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Home My WebLink AboutAEA Board Meeting Dec 11 2008{=ALASKA:@a")ENERGY AUTHORITYomAlaskaIndustrialDevelopmentandExportAuthority 10. AGENDA Alaska Energy Authority Board of Directors Thursday,December 11,2008 10:30am Anchorage,Alaska CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES -October 7,2008 and November 10,2008 OLD BUSINESS EXECUTIVE DIRECTOR COMMENTS A.Executive Director's Status Report e Report on Crossroads Leadership Recommendations e AEA Programs and Projects Update B.Next meeting date -January 22,2009 10:30am AEA Board Meeting Dates 2009 Thu.Jan 22,2009 Thu.Feb 26,2009 Thu.Apr 2,2009 Thu.May 14,2009 Thu.June 25,2009 Thu.Aug 6,2009 Thu.Sept 17,2009 Thu.Oct 29,2009 Thu.Dec 3,2009 NEW BUSINESS A.AEA Financial Statements BOARD COMMENTS ADJOURNMENT 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org JANUARY SMTWTFS FEBRUARY T W TE456ioW213 17 18 19 20 24 25 Bq 27 MARCH T WTF45610i}12 13 17 18 19 20242526)27 31 7 8 91 14 15 16 17 21 22 23 24 28 29 30 2 3.4 5 10 i}12 16 17 18 19 23 24 63}26 30 3 10 17 24 31 ll 18 S 6 13 20 27 2009 State Calendar State Holidays: January 1 New Year's Day 19 Martin Luther King,Jr.'s Day February 16 Presidents'Day March 30 Seward's Day May 25 Memorial Day July 4 Independence Day (observed 3rd) September 7 Labor Day October 18 Alaska Day (observed 19th) November 11 Veterans'Day 26 Thanksgiving Day December 25 Christmas Day r]Warrant Distribution C)Holiday AIDEA and AEA BOARD MEETINGS Jan 22,2009 'Feb 26,2009 Apr 2,2009 May 14,2009 June 25,2009 Aug 6,2009 Sept 17,2009 Oct 29,2009 Dec 3,2009 20 21 22 23 24 25 27,28 29 30 31 AUGUST M TWTFS 1 3 4 567 81011ais1415 17 18 19 20 21 22 24 25 26 27)28 29 31 SEPTEMBER M TWTES 123.45891011214151647181921222324P2526 28 29 30 OCTOBER M T W 5 6 7 12 13 20 21 22 23 24 26 27 28 330 31 NOVEMBER M TWTFS 23 45.67910QD1253)14 16 17 18 19 20 212324252627)28 30 DECEMBER 7 8 5 10 fi 1415 16171 21 22 23 24@5)28 BF 30 31 yiaptete=iqo)ENERGY AUTHORITY/=ALASKA+xaAlaska Industrial DevelopmentindExportAuthority Alaska Energy Authority BOARD MEETING MINUTES Thursday,December 11,2008 Anchorage,Alaska 1.CALL TO ORDER Chairman Pat Galvin called the meeting of the Alaska Energy Authority to order on December 11, 2008 at 10:32 a.m. 2.BOARD OF DIRECTORS ROLL CALL A quorum was established. Members present in Anchorage:Chairman Pat Galvin (Commissioner,Department of Revenue);Vice Chair John Winther (Public Member);John Kelsey (Public Member); Commissioner Emil Notti (Department of Commerce,Community &Economic Development); and Commissioner Leo von Scheben (Department of Transportation &Public Facilities). Chairman Galvin confirmed that public notice requirements had been met. 3.PUBLIC ROLL CALL Staff present in Anchorage:Steve Haagenson (AEA Executive Director);Chris Anderson (Deputy Director-Credit);Sara Fisher-Goad (Deputy Director-Operations);James Hemsath (Deputy Director-Development);Valorie Walker (Deputy Director-Finance);Brenda Applegate (Controller);Brenda Fuglestad (Administrative Manager);and Sherrie M.Siverson (Administrative Assistant). Others present in Anchorage:Brian Bjorkquist (Department of Law);David McCambridge (KPMG);Eric Lidji (Petroleum News);and Clinton White (STG Incorporated). Arrived while meeting in progress:Ted Leonard (AIDEA Executive Director);Bruce Chertkow (Loan Officer);Chris Mello (Project Manager);Linda MacMillan (Accountant);Karl Reiche (Projects Development Manager);Mark Schimscheimer (Project Manager);Jim Strandberg (Project Manager);and Brian Donaldson (Primary Care of Alaska). 4.PUBLIC COMMENTS Mr.Clinton White,STG Incorporated,asked several questions regarding the Renewable Energy Fund Grant Application Program.He asked for clarification about the schedule for applications that have been submitted because he felt there was a lack of transparency in the way the applications were being reviewed and discrepancies in the numbers and projects viewed online. He stated the need for greater transparency because as the second largest renewable energy fund in the country,this should be evaluated fairly and openly with good dialog among all partners involved in the process. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495www.aidea.org *907/771-3000 *FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 ¢www.akenergyauthority.org AEA Board Meeting December 11,2008 Meeting Minutes Page 2 STG has assisted several clients in completing applications that asked for cost benefit ratios, but there was limited information available as to what should be used for the main input.This leaves room for errors in the cost benefit numbers generated,one of the main deciding factors in how the funds will be allocated to specific projects.The job could have been done better in the area of communicating cost categories and how costs should be allocated to a project in the budget worksheet prepared for the grants. Mr.Haagenson stated that ISER was hired to determine the price for fuel and will be conforming the numbers to a common index.A draft process is in place and the Statute is clear about evaluating projects on benefit-to-cost;the most weight is given to high-cost areas first and then to matching.All components of the Statute have been incorporated into a fairly comprehensive process and AEA is currently doing an internal review.A Regional Advisory Committee has been involved in the structure of the evaluation and the overall process.Information will be submitted to the committee at a meeting on December 18,2008 and they will assist with regional spreading to ensure projects are not concentrated in any one area of the state.When the committee review is complete,all applications including the raw data,evaluations and comments will be posted online. LB&A is in the process of selecting a new committee and it is anticipated that FY 2009 information will be submitted in January 2009.By Statute,the second $50 million dollars,FY 2010,will be submitted to the Legislature on January 30,2009,ten days after the session begins.The process is new and taking longer because each application received is being evaluated internally.Outside economists are also evaluating the benefit-to-cost ratios not only for the project,but also for the public benefit-to-cost ratio. In response to the Board,Mr.Haagenson stated that the meeting on December 18,2008 is a public advisory committee and open to interested parties. Chairman Galvin reiterated that the applications are currently in an internal evaluation phase where the work is being done so the transparency is not evident.During the next phase,before a decision is actually made by the Legislature,everything will be made public. In response to the Board,Mr.White stated that the Alaska Renewable Energy program is second nationally only to California based on information from Chris Rose.Mr.Haagenson stated that the fund is for $250 million dollars,$50 million for five years and an additional $50 million was added in a special session. 5.PRIOR MINUTES -October 7,2008 and November 10,2008 The minutes of both meetings were approved as presented. MOTION:Mr.Winther moved to approve both sets of minutes as presented.Seconded by Mr.Kelsey.There being no discussion,the question was called.A roll call vote was taken and the motion passed. 6.OLD BUSINESS There was no old business. AEA Board Meeting December 11,2008 Meeting Minutes Page 3 7.EXECUTIVE DIRECTOR COMMENTS Status Report of the August 3,2008 Recommendations from Crossroads Leadership Institute A.Creation of an Open,Trusting and Transparent Environment Create an open culture which encourages candor at all levels. Implement the "I will...”agreement throughout the building. Provide training in communication,conflict resolution,team building,and trust building with the purpose of increasing trust and transparency in the work environment. Promoting fairness in the treatment of all employees. Develop and redefine communication practices throughout the building. Conduct "Open Forum Meetings”to discuss current topics. Develop multiple media to provide access to information Encourage employee input to changes which affect them. Implement a continuous improvement program.Process improvement will involve employees,and will identify process bottlenecks,waste,and promote a quality culture with AIDEA/AEA. Human Resource Development Hire a full time senior level HR Manager to be shared between AEA and AIDEA. The HR Manager will be responsible for all HR activities and functions including but not limited to:staff development,organizational development,performance management programs,linking training to the strategic plans,staffing,design a conflict resolution process for employees,comprehensive compensation program (changes to compensation and benefits)and succession planning. Develop HR policies and procedures to be applied consistently throughout the organization. Provide management and supervisor training. Managers need to explore ways to let people know they are appreciated in a genuine and supportive fashion.Employees need to hear "good job”much more often from their managers. Strategic Planning All employees will be involved in the newly revised strategic plans for both AEA and AIDEA through a process so each employee can see the big picture and understand how the job they do fits into driving the mission for their organization Develop and implement strategic plans for both AEA and AIDEA. Review the organizational structure of AEA and AIDEA to more effectively meet the missions of each organization. Provide each organization with their own administrative services. .Physical Work Environment The building needs repairs,painting and general maintenance. Noise is an issue with the cubicle office spaces. Alaskan Energy Report: AEA Board Meeting December 11,2008 Meeting Minutes Page 4 Continue to present to the public on the concept.The narrative is being finalized and includes stand-alone technology sections.We have recently modified the output to clearly show the local opportunities for fuel sources.The meter format identifies three zones:green,yellow and red that show crude oil costs.The alternative fuels are shown how they compare to various fuel prices. Renewable Energy Fund: Total applications received in both rounds |and II totaled 234;requesting over $755 Million. Attached are the draft review criteria being used in each stage of the review process for applications. Summary of the applications received and the status of the review process AEA is completing for the Renewable Energy Fund: Round |grant applications received (due 10/8)=114 (one those received was accidently counted twice is the reason it appears there may have been 115 received);requesting $444 Million. http://www.akenergyauthority.orqg/RenewableEnergyFund/RFA ProjectLocations 3Nov08.x!s Of the 114 received,99 of the applications were determined to be eligible projects worthy of additional review. http://www.akenergyauthority.org/RenewableEnergyFund/RFA_RoundlApplicantstoStagellReview_7Nov08.xis Of these 99 applications,the AEA still needs to complete the review of approximately 30 more Round |applications.These reviews involve outside economists,project managers and program managers.Their review is to determine the technical and economic feasibility of the proposed projects,recommend whether to actually fund the project and at what level of funding. Currently,it is planned to have a meeting with the Renewable Energy Fund Advisory Committee on December 18,2008 to review AEA's recommendations and determine regional priorities (per the statute)for all Round |applications received. Round {I grant applications received (due 11/10)=120 (one those received was accidently counted twice is the reason it appears there may have been 121 received);requesting $311 Million. http://www.akenergyauthority.orqg/RenewableEnergyFund/RFA RoundllApplications alphabyApplicantName 19Nov08xis AEA has not yet begun the review of Round II applications received. Google Earth map of the Round |applications moved to the Stage II review:htto:/Awww.akenergyauthority.org/RE_Fund map.htmi Railbelt Electric Grid Authority: Continue to work with Railbelt utilities to identify common ground. Financial Statements: Introduce David McCambridge with KPMG to walk the Board through the AEA Financial Statements and answer any questions. Commissioner von Scheben asked that the group interface with DOT&PF regarding transportation needs that may arise. AEA Board Meeting December 11,2008 Meeting Minutes Page 5 As a follow-up on earlier comments Commissioner Galvin inquired if public expectations were being met regarding the schedule.Mr.Haagenson stated that there was no set schedule for Round |.After the December 18,2008 Advisory Committee meeting and LB&A forms a new 'committee,the recommendations and applications will be submitted for their approval. Commissioner Galvin stated that AEA Programs and Projects updates and a proposed 2009 meeting schedule are included in board member packets.The next meeting is scheduled for January 15,2008. 8.NEW BUSINESS David McCambridge,audit partner with KPMG,provided an overview of the 2008 AEA Financial Statements and letter to the Board., The purpose of the audit is for KPMG to gain reasonable assurance that the financial statements are free of material misstatement.KPMG conducted appropriate audit procedures and has concluded that the financial statements are fairly stated in all material respects in accordance with generally accepted accounting principles,resulting in an unqualified or a clean Opinion.KPMG obtained reasonable assurance during the audit that the financial statement is free of material misstatements. There were no significant transactions out of the ordinary.No adjustments were proposed or recorded.Management did a great job of preparing for the audit and providing KPMG information.During that process there were no unadjusted differences,or adjustments requested by KPMG. Mr.McCambridge added that KPMG also performed a federal single audit compliance audit. Those reports were issued with unqualified opinions on AEA's management of those programs. 9.BOARD COMMENTS Commissioner Notti commended Steve for doing a great job in assimilating all of the information in a short period of time.Commission Galvin stated the Board was pleased to have him on staff and very excited about where AEA is going. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 11:17 am. Steve Haagenson,Executive Director/Secretary Alaska Energy Authority HP ye wAIDEN {=ASXAlaskaIndustrialDevelopmentyeAnExportAuthority MINUTES Alaska Energy Authority Board of Directors Thursday,October 7,2008 Anchorage,Alaska 1.CALL TO ORDER Chairman John Kelsey called the meeting of the Alaska Energy Authority to order on October 7, 2008 at 2:06pm. 2.BOARD OF DIRECTORS ROLL CALL A quorum was established.Members present in Anchorage:Chairman John Kelsey (Public Member);Commissioner Patrick Galvin (Department of Revenue);Commissioner Leo von Scheben (Department of Transportation &Public Facilities);Commissioner Emil Notti (Department of Commerce,Community &Economic Development). Absent:Vice Chair John Winther (Public Member). 3.PUBLIC ROLL CALL Staff Present in Anchorage:Ted Leonard (AIDEA Executive Director);Chris Anderson (Deputy Director-Credit);Sara Fisher-Goad (Deputy Director-Operations);James Hemsath (Deputy Director-Development);Valorie Walker (Deputy Director-Finance);Bruce Chertkow (Loan Officer);Karl Reiche (Projects Development Manager);Karsten Rodvik (Project Manager);Mark Schimscheimer (Project Manager);Brenda Fuglestad (Administrative Manager);and Sherrie M. Siverson (Administrative Assistant). Others Present:Brian Bjorkquist and Mike Mitchell (Department of Law);and Paul D.Kendall (Public). PUBLIC COMMENTS Chairman Kelsey asked the public speakers to keep their comments to three minutes. Mr.Paul D.Kendall distributed materials to the board members.He stated he feels that we are in a new age of energy and fossil fuel energy has hit the wall.He stated he is not sensing the feel for new energy,and fossil fuel is the last thing that should be embraced.He sent a letter requesting the names of all the teams AEA is working with,when they meet and also asked AEA to coordinate meetings between all the teams.He asked why AEA is not having an Energy Conference.He is waiting to see what is going to be unveiled regarding the Energy Plan in December.Everything should be focused towards energy,no schools,no roads,everything should be focused on turning the whole community towards energy. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495www.aidea.org ®907/771-3000 *FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 ©www.akenergyauthority.org AEA Board Meeting October 7,2008 Meeting Minutes Page 2 4.PRIOR MINUTES -June 12,2008 The minutes from June 12,2008 were approved as presented. 5.OLD BUSINESS There was no old business. 6.NEW BUSINESS There was no new business. 7.EXECUTIVE DIRECTOR COMMENTS Mr.Haagenson said the Request for Applications (RFA)for the Renewable Energy Fund was a result of HB 152 that provides AEA with statutory direction.Meetings |with LB&A provided anopportunitytolistentotheirexpectations. Mr.Rutz stated the RFA went out on September 3,2008 and is unique as there are twoseparatesubmittaldates:October 8 and November 10...The Renewable Energy Fund AdvisoryCommitteeassistedAEAinthedevelopmentoftheRFA.AEA will evaluate the RFA's and makearecommendationforthedifferentprojects,rather than awarding the grants.AEA will present the recommendations to LB&A for approval of the 2009 grants and submit the second round recommendations to the full Legislature for the 2010 grants.Once projects are selected,theywillcomebacktoAEAforgrantadministration,construction and project management services.Mr.Haagenson stated another unique feature included in 'the evaluation process in a publicbenefittocostratio.This measure identifies the public benefit and compares this benefit to the grant funds provided.Most projects are currently evaluated on a project benefit to cost ratio.The addition of a public benefit to cost ratio provides a look at the benefits obtained from publicfunds.Projects that have high project benefit to cost ratios may not have a high public benefit tocostration.HT Mr.Rutz said the RFP was.broken down by project phases of reconnaissance,pre-feasibility, design,pre-construction,or construction.Initial funding in the early phases would allow for a verification step before obtaining money for the following phases. At the LB&A hearing,Representative Kelly asked if the Board had approved the project evaluation list.Mr.Bjorkquist stated that in the By-Laws,the Board has already delegated to the Executive Director of AEA the general authority to administer the day-to-day business activities of AEA,subject to the boards review and oversight.He stated that in his professional view, what LB&A has requested is already within that delegation. The Board agreed that staff would rank the proposals and provide a copy to the Board for their information.