of the Susitna project began to receive
serious attention from the APA, the legis·
I.Jture, and others. At mid-year, the long-
term revenue outlook was robust enough
to support an optimistic view that the
project could be financed with the help
of sizeable state grants. By the end of the
year, however, it had become apparent
to APA firn~ncial planners that a new
apprO.Jch was needed.
1984 Up-d.re. In February 1984 the APA
released the draft report SU$/tn. Hydro-
eltiCtrlc Proj«:t Economic MJd F/MnciM
Up-d11r.. Much of this report w. the work
of Harza-Ebasco; it incorporated the oil
price forecasts of Sherman H. Clark and
Associates. The report validated the eco·
nomic feasibility of the project, but con·
tained a lengthy discussion of the major
unresolved financing issues hci ng the proJ·
ect. This report also introduced the subsidy
mechanism of "rate stabilization."
Several financing options were reviewed
by the authors of the report, but two were
advanced as the most feasible: ( 1) state
appropriations of $1.5 billion for equity
in the project. and $400 million for rate
stabilization, with the remaining costs
financed by revenue bonds; or, (2) state
appropriations of $1.7 billion for equity
and $350 million for rate stabilization,
plus a·$1.5 billion loan guaranteed by the
U.S. Rural Electrification Administration
(REA), with the remaining costs financed
by tax-exempt revenue bonds (all figures
in 1984 doif1rs).
Thus, ._.nder these financing proposals,
the st.Jte would not only pay a subsuntial
portion of the project's construction costs;
but would also aeata and finance a rate
stabiliutlon fund. This fund (as explained
under "Appro.ches to State Subsidiza·
tion") would then be used to offse-t
enough debt service on the outstanding
bonds to keep the project's wholesale
cost of power ~qual to the cost of the
best thermld alternative until such time as
The Northern Ene'-. Vol. 18, No.2 and 3
the eosi of alternative power for the proj·
ect surpassed the ccrt of hydropower (i.e.,
until the "crossOYer point'' was reached).
What c:haucttrizes the 1984 APA Up-
d•~ is its somber assessment of the many
conditions that would have to be met,
and the public policy decisions and com·
mltments that would have to be made, to
finance me Susitna project s~fully
using multi· billion-dollar debt issues.
Among these were tha necessity for: (1}
recognizing Susitn1 u one of the state's
highest upital funding priorities; (2) pro·
~ adequate sec1.1rity for the very high
volume of debt. which might require a ccn-
stitutionally dedicatad stream of ravenue
from the state's petroleum resources; 13)
obtaining tax~xempt status for Susitna
bonds; and (4) immediately providing for
sizeable state appropriations to the Susit·
na fund, as well as for the retention in the
fund (by annual appropriation, if neces·
sary) of the interest eamed on that
money.
Kentco report. Also -early in 1984, a re·
port on the Susitr11 project was issued by
the consulting firm of William Kent and
Company (Kentco), which was working
under a contract with the Anchorage
Chamber of Commerce. This report, too,
recommended a combination of state
equity, a rate stabilization fund, andre-
sidual revenue bond financing. The pro·
posal, however, called for a larger rate
stabilization fund ($778 million) and less
equity ($800 million) than the 1984 Up-
date. (These amounts are 1983 dollars.)
The report further called for a majority
of the debt to be guaranteed by REA,
with the remainder to be tax~xempt
municipal debt.
The Kentco report was optimistic in
its treatment of the financing issue! Ad·
dressing the Anchorage Chamber of Com-
merce, consultant William Kent str~sed
that his finance plan "allowed a minimum
need for state investment. Sf)fead the
need for state appropriation over a larger
number of years, and did not present 1
tax exemption problem." The plan, he
said, "suggests· a-need to start appropri·
ating from 178 to 226 million dollars
annually starting with this l~slative
session."
