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HomeMy WebLinkAboutAPA4139 September 5, 1989 SUMMARY OF: A Special Report on the Alaska Energy Authority, Selected Budgetary Practices, Analysis of Personal Services, and Loan Programs, August 18, 1989. PURPOSE OF THE REPORT In accordance with a Legislative Budget and Audit Committee request and Title 24 of the Alaska Statutes, this special report was prepared to: (1) report on the budgetary practices of the Alaska Energy Authority (AEA) for FY 88 and FY 89; (2) analyze the nature and extent that personal services costs are charged to various AEA capital projects; and (3) analyze available cash balances as of June 30, 1989 of loan fund programs administered by AEA. STATUS OF PROJECTS As of June 30, 1989 the Alaska Energy Authority (AEA) was administering over 50 projects and capital appropriations. In order to provide for a basis for discussing the status and activities associated with various projects, we have divided them into five general categories: (1) completed operational projects; (2) projects in the feasibility assessment phase; (3) rural area projects; (4) hydroelectric projects in the construction phase; and (5) miscellaneous other projects. For each category of a project a schedule has been prepared presenting the total authorizations, expenditures, encumbrances, and the remaining balance for each project identified as of June 30, 1989. BUDGET STRUCTURE AND PERSONAL SERVICES The Alaska Energy Authority's operational budget is made up of four components: (1) Administration, (2) Capital Improvement Projects (CIPs), (3) Operations and Maintenance (O&M), and (4) Power Cost Equalization Program. Most of the administration component of the budget is funded by non-continuing General Fund appropriations. The CIP component is primarily funded by continuing General Fund appropriations made for particular CIP projects and the proceeds from bond sales made to finance major capital projects. The O&M component is funded from program receipts earned from the sale of power from three of the four dam pool projects which are operated by AEA. Using the Revised Program process, AEA has avoided having to reduce positions in their administrative component by shifting some of the costs to capital projects. By doing so, AEA is essentially capitalizing a certain amount of their administrative costs into the costs of the projects being developed. AEA has acknowledged that this transfer of administrative costs to a major capital project represents a departure from past agency practice. However, the agency has maintained that this practice ". . .is consistent with the private sector common practice of capitalizing administrative costs." OTHER ADMINISTRATIVE COSTS CHARGED TO PROJECTS Many of the positions classified and budgeted as CIP positions perform administrative or support duties for AEA operations. Through the agency's internal Labor Distribution System, most of the personnel costs associated with these positions are charged to CIP projects as indirect labor. This report analyzes the impact of charges of personal services costs associated with these "administrative" CIP positions compared with direct personnel costs. LOAN FUNDS AND BALANCES As of June 30, 1989 AEA was responsible for administering three revolving loan funds that provided funding for various projects related to energy and power development. Our analysis indicates that as of June 30, 1989 the available cash balance for each of these funds was as follows: Power Development Revolving Loan Fund $55,711 Rural Electrification Revolving Loan Fund $84,053 Power Project Loan Fund $54,179 UNDERWRITING COSTS According to an internal report prepared by AEA's Senior Auditor, the agency incurred $442,474 in underwriting expenses for bonds that were never issued. Additionally, the agency has incurred more than $120,000 in underwriting costs for bonds that have yet to be issued for the Bradley Lake Hydroelectric Project. A SPECIAL REPORT ON THE DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT ALASKA ENERGY AUTHORITY SELECTED ADMINISTRATIVE PRACTICES August 18, 1989 Audit Control Number 08-4316-89-S Alaska Energy Authority Board of Directors Chairman Robert Martin Public Member Neil Davis Public Member Lee Nunn Commissioner, Department of Commerce and Economic Development Larry Merculief Commissioner, Department of Transportation and Public Facilities Mark S. Hickey The Adjutant General, Department of Military and Veterans Affairs John W. Schaeffer Director of Policy, Office of Management and Budget, Office of the Governor Mary Halloran September 5, 1989 Members of the Legislative Budget and Audit Committee: In accordance with a Legislative Budget and Audit Committee special request and the provisions of Title 24 of the Alaska Statutes, the attached report is submitted for your review. A SPECIAL REPORT ON THE DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT ALASKA ENERGY AUTHORITY SELECTED ADMINISTRATIVE PRACTICES August 18, 1989 Audit Control Number 08-4316-89-S The audit involves a report on the current status and remaining balances of various capital projects administered by the Alaska Energy Authority; selected budgetary and cost accounting practices of the agency; and a special presentation of the available cash balances in the loan funds administered by AEA. The audit was conducted in accordance with generally accepted governmental performance auditing standards. A further statement of our audit approach is included in the Report Objectives, Scope, and Methodology section of this report. Randy S. Welker, CPA Legislative Auditor Division of Legislative Audit TABLE OF CONTENTS Page Report Objectives, Scope, and Methodology . . . . . . 