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Home My WebLink AboutAEA Board Meeting June 21 2006vr {3 x =.ALASKA i Ga)ENERGY AUTHORITYkeXvAlashaIndustrialDevelopmentandExportAuthority 10. AGENDA Alaska Energy Authority Board of Directors June 21,2006 Anchorage and Juneau,Alaska Following AIDEA Board Meeting CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES -May 11,2006 OLD BUSINESS NEW BUSINESS A.AEA Regulatory Amendment Reaffirmation by Board,Resolution No.2006-03 B.Appointment of Officers,Resolution No.2006-02 C.Alaska Intertie Agreement DIRECTOR COMMENTS A.Director's Status Report of AEA Programs and Projects B.Next meeting date BOARD COMMENTS ADJOURNMENT 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495www.aidea.org *907/269-3000 *FAX 907/269-3044 ®Toll Free (Alaska Only)688/500-8534 ©www.akenergvauthority.org "IDIEN.[=ALASKASXAlaskaIndustrialDevelopmentWeAlasExportAuthority ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS June 21,2006 -11:00 a.m. Anchorage,Juneau,and Petersburg Alaska Teleconference 1.CALL TO ORDER Chairman Barry called the meeting of the Alaska Energy Authority to order on June 21,2006,at 11:00 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Mike Barry (Chairman/Public Member),Commissioner Bill Noll (Department of Commerce,Community and Economic Development),and Commissioner Mike Barton (Department of Transportation and Public Facilities). Director present in Juneau:Deputy Commissioner Tom Boutin (Designee for Department of Revenue). Director present in Petersburg:Mr.John Winther (Public Member). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ronald W.Miller (Executive Director),Chris Anderson (Deputy Director-Credit &Business Development)James A.McMillan (Deputy Director-Credit &Business Development),Valorie Walker (Deputy Director-Finance),Brenda J.Fuglestad (Administrative Manager),Karl Reiche (Projects Development Manager),Becky Gay (Project Manager),Sara Fisher-Goad (Financial Analyst),Leona Hakala (Loan Officer),and Mike Harper (Deputy Director- Energy). Others attending:Brian Bjorkquist and Mike Mitchell (Department of Law),Jan Sieberts (Washington Capitol),Don Zoerb,Kim Floyd,Jim Walker,and Michael Pauley (MEA),Deputy Commissioner Mark Edwards (DCCED),Brian Hickey,Don Edwards,and Lee Thibert (Chugach Electric Association),Jenny Trieu and Kate Lamal (Golden Valley Electric Association),and Lou Agi (ML&P). 4.PUBLIC COMMENTS There was no public comment. 5.PRIOR MINUTES --May 11,2006 The May 11,2006 minutes were approved as presented. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495www.aidea.org *907/269-3000 *FAX 907/269-3044 ®Toll Free (Alaska Only)888/300-8534 *www.akenergyauthority.org AEA Board Meeting June 21,2006 Meeting Minutes Page 2 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS 7A.Resolution No.2006-03,Resolution of the Alaska Energy Authority Relating to the Adoption of New Regulation Relating to Power Cost Equalization (PCE) Mr.Miller reviewed Resolution No.2006-03 stating this resolution re-adopts the amended regulations that the Board adopted at its May 11,2006 board meeting.Re-adoption is necessary because the regulations section of the Department of Law advised the Authority that it was required to give additional notice of the regulations and also advised that the Board was required to re-adopt the regulations after the additional notice was given.AIDEA gave the required additional notice on May 17,2006.The regulations revise the Alaska Administrative Code Title 3 by adding Section 107.225,outlining the method the Alaska Energy Authority (AEA)will use to allocate supplemental appropriations to the Power Cost Equalization program made after earlier pro rata reductions.These regulations are unchanged from what was approved on May 11,2006. Staff recommended approval of Resolution No.2006-03. MOTION:Commissioner Noll moved to approve Resolution No.2006-03.Seconded by Commissioner Barton.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Boutin,Barry,Barton,Noll,and Winther voting yea. 7B.Resolution No.2006-02,Resolution of the Alaska Energy Authority Relating to the Appointment of Various Officers of the Authority;and Related Matters Mr.Miller reviewed Resolution No.2006-02 stating the resolution clarifies and reaffirms that James A.McMillan is the Deputy Director-Credit &Business Development and Assistant Secretary until his planned retirement of August 1,2006.The resolution also appoints Christine Anderson as Deputy Director-Credit &Business Development and Assistant Secretary. Staff recommended approval of Resolution No.2006-02. MOTION:Commissioner Barton moved to approve Resolution No.2006-02.Seconded by Commissioner Noll.There being no discussion,the question was called.A roll callvotewastakenandthemotionpassedwithMessrs.Boutin,Barry,Barton,Noll,and Winther voting yea. 7C.Alaska Intertie Agreement VERBATIM: Mr.Miller;Mr.Chairman,AEA has worked with the Intertie Operating Committee utilities attempting to find cures of defects in the Alaska Intertie Agreement.In the board packet is a memorandum outlining a chronology of recent events in that regard.The IOC utilities have met among themselves and recently reported to AEA that they are making progress towards crafting a utility proposal to address and identify the defects in the agreement and we understand that those proposals will be presented at this board meeting.We have not received a written AEA Board Meeting June 21,2006 Meeting Minutes Page 3 submission yet.The Board was copied with comments from Matanuska Electric and included in the board packet is correspondence from AEA to the utilities and email correspondence from the utilities to AEA regarding some of the proposals. Chairman Barry:Before we call for presentations |would like to note that this is a reappearing item on our agenda.It does not appear to me anyway that we are making progress on this itemdespitepleas.|note in our packet that it says that we received a request on May 5"for specifics as to exactly what AEA was looking for.I've personally attended,in fact we had a board meeting in July of last year with utility managers to go over the problems with this agreement.At that meeting,a couple of utility general managers requested specifics about exactly what did we perceive to be the problems with the agreements and what specific issues had been raised by other members of the IOC.We went through those in great detail and | have to tell you that the lack of progress that we have made and a further request just last month for specifics -I'd like to get to sometime when |could hear from the utilities that they really understand what these issues are and we don't get into this,as |perceive,as a delaying tactic of asking again for specifics.There must be some way we can communicate to the utilities that are involved what the specifics are so that they can be addressed.And,when you make your presentations today |would like you to comment on why there doesn't seem to be an understanding of what these specifics are and what it is,if anything,that AEA can do to help you understand what these specifics are.At that time,|will first call on Mike Pauley,since he announced earlier that he wanted to make remarks. Mr.Bjorkquist:Mr.Chairman,if |could just make one other clarification.In the board packet under the eight (8)page attachment,on page 8 under Item 6,the other mistake that |made that you caught me on this last week is that the last phrase was that alternatively that power can only go south.Obviously,the power is going north -Fairbanks is north of us not south of us and |was just directionally challenged in that regard.Just to clarify. Chairman Barry:Thank you.We will consider that portion amended.Mr.Pauley? Mr.Pauley:For the record,my name is Michael Pauley,|am senior advisor to the general manager at Matanuska Electric Association.On Wednesday of last week,AEA Executive Director Mr.Miller contacted utility members of the Intertie Operating Committee and reminded the parties about today's meeting and requested utilities to submit any written materials thattheywishedtheAEAboardtoreviewbyFriday,June 16".As a member of AEG&T,an IOC participant,MEA complied with that request.We forwarded a letter to Mr.Miller that we understand has been shared with you.Our letter reiterates MEA's long held belief that the Alaska Energy Authority should exercise its authority under Section 2.22 of the Alaska Intertie Agreement and issue a notice of termination.Such notice,we believe,would create the needed incentive for the participating utilities to negotiate successor agreements that address the long term fund operation maintenance and repair of the intertie.We believe that without the incentive provided by the 48 month notice,we are not likely to see either a short term or long term fix to the problems associated with the existing agreement.The simple fact is this.Even though all members of the 1OC have admitted that there are serious flaws in the existing agreement,it is nevertheless true that some 1OC members perceive that the existing flawed agreement works to their benefit.So long as maintaining the status quo is in the interest of certain |OC members there is no reasonable basis for the AEA board to expect that a viable fix is ever going to emerge unless a notice of termination creates a real deadline and a real incentive for progress to be made.Only the certitude of knowing that the existing agreement will come to an end on a specific date will provide the appropriate incentive for |OC members to develop a successor agreement.MEA is not aware that any proposed short term or long termfixwassubmittedforAEA's consideration by the June 16"deadline,however,MEA did receive AEA Board Meeting June 21,2006 Meeting Minutes Page 4 an email that day from the law firm of Ater Wynne.The email was addressed to |OC member utilities but not to the Alaska Energy Authority.The first paragraph of that email states the following: "Attached are two documents comprising our initial ideas for the terms of the agreements to resolve the issues with the Alaska Intertie Agreement.” When the email talks about our initial ideas it is not clear to us what is signified by the use the 'our'pronoun because the email later goes on to state that: "No party has signed off on these documents.” It further states: "The effort to date has not resulted in a product that is ready to share with the state.” |think that last sentence is worth repeating: "The effort to date has not resulted in a product that is ready to share with the state.” As the board of AEA contemplates its next step |think that line should be foremost in your minds.It has been almost a full year since AEA and the IOC utility managers met on July 22,2005.With almost a full year to work on solutions,the entire fruit of this effort appears to be a few pages of brainstorming notes describing some management concepts that no utility has signed off on and which is not ready to be shared with the state.In the memorandum sent out to the AEA board a few days ago,Mr.Miller stated the following with respect to the previouslyannouncedJune15"deadline for AEA to issue its termination notice.Mr.Miller wrote: "In reaction to concerns regarding the June 15,2006 deadline and notice of termination, AEA modified the deadline provision to instead require a showing of real progress towards curing the defects in the agreement.” The fundamental question that the AEA board must ask is will there be anything presented today that under any tortured analysis meets the standard of real progress.MEA is doubtful, but we will wait to see what happens.We still have not seen any realistic plan to establish an R&R fund to finance major maintenance or upgrades.There is still no detailed proposal about budgeting,no answers to the various issues relating to noncompliance with terms of the existing agreement,and no solution to the liability concerns raised by AEA staff.The AEA board can and should bring some discipline to this process by issuing the termination notice and clearly communicating to all parties involved that continuation of the flawed status quo agreement is not an option that is open any longer. Thank you,Mr.Chairman,for your time.That concludes my comments. Chairman Barry:Thank you,Mr.Pauley,if you would just stay there for a second,there may be questions.|have a few.The first one would be that you stated that some utilities may perceive it to be in their self interest to keep the agreement in place as it exists.Would you care to elaborate on that as to how -|attended the general manager's meeting and |thought there was unanimity from every general manager that was there that the agreement wasn't working.How could it be in somebody's best interest to keep it in place if it doesn't work? AEA Board Meeting June 21,2006 Meeting Minutes Page 5 Mr.Pauley:Well,|think that concept,|would actually refer to the email that Mr.Bjorkquist has sent out earlier where he basically talked about the cost benefits,economics issue of operating the intertie and -|think that there is an economic incentive for certain utilities to perhaps not want to invest in the repairs and upgrades that are needed,if at the end of the day it has a negative affect on the bottom line for the cost of wheeling power.As |said,Mr.Bjorkquist alluded to that -well,he was actually summarizing a discussion that the general managers had at the July 22,2005 meeting,but -|don't know if that is answering your question,but I just think the existing agreement creates incentives for those investments not to be made. Chairman Barry:How would you respond to a comment that perhaps agreements are difficult to reach because your utility won't agree to anything? Mr.Pauley:Well,|think |would initially respond that,to my knowledge,AEG&T has not even been invited to participate in some of the recent discussions and so I'm not sure that |can represent what we would be or might not be willing to agree with when we weren't even invited to be at the table. Chairman Barry:Well,you had the email with the notes of potential solutions;did you see anything in there that you could agree with? Mr.Pauley:We have not had the opportunity to review those extensively;we just received those late Friday evening.Our initial comments are that it appears to be very sketchy, particularly the parts about a proposed governance,an administrative structure for the intertie - there's almost so little there that there is not much to really sink your teeth into and comment on. Chairman Barry:!guess that perhaps |should rephrase it.This board has struggled with this for over three and a half years and we can't find any single instance of progress and it would be very helpful if Matanuska Electric and AEG&T could identify any element that they could agree to.That would be progress just to have one single element of the agreement improved for the benefit of the railbelt utility system and |would challenge MEA to please find one or more of the elements that you could agree to so that we could make some progress here.|would turn around your statement where you're saying that maybe some utilities want to maintain the status quo for their individual benefit and is there any reason that MEA would like to upset the status quo for your benefit? Mr.Pauley:Absolutely,Mr.Chairman.In particular,|would refer to the fact that we have been working,for the most part,without success in the Intertie Operating Committee to try to find some long term solution for the problem with snow loading on the Alaska Intertie and,in fact,| would say that our efforts in that area are one of the reasons why we are absolutely convinced that this agreement has to be terminated and completely replaced with something workable because of the lack of progress on that issue.We did succeed in -the Intertie Operating Committee did adopt some monitoring procedures for snow loading that were an improvement over what was there before and so we saw some incremental progress in that area but certainly not a long term solution.But,yes,that would be one example of something that we would greatly benefit from having a different structure that would allow us to move forward on that issue. Chairman Barry:Any other members of the Board have questions;I've kind of monopolized this conversation -any questions from the board for Mr.Pauley? AEA Board Meeting June 21,2006 Meeting Minutes Page 6 Mr.Winther:|just want to agree with you -the slowness of progress made on this issue,|think it was bought up at the very first board meeting |attended.|express my frustrations along with yours,Mr.Chairman. Chairman Barry:That was a general observation that was not directed to Mr.Pauley.Thank you.Who would like to be next? Mr.Thibert:Mr.Chairman,for the record,board members,my name is Lee Thibert,I'm the chief of staff for Chugach Electric Association.|don't have any prepared remarks this morning but |would like to respond to a few things.Number one,I'd urge you not to terminate or give notice of termination of this agreement.There are a lot of issues on the table here from operating the system to budgets and how to deal with capital going forward.There are a number of projects that do need to be done.It certainly is not in Chugach Electric's best interest to have the contract stay the way it is.There are projects that need to be completed and as utilities we all need to work together to get a resolution to this problem and get it fixed.Chugach is committed to getting it fixed.|think you have a timeline in front of you that looks at the events over the past year and AEA has done an excellent job of identifying the specific problems.They have been outlined in detail,they have been presented to the utility and,|think,we've had a person at the table for the last several months trying to get resolution.I would commit that Chugach will sit down and continue to work through those issues and try to get them resolved.| would argue with MEA -they have been invited to the table but they had a conflict that they couldn't make.|think that if we could all agree to sit down together and work through these issues one by one we'll get there,but |think -|don't want to wait four years to get a resolution and basically |don't think we need to hold our feet to the fire -what we do need to do is work together and get it resolved.|stand before you,Mr.Chairman,and |think we,at Chugach, would like to move forward. Chairman Barry:It's been proposed by someone that it is not mutually exclusive to terminate the agreement and continue working on modifications to an agreement.One might be beneficial to have modifications in place before the notice of termination was given so that people would have an idea and it would remove the necessity to have unanimity about how we are going to proceed because clearly with the unanimity requirement,any single utility can stop any progress from being made at any time.I'd like your comments on what would be the problem of giving notice of termination,there are four years that people can talk and sign up one at a time to whatever changes are necessary and agreed on amongst the various utilities. Mr.Thibert:Mr.Chairman,|believe there are a lot of issues that don't need to be negotiated and if you terminate the agreement that opens everything completely.And,we as the utilities, spent years at the table already on the operating agreements,on sharing of reserves,all of those issues with operating within the railbelt.If all of those are opened up again,we'll be at the table forever.|think the better approach is that we have a list of items that are in dispute,let's work on those. Chairman Barry:Will you agree that the existing agreement requires the utilities to present to AEA a budget? Mr.Thibert:Yes,sir. Chairman Barry:Do we have a budget? Mr.Thibert:|can't tell you at this exact moment. AEA Board Meeting June 21,2006 Meeting Minutes Page 7 Chairman Barry:We are nine days away from the new fiscal year and we don't have a budget. There are liability issues that go along with just doing nothing and that is where we've been.