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HomeMy WebLinkAbout08-15-2000 BM MinutesALASKA ENERGY AUTHORITY Board Meeting August 15,2000 Minutes W 1EndowmentFundEarnings=7.0% PCE Fund Earnings =6.0% PCE Expenditure =$15.7 Million FY01 4DP Debt Svc Deposited 8/15/00 POWER COST EQUALIZATION (FY 2000 -Subsequent Years) Fiscal . Deposit Year Subsequer Date 2000 2001 2002 2003 2004 2005 2006 2007 2008 Years Endowment Fund CBR 7/1/00 100,000 Four Dam Poo!Debt Service 8/1/01 9,000 Four Dam Pool Sale 12/31/01 81,000 Mkt Value Increase for Fiscal Year , 7,229 10,696 13,518 13,509 13,509 13,508 13,508 13,508 13,508 Transfer to PCE Fund 7,291 13,642 13,633 13,518 13,513 13,512 13,509 13,508 13,504 Balance -End of Fiscal Year 99,938 186,992 186,876 186,868 186,863 186,860 186,859 186,859 186,853 Fiscal Year Subsequer 2000 2001 2002 2003 2004 2005 2006 2007 2008 Years PCE Fund Carryforward 2,251 5,066 134 Fast Track Supplemental -AIDEA 3,600 Four Dam Pool Debt Service 5,516 10,377 Transfer from Endowment Fund 7,291 13,642 13,633 13,518 13,513 13,512 13,509 13,508 Earmings --PCE Fund 236 391 461 461 461 461 461 461.461 461 NPR-A 9,163 Other Funds 7,814 1,597 1,605 1,721 1,725 1,727 1,730 1,730 Available for PCE Expenditure 20,766 15,834 15,700 15,700 15,700 15,700 15,700 15,700 15,700 15,700 PCE Expenditure 15,700 15,700 15,700 15,700 15,700 15,700 |15,700 15,700 15,700 15,700 8/14/00 O ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY /==>ALASKA qa =ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 AGENDA ALASKA ENERGY AUTHORITY 10. Board of Directors August 15,2000 CALL TO ORDER BOARD OF DIRECTORS ROLL CALL PUBLIC ROLL CALL PUBLIC COMMENTS PRIOR MINUTES _-February 10,2000 OLD BUSINESS NEW BUSINESS A.Executive Director Appointment,Resolution #2000-02 B.Rural Energy Program Update (Verbal) DIRECTOR COMMENTS A.Proposed Changes to AEA Regulations B.Next Meeting Date BOARD COMMENTS ADJOURNMENT h\allbjfiboard\agendat FAX 907 /269-3044 ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY --_-ALASKA@mE=ENERGY AUTHORITY 813 WEST NORTHERN LIGHTS BLVD.©ANCHORAGE,ALASKA 99503 ¢907/269-3000 ¢FAX 907 /269-3044 TOLL FREE (ALASKA ONLY)888 /300-8534 ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS August 15,2000 -11:45 a.m. Anchorage,and Juneau,Alaska 1.CALL TO ORDER Chairman Hughes called the meeting of the Alaska Energy Authority to order on August 15,2000 at 11:45 a.m.A quorum was established. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Wilson Hughes (Chairman/Public Member),Deputy Commissioner Larry Persily (Designee for Department of Revenue Commissioner),Commissioner Deborah Sedwick (Department of Community and Economic Development),and Mr.Robert Loescher (Public Member). Directors present in Juneau:Commissioner Joe Perkins (Department of Transportation and Public Facilities). 3.PUBLIC ROLL CALL AIDEA staff present in Anchorage:Keith A.Laufer (Acting Executive Director),Valorie F.Walker (Deputy Director-Finance),David E.Germer (Deputy Director-Business Development &Rural Energy),Karl E.Reiche (Acting Deputy Director-Project Development &Operations),Katelyn Markley (Development Specialist),Bruce Tiedeman (Acting Rural Energy Manager),and Brenda J.Fuglestad (Administrative Assistant). Others attending in Anchorage:Vicki Inwin (Sealaska Corporation),Theresa Obermeyer (self), Margie Baumen (freelance),Wesley Loy (Anchorage Daily News),Albert Kookesh (Alaska State House of Representatives),Ken Vassar (Wohlforth Vassar Johnson &Brecht),Robert G.Poe (Commissioner of Administration),Richard Holden (consultant),Brian Bjorkquist and Mike Mitchell (Department of Law),and Jon Rubini (Foster Pepper Rubini &Reeves LLC). 4.PUBLIC COMMENTS Representative Kookesh,representing himself and representing Representative Joule, Representative Kapsner,Representative Morgan,and Senator Adams,expressed a concern about an impact on Rural Alaska.He said that when House Bill 40 was going through the House there was concern about taking an organization and dismembering it to create a new department. There was concern because they were afraid that Rural Alaska would lose contacts that were felt to be important in the administration.He said they were assured time and again by the AEA Board Meeting August 15,2000 Meeting Minutes Page 2 Administration that would not be the case.Representative Kookesh said Rural Alaska has taken a huge hit and that hit is a loss of a member of the Administration who was the energy director for the state.He stated he would not get into specifics,but wanted to tell the Board of this concern. He believes that Rural Alaska has taken a hit that will not be easy to overcome.He said they are disappointed to the point that they are hurt,that somebody that is as important to Rural Alaska is no longer there.He said that when they had the option of moving the Division of Energy into Community and Economic Development they did not want to do that because they were afraid that it might get lost in the bureaucracy.He said,in hindsight,maybe that's what should have been done.Representative Kookesh said this is the message they want to voice to the Board today,Senator Adams,himself,Representative Joule,Representative Kapsner,and Representative Morgan,in hindsight,may have made a mistake.He said he did not want to cause anybody any discomfort other than to tell the Board and AIDEA that when they are back in the Legislature they will be doing everything they can to remedy the situation.He thanked the Board for their time and stated he understood the legalities of getting into personality issues. Representative Kookesh stated he wanted to make the message clear that Rural Alaska is not happy.Rural Alaska is very disappointed and those who represent and live in Rural Alaska are very disappointed. Ms.Obermeyer commented on Representative Kookesh's statement.She stated there is no accountability in government and also commented on the lawsuits against her. 5.PRIOR MINUTES -February 10,2000 The February 10,2000,minutes were unanimously approved as presented. 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS 7A.Resolution No.2000-02,Resolution of the Alaska Energy Authority Relating to the Appointment of an Executive Director Mr.Laufer distributed a revised Resolution No.2000-02 indicating the changes made were the insertion of Robert G.Poe,Jr.into the blanks that were previously in the resolution and adding an effective date of August 29,2000.The other change made was to modify the language so that it clearly indicated in the resolution that the Executive Director has the ability to delegate signing authority to other members of the Authority's staff.Mr.Laufer stated the resolution is for the appointment of the Executive Director of the Authority. MOTION:Mr.Loescher moved for the approval of Resolution No.2000-02.Seconded by Deputy Commissioner Persily.There being no discussion,the question was called.A roll call vote was taken and the motion passed unanimously. 