Legislltive «tion. During the 1984 legi·
sLtti.koe session (January to June). two
measures were en.cted that dealt with
Susitna financing: (1) the legislature ap-
pro¥ed the Watana project at a cost of
$3.75 billion in 1983 dollars; and (2) the
legislature made a continuing appropria·
The Nonh•n EntiM«, VoL 111, No. 2 and 3
tion for "eQUity investment in and rate
stabilization for the Susitna project" in
the amounts of $100 million for fiscal
year 1985 and $200 million for each of
the six succeeding fiscal years.1
While the Watana construction cost
figure of $3.75 billion was traceable to
the Harza-Ebasco Up-d11tt1, the origin of
the St .3 billion (nominal dollars) total set
aside by the continuing appropriation was
a mystery. Many people assumed that it
was based on the Kentco report and Wil·
liam Kent's Chamber of Commerce speech.
In any case, it bore no resemblance to the
finance plans proposed in the Up-dlltt! or
those being discussed by the APA staff
and board.
Meanwhile, APA staff continued to
maintain that some $2 billion (constant
dollars) was needed from the state to help
finance the project. Thus, instead of the
$200 million per year for FY1986-199t
appropriated by the legisl1ture, $578 mil·
lion per year would be required-or at
least $316 million per year if interest
could accumulate in the Susitna fund.'
RIJVtlflue outlook. Was it reasonable to ex·
pect that $316 million a year (plus interest
earnings of the fund) would be forthcom·
ing from the legislature for six successive
years to finance Susitna? In mid-1984, a
plausible argument indeed could be made
that the money was available, if the legi-
slature had the will to see the project
through. Note that the revenue projections
shown in Table 2 and Figure 3 for 1984
are significantly higher than those made
the previous year. If one were to project
that the state's operating budget would
grow at the rate of inflation (approximate·
ly 5 percent) from a ba-se of approximate-
ly $2.2 billion in FY1984, then the 1984
revenue forecasts suggest that the State
would have over $1 billion a year during
FY 1986-1991 to allocate for the capital
projects and loan programs. Under these
fiscal circumstances, appropriations of
$316 million per year to a fund retaining
its own investment earnings certainly was
not, on the face of it at least, impossible.
By the end of 1984, however, revenue
forecasts had fallen to their 1983 levels.'
Also, additional oil price reductions
seemed probable, due to 1 steady erosion
of OPEC's influence over oil prices.
There were other reasons, as W.ll, to
believe that the expectation of massive
and ccntinuing state appropriations for
Susitne was unrealistic. Notably, the 1984
Legislature had appropriated only $100
million for Susitna for FY t985, while
total capital appropriations that session
exceeded $1.2 billion, compm1ng the
lar1111st unrestricted general fund capital
bu~ in the rtlte's history. This was
hardly a good indiQtlon of lf'illslatlve will
to sacrifice other capital projects in order
to pay for Susitna.
1985
During 1985 the APA and its consul-
tants redesigned the Susitna' project in en
effort to facilitate its financing. Toward
the end of the year a tea-m of financial
experts initiated work on a definitive plan
of finance based on the reconfigured proj-
ect.
Stii(Jing Proposal
At Its meeting of Ja-nuary 23, 1985, the
board of directors of the APA adopted a
staff recommendation for a SusitAI plan
of finance that called for state appropria·
tions of $1.94 billion over the fiscal years
1985·1995 to 1 fund that would retain its
interest earnings. This money would be
used for both equity and rate stabilization.
Minutes of the meeting show that the
board eonsidered this option the best pre·
sented to date, and directed the staff to
continue refining it.
By this time, however, it wa-s increas-
ingly apparent to many people that if the
project were to go forward, it would
have to do so under a financing scheme
that did not require such large state cash
contributions. Among those recognizing
this were high-level individuals in the par·
ent companies of the Harza·Ebasco joint
venture, who in January 1985 held infor·
mal meetings with the Governor, APA
executive staff, and board members to
discuss a proposal for staging the con·
struction of the Watana dam. Under this
approach, Watana would be constructed
in two phases (the first and the third
phase); the Devil Canyon dam would be
the second, middle phase of the project.
The virtue of developing the project in
three phases instead of two was primarily
financial. Three phases of construction
would match more closely than two
phases the growth of electricity demand
in the Railbelt. Al a consequence, there
would be less unused capacity in the Wa-
tana dam in the early years of project
operation, end therefore a greater ability
of utility customers to carry the burden
of revenue bond financing. Thus, accord·
lng to the staging proposal, all three
phases would be financed entirely by
revenue bonds, with a comparatively
modest state cash contribution remain·
ing necesSArY for rate stabiliution only
in the early years.
