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12-10-1999 BM Minutes
ALASKA ENERGY AUTHORITY Board Meeting December 10,1999 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 O 10. oe,fy.are DS AND EXPORT AUTHORITY ALASKA INDUSTRIAL DEVELOPMENT a = Qu =ENERGY AUTHORITY AGENDA ALASKA ENERGY AUTHORITY Board of Directors December 10,1999 CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES _-December 16,1998 OLD BUSINESS NEW BUSINESS A.Financial Statements/Audit Presentation DIRECTOR COMMENTS A.Director's Status Report of AEA Programs and Projects B.Next Meeting Date BOARD COMMENTS ADJOURNMENT Niail\bjfiboard\agenda1 FAX 907 /269-3044 ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY -_ALASKAqm=ENERGY AUTHORITY © Al 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 FAX 907 /269-3044 ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS December 10,1999 -11:50 a.m. Anchorage,Alaska 1.CALL TO ORDER Chairman Hughes called the meeting of the Alaska Energy Authority to order on December 10, 1999 at 11:50 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Roll call was requested.Directors present in Anchorage:Mr.Wilson Hughes (Chairman/Public Member),Deputy Commissioner Ross Kinney (Designee for Department of Revenue Commissioner),Commissioner Deborah Sedwick (Department of Community and Economic Development),and Commissioner Joe Perkins (Department of Transportation and Public Facilities). 3.PUBLIC ROLL CALL AIDEA staff present in Anchorage:D.Randy Simmons (Executive Director),James A.McMillan (Deputy Director -Credit),Valorie F.Walker (Deputy Director -Finance),Keith A.Laufer (Financial &Legal Affairs Manager),David E.Germer (Deputy Director-Business Development & Rural Energy),Dennis McCrohan (Deputy Director-Project Development &Operations),Lamar Cotten (Rural Development Manager),Katelyn Markley (Development Specialist),Karl Reiche (Projects Development Manager),Percy Frisby (Rural Energy Manager),Dick Emerman (Project Manager),Kathy Goodwin (Accountant),John Wood (Project Manager),and Brenda J.Fuglestad (Administrative Assistant). Others attending in Anchorage:Ken Vassar and Barbara Dryer (Wohlforth,Vassar,et.al),Tony Hopfinger (Anchorage Daily News),Kathy Porterfield (KPMG LLP),Tim Bradner (Alaska Economic Report),Brian Bjorkquist (Department of Law),Jon Rubini (Foster Pepper Rubini & Reeves LLC),and Charles E.Cole,Esq. 4.PUBLIC COMMENTS There were no public comments. 5.PRIOR MINUTES -December 16,1998 The December 16,1998,minutes were unanimously approved as presented. AEA Board Meeting December 10,1999 Meeting Minutes Page 2 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS TA.Financial Statements/Audit Presentation Ms.Kathy Porterfield,Managing Partner with KPMG Peat Marwick LLP,summarized the audited financial statements and letter to the Board. Ms.Porterfield said the purpose of the audit is for KPMG to gain reasonable assurance that the financial statements are free of material misstatement.KPMG conducted appropriate audit procedures and has concluded that the financial statements are fairly stated in all material respects in accordance with generally accepted accounting principles,resulting in an unqualified or a clean opinion.KPMG obtained reasonable assurance during the audit that the financial statements are free of material misstatement. Ms.Porterfield said the Authority has an effective system of internal control in place. Larsen Bay Project In response to Board questions,Mr.Simmons said that AEA is in negotiations with the bank that holds the letter of credit and also with the City of Larsen Bay as to the disposition of the project in the event of default. Mr.Vassar stated the bonds are revenue bonds of the Authority that are secured by a letter of credit.The letter of credit is still in effect so bondholders have been paid to date and will be paid; there is no risk to bondholders.The bonds are secured by revenues but the payment on the bonds comes from the draw on the letter of credit.The bondholders get paid by the draw on the letter of credit then the letter of credit bank gets reimbursed from the revenues of the system. Currently,the revenues are not available to reimburse the bank.He said the bank cannot revoke the letter of credit. Mr.Simmons said the plant still runs and generates power but it probably is not being maintained to our satisfaction partly because of the amount of monies that have not been collected. Ms.Walker said the call date on the bonds is April 1,2001,and the final maturity date is 2015. She also said that to date all draws on the letter of credit have been reimbursed from the pool of funds previously paid by the City of Larsen Bay.To date there are no payments owing to the Bank. In response to Board questions,Mr.Simmons said that no impacts to AEA are expected. 8.DIRECTOR COMMENTS Mr.Simmons stated that at the next board meeting staff will have a rural energy program presentation. AEA Board Meeting December 10,1999 Meeting Minutes Page 3 A.Status Report of AEA Programs and Projects There were no status reports for AEA programs. 9.BOARD COMMENTS There were no Board member comments. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 11:59 a.m. rf bl_-D.Randy Sine)Secretary ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY [=ALASKA@m@e=ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 FAX 907 /269-3044 ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS December 16,1998 -12:00 p.m. Anchorage and Juneau,Alaska 1.CALL TO ORDER Chairman Hughes called the meeting of the Alaska Energy Authority to order on December 16, 1998 at 12:00 p.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Roll call was requested.Directors present in Anchorage:Mr.Wilson Hughes (Chairman/Public Member),Deputy Commissioner Ross Kinney (Designee for Department of Revenue Commissioner),Commissioner Deborah Sedwick (Department of Commerce and EconomicODevelopment),and Commissioner Joe Perkins (Department of Transportation and PublicFacilities). Directors present in Juneau:Mr.Robert Loescher (Public Member). 3.PUBLIC ROLL CALL AIDEA staff present in Anchorage:D.Randy Simmons (Executive Director),Keith A.Laufer (Financial &Legal Affairs Manager),Valorie Walker (Deputy Director -Finance),David E.Germer (Acting Business Development Manager),Dennis V.McCrohan (Deputy Director -Project Development &Operations),Jim McMillan (Deputy Director -Credit),Katelyn Markley (Development Specialist),and Brenda J.Fuglestad (Administrative Assistant). Others attending in Anchorage:Brian Bjorkquist (Department of Law),Kathy Porterfield (KPMG Peat Marwick),Ken Vassar and Cindy Cartledge (Wohlforth,Argetsinger,et al),Jim Dokoozian (Locher Interests Ltd.),John Moore (Prudential Securities),Jeff Brown (Goldman Sachs),and Joe Griffith (Chugach Electric). 