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AEA Board Meeting Nov 2009 BM Minutes
ALASKA ENERGY AUTHORITY November 9,2009 Board Meeting MINUTES ne ae2Neonee AIDEA and AEA Board Meeting November 9,2009 Page 1 of 1 Home Go Back :::Public NoticesOnlinePublicNoticeAIDEAandAEABoardMeetingStateofAlaskaNovember9,2009 Submitted by:smsiverson/08 Date Submitted:11/02/2009 12:33 PM Date Modified: Ak Admin Journal:[not printed] Attachments:No files attached AIDEA and AEA Board Meeting November 9,2009 Category:Agency Meetings Department:Commerce Community &Economic Development Publish Date:11/02/2009 Location:Anchorage Coastal District:N/A Body of Notice: Please note that the Board of Directors of the Alaska Industrial Development and Export Authority (AIDEA)and the Alaska Energy Authority (AEA)will hold a board meeting beginning at 10:30 a.m.on Monday,November 9, 2009. The Board will convene as AIDEA and continue in session until recess or adjournment.Immediately upon recess or adjournment the Board will convene as AEA and continue in session until recess or adjournment. An agenda for the meeting is available by contacting AIDEA at (907)771-3009 or by visiting our website at www.aidea.org and www.akenergyauthority.org This meeting will be conducted by electronic media pursuant to AS 44.88.050(a)and AS 44.62.310 at the following locations: Alaska Industrial Development and Export Authority Boardroom 813 W.Northern Lights Blvd. Anchorage,Alaska. The public is invited to attend.The State of Alaska (AIDEA and AEA)complies with Title ||of the Americans with Disabilities Act of 1990.Persons requiring special modifications to participate should contact (907)771-3009 to make arrangements. Revision History: 11/02/2009 12:33:21 PM by smsiverson/08/State/Alaska/US $$WebClient [Anon] Home Page Notices by:Department|Category |Publish Date http://notes5.state.ak.us/pn/pubnotic.nsf/ad4f363a3 1408ed98925672a00607900/7a4b0c17....11/13/2009 [=ALASKAce)ENERGY AUTHORITYsieAlaskaIndustrialDevelopinentandExportAuthority AGENDA Alaska Energy Authority Board Meeting Monday,November 9,2009 immediately following the 10:30am AIDEA board meeting Anchorage,Alaska 1.CALL TO ORDER ROLL CALL BOARD AGENDA APPROVAL ROLL CALL:STAFF,PUBLIC PUBLIC COMMENTS PRIOR MINUTES -August 13,2009 OLD BUSINESS NEW BUSINESSonOoaFFWwDN A.AEA Financial Statements B.AEA Resolution 2009-04 Authorization to Executive Director regarding final decisions and appeals 9.DIRECTOR COMMENTS A.Director's Status Report of AEA Programs and Projects B.Next meeting date Wednesday,December 9,2009 10.BOARD COMMENTS 11.ADJOURNMENT 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org «907/771-3000 «FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org /Z=ALASKAco)ENERGY AUTHORITY*Alaska Industrial DevelopmentandExportAuthority Alaska Energy Authority BOARD MEETING MINUTES November 9,2009 Anchorage,Alaska 1.CALL TO ORDER Vice-Chair John Winther called the meeting of the Alaska Energy Authority to order on November 9,2009 at 11:47 a.m. 2.ROLL CALL:BOARD A quorum was established. Members participating:Vice-Chair John Winther (Public Member);Mike Felix (Public Member); Commissioner Emil Notti (Department of Commerce,Community &Economic Development); and Commissioner Leo von Scheben (Department of Transportation &Public Facilities). Absent:Chairman Pat Galvin (Commissioner,Department of Revenue). 3.AGENDA APPROVAL Mr.Felix made a motion to approve the agenda as presented and Commissioner von Scheben seconded it.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Felix,Notti,von Scheben,and Winther voting yea. The agenda was approved as presented. 4.ROLL CALL:STAFF,PUBLIC Staff present in Anchorage:Steve Haagenson (Executive Director);Chris Anderson (Deputy Director-Credit);Sara Fisher-Goad (Deputy Director-Operations);James Hemsath (Deputy Director-Development);Valorie Walker (Deputy Director-Finance);Brenda Applegate (AIDEA Controller);Linda MacMillan (Accountant);Karsten Rodvik (Project Manager-External Affairs); Brenda Fuglestad (Administrative Manager);Shauna Howell (Administrative Assistant);and Sherrie Siverson (Administrative Assistant). Others present in Anchorage:Mike Mitchell (Department of Law);Tim Bradner (Alaska Journal of Commerce);Jan Sieberts (Washington Capital Management);and Corinne Fiedler (KPMG). 5:PUBLIC COMMENTS There were no public comments. 6.PRIOR MINUTES The minutes of August 13,2009 were approved as presented. 813 West Northern Lights Boulevard ®Anchorage,Alaska 99503-2495 www.aidea.org *907/771-3000 ®FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 *www.akenergyauthority.org AEA Board Meeting November 9,2009 Meeting Minutes Page 2 7.OLD BUSINESS There was no old business. 8.NEW BUSINESS 8A.AEA Financial Statements Ms.Corinne Fiedler,Audit Manager,KPMG reviewed the Letter to the AEA Board. No new accounting policies were changed or adopted and the application of existing policies was not changed during 2009.We noted no transactions entered into by the Authority during the year that were both significant and unusual.We noted no transactions entered into by the authority for which there is lack of authoritative guidance or consensus. In connection with our audit of the Authority's financial statements,we have not identified any significant financial misstatements that have not been corrected in the Authority's books and records as of and for the year ended June 30,2009,and have communicated that finding to management. There were no disagreements with management on financial accounting and reporting matters that,if not satisfactorily resolved,would have caused a modification of our auditors'report on the Authority's financial statements. Commissioner von Scheben asked for clarification as to what 'pending litigation'means. Mr.Mitchell stated he was not aware of any pending litigation in the courts,but there was one case in the courts awaiting final judgment (PowerCorp Alaska v.AEA -Ron Miller,former Executive Director,and current Project Manager,Kris Noonan,on litigation involving a switchgear system)of which no date has been set.Commissioner von Scheben stated the board should know about any pending litigation. Commissioner von Scheben also had a question about renewable energy loans and funding from the Denali Commission now that they are changing.Ms.MacMillan stated they are funding differently in that grants would be given out in smaller portions than before,pointing out that funding previously was in the $25 million range,but was now at $13 million.Mr.Haagenson commented that he was aware of staffing changes at the Denali Commission and whether there will be more or less funding remains to be seen. Commissioner von Scheben asked Ms.Fiedler to clarify whether there was a "deficiency” referencing the "deficiency”statement on page 34 of the document,or was that just a statement. Ms.Fiedler commented there was no deficiency and that was their standard wording to call attention to what a significant deficiency would be. AEA Board Meeting November 9,2009 Meeting Minutes Page 3 8B.AEA Resolution 2009-04 Authorization to Executive Director regarding final decisions and appeals , Resolution 2009-04 is an authorization to the AEA Executive Director regarding final decisions on appeals.3AAC 108.920 (a)provides that the appeal of the decision of the Authority is made to the Board of Directors of the Authority unless the Board of Directors has authorized the Executive Director to make the final decision of the Authority. Mr.Winther asked if this was a housekeeping issue or was this resolution triggered by something else. Mr.Haagenson stated it was triggered by the renewable energy fund regulations.Ms.Fisher- Goad explained the regulations recently passed was primary renewable energy fund regulations and a section dealing with appeals for grants and any grants based on projects we build.There was a section included on how the appeals would be handled and who would make the final decision.This resolution has the board delegate to the Executive Director the final decision with respects to any appeals and protests that would fall under this section. Mr.Winther asked if the AIDEA Executive Director has the same authority.Ms.Fisher-Goad stated it was her understating that he did.However,since there became two Executive Directors,the overall delegation given to Mr.Haagenson as AEA Executive Director didn't cover these types of appeals., MOTION:Mr.Felix moved to approve AEA Resolution 2009-04.Seconded by Commissioner von Scheben.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Felix,Notti,von Scheben,and Winther voting yea. 9.DIRECTOR COMMENTS 9A._Director's Status Report of AEA Programs and Projects Mr.Haagenson stated AEA &AIDEA are currently working on the classification study and HR policies and procedures.AEA is working with OMB to look at both the capital budget and the 10- year budget,including performance measures for submittals.AEA is also working on the energy plan as described below. ALASKA ENERGY PLAN AEA is currently: Developing the narrative and formatting the document. Developing the database to provide data to support an immediate,short-term,mid-term, long-term and stretch goal for each community. e We continue meeting with different Alaska regions to engage them and gain ownership in the final community and regional plans. Finalizing the Integrated Resource Plan for the Railbelt. e Working with the Governor's office on rollout strategy and timing. AEA Board Meeting November 9,2009 Meeting Minutes Page 4 e Our target completion date is November 30,2009. RENEWABLE ENERGY FUND ROUND Il Applications for Round Ill are due November 10,2009.Staff will begin the evaluation and ranking process immediately to produce a recommendation for up to $50 million to the Legislature by January 29,2010. 9B.Next meeting date December 9,2009. 10.BOARD COMMENTS There were no board comments. 11.ADJOURNMENT There being no further business of the board,the meeting was adjourned at 12:12 p.m. ZZStevenHaagenson,Executive Director/Secretary Alaska Energy Authority Alaska Energy Authority BOARD MEETING MINUTES August 13,2009 Anchorage,Alaska 1.CALL TO ORDER Chairman Pat Galvin called the meeting of the Alaska Energy Authority to order on August 13, 2009 at 10:39 a.m. 2.BOARD ROLL CALL A quorum was established. Members present in Anchorage:Chairman Pat Galvin (Commissioner,Department of Revenue); Michael Felix (Public Member);Commissioner Leo von Scheben (Department of Transportation &Public Facilities);and Vice Chair John Winther (Public Member). Joined the meeting in progress:Commissioner Emil Notti (Department of Commerce, Community &Economic Development). 3.CONFIRM NOTICE REQUIREMENT AND AGENDA APPROVAL Commissioner von Scheben made a motion to approve the agenda as presented and Commissioner Notti seconded it.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Galvin,Notti,and von Scheben voting yea. The agenda was approved as presented.Public Notice requirements were met. 4.PUBLIC ROLL CALL Staff present in Anchorage:Steve Haagenson,(AEA Executive Director);Sara Fisher-Goad, (Deputy Director-Operations);Mike Harper (Deputy Director-Rural Energy);James Hemsath (Deputy Director-Development);Valorie Walker (Deputy Director-Finance);Leona Hakala (Loan Officer);Peter Crimp (Project Manger);Chris Rutz (Procurement Manager);Bruce Tiedeman, (AEA Community Coordinator);Jim Strandberg (Project Manager);Shauna Howell (Administrative Assistant);and Sherrie M.Siverson (Administrative Assistant). Others present in Anchorage:Brian Bjorkquist and Mike Mitchell (Department of Law);Tim Bradner (Alaska Journal of Commerce);Paul Kendal (Public);Suzy Erlich,Walter Sampson, Carl Wisner,Denali Whiting,and Mayor Siikauraq Martha Whiting (Northwest Arctic Borough). 5.PUBLIC COMMENTS Siikauraq Martha Whiting,Mayor of the Northwest Arctic Borough AEA Board Meeting August 13,2009 Meeting Minutes Page 2 Mayor Whiting stated that their region has the highest cost of living in the state and they have been working with an energy summit to determine solutions for bringing down the cost of energy and are also working on grant proposals to put solar panels on the schools and city offices. They are asking the question --what can we do to start small to help in reducing the cost of the energy in rural Alaska?Recently,they put together an elder energy day.In one day there were 200 volunteers who weatherized all of the elders'homes in Kotzebue.She added that they want to be proactive in taking care of their needs and continue to do this in all of the villages. She also made mention of Ingar Mathiason,Energy Czar of the Northwest Arctic Borough.He has a home in Ambler that runs off of nothing because he uses wind and solar to operate everything he needs for his home. Mayor Whiting also stated that there needs to be consistency and equity for fuel costs.The one thing that brings our price for fuel up so highis transportation.In some villages you have to flyinthefuelbecausetheriveristoolow.As a goal,we would like to see for the entire state -the same cost of fuel,the same cost of natural gas,the same cost of diesel -no matter where you live.We have a huge resource in natural gas,but need to know how we can bring it to that everyone has a matter of equity.It is a big challenge,but it is a goal we are going to pursue.We appreciate the work you are doing. Walter Sampson,President of the Northwest Arctic BoroughMr.Sampson noted that as an extension of the state government,as the Northwest ArcticBorough,our role is similar to what the 'state of Alaska does -hopefully to make life easier fortheresidents.When resources are limited,it is hard to do.He also stated that costs continue to rise noting that fuel cost from last year barely went down.Fuel from Crowley at the terminal ispurchasedat$260 a drum in Kotzebue,and in some communities it is over $500 a drum.The issue in regards to the work of entity and our leadership team have been trying to work together to make sure that there is no duplication of one organization over the other -that is why we have.the leadership team that comes together on a quarterly basis.Energy is something that we are all looking with federal dollars that we are applying for -is something that we are trying to find a way to bring some of those dollars.That is one thing people don'tunderstand.;Anytime you put together a program people feel that the cost of energy willimmediatelycomedown.One of our communities certainly has their share of problems.It is thesmallestcommunityinourregion.There is a letter that was sent out to them giving two weeks'notice.It will be $400/round trip per ticket to travel to Kotzebue.These are some of the things we are looking at and working at and AIDEA's role is something we appreciate and as an entity you are trying to create an.opportunity and it is something we want to work with as an organization and extend that opportunity to folks within parts of the state of Alaska.After all,the state of Alaska has its share of assets that was also sold at a lower rate and as far as equity is concerned,there needs to be a way to find a way to deal with that.It is something that we are certainly always open to having dialogue.Anytime we have a meeting within the region, certainly we appreciate Mr.Harper's visit to the region periodically looking at some of the problems we have. Paul D.Kendall,Public Mr.Kendall stated he sees one opportunity after another for Alaska to be a leading example in the world and for Alaska to reflect its true capacity in leadership and resources.He is seeing things,for example:Secretary Chu and President Obama both said we will no longer entertain AEA Board Meeting August 13,2009 Meeting Minutes Page 3 funding unless it is transformational energy ideas.Every great body,every great institution or village or community starts with a can-do attitude.How do you separate the individual in their shortcoming or whatever it is from the real data that needs to be looked at?And in compiling this data,he sees at least 10 to 30 nations who are making commitments to 0 carbon fuels. Overnight,the Prince of Sweden leading the EU,he is telling his people we have to think like we've never thought before.We have to go to work differently,we have to talk in the community, we have to finance differently and then he goes on to state that how if we get on the leading edge of this we will actually lead the role in the rest of the world in the financial recovery. It is my understanding that Secretary Chu,Secretary of Education Donovan,and two or three others are here from Washington.Those men,|would certainly hope,are meeting with you here today.When |see these kinds of men gathered in our state and going to a rural area and that rural area in some ways is a distraction,we can't get to help them unless we can help the core body.My point is that these men are somewhere in town and they should be here. Mr.Kendall mentioned the five electric vehicle designated cities.Tucson,Phoenix,Seattle, Portland,Tennessee and San Diego. He stated that our leadership continues to be focused on gas and dark carbon.England just grabbed the leverage of the utility system -distribution -transmission.Scotland just hired Japan to look at their title for energy development.Massachusetts just released their firstoffshoreseastudyofrulesandregulations.Australia offers a $5M reward.Ten nations declared themselves to be 0 free.They just declared that nuclear power is not going to be considered renewable energy.There are large forces out there moving to generate new revenues and energy is at the centerpiece of this. Mr.Kendall stated that he wants an energy allocation for dwelling,each individual dwelling based on a form -it should have an energy allocation of electricity and water and in my world,itisatnearlyazerocharge.:The reason is,when you insulate that house,if you insulate it,and gotoelectricvehicle,and you go all heating and cooking in the electricity,there is no reason whythatgasandthatgasolineisn't moved into.the market to be for sale.We are about to see fossilfuelscomingtoatapiddecline,that we have by going into our residential units and inpartnershipingwithwater,we push.that gas and that oil out there to be sold,which makes us more revenue than the electricity we bring in from hydroelectric in the Cook Inlet.To overlook the Cook Inlet is just criminal.:{n conclusion,|am no longer in favor of what we call dead-man- dams.|love the Susitna and |can see a compromise in one or two,but Chakachamna and Susitna are what we call dead-man-dams.Those are isolated,large ventures,20-30 years out; they are not compatible with water partnerships. Carl Wisner,Northwest Arctic Borough Mr.Wisner thanked the group for the opportunity to share his story.He noted that he hauls wood as often as possible,and goes out on his boat to gather driftwood because he doesn't expect to be able to buy a whole lot of stove oil to heat his home and finds himself with mixed feelings each winter.He wonders if Hugo Chavez is going to supply rural Alaska with oil.He is a patriot who is proud of America and he understands we have different views with them.He asked that you not look at rural Alaska as a distraction or keep them in the margin,but to keep them in the forefront because in rural Alaska is where a lot of the energy comes from and a lot of the times we are facing the greatest challenge. Commissioner Galvin welcomed new board member Michael T.Felix. AEA Board Meeting August 13,2009 Meeting Minutes Page 4 6.PRIOR MINUTES -June 25,2009 The minutes were approved as presented. 7.OLD BUSINESS There was no old business. 8.NEW BUSINESS 8A.AEA Resolution No.2009-03,Adoption of AEA Regulations Mr.Haagenson noted last year HB152 was approved and established the Renewable Energy Fund,with a condition in the statutes that AEA develop regulations.Since that time we have put together a program and we have guidelines we have been following which have been developed as regulations.We've received applications,evaluated applications,and have actually awarded applications for approximately $125M.Mr.Haagenson recognized the core team who has been working on this:Sara Fisher-Goad,Chris Rutz,Butch White,Mike Mitchell, Peter Crimp,and Jim Strandberg. Ms.Fisher-Goad stated that the AEA regulations include regulations for the new Renewable Energy Grant Recommendation Program.These are also regulations that deal with AEA programs and conform to some statutory changes that happened in the last couple of years. Reference to ground water source development and transmission of potable water supplies as an eligible loan project has been repealed based on a change in the Power Project Fund.There are some clarifications in the Bulk Fuel Revolving Loan Fund requiring written endorsements from all of the communities that you are borrowing on behalf of;there must be local approval from each of those communities.There are also regulatory changes that are consistent with the statutory limits applied through the Revolving Loan Fund. In addition,the Power Project Loan Fund more clearly defines an Independent Power Producer (IPP)and is being used for the Renewable Energy Program.We also clarified that an electric utility is used consistently with the term public utility in existing state statutes. In addition to the changes provided to the Board this morning is a new version of the memo with one additional change.The Board was provided a red-line version showing the changes in regulations.To summarize those changes: e On page 10 of the regulations,we changed the word 'ana'to 'or'to indicate that through the feasibility and public benefit review of applications,that public benefits are a separate subset of this economic feasibility and benefit evaluation process. e On page 11,we re-added section 650,a request for reconsideration for grants.This was re-added after discussion with the Department of Law to make it acceptable to the Department of Law and to our needs.What was changed from the original public review to what the Board was provided we changed the time for someone to request reconsideration from 5 to 10 days and we also made sure that people knew that the written request could also be handed to us electronically. AEA Board Meeting August 13,2009 Meeting Minutes Page 5 e Inthe evaluation and grant application section (pages 12 and 13),we deleted "from the evaluation criteria other projects existing or proposed in the same area,”as an evaluation criteria and added "that the number of types of projects within a region”-it was more appropriate to have that evaluation in the ranking of evaluations and not through the evaluation process.It better reflects how we are processing our evaluations. We evaluate projects and then we look at projects and type of projects on a regional and a ranking basis. In addition to those changes,there was a change in Chapter 108.There are several places where the Procurement Manager,Contract Manager and Grant Manager were used in our protest for grant and contract plans.We changed that to Procurement Officer,which is actually a defined term in statutes.We thought this better reflected,and provided some consistency,that one person would handle those types of protest and claims. A question was asked,"Is there a change of adding $750,000 as the maximum per organization that they could -was there a number before?”Ms.Fisher-Goad replied that it has been changed several times in statutes and this is catching up with the changes in statute -it is completely consistent with the statutory limits with the bulk fuel revolving loan fund.$750,in the ten years I've been at AEA,it's gone from $100 to $200 to $400 and then the $750 that happened during special session last year. There was clarification in earlier wording -the term 'ground water'in the Power Project Fund Loan Program.Changes were made to statutes a couple of years ago and there was a provision to have ground water projects and potable water projects as an eligible applicant.We looked through the history of the program with the Division of Energy -the old AEA to the new AEA - and haven't seen where there was ever that type of project.That type of project was deleted as an eligible project for this program.This repeal will be consistent with those statutory changes. The regulation package is pretty substantial because it is establishing new regulations for the Renewable Energy Fund Program. Chair Galvin asked if comments received were incorporated into the final version. Ms.Fisher-Goad replied that we received four comments,one from the Legislative Affairs Agency and three from the public.A public hearing was held,but no one testified.The Regulations were not changed in response to the public comments. Chair Galvin stated that we are amending regulations associated with the Bulk Fuel Program and then we're adding an entire article associated with the Renewable Energy Grant Program. Those have gone through the public review referred to and the changes shown in redline are changes to the draft,not changes to our existing regulations,because they are not in regulation yet.We are actually adding Article 4 to the regulations through this resolution. Ms.Fisher-Goad added that we are making changes to the Power Project Fund Loan regulations (potable water).We also added the definition of IPP,which is now the same for the grant program and the loan program.In addition,the Chapter 108 changes are a revision of the claim process that is currently in the regulations.There were some additional minor corrections given to the Board this morning;however,those changes are on the general provisions for AEA's financial and technical assistance for energy systems,facilities and equipment.It is a section of regulation that covers a lot of AEA programs.This was a way to provide some clarification of how we want to deal with claims and protests. AEA Board Meeting August 13,2009 Meeting Minutes Page 6 MOTION:Commissioner von Scheben moved to approve AEA Resolution No.2009-03. Seconded by Mr.Winther.There being no discussion,the question was called.A roll call vote was taken and the motion passed with Messrs.Galvin,Winther,Felix,Notti,and von Scheben voting yea. 9.DIRECTOR COMMENTS 9A.Director's Status Report of AEA Programs and Projects Steve Haagenson introduced Peter Crimp who provided an overview of a PowerPoint presentation to be presented to Legislative Budget and Audit on August 15,2009.The presentation was titled:Alaska Renewable Energy Fund Progress Report prepared for theLegislativeBudgetandAuditCommittee.ae , Mr.Crimp discussed the status of moving ahead on grants and showed pictures of projects that are under construction.He discussed staffing,the amount of funding caps for funding projects, Independent Power Producers (IPP),and how AEA is moving towards determining rates for energy for those projects. Mr.Crimp said that over half of the project funding has been allocated into grants.They are working to get other grants up and running and waiting for additional information from grantees (milestones,better budgets).Most of the©grants aare in place.Over 60%are finalized,or about tobefinalized.Ay \Wi, The Board suggested additions to the presentation,including thow to make it more simplistic andeasiertoread.ur "ibs Peed hela SETS tesee Ee Mr.Crimp stated that most of the funds have gone into construction.He noted that Falls CreekHydrowascommissionedlastmonthandisgenerating80kWofpower.The community of Gustavus is off of diesel.Chair Galvin asked that the slide in the presentation reference the amount of the fund that actually went towards a project.Mr.Felix added that it is important to know how much the total project cost and understand how much the Renewable Energy Fund contributed to it,to determine how much you saved. Other topics discussed in Mr.crimp s PowerPoint presentation included:Pillar Mt.Wind (Kodiak) Denali Solar Thermal Juneau Airport Ground Source Heat Pump North Prince of Wales Intertie (Coffman Cove &Naukati) Unalakleet Wind North Pole Heat Recovery Tok School Wood-Fired Boiler North Pole Biomass-Fired Power Hydrokinetic (River Flow)energy Mr.Crimp noted that a one cycle economic analysis was done for these projects.All of the projects are economically feasible with substantial analysis behind project selection. AEA Board Meeting August 13,2009MeetingMinutesPage7 Mr.Crimp stated that 10 AEA staff is currently providing technical oversight on these projects.AEA is also in the process of interviewing for four additional technical staff. Mr.Crimp discussed capped funding.We have had mixed progress with those projects becausesomeofthemwereabletofindadditionalfinancingandsomewerenot.We recommend the capinordertospreadthedollarsaroundregionsmoreequitably.Capped projects will have one year to come up with the supplemental funds.We are also working with an advisory committee to resolve these types of issues. Mr.Crimp stated that Independent Power Producers (IPP)are allowed because they are eligible developers.If an IPP builds a project,how much do we allow them to sell the power for?It doesn't make sense for AEA to subsidize them to bring down the cost and for them to sell it slightly below avoided cost.We need to come up with a good way of determining what a reasonable rate should be while balancing the opportunities for entrepreneurs to develop projects.In the short term,we are planning to hire contractors to recommend cost-based rates (rates based on amount of equity,production tax credits and other project/site specific costs).In the long term,we want to come up with an agreement with the RCA who have more expertise in this area to coordinate our responsibilities. Steve Haagenson,Alaska Energy Plan Mr.Haagenson reported on the Alaska Energy Plan noting that we are currently developing a database which will reflect immediate,short-term,mid-term,long-term and stretch goal plans for each community by looking at the resources and technologies available in their community and matching them together in our best logic.We will share that with the communities to get their buy-in and hope they 'own it'at the end of the day.We have been meeting with different regions across the state for the past nine months.We have also contacted a consulting company to look at storage and conversation (1 day storage,1 month storage,1 year storage)in order to deploy different renewables and come up with a conceptual design for a pricing index on the different technologies.Our target date to have the whole package completed,including a policy section,a finance plan,anda plan by community,is November 30,2009.9B.Next meeting dateSeptember 117,200910.BOARD COMMENTS 1Bates:Commissioner von Scheben provided the board a copy of a letter he wrote to Mayor Kadake regarding the Kake-Petersburg road discussed at the August 13,2009 board meeting. 