In February the Board received a
public presentation of the conceptual
proposal and authorized H~ru-E~sco to
develop it further in an expeditious man·.
ner. At its meeting of May 3, 1985, the
Board approved the staged approach, and
directed the APA staff to begin preparing
an amendment to the FE RC license appli·
cation that incorporated the reconfigured
project.
By October, APA staff and consultants
h.:! pn~Pared a comprehensive analysis of
the economic and financial aspects of the
new three-phase project. On the basis of
assumptions about the cost of generating
power from natural gas and coal (the next
best alternatives to Susltna}, the APA
staff calculated that a rate stabilization
fund adequate to keep the wholesale cost
of Susitna power equal to its thermal
competitor would require as little as
$253 million (1985 dollars). During the
1985 legislative session the continuing
appropriation to Susitna of $200 million
had been mide, so there was already
enough money in the bank to finance
the project under this scheme (provided
the interest on this money was allowed
to accumulate in, or was annually appro-
priated to, the fund).
When the APA released its draft License
Application Amendment in November, the
estimate of state contributions to a rate
stabilization fund had decreased further to
$220 million (1985 dollars). The primary
reason for these low estimates of rate sta-
bilization was the assumption that without
Susitna large·scale coal plants would be
required in the 1990s to meet Railbelt
energy demand, causing substantial rate
increases.
Preparation of a financial plan. By late
1985 it was increasingly evident that the
question of financing was critical for the
Susitna project. In particular, financial
advisers to the APA were concerned about
the real-world problems of selling so much
debt for a single project in the national
market. These were the same individuals
who had contributed the lengthy discus-
sion of these problems to the 1984 Up-
datil. The task of mari(eting Susitna
bonds w.as much more problematic now
thn the sute equity contribution had
been aJin'UN.ted altogether.
'Pressure also was coming from the
legislature for the APA to produce 1 cred-
ible plan of finance for Susitna. Finally,
critics of the project, such as representa-
tives of public interest advocacy groups
28
and the environmental lobby, were openly finance team estimated the maxim\Jm
asserting that the project was not finan· security that the Railbelt utilities could
cially viable. They claimed that the bond offer bondholders against the risk of the
market would not ·abs·;,:t,-~-muctt debt. project's never being completed.
for i~-in9femasilveproTeclTnlerioe<rfOr·a fhe results of this analysis indicaud
comp_araJ)yeJy~~iiniii1ni~efareamarwas . that-tiie u~; li~it ~t .i.rn:lebtedness for
i~olated frol11_tb~..oower.~:[g.:Q1'!!1if.9~Ji~-. the utilities for the project was $2 billion
nental Uf1ited States, (nominal). Thus, the State ·of Alaska
Late in 1985, APA's executive director would have to Issue special revenue bonds
assembled a team of financial advisers (in· to cover the remaining project costs. The
eluding several bond underwriters, bond State of Alaska, however, could not ade·
lawyers, and others) to begin preparing a quately secure that amount of bonds, even
definitive plan of finance for the project. with the pledge of its general obligation
1986
The team of financial advisers charged
with preparing a workable financing plan
for the Susitna project presented a draft
plan of finance to the board of directors
on January 23. 1986. Jhlt_r_ev~I~JiQ!lL<:On
tainedil'lJI:li.s document Led..direct!Y .to .. the
': . . the finance team
concluded that only a
commitment of the
earnings of the
Alaska Permanent
Fund would suffice to
secure the state's
special revenue
bonds."
termination of the_ pt()ject tw() months
later.
Plan of finafiCf/. The draft finance plan
presented to the Board in January was
built on the premise that very little state
cash would be available, and that all proj-
ect costs would therefore have to be
covered through the sale of revenue bonds.
Summed over time, these bonds would
total more than $20 billion (nominal).
The key question was whether the
utilities and the state could successfully
carry that much debt.
