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Home My WebLink AboutS2een? ATER WYNNE -T \.v Suite 1800 222 S.W.ColumbiaHEWITTPortland,Oregon 97201-6618 DODSON Fax (303)226-0079 Sy SKERRITT ATTORNEYS ATLAW September 22,1995 CC!Rs ley VIA FACSIMILE Dennis McCrohan AIDEA 480 West Tudor Anchorage,Alaska 99503-6690 Re:Memorandum of Agreement -Northern Intertie Dear Dennis: Enclosed is the draft document we discussed.It has not been distributed to anyone yet.Please let me know if this is acceptable to you. Sincerely, Harald)LDayplr Ronald L.Saxton (Ue | Z Withdravk by msi 80h Seattle,Washington Washington,D.C.San Francisco,California (206)623-471)(202)628-3200 _(415)421-4143 Fax (205)467-8406 Fax (202)628-8575 Fax (415)99901263 MEMORANDUM OF AGREEMENT NORTHERN INTERTIE THIS MEMORANBUM OF AGREEMENT dated ,1995,is entered into by and among the Parties hereto,narnely the ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC.,The MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER,the CHUGACH ELECTRIC ASSOCIATION,INC.,The MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM,the GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.,The CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM,each of which shall be a "Participant,"and the HOMER ELECTRIC ASSOCIATION,INC.,and the MATANUSKA ELECTRIC ASSOCIATION,INC.,each of which shall be an "Additional Party.” RECITALS WHEREAS,the State of Alaska ("State")acting by and through the Alaska Industrial Development and Export Authority ("AIDEA")has partially funded the design and construction of a high voltage electric power transmission line between Healy and Fairbanks ("Northern Intertie");and WHEREAS,the Parties to this MOA are parties to various agreements ("Intertia Agreements")designed to allow AIDEA to disburse funds appropriated by the State and to provide for the financing the costs in excess of State funding (Additional Costs)for the construction of the Northern Intertie;and WHEREAS,AIDEA is authorized to issue bonds to finance the ofadditionalcostsofacquisition,design and construction of the Northern ei Intertie if it is owned by GVEA for the benefit of the Parties and has indicated it will accept amendments to the Intertie Agreements that are consistent with such authorization;and WHEREAS,the Parties now intend to modify the terms of the Intertie anceAgreementstoallowAIDEAtofinancetheconstructioncostsinexcessofOnnUr the State funding 'and WHEREAS,the Parties intend that the rights and obligations of the Parties relative to the use of the Northern Intertia for energy transmission be unchanged from the respective rights and obligations set forth in the Participants Agreement dated January 24,1994;, NOW,THEREFORE,the Parties agree as follows: TERMS 1.The Intertie Grant Agreement and Participants Agreement sfia be amended to provide that GVEA is the Sole owner of the Northern Intertie. 2.Each Party shall continue to be entitled to its Participant's Share of the capacity of the Northern Intertie as provided in the Participants Agreement.The rights of each Party to capacity in the Northern Intertie and its obligations under the Participants Agreement shall be distinct and -3- separate from ownership and shall be legally enforceable rights and obligations equivalent to such Party's existing rights and obligations under the Participants Agreement. 3,The Parties agree to the project scope,budget and capacity 1 -_-_- allocation set forth in Attachment A to this MOA,and shall vote in favor of its adoption at the next IPG meeting. 4.All proposed Amendments shall be in a form acceptable to AIDEA to allow AIDEA toa issue bonds to finance the Additional Costs of the Northern Intertie. IN WITNESS WHEREOF,the Parties have caused this Agreement to be executed on the day and year first above written. "PARTICIPANT" ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC. By: lts: The MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER By: Its: CHUGACH ELECTRIC ASSOCIATION,INC, By: Its: MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM By: Its: GOLDEN VALLEY ELECTRIC ASSOCIATION, INC. By: Its: CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM By: Its; "ADDITIONAL PARTIES” HOMER ELECTRIC ASSOCIATION,INC. By: Its: MATANUSKA ELECTRIC ASSOCIATION,INC. By: Its: -6-LGH\680lgh.MOA 'n <PREV OY -:NY oWIYmaSKAINDUSTRIALDEVELOPMENTNYeeEXPORTAUTHORITY/a>ALASKAqa=ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /561-8050 FAX 907 /561-8998 August 30,1995 Mr.Thomas R.Stahr General Manager and Chairman,IPG Anchorage Municipal Light &Power Post Office Box 196094 Anchorage,Alaska 99519-6094 Subject:Intertie Grant Funds Status Report Dear Mr.Stahr: Enclosed is a status report on the Anchorage-Kenai and Healy-Fairbanks Intertie Grant Funds,as of June 30,1995.Also enclosed is a listing of investments held in the Anchorage-Kenai accounts as of August 29,1995. If you have any questions please do not hesitate to contact me. Sincerely, Valorie F.Walker Deputy Director (Finance) cc:Michael P.Kelly,GVEA Eugene Bjornstad,CEA William R.Snell,AIDEA VFW:ks hiall\kim\wfwerrsp\stahr 45,356 ,644.27 *NEXT QUARTERLY CALL DATE LISTED;FINAL MATURITY 6/28/96 IF NOT CALLED &CALL DATE LISTED;FINAL MATURITY 9/26/97 IF NOT CALLED h:/all/penny/investINTERTIE.XLS 8/30/95 3:23 PM beh ERG bob bot bed bok tea G9 bea @ boa bob bee tb 4 dud b rr | INVESTMENTS -HEALY-FAIRBANKS INTERTIE 6/30/95 PAR VALUE ISSUER TYPE COUPON YIELD PURCHASE MATURITY COST CALL CALL ACCRETION ACCRUED DATE DATE DATE ANTICIPATED?INTEREST 3,447,376 SEl REPO 5.660%30-Jun-95 1-Jul-95 3,447,376.15 2,000,000 FHLB NOTE 6.555%6.555%19-Apr-95 19-Jul-95 2,000,000.00 0.00 26,220.00 750,000 FHLB NOTE 6.200%6.200%24-May-95 24-Aug-95 750,000.00 0.00 4,779.17 5,000,000 UST NOTE 3.875%4.066% 22-Dec-93 31-Aug-95 4,984,375.00 14,080.23 64,758.83 2,000,000 FHLB NOTE 6.880%6.770%19-May-95 26-Sep-95 2,000,625.00 &-206.73 36,311.11 2,300,000 FHLB NOTE 5.908%5.908%28-Jun-95 28-Sep-95 2,300,000.00 *0.00 1,132.37 5,000,000 UST NOTE 3.875%4.147%22-Dec-93 31-Oct-95 4,975,781.25 19,860.80 32,642.66 5,000,000 FHLMC NOTE 5.948%31-May-95 27-Nov-95 4,857,500.00 24,541.67 3,000,000 UST NOTE 4.000%4.070%31-Jan-94 31-Jan-96 2,996,015.63 2,816.35 50,055.25 2,000,000 FFCB NOTE 4.320%6.049%31-May-95 29-Apr-96 1,969,687.50 30 DAYS NOTICE NO 2,813.44 14,880.00 3,000,000 FNMA NOTE 6.000%6.005%31-May-95 {-Jul-96 2,999,670.00 25.77 90,000.00 3,000,000 FLB NOTE 7.950%6.670%12-Apr-95 21-Oct-96 3,054,726.00 -7,846.02 46,375.00 2,000,000 FNNT NOTE 7.070%6.666%12-Apr-95 18-Nov-96 2,011,875.00 -1,621.16 16,889.44 3,000,000 FNMA NOTE 5.300%6.754%12-Apr-95 17-Jan-97 2,928,281.25 30 DAYS NOTICE NO 8,881.58 72,433.33 1,000,000 UST NOTE 5.500%5.925%30-Jun-95 31-Jul-97 991,718.75 10.87 22,941.99 2,500,000 UST NOTE 5.500%5.727%30-Jun-95 31-Jul-97 2,488,867.20 14.61 57,354.97 44,997,376 44,756,498.73 63,371.41 §36,774.13 ORIGINAL GRANT 43,200,000.00 NET INTEREST RECEIVED THROUGH JUNE 30,1995 2,324,704.87 EXPENDED TO DATE (SEE ATTACHED)(768,206.14) BOOK VALUE OF INVESTMENTS 44,756,498.73 PLUS ACCRUED INTEREST 600,145.54 EXPENDITURES TO DATE DATE DESCRIPTION AMOUNT 10/31/94 GVEA INVOICES 1 &2 667,484.34 01/20/95 GVEA INVOICE 3 99,439.44 06/30/95 INVESTMENT MGMT FEE 1,282.36 768,206.14 h:/all/penny/invesvINTERTIE.XLS 8/30/95 3:23 PM +,lo Fairbanks,Alaska 99707-1249,Phone 907-459-1151rNTROSTFVEREpa13gewesveae| 1 NM AOLDENVALLEYELectRicassociationING.Bux 71249, eo: Post-It™brand fax transmittal memo 7671 |#ofpeges >/March B,1995 By x 2,(Leeks we HOO,MetFSCo.Ct*Pu Dery Phone OVDept.Valorvié =Walker Fx?Fax #AIDFEA £80 W Duder Rg Anchorage ax 99503 RE:Northern Intertie Grant Monies Dear Valorie: ' Listed below are our best estima tes for-cash flow requirements fortheNorthernIntertieproject: Dare Amount 29795.4/9 $5,000,000S436"1/9Up 10,000,0064AS&YG bs 10,000,00068s12/9 &10.000,000FO1S6G95,000,000 :Oty37973,000,000 OeSinceresy Joanne Stoots -oPFinance]&Accounting Manager VW)oe Ce:Steve HaagensenRobertHansen a MEMO FROM STAFF REGARDING CORE BUSINESS DISAGREEMENTS AMONG THE UTILITIES FORTHCOMING UNDER SEPARATE COVER t used Vo Tay Wwr-- TO:Riley and John FROM:Dennis McCrohan Draft of supporting memo for Intertie Projects.Let me know comments or if on the wrong track.Thanks. t,leeee”July 10,1995 Northern and Southern Intertie Projects Background and Status In the 1993 session of the Alaska Legislature,the Healy to Fairbanks(Northern Intertie) and Anchorage to Kenai(Southern Intertie)received grants from the legislature of $43,200,000 and $46,800,000 respectively.The legislature specified a price for energy transfer of 1.5 mills/K WH.Golden Valley Electric Authority and Chugach Electric Association were to own the Northern and Southern Interties respectively for the benefit of the participating utilities.AIDEA was authorized to issue bonds for the acquisition, design,and construction.The limit for AIDEA bonding was $60,000,000 for each project.The participating utilities included: Alaska Electric Generation and Transmission Cooperative Matanuska Electric Association(MEA) Homer Electric Association(HEA) Anchorage Municipal Light and Power Chugach Electric Association(CEA) City of Seward Fairbanks Municipal Utilities System(FMUS) Golden Valley Electric Association(GVEA) The Intertie Participating Utilities Group(IPG)was formed by the above utilities to implement and generally manage and administer both projects.The IPG has entered into various agreements among each other and AIDEA.These agreements define the financial arrangements,the details of project implementation,and management and administration procedures which were not addressed by the legislation.In addition the agreements include requirements which AIDEA has imposed to assure prudent use of the State grants,achieve the benefits intended by the legislation,and assure acceptable financing terms if AIDEA financial assistance is provided.These agreements include: 1.Intertie Grant Agreement 2.Grant Transfer and Delegation Agreement 3.1993 Alaska Intertie Project Participants Agreement 4.Grant Administration Agreement As described below there are several issues which remain unresolved.To proceed with the projects without resolution may be in conflict with the prior agreements.To delay will impede project completion,add risks,and possibly costs to the projects.For the Northern Intertie these issues involve the management and administration of the project,ownership structure,APUC matters,and capacity and energy transfer rights and costs.For the Southern Intertie the issues include engineering and environmental feasibility,schedule, ownership structure,and management and administration. The legislation furthermore did not address the timing of the two intertie project However it is clear from the original studies upon which the legislation was founded that the benefits for the two projects were not equal,the benefits of the two projects were time dependent and different for the individual participating utilities,and the feasibility and risks of the projects were different.The energy price as specified by the legislation was not adequate to recover full construction costs in excess of grant moneys or O&M costs. Each participating utility was therefore required to make significant financial contributions to the projects.These contributions were hopefully but not necessarily fair or justified by economic benefits for the individual participating utility. The 1993 legislation did not address the benefits from the Northern or Southern an GVEA,as owner of the Northern Intertie for the benefit of the participating utilities,has proceeded with the Northern Intertie assuming these issues will be resolved.CEA,as owner of the Southern Intertie for the benefit of the participating utilities,has delayed for internal reasons until recently proceeding with the Southern Intertie. Northern Intertie General Issues GVEA has proceeded with environmental assessments,scoping and routing studies,and engineering and design.Final routing of the intertie has been agreed.Regarding the environmental assessment,a Finding of No Significant Environmental Impact(FONSI)is expected by late this summer.This finding will mean that the environmental analysis has been accepted by the appropriate agencies,mitigation requirements have been agreed, and the project can proceed without a full Environmental Impact Statement.When the FONSI Record of Decision is finalized,procurement of materials and construction must proceed as rapidly as possible.After some initial utility disagreements among each other and with AIDEA regarding scope and staging of the projects,the utilities appear to have reached an understanding which AIDEA finds acceptable.However the understanding has yet to be confirmed.At this time there appear to be no other significant engineering and environmental issues which will delay progress or completion of the Northern Intertie. The major remaining issue is execution of the Construction Agreement drafted by GVEA. There are two issues which are preventing execution of this agreement.First the Spent ec hesagreementprovidesforsignificantoversightbytheIPG.While GVEA has agreed in tennantprincipletosuchoversight,it is significantly different than that acceptable by CEA for Gast i citetheSouthernIntertie.This creates a fairness issue for all parties.Second and only indirectly related to the Construction Agreement,the participating utilities have 0G attempted but been unable to agree on the application of economic benefits from the Northern Intertie.Since the Northern Intertie is anticipated to be highly used with the del peivene:flow of energy to the north,capacity and energy rights and costs of each utility will Dou [cre ,iy+determine the benefits to each participating utility.These were not addressed in previou: in di tc di weg:CRESTYagreementsandareindispute.This disagreement has prevented the utilities from Foye de j ieexecutingtheConstructionAgreementwhichisnecessarypriortocommencingevelaeprocurementandconstruction.To date GVEA has proceeded without IPG resolution.Cahy Fob ste However GVEA is no longer willing to proceed without resolution.AIDEA concurs that resolution is necessary before further moneys should be expended.The critical points are: 1.The participating utilities do not incur benefits from the Northern Intertie in proportion to their ownership.HEA,MEA,Anchorage Municipal Light and Power,and the City of Seward have refused to execute the Construction Agreement until these benefit issues are addressed to their satisfaction.These utilities have proposed an allocation method which defines the capacity and energy rights and costs so as to result in the benefits which they desire.GVEA finds the benefit allocation financiallydetrimental,contrary to the intent of the legislatio#/and unacceptable.GVEA will notproceedfurtherwithoutresolutionsinceprocureméntandconstructionmoneysare significant and there are no assurances that the IPG will approve further expenditure of funds until these issues are resolved. 2.The current ownership structure and agreements have deficiencies relative to financing which ADIEA's financial consultant finds unacceptable.AIDEA wants resolution of ownership issues prior to additional grant funds being expended. 3.The utilities were required by AIDEA as part of the agreements to identify matters which require APUC oversight and approval.AIDEA has continually stressed that this must be accomplished prior to proceeding with procurement and construction activities. No progress has been made on this matter. Southern Intertie General Issues Progress on the Southern Intertie has been delayed by CEA and is lagging the Northern Intertie by approximately two years.Further the Southern Intertie will require extensive engineering and environmental studies resulting in an overall project schedule of considerable duration with an uncertain project completion date.The points are: 1.Chugach Electric Association(CEA)will not agree to management and administration oversight procedures by the Intertie Participants Group(IPG)similar to what Golden Valley Electric Association has agreed on the Northern Intertie.Within certain limits CEA proposes to have full Project Management authority to proceed with the work.In addition CEA requires a guarantee of reimbursement from AIDEA regardless of IPG actions.GVEA on the Northern Intertie proceeded without such guarantee with the good faith understanding that issues would be resolved.CEA has refused to proceed with a similar approach.The proposed CEA Construction Agreement is unacceptable to four of the seven participating utilities. 2.The Southern Intertie is approximately two years late in starting work.The Southern Intertie is likely to encounter severe and aggressive environmental opposition. The ultimate completion date of the Southern Intertie is therefore quite uncertain. 3.The benefits of the Southern Intertie are not a result of quantified capacity and energy transfers.The Southern Intertie is not limited by capacity or energy transfer capability.Rather the benefits are primarily derived from higher reliability and deferment of future generation.There is considerable difficulty in substantiating the cost benefits for any participating utility.When the Southern Intertie was conceived,the energy flow was south.The Kenai consumers would receive significant reliability benefits from the intertie projects.With the completion of Bradley Lake in the Kenai and energy growth primarily in the Fairbanks area,energy will flow to the north.This means that the improved reliability of the Southern Intertie will benefit Anchorage and particularly Fairbanks consumers more than originally expected in the initial cost benefit studies.Conversely the consumers on the Kenai will now receive less benefits from either the Northern or Southern Interties. 4.The Anchorage area has not grown as predicted creating some excess generation capacity in the Anchorage area.It is uncertain that the Southern Intertie will result in the deferment of future generation additions as conceived in the original cost benefit studies. In addition the Anchorage utilities now want the opportunity to sell excess power into other Alaska utility traditional service areas .The economics of the sale of such energy will be greatly impacted by the intertie capital and operating costs as applied to the individual participating utility. Confidential GVEA Briefing Paper--Northern Intertie--June 9,1995. During the 1992 and 1993 sessions the Alaska Legislature approved grants and other funding of varying amounts for Power Cost Equalization (PCE)and for five electric interties located throughout the state:the Seward Intertie,the Southeast Intertie,the Copper Valley Intertie,the Northern Intertie (between Healy and Fairbanks)and the Southern Intertie (between Kenai and Anchorage). Although GVEA is primarily interested in the Northern Intertie,we believe that increased transmission infrastructure benefits the state so we also lent our political support to the other interties and PCE,For example,GVEA supported Seward receiving funding for their intertie from the Railbelt Energy Fund even though GVEA receives no direct benefit.Each of these projects (including PCE)directly benefit certain communities.Collectively,the benefits from the interties and PCE extend statewide.For example,Homer residents will likely receive more benefits from the Southern Intertie than GVEA customers.Likewise,GVEA has more direct interest in the Northern Intertie than HEA.Kotzebue receives PCE;Fairbanks residents don't. Extensive studies of the benefits of the Northern and Southern interties were done for the Legislature by Decision Focus and the Alaska Energy Authority.The predicted benefits were different for each of the potential utility participants.Further,all recognized that the benefits may be distributed differently in year one than in year thirty.For example,gas-fired energy generated in Cook Inlet and transmitted North to Fairbanks in 1998 could change to gas-fired energy generated in Fairbanks from North Slope gas and transmitted south to Anchorage in year 2028. The legislation authorizing the northern and southem interties was elegant in its simplicity.It clearly provided that any utility that chose to participate could do so.Rules for participation specified that each utility could get a share equal to the ratio of its peak load to the total peaks of other participating utilities.The price for shipping energy over the line would be 1.5 mills per kWh, The Legislature gave each utility the opportunity to participate if the utility determined it would benefit from doing so.Nowhere did the Legislaturesay that the benefits of the interties would be equal for each utility,or that ifthey weren't found to be equal then some formula of surcharges and credits would be devised.The proposal of MLP to impose upon GVEA members a surcharge on Northern Intertie usage in order to transfer benefits to other utilities cannot be accepted and will be resisted.Attempts to reduce the scope of the Northern Intertie so that it is undersized from day one will also be resisted. GVEA supports a scope and budget that will permit construction of an intertie system that will, when operated in parallel with GVEA's existing transmission line,transmit into Fairbanks all the energy that can be generated in Healy,plus all the energy that can be transmitted from Anchorage to Healy over the Alaska Intertie--140MW total--using a battery energy storage system for voltage support and system emergency reserves. Another issue involves the relative capacity to be assigned to GVEA's existing Healy-to- Fairbanks transmission line vs.the capacity to be assigned to the new Northern Intertie system. When Interior Alaskans fought for funding of the Norther Intertie they were primarily seeking the ability to increase energy transfers and reduce line losses into Fairbanks.They were also concerned about increased ability to capacity-share between the Anchorage and Fairbanks areas and about improved reliability.The AEA/Decision Focus studies predicted that the Northern Intertie would provide about a forty megawatt transfer increase in addition to improved capacity sharing and reliability.The benefits of transfer increases and capacity sharing were predicted in the studies to be about 89%of the total benefits.The benefits of reliability/stability improvements were estimated to be about 11%,shared primarily among FMUS,GVEA and MEA.GVEA will resist any attempt to reduce GVEA's existing transfer capacity below 100 MW or reduce the benefits GVEA can realize from maximum use of the new Northern Intertie. One section of the Participation Agreement calls for a reasonable reduction in GVEA's existing line capacity to reflect the reliability/stability benefits it will receive when the new line is operated in parallel.The thermal limit of GVEA's line is about 170 MW.The maximum. operating limit,with HCCP on-line,is about 150MW.The practical onerating Uimit,under post- construction conditions,will be near 120 MW.GVEA initially offered to reduce its line capacity to 1OSMW and later,in the interest of settlement,offered to accept a reduction to lJOOMW capacity into Fairbanks.GVEA offered to give up as much capacity in its existing line as it could.The offer reflected a 7OMW reduction from the thermal limit,a SOMW reduction from the maximum operating limit and a 20MW reduction from the practical operating limit.A majority of the IPG demand that GVEA's existing line capacity be reduced to 44MW.This is nowhere near reasonable.GVEA is prepared to go to court if required to seek relief from this bad-faith imposition of unreasonable conditions which result in an arbitrary taking of GVEA facilities. One simple way to assess what GVEA's existing line will actually transfer into Fairbanks after construction of the Northern Intertie system is to model what happens when the lines are operating in parallel and the new line trips.The battery will pick up 4OMW instantaneously, GVEA's existing line will deliver 100 MW into Fairbanks and the lights in the Railbelt will stay on.If there were no Northern Intertie,GVEA would load its stand-alone line to about 120MW afte:FHICCP cuuipletiva.Huwevei,dds would Isave nu aust:tou Qi PMUS. The reliability benefits of the new intertie system are important,but should not be exaggerated to impose a ridiculous 44 MW limit on GVEA's existing line.Even when the existing transmission line trips,GVEA and FMUS have backup generation that comes on-line in 15 minutes or less. By using backup generation resources and rapid transmission line and feeder restoration,we end up with only about 11.5 minutes of unserved energy per year (5-yr average)because of forced outages caused by our Healy-to-Fairbanks line.Using the Decision Focus formula yields a value to GVEA of approximately $122,000 per year (net present value==$2.41 million)if the forced outages for the existing line go to_zero after the Northern Intertie system is completed. Why would Interior Alaskans agree to a reduction in their Healy-to-Fairbanks power transfer capability when the studies predicted that over 90%of the benefits they fought for were related to transfer capability increases and capacity sharing,not reliability/stability.Although this is not an offer,GVEA would be better off to fund $2.41 million of the utility-financed portion of the Northern Intertie system costs,in addition to its regular percentage share,in order to settle the reliability/stability issue.This payment coupled with an agreement that the new Northern Intertie system will be credited with 4OMW of the total capability into Fairbanks would protect the other participants from GVEA using its existing line capability to decrease the incremental 40MW caused by the new Northern intertie system.It should be pointed out,however,that this would place GVEA in the position of being forced to pay extra cash for reliability benefits while FMUS and MEA are faced with no such requirement. The northern utilities (FMUS and GVEA)are the only utilities with north transfer rights over the existing intertie between Anchorage and Healy (Alaska Intertie).Conversely,the southern utilities (CEA,MLP,MEA,SES and HEA)are the only utilities with south transfer rights.The Alaska Intertie is currently fully loaded north serving the northern utilities'requirements.That situation will continue even after the Healy-to-Fairbanks (Northern Intertie)is completed giving the northern utilities increased north transfer rights and the southern utilities increased south transfer rights. The southem utilities'primary interest in the existing Alaska Intertie and the new Northern Intertie should arise from their desire to sell power to the northern utilities and to maintain south transfer nights to purchase power from Fairbanks.The Alaska Intertie Agreement among the Railbelt utilities provides for the receivers/purchasers in the North (GVEA and FMUS)to utilize their transfer capacity and pay for !osses and the wheeling charges.FMUS and GVEA purchase 100%of the power transmitted north and provide 100%of the transfer rights on the Alaska Intertie for that power to be moved from Anchorage to Healy.During the past 5 years CEA has supplied approximately 90%of the power sold to GVEA and FMUS.MLP and AEG&T have supplied approximately 10%. The current tensions are the result of over two years of difficult negotiations.When GVEA negotiated the Northern Intertie agreements with the other utilities,it did so recognizing certain facts that had become obvious: 1.GVEA was in the minority among the utilities as far as voting power even though it and FMUS had the greatest to lose if the line were not built. 2.There was little passion for expeditiously building the Northern Intertie except at GVEA and FMUS.toThose holding the majority of votes intended to dictate all matters,showing little concern for the minority position. 4.Several utilities in the majority seemed convinced that there would be insufficient benefits to them from participating in the line.Therefore,the majority demanded, and GVEA and FMUS provided,guarantees that GVEA and FMUS would pick up 100%of the costs of all the other utilities if they wished to bail out after one year. GVEA thought that this significant commitment would buy peace and smooth sailing. It didn't.GVEA also provided approximately $750,000 in advance funding to get 'design and route selection underway during a period when negotiations slowed. .When GVEA was forced,by a majority who seemed to often abuse its prerogative,to agree to the principal of a capacity reduction of its existing Healy-to-Fairbanks transmussion line to reflect the reliability/stability contribution of the new Northern Luter tig tu the existing line,it envisioned a reasgnable reduction.As stated above,it was felt that the utilities demanding the reduction wanted to insure that GVEA would not use Capacity in its line above current operating levels in an attempt to reduce the transfer capability that the studies had allocated to the new line.At no time did GVEA agree to or even contemplate that Fairbanks residents would be required to give up any current ability to transmit energy,or give up any rights to benefit fully from the additional transmission capability provided by the new line.GVEA did understand that its ability to use capacity in its existing line in excess of current levels would be reduced a reasonable amount during parallel operation. GVEA remains vitally interested in expeditious construction of the Northern Intertie under the simple,straightforward and understandable terms and conditions outlined by the legislature. GVEA is currently considering legal action to settle the line capacity allocation issue.GVEA will also take whatever further action is necessary to insure that a full scope and budget are maintained for the Northern Intertie System (including battery energy storage system)and that no attempt to reduce the value of our participation succeeds.This action may also require GVEA to work directly with AIDEA to insure that the legislative intent for the Northern Intertie grant is carried out. GVEA also supports expeditious construction of the Southern Intertie and is disappointed at the lack of progress toward completion of this worthwhile project which will have significant benefits for the Railbelt and particularly for the Kenai Peninsula,Anchorage and the Mat Valley. IN TEE SUPERIOR COURT FOR THE STATE OF ALASKA GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.,an electric cooperative;THE MUNICIPALITY OF TAIRBANKS a home rule municipality,dba Fairbanks Municipal Utilities Systems; and CHUGACH ELECTRIC ASSOCIATION,INC., Plaintiffs, Vv. THe MUNICIPALITY OF ANCHORAGE, ALASKA,a unified home rule Municipality dba MunicipalLightandPower;THE CITY OF SEWARD,a home rule municipality dba Seward Electric System;HOMER RLECTRIC ASSOCIATION,INC.,an electric cooperative;andMATANUSKAELECTRIC ASSOCSATION,INC.,an elactric cooperative, Defendants. CASE NO.OR Ary COMPLAINT (Breach of Contract; _Declaratory Judgment) Plaintiffs Golden Valley Electric Associaticn,Inc. ("GVEA"),an electric cooperative;The Municipality of Fairbanks, a home rule municipality dba Fairbanks Municipal Utilities Systems ("FMUS");and Chugach Electric Association,Ine. ("Chugach"),an electric cooperative,for their complaint herein allege: INTRODUCTION 1.For several years,GVEA,FMUS and others have sought legislative support for construction of a second transmission Page 1 -COMPLAINT -CLR\Is Efmb.onp Goo2 Page 2 -COMPLAINT line between Healy and Fairbanks because of the significant economic impact cf such a line for the Fairbanks area economy. Because natural gas is net available for clectric power generation in the Fairbanks area,increased electric transmission capacity is necessary to import less expensive natural gas produced electricity from the Anchorage area into the FMUS and GVEA service areas.The availability of such power is crucial to the econemic development of the Fairbanks area. 2.This action challenges an unreasonable decision made by the four southern Rallbelt defendant utilities to deprive Fairbanks area residents of the benefit of both existing Fairbanks electric transmission facilities and of the proposed new transmission facility. 3.Chugach sells substantial quantities cf electricity to the Fairbanks area,resulting in substantial reventces fer Chucach ratepayers.Defendants'decision which increases the cost to GVEA and FMUS of using their existing transmissicn capacity haxms Chugach ratepayers by reducing Chugach's ability to sell electricity to willing purchasers. 4.In 1993,the Alaska Legislature appropriated $43,2 million to be used by GVEA te construct an clectric transmission 'line batween Healy and Fairbanks,parallel to an existing transmission line owned by GVEA.On January 24,1954,in accordance with the Intertie Grant Agreement,the parties entered into a Participants Agreement.A copy of the Agreement is attached heretoas Exhibit1 and by this reference incorporated Anca Wrrect Miwirr DOnsan &Secaeity351LW,Cokaabin,Fate 1809Pectland.F7Z0\ Gh1aoy)aksy CouNILSimd,cap buy® Page 3 COMPLAINT _"RAPP herein.The Participants Agreement set forth a formula to allccate the transmission capacity between the two lines.The defendants ignored the tezms of the Participants Agreemecst and arrived at an allocation figure whlch deprives GVEA of the istoric use of its existing line and substantially recuces the benefits to GVEA and FMUS of the new line.PilaintizZfs seek declaratory relief allocating transmission capacity to GVEA over its Healy-Fairbanks Line in acccrdance with the terms of the Participants Agreement, FARTIES 5.Plaintiff GVEA ig an electric cooperative serving members located in the greater Pairbanks area. "as6.Plaincif=FMUS,a home rule municipality,operates en electric utility serving custemers in Fairbanks. 7.Plaintiff Chugach,an electric cooperative,serves retail members in the greater Anchorage area.Chugach also provides wholesale power to Defandants Matanuska tlectrio Association,Inc.("Matanuska")and Homer Electric Association, ("Somer")through Matanuska's and Homer's agent,Alaska ("AEGET"), Inc. Electric Generation and Transmission Cooperative,Inc. and the City of Seward. 8.Defendant The Municipality of Anchorage dbe Municipal Light and Power ("ML&P"),a unified home rule municipality, operates an electric utility serving customers in the municipality of Anchorage. /// Axet Wren Fewrrs boos &SERRITT 222 S.W.Columba.Sar 1600Tortias4,Orepon PTD ean h(4Q)Se1971 Gu.E\75S54oh,cmp js» wvee-tT eee ve 9.Defendant The City cof Seward dba Seward Electzic System ("Seward"),a home rule municipality,operates an electric utility serving customers in the city of Seward. 10.Defendant Homer is an electric cooperative serving Members on the Kenai Peninsula. ll.Defendant Matanuska is an electric cooperative serving members in the Matanuska Valley. 12.GVEA,FMUS,Chugach,Mu&P,Seward,Homer,and Matanuska are qualified utilities within the meaning of AS 44.83.425(5)anda shall be referred to herein collectively as Participating Utilities. FACTUAL BACKGROUND 13.On December 23,1985,MU&P,FMUS,GVEA,Chugach,A=EG&T (on behalf of Homer and Matanuska)and the Alaska Power Authsrity entered into the Alaska Intertie Agreement concerming the cpéeration of the Alaska Intertie,a transmission line owned by the Alaska Energy Authority between Healy and the Anchorage ares. The Alaska Intertie interconnected an existing GVEA transmission line between Healy and Fairbanks ("GVEA Healy-Fairbanks Line") with an existing transmission system serving Anchorage and the Kenai Peninsula ("Chugach Ancherage-Kenai Tranemission systen") owned and operated by Chugach.Through construction of the Alaska Intertie,the parties intended to "improve their reliability and engage in transactions of electrical Power and Energy ...using the Intertie."Alaska Intertie Agreement at The Alaska Intertie Agreement established the parties' atm Wrree Hewitt Dowson &Sxurenr 1-2. Cals6jab.cep-Page 4 -COMPLAINT nN®WwWhWRAY £10On ofsightstothetransmissioncapacitycreatedbyconstructio the Alaska Intertie,and set out a method for cetermining the cost of these rights and peyment by the benefiting utilities.a map attached hereto as Exhibit 2 illustrates the location of the GVEA Healy-Fairbanks Line,the Chugach Anchorage-Kenai Transmission system,the Alaska Inteztie,and the proposed Northern.Intertie. 14.GVEA's Healy-Fairbanks Line was constructed to serve GVEA system loads.GVEA owns end operates a 25 MW coal-fired generation plant ("Healy #1")in Healy.GVEA and the Alaska Incustrial Development and Export Authority (AIDEA),ain conjunction with the United States Department of Enercy,heve egreed to design,construct and operate the Healy Clean Coal Project ("HCCP")with a nameplate rating of approximately SC Mw in Healy.All generating facilities in Healy are and will be Gecicated to GVEA's system lcads as well as GVEA's share of ths oe Bradely Lake Project generation.'the Bradely Lake Project is located on the Kenai Peninsula. Pursuant to the Alaska Intertie Agreement,GVEA makes15. capacity in the GVEA Healy-Fairbanks Lineexcesstransmission available to FMUS,Transmission capacity over the GVEA Healy- Fairbanks Line will become constrained once HCCP is in operetion because GVEA will vee its line'e capacity to transmit the additional power generated by HCCP. 16.The Alaska Intertie between Anchorage and Healy has a contractually established transmission capacity of 70 MW and Tre Were Tewrrr Dopson &SMDNCTT CLARA TES5ES.cmmPage5-COMPLAINT ATER WINNE Zoor RART ntly has been operated at a capacity of 78 MW.GVEA'sVvirecue 2 EHealy-FPairbanka Line can accommodate the 25 MW generation cf 3 Realy #1 and the 78 MW available from the Anchorage area over the 4 Alaska Intertie including GVEA's snare of capacity Irom the Bradely Lake Project.As other resources such as the HCCP become available,the GVEA Healy-Fairbanks Line will become capable of 5 6 7 additional power transfers. 8 17.No entity other than FMUS or GVEA is entitled to 3 transfer power north over the Alaska Intertie pursuant to Lhe 10 Alaska Intertie Agreement.GVEA and FMUS are the only parties il receiving power over GVEA's Healy-Fairbanks Line. '12 18.Chugach is the largest electric utility in Alaske,and 13 under the terms of the Participants Agreement,Chugach has the 14 single largest Participant's Share (30.23%)in the Northern 15 Intertie.As a result,Chugach will pay a higher percentace cf 16 the Northern Intertie's costs than any other Participant. 17 Chugach therefore has an interest (1)in the Participants 18 Agreement being interpreted and applied as intended and ina 15 yreasonable manner,and (2)the Participants honoring their 20 express and implied duties of good faith and fair dealing with 2l respect to one another. 22 19.Under the texms of a long-term power sales agreement, 23 Chugach generates nonfirm energy with natural gas and sells that 24 nonfirm energy to GVEA.GVEA uses such nonfirm energy to reduce 25 the operation of its oil-fired and coal-fired generating 26 facilities in the Fairbanks areas.These nonfirm energy sales CLAN755j eb.CayPage6-COMPLAINT OS/C2/93 12:26 503 277 079 ATER WINNE 0C8"RA p> Samml SS oseToscicaneproducesignificantannualcostsavingsforGVEAandsti 2 annual revenue for Chucach.Chugach uses this revenue to reduce 3 costa (hence the rates)of its retail consumers and wholesale 4 customers.The volume of guch sales is constrained by the total transfer capability available to GVEA for electric power5 6 tranemitted to the North.Therefore,a reduction in the transfer 7 capability available to GVEA would harm Chugach as well as GVEA. &20.Further,to the extent defendants'action has the S$effect of delaying completion of the Northern Intertie,the total 10 amount of transfer capability of GVEA's existing transmission ai line available to GVEA and FMUS for purchase of electric power 12 rom Chugach will also be reduced by force of cizcumstance. 13 Construction will soon begin on HECCP,the power output cf HCCP 14 will require some of the existing transfer capability currently a9 avallable to GVEA and FMUS.Additional transfer capability in 1G the form of the Norther intertie must become available ina 17 timely fashion if Chugach's power éales to GVEA and FMUS are not 16 to be reduced.To the extent GVEA or FMUS must purchase capacity 19 [com other Participants in order to make purchases from the 20 Anchorage area,the price of power deliver to the Fairbanks area 21 goes up and this makes Chugach's energy mere expensive and 22 therefore less competitive. 23 GRANT FUNDS APPROPRIATION 24 21.In 1889,the Participating Urilities sponsored a study 25 entitled Economic Feasibility of the Proposed 138 KV Transmission "to assess the economic Arre Pato Twit Dobson &SRTLawyers222$.W,Cohunble.Suile 1900Fortier,Orvpwe 9750}-4018OS)See 1L9t 26 Lines in the Railbalt (Dec.1989) CLINTSSJmp.cupPage7-COMPLAINT .05/02/85 12:27 503 226 0079 ATER WYNNE feasibility of"the Northern Intertie ("Economic Study").The Economic Study was submitted to the Legislature in supporc of the equest for an appropriation to fund construction of the Northern Economic Study estimated the sccnomic benefit from The Intertie.The construction of the Northern Intertie to be $105.8 million. Participating Utilities agreed that $76.9 million of the overall benefit would result from increased economy energy transfers between the Anchorage and Fairbanks areas and improved reliability.As a result cf load growth in the Paissanks area in excess of that forecasted in the Economic Study,the actual economic benefit From construction of the Northern Intertie will be greater chan predicted over the life of the line. 22.In 1993,the Alaska Legislature passed an Act "making appropriations for grants and loans for hydroelectric projects including power transmission interties."1993 SLA ch.29.Pursuant to chat Act,$43.2 million was apprepriatec to GVEA "for the benefit of all the utilities participating in the Intertie for Gegign and conetruction of a power transmissica intertie ..."between Healy and Fairbanks.1953 SLA ch.19, §1(a)- 23.Pursuant to Section 1(e¢)of 1993 SLA ch.19,the appropriation is "contingent upon the execution of a written agreement between the electric utilities participating in the Intertie and the [D]epartment [of Administration]in which Golden Valley Electric Association agrees to provide the other participating utilities access to the [Northern]Intertie for the AYma Wrroet Setwtrt Doosan &Ixraerrr 2h SW;Comatlia,Guile 1400GayLeU CURA ThAseb.cepPage8-COMPLAINT gio09 05/02/95 12:27 S03 226 1078 ATER WINNE tsbuxpeseé of assured access te resources,econcemy energy transactions,and other similar uses." INTERTIE GRANT AGREEMENT 24.On Octaber 26,1993,GVEA,FMUS,ML&P,Chugach,AESGaT, Matanuska,Homer,Seward,tke State of Alaska,acting through the Department of Administration and AIDEA,entered into an Intertie Grant Agreement.The Intertie Grant Agreement was intended "to satisfy the statutory conditions precedent to [State of Alaska, Department of Administration]transfer of the grant funds and to provide for'the expeditious transfer of such funds to the grant recipients for the purpose of partial funding of the design and constsuction of new electric transmission interties between Healy and Fairbanks and between Anchorage and the Kenai Peninsula." 25.The Intertie Grant Agreement provides that the Participating Utilities shall hold undivided ownership interests TheintheprojectsinproportionssetforthintheAgreement.'Th Intertie Grant Agreement also provides that the Participating Urilities will pay design and construction coats of the new Northern Intertie that are in excess of the available grant funds. 26.Under the terms of the Intertie Grant Agreement,the Participating Utilities agreed to subsequently negotiate and enter into a Participants Agreement to address ownership participation,project management and project operation. 27.Pursuant to the Intertie Grant Agreement the Participating Utilities agreed to form an Intertie Participants :AEA Wrrore Brwrrt Donenet de Kevaasrr 222 S.W,Columba,Suae 209Porthad,F701Gelk D 2eby CUR\743jnb.wpPage9-COMPLAINT Ra ey Ci0 ew GLlO5-C2/85 12:28 S03 226 0078 Alad MLNAZ D 2 vwresponsibilities as joint owners.ry)ttxe<oDctOortby®4'WyQQ3cherepresentativeomtheIPGandeachrepresent 4 hag one vote. 5 PARTICIPANTS AGREEMENT 6 283.The Participants Agreement established each 7 participant's ownership share in the project.Each party's right 8 to use the new Northern Intertie transfer capability and each S$party's responsibility for project costs ig mandated by specific 10 Lesislative directives. i 23.Each participant,other than GVEA and FMUS,has the 12 right to withdraw from participation in the mew Northern Intert 13 pursuant to Section 4(b)(3)of the Participants Agreement one i year after che Intertie is cbérational.Once a party withdraws, 15 ats share is offered to the remaining participants and the 16 withdrawing party haa no further financial obligations for she 17)«project.GVEA and FMUS must accept (ratably)any withdrawing 18 participant's share to the extent such share is unclaimed by any 19 othex party.This arrangement has the effect of putting GVEA and 20 FMUS at risk for the full project cost in excess of the grant, 21s and significantly limits the risk of all othex parties. 22 ALLOCATION OF TRANSMIQQION CAPACITY UNDER THE PARTICIPANTS AGREEMENT 23 24 5 30.The combined transmission cepacity (sometimes called5 26 transfer capability),taking into account system stability and reliability,of two electrically parallel lines is less than theATERWYNNEBienDoston&SORTLeeyanZaz5.W.Cotgmnts,Suite DWPortland,Oregon 97251408 (AN D4L1 > Page 10 -COMPLAINT CURATESIno.emp 05/02/93 12:28 503 226 «618 fe)Page 11 -COMPLAINT ATER WYNNE OR AR, sum of their individual transfer capabilities.Therefore,the transter capability when both the new Northern Intertie end the GVEA Healy-Fairbanks Line are in service will be less than the sum of the individual transfer capabilities of the two lines. The transfer capability of the existing GVEA Healy-Fairberks Line is significantly greater than the incremental transfer capability added by the proposed Northern Intertie. 31.Therefore,in order to equitably apportion the benefits of the Northern Intertie ameng the participants,withott rnSoannkgdeprivingGVEAofthebenefitsofitsexistingHealy-Fai Line,the Participants Agreement set forth a formula fer allocation of the transmission capacity of the new Project Interties. 32.Section 11 of the Participants Agreement sets forth the allocation of project capacity between the existing GVEA Healv- Fairbanks line and the Northern Intertie under Lwo operating conditions, ALLOCATION OF CAPACITY WITH NO CAPACITY CONSTRAINTS 33.Where both lines are in operation and the total combined transfer capablilty of the facilities is sufficient allow ell deaired tranemiacion *take niace,no distinction is made between power transmitted over LN&EwO Lives.retudelpaucs Agreement,Section 11(a). ALLOCATION OF CAPACITY WITH CAPACITY CONSTRAINTS 34.When both'lines are in operation,but the total combined transfer capability ds not sufficient to allow for all Aves Wrens Hawrrt Booked &Shxcsurr Zt SW.Colianbis,Sales TAGS Portinod,Orcena 97791-4615 CD Delist COR\7555myen iV 65/02/95 12:29 yyusdesired transmission requests to take place simulta 503 22k 1n78 ATER WYNNE 2013 neously, Participants Agreement section 11 (c)providee that the transmission capacity of GVEA's Healy-Fairbanks Line and or the (A) (B) 2s. Transmission CapacityOuGVEA'S Healy-valrd>anuks Lius The IPG and the owner [GVEA]of the parallelutilityownedfacilities[GVEA Healy-FairbanksLins]may by agreement establish any reasonable allocation of such capacity;or The parallel utility-owned facilities [GVEA Healy- Faixbanks Line]shall he deemed to hava the transfer capability that they would have if operated alone,Jess some amount reasonably adopted by the IPG to reflect the reliability/ etability bencfirts such facilities receive fron the existence of the parallel Project facilities [Northern Intertie).The remainder of the total combined transfer capability shall be deemed to beThatOFthePrujevlfacilities[Nexthcern Intertic]and shall be evailable to each Participanre ia accordance with its Farticipant's Share. The fozrmula ic sallustrateA helaw: Healy-Fairbanks Line tCranamissicon capacily less reliability/shabllity benefit Total combinedNorthernIntertieTransmission Btability limitedCapacityAllocation franeamissian capacity less GVEA's capacity on its Healy-Fairbéenks Line IPG RESOLUTION ALLOCATING GVEA's TRANSMISSION CAPACITY 36.Participants Agreement Section 11(b)provides that if both the GVEA Kealy-Fairoanks Line apd the Northern Intertie axe in operation,"then the combined total transfer capability oz operating lamit of the parallel treusmtsotlon Eacilities will be Area Wren Foowrr Dooton &Seac00T Zl SW,Coiemben,Sute LEOI.cums Y7LOL-6L5(3 LIL CLAN7SZJeD,erpPage12+COMPLAINT 05,°02/85 12:28 503 226 0079 ATER MIN the stebility-limited amount,mot the thermal limit of those eacilities ..."{emphasis added).Il only cons of the lines is in operation,then the operating limit of the GVEA Healy- Fairhanke Tine "hall be that which is reagonably established -by the owner LGVEHAJ of the parallel ...Leanuouission Sacility." 37.For both operaticnal and technological reasons,such as the addition of new electric generation at Healy or voltage upgrades,beth the transfer napability of the GVEA Healy- Fairbanks Line and the combined transfer capability of both lines may change,resulting in a changed allocation of cransfer capability to the Northern Intertie,The formula in Participants hAgreement Section 11(e¢)provides the basia for bath an initia allocaticn of transmission capacity between the two lines. 38.The total combined transfer capability of the combined GVEA Healy -Fairbanka Line and the proposed Northern Intertie heen determined by IPG sponsored studies to be 140 MW (based the cuxrent scope of the project). 39.GVEA has historically operated its Healy-Fairbanks Line to transmit 103 MW north.A£ftexz HCCP is operational,GVEA has reasonably determined the transfer capability or operating limits eof the GVEA Healy-Fairbanks Line will be no leas than 120 MW,and wundexs certain operating conditions will have a transfer capability of 150 mw, 40.Under current conditions,if the formula set forth in Section 11(c)(3)(B)of the Participants Agreement is applied, C.AR\?S Ejreb.cmpPage13-COMPLAINT ZO1t Q5/02/95 12:30 503 226 0079 ATER WYNNE ») allceation of its GVEA Healy-Falroanxs wine Lraueles 2 capability would be not lese than(ua in Fairbanks,but could 3 be greater under certain operating conditions. 4 41.On April 13,1995,the defendants voted in favor of a 5 Resolution and Action Pertaining to Fixed Capacity Shares When 6 Capacity Is Or May Be Constrained,the Reliability/Stability "7 Benefits to a Single Line When Parallcled,and Determination of 8 the Stable Capability of the Paralleled Lines ("Resoluticn") 9 pursuant to Section 11(c)(3)(5)of the Participants Agreement.A 20 copy of the.Resolution is attached hereto as Exhibit 3 and hy 11 this reference incorporated herein. 12 42.Under the terms of the Resolution,defendants failed to 13 accept the transfer capability cperating limit determined by GVEA 14 pursuant to Section 11(b)of the Participants Agreement,faiied 15 to follow the formula set forth in Section it(e)(3)(8B)of +6 €©Participants Agreement,failed to reascnably determine the 17 stability/reliability benefit,and erroneously detemnined Lhe 18 Cotal combined transfec capability of the two lines operated in 19 perallel. Defendants instead allocated the transmission capacity20a3. 21 of the combined lines "ratably between the utility-owner and the 22 Project in direct proportion to each line's thermal limit.'he 23 "ratable"allocation igs contrary to the formula of Participants a Ayeecuenh acutiouw 445)(3)(0)snd thea ure af rharmal limita ia 25 contrary to the express prohibition of section 11(b). 260 /// Arte Wine Beatty Danson &BROAnT2Bw,Comma Suce 1Focthend,Ogee Saas GLA\TS$3 m0.c-9Page14=COMPLAINT 05/92/55 12:32 S503 226 0079 ATER WYNNE Z018RApp te Pwpcmuant tw thesa "racabla allarstiannt eaharn,(-2 defendants cetezmined that the two lines in parallel had a total 3 Combined transfer capability of 105 MW.Defendants allocated 4 44.1 MW to GVIA's Healy Faixbanke Lina and 60.98 MW ta the new 5 Northern Intertie. 6 45.Defendants'transmission capacity allocation scheme hag a7theeffectofchargingGVEAmillionsofcollarsinexchangefor 8 reguetion of over 60%in GVEA's rights to transfer power cn the )existing GVEA Healy-Pairbankse Line although GVEA would centinve 29 te way fous ite existing linc aad would pay for its chare of tha 11 new Northern Intertie.Defendants would then be in @ pesiticn to 22 charge "tolls"(wheeling charges)to GVEA and FMOS for use of 13 transmission rights currently owned by GVEA,and would Geny to 14 GVEA any net increased transfer capability benefits rasulting 1S from the new Northerm Intercie. UNCOMPEMSATED Loseszs 17 £6.secretion 9(b)(2)of thé Participants Agreament obligates 18 each party to operace its own electrically interconnected system 19 to accommodate the operation of the Northern Intertie,but 20 provides that "nothing in the Agreement shall obligate any Party 2i to (a)operate its own system in a mamner inconsistent with its '22 own needs and requirements,er (b)incur solely for the benefit 23 of the Project or its operation,or for the benefit of the other 24 pailics,euy uncompensated cost,expense,or loses in the design, 25 ecnustruction,maintenance,or operation of that Party's own 26 system."(emphasis added) ATES Wrreu Heerrr Doeson &SEpAmuITLawyest vos 72 5.W.Cokmmobia,Sue LOPortaad,Oregon 97241-4615 CLR\7S§$jad.copPage15-COMPLAINT O17TERWYNNEpe05/02/95 12:31 M503 226 0078 :RA py 47,Defendants'acticn would impose substantial accictional1 2 costs,expenses,or losscs con GVEA for the use and operation of 3 GVEA''s Healy-Fairbanks line,contrary to GVEA's own neecs and 4 requirements,and without compensation for such costs,expenses 5 and losses. 6 DAMAGES 7 48.Defendants'action,if not immediately reversed,will 8 celay the construction of the Northern Intertie and will causa 39 damage to Plaintiffs.Defendants'failure to comply with the 'an Gelay of AIDEA10ternsoftheParticipantsAgreementwillresultin a1 xeleasing funds for procurement and construction aetivity, 12 thereby delaying actual construction and operation. 13 €9.Because of the limited construction season fer the 14 Northern Intertie,any delay is likely to result in loss of an "15 least one construction season,thereby delaying the availability 26 of the Northern Intertie for purchases of powex by GVEA an@ FMUS, 17 and sales of power to GVEA and FMUS by Chugach.ff GVEA and FMUS 18 are unable to make power purchases that would be available with 19 the Northern Intertie,GVEA and FMUS generate more expensive zo power in the Fairbanks area,thereby incurring increased coats, 21 and Chugach loses the epportunity to make such sales and related 22 vevenues.Damages from inability to make such transactions will 23.exceed $4 million pex year. 24 GOOD FAITHS AND FAIR DEALING 25 SO.Section 12(j)of the Participants Agreement provides 26 that all parties "shall at all times act in good faith and fair aToa Wyner Dlewrrt Doron &SoreacrZt5.0,Common,Seite 108.Portimad,Oregnn F720)-44lh COANTSSymp.cmpPage16-COMPLAINT 05/02/95 12:32 mw 503 22 178 IvhoATER WYNNE Cealing in performing its obligations and in exercising its rights under"the Participants Agreement. 51.Defendants'action in depriving GVEA and FMUS of any the net transfer capability benefits from the $43.2 million state grant and/or the construction of the Northern Intexrtie, constitute a breach of the covenant of good faith and fair dealing. FIRST CLAIM FOR RELIG? (Declaratory Judgment) S2.GVEA,FMUS,and Chugach incorporate and reallege paragraphs 1 through __as though fully set forth hezein. 53.An actual controversy exists between the parties withi the meaning of AS 22.10.0290 and plaintiffs are entitled co Geclaration of their legal richts and the apprepriate allocaticnfs of transmission capacity within the meaning of Secticn 1i(e)43)(8)of the Participants Agreement. S4.Plaintiffs are entitled to a declaration that the transmission capacity allocation to GVEA for its Healy-Frairbanks Line shall be determined in accordance with the formula set ferth in Section 11 (c)(3)(B)of the Participants Agreement and that the allocation is mot less than 109 MW. SECOND CLAIM FOR RELIES (Breach of Contract) SS.GVEA,FMUS and Chugach incorporate paragraphs 1 through -.as if fully set forth herein. /// Atra Wroc Reuwret Dooson &BKERROT SS 3.1,Cornus,Sule,1800 Pardoed,Orecem 97201-4415 CLRV7SS5m3,apPage17-COMPLAINT efendants breached the Participants Agreement and tht+u56. 2 covenant of ocnand faith and fair dealing contained in 12(3)of the Participants Agreement in adepting en allocetionul @ centrary to the terms of the Agreement and which deprived GVEA 5 ane FMUS of the economic benefit of the Northern Intertie and 6 substantially impairs theiz ebility to tranemit power over GVEA'a 7 existing Eealy-Pairbanks Line. 8 57,Plaintiffs are entitled to an order that the $tyrensmission capacity allecaticn to GVEA for its Hcaly-Fairbenks 10 Line shallbe Getexmnined in accordance with the formula sat forth il in Section 11 (c)(3)(B)of the Participants Agreement and that 12 the allocation is nor less than 103 MW. 13 THIRD CLAIM POR RELIZF 14 (Sreach of Contracts) 15 S38.Plaintiffs incorporate and reallege paragraphs i 16 through __s as if Sully set forth herein. a 59.As a result of defendants'actions in allocating 18 transfer capability betwaen the Northern Intertis and the CVEA 19 Healy-Fairbanks Line,plaintiffs will susfer uncompensated costa, 20 expenses or losses in an amount to be proven at trial. 21 FOURTH CLAIM FOR RELIEF 22 (Breach ef Contract) 23 60.Flainciffs idncorperste and reallege paragraphs 1 24 through as if fully set forth herein. 25 61.If,ag a regult of defendants'actions in allocating 26 transfer capability between the Northern Intertie and the GVEA ATOR Wrz DL eTrt ons &SacarrLawyers 222 $_W.Cobeebo,Secs 100 Portiend.Orcron 97101-6618 CAN T5119 COBNISS Jed.cmpPage18-COMPLAINT eerste eeedVOsUZ/sYS dicsJ @POUsS £50 UUiD Healy-Fairbanks Line contrary te the tems}?2 Agreement,AIDEA is caused te delay in the release of funds 3 and/or construction is delayed er postponed,plaintiffe will be 4 damaged in an amount to be proven at trial,but in any event,not 5 less than $4 million per year of delay. 6 WHEREFORE,plainciffs pray for judgment againat defendants 7 as [ullows; g lL.On plaintiffs'first claim for relief,for a $declaration that the transmission capdcity allocation to GVEA fer 10 its Hcaly-Fairbanks Line shall be determined in accordance with il the formula set forth in Section 11(c)(3)(B)cf the Participants 12 Agreement and that the allocation is not less than 109 MW, 13 2.On plaintittss'second claim for telicf,for an exdez 14 that the transmission capacity allocation tw @VEA for 15 Fairbanks Line shall be cetermined in accordance with 16 set forth in Section 11(c)(3)(B)of the Participants Agreement 17 and that the allocation is not less than 109 MW; 18 3.On plaintiffs'third claim for relief,for damages in 19 an amount to be proven at trial. 20 4.On plaintifi's fourth claim for relief,for damages in 21 an amount to be proven at trial,but in any event not less than 22 $1 million per year, 23 5.For plaintiffs'reasonable attorney fees incurred <4 herein; For plaintiffs'costs and disbursements incurred256. 26 herein;and ATER Wren Hrvtrt Dotson 4 §exeurr a2 6.W,Cainmais,Sure laoPoctieed,On cum 97TI0 s6sAF)VoL CLANTSSjad.cmpPage19 -COMPLAINT - 05/02/85 12:33 503 228 O079 ,|OR AR? 2 7.For such further relief as the court deerme ju 2 equitable. 3 DATOD» 4 ATER WYNNE HEWITT DODSON &SKERRITT 5 &By - Julie Simon,Alaska Bar No.79060527CynthiaRutzick Attorneys for Plaintiff GVEA8 2 BIRCH uonrex BITTMTED ©CTEPAT 210 John J.Burns,Alaska Bar No.12 Attorneys for GVEA 13 14 By Patrick Cole,Alaska Bar No.15 Attorneys for Plaintifs Fmus 16 17 By18 Donald W.Ecwarés Alaska Bar No.8004002 13 Attorneys for Plaintiff Chugach 20 23 HELLER,GILRMAN,WHITE &MCAULIFFE 22 .By23 ric Redman 24 Attorneys for Chugach 25 26 ATER WYNNE Hewirt Donon &SeoSsTT CLAVTSS5md.empPase20-COMPLAINT ATER WINNE gy 021 Kile CeaSy Qe LO Agreement reached by the General Managers of the Utility Participants on December 15,1994. The General Managers unanimously agree in settlement of the ML &P Appeal of July 17.1992 as follows 1.Motions I and 2 of the December 12,1994 letter from ML &P on the matter of the Appeal are referred back to the IOC for further consideration and recommendation to the General Managers. 2.The selling of energy generated from a Utility Participant's required spinning reserve by the loading of the unit(s}designated as maintaining spinning reserve capacity may only occur if the provisions for spinning reserves or load shed in lieu of the spin,as written in B-2.4.2 of Addendum No.|of the Intertie Agreement,are complied with by purchasers or sellers. 3.The Utility Participants shall beginning Jan.1,1995 maintain a daily record of spinning reserves on an hourly basis,power quality,and continuity of Intertie power transfer.The daily report shall be compiled by the Northern and Southern Intertie Operators from inputs received from their respective Utility Participants.The format,criteria,and specitic contents shall be as directed by the IOC.The report shall be summarized quarterly and submitted in writing by the Northern and Southern Intertie Operators to the IOC for review for contract compliance and for other purposes of the Utility Participants. 