11.ADJOURNMENT There being no further business of the board,the meeting was adjourned at 12:07 p.m. Steve Haagenson,Executive Director/Secretary Alaska Energy Authority Ww Ww"AI IDIEN.IS ALASKAaaxaAlaskaIndustrialDevelopmentandExportAuthority MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Steve Haagenson $wt Executive Director DATE:November 9,2009 SUBJECT:Financial Reports Included with your packet are the June 30,2009 Financial Statements,Audit in Accordance with OMB Circular A-133 and Letter to the Board of Directors. Mr.David McCambridge,Partner with the Anchorage Office of KPMG,LLP,will be in attendance at the meeting to discuss the reports and to answer any questions the Board may have. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org @ 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Letter to the Board of Directors October 23,2009 A bound copy of this letter and the supporting documents will be distributed at the November 9,2009 Board Meeting. October 23,2009 The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska) Ladies and Gentlemen: We have audited the basic financial statements of Alaska Energy Authority,a Component Unit of the State of Alaska (the Authority)as of June 30,2009 and for the year then ended,and have issued our report thereon under date of October 23,2009.Under our professional standards,we are providing you with theaccompanyinginformationrelatedtotheconductofouraudit. Our Responsibility Under Professional Standards We are responsible for forming and expressing an opinion about whether the basic financial statements, that have been prepared by management with the oversight of the Board of Directors,are presented fairly, in all material respects,in conformity with U.S.generally accepted accounting principles.We have a responsibility to perform our audit of the basic financial statements in accordance with professional standards.In carrying out this responsibility,we planned and performed the audit to obtain reasonable assurance about whether the basic financial statements are free of material misstatement,whether caused by error or fraud.Because of the nature of audit evidence and the characteristics of fraud,we are to obtain reasonable,not absolute,assurance that material misstatements are detected.We have no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements,whether caused by error or fraud,that are not material to the financial statements are detected.Our audit does not relieve management or the Board of Directors of their responsibilities. In addition,in planning and performing our audit of the basic financial statements,we considered intemal control over financial reporting (internal control)as a basis for designing our auditing procedures for the purpose of expressing our opinion on the basic financial statements but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control.Accordingly,we do not express an opinion on the effectiveness of the Authority's internal control. We also have a responsibility to communicate significant matters related to the financial statement audit that are,in our professional judgment,relevant to the responsibilities of the Board of Directors in overseeing the financial reporting process.We are not required to design procedures for the purpose of identifying other matters to communicate to you. Other Information in Documents Containing Audited Financial Statements Our responsibility for other information in documents containing the Authority's financial statements and our auditors'report thereon does not extend beyond the basic financial information identified in our auditors'report,end we have no obligation to perform any procedures to corroborate other information contained in these documents,for example,Management's Discussion and Analysis.We have,however, read the other information included in the Authority's financial statements,and no matters came to our The Board of Directors Alaska Energy Authority October 23,2009 Page 2 of 3 attention that cause us to believe that such information,or its manner of presentation,is materially inconsistent with the information,or manner of its presentation,appearing in the financial statements, Accounting Practices and Alternative Treatments Significant Accounting Policies The significant accounting policies used by the Authority are described in Note 2 to the financial statements.No new accounting policies were adopted and the application of existing policies was not changed during 2009. Unusual Transactions We noted no transactions entered into by the Authority during the year that were both significant and unusual,and of which,under professional standards,we are required to inform you.In addition,we noted no transactions entered into by the Authority for which there is lack of authoritative guidance or consensus. Management Judgments and Accounting Estimates The preparation of the financial statements requires management of the Authority to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. The allowance for loan losses represents management's judgment as to the amount required to absorb potential losses in the loan portfolio.The factors used by management to determine the allowance include historical loss experience,individual delinquencies,existing economic conditions and other factors. Management's estimates of potential loss are charged to operating expenses though provisions for loan losses.The allowance total approximately $1.1 million at June 30,2009,and we agreed with management that the allowance is reasonable in relation to the financial statements taken as a whole. Uncorrected and Corrected Misstatements In connection with our audit of the Authority's financial statements,we have not identified any significant financial statement misstatements that have not been corrected in the Authority's books and records as of and for the year ended June 30,2009 and have communicated that finding to management. )Disagreements with Management There were no disagreements with management on financial accounting,and reporting matters that,if not satisfactorily resolved,would have caused a modification of our auditors'report on the Authority's financial statements. Significant Issues Discussed,or Subject to Correspondence,with Management Major Issues Discussed with Management Prior to Retention We generally discuss a variety of matters,including the application of accounting principles and auditing standards,with management prior to retention each year as the Authority's auditors.However,these discussions occurred in the normal course of our professional relationship and our responses were not a condition to our retention. The Board of Directors Alaska Energy Authority October 23,2009 Page 3 of 3 Material Written Communications Attached to this letter please find copies of the following material written communications between management and us: 1,Engagement letter;and 2.|Management representation letter Significant Difficulties Emxcountered During the Audit We encountered no difficulties in dealmg with management in performing our audit. eeeeant This letter to the Board of Directors is intended solely for the information and use of the Board of Directors and management and is not intended to be and should not be used by anyone other than these specified parties. Very truly yours, KPMG LEP Attachueent1 Rane KPMG LLP Telephone 907 265 1200 Suite B00 Fox 907 265 1296 701 West Eighth Avenue internet =www.us.kpmg.com Archorege,AK 99501 July 14,2008 Alaska [Industrial Development and Export Authority and Alaska Energy Authority 813 West Northern Lights Blvd Anchorage,AK.99503-2495 Attention:Ms.Valorie Walker,Deputy Director of Finance Dear Ms Walker: This letter (che Engagement Letter)confirms our understanding of our engagement to provide professional services to Alaska Industrial Development and Export Authority and the Alaska Energy Authority [AIDEA and AEA).We understand that the terms of our engagement are governed by the terms and conditions in the contract between KPMG and AIDEA and AEA es well as the terms of this letter,and that if there is a conflict between this letter and the contract, the terms of the contract take precedence., Objectives and Limitations of Services Financial Statement Audit Services We will issue a written report upon our audit of AIDEA and AEA's financial statements as set forth in Appendix LE We have the responsibility to conduct and wil!conduct the audit of the financial statements in accordance with auditing standards generally accepted in the United States of America and the standards for financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States,with the objective of expressing an opinion as to whether the presentation of the financial statements conforms with U.S.generally accepted accounting principles. In conducting the audit,we will perform tests of the accounting records and such other procedures,as we consider necessary in the circumstances,to provide a reasonable basis for our opinion on the financial statements.We also will assess the accounting principles used and significant estimates made by management,and evaluate the overal}financial statement presentation. Our audit of the financial statements is planned and performed.to obtain reasonable,but not absoluie,assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.Absolute assurance is not attainable because of the nature of audit evidence and the characteristics of fraud.Therefore,there is a risk that material errors,fraud (including fraud that may be an illegal act),and other illegal acts may exist and not be detected by an audit of financial statements performed in accordance with the auditing standards gencrally KPMG LAP ot S Gnivad Kabanty cantare:6 the OScnameiberFemotKPMAReerateral.a Fey erating Attachiseat 1 RAM Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 Page 2 accepted in the United States of America.Also,an audit is not designed to detect matters that are immaterial to the financial statements, Our report will be addressed to the Board of Directors of AIDEAandAEA.We cannot provideassurancethatanunqualifiedopinionwillberendered.Circumstances may arise in which it is necessary for us to modify our report or withdraw from the engagement. internal Control over Financial Reporting and Compliance and Other Matters In planning and performing our audit of the financial statements,we will consider AIDEA and AEA's internal contro!in order to determine the nature,timing,and extent of our audit procedures for the purpose of expressing an opinion on the financial statements and not to provide assurance on intemal control.In accordance with Government Auditing Standards,we are required to communicate that the limited purpose of our consideration of internal control may not meet the needs of some users who require additional information about intemal control.We can provide other services to provide you with additional information on ternal control which we would be happy to discuss with you at your corivenience. As part of obtaining reasonable assurance about whether the financial statements are free ofmaterialmisstatement,we will perform tests of AIDEA and AEA's compliance with certain provisions of laws,regulations,contracts and grants,violations of which could have a direct and material effect on the financial statements.However,our objective is not to provide en opinion on overall compliance with such provisions. In accordance with Government Auditing Standards,we will prepare a written report,Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordunce With Government Auditing Standards (GAGAS report),on our consideration of intemal control and tests of compliance made as part of our audit of the financial statements.While the objective of our audit of the fmancial statements is not to report on AIDEA and ABA's internal control and we are aot obligated to search for significant deficiencies or material weaknesses ks part of our audit of the financial statements,this report will include any significant deficiencies and material weaknesses to the extent they come to our attention.A significant deficiency is a control deficiency,or.combination of control deficiencies,that adversely affects the entity's ability to initiate,authorize,record,process,or report financial data reliably in accordance with U.S.generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected.A material weakness is a significant deficiency,or combination of sigrificant deficiencies,that results in more than @ remote likelihood that s material misstatement of the financial statements will not be prevented or detected.This report will also include illegal acts and fraud,umless clearly inconsequential,and material violations of grants,contrac{s,Fe abuse.It will indicate that it isintendedsolelyfortheinformationanduseoftheetdiandmanagementofAIDEA and AEA and federal awarding agencies and pass-through entities and that it is not intended to be and should not be used by anyone other than these specilied parties. Attachment1 res Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 Page 3 In accordance with Government Auditing Standards,we will also issuc @ management letter to communicate immaterial violations of grants and contracts and abuse that comes to our attention, untess clearly inconsequential. In accordance with Government Auditing Standards,we are also required in certain circumstances to report fraud or Mega}acts directly to parties outside the auditee. OMB Circular A-133 Audit Services We will also perform audit procedures with respect to AIDEA and AEA's major federal programs in accordance with the provisions of OMB Circutar A-133 Audits ofStates,Local Governments, and Non-Profit Organizations (OMB Circular A-133).OMB Circular A-133 includes specific audit requirements,meinly in the areas of intemal control and compliance with laws,regulations, contracts,and grants that exceed those required by Government Auditing Standards. As part of our audit procedures performed in accordance with the provisions of OMB CircularA-133,we will perform tests to evaluate the effectiveness of the design and operation of ternalcontrolsthatweconsiderrelevanttopreventingordetectingmaterialnoncompliancewithlaws, regulations,contracts,and grants applicable to each of AIDEA and AEA's major programs.The tests of internal contro]performed in accordance with OMB Circular A 133 are less in scope than would be necessary to render an opinion on internal control. Compliance with laws,regulations,contacts,and grants applicable to federal programs is the responsibility of management.We will perform tests of AIDEA and AEA's complisnce with certain provisions of laws,regulations,contracts,and grants we determine to be necessary based on the OMB Circular A-133 Compliance Supplement (Compliance Supplement).The procedures outlined in the Compliance Supplement are those suggested by each federal agency and do not cover all areas of regulations governing each program.Program reviews by federal agencies may identify additional instances of noncompliance. As required by OMB Circular A-133,we will prepare a written report which provides our opinion on the schedule of expenditures of federal awards in relation to AIDEA and AEA's financial statements.In addition,we will prepare a written report (A-133 report)which 1)provides our opinion on compliance with laws,regulations,contracts,and grants that could have a direct and material effect on a major federal program and 2)communicates our consideration of internal control over major federal pro yeh A-133 report will indicate that it is intended solely fortheinformationanduseoftheaudB20isteandmanagementofAIDEAandAEAandfederalawardingagenciesandpass-through entities and that it is not intended to be and should not be used by anyone other than these specified parties, Offering Document Should AIDEA or AEA wish to include or incorporate by reference these financial statements and our audit reports thereon into an offering of exempt securities,prior to our consenting to include or imecorporate by reference our ceports on such finuncial statements,we would consider our consent to the inclusion of our report and the terms thereof at that time.We will be required to perform procedures as required by the standards of the American Institute of Certified Public Attachment 1 Rane Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008" Page 4 Accountants,including,but not limited to,reading other information incorporated by reference in the offering document and performing subsequent event procedures.Our reading of the other information included or incorporated by reference in the offering document will consider whether such information,or the manner of its presentation,is materially inconsistent with information,or the manner of its presentation,appearing in the financial statements.However,we will not perform procedures to corroborate such other information (including forward-looking statements), The specific terms of our future services with respect to future offering documents will be determined st the time the services are to be performed, Should AIDEBA or AEA wish to include or incorporate by reference these financial statements and our audit reports thereon into an offering of exempt securities without obtaining our consent to include or incorporste by reference our reports on such financial statements,and we ere not otherwise associated with the offering document,then AIDEA and AEA agrees to inctude the following language in the offering document: "KPMG LLP,our independent auditor,has not been engaged to perform and has not performed,since the date of its report included herein,amy procedures on the financial statements addressed in that report.KPMG LLP also has not performed any procedures relating to this official statement.”"; Our Responsibility to Coramunicate with the Audit Committee @oa cel | We will report to the board of directors,in writing,the following matters: e Corrected misstatements arising from the audit that could,in our judgment,either individually or in aggregate,have a significant effect on AIDEA and AEA's financial reporting process.In this context,corrected misstatements are proposed corrections of the financial statements that were recorded by management and,in our judgment,may not have been detected except through the auditing procedures performed. °Uncorrected misstatements aggregated during the current engagement and pertaining to the latest period presented that were determined by management to be immaterial,both individually and in aggregate. °Any disagreements with management or other significant difficulties encountered in performance of our audit. ]Other matters required to be communicated by auditing standards generally accepted in the United States of America.: We will also read minutes,if any,of audt-comminee,meet for consistency with ourunderstandingofthecommunicationsmadetothemadioboeanddeterminethattheaudit board?aemmittes has received copies of all material written co unications between ourselves andmanagement.We will also determine that the dis SRSA has been informed of i)the initial selection of,or the ccasons for any change in,significant accounting policies or their application during the period under audit,ii)the methods used by management to account for significant Attachmest 1 Ma Alaska Industrial Development and Export Authonty and Alaska Energy Authority July £4,2008 Page 5 unusual transactions,and iti)the effect of significant accounting policies in controversial oremergingareasforwhichthereisalackofauthoritativepuidanceorconsensus. if,in performance of our audit procedures,circumstances arise which make it necessary to modifyourreportorwithdrawfromtheengagernent,we will communicate to the audit commpitiee ourreasonsformodificationorwithdrawal.'o Management Responsibilities The management of AIDEA and AEA is responsible for the fair presentation,in accordance withU.S generally accepted accounting principles,of the financial statements and all representationscontainedtherein.Management alsois responsible for identifying and ensuring that AIDEA and AEA complies with laws,regulations,contracts,and prants applicable to its activities,and for informing us of any known material violations of such laws and regulations.Management alsoisresponsibleforpreventinganddetectingfraud,including the design and implementation of programs and controls to prevent and detect fraud,for edopting sound accounting policies,and for establishing and maintaining effective internal controls and procedures for financial reporting to maintain the reliability of the financial statements and to provide réssonable assurance against the possibility of misstatements that are material to the financial statements.Management is also responsible for informing us,of which it has knowledge,of all significant deficiencies and material weaknesses im the design or operation of such controls.The audit of the financial Statements does not relieve -management or those charged with governance of theirresponsibilities, Management of AIDEA and AEA also agrecg that all records,documentation,and information we request in connection with our audit will be made available to us,that all material information will be disclosed to us,and that we will have the full cooperation of AIDEA and AEA personnel.As required by the auditing standards generally accepted in the United States of America,we will make specific inquiries of manzgement about the representations embodied in the financial statements and the effectiveness of internal control,and obtain a representation letter from management about these matters.The responses to our inquiries,the written representations,and the results of audit tests,among other things,comprise the evidential matter we will rely upon in forming an opinion on the financial statements. In additton to the OMB Circular A-133 requirements to maintain internal control and comply with provisions of laws,regulations,contracts and grants applicable to federal programs as discussed above,OMB Circular A-133 also requires AIDEA and AEA to prepare a: °Schedule of expenditures of federal awards; °Summary schedule of prior audit findings;and °Corrective action plan. While we may be separately engaged to assist you in the preparation of these items,preparation is the responsibility of AIDEA and AEA. Te Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 Page 6 Certain provisions of OMB Circular A-133 allow a granting agency to request that @ specific program be selected as «major program provided that the federal granting agency is willing to pay the incremental audit cost arising from such selection.AIDEA and AEA agrees to notify KPMG LLP (KPMG)of any such request by @ granting agency and to work with KPMG to modify the terms of this letter as necessary to accommodate such a request. In accordance with Government Auditing Standards,as part of our planning of the audit we will consider the results of previous audits and follow up on known significant findings and recommerkiations that directly relate to the objectives of the audit.To assist us,management agrees to identify previous financiel audits,attestation engagements,performance sudits,or other studies related to the objectives of the audit being undertaken and to identify corrective actionstakentoaddresssignificantfindingsandrecommendations, Management is responsible for adjusting the fmancial statements to correct material misstatements and for affirmmg to us im the representation Ietter that the effects of any uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest period presented are immaterial,both individually and in the aggregate,to the financial statements being reported upon,Because of the importance of management's representations to the effective performance of our services,AIDEA and AEA will release KPMG and its personnel from any - claims,liabilities,costs and expenses relating to our services under this letter attributable to any tmisrepresentations in the representation letter referred to above. Management is also responsible for providing us with written responses in accordance with Government Auditing Stendards to the findings included in the GAGAS or A-L33 report.If such information is not provided on a timely basis prior to release of the reports,the reports will indicate the status of management's responses. Management is responsible for the distribution of the reports issued by KPMG.In accordance with Government Auditing Standurdy,the reports issued citing Government Auditing Standards are to be made available for public inspection. Other Matters This letter shall serve as AIDEA and AEA's authorization for the use of e-mail and other electronic methods to transmit and receive information,including confidential information, between KPMG and AIDEA and AFA and between KPMG and outside specialists or other entities engaged by either KPMG or AIDEA and AEA.AIDEA and AEA acknowledges that e-mail travels over the public Internet,which is not a secure means of communication and,thus, confidentiality of the transrnitted information could be compromised through no fault of KPMG. KPMG will employ commercially reasonable efforts and take appropriate precautions to protect the privacy and confidentiality of transmitted information. Further,for purposes of the services described in this letier only,AIDEA and AEA hereby grantstoKPMGalimited,revocable,non-exclusive,non-transferable,paid ap and royalty-free license,without right of sublicense,to use all names,logos,trademarks and service marks of AIDEA and Attachment 1 Tena 'Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 Page 7 AEA solely for presentations or reports to AIDEA and AEA or for internal KPMG presentations and intranet sites., KPMG is a limited liability parmership comprising both certified public accountants and certain principals who are not licensed ns