7B.Rural Energy Program Update e Power Cost Equalization Program/Four Dam Pool Sale AEA Board Meeting August 15,2000 Meeting Minutes Page 3 Mr.Laufer distributed a chart to the Board members regarding Power Cost Equalization (PCE). He stated that House Bill 446 and 447 provided for the sale of the Four Dam Pool to the Purchasing Utilities,and that the funds that are realized for the sale are to be deposited in a Power Cost Equalization Endowment Fund.In addition,House Bill 447 deposited $100 million from the constitutional budget reserve into the Power Cost Equalization Endowment Fund. Mr.Laufer updated the Board as to the status of the Four Dam Pool sale and reviewed in detail House Bill 446 and 447 and what the funding mechanism has done for the PCE program and what remains to be done. Mr.Laufer said the utilities are currently in the process of forming a joint action agency.The Authority is in the process,through legal counsel,of preparing a definitive sale agreement that was contemplated in the MOU and in the legislation.One of the primary elements will be the approval by each of the governing organizations in the communities.We will endeavor to complete the approvals by the end of year 2000.Staff is looking to accomplish the sale by December 2001. Mr.Laufer stated Matanuska Electric Association (MEA)filed litigation,particularly attacking section 2 of HB 446,which is a section that relates to telephone cooperatives and the requirements for sales of telephone cooperatives.The issue with the litigation brought by MEA is that it alleges there are constitutional problems with the way the bill was adopted,specifically the single subject rule and certain issues as to legislative procedures and the number of readings, changes,and titles,etc. The litigation makes the assertion that section 2 is invalid and should be severed,but in the alternative if the court determines that section 2 cannot be severed,the Bill should be declared unconstitutional and invalid.The Attorney General's office filed an answer that basically asserts that there are no problems with the Bill;the Bill is constitutional,it was duly adopted,and in any event if there were constitutional problems then section 2 should and could be severed. In response to Board members'questions,Mr.Bjorkquist stated that it is difficult in litigation to give any type of estimate of how much time it will take to resolve.He said the issues presented are matters of legal interpretation and not a case where there is any serious degree of factual dispute.If the legislation were found invalid then the components of the legislation would no longer be in effect.The authorization to sell the Four Dam Pool would no longer be valid and the PCE Endowment Fund would no longer be in existence,so the impacts from the invalidation of the legislation would seriously impact AIDEA/AEA. Mr.Laufer said the Attorney General in addition to representing the state is representing AIDEA/AEAin this litigation. Mr.Laufer said that assuming the Bill is declared constitutional,the table shows the effect of HB 446 and 447 on the PCE program.Mr.Laufer reviewed the table with the Board.The earnings (7%of the market value)from the Endowment Fund in any given year become available for deposit into the PCE fund the following fiscal year.The other monies deposited in the Endowment Fund are the Four Dam Pool sale in FY2002 and debt service for fiscal year 2000. As we described to the Legislature,the program that is in place not does not fully fund PCE.Staff has been working closely with the Congressional Delegation to find other funding that could be made available for PCE to cover the deficiency or through another program which would reduce the need for PCE. AEA Board Meeting August 15,2000 Meeting Minutes Page 4 In response to Board questions,Mr.Laufer said that there are various components of the legislation that impacted the Southeast Intertie.Under the legislation there was a loan for approximately $20 million appropriated for the construction of the Southeast Intertie.As part of HB 447,that money was reappropriated for other purposes.As part of the negotiation with the utilities,in order to gain their support for the reappropriation of that money,the MOU provided that the utilities would receive a $5 million credit against the purchase price for the sale representing the subsidy value for that low market interest loan.Part of our transaction with the utilities provides that they receive a $5 million credit at closing to recognize that subsidy value.The agreement also provides that $5 million credit is required to be repaid by the utilities if the utilities do not have a finance plan that indicates demonstrated sources of financing for the intertie by a date certain,or if they have not commenced construction of the intertie within 10 years.In addition,the Authority has agreed to finance up to $5 million to be used by the utilities if they proceed with the intertie.The sale is not conditioned in any way upon the construction of the Southeast Intertie. Mr.Laufer also stated that the PCE Endowment Fund,by statute,is administered and invested by the Department of Revenue.The PCE and Rural Capitalization Fund,which is the annual fund that is used to make the payments for PCE,is currently administered by the Department of Revenue,but there is some discussion as to transferring that to AIDEA/AEA administration for efficiencies. Mr.Laufer said the sale would require all of the communities to approve because the sale contemplated by the legislation is that a joint utility organization be formed that includes all of the utilities.So if any particular utility did not approve that would be problematic and would not allow for the transfer to go forward.The other element that requires unanimous utility action is the requirement that the State be released from its ongoing obligation.That requires action by each of the individual utilities.If any utility were to opt out or not approve that would impede the entire sale. The Board requested copies of the final documents,laws,charts,and any other narrative or interpretations regarding the PCE program.Staff stated they would comply. e Bulk Fuel Program Mr.Laufer said the Denali Commission initiated its third