1 Organization and Function . . . . . . . . . . . . . . 3 Status of Projects. . . . . . . . . . . . . . . . . . 5 Budget Structure and Personal Services. . . . . . . . 13 Loan Funds and Balances . . . . . . . . . . . . . . . 21 Underwriting Expenditures . . . . . . . . . . . . . . 25 Agency Response: Alaska Energy Authority . . . . . . . . . . . . . . 27 -1- REPORT OBJECTIVES, SCOPE, AND METHODOLOGY In accordance with a Legislative Budget and Audit Committee request and Title 24 of the Alaska Statutes, this special report was prepared to: (1) report on the budgetary practices of the Alaska Energy Authority (AEA) for FY 88 and FY 89; (2) analyze the nature and extent that personal services costs are charged to various AEA capital projects; and (3) analyze available cash balances as of June 30, 1989 of loan fund programs administered by AEA. Objectives The specific objectives of this report were to respond to specific interests expressed by the Legislative Budget and Committee's audit request. The following selected management practices or areas of interest and concern were reviewed: 1. The unexpended and unobligated balance of the capital projects administered by the Alaska Energy Authority. 2. The use of capital project funds to support the agency's administrative costs. 3. The existing and projected balances of the energy loan funds administered by the Alaska Energy Authority. 4. An accounting of bond counsel and underwriting expenditures for projects for which bonds have not been or yet to have been issued. Scope The scope of our review involved both FY 88 and FY 89, although depending on what aspect of objectives were being addressed and the availability of information, different fiscal years' activities were emphasized. Budgetary practices for both FY 88 and FY 89 are included in this report. Although how personal services costs associated with AEA administration were charged to capital projects was analyzed for both fiscal years, the report primarily focuses on FY 88 activity. Loan fund balances and analysis are as of the end of FY 89. The accounting of various underwriting and bond counsel costs are from inception to the last day of fieldwork. Methodology In the course of preparing this report we relied on the following sources of information: 1. Internal budget and financial planning documents prepared and used by AEA. 2. Accounting information as recorded on the State's accounting system (AKSAS). 3. Internal accounting information generated by AEA's Labor Distribution System. 4. Schedules prepared by AEA accounting staff, which were reconciled to AKSAS. -2- 5. Informational documents that AEA makes available to the general public, including annual audited financial statements, capital projects status report summary, and the agency's annual report. From this assortment of information we developed the analysis and presentation necessary to respond to the objectives of our report and address the concerns expressed by the Legislative Budget and Audit Committee in their special audit request. -3- ORGANIZATION AND FUNCTION The Alaska Energy Authority (formerly named the Alaska Power Authority), was established in 1976 "to promote, develop, and advance the general prosperity and economic development of the people of Alaska by providing a means of constructing, acquiring, financing, and operating (1) power projects and (2) facilities that recover and use waste energy." To accomplish these goals, Alaska Energy Authority (AEA) conducts reconnaissance and feasibility studies; designs, constructs, and operates power projects; issues bonds; administers loan and grant programs; and enters into contracts for the sale of power and waste heat. The extent of AEA's involvement in any power project depends upon local needs and preferences, project financial requirements, and state budget considerations. AS 44.83.020 establishes AEA as a public corporation of the State within the Department of Commerce and Economic Development but with separate and independent legal existence. Consequently, AEA is governed by a seven-member Board of Directors, including the Commissioners of the Departments of Commerce and Economic Development, Military and Veterans Affairs, and Transportation and Public Facilities; the Director of the Office of Management and Budget; and three members at large appointed by the Governor. With a staff of more than 70, AEA administers the various capital funds for identified power development projects throughout the State. The agency administers three loan funds to assist in the energy production and development, and will assume administration of the Bulk Fuel Revolving Loan Fund during FY 90. AEA also administers the State's Power Cost Equalization program, aimed primarily at subsidizing the cost of power in rural areas of the State. -4- Alaska Energy Authority Completed Projects Schedule of Authorizations, Expenditures, Encumbrances, and Remaining Project Balances As