certified public accountants.Such principals may participate in the engagements to provide the services described in this letter. KPMG member firms located outside the United States and other third-party service providers operating under our supervision may also participate in providing the services described in this letter. The work papers for this engagement are the property of KPMG.Pursuant to Government Auditing Stendards,we are required to make certain work papers available in a full end timely manner to regulatory agencies upon request for their reviews of audit quatity and for use by their auditors.In addition,we may be requested to make certain work papers available to regulators pursuant to authority given to it by law or regulation.Access to the requested work papers will be provided under supervision of KPMG personnel.Furthermore,upon request,we may provide photocopies of selected work papers to regulatory agencies.These regulatory agencies may intend,or decide,to distribute the photocopics or information contained therein to others, including other government agencies. In the event KPMG is requested pursuant te subpoena or other legal process to produce its documents relating to this engagement for AIDEA and AEA in judicial or administrative proceedings to which KPMG is not a party,AIDEA and AEA shall reimburse KPMG at standard billing rates for its professional time and expenses,including reasonable attommey's fees,incurred in responding to such requests. Other Government Auditing Standards Matters As required by Government Auditing Standards,we have attached a copy of KPMG's most recent peer review report and letter of comments. Additional Reports and Fees for Services Appendix f to this letter lists the additional reports we will issue as part of this engagement and our fees for professional services to be performed per this letter. In addition,fees for any special audit-related projects,such as research and/or consultation onspecialbusinessorfinancialissues,will be bitled separately from the audit fees for professional!services set forthin Appendix [and may be subject io written arrangements supplemental to thoseinthisletter. ete eaks Our engagement herein is for the provision of annual audit services for the financial statements and tor the periods described in Appendix I,and it is understood that such services are provided as a single engagement.Pursuant to our arrangement as reflected in this letter we will provide the services set forth in Appendix I as a single engagement for each of AIDEA and AEA'S Me Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 : Page 8 subsequent fiscal years until either Management or we terminate this agreement,or mutually agree to the modification of its terms.The fees for each subsequent year will be annually subject to negotiation and approval by the Management. We shall be pleased to discuss this letter with you et any time.For your convenience in confirming these arrangements,we enclose a copy of this letter.Please sign and retum it to us. Very truly yours, David J.at Partner DIM:sw Enclosure Fee Alaska Industrial Development and Export Authority and Alaska Energy Authority July 14,2008 Page 9 ACCEPTED: Alaska Industrial Development and Export Authority aud Alaska Energy Authority VeQer i WuGE Authorized Signature Direeds Sek RACE Titl Appendix I Fees for Services Fees for our performance of the basic audits are included in the contract fee specified in our proposal.Circumstances encountered during the performance of these services that warrant additional time or expense could cause us to be unable to complete the audits within the estimates used in the proposal.We will endeavor to notify you of any such circumstances as they are assessed._ Audit of financial statements ss of and for the ycars ended June 30,2008. AIDEA $37,575 AEA ,39,900 Bradjey Lake Compliance 1,085 AIDEA -FSA*9,690 AEA-FSA*9,690 *Assumes two major programs.Each additional program will cost $4,850. The above estimates are based on the level of experience of the individuals who will perform the services.In addition,expenses for items such as travel,telephone,postage,and typing,printing, and reproduction of financial statements are billed for reimbursement as incurred.Circumstances encountered during the performance of these services that warrant additional time or expensecouldcauseustobeunabletodeliverthemwithintheaboveestimates.We will endeavor to notify you of any such circumstances as they are assessed. Where KPMG 1s reimbursed for expenses,it is KPMG's policy to bill clients the amount incurred at the time the good or service is purchased.If KPMG subsequently receives a volume rebate or other incentive payment from a vendor relating to such expenses,KPMG does not credit such payment to the client.Instead,KPMG applies such payments to reduce iis overhead costs,which costs are taken into account in determining KPMG's standard billing rates and certain transaction charges which may be charged to clients. _PRICEWATERHOUSE(COPERS To the Partners of KPMO LLP ond the Cemer for Public Company Accounting Firras Poor Roview Committee: We have reviewed the system of quality control for the accounting ad auditing peectien ofKPMGLLP(the firm)applicableto non-SECissuersin effectforthe yeer ended Merch 31,2005.The fiers woccurking and audiing practice spplicable ts SEC fesuers wes not reviewed by ussincethePubticCompanyAcceumingOvertightBoard(PCAOB)is cesponsible for inspactingthetportionofthefinn's eccounting and wuditing practice in accosdincs with PCAODrequiresnents,A systemofquality sontrol encompasses the firm's organizational strecture end thepoliciesedoptedandproceduresastablishedwoprovideitwithreasonablesssuranceofcomplyingwithprofessionalstandards.The efoments of quality convol ure desorbed in the StatementsonQuatttyControlStandardsIssuedbytheAmericanInstituteofCertifiedPublicAccountants(theAICPA).The design of the system,and compliance with it,are the responsibilities of the firm.Our responsibility is to express an oplnion on the dexigy of the system,and the firm"5 compliancewilhthatsystembssedonourreview, Our review was conducled io accordance with standards established by io Peer Review Commitee of the Center for Pablic Compmay Audit Firms acd included procedures to plan andperformtherevicwthataresummarizedintheanacheddescriptionofthepeerreviewprocess, Our review would aor necassarily disclose al!weaknesses in the system of quality contro!or all instances of lack of comptiance with it since kc was based on seloctive Msts,Breesuse there arc inhesent limitations In the effestiveness of any systom of quality control,departures from thesystemmaycoourendnotbedetected.Also,projection of any evehuation ofa system of qualitycontroltofatureperiodsissubjecttotheriskthatthesystemofqualityconisolmaybecomeinadequatebecauseofchaagesinconditions,of thai the degree of comptiance with the poticies o¢procedhires may deteriorate. in our opinion,the system of quality control for the accounting and auditing practice of KPMGLLPineffectfortheyeurendedMayth31,2005,has bcon dcsipeed to mee the reqeirements ofthequofitycontro!staniderds for an accounting and auditing,preetice establidtied by the AICPA.and was complied with during ifs year then ended to provide the firm with ressonable assuranceofcomplyingwithprofessional)standards. As is customary in a peer review,wo have issued a etree under this date thas sets forth commentsrelatingtocertzinpoliciesandproceduresofcompliancewiththem.The maiters descrfbed in theletterwerenotcomidzredtobeofsufficientsignificantetosffeattheopinionexprostedinthis report, Printi then Coopers uP March |,2006 Attachment1 PRICEWATERHOUSH(COPERS March 1,2006 To the Partners of KPMG LLP and the AICPA Center for Public Company Accounting Firms PeerReviewCommittee: We have reviewed the system of quality control for the accounting and auditing practice of KPMGLLP(the firm)applicable to now-SEC issuers in effect for the year ended March 31,2005,and haveissuedovrreportthereondatedMarch1,2006,The matters described below were not considered to beofsufficientsignificancetoaffecttheopinionexpressedinthetreport,which should be read inconjunctionwiththisletter. Engagemest PerformanceComment:The firm has policies to ensure that the firm's internal spectalists are appropriately involvedintheauditprocessandthatthespecialists'involvement in the audit is appropriately coordinated.However,the firm,in its internal inspection,and we noted instances where compliance with thesspolicieswasuctconsistentlyachieved,particularily as it related to the firm's incometexandinformationtechnologyspecialists'involvementintheaudit Some of thess instancesweredocumentationmatters,relating,for exempie,to the clarity of the description of the work performed orhowthatworkwasintogratedwithintheoverallauditapproach.In addition,we noted Instances wheresomeorailofthestepswithintheincome-tax-specific audit program were not performed. Through discussions with engagement personnel and the review of other documentation on thsengagementsthatledtothiscomment,we were satisfied that the extentofthe specialists'nvoivementwasappropriateandthattheindividualmattersnotedwerenotsignificantwhenconsideredinthecontextofallauditworkperformedintheareaand/or within the context of the audit taken as a whole. Recommendation:Firm leadership should reinforce the importance of the coordination of audit effort when internal specialists such es tax and information technology specialists are involved in the engagement,and consider implomenting additional puidance and/or practice aids that would facilitate compliance with firm poficies in these areas,' Comment;Consistent with applicable professional standards,firm policies require that documentation be prepared and included in the working papers capturing the procedures performed and conclusions reached on each engagement.However,the firm,in its Internal inspection,and we noted that compliance with these policies was not achieved in some instances.Through discussion with engagement personnel and the review of other documentation on the engagements that led to this comment,we were satisfied that the andit procedures were performed at the appropriate time,but notcompletelydocumented.Similar instances of incomplete documentation were noted in our 2002 peer review. Recommendation:We recommend that the firm reinforce its expectation that documentation fully comply with professional standards end consider additional guidance or practice aids designed to improve compliance. Comment;The firm has financial statement presentation sod disclosure checklists thet are required tobecompletedpriortoissuinganauditreport.However,the firm,in its intemal inspection,and wenotedinstanceswhereitemswithinthefinancialstatementsweremisclassifiedandwhererequireddisclosureswereomittedorincomplete.We were ultimately satisfied that the financial statement presentation and disclosure matters were not significant in the context of the financial statements taken asa whole.Similar instances of incomplete disclosure were noted in our 2002 peer review. Recommendation;The importance of fully and accurately completing the firm's financial stateraentpresentationanddisclosurechecklistsshouldbervinforced.In addition,the firm should consideractionsnecessarytoensureconsisteatexecutionwhencompletingthefinancialstatementpresentationanddisclosurechecklistsandeffectivereviewbyengagementteammembers. Conunant;The firm has policiesandguidances materials for employee benefitpl(EBP)engagementsdesignedtoensurecompliancewithgenerallyacceptedauditingstanderds.The matters related todocumentationanddisclosuredescribedabovewerealsopreseattosomedogreeinthesampleofEBPengagementsthetthefirm,in its internal inspection,and we reviewed.In addition,instances werenotedwheresubstantiveauditprocedures,including testing of investments,payrolf and benefitpayments,end clalm payments in health and welfare plans,were insufficient,in certain instances,additional work was warranted.; Recommendation:We recommend additional training for professionals performing EBP audits,with specific attention to the nature and extent of substantive testing.We also believe that the firm would benefit by enhancing guidance for testing claim payments in health and welfare plans, Monitoring Comment:While EBP engagements do not comprise a significant portion of the total hours within thefirm's accounting and auditing practice overall,the firm audits a large number of plana.The firm does not maintsin a national inventory or cther comprehensive listing of these engagements.Such an inventory is important to the firm's ability to (i)identify risks,(ii)allocate appropriate resources and (iii)monitor its EBP practice. Recommendation,We recommend that the firm compile and maintain a national inventory of its EBPengagementsthatincludesinformation(plan type,audit scope,engagement team information,etc.) permitting effective monitormg of the practice. Pricewsthouee Coopers LLF KPMG LLP Ta eminne §=712 756 INNO Bab Fork Avorius Fux 212 756 9Bld Nays fors,NY *0:54 favener saree is bptK SOFT March 1.2406 Center fur Public Company Accounting Firms Peer Review Catnmittee - ofo American Institute of Certified Public Accountants flarborside Financial Center 201 Plaza Three Jersey City,NJ U7ITL-388L Ladies and Gendemen: This letter reprerents our response to the letter of comments issued in.connection with our finn's accounting and auditing practice peer review for the year ended March 31,2605,and should be read im Conjunction with that letter. The finn has issued a convzounication to aff of its professionals emphasizing the need to te-focuy oncertainauditfundamentals,The basis for this communication included observations by Pricewaterhouset 'oopers LLP comununicated in conjunction with us peer review,observations by ibe Public Company Accounting Oversight Board (PCAOB)communicated in conjunction with its mspection,and the results of our nvernal quatiry review program.In addition,our Deparment of Professivtial Practice (PPP)haa established a Quality Review Action Items Working Group sesponsible for the identification.communication and implementation of action items to address observahons and results neted during the aforementioned internal and external inspections., Frngagemeni Performance Pusing 2005,we mace enhancements in our global aude methodology and related methodology forts.The principal alyective of these enhancements was tm advance the usability of our audit mahadolegy hy providing a mon:intuitive aud work stream and.in doing so,enhance audit quality and compliance with apphealle professional slundards.-In additton,these cevised mohodulogy inals were designed to improve an engavemunt team's audit documentation retated ro execution of an sudit in accordance with applicable professional standards.Compliance with the enhanced audit methodology,including use of the related methodology touls.is mandatory for 2005 calendar yearend audit cngasements' PPR Ieo 2 oe Rok ow Sra Sees ee pp BeetseteSonePeeByereyattategeyeSmo tom 8 te On eRe ne ree on be bhchs March |,2006 Pause 2 The effective execuhon of audit engagements through use of the enhanced methodology tools served as the basis of the firm's core trang programs held throughout 2005.Throughout the remainder of 2006,we will continue to emphasize auditor performance implications of intemal and extemal inspection findings a3 nceded in our training programs.We are commitied to ensuring that tecdback we receive as a result of internal and extemal inspections 1s leveraged to the greatest catent possible and recognized as a critical element of continueus improvement in our audit practice. Regarding income taxes,the inns issucd additional polwies and guidance requiring added audit parmer review responsibilities and enhanced documentation requicements of the audu procedures performed related to the audit of income mxes.In addition,we have undertaken two additional initiatives intended to improve perlormance in the area of auditmg income taxes.First,we enhanced our In-Flight Income Tax Review Program,which,in selected instunces,provides for an addwonal timely review of relevam income Gex-rclaicd audit dotwmentaiion developed in completmy a financial siatemenc audit.Second,we implemented a Supplemeatat Income Tas Quahty Review Proyram,which expands the scope of our miemal quality review program relative te the audit of meome taxes., Reyarding the mvolvement of information Risk Manegemant (LRM)technology specialists,the finn conununicated additional guidance intended to :mprove planning for and cuerdinating use of these specrtinns when executing a financial staement audit.This additional guidance speciltically aldresseit documentation and review prectices associated with the involvement of IRM specialises MT iey aude:EngapeMment, The fires will conlinuy to emphasize our requirements and guidance related to the completeness and- accuracy af adit documentation.majudina the woporiance of timely and thorough review of matters related tu financel siatemient presentatwm.imchaling proper use and completion of aur disehasure cheeklists,We fundamentally beheve thor yood audit documentabhon drives appropriate audiive hese,asl we are cormnilicd to casarunt that our professionais fully comply with the apobenbte professianal srindards rehotive lo audi documentation. The fim bos taken veps to sucengthen is gaining @aneuhim related to its employee benefits plan ahd orivtive,and has established ommiim employes benefit plan-relared training requirements March £,2006 Page } for (huss professionals involved with employee benefit plan audits.In addition,ihe performance of sufficient substantive audit procedures in the conduct of an employee benefit plan audit will beaddvessedduringour2006employeebenefitplanauditwainingsessions.The firm also implemented a policy requiring that the concurring review for all health and welfare benefit plan audits be perlormned by a designated health and welfare benefit plan specialist,commencing with calendar 2004 plan yearend audits,and is considering expanding the scope of the concurringreviewforatlotherempluywebenefitplanauditstaincludeadditionalauditdocumentation,Also,we are reviewing our guidance related w employee bencfit plan audits,including guidance relative 19 testing claim payments in healih and welfare plans.to determine whether and to what extent additional guidaney may be warranted.In additian,we considered our responsibilities pursuant [0 the appticuble professionnl standards and performed addivonal audit procedures if considerednecessary Monitoring The firm is considering alternative methods of compiling and maintaining a master ventory of all crmlovee benefit plan sudit engagements. *»a a * Implementation of the actions set forth in this lene will he montred by the Quality Review Acnon lems Working Group and our professional practice parmers.and will receive special emphasis during our next annual Quality Performance Review Program. -iKPMc uP Attachment 2 Koy "IDEN.fs AKAtdFupeeeoeanonyee October 22,2009 KPMG LLP 701 West 8"Avenue Sulte B00 Anchorage,AK 99501 Ladies and Gentlemen: We are providing this letter in connection with your audits of the balance sheets of AlaskaEnergyAuthority(a component unit of the State of Alaska)(the Authority or AEA),as of and fortheyearsendedJune30,2009 and 2008,and the related statements of revenues,expensesandchangesinnetassetsandcashflowsfortheyearsthenendedforthepurposeofexpreesingopinionsastowhetherthebasicfinancialstatementspresentfairly,in all material respects,the financlal position of the Authority and the respective changes in financial positionandcashflows,where applicable,in conformity with U.S.generally accepted accounting principles.We confirm that we are responsible for the fair presentation in the basic financial statements of financial position,changes in financial position,and cash flows in conformity withU.S.generally accepted accounting principles.We are also responsible for establishing and maintaining effective intemal contro]over financial reporting. Further,we understand that the purpose of your testing of transactions and records from the Authority's federal programs (4-133 audit}was to obtain reasonable assurance that theAuthorityhascomplied,In all material respects,with the requirements of laws,regulations,contracts,and grants that could have a direct and material effect on Its major federal programsfortheyearendedJune30,2008. Certain representations in this letter are described as being limited to matters that are material.Items are considered material,regardiess of size,if they involve an omission or misstatement ofaccountingInformationthat,in the light of surrounding circumstances,makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced bytheomissionormisstatement. We confirm,to the best of our knowledge and bellef,the following representations made to you during your audits: 1.The financial statements referred to above are fairly presented In conformiy |with U.S.generally accepted accounting principles. 2,We have made available to you: 813 West Northem Lights Boulevard ©Anchorage,Alaska 99503-2495 www.aidea.org ¢907/771-3000 ©FAX 907/771-3044 ®Toll Free (Alaska Only)888/300-8534 ©www.akenergyauthorlty.org KPMG LLP October 22,2009 Page 2 a.AB financial records and related data. b.All minutes of the mocstings of the Board of Directors,or summaries of actions of recent meetings for which minutes have not yet been prepared. 3.Except as disclosed to you in writing,there hava been no communications from regulatory agencies conceming noncompliance with,or deficiencies in,financtal reporting practices. 4,There are no: a.Violations or possible violations of lews or regulations,whose effects should beconsideredfordisclosureinthefinancialstatementsorasabasi«for recording a iosscontingency. b.Unasserted claims or assessmentsthatourlawyers have advised us are probable ofassertionandmustbedisclosedInaccordancewithStatementofFinancial Accounting Standards (SFAS)No.5,Accounting for Contingancies. c.Other liabilities or gain or joss contingencies that are required to be accrued or disclosed by SFAS No.5. d.Material transactions,for example,grants and ofher contractual amangements,that have not been properly recorded in the accounting records undertying the financial statemenis. e.Events that have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the basic financial statements. 5.There are no uncorrected financial statement misstatements that are material,either individually or in the aggregate,fo the basic financial statements. 6.We acknowledge our responsiblity:for the design and implementation of programs andcontrolstoprevent,deter,and detect fraud.We understand that the term "fraud”includes misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets, 7.-We have no knowledge of any fraud or suspected fraud affecting the entity involving: a.Management Attachment 2 KPMG LLP October 22,2008 Page 3 b,AIDEA staff,working for AEA,who have significant roles in infernal contro!over financial reporting,or c.Others where the fraud could have a material effect on the financial statements. 8.We have no knowledge of any allegations of fraud or suspected fraud affecting the entityreceivedincommunicationsfromemployees,former employees,regulators,or others. 9.The Authority has no plans or Intentions that may materially affect the carrying value or Classification of assets and liabilities. 10.We have no knowledge of any officer or member of the governing board of the Authority,or any other person acting under the direction thereof,having taken any action to fraudulentlyinfluence,coerce,maniputate,or mislead you during your audit. 11.The following have been properly recorded er disclosed in the financial statements: a.Related party transactlons including sales,purchases,loans,transfers,leasing arrangements,guarantees,ongoing contractual commitments,and amountsreceivablefromorpayabletorelatedparties.; b.Guarantees,whether written or oral,under which the Authority is contingently liable. c.Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances and lines of credit or similar arrangements. d.Agreements to repurchase assets previously sold,Including sales with recourse. e.Changes in accounting principle affecting consistency. f.The existence of and transactions with joint ventures and other related organizations. 12.Capital assets,Including infrastructura assets,are properly capitalized,reported and,ifapplicable,depreciated.There are no liens or encumbrances on such assets nor has any asset been pledged as collateral,except as disciosed in the notes to the basic financial statements. Attachment 2 KPMG LLP October 22,2009 Page 4 13. 14. 15. 16. 17. 18. 19. The Authority has complied,In all material respects,with applicable laws,regulations, contracts,and grants that could have a material effect on the financial statements In the event of noncompliance. The Authority is responsible for identification of compliance with the laws,regulations, contracts,or grants that could have a material effect on the basic financial statement amounts in the event of noncompliance including legal and contractual provisions for reporting specffic activities in separate funds and has disclosed those aspects of laws,regulations,contracts or grants to you. The Authority,in the normal course of Its activities,is involved in various claims and pending fitigation,the outcome of which is not presently determinable.In the opinion of managernent,the disposition of these matters is not presently expected to have @ material adverse effect on the Authority's financial statements. The Authority hes identified and property accounted for all nonexchange transactions. There are no significant deficiencies,or material weaknesses in the design or operation ofinternalcontroloverfinancialreportingofwhichweareaware,which could adversely affecttheAuthority's ability to initiate,authorize,record,process,or report financial data.We have applied the definitions of a "significant deficiency”and a "material weakness”inaccordancewiththedefinitionsinStatementonAuditingStandardsNo.115, Communicating intemal Control Related Matters identified in an Audit. Receivables reported in tha financial statements represent valid clalms against debtors arising on or before the date of the balance sheet and have been appropriately reduced to their estimated net realizable value. The Authority beKeves the allowance for loan losses of $1,052,000 is adequate to absorb the losses In the loan portfolio as of June 30,2009, The following information about financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk has been properly disclosed in thefinancialstatements: a.Extent,nature,and terms of financial instruments with off-balance-sheet risk: b.The amount of credit risk of financial instruments with off-balance-sheet credit riek,and mformation about the collateral supporting such financial instruments;and Attachment2 KPMG LLP October 22,2009 Page 5 21. 28. c.Significant concentrations of credit risk arising from all financial instruments andInformationaboutthecollateralsupportingsuchfinancialinstruments. The Authority is responsible for determining the fair value of certain investments as required by GASB Statement No.31,Accounting and Financial Reporting for Certain fnvesiments and for External investment Pools.The amounts reported represent the Authority's best estimate of fair value of investments required to be reported under theStatement.The Authority also hae disclosed the methods and significant assumptionsusedtoestimatethefairvalueofitsinvestments,and the nature of investments reported atamortizedcost. We believe that all material expenditures thal have been deferred to future periods will be recoverable. Deposits and investment securities are properly classified and reported. The Authority has no: a.Commitments for the purchase or sale of services or assets at prices Involving material probable loss. b,Material amounta of obsolete,damaged,or unusable items Included In the inventories at greater than salvage values., Expenses have been appropriately classified in or allocated to funciiona and programs In the siatament of revenues,expenses,and changes In nat assets,and allocations have been made on a reasonable basis. Revenues ara appropriately classified in the statement of revenues,expenses andchangesinnetassets. The basic financial statements disclose all of the matters of which we are aware that are relevant to the entity's ability to continue as a going concam,including significant conditions and events. The Authority has identified and made the appropriate disclosures for all derivativa instruments not reported at fair value in the financial statements In accordance with GASB Technica!Bulletin 03-1,Disclosure Requirements for-Derivatives Not Reported at Fair Value on the Statement of Net Assets. Attachment 2 KPMG LLP October 22,2009 Page 6 29. 