party review of the bulk fuel consolidation program.This was primarily as a result of the fact that there were significant cost increases over the original estimates that had been provided for these projects by the Division of Energy.Based on discussions with the third party consultant,staff believes the review will indicate that there are several areas where changes should be made in the way projects are sized and originally designed,and also,certain management changes that should be made in the way these projects are administered.Staff feels fairly comfortable that the review will offer no surprises. For the current year,staff has been working with DCED,the Governor's Disaster Cabinet and Disaster Planning team to identify communities in the disaster area that may have difficulty getting their bulk fuel deliveries this fall.At this point,staff knows that the Bulk Fuel Revolving Loan Fund will be insufficient for the demand.However,there may be other programs within the BIA and the USDA that can help finance bulk fuel purchases.Staff will continue working with the Disaster Cabinet and DCED to identify the need for emergency funds and hopefully obtain those funds to make sure that all of the communities'bulk fuel needs for this coming winter are satisfied. AEA Board Meeting August 15,2000 Meeting Minutes Page 5 e Rural Energy Programs Overview Mr.Bruce Tiedeman (Acting Rural Energy Manager)stated staff is in the process of merging support functions into AIDEA such as accounting,personnel,and administration.Staff continues to focus on Rural Alaska and its energy related projects.He read the mission statement for the rural energy group stating it is "To assist in the development of safe,reliable,and efficient energy systems throughout Alaska that are financially viable and environmentally sound.” He explained the mission of rural energy is not just to build infrastructures and leave them but to also train operators.As of July 31*,staff had approximately 148 active projects with a value of approximately $70-$80 million which are in different levels of development from design to construction to closeout.The projects are based upon the communities'needs and requests. Once staff receives the request an assessment is done providing a historical background check which includes gathering information from the local entities.Staff then tries to match the projects with the different types of funding sources.The communities have an opportunity for input at all phases of the project. Mr.Tiedeman said staff endeavors to give as many local people an opportunity to work on those energy projects as possible.Staff also works with other contractors and entities in the communities,such as HUD.If HUD or other entities have an ongoing project in the community staff tries to piggy back some of our logistics with that entity.With this partnership approach staff tries to leverage as many funds as possible so no one entity takes the entire burden of the funding. Recently,staff received a "Good Neighbor”award,which is a federally recognized award through HUD for efforts in the bulk fuel consolidation upgrades. He said staff has been obtaining funding through the Denali Commission.The communities also contribute through whatever funding they have available.The communities contribute in-kind services such as the use of equipment,and they provide long term site control for wherever that project is going to be,and also the labor force. e Bulk Fuel Upgrade Program There are over a thousand different tanks in 200 different communities that are in varying degrees of code compliance,many of which have code violations.Staff has an MOU with the EPA,the Coast Guard,and DEC whereby if staff is working with a rural community they will not shut them down.They give staff time to help get the community up to code.Along with that code compliance,staff also provides the necessary manuals to keep the project in operation once upgraded. e Rural Power Systems Upgrade The Rural Power Systems Upgrade program includes the powerhouse and transmission systems. Diesel power is the major component of power generation in Rural Alaska.Many of the systems were built more than 15 years ago and are coming to the end of their useful life.Presently there are 34 active projects.The Denali Commission has funded ten of the projects in the amount of approximately $6 million. AEA Board Meeting August 15,2000 Meeting Minutes Page 6 e Power Cost Equalization Currently,there are 97 utilities servicing approximately 190 communities,which has an impact on all of the programs.The biggest challenge with PCE is getting the utilities to report in a timely fashion. e Other programs Staff also deals with alternative energy development,which is where staff looks at other ways to provide cheap,reliable energy in Rural Alaska.It is hoped that AEA can replace some of the old diesel systems,but this is a long-term approach. The Rebuild America program is the energy conservation program.The key target areas for this program at this time are public facilities and fish processors. Staff normally has approximately 25-30 people being trained and certified each year for program updates regarding regulations,new forms,etc.The newest program is the Bulk Fuel Operators Training program.It has been funded through the Denali Commission and the STEP program.It is hoped that staff will train and certify approximately 10-15 operators this year.Staff is also in the process of identifying sites that need remediation training. The last category is emergencies.This is our response to Bulk Fuel Emergencies and Electrical Emergencies.This past year there have been five bulk fuel emergencies and thirteen electrical emergencies.Many of these are a result of oil spills,natural disasters,equipment failures,fires, etc.Historically,approximately 6-10 emergencies occur every year.A lot of them are due to extreme weather in Rural Alaska.For those with erosion problems staff tries to direct them through the HUD imminent threat grant program. Mr.Tiedeman stated that staff is looking forward to working as a unified group with AIDEA/AEA. e Statewide Energy Plan Mr.Laufer said the energy plan was split into regional plans.The first priority in the jointly funded energy plan is to focus on Rural Alaska.The plan is jointly funded between the Denali Commission,AIDEA,and USDA.At the current time,the committee is entering into the second major phase which is to do an assessment of all of the electric utility systems in Rural Alaska and get a handle on their condition and efficiency and the need for infrastructure investment.That