4.It is understood that this agreement shall prevent any Utility Participant from making any and all claims against any other Utility Participant as relates to past operations under the terms of the Alaska Intertie Agreement,its Addendum and Exhibits. Signed, Thomas R.Stahr meneraejorystadGeneralManagerGeneralManager Municipal Light &Power yhElectricAssociationVMAAn General Manager Golden Valley Electric Association 77 8 Gos Vincenzo Mottola Robert os Qe "aElectricUtilityExecutiveenvzZGeneralManagerAEG&T ec &2FairbanksMunicipalUtilitySystemsCo To oF ,= «o £9 9nee79+2NormanStoryWayneCarmonyaa°©General Manager General Manager ca)$Homer Electric Association Matanuska Electric Association V(Member of AEG &T)(Member of AEG &T)¢543 INTERTIE PARTICIPANTS GROUP H{ RESOLUTION AND ACTION PERTAINING TO FIXED CAPACITY SHARES WHEN CAPACITY IS OR MAY BE CONSTRAINED,THE RELIABILITY/STAGILITY BENEFITS TO A SINGLE LINE WHEN PARALLELED,AND DETERMINATION OF THE STABLE CAPABILITY OF THE PARALLELED LINES WHEREAS,The 1993 ALASKA INTERTIE PROJECT PARTICIPANTS AGREEMENT in Section11,(c)(3)(B)says "The parallet utility-owned facilities shall be deemed to have the transfer capability that they would have if operated alone,less some amount reasonably adopted by the IPG to reflect the reliability/stability benefits such facilities receive from the existence of the parallel Project facilities.The remainder of the total combined transfer capability shall be deemed to be that of the Project facilities,and shall be available to each Participant in accordance with it's Participants Share,and WHEREAS:It was calculated that the utility-owned facilities alone,not aided by State owned static var devices or generators in Fairbanks but including Healy 2 and aided by the existing Intertie from the Anchorage area,could transfer approximately 70 mw to Fairbanks,and WHEREAS:The owner of the utility-owned facilities countered they could transfer up to the thermal limit of the line,citing 167 mw with various hypothetical compensation additions,and WHEREAS:The Project line will be able to transfer up to 241 mw with similar hypothetical compensation additions,and the IPG finds the corresponding utility-owned line thermal limit should be increased to 174mw,and WHEREAS;The stability limit of the utility-owned line in parallel with the Project line,without consideration of capability from the proposed Project battery energy storage system (BESS) device,which will be allocated separately,does not exceed 105mw,and . WHEREAS:There is strong consideration for a 4omw BESS device instead of the series and/or shunt lina compensation originally proposed,and THEREFORE in consideration of the above and other factors that may be relevant,the IPG hereby RESOLVES:The Project line as proposed will have superior power transfer capabilities as Compared to the existing utility-owned facility,and FURTHER RESOLVES:The transfer capability of the combined [ines will be allocated ratably between the utility-owner and the Project in direct proportion to each lines'thermal limit,and FURTHER RESOLVES:That it Is reasonabte to deem the stable transfer capability of the two lines operating in parailel to be 105mw,not considering any output from the BESS device which . will not be transferred over the line anyway and FURTHER RESOLVES:The amount to be deducted from a lines capability when operated alone to determine the respective capability allocation from the combined lines stability limited capability,when the line alone capability is assumed to be the fines thermal limit,is the amount that must be subtracted from thermal limit to obtain the capability share as previously determined.For the utility-owned line this Is,174mw -129.9mw =105mw x 0.42 =44.1mw, where the amount that must be deducted from the thermal limit is 129.9mw.For the Project linethesimilarcalculationis,241mw-180.1mw =105mwx 0.58 =60.9mw,where the amount thatmustbedeductedfromthethermallimitis180.1mw.and, tear ee een RESOLUTION AND ACTION PERTAINING TO FIXED CAPACITY SHARES,ETC, PAGE TWO FURTHER RESOLVES:The respective shares in the parallel line capability are 44.1 mw for the owner of the utility-owned line and 60.9mw for the Project,and FURTHER RESOLVES:That all the output of the BESS device,including additional stable and/or secure capability engendered by the BESS,shall be allocated by project shares. MOTION Subject to AIDEA approval,the IPG authorizes Chugach to proceed with routing studies,preliminary design and environmental work necessary to perform Phase I on the Southern Intertie.It is the intent of the IPG that Chugach will not be required to advance- fund any payments to contractors or consultants.In the meantime, the Parties will negotiate in good faith to complete a Construction Management Agreement. Page 1 of 1 oe MEMORANDUM OF UNDERSTANDING '4betweenloomed AFAIRBANKSMUNICIPALUTILITIESSYSTEM and GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. In order that Fairbanks Municipal Utilities System (FMUS)andGoldenValleyElectricAssociation(GVEA)might work cooperatively to maximize the benefits of the Northern Intertie to benefit their respective consumers,the utilities will work to achieve the following: Support the current scope,budget and transfer capability oftheNorthernIntertiewhichinvolves230kVconstruction with initial operation at 138 kV and the installation of a 40 MW battery.Total estimated budget $75 million. Transfer capability estimated at 140 MW stable and 153 Mw emergency into Fairbanks. Support designation of the capacity of GVEA's Healy-to- Fairbanks transmission line as 100 MW into Fairbanks,net of reduction for reliability and stability. Enter into agreement to provide FMUS with sufficient GVEA capacity over the next ten years to shut Chena 5 down to cold standby,if required by FMUS,while still permitting FMUS to meet its reserve requirements under the AlaskaIntertieAgreement.Cost estimated at §35/kW/yr.GVEA willnotberequiredtoaddanycapacitytoserveFMUSload. Enter into agreement to provide FMUS with a partial or total energy supply for all energy above FMUS generation orpurchasesfromothers.Estimated price to be based onactualcostofeconomicdispatchofthecheaperofGVEA resources or GVEA purchases (all above GVEA requirements),plus 8 mills or 4 mills respectively with reasonableescalators.GVEA purchases from FMUS would be at cost plus the same margins. Support the GVEA draft Construction Management Agreement fortheNorthernIntertie. Insure that FMUS will,at all times that the Northern Intertie and the GVEA line are in service,have adequate \ capacity to transfer its full MITCR into Fairbanks under the Alaska Intertie Aqreement.FMUS and GVEA will prorate their usage of the Northern Intertie to match their respective Alaska Intertie MITCR when the GVEA line is out of service. When the Northern Intertie is out of service,FMUS will have first call on capacity excess to GVEA needs up to the limitofFMUSMITCRontheAlaskaIntertie. MEMORANDUM OF UNDERSTANDING FMUS &GVEA PAGE 2 no+, Insure that construction,operation and maintenance of theNorthernIntertieresultsinsufficienttransfercapability to insure that all capacity and energy generated by Healy I and HCCP,and all capacity and energy transmitted over theAlaskaIntertie(net of transmission losses and GVEA loads at Healy and Nenana)can be delivered to Fairbanks over the GVEA transmission line and the Northern Intertie. Explore other means to cooperate such as GVEA financing for Intertie,load following for FMUS,coordinated maintenance,dispatch services,etc. Explore cooperative responses to retail wheeling. Explore GVEA hire at HCCP of qualified FMUS employeesdisplacedbyChena5coldstandby,should FMUS choose toplaceChena5incoldstandby. Seek approvals of appropriate governing bodies and APUC asrequiredtoimplementthismemorandumofunderstanding. PAT COLE MIKE KELLY CITY MANAGER GENERAL MANAGER CITY OF FAIRBANKS,ALASKA GOLDEN VALLEY ELECTRIC ASSN. DATE: Vanw/o 2)Le Als 49°45 DATE__"4-5-9S frie JOINT DEFENSE AGREEMENT 1.The Parties and the Litigation.Golden Valley Electric Association,Inc.("GVEA"),Chugach Electric Association,Inc. ("CEA"),the Fairbanks Municipal Utility System ("FMUS"),and the Alaska Industrial Development &Export Administration ("AIDEA")are or may become aligned as parties with common interests and/or posi- tions in litigation concerning an agreement known as the Intertie Participants Agreement,and concerning construction and operation of certain high voltage electric power transmission lines (the "Litigation").GVEA,CEA,FMUS,and AIDEA and their counsel are referred to collectively as the "Parties."The Parties agree that they have common and mutual interests in the Litigation. 2.Joint Defense Materials.The Parties agree it is in their mutual best interests to cooperate with each other and toshareinformationprotectedbytheattorney-client privilege and bytheworkproductdoctrineinordermutuallytoassertcommonand/or joint claims and/or defenses to the claims that are or may be asserted in the Litigation.To further their common interests the Parties intend to exchange privileged and work product information, both orally and in documents,including factual analyses,mental impressions,legal memoranda,reports of witness interviews,draft briefs and pleadings and other information ("Joint Defense Materials").The Parties would not disclose to any of the other Parties such Joint Defense Materials but for their mutual interest in the Litigation and but for the undertakings in this Agreement. The Parties agree that the disclosure of Joint Defense Materials is not intended to waive any applicable privilege or protection. The Joint Defense Materials that the Parties intend to ex- change are privileged from disclosure to adverse or other third parties as a result of the attorney-client privilege,the joint- defense privilege,the attorney work product doctrine and other applicable privileges or protections.By this Agreement the Par-ties state that in the pursuit of their common interests in the Litigation they do not intend to waive any applicable privileges and they intend to preserve to the maximum extent permitted by applicable law the attorney-client privilege,the work-productdoctrineandallotherprivilegesorprotectionswhichtheymay have. This Agreement does not and should not be construed to obli- gate the Parties to exchange or otherwise share information ordocuments(except to the extent they may be obligated to discloseinformationordocumentspursuanttoapplicableRulesofCivil Procedure). 3.Nondisclosure.The Parties agree to maintain the confi- dentiality of all Joint Defense Materials.Except as may be re- quired by court order or permitted by agreement of all Parties whohavenotwithdrawnunderSection6,below,none of the Parties will 1 disclose Joint Defense Materials to any person or entity other thanaPartywhohasnotwithdrawnfromthisAgreement.The Parties agree that they will use Joint Defense Materials solely in connec-tion with the Litigation and for no other purpose.In the event a Party receives a request,including a subpoena,for the production of Joint Defense Materials,that Party will so notify all other Parties,and will take appropriate steps to oppose production of the requested Joint Defense Materials.This Agreement shall not prohibit disclosure by a Party of materials which that Party alone has prepared or obtained,which contain no privileged or protected information obtained directly or indirectly from another Party,and which are Joint Defense Materials only because that Party has delivered them to other parties;nor shall this Agreement prevent a Party from using in connection with claims or the defense of claims asserted in the Litigation nonprivileged facts,documents, and theories which are learned or derived from Joint Defense Materials. 4.No Waivers.This Agreement shall not create any agency or similar relationship among the Parties.No Party shall have authority to waive any applicable privilege or doctrine on behalf of any other Party;nor shall any waiver of an applicable privilege or doctrine by the conduct of any Party be construed to apply to any other Party. 5.Separate and Independent Representation.Nothing in this Agreement shall be construed to affect the separate and independent representation of the Parties by their respective counsel.Each Party agrees to waive any claim it might have for disqualification of counsel for one or more other Parties in this Litigation or other proceedings based upon access to Joint Defense Materials. 6.Withdrawal.Any Party to this Agreement may withdraw on prior written notice to all other Parties.Any withdrawing Party shall continue to be bound by this Agreement with regard to any Joint Defense Materials received,learned,or obtained at any time, and this Agreement shall continue to protect all Joint Defense Materials disclosed to the withdrawing Party.Upon withdrawal,the withdrawing Party will prospectively cease to be entitled to re- ceive any Joint Defense Materials,and shall return to the sender all Joint Defense Materials received after the withdrawal.In the event a Party settles all claims involving it in the Litigation, that Party and its counsel shall be deemed to have withdrawn as of the date of its settlement agreement.Any settling Party and its counsel shall continue to keep in confidence and not disclose to the plaintiffs or any other individual or entity,except a Party which has not withdrawn,any Joint Defense Materials received, learned or obtained by that Party or its counsel.If counsel for a Party ceases to be counsel for any Party,such counsel will be deemed to have withdrawn from this Agreement. 7.Settlement.Nothing contained herein shall limit the authority of any Party to settle,or offer to settle,some or all of the claims of or against that Party,nor authorize any Party tobindanyotherPartytosuchsettlementorsettlementoffer. 8.Enforcement.The Parties agree that a breach of the provisions of this Agreement by a Party will cause irreparable harm to the other Parties and therefore agree that injunctive relief is the appropriate means to enforce this Agreement. 9.Effective Date.This Agreement incorporates the prior intent and practice of the Parties and is effective as of April 13, 1995,the date on which the decision was made to initiate litiga- tion under the Intertie Participants Agreement. This Agreement is executed by the Parties by and through their counsel,who sign as well on behalf of themselves and their co- counsel.Counsel each represent and warrant that they have full power and actual authority to bind their respective client(s). This Agreement may be executed in counterparts,all of which shall comprise one Agreement. DATED:April _,1995. ATER WYNNE HEWITT DORSON &SKERRITT By:__CCfel (.Rorald L.Saxton ” Counsel for Golden Valley Electric Association,Inc. CHUGACH ELECTRIC ASSOCIATION,INC. ;awy:ae MHL Doff Edwards General Counsel HELLER EHRMAN WHITE &McCAULIFFE By:WA-<lees Eric Redman Counsel for Chugach Electric Association,Inc. FAIRBANKS MUNICIPAL UTILITY SYSTEM By:Dom"_v ALASKA INDUSTRJAL DEVELOPMENT &EXPORT ADMINISTRATION By I:\ER\CHUGACH\777 ATER WYNNE r le wntHEWITT; |Forand,Onion OTOL6él8_.DODSON rex (508)226-0079&SKERRITT ATTORNEYS AT LAW VIA FACSIMILE MEMORANDUM TO:Don Edwards,CEA Eric Redman,Heller,Enrman,CEA Riley Snell,AIDEA Chery!Bates,GVEA and FMUS FROM:Ron Saxton DATE:April 21,1995 RE:Golden Valley Electric Association,Inc.,et al.v,The Municipality of Anchorage,Alaska,et al. Enclosed is a draft Complaint for Monday's meeting.Please limit circulation of this document. Encl. -1-RLS\1864der.mem Seattle.Washington 'Washington,D.C,San Francisco,California 006)623.4711 @Q02)628-3200 (415)421-4143 Fax (206)467-8406 Fax (202)628-8575 Fax (415)980 1263 we IN THE SUPERIOR COURT FOR THE STATE OF ALASKA AT FAIRBANKS GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.,an electric cooperative of the State of CASE NO. Alaska;THE MUNICIPALITY OF FAIRBANKS dba Fairbanks Municipal Utilities Systems;COMPLAINT CHUGACH ELECTRIC ASSOCIATION, INC.;and [we would like to add:ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT (Breach of Contract; AUTHORITY],Declaratory Judgment) Plaintiffs, Vv. THE MUNICIPALITY OF ANCHORAGE, ALASKA,a unified home rule municipality dba Municipal Light and Power;THE CITY OF SEWARD,a home rule municipality dba Seward Electric System;ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE, INC.,an electric cooperative, HOMER ELECTRIC ASSOCIATION, INC,,an electric cooperative; and MATANUSKA ELECTRIC ASSOCIATION,INC.,an electric cooperative,eeehaNeletNteeCetMalNeeetNtNetNaeSiSetNetNeateeStetSetSeteteetaSeteteteeteeetDefendants. Plaintiffs Golden Valley Electric Association,Inc. ("GVEA"),an electric cooperative;The Municipality of Fairbanks dba Fairbanks Municipal Utilities Systems ("FMUS");,CHUGACH ELECTRIC ASSOCIATION,INC.("Chugach");[we hope to add:and ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY ("AIDEA")]for their complaint herein allege: St] ATER WyNwe Hewitr Donsow &SKERETLawyers222S.W.Columbia,Suite 1806 Poriland,Oregon 97201-6618(503)226-1191 Page 1 -COMPLAINT CLR\744jmb.emp 4,/Ay,.<y/' ?1 INTRODUCTION ce &: 2 1.For several years,GVEA and others have sought uv 3 legislative support for construction of a second transmission 4 line between Healy and Fairbanks because of the significant 5 economic impact of such a line for the Fairbanks area economy. 6 Because natural gas is not available for electric power 7 generation in the Fairbanks area,increased electric transmission 8 is necessary to import cheaper natural gas-produced electricity 3 from the Anchorage area into the Fairbanks area.The 10 availability of such power is crucial to the economic development Jl of the Fairbanks area.This action challenges an unreasonable 12 decision made by Five)southern Railbelt utilities to deprive 13 Fairbanks'residents of the benefit of both existing Fairbanks 14 electric facilities and of the proposed new facility. 15 2.In 1993,the Alaska Legislature appropriated $43.2 16 million to be used by GVEA to construct an electric transmission 17 line between Healy and Fairbanks,parallel to an existing 18 transmission line owned by GVEA.The Participants Agreement set r - -- 15 forth a formula to allocate the transmission capability between 20 the two lines.The allocation impacts the costs to GVEA and FMUS 21 of using the transmission lines and the economic viability of the 22 Project to GVEA and FMUS.Four defendants ignored the terms of 23 the Participants Agreement and arrived at an allocation figure 24 which deprives GVEA of the historic use of its existing line and 25 substantially reduces the benefits to GVEA and FMUS of the new 26 line.Plaintiffs seek declaratory relief allocating transmission ATER WYNNE HEWITT Dabson &StamerrrLawyers222S.W.Columbie,Suite 1808Portland,Oregon 97201-6618 (53)226-1191 Page.2 -COMPLAINT CLR\744jmb.emp x td aeLfwdaed 2noe"withcapacitytoGVEAoveritsHealy-Fairbanks Line in accord .a the terms of the Participants Agreement.ope PARTIES " 3.Plaintiff GVEA is an electric cooperative serving members located in the greater Fairbanks area. 4,Plaintiff FMUS,a home rule municipality,operates an electric utility serving customers in Fairbanks. 5.Plaintiff Chugach,an electric cooperative,serves members in the greater Anchorage area.Chugach integrates Alaska Electric Generation and Transmission Cooperative,Inc.'s ("AEGET")power into its system and is the sole supplier of electric power to Seward,Homer and Matanuska. 6.Plaintiff AIDEA is an agency of the State of Alaska. AIDEA administers the grant funds appropriated by the State to GVEA for the benefit of all the utilities participating in the Intertie for the design and construction of a new power transmission intertie between Healy and Fairbanks ("Northern Intertie"). 7.Defendant The Municipality of Anchorage dba Municipal Power and Light ("ML&P"),a unified home rule municipality, operates an electric utility serving customers in Anchorage. 8.Defendant The City of Seward dba Seward Electric System ("Seward"),a home rule municipality,operatesanelectric utility serving customers in city of Seward. 9.AEG&T,an electric cooperative,provides power to Chugach,which ist incorporated into Chugach's system.Homer ATER WYNNE HEWttr DOOSON &SKERRITTLawyers222S.W.Colombia,Suite 1300 Pardanod.Orcyon 97201-6618 (SQ)26-1191 Page 3 -COMPLAINT CLR\T443mb.exp Pd 1 Electric Association,Ine.("Homer")and Matanuska Blectrit/ 2 Association,Inc.("Matanuska")are members of AEG&T.EGET is/a” 3 Party to the Participants Agreement,but is represented through 4 its sole members,Homer and Matanuska. =)10.Defendant Homer is an electric cooperative serving 6 members in the Homer area.Homer is a member of AEG&T. 7 11.Defendant Matanuska is an electric cooperative serving 8 the Matanuska Valley.Matanuska is a member of AEG&T, 9 1Z2.GVEA,FMUS,Chugach,ML&P,Seward,AEG&T,Homer,and 10 Matanuska are qualified utilities within the meaning of AS il 44.83.425(5)and shall be referred to herein collectively as 12 Participating Utilities. 13 FACTUAL BACKGROUND 14 13.On December 23,1985,ML&P,FMUS,GVEA,and the Alaska 15 Power Authority,as participants,and Homer and Matanuska,as_ 16 additional parties,entered into the Alaska Intertie Agreement 17°=concerning the operation of the Alaska Intertie,a transmission 18 line owned by the Alaska Energy Authority between Healy and the 19 Anchorage area.The Alaska Intertie interconnected an existing 20 GVEA transmission line between Healy and Fairbanks ("GVEA Healy- 21 Fairbanks Line")with an existing transmission system serving 22 Anchorage and the_Kenai Peninsula ("Chugach Anchorage-Kenai 23 Transmission facility")owned and operated by Chugach.Through 24 construction of the Alaska Intertie,the parties intended to 25 "improve their reliability and engage in transactions of 26 electrical Power and Energy ...using the Intertie."The ATER WYNNE HEWITT DOOGON &SEERRITYLawyers2228.W.Colombia,1900 Pordand,Orequa 37201-6618AD26-1191 Page 4 -COMPLAINT CLR\744Jmb.cmp ot a"2 gt?eo ee - ont . ¢ a1AlaskaIntertieAgreementestablishedtheparties'ights'tL she2transmissioncapacitycreatedbyconstructionoftheAlaska°a 3 Intertie,and set out a method for determining the cost of these 4 rights and payment by the benefiting utilities.A map attached 5 hereto as Exhibit illustrates the location of ths GVEA é Healy-Fairbanks Line,the Chugach Anchorage-Kenai Transmission 7 facility,the Alaska Intertie,and the proposed Northern 8 Intertie. 9 14.Transmission capacity is the quantity of power which 10 can be carried by a given electric transmission line in 11 accordance with accepted utility practices. 12 15.GVEA's Healy-Fairbanks Line was constructed to serve 13 GVEA system loads.GVEA owns and operates a 25 MW coal-fired 14 generation plant ("Healy #1")in Healy.AIDEA and GVEA,in 15 conjunction with the United States Department of Energy,have 16 agreed to design,construct and operate the Healy Clean Coal 17 Project ("HccP")with a nameplate rating of SOQ MW in Healy.All 18 generating facilities in Healy will be dedicated to GVEA's system 19 loads. 20 16.Pursuant to the Alaska Intertie Agreement,GVEA makes 21 excess transmission capacity in the GVEA Healy-Fairbanks Line 22 available to FMUS..Transmission capacity over the GVEA Healy- 23 Fairbanks Line will become limited once HCCP is in operation 24 because GVEA will use more of its lines'capacity to transmit the 25 power generated by HCCP. 26 17.The Alaska Intertie has a maximum transmission capacity ATER Wynes Eewirt Douson &SduuurtLawyers222S.W.Columbia,Satte 18568 Portland,Oregoa 97201-6615{HD)226-1191 Page 5 -COMPLAINT CLA\744Jmb.emp coe _Of 76 MW between the Anchorage area and Healy under «current operating procedures.The transmission capacity of GVEX s-Healy- Fairbanks Line can accommodate the 25 MW capability of Yealye#4 plus the 76 MW available from the Anchorage area cver the Alaska Intertie,and as other resources become available the GVEA Healy- Fairbanks will be capable of carrying additional capacity. 18.All sales cf electric power over the Alaska Intertie to FMUS or GVEA are made at the midpoint of the Alaska Intertie.No entity other than FMUS or GVEA makes use -of the northern half of the Alaska Intertie.GVEA and FMUS are the only parties to make use of GVEA's Healy-Fairbanks Line. GRANT FUNDS APPROPRIATION 19.In 1993,the Alaska Legislature passed an Act "making appropriations for grants and loans for hydroelectric projects including power transmission interties."19593 Alaska Laws Ch.19.Pursuant to that Act,$43.2 million was appropriated to 'GVEA "for the benefit of all the utilities participating in the Intertie for design and construction of a power transmission intertie ..."between Healy and Fairbanks.SB No.126, Section 1(a). 20.Pursuant to SB No.126,Section 1(c),the appropriation is "contingent upon the execution of a written agreement between the electric utilities participating in the Intertie and the department in which Golden Valley Electric Association agrees to provide the other participating utilities access to the Intertie for the purpose of assured access to resources,economy,energy ATER WYNNR AROITT Dopson &Sarenirt Page 6 -COMPLAINT CLR\7443mb.emp _transactions,and other similar uses." INTERTIE GRANT AGREEMENT Oe 21.On October 26,1993,GVEA,FMUS,ML&P,Chugach, Matanuska,Homer,Seward,the State of Alaska,acting through the Department of Administration,and AIDEA,entered into an Intertie Grant Agreement.The Intertie Grant Agreement was intended "to satisfy the statutory conditions precedent to DOA's (State of Alaska,Department of Administration)transfer of the grant funds and to provide for the expeditious transfer of such funds to the grant recipients for the purpose of partial funding of the design and construction of new electric transmission interties between Healy and Fairbanks and between Anchorage and the Kenai Peninsula." 22.The Intertie Grant Agreement provides that the participating utilities shall hold undivided ownership interests in the projects in proportions set forth in the Agreement.The Intertie Grant Agreement also provides that the Participating Urilities will pay design and construction costs of the new Northern Intertie that are in excess of the available grant funds. 23.Under the terms of the Intertie Grant Agreement,the Participating Utilities agreed to subsequently negotiate and enter into a Participants Agreement to address ownership participation,project management and project operation. 24.Pursuant to the Intertie Grant Agreement the Participating Utilities agreed to form an Intertie Participants Area Wynne Elswrrt Doosow &SKERRITT22&.W.Commhia,Suite 1800FiOregon97201(503)226-1191 Page 7 -COMPLAINT CLR\2445ab.cmp 1 Group ("IPG")for the purpose of exercising their rights anda7,2 responsibilities as joint owners.A a 3 25.Each Participating Utility has one representative on" 4 the IPG and each representative to the IPG has one vote.AEG&T 5 is represented on the IPG by representatives from Homer and 6 Matanuska,each of whom has one vote.AEG&T effectively has two 7 votes on the IPG. 8 PARTICIPANTS AGREEMENT 2 26.On January 24,1994,in accordance with the Intertie 10 Grant Agreement,the Participvating Utilities entered into the 11 Participants Agreement.A copy of the Agreement is attached 12 hereto as Exhibit __and by this reference incorporated herein. 13 27.The Participants Agreement provides that it "does not 14 modify,alter,or amend any other contract or agreement that may 15 exist between or among any of the"Participating Utilities. 16 28.Under Section 14 of the Participants Agreement,a 17 material breach of the Agreement which continues for a period of 18 60 days after the defaulting party receives written notice of the 19 breach constitutes an Event of Default.Upon the occurrence of 20 an Event of Default,any Participating Utility may terminate the 2 Participants Agreement with respect to the defaulting party or 22 suspend or expel the defaulting party from the IPG. 23 29.The Participants Agreement established each 24 participant's ownership share in the project.Each party's right 25 to use the new Northern Intertie transmission capacity and each 26 party's responsibility for project costs is determined based upon ATER Wyrns Hewrrt Dooson &SaexemtLewyer2S.W.Cobsaabia,Suite 1500 Oregon 37201-6618(503)226-1191 Page 8 -COMPLAINT CHAN 445m cmp i the party's ownership share.ey, 2 30.Each participant,other than GVEA and FMUS,has thes” 3 xvight to withdraw from participation in the new Northern Intertié pursuant to Section 4(b)(3)of the Participants Agreement one 5 year after the Intertie is operational.Once a party withdraws, 6 its share is reallocated among the remaining participants and the 7 withdrawing party has no further financial obligations for the 8 project.On the Northern Intertie,GVEA and FMUS must accept 3 (ratably)any withdrawing participant's share to the extent such 10 share remains available and unclaimed by any other party. 11 31.Construction of the new Northern Intertie is supported 12 by the $43.2 million grant from the State and will provide 13 multiple benefits including increased transmission capacity 14 between Healy and Fairbanks and increased reliability/stability. 15 32.The transmission capacity that results from the 16 parallelingof the new Northern Intertie with the GVEA Healy- 17 Fairbanks Line will not ba equivalent to the sum of the 18 individual transmission capacity of the two lines.Further, 19 because the lines are different sizes,the amount of power 20 transmitted by each will not be "equal."One line will carry 21 more electric power than the other.However,GVEA''s existing 22 line,1f operated by itself,can transmit power in excess of 50% 23 of the transmission capacity of the two lines operated in 24 parallel. 25 33..Therefore,in order to equitably apportion the benefits 26 of the Northern Intertie among the participants,without ATra WYNN«Hewrrr DODSON &SKERRITT Lawyers2%$.W.Columbia.Suite 1806 Portland,Oregan 97201-6613 (503)226-1191 Page 9 -COMPLAINT CLR\246jaDexp 24 _depriving the GVEA of the benefits of its existing Healy-.</'wed +- Fairbanks Line,the Participants Agreement set forth a formula * for allocation cf the transmission capacity of the new Project Interties. 34.Section 11 of the Participants Agreement sets forth the allocation of use of project capacity between the existing GVEA Healy-Fairbanks line and the Northern Intertie under two operating conditions. NO CAPACITY CONSTRAINTS 35.Where both lines are in operation and the total combined transmission capacity of the facilities is sufficient to allow all desired transmission to take place,no distinction is made between power transmitted over the two lines.Participants Agreement,Section 11(a). CAPACITY CONSTRAINTS36.When both lines are in operation,but the total combined transmission capacity is not sufficient to allow for all desired transmission requests to take place simultaneously,the available transmission capacity of GVEA's Healy-Fairbanks Line allocated to GVEA will be determined either: (1)by an agreement between the IPG and GVEAestablishingareasonableallocationofthe transmission capacity;or (2)GVEA shall be allocated the transmission capacity of its line operated alone less some amountreasonablyadoptedbytheIPGtoreflectthereliability/stability benefit to GVEA of the new,parallel Northern Intertie.The remainder of thetotalcombinedtransmissioncapacityshallbe deemed Project allocation. ATER WYNNE HEWITTDODSON &SKERRITTLawyers27S.W.Catomban,Suite 1800 Portland.Oregon 97201-6618 (503)226-1151 Page 10 -COMPLAINT CLAa\Ta4jmb.cmp The formula is illustrated below:aGVEA's Transmission Capacity Healy-Fairbanks LineonitsHealy-Fairbanks Line transmission capacity less reliability/ stability benefit Northern Intertie Allocation Total combined transmission capacity less GVEA's allocation 37.On April 13,1995,the defendants vored in favor of a Resolution and Action Pertaining to Fixed Capacity Shares When Capacity Is Or May Be Constrained,the Reliability/Stability Benefits to a Single Line When Parallaled,and Determination of the Stable Capability of the Paralleled Lines ("Resolution") pursuant to Section 11(c)(3)(B).A copy of the Resolution is attached hereto as Exhibit __and by this reference incorporated herein. 38.Under the terms of the Resolution,defendants failed to follow the formula set forth in Section 11(c)(3)(B)of the Participants Agreement,failed to establish the existing lines' transmission capacity,failed to determine the stability/ reliability benefit,and erroneously determined a total combined transmission capacity in contradiction to earlier studies. 39.Defendants instead allocated the transmission capacity of the combined lines "ratably between the utility-owner and the Project in direct proportion to each lines'thermal limit." 40.Pursuant to its "ratable allocation"scheme,defendants determined that the two lines in parallel had a total combined transmission capacity of 105 MW and allocated 44.1 MW to GVEA's Healy-Fairbanks Line and 60.9 MW to the new Northern Intertie.rm ATER WYNNE HEWITT DODSON &SEERRITTLawyers223S.W.Columhin,Suite 1800 Oregon 97201-6618 (43)BS-1191 Page 11 -COMPLAINT CLA\744jab.cm¢ 41.The Resolution and allocation made therein constitutes. a material breach of the Participants Agreement within the | meaning of Section 14 of the Participants Agreement.On April __»1995,GVEA,FMUS,and Chugach gave defendants written notice that such breach,unless corrected within 60 days,will constitute an Event of Default. 42.GVEA has historically operated its Healy-Fairbanks Line to transmit 105 MW.After Healy #2 is cperational,the GVEA Healy-Fairbanks transmission capacity will be no less than MW. 43.The total combined transmission capacity of GVEA's existing Healy-Frairbanks Line and the new Northern Intertie is estimated toe be ___MW. 44.If the formula set forth in Section 11(c)(3)(5)of the Participants Agreement is applied,GVEA's allocation of its GVEA Healy-Fairbanks Line would be not less than Myvi. FIRST CLAIM FOR RELIEF (Declaratory Judgment) 45.GVEA incorporates and realleges paragraphs 1 through __ as though fully set forth herein. 46.An actual controversy existe between the parties within the meaning of AS 22.10.020 and plaintiffs are entitled to a declaration of their legal rights and the appropriate allocation of transmission capacity within the meaning of Section 11(c)(3)(B)of the Participants Agreement. /Tf ATER WYNNE HEWITT DODSON &SKERRITT Lawyers222S.W.Columbia,Suita 1800 Portland,Oregon 97201-6618(503)226-1191 Page 12 -COMPLAINT CLA\T44jmb.exp 47.GVEA is entitled to a declaration that the transmission capacity allocation to GVEA for its Healy-Fairbanks Line shall ke - determined in accordance with the formula set forth in Section 11 (c)(3)(B)of the Participants Agreement and that the allocation is not less than MW. SECOND CLAIM FOR RELIEF (Breach of Contract) 48.GVEA incorporates paragraphs 1 through as if fully set forth herein. 49,Defendants breached the Participants Agreement and the covenant of good faith and fair dealing contained in Section 12(j)of the Participants Agreement in adopting an allocation contrary to the terms of the Agreement and which deprived GVEA and FMUS of the economic benefit of the Northern Intertie and substantially impairs their ability to transmit power over GVEA's existing Healy-Fairbanks Line. 50.GVEA and FMUS are entitled to an order that the transmission capacity allocation to GVEA for its Healy-Fairbanks Line shall be determined in accordance with the formula set forth in Section 11 (¢)(3)(B)of the Participants Agreement and that the allocation is not less than MW. [POSSIBLE RESCISSION CLAIM] ATER WYNNE HEWITT DODSON &SkERRITT Lawyers222S$...Cohumbis,Suite 1900 Porthsd,Oregon 97201-6618 (Sk)226-1191 Page 13 -COMPLAINT CLA\T444rb.cmp Pid [POSSIBLE CLAIM DECLARING THAT GVEA CANNOT ABIDE BY RESOLUTION BECAUSE IT VIOLATES MORTGAGE WITH RUS/REA] [POSSIBLE CLAIM BY AIDEA OF ITS RIGHT TO ENFORCE REASONABLE INTERPRETATION OF PARTICIPANTS AGREEMENT BASED ON AIDEA DUTY TO PROMOTE CONSTRUCTION OF LINE ON TERMS CONSISTENT WITH LEGISLATIVE ACTION,OBLIGATION TO ENSURE REASONABLE APPLICATION OF GRANT TERMS TO PARTICIPANTS,AND CONCERN THAT UNREASONABLE INTERPRETATION COULD RESULT IN FAILURE OF PROJECT,AND FRUSTRATION OF LEGISLATIVE INTENT THAT PROJECT BE BUILT:] AIDEA'S CLAIM S51.AIDEA is responsible for administering the $44 million the Legislature appropriated to GVEA for design and construction of the Norther Intertie Transmission Line.AIDEA is also charged with responsibility for economic development activities throughout the State, 52.As part of its grant administration responsibilities, AIDEA reviewed and approved the Participants Agreement among the plaintiff and defendant utilities that is the subject of this litigation. 53.The April 13,1995 Resolution referenced in §37 above and attached as Exhibit __is inconsistent with the terms of the Participants Agreement,AIDEA's understanding of the Agreement Aver WYNNE HEWTIT DODSON &SEERRITTLawyers222S.W,Columbia,Suite 1800 FT201-66138 (583)e191 Page 14 -COMPLAINT CLA\744j}mb.cmp [_when it was approved by AIDEA,and AIDEA's understanding of the.” intent of the Legislature with respect to the construction of the : new Northern Intertie Transmission Line. 54.AIDEA requésts that the Court determine the transmission capacity allocation in accordance with the terms of the Participants Agreement to the existing GVEA transmission line so that the transmission capacity of the new Northern Intertie can be established under the Agreement. Wherefore,plaintiffs pray for judgment against defendants as follows: 1.On plaintiffs'first claim for relief,fora declaration that the transmission capacity allocation to GVEA for its Healy-Fairbanks Line shall be determined in accordance with 'the formula set forth in Section 11(c)(3)(B)of the Participants Agreement and that the allocation is not less than ___MW; 2.On plaintiffs'second claim for relief,for an order that the transmission capacity allocation to GVEA for its Healy- Fairbanks Line shall be determined in accordance with the formula set forth in Section 11(¢)(3)(B)of the Participants Agreement and that the allocation is not less than MW; 3.For plaintiffs'reasonable attorney fees incurred herein; 4.For plaintiffs'costs and disbursements incurred herein;and ATER Wyxxe Hewitt DODSON &SEERUTT LawyersZZ5.W.Columbis,Suita 1800 Page 15 -COMPLAINT CLA\I44]mb carp L 5.For such further relief as the court deems just and.° 2 equitable. 3 DATED; a ATER WYNNE HEWITT DODSON &SKERRITT 5 6 By Julie Simon,Alaska Bar No.79060517CynthiaRutzick Attorneys for Plaintiff GVEA ,Alaska Bar No.12 Attorneys for Plaintiff FMUS 16 By ,Alaska Bar No. 17 Attorneys for Plaintiff Chugach By21 ,Alaska Bar No. Attorneys for Plaintiff AIDEA Arxr Wyanek Hewrrt Dopson &SxmurrLawyers222§.W.Cohmnbim,Suite 1800 Porto,Oregun 97201-6618 (SG)226-1191 Page 16 -COMPLAINT CLR\I445mb.cop AGENDA 1.Joint Defense Agreement 2.Facts How did we get here What is the problem 3.Overview of Alternatives to Address Problem a.Changes at Seward b.Lawsuit c.Arbitration d.AIDEA impose terms e.AIDEA/GVEA/CEA return to "original deal" f.Additional legislation g.Public relations campaign h.APUC I.Participants Agreement Section 14 j.Accept "defeat" 4.Discussion of Litigation a.Theories of suit b.Forum c.Repercussions (legislative,IOC,AIDEA,etc.) d.Public relations e.Consequences of victory (IPG still deadlocked?etc.) 5.Other Issues a.Impacts on Southern line b.Other legal issues (who's bound,construction agreement,etc.) c.APUC d.Financing e.FERC CED knows hath prapeyaneswaitfivomeiatte )sek --qd>uy -'INTERTIE PARTICIPANTS GROUP RESOLUTION AND ACTION PERTAINING TO FIXED CAPACITY SHARES WHEN CAPACITY IS OR MAY BE CONSTRAINED,THE RELIABILITY/STABILITY BENEFITS TO A SINGLE LINE WHEN PARALLELED,AND DETERMINATION OF THE STABLE CAPABILITY OF THE PARALLELED LINES WHEREAS;The 1993 ALASKA INTERTIE PROJECT PARTICIPANTS AGREEMENT in Section 11,(c)(3)(B)says *The parallel utility-owned facilities shall be deemed to have the transfer capability that they would have if operated alone,less some amount reasonably adopted by the IPG to reflect the reliability/stability benefits such facilities receive from the existence of the parallel Project facilities.The remainder of the total combined transfer capability shall be deemed to be that of the Project facilities,and shall be available to each Participant in accordance with it's Participants Share,and WHEREAS:It was calculated that the utility-owned facilities alone,not aided by State owned static var devices or generators in Fairbanks but including Healy 2 and aided by the existing Intertie from the Anchorage area,could transfer approximately 70 mw to Fairbanks,and WHEREAS:The owner of the utility-owned facilities countered they could transfer up to the thermal limit of the line,citing 167 mw with various hypothetical compensation additions,and WHEREAS:The Project line will be able to transfer up to 241mw with similar hypotheticalcompensationadditions,and the IPG finds the corresponding utility-owned line thermal limit KWIOshouldbeincreasedto174mw,and WHEREAS;The stability limit of the utility-owned line in parallel with the-Project line,without consideration of capability from the proposed Project battery energy storage system (BESS) device,which will be allocated separately,does not exceed ,and WHEREAS:There is strong consideration for a 40mw BESS device instead of the series and/or shunt line compensation originally proposed,and THEREFORE in consideration of the above and other factors that may be relevant,the IPG hereby RESOLVES:The Project line as proposed will have superior power transfer capabilities as compared to the existing utility-owned facility,and FURTHER RESOLVES:The transfer capability of the combined lines will be allocated ratably between the utility-owner and the Project in direct proportion to each fines'thermal limit,and FURTHER RESOLVES:That it is reasonable to deem the stable transfer capability of the two lines operating in parallel to be 105mw,not considering any output from the BESS device which will not be transferred over the line anyway and FURTHER RESOLVES:The amount to be deducted from a lines capability when operated alone to determine the respective capability allocation from the combined lines stability limited capability,when the line alone capability is assumed to be the lines thermal limit,is the amount that must be subtracted from thermal limit to obtain the capability share as previously determined.For the utility-owned line this is,174mw -129.9mw =105mw x 0.42 =44.1mw, where the amount that must be deducted from the thermal limit is 129.9mw.For the Project line the similar calculation is,2414mw-180.1mw =105mw x 0.58 =60.9mw,where the amount that must be deducted from the thermal limit is 180.1mw.and,(rw Commer KAO buon ,Pal op2)Phivwad trot Hie oc RESOLUTION AND ACTION PERTAINING TO FIXED CAPACITY SHARES,ETC, PAGE TWO FURTHER RESOLVES:The respective shares in the parallel line capability are 44.1 mw for the owner of the utility-owned line and 60.9mw for the Project,and FURTHER RESOLVES:That ail the output of the BESS device,including additional stable and/or secure capability engendered by the BESS,shall be allocated by project shares.--_ , co FO se ely Sar ELL-A.wska wm BR Roa COE PIAS --a a:if Electrica)--*raa4s 703 W.Tudor Re,#200 1-ARECA oe Anchorage,AK99503-6650 C ooperative NS pire 9 -oeaT=te 'Fax (907)$61-$547 Ass ociation,Inc.Kleciic Sarvieq for 347,000 Alashane April 26,1995 Memo to:Railbelt Managers From:David Hutchens a)fareSubject:'Intertie Funds Discussions today with aides from friendly,majority Senate offices indicates that Gov. Knowles wag due to receive a report from AIDEA today regarding his options as ta what can be done with the intertie funds in the wake of "the fiasco"of the utilities not being able .to agrec among themselves on how to proceed with the projects.The Governor was characterized as not at all patient for an agreement to happen. These friendly Senate offices were speculating that the Senate would probably go alongwithtakingthemoneybacktospend"if we get our share." If there is any way you can quickly show some progress,it would certainly be a good idea to do so. DEMOCRACY IN ACTION 04/26/95 WED 13:58 [TX/RY¥NO 5510] Sent to: cc: Kelly Hufman Biondi Story Calvert Stahr Carmony Edwards Thibert Lovas ae i MeGOLDENVALLEYELECTRICASSOCIATION,INC.oe..758 ILLINOIS-BOX 71249.-FAIRBANKS,ALASKA 99707-1249 INTERTIE PARTICIPANTSGROUP )1 ooo).>=November15,1994 %Tom Stahr Anchorage Municipal Light&Power ...:a>Ve my1200EastFirstAvenue...,.i "bo -Anchorage Alaska 2 :;Wich.BASIENORTHERNINTERTIE2kOGoe5peePat|300INVOICE#3 PRE-PAID SERVICES FOR OCTOBER 1994 OX\9 apd a0) TOTAL ,PREVIOUSLY REMAINING ACONTRACTBILLEDCURRENTCONTRACTOVENDORSCOMMITMENTAMOUNTBILLINGAMOUNT(1¢fAULO roy DRYDEN &LARUE 643,304.20 179,290.73 6,755.03 457,258.44 60 EA,DAMES&MOORE 67,647.00 50,803.32 16,843.68 DAMES &MOORE 14,500.00 .6,332.72 4,826.30 3,340.98 GOLDER ASSOCIATES °°.225,384.50 -193,742.19 :2,755.78 .- -*--:28,886.53 LAND FIELD SERVICES -14,267.00 12,270.15 , 7 1,996.85 NORTECH SURVEYS -236,540.00.126,700.00 ”.7,57,800.00 ".$2,040.00 POWER TECHNOLOGIES INC.-28,000.00 28,184.61 --a (184.61) -NORTHERNLAND USE 88,653.40 _--«-«61,890.58 oO 26,762.82 RICHMOND METEOROLOGIC,.-22,528.00 8,270.04 -10,496.39...-3,761.57 °LAND FIELD SERVICES °°.)162,658.00 844BBB 154,209.62©"ALASKA BIOLOGICALRES.30,322.80 SS 8,357.56 -°21,965.24 .°.1,533,804.90 --667,484.34 99,439.44 °°766,881.12 TOTAL DUE INVOICE #2 ee 99,439.44 So Golden Valley Electric Association,Inc.Deer Endure;CpaPattiAnderson -Tom Stahr Accountant .._ Chairman|Pac Abad |;Date arlas .I certify that all amounts included in this billing &ae LY"accurate and consistent with the Construction Budget”=ys -and the terms of the Construction Management Agreement. omar eilyGeneralManager " :NORTHERN INTERTIE-=S Summary of All Invoices*Relating to Contract Committments-_Account 107.26.For 10 -1994"DATE SUPPLIER #*a_SUPPLIER oe INVOICE #+ACCOUNT:"SUB #|"AMOUNT.10-1994.9_3406 DAMES &MOORE --020-0658 107.26 ©1100.00 "4826."30 10-1994 °°"?3427 NORTECHSURVEYS |2083 107.26 '1100.04 -57,800.00 10-1994 _-©3793 ALASKSA BIOLOGICAL -283 107.26.1100.06.8,357.56 .© 10-1994 «|3470 GOLDER ASSOCIATES,INC.=-->--50446. -s 1107.26 +.1300.00 2,755.78|10-1994 -*2783 DRYDEN&LARUE INC.9621.=107.26 -1600.00 6,755.03 10-1994 .==3625 RICHMOND METEROLOGIC .8/9-94°°107.26 .1600.00 -10,496.39 10-1994.-3405 LAND FIELD SERVICES INC.7/8/9-94°107.26..1700.03 ___8,448.38 -99,439.44 ee. +eX £ L sae ha ES Py soe ack at > ne ee why a . .qa a ry :, can %rot Oe 7 _.cianWe>ree =fee:bod Ke we .nee¢*«aa ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY \s tw .oe)x= @ae™=ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907./561-8050 April 11,1995 Thomas R.Stahr General Manager and Chairman,IPG Anchorage Municipal Light &Power P.O.Box 196094 Anchorage,Alaska 99519-6094 Subject:Intertie Grant Funds Account Status Report Dear Tom: FAX 907 /561-8998 Enclosed you will find a status report on the Intertie Grant Funds as of March 31,1995.If you have any questions please do not hesitate to contact me. Sincerely,Qn Pecedlebeg Daniel W.Beardsley cc:Michael P.Kelly,GVEA Eugene Bjornstad,CEA William R.Snell,AIDEA Roger Kemppel,Esq. INVESTMENTS -HEALY-FAIRBANKS INTERTIE 3/31/95 PAR VALUE ISSUER TYPE COUPON YIELD PURCHASE MATURITY COST ACCRETION ACCRUED DATE DATE INTEREST 11,355,196 SEI REPO 6.080%31-Mar-95 =1-Apr-95 =11,355,195.73 5,000,000 UST NOTE 3.875%3.908%22-Dec-93 30-Apr-95 4,997,656.25 2,206.16 81,353.59 10,000,000 UST NOTE 4.125%3.943%22-Dec-93 31-May-95 10,025,000.00 -22,142.86 138,255.49 5,000,000 UST NOTE 4.125%3.779%1-Feb-94 30-Jun-95 5,023,437.50 -19,333.66 51,847.38 5,000,000 UST NOTE 3.875%4.066%22-Dec-93 31-Aug-95 4,984,375.00 11,775.73 16,847.83 5,000,000 UST NOTE 3.875%4.147%22-Dec-93 31-Oct-95 4,975,781.25 16,610.20 81,353.59 3,000,000 UST NOTE 4.000%4.070%31-Jan-94 31-Jan-96 2,996,015.63 2,319.67 19,889.50 44,357,461.36 -8,564.76 389,547.38 ORIGINAL GRANT NET INTEREST RECEIVED THROUGH MARCH 31,1995 EXPENDED TO DATE BOOK VALUE OF INVESTMENTS PLUS ACCRUED INTEREST h:/all/penny/invesvINTERTIE.XLS 4/11/95 3:59 PM 43,200,000.00 1,924,385.14 (766,923.78) 44,357,461.36 380,982.62 44,738,443.98 Dennis McCrohan To:Dan Subject:Healy Fairbanks Intertie Dan Roger Kemppel (277-1604)called and asked for a status report on the interest earnings on the intertie grant funds.Valorie said the last summary was done thru September 30,1994 and did not show any payments to GVEA.|asked Valorie to update it and she said it would be ready on Tuesday.|suggest that you get it from Valorie and mail it to Ton Stahr with a copy to Roger.Thanks. Dennis Page 1 CONFIDENTIAL Date;March 9,1995 TO:Riley FROM:Dennis SUBJECT:Northern Intertie Prior to the March 8,1995 4 Dam Pool PMC meeting,Ron Saxton provided me drafts of two letters regarding the impasse on the Northern Intertie.No progress has been made by the participants since the last IPG meeting on February 21,1995.GVEA is in danger of losing the first construction season.The first draft letter was from GVEA (Mike Kelly)to AIDEA (you)requesting that AIDEA intervene or take action to resolve the impasse of the IPG regarding the GVEA Construction Management Agreement.The second was a letter from AIDEA(you)to the IPG (Tom Stahr)responding to the IPG's January 12, 1995 letter regarding the ownership and scope of project issues raised by AIDEA.He asked whether he should send these to you and/or John Rubini.He did not wish to provide us copies at this time. The first letter simply requested that AIDEA take some action to resolve the impasse.It referred to discussions between the individual participants and AIDEA regarding the impasse.The second letter was quite detailed addressing the unresponsive nature of the IPG January 12 letter to AIDEA,the opinion that the Grant and Participants Agreements were adequate to implement the project and addressed the benefits of the participants to the extent intended by the legislation,and an interpretation that the agreements intended to "hold harmless”the Construction Manager (GVEA). I said I would discuss the matter with you.I suggested to Ron Saxton that the first letter should be from the IPG,not GVEA.In lieu of that approach,a direct response by AIDEA to the IPG's January 12 letter might be more appropriate.The second draft letter was quite accurate but should in my opinion avoid taking sides unless it is clearly valid to interpret the agreements as to the intent to "hold GVEA harmless”.This is of course very important to GVEA. I will do nothing further.I recommend that you or John call Ron Saxton or Mike Kelly to discuss. File CONFIDENTIAL STL February 21,1995 TO:Riley FROM:Dennis SUBJECT:New Interties On late Tuesday February 21,Mike Kelly,Brad Evans,Steve Haggerson,and Ron Saxton came to our office to discuss the new interties.This was immediately after the © IPG meeting which apparently did not provide the results which Mike wanted.I brieflydescribedourdiscussionswithStahr,Story,and Carmondy that morning. Kelly believes they have reached an impasse regarding proceeding on the northem _intertie.The IPG will not approve the northern intertie construction management .:agreement.The IPGis holding the northern construction management agreement -eeransom.The keyissue is the manner in which the benefits of the new line are calculated...and shared.ML&P and MEA and Homer are proposing a capacity sharing arrangement . of the new line which provides benefits which they believe are applicable.GVEAis -.- proposing a capacity sharing which,according to GVEA,holds GVEA harmless;i.e.no,worse than GVEA's costs prior to undertaking the northern intertie.Thereisa.:-nesignificantdifferencebetweentheapproaches.In addition FMUS has now realized thatthenewlineprovideslittleornobenefittothemsinceetheyarecapacitylimitedbetweenAnchorageandHealy.a The fundamental problemis that the northern intertie doesnot provide benefits to allparticipantsinproportiontoownership.This becomes a particular concern if the full”northern intertie project with compensation is developed and the southern lineis never :-7builtorisbuiltmanyyearslater.The fully developed northern intertie projectis - necessary to provide the overall state benefits intended by the legislation.However the costs for the fully developed project will exceed the grant funds requiring contribution by several participants who gain no benefits from the northern intertie project.These non .benefiting participants get their advantages from the southern interite. Mike Kelley would like us to verify his calculations relative to GVEA's proposed escapacitysharingarrangement.I believe that we are not qualified nor is there any .likelihood to be any engineering type analysis by a third party or us which with result iin”a consensus.ML&P has also prepared an engineering analysis proposing a capacity sharing arrangement which differs greatly from that proposed by GVEA. A more beneficial step in my opinion would be to have John Rubini address the benefits issue relative to the legislation and agreements in place.GVEA would hope that this.= finding is that benefits are not a consideration.In addition he should address the conceptofwhetherthenorthernandsouthernintertiesareseparateorcommonprojects.This may ; effectively take many of the issues off the table and greatly simplify the technical problem of benefits.We could take then take the position that we will withhold further release of funds until the ownership and these issues are resolved.A response to Tom Stahr's January 12,1995 letter would a good forum to make these points. As an aside,Mike Kelly was the most wound up and agitated about this matter as I have seen him.While he is willing to compromise to some extent,he asserted that GVEA will "walk”from the interties if the IPG continues in the same vein. March 3,1995 TO:Riley FROM:Dennis SUBJECT:New Interties As I discussed with you,GVEA and the IPG "PIG”have or will soon reach an impasse on the Northern Intertie regarding the scope of the project,ownership issues,and the sharing of benefits.The impasse has added at least one year delay including associated escalation to the project.Saxton called today and is drafting a letter which he feels appropriate for AIDEA to issue to the IPG to break the impasse.I said to go ahead and send us a draft but that you and John Rubini have not yet agreed on the extent of AIDEA's involvement if any in breaking the impasse. CC:DB October 29,1994 PileQeNlelh _ Quito FROM:Dennis SUBJECT:Northern Intertie Invoices IPG Riley gave me the attached invoices,Since you are the designated person for the administration,you should probably be the approver of the invoices.However I suggest you have some simple mini- procedure for approval which satisfies our duties.I would be glad to do a technical review as part of the procedure if you deem necessary. DRAFT October 28,1994 Mr.Thomas R.Stahr 1G General Manager and Chairman,IPG \MUNICIPAL LIGHT &POWER 1200 East First Avenue Anchorage,Alaska 99501-1685 "omy Re:Intertie Financing Dear Tom: Your letter to me of August 16,1994 inquired whether, without further legislative authorization,AIDEA or AEA is ina position to finance the Participant's share of the intertie costs. In a related vein,I recently received an inquiry from Golden Valley Electric Association,a copy of which is attached.As you know,I have also participated in discussions among AIDEA staff and consultants,as well as with several of the participating utilities,on matters generally relating to these two inquiries. While I believe there are several issues which require further analysis and consideration,I thought it advisable to offer my preliminary thoughts for the IPG's consideration. 1.In light of the specific legislative authorization, we believe that,as between AIDEA or ABA,AIDEA is the appropriate issuer. Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER October 28,1994 Page 2 2.Several parties have raised questions regarding whether the form of ownership provided for under the Intertie Grant Agreement requires legislative action.As you know,the language in Chapters 18 and 19 refer to interties owned,respectively,by Golden Valley and Chugach Electric "for the benefit"of all the participating utilities.In the context of our collective efforts to satisfy the grant preconditions,it was determined that the form of collective ownership provided under the Intertie Grant Agreement (and other related documents)was an acceptable alternative for foes purposes of the grant.As the question of ownership structure has been renewed in the context of a possible public financing,I have asked that AIDEA bond counsel for the intertie financing consider this issue. 3.GVEA's recent letter,as well as 'our earlier discussions,present questions regarding the scope of the intertie project.As I understand the issue,the IPG is considering a phased development of the intertie,with the initial phase limited to only a "basic line.*"I have requested that AIDEA's legal counsel review whether,and under what circumstances,a scaled-down project,or phased development,is consistent with the grant appropriation and debt issuance authorization set out in Chapters 18 and 19. Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER October 28,1994 Page 3 As I anticipate that this issue is likely to be considered by the IPG before the legal review by outside counsel and the Department of Law is complete,my preliminary view is that Chapters 18 and 19,read together,appear to envision a roughly WA "equal"sharing of cost between the utilities and the State.That view tends to support the broader scope of project (which is, parenthetically,pOSé consistent with the AEA feasibility studies presented to the Legislature at various times).While a phased approach to development may well be prudent and acceptable,my preliminary sense is that the availability of grant funds may require binding commitments pwith respect to subsequent project a development phases.\wn Bho conclu g_qurtic dimovery 4.In several of my meetings with utility representatives,questions have arisen as to the enforceability or binding nature of obligations arising under the Intertie Grant Agreement and related contracts.This issue is particularly troubling as the Intertie Grant Agreement was itself the basis for the State's determination that the preconditions to the intertie grants had been satisfied.While I do not believe these questions directly relate to your inquiry of whether further legislative action is necessary,I have asked legal counsel to address whether LS use of grant funds is affected were the Intertie Grant Agreement to include unenforceable provisions. Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER October 28,1994 Page 4 With these comments in mind,it is,in my view,uncertain whether AIDEA is now in a position to proceed with a financing absent further legislative authorization or clarification.If the IPG,or the participating utilities,have comments or opinions which they would like considered as AIDEA and its counsel addresses these matters,I invite any party to do so.And while this letter addresses only the relatively narrow question of whether further legislative action is required,there are various other issues which need be resolved before a public financing can be concluded. I look forward to discussing these issues with you and your colleagues in the near future. Sincerely, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY William R.Snell Executive Director /ke Enc. ce:Jim Baldwin,Esq. Keith Laufer,Esq. Jonathan Rubini,Esq. TOTAL P.@S October 27,1994 TO:Riley &John FROM:Dennis SUBJECT:Studies for Northern Heady to Fairbanks Intertie. I have reviewed the various study documents,These include the 1987 Harza study,the 1989 DFI study , and the 1991 AEA study.The following points seem pertinent: SUMMARY The current GVEA proposal is a first phase 230 KV or 138 KV design line operating at 138 KV with compensation in the form of SVS or battery storage added later as a second phase.The main items from the numerous reports relative to this option are: 1.a230 KV design line but operating at 138 KV is an economic capital cost option.A further reduction to a 138 KV design provides additional capital cost savings.The critical issue is whether compensation is provided as part of the project. 2..a 138 KV line without compensation will have a capital cost of approximately $55 to $60M or $12 to $17M above the grant .It will benefit only GVEA and FMUS..The benefits are only the reduced outage frequency in Fairbanks due to line failures.The addition of HCCP without the addition of compensation may increase reliability problems in Fairbanks. 3.eliminating compensation means that the line may be unstable and that benefits will be reduced. The economy energy benefits due to the Chugach gas versus North Pole oil price differential which come from energy flowing north are not achievable due to stability problems on the line.Compensation is needed to achieve these benefits.Economy energy benefits are further dependent on the load growth projections of Fairbanks,Ft Knox mitigates this problem. 4.Capital cost overruns for the 138 KV line are a substantial risk and are backstopped only by GVEA and FMUS under the current agreements.With compensation the project costs are in the range of $80 to $90M.Overruns could under worst conditions significantly impact GVEA's cost of power. 5.The best method to mitigate GVEA's capital cost overrun risk is to have a "take or pay”or capacity payment from the Railbelt utilities as part of the revenue stream which would assure additional revenue.The Railbelt utility request for a cost cap would help manage risk. One approach is to consider the cost benefit relationship of the project.The intertie benefits to the Railbelt of the fully developed Anchorage to Fairbanks line are dependent on significant amounts of energy flowing both North and South on the line.For significant amounts of energy to flow on the line,HCCP must result in economy energy sales south for GVEA,the Chugach gas to North Pole oil price differential must result on energy flow North during peaks ,and compensation must be added to assure these benefits. Without compensation there appears to be little Railbelt benefit from the line as currently proposed.The line alone provides only a redundant supply of power for Fairbanks which is a significant local benefit and now more important due to the Ft.Knox expansion but does not benefit the Railbelt. As you suggest,another approach is to consider what the scope of the project was when the legislation was written and the legislation intent.The project as described in the legislation simply defines the project as a 138 KV or greater power transmission intertie project between Healy and Fairbanks and authorizes bonding not to exceed to $60M.The studies clearly indicate that the total project cost with compensation is in the $80 to $90 M range requiring $40 to $50M in additional funding which would be consistent with $60 M in bonding capacity.The contemplation of the legislation is not specific but the studies clearly show that compensation is necessary to provide general benefits to the Railbelt.In addition the legislation defines the "project”in a broad sense which logically could be construed to mean the transmission line and all necessary associated equipment.A strong argument could be made that compensation is a vital part of the power transmission line project.It appears that the project should include the 138 KV or greater line with compensation.If the project is staged,we must therefore assure that the total project will be completed and that the parties can finance the total project. Original Proposal:Harza study 1987 The proposal was a 230 KV or 345 KV transmission line between Fairbanks and Healy with substation upgrade at Healy and additions at Ft.Wainwright and Fairbanks.The preferred option was 230 KV due to capital cost considerations.The following items from the report seem pertinent to the current considerations: 1.Harza's 1987 estimate for a 230 KV line from Healy to Fairbanks including the substation upgrades and compensation escalated to 1996 dollars would be about $85M. 2.Harza states that other expansion scenarios at voltage levels other than 230 KV or 345 KV would not be cost effective.Presumably this included a 138 KV line which GVEA currently now proposes.This statement was perhaps added to create the impression that the line needed to be 230K so that the maximum funding would be available.However the later reports support the concept thai OX 138 KV line alone has marginal benefit. 