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HomeMy WebLinkAboutAK Intertie Agreement 2006/=ALASKAae"Tedust .Gz)ENERGY AUTHORITYZeAanttiDecent MEMORANDUM TO:Board of Director Alaska Energy Authority FROM:Ron Miller Executive Director DATE:July 10,2006 SUBJECT:Alaska Intertie Agreement,Resolution No.2006-04 At the June 21,2006 meeting,the Board instructed Staff to report on the effects that would arise if the Authority gave notice of termination of the Alaska Intertie Agreement,and provide Staff findings regarding whether it is necessary for the Authority to give notice of termination.As background for addressing those matters,this memorandum will first outline the defects of the Alaska Intertie Agreement that have been extensively discussed with the Intertie OperatingCommittee(IOC)Utilities over the past few years." A.Alaska Intertie Agreement Defects. One fact upon which all 1OC utilities agree is that at least some modifications to the Alaska Intertie Agreement are necessary to ensure that the intertie remains a safe and reliable energy resource for the Railbelt.This view is evident from the minutes of both the July 22,2005 meeting with Railbelt General Managers and the June 21,2006 Board Meeting.While the IOC utilities appear to disagree as to how well the intertie has operated in the past under the current Alaska Intertie Agreement,there is consensus that modifications are necessary to prevent future operating disruptions and to ensure safe,reliable and efficient operation. The defects in the agreement fit into four major areas: 'The problems with the Alaska Intertie Agreement have been extensively addressed by the Board,and between the Authority and IOC Utilities.The more significant documents in the record include (a)Minutes from the June 21,2006 Board meeting;(b)June 21,2006 Memorandum to the Board Re:Alaska Intertie Agreement,with attachments;(c)August 17, 2005 letter from Ron Miller to Railbelt Utility General Managers,with attachments including transcripts from July 22,2005 Alaska Intertie Work Session and from July 21,2005 IOC meeting,and Alaska Intertie Repairs Financing Scenarios;(d)Outline for April 21,2006 Alaska Intertie Agreement Meeting (with General Managers);(e)!OC Proposed Amendments to Alaska Intertie Agreement;and (f)June 24,2005 letter from Ron Miller to Railbelt Utility General Managers.A copy of these documents is attached. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495www.aidea.org *907/269-3000 *FAX 907/269-3044 ®Toll Free (Alaska Only)888/300-8534 *www.akenergyauthority.org Board of Directors July 10 Page 2 ,2006 1)Funding Major Maintenance &Repairs/Debt Financing Problems. The Alaska Intertie Agreement lacks adequate mechanisms to fund major maintenance and repairs.As the Board has noted,there has been no progress during the term of current Board members towards actually accomplishing certain major maintenance or repair items,including tower foundation repairs and SVC upgrades.While no disruption to intertie operations have apparently arisen to date,it is inevitable that deferral of major maintenance and repairs will eventually lead to significant disruption. The concern regarding the Alaska Intertie Agreement extends beyond the current list of deferred major maintenance and repairs.Even if those items were accomplished,the agreement must be structural to address maintenance and repair items that undoubtedly will arise in the future. 2)Decision Making Responsibility. There is consensus that it would be unwise to return to the pre-1993 operating approach reflected in language of the current agreement that the Authority assume greater control over operational and maintenance decision making. The 1993 legislative reorganization of the Authority was,in part,intended to encourage maximum utility control over Authority owned energy assets.General Managers at the April 21,2006 meeting commented that the Authority lost substantially all of its energy related expertise in this 1993 reorganization,and that the Authority would be handicapped if it attempted to re-assume the level of control over energy projects the Authority had before 1993. General Managers at the July 22,2005 meeting advocated that prudent utility practice require utilities,routinely,to determine the timing for doing major maintenance and repairs:the basic cost/benefit analysis being -spend money now,or attempt to lower the present-value cost by deferring the expenditure with the understanding that deferral requires an assumption of risk that damages may occur in the interim that may require greater expenditures,may temporarily put the intertie out of service,or cause other negative impacts.General Managers further advocated that the utilities are better able than AEA to balance these cost/benefit analyses and make the corresponding best business decision for economic operation of the intertie,and to lower ratepayer costs. For that to work,utilities must take responsibility for their decisions (e.g.,assume risks from deferring maintenance).It should be noted that AEA receives no compensation for owning or taking risk to ensure that the intertie operates.AEA's economic interest is furthered by avoiding risk --a cost benefit analysis that differs from what the General Managers advocate. The current practice is for maintenance scheduling and budgeting to be done at the [OC level.This practice appears to be consistent with what the General Managers advocate, but deviates from language in the agreement.Modifications to the agreement are necessary to continue the preferred approach for decision making. Board of Directors July 10,2006 Page 3 3)Indemnity Provisions. The indemnity provisions create a tremendous disincentive for any entity to voluntarily undertake any action to support intertie operations.When the Authority or any [OC Utility takes an action,the agreement provides that they agree to defend and indemnify all others from such action.Action is punished;inaction is rewarded. This mode of operation is likely to result in harm as it encourages inaction and delay - even when immediate action is necessary for safe,reliable and efficient intertie operations. In general,the indemnification provision places the most significant risks onto the lOC utilities that contractually either operate or maintain the intertie.As to AEA,as long as the operators and maintenance contractors undertake all necessary duties,the indemnification provision presents no particular problem to the Authority.It becomes more of a problem when the IOC requests cooperative action from the Authority;for example,the Authority directly contracts for snow patrols even though that activity would more appropriately be an issue for the operator. 4)Disregarding Agreement Provisions. The IOC has undertaken to improve the terms,conditions,and procedures reflected in the language of the Agreement by disregarding that language.The |OC compiled a list of such provisions,which is attached as item (e).Some utilities suggest that this approach has helped the intertie operate in a safe and reliable fashion.The concern is that ambiguity that arises from disregarding certain contract provisions encourages inaction and delay --as |OC members tend to argue first over who is responsible,which becomes more problematic as indemnity provisions discourage any utility or the Authority from volunteering to act -even when immediate action is necessary. Continuing intertie operations in this manner,eventually,is likely to disrupt the safe, reliable and efficient operation of the intertie. B.Impact of Notice of Termination. If the Authority gives notice of termination,there should be no significant,immediate impact. Under the Alaska Intertie Agreement,notice of termination could not result in actual contract termination for 48 months.The status quo would continue --meaning,in part,that the existing contract language,including all of its defects,would remain in place --however,only for an additional 48 months rather than indefinitely. Notice of termination,however,is likely to increase short-term uncertainty regarding operating procedures under the Alaska Intertie Agreement.Simply following the status quo tends to provide a certain degree of comfort,while change tends to create discomfort.If the Authority gives notice of termination,Staff should expect during any transitional period that they will need to devote more time than normal to Alaska Intertie issues.Furthermore,the relationship between the Authority and IOC Utilities might become more contentious during any transition until issues are resolved. Board of Directors July 10,2006 Page 4 If the IOC Utilities and the Authority fail to timely negotiate acceptable modifications to the Alaska Intertie Agreement at the end of the 48 months approaches,resolving operating matters might become more difficult.For example,utilities may be less willing to include items in annual budgets if long-term benefits from their use of the intertie is not contractually assured.Those potential problems would be avoided if the parties negotiated the modifications with a greater sense of urgency. The lOC General Managers at the April 21,2006 meeting suggested that notice of termination would create "chaos.”The apparent concern was that the Alaska Intertie Agreement incorporates terms and conditions for the relationship between the utilities operating in an interconnected manner.These terms and conditions were very difficult to negotiate,and would be very difficult to re-negotiate. At the June 21,2006 Board meeting,in reaction to questions from the Chairman,IOC utility representatives suggested that the problem with the Authority giving notice of termination is that it would require parties to abandon the entirety of the existing agreement and renegotiate every term and condition,even though they believe relatively few sections actually require modification to cure the defects in the Alaska Intertie Agreement. It appears that these two expressions of utility concern are each premised on an assumption that the Authority giving notice of termination would result in the complete abandonment of the existing contract.That assumption does not appear valid. The concern appears to suggest that the utilities fear suffering from self-inflicted wounds.The Authority has consistently attempted to narrowly focus upon curing specific,limited defects in the existing agreement.The IOC utilities,however,individually appear to have a broader range of concerns with the agreement.It appears that the only reason that "chaos”might result from completely abandoning the existing agreement is if the IOC Utilities insist upon that outcome. Giving notice of termination would appear to lessen,not exacerbate,the utilities fears.Making even limited amendments to the Alaska Intertie Agreement has not occurred because amendment requires unanimous agreement.At least one !OC utility has objected to any proposed amendment until other concerns the utility has with the agreement are addressed. The entirety of the agreement is thus made hostage to curing any particular section a circumstance that will continue as long as the existing agreement remains in place. After notice of termination,the Authority can freely negotiate modifications to the agreement with less than all the 1OC Utilities.Nothing would preclude the Authority from executing an amendment to incorporate the modifications as part of what would become the subsequent Alaska Intertie Agreement,regardless of whether those modifications may take effect immediately or only after the 48 month notice period.Providing notice of termination will signal that the Authority will no longer be an enabler for any one or more IOC Utilities to indefinitely thwart cures to Alaska Intertie Agreement.Rather than creating "chaos,”arguably the Authority is more likely to help instill order by giving notice of termination. C.Is It Necessary for the Authority to Give Notice of Termination? Staff agrees with the IOC Utilities that certain modifications to the Alaska Intertie Agreement are necessary to insure the continued safe,reliable and efficient operation of the Alaska intertie,as Board of Directors July 10,2006 Page 5 outlined in Section A and the attachments to this memorandum.The failure to implement these modifications,inevitably,will likely result in disruption to Alaska Intertie operations,and direct harm to the IOC Utilities that rely upon the Alaska Intertie for energy transfers to enable their systems that serve Railbelt ratepayers.Ensuring that these necessary modifications be made to the Alaska Intertie Agreement is an effort "required to improve Power systems serving the Alaska Railbelt Utilities”as that phrase is used in Section 2.2.2 of the Alaska Intertie Agreement related to Authority termination of the agreement. This conclusion leads to the question whether giving notice of termination is necessary to effect those necessary modifications to the Alaska Intertie Agreement.Staff's conclusion is that giving notice of termination is the only mechanism that would ensure that necessary modifications will in fact be implemented in the most expeditious manner. e Amending the agreement requires unanimous consent,and at least one IOC utility has refused to agree to necessary modifications. e There is no factual basis upon which to conclude that IOC unanimous consent is likely to occur at any time in the near future. e Absent unanimity between IOC utilities,no modification to the Alaska Intertie Agreement could be implemented without the Authority providing notice of termination. e While the Authority could postpone giving notice of termination until after one or more replacement or side agreement(s)are negotiated,that course would delay the time at which cures to the defects in the agreement become effective. e There is no factual basis upon which to conclude that one or more replacement or side agreement(s)can be timely negotiated.Further,one {OC Utility has suggested it would legally challenge that approach if implemented. if the Board concludes it appropriate for the Authority to provide notice of termination of the Alaska Intertie Agreement,proposed Board Resolution 2006-04 provides a framework for the Board to make the appropriate findings and direct staff to provide notice of termination of the Alaska Intertie Agreement. ALASKA ENERGY AUTHORITY RESOLUTION NO.2006-04 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO THE ALASKA INTERTIE;NOTICE OF TERMINATION OF THE ALASKA INTERTIE AGREEEMENT;AND RELATED MATTERS WHEREAS,the Alaska Energy Authority (the "Authority”)owns the Alaska Intertie; WHEREAS,the Alaska Intertie Agreement is an agreement related to the Alaska Intertie among the Authority and the Municipality of Anchorage d/b/a Municipal Light and Power; Chugach Electric Association,Inc.;Golden Valley Electric Association,Inc.;and Alaska Electric Generation and Transmission Cooperative,Inc.(collectively the "IOC Utilities); WHEREAS,the Authority and IOC Utilities have certain rights and responsibilities under the Alaska Intertie Agreement for the use,operation and maintenance of the Alaska Intertie, with many duties addressed collectively by the Authority and IOC Utilities within the Intertie Operating Committee ("IOC”); WHEREAS,the Alaska Intertie is an integral component of the Railbelt energy transmission grid,and is essential for the transmission of electric energy between Fairbanks and Anchorage,enables the systems of various [OC Utilities to provide economical electric energy to Railbelt customer ratepayers,and enables the systems of various IOC Utilities to sell economy energy to other Railbelt and IOC Utilities for their systems to provide economical electric energy to Railbelt customer ratepayers; WHEREAS,the Authority,IOC Utilities,and !OC have individually and collectively identified defects in the Alaska Intertie Agreement that,if not cured,are likely to eventually disrupt the safe,reliable and efficient operation of the Alaska Intertie and the transmission of economical electric energy for the benefit of various Railbelt and |OC Utility systems and their customer ratepayers; WHEREAS,the Authority,IOC Utilities,and IOC have individually and collectively undertaken considerable efforts attempting,without success,to negotiate and implement cures to the identified defects in the Alaska Intertie Agreement that,if not cured,are likely to eventually disrupt the safe,reliable and efficient operation of the Alaska Intertie and the transmission of economical electric energy for the benefit of various Railbelt and IOC Utility systems and their customer ratepayers; WHEREAS,Section 2.2.2 of the Alaska Intertie Agreement provides,in part,that "[the Authority]may terminate [the Alaska Intertie Agreement]by giving at least 48 months advance written notice when [the Authority]determines such action to be required to improve Power systems serving the Alaska Railbelt Utilities;” WHEREAS,certain !OC Utilities have informed the Authority that the lOC Utilities are making significant progress towards developing amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,”which collectively will address the defects in the current Alaska Intertie Agreement,and have requested additional time to complete that process and negotiate amendments and,if necessary,additional side agreements with the Authority; and WHEREAS,matters related to this Resolution 2006-04 are more fully described and documented in further detail in the Memorandum with Attachments accompanying this Resolution 2006-04. NOW,THEREFORE,BE !T RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.The Authority finds and determines that,for the reasons more fully described and documented and in the Memorandum with Attachments accompanying this Resolution 2006-04,all of which is incorporated herein by reference,that the Authority giving 48 months advance written notice of terminating the Alaska Intertie Agreement is "required to improve Power systems serving the Alaska Railbelt Utilities”as that phrase is used in Section 2.2.2 of the Alaska Intertie Agreement. Section 2.The Authority finds that,based upon representations by certain IOC Utilities that the IOC Utilities are making significant progress towards developing amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,”which collectively will address the defects in the current Alaska Intertie Agreement,and have requested additional time to complete that process and negotiate amendments and,if necessary,additional side agreements with the Authority,that additional time should be provided to IOC Utilities,and that notice of termination should not be given until September 1, 2006; Alaska Intertie Agreement Resolution No.2006-04 Page 2 Section 3.The Executive Director of the Authority is authorized,directed,and empowered to implement this Resolution by giving 48 months advance written notice of terminating the Alaska Intertie Agreement pursuant to Section 2.2.2 of the Alaska Intertie Agreement if the 1OC Utilities fail by September 1,2006,to negotiate and execute final amendments to the Alaska Intertie Agreement and,if necessary,additional "side agreements,” acceptable to the Authority,which collectively will address the defects in the current Alaska Intertie Agreement. Section 4.The Executive Director of the Authority is authorized and empowered to take any and all actions appropriate and consistent with this resolution. Section 5.This Resolution shall become effective immediately upon its passage and approval. DATED at Anchorage,Alaska,this 10th day of July 2006. ATTEST Chair [SEAL] Secrefary watt tee, Alaska Intertie Agreement Resolution No.2006-04 Page 3 Attachment A ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS June 21,2006 -11:00 a.m. Anchorage,Juneau,and Petersburg Alaska Teleconference 1.CALL TO ORDER Chairman Barry called the meeting of the Alaska Energy Authority to order on June 21,2006,at 11:00 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Mike Barry (Chairman/Public Member),Commissioner Bill Noll (Department of Commerce,Community and Economic Development),and Commissioner Mike Barton (Department of Transportation and Public Facilities). Director present in Juneau:Deputy Commissioner Tom Boutin (Designee for Department of Revenue). Director present in Petersburg:Mr.John Winther (Public Member). 3.PUBLIC ROLL CALL Staff present in Anchorage:Ronald W.Miller (Executive Director),Chris Anderson (Deputy Director-Credit &Business Development)James A.McMillan (Deputy Director-Credit &Business Development),Valorie Walker (Deputy Director-Finance),Brenda J.Fuglestad (Administrative Manager),Karl Reiche (Projects Development Manager),Becky Gay (Project Manager),Sara Fisher-Goad (Financial Analyst),Leona Hakala (Loan Officer),and Mike Harper (Deputy Director- Energy). Others attending:Brian Bjorkquist and Mike Mitchell (Department of Law),Jan Sieberts (Washington Capitol),Don Zoerb,Kim Floyd,Jim Walker,and Michael Pauley (MEA),Deputy Commissioner Mark Edwards (DCCED),Brian Hickey,Don Edwards,and Lee Thibert (Chugach Electric Association),Jenny Trieu and Kate Lamal (Golden Valley Electric Association),and Lou Agi (ML&P). A.PUBLIC COMMENTS There was no public comment. 5.PRIOR MINUTES -May 11,2006 The May 11,2006 minutes were approved as presented. AEA Board Meeting June 21,2006 Meeting Minutes Page 2 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS 7A.Resolution No.2006-03,Resolution of the Alaska Energy Authority Relating to the Adoption of New Regulation Relating to Power Cost Equalization (PCE) Mr.Miller reviewed Resolution No.2006-03 stating this resolution re-adopts the amended regulations that the Board adopted at its May 11,2006 board meeting.Re-adoption is necessary because the regulations section of the Department of Law advised the Authority that it was required to give additional notice of the regulations and also advised that the Board was required to re-adopt the regulations after the additional notice was given.AIDEA gave the required additional notice on May 17,2006.The regulations revise the Alaska Administrative Code Title 3 by adding Section 107.225,outlining the method the Alaska Energy Authority (AEA)will use to allocate supplemental appropriations to the Power Cost Equalization program made after earlier pro rata reductions.These regulations are unchanged from what was approved on May 11,2006. Staff recommended approval of Resolution No.2006-03. MOTION:Commissioner Noll moved to approve Resolution No.2006-03.Seconded by Commissioner Barton.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Boutin,Barry,Barton,Noll,and Winther voting yea. 7B.Resolution No.2006-02,Resolution of the Alaska Energy Authority Relating to the Appointment of Various Officers of the Authority;and Related Matters Mr.Miller reviewed Resolution No.2006-02 stating the resolution clarifies and reaffirms that James A.McMillan is the Deputy Director-Credit &Business Development and Assistant Secretary until his planned retirement of August 1,2006.The resolution also appoints Christine Anderson as Deputy Director-Credit &Business Development and Assistant Secretary. Staff recommended approval of Resolution No.2006-02. MOTION:Commissioner Barton moved to approve Resolution No.2006-02.Seconded by Commissioner Noll.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Boutin,Barry,Barton,Noll,and Winther voting yea. 7C.Alaska Intertie Agreement VERBATIM: Mr.Miller:Mr.Chairman,AEA has worked with the Intertie Operating Committee utilities attempting to find cures of defects in the Alaska Intertie Agreement.In the board packet is a memorandum outlining a chronology of recent events in that regard.The IOC utilities have met among themselves and recently reported to AEA that they are making progress towards crafting a utility proposal to address and identify the defects in the agreement and we understand that those proposals will be presented at this board meeting.We have not received a written AEA Board Meeting June 21,2006 Meeting Minutes Page 3 submission yet.The Board was copied with comments from Matanuska Electric and included in the board packet is correspondence from AEA to the utilities and email correspondence from the utilities to AEA regarding some of the proposals. Chairman Barry:Before we call for presentations |would like to note that this is a reappearing item on our agenda.It does not appear to me anyway that we are making progress on this itemdespitepleas.|note in our packet that it says that we received a request on May 5"for specifics as to exactly what AEA was looking for.I've personally attended,in fact we had a board meeting in July of last year with utility managers to go over the problems with this agreement.At that meeting,a couple of utility general managers requested specifics about exactly what did we perceive to be the problems with the agreements and what specific issues had been raised by other members of the IOC.We went through those in great detail and | have to tell you that the lack of progress that we have made and a further request just last month for specifics -I'd like to get to sometime when |could hear from the utilities that they really understand what these issues are and we don't get into this,as |perceive,as a delaying tactic of asking again for specifics.There must be some way we can communicate to the utilities that are involved what the specifics are so that they can be addressed.And,when you make your presentations today |would like you to comment on why there doesn't seem to be an understanding of what these specifics are and what it is,if anything,that AEA can do to help you understand what these specifics are.At that time,|will first call on Mike Pauley,since he announced earlier that he wanted to make remarks. Mr.Bjorkquist:Mr.Chairman,if |could just make one other clarification.In the board packet under the eight (8)page attachment,on page 8 under Item 6,the other mistake that |made that you caught me on this last week is that the last phrase was that alternatively that power can only go south.Obviously,the power is going north -Fairbanks is north of us not south of us and |was just directionally challenged in that regard.Just to clarify. Chairman Barry:Thank you.We will consider that portion amended.Mr.Pauley? Mr.Pauley:For the record,my name is Michael Pauley,|am senior advisor to the general manager at Matanuska Electric Association.On Wednesday of last week,AEA Executive Director Mr.Miller contacted utility members of the Intertie Operating Committee and reminded the parties about today's meeting and requested utilities to submit any written materials thattheywishedtheAEAboardtoreviewbyFriday,June 16",As a member of AEG&T,an IOC participant,MEA complied with that request.We forwarded a letter to Mr.Miller that we understand has been shared with you.Our letter reiterates MEA's long held belief that the Alaska Energy Authority should exercise its authority under Section 2.22 of the Alaska Intertie Agreement and issue a notice of termination.Such notice,we believe,would create the needed incentive for the participating utilities to negotiate successor agreements that address the long term fund operation maintenance and repair of the intertie.We believe that without the incentive provided by the 48 month notice,we are not likely to see either a short term or long term fix to the problems associated with the existing agreement.The simple fact is this.Even though all members of the |OC have admitted that there are serious flaws in the existing agreement,it is nevertheless true that some IOC members perceive that the existing flawed agreement works to their benefit.So long as maintaining the status quo is in the interest of certain IOC members there is no reasonable basis for the AEA board to expect that a viable fix is ever going to emerge unless a notice of termination creates a real deadline and a real incentive for progress to be made.Only the certitude of knowing that the existing agreement will come to an end on a specific date will provide the appropriate incentive for |OC members to develop a successor agreement.MEA is not aware that any proposed short term or long termfixwassubmittedforAEA's consideration by the June 16"deadline,however,MEA did receive AEA Board Meeting June 21,2006 Meeting Minutes Page 4 an email that day from the law firm of Ater Wynne.The email was addressed to 1|OC member utilities but not to the Alaska Energy Authority.The first paragraph of that email states the following: "Attached are two documents comprising our initial ideas for the terms of the agreements to resolve the issues with the Alaska Intertie Agreement.” When the email talks about our initial ideas it is not clear to us what is signified by the use the 'our'pronoun because the email later goes on to state that: "No party has signed off on these documents.” It further states: "The effort to date has not resulted in a product that is ready to share with the state.” |think that last sentence is worth repeating: "The effort to date has not resulted in a product that is ready to share with the state.” As the board of AEA contemplates its next step |think that line should be foremost in your minds.It has been almost a full year since AEA and the IOC utility managers met on July 22, 2005.With almost a full year to work on solutions,the entire fruit of this effort appears to be a few pages of brainstorming notes describing some management concepts that no utility has signed off on and which is not ready to be shared with the state.In the memorandum sent out to the AEA board a few days ago,Mr.Miller stated the following with respect to the previouslyannouncedJune15"deadline for AEA to issue its termination notice.Mr.Miller wrote: "In reaction to concerns regarding the June 15,2006 deadline and notice of termination, AEA modified the deadline provision to instead require a showing of real progress towards curing the defects in the agreement.” The fundamental question that the AEA board must ask is will there be anything presented today that under any tortured analysis meets the standard of real progress.MEA is doubtful, but we will wait to see what happens.We still have not seen any realistic plan to establish an R&R fund to finance major maintenance or upgrades.There is still no detailed proposal about budgeting,no answers to the various issues relating to noncompliance with terms of the existing agreement,and no solution to the liability concerns raised by AEA staff.The AEA board can and should bring some discipline to this process by issuing the termination notice and clearly communicating to all parties involved that continuation of the flawed status quo agreement is not an option that is open any longer. Thank you,Mr.Chairman,for your time.That concludes my comments. Chairman Barry:Thank you,Mr.Pauley,if you would just stay there for a second,there may be questions.|have a few.The first one would be that you stated that some utilities may perceive it to be in their self interest to keep the agreement in place as it exists.Would you care to elaborate on that as to how -|attended the general manager's meeting and |thought there was unanimity from every general manager that was there that the agreement wasn't working.How could it be in somebody's best interest to keep it in place if it doesn't work? AEA Board Meeting June 21,2006 Meeting Minutes Page 5 Mr.Pauley:Well,|think that concept,|would actually refer to the email that Mr.Bjorkquist has sent out earlier where he basically talked about the cost benefits,economics issue of operating the intertie and -|think that there is an economic incentive for certain utilities to perhaps not want to invest in the repairs and upgrades that are needed,if at the end of the day it has a negative affect on the bottom line for the cost of wheeling power.As |said,Mr.Bjorkquist alluded to that -well,he was actually summarizing a discussion that the general managers had at the July 22,2005 meeting,but-|don't know if that is answering your question,but I just think the existing agreement creates incentives for those investments not to be made. Chairman Barry:How would you respond to a comment that perhaps agreements are difficult to reach because your utility won't agree to anything? Mr.Pauley:Well,|think |would initially respond that,to my knowledge,AEG&T has not even been invited to participate in some of the recent discussions and so I'm not sure that |can represent what we would be or might not be willing to agree with when we weren't even invited to be at the table. Chairman Barry:Well,you had the email with the notes of potential solutions;did you see anything in there that you could agree with? Mr.Pauley:We have not had the opportunity to review those extensively;we just received those late Friday evening.Our initial)comments are that it appears to be very sketchy, particularly the parts about a proposed governance,an administrative structure for the intertie - there's almost so little there that there is not much to really sink your teeth into and comment on. Chairman Barry:|guess that perhaps |should rephrase it.This board has struggled with this for over three and a half years and we can't find any single instance of progress and it would be very helpful if Matanuska Electric and AEG&T could identify any element that they could agree to.That would be progress just to have one single element of the agreement improved for the benefit of the railbelt utility system and |would challenge MEA to please find one or more of the elements that you could agree to so that we could make some progress here.!would turn around your statement where you're saying that maybe some utilities want to maintain the status quo for their individual benefit and is there any reason that MEA would like to upset the status quo for your benefit? Mr.Pauley:Absolutely,Mr.Chairman.In particular,|would refer to the fact that we have been working,for the most part,without success in the Intertie Operating Committee to try to find some long term solution for the problem with snow loading on the Alaska Intertie and,in fact,| would say that our efforts in that area are one of the reasons why we are absolutely convinced that this agreement has to be terminated and completely replaced with something workable because of the lack of progress on that issue.We did succeed in -the Intertie Operating Committee did adopt some monitoring procedures for snow loading that were an improvement over what was there before and so we saw some incremental progress in that area but certainly not a long term solution.But,yes,that would be one example of something that we would greatly benefit from having a different structure that would allow us to move forward on that issue. Chairman Barry:Any other members of the Board have questions;I've kind of monopolized this conversation -any questions from the board for Mr.Pauley? AEA Board Meeting June 21,2006 Meeting Minutes Page 6 Mr.Winther:|just want to agree with you the slowness of progress made on this issue,|think it was bought up at the very first board meeting |attended.|express my frustrations along with yours,Mr.Chairman. Chairman Barry:That was a general observation that was not directed to Mr.Pauley.Thank you.Who would like to be next? Mr.Thibert:Mr.Chairman,for the record,board members,my name is Lee Thibert,I'm the chief of staff for Chugach Electric Association.I don't have any prepared remarks this morning but |would like to respond to a few things.Number one,I'd urge you not to terminate or give notice of termination of this agreement.There are a lot of issues on the table here from operating the system to budgets and how to deal with capital going forward.There are a number of projects that do need to be done.It certainly is not in Chugach Electric's best interest to have the contract stay the way it is.There are projects that need to be completed and as utilities we all need to work together to get a resolution to this problem and get it fixed.Chugach is committed to getting it fixed.|think you have a timeline in front of you that looks at the events over the past year and AEA has done an excellent job of identifying the specific problems.They have been outlined in detail,they have been presented to the utility and,|think,we've had a person at the table for the last several months trying to get resolution.|would commit that Chugach will sit down and continue to work through those issues and try to get them resolved.| would argue with MEA -they have been invited to the table but they had a conflict that they couldn't make.|think that if we could all agree to sit down together and work through these issues one by one we'll get there,but |think -|don't want to wait four years to get a resolution and basically |don't think we need to hold our feet to the fire -what we do need to do is work together and get it resolved.|stand before you,Mr.Chairman,and !think we,at Chugach, would like to move forward. Chairman Barry:It's been proposed by someone that it is not mutually exclusive to terminate the agreement and continue working on modifications to an agreement.One might be beneficial to have modifications in place before the notice of termination was given so that people would have an idea and it would remove the necessity to have unanimity about how we are going to proceed because clearly with the unanimity requirement,any single utility can stop any progress from being made at any time.I'd like your comments on what would be the problem of giving notice of termination,there are four years that people can talk and sign up one at a time to whatever changes are necessary and agreed on amongst the various utilities. Mr.Thibert:Mr.Chairman,|believe there are a lot of issues that don't need to be negotiated and if you terminate the agreement that opens everything completely.And,we as the utilities, spent years at the table already on the operating agreements,on sharing of reserves,all of those issues with operating within the railbelt.If all of those are opened up again,we'll be at the table forever.|think the better approach is that we have a list of items that are in dispute,let's work on those. Chairman Barry:Will you agree that the existing agreement requires the utilities to present to AEA a budget? Mr.Thibert:Yes,sir. Chairman Barry:Do we have a budget? Mr.Thibert:|can't tell you at this exact moment. AEA Board Meeting June 21,2006 Meeting Minutes Page 7 Chairman Barry:We are nine days away from the new fiscal year and we don't have a budget. There are liability issues that go along with just doing nothing and that is where we've been.| recognize that there are utilities that are sincerely trying to do something,but it appears to me that your efforts to sincerely do something are being obstructed and negated by others and that can go on indefinitely.It does appear that it is going to be necessary for this Board to start some clock running to ensure that sooner or later the issue gets resolved.It doesn't look to us like the system can go indefinitely without maintenance.Do you think it can?How many more years can we go with the maintenance being deferred that's being deferred today? Mr.Thibert:Mr.Chairman,it needs to be done soon. Chairman Barry:Okay.Thank you.Any questions for Mr.Thibert?Thank you.Anyone else? Ms.Lamal:Mr.Chairman,board,I'm Kate Lamal,I'm a vice president of power supply for Golden Valley Electric Association.What I'd like to do is just tell you that Golden Valley is committed to working on this agreement.It is very important to us and the interior to have that line operational.We have submitted operating budgets to AEA.What I'd really like to do is have Jenny Trieu who has been working diligently over the past year on putting together the framework documents for the agreements,both operational and managerial...I'd like to do that...|just wanted to tell you that Golden Valley has been working -to the best of my knowledge all participants have been invited to the table to discuss moving forward and most parties have been working on that. Chairman Barry:Ms.Lamal,while you're here,could you comment on,what |would call the efficacy of,the notice of termination.What kind of effect it would have on your utility? Ms.Lamal:|understand the thought process you have with termination would be to put a deadline out there and that perhaps that would expedite things.There have been a number of reasons why the utilities have not been able to move forward and that is because we cannot get unanimous agreement.And that any movement forward usually has at least one opposing party out there,which has made progress difficult.|don't know how we would look forward to termination to think that there is going to be unanimous agreement whether there is an existing agreement or not.All |can tell you is that we need to move forward and we need to keep that intertie viable,it needs to be maintained,we do need a budget,we do need an R&R and most of those can probably go forward with the existing agreement in place.|understand your frustration with having timelines not adhered to but I'm not sure that the termination will provide what you're looking for. Chairman Barry:Is it your belief that we could just go along -if I'm hearing you correctly,we could maintain the status quo for years with no deleterious effects? Ms.Lamal:No,|don't believe that.There are -the inability to fund major maintenance is a problem and whether we can forward fund it or debt fund it;however we end up doing that -it definitely needs to be addressed,yes,there's no doubt about that.However,|do have to say that the intertie has functioned,has been funded and has operated quite well for the entire time it has been in place.It's not to say we can't avoid future maintenance,but the existing agreements have worked in the past and they just need to be updated a little bit. Chairman Barry:While you're here I'd like to get the benefit of your expertise.There appears to be some question as to whether the intertie is capable of moving power in both directions. Would you comment on that? AEA Board Meeting June 21,2006 Meeting Minutes Page 8 Ms.Lamal:|think that it could do that. Chairman Barry:It can move power both north and south? Ms.Lamal:Correct. Chairman Barry:Thank you. Ms.Trieu:Mr.Chairman,board members,my name is Jenny Trieu,|am an attorney for Golden Valley Electric Association.|have been working with both Mr.Miller and Mr.Bjorkquist over the last eight months or so in response to this Board's request for progress to resolve issues associated with the Alaska Intertie Agreement.Both Mr.Miller and Mr.Bjorkquist have been responsive to requests to clarify,at least to me as a person new to this effort,what the issues are specifically associated.Last November,|met,on behalf of Golden Valley,|met with Mr. Miller and Mr.Bjorkquist and presented a rough,what |would call a rough framework proposal for a supplemental agreement or a side agreement if you will,to address some of the Board's more immediate concerns,in particular,R&R and budget.We have discussed those and in the meantime those have been somewhat tabled in light of a request to come up with long term solutions to the issues.We have now,as you have heard from Mr.Pauley,have prepared frameworks for two long term agreements that hopefully,if not substantively,resolve the issues or at least provide a starting point with specific matters that the utilities can come to the table and discuss.|was the author of the email that Mr.Pauley read from and to explain the comment about why the documents were not,at this point,ready for presentation to the state. That was because in the interest -we've had about six weeks total to work on this since my last meeting with Mr.Bjorkquist and |think that was a very productive meeting.In the last six weeks,|would estimate that |have had about three telephone conference meetings with not all of the utility members but most of them -all of them have been invited -to talk about how we get started to resolve this.And,as a result |prepared the frameworks hoping that those would be a good starting point for discussions going forward.We fully intend to carry on discussions and we welcome all of the utilities to participate in these discussions and to put their issues out there.We continue to hope for a productive resolution that something other than termination of the agreement. Chairman Barry:Thank you,Ms.Trieu.tf |heard right,you're here representing Golden Valley Electric Association. Ms.Trieu:Yes,Mr.Chairman. Chairman Barry:So is there a counsel for the IOC that is working on this?They haven't even got a counsel working in it,right? Ms Trieu:!think we have all decided to put our heads together as utility representatives,Mr. Chairman. Chairman Barry:Okay.But the answer to my question is,that as far as you know,you are not interfacing with any counsel that purports to represent the Intertie Operating Committee.|s that correct? Ms.Trieu:No sir,yes. AEA Board Meeting June 21,2006 Meeting Minutes Page 9 Chairman Barry:It would seem to be that if the IOC was truly interested in coming to a resolution,they would at least employ a counsel to represent them to be involved in this process.They can't even agree on that apparently. Are there questions of Ms.Trieu?Hearing none,do you have any enlightment for this Board as to what kind of adverse effects,if any,could come from a notice of termination? Ms.Trieu:|agree with both Ms.Lamal and Mr.Thibert in the sense that the utilities have worked hard to provide a structure that they can work with and it may be counterproductive to start over,essentially. Chairman Barry:|guess |don't understand why anyone would have to start over.All we are doing is formalizing that the clock is really running and if four years went by and nobody got anything done then wouldn't the state be in control?It's the state's asset. Ms.Trieu:Yes,sir. Chairman Barry:So if there is no agreement,if it truly does get terminated,|think the state would have something to say about it which we don't have today.I'm trying to find out from you as a counsel for Golden Valley Electric,what would be the problem and what would be a disincentive for people to stop talking if we had this clock running.It seems like it would just provide more incentive.Can you give me a specific disincentive?There isn't any requirement is there to throw away your notes that you have done already.Your side agreement could be just as effective if that clock were running,couldn't it? Ms.Trieu:Mr.Chairman,we have appreciated this Boards'comments as far as termination and |understand what you are asking.Part of the thinking behind the most recently put together frameworks for a long term solution is to take into account the possibility that everything could change.We are trying diligently to be responsive to the requests of this Board and we understand that this Board has brought up termination as a possibility.Golden Valley does not, at this point,support that option,but at the same time we have heard you on the termination point and we are trying to come up with a solution that is productive for the railbelt in light of all of the options,Mr.Chairman. Chairman Barry:I'm sure that it doesn't need to be said,but I'd like to have it on the record. This Board does not enjoy the delays and the non-progressiveness that we have endured for the past three and a half years.We have a responsibility to the citizens of the railbelt to do everything that we can to help ensure that safe,reliable,electricity service.And,we have been told by every general manager of the railbelt utilities that this agreement is not working and that is jeopardizing that service at some point,not today,clearly if it were an emergency I'd think we would all be able to get together and work something out.But the problem is that in this business emergencies are very egregious for everybody;it is not something you want -to wait until there is an emergency that happens and then start to find a solution.We have our responsibilities,you utilities have your responsibilities and it is up to your board of directors to see whether or not you are following through on your responsibilities,but it is this Board that needs to make sure that AEA follows through on its responsibilities and we're running out of time,we really,truly are.Thank you. Anybody else from the utility?Lou,do you have comments? AEA Board Meeting June 21,2006 Meeting Minutes Page 10 Mr.Agi:I'm really too new to the whole thing,but the most recent that |have been witness to has been earnest.And,you need some windows of time -1 want to get into the agreement and help Jenny but as |say,I'm too new. Chairman Barry:Comments from directors? |guess what |would like to do then is to instruct the staff to come back to our next board meeting and to give us a report on what the effects of a notice of termination will be and give us their findings as to whether or not it is necessary and,any utilities that would like to make comments,or if some agreement can take place in the meantime,we would welcome that,but this will be a continuous agenda item at the AEA board meetings until we can get some kind of resolution to this.Come back fo us at the next meeting.Thank you. Commissioner Noll:Mr.Chairman,|would like to voice my support for your comments in particular.Nothing more need to be said so therefore I'm going to say something.|geta chance to travel around the state quite a bit as do other commissioners,and there is no escaping in our positions representing the government or the people,as you say,there is no escaping when you go to a public hearing and public citizens talk to you about the cost of energy.The crisis level that exists,especially in Rural Alaska,and |know that doesn't apply here necessarily to the railbelt,but |doubt if you will find many ratepayers in the area here who would say everything is fine,I'm really happy with the way things are going.So,without flogging this any further,|want to voice my experience as a support level for you and the comments you've made and urge some movement.We are certainly having to move in our department. Chairman Barry:Thank you.|will say as a general comment without respect to just the intertie agreement,that in the three and a half years that |have personally been involved,|have seen seeds of cooperation between the utilities and |have seen progress between the railbelt utilities, a more willingness to work together and less stridency.It's just very disappointing that we're not seeing it in terms of this vital agreement that affects pretty much everybody in the railbelt.I've probably been somewhat harsh on those that are here today doing their job representing their utilities,it's because of a level of frustration that we all have here and is not without respect for the efforts that everyone is making to provide save,reliable,electrical service.We do enjoy less expensive and every bit as reliable service here in the railbelt than most people throughout the United States of America.So,it's not 100%bleak by any means,but we do have a very,very serious issue in front of us and |would implore all of the utilities to redouble their efforts to come together and find some agreements that can improve a pretty sever situation.Thank you all. That concludes our regular business,we now have the director's status report. END VERBATIM 8A.Director's Status Report of AEA Programs and Projects Mr.Miller stated that AEA staff is active this time of the year with construction projects on bulk fuel tank farms and rural power system upgrades.There are over 30 MET towers throughout the state as part of the wind energy program.One was recently installed in Seward and staff is working with the community to become more aggressive with the wind program with the city of Seward. 8B.NEXT MEETING DATE The next meeting date will follow the Alaska Industrial Development and Export Authority board meeting on July 10,2006. AEA Board Meeting June 21,2006 Meeting Minutes Page 11 9.BOARD COMMENTS Commissioner Noll stated that the Homeland Security federal representative,Tom Burges,called to ask if we would discuss and scope out the beginnings of the energy assurance program for the state of Alaska.|have invited Ron Miller and AEA staff.The meeting will take place this Friday at the DCCED conference room. Mr.Miller stated Becky Gay and Mike Harper have been very active in this regard and will be attending that meeting. In response to Board questions,Commissioner Noll said that the energy assurance program is an overall plan that should there be a disaster there would be a back up plan for the state to have power. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 11:46 a.m. Ron Miller,Secretary Alaska Energy Authority Attachment B ALASKA ENERGY AUTHORITY ai ee) Peak groPayetteakeLsAlaskaindustrialDevelopmentandExportAuthority MEMORANDUM TO:Board of Directors Alaska EnergyjAuthority FROM:Ron Miller Executive Dir r DATE:June 21,2006 SUBJECT:=Alaska Intertie Agreement The Alaska Energy Authority (AEA)has worked with the Intertie Operating Committee Utilities (IOC Utilities)attempting to find cures for defects in Alaska Intertie Agreement (Agreement).As outlined below in a chronological report of events,AEA met with IOC Utility General Managers and attorneys to discuss agreement defects and possible fixes. The !OC Utilities subsequently have met among themselves,and recently reported to AEA that they are making progress towards crafting a Utility proposal to address identified defects in the Agreement.AEA understands that one or more representatives will report to the Board on this progress at the June 21,2006,Board meeting. Chronological Report: 1.March 17,2006 -Letter from Ron Miller sent to IOC Utility General Managers. This letter (copy attached)reiterated AEA concerns regarding defects in the Agreement, and imposed a deadline of June 15,2006,for the parties to craft both short and long term cures,and for AEA to give notice of termination of the Agreement. 2.April 21,2006 -AEA and !OC Utility General Managers meet. This meeting allowed thorough discussion of problems with the Agreement,and IOC Utility concerns regarding AEA giving notice of termination.Key topics included: a.Mutual consensus between AEA and IOC Utilities that it would be inappropriate to revert to pre-1993 procedures (reflected in current language in the Agreement), under which AEA takes a more proactive role in the budget decision making process. One GM commented that the level of expertise on utility matters on the AEA staff is substantially lower than pre-1993 AEA. i.The budget decision making process for FY 2007 is an immediate concern that the IOC Utilities have been requested to address at the June 21, 813 West Northern Lights Boulevard °Anchorage,Alaska 99503-2495aieRANTISONANeCANMANNTINEONANAAmwTLEOL.