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HomeMy WebLinkAboutAEA Board Meeting Aug 23 200712 18 24 30 LISTOFITEMS for board meeting --8-23-07 AIDEA -AEA QUESTIONS /INTRODUCTION CAMERA BOARD MEETINGS for the Public Viewing COAL ---"its time has come and gone”-Unless its to make hydrogen Gas dirty fuel death fuel dark fuel wedge fuel fuel by occupation *predasite fuel *(predator and parasite hybrid =predasite) TECHNOLOGY CONFERENCE No Scholarships for poor people like me Your full weight of respect,authority,recognition,for Cameras 1981 241 pages "Hydrogen use in Alaska”study -26 years ago,the stuff dreams are made of. HYDROGEN FUEL PROJECTS NOW --(10 statewide)-based on single family home models HYDRO-ELECTRIC --1 to 4 statewide o---28 +pages of near cryptic,disconnected,and wrinkled thoughts with content and outline for a start to -a plan to change the world. Paul D.Kendall 907-222-7882 Lo ane wxAIDEN./EALASKAcDAUTHOR+WY Alaska industrial Development ENERGY AUTHORITY Export Authority woNoa10. AGENDA Alaska Energy Authority Board of Directors August 23,2007 Anchorage,Alaska Following AIDEA Board Meeting CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES -May 29,2007 OLD BUSINESS NEW BUSINESS A.Presentation by DOT&PF regarding Rural Alaska Infrastructure 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)888/300-8534 ¢www.akenergyauthority.org NY /=ALASKAqa)ENERGY AUTHORITYFRACaromaetenment ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS August 23,2007 12:06pm Anchorage,Alaska MEETING MINUTES 1.CALL TO ORDER Chairman Notti called the meeting of the Alaska Energy Authority to order on August 23,2007, at 12:06 p.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Commissioner Emil Notti,Chairman (Department of Commerce, Community &Economic Development);Deputy Commissioner Brian Andrews (Designee for Department of Revenue);Commissioner Leo von Scheben (Department of Transportation &Public Facilities);Mr.John Winther,Vice Chair (Public Member). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ron Miller (Executive Director);Chris Anderson (Deputy Director - Credit &Business Development);Sara Fisher-Goad (Deputy Director -Operations);Brenda J.M. Fuglestad (Admin Manager);Mike Harper (Deputy Director -Rural Energy);Linda MacMillan (Accountant);Amy McCollum (Controller);Karl Reiche (Projects Development Manager);Karsten Rodvik (Project Manager);Sherrie Siverson (Admin Asst);Jim Strandberg (Project Manager). Others present:John MacKinnon (Deputy Commissioner,Highways &Public Facilities);Mike Mitchell (Department of Law);Jan Sieberts (Washington Capital Management);Paul Kendall (Public Member). 4.PUBLIC COMMENTS Mr.Paul D.Kendall discussed several issues.He asked if it was possible to put cameras in the upcoming Technology Conference in October so the public could view the proceedings and asked to meet with Board or staff members to discuss Hydrogen Use in Alaska. 5.PRIOR MINUTES -May 29,2007 The May 29,2007 minutes were approved as presented. 6.OLD BUSINESS No old business. 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 August 23,2007 Meeting Minutes Page 2 7.NEW BUSINESS 7A.John MacKinnon,Deputy Commissioner,Highways &Public Facilities Presentation regarding Rural Alaska Infrastructure Deputy Commissioner John MacKinnon provided an overview.DOT&PF is looking at the feasibility of building roads between rural villages that are in close proximity which could lead to consolidation of services in the villages and reduce the costs for:duplication of power plants, schools,landfills,and health clinics. He displayed a map which was developed 3-4 years ago when former Commissioner Blatchford was putting together a program called "Access to the Future”.The intent was to combine this program with former Governor Murkowski's dream of industrial resource development roads. Resource development and community access roads could provide accessibility between villages and eliminate duplication of services. Different roads have been proposed and are shown on the map:a road west from Fairbanks that could eventually lead to Nome;an extension of the road between Williamsport and Pile Bay connecting to the Pebble Mine and ultimately all the way down to the Alaska Peninsula;a road between King Cove and Cold Bay;and roads connecting Chignick Bay,Chignick Lagoon,and Chignick Lake. Proposed industrial development roads shown on the map included the Bullet Point Road towards Point Thompson;the Coleville River Road which could potentially access NPRA;a road from the Parks Highway to McGrath connecting to Ophir and eventually to Donlin.This could provide an opportunity to tap into railbelt power and connect it to Donlin. DOT&PF owns,operates and maintains 258 airports in the State including Anchorage and Fairbanks International airports.Of those,approximately 232 airports are in communities where air service is the only way in and out.The lead explorer at Donlin is considering an 80-mile pipeline to Kalskag on the Kuskokwim River.However,they are concerned about the siltation rate in the river and the inability or risk of getting fuel up because of low water levels.This has caused problems in getting construction equipment into McGrath this year. There has been a lot of thought put into road connections for a variety of uses from industrial resource access to connecting communities in a way to achieve savings in their cost of living. DOT&PF has been working on a case study for roads on Nelson Island in Western Alaska.The surrounding areas including Nunavak Island,are very spongy and difficult to build on.Nelson Island is volcanic core with fairly competent material.There are three villages on Nelson Island; Tununak,Toksook Bay,and Nightmute.A fourth village will be established about eight miles away when Newtok relocates to Mertarvik. The three villages passed resolutions and came to DOT&PF approximately four years ago saying they would like to explore the concept of connecting the three villages by roads. Nightmute is up river with no access to salt water or port facilities.Toksook Bay was established approximately 100 years ago when residents migrated from Tununak.Populations vary from approximately 300 each in Nightmute and Tununak to 600 in Toksook Bay,which is the youngest,biggest and most progressive.Toksook Bay received a new airport approximately 5 years ago and construction is scheduled to begin on one in Nightmute. AEA Board Meeting August 23,2007 Meeting Minutes Page 3 Tununak needs a new airport but is surrounded by prehistoric house pits prohibiting construction in the area. After a number of visits with the people of the Nelson Island Villages,we are very close to completing an environmental assessment for the road system.It is quite impressive that an EIS was not required because of scoping meetings and meetings with the villagers.It is located in the clearance road unit of the National Wildlife Refuge,so Fish &Wildlife Service didn't have any concerns.Because no one had serious objections to the road,Federal Highways allowed DOT&PF to proceed with an environmental assessment instead of requiring an environmental impact study. The benefits of building these roads include:consolidating schools between the three villages with the potential for a wider variety curriculum;reduce landfills as they are quite expensive to maintain;operate one power plant and add transmission lines instead of a plant in each village. AVEC is in the process of building a transmission line between Toksook and Tununak and have built several wind generators and new bulk fuel storage in Toksook.Villagers voiced concerns that consolidation would reduce jobs in their communities and were worried about what they would lose,not what they would gain.Potential gains include:a professional health technician who could provide a high level of care;consolidating schools could provide jobs as bus drivers; the potential for a deep water port could provide a variety of jobs.A deep water port could provide a way to barge in freight and reduce the cost of shipping everything by air with bypass mail.Bypass mail for these three villages currently costs between $1 and $1.2 million dollars a year.A 5-year KAE study commissioned by the communities estimated that connecting them byroadswouldsaveeveryresidentapproximately$1000 a year in efficiencies:lower cost productforfuel,lower energy costs,lower food costs,and lower transportation costs. One of the other things we looked at is the potential of this island to become a regional material source.We found some very competent rock material we can build roads with.We could set up crushers and