To assiSS the debt capacity of the util-
Ities, the finance tum calculated the max-
imum annual rnenue that the utilities
could generate for debt service, using as
a basis the assumPtion that the utilities'
customers could tolerate 1 maximum rate
increase of 3 percent (real) per year. Then,
using a 25 percent estimate for the maxi·
mum tolerable one-time rate hike that the
Railbelt ratepayers could withstand in the
event the project never operated, the
debt capacity. After reviewing all plausible
alternative sources of security, conse-
QUently, the finance team concluded that
only 1 commitment of the earnings of the
Alaska Permanent Fund would suffice to
secure the state's special revenue bonds.
The financial team also concluded that,
beyond issuing special revenue bonds and
pledging the income from the Permanent
Fund as !eCtlrity, the State of Alaska
would also have to provide a rate stabiliza-
tion fund of $520 million (1985 dollars;
or $2.3 billion in nominal dollars) and an
additional $323 million ( 1985 dollars) pre-
construction licensing and development
costs. The reason the rate stabilization
requirement was tligher than the APA
estimate published in the draft FERC
license amendment ($220 million, 1985
dollars} is that the draft finance plan sta-
bilized rates to the level of a 3 percent
(real) annual increase in retail electric
rates, rather than to the somewhat higher
level of electric rates estimated by the
APA to result from the best thermal
alternative.
At its meeting of January 23, the APA
board requested its eKecutive director to
submit the draft Susitna plan of finance
to rigorous scrutiny by a major munici-
pal bond underwriting firm, to test the
validity of the finance team's findings.
Under contract to APA, the firm of Pru-
dentiai·Bache Securities then reviewed
the analysis and conclusions of the plan,
and concurred with them in a report dated \ !'
Marett 21, 1986. Three days later, at its ---1\"
meeting of March 24, the APA board voted
to withdraw the Susitna license applica-
tion.
REFLECTIONS ON THE OUEST
FOR FINANCE: PROBLEMS
WITH RATE STABILIZATION
Even if 1 politically acceptable means
of securing the state's Susitna revenue
boods had been found, it is doubtful that
negotiations between the APA and the
Rail belt utilities would have been consum-· ....
The Northet'n Engi,..,, Vol. 18, No.2 1nd 3
....... : .
·~red Wlder the finance plan advocated
by the APA-that is, with rate stabiliza·
tion providing the only vehicle of state
sutKidy.
At tne time the Susitna project col·
lapsed, Mgatiations between the Railbelt
utilities and the APA for conditional
power ~les contracts had been under way
for some time, but they· were still in very
preliminary stages. The underlying prob-
lems of developing a contract that incor-
porated a rate stabilization fund were
therefore never fully identified nor con·
ironted by the negotiators.
Neither of the existing contracts be-
tween APA and purchasers of power from
its projects (the four~am pool and Bradley
Lake) incorporate rate stabilization. There-
fore the following analysis of the rate sta·
bilization approach is speculative insofar
as the concept has yet to be implemented.
Nonetheless, in the course of financial
planning for the Susitna project, several
seriously complicating features of rate
stabilization emerged.
ProbltHns with Rate Srabilization
There are two reasons for doubting
that power sales contracts placing signifi-
cant reliance on a rate stabilization fund
could have been successfully negotiated
betw!erl the APA and Railbelt utilities.
The first has to do with the pervasive pub·
lie opinion in the Railbelt region that the
Susitna project was going to bring immed·
iate rate relief, or at least stabilize electric
energy prices at their then-current level.
The second is that probably neither the
utilities nor the state would have been
willing to expose themselves to the risks
that rate stabilization entails.
to be caused by the expiration of existing
favorable contracts which made Cook
Inlet natural gas !lOme of the cneapest
fuel in the country.
By the time rate stabilization entered
the financial picture in 1984., however,
Susitna could promise favorable rates to
consumers only in the long run. With rate
stabilization, utility customers would
have to pay along the price curve of the
thermal alternative until a point some·
where in the distant future ( 1 0 or more
years after the project was operating). That
price curve, consequently, would expose
utility customers to the very same near·
term rate shodts from rising fuel costs
that Susitna was presumed to avoid.
