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HomeMy WebLinkAboutAEA Board Meeting July 25 2005Would You 4sk thal "vest S(peakecsSpeakeUSoWe..Can Neanm them. had Trobble hearingalk&CegpenlT on-the.Dynte-wie A on Net tame Bene ares Ceperk Go Doecd-Ke needs to socal. Vouden,Vb Lek yes and Mika Vet hin know Be nent thor, v Nenks ie) Alaska Industrial Development and Export Authority Alaska Energy Authority 10. AGENDA ALASKA ENERGY AUTHORITY Board of Directors July 25,2005 Anchorage and Juneau,Alaska CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLLCALL PUBLIC COMMENTS PRIOR MINUTES --June 6,2005 OLD BUSINESS NEW BUSINESS A.Alaska Intertie Update DIRECTOR COMMENTS A.Director's Status Report of AEA Programs and Projects B.Next Meeting Date -Follows AIDEA Board meeting Dates BOARD COMMENTS ADJOURNMENT 813 West Northern Lights Boulevard *Anchorage,Alaska 99503 907 /269-3000 *FAX 907 /269-3044 «Toll Free (ALASKA ONLY)888 /300-8534 *www.aidea.org Alaska Industrial Development and Export Authority Al Alaska Energy Authority ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS July 25,2005,@ 10:50 a.m. Anchorage and Juneau,Alaska 1.CALL TO ORDER Chairman Barry called the meeting of the Alaska Energy Authority to order on July 25,2005,at 10:50 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Mike Barry (Chairman/Public Member),Mr.Mark Davis (Designee for the Department of Commerce,Community and Economic Development),and Mr. John Winther (Public Member). Directors present in Juneau:Deputy Commissioner Tom Boutin (Designee for the Department of Revenue). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ron Miller (Executive Director),Valorie Walker (Deputy Director- Finance),Jim McMillan (Deputy Director-Credit &Business Development),Chris Rutz (Procurement Manager),John Wood (Project Manager),Becky Gay (Project Manager),Bruce Chertkow (Loan Officer),Brenda J.Fuglestad (Administrative Manager),Art Copoulos,(Project Manager),and Bernie Smith (Project Manager). Others attending in Anchorage:Rick Eckert (Homer Electric Association),Henri Dale (Golden Valley Electric Association),Angela Lendt and Ron Saxton (Ater Wynne),Craig Thorne (First National Bank),Jim Posey (Anchorage Municipal Light &Power),Joe Griffith (Chugach Electric), Robert Sheldon (TATICC),Brian Bjorkquist (Department of Law),Bill Noll (Governor's Office),Ken Vassar (Birch Horton Bittner &Cherot),Margie Bauman (Alaska Journal of Commerce),Jim Walker,Don Zoerb,Tuckerman Babcock,Mike Pauley and Wayne Carmony (Matanuska Electric).Jan Sieberts (WCM),Ken Kincaid (Self). Others attending telephonically:Gary Robertson and Mike O'Leary (Callan &Associates), Frank Roppel (Alaska Housing Finance). 4.PUBLIC COMMENTS There were no public comments. 5.PRIOR MINUTES The June 6,2005 minutes were approved as presented. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503 QN7 1960 2NNN ¢FAY ANT /960_2NAA e Tall Fran (AIL ACKA ONIEVS 882 f INALREIA eunana aidasa ara AEA Board Meeting July 25,2005 Meeting Minutes Page 2 6..OLD BUSINESS There was no old business. 7.NEW BUSINESS 7A.Alaska Intertie Update Mr.Ron Miller stated that the general managers of the utilities were invited to discuss the situation regarding the Alaska Intertie Agreement. Chairman Barry stated that one of the items before AEA was a list of outstanding maintenance issues that had been identified by the IOC in October 2002.He stated that the Board was told that all the items on that list still remained and that none had been crossed off.Chairman Barry expressed concern with the lack of progress and concern with the agreement itself because it did not ensure a level of routine maintenance that the Board would like to see in an agreement. Chairman Barry acknowledged that the recent work session with the utilities'general managers was productive. Mr.Bernie Smith stated that the IOC budget had been approved.There were two items that had been debated in detail;one being the SVC's.We have a quote for three (3)SVC's on the Intertie for approximately $1 million each.The budget allows for one and the committee decided to wait to purchase all three SVC's at one time.The other item was regarding tower foundation repairs.It was decided to put only one of those in.The budget came close to exactly what it was in the previous year.There was a work session with the utility company's general managers where they discussed what was to be done about the Intertie Agreement. The general managers decided that the Agreement could and should be amended and suggested that the |OC members get back with the chairman of the IOC and present what they believe are some problems with the Agreement.They would then submit those requests for review. Mr.Brian Bjorkquist addressed Chairman Barry's concerns raised in his opening comments regarding the various types of deferred maintenance.Some of these issues,if any were to happen,could cause some significant disruption to the operation of the Intertie.Mr.Bjorkquist stated that there are foundations that need to be repaired so that the towers do not topple over and that the repairs that are critical for maintaining the operation of the intertie would require approximately $3.7 million dollars to fix.The maintenance repairs have not been done for quite some time because there is not a good mechanism under the Alaska Intertie Agreement to finance them.Mr.Bjorkquist stated that the Intertie Agreement is set up so that budgets are done on an annual basis and in order to do a repair you would have to fit that repair into an annual basis time frame.Mr.Bjorkquist noted that when there is major maintenance that requires a capital cost,putting it into one particular year is problematic because the budget for one year really cannot absorb the entire cost of the necessary repairs.At the work session there was an agreement and a commitment by the general managers to fix the Intertie Agreement so that it will be able to effectively take care of future major maintenance items as they come up.One of the topics discussed was the possibility of creating an R&R Fund.The details of how we are going to address the problem of the Agreement not providing a good mechanism for doing major maintenance will be addressed.Exactly how that's going to happen will require some discussion and negotiation with the utilities to come up with a good and fair solution.Another aspect of the Intertie Agreement that was discussed is that there are provisions that have not been followed and are obsolete.It was agreed that the general managers would address those issues and clean up the Agreement so that it reflects what is AEA Board Meeting July 25,2005 Meeting Minutes Page 3 actually happening and how the Intertie is being managed as opposed to what the original Agreement that dates back to the mid-80's provided.An example of an obsolete item is the Agreement's provision under the budget that the Legislature would appropriate the budget for a fiscal year and then the wheeling rate paid by the utilities would reimburse the state for those expenses;this has not been followed since 1993. Chairman Barry acknowledged that the staff is only reporting essentially on the concerns that the board had raised previously,but that it should be mentioned that during the work session, staff made a commitment to prepare a financing study for the utilities to determine how some of these issues could be paid for and the most efficient way to do that. Public Comments on 7A Mr.Mike Pauley stated that there were a number of concerns in response to the June 24,2005 letter from Executive Director Ron Miller regarding the Alaska Intertie Agreement and that they wished to comment on the workshop that was held here on the same subject.Mr.Pauley said that their senior legal counsel at MEA,Mr.Jim Walker,had prepared a letter that goes into some detail on their concerns with the Intertie Agreement and that he would provide the Board with a copy of that at the conclusion of his comments.He then gave a brief overview of MEA's position. Mr.Pauley stated that MEA's primary concern with the operation of the Intertie relates to the clear public safety hazard posed by unbalanced snow loading on the Intertie conductors.The contractor working