of June 30, 1989 (UNAUDITED) Total Expenditures Remaining Authorizations thru 6-30-89 Encumbrances Balance Terror Lake $202,639,156 $198,468,746 $ 2,250 $ 4,168,160 Tyee Lake 131,113,397 127,461,236 1,000 3,651,161 Anchorage-Fairbanks Intertie 128,463,119 125,326,360 35,816 3,100,943 Swan Lake 95,755,046 94,795,049 2,250 957,747 Solomon Gulch 48,351,728 48,222,513 51,000 78,215 Craig-Klawock Intertie 750,000 749,735 -0- 265 Total Completed Projects $607,072,446 $595,023,639 $92,316 $11,956,491 -6- STATUS OF PROJECTS As of June 30, 1989 the Alaska Energy Authority (AEA) was administering over 50 projects and capital appropriations. At the end of each calendar year the agency prepares a report summarizing the status and funding of the various projects. In addition, the report provides a description of the project, what was accomplished during the past year, and what activities are planned for the project in the upcoming year. In order to provide a basis for discussing the status and activities associated with various projects, AEA's projects were divided them into five general categories: (1) completed operational projects; (2) projects in the feasibility assessment phase; (3) rural area projects; (4) hydroelectric projects in the construction phase; and (5) miscellaneous other projects. Completed Projects The schedule on the opposite page summarizes the six projects classified as completed and operating projects. Only those projects owned and operated by AEA are included in this category. Other projects completed on behalf of local communities/utilities are classified elsewhere (such as the Chester Lake project which is classified under the Rural Projects category). The hydroelectric projects that make up the Four Dam Pool are included in this category. Although these projects are on-line and operational, AEA is still incurring some incidental construction-related expenditures, which are being charged to the projects. These most recent year charges represent a minor part of the projects' overall costs. According to AEA's January 1989 project status report, remaining items to be addressed for these projects include those associated with Federal Energy Regulatory Commission (FERC) compliance and licensing standards, safety features, completion of construction items, and cost of litigation. These final construction costs are anticipated to be substantially completed by January of 1991. The Anchorage-Fairbanks Intertie is a 170-mile, 345 KV transmission line which connects the existing power generating systems of southcentral Alaska with the Fairbanks area. The system has been operational since 1985. AEA recently received a claims settlement of more than $3 million from the project's design engineer. -7- Alaska Energy Authority Feasibility Projects Schedule of Authorizations, Expenditures, Encumbrances, and Remaining Project Balances As of June 30, 1989 (UNAUDITED) Total Expenditures Remaining Project Authorizations thru 6-30-89 Encumbrances Balance Susitna Feasibility $135,182,776 $135,182,776 $ -0- $ -0- Black Bear Lake 3,247,053 3,233,571 -0- 13,482 Cordova Hydroelectric 2,196,304 2,183,300 -0- 13,004 Railbelt Energy Alternatives 2,091,500 1,986,669 33,903 70,928 Grant Lake 1,696,608 1,696,608 -0- -0- Southeast Intertie 799,000 678,848 40,198 79,954 Larsen Bay 280,000 231,783 -0- 48,217 Stream Gauging Projects 63,700 36,357 18,100 9,243 Kotzebue - Nome Coal Study 150,000 28,694 121,306 -0- Manokotak - Dillingham Intertie 35,000 25,466 9,428 106 Total Feasibility Projects $145,741,941 $145,284,072 $222,935 $234,934 The Craig-Klawock transmission line is a recently completed project that services the two communities in southern Southeast Alaska. The Craig-Klawock Intertie consists of 5.5 miles of transmission line that is leased, operated, and maintained by Alaska Power and Telephone. The line has been operational since January 1988 and has provided for the transfer of lower cost power from Craig to the Klawock service area. Feasibility Projects Included in this group of projects are appropriations made for feasibility assessments of relatively larger scale projects which, for the most part, were anticipated to serve urban areas. The most significant project in this group is the extensive feasibility study done of the Susitna Hydroelectric project. In FY 89 AEA charged almost $6,000 to Susitna wind-down activities. Local entities serving Prince of Wales Island and Seward are pursuing FERC licensing for the Black Bear Lake and Grant Lake projects, respectively. In FY 89 AEA charged less than $6,000 to the Black Bear project and had made no charges to Grant Lake. According to AEA, the remaining balance of the Black Bear Lake appropriation is needed to cover costs incurred by the agency in providing technical assistance to local utility which is seeking an FERC license for the project. Projects with relatively larger remaining balances - the Railbelt Energy Alternatives Study, Southeast Intertie feasibility, and Larsen Bay feasibility projects continue to be the most active projects in this category. With FY 89 expenditures of more than $1 million, the Railbelt Energy alternatives study was the most active feasibility project administered by AEA during the past fiscal year. According to the January 1989 project's summary report, it was anticipated that the overall