| recognize that there are utilities that are sincerely trying to do something,but it appears to me that your efforts to sincerely do something are being obstructed and negated by others and that can go on indefinitely.It does appear that it is going to be necessary for this Board to start some clock running to ensure that sooner or later the issue gets resolved.It doesn't look to us like the system can go indefinitely without maintenance.Do you think it can?How many more years can we go with the maintenance being deferred that's being deferred today? Mr.Thibert:Mr.Chairman,it needs to be done soon. Chairman Barry:Okay.Thank you.Any questions for Mr.Thibert?Thank you.Anyone else? Ms.Lamal:Mr.Chairman,board,I'm Kate Lamal,I'm a vice president of power supply for Golden Valley Electric Association.What I'd like to do is just tell you that Golden Valley is committed to working on this agreement.It is very important to us and the interior to have that line operational.We have submitted operating budgets to AEA.What Id really like to do is have Jenny Trieu who has been working diligently over the past year on putting together the framework documents for the agreements,both operational and managerial...I'd like to do that...I just wanted to tell you that Golden Valley has been working -to the best of my knowledge all participants have been invited to the table to discuss moving forward and most parties have been working on that. Chairman Barry:Ms.Lamal,while you're here,could you comment on,what |would call the efficacy of,the notice of termination.What kind of effect it would have on your utility? Ms.Lamal:|understand the thought process you have with termination would be to put a deadline out there and that perhaps that would expedite things.There have been a number of reasons why the utilities have not been able to move forward and that is because we cannot get unanimous agreement.And that any movement forward usually has at least one opposing party out there,which has made progress difficult.|!don't know how we would look forward to termination to think that there is going to be unanimous agreement whether there is an existing agreement or not.All |can tell you is that we need to move forward and we need to keep that intertie viable,it needs to be maintained,we do need a budget,we do need an R&R and most of those can probably go forward with the existing agreement in place.|understand your frustration with having timelines not adhered to but I'm not sure that the termination will provide what you're looking for. Chairman Barry:Is it your belief that we could just go along -if I'm hearing you correctly,we could maintain the status quo for years with no deleterious effects? Ms.Lamal:No,|don't believe that.There are -the inability to fund major maintenance is a problem and whether we can forward fund it or debt fund it;however we end up doing that -it definitely needs to be addressed,yes,there's no doubt about that.However,|do have to say that the intertie has functioned,has been funded and has operated quite well for the entire time it has been in place.It's not to say we can't avoid future maintenance,but the existing agreements have worked in the past and they just need to be updated a little bit. Chairman Barry:While you're here I'd like to get the benefit of your expertise.There appears to be some question as to whether the intertie is capable of moving power in both directions. Would you comment on that? AEA Board Meeting June 21,2006 Meeting Minutes Page 8 Ms.Lamal:|think that it could do that. Chairman Barry:It can move power both north and south? Ms.Lamal:Correct. Chairman Barry:Thank you. Ms.Trieu:Mr.Chairman,board members,my name is Jenny Trieu,|am an attorney for Golden Valley Electric Association.|have been working with both Mr.Miller and Mr.Bjorkquist over the last eight months or so in response to this Board's request for progress to resolve issues associated with the Alaska Intertie Agreement.Both Mr.Miller and Mr.Bjorkquist have been responsive to requests to clarify,at least to me as a person new to this effort,what the issues are specifically associated.Last November,|met,on behalf of Golden Valley,|met with Mr. Miller and Mr.Bjorkquist and presented a rough,what |would call a rough framework proposal for a supplemental agreement or a side agreement if you will,to address some of the Board's more immediate concerns,in particular,R&R and budget.We have discussed those and in the meantime those have been somewhat tabled in light of a request to come up with long term solutions to the issues.We have now,as you have heard from Mr.Pauley,have prepared frameworks for two long term agreements that hopefully,if not substantively,resolve the issues or at least provide a starting point with specific matters that the utilities can come to the table and discuss.|was the author of the email that Mr.Pauley read from and to explain the comment about why the documents were not,at this point,ready for presentation to the state. That was because in the interest -we've had about six weeks total to work on this since my last meeting with Mr.Bjorkquist and |think that was a very productive meeting.In the last six weeks,|would estimate that |have had about three telephone conference meetings with not all of the utility members but most of them -all of them have been invited -to talk about how we get started to resolve this.And,as a result |prepared the frameworks hoping that those would be a good starting point for discussions going forward.We fully intend to carry on discussions and we welcome all of the utilities to participate in these discussions and to put their issues out there.We continue to hope for a productive resolution that something other than termination of the agreement. Chairman Barry:Thank you,Ms.Trieu.If |heard right,you're here representing Golden Valley Electric Association. Ms.Trieu:Yes,Mr.Chairman. Chairman Barry:So is there a counsel for the IOC that is working on this?They haven't even got a counsel working in it,right? Ms Trieu:|think we have all decided to put our heads together as utility representatives,Mr. Chairman. Chairman Barry:Okay.But the answer to my question is,that as far as you know,you are not interfacing with any counsel that purports to represent the Intertie Operating Committee.Is that correct? Ms.Trieu:No sir,yes. AEA Board Meeting June 21,2006 Meeting Minutes Page 9 Chairman Barry:It would seem to be that if the IOC was truly interested in coming to a resolution,they would at least employ a counsel to represent them to be involved in this process.They can't even agree on that apparently. Are there questions of Ms.Trieu?Hearing none,do you have any enlightment for this Board as to what kind of adverse effects,if any,could come from a notice of termination? Ms.Trieu:|agree with both Ms.Lamal and Mr.Thibert in the sense that the utilities have worked hard to provide a structure that they can work with and it may be counterproductive to start over,essentially. Chairman Barry:|guess |don't understand why anyone would have to start over.All we are doing is formalizing that the clock is really running and if four years went by and nobody got anything done then wouldn't the state be in control?It's the state's asset. Ms.Trieu:Yes,sir. Chairman Barry:So if there is no agreement,if it truly does get terminated,|think the state would have something to say about it which we don't have today.I'm trying to find out from you as a counsel for Golden Valley Electric,what would be the problem and what would be a disincentive for people to stop talking if we had this clock running.It seems like it would just provide more incentive.Can you give me a specific disincentive?There isn't any requirement is there to throw away your notes that you have done already.Your side agreement could be just as effective if that clock were running,couldn't it? Ms.Trieu:Mr.Chairman,we have appreciated this Boards'comments as far as termination and |understand what you are asking.Part of the thinking behind the most recently put together frameworks for a long term solution is to take into account the possibility that everything could change.We are trying diligently to be responsive to the requests of this Board and we understand that this Board has brought up termination as a possibility.Golden Valley does not, at this point,support that option,but at the same time we have heard you on the termination point and we are trying to come up with a solution that is productive for the railbelt in light of all of the options,Mr.Chairman. Chairman Barry:I'm sure that it doesn't need to be said,but I'd like to have it on the record. This Board does not enjoy the delays and the non-progressiveness that we have endured for the past three and a half years.We have a responsibility to the citizens of the railbelt to do everything that we can to help ensure that safe,reliable,electricity service.And,we have been told by every general manager of the railbelt utilities that this agreement is not working and that is jeopardizing that service at some point,not today,clearly if it were an emergency I'd think we would all be able to get together and work something out.But the problem is that in this business emergencies are very egregious for everybody;it is not something you want -to wait until there is an emergency that happens and then start to find a solution.We have our responsibilities,you utilities have your responsibilities and it is up to your board of directors to see whether or not you are following through on your responsibilities,but it is this Board that needs to make sure that AEA follows through on its responsibilities and we're running out of time,we really,truly are.Thank you. Anybody else from the utility?Lou,do you have comments? AEA Board Meeting June 21,2006 Meeting Minutes Page 10 Mr.Agi:I'm really too new to the whole thing,but the most recent that |have been witness to has been earnest.And,you need some windows of time -|want to get into the agreement and help Jenny but as |say,I'm too new. Chairman Barry:Comments from directors? !guess what |would like to do then is to instruct the staff to come back to our next board meeting and to give us a report on what the effects of a notice of termination will be and give us their findings as to whether or not it is necessary and,any utilities that would like to make comments,or if some agreement can take place in the meantime,we would welcome that,but this will be a continuous agenda item at the AEA board meetings until we can get some kind of resolution to this.Come back to us at the next meeting.Thank you. Commissioner Noll:Mr.Chairman,|would like to voice my support for your comments in particular.Nothing more need to be said so therefore I'm going to say something.