3.Harza quotes cost benefits of $432 M to the entire state for the total intertie upgrade but states these numbers are from APA.The benefits are quantified in subsequent DFI and AEA studies. Some of the qualitative advantages are the sharing of operating and spinning reserves(note that the utilities have already compromised reserve requirements greatly so the benefit is questionable),centralized dispatch (the utilities have resisted this concept),and more efficient use of generation resources or capacity sharing. 4.By going to the 138 KV design a significant amount of costs will be saved at the substation additions since compensation will not be required.This conclusion is substantially different from more recent reports by DFI and AEA which claim compensation as the major producer of benefits is required. 5.The main benefit of the line would be from the transfer of power south.To date there has been no power on the line flowing south presumably due to the addition of Bradley and availability of hydro power in the Anchorage area. 1989 DFI Study The proposal was fora 138 KV line and an alternative of adding compensation only.The recommended option was for compensation only.Key points made in the study are: 1.The 138 KV line only between Healy and Fairbanks was marginal relative to cost benefits 2.The addition of compensation only provided positive cost benefits. 3.Benefits were based on reductions in transmissions losses,capacity reserves ,spinning reserves,and reliability and stability losses and increases in economy energy transfer.. 4,Current 1994 economy transfer levels are far below the projections made by DFI for 1994. 1991 AEA Study 1.The 138 KV line is a marginal project without compensation.. 2.Line cost estimated at $57.2M.Compensation raises total costs to $77.6M. 3..Benefits are from availability of economy energy in Fairbanks based on gas to oil price differential,increased reliability of power to North and South,and capacity sharing. 4.Compensation has significant benefits. 5.Reliability will decrease with addition of HCCP due to increased instability without compensation Sheet1 Northem intertie Sensitivity Analysis Grant Funds 1000$43,200 Intertie Energy MWH MinGVEA to300GWH Term Years 30 Total Bradley Energy |MWH 748980 Interest Range %7to9 GVEA Bradley Share |%16.9 to 30 Final Cost 1000$55,000 to 75,000 FMUS Bradley Share |%(e) O&M Cost %1.5 to 2 of Final Cost [Energy Charge BL _{mills/kwh 1.5 Bradley Lake CF 0.95 Energy ChargeNBL __[mills/kwh_{.6x1.5 CASES Base Raise Raise Raise Raise GV |South Raise Worst Final Interest [Energy (Bradley {Utility O&M GVEA Cost Rate Flow Share Drop Out |Cost Case GVEA IntertieShare |%15.41 15.41 15.41 15.41 15.41 85 15.41 100 FMUS IntertieShare {%4.71 4.71 4.71 471 4.71 15 471 0 intertie Energy MWH 237,637|237,637|237,637|300,000}300,000]237,637|237,637}99,930 Bradley Energy MWH 126,578|126,578;126,578|126,578]224,694)126,578)126,578}99,930 Non Bradley Energy |MWH 111,059}111,059]111,059)173,422)75,306)111,059)111,059 9) BradleyEnergyCharge |1000$190 190 190 190 337 190 190 150 Non Bradley Charge |1000$99.95344|99.95344|99.95344|156.0801|67.7754|99.95344/99.95344 0 Total Energy Charge |1000$290 290 290 346 405 290 290 150 Annual Project Costs |1000$825 825 825 -825 -825 -825 1100 -1100 Net Project Costs 1000$535 635 -535 -479 -420 -635 -810 -950 | Assessments 1000$ie)0 ?)9)¢)¢)(¢)-1000 [ Final Capital Costs _[1000$55,000}75,000}55,000}55,000)55,000;55,000}55,000;75,000 Grant Funds 1000$43,200}43,200]43,200)43,200)43,200]43,200]43,200/43,200 Revenue Funds 1000$11,800 31,800 11,800 11,800 11,800 11,800 11,800 31,800Interest|%7 7 9 7 7 7 7 9 Add.Financing Costs |1000$-950.92|-2562.65;-1148.57;-950.92;-950.92}-950.92}-950.92|-3095.3 Net Proj.Cash Flow _|1000$-1,486 -3,098 1,684 -1,430 71,371 -1,486 -1,761 5,045 GVEA AnnualShare _|1000$-229.008}-477.375|-259.466}-220.359|-211.287|-1263.18}-271.385|-5045.4 FMUS AnnualShare _|1000$69.9953]-145.908|]-79.3046}-67.3517|-64.579)-222.915|-82.9478 0 GVEA Cost Impact __|cents/kwh|0.045802}0.095475]0.051893]0.044072}0.042257)0.252637]0.054277|1.00908 FMUS Cost Impact _[cents/kwh|0.046664}0.099257)0.053949]0.045818]0.043931}0.151643]0.056427 0 I Conclusions wo 1.Cost overruns have major impact. 2.interest rates have small impact. 3.South utility drop out has large impact on GVEA cost of power. 4.Energy charge rates,energy on line,and GVEA Bradley share have small impact 5 GVEA and FMUS share risk proportionally,except for utility drop out where GVEA bears higher risk 6.If GVEA worst case occurs,GVEA risk will be substantial 7.GVEA should not take all the risk |l 7.1.Utilities and GVEA may need risk mitigation from AIDEA or State . *K 7.2 Capital cost cap would mitigate risk._[|I *7.3 Take or pay capacity charge on all utilities would mitigate GVEA risk. 7.4 APUC favorable response to a GVEA rate increaseif necessary is critical to GVEA if the worst cases occur. Page 1 Sheet Year Length cost COST ES |Cost/Mile |Cost/Mile 1977 6.5|1141641]2.52695]2884870]443826.1 1978 2.97|814401|2.406619]1959953]659916.9 1978 3.35|767513)2.406619)1847112!5513766 1979 6.6|698386!2.292018)1600714)242532.3 1979 6.8}457586]2.292018]1048795)154234.6 1980 0.284}422577]2.182875|922432.6|3248002 1980 14.1 785055|2.182875|1713677)121537.3 1980 4.2|736146}2.182875|1606914}382598.7 1980 1.9]330742)2.182875}721968.3)379983.3 1982 1.2|308226}1.979932}610266.4|508555.3 1982 29,2314706}1.979932]4582960]158033.1 1982 60;3261903)1.979932]6458345|107639.1 1985 4.8|258593]1.710339)442281.8)92142.04 1985 19.3]1255367)1.710339]2147104)111248.9|511544.7/120KV 1975 86;7382584}2.785963}20567603)239158.2 Wood 1977 73|7533162}2.52695)19035925]260766.1 1979 61|6549204}2.292018]15010896!246080.3 1980 110]15808650}2.182875}34508300!313711.8 1981 73.5}9445578}2.078928}19636678|267165.7 1981 87.4|11260768}2.078928)23410328|267852.7 1981 13.7|1893530]2.078928}3936513]287336.7 1985 19}4199262}1.710339]7182163)378008.6}282510/345KV 1971 52}1622440]3.386355!5494158!105656.9 Aliminum 1971 66}1996578}3.386355|6761122;102441.2 1972 61.7;2648226 3.2251|8540794!138424.5 1975 121.6}4429766}2.785963}12341162;101489.8 1980 87}6305472)2.182875)13764055|158207.5|121244|230KV Steel 385689.5 97)11760668 Harza sail Estimate Cost $ Fairbanks Substation |230 KV 9700000 Healy Substation 230 KV 3800000 | temo 230 KV 45200000 Engineering 7631000 Owners Costs 1761000 | Contingency 8805000 Total 230 KV 76897000 Total 1996 $100.3331 Page 1 eee -_wsi7ti?bAOm aad WEBBER SF To 19075018998 PAGE .@02/a003 September 22,1994 .BA Mr.Willlam R.Snell,Executive Director Alaska Industrial Development and Export Authority480WestTudor Anchorage,Alaska 59503-6690 Dear Riley: I thought the meeting with the bond insurers and the tours of local projects and the Red DogMinelastweekwentverywell.The latter was especially impressive and the film showing theprefabricatedconcentratorbuildingsmovingslowlyuptheroadfromthePortisstillquitevividInmymind.Thanks for Including me. As to financing of the interties which was discussed among team members on Tuesday,we havethefollowingobservations/concems after reading the handout of the several agreements andpressingJohnCostagliolaIntoserviceuponourretum. Chapter 18 SLA 1993,Sec.29,authorizes AIDEA to issue up ta $60 million of bonds to finance an intertie between Healy and Fairbanks "owned,for the benefit of all of the utilities participating .in the intertie,by GVEA".Sec.30,relating to the intertie between Anchorage and the KenaiPeninsula,authorizes a similar par value cf bonds for an Intertie "to be owned,for the benefit of all of the utilities participating in the interties,by Chugach."Query:Is there significance to the words "owned”in the case of Sec.29 and "to be owned”in Sec.307 Is there significance to theplurallanguage"interties"in Sec.30?me a The Intertie Grant Agreement provides that the Participating Utilities shall hold undivided ownership interest as tanants in common In the proportion set forth in Attachment 1 thereof. Query:Is this consistent with the bond authorizations of Secs.29 and 30 above which specifyownershipbyGVEAorChugachforthebenefitoftheparticipatingulllities?It Is noted that Chapter 19 SLA 1993 in Sections 1 and 2 makes grants to GVEA of $43.2 million and Chugachof$48.8 million,respectively,for the benefit of all utilities participating in the Interties. The Participants Agreement expires at the end of the Project's useful life,according to Section2(b).We suggest that a proviso be added to require that all Project indebtedness must have been retired prior to such a termination.. Section 4 (b)(3)of the Participants Agreement sets forth the withdrawal nights of ParticipantsandinregardtotheAnchorage-Kenai Segment,provides that the "decision date"will be a datecertainaftercompletionofroutestudiesandcostestimates.Section 7 (b)contains a provisothatdetaileddesignandconstructionwillnotcommenceuntilaftercompletionoftheprocessset forth In Section 4 (b)(3).Query:What if actual costs exceed estimates?Could a Participantallegethatifithadknowncostswouldbeincreased,its economics change and it would have withdrawn?: Section 8 (b)(2)of the Participants Agreement requires unanimous agreement among thePartiestoparticipateinacollectivefinancingagreementandtoapprovetheBondResolutionadoptedtoimplementthecollectivefinancing.Section 8 (0)G)allows each Participant to = +10 FROM PA WEBBER SF To 19087 1ess6 PAGE .8093-069 Separately finance Its share of Additional Costs.Query:Should not this apparent contradictionbeclarifiedtoprovide(3)as an altemative and to require unanimous agreement in (2)onlyamongthoseparticipatinginthecollectivefinancing? Section 10 and definitions in the Participation Agreement relating to "Operating Year,”"Operating Budget,”"Annual Project Costs,”"Construction Year and "Annual PaymentObligation”lead to a distinction between the effective date of the Agreement and "Date of Commercial Operation”.{t is not clear what happens if Commercial Operation is neverachieved.Bondholders will probably insist upon a take-or-pay contract commencing on a datecertain,regardless of completion.Participants can partially protect themselves by capitalizingintarestbeyondtheestimatedcompletiondate,by insurance against damage or destruction andbyliquidateddamagesimposedupontheconstructioncontractors.However,we believe [comptetion risk is just not acceptable to bondholders if attractive borrowing rates are to beachieved. It should be noted that in the case of the Bradley Lake financing,the State's moral obligation wasavailableinadditiontothecapitalizationofinterestwhichextendedforsixmonthsbeyondthe estimated date of commercial operation and permitted a full year's delay before a payment wasdue.We believe Section 23 of Chapter 18 SLA 1993 extends to the intertie financing the State's moral obligation,if desired. There are Several references In the various documents to approvals of retall rates,cost considerations,etc.by the Alaska Public Utilities Commission.What would be the effect if there were to be extended downtime of one or both of the Project Segments and the APUCdeterminedthatno"benefit"was being received from the Project.Could the APUC mandate the lowering of rates that would jeopardize a Participant's ability to pay?Is there potential for delay in obtaining approvals,if any,by the APUC prior to commencement of construction? In addition to the Work Products required of Participants as outlined in the Intertie Financing Sfhandoutatourmeeting,we would like to see three years of audited operating statements for each Participant in due course. Overall,subject to development of suitab!e financing documents,we believe a revenue bondissuecanbestructuredbasedupontheseveralagreementsthatwereviewed,The step-upprovisionsareadequateandcognizanceofconstructionandoperatingconcemsisacknowledged.We defer to tax or bond counsel as to what portion of the financing can be tax-exempt given Project ownership.If the latter was not critical,AIDEA could probably own and finance the Project on a tax-exempt basis. We appreciate tha opportunity to comment on this important financing and look forward to implementation of the initial segment in the near future. Very truly yours, Terrence E.Comerford First Vice President TEC:bmb t oe re Mowe TATA:RA a Ree ee LeleWOHLFORTH,ARGETSINGER,JOHNSON &BRECHT ¥uedPETERARGETSINGFRapmormaniOheTCLEPHONEJULIUS4.BRECHT GyNTMIA L.CARTLEDGE ATTORNEYS AT LAW (907)270-6401 CARNL L.GILES ROBERT M.JOHNSON (On arecaTHOMASF.KLINKNER = 7 '5 BRADLEY E.MEYEN ANCHORAGE,ALASKA S9SOI-2044 JAMES A.SARAFIN RENNETH £.VASSAR ERIC €WOHLFrORTH OOO went KIA AVENUE,SUITE GOO MEMORANDUM ' TO:Danie!W.Beardsley Contracts Manager Alaska Industrial Development and Export Authority FROM:Pete Argetsinger Kenneth E.Vassar Thomas F.Klinkner DATE:September 21,1994 SUBJECT:Intertia Project Financing Our File No.3730.0629 At the conclusion of the Working Group meeting at AIDEA on September 13 in connection with the project referenced above,each member was asked to provide you with questions or comments to be used in putting together a reply to the August 16 letter to AIDEA from the Intertie Participants Group inquiring as to the possibility of AIDEA financing for the interties "approved"by the Alaska Legislature in 1993. Our initial comments,in no particular order,follow.Our focus was on the Northern Intertie,but most are applicable generally.Please contact Pete Argetsinger,Kenneth E.Vassar,or Thomas F.Klinkner with questions or if wa may assist further. 1.Bonds issued by AIDEA for the interties are expected to be private activity bonds which,because of the two-county rule,would normally be expected to be taxable.Please indicate whether any of the municipal utilities involved anticipate that a portion of the bonds issued by AIDEA representing their "share"willbetaxexempt.If so,plaase provida an opinion of nationally recognized bond counsel reaching that conclusion.While bond counsel to AIDEA will not rely on that opinion,they will take it into consideration in reaching an independent conclusion on the matter.-. 2.Chapters 18 and 19,SLA 1893,contemplate that ownership of each intertie will be by certain designated utilities,albeit for the benefit of all utilities using WOHLFORTH,ARGETSINGER, JOHNSON &BRECHT the intertie.See,e.g.,Section 29 of Chapter 18 and Section 1(c)of Chapter 19.The agreements between the utilities provide,on the other hand,for undivided ownership interests by the "Participating Utilities"as tenants in common.Presum- ably,the Participating Utilities expect that any loan by AIDEA of the proceeds of its bonds would be made on the same basis as the agreements between theParticipatingUtilities.Has the Attorney General considered whether the contem-|plated manner of proceeding complies with the statutes?If so,please provide a |copy of the Attorney General's opinion. 3.Chapter 19,SLA 1993,is an appropriations bill,but contains a'|significant amount of substantive law.Has the Attorney General considered whether Chapter 19 violates the constitutional requirement that appropriation bills be confined to appropriations (AK Const.Art.ll,Sec.13)?If so,please provide a copy of that Jopinion. 4.Neither the legislation nor AIDEA's strategic plan contemplate ownership of the interties by AIDEA,nor does AIDEA expect that the bonds under discussion would be general obligations of AIDEA.Rather,they would be revenue bonds to which payments under a loan agreement between AIDEA and a utility orutilitieswouldbepledged.In addition,Section 23 of Chapter 18,SLA 1993,gives V AIDEA the ability to establish a capital reserve fund for Intertiae bonds under ' AS 44.88.105 in connection with which the "moral obligation”of the State is given to replenish any deficiencies in such a fund.(The capital reserve fund wouldpresumablybeestablishedfrombondproceeds.)If the Participating Utilities W cantemplate that AIDEA bonds for tha interties would additionally be backed by me homoralobligationoftheState,the crecit of each Participating Utility must be sufficien so that the need ta call on the moral obligation never arises.Please provide evidence that each Participating Utility carries an investment grade rating from Moody's and/or S&P and-is expested to retain that rating after taking on theobligationofAIDEAbondsfortheintertie.Further,please provide an indication of the willingness of the municipalities involved to make their initial and ultimate obligation on the AIDEA bonds a general obligation of the municipality.In tha case of the cooperatives,please provide an indication of the additional security each is willing to provide to back its obligation on any AIDEA bonds.- 5.Alaska Public Utilities Commission approval and oversight is a concern in the case of any utility financing.Please provide a memorandum of counsel to the Participating Utilities discussing the APUC's jurisdiction to consider and approve or disapprove both the existing agreements between the Participating Utilities and the agreements which will be entered into in connection with any AIDEA intertie bonds. MEMORANDUM 09/21/1994 initertie Project Financing AFFoank1 Page 2 3 WOHLFORTH,ARGETSINGER, JOHNSON &BRECHT Indicate whether the APUC has been requested to issue an order delineating itsjurisdiction,if any,and its inclination to exercise whatever powers it may have as to the interties and their financing.If such an order is not expected,indicate whether an Attorney General's opinion will be substituted. 6.Indicate the willingness of the Participating Utilities to negotiate and enter into a new agreement or agreements which,among other things,will vest ownership and operation of the intarties in the manner contemplated by Chapters 18 and 19,SLA 1993,and will give AIDEA the security it needs to sell its bonds--in effect,a guarantee by the utility or utilities,whether they use the intertie or not. MEMORANDUM 09/21/1 994intertieProjectFinancing : AFFO43F14 'Page 3 aasykit®FINAL REPORT ANCHORAGE FAIRBANKS TRANSMISSION INTERTIE EXPANSION AND UPGRADE PROJECT OCRA 264-Uae (AA &wy Prepared for Alaska Power Authority and Alaska Systems Coordinating Council by Harza Engineering Company August 1987 EXECUTIVE SUMMARY Based on the information and criteria that has been provid- ed by the Power Authority and Railbelt utilities,Harza con-cludes that the Anchorage to Fairbanks transmission upgrade should include transmission additions to the northern and south- ern segments of the present 345 kv intertie.Two plans were Statin studied;one for 230 kV and the other for 345 kV.The upgraded line will be designed and constructed for 345 kV,but initiallyoperatedat230kV.Economic assessment indicates that conver-VBR sion to 345 kV operation would occur in roughly the year 2006 time frame. The recommended development will entail 35 miles of new 345 kV transmission line between Douglas and Lake Lorraine,and 97 miles of new 345 kV transmission line between Healy and Fair- banks.In addition,substations at Douglas,Cantwell,andHealy,will be expanded,and new substations will.be constructedatLakeLorraineandFairbanks.The present day construction cost of this proposed upgrade is estimated to be $118.2 million. SmmaLh Te dunforPurposeandNeedyoadabilid 5 The Railbelt area contains natural gas in Lower Cook Inlet, hydropower and coal potential throughout the area,oil and natu- ral gas to the north,and other energy resources such as tidal, wind and peat generation.While rich in energy resources and generation facilities,full use of these resources is con- Strained by lack of an adequate bulk power transmission system.If such a transmission system existed,it would allow efficient dispatch of least cost energy throughout the Railbelt area. h.Nj Existing Intertie us Ry ew With the recently completed transmission link betweenDouglasandHealy,the basic backbone system interconnecting the SsevenRailbeltutilitieshasbeencompleted.The overall sys- p-yotem,however,does not anticipate future use as it presently a stands.While the Douglas to Healy portion is now capable of transmitting power at 345 kV,the transmission lines and substa- tions i r_end of the system are restricted to T38_kV and Tess; It was originally anticipated that the entire system would be upgraded to 345 kV concurrent with the development of theSusitnaproject.With the halt of the Susitna investigations, it has become necessary for the utilities to accept the respon- sibility of insuring that other energy options available -1- throughout the Railbelt can be safely and economically deployed to their consumers. Need to Upgrade There is now a need to transmit power from small decentral- ized generation sources throughout the Railbelt area,and this can only be accomplished by increasing the power transmission capability of the existing transmission system.Without such a system,the utilities will remain captive of their own contigu- ous energy resources and they will not be in a position to jointly plan and develop energy resources.Upgrading the inter- tie system will allow the utilities to pool their financial strengths so that they can jointly develop and share the most cost effective sources of energy available in the region for the overall benefit of their consumers. There are a number of reasons why the existing transmission system has not been upgraded previously.Until recently,powerplanningintheRailbeltwasperformedontwolevels:short and intermediate term planning was undertaken by the individual utilities,while long term planning was assumed by the state. The lack of coordinated transmission planning is the result of the fact that there are no strong transmission interconnections among the utilities.The power transfer capacity of the present intertie has been inadequate on several occasions and prevented the utilities from operating in the most efficient mode. Upgrading to a_higher capacity will allow more flexibility in dispatch of Railbelt generation. Another fact is that the state was evaluating the integra- tion of the Susitna Hydroelectric project into the transmission system.With the promise of Susitna and other major generation sources being evaluated by the state,the utilities concentratedonneartermsystemneedsinthebeliefthatthelongtermsolu- tions would be met by the state. With the halt of the Susitna investigations,the utilities accepted the role previously assumed by the state and immediate-ly focused on the deficiencies of the existing transmission system throughout the Railbelt area.Consequently,the utili- ties pooled their planning efforts and established the upgrading of the Railbelt transmission system as their top priority.ThiswastherecommendationoftheRailbeltEnergyCouncil,which served as the forum to implement utility policy on energy devel-opment issues.Acting on the recommendation of the Railbelt Council,the Alaska Power Authority and seven Railbelt utilitieshaveunitedtoinvestigatethetechnicalandfinancialfeasibi- lity of upgrading the present transmission system within the limits of funds that have been allocated to the Railbelt by the -2- state.These funds were previously appropriated and in large part spent in other regions of the state for energy development under the Energy Program for Alaska. Benefits Justification for construction of the Douglas-Healy section of the intertie system is based on the fuel cost differential among the various geographical areas of the Railbelt and on reliability considerations.Fuel cost differentials are oftenreferredtoas"economy energy"benefits.The Power Authorityestimatesthateconomyenergybenefits,over the duration of the study period,from the intertie are as high as $432 million for the entire system from Fairbanks to Homer and Seward.These represent only a portion of the total benefits that will accrue to Railbelt consumers.Other benefits will accrue over and above the readily identifiable economy energy benefits.These additional benefits are much more difficult to quantify,yet collectively they are quite substantial in comparison to the quantifiable benefits represented by economy eneryy. The most obvious additional benefit is that the utilities can share both operating and spinning generation reserves.The " intertie will provide the flexibility to defer construction of new and costly generation in one service area because of the availability of generation reserves in another service area. Similarly,the intertie will provide the utilities with the flexibility to site new facilities in the most cost effective locations.It will also justify the development of projects that may be too large for a single utility,but very cost effec- tive for joint utility development.In addition,central sta-tion dispatch can become a reality,and assure that cost effec-tive generation is on-line at all times.The intertie will also allow greater flexibility in maintenance scheduling and reduce the impact of outage time for repairs. System Plan The system plan for the extension and upgrade of theAnchoragetoFairbanksintertieconsistsofadditionaltransmis- sion lines and substations.The plan for upgrading and extend-ing the Anchorage to Fairbanks Intertie is shown on Figures 1A and 2A. Selection of Operating Voltage The comparison of 230 kV and 345 kV operating voltage was based on an evaluation of first cost and annual cost of losses. The value of the loss differences during the study period is not sufficient to offset the initial capital savings of the 230 kv -3- Woodchapper Creex - airbanks Cr6anniCareg Na RIVERsuaveCN_ABEA "ahd HorTeoe| ore:*aEePy PB Le Bion Soa ee areey:oniagve I!Sn ONE+a :: Zoe wn .' Toto YE et -_ae ; -<6Oe toe PAGAMITA,PR we a ategen"yrresesFD oyme.priaad Preasant valley aaa t rors :0 KS LINE j s +6450 t6MOOSEHEARTMIN+.R>North Poet THE:BUTTE 656/04 $537>sed 690?45 ,.Burd::1 .Hl.a?a etl»2feu 'berg 4b =e uft wes *ae 3 FAIRBA TH STAR cs . -!:a ;ey a :North Nenana?”Se A ESod Albt : roan TOhlat 3 i Nenana{:BO GH a ?hto b-Dome §ates be:t .i"po BE gosepn >fort, 5 on sAu tae -'snawnct ou y 4 76C . 7 iaxe 'Anderson."en °SE BAK YT _Steele *!Clear'|Shaw©7 MAHER -jack W.S .:- Rex UY,.Spe "BSdi soos hh ETS Frenwine: a?,.V8 os °5 \choeet At:wre =yg bait .TayLOR MIN o>Ca '55 HEX GOME t oa Clear ser 5c V Pl?Sf$.s Rare ae wh mse Y a}.=te a Jct bene te gi Keche : 7 -ek .1 agian vil -A AA '3LLbe?; INN Ge eae .yt EARL :pts Lake S5et wg? ; ' 3 .wie wt bane ; :j ete cate x 'Kannsne .tye -'|7 arn .antsEn . wiv .a a b RAGE PR 4 Marat ave .Maapeeipayart”9a *ecm hg "+2.4 Tanac OSS 0 :ve . *” ; ?:.PEROLETCN 'I dal |a wee OAS MEN .'<bechn oct 7 .amneason .ARULL PF yetNa S8s$-GC .*.te :ee MT ane.wel'an vss c Tetina3PassABELPASStatyCrees .Of G7 oy decat 'cper Slate Cees Maied Ps ard eae .fate ;ny Agr rt ratunwe F 2 "wapesnadsViaSutBLOParsonfeessosNorthwetA ESicace . ;bscort:Rat LOU saentast Re ase cs 4 Garter ude ars ween a 8 Ow oa?"-1Labexisting,INTERTIE \:wen ee 4. =Bs.ao)ONT . CoLy. .=oelata "Ta Wp an a]ME Olen UT WATANA .So 8 yyififa,ae LEG END:"*- .yf ne NUT&:2 ets oy eet -NORTH ROUTE ALTERNATIVE aun win uodee -4 9 dabesne 245 beng.:A PASS. 5]=*-*e B -SOUTH ROUTE ALTERNATIVE "Shiau ne |z|BOROUGH ,x ''Chisanazc=soveREGN %Cc BIG DELTA ALTERNATIVE :s E eh raze "a MIN oo ener Paes . ;rae ©65225 :CHISANA 4 + - D -WILLOW--LAKE LORRAINE 'PASS =,..Eurera Rit,WoodLLOWTO:Watchtower &%2HEyeHdantaoCHORAGE's we EXISTING INTERTIE sey aaPideville2wisRnx; . ,gosFY:<treina .fennicottChita_'Sete noaosaa doc CartnyeVye?«910 FIGURE 2A BELUGA<- (FAIRBANKS) GOLD GVEA F7. Hill 0?FMUS <A1WAINWRIGHT138/E9KVNNnk Y EL NENANA & Se GVEA"22.y HEALY™230/345kKV OR GVEAS NOTE: oS NEW SUBSTATIONS AT: wag FT.WAINWRIGHT,HEALY,CANTWELL, 24,9kKV DOUGLAS ANO LAKE LORRAINE CANTWELL |o6oyeA BASED OW 345 KV DESIGN WITH ss INTIAL OPERATION AT 230 KV. =4 SEE FIGUES 6-10 For 9 2 SUBSTATION DETAILS. <y ba 9) M5 KV DOUGLAS >MEA H->/38KY 2 TEELAND5)%Ss v N LAKE |.MEALORRAINE230KV |TEELANO CEA 7 - 230 KV ALASKA POWER AUTHORITY HARZA eneinaenine company PT.MACKINZE APRIL 1967 ANCHORAGE --FAIRBANKS INTERTIE SYSTEM DIAGRAM plan.Therefore,the 230 kv plan is recommended as the initial operati tage for the extension and upgrading of the Anchor- age to Fairbanks intertie. Transmission Lines Both plans provide for approximately 130 miles of new 345 kV single circuit transmission line and substation additions atfivelocations.The existing345 kV transmission line (which ispresentlyoperatedat138kV)between Healy and Douglas will"continue in operation except that it will be operated at a higher voltage (230 kV).The new transmission lines between Lake Lorraine and Douglas and between Healy to Fairbanks are to be compatible with the design of the present Douglas to Healy line,and use the same conductor size and tower type. | Substations The substation locations are:Fairbanks,Healy Power Plant, Cantwell,Douglas and Lake Lorraine.At Cantwell,Healy and Douglas,the new substation facilities will be additions or extensions to existing substations.The Fairksand LakeLorrainesubstationswillbenewdevelopmentsandwillprovide connections to existing transmission and subtransmission facili- ties.The substation layouts are based on 345 kV spacing and equipment requirements.However,during the initial years when the intertie is operating at 230 kV,transformers,shunt reac- tors,circuit breakers,surge arresters and instrument trans-formers will be rated at 230 kv. A new 345/230 kV substation site will be developed in the Lake Lorraine area.Initially,only the 230 kV portion of the substation will be constructed.When the system is upgraded to 345 kV operation the site will be expanded with the addition of 345-230 kV transformers and 345 kV equipment.At the Lake Lorraine site,a connection will be made to the existing 230 kv Point Mackenzie to Teeland line and the Point MacKenzie --AML&P Plant 2 line.The Lake Lorraine substation will provide elec- trical connections to allow power supply to Fairbanks from gen- eration at Beluga and the Kenai.As additional 230 kV transmis- sion lines are constructed between Beluga and Anchorage,they can be routed through the Lake Lorraine site. The new substation at Fairbanks will be the delivery pointforpowérat_the Fairbanks Idoad center,The substation willincludetransformerstostepthevoltagedownto138kV.GVEA will extend 138 kV linés from the new Fairbanks substation to connection points within its service territory. Substation bus and switching arrangements are based on a plan that provides for future addition of a second 345 kV trans- mission circuit between Anchorage and Fairbanks. The Cantwell substation is laid out to meet the projectea(.?power needs of the load center.When upgraded to 345 kV with two line terminations,conditions at this site will preclude further expansion.If in the future,a second 345 kV line were constructed,it would bypass this site.The existing transfor- mer capacity at this site should be adequate to supply estimated needs of this load center. Communications.The five substations will be linked with microwave communications.The communication system will provide for the needs of protective relaying,voice communication for operations,and system control and data acquisition (SCADA). The cost to upgrade communications facilities are included in the substation cost estimates. Transmission Line Routes On the northern segment of the intertie system,it is recommended that the route remain east of the Nenana River until Anderson where the Tanana Ridge route then be followed into the Fairbanks substation.See Figure 1A for a map of the alter- native routes that were reviewed as part of this study.The selected route is superior to the others from the standpoint of cost,esthetics and environmental impact,and impact on privatelandowners.The ultimate alignment should be selected to mini- mize encroachment on military training areas.ever,termina- tion of the transmission line at a substation-to be located _in 'the Fairbanks aréa is the only logical location from the stand- "point of diminishing the ovérall impact on private,state,and federal land owners.Termination in any other location wouldnotonlybecostly,but it could jeopardizethe justificationforinvokingtherightofeminentdomain. On the southern segment of the route,it is recommended that the Douglas to Lake Lorraine route be selected over the Douglas to Teeland route.This alignment is slightly more expensive than the route to Teeland,but its impact on private land owners is significantly less,and its merits from a system standpoint are superior to the Teeland route. Several system advantages are realized with a Lake Lorraine termination as opposed to a termination at Teeland.Power flow from Kenai and Beluga will be tapped at a more efficient loca-tion.Expansion of the Teeland substation with three different transmission voltages will be avoided.New lines from Beluga to Anchorage can be routed to Lake Lorraine as an alternate to the Point MacKenzie substation which is at maximum development. While the above routes best address the appropriate public trade-offs,agency coordination and public participation is necessary before final acceptance can be assumed.It is recom- mended that public participation associated with final route selection be initiated so that land acquisition can follow imme- diately.It is estimated that permitting,public participation and design can be accomplished in a two-year time frame and that construction could begin as early as July 1989. Alternate Plans and Cost Estimates Two transmission plans were formulated in general terms by the Power Authority and Utilities;one for 345 kV operation andonefor230kVoperation.It is our opinion that other expan-oesionscenariosatvoltagesotherthan230and345kV_would not "be cost effective.Both plans are based on the assumption that "the line would ultimately be operated at 345 kV to accommodate future generation additions.Cost estimates were prepared for the two plans.The estimates for the two plans are summarized in Table 1A.These estimates are at January 1987 cost levels. The estimates reflect recent experience with transmission lines and substations in Alaska.The actual costs for the con- struction of the Douglas to Healy 345 kv line were reviewed,and other recent cost information was obtained.Chugach Electric Association provided cost data for its recently completed Point MacKenzie substation.The estimate for additions to the micro- wave communication system was provided by the Power Authority which obtained its information from the State Division of Tele- communications. The estimate for the transmission line is based on the same guyed X-frame structure design used for the existing Douglas to Healy line.The cost of the structures on the Douglas to Healy line was significantly lower than the then existing market levels.The present estimate for the Healy -Fairbanks and Douglas -Lake Lorraine sections is based on recent estimates for fabricated steel.Using present market values for fabri-'cated steel raises the cost per mile when compared to the costpermileoftheexistingDouglastoHealysection. Three percent of the direct cost of labor and material hasbeenaddedtocoverowner's overhead,and 13%has been added for Kesengineeringdesignandconstructionmanagement.A 15%contin- gency allowance has been included to cover line item variances. The estimates do not include allowances for cost escalation due to inflation beyond January 1987.Interest during construction is not provided for as no debt financing is anticipated. The present estimate represents the best judgment in to- day's market and economy.It must be recognized,however,that there are several major economic,market and financial factors that could change.These include increasing interest rates, inflation,exchange rate fluctuations,energy prices,and world wide industrial activity.As a result the ultimate construction cost could be higher or lower than our present estimate. Project Schedule The schedule for the project is as follows:final route selection,permitting and engineering design work can begin in the third quarter of 1987,right-of-way acquisition in 1988, contract documents and procurement in 1988/89 and construction start in 1989/90.Project construction should require roughly 18 months to complete;thus allowing it to coincide with the Start-up of the Bradley Lake hydropower project.Project design should begin as soon after final route selection as possible to maintain schedule and take advantage of the present favorable construction climate. Recommendations Harza recommends that the upgrade and extension of the Anchorage to Fairbanks transmission intertie be designed and constructed for 345 kV and initially operated at 230 kv.The estimated budget for this project is $118.2 million. The next phase of the project should be final route selec- tion,permitting and engineering design. The engineering design should be based on a 345 kV trans- mission line and substation system,but initial operation should be at 230 kv. _The system should be operated at 230 kV _until load levelsexceed150MWoruntilmajorgeneratingstationsaredeveloped along the line route.According to load projections providedforthisstudybythePowerAuthority,operation at 230 kV couldcontinuethroughtheyear2006. The design of the new Douglas -Lake Lorraine and Healy to Fairbanks transmission lines should be based on the same struc- ture type and conductor size as the existing Healy to Douglas line. Engineering system studies for 230 kV operation should becarriedoutaspartofthedesigneffort;these include: °Static Var System optimization for installations at Douglas,Healy and Fairbanks. °Shunt reactor sizing for expected operating condi-ations. fe)Insulation coordination and switching surge studies. fe)Transient Recovery Voltages across circuit breakers following system separation. o Three pole line reclosing for outages of the Lake Lorraine Douglas,Douglas -Healy,and Healy - Fairbanks sections. As part of the detailed engineering study for shunt reac- tor sizing,it is recommended that an alternate site to the Douglas substation be considered.The alternate site should be in the area north of Talkeetna.If this site is used,the Lake Lorraine -Fairbanks line will consist of three sections,each approximately 100 miles long.With this configuration,line switching and energizing operations will be more flexible. -10- Table 1A PROJECT COST ESTIMATE ANCHORAGE-FAIRBANKS TRANSMISSION SYSTEM UPGRADE AND EXTENSION Millions $ 230 kV 345 kV Plan Plan Substation -TO Pairbanks 9.7 11.2 Healy 3.8 5.0 Cantwell 1.7 2.5 Douglas 5.6 6.6 Lake Lorraine 5.4 10.2 Sub-total Substations 26.2 35.5 Transmission!/ Healy -Fairbanks (97 miles)US?Material and Labor2/42.8 42.8 407 Right-of-Way and Acquisition 2.4 2.4 43% Douglas-Lake Lorraine (35 miles)+159 Material and Labor 14.7 14.7 Right-of-Way and Acquisition 2.5 2.5 bot Ma Sub-total Transmission 62.4 62.4 ATF Sub-total Lines and Substations 88.6 97.9 Engineering Design and Construc--ESM tion Management,13%of Line and toh CheSubstationsSub-total 11.5 12.7 Owner's Administration 3%of Lines and Substations Sub-total 2.7 2.9 Project Sub-total 102.8 113.5 Contingency 15%of Project Sub- total 15.4 17.0 Total Project Budget Estimate 118.2 130.5 i/Includes three river crossings.2/Transmission line design is based on ultimate 345 kvoperationinbothplans. HYUO,060 /M'lp-11- IaaaChapter VII COST ESTIMATES AND SCHEDULE Transmission Lines The cost estimate for the Fairbanks to Anchorage 345 kv lines was developed based on the available construction costs figures for Douglas-Healy Intertie line constructed in 1983-1985 by Alaska Power Authority.In the process the following cost parameters were analized to arrive at estimate figures. Present labor rates Work force and construction period Construction conditions and methods Cost of line materials0000 Because the line construction schedules,the methods of construction and site conditions are assumed categories,the cost estimate should include a 15%contingency margin. Labor Costs In line construction the labor costs represent three labor intensive operations: °Foundation construction and counterpoise °Structures assembly and setting oO Conductor stringing Determination of the costs for the above operations depend on the production,labor cost rates and construction conditions on the routes. The cost data for construction of the Douglas-Healy 345 kV line was analized based on the above three categories and ad- justed to present labor and assumed production rates. The site conditions were evaluated based on the information available from route related studies.The helicopter assisted construction was assumed as the most probable method,consider-ing the experience during construction of the Healy-Douglas lineandexpectedenvironmentconstraints.It is not expected that the major access roads will be built. The cost data for the first section of the Healy-Douglas line was used for developing this estimate.As stated beforetwobasiccategoriesofconstructioncostrelated;foundation and overstructure were analized.In overstructure costs are vII-1 weincluded in the cost of structure assembly/erection and cost of stringing.Based on published data,the line construction cost presently is almost the same or even lower compared to the 1983- 1985 time period when Healy-Douglas Intertie line was construct-ed and it is reflected in cost estimate for Anchorage Fairbanks lines. The overhead line construction cost is assumed to be the same for all line sectors.The foundation construction is con- sidered to be higher for the Healy to Fairbanks line than in the Anchorage area because of permafrost conditions and larger frost zone, Helicopter costs during construction was estimated on monthly rates for light and medium capacity helicopters,assumed to be utilized for delivery of material,construction equipment and crews to job sites.The heavy lift helicopters (Sikorsky Skycrane or similar)was assumed to be utilized for structure erection or delivery of heavy materials only.Their use will be scheduled for continuous operation and for short periods only. The following cost estimate figures were developed. Material Cost Structures and Fixtures $99,000 Conductors and Accessories $42,000 Total $141,000 Total Construction Cost Douglas-Healy- Lorraine Fairbanks Length 35 mi.97 mi. Material Material per mile $141,000 $141,000 Total Material $4,940,000 $13,670,000 Construction Overhead per mile $154,000 $154,000 Foundations per mile $85,000 $96,000 Total Construction $8,360,000 $24,250,000 Clearin Clearing per mile (Average)$40,000 $.40,000 Total Clearing $1,400,000 $3,880,000 River Crossing (4)-$1,000,000 Line Construction Grand Total $14,700,000 $42,800,000 VII-2 UrSubstations Substation Equipment The substation cost estimates were based on two layouts. The first plan was based on an arrangement operating at a system voltage of 345 kV.The second arrangement was based on a physi- cal arrangement of 345 kV,however,the equipment was rated at 230 kv. Equipment costs for the substations were estimated from information received from manufacturers and from bids on recent- ly constructed substations in the Railbelt.Cost for equipment at each substation are presented in Tables 13,14,15,16 and 17. Substation Construction Substation civil works construction cost estimates were based on the following features:1)equipment foundations;2) transformer oil sump with separators;3)cleaning,stripping and gravel surfacing of yard;4)fence;5)drainage,and 6)control building.The basis of the estimated cost of each of the above features was as follows:1)Foundations for equipment were based on a unit volume per breaker that includes footings for all related equipment such as disconnect switches,bus supports, etc.The unit volume was based on Harza's designed substations and with various breaker ratings.These volumes are conserva- tively calculated for this estimate because of possible unfore- seen foundation conditions.It is assumed that the depth of footings should extend to the depth of frost penetration,about nine feet.2)An oil separator sump for each transformer has been included and would have an oil storage volume equal to the oil contained in the transformer.The sump would consist of a reinforced concrete structure buried underground and would sup- port the transformer.Its size would be sufficient to contain an oil spill from the transformer.3)The cost of clearing, stripping and gravel surfacing was estimated on a unit area basis and applied to the substation surface area.These areas were calculated by the number of bays and the dimensions basedonHarza's designed substations of the same voltage.4)Cost for a fence around the perimeters of each substation was based on its overall dimensions and a unit price per linear foot of fence.5)A lump sum cost for drainage was included.6)The control building cost was estimated for the Lake Lorraine and Fort Wainwright substations.The building size would be 40 ft. x 40 ft.and would consist of concrete footings,insulated con- crete slab,wood framing and roof trusses with plywood sheath- ing,cedar exterior wall siding,vapor barrier and fiberglass vVII-3 TABLE 13 FAIRBANKS SUBSTATION EQIPMENT QUANTITY TOTAL COST TOTAL COST 230KV/138KV 345KV/138KV CURRENT TRANS.3 NOTE $51,750 CIRCUIT BREAKER 4 $548,320 $1,026,260 DISC.SWITCH 9 $177,503 $177,503 CVT 3 $28,194 $33,882 VT 2 $18,797 $22,588 SA 9 $44,167 $72,812 SUPPORTS ) TAKE OFF ) TRANS.LINE SUPP)$112,757 $112,757 VT,CVT,SA SUPP ) BUS SUPP ) TRANS .150MVA 2 $2,400,000 $2,875,000 138KV CIRCUIT BREAKER 9 $751,410 $751,410 138KV DISC.SW.18 $196,650 $196,650 138KV CVT 12 $93,336 $93,336 138KV VT 2 $15,556 $15,556 138KV SA 18 $52,764 $52,764 138KV DISC.SW.SUPP.) 138KV VT,SA,CVT SUPP.) 138KV TAKE OFF )$135,432 $135,432 138KV TRANS.LINE SUPP) 138KV BUS SUPPORT ) CONTROL SWBD.LS $350,000 $370,000 STATION SERVICE LS $50,000 $50,000 INSTALL ELECT.EQUP.LS $472,670 $578,951 GENERAL ELECT.LS $400,000 $400,000 MOBILIZE LS $75,000 $75,000 FOUNDATION LS $1,458,000 $1,458,000 SITE PREP LS $262,000 $262,000 CONTROL BLDG.LS $80,000 $80,000 REACTOR 1 $282,000 $529,000 STATIC VAR EQUP.LS $1,400,000 $1,400,000 SCADA &COMMUNICATIONS LS $350,000 $350,000 TOTAL $9,754,556 $11,170,653 NOTE :CURRENT TRANSFORMER COSTS ARE INCLUDED WITH THE ASSOCIATED BREAKERS.HOWEVER FOR THE 345KV SYSTEM AN EXTRA SET OF CURRENT TRANSFORMERS ARE REQUIRED FOR ADDITIONAL RELAYING. viII-4 TABLE 14 HEALY SUBSTATION EQIPMENT QUANTITY TOTAL COST TOTAL COST 230KV/138KV 345KV/138KV CURRENT TRANS.3 NOTE $51,750 CIRCUIT BREAKER 4 $548,320 $1,026,260 DISC.SWITCH 9 $177,503 $177,503 CVT 6 $56,390 $67,765 VT 2 $18,797 $22,588 SA 9 $44,167 $72,812 SUPPORTS ) TAKE OFF ) TRANS.LINE SUPP)$102,379-$102,379 VI,CVT,SA SUPP ) BUS SUPP ) TRANS.100MVA 1 $1,000,000 $1,150,000 138KV CIRCUIT BREAKER 138KV DISC.SW.) 138KV CVT )N/A N/A 138KV VT ) 138KV SA 3 $8,794 $8,794 138KV DISC.SW.SUPP. 138KV VT,SA,CVT SUPP. 138KV TAKE OFF N/A N/A 138KV TRANS.LINE SUPP 138KV BUS SUPPORT CONTROL SWBD.LS $169,000 $195,000 STATION SERVICE LS $25,000 $25,000 INSTALL ELECT.EQUP.LS $234,787 $279,747 GENERAL ELECT.LS $100,000 $100,000 MOBILIZE LS $75,000 $75,000 FOUNDATION LS $565,000 $712,000 SITE PREP LS $55,000 $55,000 CONTROL BLDG.LS $80,000 $80,000 REACTOR 1 $282,000 $529,000 STATIC VAR EQUP.LS N/A N/A REARR.SUB.LS $200,000 $200,000 SCADA &COMMUNICATIONS LS $100,000 $100,000 -TOTAL $3,842,137 $5,030,598 NOTE :CURRENT TRANSFORMER COSTS ARE INCLUDED WITH THE ASSOCIATED BREAKERS.HOWEVER FOR THE 345KV SYSTEM AN EXTRA SET OF CURRENT TRANSFORMERS ARE REQUIRED FOR ADDITIONAL RELAYING. viII-5 TABLE 15 CANTWELL SUBSTATION EQIPMENT QUANTITY TOTAL COST 230KV/138KV CIRCUIT SWITCHER/BREAKER 2 $158,400 DISC.SWITCH 2 $39,445 CVT 1 $9,398 VT SA 3 $14,722 SUPPORTS ) TAKE OFF ) TRANS.LINE SUPP)$15,576 VT,CVT,SA SUPP ). BUS SUPP ) TRANS.5MVA 1 $329,906 138KV CIRCUIT BREAKER) 138KV DISC.SW.) 138KV CVT ) 138KV VT ) 138KV SA )N/A 138KV DISC.SW.SUPP.) 138KV VT,SA,CVT SUPP.) 138KV TAKE OFF ) 138KV TRANS.LINE SUPP) 138KV BUS SUPPORT ) CONTROL SWBD.LS $35,000 INSTALL ELECT.EQUP.LS $64,952 GENERAL ELECT.LS $100,000 MOBILIZE LS $75,000 FOUNDATION LS $325,000 SITE PREP LS $73,000 CONT.BLDG.LS $10,000 REACTOR 1 $292,000 REARR.SUB.LS $80,000 SCADA &COMMUNICATIONS LS $50,000 TOTAL -$1,672,400 vII-6 TOTAL COST 345KV/138KV $513,130 $39,445 $11,294 $24,271 $15,065 $388,125 N/A $35,000 $101,126 $100,000 $75,000 $385,000 $73,000 $10,000 $577,200 $80,000 $50,000 $2,477,656 a* EQIPMENT CURRENT TRANS. CIRCUIT BREAKER DISC.SWITCH CVT VT SA SUPPORTS ) TAKE OFF ) TRANS.LINE SUPP) VT,CVT,SA SUPP ) BUS SUPP ) TRANS.20MVA 138KV CIRCUIT BREAKER) 138KV DISC.SW. 138KV CvT 138KV VT 138KV SA '138KV DISC.SW.SUPP. 138KV VT,SA,CVT SUPP. 138KV TAKE OFF 138KV TRANS.LINE SUPP 138KV BUS SUPPORT CONTROL SWED. STATION SERVICE INSTALL ELECT.EQUP. GENERAL ELECT. MOBILIZE FOUNDATION SITE PREP CONTROL BLDG. REACTOR STATIC VAR EQUP. REAR.SUB SCADA &COMMUNICATIONS TOTAL TABLE 16 QUANTITY DOUGLAS SUBSTATION TOTAL COST 230KV/138KV ONOW&Wpoybhhrbhbbbhh&NOTE $548,320 $177,503 $56,390 $18,797 $44,167 $107,094 $314,381 N/A $8,794 N/A $160,000 $25,000 $159,080 $100,000 $85,000 $915,000 $225,000 $60,000 $292,000 $2,000,000 $200,000 $100,000 $5,596,526 TOTAL COST 345KV/138KV $51,750 $1,026,260 $177,503 $67,765 $22,588 $72,812 $107,094 $388,125 N/A $8,794 N/A $186,000 $25,000 $201,780 $100,000 $85,000 $915,000 $225,000 $60,000 $577,200 $2,000,000 $200,000 $100,000 $6,597,671 NOTE :CURRENT TRANSFORMER COSTS ARE INCLUDED WITH THE ASSOCIATED BREAKERS.HOWEVER FOR THE 345KV SYSTEM AN EXTRA SET OF CURRENT TRANSFORMERS ARE REQUIRED FOR ADDITIONAL RELAYING. VII-7 eKaEQIPMENT CIRCUIT BREAKER DISC.SWITCH 'CvT VT SA SUPPORTS ) TAKE OFF TRANS.LINE SUPP) VT,CVT,SA SUPP ) BUS SUPP TRANS.150MVA 230KV CIRCUIT BREAKER 230KV DISC.SW. 230KV CVT 230KV VT 230KV SA 230KV DISC.SW.SUPP. 230KV VT,SA,CVT SUPP 230KV TAKE OFF 230KV TRANS.LINE SUPP. 230KV BUS SUPPORT CONTROL SWBD. STATION SERVICE INSTALL ELECT.EQUP. GENERAL ELECT. MOBILIZE FOUNDATION SITE PREP CONTROL BLDG. SCADA &COMMUNICATIONS TOTAL TABLE 17 LORRAINE SUBSTATION QUANTITY VII-8 TOTAL COST 230KV/138KV WONWAWbhhbbbhh&bN/A N/A N/A N/A N/A N/A N/A. $1,096,640 $227,240 $140,976 $18,797 $73,611 $189,980 $300,000 $337,000 $219,426 $300,000 $100,000 $1,020,000 $870,000 $80,000 $400,000 $5,373,670 TOTAL COST 345KV/230KV $769,695 $118,335 $33,882 $22,588 $72,812 $92,441 $2,875,000 $1,096,640 $227,240 $140,976 $18,797 $73,611 $189,980 $410,000 $400,000 $625,958 $300,000 $100,000 $1,250,000 $870,000 $80,000 $400,000 $10,167,955 insulation.Interior wall surface and ceiling would be dry wall.Space heaters and wall fans also were included. Unit prices for the civil works described above were esti- mated based on our experience in estimating construction costs in south central Alaska.Bid prices on Alaska Power Authority's intertie substations were examined to confirm these estimated prices. The land costs,if any,for the substations are included with the land cost for the transmission line ROW and acquisition cost. Communication The cost of expanding the microwave system to meet the communication needs of the upgrade was obtained from the Power Authority and the Alaska Division of Communications.The cost to upgrade communications facilities are included with the sub- station estimate.. Engineering Studies For detailed design of the transmission line and substa- tion,it will be necessary to conduct separate engineering stud- ies listed below.These studies are required to establish various electrical parameters and the results will provide necessary data and information required by the design engineer in the preparation of detailed specifications for contract documents. Aerial survey for plan profile maps Soil borings and testing Power flow studies Short circuit study Shield wire protection study Insulation coordination study TNA RI and TVI measurements Environmental studies,public participation and permitting Land Costs The following land costs were used to estimate direct and indirect ROW and acquisition cost.Costs are presented in 1987 dollars. VII-9 North Study Area =Direct Costs State Forest Lands $2,000 per acre Homestead Land $600 per acre Private Land near Fairbanks High value $3,500 per acre Low value $1,500 per acre The following list gives direct and indirect costs for land along the Douglas-Lake Lorraine route. Segment Length Direct Indirect Total Number Name Miles Cost Cost $ 2 Douglas-6.4 S$36,000 69,901 105,901 Nancy Lake 3 Nancy Lake-4.1 $215,000 67,411 282,411 Little Sun 4 Little Sun 20.9 $940,000 225,409 1,165,409 Goose Bay Refuge 5 Goose Bay 1.9 $145,000 64,648 209,948 Refuge 8 Lake 2.2 $312,000 20,234 332,234 Lorraine Project Schedule See Figure 13 for a project schedule.This schedule devel- oped with the objective of completing the Anchorage-Fairbanks Intertie by the Spring of 1991 when Bradley Lake is scheduled to come on-line.This time frame allowed for completion of the land acquisition phase prior to initiating contract procurement and construction contracts. The schedule is based on construction of the transmission line being split into two contracts,one for the Healy-Fairbanks line and one for the Douglas-Lake Lorraine line.The survey of the line routes and soil exploration are planned to be carried out in 1988.Access to the site will be the determining factor for actual scheduling of these activities.Access easements and/or access rights should be acquired during the right-of-way acquisition task. VII-10 re.