with the IOC on this issue,Dryden &LaRue,had previously concluded that the only certain cure for the snow loading problem was to place inset towers in the area where this phenomena is known to occur.Mr.Pauley stated that at the June 9,2005 meeting of the IOC,they learned that Dryden &LaRue had been instructed to cease work on designing the inset towers and they have subsequently learned that there was apparently no formal vote on this matter,the item did not appear in the agenda,and it is not noted in the minutes and that the only certain cure for the snow loading problem has essentially been swept under the rug as a low priority item for a majority of the participants.He said that the area where the low clearance problems occur is an MEA service territory and members of the public face the highest likelihood of death or injury and many recreational trails used by skiers,snow machine riders and dogsled racers run through this area.Mr.Pauley stated that earlier this year MEA was a defendant in a lawsuit that resulted from the electrocution death of a young man who came in contact with one of their lines.They believe that based on the clear language of the Alaska Intertie Agreement,MEA would not be shielded from liability in the event that someone was injured or killed because of sagging lines on the Alaska Intertie. Mr.Pauley said that section 7.4.2 of the Alaska Intertie Agreement gives AEA the authority to make the changes that are necessary to protect public safety,and in section 18.1,AEA has agreed to indemnify the other participants from claims arising from AEA's acts or omissions. With the abandonment of the inset tower project,they can only conclude that AEA and a majority of |OC members are willing to risk public safety by relying on the current load cells and inclinometers.These devices are placed at infrequent intervals along the Intertie and the reliability for detecting clearance problems is highly questionable.They also believe that the IOC has not followed its own procedures that were designed to mitigate the risk to public safety, stating that at the December 8,2004 meeting of the IOC,the committee adopted procedures stating that the Intertie would be inspected for clearance problems whenever more than two (2) inches of snow accumulated during a twenty-four (24)hour period at Susitna High School or Talkeetna Airport.He said that the IOC had stated that if such an inspection could not occur at first light of day following the snowfall and if snow is continuing to fall,the line would be de- AEA Board Meeting July 25,2005 Meeting Minutes Page 4 energized.Based on the record of this last winter they believe that the Intertie operator has failed to consistently implement this protocol and he listed examples of this happening.Mr. Pauley said that this disregard of the most basic and predetermined preventative action makes the risk of punitive damages,in the event someone is injured,a substantial possibility.Mr. Pauley made a couple of additional comments regarding the clearance problems with the Intertie.They believe it is clear that the installation of inset towers is the only certain,effective long-term solution and that the failure to fix the snow loading problems points to deficiencies in the Intertie Agreement.The existing Agreement contains no mechanism for funding major maintenance or upgrade projects.In the absence of a provision for funding capital for improvements and major construction,they believe it is clear that the Intertie Agreement will not function over the long-term.MEA believes that the termination of this defective Agreement is necessary to start the process of eliminating a known threat to public safety and to craft a new Agreement that will insure the long-term reliability of the Intertie.MEA recommends that the Alaska Energy Authority immediately give the forty-eight (48)month notice of termination under section 2.2.3 of the Agreement. Before Mr.Pauley left,Chairman Barry opened the floor for questions and he asked the first one.Chairman Barry asked if this was the first time anybody had heard about this from MEA or did they go to the Intertie Operating Committee meeting and lay that issue on the table;where it probably should be dealt with first? Mr.Pauley's reply was that he knew that they had a substantial paper trail indicating occasions where they have brought that up.Their representative who attends the IOC meetings was not here today but they can get back to the Board about the particular times that they brought that to people's attention. Chairman Barry commented that the 1OC has a policy now of recording their minutes and AEA's board has a policy of receiving those minutes so that we can monitor it directly and that he would appreciate if they could make sure that in the future any problems that they have with the operation,go first to the IOC.Chairman Barry then asked if there were any other questions of Mr.Pauley from the Board.There was no more public testimony and the Board did not have any questions of the staff.Chairman Barry expressed that the board is very encouraged by the commitment made by the general managers to review the Agreement and correct the outstanding elements in the Agreement and suggested they allow those general managers to perform under that commitment,have AEA's staff to monitor the progress and to come back to the board at the next meeting with a report. Mr.John Winther questioned if we are we looking at some time to be able to get a working Agreement in place or if this is going to be a meeting-by-meeting situation that develops over a long period of time or whether the board is going to consider the recommendation that we do a forty-eight (48)month termination. Mr.Brian Bjorkquist replied that his perception of how we are going to proceed is going to be basically on a two (2)path track.One is to address the major maintenance issue dealing with the Alaska Intertie and dealing with that on a financing type basis.The second track is going to be to cure the Interties so that these types of situations do not arise in the future.He stated that there may be different time frames for the two and that he thinks that there was a commitment made by the Chairman that within a couple of weeks AEA would get together and have some financing options to take care of the immediate major maintenance issues.Mr.Bjorkquist felt that it should be reflected,for the record,that the IOC is contemplating that there will be a third party independent engineer taking a look at whatever solution there is (regarding the snow load problem)to make sure that it does fit the definition of prudent utility practices and accomplishes AEA Board Meeting July 25,2005 Meeting Minutes Page 5 a level of safety that everyone would agree needs to be done on the Intertie.He stated that there are many ways to take care of a problem and the solution that MEA suggested was a capital project of approximately $32 million which basically price the Intertie out of the market. He wanted to make sure the record reflects that the 1OC in moving forward with their proposal to have an independent engineer look at those type of safety issues to insure that good utility practices are being followed. Chairman Barry stated that we will be getting a report from staff as to the progress,or lack thereof,at every board meeting until there is a final resolution. Mr.John Winther expressed his concern that the state of Alaska has millions of dollars in this asset and that we need keep that asset a valuable asset.He does not believe that the state's money has been very well protected so far because it has not had the proper maintenance.His interest is seeing this done post haste. Chairman Barry expressed to those of the Board who were not present at the work session that there certainly is a different viewpoint presented by the Railbelt Utilities than the one Matanuska Electric has to the dire straits of the Intertie.He stated that they will have a transcript of Friday's work session and the IOC meeting sent to the Board within the next few days. Mr.Ron Miller stated that members of the IOC have already begun email communications among themselves to exchange information on what they perceive as needed changes to the Intertie Operating Agreement. 