|get a chance to travel around the state quite a bit as do other commissioners,and there is no escaping in our positions representing the government or the people,as you say,there is no escaping when you go to a public hearing and public citizens talk to you about the cost of energy.The crisis level that exists,especially in Rural Alaska,and |know that doesn't apply here necessarily to the railbelt,but |doubt if you will find many ratepayers in the area here who would say everything is fine,I'm really happy with the way things are going.So,without flogging this any further,|want to voice my experience as a support level for you and the comments you've made and urge some movement.We are certainly having to move in our department. Chairman Barry:Thank you.|will say as a general comment without respect to just the intertie agreement,that in the three and a half years that |have personally been involved,|have seen seeds of cooperation between the utilities and |have seen progress between the railbelt utilities, a more willingness to work together and less stridency.It's just very disappointing that we're not seeing it in terms of this vital agreement that affects pretty much everybody in the railbelt.I've probably been somewhat harsh on those that are here today doing their job representing their utilities,it's because of a level of frustration that we all have here and is not without respect for the efforts that everyone is making to provide save,reliable,electrical service.We do enjoy less expensive and every bit as reliable service here in the railbelt than most people throughout the United States of America.So,it's not 100%bleak by any means,but we do have a very,very serious issue in front of us and |would implore all of the utilities to redouble their efforts to come together and find some agreements that can improve a pretty sever situation.Thank you all. That concludes our regular business,we now have the director's status report. END VERBATIM 8A.Director's Status Report of AEA Programs and Projects Mr.Miller stated that AEA staff is active this time of the year with construction projects on bulk fuel tank farms and rural power system upgrades.There are over 30 MET towers throughout the state as part of the wind energy program.One was recently installed in Seward and staff is working with the community to become more aggressive with the wind program with the city of Seward. 8B.NEXT MEETING DATE The next meeting date will follow the Alaska Industrial Development and Export Authority board meeting on July 10,2006. AEA Board Meeting June 21,2006 Meeting Minutes Page 11 9.BOARD COMMENTS Commissioner Noll stated that the Homeland Security federal representative,Tom Burges,called to ask if we would discuss and scope out the beginnings of the energy assurance program for the state of Alaska.|have invited Ron Miller and AEA staff.The meeting will take place this Friday at the DCCED conference room. Mr.Miller stated Becky Gay and Mike Harper have been very active in this regard and will be attending that meeting. In response to Board questions,Commissioner Noll said that the energy assurance program is an overall plan that should there be a disaster there would be a back up plan for the state to have power. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 11:46 a.mbby-age'Miker,SecretarydhaEnergyAuthority DRAFT ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS MEETING May 11,2006 -10:30 a.m. Anchorage,Juneau,and Talkeetna,Alaska 1.CALL TO ORDER Chairman Barry called the meeting of the Alaska Energy Authority to order on May 11,2006,at 10:30 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Director present in Anchorage:Mr.Mike Barry (Chairman/Public Member). Directors present in Juneau:Deputy Commissioner Tom Boutin (Designee for the Department of Revenue)and Commissioner Mike Barton (Department of Transportation and Public Facilities). Directors present in Talkeetna:Commissioner Bill Noll (Department of Commerce,Community and Economic Development)and Mr.John Winther (Public Member). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ron Miller (Executive Director),James A.McMillan (Deputy Director- Credit &Business Development),Chris Anderson (Deputy Director-Credit &Business Development),Valorie Walker (Deputy Director-Finance),Karl Reiche (Project Development Manager),Mark Schimscheimer (Project Manager),Mike Harper (Deputy Director-Rural Energy),Sara Fisher-Goad (Financial Analyst),Becky Gay (Project Manager),Brenda Fuglestad (Administrative Manager)and Jeff Williams (Administrative Assistant). Others attending in Anchorage:Brian Bjorkquist and Mike Mitchell (Department of Law). Others attending telephonically:Cindy Cartledge (Wohlforth Johnson Brecht Cartledge & Brooking). 4.PUBLIC COMMENTS There were no public comments. 5.PRIOR MINUTES The February 24,2006 minutes were approved as presented. 6.OLD BUSINESS There was no old business. AEA Board Meeting May 11,2006 Meeting Minutes Page 2 7.NEW BUSINESS 7A.Resolution No.2006-01,A Resolution of the Alaska Energy Authority Relating to the Adoption of New Regulation Relating to Power Cost Equalization (PCE) Mr.Miller reviewed Resolution No.2006-01 stating it revises the Alaska Administrative Code Title 3 by adding Section 107.225,outlining the method the Alaska Energy Authority (AEA)will use to allocate supplemental appropriations to the Power Cost Equalization program made after earlier pro rata reductions. Notice was published in the Anchorage Daily News;mailed to all communities and utilities that receive PCE and the Legislature,including the Administrative Regulation Review Committee and the Legislative Council.The notice was also posted on AEA's website and the state of Alaska's Online Public Notice System.AEA received three written comments in response to the public comment period,which ended May 9,2006:two were from utilities in support of the changes and one from the City of Unalaska who was against the changes.Staff has proposed no revisions to the regulation amendment in response to these comments. Staff recommended approval of Resolution No.2006-01. In-response to Board member questions,Ms.Fisher-Goad stated that the change to the regulations will make the administration of the program run smoother and will enable more timely payments to be made to recipients.Staff contacted Ms.Hazen,City of Unalaska,to discuss her concerns.Her concerns were alleviated when it was made clear that with these changes to the regulations,AEA will have the ability to better assist the utilities with regard to retroactive payments. MOTION:Commissioner Boutin moved to approve Resolution No.2006-01.Seconded by Commissioner Barton.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Boutin,Barry,and Barton voting yea. (Commissioner Noll and John Winther absent) 8.DIRECTOR'S COMMENTS 8A.Status Report There were no director's comments. 8B.NEXT MEETING DATES Chairman Barry stated that the next AEA meeting will be scheduled pending the next AIDEA board meeting. 9.BOARD COMMENTS There were no board comments. AEA Board Meeting May 11,2006 Meeting Minutes Page 3 10.ADJOURNMENT Chairman Barry adjourned the meeting at 10:43 a.m. Ron Miller,Secretary «=>ALASKA @i)ENERGY AUTHORITYaxeeeAlaskaIndustrialDevelopmentandExportAuthority MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Ron Miller // Executive/Director DATE:June 13,2006 SUBJECT:-Resolution No.2006-03 Adoption of AEA Regulation Changes Resolution No.2006-03 re-adopts the amended regulations attached as Exhibit A to the resolution,which the board adopted at its May 11,2006 board meeting.Re-adoption is necessary because the regulations section of the Department of Law has advised the Authority that it was required to give additional notice of the regulations and advised that the board was required to re-adopt the regulations after the additional notice was given.Authority staff gave the required additional notice on May 17,2006 (copy attached). As discussed in my May 11,2006 memorandum to you,these regulations revise Alaska Administrative Code Title 3 by adding Section 107.225,outlining the method Alaska Energy Authority (AEA)will use to allocate supplemental appropriations to the Power Cost Equalization program (PCE)made after earlier pro rata reductions.These regulations are unchanged from what you approved on May 11,2006. Staff recommends approval of Resolution No.2006-03. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495annAinnnanas 'wh ALASKA ENERGY AUTHORITY RESOLUTION NO.2006-03 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO THE ADOPTION OF NEW REGULATION RELATING TO POWER COST EQUALIZATION (PCE) WHEREAS,pursuant to AS 44.83.080 the Alaska Energy Authority (the "Authority”)may adopt regulations to carry out the purposes of AS 44.83 and AS 42.45; WHEREAS,staff of the Authority has proposed that the Authority's regulations be amended to adopt a new regulation dealing with the allocation of supplemental appropriations to the Power Cost Equalization (PCE)program,as set forth in Exhibit "A”attached to this resolution ("the new PCE regulation”); WHEREAS,the Authority has complied with all of the provisions of AS 44.62 concerning the adoption by the Authority of regulations; WHEREAS,the staff of the Authority has reported to this board the nature and content of the comments received from the public with respect to the new PCE regulation and the Authority has considered these comments;and WHEREAS,it is in the best interest of the Authority that the new PCE regulation be adopted. NOW THEREFORE,BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.In accordance with AS 44.83.080 the Authority hereby adopts the new PCE regulation. Section 2.The Executive Director of the Authority is hereby authorized to take such actions and file such documents as may be necessary to finalize the new PCE regulation amendment contemplated in this resolution in order to facilitate the filing of the amendments with the office of the Lieutenant Governor. DATED at Anchorage,Alaska,this 21°day of June 2006. Chair (SEAL) ATTEST Secretary H:\Board of Directors\Resolutions and Memos\Resolution Regs adoption PCE.doc EXHIBIT "A” Register ,2006 COMMERCE,COMMUNITY AND EC.DEV. 3 AAC 107 is amended by adding a new section to read: 3 AAC 107.225.Allocation of supplemental appropriations after pro rata reduction.Ifa supplemental appropriation is received for the power cost equalization program after the authority has made a pro rata reduction under AS 42.45.110(i),the authority will (1)increase the power cost equalization payments to be made to eligible utilities for the rest of the fiscal year on a pro rata basis up to the maximum allowable under AS 42.45.110;and (2)if any money remains after payments are made under (1)of this section,make additional power cost equalization payments to eligible utilities that received reduced payments under AS 42.45.110(i)to restore funding to the maximum allowable under AS 42.45.110 for each month,starting from the most recent month and going back to the beginning of the state fiscal year.