assessment process is expected to be completed later this year.The next aspect of the plan is to get community input.A draft Rural Energy Plan is expected by the end of the year. In response to Board questions,Mr.Laufer said that it was not that it wasn't a priority of AIDEA to get a southeast energy plan done,but that all of the parties agreed that the time frames were such and the Denali Commission's efforts in Rural Alaska were such that the Denali Commission believed that a rural plan needed to come first.Senator Stevens was particularly looking for a rural plan first.In focusing our efforts,both the Denali Commission,AIDEA,and the USDA agreed as part of the joint arrangement for preparing this plan that the plan would be staged with Rural Alaska coming first and the other regions to follow. Mr.Loescher said that he objected to the Southeast Alaska energy plan not being a priority.He said Southeast Alaska is working to get the Four Dam Pool communities and the rural AEA Board Meeting August 15,2000 Meeting Minutes Page 7 communities to work together to come up with a consensus plan to determine where the interties need to go.He said that then they could sequence the funding requests to wherever they need to go.Southeastern Alaska is at a point where a discussion can be held with some reasonable database where progress can be made in the next six months.This will stabilize the approach at least on a consensus political basis so it can be tied with technical information in order to have a plan.If AIDEA does not participate,this is not going to happen.Mr.Loescher registered his concern for the record that staff is getting out of sequence with the people and a regional plan for Southeast Alaska can be accomplished among the communities.He requested reconsideration in the process in going forward to make Southeast Alaska a priority in the plan. Mr.Laufer said staff has been in close contact with the Southeast Conference and the Southeast Intertie groups.At this point,it has been staged and the funding from the Denali Commission has been allocated thus far to working on the "Rural Plan.”To the extent the Authority were to proceed differently,staff will have to work with the Denali Commission and our other funding partners to figure out how best to accomplish that in the time frame suggested. Mr.Loescher said he is uncomfortable with the Division of Energy restructuring and integration into AIDEA/AEA.Mr.Loescher requested a copy of the structure,programs,and budget of the merger on a current basis so that he could understand what it is that staff is doing.Mr.Laufer stated staff would provide materials to describe the budget,and programs of the rural energy group and the integration of the administrative functions with AIDEA/AEA's along with background material. 8.DIRECTOR COMMENTS A.Proposed Changes to AEA Regulations Mr.Laufer stated that staff would begin a review of the existing AEA regulations regarding the Power Project Fund and Bulk Fuel Revolving Loan Fund.A draft of the proposed regulation changes will be submitted to the Board for review and comment. 9.BOARD COMMENTS There were no Board member comments. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 12:50 p.m. L4 ve oxRobertPoe,Jr.Secretary ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY {=ALASKAqm =ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 FAX 907 /269-3044 ALASKA ENERGY AUTHORITY BOARD OF DIRECTORS February 10,2000 -12:56 p.m. Anchorage,Alaska 1.CALL TO ORDER Chairman Hughes called the meeting of the Alaska Energy Authority to order on February 10, 2000 at 12:56 p.m.A quorum was established.. 2.BOARD OF DIRECTORS ROLL CALL Directors present in Anchorage:Mr.Wilson Hughes (Chairman/Public Member),Deputy Commissioner Larry Persily (Designee for Department of Revenue Commissioner),Commissioner Deborah Sedwick (Department of Community and Economic Development),Commissioner Joe Perkins (Department of Transportation and Public Facilities),and Mr.Robert Loescher (Public Member). 3.PUBLIC ROLL CALL AIDEA staff present in Anchorage:D.Randy Simmons (Executive Director),James A.McMillan (Deputy Director -Credit),Valorie F.Walker (Deputy Director -Finance),Keith A.Laufer (Financial &Legal Affairs Manager),David E.Germer (Deputy Director-Business Development & Rural Energy),Dennis McCrohan (Deputy Director-Project Development &Operations),Katelyn Markley (Development Specialist),Percy Frisby (Rural Energy Manager),Dick Emerman (Project Manager),Peter Crimp (Development Specialist),Eric Marchegiani (Technical Engineer),and Brenda J.Fuglestad (Administrative Assistant). Others attending in Anchorage:Cindy Cartledge (Wohlforth,Vassar,et.al),Val Tangen (Legislative Audit),Vicki Irwin (Sealaska Corporation),Elizabeth Gabel (Information Insights), Brian Bjorkquist (Department of Law),Jon Rubini (Foster Pepper Rubini &Reeves LLC),and Charles E.Cole,Esq. 4.PUBLIC COMMENTS There were no public comments. 5.PRIOR MINUTES -December 10,1999 The December 10,1999,minutes were unanimously approved as presented. AEA Board Meeting February 10,2000 Meeting Minutes Page 2. 6.OLD BUSINESS There was no old business. 7.NEW BUSINESS 7A.Resolution No.2000-01,Resolution Of The Alaska Energy Authority Relating To The Appointment Of Various Officers Of The Authority;And Related Matters Mr.Simmons briefly reviewed Resolution No.2000-01 stating that the resolution reappoints the existing Executive Director and Deputy Directors,and appoints David Germer as Deputy Director- Business Development and Rural Energy and Assistant Secretary. He said the resolution also provides the officers with the power and the authority to exercise their duties and responsibilities under the statutes.It authorizes the Executive Director to sign all contracts,deeds,instruments on behalf of the Authority and it also authorizes the Executive Director to appoint an acting executive director when necessary. Staff recommended approval of Resolution No.2000-01. MOTION:Commissioner Perkins moved for the approval of Resolution No.2000-01. Seconded by Commissioner Sedwick.There being no discussion,the question was called. A roll call vote was taken and the motion passed. 