8A.DIRECTORS COMMENTS Mr.Miller informed the Board that AEA's website has been reconstructed and the new address is www.akenergyauthority.org Mr.Miller also expressed his regrets to the Board that Art Copoulos,who has been a key staff member on numerous projects,has resigned from the Authority.The Board and staff wished Mr. Copoulos well in his future endeavors. 8B.NEXT MEETING DATES Chairman Barry stated the next meeting date would be Monday,August 8,2005 immediately following the AIDEA Board Meeting. 9.BOARD COMMENTS There were no board comments. 10.ADJOURNMENT Chairfnan Barry adjourned the meeting at 11:23 a.m. -_ Ron Millet/Secretary Matanuska Electric Association,Inc. P.O.Box 2929 Palmer,Alaska 99645-2929 Telephone:(907)745-3231 Fax:(907)761-9368 Synergy Works. July 25,2005 Ronald W.Miller Executive Director _Alaska Energy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Mr.Miller: |have reviewed the July 6,2005 letter to you regarding the Alaska Intertie (Intertie)from Chugach Electric Association,Inc.(Chugach),the Municipality of Anchorage d/b/a Municipal Light and Power (ML&P),and Golden Valley Electric Association,Inc.(GVEA), and attended the July 22,2005 workshop held at their request.|am writing to express MEA's disagreement with several statements made by these utilities.As maintenance contractor,owner of one segment of the Intertie,and ultimate recipient of firm power transmitted on that line,MEA is at least as interested in the reliable operation of the Intertie as Chugach,ML&P or GVEA,and obviously more interested in the safe operation of this line,especially where it goes through our service territory and clearance problems are known to exist. In their July 6 letter,the three utilities emphasize that the Intertie Operating Committee (l1OC)has kept down operating costs.However,they fail to acknowledge their consistent refusal to insist that the known safety problems related to excessive line sag during certain snow loading conditions be corrected,when prudent utility practice and public safety considerations requires such action. The July 22,2005 suggestion by ML&P's General Manager that we solve this problem by fencing off the Intertie corridor shows the lack of serious consideration that this safety issue has received.An easement holder simply cannot fence off an easement to "prevent use of the surface estate by the owner of that estate.Some of the Initertie crosses private lands,and there would undoubtedly be significant costs involved with purchasing fee title to those lands before a fence could be built.Much of the Intertie crosses public lands,and there would certainly have to be a significant public process before this fencing option could be approved. This failure to seriously consider public safety was also evident at the June 9,2005 IOC meeting held at AEA's office,where it was announced by Mr.Henri Dale (GVEA)that the firm of Dryden &LaRue had been instructed to cease work on designing the inset towers.This action was taken despite Mr.LaRue's previous finding that these inset towers were the only certain cure for the unbalanced snow loading problem.Under Ronald W.Miller July 25,2005 Page 2 Section 9.1.2 of the Alaska Intertie Agreement,and the protocols adopted by the lOC pursuant to that Section,an action of this magnitude should have been placed on a meeting agenda,giving Participants advance notice it would be discussed.MEA is aware of no evidence that the decision to abandon this public safety project was properly adopted in accordance with the requirements of the Alaska Intertie Agreement.'It was simply swept under the rug as unimportant. It has long been known to AEA and all members of the IOC that the Alaska Intertie is designed in such a way that unbalanced snow loading on Intertie conductors results in excessive sagging that brings the line down to levels where contact with persons and equipment under the line is a reasonably foreseeable hazard.From the decision inStatev.Sanders'it is apparent that State ownership of the Alaska Intertie does not shield AEA from liability in the event a person is injured as a result of this known hazard. AEA can be held liable for such injury because Section 7.4.2 of the Alaska Intertie Agreement gives AEA authority to make the changes required to protect the public from this hazard.Under Section 18.1 of the Alaska Intertie Agreement,AEA has agreed to indemnify the other Participants from all claims arising from AEA's acts and omissions. AEG&T has repeatedly requested implementation of the inset tower cure for the unbalanced snow loading design problem.The failure of AEA under the current Agreement to provide any mechanism for timely construction of this necessary safety upgrade cannot be blamed on a lack of knowledge.It is unclear whether adequate disclosure of this unbalanced snow loading issue has been made to the IOC's insurance carrier,and whether a failure to adequately disclose such information could result in loss of coverage in the event of a tragic accident. Now that the inset tower project has been abandoned,one can only conclude that AEA and a majority on the [OC are willing to risk public safety by continuing reliance on thecurrent"load cells and inclinometers'.2 MEA does not believe that this decision is consistent with prudent utility practice.There is one load cell/inclinometer installation per span located approximately every ten towers through the area where potential snow loading problems have been identified.These devices are on alternating phases so that 'At the July 21,2005 IOC meeting,Mr.Dale acknowledged that there was no formal vote taken on this issue.Mr.Dale indicated that Dryden &LaRue had been informally instructed that other work within the scope of their contract with AEA was of higher priority than the inset tower design.This instruction effectively precluded Dryden &LaRue from being able to continue work on the inset tower design due to funding limitations in the contract.*944 P.2d 453 (Alaska,1997)3 The segment of the Alaska Intertie between MEA's Douglas Substation and the Intertie Midpoint,where unbalanced snow loading has resulted in clearance problems,was designed and constructed for operation at 345,000 volts.In this segment,each of the three phases consists of two individual conductors bundled together in a manner that allows more snow and ice to accumulate on the conductors than would normally occur if just one conductor were used.The IOC previously authorized installation of load cells, inclinometers,and related communications equipment on individual phases at certain towers.The purpose of these devices is to measure the sag and line clearance,and to communicate this information to ML&P dispatch.It was anticipated that when ML&P dispatch received an alarm indicating that line loads or sag certain designated levels;dispatch could presume ground clearance was inadequate and would de-energizetheline.So far,to MEA's knowledge,these devices have never resulted in the Intertie being de-energized. Ronald W.Miller July 25,2005 Page 3 any given phase is only monitored every thirty towers (or roughly once every seven miles).This is clearly inadequate coverage given the variations in local conditions that can be found along the Alaska Intertie in the affected area.Further,these devices have never been calibrated to observed ground clearances during actual snow loading conditions.MEA has no confidence that these devices provide any information relevant to the identification and remediation of ground clearance problems during periods of differential snow loading. As owner of a transmission line energized at 138,000 volts,AEA has a legal obligation to isolate that line,either through insulation or through distance,from persons who couldcomeintocontactwithit.The Alaska Supreme Court has clearly followed the common law adopted in other states in imposing this duty on the owners of lines carrying electricenergy.”The Alaska Supreme Court has also held that members of the public are notpresumedtoknowthelevelofdangerrepresentedbyanelectricline.