36, 37. We have received opinions of counsel upon each issuance of tax-exempt bonds that theinterestonsuchbondsisexemptfromfederalincometaxesundersection103oftheIntemalRevenueCodeof1986,as amended.There have been no changes in the use of property financed with the proceeds of tax-exempt bonds,or any other occurrences ofwhichweareaware,subsequent to the Issuance of such opinions,that would jeopardize the tax-exempt status of the bonds.Provision has been made,where material,for the amount of any required arbitrage rebate. We have disclosed to you ail accounting policies and practices we have adopted that,ifappliedtosignificantitemsortransactions,would not be in accordance with U.S.generally accapied accaunting principles (GAAP),We have evaluated the Impact of the application of each such policy and practice,both Individually and In the aggregate,on the Authority's current basic financial statements,and the expected impact of each such policy and practice on future periods'financial!reporting.We believe the effect of these policies andpracticesonthefinancialstatementsIsnotmaterial.Furthermore,we do not believe the impact of the application of these policies and practices wil be material to the basic financial staternents in future periods. .The financial statements properly classify all funds and activities. Net asset components (invested in capital assets,net of related debt;restricted;and unrestricted)are property classified and,if applicable,approved. .The Authority has complied with all debt limits and with all debt related covenants. The Authority has presented all required supplementary Information.This information has been measured and prepared within prescribed guidelines. The Authority has complied with all applicable laws and regulations in adopting,approvingandamendingbudgets. Alt funds that meet the quantitative criteria in GASB Statement No.34 for presentation as major are identified and presented as such,and all other funds that are presented as major are considered to be particularly important to financial statement users by management. Interfund,internal and Intra-entity activity and balances have been appropriately classified and reported. Special and extraordinary items are appropriately classified and reported. 39, 41. 42. 43. Attachment 2 KPMG LLP October 22,2009 Page 7 The Authority Is responsible for complying,and has complied,with the requirements ofOMBCircularA-133. The Authority has prepared the schedule of expenditures of federal awards in accordance with the requirements of OMB Circular A-133 and has included all expenditures made during the year ended June 30,2009 for all awards provided by federal agencies in the form of grants,federal cost-reimbursement contracts,loans,loan guarantees,property(including donated surplus property),cooperative agreements,interest subsidies, insurance,food commodities,direct appropriations,and other assistance. The Authority Is responsible for complying,and has compiied,with the requirements oflawsandregulations,and the provisions of contracts and grant agreements related to each of its federal programs.The Authority has disclosed to you any interpretations of anycompliancerequirementsthathavevaryingintespretations, The Authority is responsible for establishing and maintaining,and has established and maintained,effective Internal control over compliance for federal programs that provides feasonable assuranca that federal awards are administered in compliance with laws, regulations,and the provisions of contracts or grant agreements that could have a material effect on a federal program. There are no significant deficiencies and material weaknesses In the design or operation ofinternalcontrolovercompilancethatwehaveidentifiedwhichcouldadverselyaffectthe Authority's ability to administer a major federal program in accordance with the applicablerequirementsoflaws,regulations,and the provisions of contracts and grant agreements. Under standards established by the American Institute of Certified Public Accountants,a "contro!deficiency”in an entity's internal control over compilance exists when the design oroperationofacontroldeesnotallowmanagementoremployees,in the normal course ofperformingthelrassignedfunctions,to pravent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis,A "significant deficiency” is a control deficiency,or combination of contro)deficiencies,that adversely affecta the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's Intemal contro.A "material weakness”fs a significant deficiency,or combination of significant deficiencies,that results in more than a remote likelitcod that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's intemal control. We acknowledge our responsibility for the design and implementation of programe and controls to prevent and detect fraud In the adminiatration of federal programs.We have no Knowledge of any fraud or suspected fraud affecting the entity's federal programs involving: 45. 47. 49, 51. Attachment2 KPMG LLP October 22,2009 Page 8 a.Management,including management Involved in the administration of federal programs. b.AIDEA staff,doing work for AEA,who have significant roles in Internal control over the adminletration of federal programs, c.Others where the fraud could have a material effect on compliance with laws and regulations,and provisions of contract and grant agreements related to its federal programs. The Authority has identified and disclosed to you the requirements of laws,regulations,and the provisions of contracts and grant agreements that are considered to have a directandmaterialeffectoneachmajorfederalprogram. The Authority has made available all contracts and grant agreements (including amendments,If any)and any other correspondence with federal agencies or pass-throughentitiesvalatedtomajorfederalprograms. The Authority has identified and disclosedto you all questioned costs and any knownnoncompliancewiththerequirementsoffederalawards,including the results of otherauditsor'program reviews. The Authority has made available all documentation related to the compliancerequirements,including information related to federal financial reports and claims for advances and reimbursements for major federal programs. The Authority is in compliance with documentation requirements contained In OMB Circular A-87,"Cost Principles for State,Local and Tribal Governmerts”for all costs charged to federal awards,including both direct costs and Indirect costs charged through cost allocation plana or indirect cost proposals.Costs charged to federal awards areconsideredallowableundertheapplicablecostprinciptescontainedinOMBCircularA-87. The federal financial reports and claims for advances and reimbursements are supported by the accounting records from which the financial statements have been prepared. The copies of federal financia!reports provided to you are true copies of the reports submitted,or electronically transmitted,to the federal agency or pase-through entity,as applicable. KPMG LUP October 22,2009 Page 8 52.The Authority is responsible for,and has accurately prepared,the summary schadule ofpriorauditfindingstoincludeallfindingsrequiredtobeIncludedbyOMBCircularA-133. Sincerely, Alaska Energy Authority GigE Executive Director Ne Sete 2 Oe QO@en Valorie F.Walker Deputy Director-Finance . .ENERGY AUTHORITYFEWindportauthorem MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Steve Haagenson gut Executive Director DATE:November 9,2009 SUBJECT:AEA Resolution 2009-04 Authorization to Executive Director regarding final decisions and appeals. The Alaska Energy Authority (the "Authority”)adopted regulations ("Regulations”),effective October 16,2009,which includes,among other matters,authorization for (1)interested parties to protest the Authority's award of a contract,proposed award of a contract,or a solicitation by the Authority for supplies,services,professional services,and construction not subject to AS 36.30;(2)persons with claims against the Authority under a contract not subject to AS 36.30 or under a grant agreement to submit their claims to the Authority;and (3)for protesters or claimants to appeal decisions. The Regulations also provide that appeals by protesters or claimants will be made to the Board of Directors of the Authority,unless the Board authorizes the Executive Director to make final decisions for the Authority,in which case appeals will be made to the Executive Director.AEA Resolution 2009-04 provides this Board authorization to the Executive Director to make final decisions so that appeals will be made to the Executive Director rather than to the Board of Directors. Staff recommends approval of AEA Resolution 2009-04. 813 West Northern Lights Boulevard *Anchorage,Alaska 99503-2495 ALASKA ENERGY AUTHORITY RESOLUTION NO.2009-04 RESOLUTION OF THE ALASKA ENERGY AUTHORITY AUTHORIZING THE EXECUTIVE DIRECTOR OF THE AUTHORITY TO MAKE FINAL DECISIONS AND RECEIVE APPEALS UNDER 3 AAC 108.910,3 AAC 108.915 AND 3 AAC 108.920 REGARDING PROTESTS,CLAIMS AND OTHER ACTIONS WHEREAS,the Alaska Energy Authority (the "Authority”)adopted regulations ("Regulations”)that became effective October 16,2009; WHEREAS,the Regulations included the repeal and re-adoption of 3 AAC 108.910 which authorizes interested parties to protest the Authority's award of a contract, proposed award of a contract,or a solicitation by the Authority for supplies,services, professional services,and construction not subject to AS 36.30; WHEREAS,the Regulations included the adoption of 3 AAC 108.915 which authorizes persons with claims against the Authority under a contract not subject to AS 36.30 or a grant agreement,to submit their claims to the Authority; WHEREAS,3 AAC 108.910 and 3 AAC 108.915 each require the procurement officer of the Authority to issue written decisions on a protest or claim; WHEREAS,the Regulations included the adoption of 3 AAC 108.920 which authorizes a protester under 3 AAC 108.910,a claimant under 3 AAC 108.915,or a protester dissatisfied with other action of the Authority to appeal the decision of the Authority; WHEREAS,3 AAC 108.920(a)provides that the appeal of the decision of the Authority is made to the Board of Directors of the Authority unless the Board of Directors has authorized the Executive Director to make the final decision of the Authority,in which case the appeal of the decision of the Authority is made to the Executive Director; WHEREAS,it is in the public interest and in the best interests of the Authority that the Board of Directors authorize the Executive Director to make the final decision of the Authority and receive any appeal from a protester under 3 AAC 108.910,a claimant under 3 AAC 108.915,or a protester dissatisfied with other action of the Authority. NOW,THEREFORE,BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.The Board of Directors of the Authority authorizes the Executive Director to make the final decisions of the Authority under 3 AAC 108.920 regarding appeals from a protester under 3 AAC 108.910,a claimant under 3 AAC 108.915,or a protester dissatisfied with other action of the Authority. Section 2.The Executive Director of the Authority is authorized and empowered to take any and all actions appropriate and consistent with this Resolution. DATED at Anchorage,Alaska,this 9th day of November,2009. Chairman (SEAL) ATTEST Secretary ALASKA ENERGY AUTHORITY Alternative Energy and Energy Efficiency Program Overview Alaska Energy Authority's (AEA's)Alternative Energy and Energy Efficiency (AEEE)program currently manages and funds projects and initiatives totaling $157 million in state and federal funding.Activity substantially increased after AEA launched the Renewable Energy Fund.An AEEE update is available on AEA's website at www.akenergyauthority.org Program Description The AEEE program promotes the use of renewable resources as alternatives to fossil fuel-based power and heat,and measures to improve energy production and end use efficiency.In rural areas the program may support developing local sources of coal and natural gas as diesel alternatives.The AEEE program is divided into eight separate program areas: Alaska Energy Inventory (cooperative project of AEA and Alaska DNR)is compiling renewable and fossil resource data, energy supply and usage,and other information useful for energy planning and development. Biomass Energy Program develops projects using wood,sawmill residue and municipal wastes for energy;tests air emissions and performance of fish oil and diesel blends as fuel;assesses the viability of recovering fish oil from fish processing wastes. Diesel Generation Efficiency Program provides assistance in developing projects that use high efficiency generators and recover "waste heat”from diesel generators. End Use Efficiency (Conservation)Program has completed 40%of a project upgrading lighting and heating efficiency in over 150 schools and other facilities in 50 villages;is conducting energy audits;working with Alaska Housing Finance Corporation to develop statewide efficiency policy recommendations and demonstrate impact of aggressive,village-wide measures in Nightmute. Geothermal Program supports projects such as the Chena Hot Springs power plant;organizes workshops and training sessions;coordinates state assistance in developing other potential projects such as Mt.Spurr on the Railbelt and Makushin in Unalaska. Hydroelectric Program provides technical assistance through staff and contractors for hydro feasibility assessment; manages public funding for project construction. Ocean and River Energy Program evaluates technology and feasibility of converting wave motion,tidal and river flow into power in partnership with Alaska utilities and Electric Power Research Institute. Wind Program assists utilities and communities in resource evaluation,training,environmental assessment,regional development,conceptual design and economic feasibility of rural wind-diesel systems;assists with Railbelt wind integration studies. Funding AEA's alternative energy program has received funding since the early 1980s from the US Department of Energy (USDOE) and more recently from the Denali Commission and the EPA.Under the Renewable Energy Fund,AEA is providing $125 million in grants for 107 projects.In June 2008,AEA and the Denali Commission offered $7.5 million in grants for 37 projects.The Energy Cost Reduction RFP,an earlier program,has provided $8.4 million in grant funds to match $12.4 million in local funds for projects that are displacing or will displace 1.4 million gallons per year of diesel and equivalent natural gas.For more detail,see the AEA's Biennial AEEE Assistance Plan on the AEA website. Reviewed October 2009 ALASKA ENERGY AUTHORITY Bulk Fuel Program Current Status In 2008,AEA completed bulk fuel upgrades in Tyonek,Ruby and Pilot Point.A pipeline project in Newtok was completed in 2009.Nine bulk fuel projects are in the design process,and five are in construction in 2009. Program Description The goal of Alaska Energy Authority's (AEA)Bulk Fuel program is to upgrade non-compliant bulk fuel facilities in communities that meet program criteria.Upgrading bulk fuel facilities reduces the cost of energy by reducing or eliminating fuel loss from leaks and spills.In addition,by providing enough capacity for current and planned needs,communities may purchase fuel in larger quantities at a lower cost per gallon. Alaska's remote communities rely on diesel fuel storage for heating and power generation.Many of the bulk fuel storage facilities were constructed in the 1970's or earlier.Some of these facilities are at the end of their design life and do not comply with state and federal codes and regulations.Some have tanks,pipes and other equipment that leak fuel.Regulatory agencies may prohibit fuel deliveries to these facilities.Communities often do not have funds for replacing these storage facilities. Since 2000,the Denali Commission has provided funding to replace community bulk fuel facilities.Due diligence is carried out to ensure that project participants meet Denali Commission and AEA sustainability standards.Participants sign a Business Operating Plan.The Business Operating Plan lays out the existing fuel facility organizational structure,the qualifications of responsible people,AEA required training,and estimated operation and maintenance costs.The plan also includes the establishment of a repair and replacement fund so that when equipment fails,the community will have the resources and savings to repair or replace it. Program Progress The bulk fuel program receives most of its funding through the Denali Commission.Funding increased substantially in 2000 when the Denali Commission started to fund bulk fuel projects.A total of 21 tank farm projects were completed prior to 2000.As of December 2008,an additional 65 communities have been completed for a total of 86.Approximately 32 communities have not received upgrades. Depending on funding,three to six communities are receiving upgrades per year. Reviewed October 2009 ALASKA ENERGY AUTHORITY Circuit Rider Program Current Status This year the Circuit Rider program has helped Akiak,Chefornak,Chignik Bay,Chignik Lake,Chignik Lagoon,Kwigillingok,Koyukok and Manoktak. Program Description The purpose of the circuit rider maintenance program under 3 AAC 108.200 -3 AAC 108.220 is to assist eligible utilities to improve the efficiency,safety,and reliability of power systems and reduce the risk and severity of emergency conditions or emergency disruptions in the operation of community power systems,by providing training,consultation,on-site assistance with maintenance and minor repairs and other related technical assistance. The ability a community has and the methods it uses to maintain and operate its powerhouse have a significant impact on efficiency.Keeping diesel generation systems operational and maintained has a direct influence on the energy produced for each gallon of diesel fuel consumed.Operator training, spare parts availability,automatic system monitoring,data trending and data analysis along with prompt maintenance and repair are key factors in keeping reliability,efficiency and performance high. The Circuit Rider Program provides technical assistance to help rural utilities with the operation and maintenance of their electrical generation and distribution system.The Circuit Rider Program is administered by the Alaska Energy Authority (AEA)and is available to all eligible electric utilities.Electric utilities participating in this program will receive support services from AEA depending on the availability of funding. e AEA makes visits to eligible electric utilities based on need over the course of the year to provide training and provide recommendations concerning operations and routine maintenance activities.There is no charge to the utility for these services. e The Circuit Rider program does not provide funding for major repairs or reconstruction of electrical systems. e The participating utility's power plant operator and/or other utility staff must be available for training and consultation during the time of the Circuit Rider visit.Power plant operators will be required to maintain written performance logs in between Circuit Rider visits. e Services under the Circuit Rider program are limited to village electric utilities with a demonstrated need for assistance with preventative operations and maintenance activities, utility training and emergency prevention.The program is not intended to serve electric utilities that have sufficient financial and technical resources to perform routine operations and maintenance activities. Program Progress The need for Circuit Rider service outstrips the available resources each year.A State Senate Resources and Energy Committee Draft Summary recommended an increase in funding for the Rural Power Systems Technical Assistance program to enable AEA to serve more communities. AEA has successfully filled the previously vacant maintenance position for the Circuit Rider Program.We welcome Shannon Allex to AEA. Reviewed October 2009 ALASKA ENERGY AUTHORITY Emergency Response Program Current Status AEA assisted several communities in 2009.Major responses include: e Stevens Village during Spring break-up; e Kipnuk's unexpected major equipment failures; e Kobuk to Shungnak tieline. Program Description The Emergency Response program provides on-call,as-needed emergency action response to mitigate extended power outages and electrical hazards that present imminent threat to life or property.This program is designed to respond to an emergency or potential emergency situation before disaster or major loss occurs.It provides funding for continuance of government activities.It allows for procurement of manpower,materials and equipment for emergency response to electrical generation and distribution system emergencies and disasters in Alaska. Program Progress Emergency response is provided on an as-needed basis only.Well-managed utilities with adequate technical and financial resources are not candidates for these services. Besides helping rural communities,AEA works with State and Federal agencies on an as-needed case by case basis to resolve electrical generation and distribution system emergencies throughout Alaska. AEA is currently in discussions with the Department of Homeland Security regarding storage of some of their emergency response generators intended for Alaska. Reviewed October 2009 ALASKA ENERGY AUTHORITY Loan Programs Power Project Fund (PPF) Number of loans:47 Outstanding portfolio balance:$26,775,690 Committed &un-disbursed funds:S 5,213,092 Uncommitted funds:S 5,170,444 As of September 30,2009,there was one loan past due 90 days or more in the amount of $215,000.This was 0.008 percent of the outstanding portfolio balance. Program Background:The PPF program provides loans to local utilities,local governments or independent power producers for the development or upgrade of electric power facilities,including conservation,bulk fuel storage and waste energy conservation.The loan term is related to the productive life of the project,but cannot exceed 50 years.Interest rates vary between tax-exempt rates at the high end and zero on the low end.This rate is equal to the percentage that is the average weekly yield of municipal bonds for the 12 months preceding the date of the loan commitment. Bulk Fuel Revolving Loan Fund (BFRLF) Number of loans:34 Outstanding portfolio balance:S 4,257,110 Committed &un-disbursed funds:S 5,750,351 Uncommitted funds:§5,291,792 As of September 30,2009,there were no loans past due 90 days or more. Program Background:The purpose of the BFRLF program is to assist communities,utilities or fuel retailers in small rural communities in purchasing emergency,semi-annual or annual bulk fuel supplies. Loans are for the purchase of new fuel.Loans are not provided for fuel already purchased,in the process of being used or already consumed.The Alaska State Legislature appropriated an additional $5.5 million to this revolving loan fund in August 2008. Revised October 2009 ALASKA ENERGY AUTHORITY Power Cost Equalization Program Current Status The original FY 2009 PCE appropriation was $28,160,000.00.During a summer 2008 special session,the Legislature guaranteed full funding of the program and appropriated up to an additional $23,000,000 for FY 2009. Effective October 1,2008,the power cost for which PCE is paid (the "ceiling”)was raised from $.525 to $1.00 for the remainder of FY 2009.The enactment of SB88 into law extended the sunset for the $1.00 cap indefinitely.Effective with the first billing period of FY 2010,the base rate was also raised from $0.1283 to $0.1412.As of October 30,2009,the estimated program cost for FY 2010 is $36.16 million. Program Description The goal of Alaska Energy Authority's (AEA)Power Cost Equalization program is to provide economic assistance to customers in rural areas of Alaska where the kilowatt-hour charge for electricity can be three to five times higher than the charge in more urban areas of the state.PCE only pays a portion of approximately 30%of all kWh's sold by the participating utilities. PCE fundamentally improves Alaska's standard of living by helping small rural areas maintain the availability of communications and the operation of basic infrastructure and systems,including water and sewer,incinerators,heat and light.PCE is a core element underlying the financial viability of centralized power generation in rural communities. The Legislature established different functions for AEA and the Regulatory Commission of Alaska (RCA) under Alaska Statutes 42.45.100-170,which govern PCE program responsibilities. AEA determines eligibility of community facilities and residential customers and authorizes payment to the electric utility.Commercial customers are not eligible to receive PCE credit.Participating utilities are required to reduce each eligible customer's bill by the amount that the State pays for PCE. RCA determines if a utility is eligible to participate in the program and calculates the amount of PCE per kWh payable to the utility.More information about the RCA may be found at www.state.ak.us/rca PCE Endowment Fund The PCE Endowment Fund was created and capitalized in FY 2001 with Funds from the Constitutional Budget Reserve and the Four Dam Pool Project sale proceeds.The PCE Endowment Fund is an Alaska Energy Authority Fund managed by the Department of Revenue;it is invested to earn at least 7%over time.