-t 2.met NAAINAN Ae Board of Directors June 21,2006 Page 2 2006,Board meeting.The mutual consensus that procedures reflected in current language of the Agreement should not be followed leaves a void as to what procedures should be followed. b.Several IOC Utility GM's expressed their view that chaos would result if AEA gave notice of termination of the Agreement without a subsequent agreement(s)in place, even though actual termination would not occur for four years. c.Several IOC Utility GM's expressed concern that the June 15,2006,deadline for crafting subsequent agreement(s)was one the utilities could not meet in any event. Even if suitable agreement(s)could be crafted,utility board/municipal approvals would take more time. d.In reaction to concerns regarding the June 15,2006,deadline and notice of termination,AEA modified the deadline provision to instead require a showing of real progress towards curing the defects in the Agreement.AEA understands that representatives of the IOC Utilities will describe progress they have made in this regard at the June 21,2006,Board meeting. May 2,2006 --AEA and !OC Utility attorneys meet. This meeting continued,at the attorney level,the thorough discussion of problems with the Agreement and possible resolutions. May 11,2006 -Further clarification of agreement defects and possible cures. Following the May 2,2006 meeting of attorneys,the 1OC Utility attorneys requested further clarification of what AEA views as defects in the Agreement.Further clarification was provided on May 11,2006.A copy of the request and response is attached. Subsequent to May 11,2006 -IOC Utility attorneys continue to meet. The !OC Utility attorneys report that they have continued to meet regarding curing defects in the Agreement.AEA understands that progress on that front will be reported to the Board on June 21,2006. June 2,2006 -!OC Utility attorneys notified by Assistant Attorney General Brian Bjorkquist that the Alaska Intertie Agreement would be an agenda item at the June 21, 2006 AEA board meeting. Alaska (adustrial Development and Export AuthorryAIDEA/AAlaska Faery Author ty March 17,2006 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3313 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 Mr.Bill Stewart Interim Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99501 Anchorage,Alaska 99519-6300 Fax:(907)263-5204 Fax:(907)562-0027 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 RE:Curing Defects in Alaska Intertie Agreement Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)has directed AEA staff to cure defects in the Alaska Intertie Agreement ("Agreement”)that were discussed in a meeting between AEA and IOC utility general managers on July 22,2005,and in subsequent meetings by the !OC.While soliciting utilities'concerns with the Agreement,the AEA Board raised three primary problems with the Agreement and intertie: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and 3.Lack of compliance with the Agreement's terms and conditions; You will recall that there was a general consensus amongst JOC utility general managers at the July 22,2005,meeting that defects AEA identified in the Agreement could be simply cured by amendment.That course later proved to be unworkable,as amending the Agreement requires unanimous consent,and the IOC utilities could not unanimously agree to any amendments. ae Pars 'he go.bt ad y J,.A.1 an 1 .m7 'COU AN aE Nietiieciia t ighi>Borate sare ©Ara NOs,Nisha HIG) 907 209-5000 ¢TAN 907 209 304-41 ©Toll Free ALASKA ONLY:888.T0263 14 ean tideaorg March 17,2006 Page 2 The impasse reached on amending the Agreement after the July 22,2005,meeting led Golden Valley Electric Association (GVEA)to propose a "side agreement”approach,under which AEA and certain iOC ulilities wouid enier into one or more "side agreemenis”io address tne deiecis in the Agreement.In summary,GVEA's proposed "side agreements”would do several things. e The IOC would revert to pre-1993 budgeting mechanisms that reflect current language in the Agreement (e.g.,AEA would make all budgeting decisions after consulting with lOC utilities,rather than those decisions being made by the |OC). Certain 1OC utilities would create and self-fund an R&R account to fund maintenance and repairs,and would control whether and when such funds were expended. Certain IOC utilities would seek debt financing (including bonding)for maintenance and repair costs in excess of R&R fund. AEA would remain responsible to contract for maintenance,but without any guaranteed funding source -other than the awkward debt financing mechanisms under which IOC utilities may opt out of the Agreement whenever debt is incurred. e Confirm that Bradley Lake power sales do not require AEA to become a utility participant to the Agreement. While the "side agreement”approach offers certain improvements over the status quo,it fails to completely resolve defects in the Agreement,and creates additional problems.For example, while a funding source is created,expenditures would be controlled by certain IOC utilities whereas AEA would remain responsible for contracting for maintenance without any assured funding source. AEA believes that with IOC utility cooperation,curing defects in the Agreement can best be accomplished in two stages.The second stage would implement the long-term cures by amending or replacing the Agreement as discussed in the July 22,2005 meeting.The amendments could not become effective until the earlier of (a)four years from when AEA gives notice of termination of the existing Agreement,or (b)when IOC utilities unanimously agree to the amendments. To cover ihai gap,the first stage wouid impiement interim procedures based upon GVEA's "side agreement”approach (with some modifications).In order to efficiently implement this two staged approach,June 15,2006 will be the deadline for AEA and 1OC utilities to enter both the long-term amendments to the Agreement and the interim "side agreements.”June 15,2006 will also be the date on which AEA will give notice of termination of the Agreement. The second,long-term stage will implement the ultimate cure to the defects in the Agreement. Unanimous approval would not be necessary for the two staged approach.The defects would be cured at the latest four years after AEA gives notice of termination when the existing Agreement would expire and a new agreement would become effective.The Agreements defects could be cured at the earliest when the IOC utilities unanimously agree to needed amendments,a course Matanuska Electric Association (MEA)indicated was possible if the amendments also accommodate certain MEA concerns. AEA believes that for both the long-term amendments and the interim "side agreements,” control over decision-making and responsibility for those decisions need to be held by the same entity.In that regard,AEA does not believe it appropriate to revert to pre-1993 procedures March 17,2006 Page 3 under which operational control by the [OC is substantially diminished.Regardless of who controls the decision-making process,1|OC utilities that use the intertie will ultimately pay all intertie costs.!OC utilities would appear to be better able to exercise discretion to exercisetainBeninaAbennnienmnAnunananemtlanntUFAAINEbileprucentulllityjudgments(é.g.,uuimnny Gi repairs ain expenses)Gi 1Sasi vw ane wu utes assume responsibility for those decisions. AEA would like to meet at your earliest convenience to discuss proceeding to cure defects in the Alaska Intertie Agreement. aeHy3[LAonMiller Executive Director RWM:-Ddjf H:AEA Projects\Alaska Intertie Project\Correspondence\GM2006-01 .doc May 4,2006 E-mail From GVEA's Attorney Hi Brian. Lou,Don,Rick,and I talked today in follow up to our meeting on Tuesday.In order to make the progress AEA has requested,it would be very helpful to us if you would prepare a more detailed list of AEA issues (i.e.,elaborate on the funding,management,and technical compliance,or other categories of issues we discussed the other day). Please let me know if there is anything I can do to move things along. The utilities'representatives will try to get together regularly and we will continue to work with you.It would be great if you could provide an estimated time for when we might be able to get your list of issues. Thanks. Jenny Jenny Trieu Ater Wynne LLP (503)226-8699 222 SW Columbia,Ste.1800 Portland,OR 97201 U.S.A. May 11,2006 E-mail to Attorneys Representing IOC Utilities. Greetings: I have been pondering your e-mail requesting more explanation of what AEA requires.I think AEA has been consistent in what is defective about the intertie agreement.For most defects,there are numerous possible solutions that may implicate several different sections of the agreement.AEA has also been consistent that it should not dictate how cures must be implemented.What AEA desires is that defects be fixed,a goal embraced by substantially all GM's last July. This is not intended to be comprehensive.I don't believe AEA can just provide a list of contract sections and articulate how they need to be changed.Instead,I'll try to give you more information,including examples,not to direct any particular fix but rather to hopefully give you more focus on these issues. While I discuss numerous provisions,I believe the most significant defects of the agreement could be fixed by addressing five issues.The first three issues are relatively discrete:(a)amend Art.12 to have the IOC (or a Management Committee)take responsibility for maintenance plans,schedule and budget;(b) amend Art.18 -Indemnity to provide for collective responsibility for intertie decisions/recommended actions;and (c)provide a viable funding source for major maintenance and repairs.The fourth issue --clarify procedures, responsibilities,etc.related to terms in the agreement that are not being followed --could be addressed section by section throughout the Agreement,or AEA's concerns could more easily be addressed by release and indemnification of AEA from responsibility for non-compliance/ignoring those provisions.A fifth issue I understand arose again in recent discussions in Juneau -whether the Agreement restricts power transfers south (in contrast to certain comments recently made in Juneau,we heard "no”as the answer in RCA/MEA-TLS related discussions;this should be clarified). 1)Decision Making Responsibility. The basic management issue,I believe,is that it would be detrimental to revert to the pre-1993 management (reflected in the Agreement language)under which AEA is ultimately responsible for making budgeting decisions --at least to the extent AEA deviates from recommendations made by the maintenance contractors (as other utilities often recommend)--and which may effectively translate into AEA making significant business decisions that affect intertie and utility operations. GM comments in the July 2005 meeting highlight this issue.GM's advocated that prudent utility practice require utilities routinely to determine the timing for doing major maintenance --(the basic cost/benefit analysis being -spend money now, or attempt to lower the present value cost by deferring the expenditure -- understanding that deferral requires an assumption of risk that damages may occur in the interim that may require greater expenditures,may temporarily put the intertie out of service,or cause other negative impacts). The cost/benefit analysis also directly impacts the economics of the intertie and transferring energy over the line (and therefore impacts the cost of power to Railbelt utilities).The simple analysis provided by certain Railbelt utilities in discussions is that energy transfers over the intertie only make economic sense if the cost differential for energy exceeds the wheeling rate.If it does not,the utility would generate its own power rather than purchase from another as that becomes the lower cost alternative.For example,certain utilities made the point that the intertie could not withstand the cost for inset towers recommended by the maintenance contractor to address snow load,as that debt 'load would make it uneconomic to transfer power.(It has been argued that this point was never properly presented to the IOC for decision,so the economic cost/benefit analysis of inset towers certainly could be revisited). GM's in the July 2005 meeting advocated that the utilities are better able than AEA to balance these cost/benefit analyses -and make the corresponding best business decision for economic operation of the intertie,and to lower ratepayer costs.For that to work,of course,utilities must take responsibility for their decisions (e.g.,assume risks from deferring maintenance). It should be noted that AEA receives no compensation for owning or taking risk to ensure that the intertie operates.AEA's economic interest is furthered by avoiding risk --an approach that differs from the economic interests of utilities that transmit substantial power over the line,but that likely comports with the economic interests of utilities that transmit little or no power.It therefore should come as little surprise that utilities differ as to the degree to which risk should be taken to operate the line. Current practice is for maintenance scheduling and budgeting to be done at the IOC level.This practice appears to be consistent with what the GM's advocate, but deviates from language in the agreement. The basic maintenance budget/decision making process is located in Article 12 and in the maintenance agreements: a)Sec.12.1.1 states that AEA will maintain the intertie facilities,but may contract to provide for maintenance.AEA has always contracted for maintenance with MEA (assigned from AEG&T for southern half of line), GVEA (northern half of line)and Chugach (facilities in Teeland Substation). b)Sec.12.2.1 provides that AEA shall develop the maintenance budget,an annual budget and schedule for maintenance,based upon budgets developed by the maintenance contractors.The budget is to be reviewed by participants sufficiently before the beginning of the fiscal year to allow comments for consideration before finalizing the budget. c)The maintenance contracts require maintenance contractors to recommend maintenance plans,budgets and schedules required to satisfy prudent utility practices.See e.g.,Art.III,sec.2 and Art.IV,section 1. In short,the maintenance contractors and operators evaluate and recommend maintenance/operations required to satisfy prudent utility practices;other utilities review and comment;and thereafter AEA determines the budget. The basic operations budget/decision process,located in Article 10,differs from the maintenance budget process in that Participants (not AEA)approve the budget.See Sections 10.3.1 -10.3.5.Another difference is that sec.10.3.6 requires AEA to present the operations budget to the legislature for an appropriation --which would likely be an appropriation of program receipts (i.e., money utilities pay under the Agreement.Current practices does not include such appropriations. Good decision making is also adversely affected by the indemnity provisions in Art.18.. 2)Indemnity Provisions. The more I review the Agreement,the more the indemnity provision appears flawed.Art.18 basically provides that each participant shall defend and indemnify all other participates for all actions or omissions pursuant to or under color of the Agreement.This provision appears to do several things. a)It creates a tremendous disincentive for any participant action that benefits the intertie or intertie operations.Action is punished/non-action, non-cooperation is rewarded. b)Most risk appears to fall to operators and maintenance contractors. c)For purposes of budgets,this section suggests that the safest decision for AEA is to simply adopt whatever budget is recommended by the operators and maintenance contractors. d)This section also suggests that operators and maintenance contractors should err on the side of recommending more in the plans and budget,as they would be required to defend and indemnify other participants if they fail to include something in a proposed budget. e)It appears that the "individualized”indemnification provision in Art 18 would need to be replaced with collective responsibility for decisions before the better decision making process advocated by GM's (balancing costs/benefits)could work. 3)Funding Major Maintenance &Repairs. One of the most significant issues AEA has been raising is that the.Agreement lacks a viable funding source for necessary repairs and major maintenance.This problem is evidenced by the failure of the IOC to accomplish any of the necessary repairs that the IOC identified more than three years ago --leaving those conditions as disasters waiting to happen --suggests to the AEA Board that it would be harmful to follow the "do nothing”approach the utilities advocate because of utility fears that requiring amendment to fix defects in the agreement may itself result in some disruption. I have heard IOC members articulate that in their view,if a funding source for repairs were obtained,most of the intertie problems would be resolved.This is also an open agenda item for potential cost overruns on the bypass project (Lou is working on the bypass agreement for ML&P). As an example regarding SVC repairs,the IOC at one meeting concluded that the rational approach is to acquire three SVC's at the same time to obtain identical units,so that spare parts can be shared --but the intertie annual budget cannot support such a large expenditure. AEA has met with GM's to discuss alternative funding options.AEA agreed to assist the utilities in funding necessary repairs via bonds or loans guaranteed by certain utilities similar to Bradley Lake financing (i.e.,using a side agreement that is necessary because the existing agreement is inadequate to support debt financing).AEA also forwarded to the GM's financing information they requested,without response. 4)Debt Financing Problems. I think the defects in the Agreement affecting debt financing have been long understood.An earlier "side agreement”proposed by GM's to address the defect was that certain utilities would guarantee debt incurred to make bonds or loans bankable. The Sections of agreement creating the problem include: a)Termination -sec.2.2.2 -any Participant may terminate by giving at least 48 months advance written notice.This effectively limits the term for any financing to 48 months -as the lender has no assurance the agreement will continue beyond that time frame.48 months may be too short for cost effective financing,particularly for large projects. b)Termination -sec,2.2.3 -if AEA encumbers any debt obligation recoverable as an operating expense under Art.8,any participant may terminate their participation in Agreement within 60 days of notice of debt. One consequence of this section is that the funding mechanisms in the Agreement need to be cured before any longer-term debt financing (more than one year)can be used for any particular intertie problem. Otherwise,after debt is used to repair the first problem,there would be no mechanism to fund the second problem to arise because debt financing for the second problem would give all participants an option to terminate the Agreement,which could leave no revenues to repay the debt used to finance the first problem. Failure of Agreement to Assure Repayment of Financed Debt.It is doubtful that any lender would loan funds for necessary project repairs or major maintenance in reliance upon terms of the Agreement. Sections of the Agreement may (or IOC utility members have suggested)fail to ensure repayment of all operating costs --which would include repayment of debt financing: i.Sec.8.4.2 enables utilities to avoid their obligation to pay if "it can be demonstrated that APA has not met its responsibility to maintain the transmission line in accordance with Prudent Utility Practices.” It should be noted that by contract with AEA,MEA &GVEA have assumed this maintenance responsibility. ii.Sec.8.4.6 --Utility IOC members have suggested that this section might mean that there is no mechanism to recover revenue deficiencies.The section applies if "revenues received under Subsection 8.3 [are]less than actual intertie costs..."Because Subsection 8.3 only applies to the first year's budget -utility members have suggested that there is no mechanism for recovering revenue deficiencies in later years.This needs to be clarified,as an interpretation that there is no mechanism for recovering deficiencies would likely preclude debt financing made in reliance on the Agreement. [A conclusion that Sec.8.4.6 only applies to the first year's budget would merely suggest that the Agreement is silent as to how revenue deficiencies will be recovered in later years --which means recovery could be different than by MITCR which is the mechanism used in sec.8.4.6.A utility member's suggestion that the state is somehow obligated to pay under those circumstances conflicts with Section 8.1 which provides that Utility Participants shall pay all O&M costs,and ignores the practical reality that AEA has no funds to pay.In any event,this needs to be clarified.] d)No Ability to Save Excess Revenues.Section 8.4.5 requires any excess annual revenues to be returned to the utilities,precluding an R&R fund,a special project fund,or similar savings mechanisms that could be used to plan for funding major maintenance or repair items. (Amending this is dependent upon which funding mechanism utilities choose). 5)Disregarding Agreement Provisions. The IOC cataloged in a spreadsheet sections in the Agreement that have not been followed,generally since 1993.Copy attached.Of greatest concern to AEA are the sections which provide AEA is to make a decision or take an action, which are instead decisions that are being made by the IOC or are actions that are being ignored.AEA needs protection from claims it has breached the agreement. For sections regarding actions or decisions by other parties that are being ignored,AEA also needs protection from claims that AEA should compel compliance by the non-performing party. The suggestion that AEA is currently making decisions per the terms of the Agreement by deferring decision making to the IOC is very disturbing,and illustrates why the language in the agreement needs to reflect the intentions and expectations of the parties.AEA should not be subjected to after the fact assertions that it has failed to do,or to enforce,aspects of the Agreement that everyone now appears to agree should be ignored. Whatever the rules are to be,they must be clarified (at least as to AEA). Alternatively,with an indemnification of AEA and with clarification of intent,it might be possible that AEA to agree to allow the IOC to continue simply to disregard the Agreement and have no written procedures that accurately reflect procedures.That approach would take further review. Additionally,AEA desires to clarify the circumstances under which it must become a utility participant.Sec.4.1.1 says AEA will become,a utility participant when it sells power to a party not a participant.Seward has purchased Bradley Lake power for more 16 years or more.That AEA did not become a utility © participant 16 years ago appears to reflect a recognition that it was unnecessary. Sec.7.7 gives AEA the right to transfer power to participants of Bradley Lake,so perhaps the sales were contemplated but not clearly articulated in the agreement. I understand from the 11/29/05 outline that Bradley Lake power sales are not the problem,but there is desire to have some provision related to additional AEA power sales (probably a theoretical issue,at least as long as AEA may not develop new power projects).The question to Utilities is what do you have in mind? 6)Transferring Power North and South. The ability/rights under the Agreement to transfer power both north and south needs to be clarified.AEA understands that suggestions/arguments have been advanced that power can freely go both ways,or alternatively that power can only go south.The inconsistent positions taken should be clarified. Attachment C Alaska Industrial Development and Export Authority Alaska Energy Authority August 17,2005 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3323 Mr.Dave Calvert Utility Manager City of Seward P.O.Box 167 Seward,Alaska 99664 Fax:(907)224-4085 Mr:Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 RE:July 21,2005 IOC Meeting Transcript Mr.Joe Griffith Chief Executive Officer Chugach Electric Association,tnc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 July 22,2005 Alaska Intertie Work Session Transcript Alaska Intertie Repairs Financing Scenarios Gentlemen: Enclosed for your information: 1.Transcript of the July 21,2005 IOC meeting at Matanuska Electric Association; 2.Transcript of the July 22,2005 Alaska Intertie Work Session;and 3.Alaska Intertie Repairs Financing Scenarios. The recording of the IOC meeting on July 21,2005 was not of the best quality so there are some textual gaps in the transcript,but the substance of the discussions was recorded.The Intertie Repair Financing Scenarios include bond and loan financing of $3,$5,and $7 million over periods of 7,15 and 20 years.A summary table of these scenarios is provided as a cover sheet for the detailed analyses.The table also lists the assumptions for the loan and Bond August 17,2005 Page 2 analyses.Please call Bernie Smith at 269-4643 if you have questions regarding the transcripts and Valorie Walker at 269-3011 for questions on the financing scenarios. fiMlhHlAnMillerjExecutiveDirector RW M:bimf H:\AEA Projects\Alaska Intertie Project\Correspondence\GM2005-02.daoc cc:Valorie Walker,Deputy Director-Finance Bernie Smith,Project Manager INTERTIE OPERATING COMMITTEE MEETING July 21,2005 Matanuska Electric Association Conference Room Verbatim Transcript 1.CALL TO ORDER Chairman Dale called the meeting of the Intertie Operating Committee to order on July 21,2005.A quorum was established. Members present:Henri Dale,(GVEA),Bernie Smith (AEA),Brian Bjorkquist (Department of Law), John Cooley (Chugach Electric,(OC Vice-Chairman),Paul Williams (Dryden &LaRue),Tom Kelly (Matanuska Electric),Doug Hall (ML&P),Bob Drake (MEA),Bob Day (ML&P),Frank Bettine (MEA),Brian Hickey (Chugach Electric),Jim Walker (MEA) 2.PUBLIC COMMENTS [INDISTINCT DISCUSSIONS:STARTED AT 0450 ON THE TAPE COUNTER] Chairman Dale:|sent out two sets of meeting minutes;the April 21°from GV and on June 9"we had interim meeting at AIDEA.I'd like everybody to review or comment on those minutes.I dohavesomecommentsontheJune9"minutes.In my email |mentioned the title of the documents as being approved by the Committee but it's still considered draft.Various people's names weremisspelled.I'm in there twice;once spelled correctly and the 2™time incorrectly.Charley beeeae [indistinct]...From Chugach is John Cooley.From Homer Mr.Bob Drake is actually Mr.Bob Drake from MEA. We were at AIDEA and |think he held over.There were two things going on and |think he was there in the office;he's a member of the IOC. Chairman Dale:There was a member there before him that was there._[indistinct]..... Chairman Dale:Last time,not this set of minutes but the time before,and |know you weren't here, there was a large argument that the members of the IOC be separated from visitors and the representatives from MEA and AEG&T. It was asked that they be separated in the January minutes. [indistinct conversations] Chairman Dale:So we were joined by Brian Hickey (Chugach Electric). Also on the June 9"minutes,there is a reference in the 2 page about %way down to the 138 KBline;that should be read "KV line”.On the 3°page about %way down there is a quote from me; apparently |was incoherent at the time.I'm not sure what |was getting at and the author wasn't either.|don't exactly remember the context of it.We were obviously talking about not being able to do controls at certain times due to the rivers being frozen;that sort of thing.We were talking 10C Meeting Minutes July 21,2005 Page 2 about access and what was safe.|don't exactly remember what |said so |don't have a problem striking it.It may very well be what |said. There's one more on the last page reference to the IOCMSC.There was some discussion at the time having to do with Martin....[/ndistincf]..... Any other comments? Bob Drake:At some point in the June g”meeting you'd made a comment that [indistinct] instructed to stop work on his project.There was no mention in the April minutes. Chairman Dale:|don't remember a vote or what we said.My recollection was that the tower project that they were doing would use the remaining monies of that project to do the other things we'd asked them to do based on the spreadsheet.|don't remember a vote as such. Any other comments on the minutes? John Cooley:On the 2™page under ......[indistinct]...,the TOC authorizes a base ..oe«.[indistinct]...and |think the word should be "requires”a base project and in the nextparagraph,the 2"sentence goes,"that's basically "The first part is the electrical component whichis4Y%ft per 185 KV”and delete the rest of that whatever.....and then the 3"to the last paragraph it says (lets change the last sentence to read),"from the design standpoint,it is usually less than 3 feet”.The last paragraph,"the final calculations”...........change the word "calculations”to minimum clearance,snow depth,and then continue with data and obstruction height. That's it. John Cooley:After the work order what was the decision on the wording error;the decision "from the design standpoint'? Bob Drake:"It is usually less than 3 feet”. Bernie Smith:|think "1 to 3 feet”would be more appropriate.' Chairman Dale:On adoption for our meeting,we will adopt the June 9"minutes withmodifications.What about the April 21"minutes? Chairman Dale:April is ok as submitted.Any other comments or is everybody reading? Chairman Dale:Modification of the agenda.You have the agenda before you.Are there any changes or additions anyone would like to add to it?There are two things in there that are not commonly in our agenda is the discussion of some outages that we've had recently. Bob Drake:The only change |request we make to the agenda is under 6L.That's an opinion and not a fact so it should be stated in such a way as to not look like a fact. Chairman Dale:Any additional changes.Well,we will approve it then.Any reports and correspondence?Dispatch Commitiee has met recently. Doug Hall:Dispatch Sub-committee met/conducted a teleconference Tuesday at 10 o'clock.The primary was discussing the outages that have been occurring and maintenance.Primarily was the outage that occurred last Thursday.It had a significant impact on the electrical system.[indistinct] One of the biggest things the Dispatch Sub-committee came up with was communications between control centers.The Dispatch Committee is meeting next Tuesday prior to [indistinct] IOC Meeting Minutes ) July 21,2005 Page 3 Chairman Dale:Reliability/Protections Sub-committee.As far as |know right now they haven't met.Last regular meeting we assigned Doug Reuter to be the chairman.As far as |know he hasn't brought you guys together.Care to give us a status report on where you are? UNIDENTIFIED SPEAKER:|haven't heard anything from Doug. Chairman Dale:You guys haven't met this quarter? Doug Hall:No. Chairman Dale:Ok.[indistinct........]One of the big issues you have being at these meetings; there's a lot of things we need you guys to look at and if you can't do it yourselves,we need you guys to propose how else it is to be dealt with.|know we all have a lot of construction going on and I've written letters to Brian and others.They all say that you guys are really busy but there are things we need you guys to look at also.I'll talk to Doug about getting you guys together. [indistinct] We're either gonna meet tomorrow.|think they were gonna meet on Friday.Anybody here that normally sits on that.|think Barton usually did;isn't he involved in that?Oh well,|know how it feels. We were talking about "Machine Rating”Sub-committee.Barton used to sit on that;|assume that you do also,or will.[indistinct].Ok,so we'll be hearing from them when they do meet. [indistinct]and Communication Sub-committee.I've been seeing some information.....They were to have a recommendation for communications control center but at the time my understanding is that at the last moment there was some discussion on termination and |know that Paul Johnson is talking with my guy on that. Bernie Smith:What termination are you talking about? Chairman Dale:Instead of using the old control microwave because ......[indistinct]...,we're talking about using fiber and it's called terminating at different locations.[indistinct.......] There was also some discussion that there be dual caps.That doesn't seem to be the case. Apparently we don't have dual caps anyway but one of the selling points they were working on was having..........-and that may not be the case either,they are still looking at that. Heat Maintenance Sub-committee?We have the minutes from that.We discussed that. beeees [indistinct]...Sub-committee had met,or some of the people did.There is a -Bernie did send out the minutes on that also.We have a topic before session to discuss the budget itself.|guess we'll defer......... The Sub-committee usually meets once a year prior to budget time. Chairman Dale:Yes,everybody else wasn't sure whether we were meeting or not meeting and I'd called Baron the day before as |was on vacation |suddenly see that we were meeting tomorrow in Anchorage with a question mark behind it."I”knew we were meeting. Doug Hall:They actually adopted a budget 1OC Meeting Minutes July 21,2005 Page 4 Chairman Dale:There was no vote to adopt which is why we're going to be discussing that one in session.My comment on the budget minutes is ......[indistinct]....attributed to working for MEA and there was something about this 3 FDS's having something to do with Bradley and it did not. Chairman Dale:Ok,Intertie Status Reports;|have seen some go through,any that we talked about at all in the Budget Sub-committee,any comments on the related status report? John Cooley:You have a question that said the outage reporting ......[indistinct]...MEA getting those off the web and being able to update them.[indistinct] You need to fill out the data for years on any of those outages that affected you. Chairman Dale:Ok,communications received,major communications that we received......letters. One of the things that ......[indistinct]...ordered us to do was to have everybody send each other letters authorizing who was to follow up on that.|sent mine out.|don't know that MEA has responded.|think Tom was at our current meeting;he wasn't in position to say one way or another as to who the person is that the authorized representative.The Dispatch Sub-committee, when we met back in April,a day or two later,you guys had sent out your letters. Ok,then we got various proposals on statements of work mostly from Dryden &LaRue and Arthavingtodowithsnowload. Ok;we have some visitors.Any comments related to items on the agenda?After recess,|would recommend that we defer until lunchtime. Chairman Dale:Ok,we're in a work session.Dispatch Sub-committee,is there anything this body needs to discuss related to the activities that they are doing?Remember that the last time they met they discussed one of the reasons,outages....and we'll talk about that one later in work session;so is there anything else we need to discuss about the activities of the Dispatch Sub- committee? John Cooley:One of the things we need to discuss is _re-emphasize ...[indistinct]....communication,particularly as it involves switching...[indistinct]........ ..online without telling us its online....36 hours ...findistinct].......dispatchers were working through the numbers figuring out why the numbers were out of range and we looked at manual points and yeah,there it is.It started yesterday about 1400 hours and we called MEA and asked them.........[indistinct]... We called yesterday about 1400 and there's the same thing.You guys choose to leave the switch open in the position,that's your prerogative,it's your switch,but we need to know when you're doing that because it does change the flows system,and depending on which way the ....it's significant and we need to know when you guys are doing that......[indistinct]... In the control centers,we're trying to get everybody to talking to everybody else asfar..[indistinct]. ..Way to improve communications between control centers.What we need more than anything else is for supervisors to reaffirm with their people that it's imperative that you keep the other utilities advised of your actions and not just to pick on you because all of our people in kind do the same thing.They support this mentality where they think they are cut off from the world when they are not,they are connected to the world.What you do here impacts everything else.Pick up the phone and talk to Golden Valley.It's just something as supervisors we need to make sure that all the people working in the control center understand. Chairman Dale:The other part is that they need to be specific whether than "can you help me”,or "have you got a little bit for me?” IOC Meeting Minutes July 21,2005 Page 5 Doug Hall:A little bit to MEA is a hell of a lot different than a little bit to you.And that is true;we have actually pulled communications off the tapes where one dispatcher says something,and knows exactly what he means but he says it in such a generic way like "can you help me”.Well, what are you looking for,reactive,real;exactly what kind of trouble are you getting?What the hell are you asking for and ask the questions specifically;say what you mean and mean what you say is what |tell my guys.Pick up the phone and say,"did you loose a unit,did you loose a line?” Something,be strong and specific.[indistinct] [indistinct discussions] Doug Hall:There is an excellent article in the Power News issue of May.It talks about what the Midwest.........[indistinct]....basically holding exercises now because .........findistinct}....these blackouts.If we can't help each other,we're in trouble.This is what they are doing,they are setting up exercises to try to enhance communications between the control centers and actually putting the guys through drills because that's the key and our system is getting more complicated and more difficult to work than it was 20 years ago.We gotta get our people better adept to handling it and we're gonna have to step up to the plate and figure how best to get some hands on communication training that will allow .........[indistinct].......out there. Chairman Dale:|agree that the control centers do need to communicate with each other more.At one time just before the end,just before MEA got dumped off there was one of my guys |think went through you as ("Southern ")operator to one of your guys as Southern operator to tell MEA they needed to reduce load and it became apparent that they were off.Your guys weren't too familiar with being a middle man in that position.Do you think that's where you should be,if I'm in an "islanded”position and |need to talk to MEA,should |be going through the southern operator; which is what we normally do? Chairman Dale:Yeah,that would normally be correct.|think the difference was even at that point in time;I'm not sure if.......findistinct].....middle man You were islanded with MEA.|think that you were still sitting there thinking,"well you guys were out there......findistinct].... Doug Hall:We didn't fully understand because of the 6 pages or 8 pages of alarms coming in. That fact that you guys were.......[indistinct]|don't think he understood;there was a breakdown in communications.Your frequency was not saved correctly. Chairman Dale:We had...[indistinct]......frequency but lousy voltage;we couldn't save a lot of voltage. Doug Hall:So |don't think he understand,and it was a breakdown in communication. Chairman Dale:One thing for you guys,|know you don't control the telephone people but during this outage and not uncommonly in other outages for whatever reason your phone book out here has Golden Valley listed and it's not uncommon for us to get MEA customers calling us with outages.|!don't know why that is because MEA serves Cantwell..........and we do get a lot of them and we just tell them to keep on trying;that we don't serve that area.It's gone on for years and every time there's a big outage we get a few calls.It's just something you may want to talk to the telephone people about and clarify ............. There is some confusion in the telephone.Usually when you're having outages,we don't,so it's not a big thing for us;it's not like my guys are busy but there's some confusion for your membership. 1OC Meeting Minutes July 21,2005 Page 6 Bob Day:Especially if they don't know who they are a member with [laughter,chatter] Chairman Dale:Reliability/Protection Sub-committee Chairman Dale:Guess we'll just say again what we've said before.I'll be getting with your chairman on that;all you guys,not just you but all the committee leaders,committee members need to get together.And now MEA have its representative for that?Is that gonna be Frank or do you have somebody else that's gonna be on the Committee. Bob Drake:We haven't talked about that yet but |think Frank will probably be involved. Chairman Dale:So is there anything that the |OC needs to discuss versus the work of the Machine Ratings people?I'm not aware of anything. [indistinct].......they are busy doing things,they have not produced anything yet but |know they have quotes from all the vendors and have me doing it.|don't have anything that needs to be discussed on that. Bob Drake:You were going to be replacing ("Douglas”).Have you? Chairman Dale:That's correct.We haven't yet,however,the engineer that's doing that work has been checking in to substations that we have those other meters at.I think he's back on the project.|think the last time |talked to you,it was going to be like fall or somewhere in that time period and we will certainly continue to have access to it also.We all are supposed to have access but nobody has bothered to call........ We also putting in a recording meter at Douglas that takes 15 minute data for the entire month. We have older recording meter that's getting harder to keep software updated on so we're replacing all our old stuff and we're replacing that one also since they are bringing us up to speed on that;we're supposed to be up to speed;gotta get that stuff installed.We have a really old PC sitting in the corner of our dispatch center.|don't even remember if it has Windows on it.It's software we used with those recording meters;|can't throw away that PC.The operating system it uses is the vintage that the DG's use,there's no upgrade for.Every now and then that PC starts making noise and we worry about it. Chairman Dale:Ok,the maintenance Sub-committee;is there anything this body needs to discuss about their activities? Chairman Dale:There was a question we had the other day;apparently you guys had sent a copy of the clearing contract out to all the GM's or something like that.Steve sent it out.Why,after 6 months did that suddenly surface?|thought he'd received it. Doug Hall:Steve asked me to send this;one to you,Posey,Waggoner,Diane,[indistinct] TAPE 1 ENDS Tape 2 (side 1) John Cooley:.....outside of a single year. BERNIE SMITH:|!don't understand why one of them (indiscernible)one of them that goes. Chairman Dale:The SVC oneis critical according to the procedures... IOC Meeting Minutes July 21,2005 Page 7 Bernie Smith:It's obvious that you need at least a spare for that particular one?Whether the maintenance plan works or not -|mean how long is it going to take you to get one (indiscernible). Chairman Dale:We would not be able to get one if it did fail.The manufacturing time to have something reverse engineered would be extensive.However,one of the topics that the Reliability Committee is supposed to look at is this need for the SVC is worded back in 1984 the way our systems were.Since then I've built the Northern Intertie,plus upgrading on 37+builder bar best which is just like SVC that's at the end of that 138 line. Chairman Dale:The intertie works just fine without the Healy SVC.The concern is that if it was off and that you had a problem (many people talking at once,indiscernible)-by default that there could be damage to the Healy (indiscernible).It may be that Golden Valley releases you guys from the liability on the Healy unit. Chairman Dale:That kind of situation.|realize you guys don't understand all of what's behind this but there are a lot of options as it goes out.But right now we have a procedure that we follow that is written up in the mid-1980s that says when the Healy SVC is off you take the intertie out of service. Bernie Smith:(indiscernible)rob parts from other SVCs? Chairman Dale:Unfortunately you can't,with some parts you but there are parts that are unique to each one.Unfortunately when they build them the guy came out there -the back of the board is all wire wrapped pins and they put components on as needed and didn't necessary document what they did so the motherboards are unique for each one and it would be debatablewhetheryouwouldbeabletolookatthatmassofwiresandinatimelymannerputtheproper components on the droper(sic)pins. BERNIE SMITH:So,that just means that you just go out and the Northern Intertie goes,we have to shut it down? UNIDENTIFIED SPEAKER:Controlled shutdown. Bernie Smith:Controlled shutdown.That means that you would be the one to (indiscernible) GVEA.You depend on the (indiscernible).But you do backup correct?You do have enough power to generate MEA? Chairman Dale:Yes. Bernie Smith:It just costs you more. Chairman Dale:That's correct. John Cooley:We depend on Golden Valley for spinning reserves. Chairman Dale:....barges,they would also have to carry larger staying reserves -it costs everybody,it is not just me -but |suspect I'm probably affected as much or bigger than anybody else.There are options,one of which is for our reliability... . 1OC Meeting Minutes July 21,2005 Page 8 Chairman Dale:...To look at are we in the same situation that we were back in 1984?Back in 1984,my night time load in the summer would drop down below 30megawatts.100 megawatts was something you didn't even think about -we were 70 or 80 megawatts for a peak load. Much different system now then we were then.The big thing is that the SVC is a huge -the best,which is a huge SVC compared to what we have installed.Further away but is that sufficient.We don't know but we'd like to know. Bernie Smith:As long as it keeps operating for x number of minutes. Chairman Dale:No,the best -the far side of the (indiscernible)is contiguous.As a matter of fact |can disconnect all of the batteries and it runs just fine. John Cooley:|have a question that's more for the Reliability Committee would that be better to make a motion and give that to the System Analysis Commitiee.One thing that we probably ought to face up to is that there is nobody on the Relo Committee who runs a PSSE anymore, that all went to the SAC of ASCC. (Indiscernible -many people talking at once) Chairman Dale:|don't see -|can't really delegate that to the ASCC as such.|can't delegate things... (indiscernible -many people laughing/talking at once) Chairman Dale:At one time we had discussed that probably SAC is -the thing is -well,|don't know about the goods on both sides -essentially the same group of people that... Bob Drake:Yeah,but my question was how would we relay the Liability Sub-committee to delegate to the SAC... Chairman Dale:It's something that we would like to see done because it is an important issue. And... Chairman Dale:This is something that being delegated to the utilities,the utilities have absorbed the cost of their own people same as the dispatch centers are absorbing... John Cooley:|think it's a question is that you could just hire Cody to go do it. Chairman Dale:And that's one of the things that we asked them to meet,is how are you going to conduct business when you guys are too busy to do business -are you going to hire consultants,are you going to do that -and they cost money. Bob Drake:At the very least if we're going to do that,say that we hire (indiscernible)then do it. Chairman Dale:Cody would be using the proper model,but somebody needs to oversee what he's doing,interface with him,tell him what to do and make sure the results are reasonable. But,I'm pretty sure that through the stuff that Cody is using model. Bernie Smith:Does that have the best -the intertie model in it? Doug Hall:(indiscernible)last |heard. IOC Meeting Minutes July 21,2005 Page 9 Chairman Dale:|don't know.I've asked on several occasions if we got the parameters and | believe we do.But I don't know that he has. Chairman Dale:Okay.Shall we....So I'm going to put up for a vote item 7 to not adopt the SVC.-Okay,Item G on the work session:Upgrade extension of intertie to Elin.We kind of talked about that.It's on our agenda as ongoing.Last !heard was it was in ML&P's board and it's just an update is that... Chairman Dale:I've seen a draft this morning (indiscernible)and |would like comments back and |don't know where -further negotiations with you guys or exactly what or...It's pretty rough -maybe you can get it cleaned up and (indiscernible)the comments,even just that | made this morning were typo (indiscernible) John Cooley:So do you think it is close? Doug Hall:|don't see any reason why not. (Laughter,various people talking at once -indiscernible) Bob Day:This is being half a decade,and |hate to make it sound that bad but just getting a project manager to start the process and that's just unheard of. Chairman Dale:Okay. 'Chairman Dale:Anybody have anything to add onto that -we'll move on. Bob Day:It's just that it's the draft of the (indiscernible)they would be project managers.. Bernie Smith:(inaudible)if that happens,are ya all ready to start the project? Bob Day:You guys got to approve it -it is a stage thing. Bob Day:|did talk to Phil the other day on other things and he was saying that he has a... Chairman Dale:....must be looking for work or something saying they had people available and he really wanted to get started on engineering that project so they're -either business is slow or... Bob Day:Yeah. Chairman Dale :So anyways,they are interested in getting started so they are ready to do engineering as soon as we get past this project management problem.Again,Item H is probably a placeholder,|don't know if |should keep leaving it in there,|was expecting the Corps to respond in a timely manner...We'll just keep it in there.As we all know,MEA,when the RCA gave the order,MEA went to the courts with it and we're waiting to hear back from them.That's your understanding also is that some day they'll give us a date.So basically that's a placeholder in the schedule to see how that goes.In the meantime we're getting our stuff in order with the RCA.The items they asked us to do. Doug Hall:(indiscernible)...do you guys want to receive all schedules? lOC Meeting Minutes July 21,2005 Page 10 John Cooley:The schedule (indiscernible)and that schedule can change almost two to three times an hour but sometimes 10 times a day,sometimes 12 times a day.|believe the order... Chairman Dale :The order says that MEA's board delegate will be copied on everything.Now, ML&P is the Southern operator,they get all the paperwork.And |guess the question is ML&P getting all of the paperwork which we have access to look at?Is that what you want or do you want the sheets coming over your fax machine? Bernie Smith:That's a lot of paperwork. Doug Hall:Yeah,it's significant.No problem for my guys to (indiscernible)plus your time,the fax will be huge. Chairman Dale:Each one,we get a stack about that high,you know,of all the schedules. Bob Day:(indiscernible)if that's what you want.You just need to let us know.If you want it. Chairman Dale:Next issue is Item I,Interconnect Agreement.You guys are waiting on me to provide the draft -|haven't got that ready yet.The intent was that the way the Interconnect Agreement that all of the utilities'have agreed to so far really we're talking about small generation.I'm not talking about large generation,so...|will be providing you guys an update on that |don't have one at this time. John Cooley:Is this -1 just gotta ask this question,is this -is this the one that Basin (sp)had put together that all of the utilities signed off on,|think it was a collaborative effort,|may have a copy of that here -it talks about... Chairman Dale:Is that the new one or the old one that we're talking about here? Doug Hall:The old one. John Cooley:Chugach did one for small generations for our own system but |think people are more interested in,you know,if somebody put a 10 or 20 megawatt... Doug Hall:The way this thing stays is less than 200 kw,above 200 kw,above a megawatt, well,there are some things |would do with somebody that was 1 megawatt than somebody that was 100 megawatts.There is a big difference between those levels. UNIDENTIFIED SPEAKER:You ought to look at what we did -you shouldn't be starting from ground... (many speakers at once indiscernible) Chairman Dale:You got stuck with this and my,what I'm doing on the draft is adding a new section and |don't recall what was said. Chairman Dale:It's inappropriate for working with a large generator.For example |think the way this is wrote up,if this were a small generator you're responsible for coming up with 100% of your load,is that what you would expect from a larger generator or would we offer to share it with spinning reserves kind of concept. Doug Hall:Um huh. 1OC Meeting Minutes July 21,2005 Page 11 Chairman Dale:Okay.So,we're waiting on that. Chairman Dale:I'll ask Brian.CEA's more modern copy. Doug Hall:|got it. Chairman Dale:Okay. Chairman Dale:Intertie insurance issues.That was the topic that Art had unless he has... Bernie Smith:(indiscernible)that |understand was do we want to spend $25,000 for the Patriot Act,in other words is there...terrorism insurance? Bernie Smith:...terrorism insurance.And |don't see any reason to spend it -it's not going to shut down if somebody blows up the intertie it's just going to make it more costly,so... Chairman Dale:Like good neighbors to the South? (Indiscernible -many people talking at once) Chairman Dale:What |was thinking was also,we did a comprehensive review and we''re still reviewing it,but mostly done on Bradley Lake on various coverages.On what is appropriate in this day and age.|think Mike Cunningham of Chugach spearheaded that -I'm envisioning something similar of that order -the amounts of insurance that we're all supposed to carry and that sort of things dates back to 1984 -are they appropriate figures in this day and age.It is certainly time for a review.There was a quantity put in the budget for doing that sort of thing,| believe it was $50,000.I'll leave that in there as a placeholder but since we have it budgeted we'll have the study done and then we'll have something to talk about in the future. Item K,Intertie snowloading problems and best practices.On the snow load problems,we had an interim meeting a month or so ago -various scenarios of what we could expect to see under the line with the snow conditions -criteria for designing lines -we were unable too -Chugach at that time had made a suggestion for a combination of them,the rest of us needed time to debate it.I'd like us all to decide what we want to do on that and we will be doing a vote on that. There was emails going back and forth and |think everybody was copied on it.Chugach had made a proposition -John had proposed that we use 23 feet as a minimum recommended ground clearance consisting of 4 %feet of electrical,5 %feet of snow,1 foot safety factor and a 12 foot obstruction height,which could be characterized as a skier with a 4 foot pole.He also proposed that the operator would calculate for actual snow depth.If there was less than 5 % feet on the ground could be allowed depending on actual footage.He says that Golden Valley in the email it says that they were good with that concept.ML&P in an email said they were good with that concept.MEA or AEG&T needed more time to study it and they did get back and emailed us that they did not believe that it was rated off,they did not believe it to be prudentbusinesspracticetorelyonloadcellsononlyonephaseonevery10"tower to tell what is happening on any conductor in any span.Therefore,AEG&T votes no to approving any minimum ground clearance as acceptable before the intertie is deenergized.We weren't actually asking for a vote but they stated what their position was. Does anybody care to discuss any changes to their opinion at this time.GVEA still feels that Chugach's proposal is a good one. IOC Meeting Minutes July 21,2005 Page 12 Bernie Smith:Were you waiting for ML&P? Chairman Dale:Yes,|did get a reply from ML&P. Bernie Smith:You didn't read it... Chairman Dale:No,|just verbally said --|didn't read it.Yes,we did get one from Doug and | got some comments from the State also. Doug Hall:Do you think that statement says it all or is there more you want to expand on or... Chairman Dale:no. Doug Hall:...detract from it,or...Okay.Has anybody changed their opinion from what they had in the emails? Chairman Dale:Nope. Chairman Dale:We will put it up for a vote. Bob Drake:There's one thing |might add.