makea variety of aggregate products. In response to a question by Mr.Miller,Deputy Commissioner MacKinnon stated that the rock can be used as armor rock for breakwater construction. Commissioner von Scheben added that in addition to eliminating duplicate services,there is potential for a deep water port here to become a port of refuge.He asked AIDEA and AEA to work in conjunction with DOT&PF in exploring the possibility of tying future transmission line construction with road system construction. In response to a question from the Board,Deputy Commissioner MacKinnon stated that there are no minerals of any value on Nelson Island,just aggregate rock. He stated that other State agencies would have to be involved in consolidation of services between villages,especially the Department of Education and how the funding they receive is allocated.The cost of operating each airport is approximately $15,000 dollars a year and this is contracted to local village corporations and communities.Building 25 miles of road to connect these three communities would add approximately $100,000 a year.This could result in approximately $145,000 a year in operating costs,so from DOT&PF's perspective it doesn't make sense to combine them.But if you look at the synergies of connecting them,the cost AEA Board Meeting August 23,2007 Meeting Minutes Page 4 savings of a single landfill,single bulk fuel,single power plant,the economies of scale,it makes sense. In response to a question from Mr.Miller,Deputy Commissioner MacKinnon stated that the report looked at the cost of power.At the time it was estimated a cut of ten cents off the cost per gallon of fuel,which was translated into the report as $1000 dollars per capita annually. Mr.Miller asked Mike Harper to give the Board an update on transportation projects that AEA is working on through the Denali Commission. Mr.Harper reported that George Cannelos,the Federal Co-chair,asked AIDEA and AEA to get involved with the Denali Commission because we were doing a lot of construction in rural Alaska.He said there could be some synergies in using our engineers,consultants,design people,and construction managers to bring smaller construction projects into the bush.We are going to look first at Southwest Alaska and the Village of Kwethluk just signed an agreement to look at a road/barge landing project.Normally our mission is to build power plants and bulk-fuel tank farms,although we are also looking at alternatives such as wind,small hydro,and biomass.It is extremely expensive to bring in heavy equipment to remote rural areas,so it makes sense to look at using the heavy equipment that you bring and use it for other projects: schools,water and sewer systems,and power systems.AIDEA and AEA would be happy to work with the Denali Commission and with DOT&PF in tying potential future projects together. 8.DIRECTOR COMMENTS 8A.__Director's Status Report of AEA Programs and Projects Mr.Miller stated that he would like to budget an hour at the next board meeting for an overview of alternative and renewable energy projects that AEA is working on.A project that AEA has been working on for quite some time is a build-around on the extension of the Alaska Intertie. There was an appropriation to build a 19-mile bypass at the southern end of the Matanuska Electric Alaska (MEA)owned portion of the Intertie.A bypass of the transmission lines owned by MEA has been incorporated in to the Alaska Intertie by agreement.Mr.Strandberg has just received a notice-to-proceed and ML&P is working on some of the filings including the contract. We need to do some additional detailed design and engineering work and then construction can begin. Mr.Strandberg reported that ML&P will begin construction after the design work is complete. Mr.Miller introduced Kris Noonan,Program Manager,and Paul Ahlin and Curtis Hanson,Rural Electric Utility Workers,to the Board as part of the team that responded to the recent emergency fire at the Beaver Power plant.A welding accident caused a fire that destroyed the entire power plant,which was not an AEA project.After notification by Emergency Services, AEA responded by shipping a standby generator and two technicians to Beaver.They had the electricity up and running in time to save the community's subsistence harvest,which was stored in refrigerators and freezers.They are still operating on the standby generator and we are working with them to find a more permanent solution to the problem.One bay in a u-domed steel vehicle storage building has been made available for a new power plant. AEA Board Meeting August 23,2007 Meeting Minutes Page 5 8B.Next meeting date. The Board will be polled for the date of the next meeting. 9.BOARD COMMENTS There were no comments. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 12:37 p.m. RonMiller,Secretary Alaska Energy Authority ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS May 29,2007 10:50 a.m. Anchorage,Alaska MEETING MINUTES 1.CALL TO ORDER Chairman Notti called the meeting of the Alaska Energy Authority to order on May 29,2007,at 10:50 a.m.A quorum was established.« 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Commissioner Emil Notti,Chairman (Department of Commerce,Community &Economic Development);Mr.Mike Barry,Vice Chair (Public Member);DeputyCommissionerBrianAndrews(Designee for Department of Revenue);Commissioner Leo vonScheben(Department of Transportation ¢&Public Facies):Mr,John Winther (Public Member). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ron Miller (Executive Director);'Chris Anderson (Deputy Director -Credit &Business Development);Brenda Applegate (Controller);Sara Fisher-Goad (DeputyDirector-Operations);Brenda J.M.Fuglestad (Admin Manager);Leona Hakala (Loan Officer); Mike Harper (Deputy Director -Rural Energy);:Chris Mello.(Program Manager);Karl Reiche (Projects Development Manager);Karsten Rodvik (Project Manager);Mark Schimsheimer (Project Manager);Sherrie Siverson (Admin Asst);Jim.Strandberg (Project Manager);Valorie Walker(Deputy Director -"Finance);and John Wood (Technical Engineer).Others attending:Brian Bjorkquist (Department of Law);Judy Bockmen (Department of Law); Tim Bradner (Journal of Commerce);Kathryn Lamal (Golden Valley Electric Association);Mike Mitchell (Department of Law);and Jan Sieberts (Washington Capital Management). 4.PUBLIC COMMENTS ©. No public comments... 5.PRIOR MINUTES -March 19,2007 The March 19,2007 minutes were approved as presented. 6.OLD BUSINESS No old business. AEA Board Meeting May 29,2007 Meeting Minutes Page 2 7.NEW BUSINESS No new business. 8.DIRECTOR COMMENTS A.Director's Status Report of AEA Programs and Projects The status of AEA projects will be reviewed during the work session. B.Next meeting date The Board will be polled for the date of the next meeting.°. 9.BOARD COMMENTS There were no comments. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 10:55 a.m.WE bs Ron Miller,Secretary,Alaska Energy Authority __ QO©QO©OOOOOQOOOOODO©©QOOOOOOINDUSTRIAL DEVELOPMENT ROADS DIVISION ofNJ Barrow Dalton Highway to Bullen Road (®))Yukon River Port and Road STATEWIDE PLANNING Network an North Slope Oilfield Connector Roads &Colville River Bridge Crooked Creek to Donlin Creek Mine Road Western Arctic Coal Access Road DeLong Mountain Terminal Port Access Glacier Creek Road to Rock Creek Mine Chena Hot Springs to Circle Hot Springs Road Pogo Mine Access Road Nenana -Tokchaket Access McGrath Road Ruby to McGrath Road Kennicott -McCarthy Road Shepard Point Road and Port G5)Williamsport to Pile Bay Road Pile Bay to Iliamna Road a@ IHiamna to Pebble Copper Road @ Ifiamna to Naknek Road Alaska Peninsula Road ALASKA COMMUNITY ACCESS ROADS Walden Point Road Ketchikan Gravina Island Bridge Hydaburg Road Reconstruction Kasaan Road Reconstruction Coffman Cove Road Naukati Road (Ketchikan to Shelter Cove Under evaluation -SE Plan) (Shelter Cove to Bradfield Canal Under evaluation -SE Plan) Bradfield Canal Road (Wrangell to Fools Inlet) Under evaluation -SE Plan) Kake to Petersburg Road Sitka to Baranof Warm Springs Juneau Second Channel Crossing =)c3aac'wxiJwo=w<bs)fo)5)aKing Cove to Cold Bay Chignik Connectors 4G?)Naknek River Bridge (8)Ekuk to Clarks Point Road Wood River Bridge @9)Seldovia to Port Graham RoadQi)Tliamna to Nondalton RoadQ@2KnikArmCrossing@3)Nelson Isiand Village Connector Tetlin to Alaska Highway Connector @5)Healy Lake Road Yukon River Highway Q?Eureka to Rampart Road Stevens Village to Dalton Highway Road Bettles to Dalton Highway Road Kobuk to Shungnak Road August,2007 V4.0 Alaska _road_development_Mike_v4_L.cdr 42ep i (GO)Kobuk Shungnak Anaktuvuk Passe VSP Status