alternative study would be completed in final form by mid-1989. The alternatives study will present information regarding feasibility and costs of meeting the energy demand of Railbelt consumers. It reviews alternatives involving extended interties between Anchorage and Kenai, upgrading of the Anchorage-Fairbanks intertie, or construction of a new line between Anchorage and Fairbanks via Glenallen. In addition, the final report addresses power supply plans without the proposed interties and analyzes the merits of more consumer conservation, coal, and natural gas pipeline alternatives. The focus of the Southeast Intertie feasibility analysis has been affected by the recent upswing in mining activity in that region of the -8- State. Projections of energy demand are being reevaluated in light of the actual and anticipated increases for energy demand. The Larsen Bay hydroelectric project feasibility study has been completed, and the city of Larsen Bay is undertaking construction of the project utilizing a $493,694 loan from the Power Project Revolving Loan Fund. Rural Area Projects Projects in this category are generally smaller scale, aimed at providing affordable power to a limited number of potential customers in the rural parts of the State. The appropriations in this category are for specific projects in identified communities or are for programs that provide assistance to various rural communities in developing power generation and distribution facilities. The non-community specific projects in this category are all aimed at improving access to, and efficiency of, power supplies in rural Alaska. The projects include the rural electrification, community feasibility, construction assistance, technical assistance, waste heat, regional feasibilities, rural energy reconnaissance, and the metering installation survey. In AEA's annual capital projects status report the various communities served by these projects are listed. Appropriations received for specifically identified projects cover all aspects of power generation and development. Specific projects range from the more than $4 million Chester Lake project, which has been operational since May 1988, to a much smaller $15,535 appropriation for a reconnaissance study for a Port Alsworth electrical system. Based on the amount of FY 89 expenditures compared to the total inception to date expenditures listed in the schedule above, AEA focused a great deal of attention on the completion of rural projects during the past year. In particular, the following seven projects either had significant progress or were completed during the past fiscal year: 1. Chignik Lake ($198,008 in FY 89 expenditures) - This project was a result of design and preconstruction engineering funding provided by rural community feasibility funds in FY 81. State appropriations were combined with $26,000 in federal funds to construct a power generation and transmission facility. 2. Quinhagak Electrification ($125,599) - This project is essentially complete and represents construction of a new distribution system. In addition to AEA funds, the community utilized a $400,000 municipal grant from the Department of Administration. 3. Ouzinkie Hydroelectric Project ($108,745) - This project involved the design and construction of a 117 kilowatt hydroelectric project. Actual total costs of the completion of the project were approximately $610,000. This project funding represented a grant to cover part of the community's costs associated with this project. 4. Brevig Mission Upgrade ($107,158) - This project replaced a low voltage distribution system with a more efficient high voltage system capable of accommodating 20 new homes built in the community. The project should be complete and closed by January 1990. -9- 5. Napaskiak Power Plant Upgrade ($100,000) - This project involved relocating the community's power plant and fuel storage tanks in addition to upgrading the electrical distribution system. 6. Tatitlek Electrification ($99,468) - This project is completed and involved replacement of an unsafe, unreliable, and outgrown overhead distribution system with a high voltage underground system. 7. Unalaska Generator Upgrade ($50,000) - This project involved upgrading the community's generation capacity in response to increased demand brought on by seafood processors connecting to the city's electrical system. In addition to the significant recent expenditure activity for these projects, all expenditures reported in the schedule for the White Mountain Power System Upgrade, Eagle region villages, and Chalkyitsik Electrification projects were made during FY 89. This suggests that these projects are just beginning to get off of the ground and probably will involve significant activity in FY 90. Major Projects in Construction Bradley Lake is the largest project currently being managed by AEA. The 90 megawatt project is located near Homer and will contribute to the generating capacity of Alaska's railbelt area. Recently, AEA has revised downward its estimate of completion costs to $328,000,000 net of financing costs. As of mid-August 1989 it was estimated that the project was halfway completed. Miscellaneous Projects The largest appropriation in this category is for enhancing AEA's information processing system. The project has allowed AEA to automate