|remember looking at the snow report supplied by (indiscernible)Construction.If |remember right,on one particular day,the snow station at Susitna High School measured at 45 inches of new snow and the one in Talkeetna was just a couple of inches.Tremendous difference between snow stations that are 20 miles apart...That's why we view that it is just not appropriate to base some arbitrary number that is not completely arbitrary.On what conditions may be throughout the entire length of that section of the line - conditions can be vastly different from a few miles away -the way those snow monitoring stations are. Chairman Dale:My understanding was that there would be some kind of a spread sheet so that you would be looking at each station -is that... Paul Williams:...to look at what the snow pack was doing out there... Paul Williams:...at every station... Paul Williams:...basically means every two miles. Bob Drake:The snow pattern this year was significantly different then what we have seen in the past.The snow pattern this year provided unbelievable amount of snow to the entire area that we are talking about here west of the Parks Highway.Trapper Creek,8 miles in off the highway at Trapper Creek,they had 12 foot of snow.It was nothing short of -on the east side of the Parks Highway there was never more than 2 or 3 feet of snow.The conversations we have had with the National Weather Service have indicated that the patterns subs they were pushing the storms up the mountain and they were holding by the mountain and just dumping.They used the Parks Highway,they said that west of the Parks Highway is getting dumped on and there is very little snow falling to the East.We saw the pattern the entire winter.It was an unusual year and there was conceivably heavy snows and it always seemed to stay west of the Parks Highway. Paul Williams:The other thing is with patrol there -if we do want to start looking at the snow pack itself -they're basically wanting the entire look for the line,there is nothing keeping us 1OC Meeting Minutes July 21,2005 Page 13 from adding a little bit more flexibility.If we want to have a peak at every mile or every half mile, that is certainly a possibility. Chairman Dale:We are still,as |understand,still planning on every 2 inches (indiscernible) decided to patrol out or by command by the ML&P dispatch center. Paul Williams:Somebody was... Brian Bjorkquist:MEA do you have any suggestions on how to improve the processes? Bob Drake:Well,there's a solution out here too.And that's (indiscernible)Part of our concern is that at the last meeting it was mentioned that they had no processes set.The snow needs to be taken care of.There needs to be a solution to the problem.Monitoring is not a solution to the problem. Bernie Smith:The estimates are from $18-$30 million... Chairman Dale:$32 million.The cost is only going to go up. Bernie Smith:So,question is who's... Doug Hall:ML&P's position is (indiscernible)for $32 million dollars we can build one hell of a fence around that right of way and keep people out.You can fence that right-of-way and keep people off a lot cheaper than you can do with inset towers with $32 million dollars.It's just a ridiculous solution with those kind of costs.; , Jim Walker:You wouldn't think it was a ridiculous solution if it was in your service center and if someone got killed... Doug Hall:Then !guess we need to look at... Doug Hall:...then your liable... Doug Hall:...(indiscernible)this is what they do in America. Jim Walker:(inaudible)The problem is that we are picking up all of the liability issues because if there is a lawsuit if someone gets electrocuted,their estate comes looking for MEA because it is an MEA service center. UNIDENTIFIED SPEAKER:(inaudible) Jim Walker:The last time |looked it doesn't require you to be the owner to be on the lawsuit. Doug Hall:And that's the point.And the reality of it is,that's -the reality is every utility represented in addition with the State of Alaska is going to be named in the lawsuit.Golden Valley for buying,ML&P for selling,Chugach for selling,MEA for general purposes,and the State for owning it. Jim Walker:Probably AEA as owner and the utility responsible for maintaining and operating that track of the line. Doug Hall:Well,you maintain it,you don't operate it. IOC Meeting Minutes July 21,2005 Page 14 Chairman Dale:Somebody was going to talk to you about the ability of removing snow load while it was energized.Did that every happen? Tom Kelly:Yeah.Actually,basically there are only two ways to go about this -either through a helicopter or you get out there on snow machines or an all track vehicle or something like that and |figure every time a storm comes through for seven miles of line (1 think that's about 5 to 10 miles)a line is usually impacted on the bigger snow storms.So,that's about $20,000 to clear out a line and if we wanted to do it where we clear out the pole line every time it builds up an inch or whatever else then that's somewhere around $50,000. Bernie Smith:How do you clear it off? Tom Kelly:(inaudible)....hot stick Doug Hall:...The helicopter would clear the line... (indiscernible -many people talking) Paul Williams:Yes,it really has to be done on the ground either with a stick or Tom mentioned a bow and arrow. Paul Williams:It really depends on if the loads out and it sticks on there and basically the snow starts to kind of freeze to the line and you get ice build up and it is extremely difficult to remove only a foot or two so that means walking the entire length of line he is clearing.If it's fresh snow that it will unload the stand. Tom Kelly:|take it,it was mentioned earlier that even if we did inset towers that would be several years down the line., Tape 2 (side 2) Chairman Dale:Okay,back to the budget.We were discussing the SVC.Let's continue on down naming off the big items and it looks like the SVC is going to be a contentious issue.The next good one |see down there is the right-of-way clearing which sounds like having the money for clearing it in this upcoming budget is where it is going to need to be so |don't see a problem there.It looks like we're not going to be spending anything last year.And $1,000.... Doug Hall:Last years'budget did not get spent? Chairman Dale:The $100,000.So that big increase probably is -and as |remember we did a mid-year budget authorization when the bids came in,so that's probably where that number came in.The insurance risk that was something Art did and we wanted to start with and to sort of do a review of if the amount of insurance we have is appropriate in this day and age.|think that was an estimate included in there.Well,no,|was down at $50,000,|missed the tower.Of the three towers that are having distress,we will be doing one of them and it doesn't matter which one that we do,but my understanding is the ones in Talkeetna are close enough together that we would like to do both of them when we do one for mobilization reasons. Doug Hall:The measurement... Doug Hall:That's right,it was in the winter and there was snow in the way or something... IOC Meeting Minutes July 21,2005. Page 15 Paul Williams:(indiscernible)to determine... Chairman Dale:One of them looked like it had stabilized the other one.We weren't sure if we were getting different readings -we weren't sure because we were measuring in spring and one in summer and you know... Doug Hall:Have they ever gone out to confirm that measurement? Chairman Dale:There is a foundation -we thought there was a tower jacking -the grounds people went out there and cored holes and found that it was all ice lenses in the area and now i's --probably won't be anywhere -hopefully it will be under that,it's not looking like the foundation problem it's the ground is subsiding around it.|t is not the pole jacking up it's the world lowering.it's not as bad or severe as it could be.|just heard a week.There's -the consultant,when you get this written,this is just discussion verbally,they haven't written the report yet.But we'll probably drill under it,fill up the gap where the concrete has come out around.We burrow under it,do some drainage repair and that will probably continue to be subsided as the ice lens melt out.Apparently they struck several,cored several holes and they were all substantial amounts of ice.It was just shear luck that the one spot that they drilled for grounding was in rock and everything around it is ice or substantial amount of ice.We have that in there. Doing one of them this year,the other one is stabilized,and the other one we still aren't too sure of.Do the tree trimming and then that brings us back to the SVC. The budget,we've got a couple of expensive projects going on;the clearing and the foundation. That's over ¥million worth of projects there.I'm not sure that is a good year to be doing the SVC -our budget is over $1 million more than what it was last year and that's a 30%increase... Chairman Dale:Might even be a 50%increase depending on how you do the division. Chairman Dale:I want to hear everybody else's opinion but my feeling on the matter is that | would like to strike the one SVC out of there for this year. John Cooley:I'll go first |guess.Since we received three different budgets in the past 6 days or so.Honestly that causes us some concern.Since obviously yours starts on January 1*it is difficult to take any drastic increase in expenses into account this late therefore,we are not authorizing you to proceed with any of these three proposals.The other thing is funding -the Intertie Agreement,the budget is supposed to be presented to participants 13 months prior to the adoption before the fiscal year starts,and obviously we are a long way from that. Chairman Dale:We haven't... Chairman Dale:We haven't done that since AEA disbanded... Chairman Dale:Well,hopefully this isn't an indication that the legislature be funding... Chairman Dale:13 months. Chairman Dale:...to get it through the legislature and other things of that nature. IOC Meeting Minutes July 21,2005 Page 16 John Cooley:So in the absence of having the (indiscernible)we won't agree to any budget expect the extension of the previous budget approved for the fiscal year (indiscernible)With the possible exception of being increased costs for the railway clearing,which is something we approved earlier this year. Bernie Smith:We would probably want to include the increased expense for your wheeling right? John Cooley:Well,if tt goes into the budget,it goes into the budget. Chairman Dale:Actually,there were several things that did go down.Let's look at them.|think it was the taking out the SVC at 1.1 that bring us down to 2.2 compared to 2.0 where we are then 10%of what the other budget was. Doug Hall:Would you still need the 55 from last year's SVC repair? John Cooley:No,that was a study wasn't it? Chairman Dale:Last year there was an SVC repair under FERC 570.Was that the transformers? John Cooley:It was under spare parts. Doug Hall:Yeah,it was transformers. Doug Hall:That's only $12,000 in there,in reality.|mean... John Cooley:There's supposed to... , Doug Hall:There was a transformer for you guys.And we used that to provide... John Cooley:They didn't do that -they got --Golden Valley was going to order a new one. Doug Hall:Yeah,we ordered two new ones actually,one for us and one for Golden Valley. John Cooley:Well,|don't think they were... Doug Hall:So you think it was the transformer failure and not some work for the SVC... (Indiscernible -many people talking) John Cooley:...replacing the transformers,the two or three -|called to try to have a work order set up at the job site (indiscernible-coughing)transformer in there so we could get away from the roundhouse. Doug Hall:I'll ask him,|remember there was a 13 inch... John Cooley:|remember that now,I'll have to ask him. Doug Hall:|think we're talking about two different transformers here.We were ordering some potential transformers that we had bought -we had two failures up there,one was a 1OC Meeting Minutes July 21,2005 .Page 17 (indiscernible)the other was a station service transformer,we actually had a fire in the control room. Doug Hall:Right,and that... Brian Hickey:You're right,we brought it back from Beluga because we had the big barge crisis over it.Getting on the barge,it was....We got it here,it may even be installed,|don't know. Doug Hall:...the reason we went ahead -we put it on hold for awhile and then what happened is the second drive back failed.The 2 year old... Brian Hickey:1'll check. Doug Hall:It may be done. Doug Hall:Yeah.|was thinking one of the outages he had he was doing something,maybe he broke it... Bernie Smith:So do we know if we need $55,000 or not? Doug Hall:Well,that's what |say,who cares... Chairman Dale:Yeah,|was just wondering if that was an ongoing... Doug Hall:No... Chairman Dale:Nothing carries over. Chairman Dale:There are certain ongoing repair charges that are up in the upper parts.Since it had called SVC repair that was something specific so that would be taken care of. Doug Hall:But,if he hasn't done it... Chairman Dale:That's correct. Doug Hall:Energy projects shows 530 million kilowatt hours of what Golden Valley's projection to take,is that correct? Chairman Dale:That is correct.I'm expecting that a large increase. Doug Hall:When's the North Pole plant going on there. Chairman Dale:April/May somewhere around that in 2006. Doug Hall:When's the testing start? Chairman Dale:Two months prior to that.It is supposed to be commercial and towards the end of April.I'm pretty sure it is going to be toward the end of May at this point.There will be some testing before then. Chairman Dale:We have load growth of approximately 35 megawatts that we're expecting between now and then. 10C Meeting Minutes July 21,2005 Page 18 Chairman Dale:Substantial amount of unit that you are going above that and coming off will be taken up by a lot of load growth and stuff. Chairman Dale:Alyeska has been electrified and the Pogo Gold Mine should start operations, it's the smaller ones that you measure with multiple hands above... Doug Hall:How do you know there's such a dramatic increase? Chairman Dale:Well,it goes back when we did the forecast for last year which was April a year ago,|was out forecasting $60 dollar a barrel oil,now that it's looking like $60 dollar barrel oil | expect to be buying a lot more night and day throughout the next year. John Cooley:So the projections would stay the same even if we cut the SVC's? Chairman Dale:By usage?Back when |made my projections of my usage was based on costs similar to what we were already doing,|wasn't expecting an $11 dollar megawatt hour wheeling at that time,|was figuring it would be something like it is now and that was based on that.If we clear things a couple hundred thousand either way that's not going to change things dramatically -if we come out with a couple of million dollars it will change projections.Catch 22 that you are always in when you are trying to budget -how much are you going to buy but you don't know how many...We'd run numbers to see what my purchases would be at the higher number although it's safe to say it would probably be lower which would escalate to an even higher wheeling...The way -typically,basically the intertie is run at cost and what I'm saying is that it is the million dollars or cost.In this budget that we just had handed out and |would like to get it back down.We're doing two expensive projects;the clearing and one foundation and | don't mind doing a few studies;insurance and... John Cooley:Not insurance,the insurance risk assessment. John Cooley:That $50,000 for that. Chairman Dale:We've got money in there to do a variety of things that we wouldn't normally be doing each year and I'd like to cut the SVC out of it. Doug Hall:(indiscernible)SVC should be running through that grant. Chairman Dale:Just in general,in any year not just this year? Chairman Dale:Yes. Chairman Dale:We'd all like to look at that but we'd also like to you don't have to have an opinion now but when we do assignments something I'd like an opinion for the State on that. And,it is my understanding that it was to extend and upgrade the intertie to the extent that there is money left over from the by-pass.It was that everybody's understanding that could be put toward upgrade sort of projects. Bernie Smith:Is this a State...where the legislators approved it... John Cooley:If it's an appropriation in 2000-2001. IOC Meeting Minutes July 21,2005 Page 19 Chairman Dale:This is really for the State and ML&P,we got a work item on this to discuss but come up with a project management agreement which |understand has actually been sitting in ML&P's court since July -at the last set of meetings Art said it was in the State's court but I'm hearing that was back in January/April. Brian Bjorkquist:Since end of March and in the middle of May they had a word version of it so they could edit it.So basically nothing has happened since then to my knowledge. Chairman Dale:Anyway,our assumption with several of these things,both the foundations and the SVC was monies left over from that project could be used. Bernie Smith:You have to go back to the intent of the law. Chairman Dale:It's a short paragraph... Brian Bjorkquist:I'm aware of this Bernie,and we can look into it and there have been other expressions from various utilities as to what can and can't be done with the monies.So,it is not just an opinion from the State,it is looking at anything. Chairman Dale:I'm not expecting something right here at the table here.It's just long and drawn out and that we may not ever be able to use then a lot of stuff that I'm putting off is based on that |think that it can be used.If I'm wrong then |need to know about it. Bernie Smith:How much did it appreciate? Chairman Dale:Well it's going to increase the amount that |pay by $1.1 million dollars.For something that is at cost sort of thing -operation of the intertie it goes up $1.1 million dollars. Brian Hickey:Well,from a maintenance perspective we'll continue to maintain it to the best of our ability.That ability is being degraded which will result in -in time it will result in longer outages to the intertie. Chairman Dale:We're aware of that. Brian Hickey:|actually support a package whether we go out for a bond sale or whatever we have to do to replace all three at the same time... Brian Hickey:Rather than trying to push it in one at a time,you're asking for trouble,personally. Chairman Dale:|have concerns with committing the one,now you're trying to force us to commit the other two.It was raised earlier and we didn't discuss it,I'm not too sure that we can commit to future years in the IOC,this is really year to year sort of operation.With the ability of people backing out with relatively short notice and back when -|have concerns like you said of just going by our good faith along saying that in two years from now we agree that we will purchase this item from you -this third component or whatever,but we don't have the... John Cooley:Legally there are organizations that are not allowed to commit to future year purchases without a board of directors approval. Brian Bjorkquist:From the State's standpoint,we need money to pay for it before we could (indiscernible-coughing) 10C Meeting Minutes July 21,2005 Page 20 Bernie Smith:$60 dollar barrel of oil. Chairman Dale:|understand where everybody is coming from and anyways,if you guys have an opinion... John Cooley:If you got the $1,150,000 for the SVC out that leaves the budget at $2,176,000 and that puts ML&P's payment at $46,680;Chugach's at $72,830;and AEG&T is at $59,750 which is,you know,3-4 thousand dollar annual budget change,which seems like a reasonable way to go. Doug Hall:|understand your logical about the SVC's and seeing as how you are the one that's paying the lion's share of that bill,you better than anybody understand the ramifications.We cannot under the existing documents that we have fluctuate up... Chairman Dale:And you know which group we're going to be looking at don't you,Luke? Perhaps a year to see if that is still a valid elimination in line of having that vest and having that other intertie coming out of Healy. Bob Day:Gray was looking at that. Chairman Dale:That's when he was... Bob Day:Okay. Doug Hall:My only concern here is the 250,000 dollars for (indiscernible)repair.If we determine that the Moody Slide area does not require work but Curry Ridge does,in the last estimate we had from Dale,he was talking more like $1/2 million to $3/4 of a million. Chairman Dale:Right.Originally,in Bernie's budget he had $750,000 for two of them. Doug Hall:For both Curry Ridge and Moody? Chairman Dale:No because Holy Cross is going forward. Chairman Dale:Right.(inaudible) Chairman Dale:Yeah.Okay.The $250,000 was something Rich had put in figuring there were problems on the one that is on the Golden Valley side.Which is now looking like it is less than that.And Bernie had --the line above it says zero in the budget that we have that you weren't able to attend.He had $750,000 and we had removed it at that time,or at least |request that it be removed.And it was brought up,the same thing,|remember now,is that we haven't gotten that set.One has to be moving and the other we aren't sure that it wasn't a bad reading at this point. Doug Hall:Right.But it seems to me that all said (indiscernible)If these readings are correct, it's not a question of if,it's a question of when the stacks would fall over -it's going to have to be addressed... Chairman Dale:We had mentioned that -John had reminded us that in the past we had made mid-year corrections.If we get readings saying that something bad has moved over there that's something that we had -one of the things that we wanted to do was get a budget that we could agree to at this meeting because we are in the next fiscal year.The being late is actually not 10C Meeting Minutes July 21,2005 Page 21 uncommon for it to be ratified in the July meeting although it probably shouldn't be but first bills don't happen until you guys have heard voices in the middle of August so...You know,having the budget wasn't a big problem because the first bills with the new wheeling rates don't show up for another month from now.But!agrees,and Bernie had brought up in the budget meeting that we really need to endeavor to have the budget ready for the fiscal year.That's the appropriate thing to do. John Cooley:Because there are so many expenditures that may increase in a project in the future,having most of you... Chairman Dale:And that's a good point.But... John Cooley:How do you prepare in advance of all of our individual budget years probably is appropriate too so that everybody... Bernie Smith:Does everybody have a budget -a budget starts in January 1... Chairman Dale:Yup. Bernie Smith:Why -{mean can't you amend this amendment,this agreement that ya all have and have a budget that... Doug Hall:Don't go there ..... John Cooley:Actually,the general managers are meeting tomorrow,it's my understanding, about this contract and hopefully they will have some kind of decision about how to fix some of this stuff. Chairman Dale:Right now we abide by what's in the Intertie Contract.The thing -one of the things that |find astounding that at one point in our history,if we all agreed to the same thing that's pretty remarkable.It may never happen again,it's happened once. John Cooley:When a contract was written in the early 1980's,the state legislature was set so that the state legislature would fund the operating expenses for the year and the utilities would reimburse the state as the year went on and the budget process had to go along with getting legislative approval ahead of time and all that kind of stuff.There was a big concern that if there overage the state general fund would get a hold of it,definitely the contract makes you zero everything at the end of the fiscal year and there is no way to carry any money over.The AEA got disbanded -APA turned into AEA and then disappeared and they quit doing that so we started sort of paying as you go.So that is where we are today.But,you know,what we really need is a repair fund or something that... Bernie Smith:R&R fund. John Cooley:...everybody contributes to and the excesses go into it and you fund these capital repairs and you audit it but it's never been set up. Chairman Dale:Okay.What we really need to do is to start managing like a business. (Indiscernible -many people talking) IOC Meeting Minutes July 21,2005 Page 22 John Cooley:The only problem is,who's going to pay for it.You know,somebody says 1'll operate it and pay for everything,you know,that's... Bob Drake:It's the AEG&T handles all railbelts. Chairman Dale:We have different opinions on what that entity may look like too.We've discussed the budget and does everybody think they can go along with the $2.6 million is that a... John Cooley:Yes. Chairman Dale:$2,176,000. Chairman Dale:Basically,the budget as it is without the $1.15 million for the SVC in there? Chairman Dale:It's not quite what MEA has asked for which is an extension of the existing one but monetarily it is very close to the other one. Bob Drake:Actually itis.!f you take the increase they have for their right-of-way,the increase in the budget. Chairman Dale:And the right of way clearly was something that was supposed to happen then...Yahoo,go with it. Chairman Dale:Okay.Then we get to section 7 on budget we'll have a move to adopt the budget as stated without the line item called SVC Repair. Bernie Smith:(Indiscernible) Chairman Dale:What? Bernie Smith:That's one toward your goal. Chairman Dale:Like John said,there is a meeting... TAPE 3 Chairman Dale:Ok,any other discussion on intertie..... Brian Bjorkquist:|just had one thing;that concept is the basis for what was proposed with this de- energizing when you have a certain amount of weight on it;that that was an actual basis for trying to make a determination when the conditions were such that there is a possibility;and if there is some way to improve that -wonderful-but that was the basis for the proposal in the first place.| just want to make that clear.So if anybody has any suggestions,on,how to improve it.|think that's what we're about with moving forward with this and the 2"part that |hope nobody loosestrackofisthatwealsohavethe2™half where this is just the 1%stage where we're going to be establishing some parameters and we're going to have the independent engineer take a look at it and give us a certification that we're accomplishing the safety factor type of thing.So there's that part coming also so whatever happens today is not the end of the discussion;if there's some way to improve it from the AEA's perspective.Anything we can do to improve it is wonderful. Bob Drake:[indistinct].....one phase every 7 miles.That's just not sufficient.[indistinct] IOC Meeting Minutes July 21,2005 Page 23 Doug Hall:Since we've had that and since we've been monitoring and we've sent Paul out to proof it,to accumulate information on the database.....[indistinct]......and typically we're at a good point now where we can predict because of the nature of the way the storms come through,we can predict where we are getting accumulations and we can see because we're not doing it ceeecees [indistinct].....but from 50 to 70 it looks like we're getting accumulation,that's the center of the storm,that's where it's accumulating,.....[indistinct]...,that's what we're looking for.It's proven......{indistinct].......At least we've learned that. Chairman Dale:Ok,we have the majority of the uiilities interactive using method of additive distances as Paul has presented.We will have a vote in the formal Operating Committee asking for recommendations on the AEA initiative that Mike ran off earlier.We'll put that up for a vote a little bit later. Ok,next issue.Anything going out on that subject? Ok,Item L -recent outages while the MEA 115 KV line was opened.We had a couple of cases with the extreme lightning we've had the 230 line is open that Chugach has where based on an outsider......findistinct]....it appears that MEA lost significant amount of customers needlessly.If you or Chugach want to talk about .......Golden Valley ended up recording 55 megawatts of your load,approximately 50 megawatts of your load while |had 70 some-odd megawatts ___-s and trying to pull a frequency of 59 as high as |could get for about 25 minutes later.We finally had to dump it.Obviously that's not the way my system is designed to have a like that from 60 megawatts importing to 50 some-odd megawatts exporting.Had your 115 line ...{indistinct].......closed,it would probably mean a non-issue.You guys still feeling that's in your best interest to run that way operationally? Bob Drake:Not arguing at all but at times there may well be an argument that having it closed is a good operating decision,but we have found through our own review......[indistinct]...The majority of the time,my system functions better when it's open.[indistinct] Doug Hall:Just so I'm clear,Is this the same issue that we talked about during the RCA/Porter negotiations? Chairman Dale:|wasn't aware that you've had that from an outside view.|don't see a whole lot of what goes on there.The majority of the time |see you loosing half your load as opposed being able to keep it in and continue.Even though you've taken that one piece of loop and broken it so that only ¥%goes out at a time,you've increased your exposure so that when ¥%goes out another big chunk of your load goes out with it and vice-versa on the other side.From all the outages that ve seen,I'm surprised that your numbers in your statistics are saying you've reduced consumer...[indistinct].... Doug Hall:|would agree with him because |deal with quite a bit of analysis on #4 and #5 and we were having a lot of blackouts on the Kenai and at that point and time you guys had the best power ...{indistinct]...grid;better than Chugach because you had 3 sources.In the 80's when we had lots of systems blackouts Chugach commissioned SEI to study the grid and they produce a 1992 Southern Engineering Report that has .....[indistinct].....transmission lines.Basically we eliminated most of those blackouts that used to occur 3 or 4 times per year.One of the recommendations of SEI was that we close all .....findistinct]....of the system.And we went through and did that.And that's a lot better way to run a transmission grid.It's much more reliable and it's closed.|find it hard to believe the stats are out there showing opposite,at least up until 1994-95 they weren't,so it would be interesting to look at all the data....[indistinct]....,and then we got some bad data,| guess. IOC Meeting Minutes July 21,2005 Page 24 Chairman Dale:|appreciate everybody's comments but as |said before.......[indistinct].... Chairman Dale:Anybody have any questions on the outage of the 14'"? Doug Hall:We did have a chance to discuss it,at least in the Dispatch Sub-committee;Doug, myself,Steve from MEA.We discussed it quite a bit.One of my concerns at the time was that the Northern Intertie which contains a big chunk of you guys went .....findistinct]......on several occasions and |did not see that going on in your system.....[indistinct].... At the time we went out and it was never restored.......[indistinct].....and that's why we never saw; every time we dropped down to......[indistinct].....He felt it was because you'd lost load and it stayed off ........[indistinct]......|had the issue I''d brought up about communication where we were going to talk to you through MLP but that didn't work out too well.As you know|have that relay in place that's supposed to look at rate of change and drop you guys off when we relay out during island conditions.We systemized it so we know that the rate of change is very high.That relay didn't work and we've had emails out trying to figure,find out why the rate of change triggered the reverse power of the 20 megawatts south triggered,there's also a correctional overturn element that triggered as it was supposed to and then dropped out so we think it was either something that ....indistinct].....algorithm or something bad with relay itself.In either case that element isn't necessary for what we are doing so we will probably turn that piece of ....{indistinct]....off ....indistinct]....since it is not being used.In this case it did drop you guys off immediately which we could've made the thing a very minor problem for us. Chairman Dale:I'm sure the reliability Sub-committee has a lot to add on to this.[indistinct chatter, laughter] John Cooley:.....ff MEA had had a significant outage,our dispatcher would've realized where the problem was and we would've fixed it a lot faster. Chairman Dale:Unfortunately we had,my dispatcher felt pretty strongly that we would likely be islanded but your dispatcher felt pretty strongly that we were together so |didn't want to open up - if we were all going down,we all go down. Chairman Dale:I'm good with that [laughter,indistinct chatter] John Cooley:That's one of those cases of a little ....[indistinct]....,you guys say,"I'm at 59 and | can't hold it”and the other guy says "I'm at 59,9 and !'ve got a problem”. Chairman Dale:That was one of the problems in the first 5 minutes of frequencies trapped pretty good and that's when my guy called and checked frequency and we were reasonably close.And then immediately |have .........[indistinct].....that he'd already checked frequency so that he didn't think that there was a problem and then of course your guy kept reassuring us that we were still tied together.Yeah,it was just bad luck that when they did check frequency it happened to be a time when we were crossing.What ....[indistinct].....said about continuing communications,had they kept talking to each other and say,"I'm going through 1*stage shedding,then you would've known we were definitely different at that point.We would've been able to close the situation a lot sooner.When Dennis checked,the first 5 minutes we actually,surprisingly,because |shed 72 megawatts we were real close to the......[indistinct}.... Chairman Dale:Ok,|just wanted to bring that up;we keep seeing occasions where it looks like it's worse for you and it's certainly worse for us and I'm not seeing that many occasions where it's good for you. IOC Meeting Minutes July 21,2005 Page 25 Bob Drake:My question is since you said you're willing to close it up for maintenance,how do wedeterminewhichonesofthoseareappropriate. Bob Drake:...[indistinct]...request it be closed for some particular reason,we would certainly take that reason into account when we discuss it.....[indistinct]....your decision. Doug Hall:.......findistinct]......|suggest we set the message.......[indistinct]...........that didn'thappenThursdaynight.They were talking but if your guy had said,"You know that's the 2™time I've gone through 59.0 and what the hell is going on down there?”the Chugach and MLP guys are sitting down here going,"what the hell is he talking about 59.0,we are running high” Chairman Dale:|don't know that he brought that up.After the initial,in the first 5 minutes,|think it was discussion going on and various times afterwards.|think when they told you guys you could start restoring load,which didn't help us a whole lot,they also told us we could start restoring load, and that's part of why we kept going for L59 is that we both put in for breakers and frequency gocrashingdownandmyguyssaid,"you know what,it sure doesn't seem like we're connected.” Bob Drake:How is it that the 3 main generators are the same?It doesn't have a meter up there that shows the other generators,what the frequency is. Chairman Dale:Part of,|don't see what's going on down here and they don't see what's going on.The 230 line was open on one end only and they tended to fixate at the end that was closed and everything looked good and breakers closed line must be in service instead of looking at the bigger picture,the whole picture. Bob Drake:........[indistinct]....showed me the frequency in the ....[indistinct]....area was 59 and mine was 62.|suspected that we were no longer glued together. Doug Hall:What we were saying here is that there was dispatcher error going on because there's a process,you can go to one map and it'll tell you whether you're idle or not and the guys didn't bring up that map on either assistance.There's dispatcher error and we're not saying guys didn't, you know,there's plenty of information out there and if you've ever been in a contro!center when the whole thing kinda ices on you......findistinct]....There's plenty of information out there.......{indistinct]........ Doug Hall:We were absolutely .......{indistinct]........until |talked to Kevin.When |asked how the hell did you have me island ......[indistinct]......He said,'It was easy,lightning struck the MacKenzie terminus and as a result we dumped you on the MacKenzie line.The breaker was outofservice.”These guys were on a 2™contingency.The day that breaker was taken out of service for maintenance,the loop should've been wiped oult.........[indistinct]...that is it. Bob Drake:Doug,practically we have breakers out of service every day of every week of every year and the loop outta be closed all the time because theirs is;we don't have enough people to sit down and figure out all of the "M”minus 1 scenarios everyday that might take out vesesuaes [indistinct]......because they chose to open the grid up.|wouldn't buy into that because coming out of me........[indistinct]..... Doug Hall:But in this case you got MacKenzie plat 2,you got MacKenzie fueling line all on that one piece of .......You should take that breaker oult.... Bob Drake:|understand how the system works Doug.|'m just telling you that we do that everyday of every week,365 days a year somewhere in this system there's a breaker or transformer out of 10C Meeting Minutes ) July 21,2005 Page 26 service and a dozen M minus 1 contingencies or a hundred for every breaker we take out and I'm not saying it could not be fixed figured out everyday with enough time and money an people but, the answer's close up the transmission system.That's the freaking answer,it's not....[indistinct chatter,noise]..... Chairman Dale:One silver lining that |will add though is that apparently earlier that day MEA when they loop,did report it to .....findistinct]...control centers.It was in his log and my dispatcher was ....[indistinct]....his memory because we talked about whenever open a loop you need to tell us.When they did open the loop,they did tell us.So at least that was one less thing they had to think about because it was just a few hours earlier,during the day shift -(this was 10 o'clock at night),but during the day they'd done some operations and they did report to everybody what they did. Doug Hall:And that's what happened last night. Chairman Dale:Alright,any other words on the recent outages?Hopefully this lightning season is a rarity.We've gotten more this year than we have any other year,even more than a decade. GENERAL DISCUSSION Chairman Dale:Anything anyone would like to discuss?Let's move on to 7;Formal Operating Committee Actions,and Acclamations. 3.Formal Operating Committee And Acclamations Chairman Dale:|have two letters for us to vote on.One is the Intertie Clearance Distance.Two proposals for our ...findistinct]....One proposal is for,what 'll call is the CEA proposals,which is to use 23 feet of the minimum ground clearance,consisting of 4 %feet for electrical,5 ¥ft for snow, 1 foot safety factor and 12 ft for obstruction height and also for the actual snow depth.....findistinct]....Anyways,we have that proposal on the board,which we will vote on and then we also have the MEA proposal.......AEG&T.....So we have the one proposal;the CEA Initiative.Let's go around at the table on the vote: Paul Williams:Before we vote,if |can interrupt for a minute.The snow depth of 5.5 is what Chugach wanted and if it's less than that we interpolate;what is that?|!mean typically we have snow depths out there less than 40 inches so does that mean if it's 3 %feet and now instead of 23 we're at 21 or is there a safety factor you want all the snow capped at? Chairman Dale:I'm gonna let you read it here.My intent was that;5.5 feet was the max we've ever recorded out here.So this year if we only got 3 feet out there we could allow 2 %feet more clearance. Chairman Dale:Golden Valley will vote YES to adopt the CEA proposal.Chugach? John Cooley:YES Chairman Dale:....[indistinct,barely audible]....."The State” Bernie Smith:YES Chairman Dale:MLP 1OC Meeting Minutes July 21,2005 Page 27 Bob Day:YES Chairman Dale:.....[indistinct,barely audible]...."AEG&T” Bob Drake:No Chairman Dale:|show 4 Yes's and 1 No;80%and it passes. Chairman Dale:Ok,the 2 to vote on and that's the budget.The motion is to adopt the budget as submitted without the line item called SVC repair. Chairman Dale:Golden Valley will vote YES to adopt.Chugach? John Cooley:YES Chairman Dale:....[barely audible].....”The State” Bernie Smith:YES Chairman Dale:MLP Doug Hall:YES Chairman Dale:.....[indistinct,barely audible]...."AEG&T” |Bob Drake:Yes Chairman Dale:The budget as modified is adopted. John Cooley:|think we need one more move to adopt the ....[inaudible "Net Peak']that's listed AEG&T 23.3 megawatts,MLP 18.2,Chugach 28.4 and Golden Valley 70. Chairman Dale:Are we required to adopt that or isn't the formula already there? Doug Hall:The formula's already there. John Cooley:We've always had it in the past. [indistinct discussions] Chairman Dale:|understand that......[indistinct]...don't have a problem with it.Actually Net Peak is a big deal even outside the budget typically because it happens in one direction;what | mean it's a non-issue but back in the day when .......{indistinct]..... John Cooley:If you end up not using all you say you used and made up for the deficit for the year, we get billed by it so |think it's important.And it's also just in case,you think somebody's lying about their peaks or something.It just makes it -- Chairman Dale:|don't have a problem with that.Chugach has made a motion to adopt the Net Peak calculations as are proposed in the budget. IOC Meeting Minutes July 21,2005 Page 28 Bob Drake:Excuse me but,that part |hadn't considered.|thought that this was something that was already a part of the process and if you have to approve it then I'm gonna have to go look at this closer. Chairman Dale:Is this a closer5 minutes or a closer longer than that?Ok,|guess we will not vote on that.|don't know that that stops the budget but the request that MEA has made is a reasonable request.|didn't have it on the agenda that we would be voting on the Net Per. Bob Drake:.......[indistinct]...long than that... {indistinct discussions] Brian Bjorkquist:On the Net Peak,if you look at §7.2.1,"the Operating Committee shall return aNetPerbyJune1°each year when a new participant becomes a party to this agreement". Doug Hall:It's just a share of that.......[indistinct]......for us to adopt that and |thought that share Brian Bjorkquist:..........its is determined each year. Chairman Dale:It 'is'determined each year because it's based on your maximum through year peak demand. Brian Bjorkquist:Now whether that has to be voted upon for it to be determined or whether it's just a calculation that gets determined,|can't read that into this. Chairman Dale:|got last year's notes,July we were here and we voted on the budget but |don't show that we voted on Net Peak.|didn't bring any of my notes from prior to 2004. Bob Drake:Ok,lets go with the numbers that you got [indistinct]......''m not disputing this,|didn't realize that something was there for us to vote on ; John Cooley:In July of 2003 we're gonna go with the budget [indistinct] Chairman Dale:|was probably conducting the meeting last year and |didn't do it right did !?| wasn't aware that |was supposed to,so.... |guess it would change some parts of the budget if we did a vote on it next time.Steve Bob Drake:It would be fine with me if everybody wants to vote...[indistinct].......or Chairman Dale:And like so many things,it may not matter [loud laughter,indistinct comments] Chairman Dale:Historically |do not have it on the agenda by mistake.Historically it appears that we do generally vote on Net Peak outside of the budget because it does have other ramifications, non monetary ramifications,so John has made a motion to adopt the Net Peak calculations. Golden Valley will vote YES on that,yes to adopt the calculations that are there.CEA: John Cooley:YES Chairman Dale:The State? Bernie Smith:YES 1OC Meeting Minutes July 21,2005 Page 29 Chairman Dale:MLP? Doug Hall:YES Bob Drake:YES Chairman Dale:Do you wanna abstain?[laughter,indistinct chatter] Ok,what we have,4 yeses and a question;it passes.It will only be an issue if some time in the next 12 months that the intertie "heads south”and you guys argue if you're gonna get a fair share and |think there is a ....[indistinct]....charge;that there is a monetary ....findistinct]....charge that's tied up with that. John Cooley:No it's not,once they purchase......[indistinct]......they changed APA to AEA.Then they went away to fix the cash flow. John Cooley:If they can change that,how come you can't change the year end.......[indistinct].... Chairman Dale:It was non-controversial.It's something we Knew we were gonna pay and I'm not a lawyer,|don't wanna get into their business. John Cooley:But there's no wording in here that says that the Operating Committee can't change this contract. Chairman Dale:Right there,there is a paragraph that we can't change the contract. John Cooley:It has to do with the rates or whatever,so. Chairman Dale:Right.Ok,we had 3 ....[indistinct]....|don't have.Assignments:Dispatch Sub- committee,there are things that they are doing.|don't think we have any additional assignments for them.Anybody recollect differently? Doug Hall:|do have an assignment......[indistinct] Chairman Dale:Ok,Reliability/Protection Sub-committee,|am assigning their chair to get that group together to discuss [indistinct chatter,laughter].We need to know what the solution to that problem is.{indistinct chatter,laughter] Machine Ratings:|have no assignments for those.Heater Metering,continue on,|have no additional assignments for them.Maintenance Sub-committee:Don't really assignments for the Maintenance Sub-committee unless somebody else does.We would like the body or one of the Maintenance Sub-committee needs to be appraised on your clearing contract or if you do end up having to go with somebody else or whatever,we just want to keep informed on that. Chairman Dale:Typically,and |don't know how bad it is down there,but the time is critical but it is something you have to do eventually and if you miss a month or miss a couple of months not a ....{indistinct].... Bob Drake:|will probably give them a letter that says he has two weeks to [indistinct] Chairman Dale:Ok,the Budget Sub-committee,we have no assignments for them. Bernie Smith:We are going to have a mid-year budget review. IOC Meeting Minutes July 21,2005 Page 30 Chairman Dale:...IOC to have mid-year to call the committee together for a review.We've never had one before we'll ask for it and maybe we'll get it.For next year the question is,of course, being several weeks into the fiscal year,is this something we wanna have behind us by the end of June? Bernie Smith:YES Chairman Dale:There was a recommendation in Kenai that if your year ends on June 30",itbetterbeoutthereandapprovedbeforeJune30". findistinct,indistinct chatter,laughter] Chairman Dale:This is not an assignment but if John could provide me with the Qualified Interconnect Agreement that Chugach has.And last one,Bernie had brought up a good point as being quite some time since we'd gotten a list of all the names and emails of the members andalternatesandSub-committee members so |will send out each Sub-committee chair to compile a list their emails,send to me and |will send a copy to you Bernie so you will have an list of everybody. Bob Drake:Frank is on the committee and then can put himself on any committee he wants [indistinct chatter,laughter] Chairman Dale:So officially as of the end of this meeting Frank is the MEA rep and do you recall who your alternate was?Is it still whoever it was,which |don't remember?Charlie will be your alternate. Brian Bjorkquist:Excuse me.As |tried to explain that's not just a question for the State,that's a questions for everybody also because I've heard many opinions from many utilities represented at this table that are very conflicting and if you think that we are just gonna go out and tell you what it is,and,you know,|don't think that's going to happen. Chairman Dale:Ok,and assignment to ourselves to come back with what our utility........[indistinct] Brian Bjorkquist:We may have some discussions about how,what you think it means as what you thought it meant before and that type of a thing....[indistinct chatter,laughter] Chairman Dale:Ok,anything in particular anybody want to see on the next agenda?It will be at MLP. Doug Hall:In Oct or Jan? Chairman Dale:Next order is Oct,this is July,Aug,Sept,.......[indistinct] Doug Hall:There's 5 people and only 4 meetings per year,it doesn't stay the same. Doug Hall:We've been doing January for years. Chairman Dale:Last year when we did MEA,the next meeting we did MLP,|didn't look at the date on it.: John Cooley:We did MLP in January. IOC Meeting Minutes July 21,2005 Page 31 Chairman Dale:|think we did Chugach in January. [indistinct chatter] Chairman Dale:|have modified that agenda that we will meet at Chugach in October.|think | dropped AIDEA out of there because so many scheduled meetings that,uh.... Doug Hall:Plus AIDEA won't buy you lunch [indistinct chatter,laughter] John Cooley:.....[indistinct]....MEA and Chugach is on that day,so we need to move one of them. Chairman Dale:|will leave it on the agenda as October 20".If there is a conflict that you guys can't resolve,get back to me asap and I'm sure we can find out another time then. Doug Hall:We'll leave this one and change the other one to a week later?Ok. Chairman Dale:How many more assignments do we have;1 or 2?[indistinct chatter] John Cooley:There's like a $250,000 difference between this and here and it shouldn't have been. There maybe should've been a rounding error of $1,000 or something but |don't know what you did wrong.Something's not right.{indistinct chatter,noisy background] RECORDING ENDS Transcript of the Alaska Intertie Work Session July 22,2005 @ 10:00 a.m. Alaska Industrial Development and Export Authority Boardroom Anchorage,Alaska Attendees: Mike Barry,Chairman,AIDEA and AEA Mark Davis,DCCEDRonMiller,Executive Director AIDEA and AEA Brenda Fuglestad,AIDEA and AEA Karl Reiche,AIDEA and AEA Bernie Smith,AIDEA and AEA Brian Bjorkquist,Department of Law Joe Griffith,Chugach Electric Association Steve Haagenson,Golden Valley electric Association Jim Posey,Municipal Light &Power Doug Hall,Municipal Light &Power Ron Saxton,Ater Wynne Don Zoerb,Matanuska Electric Association Jim Walker,Matanuska Electric Association Frank Bettine,Matanuska Electric Association Rick Schikora,Golden Valley Electric Association Brad Evans,Chugach Electric Association Tim Barnum,City of Seward Rick Eckert,Homer Electric Association Convened:10:05 a.m. RON MILLER:We're going to keep a record of this meeting for our Board of Directors.For those who don't know Mark Davis has joined us and he is the designee from the Department of Commerce,Community and Economic Development.He is Director of Banking and Securities. Three of the General Managers from the utilities requested a work session prior to the AIDEA and AEA board meeting,after we sent our invitation.The topics for this work session are those set out in that June 24,2005 invitation,which are issues related to the Intertie Operating Agreement;no R&R fund or capital fund to finance major maintenance or upgrades;deferment of needed repairs;lackof compliance with the Agreement's terms and conditions;and we also indicated that we are willing to discuss any concerns or other issues the railbelt utilities wanted to raise.As |said,the General Managers requested this meeting so we will open the floor for the discussion of issues,concerns,problems,and solutions. JOE GRIFFITH:|guess we'd like to hear what are your issues that you reference in the letter. RON MILLER:Starting out,no R&R fund or other capital fund to finance major maintenance or upgrades,we can start with that. JOE GRIFFITH:Okay,what else? Alaska Intertie Meeting Page 2 of 21 July 22,2005 RON MILLER:Deferment of needed repairs.We can start with those two and then move on. RICK SCHIKORA:What else do you have on your list? RON MILLER:Well... STEVE HAAGENSON:He said lack of compliance or something. RICK SCHIKORA:Let's get the list all out on the table. RON MILLER:The Agreement's terms and conditions.We have been talking about needed repairs for nearly three years and we have not seen any movement to make those repairs or fund those repairs and our Board is pretty concerned about being stuck with liability for a line that is in serious need of upgrades and repairs.What we have heard through the IOC and other sources is that the railbelt utilities cannot understand why we are raising these issues and these seem to be staff issues but |asked our Chairman and Mr.Davis here so the utilities could hear first hand from Board Members that this is a Board issue,it is not a staff issue.That is one of 'the reasons we had it on the agenda for the Board Meeting for next Monday. JOE GRIFFITH:But there is no list,no agenda for the board meeting?At least we haven't seen one if there is. BRENDA FUGLESTAD:There's an agenda for the AEA meeting.!tem 7A has Alaska Intertie, there is no content for the board packet at this time but it is on the agenda. JOE GRIFFITH:Good. RON SAXTON:I'm going to ask Brian,|guess.I'm not sure |understood that we didn't have a plan.