(Effi /-/__-s,Register__+) Authority:AS 42.45.100 AS 42.45.160 AS 44.83.080 AS 42.45.110 AS 42.45.170 Ga)ENERGY AUTHORITYa» *&Ww Alaska Industrial DevelopmentandExportAuthority MEMORANDUM TO:Board of Directors Alaska oH AuthorityFROM:Ron MillerExecutive Whe DATE:May 11,2006 SUBJECT:-Resolution No.2006-01 Adoption of AEA Regulation Changes Resolution No.2006-01 adopts the amended regulations attached as Exhibit A to the resolution. These amended regulations revise Alaska Administrative Code Title 3 by adding Section 107.225,outlining the method Alaska Energy Authority (AEA)will use to allocate supplemental appropriations to the Power Cost Equalization program (PCE)made after earlier pro rata reductions. AEA widely distributed notice of the proposed revisions and published notice in the Anchorage Daily News on April 7,2006.AEA also mailed notice to all communities and utilities that receive PCE;provided notice to legislators,the Administrative Regulation Review Committee and the Legislative Council;and posted the notice on AEA's website and on the State of Alaska Online Public Notice System.There was no public hearing.The public comment period ended on May 9,2006,at 5:00 p.m. AEA received three written comments on the proposed regulations (copies attached),two from utilities in support of the changes,and one from the City of Unalaska against the changes.No revisions are proposed in response to these comments.This action is not expected to require an increased appropriation. Staff recommends approval of Resolution No.2006-01. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495OSIRIAINEOIeH.'rm Paani an me8 i =al April 18,2006 Becky Gay,Project Manager Alaska Energy Authority 813 W.Northern Lights Anchorage,Alaska 99503 Re:Proposed Amendments to 3 AAC 107 Dear Ms.Gay, Alaska Village Electric Cooperative wishes to express its support of the regulation changes being proposed by the Alaska Energy Authority. The current directives embodied in the Power Cost Equalization regulations require that credits to PCE recipients be prorated downward when legislative appropriations are insufficient to fully fund those credits.The regulations are silent,however,on how to apply credits that will exceed the requirements for the remainder of the fiscal year, especially funds that are received through supplemental appropriations. |believe that the proposed regulatory changes will correct that matter and will allow the Authority to properly allocate all legislative appropriations for PCE to the recipients in rural Alaska during the fiscal year for which the funds were appropriated. Thank you for the opportunity to comment. Sincerely, Worn OLD. Meera Kohler President &CEO 483]EAGLE STREET *ANCHORAGE,ALASKA *PHONE (07)561-1818 *FAX (907)862-4086 rage 1 oT l Becky Gay From:Becky Gay Sent:=Thursday,April 20,2006 11:16 AM To:'Bob Grimm' Ce:Mike Mitchell;Ron Miller Subject:RE:PCR Regulations Bob,thanks for your support.[will keep it in the official record,Becky From:Bob Grimm [mailto:bob.g@aptalaska.com] Sent:Wednesday,April 19,2006 8:03 AM To:Becky Gay Subject:PCR Regulations Becky: We support your new regulations on PCE. Bob Grimm Alaska Power &Telephone Company P.O.Box 3222 193 Otto Street Port Townsend,WA 98368 Phone 800-982-0136 x 120 Fax 360-385-7538 Cell 360-301-3636 vorulsuad LOL 29 FAA YVULDOLVLVESE AWAYE VEPAN Lao v Wy VU CITY OF UNALASKA S P.O.BOX 610 ry UNALASKA,ALASKA 99685-0610 ae) (907)581-1251 FAX (907)581-3102 s ': ye,e-00 me vow SO a May I,2006 UNALASKA.ALASKA Alaska Energy Authority Attn:Becky Gay,Project Manager 813 W.Northern Liyhts Anchorage,AK 99503 VIA FACSIMILE:907-269-3044 Re:Proposed section 3 AAC 107.225 Dear Ms.Gay, The City of Unalaska Electric Uulity has 460 customer accounts that receive PCE credit.Our utility billing software can't calculate adjustments to bills after a monthly billing cycleis completed,80 any accountchangesafterthecloseofabillingcyclehavetobemademanually. The only way for us to "recalculate and credit customers at the higher level of payments for months previously reimbursed"as the proposed regulation requires would be for us to enter all 460 PCE eligible accounts into an Excel spreadshcet to calculate the adjustment and then manually enter the adjustments into each of the 460 individual invoice records.We would have to repeat the process for each month that was effected,For example,ifa tate change was to be effective for 3 previous months we would have to make 1,380 manual cntrics into the billing records. In addition,there is the issue of customcrs who change locations or leave the community during the subject time period.Would we have to write them refund checks?Ifso,that would add an additional layer of administrative cost for us. We belicve that the proposed regulation would put an unfair administrative burden on our small utility,and that the cost of implcmenting it would far outweigh any benefit it might provide.We strongly urge you not to adopt the proposed regulation. Sincerely, Catherine Hazen . Sr.Accountant Ce:AB Rankin,City Treasurer JR.Pearson,Utiliry Analyst Alaska Energy Authority Additional Regulations Notice Page 1 of 2 Home Go Back .::Public NoticesOnlinePublicNoticeAlaskaEnergyAuthorityAdditionalStateofAlaskaRegulationsNotice Submitted by:bimontbriand_fuglestad/08 Date Submitted:05/19/2006 08:47 AM Date Modified:05/19/2006 08:50:11 AM Ak Admin Journal:[net printed] Attachments: ®Additional reg notice for AEA may 17 06.pdf Alaska Energy Authority Additional Regulations Notice Category:Regulations Department:Commerce Community &Economic Sub-Category:Notice of Proposed Regulations Development Publish Date:05/19/2006 Location:Anchorage Coastal District:N/A Body of Notice: To:Recipients of Public Notice From:Becky Gay,Project Manager Regulations Contact for Alaska Energy Authority RE:Additional Regulations Notice Information for proposed changes to Power Cost Equalization program File No:993-006-0170 Enclosed is the "Additional Regulations Notice Information”form as required by 44.62.190 (d)concerning a proposed amendment to 3 AAC 107,adding a new section,3 AAC 107.225,on the allocation of supplemental appropriations after pro-rata reductions for the Power Cost Equalization (PCE)program. Please note that this additional regulation notice information does not reopen the comment period which closed on May 9,2006.The attached information was inadvertently not distributed with the notice distributed in April 2006. ATTACHMENT:(Attachment is also attached to this notice as a pdf document) ADDITIONAL REGULATIONS NOTICE INFORMATION (AS 44.62.190(d)) 1.Adopting agency:Alaska Energy Authority (AEA) 2.Genera!subject of regulation:Power Cost Equalization allocation of supplemental appropriations after pro-rata reduction 3.Citation of regulation (may be grouped):3 AAC 107.225 4.Reason for the proposed action: ()compliance with federal law ()compliance with new or changed state statute (.)compliance with court order (x )development of program standards ()other:(please list) 5.RDU/component affected:Alaska Energy Authority/AEA Power Cost Equalization 6.Cost of implementation to the state agency and available funding (in thousands of dollars): Initial Year Subsequent Pari.fh mba n E ntantn Ale can bw fn nal BALI AAIMLI291 ANOA.ANONNVELIAANNENIONALANNAALLAABE LITINNNE Alaska Energy Authority Additional Regulations Notice FY 06 Years Operating Cost $__0 $__0 Capital Cost $__0 $__0 Federal receipts $$ General fund match $$ General fund $$ General fund/ program receipts $$ General fund/ mental health $$ Other funds (specify)$$ 7.The name of the contact person for the regulations: Name Becky Gay Title Project Manager,Alaska Energy Authority Address 813 W.Northern Lights Anchorage,AK 99517 Telephone 907-269-3024 E-mail address bgay@aidea.org 8.The origin of the proposed action: __x__Staff of state agency federal government general public petition for regulation change other (please list) 9.Date:May 17,2006 Prepared by: Name (typed)Becky Gay Title (typed)Project Manager,AEA Telephone:269-3024 Revision History: 05/19/2006 08:47:45 AM by bjmontbriand_fuglestad/08/State/Alaska/US 05/19/2006 08:50:11 AM by bimontbriand_fuglestad/08/State/Alaska/US $$WebClient [Anon] Page 2 of 2 Home Page Notices by:Department|Category |Publish Date Additional reg notice for AEA may 17 06.pdf Las.fh nba nbntn A1-one denne bn Le nat 2 2 LI.AAI ED AIDTANOAANDQONE LANA NNENADNAIAONAALLHWAo LITINNNE Alasha Industrial DevelopmentandExportAuthority Ww st rasWIDE./=a=ALASKAoN©)ENERGY AUTHORITY May 17,2006 To:Recipients of Public NoticeFrom:Becky Gay,Project Manager subitfiRegulationsContactforAlaskaEnergyAuthority Department of Commerce,Community and Economic Development RE:Additional Regulations Notice Information for proposed changes to Power Cost Equalization program File No:993-006-0170 Enclosed is the "Additional Regulations Notice Information”form as required by 44.62.190 (d) concerning a proposed amendment to 3 AAC 107,adding a new section,3 AAC 107,225,on the allocation of supplemental appropriations after pro-rata reductions for the Power Cost Equalization (PCE)program. Please note that this additional regulation notice information does not reopen the comment period which closed on May 9,2006,The attached information was inadvertently not distributed with the notice distributed in April 2006. 