As this realization permeated the utili·
ties' governing boards, the municipal gov-
ernments, lnd the public generally, it is
reasonable to expttet that negotiations
over Susitna power sales agreements would
"Thus, a definite risk
existed that the
Railbelt uttlittes
might have to pay a
substantial premium
for Susitna power.
Further, the potential
magnitude of this
premium was very
t " grea ....
the APA after 1985-i.e., sulxidy to be
used exclusively for rate stabilization -so
accentuated the risk of falling alternative
energy prices that neither the utilities nor
the state would have been willing to as-
sume it.
The risk of cost overruns on any major
engineering project is always present, and
has many potential sources. In the case of
Susitna, the probability of significant cost
overruns was not especially high when
compared to major project.s using new
and complex technology and subject to
strict governmental regulation (<H in the
case of nuclear power plants, for example).
Nonetheless, it is unlikely that the utilities
would have accepted any of this risk in
power sales agre.ments with the APA.
A risk ·that was more difficult to ana·
lyze and to deal with in the Susitna case
surrounds the behavior of alternative en·
ergy prices. Here is where the risk-l"elated
problems inherent in rate stabilization
financing ~ apparent. A rate stabili·
zation fund of a fixed amount for Susitna
would guarantee a floor on wholesale elec-
tricity prices, based on a projection of
prices from the thermal alternative. If al·
ternative energy prices were to fall be·
low this projected floor, access to them
would be blocked by a Susitna power
sales agreement. Thus, a definite risk
existed that the Railbelt utilities might
have to pay a substantial premium for
Susitna power. Further, the potential
magnitude of this premium was very
great, as revealed in an analysis prepared
by the APA in October 1985.
The APA 's 1985 risk analysis for Sus it·
na investigated the sensitivity of the re· have become very protracted and compli-
cated indeed. quirement for rate stabilization to certain
fossil fuel price assumptions.10 It showed,
.:;:-Allocation of risk. Among the risks associ· in particular, that the present value of the
Public expectllcions. Financing for APA's ated with any major energy project, two cost of a rate stabilization fund was only
other major hydroelectric projects, the are crucial: (1) the risk that the project $253 million using a "base case" set of as-
four projects of . .J~~-~():gtf.~.-~r~ will cost substantially more to build than sumptions about (a) long-term crude oil
PcOf''-arnn3rad_lf.!Y. 41c~. n~Hlt$_ Qfl __ s.tate . assumed in feasibility studies; and (2) the price trends, (b) the future availability of
suliii<r·r·in-the--form of equity. In both risk that the price of competing energy Cook Inlet natural gas for electrical gener-
-~~es; state casli" 8pP,.opriations--to the sources wil.l not perform as expected (i.e., ation, and (c) the method by which Cook
projects cover approxim-ately lfa1"t"l>f the . will fail to increase, or not increase as rap-Inlet gas prices would be set in the future.
costofeonstructioh, with th!fremairi<fer idly as thought}. 1 ither eventuality will When those "base case" assumptions were
of projeCt cost5covereo b"y bOrrowing.• .~!'~ _ _!!le ~ ·~'?~need pr ucer relaxed, hO'Never, the present value of the
rhis financin!f nsurn ·cunamers -·or·-a _i~ the ~et •. at least in the near term. cCHt of the rate stabilization fund soared.
wholesale CCHt of power that is comparable Somehow, then, these risks must be Under conservative but very reasonable
at the outset to the cost of power from borne by the developer of an energy proj· assumptions, fOf example, the analysis
thermal plants. ect or the purchasers of the power, oral· showed that a fund of between $1 billion
ll!ailbelt residents had come to expect located between them. and $2 billion in 1985 dollars would be
the same of the Susitna project. The proj-In the case of Susitna, contract negotia· necessary to stabilize Susitna's rates at
&ct. after all, had long been touted as tile tions between the APA and Railbelt utili· the level of the thermal alternative (nat·
most economical source of Rail belt power ties never progressed to the issue of the ural gas). The diHerence between the
available, and the best defense against allocation of these risks. Nevertheless, the "base case" estimate of $253 million and
sudden and dramatic rate increases likely approach to project financing adopted by this estimate, consequently, represented
The Northern Enalneer, Vol. 18, No.2 and 3 29
~ -~
''
Figun 4. Ri* of COd
Oftmln It the same under
ltitNtr fonn of .,IMidy.
but the rt• of foail fuel
price~ being 1oww man
expec:M is 1et1 with
~ulty then with ~
atebilization. Flgun 5.