$182.7 million was appropriated to the fund in FY 2007.The deposit occurred in October 2006. AS 42.45.085 provides that 7%of the PCE Endowment Fund's 3 year monthly average market value may be appropriated to the PCE Rural Electric Capitalization Fund for annual PCE program costs.The total invested assets of the Fund on September 30,2009 were $331.8 million. nm Alaska Energy Authority Page 2 Power Cost Equalization Program PCE Statistical Report The Alaska Energy Authority produced and published its annual PCE Statistical Report for FY 2008.This report provides statistical data on the program for the fiscal year ended June 30,2008.Approximately 74,700 people living in 176 communities participated in the FY 2008 program.The FY 2008 appropriations allowed for PCE payments at 100%during the fiscal year,totaling approximately $28.2 million. The FY 2008 report may be found at:www.akenregyauthority.org Revised October 2009 ALASKA ENERGY AUTHORITY Renewable Energy Fund Overview The Alaska State Legislature created the $250 million Renewable Energy Fund (REF)in 2008,with the intent to appropriate $50 million annually for five years.This legislation placed Alaska at or near the forefront of the 50 states in funding for renewable energy.The Legislature authorized Alaska Energy Authority (AEA)to manage the REF project application process,project evaluations,recommendations, completion of grant agreements and disbursement of funds to grantees. Program Progress To jumpstart the program,the Legislature appropriated $100 million in 2008.Facing declining revenues from falling crude oil prices during the 2009 session,the Legislature appropriated $25 million.In the fall of 2008,AEA solicited applications for Round |and Round It grants.The response was significant.AEA received more than 230 applications requesting more than $760 million.AEA worked with the Renewable Energy Advisory Committee and conducted rigorous evaluations of all applications. Following AEA's recommendations,the 26"Legislature in the 2009 session approved 107 renewable energy projects totaling $125 million. For these 107 approved projects,60 grant agreements have been prepared;13 grant agreements are in process;20 grantees need to provide additional information and 14 projects require additional work by the grantee and AEA staff before a grant agreement can be prepared. Here is a sampling of Renewable Energy Fund projects around the state: e Falls Creek Hydroelectric,Gustavus.800 kW project expected to displace 117,000 gallons fuel per year.. e =Pillar Mountain Wind,Kodiak.4.5 MW project expected to displace 1,203,000 gallons fuel per year. e Juneau Airport Ground Source Heat Pump.Estimated to displace 29,500 gallons fuel per year. Unalakleet Wind.600 kW project estimated to displace 90,000 gallons fuel per year. North Pole Heat Recovery.Expected to displace 99,000 gallons fuel per year. Tok School Wood-Fired Boiler.Projected to displace 50,400 gallons fuel per year. In October 2009,AEA issued its request for Round Ill REF Grant applications.This application period closes at 5:00 PM,November 10,2009.AEA's goal for Round II!is to have the applications reviewed, ranked and scored by the end of December,with recommendations to the Legislature in January 2010. Created October 2009 ALASKA ENERGY AUTHORITY Rural Power Systems Upgrade Program Current Status Forty-two communities have benefited from powerhouse and distribution upgrades between calendar years 2000 through 2009.Eleven additional communities are currently undergoing construction upgrades or are scheduled in 2009-2010.Nine additional communities are in conceptual design or final design stage. Program Description The Rural Power System Upgrade (RPSU)program concentrates on powerhouse and electrical distribution upgrades.Typical projects include powerhouse upgrades or replacements,distribution line assessments and upgrades,line extensions to new customers,demand-side improvements and repairs to generation and distribution systems.Energy efficiency,reliability,safety and sustainability are primary drivers during the conceptual design,final design and construction process.Identification of available renewable energy and interoperability is high priority. Program examples include:Communities ee ene °Rebuilding or replacement of old,hazardous,worn out, inefficient and non-code compliant diesel generator and distribution systems; °Inclusion,integration and collaboration with heat recovery systems and viable renewable energy projects; °Force account labor and technica!assistance to rural communities through AEA personnel and/or contractors with experience in rural construction. System upgrades to be funded are identified through a variety of ways, including technical assistance,advancement by the local community or direction from the Legislature.The Denali Commission provides the majority of funds.Other sources include Community Development Block Grant (CDBG),Indian Community Development Block Grant (ICDBG)and Rural Utility Service (RUS).The State Senate Resources and Energy Committee,in a draft summary,recommended a funding increase for the RPSU program to improve diesel power generation efficiency in rural Alaska. _:RPSU Funding1999-2007. Program Progress AnnualFuelSavingsfrom New Powerhouses Electricity provides for lighting,communications, ™"ee Project::heat and power necessary to operate infrastructure800,000 bee!'With Additional UngracesaggrhoutAdditionalUpgrades that supports all other elements needed in any community to permit safe and healthy living conditions.In rural communities throughout Alaska, electricity is generated by a small local "system” (generation and distribution)using diesel fuel at a8§&82adwomne cost that is three to five times higher than in urban 200.000 parts of the state.Of the 200 rural communities, 100.000 |F I approximately half are served by cooperatives or oi .another form of utility that performs under a well-ed -*s od s s ##rs -**established organization.Others are served by very small entities,many which experience technical and administrative problems due to lack of economies of scale and/or lack of specialized skills in the community. Reviewed October 2009 ALASKA ENERGY AUTHORITY Training Program Current Status The Alaska Energy Authority (AEA),along with the Denali Commission Training Fund,provides training Opportunities to local residents for their energy projects and infrastructure. Program Description The intent of this training is to ensure that community personnel have the best skills with which to sustain their energy infrastructure in a business-like manner.With proper training,utilities can keep their facilities code-compliant and sustainable. The training program currently offers the following courses: e Bulk Fuel Operator Training e =itinerant Bulk Fuel Operator Training e Power Plant Operator Training e Advanced Power Plant Operator Training e §=PCE Utility Clerk Training Revised October 2009 f=ALASKA.a tn >»ENERGY AUTHORITY*W Alaska Industrial DevelopmentandExportAuthority Revised October 2009 Project Fact Sheet:ALASKA-BC INTERTIE STUDY CURRENT STATUS:A portion of the AKBC funds have been re-appropriated for the design and permitting of the Petersburg to Kake Intertie project.Some funds have been retained to monitor the situation in British Columbia,where the government is re-evaluating whether to build the backbone intertie from southern BC to 60 miles from the Alaska-BC border.In a recent announcement,the Canadian Government said that it would proceed with the funding for the transmission project.The AEA's most recent final feasibility report was published in September of 2008.It is available online at http:/Awww.akenergyauthority.org/AKBCProjectPage.html AEA is working with Southeast Conference to convene another meeting of the AKBC Advisory Work Group in Wrangell,in January of 2010,to review the new information on the northern Canadian grid that has been made public.At that meeting,the public will also be invited to discuss what is the highest and best use of the Alaskan hydro resources. PROJECT COST:$3.2 million. DESCRIPTION:To analyze and confirm the feasibility of a transmission line that would connect two parts of the Four Dam Pool service area and the two major Southeast hydroelectric power plants in the Ketchikan-Wrangell-Petersburg region through construction of a 67-mile electrical transmission intertie;and connect the Four Dam Pool transmission system into the Canadian grid,and thus gain access to power markets either in Canada or US Pacific Northwest.As a part of the study,examine the construction of a transmission backbone that that would entice private or local government entities to develop hydro power projects that could produce as much as 100 MW of power for use in southern SE Alaska or be exported. PURPOSE:Provide a transmission system to allow for exportation of power to the British Columbia grid.Additional intertie will allow delivery of excess power for Lake Tyee to Ketchikan. SOURCE OF FUNDS:During the FYO09 legislative process,$2 million of the $3.2 million originally appropriated to the AK BC Intertie was re-appropriated to the Kake-Petersburg Intertie project.The AK-BC Intertie appropriation is now $1.2 million with $558,000 in expenditures as of August 5,2009. PARTICIPANTS:Hatch Energy (Contractor)and an Advisory Work Group made up of representatives from Southeast Alaska communities including:Auke Bay,Craig,Juneau, Ketchikan,Metlakatla,Petersburg,and Wrangell. BENEFITS:The draft final report supports the Swan-Tyee Intertie and the Kake Petersburg Interties as being economically feasible,and indicates the export intertie link shows economic promise,but cannot be definitively determined at this time. ADDITIONAL BACKGROUND:This study has an advisory committee and steering committee to assist AEA in proper administration of funds.The committees have participated actively in the formulation of the consultant scope of work,selection of the consultant.The feasibility study has been reviewed and approved by the work group. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org @ 907/771-3000 @ FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org Easement Agmt_Exhibit C5_Utilities Easement Legal FINAL ALASKAte.>ENERGY AUTHORITY**Alaska Industrial DevelopmentandExportAuthority Revised October 2009 Project Fact Sheet:ALASKA INTERTIE CURRENT STATUS:The Intertie is currently in operation.Several repair and renovation projects have been authorized by the Intertie Operating Committee and AEA has started to pursue the projects.The projects are the STATIC VAR COMPENSATOR replacement project and the TOWER 195 RELOCATION project.There is $10M available to accomplish this work._ The continued operation of the intertie is changing with an emerging gas shortage in Cook Inlet, which reduces the ability for Chugach Electric and Municipal Light and Power to generate economy energy for sale to GVEA.Operation is expected to continue,but with reduced power flows.The line is also being used for GVEA to transfer firm energy south under conditions with gas supplies to Chugach are curtailed,either during maintenance periods or during extreme cold weather conditions.The Alaska Intertie Contract between AEA and participating Railbelt Utilities,schedule to terminate in 2010,remains in a "being renegotiated”status.Completion of renegotiation is on hold, pending legislative action on the Greater Railbelt Energy and Transmission Company (GRETC)bill, which would transfer the ownership of the Intertie to the new GRETC Company. PROJECT COST:Initial capitals costs of $124 million.Warranty and repair and replacement fund is paid into by utilities to cover costs. DESCRIPTION:The Alaska Intertie transmission line is a 170-mile long,345kV transmission line between Willow and Healy that is owned by AEA.It is presently operated at 138 KV. PURPOSE:The purpose of the Alaska Intertie is to interconnect Golden Valley Electric Association, the regulated utility that serves areas north of the Alaska Range with south central Alaska Utilities. The intertie also allows resources north and south of the range to be shared to improve reliability. Notably,the GVEA storage battery,as well as GVEA generation resources,can and have been used to send emergency power southward to minimize catastrophic network wide outages.The operation of this intertie materially improves overall system reliability. SOURCE OF FUNDS:The Intertie was built in the mid-1980s with State of Alaska appropriations totaling $124 million.Currently,there is no debt associated with this asset. PARTICIPANTS:The operation of the Intertie is governed by the Alaska Intertie Agreement entered into in 1985 and amended in 1991.The parties to this agreement are AEA (formerly Alaska Power Authority),Anchorage Municipal Light &Power,Chugach Electric Association Inc.,Alaska Municipal Utilities System,Golden Valley Electric Association,Inc.,and the Alaska Electric Generation and Transmission Cooperative (AEG&T is comprised of Matanuska Electric Association and Homer Electric Association). BENEFITS:In 1981,a study demonstrated a positive feasibility of the line and recommended construction of an intertie to allow exchange of economy energy and the sharing of reserve generation capacity between the Anchorage and Fairbanks load centers.It was estimated that the benefits from the project would be approximately $17 million per year. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org Alaska Intertie Page 2 of 2 Project Fact Sheet ADDITIONAL BACKGROUND:Agreements have been developed over a span of 30 years to govern the cooperative management,operation of the connected network at large.AEA has agreements with participating utilities that assure the Alaska Intertie operates with prudent maintenance and operation by utilities.ML&P is the intertie operator,while MEA and GVEA provide maintenance and operations services. AEA serves as financial administrator,providing basic accounting services to establish a cost-based wheeling rate that is trued up each year.AEA collects payments from Intertie users and pays expenses,including reimbursement of costs incurred by the two operators of the line,ML&P and GVEA,and the three maintenance contractors,MEA,CEA,and GVEA. ea ENERGY AUTHORITYWAlashaIndustrialDevelopmentandExportAuthority Revised October 2009 Project Fact Sheet:BRADLEY LAKE HYDROELECTRIC PROJECT CURRENT STATUS:Lake level is normal to above normal for this time of year.Lake level has been within five feet of spill since early September.Generators have been contributing a substantial amount of energy to the electrical grid to keep water being lost through spillage. Many small projects continue through this fall. PROJECT COST:$319 million (original cost plus major capital improvements through June 30, 2009). DESCRIPTION:The project has 126 MW of installed capacity hydroelectric project located 27 air miles southeast of Homer on the Kenai Peninsula.The project consists of Bradley Lake,a 125 foot high concrete faced,rock filled dam structure,three diversion structures,a 19,063 ft. long power tunnel and vertical shaft,generating plant,interior substation,20 miles of transmission line,and substation.Due to its remote location,the project has its own airstrip,boat dock,residential quarters,and utility system.The project is normally automatically operated by remote dispatch by Chugach Electric Association from Anchorage. PURPOSE:The Bradley project provides 5-10%of the annual railbelt electric power needs at the lowest generation cost.Bradley is most important to the railbelt electric system during the cold winter months.Demand for both electric power and gas for heat is at its highest.Utilities limited by available gas are able to use Bradley power to meet the high electric demand. SOURCE OF FUNDS:Legislative appropriations and AEA revenue bonds repaid by participating utilities. PARTICIPANTS:Under the Power Sales Agreement,100%of the project's capacity has been sold to the power purchasers:Chugach Electric Association,Inc.(30.4%);Municipality of Anchorage (25.9%);Alaska Electric Generation &Transmission Cooperative,Inc.(25.8%)acting on behalf of Homer Electric Association,Inc.(12.0%)and Matanuska Electric Association,Inc. (13.8%);Golden Valley Electric Association,Inc.(16.9%);and City of Seward (1.0%). BENEFITS:Authority ownership now assures the railbelt area of a long-term source of power at a stable cost and promotes economic development in the region. ADDITIONAL BACKGROUND:The power generation potential of Bradley Lake was first studied by the U.S.Corps of Engineers and presented in a report dated March 1955.The project was authorized by Congress in 1962,but,despite its feasibility,federal funds were not available for its construction.The Alaska Energy Authority (then Alaska Power Authority)assumed responsibility for the project in 1982.Preliminary plans and field investigations started in 1982.In April 1984,the Authority submitted an application for license to the Federal Energy Regulatory Commission (FERC).The license to construct the project was issued on December 31,1985.In December 1987,the Authority and the railbelt utilities entered into a Power Sales Agreement to delineate responsibilities.Project was declared in commercial operation September 1,1991. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org @ 907/771-3000 e FAX 907/771-3044 @ Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org Bradley Hydroelectric Project Page 2 of 2 Project Fact Sheet Bradley has been producing power for 16 years.In 2007,Bradley produced 392,000 MWh of power at a cost of approximately $.039 per kWh. A Bradley Project Management Committee (BPMC)was formed in 1993 with representatives from each of the power purchasers and Alaska Energy Authority.The BPMC is responsible for the management,operation,maintenance,and improvement of the project,subject to the non- delegable duties of the Alaska Energy Authority. IDEN =ALASKA ab il €x0 ENERGY AUTHORITYaxe*Alaska Industrial DevelopmentandExportAuthority Reviewed October 2009 Project Fact Sheet:EKLUTNA TRANSMISSION LINE UPGRADE CURRENT STATUS:Project construction is complete.The line presently awaits connection into the Railbelt network.As the available funds through the AEA grant are nearly exhausted,the Eklutna Operating Committee (ML&P,Chugach and MEA)have elected to complete the project using funds they will secure.The Operating Committee has designated ML&P as the project manager for completing terminations,commissioning and energizing the line.ML&P is securing professional services to accomplish this commissioning process. PROJECT COST:$19.3 million DESCRIPTION:The project consists of rebuilding the existing 115kV wood-pole electric transmission line from the Eklutna Hydroelectric Plant to the point where the Beluga 230kV electric transmission line intersects the line (near Briggs Tap/Fossil Creek),spanning a distance of 22.5 miles. PURPOSE:To upgrade the existing single circuit line to a double circuit line providing an overall capacity and reliability to the intertie.To improve system reliability and resolve fault issues,the generating utilities approached the legislature for funding to construct a dedicated transmission link between the two generation centers and to provide a second line to serve the four existing MEA taps.The new transmission line will be constructed and insulated for 230KV,but will initially operated at 138KV. SOURCE OF FUNDS:Grant to the Municipality of Anchorage Municipal Light and Power through the Alaska Energy Authority for an Eklutna project transmission line upgrade.AEA is the grant administrator. PARTICIPANTS:Anchorage Municipal Light and Power,Chugach Electric Association,Inc., and Matanuska Electric Association. BENEFITS:This intertie project will resolve concerns over the 50-year age of a wood structured primary intertie link between the hydroelectric power plant at Eklutna,and the ML&P plant no.2, which is one of the main generation centers for South Central Alaska.Completion of the intertie will increase operating and dispatch flexibility for South Central Alaska,and increase reliability of power supply. ADDITIONAL BACKGROUND:Concerns for system reliability and safety led South Central Utilities to approach the legislature for a $19.3 Million appropriation to replace a 50-year-old key transmission link between two South Central Generation facilities.The Eklutna hydropower generation facility,recently repowered to produce 40MW of storage hydropower,was connected to the rest of the Railbelt system through the wood structured link. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 @ FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org ALASKA':a) -Ga >ENERGY AUTHORITYwywyAlaskaIndustrialDevelopmentandExportAuthority Reviewed October 2009 Project Fact Sheet:LARSEN BAY HYDROELECTRIC PROJECT CURRENT STATUS:Upgrades to the Larsen Bay Hydro Facility are in progress utilizing a Construction Management Contractor and AEA Rural Utility Workers.Project substantial completion is tentatively scheduled for December 2009.Once the project is substantially complete,the community and AEA will execute a Facility Conveyance Agreement to complete the turnover agreement to the community.The city utility supplies a portion of the cannery's energy needs to increase utility revenues and enable repayment of bond funds.The utility has agreed to allow the use PCE payments to aid in repayment of their PPF loan. PROJECT COST:$320,000 from CDBG grant DESCRIPTION:The Larsen Bay hydro facility has experienced numerous significant operating issues over the last several years which have resulted in delaying the ownership transfer from AEA to the community.The most significant issue is the reliability of the existing hydro switchgear and controls.Scheduled improvements include: e Replacement of the existing unreliable hydro switchgear and controls with new modern switchgear that includes data acquisition and remote monitoring capabilities.This task is still in progress with the new switch gear now in basic operation. e Repair ice damage to the water intake structure.This task was substantially completed in January 2009. e Supply a portion of the cannery domestic load to facilitate increased use of hydro power without negatively impacting the power to the community and increase revenue to the city.This task was substantially completed spring of 2007. e Execute Facility Conveyance Agreement.Agreement drafted by attorney and sent to community for review and comment. PURPOSE:The project intent is to increase the reliability and use of the hydro electric system in order to facilitate the turnover of ownership of the system to the City of Larsen Bay. SOURCE OF FUNDS:In 2004,the City of Larsen Bay applied for and received a CDBG Grant to upgrade the hydro facility.In 2005,AEA negotiated a Grant Agreement with the City of Larsen Bay and CDBG to manage the hydro upgrade project.Subsequently,the project was awarded $320,000 from CDBG. PARTICIPANTS:Alaska Energy Authority and the City of Larsen Bay BENEFITS:Once operating reliably and efficiently,the hydro will displace the majority of the city's diesel fuel used for electrical generation.The utility can now provide a portion of the cannery's energy needs resulting in increased revenue to the utility.Sales to the cannery during the summer of 2007 allowed the City of Larsen Bay to pay its loan obligations for FY 2007 and 2008.The intent is to turn the hydro facility over to the City after the improvements have been completed and the facility has proven its reliability. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495www.aidea.org e 907/771-3000 e FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org Larsen Bay Hydroelectric Project Page 2 of 2 Project Fact Sheet ADDITIONAL BACKGROUND:This 475-kilowatt project went into commercial operation in mid-1991 with construction costs of approximately $1.6 million.In addition to producing electricity for this isolated Kodiak Island community,the project replaced the City of Larsen Bay's old water supply system which provides a safe source of water with reduced maintenance and improved water quality.The original intent of the hydro project was to turn the facility over to the City of Larsen Bay once it had been demonstrated to be operationally viable over a few years.The hydro operated only intermittently and unreliably for many years; therefore the community would not agree to accept the facility or make bond payments until these problems were worked out.In 2004,the City of Larsen Bay agreed to seek CDBG funding to make improvements to the hydro facility. ALASKA €=--ENERGY AUTHORITYxXAlaskaIndustrialDevelopmentandExportAuthority Revised October 2009 Project Fact Sheet:RAILBELT ELECTRICAL GRID AUTHORITY STUDY CURRENT STATUS:This project is complete.The final report has been published and accepted by the Alaska Energy Authority.The results of the study are being used to form a new non-profit statutory corporation to own and operate future Railbelt Generation and Transmission (G&T)infrastructure. PROJECT COST:$800,000 DESCRIPTION:Black and Veatch (B&V)was hired as consultant to AEA to perform the analysis of the potential of a Railbelt Electrical Grid Authority in increasing cost effectiveness and reliability in the operation of the Railbelt transmission grid.B&V will analyze operation costs, look at current and future generation sources,look at current and future electrical demands and develop a series of future scenarios with recommendations for a grid authority.This work will be done in conjunction with the Railbelt utilities,through extensive interviews with affected stakeholders and subject matter experts and with the guidance and feedback of an advisory work group. PURPOSE:This Railbelt Electrical Grid Authority (REGA)study will identify a range of grid authority business structures to own,operate,control,maintain and operate the future Railbelt Electrical Generation and Transmission Grid.This business structure alternatives could range from a voluntary organization to dispatch power and manage the grid assets,or it could be more encompassing to include responsibility for planning and acquiring new generation and assuming ownership of existing Railbelt assets. SOURCE OF FUNDS:Legislative appropriation. PARTICIPANTS:Black and Veatch;Alaska Energy Authority;Homer Electric Association; Chugach Electric Association;Anchorage Municipal Light and Power;Matanuska Electric Association;Golden Valley Electric Association;and a variety of stakeholders as represented on the advisory group and through interviews. BENEFITS:The project will provide the range of effective business structures that the Railbelt can employ to manage the future generation and transmission assets,with comparative economic assessments,analysis of barriers to implementation,and an implementation plan. This will provide a basis for any decisions relating to the enhancement and growth of Railbelt Electric Infrastructure under a variety of possible future energy supplies. ADDITIONAL BACKGROUND:A recent petition by MEA to the Regulatory Commission of Alaska called for the creation of a regional Generation and Transmission Cooperative as a means to implement a collective process to secure new generation sources for the Railbelt.This matter is currently being considered by the RCA. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org #907/771-3000 «FAX 907/771-3044 @ Toll Free (Alaska Only)888/300-8534 e www.akenergyauthority.org «=>ALASKA G@=>ENERGY AUTHORITY Revised October 2009 Project Fact Sheet:SWAN-TYEE INTERTIE CONSTRUCTION COMPLETION CURRENT STATUS:The project is complete and has been energized.Commission of the transmission line is now in progress.The project was completed within the final budget and one month ahead of schedule. PROJECT COST:$46.2 million DESCRIPTION:This project will complete the construction of the 57-mile Swan-Tyee Intertie between the Swan Lake hydro-electric power plant and the Tyee Lake hydro-electric power plant,and when energized,will allow the communities of Petersburg,Wrangell,and Ketchikan to be electrically interconnected.The work will be completed in the 2008 and 2009 construction seasons.The intertie will be owned and operated by The Four Dam Pool Power Agency. PURPOSE:This project will allow power that is produced in the Four Dam Pool transmission network to be scheduled and economically dispatched.Initially,it is expected that excess water energy available at Lake Tyee generation capacity and energy will be used to offset an energy shortage in the Ketchikan area.In a longer range capacity,the intertie can be used to convey power for export through an export intertie that is being considered into British Columbia. SOURCE OF FUNDS:Grant to the Four Dam Pool Power Agency. PARTICIPANTS:The Southeast Alaska Power Agency consisting of three purchasing utilities (municipal utilities of the Cities of Ketchikan,Wrangell and Petersburg). BENEFITS:Generation,avoiding a looming shortage in Ketchikan that could have required Ketchikan Public Utilities to operate expensive and polluting diesel generation. ADDITIONAL BACKGROUND:This project was partially funded in 2005.The Four Dam Pool Power Agency cleared the Right-of-Way and purchased and installed tower foundations, construction was stopped when these funds were expended.The region was able to secure an appropriation of $46.2 million for completion of the project. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 #FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org «=>ALASKA @=ENERGY AUTHORITY Reviewed October 2009 Project Fact Sheet:TEELAND DOUGLAS TRANSMISSION LINE PROJECT CURRENT STATUS This project is presently under re-scoping:1)$10M of the original appropriation was re-appropriated to upgrade the Static VAR Compensation Equipment that allows the Alaska Intertie without damaging transients,and a repair of Tower 195,a transmission tower that is in danger from encroachment by the Talkeetna River,and 2)AEA is accomplishing a regional integrated resource plan for the Railbelt,that will establish an economic plan for transmission and generation to serve the Railbelt over the next 50 years. Under this plan,the segment upgrade will be viewed in the context of overall system improvement.It is expected that endpoints of the intertie completion project will be set under this planning effort,and the project may need to be re-scoped and funding level modified.Work has been halted to renegotiate the contract,and for possible re-scoping under the IRP. PROJECT COST:$20.3 million DESCRIPTION:Upgrade and extend the line from the Teeland Substation on Knik-Goose Bay Road to the Douglas substation in the Matanuska-Susitna Borough.The project is an integral part of the Alaska Intertie and will replace approximately 25 miles of an existing transmission line operated at 138kV,owned by MEA. PURPOSE:Construction of this bypass line will parallel the existing MEA owned line,and allow the present MEA owned intertie link,20 miles of which is insulated at 115kV and operated at 138kV,to return to MEA control and service.Continued use of this 20-mile portion of the 25-mile MEA asset by certain Railbelt utilities until January 1,2014 has been provided for through an RCA order. SOURCE OF FUNDS:2002 Legislative appropriation to AEA. PARTICIPANTS:EA is contracting with Municipal Light and Power under a cooperative agreement to accomplish the transmission line project.AEA will own the new line and it will become part of the Alaska Intertie Project. BENEFITS:This new line will be an addition to the existing 170 mile Alaska Intertie.With AEA ownership and access,the existing agreements with MEA for use of MEA transmission lines, which are complex,will no longer be needed.It is expected that intertie operations will be simplified,and MEA will gain the full use of its assets it previously had devoted to intertie operation. ADDITIONAL BACKGROUND:It was determined that the most effective way to construct the line was to have ML&P manage all construction activities.This decision was the result of a collaborative effort between AEA and the Intertie participant utilities.The project has been approved by the Intertie Operating Committee. 813 West Northern Lights Boulevard e Anchorage,Alaska 99503-2495 www.aidea.org e 907/771-3000 #FAX 907/771-3044 e Toll Free (Alaska Only)888/300-8534 «www.akenergyauthority.org ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Basic Financial Statements and Schedules June 30,2009 and 2008 (With Independent Auditors'Report Thereon) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Table of Contents Management's Discussion and Analysis Independent Auditors'Report Balance Sheets Statements of Revenues,Expenses,and Changes in Net Assets Statements of Cash Flows Notes to Basic Financial Statements Schedules 1 Schedule of Bradley Lake Hydroelectric Project Trust Account Activities 2 Schedule of Projects -Balance Sheet 3 Schedule of Projects -Revenues,Expenses and Changes in Net Assets 13 -34 35 36 37 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Overview of the Financial Statements The Alaska Energy Authority's (AEA or Authority)is composed of the following programs -AEA owned hydroelectric and intertie projects,rural energy programs,and energy development programs.Further information on AEA's programs can be found in note 1 to the financial statements. This financial report consists of three sections:management's discussion and analysis,basic financial statements, and supplementary schedules.AEA's operations are business type activities and are considered an enterprise fund.The Authority is a component unit of the State of Alaska (State)and is discretely presented in the State's financial statements.The Authority's basic financial statements are the Balance Sheets;the Statements of Revenues,Expenses and Changes in Net Assets;the Statements of Cash Flows and the Notes to Basic Financial Statements. Basic Financial Statements The Balance Sheets report the Authority's assets,liabilities,and resulting net assets.The net assets are reported as invested in capital assets less debt,restricted and unrestricted.Restricted net assets are subject to external limits such as bond resolutions,legal agreements or statutes. The Statements of Revenues,Expenses,and Changes in Net Assets report the Authority's income,expenses,and resulting change in net assets during the periods reported. Both statements report on the accrual basis of accounting and economic resources measurement focus. The Statements of Cash Flows report the Authority's sources and uses of cash and change in cash balance resulting from the Authority's activities during the periods reported. The Notes to Basic Financial Statements provide additional information required to fully understand the amounts reported in the basic financial statements. Management's Discussion and Analysis This section presents AEA management's analysis of the Authority's financial position and results of operations at and for the years ended June 30,2009 and 2008.This information is presented to help the reader focus on significant financial issues and provide additional information regarding the activities of the Authority.This information should be read in conjunction with the Independent Auditors'Report,the audited financial statements and the accompanying notes. Financial Highlights AEA's assets exceeded its liabilities by $627 million at June 30,2009 and by $597 million at June 30,2008.Of the total net assets at June 30,2009,$132 million was invested in capital assets net of related debt,$42 million was restricted and $453 million was unrestricted.Of the total net assets at June 30,2008,$134 million was invested in capital assets net of related debt,$43 million was restricted and $420 million was unrestricted. 1 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Financial Analysis Financial Position Total assets,total liabilities,and total net assets at June 30,2009,2008,and 2007 follows (stated in thousands): 2009 2008 2007 Current assets $12,133 16,825 7,386 Capital assets 245,054 251,834 259,816 Other noncurrent and restricted assets 515,785 478,603 §24,425 Total assets 772,972 747,262 791,627 Current liabilities 38,672 37,757 44,137 Noncurrent liabilities 107,578 112,838 118,234 Total liabilities 146,250 150,595 162,371 Total net assets 626,722 596,667 629 ,256 Total liabilities and net assets $772,972 747,262 791,627 Current assets were $4.7 million lower at June 30,2009 compared to June 30,2008 and $9.4 million higher at June 30,2008 compared to June 30,2007.Components of the changes were (stated in millions): 2009 vs.2008 vs. 2008 2007 Decrease in investment interest receivable $(0.1)(0.1) (Decrease)increase in receivable from Department of Energy (0.5)0.4 (Decrease)increase in operating receivable from operating plants (0.2)0.1 Increase (decrease)in receivable from Denali Commission 1.3 (0.7) (Decrease)increase in receivable for advanced grant funds to grantee (4.3)9.3 Net (decrease)increase in short-term loans originated,net of loan collections (0.9)0.4 $(4.7)9.4 2 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Capital assets were $6.8 million lower at June 30,2009 compared to June 30,2008 and $7.9 million lower at June 30,2008 compared to June 30,2007 substantially due to depreciation of capital assets,offset by improvements.Improvements to the below projects (stated in millions)were: 2009 vs.2008 vs. 2008 2007 Bradley Lake Hydroelectric Project $0.5 1.4 Alaska Intertie Project 0.2 0.5 Napakiak Intertie Project 2.7 0.3 $3.4 2.2 Other noncurrent and restricted assets were $37.2 million higher at June 30,2009 compared to June 30,2008 and $45.8 million lower at June 30,2008 compared to June 30,2007.Components of the changes were (stated in millions): 2009 vs.2008 vs. 2008 2007 Decrease in PCE Endowment Fund securities lending $-_-(15.7) (Decrease)increase in PCE Endowment Fund realized investment income (7.0)3.9 Decrease in PCE Endowment Fund fair value (42.1)(31.6) Contribution to Renewable Energy Fund 100.0 - Contribution to Bulk Fuel Revolving Loan Fund 5.5 -_ Net increase in other funds from investment income and fair value 4.3 - Decrease due to increased grant expenditures (30.0)(1.5) Decrease due to increased capital expenditures (1.2)-_- Increase in long-term loan fundings 1.4 0.6 Net increase (decrease)in State advances on appropriations 6.3 (1.5) $37.2 (45.8) 3 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Current liabilities were $0.9 million higher at June 30,2009 compared to June 30,2008 and $6.4 million lower at June 30,2008 compared to June 30,2007.Components of the changes were (stated in millions): 2009 vs.2008 vs. 2008 2007 Increase in PCE Endowment Fund securities lending $-_(15.7) Net (decrease)increase in State advances on appropriations (12.2)6.0 Increase (decrease)in short-term borrowings 0.2 (0.4) (Decrease)increase in current portion of arbitrage interest payable (0.7)1.0 Increased budgeted revenues in excess of actual expenses on hydroelectric and intertie projects 0.1 3.0 Increase (decrease)in other accrued expenditures 13.5 (0.3) $0.9 (6.4) The decreases in noncurrent liabilities between June 30,2009 and 2008 and between June 30,2008 and 2007 were caused by the decrease in the long-term portion of bonds payable at each year end and the decrease in the noncurrent portion of arbitrage interest payable.There were no new borrowings. The increase in net assets from June 30,2008 to June 30,2009 resulted primarily from the $100 million Renewable Energy contribution from the State of Alaska offset by the investment losses in the PCE Endowment Fund.The decrease in net assets from June 30,2007 to June 30,2008 resulted primarily from the $39.9 million unrealized loss in the PCE Endowment Fund offset by increased realized investment gains. 4 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Operations Components of the Authority's operating revenues,operating expenses,nonoperating investment income and operating loss for the years ended June 30,2009 through 2007 follows (stated in thousands): 2009 2008 2007 Operating revenues: Federal grants $20,545 19,817 21,881 Revenue from operating plants 17,890 17,185 16,962 State appropriations 61,394:22,612 14,539 Other 1,763 2,312 1,718 Total operating revenues 101,592 61,926 55,100 Operating expenses: Grants and projects 72,010 27,594 24,239 PCE grants 37,074 28,235 25,145 Depreciation 10,233 10,160 10,034 Interest expense 7,116 7,577 7,938 Plant operating 5,077 4,489 4,242 General and administrative 1,940 1,894 1,673 Provision for loan loss and bad debt expense (40)(106)(349) Total operating expenses 133,410 79,843 72,922 Operating loss (31,818)(17,917)(17,822) Nonoperating: State of Alaska Bulk Fuel Revolving Loan Fund contribution 5,500 -_182,700 State of Alaska Renewable Energy Fund contribution 100,001 -- Investment (loss)income,net (43,628)(14,672)49,235 Increase (decrease)in net assets $30,055 (32,589)214,113 5 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Operating revenues increased $39.6 million during the year ended June 30,2009 compared to the prior year and increased $6.8 million during the year ended June 30,2008 compared to the same period in 2007.Components of the changes were (stated in millions): FY 2009-2008 FY 2008-2007 Net change Net change Decreased grant revenue from Denali Commission $(1.8)(1.9) (Decreased)increased grant revenue from Department of Energy (0.7)0.2 Increased revenue from other grantors 3.2 - Fluctuations in Bradley Lake approved budget expenditures 0.7 - (Decreased)increased revenue from other State agencies (0.6)0.5 Increased revenue from State for PCE grants 2.8 2.5 Increased revenue from State general fund operating and capital appropriations , 36.0 5.5 $39.6 6.8 Operating expenses increased $53.6 million during the year ended June 30,2009 compared to the prior year and were $6.9 million higher during the year ended June 30,2008 compared to the same period in 2007.Components of the changes were (stated in millions): FY 2009-2008 FY 2008-2007 Net change Net change Increased (decreased)federal funded grant and project expenses in active rural energy construction projects $0.7 (2.0) Increased State funded grant and project expenses 44.4 5.0 Decreased (increased)State agency funded expenses for interagency contracts (0.6)0.6 Increased PCE grant expenditures 8.8 3.1 Decreased bond interest expense (0.4)(0.4) Increased operating plants expense 0.6 0.2 Increased administrative costs due to increased state funding -0.3 Increased other expenses 0.1 0.1 $53.6 6.9 During the year ended June 30,2009,the PCE Endowment had unrealized losses of $42 million and realized losses of $13.4 million that offset $6.2 million in net interest income and realized gains from other funds. During the year ended June 30,2008,the PCE Endowment had unrealized losses of $39.6 million that offset $24.7 million in net interest income and realized gains from other funds. 6 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Management's Discussion and Analysis June 30,2009 and 2008 Outlook Annual operation of the owned hydroelectric and intertie projects are per annual budgets approved by the utilities that use the assets and pursuant to bond resolutions and other agreements.Annual operation of the rural energy programs and energy development programs are per State legislation,annual appropriations and federal grant awards. KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report The Board of Directors Alaska Energy Authority: We have audited the accompanying balance sheets of the Alaska Energy Authority (a Component Unit of the State of Alaska)(Authority)as of June 30,2009 and 2008,and the related statements of revenues, expenses,and changes in net assets,and cash flows for the years then ended.These financial statements are the responsibility of the Authority's management.Our responsibility is to express an opinion on these basic financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.An audit includes consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting. Accordingly,we express no such opinion.An audit also includes examining,on a test basis,evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and the significant estimates made by management,as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinions.. In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Authority as of June 30,2009 and 2008,and the changes in its financial position and its cash flows for the years then ended in conformity with U.S.generally accepted accounting principles. In accordance with Government Auditing Standards,we have also issued our report dated October 23, 2009,on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws,regulations,contracts,and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing,and not to provide an opinion on the internal control over financial reporting or on compliance.That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. The Management's Discussion and Analysis on pages 1 through 7 is not a required part of the basic financial statements but is supplementary information required by U.S.generally accepted accounting principles.We have applied certain limited procedures,which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.However,we did not audit the information and express no opinion on it. KPMG LLP.a US.limited liability partnership,is the U.S. member firm of KPMG International,a Swiss cooperative. ave Our audits were made for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information included in schedules 1 to 3 is presented for the purpose of additional analysis and is not a required part of the basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG LEP October 23,2009 ALASKA ENERGY AUTHORITY (A Component Unit ofthe State of Alaska) Balance Sheets June 30,2009 and 2008 (Stated in thousands) Assets Current assets: Grants receivable Loans receivable (note 7) Operating revenue receivable Accrued interest receivable Total current assets Noncurrent assets: Restricted cash and investments (note 3) Cash and investments designated for specific purposes (note 3) Loans receivable,net of allowance (note 7) Capital assets (note 5) Less accumulated depreciation Capital assets,net Total noncurrent assets Total assets Liabilities and Net Assets Current liabilities: Due to State of Alaska Accounts payable Bonds payable -current portion (note 6) Arbitrage interest payable -current portion (note 6) Accrued interest Total current liabilities Noncurrent liabilities: Bonds payable -noncurrent portion,net (note 6) Arbitrage interest payable noncurrent portion (note 6) Other liabilities Total noncurrent liabilities Total liabilities Net assets: Invested in capital assets,net of related debt Restricted for debt service Restricted by agreements with external parties Unrestricted net assets Total net assets Commitments and contingencies (notes 8 and 10) Total liabilities and net assets See accompanying notes to basic financial statements. 2009 2008 3,566 2,810 1,970 2,857 5,355 9,843 1,242 1,315 12,133 16,825 23,015 22,863 467,464 431,876 25,306 23,864 447,276 443,823(202,222)(191,989) 245,054 251,834 760,839 730,437 772,972 747,262 2,143 14,081 27,022 13,624 6,030 5,820 357 1,007 3,120 3,225 38,672 37,757 107,301 112,454 174 281 103 103 107,578 112,838 146,250 150,595 131,723 133,560 19,896 19,63821,883 23,088 453,220 420,381 626,722 596,667 772,972 747,262 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Statements of Revenues,Expenses,and Changes in Net Assets Years ended June 30,2009 and 2008 (Stated in thousands) 2009 2008 Operating revenues: Federal grants 20,545 19,817 Revenue from operating plants 17,890 17,185 State of Alaska appropriations 61,394 22,612 Revenue from state agencies 551 1,221 Interest on loans 1,099 1,020 Other revenue 113 71 Total operating revenues 101,592 61,926 Operating expenses: Grants and projects 72,010 27,594 Power cost equalization grants 37,074 28,235 Depreciation 10,233 10,160 Interest expense 7,116 7,577 Plant operating 5,077 4,489 General and administrative 1,940 1,894 Provision for loan loss and bad debt expense (note 7)(40)(106) Total operating expenses 133,410 79,843 Operating loss (31,818)(17,917) Nonoperating: State of Alaska Bulk Fuel Revolving Loan Fund contribution 5,500 - State of Alaska Renewable Energy Fund contribution 100,001 - Investment loss,net (43,628)(14,672) Total nonoperating 61,873 (14,672) Increase (decrease)in net assets 30,055 (32,589) Net assets -beginning 596,667 629,256 Net assets -ending 626,722 596,667 See accompanying notes to basic financial statements. 11 ALASKA ENERGY AUTHORITY (A Component Unit ofthe State of Alaska) Statements of Cash Flows Years ended June 30,2009 and 2008 (Stated in thousands) Cash flows from operating activities: Receipts from federal grants Receipts from customers and users Receipts from State of Alaska appropriations Principal collected on loans Receipts from state agencies {Interest collected on loans Other operating receipts Loans originated Payments to suppliers Payments to grantees Net cash used by operating activities Cash flows from noncapital and related financing activities: Net unremitted interest returned on State appropriation advances Renewable Energy Fund contribution from State appropriation Bulk Fuel Revolving Loan Fund contribution from State appropriations Decrease in State appropriation advance held in trust for others Net receipt from operating loans from AIDEA Net cash provided (used)by noncapital and related financing activities Cash flows from capital and related financing activities: Principal paid on bonds Interest paid on bonds Purchase of capital assets Net cash used by capital and related financing activities Cash flows from investing activities: Purchase of investments Proceeds from sales and maturities of investments Interest received from investments Net cash (used)provided by investing activities Net increase (decrease)in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year (note 3) Reconciliation of operating loss to net cash used by operating activities: Operating loss Adjustments to reconcile operating loss to net cash used by operating activities: Depreciation Provision for loan loss and bad debt expense Bond interest expense Changes in assets and liabilities: (Decrease)increase in due to State of Alaska (Increase)decrease in grants receivable Increase in loans receivable Increase in interest receivable Decrease (increase)in operating revenue receivable Decrease in operating accounts payable Net cash used by operating activities Noncash capital activities: Amount included in accounts payable for fixed asset additions Net decrease in fair value of investments See accompanying notes to basic financial statements. 12 2009 2008 19,789 20,080 17,473 17,388 49,190 28,660 11,716 9,431 787 1,051 1,101 1,029 62 71 (12,232)(10,125) (13,073)(13,733) (84,240)(54,432) (9,427)(580) (21)(88) 100,001 - 5,500 - (432)(567) 27 174 105,075 (481) (5,820)(5,810) (6,344)(6,457) (3,421)(2,961) (15,585)(15,228) (354,684)(113,845) 289,767 110,661 11,353 17,049 (53,564)13,865 26,499 (2,424) 30,741 33,165 57,240 30,741 (31,818)(17,917) 10,233 10,160 (40)(106) 7,116 7,577 (11,917)5,882 (756)263 (516)(694) 1 9 4,488 (9,434) 13,782 3,680 (9,427)(580) 248 216 (42,092)(39,367) (1) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Organization and Operations The Alaska Energy Authority (Authority or AEA)was created by the Alaska State Legislature in 1976. AEA is a public corporation and a component unit of the State of Alaska (State).AEA's mission is to reduce the cost of energy in Alaska. Throughout the 1980's,AEA worked to develop the State's energy resources as a key element in diversifying Alaska's economy.A number of large-scale projects were constructed;four of those projects were sold in 2002.Today,AEA's two hydroelectric projects have an installed capacity in excess of 90 megawatts,and the Alaska Intertie's 170 miles of transmission line link Interior Alaska with the cheaper energy available in the Southcentral portion of the State. Pursuant to statute,on August 12,1993,the board of directors of the Alaska Industrial Development and Export Authority (AIDEA),a public corporation and a political subdivision of the State,became the board of directors of AEA.AEA continues to exist as a separate legal entity.The corporate structure and operating assets of AEA were retained but the ability to have employees,and construct or acquire energy projects was eliminated.Among other things,AIDEA provides personnel services for AEA.The board appointed,on April 10,2008,a separate AEA executive director who is an employee of AIDEA. Previously,the AEA and AIDEA executive directors were the same.There is no commingling of funds, assets or liabilities between AIDEA and AEA and there is no responsibility of one for the debts or the obligations of the other.Consequently,the accounts of AIDEA are not included in the accompanying financial statements.The 1993 legislation required AEA,to the maximum extent feasible,to enter contracts with public utilities and other entities to carry out AEA duties respecting the ongoing operation and maintenance of the AEA owned operating assets;this has occurred with oversight responsibility retained by AEA. Pursuant to legislation effective July 1,1999,rural energy programs previously administered by the former Department of Community and Regional Affairs,Division of Energy,were transferred to AEA for administration,as part of a larger reorganization of state agencies.Five general energy programs comprising more than twenty smaller programs were moved to AEA.Rural energy programs were originally part of AEA prior to the reorganization that occurred in 1993.During fiscal year 2008, legislation added energy development programs to AEA. The following is a description of AEA's existing projects and programs: (a)Bradley Lake Hydroelectric Project The project has installed capability,under optimal conditions,of 126 megawatts and transmits its power to the State's main power grid via two parallel 20-mile transmission lines.The project,which cost in excess of $300 million,went into commercial operation in 1991.The project is now operated by Homer Electric Association under contract with AEA.Bradley Lake serves Alaska's Railbelt from Homer to Fairbanks as well as the Delta Junction area. (b)Alaska Intertie Project The 170-mile,345-kilovolt transmission line runs between Willow and Healy,and interconnects the power distribution systems of Anchorage and Fairbanks.The Alaska Intertie allows Golden Valley 13 (Continued) (c) (a) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 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 and allows utilities from the Mat-Su Valley,Anchorage and the Kenai Peninsula to purchase power from Fairbanks during power shortages.The Alaska Intertie reduces the number of black/brownouts throughout the system.Operations and maintenance duties are overseen by the Intertie Operating Committee under the Alaska Intertie Agreement (Agreement). Effective July 1,2002,the State appropriated $20,300,000 to AEA to upgrade and extend a portion of the Alaska Intertie.Through June 30,2008,AEA incurred $489,000 in costs for preliminary design work.In August 2007,AEA issued a contract to the Municipality of Anchorage dba Municipal Light and Power (ML&P)for $19,500,000 for the upgrade and the work began in September 2007.Effective July 1,2008,the State re-appropriated up to $10,000,000 of the original funds for certain specific capital repairs on the Intertie.As a result,AEA is renegotiating the existing contract with ML&P to reduce scope of work to upgrade and extend a portion of the Intertie,and is negotiating with ML&P to repair static VAR compensators and a tower foundation.Due to reduction of funds in original project and related scope change,the major upgrades and repairs funded by the appropriations are estimated to be completed by late 2014.However this estimate of date is dependent on the final scope of work and availability of funds. AEA management and participating utilities identified defects in the Agreement that AEA management believes should be corrected.Attempts to cure the identified defects were unsuccessful because amending the Agreement requires unanimous consent of each member of the Intertie Operating Committee,and at least one utility member objected to each proposed cure.AEA management,on October 16,2006,issued contractually required notice that the Agreement will terminate in 48 months,on October 17,2010.AEA management anticipates that the necessary amendments to the Agreement can be implemented on or before the effective date of the termination of the existing Agreement. Larsen Bay Hydroelectric Project The 475-kilowatt project produces electricity and provides water for the City of Larsen Bay (City), an isolated Kodiak Island community.It went into commercial operation in 1991 and replaced the City's old water supply system and provided a better source of water with reduced maintenance and improved water quality.The City operates the project. The Authority and the City have agreed that the Authority will convey the project to the City and the City will accept all responsibility for it when the Authority completes repair work currently being performed under a project management agreement with the City. Rural Energy Programs The rural energy programs include Bulk Fuel Storage Upgrades,Rural Power System Upgrades, Power Cost Equalization (PCE),Alternative Energy,Utility Training,and Technical Assistance,two active loan programs funded from the Bulk Fuel Revolving Loan Fund and the Power Project Fund and one inactive loan program. 14 (Continued) (e) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Energy Development Programs The energy development programs include the energy sustainability plan and renewable energy grants program pursuant to legislation passed in 2008. (2)Summary of Significant Accounting Policies (a) (b) (c) Basis ofAccounting -Enterprise Fund Accounting The accounts of the Authority are organized as an Enterprise Fund.Accordingly,the financial activities of the Authority are reported using the economic resources measurement focus and the accrual basis of accounting,whereby revenues are recorded when earned and expenses are recorded when goods or services are received or the related liability is incurred. GASB Statement No.20,Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting,provides two options for reporting proprietary fund activities (including component units using proprietary fund accounting).The Authority has elected to apply all applicable GASB pronouncements and all FASB Statements and Interpretations,Accounting Principles Board Opinions and Accounting Research Bulletins issued on or before November 30,1989,unless they conflict with or contradict GASB pronouncements. Operating Revenue and Expense The Authority considers all its revenues and expenses,except investment income and fund transfers with the State,to be part of its principal ongoing operations and therefore classifies these revenues and expenses as operating in the statement of revenues,expenses,and changes in net assets. Capital Assets Capital assets are stated at cost and depreciation is charged to operations by use of the straight-line method over their estimated useful lives.The estimated economic lives of the assets are as follows: Utility plant Life in years Intangible 30-50 Production 30-50 Transmission 20 -40 General 5 -30 The Authority recognizes impairment losses for long-lived assets whenever events or changes in circumstances result in the carrying amount of the assets exceeding the sum of the expected future cash flows associated with such assets. Cash and Investments All of AEA's cash and investments are restricted as to use by AEA.For the purposes of the statement of cash flows,cash and cash equivalents consist of cash,short term commercial paper and money market funds. 