of AEA Transmission Line Projects -August 2007 Alaska Intertie Project The Alaska Intertie transmission line is a 170 mile long,345 kV transmission line between Willow and Healy that is owned by the Alaska Energy Authority (AEA).The intertie was built in the mid-1980's with State of Alaska appropriations totaling $124M.There is no debt associated with this asset. Alaska Intertie Agreement The operation of the Intertie is governed by the "Alaska Intertie Agreement”that was negotiated between the Alaska Power Authority (the predecessor of AEA)and five utility participants.This agreement was signed in December of 1985 and amended in 1991 to include insurance provisions. Chugach Electric Association (CEA),Municipal Light and Power (ML&P),Alaska Electrical Generation and Transmission (AEG&T)!,and Golden Valley Electric Association (GVEA)are interconnected to the Intertie and can move power on the Intertie under the terms of the Alaska Intertie Agreement (Agreement).The interconnected system of utilities,tied together with the Intertie,is collectively termed the "Railbelt Energy System”. Both functional operation of the transmission line as well as arrangements for the collection of an expenditure of annual operations and maintenance funds are a part of the Agreement.The Agreement assigns operational responsibility and specifies a governance structure that consists of representatives of participating utilities and AEA.There are a number of other agreements that assign maintenance responsibility. The Agreement specifies,through interconnection terms and conditions,how utilities are allowed access to the Intertie.Each utility is required to maintain a certain level of spinning reserve to preserve the reliability of electrical supply throughout the network and to cooperatively manage the power flows on the transmission line. In October 2006,AEA gave the participating utilities 48 months advanced written notice of the intent to terminate the Agreement. 'AEG&T is comprised of Matanuska Electric Association (MEA)and Homer Electric Association (HEA). Attempts to Cure Alaska Intertie Agreement Defects -History AEA staff first presented a report on the Intertie at a meeting on June 30,2003, pointing out problems with the Agreement.AEA engaged in extensive cooperative interaction with the Utility Participants to seek solutions to the deficiencies in the Agreement in the intervening time period.When participants failed to agree to any amendments to cure defects,2 and determining that the defects were serious,on October 16,2006 AEA Executive Director Ron Miller gave notice of terminating the Agreement in accordance with a board resolution (Attachment A). In the notice of termination letter (Attachment B)the Executive Director pointed out that the AEA list of defects does not deal with interconnection issues,and that AEA seeks to clarify the business relationship for the management and maintenance of the line. Current Project Activity e Ongoing owner activities,including monitoring of operation,and financial management of operations and maintenance activities through participation in the Intertie Operating Committee. '©AEA serves as financial administrator,providing basic accounting services to establish a cost-based wheeling rate that is trued up each year.AEA collects payments from Intertie users and pays expenses,including reimbursement of costs incurred by the two operators of the line,ML&P and GVEA,and the three maintenance contrators,MEA,CEA,and GVEA.At the end of each year AEA trues up the project account and either sends out refunds or collect the shortfall from the utilities so that users of the line pay only for the actual cost each year of Intertie operation.There is limited ability to recover debt service that is spread over a time period greater than one year;therefore,debt financing has not been used to date. e Renegotiation of the Agreement -AEA will prepare for discussions with utilities; which could begin in Fall 2007. e There have been operational problems with a 25-mile segment of intertie lines that stretch south from Willow to the Teeland substation on Knik Goose Bay Road.This line is owned and maintained by Matanuska Electric Association. While not a part of the AEA owned Intertie,this line operates to convey power to the point where AEA ownership begins,at the Douglas Substation.The difficulties on the 25-mile segment have resulted in the Alaska Intertie being off-line during each of the 10 recent fault events. 2 Some difficulty arose because the agreement requires a unanimous vote of participants to implement any amendment.To avoid this difficulty,AEA proposed a two-step process to cure defects without unanimous agreement of participants.First,appropriate amendments to cure defects would be negotiated with participants,and would have to be agreed by AEA and one or more participants.Second, AEA would give notice of terminating the agreement,so that the previously agreed amendments could take effect no later than 48 months later (earlier if participants unanimously agreed). H:\AEA Projects\Status of AEA Projects August 2007 final.doc Page 2 of 6 Unified System Operation Description:This project is funded by a legislative appropriation of $800,000 to studytheRailbeltGridAuthorityConcept.3 The Grid Authority concept envisions a unified system to dispatch generation and power flows.AEA will analyze this Grid Authority concept to establish whether it is of benefit for the Railbelt ratepayer and how it should be managed. AEA will conduct a technical conference to provide education on electrical network interconnectivity and terminology.AEA will also hire a consultant to consider the current regulatory regime of the Railbelt and business structures currently in place. The consultant will define different levels for management of the Railbelt Electrical Grid. For the range of Grid Authority concepts considered feasible,AEA will require the Consultant to provide an implementation plan that describes the utilities',RCA's and AEA's required actions,and provide a schedule and critical path analysis. AEA initially invited the Railbelt utility general managers to serve on an advisory group to assist in accomplishing the study.This panel included the general managers of Railbelt Electric Utilities that have defined service areas.Presently,the panel does not include Aurora Energy (AE)which generates electricity in Fairbanks,but has no defined service area or other potential interconnected generators in the region.There is additional work to determine the right makeup of the advisory group.Notably,the concept of an over-arching steering committee that involves more of the economic stakeholders in the Electric Grid is being considered. Status:Project Request for Proposal (RFP)is in formulation.Initial advisory group meeting has been held and minutes for the meeting are on the AEA web page at http://www.akenergyauthority.org/USOQHomePage.html.AEA will complete the RFP in the near future. MEA TLS Bypass Project Description:The Legislature appropriated $20.3M to AEA in 2002 to upgrade and extend the Anchorage to Fairbanks power transmission intertie ("Alaska Intertie”)to the Teeland substation on Knik Goose Bay Road in the Matanuska-Susitna Borough. The project is an integral part of the Alaska Intertie and will replace approximately 25 miles of an existing transmission line operated at 138 kV,owned by MEA+. 