Cost
per kwh
A
B
0
the magnitude of the tot;ll rate premium
that Susitna customers might haw to pay
if those conservative but reasonable as·
sumptions proved true.
Exposure to the risk of dedining al-
ternative (fossil) fuel prices _g siQoificantly
less under the equity financing ~
~~ate stabilization approach_. This
is bet41use the gap between the cost of
power from the hydro project and the cost
of power from the thermal alternative will
close sooner under equity financing. The
differences between rate stabilization and
equity in this respect are bert explained
graphically. Figt.~res 4 and 5 illustrate that
the risk of cost overruns are identical un·
der both financing approaches, but that
the risk of declining fossil fuel prices is
greater under rate stabilization. The cross-
over point C In Figure 4 occurs much
sooner than the crossover point C in Fig-
ure 5, thereby reducing the length of time
consumers would have to pay a premium
for hydropower in the early years, if an
unexpected decline in fossil fuels should
occur.
Frana the consumers' perspective, a
sizeable equity contribution is the pre-
ten.d 4Mthod of providing state subsidy
to an energy project such as Susitna, be·
t41use it minimizes risk and offers the pros·
pect of rates lower than thosa that would
otherwise prevail. From the state's per-
30
RISKS OF EQUITY FINANCING
spective, on the other hand, rate stabiliza-
tion is the preferred approach because it
minimizes the state subsidy. The experi·
ence of the APA with the Susitna project
suggests thtt to the extent it is relied
upon exclusively, rate stabilization may
simply not be viable, particularly when
used for a sizeable project and particularly
in a period of unstable fossil fuel prices.
When state subsidy in the form of C41sh
grants is made to a project, the money
should be used to reduce the overall level
of debt for the project, rather than reduce
the debt service burden in the early years
of operation with the aim of keeping
wholesale electricity costs ·com~rable to
a long-term projection of the avoided costs
from alternative generation sources.
SUMMARY
In the course of planning for the Susit-
na project, three sources of financing were
proposed: (1) state appropriations to
cover some portion of construction costs
(equity); (2) state appropriations to cover
some portion of the debt service on reve-
nue bonds during tht early years of proj-
ect operation (rate stabilization); and (3)
revenue bonds.
Planning for tht Susitna project begen
with tht IISSIJfnption that cash appropria-
tions from the st11e's general fund would
cover all project costs-l.e., a 100 percent
-Thermal alt.m.atln
wltll price drop
-Hydro cwt witll onrrun
-Hydro coot
Yean
equity approach. later, It was proposed
that a mix of state equity and revenue
bonds be used to finance the project. Fol·
lowing that. the concePt of a rate stabili·
zation fund was a<lded to the combination
of equity and revenue bonds (because rate
stabilization tended to reduce the amount
of required state equity). Finally. the
equity component was eliminated alto·
gether, and it was decided that financing
for the Susitna project would be eccomp·
lished entirely by revenue bonds and a rate
stabilization fund.
This evolution of Susltna's financial
planning wes driven by the eroding out-
look for state rewnues and by uncertain
evidence of legislative resolve regarding
financial commitment to the project.
From the beginning, it was recognized that
Susitna would require a substantial subsidy
from the state. IJ_!1im~!y, ar~_~_ePt~!?le
PliD of finance for the project eluded tht
APA-~~sethe stall dlcfooiKave e~
money_fO_provide tfiesubSidY-tha-pr~
r:ie!Ki!Q:.The endc:ime be<iuse of_th-eprob-
lem of providing adequate security for
the large volume of revenue bonds ctllad
for by the finance plan, and this problem
stemmed from the state's intbility to pro-
vide equity investment in the project
sufficient to rtdi.IQ borrowing require-
ments to levels that could be secured by
the utilities through conventional power
sales contrtcts.