®This is particularly important in the case of a line energized at 138,000 volts where a person does not have to actually touch the line in order to be seriously injured or killed by anelectricarc.' Under common law,it is generally held that:"Where the circumstances are such that the probability of danger to persons having a right to be near an electrical line is reasonably foreseeable,power companies have often been held liable for injury or death resulting from contact between the powerline and a movable machine.Power companies must anticipate and guard against events which may reasonably be expectedtooccur,and the failure to do so is negligence.”It has also been held that with regard to electric lines:"When human life is at stake,the rule of due care and diligence requires everything that gives reasonable promise of its preservation to be done,regardless of difficulties or expense.”® It cannot be disputed that the general public uses the Alaska Intertie corridor and surrounding lands for recreational purposes in the winter when snow is on the ground and on the lines.Nor can it be disputed that the public has the legal right to occupy and use these public lands in this manner.Based upon presentations by Mr.LaRue,MEA has concluded that clearances of sixteen feet or less will periodically occur during most years at some point on the line.It is reasonably foreseeable that persons will come *See,Larman v.Kodiak Electric Association,Inc.,514 P.2 1275,1279-1280 (Alaska,1973).°In the Larman decision cited above,the Alaska Supreme Court specifically adopted the standard set forth by the California Supreme Court in Polk v.City of Los Angeles,26 Cal.2d 519,159 P.2d 931,934 (1945). However,the Alaska Court also cited to comparable decisions by courts in Maryland,New Mexico,and Virginia,and the cases cited to by those courts in support of its decision.The Polk decision has also been cited to as persuasive authority by courts in Arizona,Missouri,Nevada,New York,North Dakota and Utah,and in conjunction with decisions from other states on this issue it is clear that the rule stated therein is very nearly a national standard.5 See,Ferriss v.Chugach Electric Association,Inc.,557 P.2d 763,769 (Alaska,1976)7 In the case Mansfield v.Union 76 Division of Union Oil Co.of California,532 F.2d 446,448 (5"Cir., 1976)the federal court accepted as correct a formula that would tend to show that an arc from a line energized at 138,000 volts would be sufficient to kill a person at a distance of nearly four feet from the line.8 Tiede v.Loup Power District,411 N.W.2d 312,317 (Neb.,1987)*Ashby v.Philadelphia Electric Co.,195 A.887,889 (Pa.,1936) Ronald W.Miller July 25,2005 Page 4 dangerously close to the Intertie conductors when the combination of excessive conductor sag and deep snow cover reduce clearance to sixteen feet or less. AEA has a legal obligation to cure this problem.The risk of injury or death to members of the general public is reasonably foreseeable.Abandonment of the only cure found certain by Mr.LaRue would make liability clear in the event of a tragic accident. The IOC determined on December 8,2004 that inspection of the Intertie for clearance problems would occur whenever more than two inches of snow accumulation during a 24-hour period was reported at Susitna Valley High School or the Talkeetna Airport.The 1OC further decided that the line was to be de-energized if such inspection could not be conducted at first light of the day following the over two inch snow accumulation and it was continuing to snow.This was determined by the IOC to be a prudent measure to mitigate the risk of harm to the public caused by the differential snow loading problem ontheIntertie."°This would reduce the risk of electrocution,but would have no affect on the risk of blunt trauma types of injury from collision with the de-energized line. Unfortunately,based on the record from the 2004-2005 winter,"'the Intertie operator has failed to consistently implement the December 8,2004 protocol.For example,the only patrol effort accomplished in April 2005 was a partial patrol of the affected area performed on April 20,2005.According to the snow fall records,more than two inches of snow fell at Susitna Valley High School on April 16,on April 17,and again on April 18 when accumulated snow levels hit a seasonal high of 52 inches.By April 20,2005 when the partial patrol was accomplished,almost 10 inches of this accumulated snow had already melted and this untimely patrol could not possibly have determined if the public had been at risk. Under the IOC's protocol,the Intertie should have been de-energized from April 17 through April 20,but that did not happen.The snow records show that for the winter of 2004-2005,after December 8,2004,there were at least 12 days in which over two inches of snow fell at Susitna Valley High School.The IOC's contractor only performedfivepartialpatrolsandfourcompletepatrolsduringthistimeperiod.'*This blatant disregard of the most basic,and predetermined,preventative action makes the risk of punitive damages in the event somebody is injured a substantial possibility. The failure to perform these inspections by the IOC does not relieve AEA from its obligations to protect the public from accidental contact with this line energized at 138,000 volts,given the fact that AEA is aware that the IOC is not enforcing its own '°Owners of electric lines have a legal duty to inspect those lines to ensure that insulation through isolation is maintained.See e.g.,Fleniken,IJ v.Entergy Corp.,780 So.2d 1175,1186 (La.App.,2001)."'According to the records posted at http://ambcs.org/DataPlotter.htm there were at least twelve 24-hour periods in which more than two inches of snow fell at Susitna Valley High School between December 8, 2004 and April 19,2005,with additional snow fall the next day.'2 One of the four complete patrols was completed on March 1,2005.Susitna Valley High School had reported no new snow accumulation for over a week as of that date,and thus presumably that patrol was triggered by conditions at Talkeetna Airport.Effectively,only three complete patrols appear to have been performed in response to the twelve triggering events at Susitna Valley High School. Ronald W.Miller July 25,2005 Page 5 policy decisions.Even if the December 8,2004 protocol were enforced,de-energization does not reduce the risk of blunt force trauma.The only comprehensive solution requires the use of inset towers. Under Section 10.3.4 of the Agreement,an Intertie construction project cannot be undertaken absent unanimous consent of all parties.As was acknowledged at the July 22 meeting,the current Iintertie Agreement includes no mechanism for funding major maintenance or upgrade projects.Given the inequitable allocation of costs under the Agreement,an example of which is discussed below,it is unlikely that unanimous consent for any significant construction project will be achievable unless the cost allocation methodology is significantly modified.Such modification would also require unanimous consent under Article 26 of the Agreement.Contrary to the assertions of Mr.Ron Saxton,attorney for some of the Participants,'*at the July 22,2005 meeting,this is not a minor and non-controversial matter that can be easily remedied with a minor modification to the Agreement.In the absence of provisions for funding capital improvements and major construction projects,it is clear that the Intertie Agreement will not function over the long term. A budget proposal was submitted to the IOC for the first time on July 13,2005 for the 2006 fiscal year that began July 1,2005.The functional inadequacy of the Alaska Intertie Agreement is readily apparent from the untimely submittal of this proposal. Section 8.1.3 of the Agreement states in relevant part that: The preliminary Intertie budget shall be provided to the Participants 13 months before the first day of the budget fiscal year for their review and comment.Written comments of the Participants shall be submitted toAPAbyJuly15"of the year preceding the budget fiscal year. The preliminary budget first presented on July 13,2005 could not,under Section 8.1.3 of the Agreement,be adopted for the fiscal year that began two weeks prior to that date. Under this contract,it could not even be adopted for the fiscal year that will begin on July 1,2006.As noted by AEA Board Chair Mike Barry on June 22,2005,these budgetary provisions of the Alaska Intertie Agreement are not being followed by the Participants. Under the Agreement the Intertie will be operated during the next two years without anapprovedbudgetformajorconstructionactivities.'