©FIGURE 13 1987 1988 1989 1990 1991 sIOINIDIJ |Fim AIMIglJIAISITOIN/DI]JI EIMIAIMIJ |JIATSIOIN/ID]JJ EIMIAIMI ST IIATSIOIN|JD[S TE IMIAIM SUBSTATION SITE -' SITE SELECTION PERMITS a |:Lo} SURVEY,LAND ACQUISITION EQUIPMENT SPECIFICATIONS 7 aw BID PREPARATION LIAL BID,EVALUATION,AWARD . LALIT MANUFACTURING TLV TAT TTI IY DELIVERY _ENGINEERING ;PG DESIGN i REVIEW PERIOD riz | DETAIL DESIGN yo avira a 1 CONSTRUCTION || SPECIFICATION Ya av a A |ft ' |)BID PREPARATION , "as : -| BID,EVALUATION,AWARD =ZIITA circ Ipre oak ay ion i , CONSTRUCTION "a i aw am ten of ay JAXYITI IIT VII IT TT TESTING tog | TRANSMISSION LINES -a |2 | EQUIPMENT | : ::.:j BID,EVALUATION,AWARD MATERIAL FABRICATION &DELIVERY ; , : RIGHT OF WAY FINAL ROUTE PERMITS SURVEY,LAND ACQUISITION DESIGN AND CONSTRUCTION DESIGN *REVIEW PERIOD DETAIL ENGINEERING BID EVALUATION,AWARD MOBILIZATION CONSTRUCTION NOTE: *CUMULATIVE TJME FOR REVIEW ons §=ORIGINAL CONSTRUCTION SCHEDULE ..ALASKA POWER AUTHORITY :i N - c7a7z7777m3-S-_«ACCELERATED CONSTRUCTION SCHEDULE A CHORAGE-FAIRBANKS INTERTIE LIAR ZA,encineceRING COMPANY .APRIL 1987 PROJECT SCHEDULE Substation construction contracts can be issued either on an individual basis or on a logical combination of sites.The project schedule can be accelerated by initiating several activ-ities concurrently.This acceleration will permit limited con- struction and site preparation to begin by July 1988.However, the period required for land acquisition will determine when construction can actually be initiated.Instead of three or four contracts,substation construction contracts can further be issued on separate tasks,such as site grading,foundation and concrete work,and equipment installation.This arrangement will permit smaller specialized firms to bid the work.Addi- tional contracts will,however,generate more administrative coordination for APA. Construction at Douglas,Cantwell,and Healy will take place in existing energized substations.Work at these sites will require special procedures and make it necessary to deener-gize,for short periods,either sections of the substation'ortheexistingintertie.Therefore,a detailed coordinated con- struction schedule for these sites is essential to minimize existing intertie line outages and for safety purposes.Fair- banks and Lake Lorraine Substations are new facilities.The contractor will not have to contend with energized circuits during construction at these two locations. Individual procurement contracts can be issued for the major pieces of equipment.These contracts should be issued as soon as possible.Early receipt of equipment data is necessary to complete the substation design and prepare construction docu- ments. VII-12 Chapter VIII SUMMARY AND RECOMMENDATIONS Recommended Plan It is recommended that the Power Authority and Utilities proceed with final route selection,permitting,ROW acquistions and engineering design for the Lake Lorraine -Douglas and Healy -Fairbanks 345 kV transmission lines.In conjunction with the new transmission lines,it is recommended that existing substa- tions at Healy,Cantwell and Douglas be expanded to provide345kVbussesandotherapparatus,and that new substation sites be established at Lake Lorraine and Fairbanks, The Fairbanks,Healy,Cantwell and Douglas substations should include new step down transformers. To provide voltage regulation at light load,reduce switch- ing surges,and during line switching operations,it is recom- mended that high voltage shunt reactors be installed at Fairbanks,Healy,Cantwell and Douglas. The existing Douglas -Healy transmission line will be changed from 138 kV operation to the recommended high voltage. The extended Anchorage -Fairbanks intertie consisting of single circuit 345 kV transmission line and substations shouldbeoperatedat230kV.230 kV operation will be sufficientuntilmajornewloadsareaddedorifamajorgeneratingplant is proposed for connection to the intertie.In this event,an engineering economic analysis should be carried out to determineif345kvoperationisjustified. Microwave communication facilities should be provided for use in conjunction with protective relaying,SCADA and voice communications. Static Var systems should be installed at Fairbanks,Healy, and Douglas._ Consideration should be given to the possible elimination. of a high voltage bus at Douglas.In its place,a shunt reactor station would be located in the region north of Talkeetna.This will result in a 345 kv line with three sections,each with a length of approximately 100 miles.Line switching and chargingoperationswillbelessdifficult,and shunt reactor require- ments will be more uniform,and may be reduced with this con- figuration. VIII-1 Optimization studies should be carried out to determine theinitialsizeofofstaticvarsysteminstallations.These stud- ies should also determine basic response time and gain constantsforthestaticvarcontrollers. Insulation coordination and switching surge studies should be carried out.'These studies will establish insulation and equipment design characteristics for substation equipment. Additional Studies Regulatory/Permitting Requirements The principal required permits for the North Study Area North and South Alternative Routes and for the South Study Area route between Douglas and Lake Lorraine are shown in Table 18. Capsule descriptions of each permit or authorization are given below. Of the permits listed in Table 18 the following appear to be the most important: °Coastal Zone certificate of Consistency (AOMB) fe)Water Quality Section 401 Certification (ADEC) fe)Anadromous Fish Protection and Other Title 16 Permits (ADFG) °Right-of-Way Easements and Leases (ADNR) °Right-of-Way Grouts,Easements,Leases (BLM) fe)Discharge of Dredged or Fill Materials Section 404 Permit (Corps) Of the federal actions that will be necessary for the Intertie Upgrade,the 404 Permit is the action with the highest potential for a finding of significance that could lead to prep-aration of an Environmental Impact Statement.The right-of-way routes,easements,or leases from ADNR and BLM will require a survey of the right-of-way before applications can be submitted.The Coastal Zone Certificate,Title 16 Permits,and 401 Certifi- cation are all subject to rather extensive review procedures. Except for those permits and authorizations requiringright-of-way survey data,preparation and submittal of permitapplicationscanandshouldbeginatthesametimedetailed design studies begin. VIII-2 €-IIIAAgency Table 18 PRINCIPAL REQUIRED PERMITS Permit/Authorization North Study Area North Route North Study Area South Route Sheet 1 of 2 South Study Area State of Alaska Alaska Office of Manage- ment and Budget Alaska Dept.of Environ- mental Conservation Alaska Dept.of Fish and Game Alaska Dept.of Labor Alaska Dept.of Natural Resources Alaska Dept.of Transporta- tion and Public Facilities Federal Bureau of Land Management Coastal Management Program Certificate of Consistency and Coastal Project Questionnaire Air Quality Permit to Operate Air Quality Permit to Open Burn Water Quality Certification (Clean Water Act Section 401) Solid Waste Disposal Permit Food Service Permit Wastewater Disposal Permit Anadromous Fish Protection Permits (Title 16) Other Title 16 Authorizations Prevention of Accidents and Health Hazards-Inspections Cultural Resources Plans and Approvals Land Use Permit (state lands) Right-of-Way Fasements and Leases (state lands) Material Sale Permit Permit to Burn Utility Permit (on state ROW) Right-of-Way Grant,FLPMA Ease- ment/Lease Temporary Use Permit 1/C=needed during construction 2/C/M =needed during construction and/or maintenance 3/CC =needed for construction camp 4/ =ESA =existing significant area Yes Yes Yes No No BLeTqeL y-IIIAAgency Table 18 PRINCIPAL REQUIRED PERMITS (Cont'd) Permit/Authorization North Study Area North Route North Study Area Sheet 2 of 2 South Study Area Federal (cont'd) Bureau of Land Management (Cont'd) Corps of Engineers u.S.Fish and Wildlife Service National Marine Fisheries Service Federal Aviation Adminis- tration U.S.Environmental Protection Agency Federal CommunicationsCommission Other Native Corporations Borough and City Governments Private Landowners ooFree Use Permit for Gravel Cultural Resources Approvals Discharge of Dredged or Fill Materials (Clean Water Act Section 404) Structures or Work in or Affecting Navigable Waters {Section 10 Rivers and Harbors Act) Fish and Wildlife Coordination Act-Project Review Bald Eagle Protection Act Per- mit Fish and Wildlife Coordination Act-Project Review Structures which may Interfere with Airplane Flight Paths - Notice of Proposed Construction or Alteration National Pollutant Discharge Elimination System (Clean Water Act Section 402) Oil Storage Facilities -oil Spill Prevention,Containment and Countermeasure Plans (SPCC) Radio Licenses and Permits to Operate Land Use Permits and Easements zoning Ordinances,Land Use Approvals,Public Meeting Requirements Right-of-way Agreements/Ease- ments Yes See Text Yes Yes Yes Yes South Route See Text Yes(?) Yes No No Yes Yes Yes See Text Yes Yes penutyuop8lLeTqQeLYes Yes North Study Area North Route vs South Route Based on the information available for this report,the regulatory differences of note between the North and South routes are: °The North Route passes through designated archeologi-cal study areas that receive special attention from the State Historic Preservation Officer (SHPO), whereas the South Route does not. fe)The South Route passes through more military land than the North Route does. fe)The North Route passes through more private land than does the South Route.Depending on the number of owners,acquisition of right-of-way could take longer than for state or federal non-military land. fe)The North Route passes near nine airfields (two mili- tary),whereas the South Route only passes near three (none military). Overall,there does not appear to be significant difference between the routes with regard to regulatory and permitting matters.Both routes would probably take about the same length of time for permitting,although right-of-way acquisition would probably take longer for the North Route because of the larger amounts of private land. South Study Area The types of permits and authorizations required for the South Study Area are generally the same as for the North Study Area,except that it appears no BLM approvals will be necessary for the South Study Area.It should also be noted that a small parcel of Native land just north of Lorraine could easily be avoided by rerouting that segment,thus avoiding the need for any Native Corporation land use permits or easements. Coastal Management Program Certificate of Consistency andCoastalProjectQuestionnaire(AOMB) Required for projects affecting Alaska's coastal zone. Since part of the project (the South Study Area)is within the defined coastal zone,the entire project,including the North Study Area,will require this authorization. vITII-5 vPono= ed Air Quality Permit to Operate (ADEC) Required for operation of point source types of facilitiessuchasbatchplants.May be required for construction. Air Quality Permit to Open Burn (ADEC) Will be required if burning of vegetation is used as a method of clearing or maintaining the right-of-way. Water Quality Certification (ADEC) Will be required for the project as a whole and in conjunc- tion with major federal permits (Corps 404,for example). Solid Waste Disposal Permit,Food Service Permit,Waste- water Disposal Permit (ADEC) Would be required during construction if construction campsareused,. Anadromous Fish Protection Permits (ADFG) Required for activities taking place in or adjacent to streams supporting salmon or other anadromous fish species. Other Title 16 Authorizations (ADFG) Required for activities (culvert placement,for example) that may affect streams supporting fish. Prevention of Accidents and Health Hazards (ADOL) Construction operations and any construction camps would be inspected periodically by Alaska Department of Labor. Cultural Resources Plans and Approvals (ADNR) Routinely required for protection of archeological andhistoricalresources.However,the North Study Area North Route as shown on the route maps passes directly through areas justnorthofHealydesignatedbySHPOasespeciallysignificant.Cultural resource approvals could be difficult to obtain for any line routed through these areas. VIII-6 xi)Land Use Permits and Right-of-Way Easements/Leases (ADNR) State land use permits will be required to conduct con- struction activities on state land.Easements or leases will be required for those portions of the transmission line right-of- way located on state land. Material Sale Permit (ADNR) If construction materials include materials (gravel,for example)to be obtained from state lands,this permit will be required. Permit to Burn (ADNR) Will be required if burning of vegetation is used as a method of clearing or maintaining the right-of-way. Utility Permit (ADOTPF) Required for transmission line on or crossing a state right-of-way,incuding state highway and Alaska Railroad rights- of-way. ) Right-of-Way Grant,FLPMA Easements/Lanses (BLM) Required for right-of-way on federal lands managed by BLM. Includes military land,for which BLM must request letter of non-objection from the appropriate military authorities. Temporary Use Permit (BLM) Required for temporary activities on federal lands managed by BLM,including construction and construction access. Free Use Permit for Gravel (BLM) Required if gravel or other soil material to be used in construction is obtained from federal lands managed by BLM. Cultural Resources Approvals (BLM) Clearance is required before placing structures or mainten- ance roads or for transmission line right-of-way on federal lands. VIII-7 Discharge of Dredged or Fill Materials -Clean Water ActSection404(COE) Required for discharges of dredged or fill materials into waters of the United States,including wetlands.Some of the line segments may be permittable under the COE's nationwide permit program. Section 10 Rivers and Harbors Act (COE) Construction of any structure in or over any navigable water of the United States,or dredge and fill activities that might affect navigability in such waters,require a Section 10 permit. Fish and Wildlife Coordination Act -Project Review (USFWS and NMFS) Any project requiring federal action,including the grant- ing of major permits such as the COE Section 404.or BLM's right- of-way easements,grants,and leases,is subject to U.S.Fish and Wildlife Service review and,where anadromous fish could be affected,National Marine Fisheries Service review. Bald Eagle Protection Act Permit (USFWS) Bald Eagle Protection Act permits are ordinarily granted for the taking of eagles or interference with nests only for strictly scientific purposes.Some segments of the routes in the Northern Study Area would pass close enough to known eaglenestingsitestocomeunderUSFWSguidelinesandpotentially require eagle permits.Such conflicts should be considered as routing criteria (that is,reroute the segment to avoid eagle nests)rather than as regulatory matters,since it is unlikely USFWS would grant eagle permits for the project. Structures Which May Interfere with Airplane Flight Paths (FAA) FAA must be advised of any proposed construction or altera- tion of structures that may interfere with airplane flightpaths.The North Study Area North Route passes within one mileofnineairfields,two of them military (Clear MEWS Base andFortWainwright).The North Study Area South Route passes with-in one mile of three airfields,none of them military.The © South Study Area route does not appear to pass close to any established airfields,but it does pass near several lakes large enough to accomodate float planes.FAA has advised that radarreflectionofftransmissiontowersfromaircraftapproaching airfields is also of concern. VIII-8 ote&National Pollutant Discharge Elimination System -Clean Water Act Section 402 (USEPA) Required for point source discharges,such as treated water effluent from sanitary treatment facilities at construction camps,or dewatering of sediment ponds.May be required for construction. Spill Prevention Containment and Countermeasures Plan (ADEC and USEPA) For storage facilities for petroleum,oil,and lubricants, including construction site facilities,a plan is required that specifies procedures for spill prevention,containment,and countermeasures.The plan must be available on-site for inspec- tion by ADEC and USEPA. Radio Licenses and Permits to Operate (FCC) Required to operate broadcasting and receiving stations. May be required for construction, Native Corporation Land Use Permits and Easements Required for transmission line construction and right-of- way crossing regional and village corporation lands. Borough and Municipal Zoning Ordinances and Land Use Approvals Required for rights-of-way crossing borough or municipal lands.Often requires public meetings. Private Landowners Right-of-Way Agreements and Easements Required for crossing private lands. Engineering Studies Additional engineering studies will be required as part ofdetailedsystemdesignengineering.These include studies to establish: Switching surge control Sizing of surge arrestersSVSandShuntreactorrefinement studies SVS control loop gain and time constantsSwitchingandlineenergizingoperating conditions Unbalanced fault studies VIII-9 Aerial survey for plan and profile Soil borings and testing TNA for Insulation coordination and switching surge studies RI and TVI measurements A fault of uncertain activity between Healy and Lignite should be investigated. Soils To select and detail design the most economical type of foundation for a specific tower location,soil conditions at that site must be known.Because of local conditions and perma- frost occurrence in Healy -Fairbanks section a extensive soilinvestigationprogramshouldbeconsideredtogetthisneeded information.Soil borings will be performed to define the type of soil present and its strength in resisting the forces of the tower.The cost of a soil boring program is always small com- pared to the possible increase in the line cost if foundation designs are not adequate.It is intended that geotechnicalexplorationanddesignservicesnecessarywillbecompleted in two phases: Preliminary Investigation Phase.In this phase,test bor- ing and geophysical survey locations will be selected using existing subsurface data.A limited number of boring locations will be initially selected to verify the terrain units along the transmission line corridors as well as at some critical points like proposed line terminations,river crossings and PI (angle) points. Detailed Investigation Phase.Based on data from prelimi- nary investigation phase additional borings will be selected to provide specific design information and detailed data for ter- rain unit maping.Borings will average depth of 35 to 50 feet and drilling for geologic logging and sampling will be carried out.In addition,geophysical surveys will verify permafrost conditions at selected locations established by the Mapping and Boring Programs.Eventually for a detailed geotechnical report, a comprehensive laboratory testing program will be performed using field samples.This report will show graphic logs of borings,boring location plans,subsurface profiles,and define foundation design criteria. Environmental Studies Additional environmental studies will consist of those items required for the acquisition of required permits and right-of-way easements and those items required for establishingfinaldesigncriteriaandroutealignments.The major component VIII-10 (Aq)EL 1.INTRODUCTION -= af Ra bey aap The purpose of this document is to review the feasibility of two 138 kV intertie projects:one between Soldotna and Anchorage,the other between Healy and Fairbanks.These projects are identified in Ch.208,Sec.159,SLA 1990,which appropriated $100 million plus interest earnings to a Railbelt intertie reserve.This is intended to comply with the project review requirements contained in AS 44.83.181. 1.1 OBJECTIVE 1.2 BACKGROUND The Railbelt Intertie Reconnaissance Study was completed by the Alaska Energy Authority (the "Authority")and approved by the Office of Management and Budget in 1989.Among the projects evaluated,three are of particular relevance to this feasibility study: 1)construction of a new 230 kV transmission line between Soldotna and Anchorage; 2)full upgrade of the Anchorage-Fairbanks intertie,including a new 345 kV line between Healy and Fairbanks plus a new 345 kV line south of Willow; 3)limited upgrade of the Anchorage-Fairbanks intertie consisting only of electrical equipment to allow a limited increase in transfer capacity over the existing line. For each of these intertie projects,the reconnaissance study provides preliminary engineering and design,environmental impact analysis,and construction cost estimates.Also provided are fuel price forecasts,electricity demand forecasts,and economic evaluation of each project.Among the conclusions of the economic analysis were the following: 1)The proposed 230 kV intertie between Soldotna and Anchorage and the proposed full upgrade of the Anchorage-Fairbanks intertie to 345 kV are not economically feasible;i.e.projected costs exceed estimated benefits for both projects. 2)The limited upgrade of the Anchorage-Fairbanks intertie is economically |feasible. As these findings emerged,the Railbelt electric utilities proposed two scaled-downintertiealternativesthathadthepotentialtocapturemostofthebenefitsoftheTargetProjectsbutatreducedcost.These scaled-down alternatives are the subject ofthisfeasibilitystudyandaredescribedasfollows: 1-1 1)A new intertie between Soldotna and Anchorage constructed at 138 kV(instead of 230 kV as initially proposed); 2)Upgrade of the Anchorage-Fairbanks intertie consisting of a new 138 kV line between Healy and Fairbanks,plus electrical equipment needed for increased transfer capability. The Railbelt utilities then sponsored an economic analysis of the scaled-down alternatives,which concluded that both proposals are economically feasible.This analysis was adopted as an addendum to the Railbelt Intertie Reconnaissance Study by the Authority Board of Directors in February 1990.Appendix A contains a complete list of volumes included in the reconnaissance study. 13 FEASIBILITY STUDY OVERVIEW Essentially all of the information required for a feasibility study is also needed to produce a reconnaissance study,specifically: .preliminary engineering and design of proposed projects; .capital and operating costs of proposed projects; .environmental impact analysis; .other parameters needed for economic assessment including fuel price forecasts,electricity demand forecasts,and discount rate; :benefit/cost analysis. The approach adopted here is to use information developed for the reconnaissance study as much as possible,supplementing where necessary within time and funding constraints.The main subjects of the feasibility study are covered as follows: Engineering and Design This category includes specification of physical design,route selection and right-of- way,and definition of project capability.In other words,the purpose of this section is to describe what the project is,where it is intended to go (including associated right-of-way issues),and what effect it is expected to have in the areas of power transfer capability and transmission losses. For the southern line (ie.between Soldotna and Anchorage),most of the information for this section is drawn from prior studies.For the northern line (i.e. the Anchorage-Fairbanks upgrade that includes a new Healy-Fairbanks line), additional work has been performed for this feasibility study to better define the electrical equipment required for the upgrade and the impact of the upgrade on power transfer capability. Capital and Operating Costs Cost estimates were developed in the reconnaissance study for the southern 230 kV line and for the northern 345 kV upgrade,and were subsequently adjusted as the project definition evolved.A capital cost estimate for the scaled-down alternatives was most recently prepared by the Authority in February 1990.However,a cost estimate from an independent source must also be prepared according to the project review requirements in AS 44.83.185.This has now been completed and represents the most recent and thorough cost estimate available regarding the scaled-down alternatives.As a result,the independent estimate of construction cost is presented in this feasibility study and is recommended for project planning. Projected operating and maintenance costs have been reviewed by Authority staff and re-estimated for this study. Environmental Impact Analysis All of this section is taken directly from the reconnaissance study. Economic Parameters Fuel price forecasts,electricity demand forecasts,and discount rate are also taken directly from the reconnaissance study. Project Benefits There was substantial investment during the reconnaissance study in the attempt to quantify the benefits of these transmission projects,and there was substantial debate about the results as well.Much of the benefit for these projects falls into categories where quantification is difficult:e.g.improved reliability,improved system coordination,removal of certain operating constraints,increased access to Bradley Lake spinning reserve.An attempt could be made to sharpen these benefit estimates if funds were committed for additional system modeling and analysis.However, funds for more economic studies have not been made available;and even with additional studies,a clear resolution of these issues might not be achieved. The basic approach of this document is to present and discuss the benefit assessments included in the reconnaissance study,supplemented by comments subsequently made by outside observers regarding the overall adequacy of the Railbelt transmission system.This discussion provides the basis for the Authority's conclusions on project feasibility. 1-3 iaei1.4 CONCLUSIONS The estimated project costs are as follows: ESTIMATED PROJECT COSTS (Millions of January 1991 Dollars) Annual Present Value Construction O&M of TotalCostCost*Cost Soldotna-Anchorage 138 kV $75.1 $0.3 $81.5 (Enstar"route) Soldotna-Anchorage 138 kV $84.1 $0.4 $91.5 ("Tesoro”"route) Healy-Fairbanks 138 kV $77.6 $0.2 $80.9 (incl.SVS additions) a Represents levelized annual cost.Annual O&M costs are expected to increase over time,as described in Chapter 3. b Includes present value of O&M costs for 40 years for the Soldotna- Anchorage line,and for 50 years for the Healy-Fairbanks line. The expected value of benefits previously developed for the Soldotna-Anchoragelinerangesfrom$63.9 million to $125.5 million in January 1991 dollars!This implies a benefit-cost ratio for the "Enstar"route ranging from .8 to 1.5;and for the "Tesoro"route ranging from .7 to 1.4.The expected value of benefits previously developed for the Healy-Fairbanks line (including electrical equipment)is $108.2millioninJanuary1991dollars,which implies a benefit-cost ratio of 1.3. As discussed in Chapter 6,the ranges of these estimates are due in large part to the nature of the benefits that the studies attempt to quantify.The Authority has not adopted or rejected any specific benefit estimate or numerical benefit-cost ratio. Overall,however,the Authority's conclusion is that the life-cycle benefits for each project will exceed project costs based on the following considerations: 1 Based on 1990 dollar estimates presented in Chapter 6,escalated by 2.25%to convert to January 1991 dollars for consistency with project costs. If $29.6 million in additional benefits due to reconstruction of the existing line were included,the benefit-cost ratio would increase to 1.7.These benefits are discussed on pages 6-17 and 6-18. 2 it¢For the Soldotna-Anchorage line,benefit-cost ratios above and below 1.0 have been estimated in a context of uncertainty.These ratios are based on a corresponding range of benefit estimates.In view of the arguments presented,the assumption adopted here is that the value of quantified benefits will fall somewhere between the upper and lower estimates that have been developed. In addition,an overall perspective on transmission system adequacy must be factored in to the judgment on the merits of the proposed intertie.As reported in Chapter 6,the North American Electric Reliability Council (NERC)has stated the following: "The existing single line transmission [interconnection]between the Kenai Peninsula and the Anchorage Bowl ...pose[s]a significantly higher than traditional reliability risk for system-wide blackouts due to single contingency outages...In terms of traditional reliability criteria, the proposed Soldotna-[Anchorage]138 kV transmission line ...is necessary to help improve the reliability of electric supply to the Kenai Peninsula,the Anchorage Bowl,and the Fairbanks area." Also reported in Chapter 6 are remarks prepared by Power Technologies, Inc.(PTI),technical consultant to the Authority on transmission issues: "At 75 MW export,the Kenai-Anchorage tie operation goes beyond the Railbelt practice of lean system design.Nowhere in the Railbelt is so much resource so critically dependent on stability aids and a single line...A new line from the Kenai area to Anchorage would provide Kenai-Anchorage interconnection reliability at least on a par with most of the remainder of the Railbelt system.” Beyond the quantified benefit estimates,then,these observations make it clear that a second line between the Kenai Peninsula and Anchorage is necessary to meet prevailing industry standards of transmission reliability. The economic studies summarized above combined with these observations are the basis for the Authority's conclusion that life-cycle benefits of the proposed Soldotna-Anchorage intertie will exceed project costs. For the Healy-Fairbanks transmission proposal,the benefit estimatedevelopedearliersuggestsasubstantialexcessofbenefitsovercosts.As discussed in Chapter 6,alternative assumptions are possible (such as treatment of the "North Pole operating constraint")that could reduce the benefit estimate.There are also compensating factors not considered in the analysis (such as continued Fairbanks accessto power from the south duringreconstructionoftheexistingline)that could increase the benefit estimate. After review of these competing arguments,the Authority's conclusion is that the overall benefit-cost ratio reported above is a reasonable indicator of project economics,and that any net downward adjustment that might result 1-5 Mk:wilfrom further analysis is unlikely to reverse the favorable outcome of theassessment.) An alternative framework for evaluating the project is to consider the electrical equipment as a separable first stage of the upgrade,and to then assess whether the incremental benefits of a new Healy-Fairbanks line exceed the incremental costs of the line.The analysis to date suggests that the incremental benefit-cost ratio for the line itself is close to 1.0.However,there are factors in addition to those considered in the prior analysis that would produce a more clearly favorable outcome: a.As noted above and in Chapter 6,there will be a program of reconstruction of the existing Healy-Fairbanks line that would be expected to cause extensive interruption of power flow to Fairbanks from the south.Construction of a second line as proposed would produce significant savings by allowing reconstruction of the existing line without power flow interruption. b.Again,an overall perspective on transmission system adequacy is provided by NERC and PTI.The NERC conclusion is as follows: "The proposed Healy-[Fairbanks}138 kV transmission line is needed for the reliability of electric supply to the Fairbanks area...[B]ased on traditional planning criteria,the tie is required to assure an adequate source-to-load path from Healy to the Fairbanks area.In fact,under.traditional reliability criteria,a second transmission line between the Anchorage Bowl and the Fairbanks area would likely be required..." PTI adds the following comment on Fairbanks reliability assuming a new 50 MW coal-fired power plant is constructed at Healy as presently planned: "New generation at Healy combined with a new line between Healy and Fairbanks may raise reliability of electrical service in the Fairbanks area nearly to that presently available in the Anchorage area.With a second line between Healy and Fairbanks,and a system design that will withstand loss of a 50 MW unit at Healy or [loss of]a line from Healy to Fairbanks, blackouts in the Fairbanks area should be far less frequent than at present." The quantified results of the prior benefit assessment combined with these important perspectives form the basis for the Authority's conclusion that life- cycle benefits will exceed project costs for the overall Healy-Fairbanks project (including electrical equipment)and for the Healy-Fairbanks line itself. * ind As discussed above,the transfer limit for normal operation can be increased in the future for the two-line case,but is unlikely to be increased for the single-line case. 2.5.2 Northern Line --Impact on Transfer Capability and Transmission Losses The reconnaissance study reported that Fairbanks can receive about 62 MW over the existing Anchorage-Fairbanks intertie when 70 MW is input from Anchorage, assuming the existing 25 MW Healy coal plant is in operation at the time.This is consistent with existing operating practice;however,operation of the intertie at these limits exceeds the stability criteria adopted for this study.In other words,the stability limit for transfers over the existing transmission system is lower than the 70 MW transfers that presently occur.There are events ("single contingencies")that could occur that would result in system instability when transfers are at 70 MW. According to PTI,the maximum amount of Anchorage power that could presently be brought into Healy without exceeding stability limits is about 54 MW under specific, favorable conditions.(After losses,the delivery into Fairbanks would be somewhat less than that.)This could be considered the "secure"transfer limit.The "emergency”limit for transfers into Healy under favorable conditions is estimated at 77 MW.In the absence of a new Healy coal plant,the proposed upgrade would allow an estimated 94 MW to be brought into Healy from Anchorage within "secure" stability limits,and up to 127 MW within the "emergency"limit.These figures are presented in Table 2.4 below: TABLE 2.4 MAXIMUM TRANSFER OF ANCHORAGE POWER INTO HEALY With Upgrade Without Upgrade Normal Operation 94 MW 54 MW Emergency Operation 127 MW 77 MW Note:Assumes no new Healy coal plant;existing plant on-line. Because the scenarios in Table 2.4 assume that the existing 25 MW coal-fired power plant at Healy is operating at full output,the amount of power flowing north out of Healy is 25 MW higher than the figures shown above.Table 2.5 displays the maximum flow of power out of Healy by making this 25 MW adjustment: 2-13 "i Mi4ufiTABLE 2.5 MAXIMUM FLOW OF POWER NORTH OUT OF HEALY With Upgrade Without Upgrade Normal Operation 119 MW 79 MW Emergency Operation 152 MW 102 MW Note:Assumes no new Healy coal plant;existing plant on-line. The SVS component of the upgrade is primarily responsible for increasing the stability limit for transfers between Anchorage and Fairbanks.As discussed in the reconnaissance study,an "equipment only"upgrade would be possible that would,by itself,provide a useful increment of increased transfer capability.A second line between Healy and Fairbanks would have the following additional impacts: :;won:-x 79 L.Substantial reduction in transmission losses between Healy and Fairbanks.-== .Modest additional increase in transfer capability between Anchorage and Fairbanks. .Significantly increased reliability. Table 2.6 shows the impact of the new line on transmission losses between Healy and Fairbanks for selected levels of power flowing north out of Healy: TABLE 2.6 IMPACT OF A SECOND LINE ON TRANSMISSION LOSSES BETWEEN HEALY AND FAIRBANKS Healy-Fairbanks Transmission Losses (MW) Power Flow North Out of Healy (MW)With Second Line Without Second Line 50 8 1.8 70 1.5 3.5 90 2.4 6.2 110 3.6 9.3 130 5.2 13.4 150 69 18.7 2-14 inca If a new 50 MW coal-fired power plant is built at Healy,a significant amount of additional SVS capacity will be needed simply to operate the Healy coal facilities at full capacity and stay within stability criteria adopted for this study.This is due primarily to the need to maintain stability for sudden loss of the new 50 MW Healy unit.The impact of a second line in the context of a new Healy coal plant will be consistent with the above discussion on transmission losses,but will be especially pronounced in the area of reliability.These issues are further discussed in Chapter 6, "Project Benefits." 2-15 Northern Line (Including SVS Additions) Link 1 26.00 Miles Steel X-Structures $11,682,101 Link 2 29.50 Miles Steel X-Structures $12,721,443 =Link 3 27.00 Miles Steel X-Structures $11,487,410 Link 4 12.50 Miles Steel X-Structures $7,950,747 . Link 5 5.50 Miles Steel X-Structures $2,384,193 =Healy Substation $406,350 .Wainwright Substation $406,850 .Subtotal $47,039,094 Right-of-Way $460,000 _Design 4%$1,881,564 Construction Mgmt 4%$1,881,564 _Subtotal 1 $51,262,222 _Healy SVS $4,904,000 Wainwright SVS $3,200,000 =Teeland SVS $10,322,000 - , Subtotal 2 $18,426,000 "Contingency 10%(Sub1&2)$6,968,822 "Utility Admin 1%(Sub1&2)$696,882 _ AEA Admin $250,000 rs Estimated Total $77,603,926 "3.2 OPERATING COST ESTIMATES -This category is intended to cover costs for both operations and maintenance of the proposed projects (i.e."O&M costs").These annual costs were estimated in the earlier studies by applying a percentage factor ranging from 5%to 1.5%to theesprojectcapitalcost.This "rule of thumb"method can be misleading especially when, as in this case,the project provides a second circuit between two areas that are already interconnected.While additional maintenance costs will be incurred for the ci second line,there may be little or no increase in system operating costs. 3.2.2 Southern Line:"Tesoro"Route Inspection Repair & and Replacement:SubmarineRoutineOverheadCable Years Maintenance Line Replacement Total 1-5 $55,000 0 0 $55,000 6-30 $70,000 $50,000 0 $120,000 31-40 $70,000 $50,000 $2,600,000 $2,720,000 All estimates are the same as described above for the "Enstar"route,except that the submarine cable replacement cost is higher due to the longer submarine crossing for the "Tesoro"route.The 1991 dollar estimated replacement cost for submarine cable on the Tesoro route is $42.9 million. 3.2.3 Northern Line Inspection Repair&=Major and Replacement:ElectricalRoutineOverheadEquipmentYearsMaintenanceLineInsurance 'Total 1-5 $60,000 0 $50,000 $110,000 6-50 $85,000 $50,000 $50,000 $185,000 The explanations for these estimates are comparable to those above except that: 1)Submarine cable is not part of the northern line,and 2)Although insurance is not purchased for facilities such as transmission towers or conductor,it would be purchased for major electrical equipment to be installed as part of the northern project,specifically the SVSs. 3-5 ooME-LA analysis is whether these benefits are sufficient to compensate for the cost of building and maintaining the new line.As noted earlier,a considerable range of quantifiedbenefitestimateshavebeendeveloped:some imply a favorable benefit/cost outcome and others imply an unfavorable outcome.It may therefore be necessary togobeyondthequantitativedebatetojudgewhethertheprojectrepresentsa worthwhile investment.An important perspective is provided in the following excerpt written by Power Technologies,Inc.in their 1989 study on Kenai power export limits: "At 75 MW export,the Kenai-Anchorage tie operation goes beyond the Railbelt practice of lean system design.Nowhere in the Railbelt is so much resource so critically dependent on stability aids and a single line...A newlinefromtheKenaiareatoAnchoragewouldprovideKenai-Anchorage interconnection reliability at least on a par with most of the remainder of the Railbelt system.It would be a step ahead of the present Anchorage- Fairbanks interconnection design.The great length of the two lines would prevent the interconnection from being classified as a strong interconnection,but it would be less "lean"than the present Anchorage- Fairbanks intertie and closer to a par with most of the remainder of the Anchorage area and the Kenai area (once the second line from Soldotna to Fritz Creek is operational)." These remarks are consistent with views of the North American Electric Reliability Council (NERC)discussed earlier.The implication is that a second Kenai- Anchorage line would be considered an essential element of a well-designed transmission network according to prevailing industry standards. 6.2 BENEFITS OF HEALY-FAIRBANKS LINE The Initial DFI_Report investigated several alternatives for upgrading the transmission system between Anchorage and Fairbanks but did not evaluate the .Healy-Fairbanks 138 kV proposal that was subsequently developed.The only benefit estimate that was specifically prepared for this project is presented in the 138 kV_DFI Report.As a result,the analysis in the 138 kV Report will be the focus of consideration in the sections below. The expected value of total benefit presented in the 138 kV Report is $105.8 million in 1990 dollars.Again,this expected value is distilled from a range of cases:the lowest reported case is $83 million and the highest reported case is $127 million. This is a relatively narrow range compared with the Kenai-Anchorage analysis,and the variation shown is mostly attributable to alternative load forecast assumptions. The largest category of benefit depends on the substitution of gas-fired energy from the Anchorage area for oil-fired energy in the Fairbanks area.The value of this substitution depends on the price differential between the two fuels and on the amount of substitution that occurs.While the spread in price between gas and oil does not vary widely in the analysis,the amount of substitution does vary widely and 6-11 - (pceis dependent on the Fairbanks load forecast assumptions.Other significantcategoriesofbenefitreportedbyDFIarereliabilityandgenerationcapacitysharing. There are two alternative approaches to framing the project assessment,both ofwhicharepresentedinthe138kVReport.One approach is to evaluate the entire proposal,including both the SVS additions and the new intertie between Healy and Fairbanks,as a single project with an overall cost and benefit estimate associated with it.The $105.8 million benefit estimate noted above is based on this overall project definition.Another approach is to consider the SVS additions and the Healy- Fairbanks intertie as separable projects.Viewed in this way,the SVS additions alone result in a certain level of costs and benefits,and the Healy-Fairbanks intertie then adds an increment of cost and an increment of benefit.Because the SVS additions alone appear to be cost-effective,some attention has been focused on whether the incremental benefits of the proposed Healy-Fairbanks transmission line exceed its incremental costs.In the 138 kV Report,DFI estimated that the incremental benefits of the Healy-Fairbanks line are $59.9 million,which implied an incremental benefit/cost ratio of 1.1.Discussion of incremental benefits is included in the sections below. 6.2.1 Reliability Benefits The estimate of reliability value for the proposed upgrade presented in the 138 kV Report is $11.5 million.Of this amount,$5 million is achieved with the SVS additions alone and $6.5 million is due to the addition of a second Healy-Fairbanks transmission line. The reliability benefit attributed to the SVS additions is based on the idea that the duration of certain outages in southcentral Alaska can be reduced as a result of theincreasedtransmissioncapabilitybetweenAnchorageandFairbanksthatthenew equipment provides.If Fairbanks can send more of its surplus generation to the southcentral area during certain emergencies,then outage hours among southcentral customers can be reduced.An additional factor not considered in the DFI report is that the SVS additions will substantially improve stability,and that a consequence of improved stability should be a reduction in the extent of outages in the Fairbanks area as well.System disruptions that can presently cause a blackout in the Fairbanks area may result in more limited outages due to the improved stability provided by the SVS additions. The reliability benefit attributed to the second Healy-Fairbanks transmission line is based on an earlier estimate of the savings that would result from a second complete circuit between Anchorage and Fairbanks.Because the distance from Healy toFairbanksisroughlyone-third of the distance between Anchorage and Fairbanks, the Healy-Fairbanks line would provide roughly one-third of the transmission redundancy that a second complete circuit from Anchorage to Fairbanks wouldprovide.On this basis,DFI estimated that the new Healy-Fairbanks line would provide one-third of the reliability value of a second Anchorage-Fairbanks line.This is consistent with the assumption that one-third of the transmission failures between 6-12 ood#8Anchorage and Fairbanks occur on the section of line between Healy and Fairbanks, and that line failures on that section would no longer produce outages due totransmissionredundancy. The DFI analysis was based on the assumption that the only generation located at Healy would be the existing 25 MW coal-fired power plant.However,if a new 50MWcoal-fired power plant is added at Healy as presently planned,then the overall improvement in reliability could be very significant if a second Healy-Fairbanks line were added as well.As stated by Power Technologies,Inc.in their recent screening study: "New generation at Healy combined with a new line between Healy and Fairbanks may raise reliability of electrical service in the Fairbanks area nearly to that presently available in the Anchorage area.With a second line between Healy and Fairbanks,and a system design that will withstand loss of a 50 MW unit at Healy or [loss of]a line from Healy to Fairbanks, blackouts in the Fairbanks area should be far less frequent than at present.” A system design in which most of the on-line generation supplying the Fairbanks area is connected to the load center over two transmission lines clearly represents a major reliability improvement over a design in which most of Fairbanks'power requirements are generated much further away (i.e.in the Anchorage area)and transported over a single line. 6.2.2 Economy Energy Benefits:Substitution of Gas for Oil The economy energy benefit for the proposed upgrade presented in the 138 kV DFI Report is $76.9 million.Of this amount,$31.8 million is estimated from the SVS additions alone and $45.1 million is attributed to the addition of a second Healy- Fairbanks transmission line.Natural gas-fired generation from the Cook Inlet area is less expensive than oil-fired generation in the Fairbanks area because the price of Cook Inlet gas delivered to the local market has historically been lower than the price of oil,and is expected to remain lower throughout the planning period.By increasing transfer capability between Anchorage and Fairbanks and by reducing transmission losses,the proposed upgrade allows more benefit to be realized from the substitution of gas-fired energy from the Anchorage area for oil-fired energy in the Fairbanks area. The estimated impact of the proposed upgrade on transmission losses used for the 138 kV_Report is comparable to the reduction in losses shown in Chapter 2 of this report,Table 2.6.Regarding transfer capability,the 138 kV Report assumed that the SVS additions alone would increase the maximum level of output that could be delivered from Anchorage to Fairbanks from 62 MW to 84 MW.For the defined upgrade including both the SVS additions and the new Healy-Fairbanks transmission line,the 138 kV Report looked at two scenarios for the maximum level of Fairbanks import:99 MW in one case and 112 MW in the other case.Given the load forecast 6-13 aed ee] assumptions on which the DFI analysis was based,the benefit estimate was almost identical for the two cases.Although raising the maximum level of Fairbanks import of Anchorage energy to 99 MW produced substantial benefits,further increasing themaximumimportlevelfrom99MWto112MWdidnotproduceasignificantdifferenceintheDFIbenefitassessment. Overall,then,the DFI analysis concluded that $31.8 million in benefit would be realized from the SVS additions by increasing the maximum import level of Anchorage energy into Fairbanks from 62 MW to 84 MW.It also concluded that an additional $45.1 million in benefit would be realized from the new Healy-Fairbanks transmission line by further increasing the maximum import level from 84 MW to 99 MW and by reducing transmission losses across the full range of energy transfer levels. The recent PTI report referenced in Chapter 2 included a stability analysis of theupgradealternatives,and yielded a set of stability limits for Anchorage-Fairbanks transfers that are somewhat lower across the board than DFI assumed in the 138 kV Report.Table 6.1 shows a comparison of maximum transfer levels drawn from the DFI report with those that emerge from the recent PTI analysis.These are estimates of the maximum level of Anchorage energy that can be delivered north of Healy to serve Fairbanks area loads,assuming that the existing 25 MW Healy coal plant is operating at full output. TABLE 6.1 MAXIMUM DELIVERY OF ANCHORAGE ENERGY .TO SERVE FAIRBANKS AREA LOADS 138 kV Dec.1990, DFIReport PTIReport Present level 62 MW 49 MW With SVS additions only 84 MW '80 MW SVS plus new Healy-Fairbanks line 99 MW 90 MW *.°.These represent stability limits for normal operation. Several observations are apparent from this table: °As noted in Chapter 2,the present level of energy import into Fairbanks oftenexceedsthestabilitylimitfornormaloperationrecentlyestimatedbyPTT. 6-14 ore ev rodlnate The SVS additions will have a greater impact on raising the stability limit than previously assumed,but the maximum import level will remain slightly below the 84 MW modeled by DFT. The new Healy-Fairbanks transmission line will further increase the maximum import level by about 10 MW rather than the 15 MW assumed for the DFI incremental benefit estimate.Although smaller than DFI assumed, this increment of transfer capacity occurs at a slightly lower loading level which would tend to increase its value. These revisions by themselves (i.e.with all other assumptions held constant)would be expected to have the following impacts on the economy energy benefit estimates presented in the 138 kV DFI Report: If Fairbanks were assumed to adjust its energy imports to stay within the recently estimated stability limits,then the benefit of the SVS additions would be substantially more than previously estimated by DFI.Further,if Fairbanks were assumed to exceed the stability limit by a comparable margin with and without the SVS additions,then the benefit estimate for those additions would still be substantially more than previously estimated. The increase in economy energy benefit produced by the Healy-Fairbanks transmission line appears to be somewhat less than previously estimated, since the line appears to add about 10 MW to the stability limit for Fairbanks imports rather than the 15 MW modeled by DFI.On the other hand,this does not imply a full one-third reduction in the incremental economy energy benefit for the following reasons: a)As noted above,almost no benefit resulted from increasing the maximum import level from 99 MW to 112 MW in the earlier DFI analysis.Although the maximum import level implied by the PTI report is about 90 MW assuming both the SVS additions and the new line,it is not clear how much value is lost by foregoing imports between 90 MW and 99 MW. b)Also as noted above,the 10 MW increment in transfer capacity occurs at a lower loading level than the previous assumption of 15 MW. c)A significant part of the economy energy benefit of the new line is due to its impact on transmission losses throughout the range of possible transfer levels rather than its impact on maximum transfer capacity. The revisions by themselves should not have a major effect on the magnitude of economy energy savings for the upgrade estimated by DFI,in view of their mixed effects as described above and also in view of the approximate nature of these estimates and benefit calculations overall. 6-15 Benefits from increased economy energy and reduced transmission losses should be roughly similar whether or not a new 50 MW coal-fired power plant is constructed at Healy.The new plant would not reduce the amount of energy flowing between Healy and Fairbanks;therefore,the transmission loss savings attributable to the new Healy-Fairbanks transmission line would be of similar magnitude.As noted earlier, some level of SVS addition will be necessary simply to operate 75 MW of Healy capacity at full output and stay within stability criteria.Further upgrade would be necessary to allow transfers from Anchorage in addition to Healy output.In the context of a new Healy coal plant,the proposed upgrade would allow the transfer of roughly 55 MW of Anchorage energy into the Fairbanks area to supplement the 75 MW available from Healy.As in the case without the new Healy plant,this increment of transfer capacity would allow Fairbanks to avoid the costs of oil-fired generation that would otherwise be needed to meet full power requirements. 6.2.3 Capacity Sharing Benefits The capacity sharing benefit of the proposed upgrade presented in the 138 kV Report is $17.3 million.Of this amount,$9.0 million is estimated from the SVS additions alone and $8.3 million is attributed to the addition of a second Healy- Fairbanks transmission line.Consistent with the analysis of the Kenai-Anchorage line,these benefits are estimated for both capacity deferral and capacity avoidance. For the proposed northern upgrade,however,nearly all of the benefit is estimated in the category of capacity avoidance ($16 million of the $17.3 million total).As described earlier,the concept of capacity avoidance benefits is that generation reliability is improved sufficiently by the transmission project to allow a reduction in the capacity reserve margin.Generation reliability is improved by increasing th amount of generation that is accessible to the load centers via transmission facilities. A reduction in the capacity reserve margin translates into a lower requirement for future plant additions. 6.2.4 Benefit Summary:Healy-Fairbanks Line Roughly 75%of the total benefits estimated by DFI for the northern upgrade (including both the SVS additions and the new Healy-Fairbanks line),and 75%of the incremental benefits of the Healy-Fairbanks transmission line are in the category of "economy energy,"i.e.increased substitution of gas-fired for oil-fired energy and reduced transmission losses.As described above,the estimated impact on transfer capability has been refined since the 138 kV_DFI Report was prepared,though it does not appear that these revisions would have a major impact on the benefit estimates.Other uncertainties inevitably surround the issue: .The economy energy benefit is highly sensitive to the Fairbanks load forecast: as loads grow,benefits of additional transfer capacity increase.As presented in Chapter 5,the Fairbanks load forecast used for the DFI study anticipates slow growth in the Mid case averaging 1.2%per year.Possible developments 6-16 vail such as the proposed Fort Knox gold mine could result in significantly higherloadgrowth. .The analysis assumes that a significant price differential between fuel oil inFairbanksandCookInletnaturalgasinAnchoragewillpersistformanyyearsintothefuture.However,one analysis prepared for the Alaska EnergyAuthorityin1988suggestedthatCookInletgaspricescouldrisesubstantially perhaps 20 years from now assuming depletion of supplies and a corresponding increase in the cost of production,which could substantially reduce the oil/gas price differential.On the other hand,that analysis is based on one estimate of the total gas resource that may exist in the Cook Inlet area, and may be considered as much an illustration as a prediction of what could happen to long-term Cook Inlet gas prices.It is possible that the gas-oil price differential could increase in the long run depending on future resource discoveries and markets.Overall,the long-term price differential is a significant uncertainty in the analysis. .A significant share of the economy energy benefit is based on the present use of a 60 MW oil-fired combustion turbine at North Pole to meet Fairbanks peak demand when transfers over the intertie are insufficient.Because the unit is relatively inefficient when operated at low output,a minimum loading of about 40 MW is presently observed.When intertie transfers are found insufficient to meet load requirements,a North Pole unit is often brought on- line at 40 MW and intertie transfers are scaled back accordingly.The necessity to scale back intertie transfers substantially whenever a North Pole unit is brought on-line results in a significant lost opportunity to benefit from the relatively low cost of gas-fired generation.The benefit analysis implicitly assumes that this necessity to scale back intertie transfers during peak consumption periods due to the 40 MW minimum loading of a North Pole unit will not be solved or mitigated in the future in some other way.This too, then,constitutes an area of uncertainty in the analysis. Overall,the DFI analysis concludes that the project (including both the SVS additions and the new Healy-Fairbanks line)is cost-effective.It further concludes that the benefit/cost ratio for the SVS additions alone is higher than the incremental benefit/cost ratio for the new Healy-Fairbanks transmission line,though both are above 1.0.This suggests that the sources of uncertainty in the analysis have a higher potential to affect the feasibility outcome for the new transmission line than for the SVS additions,and that the feasibility of the line itself is therefore subject to greater uncertainty.There is,however,a significant additional benefit of a new Healy- Fairbanks line not considered in the DFI analysis. The existing Healy-Fairbanks line was constructed in 1967 and will therefore be 30 years old soon after the proposed new line is completed.A phased program of line reconstruction over a five year period is anticipated by Golden Valley Electric Association (GVEA),the owner of the existing line.Sections of the line will be out of service for an estimated 7 months per year between April and October during the reconstruction program,which will prevent Fairbanks from importing gas-fired 6-17 -- energy from Anchorage.Installation of a second line as proposed would allow forcontinuedsupplyofAnchoragepowertothenorthduringreconstruction.GVEAestimatesthatthecostofisolationfromAnchorageoverthese7monthswouldbeat least $7.7 million per year.By allowing Anchorage and Fairbanks to remainconnectedduringreconstructionoftheexistingline,the new line would eliminate this anticipated cost.The present value of this additional benefit would be about $29.6 million. As in the case of the proposed Kenai-Anchorage line,there are considerations beyond the quantitative debate that bear on the feasibility judgment for a new Healy- Fairbanks line.As discussed earlier under the heading of reliability,a system design involving two lines between Healy and Fairbanks would be particularly effective in the event that a new 50 MW coal-fired power plant is built at Healy.Even if the new50MWplantisnotbuilt,the representatives from the North American ElectricReliabilityCouncil(NERC)maintain that a second line to Healy would be a necessary,though not sufficient,step towards compliance with prevailing industry standards.From the overview in the NERC report attached in Appendix B: "The proposed Healy-[Fairbanks]138 kV transmission line is needed for the reliability of electric supply to the Fairbanks area.It provides a second transmission path from Healy to the Fairbanks area for both Healy generation capacity and capacity purchases from the Anchorage area (and the Kenai Peninsula)...[B]ased on traditional planning criteria,the tie is required to assure an adequate source-to-load path from Healy to the Fairbanks area. In fact,under traditional reliability criteria,a second transmission line between the Anchorage Bowl and the Fairbanks area would likely berequired..." If a new Healy coal plant is constructed as planned but a new Healy- Fairbanks intertie is not approved,it is expected that reconstruction of the existing line would begin sooner in order to complete the job before the new coal plant comes on-line.If a new intertie is approved,reconstruction of the existing line would be deferred until the new line is completed. 6-18 DE DT 1967 Decision Focus Incorporated aweET Eee Preliminary schedules for permitting and construction suggest that completion of the intertie should not be expected prior to 1994,regardless of the route,assuming the project were approved by the 1989 Legislature. 2.2 FULL UPGRADE OF THE EXISTING ANCHORAGE-FAIRBANKS INTERTIE The preliminary design and cost estimate for this proposal was developed by Harza Engineering Company.Presently,the transmission link between the Wasilla area and Fairbanks consists of three segments: 1.Wasilla to Willow-138 KV line owned by Matanuska Electric Association. 2.Willow to Healy-345 KV line owned by the Alaska Power Authority (APA).The line is presently operated at 138 KV, consistent with voltages at either end. /3.Healy to Fairbanks-138 KV line owned by Golden Valley ElectricAssociation(GVEA). The full upgrade proposal consists primarily of new 345 KV line construction between Willow and the Chugach Electric Association (CEA)transmission system south of Wasilla,and new construction between Healy and Fairbanks.(Existing segments would be supplemented,not replaced,by the new line construction.)This revised link between Anchorage and Fairbanks would initially be operated at 230.KV,raising the transfer capability from the present level of 70 MW to 225 MW. The capital cost of this upgrade is estimated at $118.2 million in 1987 dollars. The additional operations and maintenance cost of the intertie following this upgrade is estimated at $900,000 per year,again in 1987 dollars. The main issue with respect to land use involves the new segment from Healy to Fairbanks.The proposed route crosses federal land south of the Tanana River near Fairbanks.Agreement would have to be worked out with the military at Fort Wainwright. Again,preliminary schedules for permitting and construction suggest that completion of the upgrade should not be expected prior to 1994,assuming the project were approved by the 1989 Legislature. RIT76>2-2 DRAFT xAesge Decision Focus Incorporated 23 LIMITED UPGRADE OF THE EXISTING ANCHORAGE-FAIRBANKS INTERTIE This option was developed by Power Technologies,Incorporated (PTI)at the request of APA and represents an alternative that would provide a small but potentially useful increment of transfer capability over the existing intertie.Presently, Fairbanks can receive an estimated 61.6 MW of power over the intertie when 70 MW is input from Anchorage,assuming the existing 25-MW Healy coal plant is in operation at the time.Most of the losses are incurred on the section of the line between Healy and Fairbanks.The limited upgrade alternative would allow Fairbanks to receive an estimated 84.2 MW over the intertie when 100 MW is input from Anchorage.In other words,an additional 30 MW of power input from Anchorage would allow an additional 22.6 MW to be received in Fairbanks. The estimated capital cost of this limited upgrade is $8.8 million in 1988 dollars. Its main components consist of one SVS (static var)unit supplementing the three units now in place on the intertie,one additional transformer,and six series capacitors. The present system does not meet the system performance criteria established for the limited upgrade.In order for the present system to meet the same criteria at 70-MW export from Anchorage,the additional SVS unit and one series capacitor would have to be installed.This implies that system performance under the proposed limited upgrade would be improved relative to system performance today. 2.4 NEW INTERTIE FROM PALMER THROUGH GLENNALLEN TO DELTA JUNCTION (NORTHEAST INTERTIE) The preliminary design and cost estimate for this alternative was developed by Power Engineers,Incorporated.The proposed line would be constructed at 230 KV but operated initially at 138 KV with a transfer capacity of 150 MW.In combination with the existing Anchorage-Fairbanks intertie,the combined transfer capability would therefore be 220 MW,minus whatever intermediate load is served along the Northeast intertie route.For illustration,if the intermediate load served by the intertie in the Glennallen-Valdez area were 10 MW,the combined transfer capability between Anchorage and Fairbanks would be 210 MW. The capital cost of the Northeast intertie is estimated at $155 million in 1988 dollars.Annual operations and maintenance cost is estimated at 1.5 percent of capital cost,or $2.3 million per year. R1776b 2-3 DRAFT Lo)Decision Focus Incorporated Section 4 IMPACT OF PROPOSED INTERTIES ON SYSTEM RELIABILITY 41 OVERVIEW This section analyzes the effects that upgraded or new interties would have on Railbelt service reliability.Reliability is an important attribute of electric power systems,because the value of most power used greatly exceeds its cost.The costs to utilities of customer outages may be relatively small when measured in terms of lost revenues.However,the costs incurred by customers can be large,particularly for certain types of industrial and commercial customers.Upgraded or new interties could affect both the frequency and the duration of customer outages.This section considers the effects on reliability of 1.The new Kenai-Anchorage line. 2.The Anchorage-Fairbanks upgrade. 3.The new Anchorage-Fairbanks Northeast intertie. The assessment of the value of improved system reliability due to new or upgraded transmission lines requires estimates of the intertie impacts on customer outages and the costs of avoided outages.The costs are difficult to calculate and the analysis of potential changes in customer outages in the Railbelt is complicated by the addition of Bradley Lake. Because an in-depth study was not possible within the time constraints of this study,we used the results of recent research on the costs of customer outages compiled by the Electric Power Research Institute (EPRI)and a detailed study performed by Ontario Hydro that we judged to be the most applicable to the Railbelt.We also analyzed historical outages data in the Railbelt and discussed expectations for potential changes in customer outages with the Railbelt utilities,Alaska Power Authority (APA), and Power Technologies,Incorporated (PTI). This section examines historical customer outages in the Railbelt,describes the potential changes in customer outages that would result from the proposed new or RI776b 4-1 DRAFT Decision Focus Incorporated upgraded transmission lines,summarizes the costs of customer outages,and summarizes the value of improved system reliability. 42 ANALYSIS OF HISTORICAL CUSTOMER OUTAGES 4.2.1 Customer Outages To determine the historical level of customer outages in the study area,we collected information on outages in 1986 and 1987 from the eight utilities?that could be affected by one or more of the intertie proposals.Because only outages that could have been eliminated with the implementation of new or upgraded interties were important to this study,transmission-and generation-related outages only were considered.?The information we received from the utilities varied in format and detail considerably.Some utilities reported individual outages down to the feeder level,while others simply summarized the total outage hours per customer per year.Table 4-1 summarizes the form of the data received from each utility.Appendix A includes the detailed outages data. 4.2.2 Customer Unserved Energy Customer unserved energy due to a customer outage is the electric energy that would have been demanded by the customer if the customer was not subject to the outage.The total unserved energy of an outage is the total number of customers affected by the outage multiplied by the average demand per customer and by the duration of the outage.For example,if 2500 customers were without power for one hour and the average demand per customer was 5 kWh/hour,then the total unserved energy would be 2500 customers x 5 kWh/hour x 1 hour =12500 kWh or 12.5 MWh. For outages where different numbers of customers were affected for different amounts of time,the utilities often recorded multiple outages affecting different numbers of customers for different durations.For example,if an outage affects 5000 customers, but half are restored within half an hour and the other half within an hour,the outage would be recorded as one outage for half an hour for 2500 customers and another outage for one hour for the 2500 other customers. 'anchorage Municipal Light and Power (AMLP),Chugach Electric Association (CEA),MatanuskaElectricAssociation(MEA),Homer Electric Association (HEA),Seward Electric System (SES),GoldenValleyElectricAssociation(GVEA),Fairbanks Municipal Utility System (FMUS),and Copper ValleyElectricAssociation(CVEA). "Transmission line outages occur when a transmission line goes down and the receiving area isunabletomeetthenewdemandthroughspinningreserves.Generation-related outages occur when ageneratingunitgoesdown,and demand cannot be met because of insufficient spinning reserves orinadequateaccesstospinningreservesthroughthetransmissionsystem. RIT76b 4-2 DRAFT :83th Decision Focus Incorporated Table 4-1 FORM OF UTILITY DATA ON CUSTOMER OUTAGES Utility How Outages Were Reported AMLP Date,time,duration,cause,location,and number of customers affected for each outage. CEA Total unserved energy per customer from REA Form 7 (Chugach detailed outage information was not available at the time of the survey). MEA Date,time,duration,cause,location,and number of customers affected for each outage. HEA ©Date,time,duration,cause,location,and number of customers affected for each outage.