3 The legislation reads as follows: (i)Any balance remaining in the Railbelt energy fund (AS 37.05.520)and interest earnings of the fund,after the appropriations made in (a)-(h)of this section and not to exceed $800,000,is appropriated to the Department of Commerce,Community,and Economic Development,Alaska Energy Authority,for the study of the Railbelt Electrical Grid Authority,an independent system operator,to manage and dispatch electric power on the Railbelt grid. 4MEA has terminated a use agreement with AEA that previously allowed use of 20 miles of the existing line in conjunction with the Alaska Intertie.Certain Railbelt utilities are authorized to continue to use this 20 miles through January 1,2014,solely under an RCA order.An agreement between MEA and AEA authorizes perpetual use of the remaining 5 miles of existing line,until it is no longer needed as part of the Alaska Intertie.However,as MEA's transmission needs grow,AEA is guaranteed a total of 4(OMW. H:\AEA Projects\Status of AEA Projects August 2007 final.doc Page 3 of 6 Construction of this bypass line will parallel the existing MEA owned line,and allow the present MEA owned intertie link,20 miles of which is insulated at 115 kV and operated at 138 kV,to return to MEA control and service.Continued use of this 20 mile portion of the 25 mile MEA asset by certain Railbelt utilities until January 1, 2014 has been provided for through an RCA order. Status:The Contract with ML&P has been signed.The first element of work under the contract is due to begin soon. Eklutna Project Transmission Line Upgrade The Legislature appropriated $19.3M as a grant to the Municipality of Anchorage, Municipal Light and Power for an Eklutna project transmission line upgrade.AEA was named as grant administrator. The project consists of rebuilding the 50-year old existing 115 kV wood-pole electric transmission line from the Eklutna Hydroelectric Plant to the point where the Beluga 230 kV electric transmission line intersects the line (near Briggs Tap/Fossil Creek), spanning a distance of 22.5 miles.The project is being constructed in the same alignment and will upgrade the existing single circuit line to a double circuit line. Status:Project is at 95%completion and is expected to be completed this year. Southeast Alaska Intertie Projects AK-BC Intertie Project Description:The Legislature appropriated $3.2M to AEA to analyze and confirm the feasibility of a transmission line project that would: e Connect two parts of the Four Dam Pool service area,and the two major Southeast hydro electric power plants in the Ketchikan-Wrangell-Petersburg region through construction of a 67-mile electrical transmission intertie.The completion of this intertie would allow Lake Tyee unused capacity to power Ketchikan,which is presently short of power. e Connect the Four Dam Pool transmission system into the Canadian grid,and thus gain access to power markets either in Canada or US Pacific Northwest. As part of the project concept,the construction of a transmission backbone would entice private or local government entities to develop a number of hydro power projects that could produce as much as LOOMW of power for use in southern Southeast Alaska or be exported.The bulk of the projects appear to be in the Thomas Bay area near Petersburg. H:\AEA Projects\Status of AEA Projects August 2007 final.doc Page 4 of 6 AEA hired Hatch Energy to determine project feasibility;the company is approximately 90%through its scheduled work scope and delivered a draft final report on April 5, 2007.The draft final report supports the Swan-Tyee Intertie as being economically feasible,and indicates the export intertie link shows economic promise,but cannot be definitively determined at this time.The contractor is on schedule and within budget. Of the $3.2M available funding,AEA will have expended approximately $406,000 through August 15,2007. This project has an advisory committee and steering committee to assist AEA in proper administration of funds.5 The committees have participated actively in the formulation of the consultant's scope of work and selection of a consultant.The work of the consultant and the recently released interim feasibility report have been reviewed and approved by the work group. All advisory meetings have been advertised as public meetings and have been well attended by all work group members as well as interested members of the public and legislative staff.Detailed meeting minutes are published and are available on the AEA web page dedicated to this project. The project manager continues to maintain contact with Canadian power companies on the disposition of proposed Canadian transmission lines. The AFA project manager has sent review comments to the Contractor and expects a final report in October 2007. The advisory group recommended additional work to include: e Discussions with the Governor's office and key legislators to seek administration concurrence to long-term commerce between Alaska and British Columbia.(This is being accomplished by the Southeast Conference and other Southeast interests.AEA is not involved. e Continue coordination by the AEA project manager with Canadian power utility officials on the status of British Columbia plans for transmission line construction near the Alaska border. e Further project definition work should include conceptual design and cost estimates for the Thomas Bay projects and transmission line routes.In particular,the group recommended a review of transmission line costs for the Kake transmission line which likely can be constructed along a public road right-of-way with reduced construction costs. 5 Membership of the committees are on the AEA AK-BC Intertie project web page under "participants.” The Committees consist of a mix of utility representatives and local government representatives designed to reflect a cross section of stakeholders. H:\AEA Projects\Status of AEA Projects August 2007 final.doc Page 5 of 6 Four new members were added to the advisory group:Robert Prunella (City Manager,Wrangell),Steve Henson (Wrangell Municipal Light and Power Electrical Superintendent),Jodie Mitchell (incoming general manager of IPEC -utility serving Kake),and Robert Grimm (CEO of Alaska Power and Telephone). .At the request of the advisory group and Southeast Conference,AEA commented on the Tongass Forest Plan to assure that all transmission line corridors are included in the plan and to provide factual data on the benefits of availability of low cost hydro power energy to make communities sustainable and to reduce the carbon emissions from diesel power generation.These comments were prepared by AEA through its consultant. The administration coordinator from the Department of Natural Resources (DNR) called AEA prior to the comment deadline and requested the AEA comments be forwarded to DNR for their consideration and integration into the State's comment package.AEA's comments were not included. However,the DNR coordinator invited the AEA project manager to participate in a joint State-Federal work group to review the forest plan and associated EIS.AEA participated in this work group and sent its comments to the forest service. H:\AEA Projects\Status of AEA Projects August 2007 final.doc Page 6 of 6 Attachment A ALASKA ENERGY AUTHORITY RESOLUTION NO.2006-04 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO THE ALASKA INTERTIE;NOTICE OF TERMINATION OF THE ALASKA INTERTIE AGREEEMENT;AND RELATED MATTERS WHEREAS,the Alaska Energy Authority (the "Authority”)owns the Alaska Intertie; WHEREAS,the Alaska Intertie Agreement is an agreement related to the Alaska Intertie among the Authority and the Municipality of Anchorage d/b/a Municipal Light and Power; Chugach Electric Association,Inc.;Golden Valley Electric Association,Inc.;and Alaska Electric Generation and Transmission Cooperative,Inc.(collectively the "IOC Utilities); WHEREAS,the Authority and IOC Utilities have certain rights and responsibilities under the Alaska Intertie Agreement for the use,operation and maintenance of the Alaska Intertie, with many duties addressed collectively by the Authority and IOC Utilities within the Intertie Operating Committee ("IOC”); WHEREAS,the Alaska Intertie is an integral component of the Railbelt energy transmission grid,and is essential for the transmission of electric energy between Fairbanks and Anchorage,enables the systems of various 1OC Utilities to provide economical electric energy to Railbelt customer ratepayers,and enables the systems of various IOC Utilities to sell economy energy to other Railbelt and IOC Utilities for their systems to provide economical electric energy to Railbelt customer ratepayers; WHEREAS,the Authority,IOC Utilities,and !OC have individually and collectively identified defects in the Alaska Intertie Agreement that,if not cured,are likely to eventually disrupt the safe,reliable and efficient operation of the Alaska Intertie and the transmission of economical electric energy for the benefit of various Railbelt and 1OC Utility systems and their customer ratepayers; WHEREAS,the Authority,IOC Utilities,and IOC have individually and collectively undertaken considerable efforts attempting,without success,to negotiate and implement cures to the identified defects in the Alaska Intertie Agreement that,if not cured,are likely to eventually disrupt the safe,reliable and efficient operation of the Alaska Intertie and the transmission of economical electric energy for the benefit of various Railbelt and IOC Utility systems and their customer ratepayers; WHEREAS,Section 2.2.2 of the Alaska Intertie Agreement provides,in part,that "[the Authority]may terminate [the Alaska Intertie Agreement]by giving at least 48 months advance written notice when {the Authority]determines such action to be required to improve Power systems serving the Alaska Railbelt