4,PUBLIC COMMENTS There were no public comments. O 5.PRIOR MINUTES -June 16,1998TheJune16,1998,minutes were unanimously approved as presented. AEA Board Meeting December 16,1998 Meeting Minutes Page 2 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS TA,Financial Statements/Audit Presentation Ms.Kathy Porterfield,Managing Partner with KPMG Peat Marwick LLP,summarized the audited financial statements and letter to the Board. Ms.Porterfield said the purpose of the audit is for KPMG to gain reasonable assurance that the financial statements are free of material misstatement.KPMG conducted appropriate audit procedures and has concluded that the financial statements are fairly stated in all material respects in accordance with generally accepted accounting principles,resulting in an unqualified or a clean opinion.KPMG obtained reasonable assurance during the audit that the financial statements are free of material misstatement. Ms.Porterfield said there were two changes in accounting policies in 1998.The first is a new accounting pronouncement which involves pension accounting.AEA adopted this new pronouncement as required,but it did not have an impact on the Authority's net income.The other is with regard to the accounting for the Authority's investments.The Authority's investments are now at fair value as opposed to amortized cost.Neither change had any material affect on the financial statements but they are disclosed. Ms.Porterfield said the Authority has an effective system of internal control in place. 7B.Resolution No.1998-03,A Supplemental Resolution Authorizing the Issuance,Sale and Delivery of Power Revenue Refunding Bonds,Fifth Series (Bradley Lake Hydroelectric Project),in an Aggregate Principal Amount Not to Exceed $32,000,000 and Determining Related Matters Mr.Laufer reviewed Resolution No.1998-03 stating the Bradley Lake Hydroelectric Project is a project owned by the Alaska Energy Authority which serves the purchasing utilities (which are all the utilities in the Railbelt).The project was financed in 1989 by the issuance of the Authority's First Series Bonds and in 1990 by the Second Series Bonds.The bonds are general obligations of the Alaska Energy Authority secured by the power sales agreement from the Bradley Lake Project and supported by the moral obligation of the state.Last year,at the request of the purchasing utilities,the Authority entered into a forward refunding transaction whereby the Authority agreed to sell its Third and Fourth Series Bonds for the purpose of refunding portions of the First and Second Series Bonds.It was a forward transaction because the bonds are "private activity bonds”under federal tax law and therefore not eligible for advance refunding.In the 1998 transaction,AEA provided for the refunding of all the bonds with two exceptions:1)there were capital appreciation bonds that could not be refunded,and 2)the final maturity of the First Series Bonds was not refunded.The purpose of the current transaction is to refund a portion of the final maturity of the First Series Bonds. Mr.Laufer said Resolution No.1998-03 authorizes the Authority to enter into a forward refunding transaction,whereby the Authority commits to issue refunding bonds which will be used to refund the final maturity of the First Series Bonds.The resolution grants authority to the Executive AEA Board Meeting December 16,1998 Meeting Minutes Page 3 Director to approve the pricing and finalize the documents to consummate the transaction. However,before the Executive Director can enter into any documents to consummate the transaction,the Bradley Lake Project Management Committee ("PMC”)consisting of the utilities that actually purchase power,must approve the transaction and the form of the documents.This approval is necessary because it is the purchasing utilities,not the Authority,that ultimately provides the revenues to pay the debt service.The purchasing utilities are also the beneficiaries of this refunding transaction. Mr.Griffith,Chugach Electric Association,said the PMC has considered the economics of the proposed deal and has worked through many of the issues.The PMC remains convinced that this is an appropriate action at this time and we are on track for early next week to make a decision on how to proceed.There are two options before us:1)to do a forward,and 2)to wait for the call date.It looks like,with the way the market is going,the best way will be to do the forward.Suffice it to say that the PMC is supportive of this and we do not see any major hurdles that we don't think we can't get over between now and what we hope will be the pricing date during the first week of January.He said he would answer any questions the Board might have from the perspective of the power purchasers. Mr.Moore,Prudential Securities,said that Prudential approached the Authority and the power purchasers in early October with a refunding analysis for the First Series Bonds due in 2021.As mentioned earlier,when the refunding commitment occurred a year ago,it didn't make economic sense to refund the 2021 bonds.We are a year closer to the call date and interest rates have come down so that a term bond,in the current market,would provide approximately $3.5 million of net present value savings.That works out to approximately 11%-12%net present value savings for the bonds that we are refunding.This results in approximately $300,000 savings per year from the year 2000 through and including the year 2014.The savings will be shared by all of the participating utilities.We are currently finalizing documents and we will be meeting on January 5 with the utilities and the Authority to present bond market conditions.If the deal goes forward we will print and mail an official statement on January 5.In the event conditions are bad, the participating utilities have the option to delay the sale and make it a normal current refunding, which would occur sometime in March 1999. Mr.Moore said the current schedule is to price bonds on January 13 with a paper closing in early February and then the settlement. Mr.Vassar reviewed the Resolution for the Board stating the resolution provides authorization, subject to certain conditions,to go forward with the forward delivery bond sale for the Bradley Lake Project.He said the bond sale will go forward only if the PMC approves the final terms of the forward delivery agreement and requests the Authority to execute the forward delivery agreement.This transaction is driven by the beneficiaries,which are the utilities involved in the PMC. Mr.Vassar said this resolution authorizes up to $32 million of Authority bonds for the Bradley Lake Project.The documents allow the Executive Director to determine the final principle amount up to $32 million.The Executive Director will have the authority to accept the maturity schedule and interest rates for the bonds with the limitation that the true interest cost does not exceed 6%.He will have the ability to set redemption and sinking fund provisions and he will also have the ability to determine whether bond insurance is desirable,and if it is,to enter into an agreement with a bond insurer.The resolution also authorizes the Executive Director to deem the official statement final,which is a Securities and Exchange Commission requirement. AEA Board Meeting December 16,1998 Meeting Minutes Page 4 Staff recommended approval of Resolution No.1998-03. MOTION:Commissioner Sedwick moved to approve Resolution No.1998-03.Seconded by Deputy Commissioner Kinney.There being no discussion,the question was called.A roll call vote was taken,and the motion passed unanimously. 