the agency's contract administration systems, project cost management systems, and accounting systems. Currently AEA in consultation with the Department of Administration's Division of Finance is seeking a cost effective automated accounting system that can be integrated into the State's accounting system structure. The State Energy Policy Task Force was a group of 22 individuals (13 from the public, 4 from the Executive Branch, and 5 legislators) which reviewed the State's energy policy and programs. The task focused on issues such as energy program organization, the Power Cost Equalization Program, energy conservation programs, and power project financing. -8- Alaska Energy Authority Rural Area Projects Schedule of Authorizations, Expenditures, Encumbrances, and Remaining Project Balances As of June 30, 1989 (UNAUDITED) Total Expenditures Remaining Authorizations thru 6-30-89 Encumbrances Balance Waste Heat Projects (Note 1) $ 6,831,000 $ 5,899,231 $133,714 $ 798,055 Chester Lake (Note 2) 4,031,700 4,012,365 14,190 5,145 Rural Electrification 3,106,000 2,803,412 85,469 217,119 Rural Community Feasibility 2,982,453 2,720,923 8,961 252,569 Bethel Region 1,254,800 1,253,369 -0- 1,431 Rural Energy Construction Assistance (Note 3) 1,000,000 340,748 -0- 659,252 Rural Technical Assistance 617,973 592,750 22,801 2,422 Regional Feasibility Program 505,000 502,123 -0- 2,877 Rural System Efficiency Improvement 300,000 236,800 61,753 1,447 Ouzinkie Hydroelectric 260,000 260,000 -0- -0- Nikolai Electrical System 250,000 166,760 83,240 -0- Rural Energy Reconnaissance 250,000 227,339 1,767 20,894 Chignik Lake 199,000 198,515 -0- 485 Quinhagak Electrical Project 152,000 136,898 -0- 15,102 Hope Electrical Line Extension 150,000 50,693 95,000 4,307 Brevig Mission 144,900 107,158 -0- 37,742 Red Devil Electrification 125,000 107,920 17,080 -0- Bethel Intertie 102,551 83,591 2,400 16,560 Napaskiak Power Plant Upgrade 100,000 100,000 -0- -0- Tatilek Electrification 100,000 99,750 250 -0- Metering Installation Survey 100,000 99,641 430 (71) White Mountain Power System Upgrade 75,000 39,020 30,837 5,143 Eagle Region Communities 65,000 6,572 20,000 38,428 Chalkyitsik Electrification 51,300 21,881 -0- 29,419 Unalaska Generator Upgrade 50,000 50,000 -0- -0- Yakutat Waste Heat 36,000 33,824 -0- 2,176 Port Alsworth Electrical Project 15,535 14,818 -0- 717 Total Rural Projects $22,855,212 $20,166,101 $577,892 $2,111,219 Note 1: AEA has completed, owns, and operates approximately $3,500,000 of waste heat projects located in rural Alaska. Revenues from the sale of energy from these projects fund a portion of the agency's operations. Note 2: Chester Lake is owned by the Metlakatla community and is operated by Metlakatla Power and Light. Note 3: The rural energy construction assistance project is funded entirely from funds from local communities that are used to "purchase" technical assistance from AEA. -15- Alaska Energy Authority Bradley Lake Hydroelectric Project Schedule of Authorizations, Expenditures, Encumbrances, and Remaining Project Balances As of June 30, 1989 (UNAUDITED) Total Expenditures Remaining Authorizations thru 6-30-89 Encumbrances Balance Bradley Lake (Note 1) $442,580,000 $110,574,138 $ -0- $332,005,862 Note 1: Authorizations for Bradley Lake represent the following: General Fund Appropriations $175,080,000 Bond Proceeds 267,500,000 Total Authorizations $442,580,000 Alaska Energy Authority Miscellaneous Projects Schedule of Authorizations, Expenditures, Encumbrances, and Remaining Project Balances As of June 30, 1989 (UNAUDITED) Total Expenditures Remaining Authorizations thru 6-30-89 Encumbrances Balance Management Information Study $505,000 $504,609 $ -0- $ 391 Energy Policy Task Force 200,000 200,000 -0- -0- Snettisham Project Transfer 74,178 46,047 25,798 2,333 Total $779,178 $750,656 $25,798 $2,724 -16- BUDGET STRUCTURE AND PERSONAL SERVICES The Alaska Energy Authority's (AEA) operational budget is made up of four components: (1) Administration, (2) Capital Improvement Projects (CIPs), (3) Operations and Maintenance (O&M), and (4) Power Cost Equalization Program. Most of the administration component of the budget is funded by non-continuing General Fund appropriations. The CIP component is primarily funded by continuing General Fund appropriations made for particular CIP projects and the proceeds from bond sales made to finance major capital projects. The O&M component is funded from program receipts earned from the sale and transmission of power from the six electric facilities owned by AEA in addition to revenues from waste heat sales. In response to legislative reductions of funds, but not of positions, in the FY 88 administration budget component, and in order to fund the number of authorized positions in the final budget, AEA began shifting some of that component's costs to the CIP component. The diagram on the following page illustrates the reallocation of personal services expenditures between the agency's budgetary components. Using the Revised Program (RP) process, AEA transferred the funding of two administrative positions (Accountant and Analyst Programmer) to the CIP portion of their budget. In addition, AEA began transferring select percentages of personal services costs associated with management and administrative positions in their administration