Utilities;” WHEREAS,certain 1OC Utilities have informed the Authority that the 1OC Utilities are making significant progress towards developing amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,”which collectively will address the defects in the current Alaska Intertie Agreement,and have requested additional time to complete that process and negotiate amendments and,if necessary,additional side agreements with the Authority; and WHEREAS,matters related to this Resolution 2006-04 are more fully described and documented in further detail in the Memorandum with Attachments accompanying this Resolution 2006-04. NOW,THEREFORE,BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.The Authority finds and determines that,for the reasons more fully described and documented and in the Memorandum with Attachments accompanying this Resolution 2006-04,all of which is incorporated herein by reference,that the Authority giving 48 months advance written notice of terminating the Alaska Intertie Agreement is "required to improve Power systems serving the Alaska Railbelt Utilities”as that phrase is used in Section 2.2.2 of the Alaska Intertie Agreement. Section 2.The Authority finds that,based upon representations by certain IOC Utilities that the lOC Utilities are making significant progress towards developing amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,”which collectively will address the defects in the current Alaska Intertie Agreement,and have requested additional time to complete that process and negotiate amendments and,if necessary,additional side agreements with the Authority,that additional time should be provided to IOC Utilities,and that notice of termination should not be given until September 1, 2006; Alaska Intertie Agreement Resolution No.2006-04 Page 2 Section 3.The Executive Director of the Authority is authorized,directed,and empowered to implement this Resolution by giving 48 months advance written notice of terminating the Alaska Intertie Agreement pursuant to Section 2.2.2 of the Alaska Intertie Agreement if the IOC Utilities fail by September 1,2006,to negotiate and execute final amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,” acceptable to the Authority,which collectively will address the defects in the current Alaska Intertie Agreement. Section 4.The Executive Director of the Authority is authorized and empowered to take any and all actions appropriate and consistent with this resolution. Section 5.This Resolution shall become effective immediately upon its passage and approval. DATED at Anchorage,Alaska,this 10th day of July 2006. ATTEST /Chair [SEAL] Secrefary Alaska Intertie Agreement Resolution No.2006-04 Page 3 tin *&*%Alaska industrial DevelopmentandExportAuthority Be)ENERGY AUTHORITY MEMORANDUM TO:Board of Director Alaska Energy Authority FROM:Ron Miller Executive Director DATE:July 10,2006 SUBJECT:Alaska Intertie Agreement,Resolution No.2006-04 At the June 21,2006 meeting,the Board instructed Staff to report on the effects that would arise if the Authority gave notice of termination of the Alaska Intertie Agreement,and provide Staff findings regarding whether it is necessary for the Authority to give notice of termination.As background for addressing those matters,this memorandum will first outline the defects of the Alaska Intertie Agreement that have been extensively discussed with the Intertie OperatingCommittee(IOC)Utilities over the past few years.' A.Alaska Intertie Agreement Defects. One fact upon which all IOC utilities agree is that at least some modifications to the Alaska Intertie Agreement are necessary to ensure that the intertie remains a safe and reliable energy resource for the Railbelt.This view is evident from the minutes of both the July 22,2005 meeting with Railbelt General Managers and the June 21,2006 Board Meeting.While the lOC utilities appear to disagree as to how well the intertie has operated in the past under the current Alaska Intertie Agreement,there is consensus that modifications are necessary to prevent future operating disruptions and to ensure safe,reliable and efficient operation. The defects in the agreement fit into four major areas: 'The problems with the Alaska Intertie Agreement have been extensively addressed by the Board,and between the Authority and IOC Utilities.The more significant documents in the record include (a)Minutes from the June 21,2006 Board meeting;(b)June 21,2006 Memorandum to the Board Re:Alaska Intertie Agreement,with attachments;(c)August 17, 2005 letter from Ron Miller to Railbelt Utility General Managers,with attachments including transcripts from July 22,2005 Alaska Intertie Work Session and from July 21,2005 IOC meeting,and Alaska Intertie Repairs Financing Scenarios;(d)Outline for April 21,2006 Alaska Intertie Agreement Meeting (with General Managers);(e)IOC Proposed Amendments to Alaska Intertie Agreement;and (f)June 24,2005 letter from Ron Miller to Railbelt Utility General Managers.A copy of these documents is attached. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 vanana aida ara e AN7/IEG_INNN ©FAX ON7/IAQ_ANAA @ Toll Froe fAlacka Qnty)RRR/ANN_REIA @ nana aleaneravantharitv ara Board of Directors July 10 Page 2 ,2006 1)Funding Major Maintenance &Repairs/Debt Financing Problems. The Alaska Intertie Agreement lacks adequate mechanisms to fund major maintenance and repairs.As the Board has noted,there has been no progress during the term of current Board members towards actually accomplishing certain major maintenance or repair items,including tower foundation repairs and SVC upgrades.While no disruption to intertie operations have apparently arisen to date,it is inevitable that deferral of major maintenance and repairs will eventually lead to significant disruption. The concern regarding the Alaska Intertie Agreement extends beyond the current list of deferred major maintenance and repairs.Even if those items were accomplished,the agreement must be structural to address maintenance and repair items that undoubtedly will arise in the future. 2)Decision Making Responsibility. There is consensus that it would be unwise to return to the pre-1993 operating approach reflected in language of the current agreement that the Authority assume greater control over operational and maintenance decision making. The 1993 legislative reorganization of the Authority was,in part,intended to encourage maximum utility control over Authority owned energy assets.General Managers at the April 21,2006 meeting commented that the Authority lost substantially all of its energy related expertise in this 1993 reorganization,and that the Authority would be handicapped if it attempted to re-assume the level of control over energy projects the Authority had before 1993. General Managers at the July 22,2005 meeting advocated that prudent utility practice require utilities,routinely,to determine the timing for doing major maintenance and repairs:the basic cost/benefit analysis being -spend money now,or attempt to lower the present-value cost by deferring the expenditure with the 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.General Managers further 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,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 --a cost benefit analysis that differs from what the General Managers advocate. The current practice is for maintenance scheduling and budgeting to be done at the l|OC level.This practice appears to be consistent with what the General Managers advocate, but deviates from language in the agreement.Modifications to the agreement are necessary to continue the preferred approach for decision making. Board of Directors July 10,2006 Page 3 3)Indemnity Provisions. The indemnity provisions create a tremendous disincentive for any entity to voluntarily undertake any action to support intertie operations.When the Authority or any l[OC Utility takes an action,the agreement provides that they agree to defend and indemnify all others from such action.Action is punished;inaction is rewarded. This mode of operation is likely to result in harm as it encourages inaction and delay - even when immediate action is necessary for safe,reliable and efficient intertie operations. In general,the indemnification provision places the most significant risks onto the lOC utilities that contractually either operate or maintain the intertie.As to AEA,as long as the operators and maintenance contractors undertake all necessary duties,the indemnification provision presents no particular problem to the Authority.It becomes more of a problem when the IOC requests cooperative action from the Authority;for example,the Authority directly contracts for snow patrols even though that activity would more appropriately be an issue for the operator. 