| Discussions ensued regarding HB152 and the amount of grants that could be received and the workload impact at AEA staff.The current plan is to expand to meet the workload through the use of contractors. AEA Board Meeting October 7,2008 Meeting Minutes Page 3 Mr.Haagenson stated $300 million in weatherization funds were provided to Alaska Housing Finance Corporation through a separate program. Alaska Energy Plan Mr.Haagenson said the Alaska Energy Plan is moving forward.ISER,working with authority staff,has completed the list of fuel use by community.The technology teams have met and identified the technology that we will deploy. Both rural and Railbelt issues will be included in the energy plan.Local energy options will be identified for each non-Railbelt community.Options in the Railbelt region will be considered and evaluated as part of the Integrated Resource Plan (IRP)that will be completed in late 2009. CLI Organizational Assessment In an earlier meeting,Terry Stimson and Dick LaFever discussed questions they asked staff on their opinions of AEA,appropriate changes and methods of receiving information.The general feeling from Staffis they wanted to be involvedin decision that would affect them and be part of developing the vision for AEA.Mr.Haagenson stated the AEA staff worked together to draft amission,vision and value statement for AEA.nee feDraftAEAVision,Mission and Values StatementVision:Affordable and sustainable energy for Alaska.Mission;Provide world-class,customer focused energy services to Alaska.Values:Building relationshipsfounded on culture awareness,integrity and accountability.y arRailbeltElectricGridAuthorityStudyTheRailbeltElectric.Grid Authority:(REGA)report.recommended the formation of a stateauthoritywhichwouldnotberegulated.We have heard several utilities and agencies voiceconcernoverthenon-regulated entity recommendation.We're listening to all parties to gain support for.the REGA concept.REGA will continue to identify common ground for allparticipantsaswemovetoward1implementation. 8.BOARD CCOMMENTS _Commissioner Galvin.recognized Steve for the tremendous amount of work he hasaccomplishedandstatedheispleasedwiththeworkthathehasdone. Mr.Haagenson stated the credit goes to the committed people at AEA. AEA Board Meeting October 7,2008 Meeting Minutes Page 4 9.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 3:06p.m. Steve Haagenson,Executive Director Alaska Energy Authority Re AE ALASKATEXf='@=__>ENERGY AUTHORITYtcax¢Alaska Industrial DevelopmentandExportAuthority MINUTES Alaska Energy Authority Board of Directors Tuesday,November 10,2008 Anchorage,Alaska 1.CALL TO ORDER Chairman Pat Galvin called the meeting of the Alaska Energy Authority to order on November 10, 2008 at 3:29 p.m. 2.BOARD OF DIRECTORS ROLL CALL A quorum was established. Members present in Anchorage:Chairman Patrick Galvin (Commissioner,Department of Revenue);Vice Chair John Winther (Public Member);John Kelsey (Public Member); Commissioner Emil Notti (Department of Commerce,Community &Economic Development); and Commissioner Leo von Scheben (Department of Transportation &Public Facilities). 3.PUBLIC ROLL CALL Staff present in Anchorage:Steve Haagenson (AEA Executive Director);Chris Anderson (Deputy Director-Credit);Sara Fisher-Goad (Deputy Director-Operations);Mike Harper (Deputy Director-Rural Energy Group);James Hemsath (Deputy Director-Development);Valorie Walker (Deputy Director-Finance);Bruce Chertkow (Loan Officer);Jim Strandberg (Project Manager); and Sherrie M.Siverson (Administrative Assistant). Participating via teleconference:Representative David Guttenberg. Others present in Anchorage:Brian Bjorkquist and Mike Mitchell (Department of Law). 4.PUBLIC COMMENTS There were no public comments. 5.EXECUTIVE DIRECTOR COMMENTS Mr.Haagenson reviewed the Railbelt Electric Grid Authority Study (REGA).Study will define the future of the Railbelt for the next 50 years.Electric generation assets in the railbelt are approximately 30 years old and will need to be replaced at an approximate cost of 1-2 billion dollars.All railbelt utilities have been represented and participated in the REGA meetings. Mr.Strandberg gave a brief background of the REGA study.The recommendation is that all of the generation and transmission assets should come under the control and ownership of a single entity that should be structured as a public corporation. There are ongoing discussions of the role of AEA in REGA.The recommendation is for a State Authority. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 www.aidea.org ®907/771-3000 *FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 ©www.akenergyauthority.org AEA Board Meeting November 10,2008 Meeting Minutes Page 2 Power Project Fund The PPF loan amounts are not limited on the aggregate dollar amounts. Discussion ensued as to possible percentages and reporting mechanisms. Board requested staff report loan approval amount and percent of portfolio in future board packets. State Energy Plan Mr.Haagenson referred the Board to their hand out that explained the Energy Plan.He said the target completion date is for the end of December 2008.The plan will cover the entire State of Alaska and will have a cost curve number to show what the anticipated costs will be to pay thecapitaldownonalltheproposedprojects. Renewable Energy Fund RFP | Mr.Haagenson briefed the board on the RFP stating the process is on scheduled. 6.BOARD COMMENTS There is an AIDEA Lender's Reception on Wednesday,December 10,2008 from 5:00 p.m.to 7:00 p.m.in the AIDEA Lobby.The next board meeting is Thursday,December 11,2008 at 10:30 a.m. 7.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 4:36 p.m. Steve Haagenson,Executive Director/Secretary Alaska Energy Authority pe - aXe 3 Alaska industrial Development (=AASKAENERGYAUTHORITY and Export Authority 10. AGENDA Alaska Energy Authority Board of Directors Thursday,December 11,2008 10:30am Anchorage,Alaska CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES -October 7,2008 and November 10,2008 OLD BUSINESS EXECUTIVE DIRECTOR COMMENTS A.Executive Director's Status Report e Report on Crossroads Leadership Recommendations e AEA Programs and Projects Update Next meeting date -January 22,2009 10:30am AEA Board Meeting Dates 2009 Thu.Jan 22,2009 Thu.Feb 26,2009 Thu.Apr 2,2009 Thu.May 14,2009 Thu.June 25,2009 Thu.Aug 6,2009 Thu.Sept 17,2009 Thu.Oct 29,2009 Thu.Dec 3,2009 NEW BUSINESS A..AEA Financial Statements BOARD COMMENTS ADJOURNMENT 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 @ www.akenergyauthority.org /=ALASKA@-)ENERGY AUTHORITY Oo Vision:Affordable and sustainable energy for Alaska. Mission:Provide world-class,customer-focused energy services to Alaska. Values:Building relationships founded on cultural awareness,respect, integrity and accountability. | AEA in 10 years... MentoringInternalLearning/Growth Facilities Benefits/retirement Cabinet-level Be AEA employees Shared leadership To provide a progressive work environment Reasonable workload ,oe TrustwithopportunitiesforadvancementandSkilled,trained supervisorsmeaningfulwork.School outreach,volunteering Trained leaders Be more efficientoOProcessesISOcertified Define position duties Balance work load Define output measures To develop,maintain and improve processes Process evaluation -ongoing to provide optimal value and output.Baldridge award Operational excellence Provide valueCustomer/Stakeholder Build trust with communities Public outreach Establish a collaborative culture of listening to Mentor community members customers and providing solutions to meet their needs. Cost-effective servicesFinancial funds we oversee.°Secure the greatest benefit for the public ALASKA ENERGY AUTHORITY Loan Programs Power Project Fund (PPF) Number of loans:42 Outstanding portfolio balance:$24,628,680 Committed &un-disbursed funds:S 1,106,181 Uncommitted funds:$12,325,601 As of 10/31/08,there were 2 loans past due 90 days or more in the amount of $689,248;which was 2.8%of the outstanding portfolio balance. Program Background:The PPF program provides loans to local utilities,local governments or independent power producers for the development or upgrade of electric power facilities, including conservation,bulk fuel storage,and waste energy conservation.The loan term is related to the productive life of the project,but cannot exceed 50 years.Interest rates vary between tax-exempt rates at the high end and zero on the low end.This rate is equal to the percentage that is the average weekly yield of municipal bonds for the 12 months preceding the date of the loan commitment. Month-end figures for November were not available as of this printing;however,as an update, on November 21,2008 AEA approved a $3,596,768 thirty-year loan to Alaska Power and Telephone Company.Loan proceeds will finance in part a new transmission line to connect the communities of Coffman Cove and Naukati Bay to the existing electrical grid on Prince of Wales Island.Approval of this loan increases AP&T's liability to AEA from 13.87%to 24.36%of AEA's total PPF loan portfolio (outstanding plus unfunded commitments). Bulk Fuel Revolving Loan Fund (BFRLF) Number of loans:47 Outstanding portfolio balance:$7,591,550 Committed &un-disbursed funds:$2,540,584 Uncommitted funds:$5,045,668 As of 10/31/08 there was one loan that was past due 90 days or more in the amount of $109,235;which was 1.44%of the outstanding portfolio balance. Program Background:The purpose of the BFRLF program is to assist communities,utilities or fuel retailers in small rural communities in purchasing emergency,semi-annual or annual bulk fuel supplies.Loans are for the purchase of new fuel.Loans are not provided for fuel already purchased,in the process of being used or already consumed.The Alaska State Legislature appropriated an additional $5.5 million to this revolving loan fund in August 2008. Revised 12/3/08 ALASKA ENERGY AUTHORITY Alternative Energy and Energy Efficiency Program Overview Currently Alaska Energy Authority's (AEA's)Alternative Energy and Energy Efficiency (AEEE)program manages and funds 33 projects and initiatives totaling $31.5 million in state and federal funding.Program activity has substantially increased after AEA launched the Renewable Energy Fund.An AEEE update is available on AEA's website at www.akenergyauthority.org Program Description The AEEE program promotes the use of renewable resources as alternatives to fossil fuel-based power and heat,and measures to improve energy production and end use efficiency.In rural areas the program may support developing local sources of coal and natural gas as diesel alternatives.The AEEE program is divided into seven separate program areas: Biomass Energy Program develops projects using wood,sawmill residue,and municipal wastes for energy;tests air emissions and performance of fish oil and diesel blends as fuel;and assesses the viability of recovering fish oil from fish processing wastes. Diesel Generation Efficiency Program provides assistance in developing projects that use high efficiency generators and recover "waste heat”from diesel generators. End Use Efficiency (Conservation)Program has completed 40%of a project upgrading lighting and heating efficiency in over 150 schools and other facilities in 50 villages,is conducting energy audits,and working with Alaska Housing Finance Corporation to develop statewide efficiency policy recommendations and demonstrate impact of .aggressive,village-wide measures in Nightmute. Geothermal Program supports projects such as the Chena Hot Springs power plant,organizes workshops and training sessions,and coordinates state assistance in developing other potential projects such as Mt.Spurr on the Railbelt and Makushin in Unalaska via a statewide development plan. Hydroelectric Program provides technical assistance through staff and contractors for hydro feasibility assessment and manages public funding for project construction. Ocean and River Energy Program evaluates technology and feasibility of converting wave motion and tidal and river flow into power in partnership with Alaskan utilities and Electric Power Research Institute. Wind Program assists utilities and communities in resource evaluation,training,environmental assessment,regional development,conceptual design and economic feasibility of rural wind-diesel systems,and Railbelt wind integration studies. Funding AEA's alternative energy program has received funding since the early 1980s from the US Department of Energy (USDOE)and more recently from the Denali Commission and the EPA.In June AEA and the Denali Commission offered $7.5 million in grants for 37 alternative energy and efficiency projects.The new Renewable Energy Fund offers up to $100 million in fyO9 and potentially $200 million over the following four years.AEA is currently reviewing 231 proposals requesting $760 million received in the current solicitation.The Energy Cost Reduction RFP, an earlier program,has provided $8.4 million in grant funds to match $12.4 million in local funds for projects that are displacing or will displace 1.4 million gallons per year of diesel and equivalent natural gas.For more detail,see the AEA's Biennial AEEE Assistance Plan on the AEA website. Reviewed 11/2008 ALASKA ENERGY AUTHORITY Bulk Fuel Program Current Status In 2008,bulk fuel upgrades were completed in the communities of Tyonek,Ruby,and Pilot Point.The pipeline project in Newtok was started and will be completed in spring 2009.Nine communities are in the design process. Program Description The goal of Alaska Energy Authority's (AEA)Bulk Fuel program is to upgrade non-compliant bulk fuel facilities in communities that meet criteria.Upgrading bulk fuel facilities reduces the cost of energy by eliminating fuel loss from leaking tanks,spills,and fires.In addition,by providing enough capacity for current and foreseeable future the communities may purchase fuel in larger quantities at a lower cost per gallon. Alaskan remote communities rely on diesel fuel storage for heating and power generation.Many of the bulk fuel storage facilities were constructed in the 1970's or earlier.These facilities are at the end of their design life and do not meet fire code and may leak.Regulatory agencies may prohibit fuel deliveries these facilities.Communities did not have funds for replacing the storage facilities. Since 2000,the Denali Commission has been providing funding to replace community bulk fuel facilities. Due diligence is performed on possible participants to ensure that if they are in debt that they are paying on their loans.Participants sign a Business Operating Plan.The Business Operating Plan lays out the existing fuel facility organizational structure,the qualifications of responsible people,AEA required training,estimated operation and maintenance costs,and the establishment of a repair and replacement fund,so that when equipment fails,the community will have the knowledge and savings to repair or replace it. Program Progress The bulk fuel program receives most of its funding through the Denali Commission.A total of 21 communities were completed in years previous to 2000.In 2000,funding increased substantially when the Denali Commission started to fund bulk fuel projects.As of December 2008,an additional 65 communities have been completed for a total of 86.Approximately 32 communities have not received upgrades.Depending on funding,three to six communities are receiving upgrades per year. Reviewed 11/2008 ALASKA ENERGY AUTHORITY Circuit Rider Program Current Status The Circuit Rider Program provides technical assistance to help rural utilities with the operation and maintenance of their electrical generation and distribution system.In 2007,21 utilities participated. Program Description The Circuit Rider Program is administered by the Alaska Energy Authority (AEA)and is available to all eligible electric utilities.Electric utilities participating in this program will receive support services available from AEA. The purpose of the circuit rider maintenance program under 3 AAC 108.200 -3 AAC 108.220 is to assist eligible utilities to improve the efficiency,safety,and reliability of power systems and reduce the risk and severity of emergency conditions or emergency disruptions in the operation of community power systems,by providing training,consultation,on-site assistance with maintenance and minor repairs,and other related technical assistance. ®The CRM program runs ona fiscal year from July 1 to June 30. e All applications will be evaluated and placed on priority list. e AEA will make one or more visits to eligible electric utilities over the course of the fiscal year to provide training and provide recommendations concerning operations and routine maintenance activities.There will be no charge to the utility for these services. ©Participating utilities are responsible for the purchase of all supplies,parts and equipment used for routine maintenance and minor repairs that are made during Circuit Rider visits.These items must be available at the utility's workplace prior to the arrival of AEA staff. e The Circuit Rider program does not provide funding for major repairs or reconstruction of electrical systems. e The participating utility's power plant operator and/or other utility staff must be available for training and consultation during the time of the Circuit Rider staff visit.Power plant operators will be required to maintain written performance logs in between Circuit Rider visits. e Utilities participating in the Circuit Rider program will be required to sign a letter acknowledging their understanding of the terms and conditions of the services provided by the program,prior to the first visit. Program Progress Services under the Circuit Rider program are limited to village electric utilities with a demonstrated need for assistance with preventative operations and maintenance activities,utility training and emergency prevention.The program is not intended to serve electric utilities that have sufficient financial and technical resources to perform routine operations and maintenance activities. Reviewed 11/2008 ALASKA ENERGY AUTHORITY Emergency Response Program Current Status In 2007/2008,20 communities where assisted.Major responses included Beaver when their powerhouse burned to the ground,Diomede with unexpected major equipment failures and Tuluksak engine failures. Program Description The Emergency Response program provides on-call,as-needed emergency action response to mitigate extended power outages and electrical hazards that present eminent threat to life or property. This program is designed to respond to an emergency or potential emergency situation before disaster or major loss occurs.It provides funding for continuance of government activities.It allows for procurement of manpower,materials and equipment for emergency response to electrical generation and distribution system emergencies and disasters in Alaska. Program Progress Emergency response is provided on an as-needed basis only.Well-managed utilities with adequate technical and financial resources are not candidates for these services.Besides helping rural communities,AEA works with State and Federal agencies on an as-needed case by case basis to resolve electrical generation and distribution system emergencies throughout Alaska. Revised 11/2008 ALASKA ENERGY AUTHORITY Power Cost Equalization Program Current Status The original FYO8 PCE appropriation was $26,760,000.00 which was further capitalized by a $1.2 million dollar supplemental appropriation,increasing the total funding to $27,960,000.00.FYO8 budget funding levels remained at the 100%level for the entire fiscal year.This caused the program to go over budget by what is currently $486,484.21.The legislature approved a $600,000 supplemental appropriation for PCE's FYO8 expenditures. Effective October 1,2008,the power cost for which PCE is paid (the "ceiling”)will be raised from $.525 to $1.00 for the remainder of the FY 2009.The PCE Program has been provided an open ended General Fund Appropriation estimated to be $23 million. Program Description The goal of Alaska Energy Authority's (AEA)Power Cost Equalization program is to provide economic assistance to customers in rural areas of Alaska where the kilowatt-hour charge for electricity can be three to five times higher than the charge in more urban areas of the state.PCE only pays a portion of approximately 30%of all kWh's sold by the participating utilities. PCE fundamentally improves Alaska's standard of living by helping small rural areas maintain the availability of communications and the operation of basic infrastructure and systems,including water and sewer,incinerators,heat and light.PCE is a core element underlying the financial viability of centralized power generation in rural communities. The Legislature established different functions for AEA and the Regulatory Commission of Alaska (RCA) under Alaska Statutes 42.45.100-170,which govern PCE program responsibilities. AEA determines eligibility of community facilities and residential customers and authorizes payment to the electric utility.Commercial customers are not eligible to receive PCE credit.Participating utilities are required to reduce each eligible customer's bill by the amount that the State pays for PCE. RCA determines if a utility is eligible to participate in the program and calculates the amount of PCE per kWh payable to the utility.More information about the RCA may be found at www.state.ak.us/rca PCE Endowment Fund The PCE Endowment Fund was created and capitalized in FY 2001 with Funds from the Constitutional Budget Reserve and the Four Dam Pool Project sale proceeds.The PCE Endowment Fund is an Alaska Energy Authority Fund managed by the Department of Revenue;it is invested to earn at least 7%over time.