* The budget proposed on July 13,2005 appeared to assume that AEA would fund the proposed fiscal year 2006 construction projects and recover its funds through wheeling charges.This effectively requires AIDEA to provide an interest free loan to the Intertie, since there has been no notice of debt encumbrance as required by Section 2.2.3 of the Intertie Agreement,and there is no provision in the Agreement allowing AEA to charge 'S Mr,Saxton does not represent MEA's interests in any matters.'4 At the July 21,2005 IOC meeting,there was substantial question raised about the need for upgrading the SVC infrastructure,and some of the tower repair work initially included in the July 13 budget proposal no longer appears necessary.Even if these current issues are resolved without construction,the need for longer term capital project study,planning,and funding for the Intertie is clearly evident,and not provided for under the Intertie Agreement. Ronald W.Miller July 25,2005 Page 6 Participants interest on AEA funds expended on the Intertie.As also noted by Mr.Barry, AEA does not have a source of capital available to fund major Intertie maintenance and upgrade projects,and thus these projects will never get funded under the current Agreement absent unanimous agreement among the Participants. MEA believes that during the 48 month period before AEA can impose new terms for using the Intertie,public safety concerns should outweigh fiscal concerns.AEA must, pursuant to Section 10.2.1 of the Agreement and the policies adopted by the IOC on December 8,2004,require that the Intertie be de-energized whenever more than two inches of new snow is reported at Talkeetna Airport or Susitna Valley High School,it is continuing to snow in those areas,and an inspection patrol is not initiated at first light following the more than two-inch accumulation of new snow.The Intertie must then remain de-energized until such time as a thorough patrol of the line for ground clearance inadequacies has been initiated.As you know we have also made an effort to inform the public of the risk of harm from this line.MEA has done what it can to protect the public. Now it is AEA's turn. MEA believes that termination of this Agreement is necessary to start the process of eliminating a known threat to public safety and to ensure long-term Intertie reliability. Under AS 44.83.090,any new agreement for use of the Intertie will necessarily have to address these funding issues.Accordingly,MEA recommends that AEA immediately give the 48 month notice of termination under Section 2.2.3 of the Agreement. The IOC has failed to adequately deal with these significant public safety issues,and apparently has no interest in timely dealing with them.It is time to present these issues to AEA's Board of Directors with a recommendation to terminate the Alaska Intertie Agreement,so that these public safety issues can finally receive the meaningful attention and resolution they deserve.MEA believes that immediate termination of the current Agreement is the only path towards creation of a safe Intertie. 7Mlb James L.Walker Senior Counsel Sincerely, CC:Alaska Energy Authority Directors C:\Documents and Settings\vanval_],LMATANUSKA\My Documents\ADMIN\Legal\Ltrs\Alaska Energy Authority\Miller re load cells.doc ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS June 6,2005,@ 12:20 p.m. Anchorage and Juneau,Alaska 1.CALL TO ORDER Chairman Barry called the meeting of the Alaska Energy Authority to order on June 6,2005,at 12:20 p.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Mike Barry (Chairman/Public Member),Mr.John Winther (Public Member),and Al Clough (Designee for the Department of Commerce,Community and Economic Development). Directors present in Juneau:Deputy Commissioner Tom Boutin (Designee for the Department of Revenue),and Commissioner Mike Barton (Department of Transportation and Public Facilities). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ronald W.Miller (Executive Director),James A.McMillan (Deputy Director-Credit &Business Development),Valorie Walker (Deputy Director-Finance),Mike Harper (Deputy Director-Rural Energy),Sara Fisher-Goad (AIDEA),Becky Gay (Project Manager),Art Copoulos (Project Manager),Bernie Smith (Project Manager),and Brenda J.Fuglestad (Administrative Manager). Others attending in Anchorage:Brian Bjorkquist and Mike Mitchell (Department of Law),Richard Richtmyer (Anchorage Daily News),Sean Doogan (KTUU),and Margie Bauman (Alaska Journal of Commerce). 4.PUBLIC COMMENTS There were no public comments. 5.PRIOR MINUTES The March 29,2005 AEA board minutes were approved as presented. 6.OLD BUSINESS There was no old business. AEA Board Meeting June 6,2005 Meeting Minutes Page 2 7.NEW BUSINESS 7A.Rural Energy Action Counsel Update Mike Harper stated that the counsel met and issued a report on April 15,2005.A summary was included with the reading materials and the board members had been sent copies of the full report.The counsel was asked by the Governor to look at the situation in rural Alaska and come up with recommendations that could be implemented in the short-term with regard to improving conditions there in terms of energy and access to energy and low-cost alternatives. Mr.Harper summarized this report in stating his list of eleven recommendations;the first and foremost being the full funding of power cost equalization and to fore-fund the PCE Endowment. Other recommendations deal with alternative energy and energy conservation measures.The notion was to increase the limit of that fund which is capped at $300,000.00.Time was spent on how to put co-ops together or try to take advantage of the economies of scale in terms of trying to bring down the costs of diesel.A group called RAFS was formed by the Denali Commission. The Governor's office,with Commissioner Blatchford and Al Clough,put together a bridge loan program for people not qualified to get loans through the revolving loan fund. Mr.Harper noted that they talked about alternatives such as coal and in-stream generators that APT is looking at in Eagle,Alaska.There was discussion of a program called Y.E.for Low Income Home Energy Assistance.This program provides individual grants for low income people.It has about $9 million annually,$6 million through the state,$3 million through native organizations.There were other recommendations (long-term in nature)such as setting up regional energy centers at rural campuses for the University of Alaska,anticipating moving the information from central offices in Anchorage and Juneau out to the hubs,and hopefully to the smaller communities where they can use this information. Chairman Barry expressed the need to coordinate between Alaska Housing Finance Corporation,the Denali Commission,and AEA so that the maximum benefit from manpower gets out to the rural areas. In response to Board questions,Mr.Harper stated that the governor requested co-funding and the legislature gave the PCE program $3 million more than normal;which places the program atapproximately$18.7 million. Mr.Harper said that immediately after this report came out,there was activity in the legislature about the bulk fuel revolving loan fund but it was decided to pull back and take a look as to what the actual need is for that fund before taking any action.There have also been activities at the federal level which resulted from this report being published. 