7B.FOUR DAM POOL PROJECT UPDATE Mr.Laufer briefed the Board on recent developments regarding the Four Dam Pool divestiture. He said that over the last several years staff has been working with the purchasing utilities of the Four Dam Pool on a possible sale of the projects to those utilities and the local communities.At the outset,the Authority and the Governor's office set forth four parameters that would be necessary in order for the Administration to support a sale.Those parameters are that the Power Sales Agreement remain in place until after the transfer,the State receive fair value for the projects;the State be relieved from all risks and liabilities from the projects;and that there be Legislative review of any sale. In July of 1997,the utilities presented a proposal to the Authority to purchase the facilities. Ultimately,that proposal was rejected by the Board because it failed to meet the State's sale parameters.Specifically,it left substantial risks with the State and it was believed that the value and the payment terms were unacceptable.Also,around the same time the Authority received an unsolicited proposal from The Energy Group,which was a group represented by former U.S. Senator Gravel.The Board also deemed that proposal as unacceptable,as it involved significant risks to the State.The State was to finance one portion of the purchase price and guarantee the other.It required significant modifications to the power sales agreement and it did not have the support of any of the communities involved. AEA continued to pursue possible divestiture with the utilities and the utilities continued to work on preparing a new proposal.Over the last six months or so,the utilities have spent substantial time in developing a simplified proposal and last month presented that proposal to AEA.The terms of the proposal are that the utilities will make an initial payment of $74 million in cash to the State at AEA Board Meeting | February 10,2000 Meeting Minutes Page 3 closing,however,the utilities would keep the State's existing insurance fund,which has approximately uncommitted funds of $14 million.The net funds to be paid to the State would equal approximately $60 million.In addition,there would be a contingent payment of $10 million in year 2020,if repairs,R&R payments,and the risks actually experienced by the utilities were substantially less than those that have been estimated for the projects.The proposal would relieve the State from all risk and liabilities of the project and there would be no changes to the Power Sales Agreement,at least initially,until after the sale.A new entity would be formed by the utilities which would assume the State's position and that new entity would have the same Power Sales Agreement relationship with the underlying utilities. The strength of the proposal is that it fully releases the State from liability.Under the Power Sales Agreement,legally,only the utilities can do that.If the State were to transfer these projects to some other entity without obtaining a release from the utilities,the State would be contingently liable for the existing Power Sales Agreement liabilities.The utilities,in their proposal,have specifically said that they would fully release the State.They are also making this proposal with full Knowledge of what the Four Dam Pool projects are about and how they are operated. The weakness in the utility proposal is that the value,we believe,is less than what could probably be expected from another buyer. Over the last couple of months we have received an expression of interest from an entity called CHI Energy,Inc.This is a company that owns small hydro projects in the Lower 48.Their letter of interest expressed their belief that they could pay at least $80 million for the projects.They specifically stated that the Power Sales Agreement would remain in place.The strength of that offer is obviously more significant in dollars than the utilities offer.The weakness is the converse of what was said about the utilities offer,this group would not be in a position to relieve the State of its liability in the Power Sales Agreement unless they were able to obtain that type of release from the utilities themselves.In order to mitigate against that,we believe that to accomplish the goal that the State be relieved from liabilities,this entity would somehow have to indemnify the State and provide specific nonproject related assets to back that pledge in order to fully release the State.It is unclear whether they would be willing or how they might do that.In addition,they have not done significant due diligence prior to putting forward this letter of interest. Recently,CHI and the utilities met to talk about a possible partnership to make a joint proposal to the State.Our understanding is that the utilities have elected to proceed independently of CHI and,if unsuccessful,would then consider going back and partnering with the CHI group. Mr.Laufer reviewed the methodology for looking at the value of the Four Dam Pool.He said the State has significant risks under the existing agreement for uninsured facility repairs,deficiencies in the Reserve &Replacement (R&R)account,and for uninsured losses.On the current analysis, staff has assumed an inflation rate of 3%,and an investment rate for the project fund for R&R accounts,etc.of 5%. Staff believes that reasonable estimates of growth are in the 1-2%range and reasonable discount rates for this purpose are in the 6-7%range. Discussions ensued as to the calculation of the present value range. Mr.Laufer said that at this time,the Authority is still considering the utilities offer and the other options that are available.However,it is important to recognize the direct link between these AEA Board Meeting February 10,2000 Meeting Minutes Page 4_ projects and the Power Cost Equalization fund.On an annual basis 60%of the revenue from these projects is applied and contributed to the Power Cost Equalization Fund,which results in a contribution to that fund of approximately $5,000,000 -$7,000,000 a year depending on what the revenues are in any given year.Staff believes that as you look at a sale you also have to look at what the long-term impact would be on Power Cost Equalization. Discussions ensued as to the projected growth rate. As for CHI,unless the utilities are willing to release the state under the Power Sales Agreement, we would have to negotiate with CHI for some kind of indemnification to cover the State's risk. Ultimately,staff believes this risk factor lowers the value of the Dams to only third party purchasers. In response to Board questions,Mr.Simmons said that previously staffs only interest was from an AEA big project standpoint,basically what the fair market value was of these projects. However,as of July 1,1999,AEA is now also responsible for PCE and operating the program. Staff now has the responsibility not only with operating but also with being a part of finding funding for PCE.As the Board looks at the potential divestiture of the Four Dam