$182.7 million was appropriated to the fund in FY 2007.The deposit occurred in October 2006. AS 42.45.085 provides that 7%of the PCE Endowment Fund's 3 year monthly average market value may be appropriated to the PCE Rural Electric Capitalization Fund for annual PCE program costs.After the FY 2007 capitalization,7%of the market value equals the estimated full funding amount for the program. Revised 12/2008 ALASKA ENERGY AUTHORITY Rural Power Systems Upgrade Program Current Status Between the calendar years 2000 through 2008,38 communities have benefited from powerhouse and distribution upgrades.11 additional communities are currently undergoing or are scheduled for construction upgrades in 2009.12 more communities are in conceptual design or final design stage. Program Description 'The Rural Power System Upgrade (RPSU)program concentrates on powerhouse and electrical distribution upgrades.Typical project include powerhouse upgrades or replacements,distribution line assessments and upgrades,line extensions to new customers,demand-side improvements and repairs to generation and distribution systems.Energy efficiency,reliability,safety and sustainability are primary drivers during the conceptual design,final design and construction process.Identification of available alternative energy and interoperability with any existing alternative energy sources is high priority with the rising cost of fuel and carbon emissions concerns. Examples of programmatic efforts include: e Rebuilding or replacement of worn-out,inefficient diesel generator units. e Rebuilding or replacement of old,hazardous and non-code compliant distribution systems. °Construction of new power generation systems that meet State and Federal codes.-Communities aeInclusionofwasteheatrecoverysystemsinnewpowerhouses. °Force account labor and technical assistance to rural communities through AEA personnel and/or contractors with experience in rural construction. System upgrades to be funded may be identified through a variety of ways,including via technical assistance,advanced by the local community or directed by the Legislature.The Majority of funds are via the Denali Commission.Other sources include Community Development Block Grant (CDBG),Indian Community Development Block Grant (ICDBG)and Rural Utility Service (RUS).PSU Funding 1999 -2007 Program Progress Annual Fuel Savings from New Powerhouses Electricity provides for lighting,communications, me Ee heat and power necessary to operate infrastructure that supports all other elements needed in any ee eeyesuad 1 With addtional Upgrades<1 gyaiWthout Additional Upgrades men community to permit safe and healthy living "on conditions.In rural communities throughout Alaska, 500,000.|a"electricity is generated by a small local "system” (generation and distribution)using diesel fuel at a cost that is three to five times higher than that in 200000 urban parts of the state.Of the 200 rural400.000 a1 |||communities,approximately half are served by Z cooperatives or another form of utility that performsSSKKSKKHEPSLSHSKFderawell-established organization.Others are served by very small entities,many which experience technical and administrative problems due to lack of economies of scale and/or lack of specialized skills in the community.°Reviewed 12/2008 ALASKA ENERGY AUTHORITY Training Program Current Status The Alaska Energy Authority (AEA),along with the Denali Commission Training Fund,provides training opportunities to local residents for their energy projects and infrastructure.In FYO7,the AEA Training Program provided training to 131 rural Alaskans.For FY08,the program was funded at $416,435 and at least 118 rural Alaskans are expected to be trained. Program Description The intent of this training is to ensure that community personnel have the best skills with which to sustain their energy infrastructure in a business-like manner.With proper training,utilities can keep their facilities code-compliant and sustainable. The training program currently offers the following courses: e Bulk Fuel Operator Training e =Itinerant Bulk Fue!Operator Training e Bulk Fuel Business Training ¢Power Plant Operator Training e Advanced Power Plant Operator Training e =Electric Utility Business Training e =PCE Utility Clerk Training e Hydro Power Plant Training Reviewed 11/2008 [=ALASKAENERGYAUTHORITY 7 &4 a ak ¢axe Alaska Industrial DevelopmentandExportAuthority Reviewed:November 24,2008 Project Fact Sheet:BRADLEY LAKE HYDROELECTRIC PROJECT CURRENT STATUS:Inspections indicate Bradley is in good condition.In August maintenance was performed at the Nuka River to deepen the channel.On September 25,2008 a helicopter under contract for maintenance transmission line work contacted the line and cut it.The helicopter was destroyed and the pilot was injured.Bradley continues to perform well and maintenance activities are proceeding as planned. PROJECT COST:$317 million (original cost plus major capital improvements through June 30, 2007) DESCRIPTION:The project has 126 MW of installed capacity hydroelectric project located 27 air miles southeast of Homer on the Kenai Peninsula.The project consists of Bradley Lake,a 125 foot high concrete faced,rock filled dam structure,three diversion structures,a 19,063 ft. long power tunne!and vertical shaft,generating plant,interior substation,20 miles of transmission line,and substation.Due to its remote location,the project has its own airstrip, boat dock,residential quarters,and utility system.The project is normally automatically operated by remote dispatch by Chugach Electric Association from Anchorage. PURPOSE:The Bradley project provides 5-10%of the annual railbelt electric power needs at the lowest generation cost.Bradley is most important to the railbelt electric system during the cold winter months.Demand for both electric power and gas for heat is at its highest.Utilities limited by available gas are able to use Bradley power to meet the high electric demand. SOURCE OF FUNDS:Legislative appropriations and AEA revenue bonds repaid by participating utilities. PARTICIPANTS:Under the Power Sales Agreement,100%of the project's capacity has been sold to the power purchasers:Chugach Electric Association,Inc.(30.4%);Municipality of Anchorage (25.9%);Alaska Electric Generation &Transmission Cooperative,Inc.(25.8%); acting on behalf of Homer Electric Association,Inc.(12.0%)and Matanuska Electric Association, Inc.(13.8%);Golden Valley Electric Association,Inc.(16.9%);and City of Seward (1.0%) BENEFITS:Authority ownership now assures the railbelt area of a long-term source of power at a stable cost and promotes economic development in the region. ADDITIONAL BACKGROUND:The power generation potential of Bradiey Lake was first studied by the U.S.Corps of Engineers and presented in a report dated March 1955.The project was authorized by Congress in 1962,but,despite its feasibility,federal funds were not available for its construction.The Alaska Energy Authority (then Alaska Power Authority)assumed responsibility for the project in 1982.Preliminary plans and field investigations started in 1982. In April 1984,the Authority submitted an application for license to the Federal Energy Regulatory Commission (FERC).The license to construct the project was issued on December 31,1985.In 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org «907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org Bradley Hydroelectric Project Project Fact Sheet Page 2 of 2 December 1987,the Authority and the railbelt utilities entered into a Power Sales Agreement to delineate responsibilities.Project was declared in commercial operation September 1,1991. Bradley has been producing power for 16 years.In 2007,Bradley produced 392,000 MWh of power at a cost of approximately $.039 per kWh. A Bradley Project Management Committee (BPMC)was formed in 1993 with representatives from each of the power purchasers and Alaska Energy Authority.The BPMC is responsible for the management,operation,maintenance,and improvement of the project,subject to the non- delegable duties of the Alaska Energy Authority. "IDEN (=AswxAlaskaIndustrialDevelopmentandExportAuthority Reviewed June 3,2008 Project Fact Sheet:ALASKA INTERTIE CURRENT STATUS:The Intertie is currently in operation.Several Repair and Renovation projects have been authorized by the Intertie Operating Committee and AEA has started to pursue the projects.The projects are the STATIC VAR COMPENSATOR replacement project and the TOWER 195 RELOCATION project.There is $10M available to accomplish this work. PROJECT COST:Initial capitals costs of $124 million.Warranty and repair and replacement fund is paid into by utilities to cover costs. DESCRIPTION:The Alaska Intertie transmission line is a 170-mile long,345kV transmission line between Willow and Healy that is owned by AEA.It is presently operated at 138 KV. PURPOSE:The purpose of the Alaska Intertie is to interconnect Golden Valley Electric Association,theregulatedutilitythatservesareasnorthoftheAlaskaRangewithsouthcentralAlaskaUtilities.The intertie also allows resources north and south of the range to be shared to improve reliability.Notably, the GVEA storage battery,as well as GVEA generation resources,can and have been used to send emergency power southward to minimize catastrophic network wide outages.The operation of this intertie materially improves overall system reliability. SOURCE OF FUNDS:The Intertie was built in the mid-1980s with State of Alaska appropriations totaling $124 million.Currently,there is no debt associated with this asset. PARTICIPANTS:The operation of the Intertie is governed by the Alaska Intertie Agreement entered into in 1985 and amended in 1991.The parties to this agreement are AEA (formerly Alaska Power Authority), Anchorage Municipal Light &Power,Chugach Electric Association Inc.,Alaska Municipal Utilities System, Golden Valley Electric Association,Inc.,and the Alaska Electric Generation and Transmission Cooperative (AEG&T is comprised of Matanuska Electric Association and Homer Electric Association). BENEFITS:In 1981,a study demonstrated a positive feasibility of the line and recommended construction of an intertie to allow exchange of economy energy and the sharing of reserve generation capacity between the Anchorage and Fairbanks load centers.It was estimated that the benefits from the project would be approximately $17 million per year. ADDITIONAL BACKGROUND:Agreements have been developed over a span of 30 years to govern the cooperative management,operation of the connected network at large.AEA has agreements with participating utilities that assure the Alaska Intertie operates with prudent maintenance and operation by utilities.ML&P is the intertie operator,while MEA and GVEA provide maintenance and operations services. 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 contractors,MEA,CEA,and GVEA. 813 West Northern Lights Boulevard «Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org Wk "AIDEN [=ALASKA Alaska Industrial Development and Export Authority Revised June 3,2008 Project Fact Sheet:ALASKA-BC INTERTIE STUDY CURRENT STATUS:A portion of the AKBC funds have been re-appropriated for the design and permitting of the Petersburg to Kake Intertie project.Some funds have been retained to monitor the situation in British Columbia,where the government is re-evaluating whether to build the backbone intertie from southern BC to 60 miles from the Alaska-BC border.Further action on the export project depends in part on the evaluation by private mining companies of the economics of major mines near the Alaska BC border.The final feasibility report has been published and is available online at http:/Awww.akenergyauthority.org/AKBCProjectPage.htm!After July 1,2008 AEA will begin the final route selection,design and permitting process for the Petersburg to Kake Intertie.AEA is presently discussing an integrated corridor development concept with DOT-PF,to build a joint road/intertie project.AEA attended a public meeting in Petersburg in late June.Considerable community input was received,useful to AEA and DOT-PF and Southeast Conference to determine the best course of action for the project. Another meeting is scheduled in Kake on August 5,2008 to further discuss the project. PROJECT COST:$3.2 million. DESCRIPTION:To analyze and confirm the feasibility of a transmission line that would connect two parts of the Four Dam Pool service area and the two major Southeast hydroelectric power plants in the Ketchikan-Wrangell-Petersburg region through construction of a 67-mile electrical transmission intertie; and 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 a part of the study,examine the construction of a transmission backbone that that would entice private or local government entities to develop hydro power projects that could produce as much as 100 MW of power for use in southern SE Alaska or be exported. PURPOSE:Provide a transmission system to allow for exportation of power to the British Columbia grid. Additional intertie will allow delivery of excess power for Lake Tyee to Ketchikan. SOURCE OF FUNDS:Legislative appropriation of $3.2 million.Of the $3.2M funding,AEA has expended approximately $511,000 as of September 30,2007. PARTICIPANTS:Hatch Energy (Contractor)and an Advisory Work Group made up of representatives from Southeast Alaska communities including:Auke Bay,Craig,Juneau,Ketchikan,Metlakatla, Petersburg,and Wrangell. BENEFITS:The draft final report supports the Swan-Tyee Intertie and the Kake Petersburg Interties as being economically feasible,and indicates the export intertie link shows economic promise,but cannot be definitively determined at this time. ADDITIONAL BACKGROUND:This study has an advisory committee and steering committee to assist AEA in proper administration of funds.The committees have participated actively in the formulation of the consultant scope of work,selection of the consultant.The feasibility study has been reviewed and approved by the work group. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org «907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 ¢www.akenergyauthority.org a ENERGY AUTHORITYf=ALASKAteeksAlaskaIndustrialDevelopmentandExportAuthority Reviewed June 3,2008 Project Fact Sheet:EKLUTNA TRANSMISSION LINE UPGRADE CURRENT STATUS:Project construction is complete.The line presently awaits connection into the Railbelt network.As the available funds through the AEA grant are nearly exhausted, the Eklutna Operating Committee (ML&P,Chugach and MEA)has elected to complete the project using funds they will secure.The Operating Committee has designated ML&P as the project manager for completing terminations,commissioning and energizing the line.ML&P is securing professional services to accomplish this commissioning process.They will be reporting the proposed schedule to AEA for commissioning in the spring of 2008. PROJECT COST:$19.3 million DESCRIPTION:The project consists of rebuilding the existing 115kV wood-pole electric transmission line from the Eklutna Hydroelectric Plant to the point where the Beluga 230kV electric transmission line intersects the line (near Briggs Tap/Fossil Creek),spanning a distance of 22.5 miles. PURPOSE:To upgrade the existing single circuit line to a double circuit line providing an overall capacity and reliability to the intertie.To improve system reliability and resolve fault issues,the generating utilities approached the legislature for funding to construct a dedicated transmission link between the two generation centers,and to provide a second line to serve the four existing MEA taps.The new transmission line will be constructed and insulated for 230KV, but will initially operated at 138KV. SOURCE OF FUNDS:Grant to the Municipality of Anchorage Municipal Light and Power through the Alaska Energy Authority for an Eklutna project transmission line upgrade.AEA is the grant administrator. PARTICIPANTS:Anchorage Municipal Light and Power,Chugach Electric Association,Inc., and Matanuska Electric Association. BENEFITS:This intertie project will resolve concerns over the 50-year age of a wood structured primary intertie link between the hydroelectric power plant at Eklutna,and the ML&P plant no.2,which is one of the main generation centers for South Central Alaska.Completion of the intertie will increase operating and dispatch flexibility for South Central Alaska,and increase reliability of power supply. ADDITIONAL BACKGROUND:Concerns for system reliability and safety led South Central Utilities to approach the legislature for a $19.3 Million appropriation to replace a 50-year-old key transmission link between two South Central Generation facilities.The Eklutna hydropower generation facility,recently repowered to produce 40MW of storage hydropower,was connected to the rest of the Railbelt system through the wood structured link. 813 West Northern Lights Boulevard #Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 #FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org <=>ALASKA ENERGY AUTHORITYxxAlaskaIndustrialDevelopment and Export Authority Revised December 2,2008 Project Fact Sheet:LARSEN BAY HYDROELECTRIC PROJECT CURRENT STATUS:Upgrades to the Larsen Bay Hydro Facility are in progress.Replacement of the switchgear,related controls and repairs to the intake structure are scheduled for completion in January of 2009.The utility is now supplying a portion of the cannery's energy needs.The new replacement hydro switchgear and related material is on the barge waiting for weather to clear. PROJECT COST:$320,000 DESCRIPTION:The Larsen Bay hydro facility has experienced many operating problems over the last few years.The problems are mainly related to the aging of the control switchgear,much of which was installed twenty years ago.Improvements that will be made to the hydroelectric facilities to improve operational reliability will include the replacement of the hydro switchgear and controls with new data acquisition and remote monitoring capabilities.Ice damage to the water intake structure will be repaired.