- SES Date and average outage time of transmission line outages only. FMUS Date,time,duration,cause,location,feeder,and type of feeder demand for each feeder. GVEA Outage hours per customer from REA Form 7,along with breakdowns of outages by duration for five years (1983 to 1987). CVEA Outage hours per customer from REA Form 7 for six years (1982 to 1987). Customer demand varies by the time of day and by the time of year.For example,load is typically higher in the winter than in the summer,and load is higher during the workday than during the weekend.Thus the average demand was modified to reflect the time of the outage by dividing the year into two time periods:peak and off-peak.Peak hours were defined as the highest half demand hours of the year,and off-peak hours were defined as the lowest half demand hours of the year.A peak-to- -off-peak ratio was then determined for each utility,and a corresponding weight was applied to each outage's average customer demand depending upon whether an outage occurred during the peak or off-peak period.In addition,using the residential demand for each utility [1]and [2],we determined the load splits between residential and industrial/commercial customers.This information was used to determine the unserved energy breakdowns by customer type and proved useful later in evaluating customer outage costs.Table 4-2 shows the average demand per customer,the off-peak-to-peak- load ratios,and the residential and industrial/commercial load fractions for each utility. R1T76b 4-3 DRAFT Decision Focus Incorporated Table 4-2 DEMAND BY UTILITY AND RESIDENTIAL-INDUSTRIAL/COMMERCIAL SPLIT (1986) Average Total Number Demand/Resid'al Demand (Fraction)Off-Peak- Demand of Customer Demand'to-Peak Utility (MWh/yr)Customer (kWh/hr)(MWh/yr)Resid'al Ind/Comm Ratio AMLP 817217 30311 3.08 178375 0.22 0.78 0.72 CEA 918322 61222 1.71 478040 0.52 0.48 0.74 MEA 418656 27725 1.72 272746 0.65 0.35 0.61 HEA 397024 16914 2.68 139903 0.35 0.65 0.78 SES 33315 1626 2.34 11873 0.36 0.64 0.75 CVEA 43570 2310 2.15 11750 0.27 0.73 0.75 GVEA 451716 26053 1.98 181389 0.40 0.60 0.74 EMUS 145865 6334 2.63 26554 0.18 0.82 0.74 Total 3225685 172495 1300630 0.40 0.60 Utility Outages.Evaluating the unserved energy by utility,we found that most of the utilities had outage hours ranging from a little more than four hours per customer | per year,to less than one hour per customer per year.SES was somewhat unusual. SES exceeded all other utilities in terms of outage hours (10.3 hours/customer/year)and unserved energy (24.2 kWh/customer/year).Since SES imports all of its power from CEA,mostly via the existing Anchorage-Kenai line (University-Daves Creek),whenever that line or SES's link to it goes down,all the SES customers are without power until either the transmission line is restored or the SES can get its diesel generators on-line, which takes 15 to 45 minutes.Among the other utilities,MEA,which also buys all of its power from CEA,had the next largest outages with 4.4 outage hours per customer per year and 7.5 kWh of unserved energy per customer per year.CEA had the next largest outages with approximately 2.7 outage hours per customer per year although AMLP had more unserved energy (7.1 kWh/customer/year versus 4.7 kWh/customer/ year at CEA)due to its much greater fraction of industrial/commercial load?The Copper Valley area (CVEA)and the Fairbanks area have the lowest outage hours (and unserved energy)per customer.Figure 4-1 shows the total outage hours per customer by utility for the survey period,Figure 4-2 shows the corresponding total unserved energy per customer by utility,and Figure 4-3 shows the split of unserved energy by utility. 578%of load at AMLP compared to 48%of load at CEA. RIT76b 4-4 DRAFT $4 9) t oor- °o& ie) ree) <t n o3 (oJ Decision Focus Incorporated MEA 208.8MWh 22% AMLP 216.4MWh 23% HEA : 95.1MWh 10% Hs a -<" \A/ SES {39.3MWh 4%fFMUS 27.3MWh 3% GVEA yy76.8MWh 8%=VgCVEAee"CEA4.5MWh 0%LL -_286.9MWh 30% Total Railbett Unserved Energy=95SMWh/yr Figure 4-3.Distribution of Railbelt Unserved Energy by Utility (1986/87 Average) Area Outages.The Railbelt averaged 955 MWh of unserved energy over the survey period (see Table 4-3).This came to approximately 2.6 outage hours per customer per year and about 5.5 kWh of unserved energy per customer per year.Residential customers experienced approximately 44 percent of the unserved energy.Anchorage and Kenai experienced the greatest number of outage hours per customer:2.91 and 2.71 hours per customer,respectively;corresponding to 6.12 and 6.23 kWh of unserved energy per customer per year.Fairbanks and Copper Valley experienced the lowest outages per customer:1.53 and 0.91 outage hours per customer,respectively; corresponding to 3.21 and 1.95 kWh of unserved energy per customer.Most of the total unserved energy (69 percent)was in Anchorage;Kenai had 20 percent and Fairbanks had the other 11 percent;Copper Valley had less than 1 percent.Figure 4-4 illustrates customer total outage hours by area,Figure 4-5 shows customer unserved energy by area,and Figure 4-6 shows the unserved energy split by area. RI776b 4-6 DRAFT eee RAY4TBukDecision Focus Incorporated Table 4-3 SUMMARY OF OUTAGE HOURS AND UNSERVED ENERGY FOR THE RAILBELT Average 1986 1987 1986/87 Outage Hours per Customer 3.37 1.82 2.59 Unserved Energy (kWh per customer)7.19 3.89 5.54 Unserved Energy (MWh)1239.79 670.36 955.07 Outage Hours per Customer per year 3 = 2 1 * 0 - ** ; Anchorage Kenai Peninsula Fairbanks Copper Valley AREA Figure 4-4.Outage Hours of Railbelt Areas (1986/87 Average) R776 4-7 DRAFT Decision Focus Incorporated Unserved Energy (kWh/Customer/yr)_-25 Yy Yy Anchorage Kenai Peninsula Fairbanks Copper Valley AREANN Figure 4-5.Unserved Energy of Railbelt Areas (1986/87 Averages) Anchorage 654.7MWh 68.5% >Copper Valley 4.5MWh 0.5% ff Fairbanks 104.1MWh 10.9% poasns Kenai Peninsula 191.8MWh 20.1% Total Unserved Energy =955 MWh/Yr Figure 4-6.Distribution of Unserved Energy by Area (1986/87 Average) R1776b 4-8 DRAFT fat ItikiDecision Focus Incorporated Duration of Outages.Most of the unserved energy in Anchorage and Kenai results from outages longer than one hour (81 and 62 percent,respectively);in Fairbanks,most of the unserved energy occurs in outages of less than 20 minutes (around 60 percent); in Copper Valley,all outages have short duration (less than 20 minutes).The breakdown of outage duration is shown by area in Figure 4-7 and by utility in Figure 4-8. 4.2.3.Causes of Outages At a meeting with representatives from the Railbelt utilities,we presented this data and discussed the major causes of the recorded customer outages.The utilities identified natural causes (wind,birds,storms,avalanches,and small animals),faulty equipment,and other (airplanes and operator error)as the major causes of transmission-related outages;and improper reserves coordination,faulty equipment,and human error as the major causes of generation-related outages. Most of the outages in Kenai and Anchorage are transmission-line related,|primarily due to natural causes.Chugach for example,reported that 9 out of 10 outages were due to transmission line failure.However in Fairbanks,the outages are estimated to be almost equally split between generation and transmission failures. 4.33 POTENTIAL CHANGES IN CUSTOMER OUTAGES The analysis of potential changes in customer outages due to potential upgrade and/or construction of new interties in the Railbelt is complicated by the addition of Bradley Lake.The integration of Bradley Lake in the system will change the pattern of system operations,particularly in the southern Railbelt,and will often produce a reversal in the direction of power flow between Anchorage and the Kenai Peninsula. We reviewed the historical outages data with the utilities and discussed realistic expectations for potential changes in customer outages.We also met with PTI (Power Technologies,Incorporated)and discussed system stability and reliability issues. These discussions also shed light on the potential impacts of Bradley Lake (without any new interties or upgrades)on customer outages in the Kenai Peninsula and in Anchorage.This was important primarily for the analysis of the impacts of the proposed new Kenai-Anchorage intertie. "December 20,1988,with AMLP,CEA,MEA,HEA,and GVEA represented. RI776b 4-9 DRAFT Decision Focus Incorporated % 100 80 dn evens 5 te eseeutatenate ©po teetaee 2 cna t eee es ebOee Oren eestor user OND SOFC Corot a oar er eneeote esoce:ccosaee a ==:nnosanne BO bo BEBE co neces eee EEE reece fl BD ccccccceces cnceeeee fh Bi cccccceccueenneens Y20+9p .Uj a 0 N VLA --s"Jha 1 Anchorage Kenai Peninsula Fairbanks Copper Valley AREA Duration of Outage E=I 0-20 minutes 20 minutes-1 hr FA 1-4hours >4 hours (1986/87 Avg) Figure 4-7.Railbelt Areas Unserved Energy by Outage Duration (1986/87 Average) % 100 80 60 40 20 TooToo:ISSCCSSSSSSRERECESTORESEemeAMLP MEA HEA SES FMUS GVEA CVEA CEAUtility Duration of Outage HE 0-20 minutes 20 minutes-thr FE}1-4 hours >4 hours (1986/87 Avg) Figure 4-8.Railbelt Utilities Unserved Energy by Outage Duration R1776b 4-10 DRAFT bas ny Decision Focus Incorporated Next,we present our analysis of the potential changes in customer outages for each of the three proposed interties separately.We present the impacts of each intertie for each of the three areas,Kenai,Anchorage and Fairbanks.® 4.3.1 Kenai-Anchorage New Intertie The Kenai-Anchorage new intertie would impact customer outages in the Railbelt,primarily in Kenai and Anchorage.*These impacts depend on the direction of power flow between the two areas.The results of the production simulation modeling indicate that,after Bradley Lake comes on-line,the Kenai Peninsula will be an exporter of power to the north approximately 40 percent of the time and will be an importer of power from the north approximately 60 percent of the time.These estimates are used in the reliability analysis below. Kenai Outages.Historically,the customer outages on the Kenai Peninsula have been caused primarily by failures of the existing Kenai-Anchorage transmission line.”The major issue discussed below is the extent to which such failures will cause customer outages in the future after Bradley Lake is on-line,with and without the proposed new intertie. Kenai Export.The addition of Bradley Lake will result in exports from the Kenai Peninsula to the north for significant blocks of time.If the existing line fails when such exports are taking place,the question is whether Kenai Peninsula generation (primarily Bradley Lake)can scale back efficiently enough to keep the disturbance from causing an outage on the Kenai Peninsula. PTI has modeled the Railbelt generation and transmission system extensively for APA during the course of this intertie analysis,with particular attention to the system response anticipated for major transmission failures.Special focus was placed on the characteristics and response of Bradley Lake and the Kenai Peninsula system. According to PTI,there should be relatively few customer outages on the Kenai Peninsula when the existing Kenai-Anchorage line fails,if power is being exported from The analysis of the Northeast intertie includes four areas where we add the Valdez-Glennallen area. *In this outages analysis,we assumed that either of the routes proposed for the new Kenai-Anchorageintertie(i.e.,Tesoro or Enstar)would have the same impacts on system reliability. "Note again that all reference to customer outages in this analysis refers exclusively to generationandtransmissionrelatedoutages;i.e.,only those outages that might be affected by transmissionimprovements.No outages related to the distribution system are included.Further,the discussion in thissectionexcludesconsiderationofalloutagesinSeward. Ri776b 4-11 DRAFT Decision Focus Incorporated the Kenai Peninsula.The estimate offered by PTI is that,under Kenai export conditions,we may expect that 20 percent of the failures of the existing Kenai- Anchorage line will produce customer outages on the Kenai Peninsula (assuming no new intertie).For the other 80 percent of those line failures,Kenai Peninsula generation will adjust to the disturbance such that Kenai Peninsula outages are avoided.Given this estimate,the new intertie would be expected to eliminate the remaining outages occurring for 20 percent of the existing line failures. Representatives of Railbelt utilities have expressed a lack of confidence in this estimate.They have maintained that less effectiveness should be credited to Bradley Lake for this type of disturbance and more should be credited to the new intertie.® Because the issue depends on judgmental estimates,we assume that the response of Bradley Lake and other Kenai generation will result in avoidance of potential outages on the Kenai Peninsula for 60 percent of these events.The new intertie is therefore credited with avoiding the remaining 40 percent.For the "high”case,we assume that the response of Bradley Lake and other Kenai generation will result in avoidance of 20 percent of these potential outages.The new intertie in this case is therefore credited with avoiding the remaining 80 percent. Kenai Import.If the existing line fails while power is being imported from the north to the Kenai Peninsula,an outage would be expected to occur on the Kenai Peninsula unless spinning reserves were available to supply the Kenai load immediately upon loss of power supply from the north.As discussed in Section 7, Bradley Lake could be considered to supply spinning reserve,but is not fast enough to prevent an outage from occurring if power were suddenly cut off from the Kenai Peninsula upon trip of the transmission line from Anchorage.We therefore assume for this analysis that all failures of the existing Kenai-Anchorage line (under Kenai import conditions)would produce an outage on the Kenai Peninsula in the absence of the proposed new line.However,we further assume that the "spinning reserve"benefit of Bradley Lake will be effective in reducing the duration of these outages by half relative to their length in preceding years.° 5CEA suggested that "the analysis should assume a base case of 40 percent [rather than 80 percent]."Letter from Gerald M.Mackey to Salim J.Jabbour,March 20,1989. "Most of the Railbelt generating units can pick up additional load immediately up to each unit'sindividualcapacity.In other words,if a 60-MW gas-fired combustion turbine is operating at 40 MW,itcanincreaseitsoutputto60MWimmediatelyifcalledfor.It therefore is providing 20 MW of spinningreserve.The "spinning reserve”available at Bradley Lake is much slower.Although power output can bereducedfromtheprojectveryquickly,it can be increased only at a maximum rate of about 1.2 MW persecond(0.6 MW per second per unit)according to Stone &Webster.However,even at 0.6 MW per secondoutputcouldbeincreasedbyupto36MWinoneminute.In addition,it is expected that Bradley Lakecouldbebroughton-line from a cold start in less than five minutes,again according to Stone &Webster.This is faster than could be accomplished with a combustion turbine. R1776b 4-12 DRAFT mrs M Decision Focus Incorporated Other Transmission Related Outages.Most of the transmission related outages on the Kenai Peninsula have been caused by failure of the existing line between University substation in Anchorage and Daves Creek on the Kenai Peninsula. A small proportion of transmission-related outages are traceable to other locations.The proposed new line may reduce or eliminate the incidence of outages due to these other events.On the other hand,the new line would itself create additional exposure to transmission-related disturbances.We assume here that the impacts described above dominate the reliability issue,and the net result of these other impacts is of much less consequence. Anchorage Outages.The proposed new Kenai-Anchorage line would improve Anchorage reliability if failure of the existing line would otherwise cause Anchorage outages.The issue is whether and to what extent failures of the existing Kenai- Anchorage line would be expected to cause outages in Anchorage in the future.As with the Kenai analysis,this expectation depends on the direction of power flow between Anchorage and the Kenai Peninsula. Anchorage Export.When Anchorage is exporting power to the Kenai Peninsula,as it does currently,failures of the existing transmission line should not cause an outage in Anchorage.Anchorage area generation is expected to scale back quickly when the Kenai Peninsula load is cut off. Anchorage Import.When Anchorage imports power from the Kenai Peninsula, the extent of outages due to failure of the existing transmission line will depend on three main factors:(1)the number of times that the existing line fails during Anchorage import conditions,(2)the amount of power being transferred from the Kenai Peninsula to Anchorage at the time of the line failure,and (3)the amount of spinning reserves accessible to the Anchorage area at the time of the line failure.We address the three factors separately. 1.Information from Chugach Electric indicates that a number of corrective measures have recently been implemented to reduce the number of failures on the existing Kenai-Anchorage line.After adjusting the history of failures on that line during the past five years to remove those that should no longer occur due to these improvements,the average number of failures that would have resulted in outages is three per year over that time period (3]. Because we estimate that Anchorage will be importing from the Kenai Peninsula approximately 40 percent of the time based on the production simulation results,the average number of line failures that would be expected under Anchorage import conditions is 1.2 per year. R1776b 4-13 DRAFT Decision Focus Incorporated 2.The physical characteristics of the current transmission link between Anchorage and the Kenai Peninsula limit imports into Anchorage to approximately 60 MW."°We assume for this analysis that the line will be fully loaded at 60 MW at the time of the line failure. 3.Anchorage utilities presently carry spinning reserves in excess of 60 MW,though some of this may be carried on the Kenai Peninsula.In the post-Bradley Lake period,we assume that some spinning reserve is accessible in the Anchorage area but not enough to pick up the entire supply requirement upon loss of the line. For the "low"case,we assume one outage per year of one hour duration limited to 30 MW due to the availability of some spinning reserve in Anchorage.For the "high”case,we assume two outages per year of one hour duration,again limited to 30 MW each due to available spinning reserve." Fairbanks Outages.The Kenai-Anchorage new intertie would impact customer outages in Fairbanks only indirectly.In this analysis,we assumed that the benefits of the Kenai-Anchorage new intertie would be limited to the Kenai-Anchorage area;i.e., there would be no impacts on customer outages in Fairbanks. 4.3.2 Anchorage-Fairbanks Intertie Upgrade The Anchorage-Fairbanks intertie upgrade would have minor impacts on customer outages in the Railbelt. Kenai Outages.Based on our conversations with the utilities,we assumed that the Anchorage-Fairbanks intertie upgrade would have no impact on customer outages in Kenai. Transfer limits will depend on the extent of reconductoring performed by Chugach and on thestabilityaidsaddedtothesystem.Our analysis has assumed a 75-MW limit at the sending node on theKenaiPeninsulaandroughlya60-MW limit at the receiving node in Anchorage. "These outage magnitudes can be expressed as 30 MWh of unserved energy in the low case,and60MWhofunservedenergyinthehighcase. RIT76b 4-14 DRAFT iLho: MGDecision Focus Incorporated Anchorage Outages.The Anchorage-Fairbanks intertie upgrade would have little impact on customer outages in Anchorage.However,according to our conversation with MEA,around 10 percent of MEA's unserved energy could be avoided. Fairbanks Outages.According to our conversations with GVEA,the Anchorage- Fairbanks upgrade would have no impacts on customer outages in Fairbanks. 4.3.3 Anchorage-Fairbanks Northeast Intertie The Anchorage-Fairbanks Northeast intertie would impact customer outages in the Railbelt,primarily in Fairbanks and the Valdez-Glennallen areas. Kenai Outages.Based on our conversations with the utilities,we assumed that the Anchorage-Fairbanks Northeast intertie would have no impact on customer outages in _ Kenai. Anchorage Outages.The Anchorage-Fairbanks northeast intertie would have little impact on customer outages in Anchorage.However,according to our conversation with MEA,the Northeast intertie would help reduce the duration of customer outages around 50 percent of the time.It is therefore estimated that around 25 percent of MEA's unserved energy could be avoided. Fairbanks Outages.According to estimates provided by GVEA,the Anchorage- Fairbanks Northeast intertie would have no impacts on generation-related outages in Fairbanks,but it would have saved eight out of the ten (80 percent)and nine out of the fifteen (60 percent)transmission-related outages in 1986 and 1987,respectively, because it provides a redundant path for imports from Anchorage.'*?We assumed that the Anchorage-Fairbanks Northeast intertie would save 70 percent of the transmission- related customer outages in Fairbanks.Since around half of the outages in Fairbanks are generation-related,we estimated that the Anchorage-Fairbanks intertie would save 35 percent of the customer outages in Fairbanks. "The existing line has 70 MW of capacity.The NE intertie would have 150 MW of capacity.Outages on the existing line would be fully backed up.Outages on the NE line would be backed up onlywhentransfersareat70MWorbelow. R1T76b 4-15 'DRAFT Decision Focus Incorporated Copper Valley Outages.Because of the small fraction of unserved energy in this area (less than one-half percent of the Railbelt unserved energy,refer to Figure 4-3) and because the Anchorage-Fairbanks Northeast intertie would link this electrically isolated area to the Railbelt system,we assumed that all of the Copper Valley outages would be avoided. 4.3.4 Summary Table 4-4 summarizes the potential impacts of the proposed interties on Railbeltcustomersunservedenergy. 44 COSTS OF CUSTOMER OUTAGES The costs to customers of unexpected outages has been studied in great depth using numerous different methods [4].Customers suffer damages from outages through lost production,equipment damage,increased labor costs,lost leisure time,and in several other ways.If service reliability is poor enough,they may be prompted to buy emergency backup sources like batteries or generators,or in drastic cases,to leave the utility's service area. 4.4.1 Basic Elements of Outage Costs There are two ways to determine customer outage costs:one can try to measure the actual losses that a customer sustained during an outage,or one can measure how much a customer would be willing to pay to avoid an outage.Since people do not always act rationally,the two are not always the same.We use studies from Sanghvi {5}and Ontario Hydro [6]that utilize the two different methods.Because outages at different times,of different lengths,to different people,incur different costs,it is most accurate to model costs as a function of the most important attributes.According to the literature [6,7],the two most important attributes are duration and type ofcustomeraffected. The duration,or how long an outage lasts,is important because as duration increases,total costs increase.The longer the outage,the more expensive it is. Typically,customers prefer a single long outage to several short outages totalling the same amount of time.As a result,outage costs per unit of energy go down with time.® 13In some cases this does not hold,for example,a grocery's freezer may maintain food for four hours,but beyond this,it starts to spoil. R1776b 4-16 DRAFT nd UyAE|Decision Focus Incorporated R1776> Table 4-4 SUMMARY OF UNSERVED ENERGY REDUCTION BY INTERTIE Area Kenai Anchorage Fairbanks Copper Valley Area Kenai Anchorage Fairbanks Copper Valley Based on 40%of unserved energy the time)and 50%of unserved (60%of the time). Based on 80%of unserved energy the time)and 50%of unserved (60%of the time). Based on one 1l-hour/30 MW outage saved. Based on two l-hour/30 MW outages saved. New Kenai-Anchorage Low 46%of all unserved energy saved*(except SES outages) 30 MWh of* unserved energy saved 0 0 Upgraded Anchorage- Fairbanks 0 10%of MEA's unserved energy 0 4-17 High 62%of all unserved energy saved”(except SES outages) 60 MWh of un- served energy saved' Northeast Intertie (Anchorage- Fairbanks) 0 25%of MEA's unserved energy 35%of all unserved energy saved 100%of all unserved energy saved saved when Kenai exports (40%of energy saved when Kenai imports saved when Kenai exports (40%of energy saved when Kenai imports DRAFT Decision Focus Incorporated Outage costs also vary significantly by customer type.Expensive machinery may be damaged by an outage for large industrial customers,or a retailer may see his/her shop emptied when the lights go out,but residential customers might only have to defer recreational or household activities.Usually studies group the customers into three groups:residential,commercial,and industrial.However,the Ontario Hydro study has shown that there are significant differences within the industrial and commercial customer classes and so those two groups are further subdivided.In the next subsection,we outline costs by each of these customer types and delve in more detail into the differences between these groups. 4.4.2 Customer Outage Costs Because an in-depth study was not possible within the time constraint of this study,we have applied the results of past studies in this analysis.We focused on the Ontario Hydro work because it is most applicable to the Railbelt,and we used other studies [5,6]as needed. Residential Customers.During an outage,a household's preferred consumption pattern is disrupted.Some activities must be postponed until the power resumes,while others may be foregone altogether.More significantly,residential heating systems may be interrupted during cold weather.It is clear that the residential customers get at least as much value from the electricity they purchase as they pay for it,otherwise they would not purchase it.However,measuring the consumer surplus above and beyond the purchase price is difficult.Some studies have estimated the cost of unserved energy as the value of lost leisure,since it is what the household member could have earned had they chosen to go to work.Other studies have utilized the concept of consumer surplus and created a consumer demand function to compute it. After doing an exhaustive survey of the available studies,Sanghvi has estimated that the costs to customers of inconvenience and lost leisure and their willingness to pay to avoid such interruptions is in the range of $0.07 to $2.00 per kWh (1987 dollars). Because of the impact of outages-on residential heating systems in Alaska,we selected the upper boundary for use in this analysis,i.e.,$2.00 per kWh. Industrial Customers.During an outage,industrial customers suffer damages resulting from lost opportunity costs that are more easily measured and greater than the costs sustained by residential customers.Because industrial customers incur process restart costs,studies (Ontario Hydro and Sanghvi)have shown that they suffer very high initial outage costs.For longer outages,idle resource costs tend to dominate, although some of the lost production may be made up by working longer hours or by utilizing excess capacity.Industrial customers also suffer damages to equipment and R1776b 4-18 DRAFT Ves an Loge#4qDecision Focus Incorporated products (e.g.,gears grinding to a halt)and from employee hazards associated with loss of power to machinery and insufficient lighting in the workplace.Because small industrial customers typically have less emergency backup,they have slightly higher outage costs than large industrial customers.In the Railbelt,there are only a few large industrial customers (petroleum refineries);the remaining industrial load seems to consist of small industrial customers.We used costs from the Ontario Hydro study that range from $69.00 per kWh (1980 dollars)for a one-minute outage to $1.34 per kWh (1980 dollars)for an outage ten hours long.” Commercial Customers.Commercial customers are the hardest to classify because the range of activities they cover is very broad.Therefore,commercial customers display a broad range of outage costs.For this reason,the Ontario Hydro study divided up commercial customers into three subgroups: 1.Office Buildings 2.Retail Trade and Service,i.e.,establishments providing services to the general public and to other businesses,including major chain and independent retailers. 3.Institutions,i.e.,schools,medical facilities,municipal services,and so on.*® Office buildings can face substantial problems from short-term power outages, and as a result they experience the greatest short-term outage costs.”In addition,the cumulative lost labor costs are substantial in office buildings.Outage costs in this group range from $8.57 to $195.00 per kWh (1980 dollars). Retail trade and service customers have fairly low short-term outage costs; longer outages tend to prevent them from doing business.Because few retailers maintain standby generation,they have the greatest outage costs beyond four hours as MAlthough the average cost of unserved energy (in $/kWh)decreases as outage length increases,thetotalcostoftheoutage(in dollars)increases as outage length increases. To obtain Railbelt distributions on commercial customers,we mapped these three customer typesintothefollowingISERbuildingtypesandusedtheISERLoadForecastReportfordistributions:(1)Office Buildings-ISER building types:large and small office buildings;(2)Retail Trade and Service-ISERbuildingtypes:restaurant,large and small retail,grocery,lodging,car service,and warehouse;(3)Institutions-ISER building types:medical,school,college,assembly. Power outages in office buildings lead to problems such as disruption of computer systems,difficultevacuationwithoutelevators,air conditioning and ventilation systems stopping,which interrupts work inmanyofficeswherethewindowscannotbeopened. R1776b 4-19 DRAFT Decision Focus Incorporated they start to sustain product spoilage.Outage costs for this group range from $3.18 to $23.40 per kWh (1980 dollars). Institutions have the smallest overall outage costs.The only part of this group with high possible outage costs are medical facilities that generally have standby generation.Costs for this group range from $0.35 to $2.20 per kWh. The distribution for each of the classes in the Railbelt region is listed in Table 4-5.The costs at various durations for each of the customer types is shown in Table 4-6. Table 4-5 DISTRIBUTION OF CUSTOMER CLASSES IN THE RAILBELT Total Energy Customer .(GWh)Percent Residential 1245 41.7 Large Industrial 179 5.0 Small Industrial 77 2.6 Commercial/Retail 773 25.9 Commercial/Office Bldgs 344 11.5 Commercial/Institutions 368 12.3 Total (Excluding Distribution Losses)=2984 100.0 (Source:[7]) Knowing the total unserved energy,customer type distribution,and duration for each outage,we can compute outage costs by multiplying the total unserved energy by the cost per unit of energy to obtain a total customer cost.Because the outage costs will vary by customer type and duration of outage,we modify the costs accordingly. The equation to compute customer outage costs is as follows: Customer Outage Cost ($)=Unserved Energy (MWh) x Cost of Unserved Energy (Customer Type,Duration)($/MWh) where cost of unserved energy (customer type,duration)is taken from Table 4-6. RIT76b 4-20 DRAFT est we sate epee nnaeaDecision Focus Incorporated Table 4-6 SUMMARY OF CUSTOMER OUTAGE COSTS Total Average Comm/Ind Outage Outage Cost ($/kWh,1980 $)Outage Cost,$/MWh Cost °1987 Outage Lg Ind Sm Ind Com/Bldg Com/Retl Com/Inst 1980 $1987 §$/MW 1 sec 61.80 69.00 195.00 23.40 1.80 §8781 80001 0 1 min 61.80 69.00 195.00 23.40 1.80 58781 80001 1333 5 min 15.97 18.68 47.77 8.57 0.92 15923 21671 1805 10 min 10.24 12.38 29.35 6.71 0.80 10563 14376 2395 15 min 8.33 10.28 23.21 6.09 0.77 8772 11939 2985 20 min 7.38 9.24 20.16 §.79 0.75 7887 10735 3575 1 hour 3.97 6.31 14.33 7.32 1.01 6987 9509 9509 2 hours 3.12 5.34 13.02 8.33 1.06 7056 9604 19208 4 hours 2.26 4.37 11.71 9.33 1.11 7120 9691 38763 8 hours 1.66 4.03 10.14 12.28 2.2 8273 11259 90071 10 hours 1.34 3.1 8.57 15.23 2.2 9198 12518 125179 Fraction of Load 0.103 0.044 0.198 0.444 0.211 1 Outage cost for residential customers:$2/kWh or $2000/MWh (1987S) 4.5 VALUE OF IMPROVED SYSTEM RELIABILITY This subsection uses the potential changes in customer outages (Section 4.3)and the cost of customer outages (Section 4.4)to determine the value of improved system reliability.The value of improved system reliability is the lesser of reduced customer outage costs achieved through the interties and the cost of increased spinning reserves to achieve a similar reduction of customer outage costs.For example,if it is cheaper to attain the same level of reliability through increased spinning reserves,then the costs of increased spinning reserves is the true value of increased system reliability. Uncertainty surrounds the estimates of spinning reserve that would normally be available in the system.Further uncertainty exists regarding the additional spinning reserve that would be needed to achieve a specified improvement in overall system reliability.However,by applying the analysis presented in Section 7,we can estimate that the cost of providing one additional megawatt of spinning reserve throughout the year is on the order of $80,000." The results presented below are based on estimates of reduced customer outage costs.At a cost of $80,000 per MW of additional spinning reserve,it is unlikely that 71,000 kW x 8760 hours x 0.005 MBtuw/kWh x $1.80 =$78,840.. R1776b 4-21 DRAFT Decision Focus Incorporated the spinning reserve approach would produce a lower estimate of the value of improved reliability. We applied the potential improvements in system reliability (Table 4-4)and determined unserved energy savings.Tables 4-7 and 4-8 summarize the results for each area and each intertie. Table 4-9 shows the present value of reliability benefit for each intertie proposal assuming the identified annual benefits were maintained throughout a 35-year economic life. Table 4-7 UNSERVED ENERGY SAVED BY THE INTERTIES (MWh/year) New K-A Upgraded A-F Area Low High >A-F Northeast Kenai _49.0 66.0 0.0 0.0 Anchorage 30.0 60.0 20.9 52.2 Fairbanks 0.0 0.0 0.0 36.4 Copper Valley 0.0 0.0 0.0 4.5 Total 79.0 126.0 20.9 93.1 Table 4-8 VALUE OF UNSERVED ENERGY SAVED BY THE INTERTIES (M$/year): New K-A Upgraded A-F Area Low High A-F Northeast Kenai 0.317 0.427 0.000 0.000 Anchorage 0.187 0.373 0.078 0.195 Fairbanks 0.000 0.000 0.000 0.333 Copper Valley 0.000 0.000 0.000 0.059 Total 0.504 0.800 0.078 0.587 R1776b 4-22 DRAFT =|aioai>|fe. Bhid=)SEtY3.Decision Focus Incorporated Table 4-9 PRESENT VALUE OF RELIABILITY BENEFIT (4.5%real discount rate) $1987 Millions Kenai-Anchorage New Intertie Low 8.8 High 14.0 Anchorage-Fairbanks Intertie Upgrade 1.4 Anchorage-Fairbanks Northeast Intertie 10.3 4.6 USEFUL READINGS W.B.Shew,"How to Assess the Value of Electricity Reliability,"The Value of Service Reliability to Consumers,EPRI,EA-4494,May 1986. E..Masbak,"Shortage Costs:Results of Empirical Studies,"The Value of Service Reliability to Consumers,EPRI,EA-4494,May 1986. A.P.Sanghvi,"Optimal Electricity Supply Reliability Using Customer Shortage Costs," The Value of Service Reliability to Consumers,EPRI,EA-4494,May 1986. 4.7 REFERENCES {1}Alaska Electric Power Statistics,1960-1986,Alaska Power Authority,November 1987. (2]Summary Supplement on Railbelt Utilities,Alaska Power Authority,November 1987. [3].Memo from David Burlingame to Tom Lovas,Chugach Electric Association, October 14,1988. [4]F.J.Alessio,P.Lewin,and S.G.Parsons,"The Layman's Guide to the Value of Electric Power Reliability,"The Value of Service Reliability to Consumers,EPRI, EA-4494,May 1986. (5)A.P.Sanghvi,"Economic Costs of Electricity Supply Interruptions:U.S.and Foreign Experience,"The Value of Service Reliability to Consumers,EPRI, EA-4494,May 1986. [6]L.V.Skof,"Ontario Hydro Surveys on Power System Reliability:Summary of R1776b 4-23 DRAFT Decision Focus Incorporated [7] R1776b Customer Viewpoints,”presented at EPRI Seminar on the Value of Service Reliability to Customers,St.Louis,October 1983. Forecast of Electricity Demand in the Alaska Railbelt Region:1988-2010, Institute of Social and Economic Research,University of Alaska,Anchorage, November 1988,Draft. 4-24 DRAFT ateael. co , Nota fl Decision Focus Incorporated Section 5 ECONOMY ENERGY AND TRANSMISSION LOSS BENEFITS OF THE INTERTIE ALTERNATIVES 5.1 OVERVIEW This section describes the benefits that the intertie options'provide in terms of increased economy energy savings and decreased transmission losses.We cover these benefits together in this section because they are closely related.The economy energy and transmission loss savings were simultaneously analyzed using the Over/Under production simulation model.2,A number of adjustments were subsequently made to the Over/Under results as follows: 1.For all Anchorage-Fairbanks options (the full upgrade,the limited upgrade,and the Northeast intertie),an adjustment was made to account for the North Pole operating constraint (refer to Section 5.2). 2.For the new Kenai-Anchorage line,an adjustment was made to account for the increased transfer levels that (a)would be appro- priate considering the part-load performance of thermal units,and (b)are not recognized in the Over/Under simulation. 3.For the Northeast intertie,an adjustment was made primarily to account more carefully for the changes in diesel operation and maintenance costs that would be expected in the Copper Valley area. The results of this analysis show that the greatest benefits to be gained within these benefit categories occur between Anchorage and Fairbanks because of the larger disparities in marginal power production costs in those two areas,and because the 'The intertie options analyzed in this study are:full Anchorage-Fairbanks upgrade to 225 MW,limited Anchorage-Fairbanks upgrade to 100 MW,the Northeast intertie,and the new Kenai-Anchorageine. "The Over/Under model is a long-term capacity expansion/production simulation model that wasdevelopedbyDecisionFocusIncorporatedfortheElectricPowerResearchInstitute.- R1776b ;5-1 DRAFT Decision Focus Incorporated optimal power flow across the line exceeds its present capacity during periods of heavy demand.The optimal power flow is projected to exceed the capacity of the existing line more often in the future.Both the Anchorage-Fairbanks upgrade to 225 MW and the Northeast intertie provide significant economy energy and transmission loss benefits. The Anchorage-Fairbanks limited upgrade to 100 MW also alleviates the capacity constraint of the existing line,but to a lesser degree.The new Kenai-Anchorage line produces lower benefits within these categories.The capacity of the existing Kenai- Anchorage line is often sufficient to accommodate cost-effective transfer levels,so the incremental value of increased transfer capacity is less. 5.2 INTRODUCTION 5.2.1 Increased Economy Energy Benefits Economy energy benefits are realized when an intertie allows energy transferred from a lower-cost area to displace energy that would otherwise be produced in a higher- cost area.Increases in transmission capacity can provide opportunity for additional economy energy savings.For example,if an existing line allows 200 GWh per year of cost-effective transfers between the two areas and a new line expands this opportunity to 300 GWh per year,then the new line allows the transfer of an additional 100 GWh per year of economy energy and therefore provides opportunity for additional savings. 5.2.2 Reduced Transmission Loss Benefits Reduced transmission loss benefits occur because of more efficient interties.For example,if 40 GWh per year of losses are incurred over an existing line,and 10 GWh per year are incurred with a new line,then the new line provides transmission loss savings equal in value to the cost of producing 30 GWh per year.® 5.2.3 North Pole Operating Constraint The "North Pole operating constraint"occurs because the poor part-load perform- ance of the North Pole oil-fired combustion turbines in Fairbanks mandates that,for economic reasons,the units are always operated above a certain minimum load level. When the demand in Fairbanks for energy over the intertie exceeds the intertie capa- city,one of the North Pole units must be started.Because the minimum economic "However,if substantially more energy flows over the line because it is more efficient or has greatercapacity,it is possible that total transmission losses would actually increase.An increase in total losseswouldreducethebenefitofincreasedeconomyenergytransfers.. RIT76D 5-2 DRAFT ee HtiataePr iQ.Decision Focus Incorporated level of operation of these units is relatively high,intertie purchases must be reduced substantially whenever a North Pole unit is started,even if demand exceeds intertie capacity only slightly.The Anchorage-Fairbanks intertie options would reduce or eliminate this North Pole constraint by allowing a higher level of energy imports into Fairbanks from Anchorage.Asa result,there would be fewer occasions for which a North Pole unit would be started up. The benefit calculations for each of the Anchorage-Fairbanks intertie alternatives (including the full upgrade,the limited upgrade,and the Northeast intertie)are based on the assumption that the North Pole units are normally operated only when intertie capacity added to existing and economic coal-fired capacity is insufficient to meet Fairbanks load.If North Pole units were operated for significant periods to provide improved reliability or improved electrical conditions in the area,even when intertie capacity is sufficient,then the benefits of the intertie alternatives would be lower than we have estimated. 5.2.4 Benefits of Increased Hydro-Thermal Coordination The Kenai-Anchorage transfers estimated by the Over/Under model were adjusted to account for part-load performance characteristics of thermal power plants based on improved hydro-thermal coordination.Significant benefits can be achieved by scheduling the energy production of a hydro resource so as to minimize the part-load operation of thermal units elsewhere in the system.Thermal units are much more efficient at full load than at part load.The idea is to schedule the hydro energy in a way that minimizes part-load operation of thermal units and maximizes their full-load operation.The Over/Under simulation is not sufficiently detailed to capture this possibility,so an adjustment was calculated to estimate the additional transfers between Kenai and Anchorage that would achieve the optimal coordination of hydro units on the Kenai and thermal units in Anchorage.Benefits of the new intertie are increased to the extent that existing line characteristics limit these additional transfers. 5.2.5 Modeling Approach In performing this analysis,we constructed a representation of the Railbelt generation and transmission system in the Over/Under model and simulated system operation under various fuel price and load conditions.Each of the intertie alternatives was subjected to the same set of inputs over the 35-year period from 1994 to 2028. The initial year was set at 1994 because most of the alternatives probably could not be brought on-line before then.Electricity demand and fuel prices are assumed constant between 2010 and 2028 due to the heightened uncertainty associated with distant time frames.Total.system costs under each set of assumptions were computed in 1987 -RIVED 5-3 DRAFT Decision Focus Incorporated dollars for each year and discounted back to 1994.Significant modeling assumptions are presented in Appendix F.The methodology used for multi-area production simula- tion and the calculation of adjustments associated with the North Pole operating constraint are described in Appendix E.The adjustment of Kenai-Anchorage transfers based on improved hydro-thermal coordination is described in Appendix H. The four intertie options examined in this section are as follows: 1.The new Kenai-Anchorage line with capacity of 250 MW (labelled "KA line”). 2.The full Anchorage-Fairbanks upgrade to 225 MW capacity (labelled "AF line”). 3.The limited Anchorage-Fairbanks upgrade to 100 MW capacity (labelled "AF100 line”). 4,The Northeast intertie,which would raise total Anchorage- Fairbanks transfer capacity to 220 MW (labelled "NE line”). 5.3 BASE CASE SCENARIOS AND SENSITIVITY SCENARIOS 5.3.1 Base Case Scenarios A set of base case scenarios were developed for the combination of three fuel price and three load forecast assumptions.The fuel price forecasts are discussed in Appendix B,and the load forecasts are discussed in Appendix C.Joint probabilities for each of the nine fuel price and load forecast combinations were established based on fuel price probabilities adopted by the Alaska Power Authority (APA)Board of Directors and load forecast probabilities adopted by APA and the Institute of Social and Economic Research (ISER)[1].The joint probabilities are as follows: Fuel Load Joint Price Forecast ProbabilityLowLow0.30 Low Middle 0.23 Low High 0.06 Middle Low 0.03 Middle Middle 0.08 Middle High 0.19 High Low 0.00 High Middle 0.02 High High 0.08 R1776b 5-4 -DRAFT if hime' Decision Focus Incorporated These were used to calculate probability-weighted outcomes,which are referred to as "expected values”throughout the analysis. §.3.2 Sensitivity Scenarios RI776b The following sensitivity cases were evaluated: 1.A load forecast provided by the Railbelt utilities.This sensitivity was evaluated with all three of the fuel price projections.The utility forecast is presented in Appendix C,and is generally high compared with the load forecasts used in the base case scenarios. No additional military or University of Alaska Fairbanks (UAF) load served by Fairbanks utilities.This adjustment reduced Fairbanks utility loads by six to seven percent relative to the base case in which these load increments were included (see Appendix C for further discussion). The Alaska Department of Revenue (ADOR)middle fuel price forecast.As discussed in Appendix B,these prices are lower than our base case low.This sensitivity was evaluated only in combi- nation with the high load scenario. Wet and dry hydro cases.This sensitivity tested the effects of large changes in hydro energy on the total system operation.A wet case was defined as 20 percent more available energy each year for the entire analysis horizon while a dry case was defined as 20 percent less energy.These cases were run with the high load scenario.. High gas price escalation between 2011 and 2028.This sensitivity tested the effects of possible natural gas resource depletion leading to much higher gas prices in the post-2010 period.In this case, gas prices escalate rapidly after 2010 while coal prices remain flat and oil prices growth is extrapolated based on the trend from 1990 to 2010.Again,this was run in combination with the high load scenario. 5-5 DRAFT Decision Focus Incorporated 5.4 ECONOMY ENERGY TRANSFERS BETWEEN KENAI AND ANCHORAGE WITH EXISTING LINE Gas-fired generating units on the Kenai Peninsula are rarely dispatched in the production simulation.Both the Anchorage and Kenai areas have some gas priced at wellhead and some priced at wellhead plus delivery.However,Anchorage has com- bined-cycle and combustion turbine plants that are more efficient than Kenai's combus- tion turbine generation.The simulation results indicate that little or no economy energy benefit can be gained by regular operation of Kenai gas-fired generation for transfer to the north. Kenai will have substantial hydro resources after completion of the Bradley Lake project.The available hydro energy over the course of an average year will,however, be less than the anticipated energy requirements of the Kenai Peninsula for all load forecasts (see Figure 5-1).Because there is virtually no variable cost to dispatching available hydro energy,all that potential is used in the production simulation with or without the new line.Because the Kenai gas-fired generation remains more costly than available gas-fired energy in Anchorage,Kenai is a net importer of energy from Anchorage even after Bradley Lake comes on-line.Part of the net annual transfer across the Kenai-Anchorage line is due to this import of energy on the Kenai Penin- sula. Energy (GWh) 0 600 +Highie500:ane Low 400 & Available Hydro Energy 300 F 200 F 100 F fe)1 1 J L 1987 1992 1997 2002 2007 Year Figure 5-1.Kenai Load Requirements versus Kenai Hydro Energy R1776b 5-6 DRAFT ae ognHtf.Decision Focus Incorporated The main component of anticipated transfers is based on the expected optimal pattern of dispatch from Bradley Lake.Bradley Lake has sufficient storage capability to allow hydro energy production during the winter in excess of Kenai requirements. Further,the hydro resources on the Kenai will have peak generating capacity in excess of Kenai peak demand,which will allow cost-effective transfers from the Kenai Penin- sula during certain blocks of time that must then be "paid back"by importing energy from Anchorage during other blocks of time. The production simulation performed in the Over/Under model captures some of the transfer anticipated due to the pattern of Bradley Lake operation.However, because it is a long-term model that necessarily involves certain simplifications,it does not capture transfers that appear cost-effective as a means of limiting the part-load operation of thermal units in the Anchorage area.The methodology used to estimate these additional transfer levels and transfer benefits is described in Appendix H. Anticipated transfers between the two areas without the new intertie are shown in Table 5-1.Including the cost-effective transfers estimated to limit part-load opera- tion of thermal units in Anchorage,transfer levels from Kenai to Anchorage in 1994 are about 132 GWh per year'in the expected case,declining slightly by 2010.Trans- fers from Anchorage to Kenai in 1994 are about 224 GWh per year in the expected case,growing noticeably by 2010 due to anticipated load growth on the Kenai Penin- sula.Transmission losses associated with these transfer levels are also shown. "The existing Kenai-Anchorage line has a transfer limit of 657 GWh per year (based on 75 MW x8760hoursperyear). RIT76b 5-7 .DRAFT '&Q9LL1aLivadTable 5-1 KENAI-ANCHORAGE TRANSFERS WITH EXISTING LINE Economy Energy Transfer (GWh/yr) Assumptions South ---->North North ---->South Tranemission Lose (Gih/yr) --Joint Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1994 2002 2010 'Base Low Low 0.30 146.8 147.2 140.1 162.5 177.8 197.1 26.9 26.4 28.1 Middle 0.23 132.9 118.0 117.2 234.9 256.4 302.4 30.3 30.8 35.6 High 0.06 120.2 118.2 117.6 253.3 296.7 365.6 30.9 34.2 40,3 Middle Low 0.03 144.5 147.2 1460.1 183.5 177.8 197.1 27.6 26.4 28.1 Middle 0.08 131.1 118.0 117.1 235.9 258.4 302.4 31.0 30.8 35.6 High 0.19 117.6 118.2 117.4 255.3 294.7 365.6 30.5 34.2 41.3 High Low 0.00 146.5 146.9 140.1 183.5 177.8 197.1 27.6 26.4 28.1 Middle 0.02 131.1 117.5 117.2 235.9 258.4 302.4 31.0 31.7 35.6 High 0.08 117.6 118.3 117.4 255.3 295.7 365.6 30.5 34.1 41.3 Base Case Expected Values 132.3 127.8 124.9 226.2 243.7 288.4 29.3 30.5 34.9 Otility Low 0.60 122.1 121.2 119.1 263.0 278.3 299.3 31.4 33.0 34.5. Load Middle 0.30 117.9 121.2 118.4 265.0 278.3 299.3 31.4 33.0 35.5 Forecast High 0.10 117.9 120.2 118.7 265.0 279.3 299.3 31.4 32.8 35.5 Utility Load Forecast Exp.Values 120.4 121.1 118.9 263.8 278.4 299.3 31.4 33.0 34.9 DOR Fuel Middle High 120.2 118.2 117.6 178.7 294.7 351.0 24.2 34.2 39.0 NoMiltry Low High 119.6 117.9 117.5 253.3 294.7 365.6 30.8 34.2 40.3 DryHydro Low High 118.3 116.9 117.1 330.8 357.3 443.6 37.6 39.9 48.6 WetHydro Low High 165.8 148.4 130.8 209.0 247.2 294.4 31.0 32.7 35.1 GasEecal Low High 120.2 116.6 117.0 254.1 361.0 369.8 31.0 40.0 40.6 Note:Years for GasEscal sensitivity are:1994,2010,and 2028. en »of fa FP ee eee eee payiodioouysnooyuompeg Decision Focus Incorporated 5.5 NEW KENAI-ANCHORAGE LINE:ECONOMY ENERGY TRANSFER AND TRANSMISSION LOSS BENEFITS 5.5.1 Increased Kenai-Anchorage Transfers The change in transfer levels due to the new Kenai-Anchorage line is shown in | Table 5-2.Including the transfers for limiting part-load operation of thermal units, transfer levels in 1994 from Kenai to Anchorage increase by about 52 GWh per year in the expected case.Transfers from Anchorage to Kenai in 1994 increase by about 37 GWh per year in the expected case.The change in transmission losses is also shown. For the expected case in 1994,losses would be reduced by approximately 21 GWh per year. 5.5.2 Benefits of Increased Kenai-Anchorage Transfers The annual savings associated with these increased transfers and reduced transmission losses are shown in Table 5-3.Including the increased hydro-thermal coordination benefits described in Appendix H,the expected annual savings vary between $0.8 and $1.1 million per year between 1994 and 2010.The present value of these savings,discounted back to 1994 at a real rate of 4.5 percent,is shown in Table 5-4.The expected value of these two benefit categories combined is $17.6 million.This estimate does not vary appreciably for the selected set of sensitivity cases. RIT76b 5-9 DRAFT QSLL10OT-See,CHANGE IN KENAI-ANCHORAGE TRANSFERS DUE TO THE NEW LINE Change in Economy Energy Transfer (GWh/yr) Table 5-2 a Change in Assumptions South <--->North North ---->South Transmission Loss (GWh/yr) Joint Scenario Fuel Load Probab.1994 2002 2010 1996 2002 2010 1994 2002 2010 Base Low Low 0.30 56.8 61.0 54.0 46.2 46.5 42.4 -18.8 -18.3 -18.9 Middle 0.23 50.7 §1.1 45.0 36.9 28.7 25.7 -21.7 -22.2 -25.4 High 0.06 45.4 56.0 44.9 30.0 27.1 21.2 -22.4 -24.8 -29.8 Middle Low 0.03 59.0 61.0 54.0 45.2 46.5 42.4 -18.5 -18.3 18.9 Middle 0.08 53.5 51.1 45.1 35.9 28.7 25.7 -21.4 -22.2 -25.4High0.19 49.1 56.0 45.2 29.0 27.1 21.2 -22.0 24.8 -29.8 High Low 0.00 59.0 61.3 54.0 45.2 46.5 42.4 18.5 -18.3 -18.9 Middle 0.02 53.5 $1.6 45.0 35.9 28.7 25.7 21.4 -22.2 -25.4 High 0.08 49.1 57.0 45.0 29.0 26.1 21.2 -22.0 -24.7 29.8 Base Case Expected Values 52.3 56.1 48.0 (37.3 34.0 29.8 -20.8 -21.8 -24.7 Utility Low 0.60 45.3 66.2 44.8 29.3 28.3 25.9 -23.2 -23.7 -25.3 Load Middle 0.30 50.5 66.2 45.5 28.3 28.3 25.9 "22.7 -23.7 -25.2 Forecast High 0.10 50.5 68.2 44.8 28.3 27.3 25.9 -22.7 -23.5 -25.2 Utility Load Forecast Exp.Values 47.4 66.4 45.0 28.9 28.2 25.9 -23.0 -23.7 -25.3 DOR Fuel Middle High 45.4 56.0 44.9 104.6 27.1 35.8 15.8 -24.8 28.5 NoMiltry Low High 45.5 54.4 45.0 30.0 27.1 21.2 -22.4 -24.8 -29.8 DryHydro Low High 45.6 50.4 45.0 24.5 43.6 20.7 -27.7 -29.1 -36.6 WetHydro Low High 45.7 59.4 44.9 33.1 30.5 27.0 22.4 -23.5 -25.7 GasEscal Low High 45.4 44.9 45.0 29.9 22.5 20.9 -22.5 -29.6 30.1 sacras=2 Note:Years for GasEscal sensitivity are:1994,2010,and 2028. :tot a gio gt ek \ce sd payeiodioouysnsoquolspagq LLIT-¢LivudTable 5-3 ANNUAL TRANSFER BENEFITS DUE TO THE NEW KENAI-ANCHORAGE LINE Increased Economy Reduced Net Assumptions Energy Transfer (M$/Yr)Transmission Loss (M$/Yr)Transfer Benefits (MS/Yr) Joint "-- Scenario Fuel Load 'Probab.1994 2002 2010 1994 2002 2010 1994 2002 2010 Base Low Low 0.30 0.5 0.5 0.5 *0.3 0.3 0.3 0.8 0.8 0.8 Middle 0.23 0.4 0.4 0.5 0.4 0.4 0.5 0.8 0.8 0.9 High 0.06 0.4 0.4 0.4 0.4 0.5 0.6 0.7 0.8 1.0 Middle Low 0.03 0.6 0.6 0.7 0.4 0.4 0.5 0.9 1.0 1.1 Middle 0.08 0.5 0.5 0.7 0.4 0.5 0.7 0.9 1.0 1.3 High 0.19 0.4 0.5 0.7 0.5 0.6 0.8 0.9 1.1 1.5 High Low 0.00 0.7 0.8 0.9 0.4 0.5 0.6 1.1 1.3 1.4 Middle 0.02 0.6 0.6 0.9 0.5 0.7 0.9 1.1 1.3 1.7 High 0.08 0.5 0.6 0.9 0.5 0.8 1.1 1.1 1.4 1.9 Base Case Expected Values 0.5 0.5 0.6 0.4 0.5 0.6 0.8 0.9 1.1 Utility Low 0.60 0.4 0.4 0.4 0.4 0.4 0.5 0.8 0.8 0.98 Load Middle 0.30 0.5 0.5 0.6 0.5 0.6 0.7 0.9 1.1 1.3 Forecast High 0.10 0.5 0.6 0.8 0.6 0.7 0.9 1.1 1.3 1.7 Utility Load Forecast Exp.Values 0.4 0.4 0.5 0.5 0.5 0.6 0.8 1.0 1.1 DOR Fuel Middle High 0.5 0.4 0.4 0.3 0.4 0.5 0.7 0.8 0.9 NoMiltry Low High 0.4 0.4 0.4 0.4 0.5 0.6 0.7 0.8 1.0 DryHydro Low _High 0.4 0.4 0.5 0.5 0.6 0.7 0.8 1.0 1.2 WetHydro Low High 0.4 0.4 0.5 0.3 0.4 0.5 0.7 0.8 0.9 GasEscal Low High 0.4 0.4 0.4 0.4 0.6 1.3 0.7 1.0 1.6 Notes: 1.All values are in 1987 million dollars. 2.Positive reduced transmission losses are savings. 3.Net Transfer Benefits =Increased Economy Energy Transfer +Reduced Transmission Loss 4.Years for GasEscal sensitivity are:1994,2010,and 2028.Ppa3esodicou]sns0qdowDedq Decision Focus Incorporated PRESENT VALUE OF TRANSFER BENEFITS DUE TO NEW KENAI-ANCHORAGE LINE R1776>b Table 5-4 Increased Assumptions Economy Reduced Net moe en renner nn--Joint Energy Trans.Transfer Scenario Fuel Load Probab.Transfer Losses Benefits Base Low Low 0.30 8.2 5.2 13.4 Middle 0.23 7.3 7.5 14.8 High 0.06 7.1 8.8 15.9 Middle Low 0.03 11.2 7.1 18.3 Middle 0.08 10.1 10.1 20.1 High 0.19 10.0 12.0 22.0 High Low 0.00 14.0 8.9 22.9 Middle 0.02 12.4 12.5 24.9 High 0.08 12.7 14.9 27.6 Base Case Expected Values 8.9 8.6 17.6 Utility Low 0.60 6.9 8.1 14.9 Load Middle 0.30 9.7 10.9 20.5 Forecast High 0.10 12.1 13.5 25.7 Utility Load Forecast Exp.Values .8.2 9.5 17.7 DOR Fuel Middle High 7.1 7.6 14.8 NoMiltry Low High 7.1 8.7 15.8 DryHydro Low High 7.6 11.1 18.8 WetHydro Low High 7.5 7.3 14.8 GasEscal Low High 7.3 10.7 18.0 Note:All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5 %/yr) 5-12 DRAFT sor ie ore Decision Focus Incorporated 5.66 ECONOMY ENERGY TRANSFERS BETWEEN ANCHORAGE AND FAIRBANKS WITH EXISTING LINE The system simulation indicates that nearly all transfers between Anchorage and Fairbanks flow from the south to the north.The only exceptions to this are in the later years of the gas price escalation sensitivity.®The cost differential between oil and gas reflected in the fuel price forecasts is the motivation for transfers between the two areas. Fairbanks relies first upon its existing coal-fired capacity.In the absence of an intertie,Fairbanks would next rely upon existing oil-fired capacity.The availability of gas-fired capacity in Anchorage combined with the price advantage of Cook Inlet gas with respect to oil creates an opportunity for economy energy transfer savings.For example,the North Pole oil-fired combustion turbines in Fairbanks have a full-load heat rate of approximately 10,900 Btu/kWh.The gas-fired combustion turbines #3 and #5 at Beluga are somewhat less efficient at full load,with a heat rate of 12,691 Btu/kWh.Based on the fuel oil and natural gas price forecasts adopted for 1994 in the low case and ignoring variable O&M costs (which are similar for these units),a vari- able generation cost of $30.19 per MWh is computed for the North Pole units compared with $16.28 per MWh for the Beluga units.Even after adding 15 percent transmission losses,the Beluga units would be 57 percent less expensive.In 1990,the estimated price differential between Fairbanks #4 fuel oil and Cook Inlet wellhead (Chugach)gas is $1.23,$1.76,and $2.04 per MBtu for the low,middle and high fuel forecasts respec- tively,ie.it is higher for the higher price scenarios.In addition,as time goes on,the differential within each forecast also increases to $1.89,$2.72,and $3.58 per MBtu for the three fuel forecast scenarios in 2010.4) Table 5-5 shows the estimated transfer levels from Anchorage to Fairbanks over the existing line in the absence of any upgrade.These results are based on the transfers indicated by the Over/Under production simulation,net of adjustments calculated due to the North Pole constraint.*In the expected case in 1994,transfers from Anchorage to Fairbanksare estimated at 389 GWh per year,'remaining roughly constant between 1994 and 2010.Transmission losses associated with these transfers are estimated at 37 to 42 GWh per year,averaging around 10 percent.Somewhat higher transfers are estimated in the utility load forecast sensitivity scenarios.No significant differences in transfers are observed in the other sensitivity scenarios. 5As described in Appendix F,the capacity expansion plan developed for these simulations did not:include any increase in coal-fired capacity.For the assessment of a new 50-MW coal-fired power plant atHealydescribedinSection8(where a coal plant was included in the expansion plan),the simulationshowedsomelimitedtransfersfromnorthtosouth. SAgain,the North Pole constraint reduces the level of transfers that would otherwise be expected,because intertie purchases must be reduced substantially whenever a North Pole unit is started up. The existing Anchorage-Fairbanks line has a transfer limit of 613.2 GWh per year (based on 70 MW ©x 8760 hours per year). RIT76b §-13 :DRAFT Nvonsae Qed LsTAAS:|PI-SdivaaTable 5-5 ANCHORAGE-FAIRBANKS TRANSFERS WITH EXISTING LINE Economy Energy Transfer (GWh/yr) Assumptions South ---->North North ---->South Transmission Loss (GWh/yr) Joint Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1994 2002 2010 Base Low Low 0.30 338.8 324.8 373.4 0.0 0.0 0.0 30.7 30.3 38.2 Middle 0.23 346.7 346.6 391.8 0.0 0.0 0.0 31.3 33.4 40.6 High 0.06 340.3 387.1 453.9 0.0 0.0 0.0 31.9 39.9 49.9 Middle Low 0.03 444.0 472.7 462.8 0.0 0.0 0.0 43.8 48.0 48.3 Middle 0.08 436.1 466.2 429.0 0.0 0.0 0.0 42.6 47.7 44.7 High 0.19 471.7 428.8 418.4 0.0 0.0 0.0 47.9 44.7 45.1 High Low 0.00 4464.0 450.2 453.2 0.0 0.0 0.0 43.8 44.2 46.8 Middle 0.02 436.0 396.2 411.0 0.0 0.0 0.0 42.6 35.8 41.9 High 0.08 471.7 355.9 381.1 0.0 0.0 0.0 47.9 32.3 38.9 Rs Ee Base Case Expected Values 369.5 373.3 399.8 0.0 0.0 0.0 37.1 36.6 41.8 Utility Low 0.60 397.4 454.4 519.6 .0.0 0.0 0.0 41.4 49.9 58.8 Load Middle 0.30 440.8 423.9 472.6 0.0 0.0 0.0 46.6 46.1 52.9 Forecast High 0.10 440.8 368.9 450.4 0.0 0.0 0.0 46.6 36.7 49.1 EEE Utility Load Forecast Exp.Values 414.8 436.7 498.6 0.0 0.0 0.0 43.5 47.5 56.1 DOR Fuel Middle High 447.5 450.9 468.2 0.0 0.0 0.0 50.4 50.8 52.3 NoMiltry Low High 344.1 370.3 421.6 0.0 0.0 0.0 30.9 37.3 45.4 DryHydro Low High 340.2 386.9 453.5 0.0 0.0 0.0 31.9 39.8 49.8 WetHydro Low High 340.3 387.3 454.3 0.0 0.0 0.0 31.9 39.9 49.9 GasEscal Low .High 341.7 424.4 0.0 0.0 0.0 406.6 32.2 46.3 44.6 Note:Years for GasEscal sensitivity are:1994,2010,and 2028.Payerodioou]sno0guoisDad BowDecision Focus Incorporated 5.7 FULL UPGRADE OF ANCHORAGE-FAIRBANKS LINE:ECONOMY ENERGY AND TRANSMISSION LOSS BENEFITS 5.7.1 Increased Anchorage-Fairbanks Transfers The change in transfer levels due to the full upgrade of the Anchorage-Fairbanks intertie is shown in Table 5-6.Transfers from Anchorage to Fairbanks are estimated to increase by 227 GWh per year in 1994 for the expected case and by 337 GWh per year in 2010.Despite the increase in transfer levels,total transmission losses are reduced because the line is far more efficient after the proposed full upgrade.Higher increases in transfers are estimated for the utility load forecast sensitivity scenarios (335 GWh per year in 1994 and 381 GWh per year in 2010).No significant differences are observed in the other sensitivity cases relative to the base case scenarios that incorporate the same low fuel prices. 