4)Disregarding Agreement Provisions. The !OC has undertaken to improve the terms,conditions,and procedures reflected in the language of the Agreement by disregarding that language.The |OC compiled a list of such provisions,which is attached as item (e).Some utilities suggest that this approach has helped the intertie operate in a safe and reliable fashion.The concern is that ambiguity that arises from disregarding certain contract provisions encourages inaction and delay --as |OC members tend to argue first over who is responsible,which becomes more problematic as indemnity provisions discourage any utility or the Authority from volunteering to act -even when immediate action is necessary. Continuing intertie operations in this manner,eventually,is likely to disrupt the safe, reliable and efficient operation of the intertie. B.Impact of Notice of Termination. lf the Authority gives notice of termination,there should be no significant,immediate impact. Under the Alaska Intertie Agreement,notice of termination could not result in actual contract termination for 48 months.The status quo would continue --meaning,in part,that the existing contract language,including all of its defects,would remain in place --however,only for an additional 48 months rather than indefinitely. Notice of termination,however,is likely to increase short-term uncertainty regarding operating procedures under the Alaska Intertie Agreement.Simply following the status quo tends to provide a certain degree of comfort,while change tends to create discomfort.If the Authority gives notice of termination,Staff should expect during any transitional period that they will need to devote more time than normal to Alaska Intertie issues.Furthermore,the relationship between the Authority and !OC Utilities might become more contentious during any transition until issues are resolved. Board of Directors July 10,2006 Page 4 If the 1OC Utilities and the Authority fail to timely negotiate acceptable modifications to the Alaska Intertie Agreement at the end of the 48 months approaches,resolving operating matters migitt become more difficuit.For example,utilities may be less willing to include items in annual budgets if long-term benefits from their use of the intertie is not contractually assured.Those potential problems would be avoided if the parties negotiated the modifications with a greater sense of urgency. The lOC General Managers at the April 21,2006 meeting suggested that notice of termination would create "chaos.”The apparent concern was that the Alaska Intertie Agreement incorporates terms and conditions for the relationship between the utilities operating in an interconnected manner.These terms and conditions were very difficult to negotiate,and would be very difficult to re-negotiate. At the June 21,2006 Board meeting,in reaction to questions from the Chairman,IOC utility representatives suggested that the problem with the Authority giving notice of termination is that it would require parties to abandon the entirety of the existing agreement and renegotiate every term and condition,even though they believe relatively few sections actually require modification to cure the defects in the Alaska Intertie Agreement. It appears that these two expressions of utility concern are each premised on an assumption that the Authority giving notice of termination would result in the complete abandonment of the existing contract.That assumption does not appear valid. The concern appears to suggest that the utilities fear suffering from self-inflicted wounds.The Authority has consistently attempted to narrowly focus upon curing specific,limited defects in the existing agreement.The IOC utilities,however,individually appear to have a broader range of concerns with the agreement.It appears that the only reason that "chaos”might result from completely abandoning the existing agreement is if the 1OC Utilities insist upon that outcome. Giving notice of termination would appear to lessen,not exacerbate,the utilities fears.Making even limited amendments to the Alaska Intertie Agreement has not occurred because amendment requires unanimous agreement.At least one IOC utility has objected to any proposed amendment until other concerns the utility has with the agreement are addressed. The entirety of the agreement is thus made hostage to curing any particular section -a circumstance that will continue as long as the existing agreement remains in place. After notice of termination,the Authority can freely negotiate modifications to the agreement with less than all the 1OC Utilities.Nothing would preclude the Authority from executing an amendment to incorporate the modifications as part of what would become the subsequent Alaska Intertie Agreement,regardless of whether those modifications may take effect immediately or only after the 48 month notice period.Providing notice of termination will signalthattheAuthoritywillnolongerbeanenablerforanyoneormoreIOCUtilitiestoindefinitely thwart cures to Alaska Intertie Agreement.Rather than creating "chaos,”arguably the Authority is more likely to help instill order by giving notice of termination. C.Is It Necessary for the Authority to Give Notice of Termination? Staff agrees with the IOC Utilities that certain modifications to the Alaska Intertie Agreement are necessary to insure the continued safe,reliable and efficient operation of the Alaska intertie,as Board of Directors -le July 10,2006 Page 5 outlined in Section A and the attachments to this memorandum.The failure to implement these modifications,inevitably,will likely result in disruption to Alaska Intertie operations,and direct harm to the IOC Utilities that rely upon the Alaska Intertie for energy transfers:to enable their systems that serve Railbelt ratepayers.Ensuring that these necessary modifications be made to the Alaska Intertie Agreement is an effort "required to impiove Power systems serving the Alaska Railbelt Utilities”as that phrase is used in Section 2.2.2 of the Alaska Intertie Agreemeni related to Authority termination of the agreement. This conclusion leads to the question whether giving notice of termination is necessary to effect those necessary modifications to the Alaska Intertie Agreement.Staff's conclusion is that giving notice of termination is the only mechanism that would ensure that necessary modifications will in fact be implemented in the most expeditious manner. e Amending the agreement requires unanimous consent,and at least ons IOC utility has refused to agree to necessary modifications. e There is no factual basis upon which to conclude that IOC unanimous consent is likely to occur at any time in the near future.- e Absent unanimity between IOC ulilities,no modification to the Alaska Intertie Agreement could be implemented without the Authority providing notice of termination. e While the Authority could postpone giving notice of termination until after one or more replacement or side agreement(s)are negotiated,that course would delay the time at which cures to the defects in the agreement become effective. e There is no factual basis upon which to conclude that one or more replacement or side agreement(s)can be timely negotiated.Further,one IOC Utility has suggested it would legally challenge that approach if implemented. If the Board concludes it appropriate for the Authority to provide notice of termination of the Alaska Intertie Agreement,proposed Board Resolution 2006-04 provides a framework for the Board to make the appropriate findings and direct staff to provide notice of termination of the Alaska Intertie Agreement. Attachment B Wy "IDEN (=AisSHYAlaskaIndustrialDevelopmentWeAlsExportAuthority October 16,2006 Mr.Bradley P.Janorschke Mr.Steve Haagenson General Manager President &Chief Executive Officer Homer Electric Association,Inc.Golden Valley Electric Association,Inc. 3977 Lake Street P.O.Box 71249 Homer,Alaska 99603 Fairbanks,Alaska 99707-1249 Fax:(907)235-3313 Fax:(907)458-5951 Mr.Jim Posey Mr.Bill Stewart General Manager Chief Executive Officer Anchorage Municipal Light &Power Chugach Electric Association,Inc. 1200 East First Avenue P.O.Box 196300 Anchorage,Alaska 99501 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:Alaska Intertie Agreement Gentlemen: This letter provides notice of termination under Section 2.2.2 of the Alaska Intertie Agreement dated December 23,1985 ("Agreement”).The Agreement will terminate 48 months from today's date. The Alaska Intertie ("Iniertie”)is a 170-mile,345kV transmission line between Willow and Healy owned by the Alaska Energy Authority ("AEA”).The Intertie was built in the mid-80's with state of Alaska appropriations totaling $124 million and allows Golden Valley Electric Association ("GVEA”)in Fairbanks to purchase electricity from Chugach Electric Association ("CEA"), Anchorage Municipal Light &Power ("ML&P")and the Bradley Lake Hydroelectric Project. The Intertie is governed by the Agreement by and between the Alaska Power Authority (now the Alaska Energy Authority),ML&P,CEA,GVEA and Alaska Electric Generation &Transmission Cooperative ["AEG&T”comprised of Matanuska Electric Association ("MEA”)and Homer Electric Association].The Intertie's operation and maintenance are overseen by the Intertie Operating Committee (1OC)that includes representatives of all signatories to the Agreement. The utility signatories are defined in the Agreement as "Utility Participants.”Intertie operating and maintenance costs are the sole responsibility of the Utility Participants,not AEA.Neither the state of Alaska nor AEA receives any rent or user fees from the utilities that use the Intertie. 