|thought we had met a few times with AEA staff to talk about ways of financing repairs and the utilities said that they were agreeable to doing that once we figured out the scope of them and the proper way of financing.I'm not clear why that isn't on track.The [OC was identifying needed repairs and we already agreed and met and talked about working AEA's financing team to move forward and finance that. BRIAN BJORKQUIST:The last |heard with regard to that was that because of moving away from the inset tower fix to the snow load problem there wasn't enough projects to move forward on the financing and so it has falling back to where it was originally.At the |OC meeting yesterday,it was pretty clear that there was no plan.There were conversations about not even funding,even partially funding moving,forward on the repairs because the Alaska Intertie Agreement just doesn't provide a good mechanism for doing so.That there is conversation about not even starting the SVC repairs because to try to finance it in any fiscal year creates too much of a burden on the wheeling rate and therefore it is not doable.There has been some conversation in that regard but again,this is getting back to the Board,there has been no real progress.That is what we heard from the Board and you can hear it from them also,that continuing to talk about possibilities of the utilities possibly doing something to do funding when -at the IOC level anyway,the only thing that |heard yesterday and that |have been hearing from some time is that there is really no mechanism under this agreement to get things done that need to be done.|think that is the real concern.The other thing is that,and it came up at the |OC meeting yesterday,that the real solution to the problems that we have under the Agreement is that we need an R&R fund.You need a mechanism for funding these things and Alaska Intertie Meeting Page 3 of 21 July 22,2005 we're not just talking about what's on the table right now because that is just the immediate problem.But we have a defect in the Agreement;there isn't a mechanism for the next major repair that is going to be necessary and the one after that.We have a significant defect in the Agreement;it just doesn't work for prudent management.|think that is also the perception,and we hearing that from the utilities also.And so that's what |think it is.There's a problem with the Agreement,let's get together and let's fix it. JIM POSEY:Question for you Brian,and maybe for the Board or staff.What is the minimum amount that you would consider bondable in order to have a fund to do these capital improvements?Does it have to be over $5-$6 million dollars or can it be as little as $3.5 to $5 million? BRIAN BJORKQUIST:|think that's the question that is on your shoulders. JIM POSEY:No,the question is back to you as AEA and AIDEA.What is that amount for bonding and paying it off over a series of years?We're talking about making capital improvements not R&R. BRIAN BJORKQUIST:That's a question that goes right back to the utilities because you are the ones that need to be comfortable with the financing package for any capital improvements. JIM POSEY:Let's not turn it into a catch 22.Is there a minimum amount that you guys could bond and put it into 15 years for us to pay off? RON SAXTON:It would have been easier to talk about this more casually.We had already agreed,the utilities collectively,at least most of them,that some reasonable amount of money to make repairs was appropriate and that some side agreement to address that was appropriate.And when we were talking about that the assumption was that it would be an amount large enough that it made sense for AEA to sell some bonds and that we would agree in a side agreement to be responsible for the repayment of that.So none of that sounded contentious or controversial and |thought that we had agreed to that already.The only thing 'that changed was that it turns out that some of the repairs maybe cost less then people had thought so you get the question of has it gone down enough that bonding doesn't make sense anymore and some other method of finding the money makes sense.That's just sort of out - ask bond people... BRIAN BJORKQUIST:And all I'm trying to articulate Jim,is that |think that it is the question on your shoulders,when do you have enough debt for bond financing to make sense?And that's the question for the borrower and the utilities are basically the borrower. STEVE HAAGENSON:But,you'll be issuing the bonds. RON SAXTON:The question in fact is just do we want to have you sell bonds for us.|can get the answer to that,we can figure that out. STEVE HAAGENSON:We can't sell bonds,we don't own the asset. RON SAXTON:No,we want them.Is it cost effective at $5 million or $6 million or $20 million... Alaska Intertie Meeting Page 4 of 21 July 22,2005 BRIAN BJORKQUIST:Let me be clear here,I'm not running the show here and |think you need to hear from the board members also. JIM POSEY:!did address the question to everyone on this side of the table.What is that - amount or is there a minimal amount that you would consider as part of a financing package, 10-15 year bond for up to $6 million or $12 million dollars depending on what we voted on,the 1OC voted on yesterday. BRIAN BJORKQUIST:And there were just several questions with my name as the premise, and |just want to make it clear that I'm not running the show here. JIM POSEY:Okay. STEVE HAAGENSON:Just a point of clarification too.Brian was talking earlier about the SVC repairs and it would have a big burden on the wheeling costs.That was expensing that season one year,not putting in long term financing.Just so you understand that it won't kill the intertie if you have a long term package,but it will severely limit the intertie's wheeling rate if you try to expense all of the SVC repairs in one year. RON SAXTON:!don't think there is disagreement that some of these repairs need to be made and |don't think anybody arguing about who has to pay for them. MIKE BARRY:Is there disagreement that it would be sensible to have an R&R fund? RON SAXTON:We have to talk about that.Whether you put the R&R fund in front and pay for it or whether you just pay for the repairs and have a plan for paying for them as they arise and spreading it out.|think either one of these mechanisms is reasonable. MIKE BARRY:From my experience as a lender,it is much easier to finance projects that have an R&R fund and have some sense of an operating history that works.And when our board was brought into place in early 2003 we had orientation meetings,most of us didn't know anything at all about this and we were presented,right in this room here,with a laundry list of things related to AEA and the intertie and the Intertie Operating Committee,where the Intertie Operating Committee was presented in October of 2002 with a detailed list and agreed,the Intertie Operating Committee,their Technical Subcommittee agreed that these things needed to be done.And now we are sitting here 2 %years later,after our orientation and nothing,not a single thing on that list has been done.It does not seem to be something that if we own the asset we should allow to continue.If you guys that are responsible for it can't figure out how to get it done then maybe the Agreement doesn't work.That's what the meeting is about.If the Agreement doesn't work,we have the authority to terminate the Agreement with several years notice.It's not like it's going to close the line down tomorrow,but its -how many years should we sit around and wait,until something happens.Do you guys want to go another 10 years or actually until the line itself falls down? JOE GRIFFITH:If it's prudent we should do that,and that's the question that is before us,Mike. MIKE BARRY:It's prudent that we should wait another 10 years? JOE GRIFFITH:|didn't say that. Alaska Intertie Meeting Page 5 of 21 July 22,2005 MIKE BARRY:That was the question |asked. JOE GRIFFITH:Your question was a hip shot question that said would you want to wait another a 10 years,of course not,we have fixed it in the past and we will fix it in the future, that's where we stand on it. STEVE HAAGENSON:There is a bit of history here also.Every repair that has been done io date on that intertie has been paid for by the utilities already.It's not like we're ignoring maintenance,repair... MIKE BARRY:Nobody is arguing that the utilities aren't responsible to pay it and have the responsibility to pay it and certainly have the capability to pay it.In answer to Jim's question, once the utilities say,we're going to spend X,whether it's $1 million dollars or $20 million dollars then it becomes a financing problem.What's the most economical way to achieve the financing?Nobody's -at your meeting yesterday every time there was a vote to spend money it was voted down. STEVE HAAGENSON:|heard they actually approved the entire budget yesterday. JOE GRIFFITH:They approved the budget. MIKE BARRY:There's no SVC in the budget.Right.Okay.Was there any stanchion repairs? One,out of the three that were identified as defective -one of them is going to get repaired. RON SAXTON:But it's within the last several months that we had meetings in this buildings to talk about,with the utilities acknowledging,once we determine the scope of repairs we'll find a financing mechanism and move forward.We waited for the IOC to determine what the reasonable scope of those repairs was -AEA hired consultants,debated that at different times -they seem to have come to some conclusion so |agree it's time to move forward but it has only been a matter of a couple months since those numbers were figured out so... MIKE BARRY:It's been a matter of nearly three years since the problem was identified and accepted by the IOC,as these things need to be done.It's been nearly three years.And some of them go back longer then that,!'m not here to tell you that some of them don't go back six or seven years,but all of them in the group go back at least to October of 2002.There is a point that that kind of shilly-shally is not acceptable.And there is a point where it becomes prima facie evidence that the agreement doesn't work.The question is whether we are at that point or not. JOE GRIFFITH:Well,apparently you think we are because of the letter you sent out that said you were going to execute the termination arrangement. MIKE BARRY:That's not what the letter said,we're going to consider the termination of... JOE GRIFFITH:Sorta says that. MIKE BARRY:Do you have the letter there Ron? RON MILLER:Yes. Alaska Intertie Meeting Page 6 of 21 July 22,2005 MIKE BARRY:Please read into the record what it says as there seems to be some confusion about what it says. RON MILLER:"...,if no realistic solution is forthcoming,the AEA Board may be compelled to exercise its option to terminate the Agreement under Section 2.2.2,which will enable all the parties to negotiate a new Alaska Intertie Agreement.” MIKE BARRY:We're going to talk about it at the Board meeting but the directors would like to hear from the utilities,what is the impact of the termination of the agreement.There jis four years notice on it,that would seem to give people ample time to negotiate a set of documents that would really work.If an R&R fund is necessary then put it in there,in the Agreement. BRIAN BJORKQUIST:And as a backdrop to that -the conventional wisdom I've heard for as long as |have been engaged is that you can't amend the Intertie Agreement.That came out very loudly yesterday at the IOC meeting also.So,if there is a defect in the Agreement and we can't fix it,this is a way to require a fixing -to move forward and to fix the Agreement. STEVE HAAGENSON:|think there are amendments to the Agreement already. RON SAXTON:Why is it that it can't be amended? RICK SCHIKORA:Why can't you amend it? BRIAN BUORKQUIST:That's the conventional wisdom I've heard and that's exactly... RON SAXTON:From who? BRIAN BJORKQUIST:Well,from the utilities.You can't... JOE GRIFFITH:There have been several amendments to it. BRIAN BJORKQUIST:You can't reopen...° RON SAXTON:Not from the lawyers or management you haven't heard that. BRIAN BJORKQUIST:You can't reopen the Agreement because reopening the Agreement will cause too much havoc.Basically... STEVE HAAGENSON:But that's exactly what you're recommending after you terminate the Intertie Agreement -starting over from scratch.No utility wants to start from scratch.We should start from what we got that works and make it work for us better with an amendment.|don't think anybodyin the room has a problem with that. BRIAN BJORKQUIST:That would be a good solution to move forward.Let's move forward with amending the Agreement to fix the defects that there are in it so that we don't have the situation where the AEA Board is in a position where it feels it needs to kick us to get going. And |would just throw out,I've been listening to the Board and you may hear them yelling at you,!hear them yelling at AEA staff too that moving forward as we have with no progress is unacceptable.We need to fix this. Alaska Intertie Meeting Page 7 of 21 July 22,2005 RON MILLER:As Brian says,we have been hearing from the IOC that you can't -that it would be impossible to amend the Agreement.And,if what we are hearing from the General Managers is different,that there is interest in moving forward with a plan to amend the agreement it sounds like there is a lack of alignment between General Managers and the IOC. RON SAXTON:The IOC has always been structured as the operators.They are not management,they don't have legal representation,they're just a group of operators there to talk about the right way to operate it efficiently.So,|think a discussion about amendment the Agreement needs to happen at the manager level. JOE GRIFFITH:|agree. STEVE HAAGENSON:|thought we were working towards that solution... JOE GRIFFITH:So did }. STEVE HAAGENSON:...we have a snow load issue out there and we have been studying that quite severely for the last couple years,longer than that probably.We were working on a scopeofworktoseewhatwasprudentutilitypractice.{s it wiseto upgrade a plant like that,is it not wise -AIDEA has a scope of work on the street right now... BRIAN BJORKQUIST:AEA STEVE HAAGENSON:Sorry,AEA does.There are all of these things you're talking about - static bar compensators.What's the impact if one of them does go down -we need to know that -is it death?Probably not.My guess is,just to my rule of thumb engineer,says you can probably run with one of them down..So,is it the end of the world?No.So,|think we're -all we have to do is sit down and say what's the final solution,which we haven't decided yet,like on the snow load problem,and work on ongoing maintenance.And then we have to deal with issues that were handed to us in the original design,things that are kind of -they're not stable like we thought they were going to be,they're moving around a little bit and we're fixing those too.|think we're way down the path and I'm kind of surprised that you're saying "oh my god, this isn't working,”|don't think it's broken. MIKE BARRY:Maybe the managers should go to the IOC meetings or at least read the minutes of the meetings. STEVE HAAGENSON:|talk to the guys all the time -our guy. JOE GRIFFITH:We gota report already. MIKE BARRY:And they tell you it's working? JIM POSEY:They also told me they came up -voted on a solution and a number that we can go forward with,so I'm ready to go. MIKE BARRY:So there's,help me here Bernie,|think three stanchions that are precarious? BERNIE SMITH:That's what the (indiscernible)and they are fixing one. Alaska Intertie Meeting Page 8 of 21 July 22,2005 MIKE BARRY:And one of them gets repaired.How did someone decide that this one gets repaired and the other two don't? DOUG HALL:We're still establishing the data.In fact,our consultant has said that we may in fact have on the Curry Ridge,where we have two towers,one of which hasn't moved in 15 years it appears.The other one we have to wait until everything is dry up there so we can actually get in there and see is the soil settled exactly or if has been movement.That's the one we're thinking based upon what our results are telling us that we're going to have to do something on.Golden Valley and the Moody slide area has been doing for the last 18 months - different studies -we have had consultants doing different studies that tell us now.Initially,we thought we were losing the foundation,but come to find out we are not losing the foundation at all and that,in fact,the Moody slide area appears that the hill is settling around the foundation and they may just be able to grout it and get away with it.So,this is all information that over time has to accumulate and that is exactly what we have been doing on that.The same thing in relation to the SVC.The SVC replacement project started out as their parts inventory.We needed spare parts for the electronic control boards of the units.We had a consultant go in, study,get a list of everything in the three individual units because they were all manufactured slightly differently on the mother board.We were given a complete inventory of it and then find out if any manufacturer still supports this equipment which we found that no they don't,in fact we have to pull the units out of service,send them to China to be reengineered,reverse engineered and then have recreated them.So that is not prudent utility practice for 25 year old equipment we'll go ahead and proceed with the specification that we can replace these units. And that whole process has been going on since the inventory actually occurred in early 2003. So we have been moving along on that and we just about have a document ready to go on the street now to bid for the three units. MIKE BARRY:Maybe the Board needs to understand more about utility practices.In your own utility,if every manufacturer in the world discontinued supporting equipment and it is 25 years .old and you ascertain that your spare parts inventory was depleted,how many years would you study it before you actually implemented the solution? STEVE HAAGENSON:We deal with that every day. JOE GRIFFITH:Every day. STEVE HAAGENSON:You look at taking a sequential staging out of equipment -you keep old technology to pull parts off of as you need them,as you are replacing them or you can just rip the whole thing out and do it at once.The question is what's the best approach to do it? MIKE BARRY:Would the utilities be willing to indemnify AEA from any liability that we have for letting this go on so long? STEVE HAAGENSON:|don't know what you're talking about -letting what go on? MIKE BARRY:The studying of these issues that were brought to our attention years ago. JOE GRIFFITH:Should we not study them?Is that what you're suggesting? MIKE BARRY:All we're saying is that we don't have the control to make the repairs.You folks have the control to make the repairs. Alaska Intertie Meeting Page 9 of 21 July 22,2005 JOE GRIFFITH:And that's exactly where we're going. MIKE BARRY:And so we just want to get that in the record.Apparently then you're saying you have already got the liability and we don't have it.Would that be your interpretation Brian? BRIAN BJORKQUIST:That would be my interpretation of the Agreement,but |certainly don't hear that from the utilities as they discuss these matters. RON SAXTON:|don't think statements on the record is the way to resolve that.What I've heard is,what we've said is,whatever a scope of work is that the IOC agrees is appropriate,at least the three generators that sell power over the line,you told me a year ago to work with your staff and come up with a way to finance the repairs and they'd agree to an arrangement to pay for it.So,|don't see where there is a disagreement over that it is just a matter of IOC determining what are those actually repairs so we know how much money we are financing. BRIAN BJORKQUIST:Mr.Chairman,to interpret what he just said -if he's the attorney for the utilities they will take the position that AEA is liable.That's what |just heard. JOE GRIFFITH:If 1 might read into the record,your definition,or the IOC's -the agreement's definition of prudent utility practice."Any of the practices methods and acts which in the exercise of reasonable in light of the facts known at the time the decision was made would have been expected to accomplish the desired result at the lowest reasonable cost consistent with the reliability safety and expedition.”And other things,including but not limited practices used across the industry,is in essence what it says and |think that is exactly what the utilities are doing.But the definition is there,then the question that Jim brought up earlier is the relevant question.What size of a bond package is reasonable,and somebody ought to be able to answer that,|would think.|don't know,it's usually smarter to do bigger ones but,do we want to do it?In fact,we had this discussion several times in the last few years. MIKE BARRY:And is a bond the only way that financing could be achieved?Why wouldn't a loan work? JOE GRIFFITH:It would. MIKE BARRY:And there is certainly some amount,if it's low enough a loan would be more efficient than a bond. JOE GRIFFITH:True. STEVE HAAGENSON:That's what the definition just said,what's the lowest cost way to do it. MIKE BARRY:But it doesn't -do you want my staff to do a study for you in $100,000 increments from 0 to $10 million on what the most effective way to finance is? _JOE GRIFFITH:No,that's not... MIKE BARRY:Somebody needs to give us some numbers to work with. JIM POSEY:$3 to $7 million. Alaska Intertie Meeting Page 10 of 21 July 22,2005 MIKE BARRY:$3 to $7? JIM POSEY:$3 to $7 million.Give use some deals on that and we'll act on them. MIKE BARRY:We can do that.We haven't had --from our perception we haven't had any movement on this.From your perception maybe,you know,this study program is the best way to do,just study it. JOE GRIFFITH:Well,we've been talking to your staff about it,Mike,it hasn't been that we've ignored it or got our heads in the sand,we are gathering the information that we need to comply with that definition #35,right there.And the question is,the one you broached,how do you finance it?Do you do it with a loan or do you do it with a bond,and |don't know the answer to that.You guys can probably answer that overnight. MIKE BARRY:It doesn't sound to me though that you even have a project identified.If you're saying that with the SVC's -the fix hasn't been determined yet.It was presented to us back in October 2002,the fix was to go buy new ones.That was what the fix was. JOE GRIFFITH:That would be one angle of it,the other way is to put different controllers on it. You have to do the reasonable cost... MIKE BARRY:|guess we can study.... STEVE HAAGENSON:Or you can tear them all out and put new ones in... MIKE BARRY:We can study it until one of them actually fails and then we'd have to figure out what the solution is,|guess. JOE GRIFFITH:That is also an option,yes. MIKE BARRY:And then we can find out whether it closes the line down or not if one of them fails,we'll know for sure.|guess everything is hunky-dory.We're just moving right along at the best pace we can. JIM POSEY:So,are we going to get an answer between $3 and $7 million dollars,loan versus bonds fairly soon? MIKE BARRY:Sure. JIM POSEY:The number was $3 million something from the IOC is the possible cost? DOUG HALL:Depending on the extent of the repairs on (indiscernible)Ridge. JIM POSEY:So,we're looking at something in that zone... MIKE BARRY:In aterm of 15 years. JIM POSEY:That's probably a reasonable term,but that depends on the best financing. Alaska Intertie Meeting Page 11 of 21 July 22,2005 RON SAXTON:And I think that!agree with Brian that the terms of the Agreement doesn't lend itself to the satisfactory repayment obligation,and we're prepared to work on a suitable side agreement to make sure that there is the kind of repayment obligation that needs to exist. BRIAN BJORKQUIST:And then in addition to that what we should be focusing on to make this Agreement work five years from now,ten years from now so we don't have to have a threat from the Board before everybody gets to the table to really act.You have a different perspective so be it,but if there are things in the Agreement that need to be fixed so that we don't have to get to this point the next time something needs to be done we should do that too at this point. RICK SCHIKORA:So,what items in the Agreement do you think need to be fixed at this point? BRIAN BJORKQUIST:One solution would be to create an R&R fund so that you have a funding mechanism for these types of maintenance so that they don't become deferred maintenance for years and years. RICK SCHIKORA:We've heard about that one,what's the next one? BRIAN BJORKQUIST:Well,we can talk about it. RICK SCHIKORA:You've got some issues with it,what are they?I'd like to write them down. MIKE BARRY:With the R&R fund we can't find any other intertie that doesn't have an R&R fund... RICK SCHIKORA:Well,that's fine,that's one issue... MIKE BARRY:...so when you talk about prudent utility practices you guys can't sit there and say that the accepted prudent utility practices say there's no R&R fund. RICK SCHIKORA:Mike,we have R&R fund on our list,why don't you tell us what the next issue Is. MIKE BARRY:Okay,number two,|think is important -you have a mechanism that essentially discourages anyone from recommending a capital improvement or a maintenance fix that costs money.Because if they recommend it,like AEA,if we recommend it,we'd have no funding mechanism,AEA has no capital at all.If we say all of your studies have shown us that you need SVC's and we go out and spend the money to buy new SVC's that's what everybody agrees to then you all decide well,we don't go along with that and you don't have to pay the money back.Or individually you opt out,isn't that right Brian? STEVE HAAGENSON:|think that's covered under the R&R fund isn't it? RON SAXTON.:|think it's the same issue. JOE GRIFFITH:Same issue. MIKE BARRY:Same issue,but it's in the Agreement.That's part of the Agreement today. Alaska Intertie Meeting Page 12 of 21 July 22,2005 JOE GRIFFITH:Part of the Agreement that we would agree to fixes and then refuse to pay for them? MIKE BARRY:Today,yeah.Individually,not collectively,but individually. BRIAN BJORKQUIST:And then there is a long list of items that simply are not followed anymore and in particular are not followed after the '93 reorganization of the Alaska Energy Authority.Examples include the budget,the budget process under the agreement is not being followed and the budget provides that it is supposed to be 13 months before the beginning of the fiscal year and that hasn't been done for a decade or more.There are other examples of that type of thing,just things that are no longer applicable,they are ignored by the 1OC and there just still in the Agreement lingering.There was some discussion of that yesterday at the IOC meeting,some examples of that and those -your utility members on the IOC probably have a better handle of that then |do right now.Every example of what no longer is followed. RON SAXTON:It was at the |OC meeting yesterday -what I'd like is to get the list so |can look at those and see how we can fix them.Is there a list of what those are? BRIAN BJORKQUIST:There was some discussion of many of the items.|know that John Cooley gave some recitation;|think Henri Dale may have spoken of a few of the matters,but the budget is the one that |remember having more discussion then anything else. MIKE BARRY:|think they make a transcript don't they,Bernie,of the meetings? BERNIE SMITH:Yes. MIKE BARRY:So,we'll get you the transcript then. RON SAXTON:That would be wonderful,thank you.And your sense,Brian,is that they are not being followed is related to AEA's reorganization?Or why aren't they being followed? BRIAN BJORKQUIST:This came from John Colley,the history of it is that before 1993,the legislature appropriated the budget for a fiscal year,so the budget had to be prepared 13 months in advance to give time to go to the legislature for an appropriate and then the utility payments were a reimbursement of what the state had appropriated.From 1993 forward that hasn't been followed.The legislature is not appropriating the intertie budget anymore and it is not a reimbursement,it is a pay as you go type of system. RON SAXTON:You don't have a desire to return to the old way do you? BRIAN BJORKQUIST:|don't think they're... MIKE BARRY:We just have a desire to get a set of agreements that can be complied with. RICK SCHIKORA:What you're saying is that the Agreement says you have to do the budget 13 months in advance and you want to make it three or four,or some number,but you... BRIAN BJUORKQUIST:Let the IOC figure out how... Alaska Intertie Meeting Page 13 of 21 July 22,2005 MIKE BARRY:We would like it to work for the utilities.We don't really care how it works,as long as it works. RICK SCHIKORA:It works now,they're just not following 13.That's the...didn't we approve the budget yesterday. MIKE BARRY:|don't think it really works if we're a couple weeks into the year before the budget gets approved.Do you think that works that way? RICK SCHIKORA:|don't know. MIKE BARRY:Is that the way Golden Valley does its budget?They wait -You're on a calendar year so you wait until January to approve your budget for the year? JOE GRIFFITH:Sometimes,yes. MIKE BARRY:That's not in the utility practice. JOE GRIFFITH:Yeah,it is. BRIAN BJORKQUIST:May |share that my perception is that this is a criticism coming from your representatives to the IOC also,that they would like to see this fixed.So what they do matches up with what's in the Agreement.|think they have some ideas how they would like to change it so it would be more useful for them also.Another criticism |heard yesterday was that the Alaska Interite Agreement is tied to the state fiscal year where as the utilities operate on a calendar fiscal year and that is just so awkward for them.That you can't do something that year because utilities can't make adjustments so just moving it so you have the same fiscal years would be an example of a fix that would be more beneficial to the utilities based on what |heard from your representatives to the IOC yesterday. RON SAXTON:But is the budget problem or the calendar year problem causing the State a problem or you're just alerting us that our people want to change this? BRIAN BJORKQUIST:|think it causes us some problems too because we have an Agreement that is not being complied with and that is always a problematic type of situation.It just ignored. JIM POSEY:Since 1993 it has not been followed and the wheels haven't fallen off the vehicle, so since 1993 was the reorganization of AEA,which is part of what happened and we did not change the agreement,what we've done is move forward through expenses and taken care of those things that we have to do.It doesn't seem like it's broken,you just put not applicable and move ahead and look at doing the R&R loan fund to fix the things that you have to do and then look at whatever agreement changes you have to do because the Agreement changes are probably going to be more difficult then coming up with the money to make the things that we need to do in order to make it fun efficiently now. STEVE HAAGENSON:It sounds to me like the Agreement has morphed to what the utilities want and what works for them already. BRIAN BJORKQUIST:With the exception of the two fiscal years. Alaska Intertie Meeting Page 14 of 21 July 22,2005 STEVE HAAGENSON:And except for that one that one issue where we're going to be late this year -|don't know if they are or not,but if they're late,then |guess you can spank us for that but |don't think it's broken |think it's been morphed into what rea!ly works. MIKE BARRY:It might work for you,Steve,to have an Agreement that we're not following,but it does not work for our Board to have an Agreement that nobody is following,okay.And,if you are saying that it is easy to change it,then please change it.That's all we're asking. STEVE HAAGENSON:J think it's almost a silly point in my mind,because to have to have this message come from the IOC,apparently through staff of AEA back through the AEA Board back to the managers to tell the IOC staff that they should comply with the Agreement we have signed -it's kind of a circuitous path.It's kind of silly.|think all the guys will say is why aren't you guys complying with the Agreement?It's a short phone call. MIKE BARRY:Well,apparently there are,as Jim said,there are reasons why the Agreement is not being complied with.And it would be better for everyone to change the Agreement so that it could automatically and routinely be complied with instead of routinely be out of compliance. And that's what we would like to do is to get it so that you can operate routinely in compliance. STEVE HAAGENSON:|don't have a problem with that. JOE GRIFFITH:And that's the genesis of your comment about lack of compliances is the difference between what we're doing and what's in the agreement. JIM POSEY:It wasn't something that we did,it's something that the State did in reorganizing AEA that caused it to be off cycle. MIKE BARRY:Nobody is trying to make a blame issue out of this,Jim,we're trying to say -you asked us what doesn't work and we don't -this is one of the items that we don't think works. Being out of compliance every day of the year. RON SAXTON:Not minimizing,but beyond the budget issue and the fiscal year issue are there others where you think that they are routinely not following the contract? BRIAN BJORKQUIST:There certainly may be but I'm not aware of anything right now,but | would encourage you to ask your IOC representatives.They probably have a better idea of what they don't follow exactly in the agreement. RON SAXTON:Changing a budget cycle ought to be a pretty noncontroversial amendment and is easy to do. JIM POSEY:Yes,|agree with that. RON SAXTON:|can't imagine that is going to cause a problem.We can certainly look at how to change that. MIKE BARRY:And changing the requirement that the legislature appropriate the budget,okay. RON MILLER:We have a written document but what is accepted practice isn't reflected in this and so we have a sort of defacto amendment to the Agreement. Alaska Intertie Meeting Page 15 of 21 July 22,2005 STEVE HAAGENSON:So have you tried to go to the legislature lately and get some money appropriated for AEA? BRIAN BJORKQUIST:Are you volunteering? RON SAXTON:|think it would be fortuitous on the funding for repairs and stuff,|think we can work that one through,|didn't realize it had deteriorated as much as it had and |think we already agreed to do that so we can do that.Cleaning up some language about fiscal years and budget process,|don't hear anything controversial about that,it ought to be easy to do. BRIAN BJORKQUIST:Then tied to the first one is fixing so that we will have an easier mechanism in the future. RON MILLER:Do we want to set a work plan today? RON SAXTON:If we get a list of what the issues are,you know,everybody else can do whatever they want but I'll bet Brian and |in pretty short order could put a list or at least something to talk about,a starting document.|don't view this as very hard at all and then whoever wants to play with it can play with it. BRIAN BJORKQUIST:Then the other issue would be on the financing side of the capital repairs that are on the table right now.And correct me if I'm wrong but what |heard was that the desired course,for example,to do all three SVC's at the same time so you have the same model so that you can have a single set of components. DOUG HALL:Absolutely,to ensure that the SVC's,all three SVC's are compatible and then you only have to maintain one set of spare parts.We want to purchase all three at the same time. JIM POSEY:But not install them all. DOUG HALL:Well you can't install them all at the same time because it is a staged installation. But,yes,we would like to be able to purchase them,make a contract for the purchase;they may not be manufactured immediately but sequentially.It's computer basically and you don't want to get the next version where they've upgraded and changed the internal parts. JOE GRIFFITH:It seems like we've addressed then the issues that you have articulated.No R&R fund,major maintenance which is sort of a piece of that.Deferred repairs also a piece of it and lack of compliance because of some anomalies that remain in the Agreement because of the 1993 action. BRIAN BJORKQUIST:And that's what |heard from John Cooley yesterday,that's factually inaccurate,so be it,but the reality is that operational procédures in reality are different than what the Agreement says. JOE GRIFFITH:We never did go back after Ramona killed off AEA and cleaned all of that up.. We did not,that's true. MIKE BARRY:Bernie,do you have other things that should be added to that list? Alaska Intertie Meeting Page 16 of 21 July 22,2005 BERNIE SMITH:One other thing is that there is no roll over on the budget and if you had a rollover-in other words,you have to give everything back -starts back at zero -if you had a roll over it would seem like that roll over,if there was any extra,could go into the R&R fund.And by the Agreement,from what !was understood,was told that you can't do that.So that would be _another thing that you might want to look at.If there is money left over after... JIM POSEY:Right back into my auditor who did the Bradley Lake deal... BERNIE SMITH:-I don't know,I'm just... JIM POSEY:...we had to change... STEVE HAAGENSON:We have the same issue. JIM POSEY:...the Agreement conirolled it and we can't back date the agreement but we can do something forward.It would have to be something that we agreed to... RON SAXTON:|think if we're going to have an R&R borrowing or selling some bonds is a lot cleaner because we do get into the municipal coding and there is tax problems... BERNIE SMITH:The other thing is that the date that the actual budget -everybody else is onfiscalyearDecember31*this thing starts at June 30.It would see like you would want it all to be at the same time.And if that's in the Agreement then that would be something you might want to change,change it to where it meets the utilities budget line.If you're going to start changing the Agreement let's make it so it's easy for everybody. RICK SCHIKORA:We got that on our list. STEVE HAAGENSON:Bradley Lake is a different fiscal year then the rest of this,it's not a problem there. BERNIE SMITH:I'm just saying that it seems odd. STEVE HAAGENSON:You just have to get busy and get it done.on time. MIKE BARRY:Steve,that's not a problem for us,that's a problem that your people on the l|OC are saying is a problem.We're just passing it on to you.You've got to look at the Agreement. You can address it or not,we don't care whether you address that part or not. STEVE HAAGENSON:I've got it down here. BERNIE SMITH:Things were brought up in the meeting -you asked what things were brought in the meeting and that's what it was. RON MILLER:Art Copoulos is gathering information.Art Copoulos will be leaving us next month and Bernie will be stepping in with the IOC in his place. STEVE HAAGENSON:Where's Art going? Alaska Intertie Meeting Page 17 of 21 July 22,2005 RON MILLER:DNR.He'll be available during the transition period to work with Bernie.He is going back to the oil and gas sector from whence he came. MIKE BARRY:Can we have some kind of a time table to put in front of our Board as to when we might see the changes? RICK SCHIKORA:Sure.We can come next week. RON SAXTON:How fast can we get a transcript of what else might be on the list. BRIAN BJORKQUIST:|just want to emphasis that is two components to it:1)what was mentioned yesterday and the other thing is that |would ask every General Manager to ask their 1OC representative or whoever has been there,is there anything else.Let's all collectively do the best job we can to clean up everything today so 1 would ask everybody to ask.Art hasn't been here this week and we will ask him also if there is any other examples. RON MILLER:He'll be back Monday so we will make sure... BRIAN BJORKQUIST:We should have the transcript early next week. BERNIE SMITH:Yes,I'm doing it this weekend. JIM POSEY:Then is it a two week or three week project to deal with the $3 to $7 million dollars as to how would best -loan versus bonds?That analysis,|don't know who you would have to do it. MIKE BARRY:In two weeks we can do it with a range.That's all they can do really... JIM POSEY:That's all we want.Based on what the IOC did yesterday... RON MILLER:$3 to $7 million over 15 years? MIKE BARRY:Right. JOE GRIFFITH:And it may come back that it would be smarter to do it at a less period or longer period or something like that.Have them look at the whole financing idea. JIM POSEY:Look at it something like 7 to 15 years,$3 to $7 million,and see where that crosses over.That's how we do it. BERNIE SMITH:In the Budget Subcommittee started also to do a mid-year review of the budget and such as if one of the SVC's happen blows up,especially the one in Healy and you have another option (indiscernible)you can add (indiscernible). MIKE BARRY:So there's nothing in the Agreement that would allow them to have a budget session whenever it was necessary?Maybe that's something that could be added to the agreement. Alaska Intertie Meeting Page 18 of 21 July 22,2005 BERNIE SMITH:And my understanding from the history from John Colley,they used to have a mid-year review so (indiscernible)for adding to -this gives you an added place to come here and relook at the budget. MIKE BARRY:|would propose that it would be prudent to have the ability to do that whenever it was necessary. RON SAXTON:Henri is the chair at |OC,can we task Henri with gathering these and then sharing back to all of us whatever the collective list is that is found. BRIAN BJORKQUIST:It's my perception that some utilities have new members on the IOC,if you still have access to the old members ask them too.I'm just encouraging you to get the best information you can.If you have somebody with experience who is no Jonger on the IOC,still ask them. DON ZOERB:|need to interject a disclaimer here on behalf of MEA.We will be at the Board meeting on Monday and we will respond to the letter that you sent out at that time.|just need to be real sure that you all understand that at this point MEA is not committing to agree to anymodificationsoftheexistingagreement.But the input we are getting here is very valuable aswedevelopourpositionforMonday.|also want to convey our grave concern that the public safety hazard posed a differential snow loading problem where the intertie passes through our service territory.We cannot overstate our level of concern that someone is going to be hurt. There is going to be a tragic event up there sooner or later and we think it is unconscionable that the problem is continuing to go unaddressed. MIKE BARRY:Thanks for your input. JIM POSEY:Since this is a work session I'll address part of that.It was stated and |brought it up once that the and |noticed that the time the intertie was built,so |have been around a long time,that the right-of-way was never closed,never posted and never fenced,and never noticed. |brought that to the attention of AEA and AIDEA in a public meeting once before and that is an option as opposed to $32 million dollar insets (indiscernible)developed in other places then they know where the snow is at any given time.Clearing out and posting is a way to deal with that particular problem and|think,let's put it on the table today. MIKE BARRY:You might get more prima facie evidence as to why the Agreement doesn't work. JIM POSEY:Yes,that's true. MIKE BARRY:What's your response to assessing the utilities for the fencing capital costs and posting? STEVE HAAGENSON:The R&R fund because that's the path we go down,|think that what we're doing right now working with AEA staff -which oneis it? BRIAN BJORKQUIST:It's AEA. STEVE HAAGENSON:Okay,but aren't you AEA/AIDEA staff still?Anyway,working with staff, you guys can pick the right thing -|thought we had been working on prudent utility practice for Alaska Intertie Meeting Page 19 of 21 July 22,2005 the mitigation of snow load monitoring and |do take objection to you saying we're doing nothing. A few years ago we put in monitoring,which is still functioning out there.The IOC took action at the last meeting yesterday to put the alarm levels in at a certain level which is a very safe prudent utility practice.We're looking at a wide range of things,but |have to bring you back to the idea -as an engineer |went through that thing like 15 years ago when it was first brought up to be an issue.It is not a code violation.So,that's an issue.Everybody keeps saying it's a safety thing and |liken it back to looking at the Northwest,when you have an ice storm come through.It comes back -you get ice storms down there more regularly then we have problems with this line.They're not saying,sorry we have to make it -build it to withstand one to two or three year occurrences.They're not doing that,they're saying we're going to deal with it when it happens -and we've actually done more than that.We have monitors on it to watch it 24 hours a day,we send people up there to patrol it and keep an eye on it.So,we're not doing nothing. Just for the record. MIKE BARRY:Any other comments on snow load? BERNIE SMITH:I'm new to this so |don't have a lot of history,but it also seems to me that right now when these alarms go off what you're supposed to do is shut the whole intertie down til you get the fix done.It would seem logical that you would have two sets of monitors out there,one to get out there -not to shut the line down -to have it set to where it is getting ready to be shut down without getting to the limit there,you can go out there and look at it first before you actually have the drastic cause of just shutting the whole line down.And that's the way my understanding is it's going to happen if the alarm goes off,the intertie gets shut down at that point.So it seems like if we spent the money,put in external alarms or a second set of alarms to be set lower and go out there and have people look at it.The way it is written into the record that |understand,when the alarm goes off now,the intertie gets shut down.We should be spending the money in there so that you have two sets of monitors.And you may need more monitors in certain areas then others.|don't know,it's pretty drastic to shut the thing down when the alarm goes off. STEVE HAAGENSON:Chairman Barry,let me explain a little bit about the snow load issue. When the whole line loads up evenly,there is not a problem.The question is when is the snow going to fall off.You may have two weeks to two months before that snow actually falls off and creates a situation that may or may not occur.A lot of time,it's not like,oh we're going to go along today and then there's an alarm,boom the blind goes open -we know days,weeks in advance that there will be an issue because that line will be loaded up with heavy amounts of snow,so it's not like,surprise,shut the line down. BERNIE SMITH:Well,when the alarm goes off my understanding from the compromisefor the $32 million dollar -with these alarms -you set these the alarm at what ever stage that you set it at and when that happens the line gets shut down.And that was what was stated at the IOC meeting. MIKE BARRY:Steve's not arguing with that,what he's saying is that you'll know weeks ahead of time what might set the alarm off so you'll have time to react to it. STEVE HAAGENSON:You'll know ahead of time so it's not like it's all a big surprise,shut the line down -you'll know it when MEA gets hammered with snow you go look at the line -do your line patrol,see if it is loaded up and if it is loaded up you say at sometime it is going to unload. At that point you may have an issue. Alaska Intertie Meeting Page 20 of 21 July 22,2005 RICK SCHIKORA:Is there a way to help it unload? STEVE HAAGENSON:Actually,that's really hard.We went down one year when it was really bad and helped MEA out and tried to knock it off with some hotsticks and you could knock off about a foot.It's fairly well loaded up and doesn't come off easy.But when it does come off by itself it really comes off fast. BRIAN BJORKQUIST:But that is something that Dryden and LaRue is looking at. STEVE HAAGENSON:That's right. BRIAN BJORKQUIST:And the way they characterized,Paul Williams characterized it yesterday;if you have icing of the snow it is the situation that you described,a foot at a time -if you get it earlier before it starts icing up you can whack one line and three spans can unload at the same time.Something of that nature.But Dryden and LaRue its looking at that question - what could be done to help with that. STEVE HAAGENSON:My guess,to maintain,if you snow conditions that were earlier enough they could go out and whack it and it would come off,|guess. BRIAN BJORKQUIST:I'd like to add one more thing.I know that MEA doesn't think that the direction that the IOC is going is the ideal solution,but if you have any suggestions to improve what we are doing,notwithstanding the fact that it's not ideal,that would be useful also.If it is MEA or AEG&T,whoever,any suggestions that you have would be useful. 'DON ZOERB:Okay. RON MILLER:You guys are designating Henri Dale for the contact for all of the IOC members to... STEVE HAAGENSON:He's the chairman of the IOC,that's why we picked Henri... RON MILLER:I'll have Art and Bernie work next week to gather all of the information we have and to share that with you through him,so we have focused points of contact. STEVE HAAGENSON:Ill call him right after this meeting to give him a heads up to get ready. JIM POSEY:We appreciate you calling this work session because|think this is a better way to at least talk through our concerns and gather data so we can move forward.It is really good. STEVE HAAGENSON:It's nice to have a two way interaction instead of just testimonial. RON MILLER:As you can see we have two Board members here at a work session,if we have another board member it would be a board meeting so that was one of the reasons we had it set for a board meeting. STEVE HAAGENSON:|understand.Mark's probably feeling like he's drinking through a fire hose right now. Alaska Intertie Meeting Page 21 of 21 July 22,2005 MARK DAVIS:Yes,but |do understand what the Chairman is saying as |am a bank commissioner and we look at loans to banks to see whether there is a way to maintain the security of the loans.And if the loan is unsecure because of maintenance then they place the loan into a special category. JIM POSEY:On this loan there is no existing debt so we're talking assuming debt in order to do what needs to be done. MARK DAVIS:|understand. MIKE BARRY:|don't want,Jim,to have you guys perceive this as threat because it is not threatening.We're trying to look at a constructive way to make the intertie work better for everybody.But when you look at financing for example,it's difficult for us in good faith to sponsor financing when we're being told by the IOC that the agreements don't work.As a board,the only way we can force the agreements to work is to terminate them and start over again.If you guys collectively come to an agreement to change it that's the best solution for everybody,but |think it needs to be addressed before somebody talks about financing or we can limit the financing term less than four years. STEVE HAAGENSON:|think we made a big step toward solving it today.Thanks again for the meeting. Adjournment:11:05 a.m. End of Transcript Alaska Intertie Repair Financing Scenarios Annual Payment Comparison AIDEA Loan Participation vs.AEA Revenue Bonds Net Proceeds Term 3 million 5 million 7 million Loan: 7 years 553,211 922,018 1,290,826 15 years 330,264 550,440 770,616 20 years 284,980 474,966 664,952 Taxable Revenue Bonds: 7 years Debt service 616,804 1,012,679 1,407,721 Net debt service 604,074 990,619 1,375,760 15 years Debt service 351,285 977,053 802,320 Net debt service 337,402 552,309 767,640 20 years Debt service 296,377 486,341 675,369 Net debt service 285,143 466,337 645,499 Loan assumptions: AIDEA rate 5.87%for 7 years,6.53%for 15 years and 6.67%for 20 years Bank rate 7%(bank portion 10%of total loan) 3%fee on entire loan which is estimated to include all financing costs Annual payment listed Taxable Revenue Bond assumptions: Rates:5.5%for 7 years;5.6%for 15 years;5.8%for 20 years Debt Service Reserve Fund is estimated at 8.6-10%of amount borrowed and is funded from bond proceeds Debt service listed is average annual Net debt service is maximum annual debt service,net of interest earned on reserve fund investment.Debt service for final bond year is reduced by debt service reserve fund investment. Costs of issuance include underwriter's discount,bond counsel,AEA costs and typical closing costs (trustee fee,printing).No rating agency fee is included.No utility closing costs are included. AIDEA Loan Participation $3 million 7,15 and 20 years NOONPSPWHRS|Ambon=aaoOMOMNBWNHNAOHOANDORWNAlaska Intertie Financing Scenario AIDEA Loan Participation Program $3 Million Net Proceeds Total AIDEA Portion Bank Portion 3 Fee % 7 Year Rate:Rate: 3,000,000 Needed 5.87%2,700,000 Needed 7.00%300,000 Needed Payment Interest Principal 90,000 Fee Payment Interest Principal 81,000 Fee Payment Interest Principal 9,000 Fee 3,090,000 Loan 2,781,000 Loan 309,000 Loan 553,211 184,875 368,336 2,721,664 495,875 163,245 332,630 2,448,370 §7,336 21,630 35,706 273,294 553,211 162,850 390,361 2,331,303 495,875 143,719 352,156 2,096,214 57,336 19,131 38,205 235,089 553,211 139,504 413,707 1,917,596 495,875 123,048 372,827 1,723,387 57,336 16,456 40,880 194,209 553,211 114,758 438,453 1,479,143 495,875 101,163 394,712 1,328,675 $7,336 13,595 43,741 150,468 553,211 88,526 464,685 1,014,458 495,875 77,993 417,882 910,793 57,336 10,533 46,803 103,665 553,211 60,721 492,490 521,968 495,875 53,464 442,411 468,382 57,336 7,257 50,079 53,586 553,211 31,245 521,966 2 495,875 27,494 468,381 1 57,336 3,751 53,585 1 Total AIDEA Portion Bank Portion 15 Year Rate:Rate: 3,000,000 Needed 6.53%2,700,000 Needed 7.00%300,000 Needed Payment Interest Principal 90,000 Fee Payment {nterest Principal 81,000 Fee Payment Interest Principal 9,000 Fee 3,090,000 Loan 2,781,000 Loan 309,000 Loan 330,264 203,229 127,035 2,962,965 296,337 181,599 114,738 2,666,262 33,927 21,630 12,297 296,703 330,264 194,876 135,388 2,827,577 296,337 174,107 122,230 2,544,031 33,927 20,769 43,158 283,546 330,264 185,973 144,291 2,683,286 296,337 166,125 130,212 2,413,819 33,927 19,848 14,079 269,467 330,264 176,485 153,779 2,529,507 296,337 157,622 138,715 2,275,104 33,927 18,863 15,064 254 404 330,264 166,372 163,892 2,365,616 296,337 148,564 147,773 2,127,330 33,927 17,808 16,119 238,285 330,264 155,595 174,669 2,190,947 296,337 138,915 157,422 1,969,908 33,927 16,680 17,247 221,039 330,264 144,108 186,156 2,004,791 296,337 128,635 167,702 1,802,205 33,927 15,473 18,454 202,585 330,264 131,865 198,399 1,806,392 296,337 117,684 178,653 1,623,552 33,927 14,181 19,746 482,840 30,264 118,817 211,447 1,594,945 296,337 106,018 190,319 1,433,233 33,927 12,799 21,128 161,712 $30,264 104,910 225,354 1,369,591 296 337 93,590 202,747 1,230,485 33,927 14,320 22,607 139,106 330,264 90,088 240,176 1,129,415 296,337 80,351 215,986 1,014,499 33,927 9,737 24,190 114,916 330,264 74,291 255,973 873,442 296 337 66,247 230,090 784,409 33,927 8,044 25,883 89,034 330,264 57,454 272,810 600,632 296 337 51,222 245,115 539,293 33,927 6,232 27,695 61,339 330,264 39,510 290,754 309,878 296 337 35,216 264,121 278,172 33,927 4,294 29,633 31,706 330,264 20,384 309,880 -1 296 ,337 18,165 278,172 0 33,927 2,219 31,708 -i Total AIDEA Portion Bank Portion 20 Year Rate:Rate: 3,000,000 Needed 6.67%2,700,000 Needed 7.00%300,000 Needed Payment Interest Principal 90,000 Fee Payment interest Principal 81,000 Fee Payment Interest Principal 9,000 Fee 3,090,000 Loan .2,781,000 Loan 309,000 Loan 284,980 207,123 77,857 3,012,143 255,812 185,493 70,319 2,710,684 29,167 21,630 7,537 301,463 284,980 201,904 83,076 2,929,068 255,812 180,802 75,010 2,635,671 29,167 21,102 8,065 293,397 284,980 196,337 88,643 2,840,425 255,812 175,799 80,013 2,555,658 29,167 20,538 8,629 284,768 284,980 190,396 94,584 2,745,842 255,812 170,462 85,350 2,470,308 29,167 19,934 9,233 278,534 284,980 184,057 100,923 2,644,919 255,812 164,770 91,042 2,379,265 29,167 19,287 9,880 265,654 284,980 177,293 107,687 2,537,233 255,812 158,697 97,115 2,282,150 29,167 18,596 10,571 255,083 284,980 170,075 114,905 2,422,328 255,812 152,219 103,593 2,178,557 29,167 17,856 11,311 243,771 284,980 162,374 122,606 2,299,723 255,812 145,310 110,502 2,068,055 29,167 17,064 12,103 231,668 284,980 154,156 130,824 2,168,899 255,812 137,939 117,873 1,950,182 29,167 16,217 12,950 218,717 284,980 145,387 139,593 2,029,307 255,812 130,077 125,735 1,824,447 29,167 15,310 13,857 204,860 284,980 136,031 148,949 1,880,358 255,812 121,691 134,121 1,690,326 29,167 14,340 14,827 190,032 284,980 126,047 158,933 1,721,426 255,812 112,745 143,067 1,547,259 29,167 13,302 15,865 174,167 284,980 115,394 169,586 1,551,840 255,812 103,202 152,610 1,394,649 29,167 42,192 16,975 157,192 284,980 104,026 180,954 1,370,887 255,812 93,023 162,789 1,231,860 29,167 41,003 18,164 139,027 284,980 91,897 193,083 1,177,804 255,812 82,165 173,647 1,058,212 29,167 9,732 19,435 119,592 284,980 78,954 206,026 971,779 255,812 70,583 185,229 872,983 29,167 8,371 20,796 98,795 284,980 65,144 219,836 751,943 255,812 58,228 197,584 675,399 29,167 6,916 22,251 76,544 284,980 50,407 234,573 517,371 255,812 45,049 210,763 464,636 29,167 5,358 23,809 52,735 284,980 34,682 250,298 267,073 255,812 30,991 224,821 239,815 29,167 3,691 25,476 27,258 284,980 17,904 267,076 -2 255,812 15,996 239,816 -1 29,167 1,908 27,259 -1 Taxable Revenue Bonds $3 million 7 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,7-Year Amortization Sources: Bond Proceeds: Par Amount 3,505,000.00 3,505,000.00 . Uses: Project Fund Deposits:: Deposit to Project Fund 3,000,000:00 Other Fund Deposits: Debt Service Reserve Fund Delivery Date Expenses: Cost of Issuance Underwriter's Discount Other Uses of:Funds: Contingency 350,500.00 41,999.15 111,287.50 153,286.65 1,213.35 *3,505,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Beli Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,7-Year Amortization Annual Period Debt Ending Principal Coupon Interest Debt Service Service 01/01/2006 |: 07/01/2006 96,387.50 96,387.50 01/01/2007 425,000 5.500%96,387.50 $21,387.50 617,775 07/01/2007.