8A.DIRECTORS COMMENTS Executive Session Mr.Bjorkquist stated that there is proprietary information,strategy,financial,and contractual matters to discuss related to the possible selling of AEA assets.Under the open meetings act a body,such as the AEA Board,can go into executive session for matters the immediate knowledge of which would clearly have an adverse affect on the finances of AEA.The appropriate procedure for doing that is to have a Board member make a motion to go into executive session for that purpose and to vote on that motion. AEA Board Meeting June 6,2005 Meeting Minutes Page 3 MOTION:Commissioner Boutin moved to go into executive session to discuss proprietary information,strategy,financial,and contractual matters related to the possible selling of AEA assets.Seconded by Mr.Winther.There being no discussion, the question was called.A roll call vote was taken and the motion passed with Messrs. Barry,Boutin,Winther,and Barton voting yea;Commissioner Blatchford was absent. EXECUTIVE SESSION:12:33 p.m. The Board reconvened its regular meeting at 1:07 p.m. The Board did not take any formal action on the matters discussed while in Executive Session. 8B.NEXT MEETING DATES Chairman Barry stated the next meeting date would be Monday,July 25,2005. 9.BOARD COMMENTS There were no board comments. 10.ADJOURNMENT Chairman Barry adjourned the meeting at 1:08 p.m. Ron Miller,Secretary Alaska Industrial Development and Export Authority Alaska Energy Authority Confidential - Attorney Client Communication MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Ron Miller Executive Director DATE:July 25,2005 SUBJECT:Alaska Intertie This agenda item stemmed from the executive session discussion at the last AEA Board meeting on June 6,2005.The confidential information reviewed by the Board for that meeting is attached to this memorandum. As directed by the Board,AEA invited the General Managers (GM's)of all rail belt utilities to discuss problems with the Alaska Intertie at this Board meeting.Some of those GM's requested a work session with AEA staff prior to the Board meeting.That session was scheduled for 10:00AM on Friday,July 22.The results of that meeting will be given to the Board prior to this board meeting. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503ONTNEOINAN2TCAVANTIPAFOINAAWTADLPATACIZAPNRIINNTANTANNANEN of Alaska Industrial Development and Export Authority Alaska Energy Authority Confidential - Attorney Client Communication MEMORANDUM TO:Board of Dir Alaska Ener FROM:Ron Miller | Executive DATE:June 6,2005 SUBJ ECT:Alaska Intertie Attached are memoranda that provide an overview of problems and Alaska Energy Authority (AEA)liabilities associated with the Alaska Intertie (aka Anchorage-FairbanksIntertie).These memoranda will be discussed during an executive session on Monday,June 6". The Intertie is a 170-mile,345kV transmission line running between Willow and Healy. The Intertie was built in the mid-1980's with $125 million in State appropriations and it allows Golden Valley Electric Association in Fairbanks to purchase electricity from Chugach Electric,Municipal Light &Power,and the Bradley Lake Hydroelectric Project. AEA owns the Intertie but the operation and maintenance duties are overseen by the Intertie Operating Committee (IOC)which includes AEA as a member. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503RASTARRANMannebarnnnaarineearsaPRIAAARPANNNEN.:oor. Confidential - Attorney Client Communication Alaska Intertie Problems Issue:List and describe problems associated with the Alaska Intertie,with a particular focus upon identifying potential grounds for terminating the Alaska Intertie Agreement (sometimes,"AIA”'). Terminating,or threatening to terminate,the Alaska Intertie Agreement may be necessary to substantively correct problem areas.Railbelt Utilities have previously observed problems with the Alaska Intertie and related agreements.For example,Exhibit A is a 2002 proposal from Chugach Electric Association regarding possible areas to amend the Alaska Intertie Agreement.The conventional wisdom amongst Railbelt Utilities, however,is that the Agreement cannot be opened for re-negotiation as each utility would bring their individual grievances,which usually conflict with the interests of other utilities.Amendments to the Agreement would also require unanimous consent.So, while Railbelt Utilities agree that the Alaska Intertie Agreement contains defects,there is no apparent will to implement corrections. Termination Provision:Section 2.2.2 of the Alaska Intertie Agreement provides,in part: [AEA]may terminate this Agreement by giving at least 48 months advance written notice when [AEA]determines such action to be required to improve Power systems serving the Alaska Railbelt Utilities.(emphasis added) The Alaska Intertie Agreement does not define nor limit what constitutes "Power systems serving the Alaska Railbelt Utilities.”"Power”is defined to mean "electric Energy, usually expressed in kilowatts.” Alaska Intertie Problems: 1.Funding Capital Repairs/Improvements. The Alaska Intertie Agreement does not provide for an R&R Fund,or other mechanisms to collect sufficient funds for necessary capital repairs and improvements.The potential funding mechanisms in the Agreement are somewhat awkward to implement,and will always require the cooperation of the Participating Utilities --something that is frequently hard to obtain. The capital funding difficulty arises,in part,because the state no longer funds the Alaska Intertie operations as originally envisioned (and as the Agreement provides).Under the Agreement,AEA develops an operations and maintenance budget and schedule (AIA 8.1.3 and 10.3),obtains a legislative appropriation to cover the expenses (AIA 10.3.6), and then the Utilities repays the appropriated amounts through intertie fees (AIA 8.4). Page I 6/3/2005 Confidential - Attorney Client Communication AEA has some ability to incur debt (AIA 8.1.1.and 8.1.3),which then becomes reimbursable by Utilities through intertie fees (AIA 8.4).This ability to incur debt, however,is limited.First,Participating Utilities may elect to end their participation within 30 days after AEA gives notice that it will incur debt repayable through intertie fees (AIA 2.2.3).Second,the ability to incur debt is limited by uncertainties surrounding anticipated intertie revenues,particularly as the legislature no longer appropriates amounts for annual operating expenses. The immediate problem this creates is that two necessary intertie capital projects have been approved by the IOC,but without any identified funding.(SVC upgrades and tower foundation repairs,each of which is described in Exhibit B). The IOC plan,dating back to October 2003,had been to fund these together with a snow- load inset tower project (described in Exhibit C).To address intertie revenue uncertainties,GVEA,Chugach and ML&P agreed to guarantee repayment of revenue bonds AEA agreed to issue,using a model similar to Bradley Lake Hydropower Project. The IOC is expected to implement an alternative solution to the snow-load inset tower project (see discussion below).Removal of that project will likely make issuing AEA revenue bonds cost ineffective. We do not know how the IOC will fund the necessary SVC upgrades and tower foundation repairs. Even if the IOC finds funding for the immediate capital needs,the Agreement will still not address additional future capital needs that inevitably will arise. 2.Disincentives to Approving Capital Improvements/modifications. The Alaska Intertie Agreement implements awkward procedures for parties to recommend and implement improvements to the intertie. First,whoever recommends a capital improvement is made solely responsible for the costs of the improvement unless the IOC determines in advance that the modifications are of direct benefit to the Participants.(AIA 7.4)This provision makes it difficult to implement any modifications,even ones that would significantly improve Intertie operations.AEA (and Participating Utilities)simply must be careful to first have IOC support before recommending a project. Second,if AEA incurs a debt reimbursable by intertie fees to cover the costs of a modification or improvement,every Participating Utility may terminate their participation in the Alaska Intertie Agreement within 30 days.(AIA 2.2.3).Any proposed capital improvement to be funded via debt financing,therefore,becomes an opportunity for every Railbelt Utility to terminate their participation with the Alaska Intertie Agreement. Page 2 6/3/2005 Confidential - Attorney Client Communication 3.Provisions of Alaska Intertie Agreement are Not Followed. Certain provisions within the Alaska Intertie Agreement have been ignored or simply not followed,including: a.No AEA Board approval of Alaska Intertie annual budgets.