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 October 16,2006 Page 2 The current AEA Board held its first Board meeting on January 30,2003.At the next AEA Board meeting (June 30,2003),AEA staff presented the Directors a report on the Intertie that pointed out problems with the Agreement.Of particular interest to the Board was mention of the fact that the Agreement has no mechanism to fund capital improvements and that a number of needed repairs identified by the [OC in October 2002 in their "Alaska Intertie Upgrade Report" were not being addressed.These problems included needed repairs to Static Var Compensators ("SVC"),repairs to tower foundations and Intertie snow loading concerns.AEA staff also advised the Board that under Section 2.2.2 of the Agreement,AEA may terminate the Agreement,"by giving at least 48 months advance written notice when (AEA)determines such action to be required to improve Power systems serving Alaska Railbelt Utilities.”At the June 30,2003 meeting,the Board directed staff to review the Agreement and report to the Board. On December 29,2003 the General Managers of CEA,GVEA and ML&P,and Ron Saxton (attorney for GVEA)met with AEA staff and Assistant Attorney General Brian Bjorkquist at AIDEA to discuss methods of financing needed repairs to the Intertie.At the end of that meeting,the utility representatives committed to seeking financing for the repairs through AEA- issued bonds with the utilities as the borrowers/guarantors. AEA staff continued working through the IOC to address the repairs and problems with the Agreement throughout 2004 and the first half of 2005.Progress was made addressing concerns with snow-load issues but no mechanism was developed to finance work on the tower foundations or SVC's. On June 24,2005 the Utility Participants were advised in writing by AEA staff that the AEA Board would meet on July 25,2005 and discuss,among other issues,the following problems with the Agreement: 1.No R&R fund (repair &replacement fund)or other capital fund to finance major maintenance or upgrades; 2,Deferment of needed repairs; 3.Lack of compliance with the Agreement's terms and conditions. The June 24,2005 letter also notes that the AEA Board: *,,.has concerns regarding continuing operations of the Alaska Intertie under the current Agreement.The inability of the Intertie Operating Committee to timely address tower foundation repairs,SVC upgrades and other necessary deferred maintenance evidences fundamental deficiencies in the Agreement.Even if those specific problems were soon addressed,the Agreement would siill lack adequate provisions to maintain the Intertie and prevent future serious degradation of the line's ability to transmit power. These fundamental deficiencies in the Agreement must be rectified.We understand that the conventional wisdom of the Utilities in the past has been that the Agreement cannot be amended to cure these deficiencies.However,if no other realistic solution is forthcoming,the AEA Board may be compelled to exercise its option to terminate the Agreement...” The response to this letter by some of the utilities letter was to lobby the Governor's Office to convince the AEA Board and staff to remove this item form the July 25,2005 meeting agenda October 16,2006 Page 3 and to meet informally with the utilities instead.As a compromise,the Board agenda was kept as originally proposed and a work session was held on July 22,2005 with two AEA Board members,AEA staff and utility representatives to discuss the issues raised in the letter. At the July 22,2005 work session,the representatives of CEA,GVEA and ML&P committed to working together to fix problems with the Agreement and to finance needed Intertie repairs.AEA staff was asked to prepare revenue bond and loan financing scenarios for $3 million,$5 million and $7 million over,7-year,15-year and 20-year terms.At the end of the work session,AEA Chairman Mike Barry advised the utilities,"We're trying to look at a constructive way to make the Intertie work better for everybody.But when we look at financing for example,it's difficult for us in good faith to sponsor financing when we're being told by the IOC that the agreements (sic) don't work.As a Board,the only way we can force the agreements (sic)to work is to terminate them and start over again.If you guys collectively come to an agreement to change it that's the best solution for everybody,but |think it needs to be addressed before somebody talks about financing or we can limit the financing term (to)less that four years.” At the July 25,2005 meeting,the AEA Board was briefed on the July 22,2005 work session. AEA Chairman Mike Barry noted that deferred maintenance items identified by the IOC in October 2002 still had not been addressed.He further advised the Board that staff would report on the status of the utilities'efforts to amend the Agreement and finance the repairs at every Board meeting until there is a resolution. On August 17,2005,financial analyses by AEA staff were provided to the Participating Utilities based on the scenarios discussed above.No responses from the utilities to these analyses were ever received. At its December 5,2005 meeting the AEA Board was briefed on IOC actions since the July 25 Board meeting.There had been discussions regarding possible amendments to the Agreement and possible ways to finance deferred maintenance..AEA's Chairman stated that the utilities needed to address Intertie issues raised since June 2003 and that meant,"these issues get resolved and not just talked about." Subsequent to the December 5,2005 AEA Board meeting,the utilities admitted that the Agreement could not be amended,since amendments require unanimous consent and the utilities could not unanimously agree to any amendments.Some utilities proposed "side agreements”to address problem areas in the Agreement.Also,some utilities contended the Agreement was not a problem since the utilities simply chose to ignore problem areas and would work by consensus regarding desired actions regardless of the provisions of the Agreement. On March 17,2006,the General Managers of the Participating Utilities were sent a letter by AEA staff reiterating AEA's concerns regarding defects in the Agreement.The letter imposed a June 15,2006 deadline for the parties to craft cures to those defects and for AEA to give notice of termination of the Agreement.The letter also invited the utilities to meet and continue working with AEA staff. On April 21,2006,AEA and the utilities'General Managers met.The June 15,2006 deadline and notice of termination was modified to require the utilities to demonstrate real progress in curing defects in the Agreement October 16,2006 Page 4 In May 2006,AEA and utility attorneys met to discuss possible resolutions to the problems with the Agreement.At the June 21,2006 AEA Board meeting,the CEA,GVEA and ML&P reported that they were making progress on addressing the problems the AEA Board had been pointing out since 2003,The AEA Board expressed frustration that there was still not concrete evidence of any progress in solving the Intertie problems and urged the utilities to redouble their efforts in this regard. On July 10,2006 the AEA Board met and,after hearing from AEA staff and utility representatives discussed the fact that no real progress had been made in curing defects with the Agreement or financing the deferred maintenance.The Board passed Resolution No.2006- 04 with attachments finding that giving 48 months