Pool we cannot ignore what the effects may be on PCE from the negative or a positive standpoint. Discussions ensued as to the sale of the Four Dam Pool. Mr.Loescher encouraged staff to get CHI and the utilities together to forge a partnership to purchase the Four Dam Pool.He said the utilities are willing to forge the partnership,but they are not going to be willing if they do not have an indication from AEA that their current proposal is unacceptable.Staff needs to make that step,but encourage the utilities to take the next step.Mr. Loescher stated that Southeast Alaska needs this sale.He said there is a public policy purpose that could be served and the timing is right. Mr.Loescher said that the Board should direct management to reject the proposal that the utilities have offered and work as a facilitator to encourage the parties to get together to produce a better proposal which would satisfy their concerns and our perceived concerns of liabilities for the Power Sales Agreement,indemnification,and a fair consideration. 7c.RURAL ENERGY OVERVIEW Mr.Germer stated that the mission of the rural energy programs is to assist rural communities throughout Alaska in the development of safe,reliable,effective energy systems,and tank farms that are financially viable and economically sound.The mission is accomplished through a variety of assistance programs as well as capital improvement projects.The core rural energy program consists of bulk fuel consolidations,rural power systems upgrades,Power Cost Equalization,and loan programs,primary of which is the bulk fuel revolving loan fund. Mr.Germer said the twenty-seven former Division of Energy positions plus two administrative services positions were added to the AIDEA organization as a result of the merger. Predominately,all of the core Division of Energy activities and programs were kept in a single unit, which is referred to as the Rural Energy Group.Also,a second smaller unit consisting of alternative energy was added.Mr.Frisby continues to directly supervise the core energy programs including all capital construction projects,emergency response,and_technical assistance,as well as Power Cost Equalization.He said that his own role,aside from continuing AEA Board Meeting February 10,2000 Meeting Minutes Page 5_ to manage the Authority's business development program,is to work with the rural energy staff to ensure that their programs operate effectively under the AIDEA/AEA structure. Mr.Frisby briefed the Board on the rural energy programs.He stated that the rural energy group did an assessment five years ago to determine the problems in Rural Alaska.After the study was completed it was determined that approximately $250 million was needed to correct the tank farm problems in Rural Alaska.The first issues were that the private operators were being put in harms way because staff consolidated the school district and the municipality tank farms.Staff then reassessed the plan to figure out how to take care of the State and the community,as well as the private sector.After completing the analysis with the incorporation of all the other tank farm operators in these communities,the monies needed to make the improvements jumped to $450 million.He said that at this point in time,staff believes approximately $450 million is needed to correct the tank farm problems in Rural Alaska.There is presently an infusion of cash from the Denali Commission.Staff is looking to other funding sources and has been successful in getting EPA funding,HUD funding,American Indian energy funds,and private sector funding (cash contributions from the local communities). The other problem is in dealing with the rural system upgrades.There are outdated,old distribution systems in the communities in Rural Alaska.In some communities,staff is looking at trying to do hybrid systems and upgrade their existing generation distribution systems.It is estimated that it will take approximately $90 million to upgrade these systems. The Rebuild America program is a conservation program.Staff assesses schools and hospitals and makes recommendations on retrofits.Basically,once all of these assessments are completed there will be a database of information to conduct a thorough analysis in terms of infrastructure and economic development in the rural communities. Staff works with all the communities on Power Cost Equalization.Some communities have been in the program for years and still can't fill out the reports.This creates time consuming work for staff as they work with the community to fill out their reports so they can maintain their current status and continue to be a participant in the program.If staff does not take care of the reports then the community will fall off the program,which has a snowball affect that increases costs of electricity.The utilities then end up crashing which creates an emergency situation for staff. This year alone staff has responded to nineteen emergencies in the rural communities:eleven were electrical and eight were bulk fuel emergencies.Staff encourages schoo!districts to loan the community fuel to get them through until breakup when fuel can be barged in.In most cases,fuel can be flown in,however,it is extremely expensive (approximately $2.50-$3.00 a gallon). In response to Board questions,Mr.Frisby said that part of the problem is that communities only have two delivery dates;a spring and a winter delivery date.This year the communities are running low because there has been approximately a 32%increase in the use of heating fuel due to long extended periods of cold weather.Also,there are quite a few communities that do not have sufficient storage capabilities,which the tank farm program is working to correct. Staff estimates that to complete the tank farm program it would take approximately $450 million. He said the communities currently get deliveries twice a year.The ultimate scenario would be to have enough storage capacity to have one delivery a year,so they would not run out of fuel and try to schedule a delivery at the most inopportune times.However,we are trying not to produce large systems by expanding the volume in the community because our mission is to clean up and AEA Board Meeting February 10,2000 Meeting Minutes Page 6 remove the threats to the environment.When staff does a "compliant system”they are doubling the size of the current system,so there remains the question as to whether or not staff is accomplishing the mission. To date 21 tank farms have been completed with a cost of approximately $38 million.There are 14 projects close to completion and 20 additional