8.DIRECTOR COMMENTS A.Status Report of AEA Programs and Projects Mr.Simmons referred the Board to the information in their packets on the following matters: e Tango Settlement Update e Tyee Lake Update e Four Dam Pool Efficiencies Update 9.BOARD COMMENTS Chairman Hughes requested that the Board go into executive session. Mr.Brian Bjorkquist stated that under the open meetings act a body,such as the AEA Board,can go into executive session and have a candid discussion of facts and law,and to discuss personnel issues.The appropriate procedure for doing that is to have a Board member make a motion to go into executive session for that purpose and to vote on that motion. MOTION:Commissioner Perkins moved to go into executive session to discuss personnel matters of the Authority.Seconded by Commissioner Sedwick.There being no discussion,the question was called.A roll call vote was taken,and the motion passed unanimously. EXECUTIVE SESSION -12:23 p.m. The Board reconvened its regular meeting at 12:42 p.m. Roll call was taken and a quorum was established.Chairman Hughes advised that the Board had not taken any formal action on the matters discussed while in Executive Session. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 12:45 p.m. rh -D.Randy Simmonp ,Secretary **@ a man ALASKA INDUSTRIAL DEVELOPMENT '=O y”-4 ake S AND EXPORT AUTHORITY =>ALASKA vie Qa =ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 FAX 907 /269-3044 MEMORANDUM TO:Board of Directors / Alaska Enérgy Au ory FROM:D.RelynnorExecutiveDire DATE:December 10,1999 SUBJECT:Financial Reports Included with your packet are the June 30,1999,Financial Statements and Letter to the Board of Directors. Ms.Kathy Porterfield,Managing Partner of the Anchorage office of KPMG,LLP,will be in attendance at the meeting to discuss the Letter to the Board and to answer any questions the Board members may have. h:ail\bjf\finance\vfw\financial reports rane ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Financial Statements and Schedule June 30,1999 and 1998 (With Independent Auditors'Report Thereon) aot |ee oe |eeIKEPAMKE 601 West Fifth Avenue Suite 700 Anchorage,AK 99501-2258 Independent Auditors'Report The Board of Directors Alaska Energy Authority (a Component Unit of the State of Alaska) We have audited the accompanying balance sheets of Alaska Energy Authority (a Component Unit of the State of Alaska)as of June 30,1999 and 1998,and the related statements of revenues and expenses, changes in fund equity,and cash flows for the years then ended.These financial statements are the responsibility of Alaska Energy Authority's management.Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements.An audit also includes assessing the accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of Alaska Energy Authority (a Component Unit of the State of Alaska)as of June 30, 1999 and 1998,and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information included in the schedule is presented for the purpose of additional analysis and is not a required part of the basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated in all material respects in relation to the basic financial statements taken as a whole. 5 KPMG LLP.KPMG LLP.a US.limited lability partnership,is a@ member of KPMG International,a Swiss association. mana Page 2 The Board of Directors Alaska Energy Authority (a Component Unit of the State of Alaska The year 2000 supplementary information following the footnotes is not a required part of the financial statements,but is supplementary information required by the Governmental Accounting Standards Board, and we did not audit and do not express an opinion on such information.Further,we were unable to apply to the information certain procedures prescribed by professional standards because of the nature of the subject matter underlying the disclosure requirements and because sufficiently specific criteria regarding the matters to be disclosed have not been established.In addition,we do not provide assurance that the Alaska Energy Authority is or will become year 2000 compliant,that the Alaska Energy Authority's year 2000 remediation efforts will be successful in whole or in part,or that parties with which the Alaska Energy Authority does business are or will become year 2000 compliant. KPMG LEP September 3,1999 ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Balance Sheets June 30,1999 and 1998 Assets Property,plant and equipment (note 4) Less accumulated depreciation Net property,plant and equipment Other assets -cash and investments -restricted (note 3) Current assets: Operating revenue receivable Accrued interest receivable Total current assets Fund Equity and Liabilities Fund equity: Contributed capital Accumulated Deficit Total fund equity Long-term debt,net of current portion (note 5): Bonds payable Four Dam Pool Transfer Fund loan payable Arbitrage interest payable Total long-term debt Current liabilities: Accounts payable Retainage payable Current portion of bonds payable (note 5) Due to State of Alaska - Four Dam Pool Transfer Fund loan accrued interest Other accrued interest Other liabilities Total current liabilities See accompanying notes to financial statements. $ $ 1999 1998 931,511,727 930,699,372 287.239.634 264.171.505 644,272,093 666,527,867 58,697,842 55,450,921 9,892,323 6,061,040 1,150,790 1,157,261 11,043,113 7,218,301 714,013,048 729,197,089 619,800,808 619,800,808 (262.062.082)(243,236,969) 357,738.726 376.563.839 145,326,384 147,942,886 184,571,726 184,571,726 428,605 377,731 330,326,715 332,892,343 3,028,139 1,473,409 103,432 103,432 3,645,000 3,415,000 9,180.661 5,345,311 3,008,653 5,017,998 6.981.722 4,385,757 25,947,607 19,740,907 714,013,048 729,197,089 ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Statements of Revenues and Expenses Years ended June 30,1999 and 1998 1999 1998 Revenues: Revenue from operating plants 25,663,243 21,861,858 Investment income 2,921,475 3,057,580 Net appreciation (depreciation)of investments (7,756)111,981 Total revenues 28,576.962 25,031.419 Expenses: General and administrative 767,737 734,450 Plant operating 3,990,460 3,975,239 Depreciation 23,068,129 23,055,033 Interest 19,575,749 16,604,891 Total expenses 47,402,075 44,369,613 Deficiency of revenues over expenses See accompanying notes to financial statements. (18,825,113)(19,338.194) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Statements of Changes in Fund Equity Years ended June 30,1999 and 1998 Accumulated Contributed Total Deficit Capital Fund Equity Balance at June 30,1997 $(223,898,775)619,800,808 395,902,033 Deficiency of revenues over expenses (19,338,194)-(19,338.194) Balance at June 30,1998 (243,236,969)619,800,808 376,563,839 Deficiency of revenues over expenses (18.825,113)-(18,825,113) Balance at June 30,1999 $(262,062,082)619,800,808 357,738,726 See accompanying notes to financial statements. ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Statements of Cash Flows Years ended June 30,1998 and 1997 Reconciliation of deficiency of revenues over expenses to net cash provided by operating activities: Deficiency of revenues over expenses Adjustments to reconcile deficiency of revenues over expenses to net cash provided by operating activities: 1999 1998 $(18,825,113)(19,338,194) Depreciation 23,068,129 23,055,033 Amortization of deferred interest and bond discount 958,446 908,971 Amortization of bond issuance costs 34,877 183,923 Bond interest expense 9,620,398 10,064,076 Four Dam Pool Transfer Fund Ioan interest 8,962,028 5,345,311 Investment income (2,921,475)(3,057,580) Net (appreciation)depreciation of investments 7,756 (111,981) Changes in assets and liabilities: Increase in operating revenue receivable (3,831,283)(537,716) Increase (decrease)in accounts payable 1,554,730 (332,065) Increase (decrease)in other liabilities 2,598,613 (6,069,439) Net cash provided by operating activities 21,227,106 10,110,339 Cash flows from capital-related financing activities: Interest paid on borrowings -(11,594,568)(10,170,220) Four Dam Pool Transfer Fund loan interest paid (5,126,678)(5,138,186) Repayment of bonds (3,415,000)(3,200,000) Construction of capital projects (812,355)(48,809) Net cash used in capital-related financing activities (20,948,601)(18,557,215) Cash flows from investing activities: Net (increase)decrease in restricted cash and investments (3,246,921)5,359,660 Interest received from Bradley Lake Hydroelectric Project investments 1,980,016 1,990,160 Interest received from other investments 988,400 1,097,056 Net cash provided by investing activities (278,505)8,446,876 Cash and investments at beginning of year Cash and investments at end of year See accompanying notes to financial statements. (1) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Organization and Operations The Alaska Energy Authority (AEA)was created by the Alaska State Legislature in 1976.AEA is a public corporation and a component unit of the State of Alaska (State).AEA's mission is to promote,develop, and advance the general prosperity and economic welfare of Alaskans by providing a means to operate and maintain existing power projects that tap Alaska's natural resources to achieve the lowest reasonable consumer power costs. Throughout the 1980's,AEA worked to develop the State's energy resources as a key element in diversifying Alaska's economy.A number of large-scale projects were constructed.Today,AEA's six hydroelectric projects have an installed capacity of 164 megawatts,and the Alaska Intertie's 170 miles of transmission line link Interior Alaska with the cheaper energy available in the Southcentral portion of the State. Pursuant to statute,on August 12,1993,the Board of Directors of the Alaska Industrial Development and Export Authority (AIDEA),a public corporation and a political subdivision of the State,became the Board of Directors of AEA.Concurrently,the Executive Director of AIDEA was also appointed as Executive Director of AEA.The corporate structure of AEA was retained but the ability to construct and acquire energy projects was eliminated.AEA retained its operating assets including the Four Dam Pool (Solomon Gulch,Swan Lake,Terror Lake and Lake Tyee Hydroelectric Projects),the Bradley Lake Hydroelectric Project,the Alaska Intertie and the Larsen Bay Hydroelectric Project.The intent of the legislation was that ongoing operation of the operating assets be assumed by the electric utility companies that use or purchase power from the assets with oversight responsibility retained by AEA;this has occurred to the extent possible. Pursuant to legislation effective July 1,1999,rural energy programs previously administered by the former Department of Community and Regional Affairs,Division of Energy,were transferred to AEA for administration,as part of a larger reorganization of state agencies.Five general energy programs comprising more than twenty smaller programs were moved to AEA.Rural energy programs were originally part of AEA prior to the reorganization that occurred in 1993. The following is a description of AEA's existing projects: (a)Bradley Lake Hydroelectric Project The project has installed capability of 126 megawatts and transmits its power to the State's main power grid via two parallel 20-mile transmission lines.The project,which cost in excess of $300 million,went into commercial operation in 1991.The project is now operated by Homer Electric Association under contract with AEA.Bradley Lake serves Alaska's Railbelt from Homer to Fairbanks as well as the Delta Junction area. (b)Four Dam Pool Project The Solomon Gulch,Swan Lake,Terror Lake and Lake Tyee Hydroelectric projects,collectively known as the Four Dam Pool,came on line in the 1980's and serve,respectively,the communities of Valdez and Glennallen,Ketchikan,Kodiak,and Petersburg and Wrangell. 7 (Continued) (c) (d) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 The project gained its name from the fact that all costs are pooled,with the same kwh rate charged for electricity drawn from any one of the four projects.The local utilities are responsible for day-to- day operation of the projects. Alaska Intertie The 170-mile,345-kilovolt transmission line interconnects the power distribution systems of Anchorage and Fairbanks.The Alaska Intertie allows Golden Valley Electric Association in Fairbanks to purchase electricity produced with lower cost energy,such as natural gas and hydroelectric,from the Anchorage and Kenai Peninsula utilities.The Alaska Intertie reduces the number of black/brownouts throughout the system.Operations and maintenance duties are overseen by the Intertie Operating Committee. Larsen Bay Hydroelectric Project The 475-kilowatt project went into commercial operation in mid-1991.In addition to producing electricity for this isolated Kodiak Island community,the project replaced the City of Larsen Bay's old water supply system and provides a better source of water with reduced maintenance and improved water quality.The City of Larsen Bay operates the project. (2)Summary of Significant Accounting Policies (a) (b) Basis of Accounting -Enterprise Fund Accounting The accounts of AEA are organized as an Enterprise Fund.Accordingly,the financial activities of AEA are recorded using the accrual basis of accounting,whereby revenues are recorded when earned and expenses are recorded when goods or services are received or the related liability is incurred. Statement No.20 of the Government Accounting Standards Board (GASB),Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting,provides two options for reporting proprietary fund activities (including component units using proprietary fund accounting).AEA has elected to apply all applicable GASB pronouncements and all FASB Statements and Interpretations,Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30,1989,unless they conflict with or contradict GASB pronouncements. Property,Plant and Equipment Property,plant and equipment are stated at cost and depreciation is charged to operations by use of the straight-line method over their estimated useful lives.The estimated economic lives of the assets are as follows: Utility plant Life inyears Intangible 30-50 Production 30-50 Transmission 20-40 General 5-30 8 (Continued) (3) (c) (d) (e) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 For hydroelectric plants financed through tax-exempt borrowings,interest costs on the borrowings, less any interest earned on the related investments acquired with proceeds of the borrowings are capitalized from the date of the borrowing until the assets are placed in service.Amortization of bond discounts during construction is also capitalized.Ordinary repairs and maintenance are expensed as incurred. Nonutility plant purchases of furniture and equipment are expensed as such items are the property of the State. Cash and Investments All of AEA's cash and investments are