advance written notice of terminating the Agreement is required to improve Power systems serving the Alaska Railbelt Utilities.The Resolution also noted that the utilities appeared to be making progress toward developing amendments and "side agreements”to the Agreement,and concluded that the utilities should be given additional time to finalize the amendments and side agreements and that notice of termination should not be given until September 1,2006.The Resolution directed AEA's Executive Director to give the written notice of termination if the utilities failed by September 1, 2006 to negotiate and execute final amendments to the Agreement and any side agreements needed. The IOC met on August 8,2006 and passed a resolution supporting tower foundation repairs and SVC upgrades,proposing the Utility Participants share in the costs of these repairs and recommending the utilities'General Managers meet with AEA to develop a financing plan for therepairs.On August 9"utility representatives and attorneys met with AEA staff and proposed that a finance subcommittee of the IOC be created to address financing deferred maintenance. On August 15,2006 utility General Managers and their attorneys met with AEA staff and assistant attorney general.The utilities approved the concept of an ad hoc finance subcommittee since AEG&T did not agree to create a standing finance subcommittee.At theAugust15"meeting,the utilities were advised to submit to AEA by the close of business on September 1,2006 executed final amendments to the Agreement and any executed side agreements. On August 31,2006 AEA received an email from legal counsel on behalf of CEA,GVEA andML&P advising of work subsequent to the August 15"meeting and forwarding an unsigned proposed Amendment 2 to the Agreement.On September 1,2006 AEA received a letter fromMEAonbehalfofAEG&T disagreeing with the proposed Amendment 2. The proposed Amendment 2 provided some amendments to the budget process,but was not comprehensive and did not address other defects in the Agreement,and,as pointed out above, is unsigned.The Board's direction in Resolution No.2006-04 was that the utilities had to submit "executed”amendments by September 1,2006. if AEA gives notice of termination,there should be no significant,immediate impact.Under the Agreement,notice of termination could not result in actual contract termination for 48 months. The status quo would continue -meaning,in part,that the existing contract language,including all of its defects,would remain in place -however,only for an additional 48 months rather than indefinitely, The utility General Managers at the April 21,2006 meeting suggested that notice of termination would create "chaos.”The apparent concern was that the Agreement is both an interconnection agreement and a management,maintenance and operations agreement for interconnected October 16,2006 Page 5 utilities.These terms and conditions for interconnection were apparently very difficult to negotiate originally,and likely would be very difficult to re-negotiate. At the June 21,2006 Board meeting,in reaction to questions from the Chairman,utility representatives suggested that the problem with AEA giving notice of termination is that it would require parties to abandon the entirety of the existing Agreement and renegotiate every term and condition,even though they believe relatively few sections actually require modification to cure the defects in the Agreement. |have carefully considered these utility concerns.It appears that these two expressions are each premised on an assumption that AEA giving notice of termination would result in the complete abandonment of the existing contract.That assumption does not appear valid. The utilities appear to fear suffering from self-inflicted wounds during the renegotiation process. AEA has consistently attempted to narrowly focus upon curing specific,limited defects in the existing Agreement.The utilities,however,individually appear to have a broader range of concerns with the Agreement.It appears that the only reason that "chaos”might result from completely abandoning the existing Agreement is if the utilities insist upon that outcome. Giving notice of termination may lessen,not exacerbate,the utilities'fears.Making even limited changes to the Agreement has not occurred because utilities could not agree unanimously on amendments.At least one utility has objected to any proposed amendment until other concerns the utility has with the Agreement are addressed.The AEA-sponsored cures to agreement defects are thus held hostage by disagreement among participants -a circumstance that will likely continue as long as the existing Agreement remains in place. After notice of termination,AEA can freely negotiate modifications to the Agreement with less than all the 1OC Utilities.Nothing would preclude AEA from executing an amendment to incorporate the modifications as part of what would become the subsequent Agreement, regardless of whether those modifications may take effect immediately or only after the 48 month notice period.Providing notice of termination will signal that the Authority will no longer be an enabler for any one or more utilities to indefinitely thwart cures to Agreement.Rather than creating "chaos,”arguably the Authority is more likely to help instill order by giving notice of termination. AEA's position is that certain modifications to the Agreement are necessary to insure the continued safe,reliable and efficient operation of the Alaska Intertie.The failure to implement these modifications could disrupt Intertie operations,and direct harm to the 1OC Utilities that relyontheIntertieforenergytransferstoserveRailbeltratepayers'.Ensuring that these necessary modifications be made to the Agreement is an effort "required to improve Power systems serving the Alaska Railbelt Utilities”as that phrase is used in Section 2.2.2 of the Agreement related to Authority termination of the Agreement,in a reasonable and timely manner. 'Failure to adequately address the deferred maintenance on the intertie could place all Railbelt ratepayers in peril.The wide-spread electrical outage in the Railbelt in June of this year points to the how susceptible to service interruptions the Railbelt power grid is.While the cause is still under investigation by the IOC reliability committee,initial indications are that an insulator failed just north of Anchorage for unknown cause.Other operational issues made the outage more widespread,and of longer duration. October 16,2006 Page 6 We therefore conclude it is necessary to terminate the agreement.to effect necessary modifications to the Agreement.We base this decision in part on the following points. e Amending the Agreement requires unanimous consent,and at least one Participating Utility has refused to agree to necessary modifications. e There is no factual basis upon which to conclude that unanimous consent is likely to occur at any time in the near future. e Absent unanimity between utilities,no modification to the Agreement could be implemented without AEA providing notice of termination. e While AEA could postpone giving notice of termination until after one or more replacement or side agreement(s)are negotiated,that course would delay the time at which cures to the defects in the Agreement become effective. e There is no factual basis upon which to conclude that one or more replacement or side agreement(s)can be timely negotiated.Further,one utility has suggested it would legally challenge that approach if implemented. e Giving notice of termination is the only mechanism that would ensure that necessary modifications will in fact be implemented in the most expeditious manner. We do not take this action lightly.Over the past 3 years AEA has pursued cures for agreement defects with the Participant Utilities at several levels,to no avail.'Since June 2003 AEA's Board has discussed the terminating the Agreement.They advised the Participating Utilities on several occasions that action was required to address deferred maintenance and needed amendments to the Agreement.Some of the utilities have stated their intent,since late 2003,to finance the needed repairs but no concrete action has taken place. By providing this notice of intent to terminate the Alaska Intertie Agreement 48 months from today's date AEA is taking a major step to improving the power systems along that grid.AEA staff is ready to work with the utilities to resolve defects in the Agreement before the end of this notice period. Silicerely KW on Miller Executive Director Alaska Energy Authority cc:AEA Board of Directors Governor Frank Murkowski