component to projects in the CIP component of their budget. The inset to the right provides a break-down of the positions and the portion of their personal services reallocated to CIP projects. At the time that these transfers were approved, it was estimated that they represented almost $97,000 in personal services costs. Another 40% of the personal services costs for the director of Program Development and Facilities was transferred to the O&M component. This combination of transferring all or a percentage of personal services costs allowed AEA to meet the Legislature's $179,900 personal services reduction in their FY 88 Administration budget component. Response to FY 89 Budget Reductions The FY 89 budget act reduced AEA's FY 89 administrative budget's personal services component to $600,000 from the agency's requested amount of $847,100. AEA received a supplemental appropriation of $120,000 for this component, thus resulting in a net reduction of $127,100. Although the agency stated in the FY 88 RP request that they did not anticipate continuing the shift of administration component costs to the CIP component, the $127,100 personal services budget required continuation of the practice. AEA reevaluated some of the percentages and the administrative positions that were charged to Bradley Lake and the Railbelt Alternatives Study for FY 89. In addition to charging 40% of the director of Program Development and Facilities' personal services to the O&M component, the agency processed a new FY 89 RP which transferred a portion of administration component personal service costs to the agency's capital project component. See the inset at left for a breakdown of personal services' percentages transferred. FY 90 For FY 90, AEA's final proposed budget for personal services in the administrative component was for $866,100. The amount represented the prior year's budget level of $720,000 with the $127,000 cut restored and an increase of $19,000 for increased costs associated with health care benefits. AEA received a final administration component personal -17- services budget of $787,900, a reduction of $78,200. AEA anticipates continuing allocation of administration component personal services costs to the CIP and O&M components for the upcoming fiscal year. Essentially, AEA has avoided having to reduce positions in their administration component by shifting some of the costs to capital projects. By doing so, AEA is essentially capitalizing a certain amount of their administrative costs into the costs of the projects being developed. AEA notes in the narrative of the first FY 88 budget RP request that charging a portion of personal services costs of administration to major capital project represents a departure from past AEA practice. The narrative goes on to note, however, that this practice ". . .is consistent with the private sector common practice of capitalizing administrative costs." Capital Project Positions In the inset below is a schedule of positions that were included in the FY 88 AEA Budget as CIP Positions. Although some of these positions have been eliminated and others have been reclassified for FY 89 and FY 90, the general nature of CIP positions has essentially remained the same. Individuals in these positions complete time sheets each two weeks recording what projects they worked on during the period. Personal services costs associated with these positions are charged to various CIP projects based upon these time sheets. Projects are charged direct personal services expenditures when the time sheets reflect that individuals specifically worked on an identified project. The projects also receive an allocation of indirect personal service charges which are generated from individuals recording their time to the performance of administrative overhead functions. Projects receive an allocation of indirect personal service expenditures based on the amount of direct personal service costs which have been charged to the project. At the direction of AEA management, not all projects receive indirect personal services charges. Most of the rural, smaller scale projects are not charged with any indirect personal services costs. AEA management decisions regarding which projects receive allocations of indirect costs are based on the project's budgetary constraints. Very often AEA receives appropriations for the bare cost of procuring equipment for a small community; in those cases AEA generally charges any associated agency personal services costs to one of the more "generic" rural/regional program support projects. The schedule on the following page presents a comparison of FY 88 direct and indirect personal services as recorded for twelve major projects on the State's accounting system. CIP Positions with Administrative Functions Many of the positions classified and budgeted as CIP positions perform administrative or support duties for AEA operations. Although they are involved with and support AEA projects, positions such as Public Information Officer, Graphics Specialist, various Accountant/Auditor positions, Personnel Officer, Records/Library Supervisor, and Information Systems Supervisor indicate duties that provide general administrative services to all of AEA operations. Through the agency's internal Labor Distribution System, most of the personnel costs