restricted and are not considered to be cash equivalents for purposes of preparing the statement of cash flows. Prior to July 1,1997,investments were recorded at cost and adjusted for the amortization of premiums and discounts,which were recognized as adjustments to interest income.Effective July 1, 1997,AEA adopted the provisions of Governmental Accounting Standards Board Statement No.31, Accounting and Financial Reporting for Certain Investments for External Investment Pools (GASB 31).The effect of the adoption of GASB 31 was a $111,981 increase to net income for the year ended June 30,1998.There was no cumulative effect of the adoption of GASB 31.AEA's marketable securities are reported at fair value in the financial statements.Unrealized gains and losses are reported as components of the deficiency of revenues over expenses.Fair values are obtained from independent sources. Contributed Capital Funds received from federal,State or other sources for purposes of acquisition of property,plant and equipment are accounted for as contributed capital. Income Taxes The Internal Revenue Code provides that gross income for tax purposes does not include income accruing to a state or territory or any political subdivision thereof which is derived from the exercise of any essential governmental function or from any public utility.AEA is a political subdivision of the State performing an essential governmental function and is therefore exempt from State and federal income taxes. Cash and Investments Pursuant to various agreements relating to its operation,AEA has established funds to account for assets restricted to construction,operation and financing activities. 9 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 The restricted cash and investments are held in trust accounts for the following activities as of June 30: 1999 1998 Bradley Lake Hydroelectric Project: Capital reserve fund $=13,145,600 13,392,890 Debt service fund 6,853,294 8,013,070 Renewal and contingency fund 5,000,009 5,000,009 Unallocated construction fund 2,042,164 2,072,918 Excess earnings fund 408,005 346,625 Revenue fund 135,622 481,136 Operating reserve fund 535,000 535,000 Operating fund 1,099,686 296,292 Cost of issuance 287,357 -_ Subtotal 29,506,737 30,137,940 Four Dam Pool self-insurance fund 17,198,097 16,841,776 Four Dam Pool construction fund 7,043 330,215 Four Dam Pool renewal and replacement revolving loan fund 206,186 196,176 Four Dam Pool self-help fund 9,371,403 4,866,590 Power Development Fund 2,294,274 2,407,068 Alaska Intertie operations fund 824 531,466 Larsen Bay Hydroelectric Project funds 112,767 139,526 Alaska Energy Authority administration fund 511 164 Total cash and investments $ 58.697,842 55.450,921 AEA's cash and investments are categorized below to give an indication of risk assumed by AEA at year- end.Category |includes investments that are insured,registered or collateralized with securities held by AEA or its agents in AEA's name.Category 2 includes uninsured and unregistered investments or collateralized investments,with securities held by the pledging financial institution's trust department in AEA's name.Category 3 includes uninsured and unregistered investments for which the securities are held by the counter party,or by its trust department or agent but not in AEA's name. Fair value at Category 1 Category 2 Category 3 June 30,1999 U.S.Treasury and Agency Securities $26,945,266 --26,945,266 Repurchase agreements --2,458,251 2,458,251 Other investments -27,462,446 1,831,879 29,294,325 $26,945,266 27,462,446 4.290.130 58.697.842 10 (Continued) (4) (5) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Property,Plant and Equipment A summary of property,plant and equipment and related accumulated depreciation is as follows at June 30: 1999 1998 Intangible $2,988,936 2,988,936 Production 581,685,460 580,898,869 Transmission 339,176,810 339,176,810 General 7,660,521 7.634,757 931,511,727 930,699,372 Accumulated depreciation 287,239,634 264,171,505 Net property,plant and equipment $644,272,093 666,527,867 Long-term Debt Following is a summary of long-term debt at June 30: 1999 1998 Bradley Lake Power: Revenue Bonds,First Series (a)$12,085,000 102,140,000 Revenue Bonds,Second Series (a)60,725,000 62,070,000 Revenue Refunding Bonds,Third Series (a)59,485,000 - Revenue Refunding Bonds,Fifth Series (a)30,640,000 - Larsen Bay Fixed Rate Revenue Bonds (b)660,000 695,000 Arbitrage interest payable (c)428,605 377,731 Note payable to State of Alaska Four Dam Pool Transfer Fund (d)184,571,726 184,571,726 Less -bond discount and deferred interest (14,623,616)(13,547,114) 333,971,715 336,307,343 Less: Current portion of bonds payable 3,645,000 3,415,000 Total long-term debt $330,326,715 332,892,343 (a)AEA issued the Power Revenue Bonds,First and Second Series (Bradley Lake Bonds),in September 1989 and August 1990,respectively,for the long term financing of the construction costs of the Bradley Lake Hydroelectric Project and refunded AEA's Variable Rate Demand Bonds which were issued in November 1985 to provide interim financing of the project.AEA issued the Power Revenue Refunding Bonds,Third and Fifth Series in April 1999 to refund a portion of the First Series Bonds and to provide costs of issuance.All of the revenues derived by AEA from the operation of the project and all moneys,securities and funds,including a capital reserve fund,held or set aside are pledged and assigned to secure the payment of principal,redemption premium,if lk (Continued) (b) (c) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 any,and interest on the bonds.No other revenues of AEA are pledged as security for the payment of the bonds.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level.The bonds are further secured by bond insurance.AEA collects from each power purchaser a percentage share of annual project costs.The outstanding Bradley Lake Bonds mature annually each July 1 through the year 2021 with interest rates ranging from 5%to 7.25%a year.In December 1997,AEA entered into a forward purchase agreement to refund a portion of the Bradley Lake Bonds (note 10). On April 6,1999,AEA issued $59,485,000 of Power Revenue Refunding Bonds,Third Series,for the purpose of refunding $59,110,000 of the First Series Bonds.The refunded First Series Bonds were called on July 1,1999.The refunding resulted in aggregate debt service payments over the next nineteen years in a total amount approximately $9,500,000 less than the debt service payments which would be due on the refunded bonds.There was an economic gain of approximately $5,900,000.Economic gain is calculated as the net difference between the present value of the old debt service requirements and the present value of the new debt service requirements,discounted at the effective interest rate and adjusted for additional cash paid. On April 13,1999,AEA issued $30,640,000 of Power Revenue Refunding Bonds,Fifth Series,for the purpose of refunding $28,910,000 of the First Series Bonds.The refunded First Series Bonds were called on July 1,1999.The refunding resulted in aggregate debt service payments over the next twenty-three years in a total amount approximately $4,400,000 less than the debt service payments which would be due on the refunded bonds.There was an economic gain of approximately $2,900,000. Larsen