Thto Nort'-n Engl._, Vol. 18, No.2 and 3
RISKS OF RATE STABILIZATION FINANCING
Coat
per kwh
A
B
0
Risk ol price drop
Even if a politically acceptable muns
had been devised to secure the Susitna
project revenue bonds, it is unlikely that
a workable contract could have been sue·
cessfully negotiated between the Railbelt
utilities and the APA that relied heavily
on a rate stabilization fund of a fixed
amount. There are two reasons for this
evaluation of the situation: (1) utility
customers in the Railbelt expected the
Susit~ project to protect them from re-
tail electricity rate hikes, when in fact the
rate stabilization approach assured them
of rate hikes and would not r.,ult in sav-
ings to customers for many years, and (2)
the concept of rate stabilization entailed
risks that neither the state nor the utilities
would be willing to assume. From the
point of view of public policy considera·
tions, rate stabilization might be the pre·
ferred appro.ctl to providing state subsidy
to large energy projects because it mini·
mizes state contribution. However. the
experience of the Susitna project suggests
that it is not practical . .S~tt subsidy for
future hydroelectric projects· (to the ex·
ftirit it rs rieeiSsirv an<n•vllllblel Should
t.ke tf'te form of equity; i.e., it shoold re-
duce the need for borrowing.
NOTES
's~ rublldy-regarded by rnMIY people •
dfti.-.bft from • pt~bllc policy penpectlw,
becau• It provides • ~ of distrlbutint
The Ncwth«n Engl.-, Vot 18, No. 2 and 3
-Thermal ai!Mnatiw
the state's oil -~th to citlzena. Other •·
peen of the laue· of subcidy for the project
are di~CUS*l in Gordon S. H ... riaon, "Science,
SU11itn• and political deciaion m•king." Th•
Northllnl Eng/,_, 19S4, Vol. 16, No.3.
2 1n ti"MI rnl world, a project would newr be
without dtbt, becaute mejor renewah 11nd
rwpfacernenn of the turbine, venerator, and
swftchylll'd equipment would have to be fi.
nanc.d through the iuue,of new d<Hlt.
3 Arion R. Tual09 and Gregg K. Erickson,
"Alak.a En4JrW Planning Studies," Policy
Anelvsi• Paper No. 82-13, a review of three
consultant atudlea aubmittld to Alaaka a tate
agencies in f"IICII ye..-1982, Nowmber 18,
1982. S.. allo, Rlch ... d Emerman, "The
Problble Effect of lower Stata Rewnut
Forwc.ts on the Projection of Electricity
O.mand in the R•ilbelt," palicy and .naly-
lil paper 82-10, Division of Polley and
Dewlopment and Pl•nning, Office of the
Gowmor, September 21, 1982. S.. testi-
mony of Gregg Erickson on SB 25. sa 26,
and SB ~ before House Finance Commit-
1M on Mev 18, 1981 (minutea, p. 1325).
•The Kantco plan of finance-not nt•llatic,
howewr, bet:au• of cu tbeclcs in fedltnll
lunda for REA. In any c:aoe, the Sutitn•
project would not h.,. rwc:elved lavor8ble
con.idaratlon by that egency becaute most
of the ~ from the proJ«t would be aold
to "urt.n cooperativa," which .,.IICCOI'ded
• low priority in the distribution of REA
lunda. See ''T 1'11nt!Crlpt of Quettlom and An-
_, s-ion" following ~ by u.s.
Senator Ted Stewna to the Thl.-th Alaska
$Ute ~turt, Februwy 1984.
1 Tt-o. continui09 appropriation waa declared
unconnltution~ on Auoun 30, 1986. by
the Alaka SYperior Court.
Thennal altematm
with pric:. drop
Flfure 5. Rlt* of foail
fuel pO'icel being low..-
m.n •xpected il er-ter
under ti"MI rru
n.lollizatlon .. t.idy
...,._t.,_.._
ltt81r-~tor-"
the-point
m.n wlttt th1 -.ulty
..,.,......n. F 1twe 4.
1 See minutes of APA board rnNting of Novem-
ber 9,1984.