5.7.2 Benefits of Increased Anchorage-Fairbanks Transfers The annual savings associated with the increased Anchorage-Fairbanks transfers and reduced transmission losses are shown in Table 5-7.The expected annual savings rise from $2.3 million in 1994 to $6.8 million in 2010.Higher savings are estimated in the utility load forecast sensitivity scenarios ($3.9 million in 1994 and $8.2 million in2010). The present value of these savings discounted to 1994 at 4.5 percent is shown in Table 5-8.The expected value of these two benefit categories combined is $93.4 million,about 93 percent of which is attributable to economy energy savings.Nearly half of the total benefits can be traced to the removal of the North Pole constraint.In_other words,the analysis indicates that inability to provide economical small incre-"ments of power in Fairbanks when needed at times of full intertie loading is very costly.Removing this constraint by increasing intertie capacity has a present value ofapproximately$45 million. When the utility load forecast is assumed,the estimated benefit in these categor- ies is approximately $32 million higher.This is primarily due to the fact that the amount of additional transfer depends heavily on the demand for energy in Fairbanks, and that the Fairbanks component of the utility load forecast is significantly higher than forecasts used in the base case combinations.Benefits calculated for the other sensitivity cases are not appreciably different from the base case expected values. R1776b 5-15 DRAFT A9LL1e9T-¢Table 5-6 CHANGE IN ANCHORAGE-FAIRBANKS TRANSFERS DUE TO THE FULL UPGRADE OF THE AF LINE TO 225 MW Change in Economy Energy Transfer (GWh/yr) Change in Assumptions South ---->North North ---->South Transmission Loss Joint -- Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1994 2002 Base Low Low 0.30 355.8 282.3 409.1 0.0 0.0 0.0 -3.0 -10.7 Middle 0.23 338.9 244.7 376.6 0.0 0.0 0.0 -6.2 -13.8 High 0.06 387.5 249.3 362.9 0.0 0.0 0.0 -3.7 -17.1 Middle Low 0.03 37.1 41.9 106.6 0.0 0.0 0.0 -28.7 -31.5 Middle 0.08 36.3 63.4 186.1 0.0 0.0 0.0 -27.8 -30.6 High 0.19 41.7 178.4 311.5 0.0 0.0 0.0 -31.5 -23.5 High Low 0.00 37.1 64.4 108.9 0.0 0.0 0.0 -28.7 <-27.7 Middle "0.02 36.4 133.4 169.3 0.0 0.0 0.0 27.8 -18.6 High 0.08 41.7 251.2 264.7 0.0 0.0 0.0 31.5 "11.1 Base Case Expected Values 227.5 221.5 336.8 0.0 0.0 °0.0 "15.3 -16.7 =e Utility Low 0.60 439.0 288.8 400.2 0.0 0.0 0.0 19.5 -10.9 Load Middle 0.30 179.6 305.7 379.5 0.0 0.0 0.0 -24.7 -17.1 Forecast High 0.10 179.7 360.7 273.0 0.0 0.0 0.0 -10.3 -16.2 Utility Load Forecast Exp.Values 335.3 301.1 381.3 0.0 0.0 0.0 -20.2 -13.3 DOR Fuel Middle High 280.2 371.3 478.2 0.0 0.0 0.0 -22.1 -15.9 NoMiltry Low High 339.3 224.0 351.7 0.0 0.0 0.0 -5.9 -17.4 DryHydro Low High 387.8 244.3 336.7 0.0 0.0 0.0 -3.4 -16.9 WetHydro Low High 367.1 254.2 387.7 0.0 0.0 0.0 -4.0 -16.9 GasEscal Low High 368.2 372.3 0.0 0.0 0.0 271.9 -3.8 -11.1 Note:Years for GasEscal sensitivity are :1994,2010,and 2028.hagMe-coedPOP Rte bod ft et Wave Beg WO Ba peyesrodicouysnsoywolspaq#3 Q9LL18LT-SLivadTable 5-7 ANNUAL TRANSFER BENEFITS DUE TO THE FULL UPGRADE OF THE AF LINE TO 225 MW °Increased Economy Reduced Net Aseumptions Energy Transfer (M$/Yr)Transmission Loss (M$/Yr)Transfer Benefits (M$/Yr) Joint Scenario Fuel Load Probab.1996 2002 2010 1994 2002 2010 1996 2002 2010 Base Low Low , 0.30 3.0 3.9 5.9 0.2 0.3 0.1 3.2 4.2 5.9 Middle 0.23 2.7 3.7 6.0 0.2 0.4 0.1 2.9 4.1 6.1 High 0.06 3.3 4.2 6.4 0.2 0.4 0.3 .3.8 4.6 6.7 Middle Low 0.03 1.2 1.4 3.9 0.7 0.7 0.6 -1.8 2.2 4.6 Middle 0.08 1.2 2.0 5.8 0.7 0.8 0.5 1.8 2.8 6.3 High 0.19 1.3 4.4 8.6 0.7 0.7 0.3 2.0 5.1 8.9 High Low 0.00 1.3 1.7 &.9 0.7 0.8 0.7 2.1 2.5 5.6 Middle 0.02 1.2 2.4 7.1 0.7 0.6 0.5 2.0 3.0 7.6 Righ 0.08 1.4 5.3 10.5 0.8 0.4 0.3 2.2 5.7 10.8 Sees Sees Base Case Expected Values 2.3 3.8 6.8 0.4 0.5 0.2 2.7 4.3 7.0 Saas Ee Otility Low .0.60 4.0 5.0 7.0 0.2 0.5 0.3 4.2 5.4 7.3 Load Middle 0.30 3.7 6.7 9.5 0.6 0.5 0.3 4.3 7.2 9.8 Forecast High 0.10 4.1 7.9 11.5 0.7 0.2 0.6 4.8 8.2 12.1 SSS Utility Load Forecast Exp.Values 3.9 5.8 8.2 0.4 0.4 0.3 4.3 6.2 8. ee Se DOR Fuel Middle High 3.0 4.6 6.4 0.4 0.2 0.0 3.5 4.8 6. NoMiltry Low High 2.7 3.7 6.1 0.2 0.4 0.3 2.9 4.2 6. DryHydro Low High 3.3 4.2 6.3 0.2 0.4 0.3 3.5 4.6 6. WetHydro Low High 3.3 4.2 6.6 0.2 0.4 0.2 3.5 4.7 6. GasEscal Low High 3.3 6.4 2.3 0.2 0.3 0.5 3.5 6.7 2. Notes: 1.All values are in 1987 million dollars. 2.Positive reduced transmission losses are savings. 3.Net Transfer Benefits =Increased Economy Energy Transfer +Reduced Transmission Loss 4.Years for GasEscal sensitivity are :1994,2010,and 2028.payeiodioouysnooguospe Decision Focus Incorporated R1776b Table 5-8 PRESENT VALUE OF TRANSFER BENEFITS. DUE TO FULL UPGRADE OF AF LINE TO 225 MW Increased Assumptions Economy Reduced Net eta ate ae oat!Joint Energy Trans,Transfer Scenario Fuel Load Probab.Transfer Losses Benefits Base Low Low 0.30 83.2 2.7 85.9 Middle 0.23 83.8 3.4 87.2 High 0.06 92.9 5.2 98.1 Middle Low 0.03 46.1 12.7 58.9 Middle 0.08 62.2 11.7 73.9 High 0.19 99.7 10.3 110.1 High Low 0.00 55.0 14.7 69.7 Middle 0.02 74.8 12.8 87.6 High 0.08 119.7 10.8 130.5 Base Case Expected Values 87.1 6.3 93.4 Utility Low 0.60 104.0 5.8 109.8 Load Middle 0.30 134.1 8.8 142.9 Forecast High 0.10 158.7 11.0 169.6 Utility Load Forecast Exp.Values 118.5 7.2 125.7 DOR Fuel Middle High 93.6 3.8 97.4 NoMiltry Low High 86.3 4.8 91.1 DryHydro Low High 91.3 5.6 96.9 WetHydro Low High 94.4 4.6 99.0 GasEscal Low High 83.3 4.5 87.8 Notes:1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5 %/yr) 2.Increased economy transfer and reduced transmission losses include North Pole adjustment. 5-18 DRAFT eedee| "Soy fDecision Focus Incorporated 5.8 LIMITED UPGRADE OF ANCHORAGE-FAIRBANKS LINE:ECONOMY ENERGY AND TRANSMISSION LOSS BENEFITS. As described in Section 2,the limited upgrade option consists of the addition of electrical equipment,primarily series capacitors and SVS,to allow a higher level of transfer over the existing line.Presently,the line is limited to 70-MW input at the Anchorage end.Assuming the existing Healy coal plant is operating,which is usually the case,approximately 62 MW can be received in Fairbanks.The limited upgrade would allow 100 MW to be input at the Anchorage end with approximately 84 MW received on the Fairbanks end. 5.8.1 Increased Anchorage-Fairbanks Transfers Transfers without the limited upgrade are described in Section 5.6 and presented in Table 5-5.The change in transfer levels due to the limited upgrade of the Anchorage-Fairbanks intertie is shown in Table 5-9.In the expected case,transfers from Anchorage to Fairbanks are projected to increase in 1994 by about 94 GWh peryearandby142GWhperyearin2010.Overall,thesensitivity-cases-donotshow major differences relative to basé casé-sténarios that incorporate the same low fuel prices. 5.8.2 Benefits of Increased Anchorage-Fairbanks Transfers As shown in Table 5-10,the value of the increased Anchorage-Fairbanks trans- fers ranges from nearly $1.2 million per year in 1994 to $3.3 million per year in 2010. "Reduced transmission losses"are negative because,although the limited upgrade permits higher transfer levels,it also results in higher losses.The cost of these higher losses are netted out against the value of the increased transfers. The present value of these savings discounted to 1994 at 4.5 percent is shown in Table 5-11.The expected value of these two benefit categories combined is $38.8 million.Nearly 85 percent of these benefits can be traced to the removal of the North Pole constraint. Total benefits in these categories are somewhat lower in all the sensitivities. The load forecast is again the main reason for this,though its impact for the limited upgrade is different from its impact in the full upgrade.All of the sensitivities reflect a relatively high load forecast.The main reason that benefits of the limited upgrade are reduced for the higher load forecasts is that there are fewer opportunities to avoid starting up one of the North Pole units. R1776b 5-19.DRAFT Wut02-SLavudSadTable 5-9 CHANGE IN ANCHORAGE-FAIRBANKS TRANSFERS DUE TO THE LIMITED UPGRADE OF THE AF LINE TO 100 MW Change in Economy Energy Transfer (GWh/yr)e :Change in Aseumptions South ---->North North ---->South Transmission Loss Joint Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1994 2002 Base Low Low 0.30 132.1 171.1 145.5 0.0 0.0 0.0 17.8 23.3 Middle 0.23 117.2 167.5 137.0 0.0 0.0 0.0 .16.0 23.6 High 0.06 158.5 136.1 110.0 0.0 0.0 0.0 21.7 24.0 Middle Low 0.03 38.2 40.7 94.9 0.0 0.0 0.0 6.5 7.5 Middle 0.08 38.1 62.0 120.7 0.0 0.0 0.0 6.5 10.6 High 0.19 41.9 140.1 176.9 0.0 0.0 0.0 7.7 23.6 High Low |0.00 37.7 19.3 68.8 0.0 0.0 0.0 6.4 2.6 Middle 0.02 37.3 38.3 96.4 0.0 0.0 0.0 6.3 5.0 High 0.08 40.5 98.6 140.7 0.0 0.0 0.0 7.4 13.3 Base Case Expected Values 93.6 241.2 142.4 0.0 0.0 0.0 13.4 20.8 Utility Low 0.60 120.1 111.6 124.2 0.0 0.0 0.0 22.8 30.5 Load Middle 0.30 150.5 216.2 111.9 0.0 0.0 0.0 26.5 40.6 Forecast High 0.10 146.0 140.6 97.4 0.0 0.0 0.0 25.3 22.0 Utility Load Forecast Exp.Values 131.8 145.9 117.8 0.0 ©0.0 0.0 24.2 32.7 REESE SE ee DOR Fuel Middle High 160.6 142.7 140.6 0.0 0.0 0.0 22.1 25.7 NoMiltry Low High 118.1 159.2 115.0 0.0 0.0 0.0 16.1 24.2 DryHydro Low High 158.5 136.0 108.3 0.0 0.0 0.0 21.7 24.0 WetHydro Low High 158.5 136.2 110.3 0.0 0.0 0.0 21.7 24.1 GasEscal Low High 159.3 203.4 0.0 0.0 0.0 0.0 21.9 40.8 Note:Years for GasEscal sensitivity are:1994,2010,and 2028.payeiodioonysno0guospaq 3 I9LL1eTS-¢Livad4 Bs i i a te.t.lob bd feb do bed t.t I bt:E Table 5-10 ANNUAL TRANSFER BENEFITS DUE TO THE LIMITED UPGRADE OF THE AF LINE TO 100 MW e Increased Economy Reduced Net Assumptions Energy Transfer (M$/Yr)Transmission Lose (M$/Yr)Transfer Benefits (M$/Yr) Joint Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1996 2002 2010 Base Low Low 0.30 1.61 2.78 2.97 -0.25 -0.42 -0.45 1.36 2.36 2.52 Middle 0.23 1.42 2.68 2.49 0.22 -0.43 -0.52 1.20 2.25 1.97 High 0.06 1.91 1.93 1.27 -0.30 -0.47 -0.62 |.1.61 1.46 0.65 Middle Low 0.03 0.57 0.66 2.61 -0.13 -0.19 -0.45 0.44 0.47 2.16 Middle 0.08 0.56 1.12 3.35 -0.13 -0.27 -0.56 0.43 0.85 2.79 High 0.19 °0.60 2.66 4.59 -0.16 -0.61 -0.90 0.44 2.05 3.69 High Low 0.00 0.61 0.61 3.20 -0.15 -0.09 -0.39 0.46 0.52 2.81 Middle 0.02 0.60 1.17 4.20 0.15 -0.16 0.57 0.45 1.01 3.63 High 0.08 0.63 2.96 5.67 -0.18 -0.43 -0.91 0.45 2.53 4.76 Base Case Expected Values 1.18 2.47 3.32 -0.21 0.44 -0.61 0.97 2.03 2.71 Utility Low 0.60 1.33 1.04 1.28 -0.36 -0.66 -0.77 2.58 0.38 0.52 Load Middle 0.30 2.26 3.73 2.35 -0.55 -1.07 -0.76 1.71 2.66 1.59 Forecast High 0.10 2.49 3.96 2.96 0.61 -0.71 -0.87 1.88 3.25 2.09 Utility Load Forecast Exp.Values 1.72 2.14 1.77 -0.45 -0.79 -0.78 2.25 1.35 0.99 DOR Fuel Middle High 1.87 1.85 1.13 -0.30 -0.44 -0.60 1.57 1.41 0.53 NoMiltry Low High 1.42 2.44 1.65 -0.21 0.45 -0.55 1.21 1.99 1.10 DryHydro Low High 1.91 1.91 1.19 -0.30 -0.48 -0.63 1.61 1.43 0.56 WetHydro Low High 1.91 1.94 1.27 -0.30 0.87 -0.62 1.61 1.47 0.65 GasEscal Low High 1.92 2.98 0.00 -0.30 -0.81 0.00 1.62 2.17 0.00 Notes: 1.All values are in 1987 million dollars. 2.Positive reduced transmission losses are savings. 3,Net Transfer Benefits =Increased Economy Energy Transfer +Reduced Transmission Loss Years for GasEscal sensitivity are:1994,2010,and 2028.peyetodioouysnd0guolsDey Decision Focus Incorporated R1776b Table 5-11 PRESENT VALUE OF TRANSFER BENEFITS DUE TO THE UPGRADE OF THE AF LINE TO 100 MW Increased Assumptions Economy Reduced Net ------Joint Energy Trans.Transfer Scenario Fuel Load Probab Transfer Losses Benefits Base Low Low 0.30 44.2 -3.6 40.6 Middle 0.23 40.6 -5.5 35.1 High 0.06 33.4 -11.5 22.0 Middle Low 0.03 25.6 -2.8 22.8 Middle 0.08 32.8 -3.7 29.1 High 0.19 53.1 -8.0 45.1 High Low 0.00 29.3 -1.0 28.4 Middle 0.02 39.0 -2.4 36.7 High 0.08 63.1 -6.2 56.9 Base Case Expected Values 44.3 -5.5 38.8 Utility Low 0.60 41.0 -17.0 24.1 Load Middle 0.30 53.9 -15.8 38.1 Forecast High 0.10 62.0 -15.6 46.3 Utility Load Forecast Exp.Values 47.0 -16.5 30.5 DOR Fuel Middle High 32.2 -11.8 20.5 NoMiltry Low Righ 36.2 -8.4 27.7 DryHydro Low High 32.8 -11.6 21.3 WetHydro Low High 33.5 11.5 22.1 GasEscal Low High 26.1 -9.1 17.1 Notes:1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5 %/yr) 2.Increased economy transfer and reduced transmission losses include North Pole adjustment. 5-22 DRAFT arn oh eReyee Decision Focus Incorporated 5.9 NORTHEAST INTERTIE:ECONOMY ENERGY AND TRANSMISSION LOSS BENEFITS 5.9.1 Increased Anchorage-Copper Valley/Fairbanks Transfers Transfers without the new intertie are described in Section 5.6 and presented in Table 5-5.Table 5-12 shows the increase in transfers from Anchorage to Copper Valley and Fairbanks as a result of the Northeast intertie.In the base case,the expected increase in transfers varies from 247 GWh per year in 1994 to 350 GWh per year in 2010.Larger increases were calculated for the utility load forecast scenarios. 5.9.2 Benefits of Increased Anchorage-Copper Valley/Fairbanks Transfers To evaluate the benefits of the Northeast intertie,the costs of operation in the isolated Copper Valley area must be included.Of these additional costs,those as- sociated with operating Copper Valley's diesel generators are most important.The load forecast for the Copper Valley service area is also important.Because nearly all of the energy available from the Solomon Gulch hydro project is presently consumed,nearly all of the energy generation required to meet higher demands is projected to come from diesel generation as long as Copper Valley remains isolated.What most distinguishes the benefits of the Northeast intertie from the benefits of the full Anchorage-Fairbanks upgrade is the value gained by displacing expensive diesel generation in the Copper Valley area with gas-fired generation from the Anchorage area. The annual savings associated with the increased transfers from Anchorage to Copper Valley and Fairbanks (net of transmission losses)is shown in Table 5-13.The expected annual savings rise from $5.7 million in 1994 to $9.6 million in 2010.Table 5-14 shows the present value of these savings discounted to 1994 at 4.5 percent.The expected value of these benefit categories is $147.9 million.Similar benefits were calculated for the sensitivity scenarios.Most of the difference between the annual and total benefits of the full Anchorage-Fairbanks upgrade (Tables 5-7 and 5-8),and the annual and total benefits of the Northeast intertie (Tables 5-13 and 5-14),is due to the displacement of diesel generation in Copper Valley by gas-fired generation in Anchorage. The amount of diesel generation subject to displacement depends on the load forecast for the Copper Valley area.An important component of the load forecast is the load associated with the backscatter radar site.For the base scenarios,it was assumed in the low load case that the radar site will be supplied entirely by on-site generation;i.e.,none of the radar load is supplied from the utility grid.In the mid load case,an average of 2.7 MW or 23.2 GWh per year was assumed to be supplied from the grid.In the high load case,the grid supplies an average of 3.7 MW or RI776>5-23 DRAFT WL¥S-¢LivadTable 5-12 CHANGE IN ANCHORAGE-FAIRBANKS TRANSFERS DUE TO THE NEW NORTHEAST LINE Change in Economy Energy Transfer (GWh/yr) -Change in Assumptions South ---->North North ---->South Transmission Loss (GWh/yr) Joint -- Scenario Fuel Load Probab.1994 2002 2010 19964 2002 2010 1994 2002 Base Low Low 0.30 382.7 214.3 424.2 0.0 0.0 0.0 22.0 9.1 Middle 0.23 365.7 208.2 398.6 0.0 0.0 0.0 20.7 7.2 High 0.06 414.2 245.3 378.5 0.0 0.0 0.0 23.2 6.3 Middle Low 0.03 44.6 48.6 118.3 0.0 0.0 0.0 -8.1 -10.0 Middle 0.08 44.1 70.4 194.8 0.0 0.0 0.0 -7.5 -8.5 High 0.19 48.3 186.8 327.3 0.0 0.0 0.0 -10.0 0.2 High Low 0.00 44.6 71.0 127.9 0.0 0.0 0.0 -8.1 -6.1 "Middle 0.02 44.2 140.4 161.5 0.0 0.0 0.0 -7.5 3.4 Righ 0.08 48.5 258.8 248.7 0.0 0.0 0.0 -9.9 12.6 Base Case Expected Values 246.5 195.2 350.1 0.0 0.0 0.0 9.3 5.0 Utility Low 0.60 465.7 293.1 293.3 0.0 0.0 0.0 21.9 4.9 Load Middle 0.30 187.7 321.1 389.8 0.0 0.0 0.0 -0.7 9.2 Forecast High 0.10 188.0 340.1 1694.9 0.0 0.0 0.0 -0.7 16.0 Utility Load Forecast Exp.Values 354.5 306.2 462.4 0.0 9.0 0.0 12.8 7.3 EEE see DOR Fuel Middle High 307.0 396.1 496.1 0.0 0.0 0.0 5.1 11.1 NoMiltry Low High 366.0 212.7 356.5 0.0 .0.0 0.0 21.0 5.3 DryHydro Low High 414.3 245.6 354.2 0.0 0.0 0.0 23.2 6.3 WetHydro Low High 414.2 245.2 396.7 0.0 0.0 0.0 23.2 6.3 GasEscal Low High 415.0 374.9 0.0 0.0 0.0 272.2 23.1 15.2 Note:Years for GasEscal sensitivity are:1994,2010,and 2028.Pavesodicouysn20qvorspeq MLLco-sLivudTable 5-13 ANNUAL TRANSFER BENEFITS DUE TO THE NEW NORTHEAST LINE Increased Economy Reduced Net Assumptions Energy Transfer (M$/Yr)Transmission Loss (M$/Yr)Transfer Benefits (M$/Yr) Joint Scenario Fuel Load Probab.1994 2002 2010 1994 2002 2010 1994 2002 2010 Base Low Low 0.30 7.1 6.1 8.9 -0.3 -0.1 -0.4 6.8 8.0 8.5 Middle 0.23 5.2 6.3 8.6 -0.3 -0.1 -0.4 4.9 6.2 8.2 High 0.06 7.0 7.4 9.5 -0.3 -0.1 -0.3 6.7 7.3 9.2 Middle Low 0.03 5.5 6.0 7.6 0.2 0.2 0.1 5.7 6.3 7.7 Middle 0.08 3.8 4.7 9.0 0.2 0.2 -0.1 3.9 4.9 8.9 High 0.19 5.3 7.8 12.3 0.2 0.0 -0.4 5.5 7.8 11.8 High Low 0.00 5.7 6.7 9.0 0.2 0.2 0.0 8.9 6.9 9.1 Middle 0.02 4.0 5.5 10.9 0.2 -0.1 -0.2 4.2 5.4 10.7 High 0.08 5.7 9.2 15.0 0.3 -0.4 -0.5 6.0 8.8 14.5 ET Base Case Expected Values 5.8 7.3 10.0 -0.1 -0.1 -0.4 5.7 7.2 9.6 Utility Low 0.60 7.6 7.4 9.6 -0.3 -0.1 -0.3 7.3 7.3 9.3 Load Middle 0.30 5.5 9.5 12.8 0.1 -0.2 -0.5 5.6 9.2 12.3 Forecast High 0.10 4.9 11.0 15.4 0.1 -0.5 -0.4 5.0 10.4 15.0 Utility Load Forecast Exp.Values 6.7 8.4 11.1 -0.1 -0.2 -0.4 6.5 8.2 10. DOR Fuel Middle High 6.5 7.5 9.1 -0.0 -0.2 -0.4 6.5 7.3 8. NoMiltry Low High 6.4 6.8 9.0 -0.3 -0.0 -0.2 6.1 6.8 8. DryHydro Low High 8.2 8.5 10.6 -0.3 -0.1 -0.3 7.9 8.4 10. WetHydro Low High 7.3 7.7 9.9 -0.3 -0.1 -0.3 7.0 7.7 9. GasEscal Low High 8.9 13.3 15.5 -0.3 -0.3 -0.7 8.6 13.2 14. Notes: 1.All values are in 1987 million dollars. 2.Positive reduced transmission losses are savings. 3.Net Transfer Benefits =Increased Economy Energy Transfer :+Reduced Transmission Loss 4.Years for GasEscal sensitivity are:1994,2010,and 2028.pareiodicouysns0,qyuorspery Decision Focus Incorporated Table 5-14 PRESENT VALUE OF TRANSFER BENEFITS DUE TO THE NORTHEAST LINE Increased Assumptions Economy Reduced Net eaten Joint Energy Trans.Transfer Scenario Fuel Load Probab.Transfer Losses Benefits Base Low Low 0.30 152.0 -6.0 146.0 Middle 0.23 134.4 -5.6 128.8 High 0.06 154.1 -4.4 149.7 Middle Low 0.03 ,121.5 3.2 124.7 Middle 0.08 119.5 1.6 121.0 High 0.19 169.7 -1.3 168.4 High Low 0.00 138.5 2.9 141.4 Middle 0.02 .140.2 0.9 141.1 High 0.08 200.2 -2.5 197.7 Base Case Expected Values 151.5 -3.6 147.9 Utility Low 0.60 158.0 -3.9 154.1 Load Middle 0.30 195.9 -3.9 191.9 Forecast High 0.10 217.8 -4.2 213.6 Utility Load Forecast Exp.Values 175.3 -3.9 .171.4 DOR Fuel Middle High 151.3 -4.0 147.3 NoMiltry Low High 147.5 -4.3 143.2 DryHydro Low High 174.0 -4.0 170.0 WetHydro Low High 161.0 -4.8 156.2 GasEscal Low High 219.7 -5.2 214.5 Notes:1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5 %/yr) 2.Increased economy transfer and reduced transmission losses include North Pole adjustment. 32 GWh per year.There is much uncertainty surrounding these estimates,and the Air Force has not yet decided on a power supply plan.If the radar site load were entirely excluded from the Northeast intertie analysis,based on the assumption that no power will be supplied to the site from the utility grid,then the expected value of Northeast intertie benefits would decline by approximately $13 million. R1776b 5-26 DRAFT ead 4iftes Decision Focus Incorporated A preliminary estimate of benefits previously discussed with utility representa- tives was different from the estimate reported here.Two adjustments were made that account for the difference: 1.It was previously assumed that the efficiency of diesel generators operated by Copper Valley will not change over the analysis period. However,because existing units are presently scheduled for retire- ment in the year 2000,new diesel generators were assumed from that time forward with improved efficiencies,specifically full-load heat rates of 10,000 Btu/kWh [2]. A "high"set of cases was previously reported that was based on an estimate of variable O&M costs of $83 per MWh.This figure actually represents personnel costs.It is variable in the sense that most of it could be saved if the Northeast intertie were built and, as a result,the Copper Valley diesel generation were maintained only as reserve.However,the previous analysis assumed that this cost was also variable in an upward direction;ie.,if the output of the diesel generators doubled,this cost would also double.A recent conversation with CVEA'indicated that personnel costs would not change with increased diesel generation.The costs associated with increased diesel generation were therefore reduced relative to the values previously estimated. 5.10 IMPACT OF ADDITIONAL MILITARY LOAD IN FAIRBANKS forecast for all base case scenarios. increment was removed from the high load,low fuel price case. As discussed in Appendix C,an increment of additional military load,and to a minor extent additional University of Alaska load,was added to the Fairbanks demand Sensitivity cases were run in which the military The reduction in benefits recorded for this sensitivity test was $7.0 million for the full AF upgrade and $6.5 million for the Northeast intertie.With the limited AF100 upgrade,the reduction of load removed some of the constraints imposed by operating the North Pole plants and benefits actually increased $5.8 million. R1776b *Phone conversation between Salim J.Jabbour and Lowell Highbargain on March 28,1989. 5-27 DRAFT Decision Focus Incorporated 5.11 (1] (2) R1776b REFERENCES Letter from Steve Colt (ISER)to Mike Gordon (DFJ),February 1,1989. RMR Associates,Reference Guide to Small Cogeneration Systems for Utilities, final report prepared for Electric Power Research Institute,EM-4371,February 1986. 5-28 DRAFT aoe fe odra te(Eu(8Decision Focus Incorporated Section 6 BENEFITS OF INCREASED CAPACITY SHARING 6.1 OVERVIEW A new/upgraded intertie could allow two or more areas to share and/or increase sharing generation capacity.As a result,an increment of future investment in generation capacity could be deferred or avoided.This section describes the benefits of increased capacity sharing due to the new Kenai-Anchorage line,the full upgrade of the Anchorage-Fairbanks line to 225 MW,and the new Anchorage-Fairbanks Northeast intertie. We start by presenting the Railbelt capacity surplus (expected mainly in Kenai and Fairbanks)and the Railbelt capacity shortage without new/upgraded interties '(expected mainly in Anchorage).We then present the reduced Railbelt capacity shortage due to new/upgraded interties.The benefits of reduced Railbelt capacity shortage (i.e.,benefits of capacity sharing)due to the new Kenai-Anchorage line vary between $4.44 and $12.64 million;the benefits of the new/upgraded Anchorage- Fairbanks line vary between $0.33 and $1.07 million. 6.2 RAILBELT CAPACITY SURPLUS Capacity surplus is local generation capacity in excess of required generation capacity.Local generation capacity is here defined as existing local capacity minus local capacity retirements.'Required generation capacity is the sum of peak load and capacity reserve margin.Capacity reserve margin is a fraction of peak load.The following equations summarize the calculation of the capacity surplus. Capacity Surplus Required Capacity Capacity Reserve Margin Local Capacity -Required Capacity Peak Load +Capacity Reserve Margin Fraction x Peak Load 'For this analysis,capacity retirements are assumed to occur as planned according to retirementschedules.If life extension or repowering of generating units were assumed instead,existing capacitysurpluseswouldpersistoveralongertimeperiod,and the benefits of capacity sharing via interties would be deferred and,as a result,reduced. RIT76b 6-1 DRAFT Decision Focus Incorporated According to the Alaska Intertie Agreement [1],the capacity reserve margin should be equal to thirty (30)percent of the annual peak load.Kenai is expected to have a capacity surplus of over 100 MW when Bradley Lake comes on line (expected in the fall of 1991);the Kenai surplus is expected to continue for at least 25 years.' Table 6-1 summarizes the Kenai capacity surplus for all four load forecasts.* The existing capacity in Fairbanks is also larger than the capacity requirements in Fairbanks.Fairbanks is expected to have a capacity surplus for the next ten to fifteen years depending on load growth.The current capacity surplus in Fairbanks .is around 100 MW.Table 6-2 summarizes the Fairbanks capacity surplus for all four load forecasts. Anchorage has a current capacity surplus of around 300 MW.However,because of planned capacity retirements and projected load growth,the Anchorage capacity surplus is expected to disappear as early as 1995.Capacity surplus in Kenai and Fairbanks is therefore expected to persist longer than capacity surplus in Anchorage. As a result,there will be no benefit from sharing the Anchorage capacity surplus with Kenai and Fairbanks,both of which will have their own local surplus longer thanAnchoragewill.However,there will be benefit realized from sharing the Kenai and Fairbanks surplus with Anchorage after a capacity shortage develops in Anchorage. 6.3 RAILBELT CAPACITY SHORTAGE WITHOUT NEW/UPGRADED INTERTIES Capacity shortage is required generation capacity in excess of available capacity. For Kenai and Fairbanks,available capacity equals local capacity.For Anchorage, available capacity equals local capacity plus other capacity accessible through transmission lines.In other words,Anchorage can draw on surplus in Kenai and Fairbanks to alleviate an Anchorage shortage.However,neither Kenai nor Fairbanks can draw on surplus in Anchorage,for there is none when Kenai and Fairbanks experience shortages. *The capacity surplus decreases over time as the load grows and as generation capacity is retired. SLoad growth for 2011 through 2028 was based on the growth rate of the last five years of the loadforecast,i.e.2005 through 2010.This assumption had no impact on the capacity sharing benefitscalculatedinthissectionbecause2009wasthelastyearforwhichtherewasacapacitysharingbenefit(Refer to Sections 6.4 and 6.5). RIT76b 6-2 DRAFT OKcDecision Focus Incorporated *Based on a 30 percent planning reserve margin. R1776b KENAI CAPACITY SURPLUS* Table 6-1 Load Growth Low Middle High Utility 113 99 95 82 114 96 91 78 114 96 90 78 114 95 89 77 114 95 88 77 114 94 88 76 113 93 86 76 113 93 85 75 112 92 82 75 112 91 80 74 111 90 78 73 106 84 71 68 105 82 70 67 86 62 51 49 85 61 48 48 84 59 47 47 43 18.5 7 41 15 3 5 40 14 2 3 38 13 0 2 37 11 0 1 36 10°9 0 35 9 0 0 33 8 0 0 32 6 0 0 31 5 0 0 29 4 0 0 28 2 0 0 27 1 0 0 25 0 0 0 24 0 0 0 23 0 0 0 22 0 0 0 20 0 0 0 19 0 0 0 6-3 DRAFT Decision Focus Incorporated Table 6-2 FAIRBANKS CAPACITY SURPLUS* Load Growth &OVDODDADDDDAODADDADDAMODWDONDOADAOAOCOOOONDAO9DT700000000000000C00000000008N(o)raroODODODVDDODDDODDCODDOODDOCDOOONWo0qo0cooco0qg0o0o0ce0o0oCcCe0co0c0oce0000000[0000*Based on a 30 percent planning reserve margin. R1776b 6-4 DRAFT Decision Focus Incorporated 6.3.1 Kenai Capacity Shortage Kenai is expected to have a capacity surplus for the next 25 years.Kenai would have capacity shortages after 2014 only under the high and utility load growth forecasts.Table 6-3 illustrates the expected local capacity in Kenai between 1994 and 2028 and the corresponding capacity shortage for all four load forecasts. 6.3.2 Fairbanks Capacity Shortage Fairbanks is expected to have a capacity surplus for the next 10 to 15 years. Depending on the load forecast,Fairbanks is expected to start having a capacity shortage between 2001 and 2005.Table 6-4 illustrates the expected local capacity in Fairbanks between 1994 and 2028 and the corresponding capacity shortage for all four load forecasts. 6.3.3 Anchorage Capacity Shortage While the existing capacity surplus in Anchorage may disappear as early as 1995,capacity shortages in Anchorage may not occur until 1996 or 1997.The reason for this time lag between capacity surplus and capacity shortage in Anchorage is the © existing transmission lines that make surplus capacity in Kenai and Fairbanks accessible in Anchorage.A capacity shortage exists in Anchorage only if the Anchorage capacity requirements exceed the sum of the Anchorage local capacity and the capacity surplus in Kenai and Fairbanks accessible in Anchorage.The Kenai capacity surplus that is accessible in Anchorage is the minimum of the Kenai capacity surplus and the capacity of the Kenai-Anchorage line (currently 60 MW,based on Anchorage delivery). The Fairbanks capacity surplus that is accessible in Anchorage is the minimum of the Fairbanks capacity surplus and the capacity of the Anchorage-Fairbanks line (currently 62 MW,based on Anchorage delivery).Table 6-5 illustrates the expected local capacity in Anchorage between 1994 and 2028 and the corresponding capacity shortage for all four load forecasts. R1776b 6-5 DRAFT QOLLIaTable 6-3 KENAI CAPACITY SHORTAGE 9-9LivadLoad Growth :Low Load Growth :Middle Load Growth :High Load Growth :Utility Local Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Year (MW)(MW)(Mw)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(yy)(MW) 1994 198 65 85 0 76 99 0 80 103 .0 69 116 9 1995 195 62 81 0 76 99 0 80 104 0 90 117 9 1996 195 62 81 0 76 99 o 80 105 0 90 117 0 1997 195 62 81 0 7 100 0 92 106 0 90 118 0 1998 195 63 81 0 17 100 9 82 107 6 91 118 0 1999 195 63 81 0 78 101 o 83 107 0 91 119 0 2000 195 63 82 o 78 102 0 a4 109 0 92 119 e 2001 195 63 82 t']19 102 0 85 110 0 92 120 i] 2002 195 64 83 Qo 19 103 0 87 113 0 93 120 0 2003 195 64 83 0 80 104 0 es 115 Qo 93 121 0 2004 195 64 4 i]@1 105 0 90 117 0 94 122 0 2005 190 65 64 0 82 106 oO 91 119 0 94 122 0 2006 190 66 65 tC)83 108 0 92 120 0 94 123 0 2007 172 66 66 Q 64 110 0 93 121 ')95 123 0 2008 172 67 87 0 85 111 d 95 124 0 95 124 9 2009 172 68 ee oO 87 113 )96 125 0 96 125 0 2010 132 68 69 0 68 114 o 97 127 Qo 96 125 0 2011 131 69 90 0 69 116 0 98 128 QO 97 126 ) 2012 131 10 91 0 90 117 0 99 129 0 98 128 0 2013 131 1 93 0 91 118 0 100 131 0 99 129 o 2014 131 72 94 0 92 120 0 101 232 1 100 130 0 2015 131 13 95 0 93 121 0 102 133 2 101 132 1 2016 131 74 96 o 94 122 )103 134 3 102 133 2 2017 131 75 98 0 95 123 0 104 136 5 103 134 3 2018 131 76 99 0 96 125 0 105 137 6 104 136 5 2019 131 77 100 0 97 126 0 106 138 7 1035 137 6 2020 131 78 102 0 98 127 i)107 140 9 106 138 7 2021 131 79 103 0 99 129 o 108 141 1o 107 139 8 2022 131 80 104 0 100 130 )109 142 11 108 141 10 2023 131 81 106 0 101 131 0 110 144 13 109 142 11 2024 131 82 107 0 102 133 2 2111 145 14 110 143 12 2025 131 83 108 o 103 134 3 112 146 15 111 145 14 2026 131 84 109 0 104 135 4 113 147 16 112 146 15 2027 131 8s 111 0 105 136 5 114 149 18 113 147 16 2028 131 86 112 o 106 138 1 115 150 19 114 149 18 Capacity requirements are based on a 30 percent capacity reserve margin. Capacity shortage,if any,for Kenai =Kenai Capacity Requirement -Kenai Local Capacity x x 2 ©eo ot f ft ©€Fo 4 4 af t yd ewepaqesodicouysnd0qvowspeq LTA&.4iivudTable 6-4 FAIRBANKS CAPACITY SHORTAGE Load Growth :Low Load Growth ;:Middle Load Growth :High Load Growth :Otility Local Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Year (HW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(Hw)(Mw)(MM)(Mw) 1994 245 119 155 0 118 153 0 125 162 t)144 187 0 1995 243 119 155 0 119 154 0 127 165 0 146 190 0 1996 236 119 155 0 119 155 ty)128 166 0 149 193 0 1997 233 120 156 0 120 156 0 130 169 0 151 "196 0 1998 233 121 157 0 121 157 0 132 171 0 153 199 0 1999 233 121 157 0 122 159 °o 133 173 0 156 202 0 2000 226 121 158 0 123 160 0 136 177 0 158 206 0 2001 208 122 159 0 125 162 0 136 177 0 161 209 1 2002 165 124 161 0 126 163 0 141 183 18 163 212 47 2003 165 125 162 0 127 165 o 143 185 20 166 216 $1 2004 165 126 163 0 129 167 2 146 190 25 168 219 s4 2008S 145 127 165 20 131 170 25 182 197 52 171 222 77 2006 61 1268 167 106 133 173 112 157 205 144 174 226 165 2007 [)130 169 169 136 177 177 157 204 204 177 230 230 2008 o 132 172 172 139 180 180 158 206 206 179 233 233 2009 0 133 173 173 141 183 183 160 206 208 182 237 237 2010 0 135 176 176 143 187 167 163 212 212 185 241 241 2011 )136 177 177 145 169 189 166 216 216 188 244 244 2012 0 137 179 179 147 192 192 169 220 220 191 248 246 2013 0 138 180 180 149 194 194 172 224 224 194 252 252 2014 o 139 181 181 151 197 197 175 228 228 197 256 256 2015 0 140 183 163 183 200 200 178 232 232 200 260 260 2016 0 141 184 164 155 202 202 181 236 236 203 264 264 2017 0 142 165 185 157 205 205 184 240 240 206 268 268 2018 0 143 186 186 159 207 207 187 244 244 209 272 272 2019 0 144 188 168 161 210 210 190 248 248 212 276 276 2020 0 145 189 189 163 213 213 193 251 251 215 260 280 2021 0 146 190 190 165 215 215 196 255 255 218 283 283 2022 0 147 192 192 167 216 218 199 259 259 221 267 287 2023 0 148 193 193 169 220 220 202 263 263 224 291 291 2024 0 149 194 194 171 223 223 205 267 267 227 295 295 2025 0 150 196 196 173 226 226 208 271 271 230 299 299 2026 0 151 197 197 175 228 228 211 275 275 233 303 303 2027 0 152 198 198 177 231 231 214 279 279 236 307 307 20268 0 153 199 199 179 233 233 217 283 283 239 311 312 Capacity requirements are based on a 30 percent capacity reserve margin. Capacity shortage,if any,for Fairbanks =Fairbanks Capacity Requirement -Fairbanks Local Capacity au&Paerodiconysmooyuorspaga ALLLivadANCHORAGE CAPACITY SHORTAGE Load Growth ; Table 6-5 Middle Load Growth :High Load Growth :OtilityLoadGrowth:Low Local Capacity CapacityCapacityLoad=Requir't Shortage Year (Mw)(MW)(MW)(MW) 1994 658 383 498 0 1995 $24 362 a9?0 1996 404 361 495 0 1997 372 361 495 1 1998 353 380 494 19 1999 142 360 asa 230 2000 142 380 494 230 2001 142 382 497 246 2002 142 385 $01 295 2003 142 389 506 301 2004 142 393 $11 307 2005 142 397 §15 313 2006 142 401 522 320 2007 142 406 528 326 2008 142 411 $34 332 2009 SS 416 S41 426 2010 30 422 S49 475 2011 30 427 555 464 2012 30 432 $62 492 2013 30 437 566 §00 2014 30 442 575 508 2015 30 aa7 581 515 2016 30 452 5ee §23 2017 30 457 $94 §31 2018 30 462 602 539 2019 30 467 607 547 2020 30 4712 614 554 2021 30 4am7 620 562 2022 30 482 627 570 2023 30 4aa7 633 578 2024 30 492 640 586 2025 30 a97 646 593 2026 30 502 653 602 2027 30 507 659 609 2028 30 $12 666 617 664 674 Capacity Capacity Requir't Shortage (MW)(MW) 502 0 507 0 510 9 510 16 §15 40 $22 258 $27 263 534 286 540 336 549 347 $59 357 570 366 583 381 596 396 612 410 627 513 642 594 655 609 668 624 681 638 694 652 107 667 720 681 733 695 746 710 759 724 7712 7138 785 152 798 767 611 761 824 194 837 807 850 820 863 833 876 646 Capacity requirements are based on a 30 percent capacity reserve margin. Capacity shortage,if any,for Anchorage =Anchorage Capacity Requirement -Anchorage Local Capacity Capacity Capacity Requir't Shortage Load Capacity Capacity Requir't Shortage (oH)(oH)(nm)(1)(a) $25 o 395 $13 ) 529 t]403 523 ('] 534 8 411 534 27 $43 49 419 545 76 550 76 428 556 110 559 297 437 568 335 569 318 446 579 357 sel 348 455 §91 369 $92 390 464 603 401 604 402 474 616 414 618 416 463 628 426 628 426 493 641 439 642 440 $03 654 452 655 463 514 668 477 666 476 524 681 491 676 574 535 695 593 691 656 S46 710 673 704 671 556 723 688 117 68s 566 736 702 7130 700 576 749 717 743 713 586 162 731 756 126 596 7715 745 769 7139 606 768 758 782 182 616 801 771 795 165 626 e146 784 608 778 636 627 797 821 791 646 040 610 634 004 656 6s3 823 047 817 666 eceé e36 660 630 676 879 eas 073 843 686 892 862 ae6é as6 696 905 875 899 eco 106 918 eee 912 882 716 931 901 925 695 726 944 914 -Surplus in Kenai and Fairbanks Accessible via Transaission Lines.emaectedpayesodioouysnooyuospag basaee:|orDecision Focus Incorporated 6.4 REDUCED RAILBELT CAPACITY SHORTAGE DUE TO NEW/UPGRADED INTERTIES 6.4.1 Kenai-Anchorage New Intertie The new Kenai-Anchorage intertie would allow Anchorage to use the capacity surplus in Kenai without the 60 MW transfer limit that exists today.'For capacity planning purposes,Kenai and Anchorage could then be considered a single area;the load,capacity,and required capacity of the Kenai/Anchorage combined area would then be equal to the sum of the loads,capacities,and required capacities in the two areas. The Kenai-Anchorage area could also rely on capacity surplus in Fairbanks to the extent that this surplus is less than the transfer capacity of the existing Anchorage- Fairbanks line (62 MW,based on Anchorage delivery).The new Kenai-Anchorage line would therefore allow Anchorage to fully use the capacity surplus in Kenai and correspondingly reduce capacity shortages in Anchorage.Table 6-6 illustrates the capacity shortages in the Kenai/Anchorage combined area for all four load forecasts. The capacity shortage in the Kenai/Anchorage combined area (case with new intertie)is less than or equal to the sum of the capacity shortages in the two areas (case without new intertie).For example,there is a 40 MW capacity shortage in Anchorage for the middle load growth forecast in 1998°and a 5 MW capacity shortage in the Anchorage/Kenai combined area.Therefore,the new Kenai-Anchorage intertie would reduce the capacity shortage in 1998 by 35 MW (40 MW -5 MW)for the middle load forecast.This reduced capacity shortage is due to the fact that the new intertie would allow Anchorage to fully use the 95 MW surplus in Kenai in 1998 (refer to Table 6-1);only 60 MW would be used without the new intertie.Table 6-7 illustrates the reduced Kenai/Anchorage capacity shortages due to the Kenai-Anchorage new intertie. According to Table 6-7,the Kenai/Anchorage capacity shortages are reduced between 1996 and 2009;no capacity shortage reductions are identified after 2009. Therefore,these reduced shortages represent deferred capacity additions rather than 'avoided capacity additions.Avoided capacity additions could be accomplished if thenewKenai-Anchorage intertie would reduce the capacity reserve margin of the Kenai/Anchorage area. "The transfer limit for the new intertie would be 250 MW adjusted for transmission losses. There is no capacity shortage in Kenai in 1998. RIT76b 6-9 DRAFT OLEOT-9LavudTable 6-6 KENAI/ANCHORAGE CAPACITY SHORTAGE Load Growth ;Low Load Growth ;Middle Load Growth :High Load Growth :Utility Kenai/- Anchorage Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Year =(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(MW)(Mi)(MW) 1994 856 448 $a2 0 462 601 0 484 629 0 404 629 0 1995 719 445 578 0 466 606 )487 633 0 492 640 o 1996 599 443 576 0 468 609 0 491 639 ]501 651 9 1997 567 443 576 9 469 610 0 499 648 19 §10 663 59 1998 548 442 575 t)473 615 5 505 657 a7 519 674 93 1999 337 443 $75 176 4719 623 224 513 666 270 528 686 319 2000 337 443 576 177 484 629 230 521 678 292 §37 699 341 2001 337 445 579 193 489 636 253 532 691 323 547 711 374 2002 337 449 584 242 495 643 304 542 105 368 557 724 387 2003 337 453 589 249 502 653 316 $53 719 382 567 737 400 2004 337 457 594 256 §11 664 327 566 135 398 577 750 413 2005 332 461 600 268 520 676 344 575 147 415 587 163 431 2006 332 467 607 275 §31 691 359 586 762 430 598 717 445 2007 314 472 614 300 544 107 393 597 7717 463 609 791 417 2008 314 478 621 307 556 723 409 608 790 476 620 805 491 2009 227 484 629 402 569 740 §13 616 801 574 631 820 $93 2010 162 490 637 475 582 156 594 629 818 656 642 635 673 2011 161 496 645 aga 593 770 609 640 832 671 653 a49 688 2012 161 502 653 492 604 785 624 651 646 685 664 863 702 2013 161 508 661 S500 615 199 638 662 861 700 675 878 717 2014 161 514 669 508 626 813 652 673 875 714 686 692 731 2015 161 520 676 515 637 828 667 604 889 728 697 906 745 2016 161 526 684 523 648 642 681 695 904 743 708 921 760 2017 161 $32 692 $31 659 856 695 106 918 157 719 933 776 2018 161 538 700 $39 670 871 710 117 932 W121 730 949 788 2019 161 544 708 §47 681 98s 724 728 947 7186 741 963 802 2020 161 $50 115 $54 692 899 738 139 961 800 152 978 817 2021 161 556 723 562 703 913 752 750 975 814 7163 992 831 2022 161 562 731 570 714 928 767 761 989 $28 714 1006 845 2023 161 568 139 578 725 942.781 772 1004 843 7185 1021 860 2024 161 S74 747 586 736 956 795 783 1018 857 796 1035 74 2025 161 580 154 593 747 971 810 794 1032 871 807 1049 838 2026 161 586 162 601 7158 985 824 805 1047 686 618 1064 903 2027 161 592 770 609 169 999 638 816 1061 900 829 1078 917 2028 161 598 778 =--s«6177 780 1014 853 827 1075 914 640 1092 931 Capacity requirements are based on a 30 percent capacity reserve margin. Capacity shortage,if any,for Kenai/Anchorage Area =Kenai/Anchorage Capacity Requirement -Kenai/Anchorage Capacity +Surplus in Fairbanks Accessible via Existing Anchorage/Fairbanks Line.payeiodicouysnooyuolspoq ok? aa fine bethDecision Focus Incorporated Ri776b - REDUCED KENAVYANCHORAGE CAPACITY SHORTAGE DUE TO KENAI-ANCHORAGE NEW INTERTIE Table 6-7 Load Growth Low Middle 0 0 0 0 0 0 1 16 19 35 54 34 53 33 53 33 52 32 52 31 51 30 46 24 45 22 26 2 25 1 24 0 0 0 0 0 Q 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6-11 oqooo0o0ooooooco0ocodoo0c°0o°co0o00°o(oookokoRowohokowonokokokeosokokogookoswokokk::)DRAFT Decision Focus Incorporated 6.4.22 Anchorage-Fairbanks Intertie Upgrade The Anchorage-Fairbanks intertie upgrade would allow Anchorage to use the capacity surplus in Fairbanks without the 62 MW transfer limit that exists today.*For capacity planning purposes,Anchorage and Fairbanks could then be considered a single area;the load,capacity,and required capacity of the Anchorage/Fairbanks combined area would then be equal to the sum of the loads,capacities,and required capacities in the two areas.The Anchorage/Fairbanks area could also rely on capacity surplus in Kenai to the extent that this surplus is less than the transfer capacity of the existing Kenai-Anchorage line (60 MW,based on Anchorage delivery).The Anchorage-Fairbanks intertie upgrade would therefore allow Anchorage to fully use the capacity surplus in Fairbanks and correspondingly reduce capacity shortages in Anchorage.Table 6-8 illustrates the capacity shortages in the Anchorage/Fairbanks combined area for all four load forecasts. The capacity shortage in the Anchorage/Fairbanks combined area (case with intertie upgrade)is less than or equal to the sum of the capacity shortages in the two areas (case without new intertie).For example,there is a 40 MW capacity shortage in Anchorage for the middle load growth forecast in 1998'and a 26 MW capacity shortage in the Anchorage/Fairbanks combined area.Therefore,the Anchorage-Fairbanks intertie upgrade would reduce the capacity shortage in 1998 by 14 MW (40 MW -26 MW)for the middle load forecast.This reduced capacity shortage is due to the fact that the intertie upgrade would allow Anchorage to fully use the 76 MW surplus in Fairbanks in 1998 (refer to Table 6-2);only 62 MW would be used without the new intertie.Table 6-9 illustrates the reduced Anchorage/Fairbanks capacity shortages due to the Anchorage-Fairbanks intertie upgrade. According to Table 6-9,the Anchorage/Fairbanks capacity shortages are reduced between 1996 and 2000;no capacity shortage reductions are identified after 2000. Therefore,these reduced shortages represent deferred capacity additions rather than avoided capacity additions.Avoided capacity additions could be accomplished if the Anchorage-Fairbanks intertie upgrade would reduce the capacity reserve margin of the Anchorage/Fairbanks area. 6.4.3 Anchorage-Fairbanks Northeast Intertie The Anchorage-Fairbanks Northeast intertie would allow Anchorage and Fairbanks to reduce their capacity requirements by the same amount calculated for the Anchorage-Fairbanks intertie upgrade. ®The transfer limit of the upgraded intertie would be 225 MW adjusted for transmission losses. "There is no capacity shortage in Fairbanks in 1998. R1776>6-12 DRAFT Q9LL1E€T-9aivadTable 6-8 ANCHORAGE/FAIRBANKS CAPACITY SHORTAGE Load Growth :Low Load Growth ;Middle Load Growth :High Load Growth :Utility Anchorage/peewee roses ee ceccenen--core Pairbanks Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Capacity Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Load Requir't Shortage Year (Mw)(Mw)(MW)(MW)(MW)(MW)(Mm)(MW)(MW)(MW)(MW)(MH)(Mw) 1994 903 502 653 0 504 655 0 529 688 (]539 700 0 1995 167 502 652 0 509 661 0 533 694 0 s49 714 0 1996 640 500 650 0 §11 665 0 §39 700 QO 559 127 27 1997 605 §01 651 0 §13 666 1 547 711 46 570 741 76 1998 586 500 650 4 $17 _672 26 555 122 76 581 156 110 1999 375 501 651 216 523 680 245 563 732 297 592 770 335 2000 368 $02 652 224 529 687 259 574 746 318 604 785 357 2001 350 505 656 246 535 696 286 583 758 348 615 800 390 2002 307 509 662 295 $41 703 336 596 715 408 627 615 448 2003 307 514 668 ©301 549 714 347 607 189 422 639 831 464 2004 307 518 674 307 558 726 359 621 80a 441 652 847 480 2005 287 524 681 334 569 740 393 635 825 478 664 a64 517 2006 203 530 689 426 581 756 493 651 846 583 677 880 617 2007 142 §36 697 495 S96 714 $72 661 859 666 690 897 707 2008 142 543 706 504 610 193 591 671 $72 682 703 914 724 2009 5S 550 714 S99 624 611 696 680 884 782 17 932 830 2010 30 558 725 652 637 828 781 695 904 e6s 731 950 913 2011 30 564 133 662 649 44 199 708 921 887 744 967 933 2012 30 $70 740 671 661 860 815 721 937 906 157 984 951 2013 30 576 748 680 673 875 832 7134 954 924 7710 1001 969 2014 30 582 156 689 685 691 849 747 971 941 783 1018 987 2015 30 588 164 698 697 906 866 760 988 958 796 10335 1005 2016 30 594 112 107 709 922 683 173 1005 975 809 1052 1022 2017 30 600 119 116 721 938 900 786 1022 992 822 1068 1038 2018 30 606 787 725 733 953 917 799 1039 1009 835 1085 1055 2019 30 612 795 734 745 969 934 $12 1056 1026 848 1102 1072 2020 30 618 803 744 757 984 951 825 1073 1043 861 1119 1089 2021 30 624 611 183 169 1000 968 838 1090 1060 074 1136 1106 2022 30 630 618 762 781 1016 984 851 1106 1076 087 1153 1123 2023 30 636 826 771 193 1031 1001 864 1123 1093 900 1170 1140 2024 30 642 934 780 805 1047 1017 877 1140 1110 913 1187 1157 2025 30 648 642 789 817 1062 1032 890 1157 1127 926 1204 1174 2026 30 654 850 798 829 1078 1048 903 1174 1144 939 1221 1191 2027 30 660 857 807 841 1094 1064 916 1191 1161 952 1237 1207 2028 30 666 86S 816 853 1109 1079 929 1208 1178 965 1254 1224 Capacity requirements are based on a 30 percent capacity reserve margin. Capacity shortage,if any,for Anchorage/Fairbanks Area =Anchorage/Fairbanks Capacity Requirement -Anchorage/Fairbanks Capacity -Surplus in Kenai Accessible via Existing Kenai/Anchorage fTranamission Line.payssodicouysnooyuoispeq Decision Focus Incorporated R1776b Table 6-9 REDUCED ANCHORAGE/FAIRBANKS CAPACITY SHORTAGE DUE TO ANCHORAGE-FAIRBANKS INTERTIE UPGRADE Load Growth Year Low Middle High Utility raywo.o9+NOorwNooocoocoooCooCcCooCoOoOOoOCCOOoOOoOCOoOCOCOOCOOOOOOF&FFrOOOoCODODODCDDVDADDADDDADVDAODDOOOODOOCDOOOONDOOfooRoheRoRokoholohonolokoeokonogokokeokokogookocogokokogogokokokokoko)(ohoRoRokoRonoRokoRokoRoeokoRonoRokocokogokogogokoxogogod-)6-14 DRAFT ies;'a &Decision Focus Incorporated 6.5 BENEFITS OF REDUCED RAILBELT CAPACITY SHORTAGE DUE TO NEW/UPGRADED INTERTIES When capacity is needed,the Railbelt utilities would acquire additional capacity by a)repowering existing power plants,b)extending the life of existing power plants, or c)adding new power plants.The expected reduced capacity shortage due to the new/upgraded interties would allow the Railbelt to reduce the addition of capacity and therefore to save capital costs.Cost savings are largest when the Railbelt can avoid adding a new plant;avoiding repowering or life extension of an existing power plant also leads to cost savings.Since reduced capacity shortages are only temporary (refer to Sections 6.4.1 and 6.4.2),the resulting savings are cost deferrals rather than cost avoidances (refer to Sections 6.4.1 and 6.4.2).Therefore,we assign savings for reduced capacity shortages during any given year based on the reduced capacity shortage in that year (refer to Tables 6-7 and 6-9)and the annual value of saved capacity.The annual value of saved capacity in any given year is calculated at $39 per kilowatt per year.® 6.5.1 Kenai-Anchorage New Intertie Using the calculated reduced Kenai/Anchorage capacity shortages (Table 6-7)and the $39 per kilowatt per year value of saved capacity,we calculate the capital costsavingsduetocapacitysharingattributedtotheKenai-Anchorage new line. Table 6-10 summarizes the results.The discounted value of all benefits between 1994 and 2028 is largest for the lowest load forecast and lowest for the highest load forecast; with higher loads,there is less surplus capacity available for sharing.At a discount rate of 4.5 percent per year,the benefits of capacity sharing due to the Kenai- Anchorage new intertie vary between $4.44 and $12.64 million. 6.5.2 Anchorage-Fairbanks Intertie Upgrade Using the calculated reduced Anchorage/Fairbanks capacity shortages (Table 6-9) and the $39 per kilowatt per year value of saved capacity,we calculate the capital cost savings due to capacity sharing attributed to the Anchorage-Fairbanks intertie upgrade. Table 6-11 summarizes the results.At a discount rate of 4.5 percent per year,the benefits of capacity sharing due to the Anchorage-Fairbanks intertie upgrade vary between $0.33 and $1.07 million;there are no capacity sharing benefits for the utility load forecast (because of higher load forecast for Fairbanks). *Based on the levelized capital cost of a combustion turbine of $450 per kilowatt and a fixed O&M of$12 per kilowatt per year.Levelization is for 30 years at 4.5 percent per year. R1776b 6-15 DRAFT Decision Focus Incorporated R1776b Table 6-10 BENEFITS OF REDUCED KENAVANCHORAGE CAPACITY SHORTAGE Load Growth Year Low Middle High Utility 1994 0.00 0.00 0.00 0.00 1995 0.00 0.00 0.00 0.00 1996 0.00 0.00 0.32 0.70 1997 0.03 0.64 1.13 0.68 1998 0.73 1.36 1.11 -0.66 1999 2.09 1.32 1.07 0.63 2000 2.07 1.29 1.03 0.61 2001 2.06 1.27 0.96 0.59 2002 2.04 1.25 0.87 0.57 2003 2.02 1.20 0.79 0.54 2004 2.00 1.16 0.69 0.52 2005 1.78 0.92 0.43 0.30 2006 1.75 0.87 0.39 0.28 2007 1.00 0.10 0.00 0.00 2008 0.97 0.03 0.00 0.00 2009 0.94 0.00 0.00 0.00 2010 0.00 0.00 0.00 0.00 2011 0.00 0.00 0.00 0.00 2012 0.00 0.00 0.00 0.00 2013 0.00 0.00 0.00 0.00 2014 0.00 0.00 0.00 0.00 2015 0.00 0.00 0.00 0.00 2016 0.00 0.00 0.00 0.00 2017 0.00 0.00 0.00 0.00 2018 0.00 0.00 0.00 0.00 2019 0.00 0.00 0.00 0.00 2020 0.00 0.00 0.00 0.00 2021 0.00 0.00 0.00 0.00 2022 0.00 0.00 0.00 0.00 2023 0.00 0.00 0.00 0.00 2024 0.00 0.00 0.00 0.00 2025 0.00 0.00 0.00 0.00 2026 0.00 0.00 0.00 0.00 2027 0.00 0.00 0.00 0.00 2028 0.00 0.00 0.00 0.00 NPV 3.5%13.87 8.57 6.83 4.75 NPV 4.5%12.64 7.92 6.37 4.44 NPV 5.5%11.53 7.33 5.95 4.16 6-16 DRAFT ag Decision Focus Incorporated Table 6-11 BENEFITS OF REDUCED ANCHORAGE/FAIRBANKS CAPACITY SHORTAGE R1776b Load Growth Year Low Middle High Utility 1994 0.00 0.00 0.00 0.00 1995 0.00 0.00 0.00 0.00 1996 0.00 0.00 0.30 0.00 1997 0.03 0.59 0.08 0.00 1998 0.56 0.53 0.00 0.00 1999 0.55 0.48 0.00 0.00 2000 0.24 0.14 0.00 0.00 2001 0.00 0.00 0.00 0.00 2002 0.00 0.00 0.00 0.00 2003 0.00 0.00 0.00 0.00 2004 0.00 0.00 0.00 0.00 2005 0.00 0.00 0.00 0.00 2006 0.00 0.00 0.00 0.00 2007 0.00 0.00 0.00 0.00 2008 0.00 0.00 0.00 0.00 2009 0.00 0.00 0.00 0.00 2010 0.00 0.00 0.00 0.00 2011 0.00 0.00 0.00 0.00 2012 0.00 0.00 0.00 0.00 2013 0.00 0.00 0.00 0.00 2014 0.00 0.00 0.00 0.00 2015 0.00 0.00 0.00 0.00 2016 0.00 0.00 0.00 0.00 2017 0.00 0.00 0.00 0.00 2018 0.00 0.00 0.00 0.00 2019 0.00 0.00 0.00 0.00 2020 0.00 0.00 0.00 0.00 2021 0.00 0.00 0.00 0.00 2022 0.00 0.00 0.00 0.00 2023 0.00 0.00 0.00 0.00 2024 0.00 0.00 0.00 0.00 2025 0.00 0.00 0.00 0.00 2026 0.00 0.00 0.00 0.00 2027 0.00 0.00 0.00 0.00 2028 0.00 0.00 0.00 0.00 NPV 3.5%1.13 1.46 0.34 0.00 NPV 4.5%1.07 1.39 0.33 0.00 NPV 5.5%1.01 1.33 0.32 0.00 6-17 DRAFT Decision Focus Incorporated 6.5.3 Anchorage-Fairbanks Northeast Intertie Because the Anchorage-Fairbanks Northeast intertie and the Anchorage- Fairbanks intertie upgrade would lead to the same capacity shortage reductions,these calculations produce the same capacity sharing benefits. 6.6 OTHER CAPACITY SHARING BENEFITS There are two other ways in which additional capacity sharing benefits could be realized as a result of new additions: 1.New capacity is added in "lumpy"increments,not in smooth, gradual fractions as represented in the preceding analysis.This has two implications. a.A "lumpy”capacity addition in a future year can create a new capacity surplus in a given local area that is available for sharing outside the area for a limited time. b.The capacity costs that are deferred for a given area due to capacity sharing would tend to be higher than represented in the above analysis,again because capacity is added in larger increments rather than in a fractional manner. 2.Improved transmission may allow two areas to be served by one 'larger capacity addition in one location rather than two smaller capacity additions in each of the two areas.The capacity sharing benefit would depend on the economies of scale realized from construction of one larger plant rather than two smaller plants. 6.6.1 Future Surpluses Due to "Lumpy"Additions Future capacity additions in a local area may create a future capacity surplus in that area that was not accounted for in the preceding analysis.However,the issue is the extent to which the new intertie proposals would increase capacity sharing above the levels that are currently attainable with the existing system.Presently,60 MW can be shared between Kenai and Anchorage,and 62 MW can be shared between Fairbanks and Anchorage.We assume here that future capacity surplus created by capacity additions will not exceed the capacity sharing limitations of the existing transmission system. R1776>6-18 DRAFT $bs4Decision Focus Incorporated 6.6.2 "Lumpy"versus Fractional Capacity Costs The valuation method used in Section 6.5 assumes that the value of deferred capacity equals an average unit cost of capacity multiplied by the estimated fraction of capacity addition that can be deferred.If the increase in capacity sharing due to a transmission improvement results in a reduced capacity shortage of,for example, 12 MW,the value of that increase is expressed as the average annual cost of 12 MW of capacity,even though the local response to this shortage may otherwise have been to add a 50-MW plant.This tends to understate the value of increased capacity sharing due to the transmission improvements.Compensating for this,however,is the fact that the cost of life extension and repowering of existing facilities is assumed to be equal to the cost of new capacity in this analysis.Further,using planned capacity retirements,as noted in Section 6.2,produces the earliest capacity shortages and,as a result,tends to maximize the opportunity and extent of capacity sharing increases. 6.6.3 Economies of Scale in Capacity Additions It has been suggested by Golden Valley Electric Association (GVEA)®that since the Northeast intertie would add a second connection between Anchorage and Fairbanks,Fairbanks could locate some of its new generating capacity in Anchorage. This would,however,be limited by:(1)the smallest transfer capability of each of the two lines'(62 MW in this case,based on the existing Anchorage-Fairbanks line),and (2)the Fairbanks capacity shortage.According to the GVEA and Fairbanks Municipal Utility System (FMUS)retirement plans,capacity shortage would not occur in Fairbanks until 2002 at the earliest (refer to Table 6-4).Therefore,only after 2002 would Fairbanks be expected to locate new capacity in Anchorage and share that capacity with Anchorage. Assuming that Anchorage and Fairbanks would share a 100-MW unit in Anchorage in 2005 rather than adding two smaller units in each area,”the capacity sharing savings would depend on the economies of scale of the power plant technology at that time. Assuming that the one 100-MW unit would be $100 per kW cheaper than two 50-MW units,the realized savings would amount to $10 million for a 1994 present value of around $6 million (in 1987 dollars). *Meeting at the Alaska Power Authority,Anchorage,March 14,1989. ™In case of a fault on the line with the larger transfer capability (Northeast intertie),FairbanksaccesstogeneratingcapacityinAnchoragewouldbelimitedtothetransfercapabilityoftheexistingline. "In the capacity expansion plan used in this study,a 50-MW unit would be added in Fairbanks in2005. R1776b 6-19 DRAFT Decision Focus Incorporated 6.7 [1] R1776b REFERENCES Alaska Intertie Agreement,December 1985. 6-20 DRAFT LF Decision Focus Incorporated Section 7 OPERATING RESERVE SHARING 7.1 OVERVIEW Operating reserves'respond to changes in customer demand and failures in the electric generation and transmission system.Operating reserves improve reliability, but they are often expensive.The hydroelectric capacity on the Kenai Peninsula may provide a less expensive source for some operating reserves that otherwise would be provided by thermal generating units in the Anchorage area. The operating reserve savings depend on the following three factors: 1.The cost of providing operating reserves from thermal plants in Anchorage. 2.The transmission capacity between Anchorage and Kenai. 3.The generating capability in Kenai. All three factors are discussed in more detail in the following subsections.The addition of a new Kenai-Anchorage intertie would increase operating reserve savings by about $45,000 (1987 dollars)per year. Appendix H discusses the transfer of energy back and forth between Anchorage and Kenai to reshape thermal demands to their most efficient production profile.The reshaping of demands served by thermal power plants differs significantly from sharing operating reserves.Reshaping involves moving significant amounts of energy between Kenai and Anchorage and changing the timing of thermal generation in Anchorage. Sharing operating reserves on the other hand,does not involve any transfer of energy between areas,nor the changed timing of any generation.It does involve shifting energy production among Anchorage power plants. 'Throughout this report,the term "operating reserves”refers only to "spinning reserves.”However,according to the Alaska Intertie Agreement,operating reserves include both spinning and non-spinningreserves.Non-spinning operating reserves were not considered in this analysis because they are projectedtoexceedrequirementsinallscenarios. R1776b 7-1 DRAFT Decision Focus Incorporated 7.2 ANCHORAGE OPERATING RESERVE REQUIREMENT The interconnection agreements and operating practices among the Railbelt utilities currently result in the provision of approximately 65 MW of operating reserve accessible in the Anchorage area.Limited amounts of this operating reserve can be provided from outside the Anchorage area.Based on the information available,we estimate it is feasible to transfer up to 30 MW of operating reserve from Kenai to Anchorage.These 30 MW result from examining the generating units typically providing operating reserves and the practice of distributing these reserves such that they are not all lost with a single event. 7.3 THE COST OF OPERATING RESERVES In order to respond quickly to changing requirements,power plants providing operating reserves are operated at part load such that they can quickly increase or decrease their power output.This is expensive for thermal generating plants in general and gas turbines in particular.Most of the operating reserve provided in the Anchorage area comes from gas turbines.Appendix H provides more specific information about gas turbine part-load operating costs. The cost of providing operating reserve with Anchorage area gas turbines is about 5000 Btu/kWh.For example,when the 66-MW Beluga #5 CT operates at a loading of 33 MW,its total operating cost (also called heat rate)is 15,012 Btu/kWh.At a loading of 33 MW,Beluga #5 provides 33 MW of spinning reserves (66 MW of rated capacity minus 33 MW of loaded capacity).When Beluga #5 is operated to provide spinning reserves,”the cost of providing spinning reserves is the difference between the total operating cost of Beluga #5 (i.e.,15,012 Btu/kWh)and the system marginal cost. The system marginal cost is typically 9,000 to 11,000 Btu/kWh (refer to Appendix H, Table H-2).Therefore,the cost of spinning reserves is estimated at 5000 Btu/kWh. 7.4 KENAI-ANCHORAGE TRANSMISSION CAPACITY The new intertie will be capable of transferring 250 MW from Kenai to Anchorage;therefore,with the new intertie,transmission will not be a constraint on the transfer of 30 MW of operating reserve.The existing line can transfer 60 MW from Kenai to Anchorage.Based on the analysis described in Appendix H,it is expected that 30 MW of this will be utilized to provide transfers to reshape Anchorage demand for more efficient thermal generation.This will leave 30 MW of capacity available for the transfer of operating reserve.Because this increment of capacity has very high losses (approximately 20 percent),it will be seldom utilized for economy *Operating Beluga #5 could have been avoided if it were not for the spinning reserves requirement. R1776b 7-2 DRAFT Decision Focus Incorporated transactions.Transferring operating reserve is ideal because it does not incur losses. Since both lines can transfer 30 MW of operating reserve,the main difference between transfer capacity in the area of operating reserve is the reliability/availability of the existing Kenai-Anchorage line. 7.5 KENAI GENERATING CAPABILITY With the addition of Bradley Lake,hydroelectric capacity in Kenai will increase to 133 MW delivered to Soldotna.This hydroelectric capability is energy-limited such that its overall capacity factor is on the order of 35 percent.This means that on average,more than 80 MW of unused hydroelectric capacity exists because of limited energy.This is an ideal operating reserve application.The ability of Kenai hydroelectric plants (particularly Bradley Lake)to respond quickly enough to provide useful operating reserve remains uncertain.Our analysis assumes that of Anchorage's overall needs,Kenai can provide 30 MW of sufficient capability to replace an equivalent amount of operating reserve from thermal generating plants in the Anchorage area. We have assumed no added hydro operating cost resulting from the provision of this operating reserve from Kenai hydroelectric facilities. 