Bay Fixed Rate Revenue Bonds were issued May 1991 for the long term financing of a portion of the construction costs of the Larsen Bay Hydroelectric Project.All of the revenues derived by AEA from the operation of the project are pledged and assigned to secure payment of the bonds.No other revenues of AEA are pledged as security for the payment of the bonds.The bonds are further secured by a letter of credit.The bonds mature annually each April 1 through the year 2011 with interest rates ranging from 7.2%to 7.75%. An event of default exists under the terms of certain agreements entered into in conjunction with the issuance of the Larsen Bay Bonds.The City of Larsen Bay has failed to pay certain costs relating to the Larsen Bay Hydroelectric Project.As the bonds are supported by a letter of credit,no bondholder loss of principal or interest is anticipated.AEA is working with the City of Larsen Bay and the issuer of the letter of credit in an effort to resolve the default. The arbitrage interest payable is due to the Internal Revenue Service for the excess of investment income on the proceeds of AEA's tax exempt bonds over the related interest expense in accordance with Section 148 of the Internal Revenue Code of 1986.The accumulated arbitrage interest payable amount is computed each year,and the amount is first due after the end of the fifth bond year and every five years thereafter.AEA maintains a separate account with the trustee and each year sets aside a sufficient amount to satisfy the liability. 12 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 (d)The note payable to the State of Alaska Four Dam Pool Transfer Fund (formerly the Power Development Revolving Loan Fund)is subject to the terms and conditions of a loan agreement effective October 28,1985,as amended.The note is due October 28,2030 and provides for accrual of interest and repayments thereof for the first fifteen years in an amount not less than the amount received by AEA from the "debt service component”of the proceeds from the sale of power generated from the Solomon Gulch,Terror Lake,Swan Lake and Lake Tyee hydroelectric facilities (Four Dam Pool Project)pursuant to the long term power sales agreement with the purchasing utilities.However,principal repayment may occur under specific circumstances.The principal balance as of October 28,2000 will be amortized in equal annual installments at an interest rate of 8%. 13 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Scheduled maturities of long-term debt as of June 30,1999 are as follows: Bradley Lake Power Revenue Bonds Total Larsen Bay Four Dam First Second Third Fifth Bradley Revenue Pool Transfer Maturity date Series Series Series Series Lake Bonds Fund Loan Total 2000 2,175,000 1,435,000 -_3,610,000 35,000 -3,645,000 2001 -1,535,000 2,605,000 -4,140,000 40,000 1,629,295 5,809,295 2002 -1,635,000 2,740,000 -4,375,000 40,000 1,759,638 6,174,638 2003 -1,750,000 2,875,000 -4,625,000 45,000 1,900,409 6,570,409 2004 -1,875,000 3,030,000 -4,905,000 45,000 2,052,442 7,002,442 2005-2009 9,810,000 11,070,000 6,920,000 -_27,800,000 300,000 13,004,127 41,104,127 2010-2014 -12,030,000 20,265,000 -32,295,000 155,000 19,107,329 51,557,329 2015-2019 25,000 16,410,000 21,050,000 8,460,000 45,945,000 -28,074,934 74,019,934 2020-2024 75,000 12,985,000 -22,180,000 35,240,000 -41,251,289 76,491,289 2025-2029 ------60,611,677 60,611,677 2030-2032 ---_---15,180,586 15,180,586 12,085,000 60,725,000 59,485,000 30,640,000 162,935,000 660,000 184,571,726 348,166,726 Interest expense on borrowings totaled $19,575,750 and $16,604,891 in 1999 and 1998,respectively.Obligations issued are not deemed to constitute a debt of the State. 14 (Continued) (6) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 (a)Other Debt In 1982,AEA assumed $44,858,858 of 5%mortgage notes payable which require quarterly principal and interest payments to the Rural Utilities Service (RUS)in connection with the Solomon Gulch Hydroelectric Project.Concurrent with the assumption,AEA deposited with a trustee Treasury notes sufficient to satisfy and provide for timely repayment of all principal and interest due on the assumed RUS loans.Accordingly,the loans and related trust assets are not included in the financial statements of AEA.At June 30,1999,the unpaid principal balance of the notes was $30,484,713 and the trust assets had a fair value of $28,579,000. (b)Conduit Financing--City and Borough of Sitka -Utility Revenue Refunding Bonds,Series 1997 and Utility Revenue Bonds,Series 1992 In May 1992,AEA issued $56,890,000 of tax-exempt bonds that allowed the City and Borough of Sitka (Sitka)to refinance its 1979 municipal bonds,resulting in significant debt service savings to Sitka.In November 1997,AEA issued $22,080,000 of tax-exempt bonds to advance refund and defease $20,145,000 of the Series 1992 bonds (collectively with the Series 1992 bonds,the Sitka Bonds).The Sitka Bonds are not included in these financial statements.As of June 30,1999,the outstanding balance was $52,415,000. The Sitka Bonds are special obligations of AEA secured under a trust indenture by and between AEA and U.S.Bank Trust National Association,as trustee.The Sitka Bonds are payable solely from the sources provided under the trust indenture.They are equally and ratably secured by a pledge and assignment of the municipal revenue bonds of Sitka held by AEA under the trust indenture,the obligation of Sitka to make payments under its loan agreement with AEA and the money and securities held under the trust indenture,including a capital reserve fund.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level. The bonds are further secured by bond insurance. The Sitka Bonds do not constitute an indebtedness or other liability of the State and do not directly, indirectly or contingently obligate the State or any political subdivision thereof to levy any form of taxation for the payment of the bonds.Neither the full faith and credit nor the taxing power of the State or Sitka is pledged for the payment of the Sitka Bonds. Project Information AEA maintains enterprise funds which account for the Four Dam Pool Project,Alaska Intertie,Larsen Bay Hydroelectric Project,Bradley Lake Hydroelectric Project and Administration and Power Development Fund. 15 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Balance sheet information for the projects as of June 30,1999 follows: Assets Property,plant and equipment Less accumulated depreciation Net property,plant and equipment Other assets -cash and investments -restricted Current assets: Operating revenue receivable Accrued interest receivable Total current assets Fund Equity and Liabilities Fund equity: Contributed capital Accumulated deficit Total fund equity Long-term debt, net of current portion: Bonds payable Four Dam Pool Transfer Fund loan payable Arbitrage interest payable Total long-term debt Current liabilities: Accounts payable Retainage payable Current portion of bonds payable Due to State of Alaska -Four Dam Pool Transfer Fund loan accrued interest Other accrued interest Other liabilities Total current liabilities Administration Bradley Lake Alaska Larsen Bay and Power Hydroelectric Four Dam Intertie Hydroelectric Development Project Pool Project Project Project Fund Total $306,872,387 498,792,059 124,245,687 1,601,594 -931,511,727 