§4,700.00 84,700.00 01/01/2008 445,000 5.500%84,700.00 529,700.00 614,400 07/01/2008 72,462.50 72,462.50 . 01/01/2009 470,000 5.500%72,462.50 542,462.50 *614,925 07/01/2009 .59,537.50 59,537.50 01/01/2010 500,000 5.500%59,537.50 559,537.50 619,07507/01/2010 45,787.50 45,787.50 01/01/2011 525,000 5.500%45,787.50 570,787.50 616,575 07/01/2011 31,350.00 31,350.00 i 01/01/2012 555,000 5.500%31,350.00 586,350.00 617,700 07/01/2012 16,087.50 16,087.50 01/01/2013 585,000 5.500%16,087.50 601,087.50 617,175 3,505,000 812,625.00 4.317,625.00 4,317,625 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Serics 2006 $3 Million in Proceeds,7-Year Amortization, Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service ° 01/01/2007 617,775 15,001.40 602,773.60 01/01/2008 ©614,400 _15,001.40 599,398.60 01/01/2009 614,925 15,001.40 599,923.60 01/01/2010 619,075 15,001.40 604,073.60 01/01/2011 616,575 15,001.40 601,573.60 - 01/01/2012 617,700 15,001.40 602,698.60 01/01/2013 617,175 365,501.40 251,673.60 4,317,625 455,509.80 3,862,115.20 Taxable Revenue Bonds $3 million 15 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,15-Year Amortization Sources: ,Bond Proceeds: Par Amount 3,505,000.00 3,505,000.00 Uses: Project Fund Deposits: Deposit to Project Fund Other Fund Deposits: Debt Service Reserve Fund Delivery Date Expenses:| Cost of Issuance Underwriter's Discount Other Uses of Funds: Contingency 3,000,000.00 350,500.00 41,999.15 111,287.50 153,286.65 1,213.35 3,505,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 _ $3 Million in Proceeds,15-Year Amortization Annual Period Debt Debt Ending Principal Coupon Interest Service Service 01/01/2006 07/01/2006 98,140 98,140 01/01/2007 155,000 5.600%98,140 253,140 351,28007/01/2007 -93,800 93,80001/01/2008 165,000 5.600%93,800 258,800 352,600 07/01/2008 89,180 89.180 01/01/2009 175,000 5.600%89,180 264,180 353,360 07/01/2009 84,280 84,280 01/01/2010 185,000 5.600%84,280 269,280 353,560 07/01/2010.79,100 79,100 01/01/2011 -195,000 5.600%79,100 -274,100 353,200 07/01/2011 73,640 73,640 01/01/2012 205,000 5.600%73,640 278,640 352,280 07/01/2012 67,900 67,900 01/01/2013 215,000 5.600%67,900.282,900 350,80007/01/2013 61,880 61,880 01/01/2014 225,000 5.600%61,880 286,880 °348,760 07/01/2014 55,580 55,580 01/01/2015 240,000 5.600%55,580 295,580 -351,160 07/01/2015 48,860 48,86001/01/2016.255,000 5.600%48,860 303,860 352,720 O7/01/2016 .41,720 41,720 01/01/2017 265,000 5.600%41,720 306,720 348,440 07/01/2017 : 34,300 _34,300 01/01/2018 280,000 5.600%34,300 -314,300 348,600 07/01/2018 .26,460 26,460 01/01/2019 300,000 5.600%26,460 326,460 352,920 07/01/2019 , 18,060 18,060 01/01/2020 315,000 5.600%-18,060 333,060 351,120 07/01/2020 9.240 9,240 01/01/2021 330,000 5.600%9,240 339,240 348,480 3,505,000 1,764,280 §,269,280 5,269,280 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,15-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 351,280 16,158.06 335,121.94 01/01/2008 352,600 16,158.06 336,441.94 01/01/2009 353,360 16,158.06 337,201.94 01/01/2010 353,560 16,158.06 337,401.94 01/01/2011 .353,200 16,158.06 337,041.94 01/01/2012 352,280 16,158.06 336,121.94 01/01/2013 350,800 16,158.06 334,641.94 01/01/2014 348,760 163158.06 332,601.94 01/01/2015 351,160 16,158.06 335,001.94 01/01/2016 352,720 16,158.06 336,561.94 01/01/2017 348,440 16,158.06 332,281.94 01/01/2018 348,600 16,158.06 332,441.94 _.,01/01/2019 352,920 16,158.06 -336,761.94 01/01/2020 "351,120 16,158.06 334,961.94 01/01/2021 348,480 366,658.06 18,178.06 5,269,280 592,870.90 4,676,409.10° Taxable Revenue Bonds $3 million 20 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Beh Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,20-Year Amortization Sources: Bond Proceeds: Par Amount 3,455,000.00 3,455,000.00 Uses: Project Fund Deposits: Deposit to Project Fund 3,000,000.00 Other Fund Deposits:.. Debt Service Reserve Fund 299,080.00 'Delivery Date Expenses:a Cost of Issuance 41,809.65 Underwriter's Discount 110,912.50 152,722.15 Other Uses of Funds: Contingency 3,197.85 3,455,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,20-Year Amortization :Annual Period Debt Debt Ending Principal Coupon Interest Service Service 01/01/2006 07/01/2006 100,195 100,195 01/01/2007 95,000 5.800%100,195 195,195 _295,390 07/01/2007 97,440 97,440 01/01/2008 --100,000 5.800%97,440 197,440 294,880 07/01/2008 94,540 94,540 01/01/2009 110,000 *5.800%94,540 204,540 299,080 07/01/2009 91,350 -91,350 01/01/2010 115,000 5.800%91,350 206,350 297,700 07/01/2010 :88,015 88,015 01/01/2011 120,000 5.800%88,015 208,015 296,030 07/01/2011 ,84,535 84,535 01/01/2012 125,000 5.800%84,535"*209,535 294.070 07/01/2012 80,910 80,910 , 01/01/2013 .135,000 5.800%80,910 215,910 -296,820 07/01/2013 ;76,995 76,995 01/01/2014 140,000 5.800%_76,995 216,995 293,990 07/01/2014 72,935 72,935 01/01/2015 150,000 5.800%72,935 222,935 295.870 07/01/2015 ;_68,58 68,585 . , 01/01/2016 160,000 5.800%68,585 228,585 297,170 07/01/2016 63,945 63,945 01/01/2017 170,000 5.800%63,945 233,945 297,890 07/01/2017 .59,015 59,015 01/01/2018 180,000 5.800%59.015 239,015 298,030 07/01/2018 53,795 53,795 01/01/2019 190,000 5.800%53,795 243,795 297,590 07/01/2019 48,285 48.285 01/01/2020 200,000 5.800%48,285 248,285 296,570 07/01/2020 :42,485 42,485 ; 01/01/2021 210,000 5.800%42,485 252,485 294,970 07/01/2021 36,395 36,395 01/01/2022 225,000 5.800%36,395 261,395 297,790 07/01/2022 ; ;29,870 29,870 01/01/2023 235,000 5.800%29,870 264,870 294,740 07/01/2023 23,055 23,055 01/01/2024 250,000 5.800%23,055 273,055 296,110 07/01/2024 ©15,805 15,805 . *01/01/2025 265,000 5.800%_.15,805.280.805 296,610 07/01/2025 8,120 8,120 . 01/01/2026 280,000 5.800%8,120 288,120 296,240 3,455,000 2,472,540 5,927,540 .5,927,540 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $3 Million in Proceeds,20-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 ©295,390 13,937.12.281,452.88 01/01/2008 294,880 13,937.12 280,942.88 01/01/2009 299,080 13,937.12 285,142.88 01/01/2010 297,700 13,937.12 283,762.88 01/01/2011 296,030 13,937.12 282,092.88 01/01/2012 294,070 13,937.12 280,152.88 01/01/2013 296,820 13,937.12 282,882.88 01/01/2014 293,990 13,937.12 280,052.88 01/01/2015 295,870 13,937.12 281,932.88 01/01/2016 297,170 .13,937.12 283,232.88 01/01/2017 297,890 13,937.12 283,952.88 01/01/2018 298,030 13,937.12 284,092.88 01/01/2019 _.297,590 _,13,937.12 283,652.88 01/01/2020 296,570 13,937.12 282,632.88 01/01/2021 294,970 13,937.12 281,032.88 01/01/2022 297,790 13,937.12 283,852.88 *01/01/2023 294,740 13,937.12 280,802.88 01/01/2024 _.296,110 13,937.12 282,172.88 01/01/2025 296,610 13,937.12 |282,672.88 01/01/2026 296,240 313,017.12 -16,777,.12 5,927,540 577,822.40 5,349,717.60 AIDEA Loan Participation $5 million 7,15 and 20 years NOORWAY=NOOObhONDM=13 14 OOMOnNOOAAWN-Alaska Intertie Financing Scenario AIDEA Loan Participation Program $5 Million Net Proceeds Total AIDEA Portion Bank Portion 3 Fee % 7 Year Rale:Rate: 5,000,000 Needed 5.87%4,500,000 Needed 7.00%500,000 Needed Payment Interest Principal 150,000 Fee Payment Interest Principal -135,000 Fee Payment Interest -Principat 15,000 Fee 5,150,000 Loan 4,635,000 Loan 515,000 Loan 922,018 308,125 613,893 4,536,107 826,458 272,075 554,383 4,080,617 95,560 36,050 59,510 455,490 922,018 271,416 650,602 3,885,504 826,458 239,532 586,926 3,493,690 95,560 31,884 63,676 391,814 922,018 232,507 689,511 3,195,993 826,458 205,080 621,378 2,872,312 95,560 27,427 =68,133 323,681 922,018 191,263 730,755 2,465,238 826,458 168,605 657,853 2,214,458 95,560 22,658 72,902 250,779 922,018 147,544 774,474 1,690,764 826,458 129,989 696,469 1,517,989 95,560 17,555 78,005 172,774 922,018 101,200 820,818 869,945 826,458 89,106 737,352 780,637 95,560 12,094 83,466 89,309 922,018 52,075 869,943 2 826,458 45,823 780,635 1 95,560 6,252 89,308 1 Total AIDEA Portion Bank Portion 15 Year Rate:Rate: 5,000,000 Needed 6.53%4,500,000 Needed 7.00%500,000 Needed Payment Interest Principal 150,000 Fee Payment Interest Principal 135,000 Fee Payment interest Principal 15,000 Fee 5,150,000 Loan 4,635,000 Loan 515,000 Loan 550,440 338,716 211,724 4,938,276 493,896 302,666 191,230 4,443,770 56,544 36,050 20,494 494,506 550,440 324,793 225,647 4,712,629 493,896 290,178 203,718 4,240,053 56,544 34,615 21,929 472,577 550,440 309,955 240,485 4,472,145 493,896 276,875 217,021 4,023,032 56,544 33,080 23,464 449,112 550,440 294,142 256,298 4,215,847 493,896 262,704 231,192 3,791,841 56,544 31,438 25,106 424,006 550,440 277,287 273,153 3,942,694 493,896 247,607 246,289 3,545,552 56,544 29,680 26,864 397,142 550,440 259,325 291,115 3,651,579 493,896 231,525 262,371 3,283,181 56,544 27,800 28,744 368,398 550,440 240,180 310,260 3,341,319 493,896 214,392 279,504 3,003,678 56,544 25,788 30,756 337,644 550,440 219,775 330,665 3,010,654 493,896 196,140 297,756 2,705,922 56,544 23,635 32,909 304,732 550,440 198,028 352,412 2,658,243 493,896 176,697 317,199 2,388,724 56,544 21,331 35,213 269,519 550,440 174,850 375,590 2,282,653 493,896 155,984 337,912 2,050,812 56,544 18,866 37,678 231,844 550,440 150,147 400,293 1,882,360 493,896 133,918 359,978 1,690,834 56,544 16,229 40,315 191,525 _550,440 123,818 426,622 1,455,738 493,896 110,441 383,485 1,307,350 56,544 13,407 43,137 148,388 550,440 95,757 454,683 1,001,055 -493,896 -85,370 408,526 ._898,824 __.__56,544 10,387 46,157 102,231 550,440 65,849 484,591 516,464 493,896 58,693 435,203 463,622 56,544 7,156 49,388 °52,843 7 - 550,440 33,973 516,467 2 493,896 30,274 463,622 0 56,544 3,699 52,845 -2 Total AIDEA Portion Bank Portion 20 Year Rate:Rate: 5,000,000 Needed 6.67%4,500,000 Needed 7.00%500,000 Needed Payment Interest Principal 150,000 Fee Payment Interest.Principal 135,000 Fee Payment Interest Principal 15,000 Fee 5,150,000 Loan 4,635,000 Loan 515,000 Loan 474,966 345,205 129,761 5,020,239 426,354 309,155 117,199 4,517,804 48,612 36,050 12,562 502,438 474,966 336,508 138,458 4,881,781 426,354 301,337 125,017 4,392,785 48,612 35,171 13,441 488,996 474,966 327,229 147,737 4,734,044 426,354 292,999 133,355 4,259,430 48,612 34,230 44,382 474,614 474,966 317,327 157,639 4,576,406 426,354 284,104 142,250 4,117,181 48,612 33,223 15,389 459,225 474,966 306,762 168,204 4,408,202 426,354 274,616 151,738 3,965,443 48,612 32,146 16,466 442,758 474,966 295,488 179,478 4,228,724 426,354 264,495 161,859 3,803,585 48,612 30,993 17,619 425,139 474,966 283,459 191,507 4,037,217 426,354 253,699 172,655 3,630,930 48,612 29,760 18,852 406,287 474,966 270,623 204,343 3,832,874 426,354 242,183 184,171 3,446,760 48,612 28,440 20,172 386,114 474,966 256,927 218,039 3,614,835 426,354 229,899 196,455 3,250,305 48,612 27,028 21,584 364,530 474,966 242,312 232,654 3,382,184 426,354 216,795 209,559 3,040,747 48,612 25,517 23,095 341,434 474,966 226,718 248,248 3,133,933 426,354 202,818 223,536 2,817,211 48,612 23,900 24,712 316,722 474,966 210,079 264,887 2,869,047 426,354 187,908 238,446 2,578,766 48,612 22,171 26,441 290,281 474,966 192,324 282,642 2,586,405 426,354 172,004 254,350 2,324,416 48,612 20,320 28,292 261,988 474,966 173,378 301,588 2,284,817 426,354 155,039 271,315 2,053,102 48,612 18,339 30,273 231,715 474,966 153,162 321,804 1,963,013 426,354 136,942 289,412 1,763,690 48,612 16,220 32,392 199,323 474,966 131,591 343,375 1,619,638 426,354 117,638 308,716 1,454,975 48,612 13,953 34,659 164,663 474,966 108,573 366,393 1,253,245 426,354 97,047 329,307 1,125,668 48,612 11,526 37,086 427,577 474,966 84,012 390,954 862,291 426,354 75,082 351,272 774,397 .48,612 8,930 39,682 87,895 474,966 57,805 417,161 445,131 426,354 51,652 374,702 399,695 48,612 6,153 42,459 45,435 474,966 29,840 445,126 5 426,354 26,660 399,694 2 48,612 3,180 45,432 3 Taxable Revenue Bonds $5 million 7 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,7-Year Amortization Sources: Bond Proceeds:; Par Amount §,755,000.00 5,755,000.00 Uses: Project Fund Deposits: Deposit to Project Fund : -5,000,000.00 Other Fund Deposits: -Debt Service Reserve Fund 575,500.00 Delivery Date Expenses:Oe Cost ofIssuance _49,088.65 Underwriter's Discount .128,162.50 177,251.15 Other Uses of Funds: Contingency -2,248.85 5,755,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,7-Year Amortization Annual Period Debt Ending Principal Coupon Interest Debt Service Service 01/01/2006 07/01/2006 158,262.50 "158,262.50 01/01/2007 695,000 5.500%158,262.50 853,262.50 1,011,525 07/01/2007 139,150.00 139,150.00 01/01/2008 735,000 5.500%139,150.00 874,150.00 1,013,300 07/01/2008 118,937.50 118,937.50 01/01/2009 775,000 5.500%118,937.50 893,937.50 1,012,875 07/01/2009 97,625.00 97,625.00 01/01/2010 _$20,000 5.500%97,625.00 917,625.00 1,015,250 07/01/2010 75,075.00 75,075.00 01/01/2011 860,000 5.500%75,075.00 935,075.00 1,010,150 07/01/2011 51,425.00 51,425.00 01/01/20127 910,000 °5.500%51,425.00 ©961,425.00 1,012,850 07/01/2012 26,400.00 26,400.00 01/01/2013 960,000 5.500%26,400.00 986,400.00 1,012,800 5,755,000 -1,333,750.00 7,088,750.00 7,088,750 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,7-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 1,011,525 24,631.40 986,893.60 01/01/2008 1,013,300 24,631.40 988,668.60 01/01/2009 1,012,875 24,631.40 988,243.60 01/01/2010 1,015,250 24,631.40 990,618.60 01/01/2011 1,010,150 24,631.40 985,518.60 01/01/2012 |1,012,850 24,631.40 988,218.60 01/01/2013 1,012,800 600,131.40 412,668.60 7,088,750 747,919.80 6,340,830.20 Taxable Revenue Bonds $5 million 15 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,15-Year Amortization Sources: Bond Proceeds: Par Amount §,755,000.00 5,755,000.00 Uses: Project Fund Deposits:° Deposit to Project Fund §.000,000.00 Other Fund Deposits: Debt Service Reserve Fund $75,500.00 Delivery Date Expenses: Cost of Issuance 49,088.65 Underwriter's Discount 128,162.50 177,251.15 Other Uses of Funds:; Contingency 2,248.85 5,755,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 -$5 Million in Proceeds,15-Year Amortization .Annual Period .Debt Debt Ending Principal Coupon Interest Service Service 01/01/2006 07/01/2006 161,140 161,140 01/01/2007 255,000 5.600%161,140 416,140 577,280 '07/01/2007 154,000 154,000 01/01/2008 270,000 5.600%154,000 424,000 578,000 07/01/2008 146,440 146,440 , 01/01/2009 285,000 5.600%146,440 431,440 577,880 07/01/2009 138,460 138,460 : 01/01/2010 300,000 5.600%138,460 438,460 _576,920 07/01/2010 130,060 130,060 01/01/2011 315,000 5.600%130,060 445,060 $75,120 07/01/2011 121,240 121,240 : 01/01/2012 ©335,000 "5.600%"124,240"456,240 "577,480 07/01/2012 '111,860 111,860 . 01/01/2013 355,000 5.600%111,860 466,860 578,720 07/01/2013 101,920 .101,920 01/01/2014 375,000 5.600%101,920 476,920 578,840 07/01/2014 91,420 91,420 01/01/2015 395,000 5.600%91,420 486,420 577,840 07/01/2015 80,360 80,360 01/01/2016 415,000 5.600%80,360 495,360 575,720 07/01/2016 68,740 68,740 01/01/2017 440,000 5.600%68,740 508,740 577,480 07/01/2017 56,420 -56,420 01/01/2018 465,000 5.600%56,420 521,420 577,840 07/01/2018 43,400 43,400 01/01/2019 490,000 5.600%-43,400 533,400 576,800 07/01/2019 29,680 29,680 .; 01/01/2020 515,000 5.600%29,680 544,680 574,360 07/01/2020 15,260 15,260 01/01/2021 545,000 5.600%15,260 560,260 $75,520 5,755,000 2,900,800 §,655,800 8,655,800 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Interlie Project Taxable Revenue Bands,Series 2006 $5 Million in Proceeds,15-Year Amortization %yPeriod Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 577,280 26,530.56 550,749.44 01/01/2008 578,000 26,530.56 551,469.44 01/01/2009 577,880 26,530.56 $51,349.44 01/01/2010 $76,920 26,530.56 550,389.44 01/01/2011 575,120 26,530.56 548,589.44 01/01/2012 577,480 26,530.56 |550,949.44 01/01/2015 578,720 26,530.56 552,189.44 01/01/2014 :578,840 26,530.56 552,309.44 01/01/2015 577,840 26,530.56 $51,309.44 01/01/2016 $75,720 26,530.56 $49,189.44 01/01/2017 577,480 26,530.56 550,949.44 01/01/2018 $77,840 26,530.56 551,309.44 01/01/2019 576,800 26,530.56 550,269.44 01/01/2020 574,360 Ss -26,530.56 =-«547,829.44 01/01/2021 575,520 *602,030.56 --26,510.56 8,655,800 -973,458.40 7,682,341.60 Taxable Revenue Bonds $5 million | 20 years SOURCES AND USES OF FONDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,20-Year Amortization Sources: Bond Proceeds: Par Amount 5,670,000.00 5,670,000.00 Uses: Project Fund Deposits: Deposit to Project Fund 5,000,000.00 Other Fund Deposits: Debt Service Reserve Fund 489,130.00 Delivery Date Expenses: Cost of Issuance 48,926.10 Underwriter's Discount 127,525.00 176,451.10 Other Uses of Funds: Contingency 4,418.90 5,670,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,20-Year Amortization -Annual Period .Debt Debt Ending Principal Coupon Interest Service Service 01/01/2006 07/01/2006 164,430 164,430 01/01/2007 160,000 5.800%164,430 324,430 488,860 07/01/2007 159,790 159,790 01/01/2008 165,000 5.800%159,790 324,790 484,580 07/01/2008 "155,005 155,005 01/01/2009 175,000 5.800%155,005 330,005 485,010 07/01/2009 149,930 149,930 01/01/2010 185,000 5.800%149,930 334,930 484,860 07/01/2010 144,565 144,565 01/01/2011 200,000 5.800%144,565 344,565 489,130 07/01/2011 138,765 138,765 01/01/2012 210,000 5.800%138,765 348,765 487,530 07/01/2012 132,675 132,675 01/01/2013 220,000 5.800%132,675 352,675 .485,350 07/01/2013 126,295 126,295 _ 01/01/2014 235,000 5.800%126,295 361,295 487,590 07/01/2014 :119,480 119,480 01/01/2015 245,000 5.800%119,480 364,480 483,960 07/01/2015 112,375 112,375 01/01/2016 260,000 5.800%112,375 372,375 484,750 07/01/2016 104,835 104,835 01/01/2017,275,000 -5.800%104,835 379,835 484,670 07/01/2017 96,860 96,860 01/01/2018 295,000 5.800%96,860 391,860 488,720 07/01/2018 88,305 88,305 O1/01/2019 310,000 5.800%88,305 398,305 486,610 07/01/2019 79,315 79.315 01/01/2020 330,000 5.800%79,315 409,315 488,630 07/01/2020 69,745 69,745 01/01/2021 345,000 5.800%69,745 414,745 484,490 07/01/2021 59,740 59,740 01/01/2022 365,000 5.800%59,740 424,740 484.480 07/01/2022 .49.155 49.155 01/01/2023 390,000 5.800%,49,155 439,155 488,310 07/01/2023 37,845 37,845 01/01/2024 410,000 5.800%37,845 447,845 485.690 07/01/2024 25,955 25,955 °° 01/01/2025 435,000 5.800%25,955 460,955 486,910 07/01/2025 ;13,340 13,340 01/01/2026 460,000 5.800%13,340 473,340 486,680 5,670,000 4,056,810 9,726,810 9,726,810 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $5 Million in Proceeds,20-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 488,860 22,793.46 466,066.54 01/01/2008 484,580 22,793.46 461,786.54 01/01/2009 485,010 22,793.46 462,216.54 01/01/2010 484,860 22,793.46 462,066.54 01/01/2011 489,130 22,793.46 466,336.54 01/01/2012 487,530 22,793.46 "464,736.54 01/01/2013 485,350 22,793.46 462,556.54 01/01/2014 487,590 22,793.46 464,796.54 01/01/2015 483,960 22,793.46 461,166.54 01/01/2016 484,750 22,793.46 .461,956.54 01/01/2017,”484,670 22,793.46 461,876.54 01/01/2018 488,720 22,793.46 465,926.54 01/01/2019 486,610.22,793.46 463,816.54 01/01/2020 488,630 22,793.46 465,836.54 01/01/2021 484,490 22,793.46 461,696.54 01/01/2022 484,480 22,793.46 461,686.54 01/01/2023 488,310 22,793.46 465,516.54 01/01/2024 485,690 22,793.46 462,896.54 01/01/2025 '486,910 22,793.46 464,116.54 01/01/2026 486,680 -511,923.46 25,243.46 9,726,810 944,999.20 8,781,810.80 AIDEA Loan Participation $7 million 7,15 and 20 years j 2 3 4 5 6 7 Nnbhuwnd-te 41 12 13 14 15 OMNDNPRWNov Alaska Intertie Financing Scenario AIDEA Loan Participation Program $7 Million Net Proceeds Total AIDEA Portion Bank Portion 3 Fee % 7 Year Raie:Rate: 7,000,000 Needed §.87%6,300,000 Needed 7.00%700,000 Needed Payment Interest Principal 210,000 Fee Payment Interest Principal 189,000 Fee Payment Interest Principal 21,000 Fee 7,210,000 Loan 6,489,000 Loan 721,000 Loan 1,290,826 431,374 859,452 6,350,548 1,157,042 380,904 776,138 5,712,862 133,784 50,470 83,314 637,686 1,290,826 379,983 910,843 5,439,706 1,157,042 335,345 821,697 4,891,166 133,784 44,638 89,146 548,540 4,290,826 325,509 965,317 4,474,389 1,157,042 287,111 869,931 4,021,235 133,784 38,398 95,386 453,154 4,290,826 267,767 1,023,059 3,451,331 1,157,042 236,046 920,996 3,100,239 133,784 31,721 102,063 351,092 1,290,826 206,560 1,084,266 2,367,065 1,157,042 181,984 975,058 2,125,181 133,784 24,576 109,208 241,884 4,290,826 141,680 1,149,146 1,217,919 1,157,042 124,748 1,032,294 1,092,888 133,784 16,932 116,852 125,032 1,290,826 72,904 1,217,922 -2 4,157,042 64,152 1,092,890 -2 133,784 8,752 125,032 0 Total AIDEA Portion Bank Portion 15 Year Rate:Rate: 7,000,000 Needed 6.53%6,300,000 Needed 7.00%700,000 Needed Payment Interest Principal 210,000 Fee Payment Interest Principal 189,000 Fee Payment Interest -Principal 21,000 Fee 7,210,000 Loan 6,489,000 Loan 721,000 Loan 770,616 474,202 296,414 6,913,586 691,454 423,732 267,722 6,221,278 79,162 50,470 28,692 692,308 770,616 454,711 315,905 6,597,681 691,454 406,249 285,205 5,936,073 79,162 48,462 30,700 661,608 770,616 433,939 336,677 6,261,005 691,454 387,626 303,828 5,632,245 79,162 46,313 32,849 628,759 770,616 411,799 358,817 5,902,188 691,454 367,786 323,668 5,308,578 79,162 44,013 35,149 593,610 770,616 388,203 382,413 5,519,775 691,454 346,650 344,804 4,963,774 79,162 41,553 37,609 556,001 770,616 363,054 407,562 5,112,213 691,454 324,134 367,320 4,596,454 79,162 38,920 40,242 515,759 770,616 336,251 434,365 4,677,849 691,454 300,148 391,306 4,205,148 79,162 36,103 43,059 472,701 770,616 307,685 462,931 4,214,918 691,454 274,596 416,858 3,788,290 79,162 33,089 46,073 426,628 770,616 277,239 493,377 3,721,541 691,454 247,375 444,079 3,344,211 79,162 29,864 49,298 377,330 770,616 244,790 525,826 3,195,715 691,454 218,377 473,077 2,871,135 79,162 26,413 52,749 324,581 770,616 210,206 560,410 2,635,306 691,454 187,485 503,969 2,367,166 79,162 22,721 56,441 268,140 770,616 173,346 597,270 2,038,036 691,454 154,576 536,878 1,830,288 79,162 18,770 60,392 207,748 770,616 134,060 636,556 1,401,480 691,454 119,518 571,936 1,258,352 79,162 14,542 64,620 143,128 770,616 92,189 678,427 723,053 691,454 82,170 609,284 649,068 79,162 10,019 69,143 73,985 770,616 47,563 723,053 4 691,454 42,384 649,070 -2 79,162 5,179 73,983 2 Total AIDEA Portion Bank Portion 20 Year Rate:Rate: 7,000,000 Needed 6.67%6,300,000 Needed 7.00%700,000 Needed Payment Interest Principal 210,000 Fee Payment Interest.Principal _189,000 Fee Payment Interest Principal 21,000 Fee 7,210,000 Loan 6,489,000 Loan 724,000 Loan 664,952 483,286 181,666 7,028,334 596,895 432,816 164,079 6,324,921 68,057 50,470 17,587 703,413 664,952 471,111 193,841 6,834,493 596,895 421,872 175,023 6,149,898 68,057 49,239 18,818 684,594 664,952 458,120 206,832 6,627,660 596,895 410,198 186,697 5,963,201 68,057 47,922 20,135 664,459 664,952 444,258 220,694 6,406,966 596,895 397,746 199,149 5,764,052 68,057 46,512 21,545 642,914 664,952 429,466 235,486 6,171,480 596,895 384,462 212,433 5,551,619 68,057 45,004 23,053 619,861 664,952 413,683 251,269 5,920,211 596,895 370,293 226,602 5,325,018 68,057 43,390 24,667 595,193 664,952 396,843 268,109 5,652,102 596,895 355,179 241,716 5,083,302 68,057 41,664 26,393 568,800 664,952 378,872 286,080 5,366,021 596,895 339,056 257,839 4,825,463 68,057 39,816 28,241 540,559 664,952 359,697 305,255 5,060,766 596,895 321,858 275,037 4,550,426 68,057 37,839 30,218 510,340 664,952 339,237 325,715 4,735,051 596,895 303,513 293,382 4,257,044 68,057 35,724 32,333 478,007 664,952 317,405 347,547 4,387,504 596,895 283,945 312,950 3,944,094 68,057 33,460 34,597 443,410 664,952 294,110 370,842 4,016,661 596,895 263,071 333,824 3,610,270 68,057 31,039 37,018 406,391 664,952 269,252 395,700 3,620,961 596,895 240,805 356,090 3,254,180 68,057 28,447 39,610 366,781 664,952 242,729 422,223 3,198,738 596,895 217,054 379,841 2,874,339 68,057 25,675 42,382 324,399 664,952 214,426 450,526 2,748,212 596,895 191,718 405,177 2,469,162 68,057 22,708 45,349 279,050 664,952 184,226 480,726 2,267,486 596,895 164,693 432,202 2,036,960 68,057 19,533 48,524 230,525 664,952 152,002 512,950 1,754,535 596,895 135,865 461,030 1,575,930 68,057 16,137 51,920 178,605 664,952 117,617 547,335 1,207,200 596,895 105,115 491,780 1,084,151 68,057 12,502 55,555 423,050 664,952 80,926 584,026 623,174 596,895 72,313 524,582 559,569 68,057 8,613 59,444 63,605 664,952 41,775 623,177 -3 596,895 37,323 559,572 -3 68,057 4,452 63,605 0 Taxable Revenue Bonds $7 million 7 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,7-Year Amortization . Sources: Bond Proceeds: Par Amount 8,000,000.00 §,000,000.00 Uses: .Project Fund Deposits: Deposit to Project Fund Other Fund Deposits: Debt Service Reserve Fund Delivery Date Expenses: Cost of Issuance | Underwriter's Discount Other Uses of Funds: Contingency 7,000,000.00 800,000.00 53,365.00 145,000.00 198,365.00 1,635.00 8,000,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,7 Year Amortization Annual Period Debt Ending Principal Coupon Interest Debt Service Service 01/01/2006 07/01/2006 220,000.00 220,000.00 01/01/2007 970,000 5.500%220,000.00 1,190,000.00 1,410,000 07/01/2007 193,325.00 193,325.00 01/01/2008 1,020,000 5.500%193,325.00 1,213,325.00 1,406,650 07/01/2008 165,275.00 165,275.00 01/01/2009 1,075,000 5.500%165,275.00 1,240,275 .00 1,405,550 07/01/2009 ;135,712.50 135,712.50 01/01/2010 1,135,000 5.500%135,712.50 1,270,712.50 1,406,425 07/01/2010 104,500.00 104,500.00 01/01/2011 1,200,000 5.500%104,500.00 1,304,500.00 1,409,000 07/01/2011 ;71,500.00 |71,500.00 01/01/2012 1,265,000 5.500%°71,500.00 1,336,500.00 1,408,000 07/01/2012 .36,712.50 36,712.50 01/01/2013 1,335,000 5.500%36,712.50 1,371,712.50 1,408,425 8,000,000 1,854,050.00 9.854,050.00 9,854,050 © NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,7-Year Amortization Period Total Debt Service ; Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 1,410,000 34,240 1,375,760 01/01/2008 1,406,650 34,240 1,372,410 01/01/2009 1,405,550 34,240 1,371,310 01/01/2010 1,406,425 34,240 1,372,185 01/01/2011 --1,409,000 34,240 1,374,760 01/01/2012 1,408,000 34,240 1,373,760 01/01/2013 1,408,425 834,240 $74,185 9,854,050 1,039,680 8,814,370 Taxable Revenue Bonds $7 million 15 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,15-Year Amortization Sources: Bond Proceeds: Par Amount §,000,000.00- §,000,000.00 Uses: Project Fund Deposits: Deposit to Project Fund Other Fund Deposits: Debt Service Reserve Fund Delivery Date Expenses: Cost of Issuance Underwriter's Discount Other Uses of Funds: Contingency 7,000,000.00 800,000.00 53,365.00 145,000.00 198,365.00 1,635.00 8,000,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,15-Year Amortization Annual Period Debt Debt Ending Principal Coupon Interest Service Service 01/01/2006 07/0 1/2006 224,000 224,000 01/01/2007 355,000 5.600%224,000 579,000 803,000 07/01/2007 214,060 214,060 01/01/2008 *375,000 5.600%214,060 589,060 803,120 07/01/2008 :203,560 -203,560 01/01/2009 395,000 5.600%203,560 598,560 802,120 07/01/2009 -192,500 -192,500 01/01/2010 415,000 5.600%192,500 607,500 800,000 07/01/2010 180,880 180,880 01/01/2011 440,000 5.600%180,880 620,880 801,760 07/01/2011 .168,560 168,560 01/01/2012 465,000 5.600%168,560 633,560 802,120 07/01/2012 "155,540 155,540 ; 01/01/2013 490,000 5.600%155,540 645,540 801,080 07/01/2013 141,820 141,820 01/01/2014 520,000 .5.600%141,820 661,820 -803,640 07/01/2014 127,260 .127,260 01/01/2015 550,000 5.600%127,260 677,260 804,520 07/01/2015 . :111,860 111,860 01/01/2016 580,000 5.600%111,860 691,860 803,720 07/01/2016 95,620 95,620 01/01/2017 610,000 5.600%95.620 705,620 801,240 07/01/2017 78,540 78,540 01/01/2018 645,000 5.600%78,540 723,540 802,080 07/01/2018 ;;60,480 60,480 01/01/2019 680,000 5.600%60,480 740,480 800,960 07/01/2019 41,440 41,440 01/01/2020 720,000 5.600%41,440 761,440 802,880 07/01/2020 21,280 21,280 01/01/2021 760,000 5.600%21,280 781,280 802,560 8,000,000 4,034,800 12,034,800 12,034,800 NET DEBT SERVICE Alaska Energy Authority Rail Beli Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,15-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 803,000 "36,880 766,120 01/01/2008 $03,120 36,880 766,240 01/01/2009 802,120 36,880 765,240 01/01/2010 800,000 36,880 763,120 01/01/2011 801,760 36,880 764,880 01/01/2012 802,120 36,880 765,240 01/01/2013 ;801,080 36,880 764,200 01/01/2014 803,640 36,880 766,760 01/01/2015 804,520 36,880 767,640 01/01/2016 803,720 36,880 766,840 01/01/2017:801,240 36,880 764,360 01/01/2018 802,080 36,880 765,200 01/01/2019 800,960 36,880 764,080 01/01/2020 802,880 -"36,880 766,000 01/01/2021 802,560 -836,880 -34,320 12,034,800 1,353,200 10,681,600 Taxable Revenue Bonds $7 million 20 years SOURCES AND USES OF FUNDS Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,20-Year Amortization Sources: Bond Proceeds: Par Amount 7,875,000.00 7,875,000.00 Uses: Project Fund Deposits: Deposit to Project Fund Other Fund Deposits: Debt Service Reserve Fund Delivery Date Expenses: Cost of Issuance Underwriter's Discount Other Uses of Funds: Contingency 7,000,000.00 677,050.00 53,127.25 144,062.50 197,189.75 760.25 7,875,000.00 BOND DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,20-Year Amortization Annual Period Debt Debt Ending Principal -Coupon Interest Service ©Service 01/01/2006 07/01/2006 228,375 228,375 01/01/2007 220,000 5.800%228,375 448,375 676,750 07/01/2007 221,995 221,995 01/01/2008 230,000 5.800%221,995 =451,995 ©673,990 07/01/2008 215,325 215,325 01/01/2009 245,000 .5.800%215,325 460,325 675,650 07/01/2009 :208.220 208,220 ; 01/01/2010 260,000 5.800%208,220 468,220 676,440 07/01/2010 200,680 200,680 01/01/2011 275,000 5.800%200,680 475,680 676,360 07/01/2011.192,705 192,705 01/01/2012 290,000 5.800%192,705 482,705 675,410 07/01/2012 184,295 184,295 01/01/2013 305,000 5.800%184,295 489.295 673,590 07/01/2013 175,450 175,450 01/01/2014 325,000 5.800%175,450 500,450 675,900 "07/01/2014 166,025 166,025 01/01/2015 345,000 5.800%166,025 511,025 677,050 07/01/2015 156,020 156,020 . .01/01/2016 365,000 5.800%156,020 521,020 677,040 07/01/2016 145,435 145,435 01/01/2017 385,000 5.800%145,435 530,435 675,870 07/01/2017 ' 134,270 134,270 01/01/2018 405,000 5.800%134,270 .539,270 673,540 07/01/2018 122,525 122,525 01/01/2019 430,000 5.800%122,525 552,525 675,050 07/01/2019 110,055 110,055 01/01/2020 455,000 5.800%.110,055 565,055 675,110 07/01/2020 96,860 96,860 01/01/2021 480,000 5.800%96,860 576,860 673,720 07/01/2021 82,940 82,940 , 01/01/2022 510,000 5.800%82,540 592,940 675,880 07/01/2022 -68,150 68.150 01/01/2023 ,540,000 5.800%68,150 608,150 676,300 07/01/2023 *.52,490 52,490 01/01/2024 570,000 5.800%$2,490 622,490 674,980 07/01/2024 ; 35,960 35,960 01/01/2025 605,000 5.800%35,960 640,960 676,920 07/01/2025 18,415 18,415 01/01/2026 635,000 5.800%18,415 653,415 671,830 7,875,000 5,632,380 13,507,380 13,507,380 NET DEBT SERVICE Alaska Energy Authority Rail Belt Utility Group Intertie Project Taxable Revenue Bonds,Series 2006 $7 Million in Proceeds,20-Year Amortization Period Total Debt Service Net Ending Debt Service Reserve Fund Debt Service 01/01/2007 676,750 31,550.54 645,199.46 01/01/2008 673,990 31,550.54 642,439.46 01/01/2009 675,650 31,550.54 644,099.46 01/01/2010 676,440 31,550.54 ©644,889.46 01/01/2011 676,360 31,550.54 644,809.46 01/01/2012 675,410 31,550.54 643,859.46 01/01/2013 673,590 31,550.54 642,039.46 01/01/2014 675,900 31,550.54 644,349.46 01/01/2015 677,050 31,550.54 645,499.46 01/01/2016 677,040 31,550.54 645,489.46 01/01/2017 675,870 31,550.54 644,319.46 01/01/2018.673,540 31,550.54 641,989.46 01/01/2019 675,050 31,550.54.643,499.46 01/01/2020 -675,110 31,550.54 643,559.46 01/01/2021 673,720 31,550.54 642,169.46 01/01/2022 *675,880 31,550.54 644,329.46 01/01/2023 676,300 31,550.54 -644,749.46 01/01/2024 674,980 -31,550.54 643,429.46 01/01/2025 676,920 31,550.54 645,369.46 01/01/2026 671,830 708,600.54 -36,770.54 13,507,380 1,308,060.80 12,199,319.20 Attachment D OUTLINE --4/21/06 ALASKA INTERTIE AGREEMENT MEETING 1.AEA Primary Concerns Reflecting Defects in Agreement: a.No R&R fund or other capital fund to finance major maintenance or upgrades Deferment of needed repairs;and c.Lack of compliance with Agreement's terms and conditions. 2.Simple Approach -Amend Agreement - GM's suggested this approach 7/22/05 Requires unanimous approval -but utility opposition has precluded. c.Are accommodations to gain unanimous approval of Amendments possible?(MEA suggested this might be possible)If not,AEA suggests two staged approach to fix defects in Agreement: i.Side Agreements until Amendments become effective. ii.-Amendments -either when unanimous approval or after existing Agreement is terminated.oP3.Side Agreement approach to Agreement Problems i.Proposed concepts -good start,but not complete cure to defects in Agreement. ii.Modifications needed - 1.Ensure decision maker has funding source for necessary repairs/major maintenance. a.Problem with proposal was AEA remained responsible for maintenance (via contracting out responsibilities)whilst Utilities control funding. Ergo,no assured funding source. b.AEA assumes R&R proposal would be structured as a trust account from which debt financing of projects could occur.Otherwise,funds contributed by individual utilities could not be replenished from intertie revenues under terms of the Agreement. 2.Budget process -AEA prefers No Reversion to pre-1993 processes that are still contained in language of Agreement: a.Utility operators and maintenance contractors would recommend budgets. b.AEA (not IOC)would again determine budget,and thereby effectively determine scope of operations and necessary repairs,and only consult with IOC utilities. c.AEA would submit budget to legislative --which would appropriate intertie receipts to cover budgeted amounts. d.No good mechanism to modify budget/intertie revenues or funding to cover unexpected events. 3.Need long-term cures to underlying defects in Agreement before altering termination/opt out provisions as part of debt financing or otherwise. 4.Amendments to Agreement (options): a.Funding source for necessary major maintenance,repairs and upgrades: i.A mechanism the Utilities propose. ii.Create R&R fund. ili.Establish terms in Agreement conducive to bonding/debt financing. 1.Alter termination/opt out provisions. 2.Better ensure intertie revenues. 3.Utility guarantees for debt financing. b.Budget processes/effectively operational decision making -reflect existing IOC decision making authority,rather than pre-1993 AEA control. i.Reflect GM's view expressed 7/22/05 that utilities are better able to make appropriate "prudent utility practices”business decisions for Intertie --and balance costs/risks/benefits in timing of repairs, etc. c.Create Management Committee of GM's for Intertie. 1.GM comment from 7/22/05 -IOC is only operating committee, not management committee. ul.IOC has largely morphed into a management committee under current processes. d.Connect responsibility with decision making control;consider switch from individualized to collective IOC responsibility: i.Agreement provides that each Participant will obtain their own insurance coverage and defend &indemnify others for all actions taken under color of Agreement. il.Agreement places additional risk burdens on individual utilities that operate or maintain intertie. il.More efficient intertie management may arise from making more of the risk burdens a collective responsibility.(this helps avoid skewing decision making) 1.E.g.,in the pending insurance review,the IOC can make a better business decision regarding the appropriate level of insurance coverage if both insurance premiums and uninsured risks are collective obligations payable from intertie fees. iv.Adopt Bradley Lake Agreement approach (IOC assumes more decision making authority and corresponding responsibility). e.Indemnification of AEA (alternative option). ll. Many AEA Board concerns arise from potential liabilities that might arise from non-compliance with Agreement. Also,indemnification of AEA would alter its risk tolerance in decision making processes. 1.AEA receives no compensation/revenue/benefit from Intertie operations,and thereby has no economic incentive to assume risks arising from Intertie operation. 2.AEA decision making can more properly balance operational benefit to utilities vs.risk if AEA is indemnified from risks. JSpecinesGVLA and AM EP a0 op {Pue pegotatngy Nene 'Narnee dunt have io be set m concrete.Jravermasion rate furmuta for vee of petthipants tines to gel to the Interhe Modity Budget process to levelize cont structure fave amid yeat Buckpot caylee and the authonty jo add to he BudgetPpRetAPTayagessomeneeraheeesegeneracess With eattien approvedof aif ulitiies the final scope of tie O AB of tne intertie,APAIAEA wil]pay AMP end GVEA for the OAD Review founute Section Contract Actual/Problem Resolve MIPINIU 144 [OC ahull determine the MITCR by filet of June MUICR calculated during budget pracess,Rasely occurs befure June t IOC wal comply Gn March 4 the Utitities shall eubsmit toAPAJAEA projected ueage inkwh on «monthly basie 821 tor the folowing fecal year APA request for data typically in April {OC well complyAPAJAEAshailprepareiniurtleannualusageeethnaleInkuh'e and provide b the UtilitiesbyApi)The estinate shall in no event be jess then the amount equal to 30%of the kwt'ethatcouldbewanelettedbyoperationoftheintertealthemaximumsatedwanelercapacity 423 at 70 MW Usually done white compilingthe budget (june/juty){OC wit comply IZehall consiel of one representative by 'each Participant.Elect a Thakman annually ai thefretngofeachyearandofthe10Cshallbe 94 fadopted #approved by 75%majorityoftotal memberebip.Elections not atways at first ig Ofyear.tOC wall comply OG shell establish operating rT 9 Intete tions.TOC has no authorityiumodityweAyreementFOCchanyeswithintheIOCresponsibilityshallbeeffectivewhen 942 styned by at 75%of the Participants Procedures ratified and recorded by voice vote,No sy tOC wit comply Utiities shall providewitten conunents io the soupe of operations and budget to APAJAEA 10.3.2 12 monthe the budgethecalyear Budget is discussed (LOC and Budget Subc)but g:lly no written c 1OC walt comply,but preter to macdity 12271 APAIAEA hall devatup the budget endschedule for the yeer,GVEA hae not directly provided tong range maint budget fmptication je that this te for AEA fiscal req's Maint Contactors wit provide 10.36 APAIAEA shallpresentthe hoa!O 8B to the |eyislature AEA doesnt 't present budget to legislature.Wat oonpty,bul prefer to mociy 1gaeWillcomply,tut preter to 'moudy,annamount ie We _[APAJAEA wit AMI P &GVEAthefix onst of theyear Northern and Southern operators operate for free.reo Wood 32.2 tach Uttity bie forHa Reeve Capacity Oblg Dispute over Soldotnaumt spur Provedural languaye ouutd be improved 1 Genetat JF MUS wae onginal parecipent Renwuve we oy FMUS.Cleanup ALForpurposesoftheiiterteveilspursuantSec67andloprovideinformationfequred on obtain oF budget from the AMLP and GVEA shai develop annually and submit lo APA/AEA @ scopeal operations and budget no tater than 14 monte Hetore the budget fecal year APAJAEA shall estabtish ecope of operations and Budget WA only.but preter to modify,Note, based on the IU,AMLP and GVEA and provide to the ublties 13 months betore the Hecat operators bu iyel m Zero.but operatone 10.34 your APA no longer submits budget bo leg for approg Don't do 14 months early Dardyad vont 1 it the XCte unable to agree on a maiter withinitelediction,shall be rescived byUNsnTOUsayreementofBiGMeoftheUnitesandExecutiveDi.APA/AEA.ff falied to(@R0h @ UNenImOUe aa eement within 2U worung days then the matter shall be eubmitied toy32bindingarntation AMLP clams they wanted to appeat spin issue.The testofFOC process was procechs ally flawed t Hanguage couldbe mp d !intecte woota wil beestimated and budyetedbyAPAJAFA Tor the entaring Hacal w.,July tw .' June 30 The butiget shaft be provided to the Partapants 13 monthe betore the fiecal yt.forfiviewantcommentAPAJAEAehellsonuellyestablishtheiIniertebudgetandeubniit1to Rd jihe APAVAEA Bondfor apptoval Budget due 13 mon advance.APA board approval.Will county,bipratertomocdity aoe10.0.3.1-10.3.5 |Operann expense parkjets Detete.Practice i¢not to pay operawis,il pert of then G&l busmess Wat comply,but preter wo modify 1 is ;Petapante MICR in acounisnce wth bea 72 nuttipled by one-twailth of the Intertte TT) Capacity Hate ABA reumbui sed fur capacity afl at once for cash flow reasons,Weal comply,fut preter to modhfy ' {Payment of uperators Delete ok, Sume day may newupdatiny h ryNowrittenapproval,GVEA and AMIE P no longer rei sed.we Oompty.Dut preter to masttyWatehdpxotercatornsaroudouowepl,may feyuie supplemental grttseted kak iT hahs aLttodicbysexshaceabovemttoredoceoonYeriteetetnbhatroneruysoonteedunwattsFaoetifengtoholdexcess: PMSh eeee tiedaan tiericensFoedetspers Word mani e@eoppiomeatal 2gret itieswotatPeasyQtAtonolthi2 a pein srecemoe deareeettobenaonr:2Leen Hl JAEGST wos ouiginat partic {Require AEGST m neta to0 per«ionnthe suneas AEG!AEGAE0 obtiyahons Nut a Contactt yO isee APA reaponsibtefut interke mainlenance Need enforce provisone APA has changed APA w budget for APA has aHeedtoenfuiceprovisionsAPAJALAwitcontractwithMEA,@ member of AEGAT for useof a portion MEAs (ranemisston tine that wil be part of the inteite between Dougiae end Teelend Substations.APAIAEA fo AMLP 196 y for op:APA had uthities frunt the MEA TSA dispute. AEA may detogate.Non lesue,Uttitiesses4Hvwy 3uowyoeny Hole Contard Language lasuet8.t.2 EachUtiities stotdefend and indemnifythe other Uliity against any clan MEA may be violating.ms.tat HUG 9shall ayreeuponinHitecha moteing equipment MEA IGVEA Not a Contract Languaye Inave WOMaxIntertetansle:le 70)MW.i.Tile hae been adjusted upwards over tne bul MITCR caicutations stl use ob] 74 tOC may a travefer cap y and shall reduce the MITCR of each Utity IOC can modily ydModihcatunetaintoviteshatbedesignedandounevucted80a8nottoreduceiteteliabiktysubjentjoPrudentUlityPracticeandreasonableeconomics.Design wil be submittedto741HOCforte,andl 18 wilt ba inoorpor at Stevens Sub reconmuendations not incorporated.1 Pwtcipants shat uperate by Prudent ullity Practices to [s gating 415 lo other systere AEGT does not operate the MEA system thie way Opinion 1 Participante shud operate tet elucte "d and shall Spurt of this section not being complied with,Not a Contract Language ChangeeouperateifurnishingoFfecetving(Hough puit of 'Pom Evangy Shale achete on an hourly basa Schedules occasionally changed prior to next hour,Sefeduting (5 done hourly faiSchedulesnotalwaysdoneby1500,Don't do 7 day sch Practive has yariod over the years Fave cotrection ta courdiutated jut committee bybe teuundendI tsAEAotibeParticipantwhenitaePuwerto»p pent and ie d to the _[var teipanta'jatercontectedwysten.AEA/AIDEBA Bradley Sales to SES State setere to enc 77 State joats thin section ullinenot bound by”"LTAlntertePowertranelersshailbeecheduledinatandbitiwsbasedonschedules[RCA ruling ordered paying MEA wheeling on !1a Hi annualie bysMIICR May only have appted in FY65. wait borsfeview fu be completedechetyshall¢pute jain yorreral Habiity NeUutance.Participants named as ft insured.A review is pl {OC hasn't agen these ut quite a while,A review sp planned,wait tur1Jeview i be complatod .OperantNaas ns J Specities Ju%cap Retem.APA nol a paity to Addendum bo change WdAddendatNoti]A Dpectties Gperatng reser Retam_APA not a party to Addendum,te change dy10.2.5 he 1OU muy modty We 0 May addiess previous concem (OC can meouily 1UtittesprovingTrmenussiunSurviceshallbepaidlorteuseoftheVansinlesionService!15.3.1 t actities Has been disputed by MEA.CEA's Bradley Wheeling.Not@ Contract LanguageChange 1 152 Uttibes shut nut nut TeanamiononSarvice_acoeee to the interte MEA would not let GVEA upyrade tis line,Nal@ Con act Language feaus i 'imfontroversint Alaska Inclustrial Development and Export Aut. Al Alaska Energy Authority Attachment F Ais June 24,2005 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3323 Mr.Dave Calvert Utility Manager City of Seward P.O.Box 167 Seward,Alaska 99664 Fax:(907)224-4085 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 Mr.Joe Griffith Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 RE:July 25"Alaska Energy Authority Board Meeting Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)will meet on Monday,July 25, 2005 at the AIDEA offices to discuss,among other issues,the Alaska Intertie Agreement ("Agreement”).The meeting,as all AEA Board meetings,will be open to the public,but !am extending an invitation to you as General Managers of the railbelt utilities to ensure your participation in discussions with our Board of problems with the Agreement and possible solutions. Among the issues related to the Agreement to be discussed by the Board are: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and O17 VAlnct Marth acm bLiahte QDaArilaAcarch ee Anrhrnesan Alacla QATN7 June 24,2005 Page 2 3.Lack of compliance with the Agreement's terms and conditions;' The Board has concerns regarding continuing operations of the Alaska Intertie under the current Agreement.The inability of the Intertie Operating Committee to timely address tower foundation repairs,SVC upgrades and other necessary deferred maintenance evidences fundamental deficiencies in the Agreement.Even if those specific problems were soon addressed,the Agreement would still lack adequate provisions to maintain the intertie and prevent future serious degradation of the line's ability to transmit power. These fundamental deficiencies in the Agreement must be rectified.We understand that the conventional wisdom of the Utilities in the past has been that the Agreement cannot be amended to cure these deficiencies.However,if no other realistic solution is forthcoming,the AEA Board may be compelled to exercise its option to terminate the Agreement under Section 2.2.2,which will enable all the parties to negotiate a new Alaska Intertie Agreement. You are invited to present to the AEA Board on July 25"any realistic solution you may have to rectify the fundamental deficiencies in the Agreement and alleviate the necessity for the Board to terminate the Alaska Intertie Agreement.The AEA Board meeting will commence immediately after the AIDEA Board meeting which is scheduled to begin at 10:30 AM.YoushouldplantobeattheAIDEABoardRoomby11:15AM on July 25"for the AEA Board meeting. Executive Director RWM:bjmf H:\AEA Projects\Alaska Intertie Project\AEABdMtgAkinteriteGMltr.doc 'The AEA Board is also willing to discuss any concerns the utilities have with the Agreement, including (a)inequitable spinning reserve allocations,or (b)disagreements over transmission sharing. Alaska Industrial Development and Export Autt. Al Alaska Energy Authority June 24,2005 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3323 Mr.Dave Calvert Utility Manager City of Seward P.O.Box 167 Seward,Alaska 99664 Fax:(907)224-4085 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 Mr.Joe Griffith Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 RE:July 25™Alaska Energy Authority Board Meeting Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)will meet on Monday,July 25, 2005 at the AIDEA offices to discuss,among other issues,the Alaska Intertie Agreement ("Agreement”).The meeting,as all AEA Board meetings,will be open to the public,but |am extending an invitation to you as General Managers of the railbelt utilities to ensure your participation in discussions with our Board of problems with the Agreement and possible solutions. Among the issues related to the Agreement to be discussed by the Board are: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and 813 West Northern Lights Boulevard *Anchorage,Alaska 99503 June 24,2005 Page 2 3.Lack of compliance with the Agreement's terms and conditions;' The Board has concerns regarding continuing operations of the Alaska Intertie under the current Agreement.The inability of the Intertie Operating Committee to timely address tower foundation repairs,SVC upgrades and other necessary deferred maintenance evidences fundamental deficiencies in the Agreement.Even if those specific problems were soon addressed,the Agreement would still lack adequate provisions to maintain the intertie and prevent future serious degradation of the line's ability to transmit power. These fundamental deficiencies in the Agreement must be rectified.We understand that the conventional wisdom of the Utilities in the past has been that the Agreement cannot be amended to cure these deficiencies.However,if no other realistic solution is forthcoming,the AEA Board may be compelled to exercise its option to terminate the Agreement under Section 2.2.2,which will enable all the parties to negotiate a new Alaska Intertie Agreement. You are invited to present to the AEA Board on July 25"any realistic solution you may have to rectify the fundamental deficiencies in the Agreement and alleviate the necessity for the Board to terminate the Alaska Intertie Agreement.The AEA Board meeting will commence immediately after the AIDEA Board meeting which is scheduled to begin at 10:30 AM.YoushouldplantobeattheAIDEABoardRoomby11:15AM on July 25"for the AEA Board meeting. on Miller Executive Director RW M:bjmf H:\AEA Projects\Alaska Intertie Projec\AEABdMtgAkInteriteGMitr.doc 'The AEA Board is also willing to discuss any concerns the utilities have with the Agreement, including (a)inequitable spinning reserve allocations,or (b)disagreements over transmission sharing. P.| ***¥Transmission Result Report (MemoryTX)(Jun-za.2005 1:03PM)*** Ks AITLDEAZAEA _..3/Time:Jun.24.2006 12:57PM File Page No.Mode Destination Pg (s)Result Not Sent 8820 Memory TX 848072353323 P.2 OK 919072244085 OK 92635204 OK 819077619349 OK 95620027 OK 919074585951 OK E.i)Hangs up or tine fail -.2)Busy 4)No facsimile connection Alaka Indusuiad Developmentand Export AuthorityAIDEAWA THAN este dune 24,2005 Mr.Bradley P.Janorschke Mr.Wayne Garmony General Manager General Manager Homer Elactric Association,inc.Matanuska Electric Association,Inc.and 3977 Lake Street Alaska Electric Generation and Homer,Alaska 99603 Transmission Cooperative,inc. Fax:(907)235-3323 P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 Mr.Dave Calvert Mr.Joe Griffith Utility Manager Ghiet Executive Officer City of Seward Chugach Electric Association,inc. P.O.Box 167 P.O.Box 196300 Seward,Alaska 99664 Anchorage,Alaska 99519-6300 Fax.(907)224-4085 Fax:(907)562-0027 Mr.Jim Posey Mr.Steve Haagenson General Manager President &Chief Executive Officer Anchorage Municipal Light &Power Golden Valley Electric Association,Inc. 1200 Eas!First Avenue P.O.Box 71249 Anchorage,Alaska 99501 Fairbanks,Alaska 99707-1249 Fax:(907)263-5204 Fax:(907)458-5951 RE:July 25"Alaska Energy Authority Board Mesting Genilemen:, The Board of Directors of the Alaska Energy Authority (AEA)will meet on Monday,July 25,2005 at the AIDEA offices to discuss,among other issues,the Alaska Interie Agreement ('Agreement').The meeting as atl AEA Board meetings,will be open to the public,but }am extending an invitation to you as General Managers of the railbelt utilities to ensure your partcipation in discussions with our Board of problems with the Agreement and possible solutions. Among the issues related to the Agreement to be discussed by the Board are: 1.No R&R turd or other capital fund to tinance major maintenance or upgrades; 2.Determent of needed repairs;and R13 Wiret Newthom Licht:Revilevand «Anrhowsce Alsclea GU5Nt ee Alaska Industrial Development and Export AuthorityAID=AWK RECEIVEDrin272005EXECUTIVEOFFICEREXECUTIVEurFICER June 24,2005 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3323 Mr.Dave Calvert Utility Manager City of Seward P.O.Box 167 Seward,Alaska 99664 Fax:(907)224-4085 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East Firsi Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission.Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 Mr.Joe Griffith Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc.© P.O.Box 71249 ;wer eee ae Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 RE:July 25"Alaska Energy Authority Board Meeting Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)will meet on Monday,July 25, 2005 at the AIDEA offices to discuss,among other issues,the Alaska Intertie Agreement ("Agreement”).The meeting,as all AEA Board meetings,will be open to the public,but |am extending an invitation to you as General Managers of the railbelt utilities to ensure your participation in discussions with our Board of problems with the Agreement and possible solutions. Among the issues related to the Agreement to be discussed by the Board are: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and 813 West Northern Lights Boulevard *Anchorage,Alaska 99503RADIATRABAARINERNtmme June 24,2005 Page 2 3.Lack of compliance with the Agreement's terms and conditions;' The Board has concerns regarding continuing operations of the Alaska Intertie under the current Agreement.The inability of the intertie Operating Committee to timely address tower foundation repairs,SVC upgrades and other necessary deferred maintenance evidences fundamental deficiencies in the Agreement.Even if those specific problems were soon addressed,the Agreement would still lack adequate provisions to maintain the intertie and prevent future serious degradation of the line's ability to transmit power. These fundamental deficiencies in the Agreement must be rectified.We understand that the conventional wisdom of the Utilities in the past has been that the Agreement cannot be amended to cure these deficiencies.However,if no other realistic solution is forthcoming,the AEA Board may be compelled to exercise its option to terminate the Agreement under Section 2.2.2,which will enable all the parties to negotiate a new Alaska Intertie Agreement. You are invited to present to the AEA Board on July 25"any realistic solution you may have to rectify the fundamental deficiencies in the Agreement and alleviate the necessity for the Board to terminate the Alaska Intertie Agreement.The AEA Board meeting will commence immediately after the AIDEA Board meeting which is scheduled to begin at 10:30 AM.YoushouldplantobeattheAIDEABoardRoomby11:15AM on July 25"for the AEA Board meeting. on Miller Executive Director RWM:bimt an fbogat tn care apie HAAEA Projects\Alaska Intertie Projec\AEABdMtgAkInteriteGMitr.dac 'The AEA Board is also willing to discuss any concerns the utilities have with the Agreement, including (a)inequitable spinning reserve allocations,or (b)disagreements over transmission sharing. CHUGA A POWERING ALASKA'S FUTURE Lo Gotden Veliee Blectric Asctirubean a Degheee bias tergece ala July 6,2005 EGEIVE iJUL112005 Ron Miller,Executive DirectorAIDEA AIDEA/AEA 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Ron: We received your letter of June 24,2005,(attached)asking the Railbelt utilities to join the AEA board for a July 25 discussion of the Alaska Intertie agreement.As the primary users of the Intertie,we are responding collectively.No one has a stronger interest in the reliable operation of this line than do we. The issues you cite appear to be generally of an operational nature,which are under the control of the utilities via the Intertie Operating Committee.We are unclear why it makes sense to discuss such operational issues in this forum.We need to hear more from you about this. You reference "...Board...concerns regarding continuing operations...under the current Agreement...”but offer no details.We are interested in hearing more about your concerns before we speak to your Board. However,we do not accept the assertion that the IOC has not timely addressed tower foundation repairs, SVC upgrades and other necessary deferred maintenance.While we agree that some repair work is necessary in several areas,we nevertheless believe the IOC has prudently managed the Intertie over the past 21 years --funded it,kept it working reliably,prudently made repairs and minimized operating costs. The Intertie is of great importance to Alaskans at both ends.Your threat to terminate the agreement is an unwise and heavy-handed move on the part of the State that would have substantial deleterious effects on the nearly half a million electricity customers in the Railbelt economy by measurably raising rates for electricity.Such an act would not be prudent in addition to the serious legal questions it will raise. In view of the foregoing,we suggest we not have this nature of a discussion in front of your board,but that we first have a work session with staff members and hear what each side thinks and suggests.We believe this would make for a more productive session with your board after such a work session. Please let us hear your thoughts as soorrys possible. La Jim Posey,General Manager Steve Haagenson,President/CEO Chugach Eléctric Assn.,Inc.Anchorage Municipal Light &Power Golden Valley Electric Assn.,Inc. P.O.Box 196300 1200 East First Avenue P.O.Box 71249 Anchorage,AK 99519-6300 Anchorage,AK 99501 Fairbanks,AK 99707-1249 Attachment Ronald W.Miller July 25,2005 Page 6 Participants interest on AEA funds expended on the Intertie.As also noted by Mr.Barry, AEA does not have a source of capital available to fund major Intertie maintenance and upgrade projects,and thus these projects will never get funded under the current Agreement absent unanimous agreement among the Participants. MEA believes that during the 48 month period before AEA can impose new terms for using the Intertie,public safety concerns should outweigh fiscal concerns.AEA must, pursuant to Section 10.2.1 of the Agreement and the policies adopted by the IOC on December 8,2004,require that the Intertie be de-energized whenever more than two inches of new snow is reported at Talkeetna Airport or Susitna Valley High School,it is continuing to snow in those areas,and an inspection patrol is not initiated at first light following the more than two-inch accumulation of new snow.The Intertie must then remain de-energized until such time as a thorough patrol of the line for ground clearance inadequacies has been initiated.As you know we have also made an effort to inform the public of the risk of harm from this line.MEA has done what it can to protect the public. Now it is AEA's turn. MEA believes that termination of this Agreement is necessary to start the process of eliminating a known threat to public safety and to ensure long-term Intertie reliability. Under AS 44.83.090,any new agreement for use of the Intertie will necessarily have to address these funding issues.Accordingly,MEA recommends that AEA immediately give the 48 month notice of termination under Section 2.2.3 of the Agreement. The IOC has failed to adequately deal with these significant public safety issues,and apparently has no interest in timely dealing with them.It is time to present these issues to AEA's Board of Directors with a recommendation to terminate the Alaska Intertie Agreement,so that these public safety issues can finally receive the meaningful attention and resolution they deserve.MEA believes that immediate termination of the current Agreement is the only path towards creation of a safe Intertie. Sincerely, James L.Walker Senior Counsel cc:Alaska Energy Authority Directors C:\Documents and Settings\vanval_l.MATANUSKA\My Documents\ADMIN\Legal\Ltrs\Alaska Energy Authority\Miller re load cells.doc Matanuska Electric Association,Inc. P.O.Box 2929 Palmer,Alaska 99645-2929 Telephone:(907)745-3231 Fax:(907)761-9368 ie, ynergy Works. July 25,2005 Ronald W.Miller Executive Director Alaska Energy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Mr.Miller: |have reviewed the July 6,2005 letter to you regarding the Alaska Intertie (Intertie)from Chugach Electric Association,Inc.(Chugach),the Municipality of Anchorage d/b/a Municipal Light and Power (ML&P),and Golden Valley Electric Association,Inc.(GVEA), and attended the July 22,2005 workshop held at their request.|am writing to express MEA's disagreement with several statements made by these utilities.As maintenance contractor,owner of one segment of the Intertie,and ultimate recipient of firm power transmitted on that line,MEA is at least as interested in the reliable operation of the Intertie as Chugach,ML&P or GVEA,and obviously more interested in the safe operation of this line,especially where it goes through our service territory and clearance problems are known to exist. In their July 6 letter,the three utilities emphasize that the Intertie Operating Committee (IOC)has kept down operating costs.However,they fail to acknowledge their consistent refusal to insist that the known safety problems related to excessive line sag during certain snow loading conditions be corrected,when prudent utility practice and public safety considerations requires such action. The July 22,2005 suggestion by ML&P's General Manager that we solve this problem by fencing off the Intertie corridor shows the lack of serious consideration that this safety issue has received.An easement holder simply cannot fence off an easement to prevent use of the surface estate by the owner of that estate.Some of the Intertie crosses private lands,and there would undoubtedly be significant costs involved with purchasing fee title to those lands before a fence could be built.Much of the Intertie crosses public lands,and there would certainly have to be a significant public process before this fencing option could be approved. This failure to seriously consider public safety was also evident at the June 9,2005 IOC meeting held at AEA's office,where it was announced by Mr.Henri Dale (GVEA)that the firm of Dryden &LaRue had been instructed to cease work on designing the inset towers.This action was taken despite Mr.LaRue's previous finding that these inset towers were the only certain cure for the unbalanced snow loading problem.Under Ronald W.Miller July 25,2005 Page 2 Section 9.1.2 of the Alaska Intertie Agreement,and the protocols adopted by the [OC pursuant to that Section,an action of this magnitude should have been placed on a meeting agenda,giving Participants advance notice it would be discussed.MEA is aware of no evidence that the decision to abandon this public safety project was properlyadoptedinaccordancewiththerequirementsoftheAlaskaIntertieAgreement.'It was simply swept under the rug as unimportant. It has long been known to AEA and all members of the IOC that the Alaska Intertie is designed in such a way that unbalanced snow loading on Intertie conductors results in excessive sagging that brings the line down to levels where contact with persons and equipment under the line is a reasonably foreseeable hazard.From the decision inStatev.Sanders?it is apparent that State ownership of the Alaska Intertie does not shield AEA from liability in the event a person is injured as a result of this known hazard. AEA can be held liable for such injury because Section 7.4.2 of the Alaska Intertie Agreement gives AEA authority to make the changes required to protect the public from this hazard.Under Section 18.1 of the Alaska Intertie Agreement,AEA has agreed to indemnify the other Participants from all claims arising from AEA's acts and omissions. AEG&T has repeatedly requested implementation of the inset tower cure for the unbalanced snow loading design problem.The failure of AEA under the current Agreement to provide any mechanism for timely construction of this necessary safety upgrade cannot be blamed on a lack of knowledge.It is unclear whether adequate disclosure of this unbalanced snow loading issue has been made to the IOC's insurance carrier,and whether a failure to adequately disclose such information could result in loss of coverage in the event of a tragic accident. Now that the inset tower project has been abandoned,one can only conclude that AEA and a majority on the IOC are willing to risk public safety by continuing reliance on thecurrent"load cells and inclinometers'.2 MEA does not believe that this decision is consistent with prudent utility practice.There is one load cell/inclinometer installation per span located approximately every ten towers through the area where potential snow loading problems have been identified.These devices are on alternating phases so that 'At the July 21,2005 IOC meeting,Mr.Dale acknowledged that there was no formal vote taken on this issue.Mr.Dale indicated that Dryden &LaRue had been informally instructed that other work within the scope of their contract with AEA was of higher priority than the inset tower design.This instruction effectively precluded Dryden &LaRue from being able to continue work on the inset tower design due to funding limitations in the contract. 944 P.2d 453 (Alaska,1997) 3 The segment of the Alaska Intertie between MEA's Douglas Substation and the Intertie Midpoint,where unbalanced snow loading has resulted in clearance problems,was designed and constructed for operation at 345,000 volts.In this segment,each of the three phases consists of two individual conductors bundled together in a manner that allows more snow and ice to accumulate on the conductors than would normally occur if just one conductor were used.The IOC previously authorized installation of load cells, inclinometers,and related communications equipment on individual phases at certain towers.The purpose of these devices is to measure the sag and line clearance,and to communicate this information to ML&P dispatch.It was anticipated that when ML&P dispatch received an alarm indicating that line loads or sag certain designated levels;dispatch could presume ground clearance was inadequate and would de-energize the line.So far,to MEA's knowledge,these devices have never resulted in the Intertie being de-energized. Ronald W.Miller July 25,2005 Page 3 any given phase is only monitored every thirty towers (or roughly once every seven miles).This is clearly inadequate coverage given the variations in local conditions that can be found along the Alaska Intertie in the affected area.Further,these devices have never been calibrated to observed ground clearances during actual snow loading conditions.MEA has no confidence that these devices provide any information relevant to the identification and remediation of ground clearance problems during periods of differential snow loading. As owner of a transmission line energized at 138,000 volts,AEA has a legal obligation to isolate that line,either through insulation or through distance,from persons who could come into contact with it.4 The Alaska Supreme Court has clearly followed the common law adopted in other states in imposing this duty on the owners of lines carrying electricenergy.°The Alaska Supreme Court has also held that members of the public are notpresumedtoknowthelevelofdangerrepresentedbyanelectricline.®This is particularly important in the case of a line energized at 138,000 volts where a person does not have to actually touch the line in order to be seriously injured or killed by anelectricarc.' Under common law,it is generally held that:"Where the circumstances are such that the probability of danger to persons having a right to be near an electrical line is reasonably foreseeable,power companies have often been held liable for injury or death resulting from contact between the powerline and a movable machine.Power companies must anticipate and guard against events which may reasonably be expectedtooccur,and the failure to do so is negligence.”®It has also been held that with regard to electric lines:"When human life is at stake,the rule of due care and diligence requires everything that gives reasonable promise of its preservation to be done,regardless of difficulties or expense.”® It cannot be disputed that the general public uses the Alaska Intertie corridor and surrounding lands for recreational purposes in the winter when snow is on the ground and on the lines.Nor can it be disputed that the public has the legal right to occupy and use these public lands in this manner.Based upon presentations by Mr.LaRue,MEA has concluded that clearances of sixteen feet or less will periodically occur during most years at some point on the line.It is reasonably foreseeable that persons will come *See,Larman v.Kodiak Electric Association,Inc.,514 P.2 1275,1279-1280 (Alaska,1973). >In the Larman decision cited above,the Alaska Supreme Court specifically adopted the standard set forth by the California Supreme Court in Polk v.City of Los Angeles,26 Cal.2d 519,159 P.2d 931,934 (1945). However,the Alaska Court also cited to comparable decisions by courts in Maryland,New Mexico,and Virginia,and the cases cited to by those courts in support of its decision.The Polk decision has also been cited to as persuasive authority by courts in Arizona,Missouri,Nevada,New York,North Dakota and Utah,and in conjunction with decisions from other states on this issue it is clear that the rule stated therein is very nearly a national standard.6 See,Ferriss v.Chugach Electric Association,Inc.,557 P.2d 763,769 (Alaska,1976)7 In the case Mansfield v.Union 76 Division of Union Oil Co.of California,532 F.2d 446,448 (5"Cir., 1976)the federal court accepted as correct a formula that would tend to show that an arc from a line energized at 138,000 volts would be sufficient to kill a person at a distance of nearly four feet from the line.8 Tiede v.Loup Power District,411 N.W.2d 312,317 (Neb.,1987) 9 Ashby v.Philadelphia Electric Co.,195 A.887,889 (Pa.,1936) Ronald W.Miller July 25,2005 Page 4 dangerously close to the Intertie conductors when the combination of excessive conductor sag and deep snow cover reduce clearance to sixteen feet or less. AEA has a legal obligation to cure this problem.The risk of injury or death to members of the general public is reasonably foreseeable.Abandonment of the only cure found certain by Mr.LaRue would make liability clear in the event of a tragic accident. The lOC determined on December 8,2004 that inspection of the Intertie for clearance problems would occur whenever more than two inches of snow accumulation during a 24-hour period was reported at Susitna Valley High School or the Talkeetna Airport.The lOC further decided that the line was to be de-energized if such inspection could not be conducted at first light of the day following the over two inch snow accumulation and it was continuing to snow.This was determined by the IOC to be a prudent measure to mitigate the risk of harm to the public caused by the differential snow loading problem ontheIntertie.'°This would reduce the risk of electrocution,but would have no affect on the risk of blunt trauma types of injury from collision with the de-energized line. Unfortunately,based on the record from the 2004-2005 winter,"'the Intertie operator has failed to consistently implement the December 8,2004 protocol.For example,the only patrol effort accomplished in April 2005 was a partial patrol of the affected area performed on April 20,2005.According to the snow fall records,more than two inches of snow fell at Susitna Valley High School on April 16,on April 17,and again on April 18 when accumulated snow levels hit a seasonal high of 52 inches.By April 20,2005 when the partial patrol was accomplished,almost 10 inches of this accumulated snow had already melted and this untimely patrol could not possibly have determined if the public had been at risk. Under the 1OC's protocol,the Intertie should have been de-energized from April 17 through April 20,but that did not happen.The snow records show that for the winter of 2004-2005,after December 8,2004,there were at least 12 days in which over two inches of snow fell at Susitna Valley High School.The !OC's contractor only performedfivepartialpatrolsandfourcompletepatrolsduringthistimeperiod.'?This blatant disregard of the most basic,and predetermined,preventative action makes the risk of punitive damages in the event somebody is injured a substantial possibility. The failure to perform these inspections by the IOC does not relieve AEA from its obligations to protect the public from accidental contact with this line energized at 138,000 volts,given the fact that AEA is aware that the IOC is not enforcing its own '°Owners of electric lines have a legal duty to inspect those lines to ensure that insulation through isolation is maintained.See e.g.,Fleniken,Il v.Entergy Corp.,780 So.2d 1175,1186 (La.App.,2001).''According to the records posted at http://ambcs.org/DataPlotter.htm there were at least twelve 24-hour periods in which more than two inches of snow fell at Susitna Valley High School between December 8, 2004 and April 19,2005,with additional snow fall the next day.'2 One of the four complete patrols was completed on March 1,2005.Susitna Valley High School had reported no new snow accumulation for over a week as of that date,and thus presumably that patrol was triggered by conditions at Talkeetna Airport.Effectively,only three complete patrols appear to have been performed in response to the twelve triggering events at Susitna Valley High School. Ronald W.Miller July 25,2005 Page 5 policy decisions.Even if the December 8,2004 protocol were enforced,de-energization does not reduce the risk of blunt force trauma.The only comprehensive solution requires the use of inset towers. Under Section 10.3.4 of the Agreement,an Intertie construction project cannot be undertaken absent unanimous consent of all parties.As was acknowledged at the July 22 meeting,the current Intertie Agreement includes no mechanism for funding major maintenance or upgrade projects.Given the inequitable allocation of costs under the Agreement,an example of which is discussed below,it is unlikely that unanimous consent for any significant construction project will be achievable unless the cost allocation methodology is significantly modified.Such modification would also require unanimous consent under Article 26 of the Agreement.Contrary to the assertions of Mr.Ron Saxton,attorney for some of the Participants,”°at the July 22,2005 meeting,this is not a minor and non-controversial matter that can be easily remedied with a minor modification to the Agreement.!n the absence of provisions for funding capital improvements and major construction projects,it is clear that the Intertie Agreement will not function over the long term. A budget proposal was submitted to the IOC for the first time on July 13,2005 for the 2006 fiscal year that began July 1,2005.The functional inadequacy of the Alaska Intertie Agreement is readily apparent from the untimely submittal of this proposal. Section 8.1.3 of the Agreement states in relevant part that: The preliminary Intertie budget shall be provided to the Participants 13 months before the first day of the budget fiscal year for their review and comment.Written comments of the Participants shall be submitted toAPAbyJuly15"of the year preceding the budget fiscal year. The preliminary budget first presented on July 13,2005 could not,under Section 8.1.3 of the Agreement,be adopted for the fiscal year that began two weeks prior to that date. Under this contract,it could not even be adopted for the fiscal year that will begin on July 1,2006.As noted by AEA Board Chair Mike Barry on June 22,2005,these budgetary provisions of the Alaska Intertie Agreement are not being followed by the Participants. Under the Agreement the Intertie will be operated during the next two years without anapprovedbudgetformajorconstructionactivities." The budget proposed on July 13,2005 appeared to assume that AEA would fund the proposed fiscal year 2006 construction projects and recover its funds through wheeling charges.This effectively requires AIDEA to provide an interest free loan to the Intertie, since there has been no notice of debt encumbrance as required by Section 2.2.3 of the Intertie Agreement,and there is no provision in the Agreement allowing AEA to charge '?Mr.Saxton does not represent MEA's interests in any matters.'*At the July 21,2005 IOC meeting,there was substantial question raised about the need for upgrading the SVC infrastructure,and some of the tower repair work initially included in the July 13 budget proposal no longer appears necessary.Even if these current issues are resolved without construction,the need for longer term capital project study,planning,and funding for the Intertie is clearly evident,and not provided for under the Intertie Agreement. ,pad an fpf WH )_Matanuska Electric 'EET \V f reAssociation,Inc.” P.O.Box 2929 arp datesPalmer,Alaska 99645-2929 ALLEANJ Ae Telephone:(907)745-3231 Fax:(907)761-9368 August 12,2005 Ronald W.Miller Executive Dirscior Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,Alaska 99503 Dear Mr.Miller: |want to thank you for your response to my letter of July 25,2005 regarding the Alaska Intertie Agreement (Agreement).Matanuska Electric Association,Inc. (MEA)also believes that at least some of MEA's concerns could be addressed by the Intertie Operating Committee (IOC).However,substantial public safety issues related to the Alaska Intertie have been discovered since 1985 when the Agreement was signed and MEA does not believe that the Agreement,as currently written, provides an adequate mechanism for dealing with those problems.After considering your response,MEA remains of the opinion that the flaws in the Agreement are so severe as to require termination. Economic Feasibility Of Inset Tower Project In reply to the specific points under your heading number 1,the inset tower project can be made economically feasible.Since the Agreement does not currently include a mechanism for spreading costs over a period greater than one year,the most obvious method for financing this project would be to utilize the $20.3 milliongrantinChapter1,SLA 2002,Section 78(c).'MEA recognizes that the Legislative purpose for this grant was "to upgrade and extend the Anchorage to Fairbanks power transmission intertie to the Teeland substation.”While the inset tower project is arguably within the scope of this purpose,MEA also recognizes that AEA might 'This grant has been targeted by AEA and some Intertie Participants to finance a proposed new 230 kV Teeland Substation to Douglas Substation transmission line.As was acknowledged by Golden Valley Electric Association,Inc.(GVEA)Chief Executive Officer Steve Haagenson during negotiations to resolve Regulatory Commission of Alaska (RCA) Docket No.U-03-100,GVEA will not need 230 kV service over the Alaska Intertie for the foresveable future and certainly not for the next ten years.Assistant Attorney General Brian Byorkquist and at least one other AEA staff person represented the Alaska Energy Authority (AEA)at each of the U-03-100 negotiations.Thus,construction of a new 230 kV segment for the Alaska Intertie is premature,and may not ever be required. Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 2 desire legislative approval prior to spending this grant money on the inset tower project. For a number of years,Dryden &LaRue has estimated that the inset tower project might cost as much as $18 million.The inset tower project actually approved for design by the 1OC on April 15,2004 was estimated to cost $13.8 to $16.9 million. However,Mr.LaRue recently increased this estimate to as much as $32 million. While we should thoroughly examine the justification for this extraordinary increase in the cost estimate,it is clear that Mr.LaRue has not changed his professional opinion that the inset tower project is the only cure for the existing problem of inadequate ground clearance during unbalanced snow loading conditions.Thus,a one-time investment of up to $32 million would prevent the possibility of multiple tragic accidents,each of which could cost AEA and the other Participantssubstantiallymorethan$32 million.2 The potential for such tragic accidents will remain until such time as the risk of inadequate ground clearance has been prudently mitigated. Snow Load Monitoring Protocol It is MEA's understanding that the December 8,2004 protocol was intended to provide better protection to the public than the earlier protocol.Therefore,the only reasonable interpretation of that protocol!requires de-energization of the Intertie if a line patrol could not be initiated due to inclement conditions when either;(1)a SLMS system alarm was received,or (2)two inches or more of snow had accumulated at Talkeetna Airport or Susitna Valley High School and it was continuing to snow at those locations. You presented us with two differing interpretations of the December 8,2004 protocol in your letter,neither of which would provide an adequate level of protection to the public.In the first full paragraph on page 2 of your letter,you indicate that the protocol requires de-energization of the Intertie "only”if (1)one or more SLMS load cells were in alarm,(2)two or more inches of snow has accumulated,and (3)line patrols cannot be initiated.This interpretation leads to the appalling result that the line would not be de-energized even if:(1)we have knowledge of inadequate ground clearance obtained from some other reliable source,or (2)in the extreme,if a line patrol identified a clearance problem when no alarm was received. In paragraph 3(a)of your letter,you indicate that the protocol only requires de- energization of the Intertie if one or more SLMS monitoring load cells are in alarm. ?See for example,Goldberg v.Florida Power &Light Company,899 So.2d 1105 (Fla., 2005),a case where the estate of deceased twelve year old brought a wrongfu!death action against electric company.The child was not electrocuted,and the traditional higher standard of care for the transmission of electricity was not an issue in this claim.The electric company was found to have acted negligently,resulting in death of child,and jury awarded $37 million in damages.The Florida Supreme Court affirmed this award,which did not include any claim for punitive damages.In Alaska,under Civil Rule 82(b),the attorney fee award based upon this damage award would have been an additional $3.7 million. Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 3 Thus,both of your interpretations depend entirely upon the SLMS system working. The Intertie was initially energized for testing in 1986,and within three years,by 1989,inadequate ground clearance caused by unbalanced snow loading was recognized by the IOC as a serious and recurring problem.It is MEA's understanding that there has not been a single SLMS alarm attributed to unbalanced snow loading since installation of that system was completed in 1997. This inexplicable eight-year period of no alarms does not engender confidence that the installed SLMS system works.As a result,MEA does not believe that either of your interpretations is consistent with the public safety goal of this protocol,nor does it believe that either of your interpretations is consistent with the intent of the lOc. AEA's Comprehensive Approach To Address Snow Loading Concerns Regarding the action items listed in your paragraphs under heading number 3,MEA does not believe that the IOC has ever properly voted to undertake those matters in lieu of the inset tower project.MEA understood those items as being authorized solely in a short term effort to temporarily provide improved levels of public protection while the inset tower project is implemented. AEA Authority To Implement The Inset Tower Project Regarding the matters discussed under your heading number 4,AEA does have authority under Section 7.4.2 of the Agreement to unilaterally make improvements to the Alaska Intertie.A lack of IOC approval does not prohibit construction of improvements to the Alaska Intertie by AEA if public safety requires that such improvements be constructed. Footnote Discussion of Intertie Agreement Section 10.3.5 Regarding the discussion in your footnote number 1,MEA believes that you are misinterpreting the authority granted to ML&P and GVEA by Section 10.3.5 of the Agreement.That Section does indeed provide a mechanism for creation of an operating budget when unanimous consent cannot be obtained for a budget proposal under Section 10.3.4.However,that mechanism is very limited.ML&P (the southern operator under Section 10.1.2)and GVEA (the northern operator under Section 10.1.3)are authorized by Section 10.3.5 to continue recovering from AEA their historic cost of operating the Alaska Intertie as shown in their Section 10.4 accounting records in the event a budget is not approved pursuant to Section 10.3.4. This carefully crafted provision allows continued operation of the Alaska Intertie at historic cost levels in the event that unanimous consent on a budget cannot be obtained.However,ML&P and GVEA are not given a blank check to recover any Alaska Intertie related costs they desire to incur.If the later were true,then ML&P and GVEA could simply submit their own budgets for operation of the Alaska Intertie,and that would be the Alaska Intertie budget.This interpretation would render Section 10.3.4 completely superfluous,and contracts are to be interpreted so Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 4 as to give meaning to each term if possible.*Interpretation of Section 10.3.5 to give ML&P or GVEA unilateral authority to impose new costs on the other Participants would render the unanimous agreement requirement in Section 10.3.4 a nullity,and thus is not a reasonable interpretation. Inequitable Cost Allocation Under heading 6 of your letter,you asked MEA to explain the inequitable allocation of costs that we are concerned about.To do so,|will use the Alaska Intertie BudgetproposedJuly19,2005 as an example.'Under this proposal,AEG&T would have paid 30 times more than GVEA for budgeted energy transfers over the Alaska Intertie (18.8 cents/kWh versus 0.6 cents/kWh).This is clearly inequitable, particularly when you consider that AEG&T is only utilizing twenty miles of the Alaska Intertie while GVEA is utilizing the entire 190 mile length of this line.This inequity is a direct result of the MITCR cost allocation methodology set out in Articles 7 and 8 of the Agreement. If you have any questions,please call me at (907)761-9275. Sincerely, James L.Walker Senior Counsel jiw/mh °See for example,Grant v.Anchorage Police Dept.,20 P.3d 553,555-556 (Alaska,2001)."The budget subsequently approved on July 21,2005 was different in amount,but MEA has not yet been provided with the detailed information necessary to perform a similar calculation. Matanuska ElectricP Synergy Works.Association,Inc. P.O.Box 2929 Palmer,Alaska 99645-2929 Telephone:(907)745-3231 Fax:(907)761-9368 July 25,2005 Ronald W.Miller Executive Director Alaska Energy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Mr.Miller: |have reviewed the July 6,2005 letter to you regarding the Alaska Intertie (Intertie)from Chugach Electric Association,Inc.(Chugach),the Municipality of Anchorage d/b/a Municipal Light and Power (ML&P),and Golden Valley Electric Association,Inc.(GVEA), and attended the July 22,2005 workshop held at their request.|am writing to express MEA's disagreement with several statements made by these utilities.As maintenance contractor,owner of one segment of the Intertie,and ultimate recipient of firm power transmitted on that line,MEA is at least as interested in the reliable operation of the Intertie as Chugach,ML&P or GVEA,and obviously more interested in the safe operation of this line,especially where it goes through our service territory and clearance problems are known to exist. In their July 6 letter,the three utilities emphasize that the Intertie Operating Committee (1OC)has kept down operating costs.However,they fail to acknowledge their consistent refusal to insist that the known safety problems related to excessive line sag during certain snow loading conditions be corrected,when prudent utility practice and public safety considerations requires such action. The July 22,2005 suggestion by ML&P's General Manager that we solve this problem by fencing off the Intertie corridor shows the lack of serious consideration that this safety issue has received.An easement holder simply cannot fence off an easement to prevent use of the surface estate by the owner of that estate.Some of the Intertie crosses private lands,and there would undoubtedly be significant costs involved with purchasing fee title to those lands before a fence could be built.Much of the Intertie crosses public lands,and there would certainly have to be a significant public process before this fencing option could be approved. This failure to seriously consider public safety was also evident at the June 9,2005 IOC meeting held at AEA's office,where it was announced by Mr.Henri Dale (GVEA)that the firm of Dryden &LaRue had been instructed to cease work on designing the inset towers.This action was taken despite Mr.LaRue's previous finding that these inset towers were the only certain cure for the unbalanced snow loading problem.Under Ronald W.Miller July 25,2005 Page 2 Section 9.1.2 of the Alaska Intertie Agreement,and the protocols adopted by the 1OC pursuant to that Section,an action of this magnitude should have been placed on a meeting agenda,giving Participants advance notice it would be discussed.MEA is aware of no evidence that the decision to abandon this public safety project was properly adopted in accordance with the requirements of the Alaska Intertie Agreement.'It was simply swept under the rug as unimportant. It has long been known to AEA and all members of the IOC that the Alaska Intertie is designed in such a way that unbalanced snow loading on Intertie conductors results in excessive sagging that brings the line down to levels where contact with persons and equipment under the line is a reasonably foreseeable hazard.From the decision inStatev.Sanders?it is apparent that State ownership of the Alaska Intertie does not shield AEA from liability in the event a person is injured as a result of this known hazard. AEA can be held liable for such injury because Section 7.4.2 of the Alaska Intertie Agreement gives AEA authority to make the changes required to protect the public from this hazard.Under Section 18.1 of the Alaska Intertie Agreement,AEA has agreed to indemnify the other Participants from all claims arising from AEA's acts and omissions. AEG&T has repeatedly requested implementation of the inset tower cure for the unbalanced snow loading design problem.The failure of AEA under the current Agreement to provide any mechanism for timely construction of this necessary safety upgrade cannot be blamed on a lack of knowledge.it is unclear whether adequate disclosure of this unbalanced snow loading issue has been made to the IOC's insurance carrier,and whether a failure to adequately disclose such information could result in loss of coverage in the event of a tragic accident. Now that the inset tower project has been abandoned,one can only conclude that AEA and a majority on the IOC are willing to risk public safety by continuing reliance on thecurrent"load cells and inclinometers'.2 MEA does not believe that this decision is consistent with prudent utility practice.There is one load cell/inclinometer installation per span located approximately every ten towers through the area where potential snow loading problems have been identified.These devices are on alternating phases so that 'At the July 21,2005 IOC meeting,Mr.Dale acknowledged that there was no formal vote taken on this issue.Mr.Dale indicated that Dryden &LaRue had been informally instructed that other work within the scope of their contract with AEA was of higher priority than the inset tower design.This instruction effectively precluded Dryden &LaRue from being able to continue work on the inset tower design due to funding limitations in the contract., 2944 P.2d 453 (Alaska,1997)3 The segment of the Alaska Intertie between MEA's Douglas Substation and the Intertie Midpoint,where unbalanced snow loading has resulted in clearance problems,was designed and constructed for operation at 345,000 volts.In this segment,each of the three phases consists of two individual conductors bundled together in a manner that allows more snow and ice to accumulate on the conductors than would normally occur if just one conductor were used.The IOC previously authorized installation of load cells, inclinometers,and related communications equipment on individual phases at certain towers.The purpose of these devices is to measure the sag and line clearance,and to communicate this information to ML&P dispatch.It was anticipated that when ML&P dispatch received an alarm indicating that line loads or sag certain designated levels;dispatch could presume ground clearance was inadequate and would de-energize the line.So far,to MEA's knowledge,these devices have never resulted in the Intertie being de-energized. Ronald W.Miller July 25,2005 Page 3 any given phase is only monitored every thirty towers (or roughly once every seven miles).This is clearly inadequate coverage given the variations in local conditions that can be found along the Alaska Intertie in the affected area.Further,these devices have never been calibrated to observed ground clearances during actual snow loading conditions.MEA has no confidence that these devices provide any information relevant to the identification and remediation of ground clearance problems during periods of differential snow loading. As owner of a transmission line energized at 138,000 volts,AEA has a legal obligation to isolate that line,either through insulation or through distance,from persons who couldcomeintocontactwithit.The Alaska Supreme Court has clearly followed the common law adopted in other states in imposing this duty on the owners of lines carrying electricenergy.”The Alaska Supreme Court has also held that members of the public are notpresumedtoknowthelevelofdangerrepresentedbyanelectricline.®This is particularly important in the case of a line energized at 138,000 volts where a person does not have to actually touch the line in order to be seriously injured or killed by anelectricarc.' Under common law,it is generally held that:"Where the circumstances are such that the probability of danger to persons having a right to be near an electrical line is reasonably foreseeable,power companies have often been held liable for injury or death resulting from contact between the powerline and a movable machine.Power companies must anticipate and guard against events which may reasonably be expectedtooccur,and the failure to do so is negligence.”It has also been held that with regard to electric lines:"When human life is at stake,the rule of due care and diligence requires everything that gives reasonable promise of its preservation to be done,regardless of difficulties or expense.”® It cannot be disputed that the general public uses the Alaska Intertie corridor and surrounding lands for recreational purposes in the winter when snow is on the ground and on the lines.Nor can it be disputed that the public has the legal right to occupy and use these public lands in this manner.Based upon presentations by Mr.LaRue,MEA has concluded that clearances of sixteen feet or less will periodically occur during most years at some point on the line.It is reasonably foreseeable that persons will come "See,Larman v.Kodiak Electric Association,Inc.,514 P.2 1275,1279-1280 (Alaska,1973). In the Larman decision cited above,the Alaska Supreme Court specifically adopted the standard set forth by the California Supreme Court in Polk v.City of Los Angeles,26 Cal.2d 519,159 P.2d 931,934 (1945). However,the Alaska Court also cited to comparable decisions by courts in Maryland,New Mexico,and Virginia,and the cases cited to by those courts in support of its decision.The Polk decision has also been cited to as persuasive authority by courts in Arizona,Missouri,Nevada,New York,North Dakota and Utah,and in conjunction with decisions from other states on this issue it is clear that the rule stated therein is very nearly a national standard. °See,Ferriss v.Chugach Electric Association,Inc.,557 P.2d 763,769 (Alaska,1976)7 In the case Mansfield v.Union 76 Division of Union Oil Co.of California,532 F.2d 446,448 (5"Cir., 1976)the federal court accepted as correct a formula that would tend to show that an arc from a line energized at 138,000 volts would be sufficient to kili a person at a distance of nearly four feet from the line.8 Tiede v.Loup Power District,411 N.W.2d 312,317 (Neb.,1987) °Ashby v.Philadelphia Electric Co.,195 A.887,889 (Pa.,1936) Ronald W.Miller July 25,2005 Page 4 dangerously close to the Intertie conductors when the combination of excessive conductor sag and deep snow cover reduce clearance to sixteen feet or less. AEA hasa legal obligation to cure this problem.The risk of injury or death to members of the general public is reasonably foreseeable.Abandonment of the only cure found certain by Mr.LaRue would make liability clear in the event of a tragic accident. The IOC determined on December 8,2004 that inspection of the Intertie for clearance problems would occur whenever more than two inches of snow accumulation during a 24-hour period was reported at Susitna Valley High School or the Talkeetna Airport.The JOC further decided that the line was to be de-energized if such inspection could not be conducted at first light of the day following the over two inch snow accumulation and it was continuing to snow.This was determined by the IOC to be a prudent measure to mitigate the risk of harm to the public caused by the differential snow loading problem ontheIntertie."°This would reduce the risk of electrocution,but would have no affect on the risk of blunt trauma types of injury from collision with the de-energized line. Unfortunately,based on the record from the 2004-2005 winter,"the Intertie operator has failed to consistently implement the December 8,2004 protocol.For example,the only patrol effort accomplished in April 2005 was a partial patrol of the affected area performed on April 20,2005.According to the snow fall records,more than two inches of snow fell at Susitna Valley High School on April 16,on April 17,and again on April 18 when accumulated snow levels hit a seasonal high of 52 inches.By April 20,2005 when the partial patrol was accomplished,almost 10 inches of this accumulated snow had already melted and this untimely patrol could not possibly have determined if the public had been at risk. Under the IOC's protocol,the Intertie should have been de-energized from April 17 through April 20,but that did not happen.The snow records show that for the winter of 2004-2005,after December 8,2004,there were at least 12 days in which over two inches of snow fell at Susitna Valley High School.The {OC's contractor only performedfivepartialpatrolsandfourcompletepatrolsduringthistimeperiod.'*This blatant disregard of the most basic,and predetermined,preventative action makes the risk of punitive damages in the event somebody is injured a substantial possibility. The failure to perform these inspections by the IOC does not relieve AEA from its obligations to protect the public from accidental contact with this line energized at 138,000 volts,given the fact that AEA is aware that the IOC is not enforcing its own '°Owners of electric lines have a legal duty to inspect those lines to ensure that insulation through isolation is maintained.See e.g.,Fleniken,II v.Entergy Corp.,780 So.2d 1175,1186 (La.App.,2001). '!According to the records posted at http://ambcs.org/DataPlotter.htm there were at least twelve 24-hour periods in which more than two inches of snow fell at Susitna Valley High School between December 8, 2004 and April 19,2005,with additional snow fall the next day. 2 One of the four complete patrols was completed on March 1,2005.Susitna Valley High School had reported no new snow accumulation for over a week as of that date,and thus presumably that patrol was . triggered by conditions at Talkeetna Airport.Effectively,only three complete patrols appear to have been performed in response to the twelve triggering events at Susitna Valley High School. Ronald W.Miller July 25,2005 Page 5 policy decisions.Even if the December 8,2004 protocol were enforced,de-energization does not reduce the risk of blunt force trauma.The only comprehensive solution requires the use of inset towers. Under Section 10.3.4 of the Agreement,an Intertie construction project cannot be undertaken absent unanimous consent of all parties.As was acknowledged at the July 22 meeting,the current Intertie Agreement includes no mechanism for funding major maintenance or upgrade projects.Given the inequitable allocation of costs under the Agreement,an example of which is discussed below,it is unlikely that unanimous consent for any significant construction project will be achievable unless the cost allocation methodology is significantly modified.Such modification would also require unanimous consent under Article 26 of the Agreement.Contrary to the assertions of Mr.Ron Saxton,attorney for some of the Participants,'*at the July 22,2005 meeting,this is not a minor and non-controversial matter that can be easily remedied with a minor modification to the Agreement.In the absence of provisions for funding capital improvements and major construction projects,it is clear that the Intertie Agreement will not function over the long term. A budget proposal was submitted to the IOC for the first time on July 13,2005 for the 2006 fiscal year that began July 1,2005.The functional inadequacy of the Alaska Intertie Agreement is readily apparent from the untimely submittal of this proposal. Section 8.1.3 of the Agreement states in relevant part that: The preliminary Intertie budget shall be provided to the Participants 13 months before the first day of the budget fiscal year for their review and comment.Written comments of the Participants shall be submitted toAPAbyJuly15"of the year preceding the budget fiscal year. The preliminary budget first presented on July 13,2005 could not,under Section 8.1.3 of the Agreement,be adopted for the fiscal year that began two weeks prior to that date. Under this contract,it could not even be adopted for the fiscal year that will begin on July 1,2006.As noted by AEA Board Chair Mike Barry on June 22,2005,these budgetary provisions of the Alaska Intertie Agreement are not being followed by the Participants. Under the Agreement the Intertie will be operated during the next two years without anapprovedbudgetformajorconstructionactivities." The budget proposed on July 13,2005 appeared to assume that AEA would fund the proposed fiscal year 2006 construction projects and recover its funds through wheeling charges.This effectively requires AIDEA to provide an interest free loan to the Intertie, since there has been no notice of debt encumbrance as required by Section 2.2.3 of the Intertie Agreement,and there is no provision in the Agreement allowing AEA to charge '3 Mr.Saxton does not represent MEA's interests in any matters. 'At the July 21,2005 IOC meeting,there was substantial question raised about the need for upgrading the SVC infrastructure,and some of the tower repair work initially included in the July 13 budget proposal no longer appears necessary.Even if these current issues are resolved without construction,the need for longer term capital project study,planning,and funding for the Intertie is clearly evident,and not provided for under the Intertie Agreement. Ronald W.Miller July 25,2005 Page 6 Participants interest on AEA funds expended on the Intertie.As also noted by Mr.Barry, AEA does not have a source of capital available to fund major Intertie maintenance and upgrade projects,and thus these projects will never get funded under the current Agreement absent unanimous agreement among the Participants. MEA believes that during the 48 month period before AEA can impose new terms for using the Intertie,public safety concerns should outweigh fiscal concerns.AEA must, pursuant to Section 10.2.1 of the Agreement and the policies adopted by the IOC on December 8,2004,require that the Intertie be de-energized whenever more than two inches of new snow is reported at Talkeetna Airport or Susitna Valley High School,it is continuing to snow in those areas,and an inspection patrol is not initiated at first light following the more than two-inch accumulation of new snow.The Intertie must then remain de-energized until such time as a thorough patrol of the line for ground clearance inadequacies has been initiated.As you know we have also made an effort to inform the public of the risk of harm from this line.MEA has done what it can to protect the public. Now it is AEA's turn. MEA believes that termination of this Agreement is necessary to start the process of eliminating a known threat to public safety and to ensure long-term Intertie reliability. Under AS 44.83.090,any new agreement for use of the Intertie will necessarily have to address these funding issues.Accordingly,MEA recommends that AEA immediately give the 48 month notice of termination under Section 2.2.3 of the Agreement. The IOC has failed to adequately deal with these significant public safety issues,and apparently has no interest in timely dealing with them.It is time to present these issues to AEA's Board of Directors with a recommendation to terminate the Alaska Intertie Agreement,so that these public safety issues can finally receive the meaningful attention and resolution they deserve.MEA believes that immediate termination of the current Agreement is the only path towards creation of a safe Intertie. Sincerely, James L.Walker Senior Counsel cc:Alaska Energy Authority Directors C:ADocuments and Settings\wanval_l.MATANUSKA\My Documents\ADMIN\LegaliLtrs\Alaska Energy Authority\Miller re load cells.doc P.| ***Transmission Result Report (MemoryTX)(Aug.17.2005 5:00PM)*** 1)AIDEAZAEA 2) vate/Time:Aug.17.2005 4:30PM File Page No.Mode Destination Pg (s)Result Not Sent 9136 Memory TX 919072353323 P.47 OK 919072244085 OK 92635204 OK 95620027 OK 919074585951 OK Reason for error E.1)Hans up or line fail E.3)No answer B13 West Northem Lights Blvd.Anchorage,AK 90603 Fac 907206.3044 Tet -_See Distrbution From:fon Miller/Brenda Fugtestad -269-3008 Lemssd Bate:gerne £/7{so0s Phone Pagec 17 Re ca: P.| Transmission Result Report (MemoryTX)(Aug-18.2005 8:29AM)*** })AIDEA/AEA x k & vate/Time:Aug.18.2005 8:20AM File Page No.Mode Destination Pg (s)Result Not Sent 9138 Memory IX 819077459328 P.|]OK a hongon for error E.1)Hans up or tine fail -€.2)Busy E.3)No answer E.4)No facsimile connection 813 West Norther (Ughts Bivd.:se saneegp se sem,arch AK 98503 :EA 'FREE aE wr3Phona:907 260.2006 I ak aa on a iad Fax To WDeyye Corrmans,Fron Fon Miter/BrendaFugiestad-269:9008 Fee dep,245-1300 pete Sfp facos Phone:Pages:17 . Re:Ca: Alaska Industrial Development and Export Autu.ay Al Ly fences Alaska Energy Authority August 4,2005 Mr.James Waiker Matanuska Electric Association,Inc. P.O.Box 2929 Palmer,Alaska 99645 Re:Alaska Intertie Agreement Dear Mr.Walker: The Alaska Energy Authority (AEA)has reviewed your letter dated July 25,2005,regarding the Alaska Intertie Agreement,and believes it appropriate that most of the concerns you raise be addressed by the Intertie Operating Committee (IOC). First,as we further explain below,information provided to AEA,if accurate,suggests that your letter contains certain factual errors and misinterpretations of the Alaska Intertie Agreement, intertie operations,and the snow-load procedures.The IOC would appear to be the appropriate forum to set the record straight,as intertie operators and contractors can clarify whether factual information is accurate,and participants can clarify interpretations of the agreement. Second,AEA believes it essential that the IOC clarify any ambiguities in current snow-load procedures and what further actions will be implemented to help ensure safety in future intertie - operations. AEA does not intend this letter to be an exhaustive response;that can be done at the IOC.Instead,AEA attempts to highlight what it perceivesto be the most significant issues you raised. 1.10C Determination on Inset Tower Project. AEA would fully support MEA's request that the IOC revisit the determination regarding the inset tower project.AEA's recollection is that after Dryden &LaRue increased the construction cost estimate from $18 million to $32 million,they and various utilities suggested that the project would no longer be economically feasible.Dryden &LaRue also advised that continued work on the inset tower project was not likely to provide anything beneficial.IOC efforts then focused upon improving the snow-load procedures that were then in effect in April 2005.If there are factual errors,and the inset tower project is actually economically feasible,AEA would fully welcome the Participating Utilities'reconsideration of that project. 