associated with these positions are charged to CIP projects, as indirect labor. To analyze the impact of these -18- "administrative" CIP positions, we reviewed the FY 88 indirect cost charges for selected positions that appear to us to perform administrative duties. Positions in bold print on the CIP position schedule on page 16 were selected for further analysis. These positions' indirect costs made up approximately half of the FY 88 indirect labor charges made to the Bradley Lake project. These positions' costs made up over 40% of the costs charged to the Southeast Intertie study project. The pie charts on page 19 illustrate the breakdown between direct labor charges, indirect CIP labor charges, and indirect administrative CIP labor charges for twelve selected projects. Functions associated with project wrap-up and closing are more administrative in nature than engineering or technical. For example, the major work effort involved with closing the Susitna Feasibility project was the organization, microfilming, and storage of project records. Accordingly, the relatively higher amount of charges for administrative CIP positions to projects in the wind-down stages such as Susitna (68.2%), Tyee Lake (57.3%), and Terror Lake (55.2%) can be attributed to the nature of the workload involved. -15- Alaska Energy Authority Schedule of Personal Services Charges For Major Capital Projects For the Year Ending June 30, 1988 CIP Admin Pct. of Pct. of Direct Indirect Indirect Admin CIP Admin CIP Personal Personal Personal Indirect to Indirect to Name of Project Services Services Services Tot. Indirect Total Pers. Svcs. Bradley Lake $ 509,702 $253,217 $116,298 45.93% 15.2% Railbelt Energy Alternative 97,095 89,073 33,027 37.1 17.7 Waste Heat Products 70,746 48,950 21,030 43.0 17.6 Terror Lake Hydro 102,729 48,192 26,611 55.2 17.6 Susitna Feasibility 108,748 30,747 20,967 68.2 15.0 Rural Electric Projects 36,958 25,912 9,514 36.7 15.1 Anchorage/Fairbanks Intertie 98,049 24,668 10,801 43.8 8.8 Tyee Lake 25,518 16,159 9,238 57.2 22.2 Southeast Intertie 19,743 22,968 7,684 33.5 18.0 Solomon Gulch 19,348 11,788 8,659 73.5 27.8 Chester Lake 16,170 10,711 1,516 14.2 5.6 Swan Lake 13,432 9,618 4,646 48.3 20.2 Total $1,118,238 $592,003 $269,991 45.6% 15.8% Analysis of Power Development Revolving Loan Fund: Appropriations to the Fund, Inception to Date $210,000,000.00 Less: Appropriations Lapsed Back to the General Fund (59,846,062.70) Net Appropriations to the Fund, Inception to Date $150,153,937.30 Cash Provided by Income to Fund 40,141,669.78 Total Cash Available for Loans, Inception To Date $190,295,607.08 Less: Loans Outstanding as of June 30, 1989 (185,239,896.17) Cash Reserved for Self-Insurance Fund (5,000,000.00) Available Cash Balance as of June 30, 1989 $ 55,710.91 Analysis of Rural Electrification Revolving Loan Fund: Appropriations to the Fund, Inception to Date $6,720,100.00 Less: Appropriations Lapsed Back to the General Fund (1,614,900.00) Net Appropriations to the Fund, Inception to Date $5,105,200.00 Less: Loans Outstanding as of June 30, 1989 (4,488,377.65) Loan Administration Expenses, FY 88 & FY 89 (14,979.27) Cash Balance as of June 30, 1989 $ 601,843.08 Less: Loans Obligated but not Disbursed 517,790.40 Available Cash Balance as of June 30, 1989 $ 84,052.68 -16- LOAN FUNDS AND BALANCES As of June 30, 1989 AEA was responsible for administering two revolving loan funds that provided funding for various projects related to energy and power development: (1) the Rural Electrification Revolving Loan Fund, and (2) the Power Project Loan Fund. In addition, AEA assumed responsibility as of July 1, 1989 for the administration of two other energy-related loan funds: (1) the Power Development Revolving Loan Fund, and (2) the Bulk Fuel Revolving Loan Fund. In accordance with the special request and the objectives of our review, we have analyzed the four funds in order to determine the available cash balance of each fund. Power Development Revolving Loan Fund Under the loan fund's terms as set out in AS 44.33.600 the Power Development Revolving Loan Fund is made up of legislative appropriations, repayments of principal, and both the income from the investment of the fund's cash balance and from projects financed by loans from the fund. Loans for the construction of the Four-Dam Pool projects make up the bulk of the outstanding loans. Since its inception in 1984, the fund has received $210 million in appropriations, over $40 million in income from power sales agreements, interest, and investment of available cash balances. Beginning in 1985, almost $60 million has been lapsed back to the General fund. The schedule on the opposite page provides a summary of cash sources, uses, and available balance from inception through June 30, 1989. The totals presented are unaudited and were compiled from AEA's accounting records. Rural Electrification Revolving Loan Fund Under the loan fund's terms as set out in AS 44.83.361 the Rural Electrification Revolving Loan Fund (RERLF) is made up of legislative appropriations and repayments of principal. Any interest earned on RERLF loans is put into the State's General Fund. Loans are made only to electric utilities certified by the Alaska Public Utilities Commission. Loans may be made only for the extension of new electric service into an area of