53,593,915 187,355,937 45,988,275 301,507 -287,239,634 253,278,472 311,436,122 78,257,412 1,300,087 _-644,272,093 29,506,737 26,782,729 824 112,767 2,294,785 58,697,842 10,836 9,529,283 140,046 212,158 -_-9,892,323 925,848 224,942 ---_1,150,790 936,684 9,754,225 140,046 212,158 -11,043,113 283,721,893 347,973,076 78,398,282 1,625,012 2,294,785 714,013,048 162,975,045 316,316,251 124,249,576 922,680 15,337,256 619,800,808 (31,633,721)(171,507,661)(45,975,547)(47,344)(12,897,809)(262,062,082) 131,341,324 144,808,590 78,274,029 875,336 2,439,447 357,738,726 144,726,814 --599,570 -145,326,384 -184,571,726 ---184,571,726 428,605 ---_-428,605 145,155,419 184,571,726 -599,570 -330,326,715 386,914 2,433,061 162,680 (42)45,526 3,028,139 103,432 ----_103,432 3,610,000 -_-35,000 -_-3,645,000 -_9,180,661 -_--9,180,661 2,995,993 --12,660 -_-3,008,653 128,813 6,979,038 (38,427)102,488 (190,190)6,981,722 7,225,152 18,592,760 124,253 150,106 (144,664)25,947,607 $283,721,895 347,973.076 78,398,282 1,625,012 2,294,783 714,013,048 16 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Revenue and expense information for the projects for the year ended June 30,1999 follows: Revenues: Revenue from operating plants Interest and investment income Net depreciation of investments Total revenues Expenses: General and administrative Plant operating Depreciation Interest Total expenses Deficiency of revenues over expenses Deficit at June 30,1998 Deficit at June 30,1999 (7)Pension Plan Administration Bradley Lake Alaska Larsen Bay and Power Hydroelectric Four Dam Intertie Hydroelectric Development Project Poot Project Project Project Project Total $13,843,842 10,956,141 705,569 157,691 -_25,663,243 1,897,678 1,007,240 10,293 6,264 _2,921,475 (2,112)(5,644)-_---_-(7,756) 15,739,408 11,957,737 715,862 163,955 -28,576,962 255,116 424,702 56,281 21,490 10,148 767,737 1,937,769 1,366,347 659,581 26,763 _-3,990,460 6,976,828 12,651,775 3,401,493 38,033 -_23,068,129 10,538,354 8,971,333 -_66,062 _-19,575,749 19,708,067 23,414,157 4,117,355 152,348 10,148 47,402,075 (3,968,659)(11,456,420)(3,401,493)11,607 (10,148)(18,825,113) (27,665,062)(160,051,241)(42,574,054)(58.951)(12,887,661)(243,236,969) $(31,633,721)(171,507,661)(45,975,547)(47,344)(12,897,809) (262.062,082) Effective July 1,1997,AEA adopted the provisions of Governmental Accounting Standards Board Statement No.27 (GASB 27),Accounting for Pensions by State and Local Governmental Employers. There was no impact on the financial statements as a result of GASB 27. (a)Plan Description AEA contributes to the State of Alaska Public Employees'Retirement System (PERS),a defined benefit,agent multiple-employer public employee retirement system which was established and is administered by the State to provide pension,post-employment healthcare,death and disability benefits to eligible employees.Benefit and contribution provisions are established by State law and may be amended by the State Legislature. Each fiscal year,PERS issues a publicly available financial report that includes financial statements and required supplementary information.That report may be obtained by writing to the State of Alaska,Department of Administration,Division of Retirement and Benefits,P.O.Box 110203, Juneau,Alaska,99811-0203 or by calling (907)465-4460. 17 (Continued) (8) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 (b)Funding Policy and Annual Pension Cost Employee contribution rates are 6.75%for employees,as required by State statute.The funding policy for PERS provides for periodic employer contributions at actuarially determined rates that, expressed as a percentage of annual covered payroll,are sufficient to accumulate sufficient assets to pay benefits when due.AEA's rate for 1999 was 8.50%. AEA's annual pension cost for the current year and the related information is as follows: Contribution rates: Employee 6.75% Employer 8.50% Annual pension cost $24,459 Contributions made $24,459 Actuarial valuation date June 30,1996 Actuarial cost method Projected unit credit Amortization method Level dollar,open Amortization period Rolling 25 years Actuarial assumptions: Inflation rate 4.0% Investment return 8.25% Projected salary increase Inflation rate 4.0% Productivity and merit 1.5% Health cost trend 5.5% In the current year,AEA determined,in accordance with provisions of GASB 27,that no pension liability (asset)existed to PERS and there was no previously reported liability (asset)to PERS. Risk Management AEA is exposed to various risks of loss.AEA obtains coverage for its risks through the purchase of commercial insurance,participation in the State Risk Management Pool and the establishment of self- insurance plans. (a)General Liability -Watercraft and Aviation All risks are covered by the State insurance plan through an annual charge assessed by the State Division of Risk Management and payroll markup. 18 (Continued) (b) (c) (d) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 Property 1. 2. Four Dam Pool Facilities: The Four Dam Pool (FDP)property risks are covered by commercial insurance purchased through the State Division of Risk Management for losses in excess of $10,000,000 up to $60,000,000.The risk of losses for the first $10,000,000 is retained.However,AEA maintains an insurance fund to cover the self retained risks and other noninsurable risks,as well as a $10,000,000 line of credit secured by the insurance fund for this purpose. AEA's self-insurance for the FDP is currently funded through:(a)an annual insurance premium payment from the FDP project management committee,(b)investment revenue from investment of the insurance fund and (c)certain interruptible power sales revenues. Alaska Intertie: The utilities participating in the Alaska Intertie operating agreement retain the property risk associated with the Alaska Intertie. Bradley Lake and Larsen Bay Hydroelectric Projects: The risks are covered by commercial insurance purchased through the State Division of Risk Management,and the self-insured retentions are the responsibility of the respective projects from operating funds. Boiler and Machinery These risks are covered by commercial insurance purchased through the State Division of Risk Management anda private carrier. Additionally,utilities benefiting from the use of the facilities owned by AEA participate in the responsibility for deductibles and self insured retentions under the terms of the respective agreements. Workers Compensation Insurance AEA participates in the State Risk Management Pool.The risks are transferred to the pool and the premium is charged to AEA based on payroll expenditures. 