813 West Northern Lights Boulevard *Anchorage,Alasha 99503-2495 wwiw.aidea.org ©907/269-3000 *FAX 907/269-3044 *Toll Free (Alaska Only)888/300-8534 ©\wiww.akenergyauthority.org ADDITIONAL REGULATIONS NOTICE INFORMATION (AS 44.62.190(d)) 1.Adopting agency:Alaska Enerpy Authority (AEA) 2.General subject of regulation:Power Cost Equalization allocation of supplemental appropriations after pro-rata reduction 3.Citation of regulation (may be grouped):3 AAC 107,225 4,Reason for the proposed action: ()compliance with federal law ()compliance with new or changed state statute (_)compliance with court order (x)development of program standards ()other:(please list) 5.RDU/component affected:Alaska Energy Authority/AEA Power Cost Equalization 6.Cost of implementation to the state agency and available funding (in thousands of dollars): Initial Year Subsequent FY 06 Years Operating Cost $0 $0 Capital Cost $_0 $0 Federal receipts $ General fund match =§ General fund $ General!fund/ program receipts $ $ $ General fund/ mental health Other funds (specify) 7,The name of the contact person for the regulations: Name Becky Gay Title Project Manager,Alaska Energy Authority Address 813 W.Northern Lights Anchorage,AK 99517 Telephone 907-269-3024 E-mail address beay@aidea.org 8.The origin of the proposed action: x ___staff of state agency federal government general public petition for regulation change other (please list) 9.Date:May 17,2006 Prepared by:Libr hloe- y eparedby:4 ;=Name (typed)Becky Gay (]Title (typed)Project Manager,AEA Telephone:269-3024 ALASKA ENERGY AUTHORITY RESOLUTION NO.2006-02 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO THE APPOINTMENT OF VARIOUS OFFICERS OF THE AUTHORITY;AND RELATED MATTERS WHEREAS,the By-laws of the Alaska Energy Authority (the "Authority”)provide that the Executive Director of the Authority is the Secretary-Treasurer of the Authority; WHEREAS,the By-Laws of the Authority also set out the duties and responsibilities of the Secretary and the Treasurer of the Authority,provide that the members of the Authority may assign all or part of such duties to some other person or persons and give to such person or persons an appropriate title,including that of Assistant Secretary-Treasurer,and that officers of the Authority shall perform such other duties and functions as may from time to time be required by the Authority or the By-Laws or Regulations of the Authority; WHEREAS,the By-Laws of the Authority set out the duties and responsibilities of the Executive Director,Secretary,and the Treasurer of the Authority,provide that the members of the Authority may assign all or part of such duties to some other person or persons and give to such person or persons an appropriate title,including that of Deputy Director,Assistant Secretary,Assistant Secretary-Treasurer,and that officers of the Authority shall perform such other duties and functions as may from time to time be required by the Authority or the By-Laws or Regulations of the Authority; WHEREAS,James A.McMillan continues to be a Deputy Director of the Authority who, after years of faithful service,plans to retire effective August 1,2006; WHEREAS,it is in the best interests of the Authority that during the transition period leading to the retirement of James A.McMillan,that the Authority appoint a second Deputy Director for Credit &Business Development; WHEREAS,it is in the best interests of the Authority and desirable and proper that the appointment of James A.McMillan as Deputy Director-Credit &Business Development and Assistant Secretary of the Authority be confirmed and remain effective until his retirement; WHEREAS,it is in the best interests of the Authority and desirable and proper that Christine Anderson be appointed as Deputy Director-Credit &Business Development and Assistant Secretary of the Authority; NOW,THEREFORE,BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.The previous appointment of James A.McMillan as Deputy Director- Credit &Business Development and Assistant Secretary of the Authority is hereby confirmed and shail and remain effective until his retirement. Section 2.Christine Anderson is hereby appointed to be a Deputy Director-Credit & Business Development and Assistant Secretary of the Authority is hereby confirmed. section 3.The Assistant Secretary-Treasurer and each Assistant Secretary shall perform any and all duties of the Secretary and/or Treasurer as shall from time to time be assigned by the Executive Director. Section 4.From time to time,as may be required on a temporary basis,when the Executive Director is unavailable,the Executive Director may designate any Assistant Secretary or Assistant Secretary-Treasurer of the Authority as Acting Executive Director.The Acting Executive Director shall have all the duties and powers of the Executive Director of the Authority during the period the Executive Director is unavailable. Section 5.This Resolution shall become effective immediately upon its passage and approval. DATED at Anchorage,Alaska,this 21st day of June 2006. Chair ATTEST [SEAL] Secretary AEA/Appointment of Officers Resolution No.2006-02 H:\Board of Directors\Resolutions and Memos\AEA officers 2006 McMillan-Anderson.doc Page 2 [=ALASKAENERGYAUTHORITYaxeakeAlaskaIndustrialDevelopmentandExportAuthority MEMORANDUM TO:Board of Directors Alaska EnergyjAuthority FROM:Ron Miller Executive Dir r DATE:June 21,2006 SUBJECT:Alaska Intertie Agreement The Alaska Energy Authority (AEA)has worked with the Intertie Operating Committee Utilities (IOC Utilities)attempting to find cures for defects in Alaska Intertie Agreement (Agreement).As outlined below in a chronological report of events,AEA met with [OC Utility General Managers and attorneys to discuss agreement defects and possible fixes. The IOC Utilities subsequently have met among themselves,and recently reported to AEA that they are making progress towards crafting a Utility proposal to address identified defects in the Agreement.AEA understands that one or more representatives will report to the Board on this progress at the June 21,2006,Board meeting. Chronological Report: 1.March 17,2006 -Letter from Ron Miller sent to !OC Utility General Managers. This letter (copy attached)reiterated AEA concerns regarding defects in the Agreement, and imposed a deadline of June 15,2006,for the parties to craft both short and long term cures,and for AEA to give notice of termination of the Agreement. 2.April 21,2006 -AEA and IOC Utility General Managers meet. This meeting allowed thorough discussion of problems with the Agreement,and !O0C Utility concerns regarding AEA giving notice of termination.Key topics included: a.Mutual consensus between AEA and IOC Utilities that it would be inappropriate to revert to pre-1993 procedures (reflected in current language in the Agreement), under which AEA takes a more proactive role in the budget decision making process. One GM commented that the level of expertise on utility matters on the AEA staff is substantially lower than pre-1993 AEA. i.The budget decision making process for FY 2007 is an immediate concern that the IOC Utilities have been requested to address at the June 21, 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 www.aidea.org *¢907/269-3000 *FAX 907/269-3044 ®Toll Free (Alaska Only)888/300-8534 ©www.akenergyauthority.org Board of Directors June 21,2006 Page 2 2006,Board meeting.The mutual consensus that procedures reflected in current language of the Agreement should not be followed leaves a void as to what procedures should be followed. b.Several IOC Utility GM's expressed their view that chaos would result if AEA gave notice of termination of the Agreement without a subsequent agreement(s)in place, even though actual termination would not occur for four years. c.Several IOC Utility GM's expressed concern that the June 15,2006,deadline for crafting subsequent agreement(s)was one the utilities could not meet in any event. Even if suitable agreement(s)could be crafted,utility board/municipal approvals would take more time. d.In reaction to concerns regarding the June 15,2006,deadline and notice of termination,AEA modified the deadline provision to instead require a showing of real progress towards curing the defects in the Agreement.AEA understands that representatives of the IOC Utilities will describe progress they have made in this regard at the June 21,2006,Board meeting. May 2,2006 -AEA and IOC Utility attorneys meet. This meeting continued,at the attorney level,the thorough discussion of problems with the Agreement and possible resolutions. May 11,2006 -Further clarification of agreement defects and possible cures. Following the May 2,2006 meeting of attorneys,the IOC Utility attorneys requested further clarification of what AEA views as defects in the Agreement.Further clarification was provided on May 11,2006.A copy of the request and response is attached. Subsequent to May 11,2006 -IOC Utility attorneys continue to meet. The !O0C Utility attorneys report that they have continued to meet regarding curing defects in the Agreement.AEA understands that progress on that front will be reported to the Board on June 21,2006. June 2,2006 -!OC Utility attorneys notified by Assistant Attorney General Brian Bjorkquist that the Alaska Intertie Agreement would be an agenda item at the June 21, 2006 AEA board meeting. Alaska Indusirial Development and Export AutharityAIDEA/AAlaska Energy Author ty March 17,2006 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3313 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 Mr.Bill Stewart Interim Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)263-5204 Fax:(907)562-0027 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 RE:Curing Defects in Alaska Intertie Agreement Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)has directed AEA staff to cure defects in the Alaska Intertie Agreement ("Agreement”)that were discussed in a meeting between AEA and IOC utility general managers on July 22,2005,and in subsequent meetings by the 1OC.While soliciting utilities'concerns with the Agreement,the AEA Board raised three primary problems with the Agreement and intertie: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and 3.Lack of compliance with the Agreement's terms and conditions; You will recall that there was a general consensus amongst IOC utility general managers at the July 22,2005,meeting that defects AEA identified in the Agreement could be simply cured by amendment.That course later proved to be unworkable,as amending the Agreement requires unanimous consent,and the IOC utilities could not unanimously agree to any amendments. syo th'+ade te fofaa rr oy "ra an