- A portion of the cannery domestic load will be isolated and separately metered in order to facilitate increased use of hydro power during the summer without impacting the power to the city. PURPOSE:The project intent is to increase the reliability,power quality and efficiency of the hydro and turn over ownership of the system to the City of Larsen Bay. SOURCE OF FUNDS:In 2004,the City of Larsen Bay applied for and received a CDBG Grant to upgrade the hydro facility.In 2005,AEA negotiated a Grant Agreement with the City of Larsen Bay and CDBG to manage the hydro upgrade project.Subsequently,the project was awarded $320,000 from CDBG. PARTICIPANTS:Alaska Energy Authority and the City of Larsen Bay BENEFITS:When operating reliably and efficiently the hydro can displace 90%of the communities diesel fuel used for electrical generation.The utility can now provide a portion of the cannery's energy needs.This has resulted in increased revenue to the utility.Sales to the cannery during the summer of 2007 allowed the City of Larsen Bay to pay its loan obligations for FY 2007 and 2008.The intent is to turn the hydro facility over to the City after the improvements have been made and the facility has proven its reliability ADDITIONAL BACKGROUND:This 475-kilowatt project went into commercial operation in mid-1991 with construction costs of approximately $1.6 million.In addition to producing electricity for this isolated Kodiak Island community,the project replaced the City of Larsen Bay's old water supply system and provides a better source of water with reduced maintenance and improved water quality.The original intent of the hydro project was to turn the facility over to the City of Larsen Bay once it had been demonstrated to be operationally viable over a few years.The hydro operated only intermittently and unreliably for many years;therefore the community would not agree to accept the facility until these problems were worked out.In 2004,the City of Larsen Bay agreed to seek CDBG funding to make improvements to the hydro facility. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 www.didea.org *907/269-3000 *FAX 907/269-3044 *Toll Free (Alaska Only)888/300-8534 *www.akenergyauthority.org (=ALASKAal©ENERGY AUTHORITYweandfxportAuthority Revised August 4,2008 Project Fact Sheet:RAILBELT ELECTRICAL GRID AUTHORITY STUDY CURRENT STATUS:The Consultant,Black and Veatch (B&V),has completed analysis work,and has delivered a draft report.A second technical conference was held to explain the results of the study,and the draft report is now posted on the AEA web page.AEA is accepting public comment for a 20 day period after July 23,2008.Current project completion is expected to be September 2008. PROJECT COST:$800,000 DESCRIPTION:Black and Veatch (B&V)was hired as consultant to AEA to perform the analysis of the potential of a Railbelt Electrical Grid Authority in increasing cost effectiveness and reliability in the Operation of the Railbelt transmission grid.B&V will analyze operation costs,look at current and future generation sources,look at current and future electrical demands and develop a series of future scenarios with recommendations for a grid authority.This work will be done in conjunction with the Railbelt utilities,through extensive interviews with affected stakeholders and subject matter experts and with the guidance and feedback of an advisory work group. PURPOSE:This Railbelt Electrical Grid Authority (REGA)study will identify a range of grid authority business structures to own,operate,control,maintain and operate the future Railbelt Electrical generation and transmission Grid This business structure alternatives could range from a voluntary organization to dispatch power and manage the grid assets,or it could be more encompassing to include responsibility for planning and acquiring new generation and assuming ownership of existing Railbelt assets. SOURCE OF FUNDS:Legislative appropriation. PARTICIPANTS:Black and Veatch;Alaska Energy Authority;Homer Electric Association;Chugach Electric Association;Anchorage Municipal Light and Power;Matanuska Electric Association;Golden Valley Electric Association;and a variety of stakeholders as represented on the advisory group and through interviews. BENEFITS:The project will provide the range of effective business structures that the Railbelt can employ to manage the future generation and transmission assets,with comparative economic assessments,analysis of barriers to implementation,and an implementation plan.This will provide a basis for any decisions relating to the enhancement and growth of Railbelt Electric Infrastructure under a variety of possible future energy supplies. ADDITIONAL BACKGROUND:A recent petition by MEA to the Regulatory Commission of Alaska called for the creation of a regional Generation and Transmission Cooperative as a means to implement a collective process to secure new generation sources for the Railbelt.This matter is currently being considered by the RCA. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 «FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 @ www.akenergyauthority.org =ALASKA io)ENERGY AUTHORITYaeAlaskaIndustrialDevelopment and Export Authority Revised June 3,2008 Project Fact Sheet:SWAN-TYEE INTERTIE CONSTRUCTION COMPLETION CURRENT STATUS:The project has been mobilized and line clearing is underway.Remaining portions of the intertie towers are under order.Foundation construction is underway.AEA project manager Strandberg made a site visit in late July.At that time,the foundation contractor's barges were on-site and there were 5 separate foundation crews in operation with 5 helicopters supporting.The prime transformer has been bid.Tower bids have been received and a low bidder selected.Four Dam Pool Power Agency has an office in Ketchikan and has environmental monitors,geotechnical consultants,on site inspectors in place as the construction is pursued.Construction photos are available from AEA on request.Four Dam Pool will issue tax exempt bond offerings to finance the remainder of completion funds required beyond the $46.2M grant. PROJECT COST:$46.2 million DESCRIPTION:This project will complete the construction of the 57-mile Swan-Tyee Intertie between the Swan Lake hydro-electric power plant and the Tyee Lake hydro-electric power plant,and when energized will allow the communities of Petersburg,Wrangell,and Ketchikan to be electrically interconnected.The work will be completed in the 2008 and 2009 construction seasons.The intertie will be owned and operated by The Four Dam Pool Power Agency. PURPOSE:This project will allow power that is produced in the Four Dam Pool transmission network to be scheduled and economically dispatched.Initially,it is expected that excess water energy available at Lake Tyee generation capacity and energy will be used to offset an energy shortage in the Ketchikan area.In a longer range capacity,the intertie can be used to convey power for export through an export intertie that is being considered into British Columbia. SOURCE OF FUNDS:Grant to the Four Dam Pool Power Agency PARTICIPANTS:The Four Dam Poo!Power Agency consisting of three purchasing utilities (municipal utilities of the Cities of Ketchikan,Wrangell and Petersburg)and two electric cooperatives (Copper Valley Electric Association and Kodiak Electric Association). BENEFITS:Generation,avoiding a looming shortage in Ketchikan that could have required Ketchikan Public Utilities to operate expensive and polluting diesel generation. ADDITIONAL BACKGROUND:This project was partially funded in 2005.The Four Dam Pool Power Agency cleared the Right-of-Way and purchased and installed tower foundations,construction was stopped when these funds were expended.The region was able to secure an appropriation of $46.2 million for completion of the project. 813 West Northern Lights Boulevard »Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 e FAX 907/771-3044 ©Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org Ga ENERGY AUTHORITYaxeLsAlaskaIndustrialDevelopmentandExportAuthority Revised June 3,2008 Project Fact Sheet:TEELAND DOUGLAS TRANSMISSION LINE PROJECT CURRENT STATUS:Project meetings continue.The ML&P team is midway in outreach and public meetings.ML&P,AEA prime contractor has scheduled a public hearing in Wasilla on August 6,2008.A portion of the funds for this project ($10M)were re-appropriated to repair Static VAR compensators and a tower with foundation difficulties during this legislative session. PROJECT COST:$20.3 million DESCRIPTION:Upgrade and extend the line from the Teeland Substation on Knik-Goose Bay Road to the Douglas substation 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 138kV,owned by MEA. PURPOSE: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 115kV and operated at 138kV,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. SOURCE OF FUNDS:2002 Legislative appropriation to AEA. PARTICIPANTS:AEA is contracting with Municipal Light and Power under a cooperative agreement to accomplish the transmission line project.AEA will own the new line and it will become part of the Alaska Intertie Project. BENEFITS:This new line will be an addition to the existing 170 mile Alaska Intertie.With AEA ownership and access,the existing agreements with MEA for use of MEA transmission lines,which are complex,will no longer be needed.It is expected that intertie operations will be simplified,and MEA will gain the full use of its assets it previously had devoted to intertie operation. ADDITIONAL BACKGROUND:It was determined that the most effective way to construct the line was to have ML&P manage all construction activities.This decision was the result of a collaborative effort between AEA and the Intertie participant utilities.The project has been approved by the Intertie Operating Committee. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org --ENERGY AUTHORITYFeHCmeeratteneen MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Steve Haagenson 4b Executive Director DATE:December 11,2008 SUBJECT:-Financial Reports Included with your packet are the June 30,2008 Financial Statements and the Letter to the Board of Directors. Mr.David McCambridge,Partner with the Anchorage Office of KPMG,LLP,will be in attendance at the meeting to discuss the reports and to answer any questions the Board may have. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 www.aidea.org *907/771-3000 *FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 *www.akenergyauthority.org ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Letter to the Board of Directors October 22,2008 KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 October 22,2008 The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska) Dear Members: We have audited the basic financial statements of the Alaska Energy Authority,a Component Unit of the State of Alaska (Authority),for the year ended June 30,2008,and have issued our report thereon dated October 22,2008.Under auditing standards generally accepted in the United States of America,we are providing you with the following information related to the conduct of our audit. Our Responsibility under Auditing Standards Generally Accepted in the United States of America Our audit of your financial statements as of and for the year ended June 30,2008 was planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatements,whether caused by error or fraud.In planning and performing our audit,we considered internal control in order to determineour auditing procedures for the purpose of expressing our opinion on the financial statements.An audit does not include examining the effectiveness of internal control and does not provide assurance on internal control. Significant Accounting Policies The significant accounting policies used by the Authority are described in note2 to the financial statements.No new accounting policies were adopted and the application of existing policies was not changed during 2008. Significant Transactions We noted no transactions entered into by the Authority during the years that were both significant and unusual.In addition,we noted no transactions entered into by the Authority that under professional standards,we are required to inform you,or transactions for which there is a lack of authoritative guidance or consensus. Management Judgments and Accounting Estimates Accounting estimates are an integral part of the financial statements prepared by management and are based upon management's current judgments.Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management's current judgments.We evaluated the key factors and assumptions used to develop management's judgments and estimates in determining that amounts recorded were reasonable in relation to the financial statements of the Authority taken as a whole. KPMG LLP.a U.S.limited liability partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. Pane The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska) October 22,2008 Page 2 The allowance for loan losses represents management's judgment as to the amount required to absorb potential losses in the loan portfolio.The factors used by management to determine the allowance include historical loss experience,individual delinquencies,existing economic conditions and other factors. Management's estimates of potential loss are charged to operating expense through provisions for loan losses.The allowance totaled approximately $1.1 million at June 30,2008,and we agreed with management that the allowance is reasonable in relation to the financial statements taken as a whole. Significant Audit Adjustments We proposed no adjustments to the Authority's accounting records that could,in our judgment,either individually or in the aggregate,have a significant effect on the Authority's financial reporting process.In connection with our audit of the Authority's financial statements,we noted no misstatements,that have not been corrected in the Authority's books and records,as of and for the year ended June 30,2008. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the Authority's financial statements and our report thereon does not extend beyond the financial information identified in our report,and we have no obligation to perform any procedures to corroborate other information contained in these documents,for example,Management's Discussion and Analysis.We will,however,read the other information included in the Authority's annual report and offering documents,and will communicate to management and,if necessary,the board of directors any items that caused us to believe that such information,or its manner of presentation,is materially inconsistent with information,or manner of its presentation,appearing in the financial statements. Disagreements with Management There were no disagreements with management on financial accounting and reporting matters that,if not satisfactorily resolved,would have caused a modification of our report on the Authority's 2008 financial statements. Consultation with Other Accountants To the best of our knowledge,management has not consulted with or obtained opinions,written or oral, from other independent accountants during the past year that were subject to the requirements of Statement on Auditing Standards No.50,Reports on the Application ofAccounting Principles. Major Issues Discussed with Management Prior to Retention We generally discuss a variety of matters,including the application of accounting principles and auditing standards,with management prior to retention each year as the Authority's auditors.However,these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. Difficulties Encountered in Performing the Audit We encountered no difficulties in dealing with management in performing our audit. Bana The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska) October 22,2008 Page 3 ***Ke K % This report is intended solely for the information and use of the members of the Alaska Energy Authority's board of directors and is not to be and should not be used by anyone other than these specified parties. Very truly yours, KPMG LEP ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Audit in Accordance with OMB Circular A-133 Year ended June 30,2008 (With Independent Auditors'Report Thereon) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Table of Contents Independent Auditors'Report on Compliance with Requirements Applicable to Each Major Program,Internal Control over Compliance and Supplementary Schedule of Expenditures of Federal Awards in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Independent Auditors'Report on Compliance and Other Matters and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Pages 1-2 - 3 4 5 6-7 KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska): Compliance We have audited the compliance of the Alaska Energy Authority,a Component Unit of the State of Alaska, (Authority)with the types of compliance requirements described in the U.S.Office of Management and Budget (OMB)Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30,2008.The Authority's major federal programs are identified in the summary of auditors'results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws,regulations,contracts,and grants applicable to each of its major federal programs is the responsibility of the Authority's management.Our responsibility is to express an opinion on the Authority's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America;the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States;and OMB Circular A-133,Audits of States,Local Governments,and Non-Profit Organizations.Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred.An audit includes examining,on a test basis,evidence about the Authority's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.Our audit does not provide a legal determination of the Authority's compliance with those requirements. In our opinion,the Authority complied,in all material respects,with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30,2008. Internal Control over Compliance The management of the Authority is responsible for establishing and maintaining effective internal contro] over compliance with the requirements of laws,regulations,contracts,and grants applicable to federal programs.In planning and performing our audit,we considered the Authority's internal contro]over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance,but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly,we do not express an opinion on the effectiveness of the Authority's internal control over compliance. KPMG LLP,a US.limited liability partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. Rana A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis.A significant deficiency is a control deficiency,or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency,or combination of significant deficiencies,that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the entity's internal control that might be significant deficiencies or material weaknesses.We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses,as defined above. Schedule of Expenditures of Federal Awards We have audited the basic financial statements of the Authority as of and for the year ended June 30,2008, and have issued our report thereon dated October 22,2008.Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole.The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated,in all material respects,in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of the board of directors,management,federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. KPMc LEP October 22,2008 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Expenditures of Federal Awards Year ended June 30,2008 Catalog of federal domestic Federal grantor/pass-through grantor assistance Award Federal grantor program titie number amount expenditures U.S.Department of Energy: Direct: Biomass Energy Program 81.079 $198,000 198,000 Alaska Wood Biomass 81.079 180,722 41,899 Alaska Wind Energy 81.087 2,772,940 710,310 Wind Omnibus 81.117 35,086 1,299 Geothermal Outreach 81.117 102,000 25,470 Total direct 3,288,748 976,978 Passed through the State of Alaska: State Energy Program -Energy Conservatior 81.041 182,000 182,000 Washington State Univ-SEP Northwest CHP Application Center 81.041 35,000 27,627 Total passed through the State of Alaska 217,000 209,627 Total U.S.Department of Energy 3,505,748 1,186,605 Denali Commission: Direct:. Bulk Fuel Consolidation Upgrades and Power Generation 90.100 106,805,900 1,295,644 Bulk Fuel Consolidation Upgrades and Power Generation -2005 and Beyond 90.100 42,304,866 10,850,268 Legislative Energy Projects 90.100 6,103,198 196,672 Bulk Fuel Consolidation Upgrades 90.100 3,991,328 1,294,677 Kwethluk Barge Landing Design 90.100 272,575 40,455 Assistance to Rural Communities with High Energy Costs 90.100 15,892,419 106,009 Bulk Fuel Consolidation and Power Generation Upgrades 90.100 21,485,255 3,377,063 Generators 90.100 589,840 517,839 Alternative Energy Proposal Review and Project Managemen 90.100 3,090,000 53,456 Alaska Wood Energy Conference 90.100 4,000 4,000 Kwethluk Barge Landing and Road Extension Design 90.100 180,000 1,407 Total direct 200,719,381 17,737,490 Passed through the State of Alaska: Bulk Fuel Tank,Utility,Power Plant,Hydro Power Plant Operator Training 90.100 525,764 240,825 Total Denali Commission 201,245,145 17,978,315 U.S.Department of Interior: Fish and Game Studies;Eiders 15.615 65,616 51,095 U.S.Environmental Protection Agency: EPA AK Fish Oil Biodiesel 66.034 200,000 35,089 EPA -TIPS Feasibility 66.202 1,450,800 607,752 Total U.S.Environmental Protection Agency 1,650,800 642,841 USS.Department of Agriculture: RUS Napakiak Tline 10.859 2,915,228 235,136 RUS Elfin Cove 10.859 1,178,490 224,158 Total direct 4,093,718 459,294 Passed through the State of Alaska:10.001 50,000 10,266 University of Alaska Modular Fish Oil Total U.S.Department of Agriculture 4,143,718 469,560 Total federal awards $210,611,027 20,328,416 See accompanying notes to schedule of expenditures of federal awards. (1) (2) (3) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Schedule of Expenditures of Federal Awards Year ended June 30,2008 General The accompanying Schedule of Expenditures of Federal Awards presents the activity of all federal financial assistance programs of Alaska Energy Authority (Authority).The Authority's reporting entity is defined in note 1]to the Authority's financial statements.Federal financial assistance received directly from federal agencies as well as federal financial assistance passed through other government agencies is included on the schedule. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards is presented using the accrual basis of accounting,which is described in note 2 to the Authority's financial statements. Subrecipients The Authority provided the following to subrecipients during the year ended June 30,2008: U.S.Department of Energy: Alaska Wood BioMass Energy Program 198,000 State Energy Program -Energy Conservation 23,658 Alaska Wind Energy 563,526 785,184 Denali Commission: Bulk Fuel Consolidation Upgrades and Power Generation $38,561 Bulk Fuel Consolidation Upgrades and Power Generation -2005 and beyond 9,347,596 Legislative Energy Project 194,659 Assistance to Rural Communities with High Energy Costs 69,993 Bulk Fuel Farms Consolidation Upgrades 1,155,888 Bulk Fuel Farms Consolidation and Power Generation Upgrades 2,390,657 13,697,354 U.S.Department of Interior: Fish and Game Studies;Eiders 50,660 U.S.Environmental Protection Agency: EPA -TIPS Feasibility 599,095 U.S.Department of Agriculture: RUS Elfin Cove 156,062 $15,288,355 (1) (2) (3) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Findings and Questioned Costs Year ended June 30,2008 Summary of Auditors'Results Financial Statements Type of auditors'report issued Unqualified Internal control over financial reporting: °Material weakness(es)identified?yes X__-sino °Significant deficiency(s)identified that are not considered to be material weakness(es)?yes X__none reported Noncompliance material to financial statements noted?yes X___no Federal Awards Internal control over major programs: °Material weakness(es)identified?yes X__no °Significant deficiency(s)identified that are not considered to be material weakness(es)?yes X___none reported Type of auditors'report issued on compliance for major programs Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a)of Circular A-133?yes X__no CFDA number Name of Federal Major Program or Cluster 90.100 Denali Commission Bulk Fuel Upgrade 81.087 U.S.Department of Energy -Diesel Wind Energy Projects Dollar threshold used to distinguish between Type A and Type B programs:$609,852 Auditee qualified as low-risk auditee?__X__yes no There were no findings relating to the financial statements reported in accordance with Government Auditing Standards. No audit findings relating to the financial statements reported in accordance with Government Auditing Standards were disclosed by the audit of the financial statements. Findings and Questioned Costs Related to Federal Awards None. KEAvhe KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska): We have audited the financial statements of the Alaska Energy Authority,a Component Unit of the State of Alaska,(Authority)as of and for the year ended June 30,2008,and have issued our report thereon dated October 22,2008.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit,we considered the Authority's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing an opinion on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting.Accordingly,we do not express an opinion on the effectiveness of the Authority's internal control over financial reporting. A control deficiency exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect misstatements on a timely basis.A significant deficiency is a control deficiency,or combination of control deficiencies, that adversely affects the entity's ability to initiate,authorize,record,process,or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency,or combination of significant deficiencies,that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity's interna!control. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses,as defined above., Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free of material misstatement,we performed tests of its compliance with certain provisions of laws,regulations, contracts,and grant agreements,noncompliance with which could have a direct and material effect on the determination of financial statement amounts.However,providing an opinion on compliance with those 6 KPMG LLP,a USS.limited liability partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. Mane provisions was not an objective of our audit,and accordingly,we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. This report is intended solely for the information and use of the board of directors,management,federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. KPa LEP October 22,2008 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Bond Compliance Report October 22,2008 KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska): We have audited,in accordance with auditing standards generally accepted in the United States of America,the balance sheet of the Alaska Energy Authority (A Component Unit of the State of Alaska),as of June 30,2008,and the statements of revenues,expenses,and changes in net assets,and cash flows for the year then ended,and have issued our report thereon dated October 22,2008. In connection with our audit,nothing came to our attention that caused us to believe that the Alaska Energy Authority failed to comply with Section 801 of the Power Revenue Bond Resolution dated September 7, 1989 insofar as they relate to accounting matters.However,our audit was not directed primarily toward obtaining knowledge of noncompliance. This report is intended solely for the information and use of the Alaska Energy Authority,U.S.Bank Trust National Association,Municipal Bond Investors Assurance Corporation and Financial Security Assurance Inc.and is not intended to be and should not be used by anyone other than these specified parties. KPa.LEP October 22,2008 KPMG LLP.a U.S.limited liability partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Financial Statements and Schedules June 30,2008 and 2007 (With Independent Auditors'Report Thereon) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Table of Contents Pages Management's Discussion and Analysis 1-6 Independent Auditors'Report 7-8 Balance Sheets 9 Statements of Revenues,Expenses,and Changes in Net Assets 10 Statements of Cash Flows ) 11 Notes to Basic Financial Statements 12-33 Schedules 1 Schedule of Bradley Lake Hydroelectric Project Trust Account Activities 34 2 Schedule of Projects -Balance Sheet 35 3 Schedule of Projects -Revenues,Expenses and Changes in Net Assets 36 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Overview of the Financial Statements The Alaska Energy Authority's (AEA or Authority)is composed of the following programs -AEA owned hydroelectric and intertie projects,rural energy programs,and energy development programs.Further information on AEA's programs can be found in note 1 to the financial statements. This financial report consists of three sections:management's discussion and analysis,basic financial statements, and supplementary schedules.AEA's operations are business type activities and are considered an enterprise fund.The Authority is a component unit of the State of Alaska (State)and is discretely presented in the State's financial statements.The Authority's basic financial statements are the Balance Sheets;the Statements of Revenues,Expenses and Changes in Net Assets;the Statements of Cash Flows and the Notes to Basic Financial Statements. Basic Financial Statements The Balance Sheets report the Authority's assets,liabilities,and resulting net assets.The net assets are reported as invested in capital assets less debt,restricted and unrestricted.Restricted net assets are subject to external limits such as bond resolutions,legal agreements or statutes. The Statements of Revenues,Expenses,and Changes in Net Assets report the Authority's income,expenses,and resulting change in net assets during the periods reported. Both statements report on the accrual basis of accounting and economic resources measurement focus. The Statements of Cash Flows report the Authority's sources and uses of cash and change in cash balance resulting from the Authority's activities during the periods reported. The Notes to Basic Financial Statements provide additional information required to fully understand the amounts reported in the basic financial statements. Management's Discussion and Analysis This section presents AEA management's analysis of the Authority's financial position and results of operations at and for the years ended June 30,2008 and 2007.This information is presented to help the reader focus on significant financial issues and provide additional information regarding the activities of the Authority.This information should be read in conjunction with the Independent Auditors'Report,the audited financial statements and the accompanying notes. Financial Highlights AEA's assets exceeded its liabilities by $597 million at June 30,2008 and by $629 million at June 30,2007.Of the total net assets at June 30,2008,$134 million was invested in capital assets net of related debt,$43 million was restricted and $420 million was unrestricted.Of the total net assets at June 30,2007,$137 million was invested in capital assets net of related debt,$42 million was restricted and $450 million was unrestricted. ](Continued) ALASKA ENERGY AUTHORITY > (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Financial Analysis Financial Position Total assets,total liabilities,and total net assets at June 30,2008,2007,and 2006 follows (stated in thousands): 2008 2007 2006 Current assets $16,825 7,386 6,760 Capital assets 251,834 259,816 265,650 Other noncurrent and restricted assets 478,603 524,425 296,270 Total assets 747,262 791,627 568,680 Current liabilities 37,757 44,137 31,242 Noncurrent liabilities 112,838 118,234 122,295 Total liabilities 150,595 162,371 153,537 Total net assets 596,667 629,256 415,143 Total liabilities and net assets $747,262 791,627 $68,680 Current assets were $9.4 million higher at June 30,2008 compared to June 30,2007 and $0.6 million higher at June 30,2007 compared to June 30,2006.Components of the changes were (stated in millions): 2008 vs.2007 vs. 2007 2006 (Decrease)increase in investment interest receivable $(0.1)0.1 Increase in receivable from Department of Energy 0.4 - Increase (decrease)in operating receivable from operating plants 0.1 (0.1) Decrease in receivable from Denali Commission (0.7)(0.3) Increase in receivable for advanced grant funds to grantee 9.3 - Increase in receivable from other grants -04 Net increase in short-term loans originated, net of loan collections 0.4 0.5 $9.4 0.6 2 | (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Capital assets were $7.9 million lower at June 30,2008 compared to June 30,2007 and $5.8 million lower at June 30,2007 compared to June 30,2006 substantially due to depreciation of capital assets,offset by improvements to the below projects (stated in millions): 2008 vs.2007 vs. 2007 2006 Bradley Lake Hydro Electric Project $1.4 42 Alaska Intertie Project 0.5 - Napakiak Intertie Project 0.3 - $2.2 4.2 Other noncurrent and restricted assets were $53.8 million lower at June 30,2008 compared to June 30,2007 and $228.2 million higher at June 30,2007 compared to June 30,2006.Components of the changes were (stated in millions): 2008 vs.2007 vs. 2007 2006 (Decrease)increase in PCE Endowment Fund securities lending $(15.7)5.4 Contribution to PCE Endowment Fund -182.7 Increase in PCE Endowment Fund realized investment income 3.9 74 Decrease due to increased capital expenditure (1.5)(0.9) Increase in restricted cash for bond arbitrage liability -3 (Decrease)increase in PCE Endowment Fund fair value (39.6)22.9 Net increase in other funds from investment income and fair value -0.8 Increase in long-term loan fundings 0.6 1.0 Net (decrease)increase in State advances on appropriations (1.5)8.6 $(53.8)228.2 3 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Current liabilities were $6.4 million lower at June 30,2008 compared to June 30,2007 and $12.8 million higher at June 30,2007 compared to June 30,2006.Components of the changes were (stated in millions): 2008 vs.2007 vs. . 2007 2006 (Decrease)increase in PCE Endowment Fund securities lending $(15.7)54 Net increase in State advances on appropriations 6.0 8.6 Decrease in short-term borrowings (0.4)(0.2) Increase in current portion of arbitrage interest payable 1.0 - Increased budgeted revenues in excess of actual expenses on hydroelectric and intertie projects 3.0 05 Decrease in other accrued expenditures (0.3)(1.5) $(6.4)128 The decreases in noncurrent liabilities between June 30,2008 and 2007 and between June 30,2007 and 2006 were caused by the decrease in the long-term portion of bonds payable at each year end and decrease in non current portion of arbitrage interest payable on June 30,2008.There were no new borrowings. The decrease in net assets from June 30,2007 to June 30,2008 resulted primarily from the $39.9 million unrealized loss in the PCE Endowment Fund off set by and increased realized investment gains.The increase in net assets from June 30,2006 to June 30,2007 resulted from the $182.7 million contribution to the PCE © Endowment Fund and resulting increased investment income offset by operating losses. 