19 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 (9)Related Parties (a) (b) (c) (d) Alaska Industrial Development and Export Authority Pursuant to understandings and agreements between AIDEA and AEA,AIDEA provides administrative,treasury,personnel,legal,data processing,communications,and other services to AEA. Four Dam Pool Project Management Committee Effective October 28,1985,AEA entered into a long-term power sales agreement with entities purchasing electric power from the FDP Project.Pursuant to the agreement,a Project Management Committee (PMC)was formed.The PMC is comprised of a representative from AEA and each of the power purchasers.The participating power purchasers make monthly payments to the PMC,net of each purchaser's operating costs associated with the respective FDP facility,for the power purchaser's share of total estimated annual costs,including a "debt service component,”at a set price for kilowatt hours purchased each month,with an annual settlement to adjust the payments to actual cost.The PMC makes monthly payments to AEA for a fixed annual administrative fee and to reimburse operating and maintenance costs incurred by AEA.The PMC makes annual payments to AEA for the debt service component of the wholesale power rate and for insurance. Alaska Intertie Operating Committee Effective May 1,1986,AEA entered into an agreement with utilities using the Alaska Intertie for wheeling of electrical power.Pursuant to the agreement,the Intertie Operating Committee (IOC) was established to manage the system.The IOC is comprised of a representative from AEA and each of the utilities.AEA is to be reimbursed for operation and maintenance costs on a monthly basis with an annual settlement to adjust the payments to actual costs.The agreement may be terminated by mutual agreement of the participants. Bradley Lake Project Management Committee Effective December 7,1987,AEA entered into a power sales agreement with entities purchasing electric power produced by the Bradley Lake Hydroelectric Project.Pursuant to the agreement,a PMC was formed.The PMC is comprised of a representative from AEA and each of the power purchasers.The participating power purchasers make monthly payments directly to the bond trustee based on their respective percentage share of the estimated annual project costs,including debt service,for each fiscal year with an annual settlement to adjust the payments to actual costs,which includes a fixed annual administrative fee to AEA. 20 (Continued) ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Notes to Financial Statements June 30,1999 and 1998 (10)Commitments and Contingencies (a) (b) (c) Litigation AEA,in the normal course of business,is involved in various claims and pending litigation.The State Department of Law manages all pending litigation of AEA,and any liability arising from the settlement of pending claims is a liability for which the Department of Law or AEA requests an appropriation from the Legislature to satisfy judgment in the event that the judgment exceeds available funds.In the opinion of management,the disposition of current claims and pending litigation are not presently expected to have a material adverse effect on AEA's financial statements. Four Dam Pool Project Repairs and Improvements Prior to July 1998,AEA received $19,353,419 from the FDP power purchasers to be expended for repairs and improvements to the FDP projects,in lieu of "debt service component”payments under the long term power sales agreement.These funds were deposited into the Four Dam Pool Self-Help Fund.AEA received an additional $5,500,000 in August 1998 and $1,600,000 in August 1999 from the FDP power purchasers to be held in trust for repairs and improvements to the FDP projects,in lieu of "debt service component”payments.Additional amounts for repairs are expected to be required in the future,which may reduce AEA revenue.Until October 28,2000,any reduction in revenues would be offset by a reduction of the interest payments due on the note payable to the State's Four Dam Pool Transfer Fund.AEA's commitments for future repairs to the FDP facilities approximates $15,500,000. Bradley Lake Hydroelectric Project Forward Delivery Bond Purchase Agreement In December 1997,AEA entered into a forward delivery bond purchase agreement providing for the issuance of $47,710,000 Power Revenue Refunding Bonds,Fourth Series (Fourth Series)on April 4, 2000.When issued,the Fourth Series bonds will refund a portion of the Second Series Bradley Lake Bonds. (d)Unused Line of Credit At June 30,1999 AEA had an unused $10 million line of credit. 21 ALASKA ENERGY AUTHORITY (a Component Unit of the State of Alaska) Required Supplementary Information AEA Management and staff have a full understanding of the risks associated with the "Year 2000 (Y2K) Computer Problem”and are committed to achieving Y2K compliance both internally and on all projects. AEA is taking the appropriate due diligence to minimize potential problems.As of June 30,1999,AEA has internal and external staff dedicated to the Y2K problem.All components,computers,software, electrical equipment,and service critical systems have been inventoried and assessed for Y2K compliance. Based on that assessment,testing of components and systems has been or is being conducted where appropriate.To further mitigate risk,appropriate repairs,upgrades,and replacements of at risk software, hardware,firmware,products,facilities,or equipment have been or are being made and contingency plans for all critical systems have been or are being prepared. AEA is also addressing potential problems with third party organizations.Appropriate suppliers, manufacturers,contractors,and operator utilities are being required to provide Y2K compliance certification on their internal systems,any AEA owned equipment,facilities,and projects they operate on AEA's behalf,and on any services,software,hardware,firmware,products,facilities,or equipment they may provide to AEA.Also,where appropriate,State and federal agencies that operate equipment within various projects are being asked to provide Y2K compliance certification on any services,software, hardware,firmware,products,facilities,or equipment they may provide or operate on AEA's behalf.In cases where any of these entities cannot provide compliance certification,AEA will work closely with them to share information and to address any potential problems. Based on efforts completed to date,no significant disruptions are anticipated due to the Year 2000 computer problem. AEA relies on many third parties for services and operations of projects throughout the State and cannot guarantee that their services and operations will be unaffected by the Year 2000 Computer Problem.AEA is not planning to "take over”responsibility for or supercede any efforts of suppliers,manufacturers, service providers,operator utilities,or other entities to achieve Y2K compliance. 22 Balance at June 30,1998 Interest received Bond principal paid Bond interest paid Construction expenditures Operating revenue received Operating expenses paid Transfers between funds Refunding of Bonds Balance at June 30,1999 $ $ ALASKA ENERGY AUTHORITY (a component Unit of the State of Alaska) Schedule of Bradley Lake Hydroelectric Project Trust Account Activities Year ended June 30,1999 Schedule 1 Debt Capital Renewal and Construction Excess Operating Service Reserve Contingency Unallocated Earnings Revenue Operating Reserve Cost of Fund Fund Fund Fund Fund Fund Fund Fund Issuance Total 8,013,070 13,392,890 5,000,009 2,072,918 346,625 481,136 296,292 535,000 -30,137,940 386,110 312,078 59,573 114,864 27,270 1,080,121 ---_1,980,016 (3,380,000)-__-__-_--(3,380,000) (9,894,170)-_-_-_-____-(9,894,170) ---(145,618)-_-_---(145,618) -----13,843,842 -_--_13,843,842 ---_-_--(1,443,553)_--(1,443,553) 11,728,284 (559,368)(59,573)-34,110 (13,390,400)2,246,947 -_--_ ----_--(1,879,077)--_287,357 (1,591,720) 6,853,294 13,145,600 5,000,009 2,042,164 408,005 135,622 1,099,686 535,000 287,357 23 29,506,737