DeoWMesdSSeothiebi3binglttsPenarevanced©Apia Ne Aedage :Naish MIDS DOP BOG SOOO PAS S07 260 Soda ©Toll Froo ALASKA ONLY.BBB TOO-B3 54 saa aide ore March 17,2006 Page 2 The impasse reached on amending the Agreement after the July 22,2005,meeting led Golden Valley Electric Association (GVEA)to propose a "side agreement”approach,under which AEA and certain iOC utilities wouid enter into one or more "side agreements'to address the defecis in the Agreement.In summary,GVEA's proposed "side agreements”would do several things. e The lOC would revert to pre-1993 budgeting mechanisms that reflect current language in the Agreement (e.g.,AEA would make all budgeting decisions after consulting with |OC utilities,rather than those decisions being made by the !OC). e Certain IOC utilities would create and self-fund an R&R account to fund maintenance and repairs,and would control whether and when such funds were expended. e Certain !OC utilities would seek debt financing (including bonding)for maintenance and repair costs in excess of R&R fund. e AEA would remain responsible to contract for maintenance,but without any guaranteed funding source -other than the awkward debt financing mechanisms under which |OC utilities may opt out of the Agreement whenever debt is incurred. e Confirm that Bradley Lake power sales do not require AEA to becomea utility participant to the Agreement. While the "side agreement”approach offers certain improvements aver the status quo,it fails to completely resolve defects in the Agreement,and creates additional problems.For example, while a funding source is created,expenditures would be controlled by certain IOC utilities whereas AEA would remain responsible for contracting for maintenance without any assured funding source. AEA believes that with IOC utility cooperation,curing defects in the Agreement can best be accomplished in two stages.The second stage would implement the long-term cures by amending or replacing the Agreement as discussed in the July 22,2005 meeting.The amendments could not become effective until the earlier of (a)four years from when AEA gives notice of termination of the existing Agreement,or (b)when IOC utilities unanimously agree to the amendments. To cover that gap,the first stage wouid impiement interim procedures based upon GVEA's "side agreement”approach (with some modifications).In order to efficiently implement this two staged approach,June 15,2006 will be the deadline for AEA and tOC utilities to enter both the long-term amendments to the Agreement and the interim "side agreements.”June 15,2006 will also be the date on which AEA will give notice of termination of the Agreement. The second,long-term stage will implement the ultimate cure to the defects in the Agreement. Unanimous approval would not be necessary for the two staged approach.The defects would be cured at the latest four years after AEA gives notice of termination when the existing Agreement would expire and a new agreement would become effective.The Agreements defects could be cured at the earliest when the IOC utilities unanimously agree to needed amendments,a course Matanuska Electric Association (MEA)indicated was possible if the amendments also accommodate certain MEA concerns. AEA believes that for both the long-term amendments and the interim "side agreements,” control over decision-making and responsibility for those decisions need to be held by the same entity.In that regard,AEA does not believe it appropriate to revert to pre-1993 procedures March 17,2006 Page 3 under which operational control by the IOC is substantially diminished.Regardless of who controls the decision-making process,IOC utilities that use the intertie will ultimately pay all intertie costs.IOC utilities would appear to be better able to exercise discretion to exercisewetivwinnambntlanthnWNcobilitianprucentulltyjuagments(é.g.,CHL a repairs anc Expenses)a (east mone ww,Uahiies assume responsibility for those decisions. AEA would like to meet at your earliest convenience to discuss proceeding to cure defects in the Alaska Intertie Agreement. Te (To[ieMiller Executive Director RWM:bjt H:\AEA Projects\Alaska intertie Project\Correspondence\GM2006-01.doc May 4,2006 E-mail From GVEA's Attorney Hi Brian. Lou,Don,Rick,and I talked today in follow up to our meeting on Tuesday.In order to make the progress AEA has requested,it would be very helpful to us if you would prepare a more detailed list of AEA issues (i.e.,elaborate on the funding,management,and technical compliance,or other categories of issues we discussed the other day). Please let me know if there is anything I can do to move things along. The utilities'representatives will try to get together regularly and we will continue to work with you.It would be great if you could provide an estimated time for when we might be able to get your list of issues. Thanks. Jenny Jenny Trieu Ater Wynne LLP (503)226-8699 222 SW Columbia,Ste.1800 Portland,OR 97201 U.S.A. May 11,2006 E-mail to Attorneys Representing IOC Utilities. Greetings: I have been pondering your e-mail requesting more explanation of what AEA requires.I think AEA has been consistent in what is defective about the intertie agreement.For most defects,there are numerous possible solutions that may implicate several different sections of the agreement.AEA has also been consistent that it should not dictate how cures must be implemented.What AEA desires is that defects be fixed,a goal embraced by substantially all GM's last July. This is not intended to be comprehensive.I don't believe AEA can just provide a list of contract sections and articulate how they need to be changed.Instead,I'll try to give you more information,including examples,not to direct any particular fix but rather to hopefully give you more focus on these issues. While I discuss numerous provisions,I believe the most significant defects of the agreement could be fixed by addressing five issues.The first three issues are relatively discrete:(a)amend Art.12 to have the IOC (or a Management Committee)take responsibility for maintenance plans,schedule and budget;(b) amend Art.18 -Indemnity -to provide for collective responsibility for intertie decisions/recommended actions;and (c)provide a viable funding source for major maintenance and repairs.The fourth issue --clarify procedures, responsibilities,etc.related to terms in the agreement that are not being followed --could be addressed section by section throughout the Agreement,or AEA's concerns could more easily be addressed by release and indemnification of AEA from responsibility for non-compliance/ignoring those provisions.A fifth issue I understand arose again in recent discussions in Juneau -whether the Agreement restricts power transfers south (in contrast to certain comments recently made in Juneau,we heard "no”as the answer in RCA/MEA-TLS related discussions;this should be clarified). 1)Decision Making Responsibility. The basic management issue,I believe,is that it would be detrimental to revert to the pre-1993 management (reflected in the Agreement language)under which AEA is ultimately responsible for making budgeting decisions --at least to the extent AEA deviates from recommendations made by the maintenance contractors (as other utilities often recommend)--and which may effectively translate into AEA making significant business decisions that affect intertie and utility operations. GM comments in the July 2005 meeting highlight this issue.GM's advocated that prudent utility practice require utilities routinely to determine the timing for doing major maintenance --(the basic cost/benefit analysis being -spend money now, or attempt to lower the present value cost by deferring the expenditure -- understanding that deferral requires an assumption of risk that damages may occur in the interim that may require greater expenditures,may temporarily put the intertie out of service,or cause other negative impacts). The cost/benefit analysis also directly impacts the economics of the intertie and transferring energy over the line (and therefore impacts the cost of power to Railbelt utilities).The simple analysis provided by certain Railbelt utilities in discussions is that energy transfers over the intertie only make economic sense if the cost differential for energy exceeds the wheeling rate.If it does not,the utility would generate its own power rather than purchase from another as that becomes the lower cost alternative.For example,certain utilities made the point that the intertie could not withstand the cost for inset towers recommended by the maintenance contractor to address snow load,as that debt load would make it uneconomic to transfer power.(It has been argued that this point was never properly presented to the IOC for decision,so the economic cost/benefit analysis of inset towers certainly could be revisited). GM's in the July 2005 meeting advocated that the utilities are better able than AEA to balance these cost/benefit analyses -and make the corresponding best business decision for economic operation of the intertie,and to lower ratepayer costs.For that to work,of course,utilities must take responsibility for their decisions (e.g.,assume risks from deferring maintenance). It should be noted that AEA receives no compensation for owning or taking risk to ensure that the intertie operates.AEA's economic interest is furthered by avoiding risk --an approach that differs from the economic interests of utilities that transmit substantial power over the line,but that likely comports with the economic interests of utilities that transmit little or no power.It therefore should come as little surprise that utilities differ as to the degree to which risk should be taken to operate the line. Current practice is for maintenance scheduling and budgeting to be done at the IOC level.This practice appears to be consistent with what the GM's advocate, but deviates from language in the agreement. -The basic maintenance budget/decision making process is located in Article 12 and in the maintenance agreements: a)Sec.12.1.1 states that AEA will maintain the intertie facilities,but may contract to provide for maintenance.AEA has always contracted for maintenance with MEA (assigned from AEG&T for southern half of line), GVEA (northern half of line)and Chugach (facilities in Teeland Substation). b)Sec.12.2.1 provides that AEA shall develop the maintenance budget,an annual budget and schedule for maintenance,based upon budgets developed by the maintenance contractors.The budget is to be reviewed by participants sufficiently before the beginning of the fiscal year to allow comments for consideration before finalizing the budget. c)The maintenance contracts require maintenance contractors to recommend maintenance plans,budgets and schedules required to satisfy prudent utility practices.See e.g.,Art.III,sec.2 and Art.IV,section 1. In short,the maintenance contractors and operators evaluate and recommend maintenance/operations required to satisfy prudent utility practices;other utilities review and comment;and thereafter AEA determines the budget. The basic operations budget/decision process,located in Article 10,differs from the maintenance budget process in that Participants (not AEA)approve the budget.See Sections 10.3.1 -10.3.5.Another difference is that sec.10.3.6 requires AEA to present the operations budget to the legislature for an appropriation --which would likely be an appropriation of program receipts (i.e., money utilities pay under the Agreement.Current practices does not include such appropriations. Good decision making is also adversely affected by the indemnity provisions in Art.18. 