4 ) (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Operations Components of the Authority's operating revenues,operating expenses,nonoperating investment income and operating loss for the years ended June 30,2008 through 2006 follows (stated in thousands): 2008 2007 2006 Operating revenues: Federal grants 19,817 21,881 28,544 Revenue from operating plants 17,185 16,962 15,669 State appropriations 22,612 14,539 12,192 Other 2,312 1,718 1,603 Total operating revenues 61,926 55,100 58,008 Operating expenses: Grants and projects 27,594 24,239 30,170 PCE grants 28,235 25,145 21,669 Depreciation 10,160 10,034 9,992 Interest expense 7,577 7,938 8,274 Plant operating 4,489 4,242 4,213 General and administrative 1,894 1,673 1,638 Provision for loan loss and bad debt expense (106)(349)(326) Total operating expense 79,843 72,922 75,630 Operating loss (17,917)(17,822)(17,622) Nonoperating: PCE Endowment Fund contribution -182,700 -_ Investment (loss)income,net (14,672)49,235 18,121 Increase (decrease)in net assets (32,589)214,113 499 Operating revenues increased $6.8 million during the year ended June 30,2008 compared to the prior year and decreased $2.9 million during the year ended June 30,2007 compared to the same period in 2006.Components of the changes were (stated in millions): FY 2008-2007 FY 2007-2006 Net change Net change Decreased grant revenue from Denali Commission $(1.9)(8.2) Increased grant revenue from Department of Energy 0.2 0.6 Increased revenue from other grantors -1.0 Fluctuations in Bradley Lake approved budget expenditures -1.3 Increased revenue from other State agencies 0.5 _ Increased revenue from State for PCE grants 2.5 2.1 Increased revenue from State general fund 'operating and capital appropriations 5.5 0.3 $6.8 (2.9) (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2008 and 2007 Operating expenses increased $6.9 million during the year ended June 30,2008 compared to the prior year and were $2.7 million lower during the year ended June 30,2007 compared to the same period in 2006.Components of the changes were (stated in millions): FY 2008-2007 FY 2007-2006 Net change Net change Decreased federal funded grant and project expenses in active rural energy construction projects $(2.0)(5.9) Increased State funded grant and project expenses 5.0 - Increased State agency funded expenses for interagency contracts 0.6 Increased PCE grant expenditures 3.1 35 Decreased bond interest expense (0.4)(0.3) Increased operating plants expense 0.2 - Increased adminstrative costs due to increased state funding 0.3 - Increased other expenses 0.1 - $6.9 (2.7) During the year ended June 30,2008,the PCE Endowment had unrealized losses of $39.6 million that offset $24.7 million in net interest income and realized gains during the year ended in 2008. During the year ended June 30,2007,the PCE Endowment received a contribution of $182.7 million from the State general fund.This contribution created increased interest income and realized gains by $7.4 million and increased fair value of investments by $22.9 million during the year ended in 2007 compared to the same period in 2006. Outlook Annual operation of the owned hydroelectric and intertie projects are per annual budgets approved by the utilities that use the assets and pursuant to bond resolutions and other agreements.Annual operation of the rural energy programs and energy development programs are per State legislation,annual appropriations and federal grant awards. KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report The Board of Directors Alaska Energy Authority: We have audited the accompanying balance sheets of the Alaska Energy Authority (a Component Unit of the State of Alaska)(Authority)as of June 30,2008 and 2007,and the related statements of revenues, expenses,and changes in net assets,and cash flows for the years then ended.These financial statements are the responsibility of the Authority's management.Our responsibility is to express an opinion on these basic financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting. Accordingly,we express no such opinion.An audit also includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and the significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinions. In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Authority as of June 30,2008 and 2007,and the changes in its financial position and its cash flows for the years then ended in conformity with U.S.generally accepted accounting principles. In accordance with Government Auditing Standards,we have also issued our report dated October 22, 2008,on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws,regulations,contracts,and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financia!reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management's Discussion and Analysis on pages 1 through 6 is not a required part of the basic financial statements but is supplementary information required by U.S.generally accepted accounting principles.We have applied certain limited procedures,which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.However,we did not audit the information and express no opinion on it. 7 KPMG LLP,a U.S.limited tialolity partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information included in schedules 1 to 3 is presented for the purpose of additional analysis and is not a required part of the basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMcs LEP October 22,2008 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Balance Sheets June 30,2008 and 2007 (Stated in thousands) Assets Current assets: Grants receivable $ Loans receivable (note 7) Operating revenue receivable Accrued interest receivable Total current assets Noncurrent assets: Restricted cash and investments (note 3) Cash and investments designated for specific purposes (note 3) Loans receivable,net of allowance (note 7) Capital assets (note 5) Less accumulated depreciation Capital assets,net Total noncurrent assets Total assets $ Liabilities and Net Assets Current liabilities: Due to State of Alaska $ Accounts payable Bonds payable -current portion (note 6) Arbitrage interest payable -current portion (note 6) Accrued interest Tota!current liabilities Noncurrent liabilities: Bonds payable -noncurrent portion,net (note 6) Arbitrage interest payable noncurrent portion (note 6) Other liabilities Total noncurrent liabilities Total liabilities Net assets: Invested in capital assets,net of related debt Restricted for debt service Restricted by agreements with external parties Unrestricted net assets Total net assets Commitments and contingencies (notes 8 and 10) Total liabilities and net assets $ See accompanying notes to basic financial statements. 2008 2007 2,810 3,072 2,857 2,471 9,843 409 1,315 1,434 16,825 7,386 22,863 22,585 431,876 478,390 23,864 23,450 443,823 441,645 (191,989)(181,829) 251,834 259,816 730,437 784,241 747,262 791,627 14,081 8,286 13,624 26,809 5,820 5,810 1,007 - 3.225 3,232 37,757 44,137 112,454 117,147 281 984 103 103 112,838 118,234 150,595 162,371 133,560 136,859 19,638 19,353 23,088 22,892 420,381 450,152 596,667 629,256 747,262 791,627 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Statements of Revenues,Expenses,and Changes in Net Assets Years ended June 30,2008 and 2007 (Stated in thousands) 2008 2007 Operating revenues: Federal grants $19,817 21,881 Revenue from operating plants 17,185 16,962 State of Alaska appropriations 22,612 14,539 Revenue from state agencies 1,221 690 Interest on loans 1,020 980 Other revenue 71 48 Total operating revenues 61,926 55,100 Operating expenses: Grants and projects 27,594 24,239 Power Cost Equalization grants 28,235 25,145 Depreciation 10,160 10,034 Interest expense 7,577 7,938 Plant operating 4,489 4,242 General and administrative 1,894 1,673 Provision for loan loss and bad debt expense (note 7)(106)(349) Total operating expenses 79,843 72,922 Operating loss (17,917)(17,822) Nonoperating: State of Alaska PCE Endowment contribution (note 3)-182,700 Investment (loss)income,net (14,672)49,235 Total nonoperating (14,672)231,935 Increase (decrease)in net assets (32,589)214,113 Net assets -beginning 629,256 415,143 Net assets -ending $596,667 629,256 See accompanying notes to basic financial statements. 10 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Statements of Cash Flows Years ended June 30,2008 and 2007 :(Stated in thousands) Cash flows from operating activities: Receipts from federal grants Receipts from customers and users Receipts from State of Alaska appropriations Principal collected on loans Receipts from state agencies Interest collected on loans Other operating receipts Loans originated Payments to suppliers Payments to grantees Net cash provided (used)by operating activities Cash flows from noncapital and related financing activities: Net unremitted interest returned on federal grant advances Net unremitted interest returned on State appropriation advances Endowment fund contribution from State appropriation Increase (decrease)in State appropriation advance held in trust for others Net receipt from operating loans from AIDEA Net cash provided (used)by noncapital and related financing activities Cash flows from capital and related financing activities: Principal paid on bonds Interest paid on bonds Purchase of capital assets Net cash used by capital and related financing activities Cash flows from investing activities: Purchase of investments Proceeds from sales and maturities of investments Interest received from investments Net cash (used)provided by investing activities Net increase (decrease)in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (note 3) Reconciliation of operating loss to net cash provided (used) by operating activities: Operating loss Adjustments to reconcile operating loss to net cash provided (used) by operating activities: Depreciation Provision for loan loss and bad debt expense Bond interest expense Changes in assets and liabilities: Increase in due to State of Alaska (Increase)decrease in grants receivable Increase in loans receivable (Increase)decrease in interest receivable Decrease (increase)in operating revenue receivable (Decrease)increase in operating accounts payable Net cash provided (used)by operating activities Noncash capita]activities: Amount included in accounts payable for fixed asset additions Net increase (decrease)in fair value of investments See accompanying notes to basic financial statements. 11 2008 2007 20,080 21,760 17,388 16,967 28,660 22,011 9,431 8,702 1,051 690 1,029 937 71 47 (10,125)(9,784) (13,733)(12,687) (54,432)(44,407) (580)4,236 _(1) (88)(127) -182,700 (567)971 174 125 (481)183,668 (5,810)(5,800) (6,457)(6,470) (2.961)(3,201) (15,228)(15,471) (113,845)(207,885) 110,661 29,527 17,049 15,573 13,865 (162,785) (2,424)9,648 33,165 23,517 30,741 33,165 (17,917)(17,822) 10,160 10,034 (106)(349) 7,577 7,938 5,882 7,472 263 (121) (694)(1,082) 9 (43) (9,434)144 3,680 (1,935) (580)4,236 216 999 (39,367)28,086 (1) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Organization and Operations The Alaska Energy Authority (Authority or AEA)was created by the Alaska State Legislature in 1976. AEA is a public corporation and a component unit of the State of Alaska (State).AEA's mission is to reduce the cost of energy in Alaska. Throughout the 1980's,AEA worked to develop the State's energy resources as a key element in diversifying Alaska's economy.A number of large-scale projects were constructed;four of those projects were sold in 2002.Today,AEA's two hydroelectric projects have an installed capacity in excess of 90 megawatts,and the Alaska Intertie's 170 miles of transmission line link Interior Alaska with the cheaper energy available in the Southcentral portion of the State. Pursuant to statute,on August 12,1993,the board of directors of the Alaska Industrial Development and Export Authority (AIDEA),a public corporation and a political subdivision of the State,became the boardofdirectorsofAEA.AEA continues to exist as a separate legal entity.The corporate structure and operating assets of AEA were retained but the ability to construct and acquire energy projects was eliminated.The intent of the legislation was that ongoing operation of the operating assets be assumed by the electric utility companies that use or purchase power from the assets with oversight responsibility retained by AEA;this has occurred to the extent possible.Among other things,AIDEA provides personnel services for AEA.The board appointed,on April 10,2008,a separate AEA executive director who is an employee of AIDEA.Previously the AEA and AIDEA executive directors were the same.There is no commingling of funds,assets or liabilities between AIDEA and AEA and there is no responsibility of one for the debts or the obligations of the other.Consequently,the accounts of AIDEA are not included in the accompanying financial statements. Pursuant to legislation effective July 1,1999,rural energy programs previously administered by the former Department of Community and Regional Affairs,Division of Energy,were transferred to AEA for administration,as part of a larger reorganization of state agencies.Five general energy programs comprising more than twenty smaller programs were moved to AEA.Rural energy programs were originally part of AEA prior to the reorganization that occurred in 1993.During fiscal year 2008, legislation added energy development programs to AEA. The following is a description of AEA's existing projects and programs: (a)Bradley Lake Hydroelectric Project The project has installed capability,under optimal conditions,of 126 megawatts and transmits its power to the State's main power grid via two parallel 20-mile transmission lines.The project,which cost in excess of $300 million,went into commercial operation in 1991.The project is now operated by Homer Electric Association under contract with AEA.Bradley Lake serves Alaska's Railbelt from Homer to Fairbanks as well as the Delta Junction area. 12 (Continued) (b) (oc) (d) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements 'June 30,2008 and 2007 'Alaska Intertie Project The 170-mile,345-kilovolt transmission line runs between Willow and Healy,and interconnects the power distribution systems of Anchorage and Fairbanks.The Alaska Intertie allows Golden Valley Electric Association in Fairbanks to purchase electricity produced with lower cost energy,such as natural gas and hydroelectric,from the Anchorage and Kenai Peninsula utilities.The Alaska Intertie reduces the number of black/brownouts throughout the system.Operations and maintenance duties are overseen by the Intertie Operating Committee under the Alaska Intertie Agreement (Agreement). Under legislation effective July 1,2002,the State appropriated $20,300,000 to AEA to upgrade and extend a portion of the Alaska Intertie.Through June 30,2008,AEA incurred $489,000 in costs for preliminary design work.In August 2007,AEA issued a contract to the Municipality of Anchorage dba Municipal Light and Power (ML&P)for $19,500,000 for the upgrade and the work began in September 2007.Under legislation effective July 1,2008,the State re-appropriated up to $10,000,000 of the original funds for certain specific capital repairs on the Intertie.As a result,AEA will renegotiate the existing contract with ML&P.All major upgrades and repairs funded by the appropriations are estimated to be completed by late 2013. AEA management and utility members of the Intertie Operating Committee identified defects in the Agreement that AEA management believes threaten the long-term operational reliability and economic viability of the Alaska Intertie.The attempts to cure the identified defects were unsuccessful because amending the Agreement requires unanimous consent of each member of the Intertie Operating Committee,and at least one utility member objected to each proposed cure.As a first step to cure defects in the Agreement,AEA management,on October 16,2006,issued contractually required notice that the Agreement will terminate in 48 months,on October 17,2010. AEA management anticipates that the necessary amendments to the Agreement can be implemented no later than the effective date of the termination of the existing Agreement,or earlier if Intertie Operating Committee members reach unanimous consent. Larsen Bay Hydroelectric Project The 475-kilowatt project produces electricity and provides water for the City of Larsen Bay (City), an isolated Kodiak Island community.It went into commercial operation in 1991 and replaced the City's old water supply system and provided a better source of water with reduced maintenance and improved water quality.The City operates the project. The Authority and the City have agreed that the Authority will convey the project to the City and the City will accept all responsibility for it when the Authority completes repair work currently being performed under a project management agreement with the City. Rural Energy Programs The rural energy programs include Bulk Fuel Storage Upgrades,Rural Power System Upgrades, Power Cost Equalization (PCE),Alternative Energy,Utility Training,and Technical Assistance,two active loan programs funded from the Bulk Fuel Revolving Loan Fund and the Power Project Fund and one inactive loan program. 13 (Continued) ew (e) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Energy Development Programs The energy development programs include the energy sustainability plan and renewable energy grants program pursuant to legislation passed in 2008. (2)Summary of Significant Accounting Policies (a) (b) (c) Basis of Accounting -Enterprise Fund Accounting The accounts of the Authority are organized as an Enterprise Fund.Accordingly,the financial activities of the Authority are reported using the economic resources measurement focus and the accrual basis of accounting,whereby revenues are recorded when earned and expenses are recorded when goods or services are received or the related liability is incurred. GASB Statement No.20,Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting,provides two options for reporting proprietary fund activities (including component units using proprietary fund accounting).The Authority has elected to apply all applicable GASB pronouncements and all FASB Statements and Interpretations,Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30,1989,unless they conflict with or contradict GASB pronouncements. Operating Revenue and Expense The Authority considers all its revenues and expenses,except investment income and fund transfers with the State,to be part of its principal ongoing operations and therefore classifies these revenues and expenses as operating in the statement of revenues,expenses,and changes in net assets. Capital Assets Capital assets are stated at cost and depreciation is charged to operations by use of the straight-line method over their estimated useful lives.The estimated economic lives of the assets are as follows: Utility plant Life in years Intangible 30-50 Production 30-50 Transmission 20-40 General 5-30 The Authority recognizes impairment losses for long-lived assets whenever events or changes in circumstances result in the carrying amount of the assets exceeding the sum of the expected future cash flows associated with such assets. Cash and Investments All of AEA's cash and investments are restricted.For the purposes of the statement of cash flows, cash and cash equivalents consist of cash,short term commercial paper and money market funds. 