7 It should be noted that the 30th perc.ntlle,
rls k-ldlusted fore<:aata dewloped by the 0..
partment of R ..... nue _,.. ewn Ia-.. sig·
nlficantly, than the mean probability fore·
cat lhown in Table 2. The 30th percentile
lorecart reflects • 70 pen;ent probebil i ty
that the eatimltll will be exceeded, and ia
used by the executive and legislative bran-
dill for bodgatint purpows.
1 1n the c-. of the four-Oam pool, ti"MI debt
component ia • aua-funded lonQ-tetm aub-
lidized loen. In the c.. of Bradley t...k•.
which hM jun Mg~Jn constrUCtion, ti"MI debt
component will be project l1l'ltllnue bonds is·
sued by the APA and 18CUI'Wd by contnlets
with the utilities purcn.aing power from the
project.
1A third major riak is that the forecan demand
for the OUtl!Ut of the project will not mate-
rialize. This -• ,.;or risk of the Susitna
project, but one that -not tek.an •rioullv
by Railbelt utility managen, who constantly
chided the APA for ita ~wltltimates
of Iced Qrowth. Thus, it -'~• unlikely that
allocation of this rilk would haw impeded
contract negotiftlom with APA.
10 The rwaulu of the analyais, in table fOI"mat,
were included in • package of material pre·
pllred by APA n.ff end COniUitann and dl ..
trlbuted to the Board of Oirecton at tht
~"11 of October 2, 1985. The table Ia ti·
tied "Senaltlvltv Allllysls," but na ne/tt1lr
table number nor pege number. Furth", the
table is not ~ in the APA'I draft
F EAC llcan• llll'llf\dment, althol.tgh 'the e-n-
eraf outCome of the ltf'llltlvity analylla it al·
luded to in Exhibit 0, p. 0-4-6, of rllt ~
amendment. •
31
NORTHERN ENGINEER
4
14
CONTENTS
Volume 18, Number 2 and 3
Summer and Fall 1986
A Report on the Third Chinese Conference on Permafrost: China
Expands Research on Frozen Ground
by Troy L. Pewe ...................................... 4
Alaska Peninsula: Coals of Unga Island
by Roy D. Merritt ..................................... 9
Seismic Design of Valve Operator Supports: Natural Frequency
Consideration
by Debendra K. Das ................................... 14
Northwest Territories, Canada: Buried Water and Sewer Service
Connections in Permafrost Areas
by Sukhi Cheema ...................................... 18
Susitna Hydroelectric Project: Futile Quest for a Plan of Finance
by Gordon S. Harrison ................................. 22
Bethel, Alaska; Kuskokwim River Bank Erosion
by David C. Lanning ................................... 32
Guiding Alaska into the Future
by Ted G. Eschenbach and George A. Geistauts .............. 39
Subarctic Alaska: Design Improvements for Mine Access Roads
by Nils I. Johansen and Nicasio Lozano .................... 46
Thule Air Base, Greenland: Foundations on Permafrost
by Alfred R. Mangus .................................. 51
Back of the Book
Noted, Meetings, Publications ............................ 58
COVER
This striking example of the recent erosion of the banks of the Kuskokwim River in
Bethel, Alaska, is viewed downstream from the end of the bulkhead (see page 32). The
building was moved to another site shortly after this autumn 1985 picture was taken.
51 (Photo by James H. Barker.)
last issue of THE NORTHERN ENGINEER (ISSN 0029-3083) as a quarterly publication of the Geophysical Institute, University of Alaska-
-Dr. Syun-lchi Akasofu, Director. The magazine focuses ori engineering practice and technological developments in cold regions, but in the
. sense, including articles stemming from the physical, biological, and behavioral sciences. It also includes views and comments having a social
thrust, so long as the viewpoint relates to technical problems of northern habitation, commerce, development, or the environment. Opinions
reviews, and articles are those of the authors and not necessarily those of the University of Alaska, the Geophysical Institute, or The
t:nGrine,,r staff and Board. Address all correspondence to THE EDITOR, THE NORTHERN ENGINEER, SCHOOL OF ENGINEERING,
OF ALASKA-FAIRBANKS, FAIRBANKS, ALASKA 99775-0660, U.S.A. The University of Alaska is an EO/AA employer and educa-
Engineer, Vol. 18, No.2 and 3 3