15 (Continued) (d) (e) (3) (h) () ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 AEA's marketable securities are reported at fair value in the financial statements.Unrealized gains and losses are reported as components of the change in net assets.Fair values are obtained from independent sources. Loans and Related Interest Income Loans are generally carried at amounts advanced less principal payments collected.Interest income is accrued as earned.Accrual of interest is discontinued whenever the payment of interest or principal is more than ninety days past due or when the loan terms are restructured.The Authority considers lending activities to be part of its principal operations and classifies it as operating in the statement of revenues,expenses,and changes in net assets.For purposes of the statement of cash flows,loans are treated as program loans. Allowance for Loan Losses The allowance for loan losses represents management's judgment as to the amount required to absorb potential losses in the loan portfolio.The factors used by management to determine the allowance required include historical loss experience,individual loan delinquencies,collateral values,economic conditions and other factors.Management's opinion is that the allowance is currently adequate to absorb known losses and inherent risks in the portfolio. Environmental Issues The Authority's policy relating to environmental issues is to record a liability when the likelihood of Authority responsibility for clean-up is probable and the costs are reasonably estimable.At June 30, 2009 and 2008,there were no environmental issues which met both of these criteria and, accordingly,no provision has been made in the accompanying financial statements for any potential liability which may result. Income Taxes The Internal Revenue Code provides that gross income for tax purposes does not include income accruing to a state or territory or any political subdivision thereof which is derived from the exercise of any essential governmental function or from any public utility.AEA is a political subdivision of the State performing an essential governmental function and is therefore exempt from State and federal income taxes. Appropriations and Grants The Authority recognizes grant revenue under the provisions of GASB Statement No.33, Accounting and Financial Reporting for Nonexchange Transactions,whereby revenue is recognized when all applicable eligibility requirements,including time requirements,are met. Segment Information The financial statements disclose all financial information required by the Authority's Bradley Lake bond indenture. 16 (Continued) (3) @ (k) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Estimates In preparing the financial statements,management of the Authority is required to make estimates and assumptions that affect the reported amounts of assets and liabilities,and disclosures of contingent assets and liabilities as of the date of the balance sheet.These estimates impact revenue and expenses for the period.Actual results could differ from those estimates. Recent Accounting Pronouncement In November 2006,GASB issued Statement No.49,Accounting and Financial Reporting for Pollution Remediation Obligations,which is effective for periods beginning after December 15, 2007.This statement addresses accounting and financial reporting standards for pollution (including contamination)remediation obligations,which are obligations to address the current or potential detrimental effects of existing pollution by participating in pollution remediation activities such as site assessments and cleanups.No liability existed under this standard at June 30,2009. Cash and Investments Pursuant to various agreements,appropriations and statutory requirements relating to its operations,AEA has established accounts for assets restricted to construction,operation,and financing activities (as used herein,Fund means a separate account established by the State legislature and does not refer to a separate group of self balancing accounts as contemplated by accounting principles generally accepted in the United States of America). At June 30,2009 and 2008 the Authority's carrying amount of deposits (all of which were restricted)was $57,240,000 and $30,741,000,respectively.The total of all bank balances was $58,536,000 and $31,507,000,respectively. The restricted and designated cash and investments were held in trust accounts for the following activities as of June 30,2009 (stated in thousands): Cash and cash equivalents Investments Total Power Cost Equalization Endowment Fund $13 303,341 303,354 Renewable Energy Grant Fund -87,143 87,143 Bradley Lake Hydroelectric Project 9,149 18,626 27,775 Rural Energy Loan Funds 17,405 8,587 25,992 Rural Energy and Energy Development Programs 3,067 15,542 18,609 Funds advanced from State and federal agencies 13,879 -13,879 Renewable Energy Grant Program 11,021 -11,021 Power Development Fund 1,867 -1,867 Alaska Intertie Project 839 -839 Total cash and investments $$7,240 433,239 490,479 17 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 The restricted and designated cash and investments were held in trust accounts for the following activities as of June 30,2008 (stated in thousands): Cash and cash equivalents Investments Total Power Cost Equalization Endowment Fund $2 368,704 368,706 Bradley Lake Hydroelectric Project 9,045 17,933 26,978 Rural Energy Loan Funds 9,180 11,539 20,719 Rural Energy and Energy , Development Programs 1,387 18,831 20,218 Funds advanced from State and federal agencies 7,925 -7,925 Power Development Fund 1,940 -1,940 Power Cost Equalization and Rural Electric Capitalization Fund 746 6,991 7,737 Alaska Intertie Project 516 -516 Total cash and investments $30,741 423,998 454,739 At June 30,2009 and 2008,amounts restricted for debt service totaled $23,015,000 and $22,863,000, respectively,for the Bradley Lake Hydroelectric Project. Investment Holdings Power Cost Equalization Endowment Fund and Renewable Energy Grant Fund -The Power Cost Equalization Endowment Fund (PCE Fund),created under Alaska Statute 42.45.070,and the Renewable Energy Grant Fund (RE Fund),created under Alaska Statute 42.45.045,are under the fiduciary authority of the State Department of Revenue,Treasury Division (Treasury).The purpose of the PCE fund is to provide for a long-term stable financing source for power cost equalization in order to provide affordable levels of electric utility costs in otherwise high-cost service areas in the state.The purpose of the RE Fund is to finance renewable energy projects in Alaska. State investments are managed in pools.PCE Fund assets are held in the State's internally managed Short- term Fixed Income Pool and the Conservative Broad Market Pool (which consists solely of investments in the Broad Market and U.S.Treasury Fixed Income Pools),as well as the State's externally managed Domestic Equity account and International Equity Pool.RE Fund assets are held in the State's internally managed General Fund and Other Non-Segregated Investments Pool (GeFonsi).The GeFONSI consists of investments in the State's Short-term and Intermediate-term Fixed Income Pools.A complete description of the investment policy for each pool is included in the Department of Revenue,Treasury Division, Policies and Procedures. Fixed income and international equity securities are valued each business day using prices obtained from a pricing service.The Domestic Equity account is valued each business day by the Trustee Committee in good faith and pursuant to procedures established by the Trustee.Securities expressed in terms of foreign currencies are translated into U.S.dollars at the prevailing exchange rates. 18 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 The accrual basis of accounting is used for investment income.Income in the other fixed income pools and the International Equity Pool is allocated to pool participants daily on a pro rata basis.Domestic equity income is distributed quarterly. At June 30,2009,AEA had the following cash and investments in the PCE and RE Funds (stated in thousands): Cash Investments at fair value PCE Fund RE Fund PCE FUND Broad market Short and and U.S. Short-term intermediate-Treasuries fixed terms fixed fixed Investment type income pool income pool income pools Equity Total Deposit $19 105 --- Short-term Investment Fund -_--__-1,069 1,069 Commercial paper 382 2,111 --- U.S.Treasury bonds --_3,146 -3,146 U.S.Treasury bills 2,156 11,907 _--_- U.S.Treasury notes -_-23,650 24,215 -24,215 U.S.government agency 167 16,335 4,260 -4,260 Mortgage-backed 241 6,213 48,802 -48,802 Other asset-backed 761 4,526 1,220 -1,220 Corporate bonds 2,059 17,057 20,420 -_20,420 Yankee: Govemment -_406 273 -_-273 Corporate 442 4,688 3,936 -3,936 Domestic equity ---_141,032 141,032 International equity ---50,286 50,286 Total invested assets 6,227 86,998 106,272 192,387 298 659 Pool related net liabilities (14)145 (1,744)226 (1,518) Other pool ownership (6,200)-6,200 -6,200 Net invested assets $13 87,143 110,728 192,613 303,341 19 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2008,AEA had the following cash and investments in the PCE Fund (stated in thousands): Cash Investments at fair value Short-term Broad market fixed fixed Total Investment type income pool income pool Equity investments Overnight sweep account $27 --- Commercial paper 877 --- Municipal bonds -18 -18 U.S.Treasury notes -12,170 -12,170 U.S.Treasury bonds -4,929 -4,929 U.S.government agency 5,854 2,541 -2,541 Mortgage-backed 470 90,741 --90,741 Other asset-backed 2,727 8,265 -8,265 Corporate bonds 2,581 34,438 -34,438 'Yankee: Government -_-382 -382 Corporate 774 4,264 -4,264 Domestic equity --137,785 137,785 International equity --_69,192 69,192 Total invested assets 13,310 157,748 206,977 364,725 Pool related net liabilities (7)(10,225)903 (9,322) Other pool ownership (13,301)13,301 _13,301 Net invested assets $2 160,824 207,880 368,704 Other AEA Cash and Investments -Bradley Lake Hydroelectric Project investments are substantially invested pursuant to investment agreements with JP Morgan Chase Bank that end the earlier of July 1, 2021 or the date of repayment of the Bradley Lake Power Revenue Bonds,First and Second Series.All other AEA assets are managed by internal staff for liquidity and minimal risk.There is no AEA board approved investment policy,but staff follows AIDEA's board approved investment policy.The AEA managed portfolio consists of the following eligible securities: e Debt instruments issued or guaranteed by the U.S.government,its agencies and instrumentalities, and Government Sponsored Enterprises (GSEs);and °Money market funds and repurchase agreements collateralized by U.S.Treasury and agency securities. 20 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2009 and 2008,AEA had the following cash and investments in its other funds (stated in thousands): 2009 2008 Fair value Fair value short-term short-term Investment type fixed income fixed income Deposits $29 17 Money market 57,198 30,721 GSE-Mortgage-backed 5,031 25,897 U.S.Treasury notes 19,098 11,464 Investment agreements 18,626 17,934 Total invested assets $99,982 86,033 Interest Rate Risk -Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. Short-Term Fixed Income Pool -As a means of limiting its exposure to fair value losses arising from increasing interest rates,Treasury's investment policy limits individual fixed rate securities to fourteen months in maturity or fourteen months expected average life.Floating rate securities are limited to three years in maturity or three years expected average life.Treasury utilizes the actual maturity date for commercial paper and twelve month prepay speeds for other securities.At June 30,2009,the expected average life of individual fixed rate securities ranged from one day to six and one-half years and the expected average life of floating rate securities ranged from one day to eight years.At June 30,2008 the expected average life of fixed rate securities ranged from eight days to less than three months. Intermediate-Term Fixed Income Pool -Treasury manages its exposure to fair value losses arising from increasing interest rates by limiting effective duration of the Intermediate-term Fixed Income Pool to + 20%of the Merrill Lynch 1-5 year Government Bond Index.The effective duration for this index at June 30,2009 was 2.54 years.AEA held no investments in this pool in 2008. Broad Market and U.S.Treasury Fixed Income Pools -Through its investment policy,Treasury manages its exposure to fair value losses arising from increasing interest rates by limiting the effective duration of its other fixed income pools to the following: For 2009,Treasury limited Broad Market Fixed Income Pool to +20%of the Barclay's Capital U.S.Aggregate Bond Index.The effective duration of the Index at June 30,2009 was 4.3 years.For 2008, Treasury limited the pool to +20%of the Lehman Brothers Aggregate Bond Index.The effective duration for the Lehman Brothers Aggregate Bond Index at June 30,2008,was 4.7 years. For 2009,Treasury limited U.S.Treasury Fixed Income Pool to +20%of the Barclay's Capital U.S.Aggregate Treasury Index.The effective duration of the Index at June 30,2009 was 5.13 years.AEA held no investments in this pool in 2008. 21 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Investment Agreements -Bradley Lake Hydroelectric Project investments are invested pursuant to agreements with JP Morgan Chase Bank that guarantees annual interest earnings of 7.38%or 7.41%per annum until the earlier of July 1,2021 or the date of repayment of the Bradley Lake Power Revenue Bonds,First and Second Series.The investment contracts are collateralized. Under the Internal Revenue Code of 1986,as amended,certain earnings in excess of arbitrage yield on the Bradley Lake bonds must be rebated to the U.S.Treasury.The bulk of the Bradley Lake investments are subject to rebate. AEA Internally Managed Investments -There is no written policy for interest rate risk for AEA's internally managed investments,but AIDEA's policy is followed.The duration for the investments is 2 years or less. The maximum maturity of any issue is 3 years from the date of purchase. Duration -Duration is a measure of interest rate risk.It measures a security's sensitivity to a 100-basis point change in interest rates.Duration is a weighted average term-to-maturity of an investment's cash flows. Treasury uses industry-standard analytical software developed by The Yield Book Inc.to calculate effective duration.The software takes into account various possible future interest rates,historical and estimated prepayment rates,call options and other variable cash flows for purposes of the effective duration calculation.Duration for the AEA managed investments are as reported on Bloomberg. Treasury has no policy with regard to interest rate risk for the money market balance held in the International Equity Pool.Additionally,the Conservative Broad Market Fixed Income pool does not have its own investment policy because it invests only in existing pools,which do have established policies. 22 (Continued) arsALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2009 and 2008,the effective duration by investment type (not including the investment agreements)was as follows: Intermediate-Broad US. term market Treasury fixed income fixed income fixed income Managed by Treasury pool pool pool 2009 U.S.Treasury notes -6.01 4.70 U.S.Treasury bonds 3.07 12.81 9.58 U.S.government agency 2.02 6.92 8.95 Mortgage-backed 2.42 -- Other asset-backed 0.71 -- Corporate bonds 2.10 -_-2.57 Yankees: Government 2.73 11.37 - Corporate 2.81 4.80 -_- Portfolio effective duration 2.52 4.19 5.12 2008 U.S.Treasury notes _-7.24 - U.S.Treasury bonds -13.48 - U.S.government agency -4.85 - Municipal bonds _10.96 - Mortgage-backed -4.37 - Other asset-backed -_2.58 - Corporate bonds _-4.91 -_- Yankees: Government -_-11.93 - Corporate -_5.48 - Portfolio effective duration -4.57 - Money market U.S.Treasury notes U.S.government agency and GSE discount notes Portfolio effective duration Managed by AEA 23 2009 2008 0.16 0.18 0.33 0.95 0.03 0.25 0.37 0.34 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Credit Risk -Credit risk is the financial risk that an issuer or other counterparty to an investment will not fulfill its obligations and a loss will result.Treasury's investment policy has the following limitations with regard to credit risk. Short-Term Fixed Income Pool -Short-term Fixed Income Pool investments are limited to instruments with a long-term credit rating of at least A3 or equivalent and instruments with a short-term credit rating of at least P-1 or equivalent.Asset-backed and nonagency mortgage securities must be rated A3 or equivalent. The A3 rating is defined as the median rating of the following three rating agencies:Standard &Poor's Corporation,Moody's and Fitch.Asset-backed and nonagency mortgage securities may be purchased if only rated by one of these agencies if they are rated AAA. Intermediate-Fixed Income Pool -Intermediate-term Fixed Income Pool investments are limited to securities with a long-term credit rating of at least Baa3 or equivalent and securities with a short-term credit rating of at least P-1 or equivalent.Asset-backed and nonagency mortgage securities must be rated investment grade.The investment grade rating is defined as the median rating of the following three rating agencies:Standard &Poor's Corporation,Moody's and Fitch.Asset-backed and nonagency mortgage securities may be purchased if only rated by one of these agencies if they are rated AAA. Broad Market Fixed Income Pool -The Broad Market Fixed Income Pool investments are limited to securities with a long-term credit rating of at least Baa3 or equivalent and securities with a short-term credit rating of at least P-1 or equivalent.Asset-backed and nonagency mortgage securities must be rated investment grade.The investment grade rating is defined as the median rating of the following three rating agencies:Standard &Poor's Corporation,Moody's and Fitch.Asset-backed and nonagency mortgage securities may be purchased if only rated by one of these agencies if they are rated AAA. U.S.Treasury Fixed Income Pool -Commercial paper in the U.S.Treasury Fixed Income Pool must be rated at least P-1 by Moody's and A-1 by Standard and Poor's Corporation.In addition,corporate, asset-backed and nonagency mortgage securities must be rated investment grade.The investment grade rating is defined as the median rating of the following three rating agencies:Standard &Poor's Corporation,Moody's and Fitch.In addition,asset-backed and nonagency mortgage securities may be purchased if only rated by one of these agencies if they are rated AAA.Corporate bonds may be purchased if rated by two of these agencies. Treasury has no policy with regard to credit risk for the money market balance held in the International Equity Pool.The Conservative Broad Market Fixed Income pool does not have its own investment policy because it invests only in existing pools,which have established policies. There is no written policy with regard to credit risk for investments managed by AEA.Since AEA only invests in highly rated money markets and U.S.government and agency securities and GSEs,credit risk is minimal. The Bradley Lake Hydroelectric Project investments are substantially invested in collateralized investment agreements,which minimizes credit risk. 24 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2009,the Pools managed by Treasury and the investments managed by AEA consisted of investments with credit quality ratings issued by nationally recognized statistical rating organizations as follows (using Standard &Poor's Corporation rating scale). Short-term Intermediate-Broad market U.S. fixed term fixed fixed Treasury AEA Investment type Rating'income pool income pool income pool income pool managed Money market AAA -h %-%-%57% Commercial paper A-1 1 -_--_-_- Commercial paper Not Rated 5 --_-_- U.S.Treasury notes AAA __16 69 19 U.S.Treasury bills AAA 35 44 -_--_- U.S.Treasury bonds AAA __2 iH - U.S.government agency - and GSE discount notes AAA 3 28 2 -5 U.S.government agency and GSE Not Rated _1 1 6 _ Mortgage-backed AAA 3 7 46 --_ Mortgage-backed Not Rated _-2 4 -_-_ Other asset-backed AAA 11 _1 -_- Other asset-backed AA l _-_--_- Corporate bonds AAA 19 5 2 8 _- Corporate bonds AA 6 1 3 -_- Corporate bonds A 8 3 9 =_- Corporate bonds BBB _2 6 -- Yankees -government AA -_1 -__- Yankees corporate AAA 2 3 1 _- Yankees -corporate AA 4 1 -_--_- Yankees -corporate A __2 -_- Yankees -corporate BBB 2 _1 -_- No credit exposure _-2 4 6 _ Investment agreements Not Rated _=_--19 100%100%100%100%100% 'Rating modifiers are not disclosed. The International Equity Pool was 100%no credit exposure. 25 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2008,the Pools managed by Treasury and the investments managed by AEA consisted of investments with credit quality ratings issued by nationally recognized statistical rating organizations as follows (using Standard &Poor's Corporation rating scale): Short-term Broad market fixed income fixed income International AEA Investment type Rating'pool pool equity pool managed Money market AAA -9 -*-%36% Commercial paper Not Rated 7 ---_ U.S.Treasury notes AAA -_-8 -_13 U.S.Treasury bonds AAA -3 -- U.S.goverment agency and GSE discount notes AAA 44 1 -20 U.S.government agency and GSE AAA -_-_-_-10 Mortgage-backed AAA 3 46 -- Mortgage-backed (agency)Not Rated _-11 -- Other asset-backed AAA 16 3 -_--_- Other asset-backed AA 1 -_-- Other asset-backed A 3 1 -- Other asset-backed BB 1 --_- Corporate bonds AAA 2 2 -_- Corporate bonds AA 12 5 -_- Corporate bonds A 4 9 --_ Corporate bonds BBB -_5 -_ Corporate bonds Not Rated 1 1 --_ Yankees -corporate AA 4 1 -- Yankees -corporate A 1 1 -- Yankees -corporate BBB _-1 -- Yankees -corporate Not Rated 1 --- No credit exposure _-2 100 -_ Investment agreements Not Rated -_-_-21 100%100%100%100% 'Rating modifiers are not disclosed. Custodial Credit Risk Custodial credit risk is the risk that deposits may not be returned in the event of a bank failure.Treasury's policy with regard to custodial credit risk is to collateralize State deposits to the extent possible.At June 30,2009,AEA's deposits managed by Treasury were uncollateralized and uninsured. With respect to AEA managed investments,amounts totaling approximately $48,048,000 at June 30,2009 and $21,676,000 at June 30,2008,are held in money market funds not registered in AEA's name.The investment contracts are collateralized.All other investment securities are registered in AEA's name and are held by its custodian,the trust department of a commercial bank;therefore no custodial risk exists for these securities. 26 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Foreign Currency Risk -The Commissioner of Revenue formally adopts asset allocation policies for AEA's PCE Fund at the beginning of each fiscal year which places policy limitations on the amount of international securities the PCE Fund is allowed to hold.The following policy was in place during fiscal years 2009 and 2008,and invested assets included the following holdings at June 30,2009 and 2008,for the PCE Fund's investment in the International Equity Pool: Policy Actual FY09 18%+5%17.00% FY08 17%+5%19.01% At June 30,2009 and 2008,AEA's PCE Fund had exposure to foreign currency risk as follows (stated in thousands): FY09 Fair FY08 Fair Currency value value Deposits: Euro Currency $-28 Japanese Yen 7 - Pound Sterling (7)72 -100 Investment -international equity: Canadian Dollar 565 1,295 Danish Krone 421 - Euro Currency 14,396 19,167 Hong Kong Dollar 345 - Japanese Yen 7,347 8,304 Norwegian Krone -560 Pound Sterling 9,578 12,373 Singapore Dollar 843 1,703 Swedish Krona 531 488 Swiss Franc 4,109 6,978 38,135 50,868 Total $38,135 50,968 Concentration of Credit Risk -Treasury's policy with regard to concentration of credit risk is to prohibit the purchase of more than five percent of a pool's holdings in corporate bonds of any one company or affiliated group.Federal National Mortgage Association and Federal Home Loan Mortgage Corporation securities are not classified as corporate bonds.AEA has no written policy with respect to concentration of credit risk for its other investments. 27 (Continued) (4) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 At June 30,2009,AEA's investments (excluding U.S.Treasury securities)included the following concentrations greater than 5%(dollar amounts stated in thousands): Issuer Amount Percent Federal National Mortgage Association $57,375 12% At June 30,2008,AEA's investments included the following concentrations greater than 5% (dollar amounts stated in thousands): Issuer Amount Percent Federal National Mortgage Association $61,664 14% Federal Home Loan Bank 22,793 5 Securities Lending Prior to 2008,a portion of the funds managed by Treasury were in the State Department of Revenue's securities lending program.Alaska Statute 37.10.071 authorizes the Commissioner of Revenue to lend assets,under an agreement and for a fee,against deposited collateral of equivalent fair value.During 2008, the Commissioner suspended the securities lending agreement with State Street Corporation (the Bank), which lent equity and domestic fixed income securities.Prior to suspension,the Bank,acting as the Commissioner's agent under the agreement,transferred securities to broker agents or other entities for collateral in the form of cash or securities and simultaneously agreed to return the collateral for the same securities in the future.At June 30,2009 and 2008 there were no securities on loan. 28 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 (5)Capital Assets Capital asset activity for the years ended June 30,2009 and 2008 was as follows (stated in thousands): Balance at Balance at June 30,2008 Additions Deletions June 30,2009 Capital assets: Intangible $14 --14 Production 252,199 342 -252,541 Transmission 186,459 2,267 -_188,726 General 5,151 844 -5,995 Total capital assets 443,823 3,453 -447,276 Less accumulated depreciation for: Intangible (4)--(4) Production (84,411)(5,267)-(89,678) Transmission (102,531)(4,934)-(107,465) General (5,043)(32)-(5,075) Total accumulated depreciation (191,989)(10,233)-(202,222) Capital assets,net §$251,834 (6,780)-245,054 Balance at Balance at June 30,2007 Additions Deletions June 30,2008 Capital assets:: Intangible $14 --14 Production 250,937 1,262 -252,199 Transmission 185,660 799 -186,459 General 5,034 117 -5,151 Total capital assets 441,645 2,178 -443,823 Less accumulated depreciation for:Intangible (4)-_-(4) Production (79,198)(5,213)-(84,411) Transmission (97,597)(4,934)-(102,531) General (5,030)(13)-(5,043) Total accumulated depreciation (181,829)(10,160)-(191,989) Capital assets,net $259,816 (7,982)-251,834 29 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 (6)Long-Term Debt Long-term debt activity for the years ended June 30,2009 and 2008 was as follows (stated in thousands): Balance Balance at June 30,at June 30,Due within 2008 Additions Deletions 2009 one year Bradley Lake Power Revenue Bonds: First Series (a)$100 100 _ Second Series (a)6,910 (2,305)4,605 2,300 Refunding,Third Series (a)44,705 (3,390)41,315 3,595 Refunding,Fourth Series (a)37,155 (125)37,030 135 Refunding,Fifth Series (a)30,640 30,640 _- Total bonds payable 119,510 _-(5,820)113,690 6,030 Arbitrage interest payable (b)1,288 250 (1,007)$31 357 Less bond discount and deferred interest (1,236)877 (359)- $119,562 250 (5,950)113,862 6,387 Balance Balance at June 30,at June 30,Due within 2007 Additions Deletions 2008 one year Bradley Lake Power Revenue Bonds: First Series (a)$3,370 -(3,270)100 -_- Second Series (a)9,215 -(2,305)6,910 2,305 Refunding,Third Series (a)44,820 _(115)44,705 3,390 Refunding,Fourth Series (a)37,275 -_(120)37,155 125 Refunding,Fifth Series (a)30,640 _-_-30,640 _ Total bonds payable 125,320 -_-(5,810)119,510 $,820 Arbitrage interest payable (b)984 304 -_1,288 1,007 Less bond discount and deferred interest (2,363)-_-1,127 (1,236)-_ $123,941 304 (4,683)119,562 6,827 30 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 The minimum payments related to all bonds for the years subsequent to June 30,2009 are as follows (stated in thousands): Year ending June 30:Principal Interest Total 2010 $6,030 6,127 12,157 2011 6,255 5,897 12,152 2012 6,495 5,583 12,078 2013 6,880 5,182 12,062 2014 7,300 4,757 12,057 2015 -2019 46,020 16,248 62,268 2020 -2022 34,710 2,857 37,567 5 113,690 46,651 160,341 (a) (b) AEA issued the Power Revenue Bonds,First and Second Series (Bradley Lake Bonds),in September 1989 and August 1990,respectively,for the long term financing of the construction costs of the Bradley Lake Hydroelectric Project and refunded AEA's Variable Rate Demand Bonds which were issued in November 1985 to provide interim financing of the project.AEA issued the Power Revenue Refunding Bonds,Third and Fifth Series in April 1999 to refund a portion of the First Series Bonds and to provide costs of issuance.AEA issued the Power Revenue Refunding Bonds, Fourth Series in April 2000 to refund a portion of the Second Series Bonds and to provide costs of issuance.All of the revenues derived by AEA from the operation of the project and all moneys, securities and funds (except the excess earnings fund),including a capital reserve fund,held or set aside are pledged and assigned to secure the payment of principal,redemption premium,if any,and interest on the bonds.No other revenues of AEA are pledged as security for the payment of the bonds.