14 (Continued) (d) (2) (g) (h) ) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 AEA's marketable securities are reported at fair value in the financial statements.Unrealized gains and losses are reported as components of the change in net assets.Fair values are obtained from independent sources. Loans and Related Interest Income Loans are generally carried at amounts advanced less principal payments collected.Interest income is accrued as earned.Accrual of interest is discontinued whenever the payment of interest or principal is more than ninety days past due or when the loan terms are restructured.The Authority considers lending activities to be part of its principal operations and classifies it as operating in the statement of revenues,expenses,and changes in net assets.For purposes of the statement of cash flows,loans are treated as program loans. Allowance for Loan Losses The allowance for loan losses represents management's judgment as to the amount required to absorb potential losses in the loan portfolio.The factors used by management to determine the allowance required include historical loss experience,individual loan delinquencies,collateral values,economic conditions and other factors.Management's opinion is that the allowance is currently adequate to absorb known losses and inherent risks in the portfolio. Environmental Issues The Authority's policy relating to environmental issues is to record a liability when the likelihood of Authority responsibility for clean-up is probable and the costs are reasonably estimable.At June 30, 2008 and 2007,there were no environmental issues which met both of these criteria and, accordingly,no provision has been made in the accompanying financial statements for any potential liability which may result. Income Taxes The Internal Revenue Code provides that gross income for tax purposes does not include income accruing to a state or territory or any political subdivision thereof which is derived from the exercise of any essential governmental function or from any public utility.AEA is a political subdivision of the State performing an essential governmental function and is therefore exempt from State and federal income taxes. Appropriations and Grants The Authority recognizes grant revenue under the provisions of GASB Statement No.33, Accounting and Financial Reporting for Nonexchange Transactions,whereby revenue is recognized when all applicable eligibility requirements,including time requirements,are met. Segment Information The financial statements disclose all financial information required by the Authority's Bradley Lake bond indenture., 15 . (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 @)Estimates In preparing the financial statements,management of the Authority is required to make estimates and assumptions that affect the reported amounts of assets and liabilities,and disclosures of contingent assets and liabilities as of the date of the balance sheet.These estimates impact revenue and expenses for the period.Actual results could differ from those estimates. (k)Recent Accounting Pronouncement In November 2006,GASB issued Statement No.49,Accounting and Financial Reporting for Pollution Remediation Obligations,which is effective for periods beginning after December 15, 2007.This statement addresses accounting and financial reporting standards for pollution (including contamination)remediation obligations,which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.Management is currently evaluating the impact of this standard. (3)Cash and Investments Pursuant to various agreements,appropriations and statutory requirements relating to its operations,AEA has established accounts for assets restricted to construction,operation,and financing activities (as used herein,Fund means a separate account established by the State legislature and does not refer to a separate group of self balancing accounts as contemplated by accounting principles generally accepted in the United States of America). At June 30,2008 and 2007 the Authority's carrying amount of deposits (all of which were restricted)was $30,741,000 and $33,165,000,respectively.The total of all bank balances was $31,507,000 and $34,785,000,respectively. The restricted and designated cash and investments were held in trust accounts for the following activities as of June 30,2008 (stated in thousands): Cash and cash equivalents Investments Total Power Cost EqualizationEndowment Fund $2 368,704 368,706 Bradley Lake Hydroelectric Project 9,045 17,933 26,978 Rural Energy Loan Funds 9,180 11,539 20,719 Rural Energy and Energy Development Programs 1,387 18,831 20,218 Funds advanced from State and federal agencies 7,925 -7,925 Power Development Fund 1,940 -1,940 Power Cost Equalization and Rural Electric Capitalization Fund 746 6,991 7,737 Alaska Intertie Project 516 -516 Total cash and investments $30,741 423,998 454,739 16 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 The restricted and designated cash and investments were held in trust accounts for the following activities as of June 30,2007 (stated in thousands): Cash and cash equivalents Investments Total Power Cost EqualizationEndowment Fund $2 415,935 415,937 Bradley Lake Hydroelectric Project 9,042 18,317 27,359 Rural Energy Loan Funds 8,643 11,810 20,453 Rural Energy Programs 1,745 18,260 20,005 Funds advanced from State and federal agencies 9,419 -9,419 Power Development Fund 1,974 -1,974 Power Cost Equalization and Rural Electric Capitalization Fund 1,751 3,488 5,239 Alaska Intertie Project 589 -589 Total cash and investments $33,165 467.810 500,975 At June 30,2008 and 2007,amounts restricted for debt service totaled $22,863,000 and $22,585,000, respectively,for the Bradley Lake Hydroelectric Project. Investment Holdings Power Cost Equalization Fund -The Power Cost Equalization Endowment Fund (PCE Fund),created under Alaska Statute 42.45.070,is under the fiduciary authority of the State Department of Revenue, Treasury.Division (Treasury).The purpose of the fund is to provide for a long-term stable financing source for power cost equalization in order to provide affordable levels of electric utility costs in otherwise high- cost service areas in the state.During 2007,the Authority received an appropriation of $182,700,000 from the State of Alaska for the PCE Fund.There was no similar appropriation in 2008. State investments are managed in pools.PCE Fund assets are held in the State's Short-term and Broad Market Fixed Income Pools,managed by Treasury's investment officers,and the State's Domestic Equity account and International Equity Pool,managed by contracted external investment managers.A complete description of the investment policy for each pool is included in the State's CAFR (see Department of Revenue,Treasury Division,Policies and Procedures). Fixed income and international equity securities are valued each business day using prices obtained from a pricing service.The Domestic Equity account is valued each business day by the Trustee Committee in good faith and pursuant to procedures established by the Trustee.Securities expressed in terms of foreign currencies are translated into U.S.dollars at the prevailing exchange rates.Income in the fixed income pools and the International Equity Pool is allocated to pool participants daily on a pro rata basis.Domestic equity income is distributed quarterly. 17 (Continued) June 30,2008 and 2007 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements At June 30,2008,AEA had the following cash and investments in the PCE Fund (stated in thousands): B) Cash Investments at fair value Short-term Broad market fixed fixed Total Investment type income pool income pool Equity investments Overnight sweep account 27 -_- Commercial paper 877 --- Municipal Bonds -_18 -_-18 U.S.Treasury Notes -12,170 -12,170 US.Treasury Bonds -4,929 _4,929 U.S.Government Agency 5,854 2,541 -2,541 Mortgage-backed 470 90,741 -90,741 Other asset-backed 2,727 8,265 -8,265 Corporate bonds 2,581 34,438 -34,438 Yankee: Government -_382 -382 Corporate 774 4,264 -4,264 Domestic equity -_-137,785 137,785 Intemational equity --69,192 69.192 Total invested assets 13,310 157,748 206,977 364,725 Pool related net liabilities (7)(10,225)903 (9,322) Other pool ownership (13,301)13,301 -_13,301 Net invested assets 2 160,824 207,880 368,704 Subsequent to June 30,2008,the PCE Fund had $24 million in unrealized losses in the quarter ended September 30,2008. 18 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 At June 30,2007,AEA had the following cash and investments in the PCE Fund (stated in thousands): Cash Investments at fair value Short-term Broad market Securities fixed fixed lending Total Investment type income pool incomepool Equity collateral investments Ovemight sweep account $121 ---- Short-term investment fund 787 ---_- Commercial paper 1,743 118 -_--118 U.S.Treasury Notes -_-11,048 -15,687 26,735 U.S.Treasury Bonds -6,549 --6,549 U.S.Govemment Agency -_-10,678 --_-10,678 Mortgage-backed 1,347 73,077 -_-73,077 Other asset-backed 9,676 6,908 --_-6,908 Corporate bonds 5,017 25,383 --_-25,383 Yankee: Government _-542 -_--$42 Corporate 1,058 2,936 --2,936 Domestic equity -__-191,881 -_-191,881 International equity -_-_-77,927 -77927 Total invested assets 19,749 137,239 269,808 15,687 422,734 Pool related net liabilities (90)(25,550)(906)-_(26,456) Other poo!ownership (19,657)19,657 --19,657 Net invested assets $2 131,346 268,902 15,687 415,935 Other AEA Cash and Investments -Bradley Lake Hydroelectric Project investments are substantially invested pursuant to investment agreements with JP Morgan Chase Bank that end the earlier of July 1, 2021 or the date of repayment of the Bradley Lake Power Revenue Bonds,First and Second Series.All other AEA assets are managed by AIDEA staff for hquidity and minimal risk.There is no AEA board approved investment policy,but AIDEA staff follows AIDEA's board approved investment policy.The AEA managed portfolio consists of the following eligible securities: °Debt instruments issued or guaranteed by the U.S.government,its agencies and instrumentalities, and Government Sponsored Enterprises (GSEs);and ° °Money market funds and repurchase agreements collateralized by U.S.Treasury and agency securities. 19 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 At June 30,2008 and 2007,AEA had the following cash and investments in its other funds (stated in thousands): 2008 2007 Fair value Fair value Short-term Short-term Investment type fixed income fixed income Deposits $17 17 Money market 30,721 33,146 GSE-Mortgage-backed 25,897 33,557 US Treasury Notes 11,464 - Investment agreements 17,934 18,317 Total invested assets $86,033 85,037 Interest Rate Risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Short-Term Fixed Income Pool As a means of limiting its exposure to fair value losses arising from increasing interest rates,Treasury's investment policy limits individual fixed rate securities to fourteen months in maturity or fourteen months expected average life.Floating rate securities are limited to three years in maturity or three years expected average life.Treasury utilizes the actual maturity date for commercial paper and twelve month prepay speeds for other securities.The expected average life of individual fixed rate securities ranged from eight days to less than three months at June 30,2008 and three days to seven months at June 30,2007. Broad Market Fixed Income Pool -Through its investment policy,Treasury manages its exposure to fair value losses arising from increasing interest rates by limiting the effective duration of its Broad Market Fixed Income Pool to +20%of the Lehman Brothers Aggregate Bond Index.The effective duration for the Lehman Brothers Aggregate Bond Index at June 30,2008 and 2007,was 4.7 years. Investment Agreements -Bradley Lake Hydroelectric Project investments are invested pursuant to agreements with JP Morgan Chase Bank that guarantees annual interest earnings of 7.38%or 7.41%per annum until the earlier of July 1,2021 or the date of repayment of the Bradley Lake Power Revenue Bonds,First and Second Series.The investment contracts are collateralized. Under the Internal Revenue Code of 1986,certain earnings in excess of arbitrage yield on the Bradley Lake bonds must be rebated to the U.S.Treasury.The bulk of the Bradley Lake investments are subject to rebate. AEA Internally Managed Investments -There is no written policy for interest rate risk for AEA's internally managed investments,but AIDEA's policy is followed.The duration for the investments is 2 years or less. The maximum maturity of any issue shall be 3 years from the date of purchase. 20 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Duration -Duration is a measure of interest rate risk.It measures a security's sensitivity to a 100-basis point change in interest rates.Duration is a weighted average term-to-maturity of an investment's cash flows. Treasury uses industry-standard analytical software developed by The Yield Book Inc.to calculate effective duration.The software takes into account various possible future interest rates,historical and estimated prepayment rates,call options and other variable cash flows for purposes of the effective duration calculation.Duration for the AEA managed investments are as reported on Bloomberg. Treasury has no policy with regard to interest rate risk for the money market balance held in the International Equity Pool. At June 30,2008 and 2007,the effective duration by investment type (not including the investment agreements)was as follows: 2008 2007 Treasury AEA Treasury AEA managed managed managed managed Money market -0.18 -_-0.18 US.Treasury Notes 7.24 0.95 3.92 - US.Treasury Bonds 13.48 -11.26 - U.S.Government agency 4.85 -5.79 - U.S.Government agency and GSE discount notes -0.25 -0.29 Municipal Bonds 10.96 --- Mortgage-backed 4.37 -4.22 0.72 Other asset-backed 2.58 -5.53 - Corporate bonds 4.91 -5.26 - Yankees: Government 11.93 -10.87 - Corporate 5.48 -5.84 - Portfolio effective duration 4.57 0.34 4.06 0.38 Credit Risk -Credit risk is the financial risk that an issuer or other counterparty to an investment will not fulfill its obligations and a loss will result.Treasury's investment policy has the following limitations with regard to credit risk. Short-term Fixed Income Pool:With the exception of the sweep account,investments are limited to instruments with a long-term credit rating of at least A3 or equivalent and instruments with a short-term credit rating of at least P-1 or equivalent.Asset-backed and non-agency mortgage securities that are not rated AAA by both Standard &Poor's and Moody's may be purchased if rated AAA by one of those two agencies and Fitch.Unexpected daily cash surpluses that arise in this pool are invested overnight in the 21 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 custodian's repurchase agreement sweep account.Treasury does not have a policy to limit credit msk associated with the sweep account. Broad Market Fixed Income Pool:Investments are limited to securities with a long-term credit rating of at least BBB3 in 2008 and Baa3 in 2007 or equivalent and securities with a short-term credit rating of at least P-1 or equivalent.Asset-backed and non-agency mortgage securities that are not rated AAA by both Standard &Poor's and Moody's may be purchased if rated AAA by one of those two agencies and Fitch. Treasury has no policy with regard to credit risk for the money market balance held in the International Equity Pool. There is no written policy with regard to credit risk for investments managed by AEA.Since AEA only invests in highly rated money markets and U.S.government and agency securities and GSEs,credit risk is minimal. The Bradley Lake Hydroelectric Project investments are substantially invested in collateralized investment agreements,which minimizes credit risk. 22 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 At June 30,2008,the Pools managed by Treasury and the investments managed by AEA consisted of investments with credit quality ratings issued by nationally recognized statistical rating organizations as follows (using Standard &Poor's Corporation rating scale). Short-term Broad market fixed income fixed income International AEA Investment type Rati ng'pool pool equity pool managed Money market AAA -%-%-%36% Commercial paper Not Rated 7 -_--- U.S.Treasury Notes AAA a 8 -13 U.S.Treasury Bonds AAA -3 -- U.S.Government agency and GSE discount notes AAA 44 1 -20 U.S.Government agency and GSE AAA ---10 Mortgage-backed AAA 3 46 -- Mortgage-backed (Agency)Not Rated -11 -- Other asset-backed AAA 16 3 -- Other asset-backed AA 1 --- Other asset-backed A 3 1 -_- Other asset-backed BB 1 --- Corporate bonds AAA 2 2 -- Corporate bonds AA 12 5 _- Corporate bonds A 4 9 -- Corporate bonds BBB -5 -- Corporate bonds Not Rated 1 1 -- Yankees -corporate AA 4 I -__- Yankees -corporate A 1 1 -- Yankees -corporate BBB _1 -- Yankees -corporate Not Rated 1 --- No credit exposure -2 100 - Investment agreements ---_21 100%100%100%100% 'Rating modifiers are not disclosed. 23 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 At June 30,2007,the Pools managed by Treasury and the investments managed by AEA consisted of investments with credit quality ratings issued by nationally recognized statistical rating organizations as follows (using Standard &Poor's Corporation rating scale): Short-term Broad market fixed income fixed income International AEA Investment type Rating!pool ___pool equity pool managed Money market AAA -%-%-%39% Overnight sweep account Not Rated 1 - -- Short-term investment account Not Rated 4 --_ Commercial paper AA 2 --- Commercial paper A 3 --- Commercial paper Not Rated 4 --_ U.S.Government agency discount notes AAA -7 --_ U.S.Government agency and GSE discount notes Not Rated ---12 U.S.Government agency and GSE AAA -2 -27 U.S.Government agency Not Rated -1 -- Mortgage-backed AAA 7 .55 -_- Mortgage-backed (Agency)Not Rated -11 -_- Other asset-backed AAA 41 5 -- Other asset-backed AA 1 --- Other asset-backed A -6 --__- Other asset-backed BBB -_1 -- Other asset-backed Not Rated 1 -_-- Corporate bonds AAA 2 2 -_-- Corporate bonds AA 15 4 -- Corporate bonds A 8 7 -- Corporate bonds BBB -8 -_- Corporate bonds Not Rated -_-]-- Yankees -corporate AA 3 ---_- Yankees -corporate A 2 2 -- Yankees -corporate BBB -1 -- No credit exposure -(7)100 - Investment agreements ---22 100%100%100%100% 'Rating modifiers are not disclosed. The Domestic Equity Pool managed by Treasury is an indexed account that is not rated. At June 30,2007,the securities lending collateral was invested in a registered 2(a}-7 money market fund that was not rated (note 4). Custodial Credit Risk -Custodial credit risk is the risk that deposits may not be returned in the event of a bank failure.Treasury's policy with regard to custodial credit risk is to collateralize State deposits to the extent possible.At June 30,2008,AEA's deposits managed by Treasury were uncollateralized and uninsured. 24 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 With respect to AEA managed investments,amounts totaling approximately $21,676,000 at June 30,2008 and $24,104,000 at June 30,2007,are held in money market funds not registered in AEA's name.The investment contracts are collateralized.All other mvestment securities are registered in AEA's name and are held by its custodian,the trust department of a commercial bank;therefore no custodial risk exists for these securities. Foreign Currency Risk -The Commissioner of Revenue formally adopts asset allocation policies for AEA's PCE Fund at the beginning of each fiscal year which places policy limitations on the amount of international securities the.PCE Fund is allowed to hold.The following policy was in place during fiscal years 2008 and 2007,and invested assets included the following holdings at June 30,2008 and 2007,for the PCE fund's investment in the International Equity Pool: Policy Actual FY08 17%t5%19.01% FY07 18%15%19.24% At June 30,2008 and 2007,AEA's PCE Fund had exposure to foreign currency risk as follows (stated in thousands): FY08 Fair FY07 Fair Currency value value Deposits:: Euro Currency $28 3 Japanese Yen 72 27 100 30 Investment --international equity: Candadian Dollar 1,295 - Euro Currency 19,167 30,235 Japanese Yen 8,304 11,434 New Zealand Dollar -_718 Norwegian Krone 560 - Pound Sterling 12,373 21,329 Singapore Dollar 1,703 1,361 Swedish Krona 488 1,130 Swiss Franc 6,978 6,514 50,868 72,721 Total $50,968 72,751 Concentration of Credit Risk -Treasury's policy with regard to concentration of credit risk is to prohibit the purchase of more than five percent of a pool's holdings in corporate bonds of any one company or affiliated group.Federal National Mortgage Association and Federal Home Loan Mortgage Corporation 25 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 securities are not classified as corporate bonds.AEA has no written policy with respect to concentration of credit risk for its other investments. At June 30,2008,AEA's investments included the following concentrations greater than 5%(dollar amounts stated in thousands): Issuer Amount Percent Federal National Mortgage Association $61,664 14% Federal Home Loan Bank 22,793 5% At June 30,2007,AEA's investments included the following concentrations greater than 5%(dollar amounts stated in thousands): Issuer Amount Percent Federal National Mortgage Association $55,044 11% (4)Securities Lending A portion of the funds managed by Treasury are in the State Department of Revenue's securities lending program.Alaska Statute 37.10.071 authorizes the Commissioner of Revenue to lend assets,under an agreement and for a fee,against deposited collateral of equivalent fair value.During 2008,the Commissioner suspended the securities lending agreement with State Street Corporation (the Bank),which lent equity and domestic fixed income securities.Prior to suspension,the