projects to be started.The program is currently funded through this fiscal year with approximately $19 million:$10 million from the Denali Commission and $9 million from the EPA. Mr.Simmons said there is approximately $8 million of TAPL monies that the Denali Commission is getting that is passed through to AEA on a yearly basis.Staff has had discussions with the Denali Commission about floating a bond issue in order to receive monies to correct some of the rural community problems.Staff has also been in contact with underwriters to see what would be needed to allow an $8 million revenue stream to be used to issue bonds. In response to Board questions,Mr.Frisby said the bulk fuel plan opened the door to EPA.The consolidated tank farms were put together with EPA funding and we are currently working on a 15-year bulk fuel plan.To date $12 million has been received from the EPA.Staff is currently looking at 15 years before we have 87%of what is needed to correct the current deficiencies in Rural Alaska. Staff is conducting the power system and distribution assessments,which are rolled in with the tank farm inspections to create a compliance schedule.The Coast Guard and the EPA have agreed to check the compliance schedule to find out where the community is on the deficiency list before issuing any citations.The communities that are toward the top of the deficiency list will only be warned,however,if the community is too far down the deficiency list they will probably be cited. In response to Board questions,Mr.Frisby stated they have not done environmental cleanup but there are three demonstration projects scheduled to go through DEC.Part of this is funded by the capital rebate money that the State of Alaska received which will come to DEC through AEA via a reimbursable services agreement.In addition to those three cleanup projects,DEC is going to be conducting an assessment and an evaluation of all the contaminated sites in Rural Alaska.The Rural Energy Initiatives estimated that remediation in Rural Alaska would cost approximately $700 million --$800 million. Commissioner Perkins stated that if it takes 20 years to correct the deficiencies and nobody is taking care of the systems then you will have to start over again,and we will end up in the same position as before.It would seem that the interties would become viable at this point.Is there a program to compare the costs of the rural interties and the potential of tying villages together in comparison to what this is costing,most of which will have to be redone again in 25 years. Mr.Frisby said there have been analyses done and staff has been trying to look at these communities as clusters.Staff is looking at what the trade-offs will be regarding the intertie route versus the tank farm.If we have a central power system in the region,we wouldn't need a powerhouse or a tank farm.We currently don't have the numbers as to whether this would be a more appropriate or practical way to develop or correct the issues in Rural Alaska. AEA Board Meeting February 10,2000 Meeting Minutes Page 7 There have been two interties built in Southeast Alaska.One intertie is on Prince of Wales Island from Klawock to Kasan and another is from Skagway to Haines.However,there have been no small remote interties built. Staff is working on a comparative analysis to see if it warrants taking a serious look at producing a plan to address the clusters of communities for alternative energy or interties.The statewide energy plan will look at some of the deficiency issues in Rural Alaska.If the plan shows that there is merit in terms of looking at clusters of communities and trying to do the small transmission lines, then we will move forward. Mr.Frisby reviewed the revolving bulk fuel loan program stating that they work with the communities on a day to day basis.Most of the work consists of ensuring that these communities do not run out of fuel.This program is very successful and there is outside interest that would like to see more money put into the program.He said that he believes that if more money is put into the program it will be ruined.If you start adding money to the program then you end up in a situation where communities are not working to correct the problems,they end up relying on theStateforquickcheapmoney. The other loan fund is the power project loan fund in which staff works with rural communities of all sizes.Although they are eligible to apply for the loan,the smaller stand alone utilities do not generally apply for power project loans because they do not have personnel to manage a project. In response to Board questions,Mr.Frisby said the waste heat project in St.Paul is saving approximately $40,000 a month in heating costs and the one in Anvik is saving the school district approximately $60,000 a year in heating costs. There are approximately 96 PCE eligible utilities servicing 190 communities and approximately 12-14 of these communities do not participate in the program for a number of reasons. The Board requested a complete briefing on PCE at the next board meeting. Mr.Crimp briefly reviewed the alternative energy programs.He said that in most rural villages diesel is the rule for power production for space heating,with the exception of wood for the areas in which it is abundant.The overall goals for alternative energy are to reduce energy costs, enhance reliability and safety,community self-sufficiency,add to the local economic development, and to reduce the need for tank farms. The biomass energy program provides financing and technical assistance for wood waste,power production,processed fuels,and space heating.It is predominately funded by the U.S. Department of Energy with some State funding.One of the most recent projects is the development of a wood to ethanol production facility in Southeast Alaska.We are also looking to assist in the development of a wood fired district heating project in Interior Alaska.He stated that the rural energy group has a less active coal/natural gas program.Staff has been working with the University of North Dakota and has developed a computer-screening model for small coal facilities which looks at the economics of developing small coal bed methane fired systems for local energy production.The Rebuild America program promotes energy efficiency in schools and other larger facilities,and provides energy audits,technical training,training for local facility managers to conserve energy,demonstration retrofits for school lighting,and funding for other demonstrations., AEA Board Meeting February 10,2000 Meeting Minutes Page 8 He said