(AIA 8.1.3).Instead,the IOC informally approves the annual budgets. b.No legislative appropriation of Alaska Intertie annual budgets (AIA 10.3.6). 4.Spinning and Non-spinning Reserve Allocations Addendum 1 to the Alaska Intertie Agreement is a separate agreement,solely between the Participating Utilities,requiring each utility to provide certain minimum reserve requirements,including spinning and non-spinning reserves,or alternatively to implement a load shedding program in lieu of maintaining minimum reserves. Addendum 1 appears to be the only agreement between the Railbelt utilities related to maintaining spinning and non-spinning reserves that are necessary to maintain the reliability of the interconnected systems of each utility,even though that agreement has little direct bearing on operation of the Alaska Intertie itself. Under the Alaska Intertie Agreement,any utility desiring to become a Participating Utility that may use the Alaska Intertie must become subject to the reserve requirements of Addendum 1. Certain utilities have suggested that the calculation of required spinning and non-spinning reserves are unfairly allocated.The Addendum requires each utility to maintain spinning reserves equal based upon a formula the utility's largest on-line generation unit.(AIA Addendum 1,B-2.3).This formula therefor tends to favor utilities that have a greater number of generating units,as their largest unit will be a smaller percentage of their total generating capacity in comparison to a utility with fewer generating units.(E.g.,a utility with one generating unit would have its spinning reserve requirement calculated based upon 100%of its total generating capacity,while a utility with 5 equally sized generating units would have its spinning reserve requirement calculated based upon 20%of its total generating capacity). While certain utilities have complained about the allocation,the reluctance of Railbelt Utilities to re-open negotiations on the Alaska Intertie Agreement has precluded adjustments to the formula. 5.MEA-TLS and Bypass Project The Railbelt Utilities have yet to make much progress implementing a long-term resolution related to the 19 mile transmission line owned by MEA (i.e.,the MEA-TLS). This 19 mile transmission line is currently integrated into the Alaska Intertie --without that line,there would be a 19 mile gap in the Alaska Intertie. Page 3 6/3/2005 Confidential - Attorney Client Communication Prior to July 1,2004,the MEA-TLS was part of the Alaska Intertie under a contract between MEA and AEA.From and after July 1,2004,the MEA-TLS has continued to be used in conjunction with the Alaska Intertie,but the relationship is now between MEA and the other Railbelt Utilities. The Regulatory Commission of Alaska ordered joint use and interconnection of the MEA-TLS in December 2004.Under that order,the Railbelt Utilities may continue to use the MEA-TLS as part of transmitting power over the Alaska Intertie,under terms and conditions the RCA imposed,until MEA has another use for the line.MEA did not contemplate another use for the line until at least 2014 when MEA's all requirements contract with Chugach Electric Association expires and MEA might generate and transmit its own power over the MEA-TLS. The longer-term solution is the bypass project.The Alaska Legislature appropriated approximately $20 million to AEA,primarily for construction of another transmission line to incorporate into the Alaska Intertie and replace (i.e.,bypass)the MEA-TLS. The Railbelt Utilities desired to manage the construction contract,and in exchange agreed to assume financial responsibility for cost overruns.Progress,however,has been slow.AEA in March 2005 provided the Railbelt Utilities with a draft construction agreement,under which Municipal Light and Power would take the lead in constructing the bypass project.In mid-May 2005,ML&P requested a electronic version of the draft construction agreement to recommend changes.AEA has not heard anything further.» 6.Uneven Snow-Loading Problems Operational safety problems associated with uneven snow-loading conditions are described in Exhibit C.The basic problem is that when snow accumulates on the intertie line,it can cause the line to sag.If the snow accumulates in an uneven fashion (e.g.,all of the weight accumulates between two towers in an area,which may happen when snow is falling off the line in an uneven fashion),then the line may sag low enough to create a safety concern. It is anticipated that the IOC will initiate several actions to address the safety concerns. The IOC is expected to adopt at its June 9,2005,meeting new operating procedures that will immediately implement safe operations in uneven snow-loading conditions.The IOC is also expected to explore additional operational procedures and capital improvements that can further provide for safe operations under uneven snow-loading conditions;and to engage an engineer to review all of these procedures to evaluate and opine upon whether these improvements provide for safe and responsible operations that are also consistent with prudent utility practices. Page 4 6/3/2005 Confidential - Attorney Client Communication Exhibit A CEA PROPOSAL TO IOC Background Agreement was implemented in the mid 1980's when the State Legislature appropriated money to operate the Intertie and the Utility Participants reimbursed the State for expenses.The Agreement was also written to prevent any excess funds from reverting to the State general fund.Several provisions are no longer being applied because the situation has changed and the Utility Participants fund all expenses. Proposed Changes Delete section 2.2.3,which allowed any Participant to terminate its participation within 30 days of AEA issuing any debt for the project and add a provision that requires 1OC approval in advance of any debt for repairs or enhancements to the intertie. Add to section 8.1 a provision for a maintenance reserve fund. Rewrite section 8.1.3 detailing the budget process.The 13-month process and approval by the AEA Board is not being followed.Approval by the IOC prior to the start of the FY should be adequate. Rewrite section 8.2.2 to use a multi-year average but not less than 30%of capacity as the annual energy usage estimate. Possibly revise section 8.2.5,energy rate,but retain the 83.5%allocation to energy. Rewrite section 8.4.5 to put year-end surplus (revenue minus expenses)into the maintenance reserve fund. Rewrite section 8.4.6 to fund year-end shortfalls (expenses minus revenue)from the maintenance reserve fund unless the fund drops below some floor in which case the shortfall would be assessed on the basis of MITCR. Add section 9.1.3 giving lOC budget approval authority. Delete or rewrite section 10.3,Budget for Operation of the Intertie,to eliminate the fixed costs for operators:Any new section should reflect actual practice.Steps outlined have not been followed since AEA succeeded APA. Page 5 6/3/2005 Confidential - Attorney Client Communication Exhibit B TO:Ron Miller Executive Director FROM:Art Copoulos Project Manager DATE:October 21,2003 SUBJECT:Alaska Intertie Problems An Intertie Operating Committee (IOC)technical subcommittee,in its "Alaska Intertie Upgrade Report”for the IOC dated October 2002,identified several significant problems on the Alaska Intertie,including problems related to SVC repairs,Tower foundations, and Intertie Snow Loading.