the State that an electric utility may serve under a certificate of public convenience. As of June 30, 1989 RERLF had made thirteen loans totaling more than $5.2 million (although as of that date only $4.75 million in proceeds had been disbursed). The schedule below provides a summary of cash sources, uses, and available balance from inception through June 30, 1989. The schedule presented on the opposite page was compiled, unaudited, from AEA's accounting records. Power Project Fund Under the loan fund's terms as set out in AS 44.83.170 the Power Project Loan Fund (PPLF) is made up of only funds appropriated by the legislature. Any repayments of principal and the interest earned on PPLF loans are put into the State's General Fund. Loans may be made for a wide range of power development activities, ranging from the financing of reconnaissance and feasibility studies to the construction or expansion of power generation facilities. Projects may involve fossil fuel, wind power, tidal power, geothermal, biomass, hydroelectric, solar or other non-nuclear energy source. -17- Currently, AEA has 35 outstanding loan obligations for just over $34.6 million. The loans vary in terms ranging from 1 year to 35 years, and interest varies from 5% to 9.95%. Borrowers generally are required to make semi-annual payments due on the first of January and July. The schedule below provides a summary of cash sources, uses, and available balance from inception through June 30, 1989. The totals presented below are unaudited and were compiled from AEA's accounting records. Appropriations to the Fund, Inception-to-Date $40,400,000.00 Funds Received through Reimbursable Service Agreements 700,000.00 Less: Appropriations Lapsed Back to the General Fund (2,377,000.00) Net Appropriations to the Fund, Inception to Date $38,723,000.00 Less: Total Loans Committed, as of June 30, 1989 (34,633,029.91) Loans Retired, as of June 30, 1989 (4,000,000.00) Loan Administration Expenses, FY 88 & FY 89 (35,791.52) Available Cash Balance as of June 30, 1989 $ 54,178.57 Bulk Fuel Revolving Loan Fund Under the loan fund's terms as set out in AS 45.87.010-.500, the Bulk Fuel Revolving Loan Fund (BFRLF) is made up of general fund appropriations and repayments of principal. Any repayments of interest associated with BFRLF loans are credited to the State's General Fund. All loans have a one-year term and can be made up for no more than $50,000. Only communities with a population of less than 2,000 are eligible to apply. Loans may be made to private individuals if endorsed by a qualified community. Interest charged on loans varies. The statute allows the rate to be set up to the maximum of the percentage of the average weekly yield of municipal bonds for the 12 months preceding the date of the loan. The schedule below is an analysis of available cash in BFRLF as of August 22, 1989. Appropriations to the Fund, Inception to date $1,974,427 Add: Reserves not involving cash outlay 53,908 Cash available for Loans and Expenses $2,028,335 Less: Loans Outstanding 710,570 Loans Committed, Not Disbursed 682,671 Loan Administration Expenses 145,309 Available Cash Balance as of August 22, 1989 $ 489,785 -18- (Intentionally left blank) -25- UNDERWRITING EXPENDITURES According to an internal memorandum prepared by AEA's senior auditor, the Authority incurred $442,474 in consulting engineer fees for financing which were never obtained. According to the memorandum, in 1983, the Power Authority contracted with R. W. Beck to provide consulting engineering services. One part of the scope of Beck's work was to provide services related to the long-term financing of various Power Authority projects. [Beck was paid] $442,474 for services in this category related to the Four Dam Pool projects for which long-term bond financing was pursued but not placed. The memorandum goes on to point out that through the use of contingency conditions in contracts with financial advisors and bond counsel AEA avoided fees of at least $171,451. Contracts were negotiated with the firms of First Southwest Company, Wohlforth & Flint, and John Nuveen & Co. to provide financial advisor, bond counsel, and underwriter services for the proposed financing of the Four Dam Pool projects. These contracts were contingent upon the amount of bonds actually issued and, accordingly, no payment was made for work on projects for which bonds were not issued. Power authority records indicate that First Southwest and Wohlforth and Flint had accumulated billings of $171,451 associated with financing never pursued. Bradley Lake Long-Term Financing The memorandum further relates to the following discussion of underwriting costs for long-term financing for the Bradley Lake project that has yet to be placed: Variable rate demand bonds were issued in November, 1985 to provide the funds needed during construction [of the Bradley Lake Project]; these bonds will be redeemed with the proceeds of long-term bonds to be issued by completion of the project. As of January 1989, expenditures related to the future issuance of the long-term bonds total $120,721. . . . Additionally in November 1988, a competitive contract was awarded to R. W. Beck to provide services as Consulting Engineer. The contract provides for a maximum of $112,000 to be paid to R.W. Beck. -26- (Intentionally left blank)