2.1OC Snow-Load Procedures -April 2005. MEA suggests at page 4 of your letter that "the Intertie operator has failed to consistently implement the December 8,2004 protocol.”AEA's understanding of that protocol and Q19 V\Alant RiAwthace Piebe O..PH eA bee aA 'AAR AN Mr.James Walker August Page 2 4,2005 information provided to AEA suggests that the southern operator fully complied with the IOC snow-load procedures that were in effect in April 2005.The IOC should confirm the relevant facts. Attached is a copy of what AEA understands to be the adopted December 8,2004 protocol.Those adopted procedures did not require de-energizing the intertie under any circumstances unless the SLMS was already in alarm at one or more load cells.Only if the SLMS was in alarm and both 2 inches of snow had accumulated and snow patrols or aerial inspection could not be dispatched "at first light”should de-energizing the line be required.Absent each of those conditions,de-energizing was not required,but was left to the discretion of the southern intertie operator. AEA has been informed by Dryden and LaRue that none of the SLMS load cells have been in alarm over the past 3 or more years.If accurate,that would lead to the conclusion that the southern operator could not have failed to implement the December 8,2004 protocol since its inception. implementing New IOC Snow-Load Procedures. In lieu of pursuing the inset tower project,AEA understands that the |OC committed to improving the snow-load protocol and ensuring that fully satisfy the obligation that the intertie is operated in a safe and responsible manner consistent with Prudent Utility Practices.There are several interconnected provisions,some of which include: (a)A new snow-load protocol has already been adopted under which the southern operator will immediately initiate de-energizing the intertie if one or more SLMS load cells goes into alarm. (bo)Dryden &LaRue are reviewing the SLMS system to ensure it operates in a manner so that load cells go into alarm whenever snow has accumulated to the extent that uneven snow-load problems might exist.Dryden &LaRue's work will ensure that the lines maintain minimum ground clearances to bare ground.The IOC will implement additional procedures to account for the height of snow-pack that would reduce ground clearance. (c)Dryden &LaRue will recommend any upgrades,modifications or additions to the SLMS system that may be necessary to ensure that the SLMS functions properly,and provides accurate information about the minimum possible ground clearance to bare ground.AEA will forward a copy of your letter to Dryden & LaRue -including your suggestion that the intertie has an inadequate number of load cells to provide accurate information.If MEA has any other or more specific suggestions regarding how to improve the SLMS system (or snow-load protocol or procedures)please provide them. (d)AEA is encouraging the IOC to consider and implement additional procedures so that accumulated snow is removed from the intertie before reaching load cell alarm levels. Mr.James Walker August Page 3 4,2005 (e)Ground snow-machine patrols and aerial patrols of the intertie will continue as -under the prior snow-load protocol and procedures.These patrols will continue to provide visual inspection of the actual conditions when conditions warrant. Further,they will help to reduce potential risk from blunt force trauma after the line is de-energized.Visual inspections will help ensure that low sagging lines will be promptly discovered so that MEA,as the southern maintenance contractor,may then expeditiously remove snow from the lines and eliminate the risk of injury.AEA appreciates the critical role MEA plays in ensuring public safety. (f)The snow-load protocol will be reviewed by an independent engineer who will be asked to opine that the snow-load protocol and procedures fully satisfy the obligation that the intertie is operated in a safe and responsible manner consistent with Prudent Utility Practices. (g)An insurance,risk-management analysis will be conducted on intertie operations --including snow-load protocol and procedures. AEA believes that these provisions offer a comprehensive approach to address snow- load concerns.As you will observe,these provisions do not rely solely upon any existing protocol,procedure,or operating equipment,but invite thorough review of current circumstances,and invites improvement wherever appropriate.AEA invites MEA (itself and as part of AEG&T)to fully participate to help ensure that the intertie is operated in a safe and responsible manner consistent with Prudent Utility Practices. AEA Cannot Unilaterally Implement the Inset Tower Project. AEA believes that Sections 7.4.2 and 7.4.3 of the Alaska Intertie Agreement ("Agreement”)reflect a fundamental flaw in the Agreement in that it provides no useful mechanism to implement repairs or major maintenance.Those provisions provide that AEA or any Participating Utility may recommend modifications to the intertie.However, the "funding mechanism”they provide is that the entity making the recommendation pays the cost of the modification unless the IOC determines,in advance,that the "modification is of direct benefit to other or all Participants.” MEA errs when it asserts on page 2 of its letter that AEA under Section 7.4.2 of the Agreement could "make the changes required to protect the public from the hazard”-- which the letter defines as completing the inset tower project.Without the Participating Utilities agreeing to provide funding for that or any other project,AEA has no capability to implement any modification to the intertie.Further,the Participating Utilities have haddifficultyprovidingfundinginannualbudgets,so repairs and major maintenance simply gets deferred (e.g.,the IOC's recent failure to approve funding for SVC upgrades or all tower foundation repairs in the FY 2006 budget). Mr.James Walker August 4,2005 Page 4 AEA believes the Agreement needs to be amended to provide a meaningful mechanism to provide funding necessary to undertake repairs and major maintenance.Will MEA (itself or through AEG&T)assist to accomplish that goal? Annual Budgets. Many of MEA's comments regarding the annual budgets for the Alaska Intertie appear to mirror AEA's concerns.We hope MEA (itself or through AEG&T)will join AEA and the IOC to make appropriate amendments to the Agreement to cure these concerns." "Inequitable Cost Allocation”, MEA,at page 5 of your letter,suggests that unanimous consensus to amend the Alaska Intertie Agreement is not likely to be achieved because of "the inequitable allocation of costs under the Agreement.”This comment is not explained.What are MEA's concerns?The follow up questions to other Participating Utilities include: (a)Are participants willing to accommodate these concerns?and (b)To cure the substantial defects in the Agreement,is there any viable alternative to AEA giving notice of termination? AEA looks forward to MEA's continued participation to help address problems and concernsrelatedtotheAlaskaIntertie. )SignatureifIivdRonMiller KA i Executive Director RWM:bif HAAEA Projects\Alaska Intertie Project\Correspondence\WaikerMEA05-001.doc cc:AEA Board 1OC General Managers 1OC Members Dryden &LaRue "One additional comment,AEA does not understand MEA's assertion on page 5 of your letter that "[u]nder Section 10.3.4 of the Agreement,an intertie construction project. cannot be undertaken absent unanimous consent of all parties.”That Section 10.3.4 appears to establish one mechanism for establishing the the scope of operations and to fixed cost component for the operating budget.Absent unanimous consensus, however,Section 10.3.5 appears to provide an alternative mechanism. SNOW LOAD MONITORING PROCEDURE The Snow Load Monitoring System (SLMS)operates continuously for the purpose of advising the Southern Controller of weather conditions that may cause snow to load on the conductors of the Alaskan Intertie.This condition creates the possibility that conductors will unload unevenly which may then lead to conductor unbalance that possibly may then lead to conductor clearance problems.A Patrol Contractor will be retained as part of the Snow Load Monitoring Procedure. The computer system is supplemented by a Patrol Contractor who performs line patrols atthedirectionoftheSouthernControllerorafteranysnowfallofmorethat2”over 24 hours measured at the Susitna High School or the Talkeetna Airport.The Patrol Contractor will check and report to the Southern Controller by e-mail daily. There is a definitive sequence of events that must occur in order to create clearance problems along the Alaskan Intertie.As determined by analysis of previous events,the weight on the insulator string must increase by an average minimum of 1407 Ibs (over the bare conductor weight)of snow must first accumulate on the conductors in a number of spans to create the possibility for clearance problems which will trigger an alarm on the SLMS.Then the snow must unload from a number of spans but not from all the spans. _This creates a situation that may or may not causea ground clearance problem. If the SLMS indicates the Intertie has a load cell in alarm the Southern Controller will monitor the weather stations at Douglas and Stevens Subs (when its available)every 2 hours and continue to monitor the tower which is in alarm.The Patrol Contractor will be called out to patrol the line and determine what is occurring and if the line needs to be cleared by the Southern Maintainer. If the Patrol Contractor can not initiate a patrol at first light as a result of inclement weather and the snow continues to load the conductor spans and one or more load cells are in alarm the Southern Controller shall initiate an Ariel patrol.If conditions are such that this cannot be done,the Southern Controller shall advise all Intertie participants of the conditions and prepare to de-energize the Intertie. Approved by the IOC December 8,2004 Matanuska Electric Association,Inc. P.O.Box 2929 em tt ek Palmer,Alaska 99645-2929 PAL DEAF Raa Telephone:(907)745-3231 Fax:(907)761-9368 August 12,2005 Ronald W.Miller Executive Dirsctor Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,Alaska 99503 Dear Mr.Miller: |want to thank you for your response to my letter of July 25,2005 regarding theAlaskaIntertieAgreement(Agreement).Matanuska Electric,Association,Inc.(MEA)also believes that at least some of MEA's concerns could be addressedbytheIntertieOperatingCommittee(IOC).However,substantial public safety issues related to the Alaska Intertie have been discovered since 1985 when the Agreement was signed and MEA does not believe that the Agreement,as currently written,provides an adequate mechanism for dealing with those problems.After considering your response,MEA remains of the opinion that the flaws in the Agreement are so severe as to require termination. Economic Feasibility Of Inset Tower Project In reply to the specific points under your heading number 1,the inset tower project can be made economically feasible.Since the Agreement does not currently include a mechanism for spreading costs over a period greater than one year,the most obvious method for financing this project would be to utilize the $20.3 milliongrantinChapter7,SLA 2002,Section 78(c).'.MEA recognizes that the Legislative purpose for this grant was "to upgrade and extend the Anchorage to Fairbanks power transmission intertie to the Teeland substation.”While the inset tower project is arguably within the scope of this purpose,MEA also recognizes that AEA might 'This grant has been targeted by AEA and some Intertie Participants to finance a proposed new 230 kV Teeland Substation to Douglas Substation transmission line.As was acknowledged by Golden Valley Electric Association,Inc.(GVEA)Chief Executive Officer Steve Haagenson during negotiations to resolve Regulatory Commission of Alaska (RCA) Docket No.U-03-100,GVEA will not need 230 KV.service over the Alaska Intertie for theforeseeablefutureand.certainly not for the next ten years.Assistant Attorney General Brian Bjorkquist and at least one other AEA staff person represented the Alaska Energy Authority(AEA)at each of the U-03-100 negotiations.Thus,construction of a new 230 kV segment for the Alaska Intertie is premature,and may not ever be required. Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 2 desire legislative approval prior to spending this grant money on the inset tower project. For a number of years,Dryden &LaRue has estimated that the inset tower project might cost as much as $18 million.The inset tower project actually approved for design by the IOC on April 15,2004 was estimated to cost $13.8 to $16.9 million. However,Mr.LaRue recently increased this estimate to as much as $32 million. While we should thoroughly examine the justification for this extraordinary increase in the cost estimate,it is clear that Mr.LaRue has not changed his professional opinion that the inset tower project is the only cure for the existing problem of inadequate ground clearance during unbalanced snow loading conditions.Thus,a one-time investment of up to $32 million would prevent the possibility of multiple tragic accidents,each of which could cost AEA and the other Participants substantially more than $32 million.2 The potential for such tragic accidents will remain until such time as the risk of inadequate ground clearance has been prudently mitigated. Snow Load Monitoring Protocol It is MEA's understanding that the December 8,2004 protocol was intended to provide better protection to the public than the earlier protocol.Therefore,the only reasonable interpretation of that protocol requires de-energization of the Intertie if a line patrol could not be initiated due to inclement conditions when either;(1)a SLMS system alarm was received,or (2)two inches or more of snow had accumulated at Talkeetna Airport or Susitna Valley High School and it was continuing to snow at those locations. You presented us with two differing interpretations of the December 8,2004 protocol in your letter,neither of which would provide an adequate level of protection to the public.In the first full paragraph on page 2 of your letter,you indicate that the protocol requires de-energization of the Intertie "only”if (1)one or more SLMS load cells were in alarm,(2)two or more inches of snow has accumulated,and (3)line patrols cannot be initiated.This interpretation leads to the appalling result that the line would not be de-energized even if:(1)we have knowledge of inadequate ground clearance obtained from some other reliable source,or (2)in the extreme,if a line patrol identified a clearance problem when no alarm was received., In paragraph 3(a)of your letter,you indicate that the protocol only requires de- energization of the Intertie if one or more SLMS monitoring load cells are in alarm. ?See for example,Goldberg v.Florida Power &Light Company,899 So.2d 1105 (Fla., 2005),a case where the estate of deceased twelve year old brought a wrongful death action against electric company.The child was not electrocuted,and the traditional higher standard of care for the transmission of electricity was not an issue in this claim.The electric company was found to have acted negligently,resulting in death of child,and jury awarded $37 million in damages.The Florida Supreme Court affirmed this award,which did not include any claim for punitive damages.In Alaska,under Civil Rule 82(b),the attorney fee award based upon this damage award would have been an additional $3.7 million. Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 3 Thus,both of your interpretations depend entirely upon the SLMS system working. The Intertie was initially energized for testing in 1986,and within three years,by 1989,inadequate ground clearance caused by unbalanced snow loading was recognized by the IOC as a serious and recurring problem.It is MEA's understanding that there has not been a single SLMS alarm attributed to unbalanced snow loading since installation of that system was completed in 1997. This inexplicable eight-year period of no alarms does not engender confidence that the installed SLMS system works.As a result,MEA does not believe that either of your interpretations is consistent with the public safety goal of this protocol,nor does it believe that either of your interpretations is consistent with the intent of the IOC. AEA's Comprehensive Approach To Address Snow Loading Concerns Regarding the action items listed in your paragraphs under heading number 3,MEA does not believe that the |OC has ever properly voted to undertake those matters in lieu of the inset tower project.MEA understood those items as being authorized solely in a short term effort to temporarily provide improved levels of public protection while the inset tower project is implemented. AEA Authority To Implement The Inset Tower Project Regarding the matters discussed under your heading number 4,AEA does have authority under Section 7.4.2 of the Agreement to unilaterally make improvements to the Alaska Intertie.A lack of IOC approval does not prohibit construction of improvements to the Alaska Intertie by AEA if public safety requires that such improvements be constructed. Footnote Discussion of Intertie Agreement Section 10.3.5 Regarding the discussion in your footnote number 1,MEA believes that you are misinterpreting the authority granted to ML&P and GVEA by Section 10.3.5 of the Agreement.That Section does indeed provide a mechanism for creation of an operating budget when unanimous consent cannot be obtained for a budget proposal under Section 10.3.4.However,that mechanism is very limited.ML&P (the southern operator under Section 10.1.2)and GVEA (the northern operator under Section 10.1.3)are authorized by Section 10.3.5 to continue recovering from AEA their historic cost of operating the Alaska Intertie as shown in their Section 10.4 accounting records in the event a budget is not approved pursuant to Section 10.3.4, This carefully crafted provision allows continued operation of the Alaska Intertie at historic cost levels in the event that unanimous consent on a budget cannot be obtained.However,ML&P and GVEA are not given a blank check to recover any Alaska Intertie related costs they desire to incur.If the later were true,then ML&P and GVEA could simply submit their own budgets for operation of the Alaska Intertie,and that would be the Alaska Intertie budget.This interpretation would render Section 10.3.4 completely superfluous,and contracts are to be interpreted so Ronald W.Miller Alaska Intertie Agreement August 12,2005 Page 4 as to give meaning to each term if possible.*Interpretation of Section 10.3.5 to give ML&P or GVEA unilateral authority to impose new costs on the other Participants would render the unanimous agreement requirement in Section 10.3.4 a nullity,and thus is not a reasonable interpretation. Inequitable Cost Allocation Under heading 6 of your letter,you asked MEA to explain the inequitable allocation of costs that we are concerned about.To do so,|will use the Alaska Intertie BudgetproposedJuly19,2005 as an example.'Under this proposal,AEG&T would have paid 30 times more than GVEA for budgeted energy transfers over the Alaska Intertie (18.8 cents/kWh versus 0.6 cents/kWh).This is clearly inequitable, particularly when you consider that AEG&T is only utilizing twenty miles of the Alaska Intertie while GVEA is utilizing the entire 190 mile length of this line.This inequity is a direct result of the MITCR cost allocation methodology set out in Articles 7 and 8 of the Agreement. If you have any questions,please call me at (907)761-9275. Sincerely, James L.Walker Senior Counsel jiwimh °See for example,Grant v.Anchorage Police Dept.,20 P.3d 553,555-556 (Alaska,2001)."The budget subsequently approved on July 21,2005 was different in amount,but MEA has not yet been provided with the detailed information necessary to perform a similar calculation. Alaska Industrial Development and Export Aut. Al Alaska Energy Authority August 17,2005 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3323 Mr.Dave Calvert Utility Manager City of Seward P.O.Box 167 Seward,Alaska 99664 Fax:(907)224-4085 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 RE:Alaska Intertie Agreement Gentlemen: Mr.Joe Griffith Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 Enclosed is a letter from Matanuska Electric Association ("MEA”)dated August 12,2005 sent in response to my letter of August 4,2005 (copy enclosed)regarding issues MEA raised in their letter of July 25,2005 (copy enclosed).Your comments on MEA's positions in their August 12 letter,particularly the statement that MEA does not believe the Alaska Intertie Agreement cannot be amended,but must be terminated.Please send your comments by end of business August 31,2005. Executive Director RWM::bjmf H:\AEA Projects\Alaska Intertie Project\Correspondence\GM2005-01.doc Co.SVE Gran |ine 'iano Dink wha a aha i are®ar\ 813 West Northern Lights Boulevard *Anchorage.Alaska 99503 August 31,2005 \LN sep 92 2005 Le Ron Miller Executive Director AIDEA/AEA Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,AK 99503 Dear Ron: We are writing to address matters raised in the July 25,2005 and August 17,2005 letters from James Walker on behalf of Matanuska Electric Association,Inc.(MEA).We have reviewed your August 4,2005,response to Mr.Walker's letter. As we discussed in the July 22,2005 AEA workshop,we agree that certain amendments to the Alaska Intertie Agreement (Intertie Agreement)are appropriate,and we are working with your staff to develop and incorporate such changes.We strongly disagree with MEA's position that the Intertie Agreement must be terminated.There is no reason why the IOC cannot continue to work together to improve the intertie agreement and resolve other practical problems,such as the snow-loading issues.We are not clear about what has led to MEA's resolve to terminate not only its participation in the Intertie Agreement,but to comprehensively dismantle the twenty- year long cooperation between the Participants on the intertie,but we want to encourage a productive,less draconian course. With regard to the substantive points MEA has made with respect to snow load issues and procedures,the Intertie Agreement,and other intertie-related matters;we take issue with the numerous factual errors and misrepresentations contained in the letter.MEA misstates the applicable legal standards for prudent utility conduct.Moreover,the circumstances,even as MEA has incorrectly portrayed them do not meet the standard for termination of the Intertie Agreement.Nevertheless,we would like to address the substance of MEA's stated concerns in order to try to work together to improve the Intertie Agreement and other intertie-related issues. If it is productive,we will certainly address the specific errors in Mr.Walker's letter in another forum,as you have recommended. 1.Safety concerns related to line sag during snow loading conditions. The IOC continues to work to resolve the safety concerns related to line sag caused by snow loading.The intertie will continue to operate in accordance with the snow load procedures adopted in the December 8,2004,protocol and recent updates to the same.We agree that the conditions that call for the line to be de-energized under that protocol have not occurred in the last 3 years. Reasonable minds may differ on how best to resolve the snow loading issues;however, there is no disagreement amongst the Participants that any remedy the group undertakes must be consistent with Prudent Utility Practice.MEA's position that the inset tower proposal is the sole remedy compliant with Prudent Utility Practice is not consistent with the engineering analysis presented by Dryden &LaRue. MEA believes the Participants are applying an unreasonable standard in their assessment of snow load remedies.We believe that we have taken reasonable and prudent measures to address the snow load issues.Moreover,given the actual state of the law on the applicable legal standard is not as MEA presents,we are concerned that MEA's threatening and inflammatory tactics will needlessly divert efforts from a practical solution that is compliant with applicable legal standards. As you know,the IOC has continually studied the snow load issues and has adopted,to the best of the Participants'knowledge,what appears to be the most reasonable measures to deal with the problem.Both AEA and the others on the IOC should therefore continue to respect the IOC process in place.We should not be bullied into resorting to extreme and counterproductive measures at MEA's behest.Moreover,we will continue to study the snow load problem to stay on top of the nature of the problem and possible remedies.We certainly confirm and fully support the recitals and proposals of the well-conceived item 3 action plan in your August 4, 2005,letter. 2.Operation under the Intertie Agreement All of the Participants have ideas on how and where the Intertie Agreement can be improved.We agree that terms dealing with budgeting,project funding,and other operations and maintenance related issues need to be updated and improved.Years of putting into practice the terms of this legal document has provided all parties with insight as to how it can be improved.We do not see how the need for improvement and updates necessitates or even merits termination of the entire contract,especially given that no party other than MEA has suggested that termination is the correct or only possible route for improvement.We would prefer to maintain the foundational cooperation between the parties and work together to amend the Intertie Agreement in a manner that is productive rather than destructive.We are optimistic that this can be achieved because the parties are motivated to continue their cooperation. It is worth noting that while MEA is raising these issues with the Intertie Agreement,it is not a party to that agreement.MEA is not itself an Intertie Participant.Rather,MEA's inclusion in the Intertie Agreement is only as a member of the Alaska Electric Generation and Transmission Cooperative. We are currently working on ways to improve the agreement with input from all Participants.Some proposed areas for amendment include: e JOC approval of construction projects; e Clarification of contractor responsibilities; e Address need for reserves and provide mechanism for same; e Providing bonding mechanism to fund repairs and R&R fund; e Clarify budgeting process; e Apply calendar year as opposed to fiscal year; e Simplify dispute resolution procedures; e Clarify parties (especially MEA/AEG&T); e JOC control of maintenance,similar to Bradley project arrangement; e Amendments or side agreements to support financing arrangements;and e Address indemnification. We are prepared to begin working with Brian Bjorkquist on appropriate amendments; however,we believe it is important for us to first work with you to address how to proceed given MEFA's stated opposition to making any changes. We accept our responsibility to work on a reasonable operation of the line and to develop reasonable modifications to the Intertie Agreement,but we are concerned that MEA's approach is not practical and not likely to enhance the operation of this critical Alaska investment. incerely, Cin Posey,Anchorage Municipal Light &Power Steve Haagenson,GéfdenValley Electric Association,Inc. cc:Brian Bjorkquist,Alaska Assistant Attorney General Henri Dale,IOC Chairman Ron Saxton,Ater Wynne LLP SENT BY:MEA ADMIN &HR;507 761 9349;NOV-14-05 12:08PM;PAGE 2/3 a LY frp feosye,0.0)Bevan & frackee YY KaelMatanuskaElectricapcr ssAssociation,Inc.oe P.O.Box 2929 Patmer,Alaska 99645-2929 Telephone;(907)761-9300 Fax;(907)761-9368 November 14,2005 Mr.Ronald W.Miller Executive Director Alaska Energy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Mr.Miller: Re:October 18,2005 List of Issues Related to the Alaska Intertie Agreement On behalf of Matanuska Electric Association,Inc.(MEA),|am submitting comments on the long list of outstanding problems related to the Alaska intertie Agreement electronically distributed by Intertie Operating Committee (IOC)Chair Henry Dale on October 18,2005.My comments are being submitted in advance of the next [OC meeting in an effort to avoid expending I[ntertie Participant resources discussing issues that simply cannot be resolved by the IOC. A prime example of this is the very first identified issue:"AEGT [sic]does not operate the MEA systern [in a manner consistent with Section 3.1.5 of the Alaska intertie Agreement].” As you know,MEA is not an Intertle Participant,is not a signatory to the Alaska Intertie Agreement,and is not subject to [OC jurisdiction beyond the terms of an Intertie maintenance contract.MEA believes that the Alaska _Intertle Agreement is fatally flawed in numerous ways.MEA is not bound by the Agreement and will not agree to be bound by it.If the [OC believes curing the existing problems related to the Alaska Intertia Agreement requires MEA to become bound by that Agreement,then the existing problems are incurable. It is extremely unlikely that AEG&T will agree to consider any of the numerous modifications suggested in Mr.Dale's communication until the safety,cost allocation,and operational issues previously identified by MEA,as the southern maintenance contractor,are satisfactorily resolved.Absent a substantial change in position on these issues of importance by all the Participants as a group,we believe the numérous problems identified by Mr.Dale are irrefutable evidence that the current Alaska Intertie Agreement is fatally flawed and should be terminated. SENT BY:MEA ADMIN &HR;2 7 764 9349;Nov-14-05 12:08PM;PAGE 3/3 Mr,Ronald W.Miller Alaska Intertie Agreement List of Issues November 14,2005 Page 2 The problems identified In Mr.Dale's list can only be addressed through significant modifications to the Alaska Intertie Agreement.As noted in Mr.Dale's fist for Section 9.1.2 of the Alaska Intertie Agreement,the (OC has no authority to modify the terms of the Agreement.In fact,Article 26 of the Agreement specifically states: "Neither this Agreement nor any part hereof may be terminated,amended, supplemented,walved or modified except by an instrument In writing signed by all the Participants.”; In summary,MEA believes that while Mr.Dale's listing of problems is incomplete, includes contract interpretations that are incorrect,and lists matters as problems where in fact no problem exists,Mr.Dale's litany absolutely demonstrates theexistenceofamultitudeofissuesthatcannotbeadequatelyaddressedbythe current Intertie Operating Agreement.There can no longer be any reasonabledoubtthattheexistingAgreementhasproblemsthatcannotbecured.Fortunately,the Agreement makes provisions for AEA to cure problems where unanimousagreementisnotpossiblebyterminatingtheAgreementandnegotiatinganewarrangementwiththeparticipants. if you have any questions,please call me at (907)761-6275. "esSincerely, Skbirrtsfin James L.Walker Senior Counsel '¢ awe cc:OC Representatives Wayne Carmony From:Steve H.Haagenson [SHHaagenson@gvea.COM] Sent:Friday,December 02,2005 4:50 PM To:bill_stewart@chugachelectric.com;Wayne Carmony;Jim Posey - (PoseyJM@ci.anchorage.ak.us);Tim Barnum;Janorschke,Brad;wilkinson@cvea.org Subject:Railbelt Energy Fund -Managers Meeting At yesterday's Manager's Forum,the Railbelt utilities were requested to develop a jointrecommendationlistofprojectstobefundedwiththeremainingEnergyRailbelt Funds. This morning,the APA Board of Directors requested a similar product. |would like to propose a meetingof the Railbelt Manager's to discuss the projects anddistributionoffunds,on Friday,December 9,2005 starting at 9:00 a.m. |am waiting to hear from APA to see if their Board Roomis available.|will confirm thelocationonMonday. See you there. Steven Haagenson President &CEO Golden Valley Electric Association,Inc. (907)458-5866 shh@gvea.com Matanuska Electric DEC 8 Y 2005 Association,Inc. PO.Box 2929 Palmer,Alaska 99645-2929 _Telephone:(907)745-3231 Fax:(907)761-9368 Synergy Works, December 5,2005 Steve Haagenson,President &CEO Golden Valley Electric Association,Inc. Post Office Box 71249 Fairbanks,AK 99707-1249 Dear Mr.Haagenson: A comprehensive proposal for the appropriation of $68.5 million in state funds dedicated for Railbelt energy projects has been negotiated and approved by Mike Barry,Chairman of the AIDEA/AEA Board of Directors;Bill Stewart,Interim CEO ofChugachElectricAssociation;Brad:Janorschke,General Manager of Homer ElectricAssociation;and.'Wayne:Carmony;Genérat Manager of Matanuska ElectricAssociation.The:utilities that aresignatoriesto this agreement represent the majorityofelectricconsumersinAlaska's'Railbelt:Ourletter-of agreement;dated September26,2008,was delivered to Finance Committee leaders iin the House and the Senate.|have become aware thatmembers of the Alaska Power Association last Fridaybegancirculatingadraftcompetingproposalthatwouldallocatethe$68.5 millionin Railbelt energy funds in a different manner than the agreement referenced above,plus an additional $40.5 million for various projects,without specifying a funding source forthisnewspending. MEA is not a member of APA,and HEA has already announced their intent to withdraw.The Chugach Electric Board is currently deliberating whether they too should withdraw from APA.Given this set of circumstances,it should be abundantly clear that APA has no authority to claim that it speaks on behalf of all Railbelt consumers.In this instance,APA should steer clear of Railbelt utility politics (seeattachedemail). It has been reported to us that Golden Valley Electric Association and Anchorage Municipal Light &Power were displeased with the proposed allocation of funds in the agreement negotiated by Chugach,HEA,MEA and AIDEA/AEA. |would note that Golden Valley Electric has already received from the Railbelt Energy Fund a grant payment of $42 million,plus $22 million in interest,to construct theNorthernIntertie(total of $64 million).In addition,the Alaska Legislaturé in 2002 appropriated $20.3 million to"upgrade and extend”the Alaska Intertie,another projectthatworksalmostexclusivelytoGoldenValley's benefit.These appropriations.are on top of the initial $128 million to:construct the Alaska Intertie between Willow and Healy.The lion's share of the benefits from the Alaska Intertie flow to Golden Valley - an estimated $7 million a year according to AIDEA/AEA reports. APA Managers December 5,2005 Page 2 How much is enough for GVEA?Given the massive subsidy that Golden Valleyratepayershavereceivedfrompreviousappropriations,it almost defies comprehension that GVEA would attempt to manipulate the APA membership to denyotherRailbeltutilitiestheirfairshareoftheRailbeltEnergyFund. Municipal Light and Power,under the leadership of Mike Scott,elected to pursue and succeeded in securing $19.3 million for rebuilding the Eklutna Project transmission line for which ML&P is the majority owner.What more does ML&P believe is their fair share? Chugach,HEA and MEA have not received an appropriate share of the Railbelt Energy Funds,and our joint letter requesting such appropriation reflects that reality.We also endorse the $12.5 million from the Railbelt Energy Fund to AIDEA/AEA to help restart their Healy Clean Coal Project.and recoup some benefit for Railbelt electric consumers in consideration of the $300 million in public funds that were invested in this facility. As a historical note,the remaining $68.5 million in funds available for Railbelt energy projects is roughly equivalent to the funds that remain from two Southcentral Alaska transmission projects that were never built.|am referring specifically to the remaining|$40 million from the Southern Intertie,which proposed to connect the Chugach andHEAtransmissionsystéms,and the $35 million for the Sutton to Glennallen Intertie, which proposed to connect the MEA transmission system with Copper Valley Electric. Finally,at a time when the rural systems are faced with staggering costs for the fuel needed to maintain minimal service to their members,it is inappropriate to be suggesting (as called for in the draft APA proposal)that the legislature should come up with an additional $40.5 million in new general fund spending to supplement the $68.5 in existing funds that were previously set aside to pay for Railbelt energy projects.The addition of this $40.5 million in new spending would only diminish the likelihood that the Legislature would fund any projects for the Railbelt.Such an outcome would only raise additional doubts about APA's relevance for Railbelt utilities and the consumers they serve. Sincerely, Wayne D.Carmony _.| Enclosure cc:Governor Frank Murkowski Senator Lyda Green,Senate Finance Committee Representative Kevin Meyer,House Finance Committee Ron Miller,AIDEA/AEA IV EF EGEIVEaanea-oe K DEC 13 2005 1)Golden Valley FlectrieAssociation AIDEA/AEAPOBox71249,Fairbanks,AK 99707-1249*(907)452-1151¢www.gvea.comYourTouchstoneEnergy'Cooperative KE a December 7,2005 Mr.Wayne Carmony,General Manager Matanuska Electric Association,Inc. PO Box 2929 Palmer,AK 99645-2929 Dear Mr.Carmony: |am receipt of your letter dated December 5,2005 (attached)regarding a comprehensive proposal for the appropriation of the $68.5 million in state funds for Railbelt energy projects as negotiated and approved by Mr.Mike Barry,Chairman of the AIDEA/AEA Board of Directors; Mr.Bill Stewart,Interim CEO of Chugach Electric Association (CEA);Brad Janorschke,General Manager of Homer Electric Association (HEA);and yourself.How nice it would have been if (as has been reported to me)the meeting had not been conducted in executive session without the benefit of attendance or input from the City of Seward,Anchorage Municipal Light &Power (ML&P)or Golden Valley Electric Association (GVEA).Attendance of and input from the remaining three utilities may have prevented what you term as a "draft competing proposal”and the original proposal may have garnered the support of the Alaska Power Association. |!am Chair of the Resolutions Committee at Alaska Power Association (APA).When this proposal came before the Committee on November 14,2005,|could see that it was headed for trouble due to the resolutions criteria the Committee adopted after the August 2005 Annual Meeting.The criteria are designed to prevent political conflicts between APA and a member or group of members.The Committee asked the resolution sponsor,CEA,to rework the resolution.|presented the issue to the Golden Valley Board on November 28,and we decided we wouldn't oppose the resolution if it were changed to provide $10 million to ML&P and $2 Million to the City of Seward,not specifying from where the money should come.At our Legislative Reception on the November 29,the Interior Delegation advised the proposal was "dead on arrival”without something coming to the Interior.On the November 30,when the resolution came back up before the Committee,CEA advised that they had not reworked it but were submitting the same resolution.The resolution failed on a split vote.My goal was to come up with a resolution that APA could support,not one that APA would oppose. On December 1,2005,at the APA Managers Meeting,as |understand it,there was a request for the Railbelt folks get together to come up with a different plan.As |understand it,a rough draft of an idea was discussed,with full knowledge that it would need to be discussed further with the Railbeit utilities. GOLDEN VALLEY ELECTRIC ASSOCIATION INC. The next day,at the APA Board Meeting,Mr.Dave Carey,President of the Homer Board of Directors,and Mr.Stewart presented the original resolution to the APA Board.After considerable discussion,Mr.Carey requested that his motion be withdrawn.Someone pointed out that the motion "belonged”to the Board at that point,but without objection it was allowed to be withdrawn.The APA Board requested that the Railbelt utilities get together to come up with a plan that APA could support. The next step in that process is the meeting that Steve Haagenson,President &CEO of GVEA, has suggested for December 14 or 20.|suspect that the rough draft of the idea developed on December 1,2005,will,among other things,be a topic at that meeting.|highly encourage you to attend and be a part of that process. There is no doubt that a utility,or group of utilities,can put the knife in a proposal's ribs,thus killing it.It seems in Juneau,any area of the State has the ability to stop passage of a project or proposal,but rarely can one be passed without support from ail.|think that is especially true with the Railbelt.|would prefer to see an agreeable Railbelt-wide proposal be forwarded to Juneau,rather than one that will be opposed by some.|believe that in this case,even if the amount of money is greater than the $68.5 million,that the synergy of all of us working together will be highly beneficial to the Railbelt.MEA's motto,"Synergy Works',says it all in this case. On another note,|have been trying for months to get a joint meeting between our two boards, but to no avail.Please pass on to the MEA board that GVEA would like to meet with them.We can meet here in the north or we can travel south.If we meet here,we can give your board a tour of the Northern Intertie terminus and the award winning Battery Energy Storage System. We have found that joint board meetings with CEA,ML&P,and HEA have proven positive in the past.We would hope the same could be accomplished with a joint board meeting with MEA. Sincere] Rick Schikora Chairman of the Board Attachment cc:Mr.Lee Jordan,President,MEA Board of Directors Senator Ralph Seekins Senator Gene Therriault Senator Gary Wilken Representative John Coghill,Jr. Representative David Guttenberg Representative Jim Holm Representative Mike Kelly Representative Jay Ramras Governor Frank Murkowski Senator Lyda Green,Senate Finance Committee Representative Mike Chenault,House Finance Committee Representative Kevin Meyer,House Finance Committee Ron Miller,AIDEA/AEA Wayne Carmony From:Steve H.Haagenson [SHHaagenson@gvea.COM] Sent:Friday,December 02,2005 4:50 PM To:bill_stewart@chugachelectric.com;Wayne Carmony;Jim Posey (PoseyJM@ci.anchorage.ak.us);Tim Barnum;Janorschke,Brad;wilkinson@cvea.org Subject:Railbelt Energy Fund -Manager's Meeting At yesterday's Manager's Forum,the Railbelt utilities were requested to develop a jointrecommendationlistofprojectstobefundedwiththeremainingEnergyRailbelt Funds. This morning,the APA Board of Directors requested a similar product. |would like to propose a meeting of the Railbelt Manager's to discuss the projects and distribution of funds,on Friday,December 9,2005 starting at 9:00 a.m. |am waiting to hear from APA to see if their Board Roomis available.|will confirm thelocationonMonday.. See you there. Steven Haagenson President &CEO Golden Valley Electric Association,Inc. (907)458-5866 shh@gvea.com Matanuska Electric DEC 89 2g65 Association,Inc. P.O.Box 2929 Palmer,Alaska 99645-2929 _Telephone:(907)745-3231 Fax:(907)761-9368 Synergy Works December 5,2005 Steve Haagenson,President &CEO Golden Valley Electric Association,Inc. Post Office Box 71249 Fairbanks,AK 99707-1249 Dear Mr.Haagenson: A comprehensive proposal for the appropriation of $68.5 million in state funds dedicated for Railbelt energy projects has been negotiated and approved by Mike Barry,Chairman of the AIDEA/AEA Board of Directors;Bill Stewart,Interim CEO ofChugachElectricAssociation;Brad Janorschke,General Manager of Homer ElectricAssociation;and Wayne 'Caimony;Geneérat Manager of Matanuska ElectricAssociation.The:'utilities that are-signaforiés'to this agreement represent the majorityofelectricconsumersinAlaska's'Railbelt:Our letter-of agreement,dated September°26,2008,was,delivered toFinance Committee'leaders ijin the House and the.Senate.|have become aware thatmembars of the Alaska Power Association last F ridaybegancirculatingadraftcompetingproposalthatwouldallocatethe$68.5 millionin Railbelt energy funds in a different manner than the agreement referenced above,plus an additional $40.5 million for various projects,without specifying a funding source forthisnewspending. MEA is not a member of APA,and HEA has already announced their intent to withdraw.The Chugach Electric Board is currently deliberating whether they too should withdraw from APA.Given this set of circumstances,it should be abundantly clear that APA has no authority to claim that it speaks on behalf of all Railbelt consumers.In this instance,»APA should steer clear of Railbelt utility politics (seeattachedemail). It has been reported to us that Golden Valley Electric Association and Anchorage Municipal Light &Power were displeased with the proposed allocation of funds in the agreement negotiated by Chugach,HEA,MEA and AIDEA/AEA. |would note that Golden Valley Electric has already received from the Railbelt Energy Fund a grant payment of $42 million,plus $22 million in interest,to construct theNorthernintertie(total of $64 million).In addition,the Alaska Legislature in 2002 appropriated $20.3 million to "upgrade and extend”the Alaska intertie,another projectthatworksalmostexclusivelytoGoldenValley's benefit..These appropriations are on top of the initial $128 million to-construct the Alaska Intertie between Willow and Healy.The lion's share of the benefits from the Alaska Intertie flow to Golden Valley - an estimated $7 million a year according to AIDEA/AEA reports. APA Managers December 5,2005 Page 2 How much is enough for GVEA?Given the massive subsidy that Golden Valley ratepayers have received from previous appropriations,it almost defies comprehension that GVEA would attempt to manipulate the APA membership to deny other Railbelt utilities their fair share of the Railbelt Energy Fund. Municipal Light and Power,under the leadership of Mike Scott,elected to pursue and succeeded in securing $19.3 million for rebuilding the Eklutna Project transmission line for which ML&P is the majority owner.What more does ML&P believe is their fair share? Chugach,HEA and MEA have not received an appropriate share of the Railbelt Energy Funds,and our joint letter requesting such appropriation reflects that reality. We also endorse the $12.5 million from the Railbelt Energy Fund to AIDEA/AEA to help restart their Healy Clean Coal Project and recoup some benefit for Railbelt electric consumers in consideration of the $300 million in public funds that were invested in this facility. As a historical note,the remaining $68.5 million in funds available for Railbelt energy projects is roughly equivalent to the funds that remain from two Southcentral Alaska transmission projects that were never built.|am referring specifically to the remaining $40 million from the Southern Intertie,which proposed to connect the Chugach and HEA transmission systéms,and the $35 million for the Sutton to Glennallen Intertie, which proposed to connect the MEA transmission system with Copper Valley Electric. Finally,at a time when the rural systems are faced with staggering costs for the fuel needed to maintain minimal service to their members,it is inappropriate to be suggesting (as called for in the draft APA proposal)that the legislature should come up with an additional $40.5 million in new general fund spending to supplement the $68.5 in existing funds that were previously set aside to pay for Railbelt energy projects.The addition of this $40.5 million in new spending would only diminish the likelinood that the Legislature would fund any projects for the Railbelt.Such an outcome would only raise additional doubts about APA's relevance for Railbelt utilities and the consumers they serve. Sincerely, W)HDGwayneCarmony|| Enclosure CC:Governor Frank Murkowski Senator Lyda Green,Senate Finance Committee Representative Kevin Meyer,House Finance Committee Ron Miller,AIDEA/AEA »12 206 Golden Valley Electric Association AIDEA/ABA PO Box 712-49,Fairbanks,AK 99707-1249 ©(907)452-1151 ©www.gyea.com ee;Kas \Your Touchstone Enerey Cooperative aT Bx Lae Mike G4. December 9,2005 Rane Mr.Wayne D.Carmony P.O.Box 2929 Palmer,Alaska 99645-2929 Dear Mr.Carmony: This is in response to your letter dated December 5,2005 (attached)regarding the appropriation of $68.5 million in state funds for Railbelt projects. The "draft competing proposal'you mentioned is basically the same as the Chugach, Homer,MEA and AIDEA/AEA letter of agreement,plus a few important additions and minor modifications to maximize the benefits of these State funds to the entire Railbelt. Construction of the new Douglas to Stevens transmission line to operate in parallel with the existing Alaskan Intertie would reduce losses and provide an altemative path for power flow during the snow loading events that would require the Alaskan Intertie to be taken out of service.The snow loading issue has been in the forefront of MEA's concerns.This alternative concept permanently solves the snow loading issue and saves dollars by preempting the need to provide inset towers in the existing Alaskan Intertie at a savings of $17 to $30 million.This is clearly a benefit to all Railbelt utilities. Moreover,reconstruction of the transmission line loop between the Eklutna power plant and Teeland substation and operating this loop closed will reduce losses and also increase the reliability of power flows to MEA and the Alaskan Intertie.This is a clear benefit to MEA and the Railbelt. Cooperation with the construction of the Teeland to Douglas transmission line that was funded several years ago will decrease losses and increase the transfer capacity and reliability to both MEA and the Alaskan Intertie.Cooperation with this project will benefit MEA members at no cost. There is no question that utility systems are faced with staggering costs for fuel,but we must also be cognizant that the high fuel costs benefit the State with their sales of royalty oil.The APA approach provides an opportunity for the State to use some oil revenues to finance critical infrastructure in Alaska that will provide significantly more benefits to the Railbelt population for thirty to fifty years,or more.Another recommendation for consideration would be to have all interest accrued prior to construction be retained for the construction of GOLDEN VALLEY ELECTRIC ASSOCIATION INC. the project.This concept would prevent the loss of interest like the Southern Intertie experienced when that project had $25 million taken back. We need to work together to maximize the benefits from the use of State funds for thebenefitoftheentireState.Two days are open for the funding discussion,December 14"and December 20".If you have a preference,please let me know and |will notify all the Railbelt utilities or "Roadbelt”utilities,to include Copper Valley Electric Association. |would personally appreciate it if you would attend this meeting so we can discuss these issues and other concems you may have.We can accomplish so much more if we work together. Sincerely, LEGO Steven H.Haagenson,P.E. President &Chief Executive Officer Attachment CC:Mr.Lee Jordan,President,MEA Board of Directors Senator Ralph Seekins Senator Gene Therriault Senator Gary Wilken Representative John Coghill,Jr. Representative David Guttenberg Representative Jim Holm Representative Mike Kelly Representative Jay Ramras Governor Frank Murkowski Senator Lyda Green,Senate Finance Committee Representative Mike Chenault,House Finance Committee Representative Kevin Meyer,House Finance Committee Ron Miller,AIDEA/AEA Alaska Industrial Development and Export Authority Alaska Energy Authority March 17,2006 Mr.Bradley P.Janorschke General Manager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 Fax:(907)235-3313 Mr.Jim Posey General Manager Anchorage Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501 Fax:(907)263-5204 Mr.Steve Haagenson President &Chief Executive Officer Golden Valley Electric Association,Inc. P.O.Box 71249 Fairbanks,Alaska 99707-1249 Fax:(907)458-5951 Mr.Bill Stewart Interim Chief Executive Officer Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Fax:(907)562-0027 Mr.Wayne Carmony General ManagerMatanuskaElectric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Palmer,Alaska 99645 Fax:(907)761-9349 RE:Curing Defects in Alaska Intertie Agreement Gentlemen: The Board of Directors of the Alaska Energy Authority (AEA)has directed AEA staff to cure defects in the Alaska Intertie Agreement ("Agreement”)that were discussed in a meeting between AEA and IOC utility general managers on-July 22,2005,and in subsequent meetings by the lOC.While soliciting utilities'concerns with the Agreement,the AEA Board raised three primary problems with the Agreement and intertie: 1.No R&R fund or other capital fund to finance major maintenance or upgrades; 2.Deferment of needed repairs;and -3.Lack of compliance with the Agreement's terms and conditions; You will recall that there was a general consensus amongst IOC utility general managers at the July 22,2005,meeting that defects AEA identified in the Agreement could be simply cured by amendment.That course later proved to be unworkable,as amending the Agreement requires unanimous consent,and the IOC utilities could not unanimously agree to any amendments. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503 March 17,2006 Page 2 The impasse reached on amending the Agreement after the July 22,2005,meeting led Golden Valley Electric Association (GVEA)to propose a "side agreement”approach,under which AEA and certain !OC utilities would enter into one or more "side agreements”to address the defects in the Agreement.In summary,GVEA's proposed "side agreements”would do several things. e The IOC would revert to pre-1993 budgeting mechanisms that reflect current language in the Agreement (e.g.,AEA would make all budgeting decisions after consulting with 1OC utilities,rather than those decisions being made by the IOC). e Certain IOC utilities would create and self-fund an R&R account to fund maintenance and repairs,and would control whether and when such funds were expended. e Certain IOC utilities would seek debt financing (including bonding)for maintenance and repair costs in excess of R&R fund. e AEA would remain responsible to contract for maintenance,but without any guaranteed funding source -other than the awkward debt financing mechanisms under which lOC utilities may opt out of the Agreement whenever debt is incurred. e Confirm that Bradley Lake power sales do not require AEA to become a utility participant to the Agreement. While the "side agreement”approach offers certain inprovements over the status quo,it fails to completely resolve defects in the Agreement,and creates additional problems.For example, while a funding source is created,expenditures would be controlled by certain IOC utilities. whereas AEA would remain responsible for contracting for maintenance without any assured funding source. AEA believes that with IOC utility cooperation,curing defects in the Agreement can best be accomplished in two stages.The second stage would implement the long-term cures by amending or replacing the Agreement as discussed in the July 22,2005 meeting.The amendments could not become effective until the earlier of (a)four years from when AEA gives notice of termination of the existing Agreement,or (b)when IOC utilities unanimously agree to the amendments. To cover that gap,the first stage would implement interim procedures based upon GVEA's "side agreement”approach (with some modifications).In order to efficiently implement this two staged approach,June 15,2006 will be the deadline for AEA and IOC utilities to enter both the long-term amendments to the Agreement and the interim "side agreements.”June 15,2006 will also be the date on which AEA will give notice of termination of the Agreement. The second,long-term stage will implement the ultimate cure to the defects in the Agreement. Unanimous approval would not be necessary for the two staged approach.The defects would be cured at the latest four years after AEA gives notice of termination when the existing Agreement would expire and a new agreement would become effective.The Agreements defects could be cured at the earliest when the IOC utilities unanimously agree to needed amendments,a course Matanuska Electric Association (MEA)indicated was possible if the amendments also accommodate certain MEA concerns. AEA believes that for both the long-term amendments and the interim "side agreements,” control over decision-making and responsibility for those decisions need to be held by the same entity.In that regard,AEA does not believe it appropriate to revert to pre-1993 procedures March 17,2006 Page 3 under which operational control by the 1OC is substantially diminished.Regardless of who controls the decision-making process,IOC utilities that use the intertie will ultimately pay all intertie costs.IOC utilities would appear to be better able to exercise discretion to exercise prudent utility judgments (e.g.,timing of repairs and expenses)at least if the 1OC utilities assume responsibility for those decisions. AEA would like to meet at your earliest convenience to discuss proceeding to cure defects in the Alaska Intertie Agreement. on Miller Executive Director RW M:bifH:\AEA Projects\Alaska Intertie Project\Correspondence\GM2006-01.doc Ron Miller From: Sent: To: Subject: Greetings: Brian Bjorkquist [Brian_Bjorkquist@law.state.ak.us] Friday,June 02,2006 9:10 AM jit@aterwynne.com;RickBaldwin@baldwinandbutler.com;AgiLE@ci.anchorage.ak.us; edwards.don@dorsey.com;jlwalker@matanuska.com;TABacock@matanuska.com AEA Board Meeting/Alaska Intertie Agreement The AEA Board is scheduled to meet Wednesday June 2ist,immediately following the AIDEA Board meeting which is scheduled to start at 10:00 a.m.The Alaska Intertie Agreement will be one agenda item. Brian ENERGY AUTHORITY Alaska Industrial DevelopmentandExportAuthorityCon June 14,2006 Mr.Bradley P.Janorschke Mr.Steve Haagenson General Manager President &Chief Executive Officer Homer Electric Association,Inc.Golden Valley Electric Association,Inc. 3977 Lake Street P.O.Box 71249 Homer,Alaska 99603 Fairbanks,Alaska 99707-1249 Fax:(907)235-3313 Fax:(907)458-5951 Mr.Jim Posey Mr.Bill Stewart General Manager Interim Chief Executive Officer Anchorage Municipal Light &Power Chugach Electric Association,Inc. 1200 East First Avenue P.O.Box 196300 Anchorage,Alaska 99501 Anchorage,Alaska 99519-6300 Fax:(907)263-5204 Fax:(907)562-0027 Mr.Wayne Carmony General Manager Matanuska Electric Association,Inc.and Alaska Electric Generation and Transmission Cooperative,Inc. P.O.Box 2929 Paimer,Alaska 99645 Fax:(907)761-9349 RE:Alaska Intertie Agreement Gentlemen: As noticed to your attorneys by Assistant Attorney General Brian Bjorkquist on June 2,2006 (copy of email attached)a meeting of the Alaska Energy Authority Board is scheduled for June 21,2006 during which a status report on curing the defects in the Alaska Intertie Agreement will be presented by AEA staff.|understand that one or more representatives of the IOC Utilities will attend and give a presentation of the IOC Utilities'progress towards proposing amendments to cure the defects in the Agreement.|would anticipate that the presentation would address both short-term and long-term cures to the Agreement,including how you believe the fiscal year 2007 budget should be implemented in tight of our mutual agreement that it would not be good public policy to revert to the pre-1993 mechanism reflected in the current language of the Agreement. Please let me know if you have any written material to be distributed to the AEA Board.To ensure Board members have ample opportunity to review any such material,|request that such materials be sent to me on or before Friday,June 16,2006. /Executive Director Alaska Energy Authority 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 tananas aiclaa mesa @ ON7/IAG.ANNN ©FAX 9N7/7K6G.3NAA ©Toll Free (Alaska Onlv)888/300-8534 ©www.akenerevauthoritv.are SENT BY:MEA ADMIN &HR;907 761 9349;JUN-16-06 8:35AM;PAGE 2/3 MEA Matanuska ElectricSynergyWorks.Association,Inc. P.O,Box 2929 Palmer,Alaska 99645-2929 Telephone:(907)745-3231 Fax:(907)761-9368 June 16,2006 Ronald W.Miller Executive Director Alaska Encrgy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 VIA FACSIMILE and U.S,MAIL Dear Mr,Miller: In response to your letter of June 14,2006,Alaska Electric Generation and Transmission Coopcrative,Inc.(AEG&T)member Matanuska Electric Association,Inc.(AEG&T/MLA) submits that it is aware of no progress on amendments to cure defects in the Alaska Intertie Agrecment,In addition,no agreement has been reached on the fiscal year 2007 Alaska Intertic budget,and there is no agreement on the implementation of such budget. On July 25,2005,AEA's Board was informed that several Alaska Intertie Participants had committed to fixing the Alaska Intertic Agreement.ARG&T/MEA understands that some Participants'representatives have met to discuss possible curcs.AEG&T's representatives have not generally been included in these discussions,and to the best of AEG&T/MEA's knowledge, no comprehensive cure of Alaska Intertie Agreement defects has been proposed. As is well known by all Participants,AEG&'1/MEA does nol support a piecemeal approach to curing the Alaska Intertie Agreement,If the concerns of all Participants cannot be resolved in a mutually satisfactory manner,the Alaska Intertie Agreement should be terminated. Article 26 of the Alaska Intertie Agreement states: Neither this Agreement nor any part hereof may be terminated,amended, supplemented,waived or modified except by an instrument in writing signed by all the Participants. No proposed cure of the defects in the Alaska Intertie Agreement can be implemented absent the concurrence of all Participants,including AEG&T.Nearly eleven months have expired since the commitment to fix the Alaska Intertie Agreement was communicated to AEA's Board,and yet the other Participants apparently do not have a proposal they are willing to discuss with AEG&T. SENT BY:MEA ADMIN &HA;807 761 9349;JUN-16-06 8:39AM;PAGE 3/3 Ronald W,Miller June 16,2006 Page 2 AEG&T/MEA hereby reiterates its position that the management structure created by the Alaska Intertie Agreement is fatally flawed,and continued operation under this structure will only exacerbate the existing problems identified by AEA and the Utility Participants.The time has come for AEA to terminate the Alaska Intertie Agreement by giving notice as required by Article 2.2.2 of that Agreement.This action would place'a clear deadline of 48 months on negotiation of a successor agreement addressing the long-term funding,operation,maintenance and repair of the Alaska Intertie. In the unlikely event that such agreement cannot be negotiated within the allotted 4 years,the chaos predicted by some would most certainly nof occur.AEA,as owner of the Alaska Intertie, would be free to impose terms and conditions on use of the Intertie that,at a minimum,resolve AEA's concerns.At that point,the individual utilities would merely be required to exercise their business judgment regarding their use of the Intertie on the terms and conditions set by AFA. AEG&T/MEA will have representatives at the June 21,2006,AEA Board meeting.ThoserepresentativeswillbeabletoaddressanyquestionsAEA's Board might have,as well as respond to any presentations made by other Participants. Sincerely, firbY D.CarmonyGeneralManager DEGEIVE JUL 0 5 2606 Golden Valley ElHleénicAssociation ABA vo 0 Bie PO Box 71249,Fairbanks,AK 99707-1249¢(907)452-1151 *www.gvea.com Your Touchstone Energy'Cooperative Kix June 30,2006 Mr.Ron Miller Executive Director AIDEA/AEA 813 West Northern Lights Anchorage,Alaska 99503 Dear Mr.Miller: At the close of the June 21,2006,AEA board meeting,Chairman Berry asked Mr. Bjorkquist io analyze the effect of issuing a notice of termination of the Alaska Intertie Agreement.Wa would like fo encourage the AEA to continue to support the utilities' efforts toward reaching 2 solution to the Alaska Intertie Agreement as an alternative to issuing a notice of termination.SO There is momentum among the Ratbelt utilites to coordinate and cooperate with each other to reach a workable solution.Recent discussions between many of the ulilities have resulted in draft "term sheets”for short-term and long-term solutions.We believeaworkablesolutioncanbereached.This will require cooperative process that acidresses the parties'needs and such cooperation takes some time given the nature of tne issues.At the upcoming July 10 meeting,we hope to share with the AEA an updated and more substantive proposal to address AEA's concerns.The substance of this proposal will include provisions dealing with establishment of an R&R fund,.résolution of budget process matters,and resclution on operational/governance.matters. We understand Chairman Berry's intention to motivate the Railbelt utilities to work together to resolve ongoing issues expressed by AEA.We would like to reiterate our agreement with the AEA that there are improvements that can be made to the Alaska intartie Agreement to benefit -theRailbelt..While the..Alaska intertie Agreement cancertainly'benefit frompicoordinated 'improvements;practical'experience with theAgreementhasshowf-4hat :the {utilitias'Have 'reached'la workable baldaséon many operational issues over the years.In our view,a workable long-term solution will retain what has worked andmprové upon that which has not worked or is missing.A notice of.termination mavidistuptthig:baldneesthat has been achiavediwht¥réspéct to certainoperationalmaiters”"andimnay:chanhee the.focus away'from achieving a prompt aridsubstantiveresolutions:6 6.ote ne GOLDEN VALLEY ELECTRIC ASSOCIATION INC. Ron Miller June 30,2006 Page 2 of 2 Section 2.2.2 of the Alaska Intertie Agreement provides that the Agreement can be terminated by the AEA "...when [AEA]determines such action to be required to improve Power systems serving the Alaska Railbelt Utilities.”Halting the cooperative process may be inconsistent with this standard for termination.Most of the utilities continue to be committed to appropriately operating and maintaining the Alaska Intertie,and such commitment is backed up by a proposal currently in development by the utilities.We ask that the AEA continue to support the cooperative and steady efforts that are already underway. Sincerely, Steven Haagenson President &CEO POWERING ALASKA'S FUTURE July 7,2006 D EGEIVE | JUL 07 2006 AIDEA Ron Miller AEA Executive Director Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,AK 99503 Dear Mr.Miller: At the last meeting of the Alaska Energy Authority (AEA)board meeting you asked Brian Bjorkquist to advise you on the effect of issuing a notice of termination of the Alaska Intertie Agreement.As you know,Chugach Electric Association,Inc.(Chugach)has consistently opposed the concept of AEA issuing a notice of termination.This letter outlines our reasoning on this question. The justification we have heard for issuing a notice of termination is that it creates an incentive for the parties to agree on a substitute for the existing Alaska Intertie Agreement (Agreement).We believe issuing notice of termination would have the opposite result and is therefore not recommended.Chugach agrees that there are some areas where improvements are needed.However,the Agreement as currently written has worked well and solutions to the complaints about the Agreement are possible without necessarily amending or terminating the agreement. There are a number of very good parts of the agreement.One of the most important is contained in Addendum No.|which contains many "rules of the road”to which the interconnected Railbelt utilities have agreed.There are a number of issues contained in these rules on which the parties would not easily reach agreement if they had to start discussions from scratch. It is entirely possible that one or more of the interested parties would seek to challenge a notice to terminate.Given these risks,it does not serve the interests of Railbelt citizens to unnecessarily create instability by giving notice of termination of the Agreement. Finally,the Railbelt utilities have been discussing the concerns raised by the AEA with regard to the Agreement.We expect that these utilities will make a brief presentation at your next meeting providing a general outline of possible ways to address the AEA's concerns.Issuing the notice at this time could divert attention away from developing ways to address the issues in the short as well as the long term. Chugach Eleciric Association,Inc. 5601 Minnesota Drive,P.O.Box 196300,Anchorage,Alaska 99519-6300 ©{907}563-7494 Fax {907}562-0027 ¢(800)478-7494 www.chugacheleciric.com ¢info@chugachelectric.com Ron Miller 2 July 7,2006 Chugach encourages the AEA to refrain from issuing a notice of termination and suggests instead that the AEA work with the utilities to produce workable short and long term solutions to the issues of concern to us all. Sincerely, William R.Stewart Interim Chief Executive Officer Il. Hand oot fy! Proposal to Address Alaska Intertie Agreement Issues OveACal10July2006Nes? Short Term Proposal to Work Within Existing Alaska Intertie Agreement .AIDEA,on behalf of AEA will issue bonds (or provide other funding)for approximately $10 to $15M to fund a renewal and contingency replacement fund (R&R fund)similar to that established in the Bradley Lake context.Proceeds from these bonds would be used to create this R&R Fund and for such projects as: =Tower foundation repairs; »SVC improvements;and "Unbalanced snow load mitigation. .The R&R fund will be used for the above or similar specific capitalized maintenance projects as recommend and approved in advance by the Participant Utilities as expressed by the Intertie Operating Committee (IOC). .Participating Utilities will agree not to exercise their rights under the AIA to withdraw from the agreement based on AEA incurring the debt referenced in paragraph 1,above.This assurance will be provided on condition that AEA agrees not to withdraw from the agreement or transfer its ownership interest in the Alaska Intertie until the debt referenced in paragraph 1 is retired.-Participants will continue to be responsible for recommended and approved decisions of the IOC pursuant to Article 18 of the Alaska Intertie Agreement. Long term .Within 120 days,the Participating Utilities agree to respond to and,as needed,to draft proposed modifications or replacements for the current AIA related to the list of issues provided to the Participating Utilities by AEA,including but not limited to the issues outlined below. tif AIA contract amended by unanimous agreement 1.Governance.The Participating Utilities will draft language to develop a governing body for the Intertie modeled along the lines of the Bradley Lake Project Management Committee (BPMC).This body will be identified as the Intertie Project management committee IPMC).The utilities will propose agreements outlining the duties and responsibilities of the IPMC as well as any other necessary changes. 2.R&R Fund.The utilities will develop and propose a mechanism for establishing and maintaining an R&R Fund.The IPMC shall be responsible for approving the operating budget and expenditures from the R&R Fund. 3.AEA liability exposure.Utilities will propose an arrangement in which the respective parties'liabilities are consistent with decision-making authority allocated to them. 4814-9398-0161\1 7/8/2006 9:45 AM Matanuska Electric Association,Inc.@)P.O.Box 2929 Palmer,Alaska 99645-2929 'Velophane:(907)745-3231Fax:(907)761-9368 Via Facsimile ang U.S.Mail August 14,2006 Ronald W.Miller Executive Director Alaska Energy Authority 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Dear Mr,Miller: On behalf of Alaska Electric Generation and Transmission Cooperative,Inc.member Matanuska Electric Association,Inc,(AEG&T/MEA),|am hereby notifying you that AEG&T/MEA's General Manager will not be participating in the Alaska Intertie Participants' meeting scheduled for August 15,2008.However,AEG&T/MEA representatives will attend to moniter the meeting. AEG&T/MEA understands that this meeting is in response to the |OC Motion 2006-8 recommendation that the Participant General Manager's work with you to develop a financing plan for capital foundation repair and SVC replacementrepair projects. AEG&T/MEA is unwilling,at this time,to commit to these expenditures of ratepayer funds, especially when we believe the expenditure is not commensurate with the benefits our ratepayers would receive from these projects. There is no provision in the Alaska Intertie Agreement ("Agreement”)for funding capital projects.Creation of such provision will require unanimous consent from the Participants under Article 26 of the Agreement.As is shown on the approved version of 1OC Motion 2006-8,there was no unanimous consent on the need for funding of the projects listed therein.AEG&T/MEA hereby notifies you,and the other Participants though copies of this letter,that any Finance Committee or Subcommittee under the Agreement must be formed and based upon unanimous consent. AEG&T/MEA recognizes that IOC Motion 2006-8 was hastily proposed and enacted due to the exigencies resulting from the September 1,2006,deadline established by AEA's Board of Directors.AEG&T/MEA believes that the Agreement is fatally flawed,and should be terminated.However,AEG&T/MEA has committed to looking at proposals to cure defects in the Agreement put farward by the other parties.To date,no specific proposals have been offered. If you have any questions,please call me at 761-9275. Sincerely, dames L,Walker Senior Counsel cc:Alaska Intertie Agreement Utility Participants A'aska Industrial Development and Export Autt Confidential - Attorney Client Communication MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Ron Miller Executive Director DATE:July 25,2005 SUBJECT:Alaska Intertie This agenda item stemmed from the executive session discussion at the last AEA Board meeting on June 6,2005.The confidential information reviewed by the Board for that meeting is attached to this memorandum. As directed by the Board,AEA invited the General Managers (GM's)of all rail belt utilities to discuss problems with the Alaska Intertie at this Board meeting.Some of those GM's requested a work session with AEA staff prior to the Board meeting.That session was scheduled for 10:00AM on Friday,July 22.The results of that meeting will be given to the Board prior to this board meeting. 813 West Northern lights Boulevard «Anchorage.Alaska 99503 Alaska Industrial Development and Export Auti Al Alaska Energy Authority Confidential - Attorney Client Communication MEMORANDUM TO:Board of Dir Alaska Ener FROM:Ron Miller - Executive DATE:June 6,2005 SU BJECT:Alaska Intertie Attached are memoranda that provide an overview of problems and Alaska Energy Authority (AEA)liabilities associated with the Alaska Intertie (aka Anchorage-Fairbanks ,Intertie).These memoranda will be discussed during an executive session on Monday,June 6". The Intertie is a 170-mile,345kV transmission line running between Willow and Healy. The Intertie was built in the mid-1980's with $125 million in State appropriations and it allows Golden Valley Electric Association in Fairbanks to purchase electricity from Chugach Electric,Municipal Light &Power,and the Bradley Lake Hydroelectric Project. AEA owns the Intertie but the operation and maintenance duties are overseen by the Intertie Operating Committee (IOC)which includes AEA as a member. R12 Wlect Narthern Lichte Raitlevard e Anchnrace Alacka QQ5N2 Confidential - Attorney Client Communication Alaska Intertie Problems Issue:List and describe problems associated with the Alaska Intertie,with a particular focus upon identifying potential grounds for terminating the Alaska Intertie Agreement (sometimes,"AIA”). Terminating,or threatening to terminate,the Alaska Intertie Agreement may be necessary to substantively correct problem areas.Railbelt Utilities have previously observed problems with the Alaska Intertie and related agreements.For example,Exhibit A is a 2002 proposal from Chugach Electric Association regarding possible areas to amend the Alaska Intertie Agreement.The conventional wisdom amongst Railbelt Utilities, however,is that the Agreement cannot be opened for re-negotiation as each utility would bring their individual grievances,which usually conflict with the interests of other utilities.Amendments to the Agreement would also require unanimous consent.So, while Railbelt Utilities agree that the Alaska Intertie Agreement contains defects,there is no apparent will to implement corrections. Termination Provision:Section 2.2.2 of the Alaska Intertie Agreement provides,in part: [AEA]may terminate this Agreement by giving at least 48 months advance written notice when [AEA]determines such action to be required to improve Power systems serving the Alaska Railbelt Utilities.(emphasis added) The Alaska Intertie Agreement does not define nor limit what constitutes "Power systems serving the Alaska Railbelt Utilities.”"Power”is defined to mean "electric Energy, usually expressed in kilowatts.” Alaska Intertie Problems: 1.Funding Capital Repairs/Improvements. The Alaska Intertie Agreement does not provide for an R&R Fund,or other mechanisms to collect sufficient funds for necessary capital repairs and improvements.The potential funding mechanisms in the Agreement are somewhat awkward to implement,and will always require the cooperation of the Participating Utilities --something that is frequently hard to obtain. The capital funding difficulty arises,in part,because the state no longer funds the Alaska Intertie operations as originally envisioned (and as the Agreement provides).Under the Agreement,AEA develops an operations and maintenance budget and schedule (AIA 8.1.3 and 10.3),obtains a legislative appropriation to cover the expenses (AIA 10.3.6), and then the Utilities repays the appropriated amounts through intertie fees (AJA 8.4). Page 1 6/3/2005 Confidential - Attorney Client Communication AEA has some ability to incur debt (AIA 8.1.1.and 8.1.3),which then becomes reimbursable by Utilities through intertie fees (AIA 8.4).This ability to incur debt, however,is limited.First,Participating Utilities may elect to end their participation within 30 days after AEA gives notice that it will incur debt repayable through intertie fees (AIA 2.2.3).Second,the ability to incur debt is limited by uncertainties surrounding anticipated intertie revenues,particularly as the legislature no longer appropriates amounts for annual operating expenses. The immediate problem this creates is that two necessary intertie capital projects have been approved by the IOC,but without any identified funding.(SVC upgrades and tower foundation repairs,each of which is described in Exhibit B). The IOC plan,dating back to October 2003,had been to fund these together with a snow- load inset tower project (described in Exhibit C).To address intertie revenue uncertainties,GVEA,Chugach and ML&P agreed to guarantee repayment of revenue bonds AEA agreed to issue,using a model similar to Bradley Lake Hydropower Project. The IOC is expected to implement an alternative solution to the snow-load inset tower project (see discussion below).Removal of that project will likely make issuing AEA revenue bonds cost ineffective. We do not know how the IOC will fund the necessary SVC upgrades and tower foundation repairs. Even if the IOC finds funding for the immediate capital needs,the Agreement will still not address additional future capital needs that inevitably will arise. 2.Disincentives to Approving Capital Improvements/modifications. The Alaska Intertie Agreement implements awkward procedures for parties to recommend and implement improvements to the intertie. First,whoever recommends a capital improvement is made solely responsible for the costs of the improvement unless the IOC determines in advance that the modifications are of direct benefit to the Participants.(AIA 7.4)This provision makes it difficult to implement any modifications,even ones that would significantly improve Intertie operations.AEA (and Participating Utilities)simply must be careful to first have IOC support before recommending a project. Second,if AEA incurs a debt reimbursable by intertie fees to cover the costs of a modification or improvement,every Participating Utility may terminate their participation in the Alaska Intertie Agreement within 30 days.(AIA 2.2.3).Any proposed capital improvement to be funded via debt financing,therefore,becomes an opportunity for every Railbelt Utility to terminate their participation with the Alaska Intertie Agreement. Page 2 6/3/2005 Confidential - Attorney Client Communication 3.Provisions of Alaska Intertie Agreement are Not Followed. Certain provisions within the Alaska Intertie Agreement have been ignored or simply not followed,including: a.No AEA Board approval of Alaska Intertie annual budgets.(AIA 8.1.3).Instead,the IOC informally approves the annual budgets. b.No legislative appropriation of Alaska Intertie annual budgets (AIA 10.3.6). 4.Spinning and Non-spinning Reserve Allocations Addendum1 to the Alaska Intertie Agreement is a separate agreement,solely between the Participating Utilities,requiring each utility to provide certain minimum reserve requirements,including spinning and non-spinning reserves,or alternatively to implement a load shedding program in lieu of maintaining minimum reserves. Addendum 1 appears to be the only agreement between the Railbelt utilities related to maintaining spinning and non-spinning reserves that are necessary to maintain the reliability of the interconnected systems of each utility,even though that agreement has little direct bearing on operation of the Alaska Intertie itself. Under the Alaska Intertie Agreement,any utility desiring to become a Participating Utility that may use the Alaska Intertie must become subject to the reserve requirements of Addendum 1. Certain utilities have suggested that the calculation of required spinning and non-spinning reserves are unfairly allocated.The Addendum requires each utility to maintain spinning reserves equal based upon a formula the utility's largest on-line generation unit.(AIA Addendum 1,B-2.3).This formula therefor tends to favor utilities that have a greater number of generating units,as their largest unit will be a smaller percentage of their total generating capacity in comparison to a utility with fewer generating units.(E.g.,a utility with one generating unit would have its spinning reserve requirement calculated based upon 100%of its total generating capacity,while a utility with 5 equally sized generating units would have its spinning reserve requirement calculated based upon 20%of its total generating capacity). While certain utilities have complained about the allocation,the reluctance of Railbelt Utilities to re-open negotiations on the Alaska Intertie Agreement has precluded adjustments to the formula. 5.MEA-TLS and Bypass Project The Railbelt Utilities have yet to make much progress implementing a long-term resolution related to the 19 mile transmission line owned by MEA (i.e.,the MEA-TLS). This 19 mile transmission line is currently integrated into the Alaska Intertie --without that line,there would be a 19 mile gap in the Alaska Intertie. Page 3 6/3/2005 Confidential - Attorney Client Communication Prior to July 1,2004,the MEA-TLS was part of the Alaska Intertie under a contract between MEA and AEA.From and after July 1,2004,the MEA-TLS has continued to be used in conjunction with the Alaska Intertie,but the relationship is now between MEA and the other Railbelt Utilities. The Regulatory Commission of Alaska ordered joint use and interconnection of the MEA-TLS in December 2004.Under that order,the Railbelt Utilities may continue to use the MEA-TLS as part of transmitting power over the Alaska Intertie,under terms and conditions the RCA imposed,until MEA has another use for the line.MEA did not contemplate another use for the line until at least 2014 when MEA's all requirements contract with Chugach Electric Association expires and MEA might generate and transmit its own power over the MEA-TLS. The longer-term solution is the bypass project.The Alaska Legislature appropriated approximately $20 million to AEA,primarily for construction of another transmission line to incorporate into the Alaska Intertie and replace (i.e.,bypass)the MEA-TLS. The Railbelt Utilities desired to manage the construction contract,and in exchange agreed to assume financial responsibility for cost overruns.Progress,however,has been slow.AEA in March 2005 provided the Railbelt Utilities with a draft construction agreement,under which Municipal Light and Power would take the lead in constructing the bypass project.In mid-May 2005,ML&P requested a electronic version of the draft construction agreement to recommend changes.AEA has not heard anything further. 6.Uneven Snow-Loading Problems Operational safety problems associated with uneven snow-loading conditions are described in Exhibit C.The basic problem is that when snow accumulates on the intertie line,it can cause the line to sag.If the snow accumulates in an uneven fashion (e.g.,all of the weight accumulates between two towers in an area,which may happen when snow is falling off the line in an uneven fashion),then the line may sag low enough to create a safety concern. It is anticipated that the IOC will initiate several actions to address the safety concerns. The IOC is expected to adopt at its June 9,2005,meeting new operating procedures that will immediately implement safe operations in uneven snow-loading conditions.The IOC is also expected to explore additional operational procedures and capital improvements that can further provide for safe operations under uneven snow-loading conditions;and to engage an engineer to review all of these procedures to evaluate and opine upon whether these improvements provide for safe and responsible operations that are also consistent with prudent utility practices. Page 4 6/3/2005 Confidential - Attorney Client Communication Exhibit A CEA PROPOSAL TO IOC Background Agreement was implemented in the mid 1980's when the State Legislature appropriated money to operate the Intertie and the Utility Participants reimbursed the State for expenses.The Agreement was also written to prevent any excess funds from reverting to the State general fund.Several provisions are no longer being applied because the situation has changed and the Utility Participants fund all expenses. Proposed Changes Delete section 2.2.3,which allowed any Participant to terminate its participation within 30 days of AEA issuing any debt for the project and add a provision that requires l1OC approval in advance of any debt for repairs or enhancements to the Intertie. Add to section 8.1 a provision for a maintenance reserve fund. Rewrite section 8.1.3 detailing the budget process.The 13-month process and approval by the AEA Board is not being followed.Approval by the IOC prior to the start of the FY should be adequate. Rewrite section 8.2.2 to use a multi-year average but not less than 30%of capacity as the annual energy usage estimate. Possibly revise section 8.2.5,energy rate,but retain the 83.5%allocation to energy. Rewrite section 8.4.5 to put year-end surplus (revenue minus expenses)into the maintenance reserve fund. Rewrite section 8.4.6 to fund year-end shortfalls (expenses minus revenue)from the maintenance reserve fund unless the fund drops below some floor in which case the shortfall would be assessed on the basis of MITCR. Add section 9.1.3 giving IOC budget approval authority. Delete or rewrite section 10.3,Budget for Operation of the Intertie,to eliminate the fixed costs for operators.Any new section should reflect actual practice.Steps outlined have not been followed since AEA succeeded APA. Page 5 6/3/2005 Confidential - Attorney Client Communication Exhibit B TO:Ron Miller Executive Director FROM:Art Copoulos Project Manager DATE:October 21,2003 SUBJECT:Alaska Intertie Problems An Intertie Operating Committee (l1OC)technical subcommittee,in its "Alaska Intertie Upgrade Report”for the lOC dated October 2002,identified several significant problems on the Alaska Intertie,including problems related to SVC repairs,Tower foundations, and Intertie Snow Loading.[Portions of memorandum related to snow-load and Matanuska Electric Association terminating their maintenance contract have been deleted.]A summary of these specific problems areas is as follows: SVC repairs: The 3 existing SVC's on the Alaska Intertie are in need of replacement parts and many of those parts are no longer manufactured or are difficult to locate.A recent study by Electric Power Systems (EPS)indicated that due to their obsolescence,obtaining necessary spare parts for the SVCs could cost approximately $500,000.00.Intertie downtime or operation at a reduced operating capacity while needed parts are reverse engineered could also be incurred.This problem has been understood for a number of years and the magnitude of the spare parts issue was recently quantified with the EPS study.As an alternative,ABB recently completed a budgetary proposal for various upgrade options on these SVCs. On October 14",2003,the |OC Maintenance subcommittee asked that ABB update their previous proposal with the intention of recommending to proceed with annual controls only retrofits on the SVC's,providing acceptable terms can be arranged.On October16",2003,the IOC passed the following motion:"The 1OC endorses the maintenance subcommittees recommendation to replace controls on all 3 SVC's with commonality of spare parts,repair towers #274 and #297,and requests that AIDEA,in consultation with Participating Utility General Managers suggest a means of funding that would be repaid through Intertie Revenue." Page 6 6/3/2005 Confidential - Attorney Client Communication Tower foundation repairs on towers 274 and 297: The downhill (East)foundations for Towers #274 and #297 in the Chunilna Ridge area of the Alaska Intertie have experienced significant settling,rotation,and lateral movement. Cable and turnbuckle assemblies were tensioned between the legs of the towers as a "temporary fix."As a part of an ongoing and active inspection program,the towers were inspected this summer by MEA and the results,which were faxed to the IOC on September 9,2003 (attached),indicate just under an inch of anchor bolt slippage on anchor bolt E4 on the East Foundation of tower #274.Based on previous correspondence,Dryden &LaRue believes "the foundations likely will continue to move in small amounts,which may eventually lead to an irreversible structure failure”and has recently recommended "that a permanent fix be implemented at these two towers.” The IOC and Intertie maintenance subcommittee have discussed the need for a permanent fix and the possibility of having spare Lindsey towers on hand to replace these towers in the event of a catastrophic failure.A repair is complicated by the lack of vehicle access. On October 14",2003,the IOC Maintenance subcommittee recommended that the IOC fund repairs on both towers.The |OC Maintenance subcommittee also continued to pursue evaluation of the purchase of spare Lindsey towers.On October 16",2003,the 1OC passed the following motion:"The IOC endorses the maintenance subcommittees recommendation to replace controls on all 3 SVC's with commonality of spare parts, repair towers #274 and #297,and requests that AIDEA,in consultation with Participating Utility General Managers suggest a means of funding that would be repaid through Intertie Revenue.”The approximate total cost of these repairs is 2-3 million. Page 7 6/3/2005 Confidential - Attorney Client Communication Exhibit C Intertie Snow Loading: The lOC recognized certain risks related to snow loading of the Intertie,undertook engineering reviews of the problem,and implemented a snow load monitoring system (SLMS)in 1998,subsequently followed by snowmachine patrols to monitor snow-load conditions.SLMS monitors the weight of snow on the intertie lines,which information can be translated into potential ground clearance of the lines. Matanuska Electric Association (MEA)has suggested that the Alaska Intertie is unsafe when uneven snow-load conditions arise,and recommended in 2003 that the line be de- energized in the winter snow and ice season,that it be patrolled daily,and that grounding equipment be installed to discharge accumulated static electricity. In October 2003,the IOC Maintenance subcommittee supported continuing then current practice of snow load monitoring as a way to mitigate the risks associated with snow loading of the Intertie.The IOC also passed the following motion:"The IOC considers the current Snow Load Monitoring Practices consistent with Prudent Utility Practices and the Intertie should not be taken out of service absent a known specific problem.” MEA subsequently continued to assert that the Alaska Intertie was unsafe,including in pleadings filed with the RCA,in letters,and in a public relations campaign,that included television advertisements. The General Managers of GVEA,Chugach and ML&P in the fall of 2003 agreed to address the uneven snow-loading problem by supporting construction of inset towers, and funding the construction through AEA bonds guaranteed by the three utilities (a process copied from AEA bonds used to finance the Bradley Lake Hydropower Project). The IOC hired engineers (Dryden &LaRue)to update their prior late 1990's estimated construction costs for inset towers.In early 2005,Dryden &LaRue's reported that their earlier estimate of $18 million would increase to $32 million,with most of the increase attributable to increased steel costs. The Railbelt Utilities suggested that adding debt service necessary for $32 million of additional debt into the annual operating costs would make the Alaska Intertie uneconomic.Further,there was a view (shared by AEA staff)that constructing inset towers was not really necessary to implement safe operations. One alternative,implicitly suggested by MEA in the past,is to de-energize the transmission line when snow-loading conditions indicate that a potential problem might exist.The Snow Load Monitoring System (SLMS)continually monitors weight on the Alaska Intertie.An alarm is set at a weight which,Dryden &LaRue asserts,would ensure that the transmission line has a minimum of 14 feet of clearance under basically a worst case scenario (i.e.,uneven snow loading on one span and 8 feet of groundcover).Further,in the past 3 years,no snow-loading alarm has been triggered under these criteria. Page 8 6/3/2005 Confidential - Attorney Client Communication De-energizing the intertie under these alarm criteria has been proposed to immediately implement a conservative (i.e.,safe)operating procedure,but one that is not likely to significantly disrupt intertie operations.The IOC is expected to adopt this procedure at its June 9,2005,meeting. The IOC is further expected to continue to engage Dryden &LaRue to evaluate and recommend additional improvements to procedures and the SLMS to make the system more accurate,and thereby expand the circumstances under which the intertie can safely operate.As examples,Dryden &LaRue will evaluate procedures by which snow can be knocked off the line before the weight reaches alarm levels.Further,if additional SLMS monitors are added to the system,the operators will have better and more accurate information to evaluate actual conditions so that alarm levels may be relaxed. Finally,if future snow-loading/weather conditions require excessive disruption of intertie operations,the IOC can then evaluate whether additional capital improvements are warranted (e.g.,the IOC may at that time determine that construction of inset towers meets an appropriate level of cost/benefit analysis). Page 9 6/3/2005 Confidential - Attorney Client Communication Alaska Intertie -AEA Liabilities Issue:Identify what potential Alaska Energy Authority's liabilities arise from or are imposed by the Alaska Intertie Agreement. Short answer:The Alaska Intertie Agreement imposes relatively little liability upon the Alaska Energy Authority.Many obligations imposed upon AEA under the Agreement are then delegated to other Railbelt Utilities (e.g.,to intertie operators and maintenance contractors).The Agreement is basically structured so that the utilities pay all operation and maintenance costs through intertie cost charges.The primary concerns arise because: (1)AEA receives no financial benefit from intertie operations,so that any liability that might arise is not covered by revenues.This basically reflects "the deal”AEA struck in 1985. (2)While many responsibilities are delegated,AEA actively participates on the IOC in making management decisions,and owns the intertie.In these two roles,AEA shares responsibility for intertie operations with the Participating Utilities,and probably would be found to share lability for negligent operations,particularly if insurance coverages do not adequately cover damages that might arise.Again,these arise from "the deal”AEA struck in 1985. (3)AEA must remain ever vigilant in managing the project,as the IOC utilities appear to attempt to shift financial responsibility onto AEA whenever an opportunity arises. CONFIDENTIAL 'Alaska Industrial Development and Export Authority oa : i ee etal ne dr Alaska Energy Authority MEMORANDUM TO:Board of Directors Alaska Energly Authority FROM:Ron Miller Executive Dyréctor DATE:February 24,2006 SUBJECT:Alaska Intertie Project This memo is an update to a previous memo of December 5,2005 (Copy Attached).Per the Board's request,staff recommendations are provided. 1)Snow Load Monitoring Procedure:The Intertie Operating Committee (IOC)initiated more stringent monitoring procedures November 16,2005.AEA issued a Request for Proposals (RFP)December 23,2005 for a third party review of this procedure.This review will consider Prudent Utility Practices in use by other cold region electric utilities.No proposals were received on the January 13,2006 due date.The RFP will be reissued this month to allow more time for consultants to respond. Staff Recommendation: e AEA staff to proceed with the RFP for third party review of Intertie Snow Load Monitoring Procedures.The consultant's report will be due by the end of September 2006. 2)Repair and Replacement Projects:AEA's primary areas of concern have been with structure foundations and Static Var Compensator (SVC)obsolescence. .Structure foundations were addressed at the October 20,2005 IOC meeting.GVEA's HenriDaleandconsultantDryden&LaRue summarized studies conducted for three structure foundations of concern.Recommendations included continued monitoring of soils and foundations,with no major repairs required. Regarding SVC's,Chugach Electric Association (CEA)agreed January 2,2006 to pursue hiring a consultant to study upgrade options. Staff Recommendation: °EA staff to provide regular reporis to the Board on the condition of the Intertie and utility maintenance plans. e AEA staff to track CEA's progress with studying SVC upgrade options. e AEA staff to review the Intertie maintenance agreements with Golden Valley Electric Association (GVEA)and Matanuska Electric Association (MEA)to ensure compliance. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503 Board of Directors 2/17/2006 Page 2 CONFIDENTIAL 3)Curing Intertie Agreement Defects:AEA identified several defects in the Intertie Agreement: e Repairs and Major Maintenance not being performed: -Agreement has disincentives for recommending improvements to the Intertie. -Agreement makes funding repairs difficult;not clear whether IOC decisions are based upon best practices or funding concerns. -e No good funding mechanism for major expenses --no R&R fund or good mechanism for long-term debt. e Specific provisions of agreement not being followed (e.g.,budget provisions). Creates uncertainty and risk;encourages inaction. The IOC utilities identified a list of additional concerns -primarily agreement terms not being followed. Some of the utilities propose curing defects with "Side Agreements”(copy of a "conceptual framework”for these side agreements is attached).It is not clear whether this proposal is from GVEA or other utilities.It is clear that MEA is not proponent of this approach. e Proposal would create R&R fund for repairs and major maintenance,however, AEA would continue to be contractually responsible for maintenance while utilities that contribute to R&R fund would control whether funds could be expended. e Proposal would revert to pre-1993 contractual budget processes: -Significantly,AEA would establish the Intertie annual budget after consulting with !OC utilities.IOC "approval”would not be necessary. -AEA would determine whether and when maintenance was required.AEA would take responsibility for decision making that has largely been ceded to the IOC utilities since 1993. -AEA must submit budget to legislature for approval - appropriation of Intertie receipts to cover Intertie budget. -There still would be no good mechanism for adjusting budget during any fiscal year to cover unexpected expenses. Staff Recommendation: e Inform lOC Utilities that "side agreement”approach appears defective as a complete solution,but that it could be useful to achieve a complete solution as follows: Board of Directors 2/17/2006 Page 3 CONFIDENTIAL i.AEA give notice of its intent to terminate the Alaska Intertie Operating Agreement to set in motion implementing amendments to cure defects. li.Cure agreement defects in two stages. 1.Negotiate "long-term”solution with amendments to Agreement. 2.If Utilities do not unanimously agree to amendments,the amendments will become effective 4 years after notice of termination. 3.The "side agreement”approach (with improvements to the initial proposal to make IOC utilities responsible for their decisions controlling Intertie matters)would be used as a stop-gap measure during the interim before the old agreement is terminated,and new agreement can become effective. 4.Encourage !OC utilities to accommodate all utilities concern in negotiation process,to avoid "side agreement”approach.For example,MEA has suggested it would agree to amendments if its concerns were addressed. 4)Divestiture:The Alaska Energy Policy Task Force (December 2003)in its Railbelt Report: Finding and Recommendations,part III states:"The Task Force supports the transfer of AIDEA/AEA electrical assets in a manner that recognizes existing contracts.Current state ownership of energy assets should be transferred to a Unified System Operator to support the cooperation of utilities in that endeavor.”Two Joint Action Agencies (JAA)have been formed to date:the first by Homer Electric Association (HEA)and MEA,followed by another, the Alaska Railbelt Energy Authority (AREA),that included GVEA,CEA and Anchorage - Municipal Light and Power (ML&P).CEA has recently withdrawn from AREA. Staff Recommendation: e Accomplishing divestiture of Railbelt energy assets does not appear realistic at this time since there is no Unified System Operator that includes all Railbelt utilities.AEA should further develop a position paper regarding terms and conditions that would be necessarytomakedivestitureacceptable,which may include a JAA "term sheet”for a Unified System Operator agreement that would be acceptable to AEA. 5)Intertie Bypass Project:Negotiations continue over an agreement under which ML&P would manage the bypass project.Primary issues under debate include:the utilities taking responsibility for finishing the project after construction has begun;the utilities relying on their eminent:domain and not the state's;ownership if AEA transfer its asset during construction. Staff Recommendation: e Staff to pursue a suitable agreement under which ML&P would manage the design,ROW acquisition,and construction of the project. Alaska Industrial Development and Export Authority TO:Board of Directors Alaska Energy Authority FROM:Ron Miller Executive Director DATE:December 5,2005 SUBJECT:=Alaska Intertie Project The following progress has been made on the Alaska Intertie issues: Snow Load Monitoring Procedure:The Intertie Operating Committee (IOC)initiated moreStringentmonitoringproceduresNovember16,2005 (copy attached).AEA will contractforanindependentreviewofIntertiesnowrelatedsafetyproceduresinearly2006. Intertie Agreement Amendments:The IOC discussed Participant concerns with the Intertie Agreement at its meeting of November 16,2005.Discussions will continue at an \OC meeting scheduled for November 30,2005.An amendment will require the unanimous consensus of all Participants. AEA and IOC counsel (through Jenny Trieu -Ater Wynne atty)have also discussed the possibility of using "side agreements"to address the problems with the Intertie agreement.The primary area would be a side agreement to address funding necessary repairs and major maintenance.It is up to IOC counsel to further develop this option.Discussion in this regard will occur on November 30"between AEA and IOC's counsel. Intertie Bypass Project:Negotiations continue over an agreement under which ML&Pwouldmanagethebypassproject.The next meeting between AEA and ML&P is scheduled for November 30,2005.. Repair and Replacement Projects:Structure concerns were addressed at the October 20,2005 |IOC meeting.GVEA's representative Henri Dale and consultant Dryden & LaRue summarized studies conducted for three structure foundations of concern.Recommendations included continued monitoring of soils and foundations,with no maior repairs required.AEA has requested copies of consultant reports. Regarding SVC's,the IOC has discussed hiring a consultant to study upgrade options. Repair and Replacement Funding:AEA transmitted Alaska Intertie Repairs Financing Scenarios to Participant General Managers,as requested by the General Managers during the July 22,2005 Alaska Intertie Work Session (copy attached),Participants have not responded to the information provided. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503907/269-3000 *FAX 907 /749-3044 ©Toll Frae (Al ASKA ANIVY B88 FINN ALIA «ime maentdnn oom CONFIDENTIAL Supplement to Alaska Intertie Agreement Conceptual Framework Dated 11/29/05 Document:Supplement to Alaska Intertie Agreement (Supplemental Agreement) Parties:Alaska Energy Authority Chugach Electric Association Golden Valley Electric Association ML&P Purpose:Supplement the terms where the existing Alaska Intertie Agreement does not provide clear mechanisms for handling activities related to the Intertie. Relationship to Existing Alaska Intertie Agreement remains in effect. Contractual Commitments: Ability to Make Decisions:The parties to the Supplemental Agreement recognize that the Intertie Agreement requires a 75%approval of the IOC to take action.The parties to the Supplemental Agreement represent 80%of the IOC,and thus,if acting in concert,these parties are able to make all necessary decisions. Project Maintenance and To fulfill AEA's maintenance obligations under Art.12 of the Funding Mechanism:Intertic Agreement,and subject to the approval of the IOC,the utility parties to the Supplemental Agreement agree to continue to contract with AEA to perform project maintenance as reasonably determined by AEA (in accordance with prudent utility practice). Ongoing and regular maintenance expenses will be handled through the existing mechanism under the Intertie Agreement. Extraordinary maintenance expenses will be funded through the reserves (to be established as provided below).To the extent reserves are insufficient to fund the maintenance project,each party to the Supplemental Agreement will contribute an amount to fill the funding gap (subject to the approval of each of the parties). CONFIDENTIAL Reserves (R&R Fund):Reserves to fund capital projects and extraordinary operations and maintenance projects will be established through an initial contribution of each of the utility parties to the Supplemental Agreement. The amount of the initial contribution will be agreed to by each of the utility parties. The amount retained in the R&R fund will be increased and/or replenished through wheeling rate surcharges or additional contributions. If AEA becomes a Utility Participant under Section 4.1.1 of the Alaska Intertie Agreement,then AEA shall contribute to funding the R&R fund. The parties that contribute to the R&R fund will determine the specific uses of the fund. The parties contributing to the R&R fund will review the sufficiency of amounts held in the R&R fund on an annual basis. Additional Financing (Bonding): There may be a need for bond financing if there are significant expenditures in excess of reserve funds.The existing Intertie Agreement does not serve as adequate security to obtain additional financing. "Ifthe AEA and the utility parties to the SupplementalAgreementagreethatcapitalexpendituresarenecessary, the parties will enter into appropriate agreements to finance such projects. Such agreements may include appropriate financing commitments by the utility signatories. Utility signatories to outstanding bond issuances will agree to not exercise their right to withdraw from the Alaska Intertie Agreement without ensuring that 100%of their bond commitments are satisfied. For the term of outstanding bond financing(s),AEA will not exercise its right to withdraw from the Alaska Intertie Agreement. AEA -Utility Participant Status: The utility signatories to the Supplement Agreement acknowledge that exercise of AEA's right to transfer power to Bradley Lake participants does not trigger Utility Participant status under Section 4.1.1 of the Alaska Intertie Agreement. CONFIDENTIAL {Brian:It is our understanding that AEA would trigger utility participant status if it were to use the AK Intertie to sell power.] GVEA and ML&P GVEA and ML&P have not asked for payment for operational Operating Budgets:services.The Supplemental Agreement will confirm that this will remain the case. [Brian:You asked that the utility parties to the Supplemental Agreement acknowledge that AEA is not in breach of its obligation to submit to the legislature the final operations budget (required under Section 10.3.5 of the Alaska Intertie Agreement).Our concern about this acknowledgement is that the operationsbudgetincludesmorethantheportionssubmittedbyGVEAandML&P as system operators (e.g.,insurance,consultant fees,communication§,etc.).} Modification:Approval by all of the parties to the Supplemental Agreement is necessary to modify the terms. Prior Approvals Needed:Approval by the governing bodies of each of the parties to the Supplemental Agreement may be necessary.