there are approximately 10-15 hydroelectric projects that the alternative energy group is currently involved with.Also,the wind program assists in evaluating turbines and developing wind energy systems in rural areas.Staff is currently working in the area of Kotzebue on the wind turbine test and at the Prince of Wales Island on a high penetration hybrid wind diesel system. Staff is also considering installations in Nome and Unalaska.In addition,we are coordinating the State's wind resource assessment program with Kotzebue Electric,ASTF,the National Renewable Energy Lab,and the U.S.Department of Energy. In response to Board questions,Mr.Germer said that in attempting to finance the $100 million Unalaska Geothermal project it was noted that the facility would be required to supply the processors as well as the community of Unalaska.Because of the uncertainties associated with the fishing industry,the level of risk was such that the project proponent has not aggressively pursued the project. In response to Board questions,Mr.Crimp said there are currently ten turbines in Kotzebue,50 kw each,500kw total.There were many turbines installed in the 1980s when the State's involvement was significant. Mr.Crimp said there is a solar installation in Lime Village.Staff is studying the economics and will be having discussions about wind and remote solar applications with the U.S.Department of Energy in April. Mr.Simmons said that the issue with these technologies is the up front capital costs.The wind generators in Kotzebue have been capital intensive compared to what they currently pay for their diesel. Tthe cost of the wind program is predominately paid for by the federal government.Staff is working to discern whether or not the application of the hybrid system is feasible. 7D.STATUS OF HYDRO PROJECTS Mr.McCrohan said there are currently four major projects happening at the large hydro plants. The rebuilding of the Tyee transmission line is complete and was wrapped up just before Thanksgiving before the weather closed in.It was finished on budget and within time.The Terror Lake Tunnel Rebuild Project contract has been let to Red Samm Construction and the physical work will start in early July on Terror Lake. Mr.McCrohan said there is a significant leak in one of the culverts at the Swan Lake Dam,which will be repaired in June/July.He said it is not a structural problem,but a failure of the grouting that was put in around the culvert.Mr.McCrohan said the transmission line failed in Thompson Pass due to avalanches.One tower is on the ground and one tower is damaged.Staff has completed visual inspections,but cannot get to the towers because of the avalanche danger.There are enough spare parts to replace the tower;however,the critical point is if there has been damage to the foundations.If the foundations are damaged then the line will probably be out of service until summer at which time staff can complete repairs.However,none of this will be known until the avalanche danger is clear and the lines can be physically inspected. AEA Board Meeting February 10,2000 Meeting Minutes Page 9 e Four Dam Pool Mr.Brian Bjorkquist stated that there are financial and proprietary business information issues to be discussed related to the negotiations on the Four Dam Pool Project.Under the open meetings act a body,such as the AEA Board,can go into executive session to discuss financial and proprietary issues.The appropriate procedure for doing that is to have a Board member make a motion to go into executive session for that purpose and to vote on that motion. MOTION:Commissioner Perkins moved to go into executive session to discuss financial and proprietary matters related to the negotiations on the Four Dam Pool Project. Seconded by Commissioner Sedwick.There being no discussion the motion passed unanimously. EXECUTIVE SESSION -2:21 p.m. The Board reconvened its regular meeting at 2:49 p.m. Roll call was taken and a quorum was established.Chairman Hughes advised that the Board had not taken any formal action on the matters discussed while in Executive Session. 8.DIRECTOR COMMENTS A.Status Report of AEA Programs and Projects There were no status reports for AEA programs. 9.BOARD COMMENTS There were no Board member comments. 10.ADJOURNMENT There being no objection and no further business of the Board,the meeting was adjourned at 2:50 p.m. LleithA.Lauter,Assistint Secretary ALASKA ENERGY AUTHORITY RESOLUTION NO.2000-02 RESOLUTION OF THE ALASKA ENERGY AUTHORITY RELATING TO THE APPOINTMENT OF AN EXECUTIVE DIRECTOR WHEREAS,the By-Laws of the Alaska Energy Authority (the "Authority”)allow the members of the Authority to appoint an Executive Director of the Authority; WHEREAS,the By-Laws of the Authority further provide that the Executive Director of the Authority is the Secretary-Treasurer of the Authority;and WHEREAS,it is in the public interest and in the best interests of the Authority that be appointed Executive Director of the Authority. NOW,THEREFORE,BE IT RESOLVED BY THE ALASKA ENERGY AUTHORITY AS FOLLOWS: Section 1.is hereby appointed Executive Director and Secretary-Treasurer of the Authority,such appointments to be effective immediately. Section 2.From time to time,as may be required on a temporary basis,when the Executive Director is unavailable,the Executive Director may designate any Assistant Secretary of the Authority to act on his behalf.The person so designated shall have all the duties and powers of the Executive Director of the Authority during the period the Executive Director is unavailable. Section 3.The Executive Director of the Authority or any Assistant Secretary designated by him is hereby authorized to sign,on behalf of the Authority,all contracts,deeds and other instruments made by the Authority and related documents. |DATED at Anchorage,Alaska,this 15"day of August 2000. Chairman ATTEST [SEAL] Secretary ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY «=>ALASKA @a™=ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /269-3000 FAX 907 /269-3044 MEMORANDUM TO:Board of Directors Alaska Energy Authority FROM:Keith A.Laufer ye Acting Executive Director DATE:August 15,2000 SUBJECT:Proposed Changes to AEA Regulations Staff will begin a review of existing regulations regarding the loan programs of the AlaskaOEnergyAuthority,which are the Power Project Fund and Bulk Fuel Revolving Loan Fund. The review process will include solicitation for public comment to the rural areas of Alaska that benefit from the loan programs.A draft of any proposed regulation changes will be submitted to the Board for review and comment.