7.6 SAVINGS IN OPERATING RESERVE COSTS The savings in operating reserve costs is the product of:(1)the cost of the thermal operating reserve in Anchorage,(2)the amount of operating reserve displaced, and (3)the amount of time it is displaced.At 5000 Btu/kWh and 30 MW of operating reserve transferred,150 MBtu of fuel are saved each hour.Our analysis estimates operating reserve could be transferred about 4000 hours a year.This gives an annual savings of 600,000 MBtu per year.Most of these savings (which amount to $1.2 million annually when gas costs $2 per MBtu)result with or without the new Kenai- Anchorage intertie.The new line could provide increased benefits with higher availability and higher capacity to transfer power and operating reserves.Based on our analysis of the detailed simulation results of the Kenai and Anchorage area power dispatch,we conclude that the higher availability of the new intertie is the only significant source of difference in benefits. The existing Kenai-Anchorage intertie is assumed to be out of service two weeks per year.This outage would reduce the operating reserve sharing about 150 hours a year and give the new intertie a $45,000 increase in annual benefits with gas at $2 per MBtu. RIT76b 7-3 DRAFT Decision Focus Incorporated Section 13 SUMMARY AND CONCLUSIONS 13.1 OVERVIEW This section provides a summary of the overall cost-benefit results for each of the alternatives analyzed in this study.The costs and benefits that have been estimated in the previous sections are aggregated and compared.'In accordance with the practice followed throughout this analysis,all costs and benefits are expressed in terms of 1987 dollars. The expected value of net benefits for each of the eight alternatives is shown in Figure 13-1.Positive net benefits are estimated for the limited upgrade of the Anchorage-Fairbanks intertie (AF100),the gas pipeline from Cook Inlet to Fairbanks (GAS),and the two groups of end-use conservation programs (END3 and END8).Net economic loss is indicated for each of the other alternatives,including the new Kenai- Anchorage line (KA),the full upgrade of the Anchorage-Fairbanks intertie (AF),the Northeast intertie (NE),and the 50-MW coal-fired power plant at Healy (COAL). Figure 13-2 shows the expected value of costs and benefits for each of the alternatives.The costs of the capital projects include both capital costs and the present value of associated operations and maintenance costs.The difference between the estimates of cost and benefit is the estimate of net benefits. Figure 13-3 presents this information in the form of benefit/cost ratios.The AF100 alternative,which has the lowest total cost,is estimated to provide the highest benefit per dollar expended. Attributes that have not been quantified in the previous sections,such as environmental costsandbenefits,are not reflected in these summaries.Further,utility representatives have suggested theremaybeotherlesstangiblebenefitscreatedbytheintertiessuchasenhancedcompetitionamongfuelsuppliersandenhancedsitingflexibility. R1776>13-1 DRAFT Decision Focus Incorporated Net Benefits ($M) 300 200 er eer rene rere ararene annp er reer tere rraren srritt rr rere eee tre teen reterr ii rar irs 100 errr errr rer rer errr rrr rarrr ar ar arerrrerrrrr rrr rrrrr errr rreter rr rrer eer rrrerrer ir iys 0 EIN -1 00 Pere ee Perret errterre tritrert rere reat isrrr treet errret reer reececrerre err eerensy -200 be bie cee cree eras sO tmrase e ereeeee @ sedan ee tren Cece econ ese ton seer eee Oe AED H OLDS OEE TEES OF EH ETH O OE COSTEONDDOECORH Oh Den teen er ssceereeectea-s neacareey -300 L 1 Ll al {I 1 1 KA AF AF100 NE COAL GAS END3 END8 Alternative EES Low Net Benefit High Net Benefit Expected net benefits for nine base case scenarios. Figure 13-1.Railbelt Alternatives:Net Benefits Costs and Benefits ($M)600 500 r NN 400 - 300 F 100 N 0 SEL SR ISSCCTORECRESSGGRReeeAReasaTEEEYsESSERseteetecectuasteestestusctceISRUSRERRESfasebenastsGuusesasaroch ssannrass4iy aan sae rH sue KA AF AF100 NE COAL GAS END3 _END8 Alternative EI Costs Low Benefits HEH High Benefits BSS High Costs Expected benefits for nine base case scenarios. Figure 13-2.Railbelt Alternatives:Cost and Benefits RI776b 13-2 DRAFT Phd tens Decision Focus Incorporated R1776b Benefits/Costs 3 erTerePereerrrreeererereerretry N ee \eae 1 \ \NT HIN BN 0 N N SS NKAAFAF100NECOALGAS ND3 ENDS Alternative | HEE Low BIC ratio High B/C ratio Based on expected net benefits for nine base case scenarios. Figure 13-3.Railbelt Alternatives:Benefit/Cost Ratios 13-3 DRAFT Decision Focus Incorporated 18.2 NEW KENAI-ANCHORAGE INTERTIE Table 13-1 shows the present value of costs and benefits for the new Kenai- Anchorage line in each of the categories identified in this analysis.The expected value of net economic loss (ie.,negative net benefits)is between $59.1 million and $64.3 million.The difference between the low and high estimates of benefit reflects only the difference between the high and low reliability benefit.The estimate of total costs is comprised of the capital cost estimate for the "Enstar"route discussed in Section 2 plus the present value of operations and maintenance cost over the analysis period.If the "Tesoro"route were ultimately selected,the capital cost would be $17.7 million higher. Figure 13-4 displays net benefits for each scenario.Figure 13-5 shows the relative contribution of each benefit category to the total expected benefits. Table 13-1 NEW KENAI-ANCHORAGE INTERTIE:SUMMARY OF COSTS AND BENEFITS Increased Increasedincreased Economy Reduced Capacity Spinning Total Benefits Net Benefits Energy Trans.Sharing Reserves Total Prob Transfer Losses Benefits Sharing Low High Costs Low High LL 0.30 8.2 5.2 12.6 0.61 38.2 43.4 103.1 64.9 -59.7 LM 0.23 7.3 7.5 7.9 0.61 34.9 40.1 103.1 -68.2 -63.0 LH 0.06 7.2 8.8 6.4 0.61 34.4 39.6 103.1 -68.7 -63.5 ML 0.03 11.2 7.21 12.6 0.84 43.3 48.5 103.1 -59.8 -54.6 MM 0.08 10.1 10.1 7.9 0.84 40.4 48.6 103.21 -62.7 -57.5MHO.19 10.0 12.0 6.4 0.84 40.8 46.0 103.1 -62.3 "37.1 HL 0.00 14.0 8.9 12.6 1.06 48.2 53.4 103.1 -54.9 49.7 HM 0.02 12.4 12.5 7.9 2.06 45.5 50.7 103.1 57.6 -52.4 BH 0.08 12.7 14.9 6.4 1.06 46.6 §1.8 103.21 -56.5 -51.3 Exp Val 8.9 8.6 9.0 0.72 38.8 44.0 103.1 64.3 59.1 UL 0.60 6.9 8.1 4.4 0.61 31.6 36.8 103.1 -71.5 -66.3 UM 0.30 9.7 10.9 4.4 0.84 37.4 42.6 103.1 -65.7 -60.5 UH 0.10 12.2 13.5 4.4 1.06 42.7 47.9 103.1 "60.4 +55.2 Exp Val 8.2 9.5 4.4 0.72 34.4 39.6 103.1 -68.7 -63.5 DOR 7.21 7.6 6.4 0.61 33.3 38.5 103.1 -69.8 -64.6 NM 7.21 8.7 6.4 0.61 34.4 39.6 103.1 -68.7 -63.5 DE 7.6 11.1 6.4 0.61 37.3 42.5 103.1 -65.8 -60.6 WH 7.5 7.3 6.4 0.61 33.4 38.6 103.1 -69.7 -64.5 GE 7.3 10.7 6.4 0.621 36.5 41.7 103.1 66.6 -61.4 Notes: 1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5%/yr). 2.Total benefits include: Benefit Low High Reliability benefits 8.80 14.00 Stability benefits 2.77 2.77 3.Total costs include capital costs and O&M costs. 4.Net Benefits =Total Benefits -Total Costs. RIT76b 13-4 DRAFT es aft rae Decision Focus Incorporated Net Benefits ($M) 75 Base Cases Sensitivity Cases fLow Fuel /Low LoadLowFuel/MiddleLoadLowFuel/High LoadMiddleFuel/Low LoadMingleFuel/Micdie LoadMidgieFuel/High LoadHighFuel/Low LoadHighFuel/MiddieLoadHighFuel/High LoadFEFERRSEF|ELow Fuel /Utility LoadMiddleFuel/Unity LoadHighFuel/Unity LoadMiddleADOAFuel/High LoadLowFuel/Hi Load No Mil.LoadLowFuet/High Loas Ory HydroLowFuel/High Load Wet HydroLowFuel/High Load Gas Esc.REVEQSERi.1 4 1 1 aT tLi LL LM LH ML MM MH HL HM HH UL UM UH DORNM OH WH GE Scenario ME Low High Figure 13-4.New Kenai-Anchorage Intertie:Net Benefits Reduced Trans.Loss $8.60M 20% o 8 Capacity Sharing : $9.00M 20%< Spinning Reserve $0.72M 2% Reliability $14.00M 32% Only high reliability benetits are shown. Increased Economy Energy $8.90M 20% Stability $2.77M 6% Figure 13-5.New Kenai-Anchorage Intertie:Breakdown of Expected Benefits Ri776>13-5 DRAFT Decision Focus Incorporated 13.3 FULL UPGRADE OF ANCHORAGE-FAIRBANKS INTERTIE TO 225 MW Table 13-2 shows the present value of costs and benefits for the full Anchorage- Fairbanks upgrade to 225 MW.The expected value of net economic loss (i.e.,negative net benefits)is $38.2 million. the load forecast in the Fairbanks area. As discussed in Section 5,the benefits are sensitive to Positive net benefits are estimated when the utility load forecast?is combined with either the middle or the high fuel price scenario. Figure 13-6 displays the net benefits estimated for each scenario.Figure 13-7 shows the relative contribution of each benefit category to the total expected benefits. Table 13-2 ANCHORAGE-FAIRBANKS FULL UPGRADE: SUMMARY OF COSTS AND BENEFITS Increased Increased Economy Reduced Capacity : Energy Trans.Sharing Total Total Net Prob Transfer Losses Benefits Benefits Costs.Benefits LL 0.30 83.2 2.7 1.1 88.4 133.9 -45.6 LM 0.23 83.8 3.4 1.4 90.0 133.9 -43.9 LH 0.06 92.9 5.2 0.3 99.8 133.9 34.1 ML 0.03 46.1 12.7 1.1 61.3 133.9 -72.6 MM 0.08 62.2 11.7 1.4 76.7 133.9 -57.2 MH 0.19 99.7 10.3 0.3 111.8 133.9 -22.1 HL 0.00 55.0 14.7 1.1 72.2 133.9 -61.7 EM 0.02 74.8 12.8 1.4 90.4 133.9 -43.5 HA 0.08 119.7 10.8 0.3 132.3 133.9 71.6 Exp Val 87.1 6.3 0.9 95.7 133.9 -38.2 UL 0.60 104.0 5.8 0.0 111.2 133.9 -22.7 UM 0.30 134.1 8.8 0.0 144.3 133.9 10.4 UH 0.10 158.7 11.0 0.0 171.0 133.9 37.1 =e Exp Val 118.5 7.2 0.0 127.1 133.9 -6.8 SSS DOR 93.6 -3.8 0.3 99.1 133.9 -34.8 NM 86.3 4.8 0.3 92.8 133.9 -41.1 DH 91.3 5.6 0.3 98.6 133.9 -35.3 WH 94.4 4.6 0.3 100.7 133.9 -33.2 GE 83.3 4.5 0.3 89.5-133.9 44.4 =a Notes: 1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5%/yr). 2.Total benefits include a reliability benefit of $1.40 3.Total costs include capital costs and O&M costs. 4.Net Benefits =Total Benefits -Total Costs. 5.Table includes North Pole adjustment. million. *The utility load forecast includes the highest load forecast for Fairbanks that is considered in thisstudy(refer to Appendix C). R1776b 13-6 DRAFT uoDecision Focus Incorporated Net Benefits ($M) 75 Base Cases Sensitivity Cases 50 ee ee OCR T TESS OTTESeeOorerarreTeees SeTree eet Trea eee er er errr erer eer Terr ery rrrreererry Serrreer T rer rt Tree er Ts 25 een ens ccenes ctor MME tcc a baer O50 BeODD-aagepmoseeeasee ssQroecens fase Cases 1s Low Fuet /Low LoadLMLowFuel/Middle LoadLHLowFuel/High Load0;_Mi Aisle Fuel /Low Load alls =V4 Mickie Fuel/Middle LoadwedpielMHMicdieFuel/High Load =-ov ML High Fuel /Low Load 'wie we High Fuel /Middle Load-25 Hird =Tie stepteetereswiaceenees =.HH High Fuel /High Load ...UL Low Fuel/Utitty LoadweUMMiddleFuel/Utuity Load 50 DOR atadeADOAFreirigh LoadNMLowFuel/Hi Load No Mi.LoadOH=Low Fuel /High Load Dry HyarowrLowFuel/High Load Wet Hydro 754 L L i l t L L i i n L 4 1 l 1 GE Low Fuet/High Load Ges Esc. LL iM LH ML MM MH HL HM HH UL UM UH DOR NM DOH WH GE Scenario Figure 13-6.Anchorage-Fairbanks Full Upgrade:Net Benefits Other ,sed $2.30M 2%nerea Reduced Trans.LossEconomyEnergyi"$87.10M 91%$6.30M 7% Other benefits include: Capacity Sharing $0.9M Reliability $1.4M Figure 13-7.Anchorage-Fairbanks Full Upgrade: Breakdown of Expected Benefits RIT76b 13-7 DRAFT Decision Focus Incorporated 13.4 LIMITED UPGRADE OF THE ANCHORAGE-FAIRBANKS INTERTIE TO 100 MW Table 13-3 shows the present value of costs and benefits for the limited Anchorage-Fairbanks upgrade to 100 MW.Positive benefits are indicated for each scenario examined.The expected value of net economic benefit is $31.2 million. Figure 13-8 displays the net benefits estimated for each scenario.Figure 13-9 shows the relative contribution of each benefit category to the total expected benefits. Table 13-3 ANCHORAGE-FAIRBANKS UPGRADE TO 100 MW: SUMMARY OF COSTS AND BENEFITS Increased Increased Economy Reduced Capacity Energy Trans.Sharing Total Total Net Prob Transfer Losses Benefits Benefits Costs Benefits LL 0.30 44.2 -3.6 1.1 41.7 8.46 33.2 IM 0.23 40.6 -5.5 1.4 36.5 8.46 28.1 LH 0.06 33.4 -11.5 0.3 22.3 8.46 13.8 uM 0.03 25.6 -2.8 1.1 23.8 8.46 15.4 MM 0.08 32.8 -3.7 1.4 30.5 8.46 22.0 MH 0.19 §3.1 -8.0 0.3.45.4 8.46 37.0 EL 0.00 29.3 -1.0 1.1 29.4 8.46 21.0 EM 0.02 39.0 -2.4 1.4 38.1 8.46 29.6 HH 0.08 63.1 -6.2 0.3 $7.2 8.46 48.8 Exp Val 44.3 -5.5 0.9 39.7 8.46 31.2 UL 0.60 41.0.-17.0 0.0 24.1 8.46 15.6 UM 0.30 53.9 15.8 0.0 38.1 8.46 29.7 UH 0.10 62.0 -15.6 0.0 46.3 8.46 37.9 Exp Val 47.0 -16.5 0.0 30.5 8.46 22.1 DOR 32.2 -11.8 0.3 20.8 8.46 12.3 NM 36.2 8.4 0.3 28.1 8.46 19.6 DH 32.8 -11.6 0.3 21.6 8.46 13.1 WH 33.5 -11.5 0.3 22.4 8.46 13.9 GE 26.1 -9.1 0.3 17.4 8.46 8.9 Notes: 1.All values are in 1987 million dollars (present through 2028 discounted at 4.5%/yr). 2.Total benefits include: Benefit Reliability benefits 0.00 Stability benefits 0.00 3.Total costs include capital costs and O&M costs. 4.Net Benefits =Total Benefits -Total Costs. 5.Table includes North Pole adjustment. R1776b 13-8 value for 1994 DRAFT Decision Focus Incorporated 5 Net Benefits ($M) Base Cases Sensitivity Cases Base Cases Low Fuel /Low LoadLowFuel/Mudie LoadLowFuel/High LoadMiddleFuel/Low LoadMiddieFuel/Middle LoadMiddleFuel/High LoadHighFuel/Low LoadHighFuel/MiddieLoadHighFuel/High LoadSenetivtyCasesLowFuet/Unitty LoadMiddleFuel/Unity LoadHighFuel/Utiny LoadMileADORFuel/High LoadLowFuel/Mi Load No Mil.LoadLowFuel/High Load Ory HydroLowFuet/High Load Wet HydroLowFuel/High Load Gas Esc.atiaeG 4wh ia ail *” *perEEFRERSEFgIRERESTEF75 wl.L 1 iL L i 1 i rT 1 a L 1 L 4 L it ae)tL tM LH ML MM MH Hi HM HH UL UM UH DOR NM DH WH GE Scenario Figure 13-8.Anchorage-Fairbanks Upgrade to 100 MW:Net Benefits Increased Economy Energy $38.80M 98% Economy energy benefits include $5.5M of increased transmission losses. Capacity Sharing $0.90M 2% Figure 13-9.Anchorage-Fairbanks Upgrade to 100 MW: Breakdown of Expected Benefits RI1776b 13-9 Decision Focus Incorporated 13.5 NORTHEAST INTERTIE Table 13-4 shows the present value of costs and benefits for the Northeast intertie.The expected value of economic loss (i.e.,negative net benefit)is $29 million. As in the case of the full Anchorage-Fairbanks upgrade proposal,the combination of high load forecasts and high fuel prices is needed to produce an estimate of positive economic benefit. Figure 13-10 displays the net benefits estimated for each scenario.Figure 13-11 shows the relative contribution of each benefit category to the total expected benefits. Table 13-4 ANCHORAGE-FAIRBANKS NORTHEAST INTERTIE :SUMMARY OF COSTS AND BENEFITS Increased Increased Economy Reduced Capacity ° Energy Trans.Sharing Total Total Net Prob Transfer Losses Benefits Benefits Costs Benefits LL 0.30 152.0 -6.0 1.1 157.4 188.1 -30.7 LM 0.23 134.4 -5.6 1.4 140.5 188.1 -47.6 LH 0.06 154.1 4.4 0.3 160.3 188.1 -27.7 ML 0.03 121.5 3.2 1.1 136.0 188.1 52.0 MM 0.08 119.5 1.6 1.4 132.7 188.1 -55.3 Ma 0.19 169.7 -1.3 0.3 179.0 188.1 -9.0 EL 0.00 138.5 2.9 1.1 152.8 188.1 -35.3 HM 0.02 140.2 0.9 1.4 152.8 188.1 -35.3 HA 0.08 200.2 -2.5 0.3 208.4 188.1 20.3 Exp Val 151.5 -3.6 0.9 159.1 188.1 -29.0 SEES SEES Soe UL 0.60 158.0 -3.9 0.0 164.4 188.1 -23.7 UM 0.30 195.9 -3.9 0.0 202.2 188.1 14.2 UH 0.10 217.8 -4.2 0.0 224.0 188.1 35.9 Exp Val 175.3 -3.9 0.0 181.7 188.1 -6.4 DOR 151.3 -4.0 0.3 158.0 188.1 -30.1 NM 146.3 -4.3 0.3 152.6 188.1 -35.5 DH 174.0 -4.0 0.3 180.6 188.1 -7.4 WH 161.0 -4,8 0.3 166.9 188.1 -21.2 GE 219.7 -5.2 0.3 225.1 188.1 37.1 Bs Notes: 1.All values are in 1987 million dollars (present value for 1994through2028discountedat4.5%/yr).2.Total benefits include a reliability benefit of $10.30 million. 3.Increased economy energy transfer is based on:Railbelt average variable O&M of ICEs (6.05 $/MWh) 4.Total costs include capital costs and O&M costs. 5.Net Benefits =Total Benefits -Total Costs. 6.Table includes North Pole adjustment. RIT76b 13-10 DRAFT BBekWe.Fraed a8Decision Focus Incorporated 5 Net Benefits ($M) Base Cases Sensitivity Cases Bese Cases ua Low Fuel /Low LoadUtLowFuel/MiddleLoadutLowFuel/High LoadMeMiadeFuel/Low Loadsae]MiadieFuel/Middle LoadMHMudieFuel/High LostMLhughFuet/Low Loadey)High Fuel /MiddleLoadHHHighFuel/High Load UL Low Fuet /UtityLoadUneMiddleFuel/Utiay LoadUHHighFuel/Utiity LoadCOR=Middle ADOA Fuel /righ LoadNMLowFuel/Hi Load No Mil.LoadOHLowFuel/High Load Dry HydrowyLowFuel/High Load Wet Hydro 75 i 4 an 1 4 1 1 1 i i in }1 IL 1 L i GE Low Fuel /High Load Ges Esc.LL LM LH ML MM MH HL HM HH UL UM UH DORNM DH WH GE Scenario Figure 13-10.Northeast Intertie:Net Benefits Increased Economy Energy $147.90M 93% Capacity Sharing .$0,90M 1%Relispiity ° $10.30M 6% Economy energy benefits include $3.6M of increased transmission losses. Figure 13-11.Northeast Intertie:Breakdown of Expected Benefits RI776b 13-11 .DRAFT Decision Focus Incorporated 13.6 50-MW COAL-FIRED POWER PLANT AT HEALY Table 13-5 shows the present value of costs and benefits for the 50-MW coal- fired power plant at Healy.The expected value of economic loss (ie.,negative net benefit)is between $75.9 million and $155.6 million.The difference between the low and high benefit estimates is due entirely to the capital cost estimate of the power plant.These results were based on the economics of a single-purpose power plant as discussed in Section 8.The plant economics would improve if the value of cogenerated steam to a steam purchaser (such as the operator of a.coal drying facility)exceeded the incremental cost of producing the additional steam.The possibility of federal subsidy has been raised in conjunction with the proposed coal plant.This analysis has not considered such a subsidy.If there were a subsidy,it could make a substantial difference in the price of power to potential power purchasers. Figure 13-12 displays the net benefits estimated for each scenario.Figure 13-13 shows the relative contribution of each benefit category to the total expected benefits. Table 13-5 50-MW COAL-FIRED POWER PLANT AT HEALY: SUMMARY OF COSTS AND BENEFITS Reduced Reduced Total Costs Net Benefits Energy Trans.Capacity Total Prob Costs Losses Benefits Benefits Low High Low High LL 0.30 43.9 3.1 30.0 77.0 177.4°287.1 -100.4 -180.1 IM 0.23 46.4 3.3 30.0 79.7 177.4 287.1 -97.7 7177.4 LH 0.06 $3.9 4.4 30.0 88.3 177.4 257.1 "89.1 -168.8 ML 0.03 75.4 5.1 30.0 110.5 177.4 257.1 "66.9 -146.6. MM 0.08 86.3 5.3 30.0 121.5 177.4 257.1 "55.9 135.6 MH 0.19 90.5 8.7 30.0 126.2 177.4 257.1 "S1.3 9 -130.9EL0.00 115.0 6.1 30.0 251.1 177.4 257.2 "26.4 <-106.0 EM 0.02 129.1 6.0 30.0 165.0 177.4 257.1 "12.4 "92.1 BH 0.08 134.8 6.1 30.0 170.9 177.4 257.1 6.5 -86.2 Exp Val 67.3 4.3 30.0 101.5 177.4 257.1 "75.9 155.6 UL 0.60 $2.7 5.3 30.0 88.0 177.4 257.1 "89.4 -169.1 UM 0.30 96.3 6.6 30.0 132.8 177.4 257.1 "44.6 124.3 UH 9.10 142.3 7.5 30.0 179.7 177.4 257.1 2.3 -77.4 Exp Val 74.7 s.9 30.0 110.6 177.4 287.1 -66.8 "146.5 DOR 30.9 4.2 30.0 65.0 177.4 257.1 112.4 "192.1 NM $3.1 4.0 30.0 87.0 177.4 257.1 -90.4 -170.1 DH $4.8 4.5 30.0 89.3 177.4 257.1 "88.1 -167.8 WH $1.1 4.4 30.0 835.5 177.4 257.1 "92.0 -171.6 GE 87.6 3.7 30.0 121.3 177.4 257.1 "56.2 135.8 Notes:1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5%/yr). 2.Total costs include:Cost Low High Capital ($/KW)1600.00 3194.00 Fixed O&M ($M/yr)5.58 5.58 3.Capacity benefits are based on $39/kW-yr (including Fixed O«M). 4.Net Benefits =Total Benefits -Total Costs. 5.Table includes North Pole adjustment. RI776b 13-12 DRAFT Sa| v.p59Decision Focus Incorporated Net Benefits ($M) Base Cases Sensitivity Cases Bese Cases Low Fuel /MiddleLoadLowFuel/High LoadMaddieFuel/Low LoadMickieFuet/Middle LoedheadteFuel/Magh LoadHighFuel/Low LoadHighFuel/heddieLoadHighFuel/High Lond Senentvity CasesLowFuel /Unity LoadMiddleFuel/Unity LoadHighFuel/Utiny LoedMiddieADOAFuel/High LoadLowFuel/Hi Load No Mil.LondLowFuel/High Load Ory HyaroLowFuel/bHign Load Wet HydroLowFust/High Load Gas Esc.EEFEPRSEREVERTES-200 1 L 1 i 1 L 1.4 i 7a al.i a rT L it tL tM tH ML MM MH HL HM HH UL UM UH DORNM DH WH GE Scenario ME High Low Figure 13-12.50-MW Coal-Fired Power Plant at Healy:Net Benefits Reduced Energy Costs $67.30M 66% |=| i=| |ry y A Reduced Trans.Loss ee $4.30M 4% Capacity Benefits $30.00M 30% Figure 13-13.50-MW Coal-Fired Power Plant at Healy: Breakdown of Expected Benefits R1776b 13-13 DRAFT Decision Focus Incorporated 13.7 COOK INLET-FAIRBANKS GAS PIPELINE Table 13-6 shows the present value of costs and benefits estimated for the gas pipeline from Cook Inlet to Fairbanks.The expected value of economic benefit is $243 million.Positive benefits are estimated for every scenario.Nearly 80 percent of the estimated benefits accrue outside the electric power sector,ie.,primarily in the residential and commercial heating sectors in the Fairbanks area. Figure 13-14 displays the net benefits estimated for each scenario.Figures 13-15 and 13-16 show the allocation of benefits between the power and non-power sectors., Table 13-6 COOK INLET-FAIRBANKS GAS PIPELINE: SUMMARY OF COSTS AND BENEFITS ; Outside Reduced Reduced Elec Power Energy Trans.Sector Total Total Net Prob Costs Losses Benefits Benefits Costs Benefits LL 0.30 80.9 15.0 414.0 §15.8 284.1 231.7 IM 0.23 93.6 17.7 426.0 543.1 284.1 259.0 La 0.06 105.0 20.4 462.0 §93.1 284.1 309.1 ML 0.03 53.1 14.9 334.0 407.8 284.1 123.7 MM 0.08 72.2 16.6 349.0 443.6 284.1 159.5 ME O.19 116.7 21.0 389.0 532.5 284.1 248.4 HL 0.00 62.6 15.8 371.0 455.2 284.1 171.1 HM 0.02 85.6 17.1 388.0 496.5 284.1 212.5 HH 0.08 137.9 21.6 432.0 597.3 284.1 313.2 EE eee Exp Val 95.3 17.8 408.4 $27.3 284.1 243.3 UL 0.60 123.0 21.8 462.0 612.6 284.1 328.5 UM 0.30 155.2.24.6 389.0 574.6 284.1 290.6 OH 0.10 180.6 27.0 432.0 645.4 284.1 361.3 Exp Val 138.4 23.2 437.1 604.5 284.1 320.4 SEE eee DOR 110.0 19.3 462.0 597.1 284.1 313.0 NM 97.4 19.4 462.0 584.6 284.1 300.5 DH 107.4 20.6 462.0 595.8 284.1 311.7 WH 103.1 20.0 462.0 590.9 284.1 306.8 GE 90.3 16.2 351.0 463.3 284.1 179.2 Notes:1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5%/yr). 2.Total benefits include a reliability benefit of $5.80 million. 3.Total costs include capital costs,O&M costs and the following costs/benefits:Conversion costs of FMUS Chena 5 =$950,000, conversion costs of North Pole #$1350,000,and reduced O&M costs for FMUS =$595,000 4.Net Benefits =Total Benefits -Total Costs. 5.Table includes North Pole adjustment. 6.Benefits outside the electric power sector for the DOR Fuel, NoMiltry,DryHydro,and WetHydro sensitivity cases are estimatedbasedontheLowFuel/High Load scenario. R1776b 13-14 DRAFT os week Decision Focus Incorporated Net Benefits ($M)400 8Sune Cones100wwLew Furst}Low Load 4 Us Law Fuel /MadeLondUtLowust/High one0theeFuel|Low LentMadManneFue/Maddie LoawaMameFuat/bagh LongabegnFustLowLome"100 fF vad bagh Fuel /Medio Lone ee Lana begn Fual /ragh LoasBaseCasesSensitivityCasesCamen -200 f PO oe Real a tea --}ad Miao fuel /Uuity LendUtbagnFyet/Uaimy LondCOR=Mande ADOA Frat |bagh Lone300FfadLowProut/00 Loan No Ad.LonaonLawFuel{hugn Laat Ory bpareWALowBust/}0gh Load Wat Myer400nrl1rn1rnL1nrnnNn1GeLowAust/Magn emt Qes Eoe.| Scenario no ca | LL tM tH ML MM MH HL HM HH Ut UM UH DOR NM DH WH GE Figure 13-14.Gas Pipeline:Net Benefits Benefits ($M) 00 Base Cases HH UL Scenario GEE Electric Sector ii'''!'qaa_-_'EEAERRSEF:[ciiNed Low Fust/>0 Lone Me Md.LoneOnLowFue:/bagh Lond Ory MyceWHLawFust/hugh Laas Wet MydreGELowFun/Hap Lent Gas Eos. Outside Elec.Sector Figure 13-15.Gas Pipeline:Benefits Within Versus Outside the Electric Power Sector Outside Elec.Sector _,/$408.40M77%_/ Reduced energy costs include reducedtransrmssionlosses.Reduced O&M cosis ot $0 6M for FMUSnotshown. Figure 13-16.Gas Pipeline: R1776b 13-15 i Reliability $5.80M 1% Reduced Energy Costs $113.10M 21% 1 Breakdown of Expected Benefits DRAFT DecisionFocusIncorporated 13.8 END-USE CONSERVATION PROGRAMS:TOP THREE Table 13-7 shows the present value of resource costs and benefits for the top three end-use programs.The expected value of economic benefit is between $8.0 million and $10.5 million for the top three programs.Positive benefits are estimated for all scenarios.The difference between the low and high benefit estimate is due entirely to alternative values assigned to avoided generation capacity savings. Figures 13-17 and 13-18 display net benefits for each scenario and the breakdown of benefits into their main categories. Table 13-7 TOP THREE END-USE PROGRAMS :SUMMARY OF COSTS AND BENEFITS Reduced Reduced Capacity Value Total Benefits Net Benefits Energy Trans.Total Prob Costs Losses Low High Low High Costs Low High LL 0.30 16.19 0.12 4.71 7.20 21.02 23.51 15.42 §.60 8.09 LM 0.23 16.62 0.19 4.71 7.20 21.52 24.01 15.42 6.10 8.59 LE 0.06 17.46 0.19 4.71 7.20 22.36 24.85 15.42 6.94 9.43 ML 0.03 20.55 0.27 4.71 7.20 25.53 28.02 16.78 8.75 11.24 MM 0.08 21.33.0.26 4.71 7.20 26.30 28.79 16.78 9.52 12.01 MH 0.19 22.48 0.26 4.71 7.20 27.45 29.94 16.78 10.67 13.16 HL 0.00 24.85 0.21 4.71 7.20 29.77 32.26 18.01 11.76 14.25 EM 0.02 25.85 0.08 4.71 7.20 30.64 33.13 18.01 12.63 15.12 HH 0.08 27.05 0.17 4.71 7.20 32.93 34.42 18.01 13.92 16.41 Exp Val 19.17 0.19 4.71 7.20 24.07 26.56 16.09 7.98 10.47 UL 0.60 17.86 0.17 4.71 7.20 22.74 25.23 15.42 7.32 9.81 UM 0.30 23.05 0.23 4.71 7.20 27.99 30.48 16.78 11.221 13.70UH0.10 27.85 0.18 4.71 7.20 32.74 35.23 18.01 14.73 17.22 Exp Val 20.42 0.19 4.71 7.20 25.32 27.81 16.09 9.23 11.72 DOR 14.99 0.05 4.71 7.20 19.75 22.24 14.68 §.07 7.56 NM 17.26 0.22 4.71 7.20 22.19 24.68 15.42 6.77 9.26 DH 17.66 0.20 4.71 7.20 22.57 25.06 18.42 7.15 9.64 WH 17.36 0.20 4.71 7.20 22.27 24.76 15.42 6.85 9.34 GE 20.04 0.13 4.71 7.20 24.88 27.37 15.42 9.46 11.95 Notes: 1.All values are in 1987 million dollars (present value for 1994 through 2028 discounted at 4.5%/yr). 2.Total benefits include: Benefit Reliability benefits 0.00 Stability benefits 0.00 3.Capacity value is 50.7$/KW-yr (High)and 33.2$/KW-yr (Low) 4.Total costs include capital costs and O&M costs. 5.Net Benefits =Total Benefits -Total Costs. RI776b 13-16 DRAFT -Decision Focus Incorporated 0 Net Benefits ($M) Base Cases Sensitivity Cases 20 =oer er ence riererrr ree rrererrrereeertrrrsrre Ifetrertrerirtirey et esmewrareneeone tetas asnenseceaceosorneesescuesnee:seseerers Base Coses[iL Low Fuel /Low LoadU4LowFuel/MiidleLoadLH -_Low Fuel /High LoadMiMidkiieFuel/Low LoadMidMiddleFuel/Middle LoadMH=MiddleFuel/High LoadHLHighFuel/Low LoadWMHighFuel/MutdieLoadHHHighFuel/High Load Looe peeves cee vaseccae eo eeve tenes 0 vee auevereevassesavasecsonesdfsesserecscorece scesesesesecesescapeece sevcsesseeteessesese:suvseeaseseerssves Senenivity Cases710ULLowFusl/Utiiey LoadUMMicxtieFuet/Unity LoadUHHighFuel/Unity LoadCOR=Miadie ADOR Fuel /High Load207NMLowFuel/Hi Load No Mil.LoadOwLowFuel/High Load Ory HyaroWHLowFuel/High Load Wet Hydro l n 1 j n "nt 1 L L i 1 n i Ll 1 L GE Low Fuel /Hign Load Gas Esc. UL LM LH ML MM MH HL HM HH UL UM UH DOR NM DH WH GE Scenario EEE Low High Figure 13-17.Top Three End-Use Programs:Net Benefits Reduced Energy Costs $19.17M 72% Reduced Trans.Loss $0.19M 1% Capacity Benefits $7.20M 27% Only high capacity benefits are shown. Figure 13-18.Top Three End-Use Programs:Breakdown of Expected Benefits RI776b 13-17 DRAFT Decision Focus Incorporated 13.9 END-USE CONSERVATION PROGRAMS:TOP EIGHT Tables 13-8 shows the present value of resource costs and benefits for the top eight end-use programs.The expected value of economic benefit is between $8.0 million and $13.7 million for all eight programs.Positive benefits are estimated for all scenarios.The difference between the low and high benefit estimate is due entirely to alternative values assigned to avoided generation capacity savings. Figures 13-19 and 13-20 display net benefits for each scenario and the breakdown of benefits into their main categories. Table 13-8 TOP EIGHT END-USE PROGRAMS :SUMMARY OF COSTS AND BENEFITS Reduced Reduced Capacity Value Total Benefits Net Benefits Energy Trans.Total Prob Costs Losses Low High Low High Coste Low High LL 0.30 33.43 0.27 10.89 16.65 44.59 50.35 42.25 2.34 8.10 LM 0.23 34.58 0.46 10.89 16.65 43.93 51.69 42.25 3.68 9,44 LH 0.06 36.65 0.56 10.89 16.65 48.10 53.86 42.25 5.85 12.61 ML 0.03 42.71 0.70 10.89 16.65 54.30 60.06 44.81 9.49 15.25 MM 0.08 44.59 0.59 10.89 16.65 $6.07 61.83 44.81 11.26 17.02 MH 0.19 47.51 0.74 10.89 16.65 59.14 64.90 44.81 14.33 20.09 HL 0.00 $2.09 0.68 10.89 16.65 63.66 69.42 47.20 16.46 22.22 HM 0.02 54.36 0.37 10.89 16.65 65.62 71.38 47.20 18.42 24.18 HH 0.08 57.82 0.45 10.89 16.65 69.16 74.92 47.20 21.96 27.72 Exp Val 40.12 0.48 10.89 16.65 51.48 57.24 43.51 7.97 13.73 UL 0.60 37.63 0.38 10.89 16.65 48.90 54.66 42.25 6.65 12.41 UM 0.30 $2.02 0.53 10.89 16.65 63.44 69.20 44.81 18.63 24.39 UB 0.10 59.76 0.50 10.89 16.65 71.15 76.91 47.20 23.95 29.71 Exp Val 44.16 0.44 10.89 16.65 $5.49 61.25 43.51 11.97 17.73 DOR 30.65 0.15 10.89 16.65 41.69 47.45 40.86 0.83 6.59 ™35.95 0.62 10.89 16.65 47.46 53.22 42.25 §.21 10.97 DH 37.05 0.52 10.89 16.65 48.46 $4.22 42.25 6.21 11.97 WH 36.25 0.56 10.89 16.65 47.70 53.46 42.25 5.45 11.21 GE 40.52 0.10 10.89 16.65 52.51 57.27 42.25 9.26 15.02 Notes: 1.All values are in 1987 million dollars (present value for 1994 through 2028discountedat4.5%/yr). 2.Total benefits include: Benefit Reliability benefits 0.00 Stability benefits 0.00 3.Capacity value is 50.7$/KW-yr (High)and 33.2$/KW-yr (Low) 4.Total costs include capital costs and O&M costs. 5.Net Benefits =Total Benefits -Total Costs. RIT76b 13-18 DRAFT cmia) wa 8g Net Benefits ($M) 30 -30 Se eee eee eee ee Base Cases 1 re}Decision Focus Incorporated fEEFEERSEF|ELow Fuel /Low LoadLowFuel/MiddieLoadLowFuel/High LoadMiddleFuel/Low LoadMasiaFuel/MiddleLoadMiddleFuel/High LoadHighFuel/Low LoadHighFuel/MiddieLoadHighFuel/High Load UL Sensitivity Cases i 4 a4 L a.Jou.Lb i 1.-oo oan' LL tM LH ML MM MH HL HM HH UL UM UH DORNM DH WH GE Low Scenario High Low Fuel/Unity LosdMiddleFuel/Uuity LoadHighFuel/Unity LoedMigdieADORFuel/High LoadLowFuel/Hi Load No Mil.LoadLowFuel/High Load Ory HydroLowFuet/High Load Wet Hydro Figure 13-19.Top Eight End-Use Programs:Net Benefits Reduced Energy Costs $40.12M 70% $16.65M 29% Only high capacity benefits are shown. Reduced Trans.Loss $0.48M 1% Capacity Benefits Figure 13-20.Top Eight End-Use Programs:Breakdown of Expected Benefits R1776b 13-19 DRAFT Decision Focus Incorporated 13.10 OTHER PROPOSALS AND COMMENTS 13.10.1 Modified Intertie Proposals Railbelt utilities submitted two modified intertie proposals to us for review near the end of March.Golden Valley Electric Association (GVEA)has proposed construction of a new 138-KV line between Healy and Fairbanks in conjunction with the limited upgrade of the Anchorage-Fairbanks intertie (AF100)evaluated in this study.Chugach Electric Association (CEA)has proposed construction of a new 138-KV line between Soldotna and Anchorage rather than a new 230-KV line Time constraints did not allow detailed analyses of these proposals.It appears that the modified Kenai-Anchorage proposal from CEA would cost less than the 230-KV alternative,but would also achieve lower benefits in the form of reduced transmission losses.The GVEA proposal would apparently reduce transmission losses between Healy and Fairbanks.Estimates of the economic viability of these two proposals will beprovidedinthefinalreport.- SO 13.10.2 Existing Kenai-Anchorage Line:Two Month per Year Interruptions for Maintenance In the same letter,CEA stated that the system modeling should reflect the idea that the existing Kenai-Anchorage transmission line will be unavailable for transfers for two months per year during the summer due to long-term maintenance.Chugach suggested that these interruptions in transfer capability be assumed to begin in 1994, the first year of the model simulation,and extend for the following ten years.Further, the analysis attached to the letter reflected continuing one month per year scheduled interruptions extending from 2005 (the end of the initial ten-year period)through 2028 (the last year of the simulation). Again,this idea was not expressed in time to receive careful consideration or scrutiny in this analysis.To evaluate the impact of this possibility,the preferred approach would be to incorporate the new constraint into the simulation modeling and examine the results.Although that approach was not possible given the date the issue was raised,we did make some rough calculations to estimate what the impact of this possibility would be on the new Kenai-Anchorage feasibility results.We considered the following benefit categories. 1.Stability:We see no impact on the stability benefits attributed to the new intertie. 3Letter from Gerald M.Mackey (CEA)to Salim J.Jabbour,March 20,1989. R1776b 13-20 " DRAFT "4tied §4r Decision Focus Incorporated RI776b Reliability:For the scenario with the existing line,reliability would probably improve to the extent that the line is unavailable for transfers and to the extent that the preventive maintenance program is successful.Outages in Anchorage and Kenai caused by failure of the existing line while transfers are occurring would be avoided for two months per year.Reducing the reliability benefit of the new intertie by one-sixth would mean a reduction of $1 to $2 million in net benefits for the new Kenai-Anchorage line. Capacity Sharing:Because the interruptions would be scheduled and would occur during the off-peak months,there should not be any impact on the capacity sharing value of the existing line. Consequently,the capacity sharing benefit of the new line should be unaffected. Economy Energy and Reduced Transmission Losses:Economy energy benefits of the new line would increase and the transmission loss benefit would be slightly lower.This is because there would be lower losses in the "existing intertie”case to be reduced by the new intertie.Table 13-9 summarizes the first step in estimating the magnitude of change in economy energy benefit. The average value of each unit of increased economy energy transfer is estimated for three selected years based on the simulation results presented in Section 5. The next step is to estimate the value of transfer benefit lost in the "existing line”scenario due to the two-month interruptions,as shown in Table 13-10.This value can then be added to the net benefits of the new intertie,since these transfers would occur with the new line but not with the existing line.For this estimate,we assume a two-month interruption for every year between 1994 and 2028. The "lost transfer benefits”for the existing line shown in Column D in Table 13-10 due to the 2 month interruptions can be used as estimates of the increased transfer benefits of the new line.The annual increase in benefit from 1994 through 2010 was estimated by interpolating between the three selected years calculated in Tables 13-9 and 13-10.The value from 2011 through 2028 was assumed to be the same as 2010.The present value of this stream was then calculated at a 4.5 percent real discount rate,yielding an estimated increase in net benefit of $7.3 million. 13-21 DRAFT Decision Focus Incorporated Table 13-9 AVERAGE VALUE OF INCREASED ECONOMY ENERGY TRANSFER Change in Kenai-AnchorageTransfersDuetoNewLine'Transfer Benefits Due To New Line' (Gwh/yr)($_million/yr)($/Mwh) 1994 89.6 0.5 5.6 2002 90.1 0.5 §.5 2010 77.8 0.6 7.7 1.Includes both south to north and north to south transfers.Also includes hydro-thermal coordination transfers. 2.Does not include reduced transmission loss benefits. Table 13-10 VALUE OF TWO-MONTH TRANSFER BENEFIT (A)(B)(Cc)(D) Lost Kenai-Lost Transfer Anchorage Benefits Kenai-Anchorage Transfers Due Lost Adjusted ForTransfers'With to 2 Month Transfer Transmission Existing Line Interruptions'Benefit'Losses'| (GWh/yr)(GWh/yr)($/Mwh)(Smillion/yr) 1994 356.4 59.4 5.6 0.326 2002 371.5 61.9 5.5 0.334 2010 413.3 68.9 7.7 0.520 1.Includes both south to north and north to south transfers.Also includes hydro-thermal coordination transfers. 2.One sixth of Column A. 3.Based on transfer benefits due to new line. transmission loss benefits. Does not include reduced 4.Column B multiplied by Colum C.Product reduced by two percent transmission losses of new line. RIT76b 13-22 DRAFT valaoid Decision Focus Incorporated 5.Operating Reserve Sharing:For the scenario with the existing line, an annual two-month outage would reduce the time when operating reserves can be transferred from Kenai to Anchorage.We estimate this reduction at 517 hours per year.This change in line availability is not sensitive to load growth.The lost benefit to the existing line scenario would increase the net benefits of the new line by the amounts shown in Table 13-11. The net result of these rough calculations would be to increase the net benefits estimated for the new Kenai-Anchorage line by $8 million to $9 million,given a two- month transfer interruption for maintenance on the existing line from 1994 through 2028.This estimate is comprised of (1)$7.3 million for economy energy transfer,(2) minus $1 to $2 million for reliability value,and (3)$2 to $4 million for spinning reserves.With this adjustment,the Kenai-Anchorage new intertie would have an expected net economic loss of $50 million to $55 million. Table 13-11 IMPACT OF TWO-MONTH OUTAGE ON OPERATING RESERVE BENEFIT 1994 2002 2010 Present Value Impact 1994-2028 RIT776b Lost Benefit ($million) Low Fuel 0.12 0.12 0.14 2.09 Mid Fuel 0.15 0.16 0.18 2.88 High Fuel 0.17 0.20 0.23 3.60 DRAFT .ALASKA INDUSTRIAL DEVELOPMENT>AND EXPORT AUTHORITY =ALASKA qm =ENERGY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /561-8050 FAX 907 /561-8998 MEMORANDUM TO:Jon Rubini,Esq. Keith Laufer,Esq.Pete Wray,Esq.FROM:wana THedExecutiveDirector DATE:August 23,1994 Subject:Intertie Participating Group Project Financing We have received a formal inquiry letter by Thomas Stahr,Chairman,on behalf of the Intertie Participating Group,requesting a determination of whether AIDEA is in a position,without further legislative authorization,to finance the Participant's share of the additional cost of the Intertie Projects. Please review the legislation and existing agreements to determine if all necessary legislative and contractual obligations are in place to allow AIDEA to finance the projects.Identify any prerequisites that must be accomplished before AIDEA can proceed with financing. We anticipate providing a detailed response to the Participants by mid September. That response will identify legal requirements,necessary work products from the Participants,and financial marketing requirements.Please coordinate your efforts and provide me with a draft response by the end of the first week of September. DWB:bif h:all\beardsle\aidea\ipggaa6 Attachment cc:Dennis V.McCrohan,Deputy Director (Energy) Valorie F.Walker,Deputy Director (Finance) Daniel W.Beardsley,Contracts Manager -GAM -Sfes/7¥ WY Municipal Light&Power 1200 East First Avenue Anchorage,Alaska 99501-1685(907)279-7671,SE CEITE 2.\S . tbAugust16,1994 William R.Snell AUG 19 1994 Executive Director i Alaska Industrial Development Alaska Industrial Development&Export Authority and Export Authority 480 W.Tudor Road Anchorage,AK 99503-6690 Re:Intertie Financing Dear Riley: We had earlier talked about the possibility of AIDEA providing the additionalfinancingnecessarytocompletethenorthernandsouthernsegmentsoftheParticipantsIntertieProject.The Intertie Participants Group ("IPG”)at its last meeting directed me,as chairman,toformallyaskyoutodeterminewhetheryouareinaposition,without further legislativeauthorization,to finance the Participants'share of the additional cost of these projects,either asAIDEAorthroughAEA. If you determine that you are in a position to arrange for the joint financing of theParticipants'additional cost of these projects,the IPG would like to request that you take thosepreliminarystepswhicharenecessarytodeterminetheconditionsandcostsofthisjointfinancingoftheproject. The IPG is anxious to determine whether joint financing through AIDEA or AEA isanoptionandtherelativefinancingcostofthisoptiontotheParticipants.Please feel free tocontactmeifyouhaveanyquestionsorrequirefurtherinformationfromtheprojectParticipants. Sincerely yours, AL LIGHT &POWER a? omas R.Stahr General Manager and Chairman,IPG TRS:lka cc:Norm Story,HEAJamesN.Woodcock,MEA Dave Calvert,City of Seward Vince Mottola,FMUS Robert Hufman,AEG&T Gene Bjornstad,CEA Mike Kelly,GVEA Putting Energy Into Anchorage :)File 4 Nw \Ra Tom Fink,Mayor 1200 East First Avenue Anchorage,Alaska 99501-1685 (907)279-7671,SE CEIVE 2GHll]August 16,1994 qWilliamR.Snell .AUG 13 1994 Executive Director F AlaskaIndustrial Development Alaska Industrial Development &Export Authority and Export Authority 480 W.Tudor Road Anchorage,AK 99503-6690 Re:Intertie Financing Dear Riley: We had earlier talked about the possibility of AIDEA providing the additionalfinancingnecessarytocompletethenorthernandsouthernsegmentsoftheParticipantsIntertieProject.The Intertie Participants Group ("IPG”)at its last meeting directed me,as chairman,toformallyaskyoutodeterminewhetheryouareinaposition,without further legislativeauthorization,to finance the Participants'share of the additional cost of these projects,either as AIDEA or through AEA. If you determine that you are in a position to arrange for the joint financing of the Participants'additional cost of these projects,the IPG would like to request that you take those preliminary steps which are necessary to determine the conditions and costs of this joint financingoftheproject. The IPG is anxious to determine whether joint financing through AIDEA or AEA is an option and the relative financing cost of this option to the Participants.Please feel free to contact me if you have any questions or require further information from the project Participants. Sincerely yours, AL LIGHT &POWER a"? omas R.Stahr General Manager and Chairman,IPG TRS:lka ce:Norm Story,HEA ° James N.Woodcock,MEA Dave Calvert,City of Seward Vince Mottola,FMUS Robert Hufman,AEG&T Gene Bjornstad,CEA Mike Kelly,GVEA Putting Energy Into Anchorage "3h'a\\/NG Municipality of Anchorage Municipal Light &Power 7138 Kv INTERTIES -TIMELINE May 26,1994 1996 t 1996 1999 1994 1996 |1996 1997 1998 1999 2000 2001TeskNeme|a«|ay |a2 |03 [a4 |a1]oz |a3 J as |a1 ft a2 [os [a4 [an]02 [|03 [04 [a1 [a2|a3 ai |az {|a3 |a4 {|at |a2|a3 |as Northern intertie | Environmental Assessment Planned Complete ' Route Selection Planned Complete i Engineering Design '! Links 1-4-6 Line Construction '! ___Links 2-3 Line Construction |-.=i[Southern InIntertie - |"__Concept (Scope Def)$0.6M ||||«Route Selection/Preliminary Design $3.0M Modify Bernice Station $2.3M = Link 1 (Southt Line Construction $11.4M ie H Link 2 (North)Line Consteuction $9.2M Link 3 (Anchorage)Line Construction $6.7M ' Cable Station (North)Construction $1.0M i Cable Station (South)Construction $1.0M 1. Marine Cable Order }be Marine Cable Manutacturing $32.4M | Marine Cable Crossing Construction $8.2M |{Project Mgmt and Contingency}$9.4M : Total $84.1M Hi Southern intertie -Flow of Funds * Southern Intertie sam $8M =Hh 1996 $1,600,000 $7M Legend 1996 3.200.000 COD |Marine Cable |||||1997 6.000.000 $6M 1998 22.000,000 Eimscmn |Lebor &Meteriets |,,$TiM 2000 40.400.000 som 2001 11,000,000 §10.4M Total $84,100,000 $4M ©Assumes Grant Administranon agreement and $3M MNeS Leese ea Construction =Management agreement are is ee ¢oe eee ne $1.56M $3.2M $6M eee eeoeBe:ae$2M A esBuea EeeSURSEEwsSe Asse a Tesoro corridor with no major ee regulatory,f or ROW comp $1M and using the 1991 AEA cost extonate. $OM Marine Cable $32.4M @ Aw Bie"SS C=ce 4 an wily:cClyneYs”sMunicipalLight&Power 1200 East First Avenue Anchorage,Alaska 99501-1685 (907)279-7671,Telecopiers:(907,E 9272 June 14,1994 CEIVE JUN 45 1994 Alaska Industrial DevelopmentandExportAuthority William R.Snell Executive Director Alaska Industrial Development and Export Authority 480 W.Tudor Road Anchorage,AK 99503-6690 Re:Alaska Intertie Dear Riley: The Intertie Participants Group ("IPG")met on Friday,June 10,1994,to hear reports and preliminary approve certain environmental studies necessary for the Healy-Fairbanks segment. One item on the agenda was legal representation and contacts necessary with your agency to finalize the Grant Administration Agreement.Since there may have been some confusion in the past,the IPG took formal action to establish the legal representation for the various members of the IPG. Since initially,and possibly through some part of the construction phases, there may be a difference of interest between the contractor utilities and the non--contractor utilities,Mr.Edwards will represent the contractor utility CEA,Mr.Saxton will represent the contractor utility GVEA,and Mr. Kemppel will represent all of the non-contracting utility/owners -ML&P, MEA,HEA,AEG&T,the City of Seward and FMUS.Mr.Kemppel will act as the lead attorney in correspondence with your legal representatives as well as in coordinating meetings with the involved attorneys. Putting Energy Into Anchorage William R.Snell June 1 4,1994 Page Two The IPG is extremely interested in executing a Grant Administration Agreement as quickly as possible so as not to delay progress on the northern segment and has instructed Mr.Kemppel,Mr.Edwards,and Mr. Saxton to work with your Agency to do whatever is necessary to complete this Agreement. Sincerely yours, MUNICIPAL LIGHT &POWER a Thomas R.Stahr Chairman,Intertie Participants Group TRS/am cc:IPG Members Mike Kelly,General Manager,Golden Valley Electric Assoc.RE:Intertie Participants Group Dear Mike : At the first IPG meeting,the IPG representatives voted tohaveRogerKemppelrepresenttheIPG.Subsequently,ChugachstatedtheywantedotherrepresentationandIbelieveyouhaveoptedforbothsidesofthisquestionatdifferenttimes.At last count,for the Grant Administration Agreement this will result in Kemppel,Edwards and SaxtonnegotiatingfortheIPGsideandRubinietalforAEFIDA.MyunderstandingisthatEdwardsrepresentsCEA,Saxton represents GVEA and Kemppel the remainder of the IPGmembers.Since IPG members are only bound by the variousIntertieAgreementsthismaybeappropriateandallowedeverybodytodotheirownthing.I do not choose to be represented by Ron Saxton,including contact with AEIDA. In regard to the Construction Agreement,the situation is radically different.Here GVEA is the contractor and the IPG the owners.The fact that GVEA,in addition to being200%contractor,is a 15%owner does not alter the basic relationship between the IPG/Owners on one side and the contractor on the other.To suggest that the contractorsattorneyalsorepresenttheowneristotallyinappropriate,and it is inappropriate for you to suggest it.If you wantSaxton's firm to represent GVEA that is your right.IexpectKemppelwillrepresenttheotherIPGmemberswiththepossibleexceptionofCEA.Any utility manager who wouldletacontractorattorneyrepresentbothhisutilityandthe contractor on a contract between the utility and the contractor would be breaching his fiduciary duties. Contrary to your understanding,the IPG has authorized legalworkonitsbehalf,the negotiation of the GrantAdministrationAgreementandtheConstructionAgreementand the minutes reflect progress reports on both of these assignments.In regard to payment for legal services,the members who wanted their own representation have paid for theirs and the majority who have used the IPG's attorneyhavepaidforthat.I hope to see the matter regularized Soon SO appropriate payments are made through the IPG.Thequestionoftravel,experts and staff is still before us, but as long as the contractor-owner relationship exists, simple prudence and fiscal responsibility demands that the owners interest be separately represented in matters of 105 SES JS construction monitoring,fiscal management,cost accountingandauditing. While I want to minimize costs to the extent practical,I intend to be assured that ML&P funds and State Grant Funds are expended in a fiscally prudent and responsible manner and to do this requires all the contractual and construction management practices of any other construction project.It would be extremely foolish to circumvent prudent practices just to save a little oversight expense. Very trtly yours, a ae Thomas R.Stahr General Manager Municipal Light &Power ec:IPG Riley Snell a' Geis VALLEY sLECTRNC ASSIDCIATION INC.Box 71249,Fairbanks,Alaska 99707-1249,Phone 907-452-1151 June 7,1994 -: VIA TELEFAX Tom Stahr,IPG Chairman Municipal Light &Power SomRE:Legal Services Tom,I believe it important before Fyiday's meeting to clarify legal roles in IPG matters.No lawye¢represents the IPG in any matter.Each partiipant retains its/own counsel. I suggest the following regarding the Grant Administration Agreement and have been assured/by AIDEA that this is their preference to avoid any confusfion.Ron Saxton's firm,who represents GVEA,the Northern Intertie Contractor and recipient of Grant funds for the Northern Intertie,will be responsible for drafting duties and contact with J Rubini.They will coordinate obtaining and incorporating comments from the IPG utilities including setting meetings and deadlines.I have instructed them to work with the utilities and John to wrap up this agreement as soon as possible.Ron will G the-tatest-draft--vednesday qi7efe.A progres veped Fifi Ane,JF own I suggest the following regarding the Construction Agreement.RonSaxton's firm will be responsible for drafting duties and will coordinate obtaining and incorporating comments from the utilities including setting meetings and deadlines.I have also asked them to work with the utilities to wrap up this agreement as soon aspossible.Ron will circulate the latest draft Wednesday 6/8. Regarding payment for legal services,it is my understanding thatIPGhasnottodateauthorizedanylegalworkonitsbehalforpaymentSy-#Pé-for any legal services and that each utility isliableforthepaymentofitsrespectiveattorney(s).Regardingpaymentfortravel,experts,staff and others involved in IPG,itisalsomyunderstandingthatIPGhasnotauthorizedanypaymentfortheseactivitiesandthattothisdateeachutilityisliable for its costs.I assume that there have been no commitments regarding reimbursement.JI support a conservative position in 1?)Bennascey to ewewy 4 "GOLDEN VALLEY ELECTRIC.__.sOCIATION INC. Tom Stahr,IPG Chairman Subject:Legal Services June 7,1994 Page 2 these matters and trust that in future decisions we attempt (in the spirit of GVEA's low "overhead”offer)to keep bureaucratic drag on this project to an absolute minimun. fom,if there is any disagreement with the above,we should discuss it Friday. Best regards, Michael P.Kelly General Manager cc:IPG Members Riley Snell,AIDEA Ron Saxton GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. Office of the General Manager P.O.Box 71249 Fairbanks,Alaska 99707-1249 FAX:907-451-5633 PHONE:907-452-1151 FACSIMILE TRANSMISSION COVER SHEET DATE:June 7,1994 PLEASE DELIVER TO: NAME:Riley Snell ORGANIZATION:AIDEA FAX #561-8998 PHONE # FROM:Mike Kelly NUMBER OF PAGES INCLUDING COVER SHEET:3 Please call (907)452-1151,Ext.203 if you do not receive the number of pages listed. COMMENTS /SPECIAL INSTRUCTIONS: _ LAW OFFICES BIRCH,HORTON,BITTNER AND CHEROT A PROFESSIONAL CO OBA1127WESTSEVENTHAVENUE©ANCHORAGE,ALASKA 99501-3563 «¢oEvENE °ECOPIER (907)276-3680 THOMAS L.ALBERT"WILLIAM P.HORN?TIMOTHY J.PETUMENOS OF COUNSEI KEY BANK BUILDING THOMAS P.AMOOIO HAL R.HORTON EUZABETH A.PHILLIPS JOHN J.RHODES MM AY 9 199 4 100 CUSHMAN STREET,SUITE 311 d.GEOFFREY BENTLEY'STEPHEN H.HUTCHINGS GLEN PRICE 1 {FAIRGANKS,ALASKA,08701-4672 RONALD G.BIACH**AOY S$,JONES,JA°MICHAEL V.REUSING (907)452-1666 WILLIAM H.BITTNER MARC W.JUNE ELISABETH H.ROSS**:TELECOPIER (907)456-5055KATHRYNA,BLACK BRAD 8.KANE JONATHAN B.AUBIN Alaska Industrial DevelopmentPHILIPBLUMSTEINCRISTINA0.LEE E.BUCO SIMPSON .ONE SEALASKA surre 301CORYFR.BORGESON STANLEY T.LEWIS STEPHEN F,SORENSEN a nd Export Authority JUNEAU anaes ape 1293DOUGLAS8.BURDIN-LESLIE LONGENBAUGH JONATHAN K.TLUNGHAST °0.6.BAR ,(20)7 seezecoJOHNJ.BURNS RONALD W.LORENSEN JEFFERY D,TROUTT **0.C.ANO ALASKA BAR TELECOPIER (907)886-9674SUZANNECHEROTL.MERRILL LOWOEN O.KEVIN WILLIAMS 1 MARYLANO BAR JOHN J.CONNORS -ANNE E,MciINERNEY?JOSEPH E.WRONA #OF10 BAR IM DUNN GREGORY A.MILLER SUSAN E,WUORINEN®*ARIZONA BAR 1155 CONNECTICUT AVE.,N.W, RALPH V.ERTZ GAIL A.OBA JOSEPH A.WEBER %VIRGINIA BAR SUITE 1200 JOSEPH W.EVANS MIGHARL J.PARISE ANNE W.YATES*ALL OTHEAS ALASKA BAR "May 18,1994 Mr.William R.SnellMr.Dan Beardsley - Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage,AK 99503 Re:Grant Administration Agreement Our File No.503,357.59 Gentlemen: WASHINGTON,D.C.20036-4208 (202)659-5800 TELECOPIER (202)659-1027 WRITER'S DIRECT DIAL NO.(907)263-7220WRITER'SDIRECT"FAX"NO.(907)276-3680 I enclose a letter and proposed Attachment A which I received 'from Roger Kemppel in connection with the Grant Administration Agreement.I believe the proposed text revisionsareacceptable.While the concept of block funding for Phase I is.fconsistentwiththediscussionsamongcounsel,I anticipated receipt of at least a preliminary allocation among the general categories set out in Section 2(b)of Schedule A-1.agreed to furnish a letter which allocates the $6.5 these activities.I also anticipate receipt of clarification fromRogerrelatingtothetimingofcertainactions,most notably the Roger Kemppel million among "release to fabricate of long lead-time items,in relation to the time which the utilities enter into bindin riancing commitmentsforFundsneededtocompletetheproject. Please advise whether you concur that a PhaseI budget of .$6.5 million is acceptable.(The allocation of the $6.5 million tobefurnishedbysupplementalletterisintendedasbudgeting targets which would be presumably subject to IPG.review and ce . -BincH,HORTON,BITTNER AND CHEROT A PROFESSIONAL CORPORATION Mr.William R.Snell Mr.Don Beardsley May 18,1994 Page 2 modification.)Assuming your concurrent with the $6.5 millionlimitforPhaseIactivities,I believe the Agreement is in suitable form for execution once Schedule B is in place. Please call if you have questions or comments._ Sincerely, BIRCH,HORTON,BITTNER,and CHEROT By:PGPT bo onadthan B.Rubini JBR:ke Enclosures ”Fs \AIDEA\ENERGY\KAE2135 LAW OFFICES OF KEMPPEL,HUFFMAN AND GINDER A PROFESSIONAL CORPORATION ROGER R.KEMPPEL . : . : .°'255 E.FIREWEED LANE,SUITE 200 RICHARO R.HUFFMAN PETER C.GINDER ANCHORAGE,ALASKA 99503-2094 DONALO C.ELLIS : :R ECE TELEPHONE (907)277-1604eee °ay R (9071 276-2493ANOREWJ.FIERRO May 9,1994 ff}GEORGE S.HARRINGTON JR.° BOBBY OCEAN SMITH MAY 11 1994 - a -5 >+.BIRCH,Jonathan B.Rubini,Esq.NOHTON,OTBITTNER &Birch,Horton,Bittner &Cherot 1127 W.Seventh Avenue Anchorage,AK 99501 _MIA :276-3680 Re:Alaska IndustrialDevelopment &Export AuthorityrantinistrationAgreemen Dear John: The attorneys for the participating utilities have reviewed the latest (April 19,1994)draft of the Grant Administration Agreement which you prepared.With one minor addition,andsubjecttoyourconcurrencewiththeattachedSchedulesA,we are prepared to begin the process ofgettingthisagreementexecutedbythevariousparticipatingutilities. The minor change to the April 19,1994 draft involves revising the second sentenceofSection5.01 to read: The Participating Utilities,through the IPG,agree to'have performed annual audits -as required by |2 AAC 45.010 n_the de agenci establi that entity whic at ived,-spent or otherwise administered the grantfunds,andtosubmittothestatecoordinatingagency,....-. This additional language is consistent with the option provided in 2 AAC 45.010(g)and makes itclearthatAIDEAisnotgoingtoaudittheentireoperationsoftheParticipatingUtilitiesbutonlythatpartdealingwiththeprojectandgrantfunds.I doubt that AIDEA would ever wish to take onsuchanundertakinginanycase. In addition,we wish to insert 'in Section 4.05 after the phrase "all books andrecords”the following:. (exce rotected court rule,su att -clie!work pro duct ivileThisphrasesimplyintendsto|preserve the attomey-client privilege tif at allpossible._-Finally,I believe thereis a typographical error in Section 3.01(b)wherein thereference.to Section 2.03¢d)should be 2.03(¢).."Enclosed are"two "proposed Schedules A 'which acsattachments to the GrantAdministrationAgreement.Schedule A-1 addresses the northern intertie,and Schedule A-2addressesthesouthemintertie.While both Schedules A-1 and A-2 propose za ceilingfor Phase Iof Jonathan B.Rubini,Esq. May 9,1994 Page 2 the interties,they do not propose a ceiling for the next phase until we have gone through the soase.This isbecause it is very difficult to accurately estimateaceilingforthenext YorphaseuntilwehavecompletedthepreviousstageandhavebetterdesigndataandengineeringNaestimates.Under this plan,before the end of eachphase AIDEA and the IPG would mutually wae agree upon a ceiling for the next phase before grant funds could be drawn down for activities in r\that next phase.Finally,a Schedule B still needs to be produced which makes it clear that the IPG chscanauthorizetheexpenditureofgrantfundsduringPhaseIandduringPhaseII(subject to an \0sagreementbetweentheIPGandAIDEAofanacceptableceilingforPhaseI)and that further'\"limits the expenditure of intertie funds until the applicable Participating Utilities have demonstratedtheirabilitytoraisealladditionalamountsneededtocompletetheconstructionoftheirrespectiveinterties." The IPG has approved the above documents and is prepared to begin the process ofobtainingtheexecutionofthesedocumentsbyalloftheParticipatingUtilitiesassoonastheyhavefinaldocumentsacceptabletoAIDEA.If the above changes and schedules are acceptable toAIDEA,I would appreciate it if your office would prepare 12 duplicate originals and transmit themtomeassoonaspossiblesothatIcanbegintheprocessofobtainingsignatures.If you feel thatweneedanotherteleconferencetofurtherdiscussthisagreement,please let me know,and I will trytosetupateleconferenceofalloftheattorneysinvolvedasquicklyaspossible. Sincerely yours, KEMPPEL,HUFFMAN AND GINDER,P.C. Roger R.Kemppel - Enclosures:Proposed Schedules A-1 and A-2 cc w/encls via fax:RonSaxton |(503)226-0079 Ce Adam Gravley (205)623-7022CharlaneStead(907)459-6761 . Don Edwards (907)762-4688 Eric Redman (206)623-7022 1.paaszpescermion (- Phase I -Design Phase II -Procurement Phase II -Construction These phases will be conducted sequentially.However,efficient performance will dictatesomeoverlappingofphases. a.The Phase I ceiling shall Ye $6.5 million. b.Phase I includes the project permitting,engineering,and design including bothprojectdefinitionanddetaileddesignactivities.Specifically,Phase I shall include: (1)Environmental Assessment DVG Survey System °Archaeological Investigation (2)Line -Engineering and Design |en war Ot ©Geotechnical \ot oP°Easements and Land Rights WO \ ()Substation Design cen (4)Energy Storage System Design °System Studies for Scoping (5) APUC and/or REA Approval a WV __(6)__Develop Finance Plan 3. PHASEII-PROCUREMENTANDCONTRACTING a.Phase II ceiling shall be $d _»d.Phase II shall include the solicitation of bids for project work and materials,material procurement,fabrication,testing,and shipment and all other non-job site activities-associated with delivery of major equipment items., -1.To be determined at the end of Phase I. eae c.Phase include completion of process to obtain any necessary APUC or coREAapprovalsandcompletionandapprovalbytheIPGandAIDEAofaprojectfinanceplanfor, any amounts in excess of grant funds. d.Specifically,Phase I shall include: (1)Transmission Line Bids Major Equipment °Construction Labor Contracts °Right-of-Way Clearing Bids (2)Substation Bids Major Equipment °Construction Labor Contracts (3)Energy Storage System Fabrication 4. PHASETI-CONSTRUCTION a.PhaseIIceiling shall be $2 b.Phase III shall include receipt of equipment and materials at the job sites and site management for its installation,checkout,and start-up.: c.Specifically,Phase III shall include: (1)Transmission Line Construction Construction Management Right-of-Way Clearing (2)Substation °Wilson Substation Healy Substation °Construction Management (3)Energy Storage System Installation 2 To be determined at the end of Phase II.)- t- PHASE DESCRIPTION -Anchorage-Kenai 138 kV Intertie ($84.1 Million) _Phase lI -Route Selection and Preliminary Des Phase II -Design Phase HI -Construction - HASEI-R ELE:IN _&PREL ARY DESIGN a.The Phase I ceiling shall be $5.1 million. Ob.Phase I includes the following: -Development and Approval of Project Team Preliminary Environmental Assessment Preliminary Geotechnical and Archaeological InvestigationPreliminaryEasementInvestigation Identify Corridors,Determine Alternate Route Alignments Prepare Route Selection ReportInvestigateDesignAlternatives a Approval of Line Route and Preliminary Design PHASEI-DESIGN a.The Phase Il ceiling will be $_.2 -b.Phase II includes the completion of the following tasks: Selection of Final Route Procurement of Easements Design Modifications to Bernice Lake Substation Design Submarine Cable Terminal Stations .Design Submarine Cable Crossing Specifications'Preparation of Functional Design,Drawings,and Specifications Preparation of Construction and Material Contracts i To be determined at the end of Phase I. Final Environniental,Geotechnical,and Archaeological Investigations PHASE Ml -CONSTRUCTION a.The Phase III ceiling shall be $___.2 b.'Phase III includes contract bid and awards for equipment andmaterialsandconstructionmanagement. c.Phase III includes completion of the following: °Right-of-Way Clearing °Transmission Line Construction °South Kenai Line °North Kenai Line °Anchorage Line Modification of Bernice Lake Substation .Submarine Cable Terminal Stations Submarine Cable Crossing . Commissioning and Project Closeout 2 To be determined at the end of Phase IL. A S 8 4 [21 ry Vem,Sea -wreoN'ata BoBWA APyral 17 Creut |Adiniataten Ween wemidt AbsitioTROYaAnotice4Pheao-ae ,-Bchuedluslo teétAc,"Neve we Aten)Ne"ochaslules wed Cetiaanfen 4 . LAW OFFICES BIRCH,HORTON,BITTNER AND CHEROT 1127 WEST SEVENTH AVENUE «ANCHORAGE,ALASKA 99501-3563 «©TELEPHONE (907)276-1550 *TELECOPIER (907)276-3680 THOMAS L.ALBEAT*tt THOMAS P.AMODIO J.GEOFFREY SENTLEY" RONALD G.BIRCH: WILLIAM H.BITTNER KATHRYN A.BLACK PHILIP SLUMSTEIN CORY A.BORGESON OOUGLAS S.BURDIN" JOHN J.BUANS SUZANNE CHEROT JOHN J.CONNORS KIM OUNN RALPH V.EATZ JOSEPH W.EVANS STEPHEN K.GARONER' WILLIAM P.HORN' HAL A.HORTON STEPHEN H.HUTCHINGS ROY S.JONES.JA.” MARC W.JUNE BRAD 8.KANE CRISTINA O.LEE STANLEY T.LEWIS LESLIE LONGENBAUGH RONALO W.LORENSEN ..MERRILL LOWOEN ANNE E.McINERNEY*? GREGORY A.MILLER GAIL FR.OBA MICHAEL J.PARISE TIMOTHY J.PETUMENOS ELIZABETH A.PHILLIPS GLEN PRICE MICHAEL V.REUSING ELISABETH M.ROSS** JONATHAN B.RUBINI E.BUDD SIMPSON STEPHEN F.SORENSEN JONATHAN K.TILLINGHAST JEFFERY DO.TROUTT O.KEVIN WILLIAMS JOSEPH E.WRONA SUSAN E.WUORINENS JOSEPH A.WEBER ANNE W.YATES' JOHN J.RHOOES,Ie: A PROFESSIONAL CORPORATION OF COUNSEL KEY BANK BUILOING 100 CUSHMAN STREET.SUITE 311 IRBANKS,ALASKA,99701-4672 (907)452-1666 TELECOPIER (907)456-5055 SNE SEALASKA PLAZA,SUITE 301 JUNEAU,ALASKA 98601-1283 ECEIVET) APR 20 1884 t MARYLAND BAR TELECOPIER (907)586-9814 :tmzoue eavtaska Industrial Development.CONNECTICUT AVE.,NW.and Expert Authority%VIRGINIA BAR SUITE 1200 ALL OTHERS ALASKA B.WASHINGTON,D.C.20036-4308 (202)659-$800 TELECOPIER (202)659-1027 *0.C.BAR WRITER'SDIRECTDIALNO.(907)263-7220 WRITER'S DIRECT "FAX"NO. April 19,1994 (907)276-3680 VIA TELECOPY AND U.S,MAIL Ronald L.Saxton,Esq. Ater Wynne Hewitt Dodson &Skerritt 222 S.W.Columbia Street,Suite 1800 Portland,Oregon 97201-6618 Re:Grant Administration Agreement Dear Ron: I enclose a revised Grant Administration Agreement which includes minor revisions to Sections 4.03(b)and (c).Valorie Walker is assembling information on the cost desirability of a third-party investment advisor,which I anticipate will be available within the next several days. Would you please circulate this revised draft among your colleagues. I look forward to receipt of your proposed Schedule A at your convenience.Please call if you have any questions. Sincerely, BIRCH,HORTON,BITTNER Lif By:/a_ Jof athan B.Rubini JBR:ke Enclosure cc:Mr.William R.Snell (w/enc.) F :\AIDEA\ENERGY \KAE2053 GRANT ADMINISTRATION AGREEMENT THIS AGREEMENT (the "Agreement")is made and entered into this ___-s_day of November,1993,by and between the ALASKA INDUSTRIAL DEVELOPMENT &EXPORT AUTHORITY ("AIDEA"),GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.("GVEA"),FAIRBANKS MUNICIPAL UTILITIES SYSTEM ("FMUS"),ANCHORAGE MUNICIPAL LIGHT AND POWER ("ML&P"), CHUGACH ELECTRIC ASSOCIATION,INC.("CEA"),ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.