[Portions of memorandum related to snow-load and Matanuska Electric Association terminating their maintenance contract have been deleted.]A summary of these specific problems areas is as follows: SVC repairs: The 3 existing SVC's on the Alaska Intertie are in need of replacement parts and many of those parts are no longer manufactured or are difficult to locate.A recent study by Electric Power Systems (EPS)indicated that due to their obsolescence,obtaining necessary spare parts for the SVCs could cost approximately $500,000.00.Intertie downtime or operation at a reduced operating capacity while needed parts are reverse engineered could also be incurred.This problem has been understood for a number of years and the magnitude of the spare parts issue was recently quantified with the EPS study.As an alternative,ABB recently completed a budgetary proposal for various upgrade options on these SVCs. On October 14",2003,the IOC Maintenance subcommittee asked that ABB update their previous proposal with the intention of recommending to proceed with annual controls only retrofits on the SVC's,providing acceptable terms can be arranged.On October16",2003,the IOC passed the following motion:"The l1OC endorses the maintenance subcommittees recommendation to replace controls on all 3 SVC's with commonality of spare parts,repair towers #274 and #297,and requests that AIDEA,in consultation with Participating Utility General Managers suggest a means of funding that would be repaid through Intertie Revenue." Page 6 6/3/2005 Confidential - Attorney Client Communication Tower foundation repairs on towers 274 and 297: The downhill (East)foundations for Towers #274 and #297 in the Chunilna Ridge area of the Alaska Intertie have experienced significant settling,rotation,and lateral movement. Cable and turnbuckle assemblies were tensioned between the legs of the towers as a "temporary fix."As a part of an ongoing and active inspection program,the towers were inspected this summer by MEA and the results,which were faxed to the IOC on September 9,2003 (attached),indicate just under an inch of anchor bolt slippage on anchor bolt E4 on the East Foundation of tower #274.Based on previous correspondence,Dryden &LaRue believes "the foundations likely will continue to move in small amounts,which may eventually lead to an irreversible structure failure"and has recently recommended "that a permanent fix be implemented at these two towers.” The IOC and Intertie maintenance subcommittee have discussed the need for a permanent fix and the possibility of having spare Lindsey towers on hand to replace these towers in the event of a catastrophic failure.A repair is complicated by the lack of vehicle access. On October 14",2003,the OC Maintenance subcommittee recommended that the 1OC fund repairs on both towers.The lOC Maintenance subcommittee also continued topursueevaluationofthepurchaseofspareLindseytowers.On October 16",2003,the IOC passed the following motion:"The IOC endorses the maintenance subcommittees recommendation to replace controls on all 3 SVC's with commonality of spare parts, repair towers #274 and #297,and requests that AIDEA,in consultation with Participating Utility General Managers suggest a means of funding that would be repaid through Intertie Revenue."The approximate total cost of these repairs is 2-3 million. Page 7 6/3/2005 Confidential - Attorney Client Communication Exhibit C Intertie Snow Loading: The IOC recognized certain risks related to snow loading of the Intertie,undertook engineering reviews of the problem,and implemented a snow load monitoring system (SLMS)in 1998,subsequently followed by snowmachine patrols to monitor snow-load conditions.SLMS monitors the weight of snow on the intertie lines,which information can be translated into potential ground clearance of the lines. Matanuska Electric Association (MEA)has suggested that the Alaska Intertie is unsafe when uneven snow-load conditions arise,and recommended in 2003 that the line be de- energized in the winter snow and ice season,that it be patrolled daily,and that grounding equipment be installed to discharge accumulated static electricity. In October 2003,the IOC Maintenance subcommittee supported continuing then current practice of snow load monitoring as a way to mitigate the risks associated with snow loading of the Intertie.The IOC also passed the following motion:"The IOC considers the current Snow Load Monitoring Practices consistent with Prudent Utility Practices and the Intertie should not be taken out of service absent a known specific problem.” MEA subsequently continued to assert that the Alaska Intertie was unsafe,including in pleadings filed with the RCA,in letters,and in a public relations campaign,that included television advertisements. The General Managers of GVEA,Chugach and ML&P in the fall of 2003 agreed to address the uneven snow-loading problem by supporting construction of inset towers, and funding the construction through AEA bonds guaranteed by the three utilities (a process copied from AEA bonds used to finance the Bradley Lake Hydropower Project). The IOC hired engineers (Dryden &LaRue)to update their prior late 1990's estimated construction costs for inset towers.In early 2005,Dryden &LaRue's reported that their earlier estimate of $18 million would increase to $32 million,with most of the increase attributable to increased steel costs. The Railbelt Utilities suggested that adding debt service necessary for $32 million of additional debt into the annual operating costs would make the Alaska Intertie uneconomic.Further,there was a view (shared by AEA staff)that constructing inset towers was not really necessary to implement safe operations. One alternative,implicitly suggested by MEA in the past,is to de-energize the transmission line when snow-loading conditions indicate that a potential problem might exist.The Snow Load Monitoring System (SLMS)continually monitors weight on the Alaska Intertie.An alarm is set at a weight which,Dryden &LaRue asserts,would ensure that the transmission line has a minimum of 14 feet of clearance under basically a worst case scenario (i.e.,uneven snow loading on one span and 8 feet of ground cover).Further,in the past 3 years,no snow-loading alarm has been triggered under these criteria. Page 8 6/3/2005 Confidential - Attorney Client Communication De-energizing the intertie under these alarm criteria has been proposed to immediately implement a conservative (i.e.,safe)operating procedure,but one that is not likely to significantly disrupt intertie operations.The |OC is expected to adopt this procedure at its June 9,2005,meeting. The IOC is further expected to continue to engage Dryden &LaRue to evaluate and recommend additional improvements to procedures and the SLMS to make the system more accurate,and thereby expand the circumstances under which the intertie can safely operate.As examples,Dryden &LaRue will evaluate procedures by which snow can be knocked off the line before the weight reaches alarm levels.Further,if additional SLMS monitors are added to the system,the operators will have better and more accurate information to evaluate actual conditions so that alarm levels may be relaxed. Finally,if future snow-loading/weather conditions require excessive disruption of intertie operations,the lOC can then evaluate whether additional capital improvements are warranted (e.g.,the |OC may at that time determine that construction of inset towers meets an appropriate level of cost/benefit analysis). Page 9 6/3/2005 Confidential - Attorney Client Communication Alaska Intertie -AEA Liabilities Issue:Identify what potential Alaska Energy Authority's liabilities arise from or are imposed by the Alaska Intertie Agreement. Short answer:The Alaska Intertie Agreement imposes relatively little liability upon the Alaska Energy Authority.Many obligations imposed upon AEA under the Agreement are then delegated to other Railbelt Utilities (e.g.,to intertie operators and maintenance contractors).The Agreement is basically structured so that the utilities pay all operation and maintenance costs through intertie cost charges.The primary concerns arise because: (1)AEA receives no financial benefit from intertie operations,so that any liability that might arise is not covered by revenues.This basically reflects "the deal”AEA struck in 1985. (2)While many responsibilities are delegated,AEA actively participates on the IOC in making management decisions,and owns the intertie.In these two roles,AEA shares responsibility for intertie operations with the Participating Utilities,and probably would be found to share liability for negligent operations,particularly if insurance coverages do not adequately cover damages that might arise.Again,these arise from "the deal”AEA struck in 1985. (3)AEA must remain ever vigilant in managing the project,as the JOC utilities appear to attempt to shift financial responsibility onto AEA whenever an opportunity arises.