Bank,acting as the Commissioner's agent under the agreement,transferred securities to broker agents or other entities for collateral in the form of cash or securities and simultaneously agreed to return the collateral for the same securities in the future. At June 30,2008,there were no securities on loan.At June 30,2007,the fair value of securities on loan allocable to the PCE Fund was $15,687,000.Associated expense for securities lending,$428,000 for fiscal year 2008 and $870,000 for fiscal year 2007,is included in net investment income. Under the securities lending agreement,there is no limit to the amount that can be loaned and the Commissioner is able to sell securities on loan.International equity security loans are collateralized at not less than 102%of their fair value.Fixed income security loans are collateralized at not less than 102%of their fair value.Loaned securities and collateral is marked to market daily and collateral is received or delivered the following day to maintain collateral levels. Cash collateral is invested in a registered 2(a)}-7 money market fund.Maturities of investments in the money market fund generally do not match the maturities of the loaned securities because the lending agreements are terminable at will.Collateral securities may be pledged or sold upon borrower default. Since the Commissioner does not have the ability to pledge or sell the collateral securities unless the borrower defaults,they are not recorded in the financial statements.Securities under loan,cash collateral and cash collateral payable are recorded in the financial statements at fair value.The Bank,PCE Fund and 26 (Continued).. (5) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 the borrower receive a fee from earnings on invested collateral.The Bank and PCE Fund share a fee paid by the borrower for loans not collateralized with cash. There is limited credit risk associated with the lending transactions since the Commissioner is indemnified by the Bank against any loss resulting from counterparty failure or default on a loaned security or its related income distributions.The Bank further indemnifies against loss due to borrower rebates in excess of earnings on cash collateral.Indemnifications are subject to limitation relating to war,civil unrest or revolution,or beyond the reasonable control of the Bank. For the years ended June 30,2008 and 2007,there were no losses incurred as a result of securities lending transactions and there were no significant violations of legal or contractual provisions or failures by any borrowers to return loaned securities. Capital Assets Capital asset activity for the years ended June 30,2008 and 2007 was as follows (stated in thousands): Capital assets: Intangible Production Transmission General Total capital assets Less accumulated depreciation for: Intangible Production Transmission General Total accumulated depreciation Capital assets,net $ Balance at Balance at June 30,2007 Additions June 30,2008 14 -14 250,937 1,262 252,199 185,660 799 186,459 5,034 117 5,151 441,645 2,178 443,823 (4)-(4) (79,198)(5,213)(84,411) (97,597)(4,934)(102,531) (5,030)(13)(5,043) (181,829)(10,160)(191,989) 259,816 (7,982)251,834 27 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Balance at Balance at June 30,2006 Additions Deletions June 30,2007 'Capital assets: Intangible $14 --14 Production 246,797 4,140 -250,937 Transmission 185,600 60 -_185,660 General 5,034 --5,034 Total capital assets 437,445 4,200 -441,645 Less accumulated depreciation for: Intangible (3)(1)-(4) Production (74,103)(5,095)-(79,198) Transmission (92,661)(4,936)-(97,597) General (5,028)(2)-(5,030) Total accumulated depreciation (171,795)(10,034)-(181,829) Capital assets,net $265,650 (5,834)-259,816 (6)Long-Term Debt Long-term debt activity for the years ended June 30,2008 and 2007 was as follows (stated in thousands): Balance Balance at June 30,at June 30,Due within 2007 Additions Deletions 2008 one year Bradley Lake Power Revenue Bonds: First Series (a)$3,370 _-(3,270)100 - Second Series (a)9,215 -(2,305)6,910 2,305 Refunding,Third Series (a)44,820 -(115)44,705 3,390 Refunding,Fourth Series (a)37,275 -(120)37,155 125 Refunding,Fifth Series (a)30,640 --30,640 - Total bonds payable 125,320 -(5,810)119,510 5,820 Arbitrage interest payable (b)984 304 -1,288 1,007 Less bond discount and deferred interest (2,363)-1,127 (1,236)- .$123,941 304 (4,683)119,562 6,827 28 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Balance Balance at June 30,at June 30,Due within 2006 Additions Deletions 2007 one year Bradley Lake Power Revenue Bonds: First Series (a)$6,640 -_(3,270)*3,370 3,270 Second Series (a)11,520 -(2,305)9,215 2,305 Refunding,Third Series (a)44,930 -(110)44,820 115 Refunding,Fourth Series (a)37,390 -(115)37,275 120 Refunding,Fifth Series (a)30,640 -_-30,640 - Total bonds payable 131,120 -(5,800)125,320 5,810 Arbitrage interest payable (b)710 274 _984 - Less bond discount and deferred interest (3,838)-1,475 (2,363)- $127,992 274 (4.325)123.94]5.810 The minimum payments related to all bonds for the years subsequent to June 30,2008 are as follows (stated in thousands): Principal Interest Total Year ending June 30: 2009 $5,820 6,344 12,164 2010 6,030 6,127 12,157 2011 6,255 5,897 12,152 2012 6,495 5,583 12,078 2013 6,880 5,182 12,062 2014-2018 42,905 18,865 61,770 2019-2022 45,125 4,997 50,122 $119,510 $2,995 172,505 (a)AEA issued the Power Revenue Bonds,First and Second Series (Bradley Lake Bonds),in September 1989 and August 1990,respectively,for the long term financing of the construction costs of the Bradley Lake Hydroelectric Project and refunded AEA's Variable Rate Demand Bonds which were issued in November 1985 to provide interim financing of the project.AEA issued the Power Revenue Refunding Bonds,Third and Fifth Series in April 1999 to refund a portion of the First Series Bonds and to provide costs of issuance.AEA issued the Power Revenue Refunding Bonds, Fourth Series in April 2000 to refund a portion of the Second Series Bonds and to provide costs of issuance.All of the revenues derived by AEA from the operation of the project and all moneys, securities and funds (except the excess earnings fund),including a capital reserve fund,held or set aside are pledged and assigned to secure the payment of principal,redemption premium,if any,and interest on the bonds.No other revenues of AEA are pledged as security for the payment of the bonds.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level.The bonds are further secured by bond insurance.AEA collects 29 . (Continued) (b) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 from each power purchaser a percentage share of annual project costs.The outstanding Bradley Lake Bonds mature annually each July 1 through the year 2021 with interest rates ranging from 5%to 6.25%. The arbitrage interest payable is due to the United States Treasury for the excess of investment income on the proceeds of each series of AEA's tax exempt Bradley Lake bonds over the related interest expense computed in accordance with Section 148 of the Internal Revenue Code of 1986. The accumulated arbitrage interest payable amount is computed each year,and the amount for each series is first due after the end of the fifth bond year and every five years thereafter.AEA maintains a separate account for each series with the trustee and each year sets aside a sufficient amount to satisfy the liability. In addition,the Authority has participated in the following debt agreements: Other Debt -In 1982,AEA assumed $44,859,000 of 5%mortgage notes payable which requires quarterly principal and interest payments to the Rural Utilities Service (RUS)in connection with the Solomon Gulch Hydroelectric Project.Concurrent with the assumption,AEA deposited with a trustee Treasury notes sufficient to satisfy and provide for timely repayment of all principal and interest due on the assumed RUS loans.Accordingly,the loans and related trust assets are not included in the financial statements of AEA.At June 30,2008,the unpaid principal balance of the notes was $15,512,000 and the trust assets had a fair value of $16,540,000. Conduit Financing -City and Borough of Sitka Utility Revenue Refunding Bonds,Series 1997 and Utility Revenue Bonds,Series 1992 -In May 1992,AEA issued $56,890,000 of tax-exempt bonds that allowed the City and Borough of Sitka (Sitka)to refinance its 1979 municipal bonds,resulting in significant debt service savings to Sitka.In November 1997,AEA issued $22,080,000 of tax- exempt bonds to advance refund and defease $20,145,000 of the Series 1992 bonds (collectively with the Series 1992 bonds,the Sitka Bonds).The Sitka Bonds are not included in these financial statements.As of June 30,2008,the outstanding balance was $39,490,000. The Sitka Bonds are special obligations of AEA secured under a trust indenture by and between AEA and U.S.Bank National Association,as trustee.The Sitka Bonds are payable solely from the sources provided under the trust indenture.They are equally and ratably secured by a pledge and assignment of the municipal revenue bonds of Sitka held by AEA under the trust indenture,the obligation of Sitka to make payments under its loan agreement with AEA and the money and securities held under the trust indenture,including a capital reserve fund.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level. The bonds are further secured by bond insurance. The Sitka Bonds do not constitute an indebtedness or other liability of the State,including AEA,and do not directly,indirectly or contingently obligate the State,including AEA,or any political subdivision thereof to levy any form of taxation for the payment of the bonds.Neither the full faith and credit nor the taxing power of the State,including AEA,or Sitka is pledged for the payment of the Sitka Bonds. 30 (Continued) (7) (8) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 Loans The Authority administers the Power Project Loan Program,the Rural Electrification Revolving Loan Program and the Bulk Fuel Revolving Loan Program.Loans outstanding at June 30,2008 and 2007 are classified as follows (dollar amounts stated in thousands): 2008 2007 No.of loans Amount No.of loans Amount Power Project Loan Program 42 §$24,944 41 §24,403 Rural Electrification Revolving Loan Program 2 698 3 763 Bulk Fuel Revolving Loan Program 25 2,171 31 1,932 69 27,813 75 27,098 Less allowance for loan losses (1,092)(1,177) $26,721 $25,921 Loans that are more than 90 days past due on which the accrual of interest has been discontinued amounted to $266,000 and $1,117,000 at June 30,2008 and 2007,respectively. An analysis of changes in the allowance for loan losses for the years ended June 30,2008 and 2007 follows (stated in thousands): 2008 2007 Balance at beginning of year $1,177 1,529 Recoveries 21 - Write-offs -_-QB) Provision for Joan loss (106)(349) Balance at end of year $1,092 1,177 Risk Management AEA is exposed to various risks of loss.AEA obtains coverage for its risks through the purchase of commercial insurance,participation in the State Risk Management Pool and the establishment of self- insurance plans. (a)General Liability -Watercraft and Aviation All risks are covered by the State insurance plan through an annual charge assessed 'by the State Division of Risk Management and payroll markup. 3] . (Continued) (9) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 (b)Property Alaska Intertie The utilities participating in the Alaska Intertie operating agreement retain the property risk associated with the Alaska Intertie. Bradley Lake and Larsen Bay Hydroelectric Projects The risks are covered by commercial insurance purchased through the State Division of Risk Management,and the self-insured retentions are the responsibility of the respective projects from operating funds. (c)Boiler and Machinery These risks are covered by commercial insurance purchased through the State Division of Risk Management and a private carrier. Additionally,utilities benefiting from the use of the facilities owned by AEA participate in the responsibility for deductibles and self insured retentions under the terms of the respective agreements. Related Parties (a)Alaska Industrial Development and Export Authority Pursuant to understandings and agreements between AIDEA and AEA,AIDEA provides administrative,treasury,personnel,legal,data processing,communications,and other services to AEA.During 2008 and 2007,AEA expensed $3,430,000 and $2,972,000,respectively,for such services.AEA has a borrowing arrangement with AIDEA to provide working capital funds.At June 30,2008 and 2007,AEA had $1,440,000 and $718,000,respectively,payable to AIDEA for services and borrowings. (b)Alaska Intertie Operating Committee Effective May 1,1986,AEA entered into an agreement with utilities using the Alaska Intertie for wheeling of electrical power.Pursuant to the agreement,the Intertie Operating Committee (IOC)was established to manage the system.The IOC is comprised of a representative from AEA and each of the utilities.AEA is reimbursed for operation and maintenance costs on a monthly basis with an annual settlement to adjust the payments to actual costs.AEA management on October 16,2006, issued contractually required notice that the agreement will terminate in 48 months as a mechanism to implement cures to identified defects in the agreement (note 1(b)). 32 (Continued) (10) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2008 and 2007 (c)Bradley Lake Project Management Committee Effective December 7,1987,AEA entered into a power sales agreement with entities purchasing electric power produced by the Bradley Lake Hydroelectric Project.Pursuant to the agreement,a Project Management Committee (PMC)was formed.The PMC is comprised of a representative from AEA and each of the power purchasers.The participating power purchasers make monthly payments directly to the bond trustee based on their respective percentage share of the estimated annual project costs,including debt service and annual administrative fee to AEA. Commitments and Contingencies AEA,in the normal course of business,is involved in various claims and pending litigation.The State Department of Law manages all pending litigation of AEA,and any liability arising from the settlement of pending claims is a liability for which the Department of Law or AEA requests an appropriation from the Legislature to satisfy judgment in the event that the judgment exceeds available funds or the proceeds from applicable insurance policies.In the opinion of management,the disposition of current claims and pending litigation is not presently expected to have a material adverse effect on AEA's financial position. In the normal course of business,AEA also has various commitments,such as commitments for the extension of credit.At June 30,2008 and 2007,AEA had open loan commitments of $4,596,000 and $3,769,000,respectively.At June 30,2008 and 2007,AEA held approximately at fair value $5,750,000 and $5,435,000,respectively,of investments in escrow under an agreement. 33 Balance at June 30,2007 Interest received Bond principal paid Bond interest paid Construction expenditures Operating revenue received Operating expenses paid Transfers between funds Balance at June 30,2008 $ $ Schedule of Bradley Lake Hydroelectric Project Trust Account Activities ALASKA ENERGY AUTHORITY (A Component Unit ofthe State of Alaska) Year ended June 30,2008 (Stated in thousands) Schedule 1 Debt Capital Renewal and Excess Operating service reserve contingency earnings Revenue Operating reserve account account account account account account account Total 9,042 12,834 1,734 709 1,532 822 686 27,359 332 816 134 36 319 78 62 1,777 (5,810)_--__-__-_(5,810) (6,457)------(6,457) --(2,233)_---_(2,233) _---__-16,390 (280)_-16,110 -_----_(3,768)-(3,768) 11,938 (816)1,447 239 (16,389)3,594 (13)- 9,045 12,834 1,082 984 1,852 446 735 26,978 See accompanying independent auditors'report. 34 Assets Current assets: Grants receivable Loans receivable Operating revenue receivable Accrued interest receivable Total current assets Noncurrent assets: Restricted cash and investments Designated for specific purposes Loans receivable,net of allowance Capital assets net of accumulated depreciation Capital assets,net Total noncurrent assets Total assets Liabilities and Net Assets Current liabilities: Due to State of Alaska Accounts payable Bonds payable -current portion Accrued interest Arbitrage interest payable-current portion Total current liabilities Noncurrent liabilities: Bonds payable -noncurrent portion,net Arbitrage interest payable -noncurrent portion Other liabilities Total noncurrent liabilities Total liabilities Net assets: Investment in capital assets net of related debt Restricted for debt service Restricted by agreements with external parties Unrestricted net assets Total net assets Commitments and contingencies Total liabilities and net assets See accompanying independent auditors'report. ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Projects -Balance Sheet June 30,2008 (Stated in thousands) Schedule 2 Administration Rural Energy Bradley Lake Alaska Rural and Power and Energy Hydroelectric .Intertie Energy Development Development Combined Project Project Projects Fund Programs balance _--138 _2,672 2,810 _-__-2,857 2,857 15 436 !_9,391 9,843 906 -=-409 1315 921 436 139 =15,329 16,825 22,863 __-_22,863 4,115 516 _9,865 417,380 431,876 _-_--23,864 23,864 203,226 48,238 370 =-251,834 203,226 48,238 370 =-251,834 230,204 48,754 370 9,865 441,244 730,437 231,125 49,190 509 9,865 456,573 747,262 -(67)(10)16,774 (2,616)14,081 995 1,002 367 ;(9,081)20,341 13,624 5,820 ____5,820 3,225 __>_3,225 1,007 =-==1,007 11,047 935 357 7,693 17,725 37,757 112,454 -____112,454 28 _--__281 103 =9 =(9)103 112,838 =9 =(9)(2,838 123,885 935 366 7,693 17,716 150,595 84,952 48,238 370 __133,560 (9,638 ____19,638 2,650 17 __20,421 23,088 --(227)2,172 418,436 420,381 107,240 48,255 143 2,172 438,857 596,667 231,125 49,190 509 9,865 456,573 747,262 35 Schedule 3 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Projects -Revenues,Expenses,and Changes in Net Assets Year ended June 30,2008 (Stated in thousands) Administration Rural Energy Bradley Lake Alaska Rural and Power and Energy Hydroelectric Intertie Energy Development Development Combined Project Project Projects Fund Programs balance Operating revenues: Federal grants $--235 -19,582 °19,817 Revenue from operating plants 15,650 1,519 16 --17,185 State of Alaska appropriations -543 75 -21,994 22,612 Revenue from state agencies --_-1,221 1,22! Interest on loans -_--_--1,020 1,020 Other revenue -_===71 71 Total operating revenues 15,650 2,062 326 -43,888 61,926 Operating expenses: Grants and projects -53 --27,541 27,594 Power cost equalization grants _-_-_-28,235 28,235 Depreciation 6,800 3,360 ---10,160 Interest expense 7,577 ----7,577 Plant operating 3,005 1,461 23 --4,489 General and administrative 255 73 3 -1,563 1,894 Provision for loan loss and bad debt expense ----(106)(106) Total operating expenses 17,637 4,947 26 _-57,233 79,843 Operating income (loss)(1,987)(2,885)300 -(13,345)(17,917) Nonoperating: Investment income,net 1,420 15 -_--(16,107)(14,672) Increase (decrease)in net assets (567)(2,870)300 -_(29,452)(32,589) Net assets -beginning 107,807 51,125 (157)2,172 468,309 629,256 Net assets -ending $107,240 48,255 143 2,172 438,857 596,667 See accompanying independent auditors'report. 36