2)Indemnity Provisions. The more I review the Agreement,the more the indemnity provision appears flawed.Art.18 basically provides that each participant shall defend and indemnify all other participates for all actions or omissions pursuant to or under color of the Agreement.This provision appears to do several things. a)It creates a tremendous disincentive for any participant action that benefits the intertie or intertie operations.Action is punished/non-action, non-cooperation is rewarded. b)Most risk appears to fall to operators and maintenance contractors. c)For purposes of budgets,this section suggests that the safest decision for AEA is to simply adopt whatever budget is recommended by the operators and maintenance contractors. d)This section also suggests that operators and maintenance contractors should err on the side of recommending more in the plans and budget,as they would be required to defend and indemnify other participants if they fail to include something in a proposed budget. e)It appears that the "individualized”indemnification provision in Art 18 would need to be replaced with collective responsibility for decisions before the better decision making process advocated by GM's (balancing costs/benefits)could work. 3)Funding Major Maintenance &Repairs. One of the most significant issues AEA has been raising is that the Agreement lacks a viable funding source for necessary repairs and major maintenance.This problem is evidenced by the failure of the IOC to accomplish any of the necessary repairs that the IOC identified more than three years ago --leaving those conditions as disasters waiting to happen --suggests to the AEA Board that it would be harmful to follow the "do nothing”approach the utilities advocate because of utility fears that requiring amendment to fix defects in the agreement may itself result in some disruption. I have heard IOC members articulate that in their view,if a funding source for repairs were obtained,most of the intertie problems would be resolved.This is also an open agenda item for potential cost overruns on the bypass project (Lou is working on the bypass agreement for ML&P). As an example regarding SVC repairs,the IOC at one meeting concluded that the rational approach is to acquire three SVC's at the same time to obtain identical units,so that spare parts can be shared --but the intertie annual budget cannot support such a large expenditure. AEA has met with GM's to discuss alternative funding options.AEA agreed to assist the utilities in funding necessary repairs via bonds or loans guaranteed by certain utilities similar to Bradley Lake financing (i.e.,using a side agreement that is necessary because the existing agreement is inadequate to support debt financing).AEA also forwarded to the GM's financing information they requested,without response. 4)Debt Financing Problems. I think the defects in the Agreement affecting debt financing have been long understood.An earlier "side agreement”proposed by GM's to address the defect was that certain utilities would guarantee debt incurred to make bonds or loans bankable. The Sections of agreement creating the problem include: a)Termination -sec.2.2.2 -any Participant may terminate by giving at least 48 months advance written notice.This effectively limits the term for any financing to 48 months -as the lender has no assurance the agreement will continue beyond that time frame.48 months may be too short for cost effective financing,particularly for large projects. b)Termination -sec.2.2.3 -if AEA encumbers any debt obligation recoverable as an operating expense under Art.8,any participant may terminate their participation in Agreement within 60 days of notice of debt. One consequence of this section is that the funding mechanisms in the Agreement need to be cured before any longer-term debt financing (more than one year)can be used for any particular intertie problem. Otherwise,after debt is used to repair the first problem,there would be no mechanism to fund the second problem to arise because debt financing for the second problem would give all participants an option to terminate the Agreement,which could leave no revenues to repay the debt used to finance the first problem. Failure of Agreement to Assure Repayment of Financed Debt.It is doubtful that any lender would loan funds for necessary project repairs or major maintenance in reliance upon terms of the Agreement. Sections of the Agreement may (or IOC utility members have suggested)fail to ensure repayment of all operating costs --which would include repayment of debt financing: i.Sec.8.4.2 enables utilities to avoid their obligation to pay if "it can be demonstrated that APA has not met its responsibility to maintain the transmission line in accordance with Prudent Utility Practices.” It should be noted that by contract with AEA,MEA &GVEA have assumed this maintenance responsibility. ii.Sec.8.4.6 --Utility IOC members have suggested that this section might mean that there is no mechanism to recover revenue deficiencies.The section applies if "revenues received under Subsection 8.3 [are]less than actual intertie costs..."Because Subsection 8.3 only applies to the first year's budget -utility members have suggested that there is no mechanism for recovering revenue deficiencies in later years.This needs to be Clarified,as an interpretation that there is no mechanism for recovering deficiencies would likely preclude debt financing made in reliance on the Agreement. [A conclusion that Sec.8.4.6 only applies to the first year's budget would merely suggest that the Agreement is silent as to how revenue deficiencies will be recovered in later years --which means recovery could be different than by MITCR which is the mechanism used in sec.8.4.6.A utility member's suggestion that the state is somehow obligated to pay under those circumstances conflicts with Section 8.1 which provides that Utility Participants shall pay all O&M costs,and ignores the practical reality that AEA has no funds to pay.In any event,this needs to be clarified.] d)No Ability to Save Excess Revenues.Section 8.4.5 requires any excess annual revenues to be returned to the utilities,precluding an R&R fund,a special project fund,or similar savings mechanisms that could be used to plan for funding major maintenance or repair items. (Amending this is dependent upon which funding mechanism utilities choose). 5)Disregarding Agreement Provisions. The IOC cataloged in a spreadsheet sections in the Agreement that have not been followed,generally since 1993.Copy attached.Of greatest concern to AEA are the sections which provide AEA is to make a decision or take an action, which are instead decisions that are being made by the IOC or are actions that are being ignored.AEA needs protection from claims it has breached the agreement. For sections regarding actions or decisions by other parties that are being ignored,AEA also needs protection from claims that AEA should compel compliance by the non-performing party. The suggestion that AEA is currently making decisions per the terms of the Agreement by deferring decision making to the IOC is very disturbing,and illustrates why the language in the agreement needs to reflect the intentions and expectations of the parties.AEA should not be subjected to after the fact assertions that it has failed to do,or to enforce,aspects of the Agreement that everyone now appears to agree should be ignored. Whatever the rules are to be,they must be clarified (at least as to AEA). Alternatively,with an indemnification of AEA and with clarification of intent,it might be possible that AEA to agree to allow the IOC to continue simply to disregard the Agreement and have no written procedures that accurately reflect procedures.That approach would take further review. Additionally,AEA desires to clarify the circumstances under which it must become a utility participant.Sec.4.1.1 says AEA will becomea utility participant when it sells power to a party not a participant.Seward has purchased Bradley Lake power for more 16 years or more.That AEA did not become a utility participant 16 years ago appears to reflect a recognition that it was unnecessary. Sec.7.7 gives AEA the right to transfer power to participants of Bradley Lake,so perhaps the sales were contemplated but not clearly articulated in the agreement. I understand from the 11/29/05 outline that Bradley Lake power sales are not the problem,but there is desire to have some provision related to additional AEA power sales (probably a theoretical issue,at least as long as AEA may not develop new power projects).The question to Utilities is what do you have in mind? 6)Transferring Power North and South. The ability/rights under the Agreement to transfer power both north and south needs to be clarified.AEA understands that suggestions/arguments have been advanced that power can freely go both ways,or alternatively that power can only go south.The inconsistent positions taken should be clarified.