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level.The bonds are further secured by bond insurance.AEA collects from each power purchaser a percentage share of annual project costs.The outstanding Bradley Lake Bonds mature annually each July 1 through the year 2021 with interest rates ranging from 5%to 6.25%. The arbitrage interest payable is due to the United States Treasury for the excess of investment income on the proceeds of each series of AEA's tax exempt Bradley Lake bonds over the related interest expense computed in accordance with Section 148 of the Internal Revenue Code of 1986. The accumulated arbitrage interest payable amount is computed each year,and the amount for each series is first due after the end of the fifth bond year and every five years thereafter.AEA maintains a separate account for each series with the trustee and each year sets aside a sufficient amount to satisfy the liability. In addition,the Authority has participated in the following debt agreements: Other Debt -In 1982,AEA assumed $44,859,000 of 5%mortgage notes payable which requires quarterly principal and interest payments to the Rural Utilities Service (RUS)in connection with the Solomon Gulch Hydroelectric Project.Concurrent with the assumption,AEA deposited with a trustee Treasury notes sufficient to satisfy and provide for timely repayment of all principal and 31 (Continued) (7) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 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 30,2009,the unpaid principal balance of the notes was $13,396,000 and the trust assets had a fair value of $14,627,000. e 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 30,2009,the outstanding balance was $37,455,000. The Sitka Bonds are special obligations of AEA secured under a trust indenture by and between AEA and U.S.Bank National Association,as trustee.The Sitka Bonds are payable solely from the sources provided under the trust indenture.They are equally and ratably secured by a pledge and assignment of the municipal revenue bonds of Sitka held by AEA under the trust indenture,the obligation of Sitka to make payments under its loan agreement with AEA and the money and securities held under the trust indenture,including a capital reserve fund.AEA has covenanted to notify the State Legislature of any failure to maintain the capital reserve fund at its required level. The bonds are further secured by bond insurance. The Sitka Bonds do not constitute an indebtedness or other liability of the State,including AEA,and do not directly,indirectly or contingently obligate the State,including AEA,or any political subdivision thereof to levy any form of taxation for the payment of the bonds.Neither the full faith and credit nor the taxing power of the State,including AEA,or Sitka is pledged for the payment of the Sitka Bonds. Loans The Authority administers the Power Project Loan Program,the Rural Electrification Revolving Loan Program and the Bulk Fuel Revolving Loan Program.Loans outstanding at June 30,2009 and 2008 are classified as follows (dollar amounts stated in thousands): 2009 2008 No.of loans Amount No.of loans Amount Power Project Loan Program 47 $26,330 42 $24,944 Rural Electrification Revolving Loan Program 2 646 2 698 Bulk Fuel Revolving Loan , Program 23 1,352 25 2,171 72 28,328 69 27,813 Less allowance for loan losses (1,052)(1,092) $27,276 $26,721 32 (Continued) (8) (9) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 Loans that are more than 90 days past due on which the accrual of interest has been discontinued amounted to $368,520 and $266,000 at June 30,2009 and 2008,respectively. An analysis of changes in the allowance for loan losses for the years ended June 30,2009 and 2008 follows (stated in thousands): 2009 2008 Balance at beginning of year $1,092 1,177 Recoveries -21 Write-offs -- Provision for loan loss (40)(106) Balance at end of year $1,052 1,092 Risk Management AEA is exposed to various risks of loss and obtains coverage for its risks through the purchase of commercial insurance and participation in the State Risk Management Pool. Related Parties (a) (b) Alaska Industrial Development and Export Authority Pursuant to understandings and agreements between AIDEA and AEA,AIDEA provides administrative,treasury,personnel,data processing,communications,and other services to AEA. During 2009 and 2008,AEA expensed $4,344,000 and $3,430,000,respectively,for such services. During 2009 and 2008,AEA capitalized $31,000 and $64,000,respectively,for such services.AEA has a borrowing arrangement with AIDEA to provide working capital funds.At June 30,2009 and 2008,AEA had $1,852,000 and $1,440,000,respectively,payable to AIDEA for services and borrowings. 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 [OC is comprised of a representative from AEA and each of the utilities.AEA is reimbursed for operation and maintenance costs on a monthly basis with an annual settlement to adjust the payments to actual costs.AEA management on October 16,2006, issued contractually required notice that the agreement will terminate in 48 months as a mechanism to implement cures to identified defects in the agreement (note 1(b)). 33 (Continued) (10) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Basic Financial Statements June 30,2009 and 2008 (c)Bradley Lake Project Management Committee Effective December 7,1987,AEA entered into a power sales agreement with entities purchasing electric power produced by the Bradley Lake Hydroelectric Project.Pursuant to the agreement,a Project Management Committee (PMC)was formed.The PMC is comprised of a representative from AEA and each of the power purchasers.The participating power purchasers make monthly payments directly to the bond trustee based on their respective percentage share of the estimated annual project costs,including debt service and annual administrative fee to AEA. Commitments and Contingencies AEA,in the normal course of business,is involved in various claims and pending litigation.The State Department of Law manages all pending litigation of AEA,and any liability arising from the settlement of pending claims is a liability for which the Department of Law or AEA requests an appropriation from the Legislature to satisfy judgment in the event that the judgment exceeds available funds or the proceeds from applicable insurance policies.In the opinion of management,the disposition of current claims and pending litigation is not presently expected to have a material adverse effect on AEA's financial position. In the normal course of business,AEA also has various commitments,such as commitments for the extension of credit and award of grants.At June 30,2009 and 2008,AEA had open Joan commitments of $12,253,000 and $4,596,000,respectively.At June 30,2009 and 2008,AEA had committed to grant awards to be funded by State appropriations and federal awards;the amounts committed were $146,201,000 and $60,770,000,respectively. At June 30,2009 and 2008,AEA held approximately $5,795,000 and $5,750,000 at fair value, respectively,of investments in escrow under an agreement. 34 Balance at June 30,2008 Interest received Bond principal paid Bond interest paid Construction expenditures Operating revenue received Operating expenses paid Transfers between funds Balance at June 30,2009 Schedule of Bradley Lake Hydroelectric Project Trust Account Activities ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Year ended June 30,2009 (Stated in thousands) Schedule 1 Capital Renewal and Excess Operating Debt service reserve contingency earnings Revenue Operating reserve account account account account account account account Total 9,045 12,834 1,082 984 1,852 446 735 26,978 318 809 124 (979)352 43 49 716 (5,820)-__-____(5,820) (6,344)-_-_-__-_--(6,344) _--(197)_--__-(197) -___16,142 _-_16,142 _____(3,700)_-(3,700) 11,951 (809)1,322 304 (16,380)3,656 (44)-_- 9,150 12,834 2,331 309 1,966 445 740 27,775 See accompanying independent auditors'report. 35 Schedule 2 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Projects -Balance Sheet June 30,2009 (Stated in thousands) Administration Rural Energy Bradley Lake Alaska Rural and Power and Energy Hydroelectric Intertie Energy Develop ft Development Combined Assets Project Project Projects Fund Programs balance Current assets: Grants receivable $__106 (284)3,744 3,566 Loans receivable ____1,970 1,970 Operating revenue receivable 68 216 __5,071 5,355 Accrued interest receivable 924 ___-318 242 Total current assets 992 216 106 (284)11,103 12,133 Noncurrent assets: Restricted cash and investments 23,015 _-_-_-_-23,015 Designated for specific purposes 4,760 839 _15,746 446,119 467,464 Loans receivable,net of allowance _-_-_-25,306 25,306 Capital assets net of accumulated depreciation 196,824 45,129 3,101 -_245,054 Total noncurrent assets 224,599 45,968 3,101 15,746 471,425 760,839 Total assets $225,591 46,184 3,207 15,462 482,528 772,972 Liabilities and Net Assets Current liabilities: Due to State of Alaska $_-(64)-_22,890 (20,683)2,143 Accounts payable 1,225 1,102 341 (9,600)33,954 27,022 Bonds payable -current portion 6,030 -__-__6,030 Accrued interest 3,120 ---_--_3,120 Arbitrage interest payable -current portion 357 _=-__357 Total current liabilities 10,732 1,038 341 13,290 13,271 38,672 Noncurrent liabilities: Bonds payable -noncurrent portion,net 107,301 _-___107,301 Arbitrage interest payable -noncurrent portion 174 _--_-174 Other liabilities 103 -6 _(6)103 Total noncurrent liabilities 107,578 =6 =(6)107,578 Total liabilities 118,310 1,038 347 13,290 13,265 146,250 Net assets: Investment in capital assets net of related debt 83,493 45,129 3,102 _-131,724Restrictedfordebtservice19,896 ____19,896 Restricted by agreements with external parties 3,892 17 __17,974 21,883 Unrestricted net assets -_-(242)2,172 451,289 453,219 Total net assets 107,281 45,146 2,860 2,172 469,263 626,722 Commitments and contingencies Total liabilities and net assets $225,591 46,184 3,207 15,462 482,528 772,972 See accompanying independent auditors'report. 36 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Schedule of Projects -Revenues,Expenses,and Changes in Net Assets Year ended June 30,2009 (Stated in thousands) Schedule 3 Operating revenues: Federal grants Revenue from operating plants State of Alaska appropriations Revenue from state agencies Interest on loans Other revenue Total operating revenues Operating expenses: Grants and projects Power cost equalization grants Depreciation Interest expense Plant operating General and administrative Provision for loan loss and bad debt expense Total operating expenses Operating income (loss) Nonoperating: State of Alaska fund transfers Investment income,net Increase (decrease)in net assets Net assets -beginning Net assets -ending See accompanying independent auditors'report. Administration Rural Energy Bradley Lake Alaska Rural and Power and Energy Hydroelectric Intertie Energy Development Development Combined Project Project Projects Fund Programs balance $-_-_-2,722 _-17,823 20,545 16,597 1,281 12 __17,890 _-291 8 -_-61,095 61,394 -_---_551 $51 -_-_---1,099 1,099 i -_---112 113 16,598 1,572 2,742 -_80,680 101,592 -_-40 --71,970 72,010 _-_-_-_-37,074 37,074 6,874 3,360 --_-10,234 7,116 --_---7,116 3,796 1,256 24 -_-_-5,076 261 29 1 _1,649 1,940 (40)(40) 18,047 4,685 25 -110,653 133,410 (1,449)(3,113)2,717 -_(29,973)(31,818) __-_-_105,501 105,501 1,490 4 --(45,122)(43,628) 41 (3,109)2,717 =30,406 30,055 107,240 48,255 143 2,172 438,857 596,667 $107,281 45,146 2,860 2,172 469,263 626,722 37 ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Audit in Accordance with OMB Circular A-133 Year ended June 30,2009 (With Independent Auditors'Report Thereon) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Table of Contents Independent Auditors'Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 Schedule of Expenditures of Federal Awards Notes to Schedule of Expenditures of Federal Awards Schedule of Findings and Questioned Costs Independent Auditors'Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control over Compliance in Accordance with OMB Circular A-133 The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska): Compliance We have audited the compliance of the Alaska Energy Authority,a Component Unit of the State of Alaska, (Authority)with the types of compliance requirements described in the U.S.Office of Management and Budget (OMB)Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30,2009.The Authority's major federal programs are identified in the summary of auditors'results section of the accompanying schedule of findings and questioned costs. Compliance with the requirements of laws,regulations,contracts,and grants applicable to each of its major federal programs is the responsibility of the Authority's management.Our responsibility is to express an opinion on the Authority's compliance based on our audit. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America;the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States;and OMB Circular A-133,Audits of States,Local Governments,and Non-Profit Organizations.Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred.An audit includes examining,on a test basis,evidence about the Authority's compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.We believe that our audit provides a reasonable basis for our opinion.Our audit does not provide a legal determination of the Authority's compliance with those requirements. In our opinion,the Authority complied,in all material respects,with the requirements referred to above that are applicable to each of its major federal programs for the year ended June 30,2009. Internal Control over Compliance The management of the Authority is responsible for establishing and maintaining effective internal control over compliance with the requirements of laws,regulations,contracts,and grants applicable to federal programs.In planning and performing our audit,we considered the Authority's internal control over compliance with the requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance,but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly,we do not express an opinion on the effectiveness of the Authority's internal control over compliance. KPMG LLP,a US.limited lizbility paytnership,is the U.S. member firm of KPMG International,a Swiss cooperative. Bane A control deficiency in an entity's internal control over compliance exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent or detect noncompliance with a type of compliance requirement of a federal program on a timely basis.A significant deficiency is a control deficiency,or combination of control deficiencies, that adversely affects the entity's ability to administer a federal program such that there is more than a remote likelihood that noncompliance with a type of compliance requirement of a federal program that is more than inconsequential will not be prevented or detected by the entity's internal control. A material weakness is a significant deficiency,or combination of significant deficiencies,that results in more than a remote likelihood that material noncompliance with a type of compliance requirement of a federal program will not be prevented or detected by the entity's internal control. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and would not necessarily identify all deficiencies in the entity's internal control that might be significant deficiencies or material weaknesses.We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses,as defined above. Schedule of Expenditures of Federal Awards We have audited the basic financial statements of the Authority as of and for the year ended June 30,2009, and have issued our report thereon dated October 23,2009.Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole.The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by OMB Circular A-133 and is not a required part of the basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and,in our opinion,is fairly stated,in all material respects,in relation to the basic financial statements taken as a whole. This report is intended solely for the information and use of the board of directors,management,federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. KPIca LEP October 23,2009 ALASKA ENERGY AUTHORITY (A Component Unit ofthe State of Alaska) Schedule of Expenditures of Federal Awards Year ended June 30,2009 Catalog of federal domestic Federal grantor/pass-through grantor assistance Award Federal grantor program title number amount expenditures U.S.Department of Energy: Direct: Alaska Wood Biomass 81.079 180,722 3,152 Alaska Wind Energy 81.087 2,772,940 41,706 Geothermal Outreach 81.117 £22,000 26,358 Nome Diesel Generator Upgrade 81.422 950,000 9,991 Chenega Bay Power System Upgrade 81,122 379,000 215,741 Total direct 4,404,662 296,948 Passed through the State of Alaska: State Energy Program -Energy Conservation 81.041 125,000 125,000 Passed through Washington State University Washington State Univ-SEP Northwest CHP Application Center 81.041 35,000 5,006 Total U.S.Department of Energy 4,564,662 426,954 Denali Commission: Direct: Bulk Fuel Consolidation Upgrades and Power Generation 90.100 104,315,408 137,376 Bulk Fuel Consolidation Upgrades and Power Generation -2005 and beyond 90.100 42,304,866 2,697,801 Bulk Fuel Consolidation Upgrades 90.100 3,991,328 639,141 Kwethiuk Barge Landing Design 90.100 201,415 30,705 Bulk Fuel Consolidation and Power Generation Upgrades 90.100 21,485,255 9,205,688 Altemative Energy Proposal Review and Project Management 90.100 3,090,000 227,370 Kwethluk Barge Landing and Road Extension Design 90.100 143,415 35,177 2008 Rural Energy Conference 90.100 36,585 33,719 St.George High Penet Wind Diesel 90.100 1,000,000 _ Angoon Power System Upgrade 90.100 840,000 556,120 Kwethluk Power System Upgrade 90.100 3,100,000 422,444 Ouzinkie Power System Upgrade 90.100 200,000 169,231 DC Project Administration 90.100 350,520 31,473 Pelican Hydro Upgrade 90,100 2,274,000 274,301 Napakiak Power System Upgrade 90,100 850,000 527,432 Tuluksak Bulk Fuel Tank Farm Upgrade 90.100 120,000 24,489 Repair &Reptacement 90.100 225,000 48,007 Napakiak Bulk Fuel Farm Upgrade 90.100 150,000 137,702 Ekwok Bulk Fuel Design &Upgrade 90.100 150,000 51,506 Chitina Power System Upgrade 90.100 940,000 358,952 Takotna Power System Upgrade 90.100 950,000 2,724 Napakiak Intertie 90.100 2,850,000 145,092 Ruby Power System Upgrade 90.100 120,000 1 Remote Monitoring &Metering 90.100 153,000 27,002 Nikolai Power System Upgrade 90.100 150,000 186 Village End Use Efficiency Measures 90.100 180,000 16,810 Anchorage School District End Use Efficiency Measures 90.100 147,840 132,172 Total direct 190,318,632 15,932,621 Passed through the State of Alaska: Bulk Fuel Tank,Utility,Power Plant,Hydro Power Plant Operator Training 90.100 273,308 273,009 Total Denali Commission 190,591,940 16,205,630 U.S.Department ofInterior: Passed through the State of Alaska: Remote Monitoring 15.615 24,674 24,674 U.S.Environmental Protection Agency: EPA AK Fish Oil Biodiesel 66.034 200,000 12,454 EPA -TIPS Feasibility 66.202 1,450,800 468,763 Total direct 1,650,800 481,217 Passed through the State of Alaska: Organic Rankine :66.040 55,000 18,467 Total U.S.Environmental Protection Agency 1,705,800 499 684 U.S.Department of Agriculture: RUS Napakiak Transmission Line 10.859 2,915,228 2,590,986 RUS Elfin Cove Power System Upgrade 10.859 1,178,490 103,919 RUS Levelock Power System Upgrade 10.859 2,637,831 1,139,472 Total direct 6,731,549 3,834,377 Passed through the State of Alaska: University of Alaska Modular Fish Oit 10.001 10,391 125 Total U.S.Department of Agriculture 6,741,940 3,834,502 Total federal awards s 203,629,016 20,991,444 See accompanying notes to schedule of expenditures of federal awards. (1) (2) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Schedule of Expenditures of Federal Awards Year ended June 30,2009 General The accompanying Schedule of Expenditures of Federal Awards presents the activity of all federal financial assistance programs of Alaska Energy Authority (Authority).The Authority's reporting entity is defined in note |to the Authority's financial statements.Federal financial assistance received directly from federal agencies as well as federal financial assistance passed through other government agencies is included on the schedule. Basis of Accounting The accompanying Schedule of Expenditures of Federal Awards is presented using the accrual basis of accounting,which is described in note 2 to the Authority's financial statements. (3)Subrecipients ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Notes to Schedule of Expenditures of Federal Awards Year ended June 30,2009 The Authority provided the following to subrecipients during the year ended June 30,2009: US.Department of Energy: Nome Diesel Generator Upgrade Chenega Bay Power System Upgrade Denali Commission: Bulk Fuel Consolidation Upgrades and Power Generation Bulk Fuel Consolidation Upgrades and Power Generation -2005 and beyond Legislative Energy Project Bulk Fuel Consolidation Upgrades Bulk Fuel Consolidation and Power System Upgrades Altemative Energy Proposal Review and Project Management Angoon Power System Uprade Kwethluk Power System Upgrade Ouzinki Power System Upgrade Pelican Hydro Upgrade Napakiak Power System Upgrade Chitna Power System Upgrade Village End Use Efficiency Measures Anchorage School District End Use Efficiency Measures USS.Environmental Protection Agency: EPA -TIPS Feasibility US.Department of Agriculture: RUS Napakiak Transmission Line RUS Elfin Cove Power System Upgrade RUS Levelock Power System Upgrade $10,000 215,740 225,740 33,490 . 1,958,084 603,048 8,178,250 210,477 497,344 422,444 120,828 274,301 340,530 345,906 14,737 132,172 13,131,611 459,965 14,047 94,646 1,131,527 1,240,220 $15,057,536 (1) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Federal Financial Assistance Report Schedule of Findings and Questioned Costs Year ended June 30,2009 Summary of Auditors'Results Financial Statements Type of auditors'report issued Unqualified Internal control over financial reporting: e Material weakness(es)identified?_____yes X no e Significant deficiency(ies)identified that are not considered to be material weakness(es)?yes X__none reported Noncompliance material to financial statements noted?yes X no Federal Awards Internal control over major programs: e Material weakness(es)identified?yes X no e Significant deficiency(ies)identified that are not considered to be material weakness(es)?___yes X none reported Type of auditors'report issued on compliance for major programs 'Unqualified Any audit findings disclosed that are required to be reported in accordance with Section 510(a)of Circular A-133?yes X no Identification of major programs: CFDA Number Name of Federal Program or Cluster 90.100 Denali Commission 10.859 U.S.Department of Agriculture Dollar threshold used to distinguish between Type A and Type B programs:$629,189 Auditee qualified as low-risk auditee?X yes no 6 (Continued) ALASKA ENERGY AUTHORITY (A Component Unit of the State of Alaska) Federal Financial Assistance Report Schedule of Findings and Questioned Costs Year ended June 30,2009 (2)There were no findings relating to the financial statements reported in accordance with Government Auditing Standards (3)There were no findings or questioned costs relating to federal awards KPMG LLP Suite 600 701 West Eighth Avenue Anchorage,AK 99501 Independent Auditors'Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance With Government Auditing Standards The Board of Directors Alaska Energy Authority (A Component Unit of the State of Alaska) We have audited the financial statements of the Alaska Energy Authority as of and for the year ended June 30,2009,and have issued our report thereon dated October 23,2009.We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards,issued by the Comptroller General of the United States. Internal Control over Financial Reporting In planning and performing our audit,we considered the Authority's internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements,but not for the purpose of expressing an opinion on the effectiveness of the Authority's internal control over financial reporting.Accordingly,we do not express an opinion on the effectiveness of the Authority's internal control over financial reporting. A deficiency in internal control over financial reporting exists when the design or operation of a control does not allow management or employees,in the normal course of performing their assigned functions,to prevent,or detect and correct misstatements on a timely basis.A material weakness is a deficiency,or combination of deficiencies,in internal contro!over financial reporting,such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented,or detected and corrected on a timely basis. Our consideration of internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies,significant deficiencies,or material weaknesses.We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses,as defined above. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Authority's financial statements are free of material misstatement,we performed tests of its compliance with certain provisions of laws,regulations, contracts,and grant agreements,noncompliance with which could have a direct and material effect on the determination of financial statement amounts.However,providing an opinion on compliance with those provisions was not an objective of our audit,and accordingly,we do not express such an opinion.The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. KPMG LLP.a U.S.fimited liability partnership,is the U.S. member firm of KPMG Internationai,a Swiss cooperative Rana This report is intended solely for the information and use of management,the board of directors,federal awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties. KPMcs LEP October 23,2009