("AEG&T")on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.),and the CITY OF SEWARD ("Seward") (ML&P,CEA,AEG&T and Seward hereinafter collectively referred to as the "Southern Participating Utilities";GVEA and FMUS hereinafter collectively referred to as the "Northern Participating Utilities";the Southern Participating Utilities and the Northern Participating Utilities hereinafter collectively referred to as the "Participating Utilities"). RECITALS WHEREAS,pursuant to Section 1 ch.19,SLA 1993,the Legislature appropriated $43,200,000 to the Department of Administration ("DOA")for payment as a grant under AS 37.05.316 to GVEA for the purpose of constructing a power transmission intertie between Healy and Fairbanks ("Healy-Fairbanks Intertie")to benefit all utilities participating in the intertie;and Grant Administration Agreement:April 19,1994,Draft Page 1 , WHEREAS,pursuant to Section 2 of ch.19,SLA 1993 (Sections 1 and 2 of ch.19,SLA 1993 hereinafter referred to as the "Intertie Appropriation"),the Legislature appropriated $46,800,000 to DOA for payment as a grant under AS 37.05.316 to CEA for the purpose of constructing a power transmission intertie between Anchorage and the Kenai Peninsula ("Anchorage-Kenai Intertie")to benefit all utilities participating in the intertie (the two intertie appropriations are hereinafter collectively referred to as the "Intertie Grants");and WHEREAS,pursuant to Section 1(b)and (c)and Section 2(b)and (c)of the Intertie Appropriation,DOA,AIDEA,and the Participating Utilities were to enter into a written agreement satisfying certain statutory conditions precedent to DOA's transfer of the Intertie Grants;and WHEREAS,in order to satisfy such requirement,DOA, AIDEA,and the Participating Utilities have entered into an Intertie Grant Agreement (the "Intertie Grant Agreement"),which among other things,provides that the Intertie Grants are to be transferred to AIDEA for the benefit of the Participating Utilities,and that certain conditions are to be met prior to AIDEA releasing any of the grant funds to the Participating Utilities; and Grant Administration Agreement:April 19,1994,Draft Page 2 . WHEREAS,also as part of the Intertie Grant Agreement, the Participating Utilities have agreed to form an Intertie Participants Group ("IPG")to,among other things,oversee the construction of the interties and address grant expenditure matters;and WHEREAS,pursuant to the Intertie Grant Agreement,DOA and AIDEA have entered into a Grant Transfer and Delegation Agreement ("Grant Transfer Agreement")whereby the Intertie Grants were transferred to AIDEA to act as custodian and administrator of the Intertie Grants;and WHEREAS,Section 7 of the Intertie Grant Agreement requires that AIDEA and the Participating Utilities enter into a Grant Administration Agreement which shall set forth the terms and conditions to be satisfied by the Participating Utilities in order for there to be a disbursement of the Intertie Grants,and which shall also provide for AIDEA's obligations with respect to the Intertie Grants. AGREEMENT NOW,THEREFORE,in consideration of the recitals above (which are hereby incorporated into and shall be deemed part of this Agreement),and of the covenants and agreements hereinafter Grant Administration Agreement:April 19,1994,Draft Page 3 set forth,it is agreed by and between the parties hereto as follows: Section 1.Custodian and Administrator.The parties acknowledge that pursuant to the Grant Transfer Agreement,DOA has delegated all its powers and duties with respect to the administration of the Intertie Grants to AIDEA and that the Intertie Grants have been transferred from DOA to AIDEA for the benefit of the Participating Utilities.The Participating Utilities have requested that AIDEA serve as custodian and administrator of the Intertie Grants.AIDEA hereby accepts such appointment and agrees to act as custodian and administrator of the Intertie Grants for the benefit of the Participating Utilities, subject to the terms and conditions of,and authority and powers granted by,this Agreement and applicable law,including but not limited to those statutes and regulations applicable to the administration of grants to named recipients under AS 37.05.316 by the DOA. Section 2.Custody/Investment of Grant Funds. 2.01.Appropriation Accounts.AIDEA shall establish two appropriation accounts to account for and to disburse the Intertie Grants.One account shall be designated the "Healy- Fairbanks Intertie Account"which shall be comprised of the Grant Administration Agreement:April 19,1994,Draft Page 4 $43,200,000 appropriation made by Section 1 of the Intertie Appropriation and all interest and other income to be earned thereon.The other account shall be designated the "Anchorage- Kenai Intertie Account"which shall be comprised of the $46,800,000 appropriation made by Section 2 of the Intertie Appropriation and all interest and other income to be earned thereon (the monies collectively comprising the Healy-Fairbanks Intertie Account and the Anchorage-Kenai Intertie Account hereinafter referred to as the "Intertie Funds").AIDEA shall have the authority to create and designate subaccounts for these two accounts as it deems necessary from time to time. 2.02.Institutional Custodian.In order to carry out its custodial duties under this Agreement,AIDEA may designate and hire one or more institutional trustees to act as custodian for all or any portion of the Intertie Funds and any securities which such funds may be invested in.Such institutional custodian shall hold the Intertie Funds and any securities subject to the terms and conditions of this Agreement and applicable law.AIDEA shall ensure that any institutional custodian provide the appropriate procedures to separately account for the monies,and interest and other income earned thereon,in each of the intertie accounts "established pursuant to Section 2.01. Grant Administration Agreement:April 19,1994,Draft Page 5 2.03.Investment of Intertie Funds. (a)Generally.AIDEA shall develop and implement an investment strategy (the "Investment Strategy")in cooperation with GVEA and CEA for the investment of the Intertie Funds.In developing the Investment Strategy,AIDEA may also consult with and hire the services of professional investment advisers.AIDEA is hereby authorized,on behalf of the Participating Utilities,to make,execute,acknowledge and deliver any and all documents or instruments that may be necessary or appropriate,to exercise all other rights and powers,and to take all appropriate actions which it deems necessary,to implement the Investment Strategy. (b)Limitations.'The Investment Strategy shall be consistent with the principles set out in AS 37.10.071.Investment of the Intertie Funds shall be limited to United States Treasury debt obligations,or obligations insured by or guaranteed by the United States or agencies or instrumentalities of the United States.The Investment Strategy shall take into consideration the cash flow needs of the Participating Utilities.The IPG shall submit to AIDEA a schedule for the use of grant funds,and any amendments or changes thereto as necessary from time to time,to assist AIDEA in developing the Investment Strategy. Grant Administration Agreement:April 19,1994,Draft Page 6 (c)Institutional Investor.In order to implement the Investment Strategy,AIDEA may designate and hire either the institutional custodian hired pursuant to Section 2.02 or another institutional entity to invest the Intertie Funds pursuant to the Investment Strategy,the terms and conditions of this Agreement and applicable law.AIDEA shall provide the necessary direction to provide for the investment of the Intertie Funds. Section 3.Use of Intertie Funds. 3.01.Healy-Fairbanks Intertie Account.Monies in the Healy-Fairbanks Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Healy-Fairbanks Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and 2.03(d);and (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). Grant Administration Agreement:April 19,1994,Draft Page 7 3.02.Anchorage-Kenai Intertie Account.Monies in the Anchorage -Kenai Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Anchorage-Kenai Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and £2-03{d&}2.03(c); and (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). 3.03.Unexpended Funds. (a)Project Completion.Any monies remaining in either the Healy-Fairbanks Intertie Account or the Anchorage-Kenai Intertie Account at the completion of the respective intertie Grant Administration Agreement:April 19,1994,Draft Page 8 project and payment of all outstanding obligations for the applicable project shall be returned to DOA and deposited in the State General Fund. (b)No Construction of Project.As required by Section 7 of the Intertie Grant Agreement,in the event the IPG notifies AIDEA that one or both of the intertie projects will not be constructed,the monies in the account associated with the respective intertie,after the payment of all outstanding obligations,shall be returned to DOA and deposited in the State General Fund. (c)Unreasonable Delay of Projects.As required by Section 2.4(b)of the Grant Transfer Agreement,in the event that AIDEA determines,in its reasonable discretion,that development of either intertie project is unreasonably delayedby the affected Participating Utilities,the unobligated and unexpended monies in the account associated with the respective intertie shall be returned to DOA and deposited in the State General Fund.AIDEA shall give fifteen (15)days prior notice of such decision to the affected Participating Utilities. Section 4.Disbursement of Intertie Funds.Except for the payments of costs incurred by the Authority under Sections 3.01(b),3.01(c),3.02(b),and 3.02(c),any disbursement,release, Grant Administration Agreement:April 19,1994,Draft Page 9 encumbrance,assignment or pledge (hereinafter collectively referred to as "disbursement"for purposes of this Section4)of the Intertie Funds from the intertie accounts shall be subject to the procedures,conditions precedent,and limitations/ceilings set forth in this Section 4. 4.01.Conditions Precedent.The disbursement of Intertie Funds for the purposes described in Section 3.01l(a)and 3.02(a)is not permitted until the following conditions precedent have been satisfied by the Participating Utilities: (a)the Participating Utilities have entered into and executed a Participation Agreement,in a form satisfactory to AIDEA,as required by and in accordance with the Intertie Grant Agreement and Section 2.4(c)of the Grant Transfer Agreement,and transmitted a copy of the signed and executed agreement to AIDEA; and (b)the Participating Utilities have determined and agreed upon which contractual obligations related to the Intertie Grants and Intertie Funds must be submitted to the Alaska Public Utilities Commission for its review and approval,and provided written notice to AIDEA of such determination and agreement. Grant Administration Agreement:April 19,1994,Draft Page 10 4.02.Disbursement Schedules.Any disbursement of the Intertie Funds shall be subject to the limits and ceilings set forth in this Section 4.02. (a)Project Phases Ceilings.The Schedule A,which is attached to and hereby incorporated into this Agreement,and has been approved by AIDEA and the IPG,sets forth certain dollar ceilings for the various phases of development for each of the intertie projects.No disbursement of Intertie Funds for each of the respective interties which exceeds the established ceilings set forth in Schedule A shall be permitted.The parties agree that the IPG is authorized to request amendments to Schedule A,subject to AIDEA's approval,to provide for upward adjustment only of the ceilings set for the project phases.The IPG shall submit any requests for amendments to Schedule A to AIDEA in writing.The submittal shall include appropriate findings and an explanation as to why the existing ceiling is not sufficient.AIDEA agrees to consider any request for amendment within fifteen (15)days of the receipt of such request.No amendment shall be effective until approved by AIDEA. (bd)Grant Transfer Agreement §2.4(e)Schedule. Pursuant to Section 2.4(e)of the Grant Transfer Agreement,the attached Schedule B,which is hereby incorporated into this Agreement,sets forth a schedule which limits the expenditure of Grant Administration Agreement:April 19,1994,Draft Page 11 : Intertie Funds until the applicable Participating Utilities have demonstrated their ability to raise all additional amounts needed to complete construction of their respective interties.No disbursement of Intertie Funds for each of the respective interties which exceeds the established ceilings set forth in Schedule B shall be permitted for a specific intertie until the affected Participating Utilities (either the Northern Participating Utilities or the Southern Participating Utilities)have demonstrated,to the satisfaction of AIDEA,the ability to raise all additional amounts necessary to complete construction of their respective intertie. 4.03.Disbursement Procedures.Subject to the conditions,limitations,and ceilings set forth in Sections 4.01 and 4.02,and the terms and conditions of this Agreement, disbursement of the Intertie Funds shall be subject to the following procedures: (a)All invoices shall be initially submitted to the IPG for its review and approval. (b)After IPG review and approval,the IPG shall submit,on a monthly basis all approved invoices to AIDEA for payment.Each invoice shall be referenced to a particular intertie project and a specific phase for that project to allow AIDEA to Grant Administration Agreement:April 19,1994,Draft Page 12 properly charge the invoice against the appropriate project and to determine if payment is authorized pursuant to the Intertie Appropriation or the disbursement schedules set forth in Section 4.02.AIDEA may request further documentation or explanation with respect to any invoice and is authorized to withhold payment until documentation,acceptable to AIDEA,is submitted. (c)If payment of an invoice is authorized in accordance with (b),AIDEA shall pay such invoice within fifteen (15)days of receipt of the invoice. Section 5.Audit Requirements. 5.01.General.The parties acknowledge that the audit requirements of2 AAC 45.010 apply to the Intertie Grants, Intertie Funds,and the use of such monies for the purposes set forth in this Agreement.The Participating Utilities,through the IPG,agree to have performed annual audits as required by2 AAC 45.010,and to submit to the state coordinating agency,as such term is defined in 2 AAC 45.010(0)(4),separate audit reports,as required by and in accordance with 2 AAC 45.010,on an annual basis,for both the Healy-Fairbanks Intertie project and the Anchorage-Kenai Intertie project.Each audit and the resulting audit report shall cover the preceding ___year,and the audit report shall be submitted no later than of each year, Grant Administration Agreement:April 19,1994,Draft Page 13 beginning on .A copy of each audit report shall be transmitted to AIDEA at the same time each audit report is transmitted to the state coordinating agency.The Participating Utilities shall also submit copies to the state coordinating agency to the extent required by 2 AAC 45.010(h). 5.02.Audit Standards and Report Contents.The audits required by Section 5.01 shall be conducted by an independent auditor in accordance with the audit standards set forth in 2 AAC 45.010(c).The audit reports shall address at a minimum the items set forth in 2 AAC 45.010(d)through (g). 5.03.Additional Requirements.The audits and audit reports required by this Section 5 shall comply fully with all requirements imposed by 2 AAC 45.010,and any amendments or modifications thereto,regardless of whether such requirements are specifically set forth in this Agreement.In addition,the Participating Utilities shall ensure that the requirements of 2 AAC 45.010(j)are satisfied by any applicable third party recipients. 5.04.Books and Records.In addition to complying with the audit requirements of Sections 5.01-5.03,the Participating Utilities and the IPG shall permit AIDEA to have reasonable access upon request to all books and records related to Grant Administration Agreement:April 19,1994,Draft Page 14 the (a)design,permitting and construction of the interties;(b) Intertie Grants;and (c)Intertie Funds. Section 6.Waiver of Liability/Indemnification. 6.01.Waiver of Liability/Indemnification on Custodial/Investment Duties.The Participating Utilities,and all their successors and assigns,hereby waive and release AIDEA,and all its officers,directors and employees,from any and all claims and liabilities of any nature and kind whatsoever which are related to or may arise out of AIDEA's obligations and dutiesas custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors and employees, from and against,any and all demands,claims,causes of action, losses,fines,penalties,judgments,damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising out of or in any way related to AIDEA's obligations and duties as custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA. Grant Administration Agreement:April 19,1994,Draft Page 15 6.02.Indemnification on Contractor Claims.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors and employees, from and against,any and all demands,claims,causes of action, losses,fines,penalties,judgments,damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising out of or in any way related to the design and construction of the interties,which may be asserted against AIDEA,or its officers, directors or employees,by any contractor,subcontractor, consultant,or third party or entity. Section 7.Miscellaneous/General Terms. 7.01.No Third-Party Beneficiaries.Nothing in this Agreement shall be interpreted or construed as creating any rights or privileges of any kind whatsoever in persons or entities who are not parties to this Agreement. 7.02.Applicable Law and Venue.This Agreement shall be construed under the laws of the State of Alaska and any dispute shall be resolved in the Superior Court for the State of Alaska,Third Judicial District,at Anchorage,Alaska. Grant Administration Agreement:April 19,1994,Draft Page 16 7.03.No Strict Construction.This Agreement was Grafted in accordance with the wishes of all parties and after negotiation and discussion between all parties,and all parties have been represented by counsel in such negotiations.The rule of construction that a contract shall be construed against the party who drafted it shall not apply to construction of this Agreement. 7.04.Counterparts.This Agreement may be executed in counterparts,in which case all such counterparts.shall constitute one and the same Agreement. 7.05.Successors and Assigns.This Agreement shall be binding upon the parties and their successors and assigns. 7.06.Modifications/Amendments.This Agreementmay not be modified or amended except by a writing signed by all the parties. 7.07.Captions/Headings.All captions and headings used in this Agreement are for the convenience of reference only and shall not be construed as part of the Agreement. IN WITNESS WHEREOF,the parties have caused this Agreement to be executed on the date first above written. Grant Administration Agreement:April 19,1994,Draft Page 17 ALASKA INDUSTRIAL DEVELOPMENT &EXPORT AUTHORITY CHUGACH ELECTRIC ASSOCIATION,INC. Grant Administration Agreement:April 19,1994,Draft Page 18 ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.) F:\AIDEA\ENERGY \KAE2054 Grant Administration Agreement:April 19,1994,Draft Page 19 ; ; LAW OFFICES BiRCH,HORTON,BITTNER AND CHEROT A PROFESSIONAL CORPORATION 1127 WEST SEVENTH AVENUE ¢ANCHORAGE,ALASKA 99501-3563 ©TELEPHONE (907)276-1550 ©TELECOPIER (907)276-3680 THOMAS L.ALBEAT*!3 WILLIAM P.HORN'TIMOTHY J.PETUMENOS OF COUNSEL KEY BANK BUILDING THOMAS #.AMODIO HAL R.HORTON ELIZABETH A.PHILLIPS JOHN J.RHODES,It 100 CUSHMAN STREET,SUITE 311 J.GEOFFREY BENTLEY STEPHEN MH.HUTCHINGS GLEN PRICE FAIRBANKS,ALASKA,99701-4672 RONALO G.BIRCH**ROY 8.JONES,JA.”MICHAEL V.REUSING (907)482-1866 WILLIAM H.BITTNER MARC W.JUNE ELISABETH H.ROSS"fay}i TELEWOPIER (907)456-5055 KATHRYN A.BLACK BRAC S.KANE JONATHAN B.RUBINI t PHILIP BLUMSTEIN CRISTINA DO.LEE E.BUDO SIMPSON i iC alacua CORY A.BORGESON STANLEY T.LEWIS STEPHEN F.SORENSEN e "acaskaon eenOOUGLAS8.BUROIN®LESLIE LONGENBAUGH JONATHAN K.TILLINGHAST *D.C.Ban 907)nea vese.JOHN J.BURNS RONALD W.LORENSEN JEFFERY 0.TROUTT °°D.C.AND ALASKA BAR A 0 5)a 4 A oPiER (907)500-9814SUZANNECHEROTL.MERRILL LOWOEN D.KEVIN WILLIAMS,1 MARYLANO GAR M R w yas : JOHN J.CONNORS ANNE E.McINERNEY'$JOSEPH E.WRONA #OMG BAR -- KIM OUNN GREGORY A.MILLER SUSAN E.WUORINENS *ARIZONA BAR 1155 CONNECTICUT AVE...N.wW AALPH V.ERTZ GAIL FR.OBA JOSEPH A.WEBER &VIRGINIA BAR él k In stri ={De {ITE 1200évelo JOSEPH W.EVANS MICHAEL J.PARISE ANNE W.YATES”ALL OTHERS ALASKA BA!aska i du nd RIOR 'ON,0.¢.20036-4308 STEPHEN K.GARDNER'H (202)659-5800andExportAuthority,2 (202)659-1027 WRITER'S DIRECT DIAL NO.March 28,1994 (907)263-7220 WRITER'S DIRECT "FAX"NO. TELECOPY AND _U.S.MAIL Ronald L.Saxton,Esq. Julie Simon,Esq. Ater Wynne Hewitt Dodson &Skerritt .222 S.W.Columbia Street,Suite 1800 eyPortland,Oregon 97201-6618 Re:Grant Administration Agreement Our File No.503,357.59 Dear Ron and Julie: -I apologize for the delay in providing the enclosed revised draft Grant Administration Agreement. With reference to your memorandum to me of January 19, please note the following: (a)Sections 2.02 and 2.03(d). The Authority declines to amend the draft to submit the cost of custodial and investment service to the IPG for review and approval.Indeed,new language proposed under Section 4 specifically excludes such costs.Please note however that the Agreement limits the Authority to "reasonable"costs for such services. AIDEA concurs that its administrative costs are not subject to reimbursement.As a drafting matter,however,I do not think it appropriate to include a selective list of "excluded" costs. (b)Unexpended Funds. The suggestion to expand the definition of "completion" to include costs arising after the date of commercial operation is rejected.The appropriation specifically provides funds for the"design and constructionof a power transmission intertie ..." Bik,SEI MINE ANSEJulieSimon,Esq. March 28,1994 Page 2 Further,the appropriation is contingent on the agreement of the participating Utilities to pay operation and maintenance costs. The specific terms of the appropriation and general principles of "appropriation law"thus precludes the requested revision. (c)Project Phase Ceiling. The concept of "phase ceilings"was one of the principal negotiated points which enabled AIDEA and the State to transfer thegrantfunds.With that background in mind,I think it difficult tomakeSection4.02(a)"more flexible"as you suggest.It may be more fruitful,however,to revisit your concerns once the IPG submits a draft Schedule A to the Authority for review.I add that the Authority shares the IPG objective that this "ceiling"approach not unduly interfere with the common-sense,cost-effective development of the interties. (d)Section 4.03. AIDEA intends to promptly pay all IPG-approved invoices incurred for Project expenses providing that such expenditures are within the scope of the grant and do not exceed "phase ceilings" established under Schedule A.While we are thus in agreement as to AIDEA's minimal role,I believe the Agreement must include language to enable AIDEA to confirm that an IPG-approved invoice is indeedconsistentwiththegrantandScheduleA. (e)Waiver. I deleted the reference to AIDEA's "agents"as proposed. Your request to delete the Utilities'indemnification of AIDEA isrejected.We think it appropriate for the Utilities to bothreleaseandindemnifyAIDEAforclaimsordamagesarisingfroma relationship which AIDEA would not otherwise have entered into. Please feel free to contact me in California,(310)456- 7239,or Alaska,(907)263-7220,if you have any further questions. Sincerely, BIRCH,HORTON,BITTNER and CHEROTBMabieathanB.Rubini- JBR:ke Enclosure ce:Mr.William R.Snell James L.Baldwin,Esq. Roger R.Kemppel,Esq. Fs \AIDEA\ENERGY\KAE 1917 GRANT ADMINISTRATION AGREEMENT THIS AGREEMENT (the "Agreement")is made and entered into this __day of November,1993,by and between the ALASKA INDUSTRIAL DEVELOPMENT &EXPORT AUTHORITY ("AIDEA"),GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.("GVEA")»FAIRBANKS MUNICIPAL UTILITIES SYSTEM ("FMUS"),ANCHORAGE MUNICIPAL LIGHT AND POWER ("ML&P"), CHUGACH ELECTRIC ASSOCIATION,INC.("CEA"),ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.("AEG&T")on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.),and the CITY OF SEWARD ("Seward") (ML&P,CEA,AEG&T and Seward hereinafter collectively referred to as the "Southern Participating Utilities";GVEA and FMUS hereinafter collectively referred to as the "Northern Participating Utilities";the Southern Participating Utilities and the Northern Participating Utilities hereinafter collectively referred to as the "Participating Utilities"). RECITALS WHEREAS,pursuant to Section 1 ch.19,SLA 1993,the Legislature appropriated $43,200,000 to the Department of Administration ("DOA")for payment as a grant under AS 37.05.316 to GVEA for the purpose of constructing a power transmission intertie between Healy and Fairbanks ("Healy-Fairbanks Intertie")to benefit all utilities participating in the intertie;and Grant Administration Agreement:March 28,1994,Draft Page 1 WHEREAS,pursuant to Section 2 of ch.19,SLA 1993 (Sections 1 and 2 of ch.19,SLA 1993 hereinafter referred to as the "Intertie Appropriation"),the Legislature appropriated $46,800,000 to DOA for payment as a grant under AS 37.05.316 to CEA for the purpose of constructing a power transmission intertie between Anchorage and the Kenai Peninsula ("Anchorage-Kenai Intertie")to benefit all utilities participating in the intertie (the two intertie appropriations are hereinafter collectively referred to as the "Intertie Grants");and WHEREAS,pursuant to Section 1(b)and (c)and Section 2(b)and (c)of the Intertie Appropriation,DOA,AIDEA,and the Participating Utilities were to enter into a written agreement satisfying certain statutory conditions precedent to DOA's transfer of the Intertie Grants;and WHEREAS,in order to satisfy such requirement,DOA, AIDEA,and the Participating Utilities have entered into an Intertie Grant Agreement (the "Intertie Grant Agreement"),which among other things,provides that the Intertie Grants are to be transferred to AIDEA for the benefit of the Participating Utilities,and that certain conditions are to be met prior to AIDEA releasing any of the grant funds to the Participating Utilities; and Grant Administration Agreement:March 28,1994,Draft Page 2 WHEREAS,also as part of the Intertie Grant Agreement, the Participating Utilities have agreed to form an Intertie Participants Group ("IPG")to,among other things,oversee the construction of the interties and address grant expenditure matters;and WHEREAS,pursuant to the Intertie Grant Agreement,DOA and AIDEA have entered into a Grant Transfer and Delegation Agreement ("Grant Transfer Agreement")whereby the Intertie Grants were transferred to AIDEA to act as custodian and administrator of the Intertie Grants;and WHEREAS,Section 7 of the Intertie Grant Agreement requires that AIDEA and the Participating Utilities enter into a Grant Administration Agreement which shall set forth the terms and rene conditions to be satisfied by the Participating Utilities in order for there to be a disbursement of the Intertie Grants,and which shall also provide for AIDEA's obligations with respect to the Intertie Grants. AGREEMENT NOW,THEREFORE,in consideration of the recitals above (which are hereby incorporated into and shall be deemed part of this Agreement),and of the covenants and agreements hereinafter Grant Administration Agreement:March 28,1994,Draft Page 3 set forth,it is agreed by and between the parties hereto as follows: Section 1.Custodian and Administrator.The parties acknowledge that pursuant to the Grant Transfer Agreement,DOA has delegated all its powers and duties with respect to the administration of the Intertie Grants to AIDEA and that the Intertie Grants have been transferred from DOA to AIDEA for the benefit of the Participating Utilities.The Participating Utilities have requested that AIDEA serve as custodian and administrator of the Intertie Grants.AIDEA hereby accepts such appointment and agrees to act as custodian and administrator of the Intertie Grants for the benefit of the Participating Utilities, subject to the terms and conditions of,and authority and powers granted by,this Agreement and applicable law,including but not limited to those statutes and regulations applicable to the administration of grants to named recipients under AS 37.05.316 by the DOA. Section 2.Custody/Investment of Grant Funds. 2.01.Appropriation Accounts.AIDEA shall establish two <main>appropriation accounts to account for and to disburse the Intertie Grants.One account shall be designated the "Healy-Fairbanks Intertie Account"which shall be comprised of the Grant Administration Agreement:March 28,1994,Draft Page 4 $43,200,000 appropriation made by Section 1 of the Intertie Appropriation and all interest and other income to be earned thereon.The other account shall be designated the "Anchorage- Kenai Intertie Account"which shall be comprised of the $46,800,000 appropriation made by Section 2 of the Intertie Appropriation and all interest and other income to be earned thereon (the monies collectively comprising the Healy-Fairbanks Intertie Account and the Anchorage-Kenai Intertie Account hereinafter referred to as the "Intertie Funds").AIDEA shall have the authority to create and designate subaccounts for these two accounts as it deems necessary from time to time. 2.02.Institutional Custodian.In order to carry out its custodial duties under this Agreement,AIDEA may designate and hire one or more institutional trustees to act as custodian for all or any portion of the Intertie Funds and any securities which such funds may be invested in.Such institutional custodian shall hold the Intertie Funds and any securities subject to the terms and conditions of this Agreement and applicable law.AIDEA shall ensure that any institutional custodian provide the appropriate procedures to separately account for the monies,and interest and other income earned thereon,in each of the intertie accounts established pursuant to Section 2.01. Grant Administration Agreement:March 28,1994,Draft Page 5 2.03.Investment of Intertie Funds. (a)Generally.AIDEA shall develop and implement an investment strategy (the "Investment Strategy")in cooperation with GVEA and CEA for the investment of the Intertie Funds.In developing the Investment Strategy,AIDEA may also consult with and hire the services of professional investment advisers.AIDEA is hereby authorized,on behalf of the Participating Utilities,to make,execute,acknowledge and deliver any and all documents or instruments that may be necessary or appropriate,to exercise all other rights and powers,and to take all appropriate actions which it deems necessary,to implement the Investment Strategy. (b)Limitations.The Investment Strategy shall be consistent with the principles set out in AS 37.10.0711.Investment of the Intertie Funds shall be limited to United States Treasury debt obligations,or obligations insured by or guaranteed by the United States or agencies or instrumentalities of the United States.The Investment Strategy shall take into consideration the cash flow needs of the Participating Utilities.The IPG shall submit to AIDEA a <censtruetien-draw>schedule for the use of grant funds,and any amendments or changes thereto as necessary from time to time,<te-AIDEA>to assist AIDEA in developing the Investment Strategy. Grant Administration Agreement:March 28,1994,Draft Page 6 Grant Administration Agreement:March 28,1994,Draft Page 7 <{d}>(c)Institutional Investor.In order to implement the Investment Strategy,AIDEA may designate and hire either the institutional custodian hired pursuant to Section 2.02 or another institutional entity<,>to invest the Intertie Funds pursuant to the Investment Strategy,the terms and conditions of this Agreement and applicable law.AIDEA shall provide the necessary direction <and-entex-inte-any-agreements-it-deens apprepriate>to provide for the investment of the Intertie Funds. Section 3.Use of Intertie Funds. 3.01.Healy-Fairbanks Intertie Account.Monies in the Healy-Fairbanks Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Healy-Fairbanks Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and 2.03(d);and Grant Administration Agreement:March 28,1994,Draft Page 8 (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). 3.02.Anchorage-Kenai Intertie Account.Monies in the Anchorage-Kenai Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Anchorage-Kenai Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and 2.03(d);and (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). 3.03.Unexpended Funds. (a)Project Completion.Any monies remaining in either the Healy-Fairbanks Intertie Account or the Anchorage-Kenai Intertie Account at the completion of the respective intertie Grant Administration Agreement:March 28,1994,Draft Page 9 project and payment of all outstanding obligations for the applicable project shall be returned to DOA and deposited in the State General Fund. (b)No Construction of Project.As required by Section 7 of the Intertie Grant Agreement,in the event the IPG notifies AIDEA that one or both of the intertie projects will not be constructed,the monies in the account associated with the respective intertie,after the payment of all outstanding obligations,shall be returned to DOA and deposited in the State General Fund. (c)Unreasonable Delay of Projects.As required by Section 2.4(b)of the Grant Transfer Agreement,in the event that AIDEA determines,in its reasonable discretion,that development of either intertie project is unreasonably delayed by the affected Participating Utilities,the unobligated and unexpended monies in the account associated with the respective intertie shall be returned to DOA and deposited in the State General Fund.AIDEA shall give fifteen (15)days prior notice of such decision to the affected Participating Utilities. Section 4.Disbursement of Intertie Funds.<Any> payments of costs incurred the Authority Sections 3.01(b),_3-01(c),3.02(b),and 3.02(c),any disbursement, Except for the Grant Administration Agreement:March 28,1994,Draft Page 10 release,encumbrance,assignment or pledge (hereinafter collectively referred to as "disbursement"for purposes of this Section 4)of the Intertie Funds from the intertie accounts shall be subject to the procedures,conditions precedent,and limitations/ceilings set forth in this Section 4. 4.01.Conditions Precedent.<Ne--disbursement-ef any-intertieFunds--shaiibe>The disbursement of Intertie Funds for the purposes described in Section 3.01(a)and 3.02(a)is not permitted until the following conditions precedent have been satisfied by the Participating Utilities: (a)the Participating Utilities have entered into and executed a Participation Agreement,in a form satisfactory to AIDEA,as required by and in accordance with the Intertie Grant Agreement and Section 2.4(c)of the Grant Transfer Agreement,and transmitted a copy of the signed and executed agreement to AIDEA; and (b)the Participating Utilities have determined and __ agreed upon which contractual obligations related to the Intertie Grants and Intertie Funds must _besubmitted to the Alaska Public Utilities Commission for its review and approval,and provided _ written notice to AIDEA of such determination and agreement. Grant Administration Agreement:March 28,1994,Draft Page 11 4.02.Disbursement Schedules.Any disbursement of the Intertie Funds shall be subject to the limits and ceilings set forth in this Section 4.02. (a)Project Phases Ceilings.The Schedule A,which is attached to and hereby incorporated into this Agreement,and has been approved by AIDEA and the IPG,sets forth certain dollar ceilings for the various phases of development for each of the intertie projects.No disbursement of Intertie Funds for each of the respective interties which exceeds the established ceilings set forth in Schedule A shall be permitted.The parties agree that the IPG is authorized to request amendments to Schedule A,subject to AIDEA's approval,to provide for upward adjustment only of the ceilings set for the project phases.The IPG shall submit any requests for amendments to Schedule A to AIDEA in writing.The submittal shall include appropriate findings and an explanation as to why the existing ceiling is not sufficient.AIDEA agrees to consider any request for amendment within fifteen (15)days of the receipt of such request.No amendment shall be effective until approved by AIDEA. (b)Grant Transfer Agreement §2.4(e)Schedule. Pursuant to Section 2.4(e)of the Grant Transfer Agreement,the attached Schedule B,which is hereby incorporated into this Agreement,sets forth a schedule which limits the expenditure of Grant Administration Agreement:March 28,1994,Draft Page 12 Intertie Funds until the applicable Participating Utilities have demonstrated their ability to raise all additional amounts needed to complete construction of their respective interties.No disbursement of Intertie Funds for each of the respective interties which exceeds the established ceilings set forth in Schedule B shall be permitted for a specific intertie until the affected Participating Utilities (either the Northern Participating Utilities or the Southern Participating Utilities)have demonstrated,to the satisfaction of AIDEA,the ability to raise all additional amounts necessary to complete construction of their respective intertie. 4.03.Disbursement Procedures.Subject to the conditions,limitations,and ceilings set forth in Sections 4.01 and 4.02,and the terms and conditions of this Agreement, disbursement of the Intertie Funds shall be subject to the following procedures: (a)All invoices shall be initially submitted to 'the IPG for its review and approval. (b)After IPG review and approval,the IPG shall submit,on a monthly basis all approved invoices to AIDEA for payment.Each invoice shall be referenced to a particular intertie project and a specific phase for that project to allow AIDEA to Grant Administration Agreement:March 28,1994,Draft Page 13 properly charge the invoice against the appropriate project and to determine if payment is authorized pursuant to the disbursement schedules set forth in Section 4.02.AIDEA may request further documentation or explanation with respect to any invoice and is authorized to withhold payment until documentation,acceptable to AIDEA,is submitted. (c)If payment of an invoice is authorized,AIDEA shall pay such invoice within fifteen (15)days of receipt of the invoice. Section 5.Audit Requirements. 5.01.General.The parties acknowledge that the audit requirements of 2 AAC 45.010 apply to the Intertie Grants, Intertie Funds,and the use of such monies for the purposes set forth in this Agreement.The Participating Utilities,through the IPG,agree to have performed annual audits as required by 2 AAC 45.010,and to submit to the state coordinating agency,as such term is defined in 2 AAC 45.010(0)(4),separate audit reports,as required by and in accordance with 2 AAC 45.010,on an annual basis,for both the Healy-Fairbanks Intertie project and the Anchorage-Kenai Intertie project.Each audit and the resulting audit report shall cover the preceding ___year,and the audit report shall be submitted no later than of each year, Grant Administration Agreement:March 28,1994,Draft Page 14 beginning on :A copy of each audit report shall be transmitted to AIDEA at the same time each audit report is transmitted to the state coordinating agency.The Participating Utilities shall also submit copies to the state coordinating agency to the extent required by 2 AAC 45.010(h). 5.02.Audit Standards and Report Contents.The audits required by Section 5.01 shall be conducted by an independent auditor in accordance with the audit standards set forth in 2 AAC 45.010(c).The audit reports shall address at a minimum the items set forth in 2 AAC 45.010(d)through (g). 5.03.Additional Requirements.The audits and audit reports required by this Section 5 shall comply fully with all requirements imposed by 2 AAC 45.010,and any amendments or modifications thereto,regardless of whether such requirements are specifically set forth in this Agreement.In addition,the .Participating Utilities shall ensure that the requirements of 2 AAC 45.010(j)are satisfied by any applicable third party recipients. 5.04.Books and Records.In addition to complying with the audit requirements of Sections 5.01-5.03,the Participating Utilities and the IPG shall permit AIDEA to have reasonable access upon request to all books and records related to Grant Administration Agreement:March 28,1994,Draft Page 15 the (a)design,permitting and construction of the interties;(b) Intertie Grants;and (c)Intertie Funds. Section 6.Waiver of Liability/Indemni fication. 6.01.Waiver of tLiability/Indemnification on Custodial/Investment Duties.The Participating Utilities,and all their successors and assigns,hereby waive and release AIDEA,and all its officers,directors<;>and employees,<and-agents;>from any and all claims and liabilities of any nature and kind whatsoever which are related to or may arise out of AIDEA's obligations and duties as custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors<;>and employees,<and-agents;>from and against,any and all demands,claims,causes of action,losses, fines,penalties,judgments,damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising out of or in any way related to AIDEA's obligations and duties as custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA. Grant Administration Agreement:March 28,1994,Draft Page 16 6.02.Indemnification on Contractor Claims.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors<;>and employees,<and-agents;>from and against,any and all demands, claims,causes of action,losses,fines,penalties,judgments, damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising out of or in any way related to the design and construction of the interties,which may be asserted against AIDEA,or its officers,directors<;>or employees,<er agents;>by any contractor,subcontractor,consultant,or third party or entity. Section 7.Miscellaneous/General Terms. 7.01.No Third-Party Beneficiaries.Nothing in this Agreement shall be interpreted or construed as creating any rights or privileges of any kind whatsoever in persons or entities who are not parties to this Agreement. 7.02.Applicable Law and Venue.This Agreement shall be construed under the laws of the State of Alaska and any dispute shall be resolved in the Superior Court for the State of Alaska,Third Judicial District,at Anchorage,Alaska. Grant Administration Agreement:March 28,1994,Draft Page 17 ' 7.03.No Strict Construction.This Agreement was drafted in accordance with the wishes of all parties and after negotiation and discussion between all parties,and all parties have been represented by counsel in such negotiations.The rule of construction thata contract shall be construed against the party who drafted it shall not apply to construction of this Agreement. 7.04.Counterparts.This Agreement may be executed in counterparts,in which case all such counterparts'shall constitute one and the same Agreement. 7.05.Successors and Assigns.This Agreement shall be binding upon the parties and their successors and assigns. 7.06.Modifications/Amendments.This Agreementmay not be modified or amended except by a writing signed by all the parties. 7.07.Captions/Headings.All captions andheadings used in this Agreement are for the convenience of reference only and shall not be construed as part of the Agreement. IN WITNESS WHEREOF,the parties have caused this Agreement to be executed on the date first above written. Grant Administration Agreement:March 28,1994,Draft Page 18 ALASKA INDUSTRIAL DEVELOPMENT &EXPORT AUTHORITY GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. CHUGACH ELECTRIC ASSOCIATION,INC. Grant Administration Agreement:March 28,1994,Draft Page 19 ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.) CITY OF SEWARD F:\AIDEA\ENERGY\KAE1919 Grant Administration Agreement:March 28,1994,Draft Page 20 Deen¢LaRucMInc.kgCONSULTING/ENGINEERS 6436 Homer Drive,Anchorage,AK $9518 ° Mailing Address:P.O.BOX 111008,ANCHORAGE,AK 99511-1008 (907)349-6653 @ FAX 522-2534 REcg ! March 24,1994 VEDfae28Iyy4 Mr.Steve Haagenson )enditen?inoN rAusyGOLDENVALLEYELECTRICASSN.FRINGbias BrinP.O,Box 71249 Fairbanks,Alaska 99701-99707 Reference:Cost Comparison for 138 kV vs.230 kV Construction Northern Intertie -Healy to Fairbanks This letter and the attachments are in response to your letter of March 1 requesting answers to three IPG questions.I plan on attending the March 31st meeting to answer questions; following are initial responses. Question 1 We assigned a value of zero to the difference in foundation cost because the tower reactions were very similar.Attached is a revised Table 2 of the calcu- lated foundation reactions.This table was slightly modified from the original because we found a dimensional error,but this change does not alter our as- signment of zero cost.On the bottom of the table we have summarized the maximum loads for foundation design.Usually the lateral transverse loading will be the value that determines pile design.The values of 11 vs,11.4 are too close to assign any difference in construction cost. Also,attached are general assembly sketches of the towers that were used in our analysis,note the 230 kV tower is 5 feet taller than the 138 kV. Question 2 There are many scenarios for conversion of an existing 138 kV line to 230kV.We selected one possible option,replacement of the top section of the tower,(Table C)which we believe will give a middle-of-the-road cost com- parison and is a reasonable approach.There are many other conversion possi-bilities that will be more costly and maybe some that would be less. Our scenario assumed a 138 kV line existed and if a utility were faced with such a conversion,it would require the maximum use of all the components of the existing line.In such a situation,we would take a careful look at severalitemstodeveloptheleastcostlyconversionincluding:a)load comparison which we believe will not change significantly -this is evident in Revised Table 2 when you compare the foundation loads,b)our analysis used the Electric Power:Transmission.Distribution,Substations,Control Systems.Generation,System Studies Golden Valley Electric assn.March 24,1994 Mr.Steve Haagenson Page 2 Question 3 same lower section to the towers,(General Assembly Sketches)so the loads are valid for just changing the top section,¢)not all towers in a line section will have the full criteria loads applied -the normal excess capacity can be used in the conversion,d)given the significant cost for total line replacement - it may be reasonable to compromise the original design criteria to live with a slightly less reliable line.Our brief review of these items leads us to believe a replacement of just the tower top is a reasonable approach for this level of cost comparison.In addition to the top conversions,we have assumed 1/2 of the angle and deadend towers will need to be replaced. Our approach was to develop preliminary costs for a 138 kV line and a 230 kV line and then note the difference (refer to Table A),For conversion costs we made two basic assumptions,1)the line was built for 230 and only insulat- ed for 138,2)the line was built for 138 and then converted to 230.We de- veloped the incremental cost for adding insulators (Table B)to a line original- ly constructed for 230 kV.Last,we developed the incremental cost for re- placement of the top of the tangent towers (Table C)based on a line originally constructed for 138 kV. Please let me know if these responses are sufficient,I can elaborate on them at the March 31 meeting if necessary. DRYDEN &LaRUE,INC. Delbert S.LaRue,P.E. DSL:jf\gv\compare Enc. 16-6"16'-6" g'-6"|9'-6" Hes,!\2 °'o "|Oo 's) < " & °i +.!wy a wo ite) " 8 Ural "TL ss FILE NAME:48-Acey OWSaom 28,4' Viett SCALE:18=260"en -IDRYDEN {ILalRus,Ine.CONSULTING /ENGINEERS DATE:03/18/94DESIGNEDBY:K.DYSON ORAWN BY:R.ELLWOOD GOLDEN VALLEY ELECTRIC ASSOCIATION 138 kV HEALEY TO FAIRBANKS INTERTIE GENERAL ASSEMBLY DRAWING DIMENSIONS DRAWING NO. 138 kV ASSEMBLY 1 of1 22'-10"22'=10" |13'=10"|13'-10"| Hi)°ot in o N _! ™ O < a) 8 9 _ be) ia Le) nDa TESMSTeyv TTS SST|28.4' FILE NAME:4 =AssyOW SCALE:1"=250" IDRYDEN {ILalRuc,Inc.|GOLDEN VALLEY ELECTRIC ASSOCIATION |SPAWNS No.coaanna --fevowetas HEALEY TO FAIRBANKS -INTERTIE 230 kV DATE:03/18/94 on 230 kV 4/8 GENERAL ASSEMBLY DRAWING |SSSEMBLY ORAWN By:R.ELLWOOD DIMENSIONS ver GVEA HVY Transversa Noda FX 20 5.885 21 =-11,008 22 0.000 23 0.9000 "5,123 "HIGE WIND Node Px 20 -4.284 e1 -98.797 22 -0,002 23.-0.002 -13 s 085 NESC HVY Node Fx 20 -1.404 a1 -10.854 22 0.000 23 0.000 "12.258 TORSIONAL Node Fx 20 4.882 21 -4.883 22 0.000 23 0.001 -0,000 Vertical Fy 11.263 33.873 0.050 0.050 @suweaneweau 45.242 18,531 15.538 0.050 -9.427 21.651 Revised Table 2 Tower Foundation Reactions 138 kV Tower Reactions weaseaeans ene see ew 2 even sa wenreaaanw 230 KY Tower Reactions GVEA HVY Lngtdnl Transverse Vertical LugtdnlFzNodeFxFy.F2 0.000 20 6.155 10.547 0.000 0.000 2i "11.291 36.119 0.000 0.000 a2 0,000 0,054 0.000 0.006 23 0.000 0.054 0.000 HIGH WIND Fz Node Fx Fy F2 0.000 ao 4,280 -19.248 0.000 0.000 al -9.345 32.0490 0.006 0,089 22 -0.001 Q.030 0.024 -0,080 23 -0,001 0.030 -0.024 0.000 13.626 12.851 0.000 NESC HVY Fz Node Fx Fy Fz 0.900 29 -1,065 713.752 0.000 0.000 21 "11.374 40.323 0,060 0.000 22 0.000 0.082 0.000 0.000 23 0.000 a.o8l 0.000 0.000 -12,.439 26.699 0.000 TORSIONAL Fz Node Fx Fy Fz -4,179 20 4.837 16.332 -5.824 4.707 ai =4,840 16.351 6.477 0,000 22 6.000 6.054 0.000 -9,528 23 0,003 -39,.513 -5.653 -9.000 0,000 23.223 -9.000 Notes:Nodes 20 and 21 are the foundations,Nodes 22 and 23 are the Maximum Foundation Loads 138 kV 230 kV Lead (kips)(kips) Lateral: Transverse:211.0 11.4Longitudinal:4.7 6.5 Uplift:17.21 19.2 Bearing:36.3 40.3 anchora. e hy er .Mec Re Biret WOHLFORTH,ARGETSINGER,JOHNSON &BRECHT PETER ARGETSINGER A PROFESSIONAL CORPORATION TCYNTHIAL.CARTLEDGE ATTORNEYS AT LAW (907)276-6401 ROBeRT M SeANSON 900 WEST STH AVENUE,SUITE 600 TELECOPY THOMAS F_KLINKNER ANCHORAGE,ALASKA 99501-2048 (907)276-8093 JAMES A.SARAFIN Eric ©.woHLroatn ee,ViewTAMEMORANDUMeve TO:William R.Snell 0 a)Q '9 FROM:Kenneth E.Vassar 62.mee DATE:March 8,1994 On 2 ¢ SUBJECT:Repeal of AS 44.88.105(d)(3) You have asked for a description of the likely impact of the repeal of AS 44.88.105(d)(8)on the ability to finance bonds for the Anchorage-Fairbanks intertie project.Under AS 44.878.105(d),the Alaska Industrial Development and Export Authority has the ability to create a capital reserve fund for its bonds that is backed by the so-called "moral obligation”of the State of Alaska;however,this ability extends only to certain of the Authority's bonds.Pursuant to AS 44.88.105(d)(3), among those bonds for which such a capital reserve fund may be created are bonds issued on or after August 11,1993,for a power transmission intertie. As discussed in the accompanying memorandum to you from Eric Wohlforth relating to the benefits of the "moral obligation"generally,the moral obligation backing gives bonds enough security to allow them to be rated just below the State's rating even without further security.It is a powerful tool capable of permitting a financing to proceed that might not otherwise be strong enough to be marketed. We believe the Anchorage-Fairbanks intertie project may be one of those projects for which bonds could not be marketed (or,at least,could not be rated at an investment-grade rating)without the "moral obligation"pledge.We understand that some of the utilities involved in the intertie project are rated; however,rating agencies are well-known for rating bonds based upon the weakest link in the financing chain and not the strongest.Under the rating criteria we would expect to see from the rating agencies,the loss of the moral obligation pledge would probably leave the bonds unrated,which could leave the project not financially feasible. AFFOSEC1 WOHLFORTH,ARGETSINGER,JOHNSON &BRECHT PETER ARGETSINGER YULIUS J.BRECHT CYNTHIA L.CARTLEDOGE CAROL L.GILES ROBERT M.JOHNSON THOMAS F.KLINKNER BRADLEY E.MEYEN VAMES A.SARAFIN KENNETH E.VASSAR A PROFESSIONAL CORPORATION ATTORNEYS AT LAw 900 WEST STH AVENUE,SUITE 600 ANCHORAGE,ALASKA 99501-2048 TELEPHONE (907)276-6401 TELECOPY (907)276-5093 ERIC E.WOHLFORTH M E M Oo R A N D U M TO:William R.Snell,Executive Director -AIDEA FROM:__Eric E.Wohtforth GG i) DATE:March 8,1994 SUBJECT:MORAL OBLIGATION PLEDGE The "moral obligation pledge"has been a favorite security device forAlaskapublicagencyfinancingsincetheearly1970's.Alaska Housing Finance Corporation,Alaska Energy Authority,Alaska Industrial Development and Export Authority,Alaska Student Loan Corporation,and the Alaska Municipal Bond Bank Authority have all issued bonds over the last 20 years secured by a moral obligation pledge.As of June 30,1993 moral obligation indebtedness of these agencies equaled $1,250,000,000,which is 26%of the total $4,736,000,000 of all state and local government bonds then outstanding (Source:1993 Alaska Public Debt,Department of Revenue,February 1994,Table 1.5). The moral obligation pledge is created by legislative permission to establish a capital reserve fund to secure bonds and provisions to maintain the capital reserve fund at an amount usually equal to annual debt service on the bonds.In addition,the statutes typically provide that the bond issues will notify the Governor and the legislature of any deficiency in the capital reserve fund and that the legislature may appropriate any deficiency in the capital reserve requirement annually on a certification by the agency issuing the bonds.See,for example,AS 44.88.105 (the Alaska Municipal Bond Bank Authority).These provisions are understood by investment bankers to create the state's "moral obligation."The term "moral obligation"does not appear in the statute.To date the legislature has never had to appropriate any deficiency. So called moral obligation bonds were first used in 1960 in connection with projects financed by the New York State Housing Finance Agency.See Kerrigan State and Local Government Debt Financing,Section 2.22.Moral obligation financing became particularly popular with the development of state housing financing agencies in the 1960's and 1970's. AFFOSEA7 Page 1 Memorandum to William R.Snell March 7,1994 The purpose of the financing device is to enhance bond security without seeking approval of the electorate.Almost all the state Supreme Courts considering the issue have had no difficulty in finding that bonds secured by moral obligation in the state did not create a debt requiring a vote.The bonds are typically rated one notch below state general obligation debt by the rating services. EEW:mag AFFOQEAT Page 2 \om GOLDEN VALLEY ELECTRIC ASSOCIATION INC.Box 71249,Fairbanks,Alaska 99707-1249,Phone 907-452-1151 (1 heNedRe.Lbot .Del LaRue Loo.Dryden and LaRue,Inc. 6436 Homer Drive Anchorage AK 99502 March 1,1994 Re:Cost Comparison for 138 kv vs.230 kv Construction Northern Intertie -Healy to Fairbanks Dear Del: The incremental cost comparison which was developed by Dryden and'LaRue was presented to the Intertie Participants Group (IPG)at theFebruary24thmeeting.All of the IPG members were amazed,as youandIwere,that the incremental cost was 80 small. The IPG requested that you be present at the next IPG meeting toanswerquestionsofthiscostanalysis.The next meeting isscheduledforMarch31,1994 in Anchorage.If this date does not work for you,please call me. I will try to forward IPG member questions which I receive inadvanceofthemeeting.It may be helpful to provide answers to the questions in advance of the meeting.If you send the responses tome,I will FAX them to the IPG members.The following are questionswhichwereraisedattheIPGmeeting.I will immediately forwardanyadditionalquestionstoyouassoonasJreceivethem. 1.How can the incremental foundation costs he zero when the wire will be approximately two foot higher and the tower will beapproximately10feettaller? 2.How can the incremental tower below the "waist"costs be zero and expect to support the larger 230 kV top section?Won't a stronger base section be required?If so,shouldn't there be an incremental cost required for this future conversion. 3.Is this an incremental estimate,one that starts at a 138 kv .line and captures the incremental cost of converting to 230 kV,or is,it a decremental estimate which starts at 230 kv andidentifieswhatisnotneededifyoubuilda138kVline? Please review these questions and.provide any comments orclarificationsatyourearliestconvenience. Sincerely, LaSteven Haagenson Manager of Engineering Services GN Bearnscey wo {BYYo oe |'. \) GOLDEN VALLEY ELECTRIC ASSOCIATION ING.Box 71249,Fairbanks,Alaska 99707-1249,Phone 907-452-1181 March 3,1994 John Doudna Power Technologies Inc. 775 Sunrise Avenue Suite 210 Roseville CA 95661 Re;Location and Sizing of the Reactive Compensation for theNorthernIntertie-Healy to Fairbanks Dear Del: The reasoning,location,and sizing for reactive compensation whichwaspreparedbyPowerTechnologiesInc.(PTI)was presented to theIntertieParticipantsGroup(IPG)at the February 24th meeting.During the IPG meeting,there was much discussion about the available options which meet the ASCC Planning criteria. The draft narrative and load flows are being reviewed by theutilitiestechnicalandplanningstaffsandwillattempttoprovideanyquestionsinadvanceofthenextIPGmeeting.I will forward any questions which I receive in advance of the meeting.It may behelpfultoprovideanswerstothequestionsinadvanceofthe meeting.If you send the responses to me,I will FAX them to the IPG members.The following options,reasons for sizing of each component Healy 140 MW north and 130 MW from south capacityconstraintsandcriticalcontingencieswerediscussedduringthe IPG meeting l.Fairbanks 60 Mvar SVC Nenana 40 Mvar SVC Igloo 60 Mvar SVC Teeland 25 Mvar Fixed Capacitors w/new transformer ads Fairbanks 60 Mvar SVCNenana2MvarMinicomp (approximate size)- Igloo 60 Mvar SVC Teeland 25 Mvar Fixed Capacitors w/new transformer 3.Fairbanks:60 Mvar SVCIgloo60MvarSVC Teeland 25 Mvar Fixed Capacitors w/new transformer Tie the existing and new lines together at New Nenana Sub 4.Fairbanks 60 Mvar SVC Move the Gold Hill Svc from tertiary to the 138 kV busIgloo60MvarSVC Teeland 25 Mvar Fixed Capacitors w/new transformer March 4,1994 VIA FAX TO: FROM: TO AIDEA Dave Colvert-City of Seward David Highers-Chugach Flectric Kenneth Ritchey-Matanuska Electric Norman Story Homer Electric Riley Snell-AIDEA Thomas Stahr-Municipal Light and Power Vince Mottola-mMus Steve Haagenson-GVEA Northern Intertie -Healy to Fairbanks -GOLDEN VALLEY ELECTRIt SSOCIATION ING. ra - John Doudna . March 3,1994 Page 2Northern Intertie =Healy to Fairbanks a5.Fairbanks 60 MW/Mvar Battery Energy Storage System Igloo ?Mvar SVC Teeland ?Mvar Fixed Capacitors w/new transformer The IPG requested that you be available by phone at the next IPGmeetingtoanewerquestionsonthereactivecompensationanalysis.The next meeting is scheduled for-approximately noon on March 31,1994 in Anchorage.If this date does not work for you,please call me. Please review these questions and provide any comments orclarificationsatyourearliestconvenience. Sincerely, Steven HaaqensonNAGSeLVIBNUALAMSESCLANY JSeLvs.ves ae oa ee @ va ALASKA INDUSTRIAL DEVELOPMENTARsANDEXPORTAUTHORITY 480 WEST TUDOR +ANCHORAGE,ALASKA 99503-6690 «(907)561-8050 *FAX (907)561-8998 February 4,1994 Mr.Jon Rubini,Esq. Birch,Horton,Bittner &Cherot 1127 West Seventh Avenue Anchorage,Alaska 99501 Subject:Grant Administration Agreement Changes Dear Jon: The following are the changes we propose to the November 12,1993,draft of the Grant Administration Agreement: Page 4,Section 2.01. Delete the word "main". Page 6,Section 2.03(a). Insert after "an investment strategy"the following words:"in cooperation with GVEA and CEA". Page 6,Section 2.03(c). Delete paragraph c and renumber paragraph d on the following page to c. Page 7,Section 2.03(d). At the end of the paragraph prior to the period add "including its existing custodian agreement". Page 7,Section 3.01. Add a subsection (d)"All costs reasonably incurred by AIDEA in administering the grant and investing funds." Page 8,Section 3.02. Add a new subsection (d)"All costs reasonably incurred by AIDEA in administering the grant and investing funds." flo Neo Pest lout Mr.Jon Rubini February 4,1994 Page Two Page 10,Section 4.01. In the first paragraph prior to the word "No"add the following: "except for the costs identified in subsections 3.01(b),(c),and (d), and 3.02(b),(c),and (d)".Change the capital N in "No"to a small n. Page 12,Section 4.03. In the first paragraph after the words "Intertie Funds"insert "to the participating utilities". Page 12,Section 4.03(a). Insert after the words "all invoices"the words "From participating utilities". Page 12,Section 4.03(b). After all references to AIDEA insert the following:",or its agent,". Page 13,Section 4.03(c). After the reference to AIDEA insert ",or its agent,". Please provide me with a revised draft with the above changes. Sincerely,Mb Z WyliamR.Snell Executive Director DWB:bjf DOCBIJF242 |Filecyux ®Qi Nhel.LAW OFFICES BIRCH,HORTON,BITTNER AND CHEROT A PROFESSIONAL CORPORATION 1127 WEST SEVENTH AVENUE ©ANCHORAGE,ALASKA 99501-3563 «TELEPHONE (907)276-1550 «TELECOPIER (907)276-3680 THOMAS L ALBEAT*'t WILLIAM ®HORNS TIMOTHY J PETUMENOS OF COUNSEL KEY @ANK BUILOINGTHOMASPAMODIOMALAMORTONELIZA@ETH&PHILLIPS JOHN J RHODES.1°100 CUSHMAN STREET.SUITE 315 4 GEOFFREY BENTLEY”STEPHEN H HUTCHINGS GLEN PRICE FAIRBANKS,ALASKA.99701-4672RONALDGBIRCH':ROY §JONES.JA*MICHAEL V.REUSING (907)452-1668 WILLIAM BITTNER MARC w JUNE ELISABETH H ROSS**.TELECOPIER (907)456-5055 MATHAYN A BLACK BAAD S KANE JONATHAN &RUBINI PHILIP BLUMSTEIN CRISTINA OD LEE E BUDO SIMPSON CORY R BORGESON STANLEY T LEWIS STEPHEN F.SORENSEN ONE SEALASKA PLAZA,SUITE 301 OOUGLAS S BURDIN:LESLIE LONGENBAUGH JONATHAN K.TILLINGHAST "oC ean JUNEAU,ALASKA 99801-1293 (907)$86-2890JOHNJBUANSRONALOWLORENSENJEFFERYD.TROUTT °°OC AND ALASKA BAR :SUZANNE CHEROT L.MERAILL LOWOEN D.KEVIN WILLIAMS 1 MARYLAND BAR ELECOPIER (907)S86-9018 JOMN J CONNORS ANNE E McINERNEY's JOSEPH E.WRONA &Orto BAR KIM OUNN GREGORY A MILLEA SUSAN E.WUORINEN®*ARIZONA GAR 1188 CONNECTICUT AVE .N Ww AALPH V ERTZ GALA OBA JOSEPH a.WEBER 3 Vinaima BAR SUITE 1200 JOSEPH W EVANS MICHAEL J PARISE ANNE W YATES'ALL OTHEAS ALASKA BAR WASHINGTON,0.C.20036-4308 STEPHEN K GARDNER:(202)689-5200 TELECOPIER (202)659-1027 WRITER'S DIRECT DIAL NO.October 21,1993 (907)263-7220 WRITER'S DIRECT °FAX®NO. (907)276-3680 VIATELECOPYANDU.S.MAIL Roger R.Kemppel,Esq. Kemppel,Huffman and Ginder,P.C. 255 E.Fireweed Lane,Suite 200 Anchorage,Alaska 99503-2094 Re:Grant Transfer and Delegation Agreement Our File No.503,357.46 Dear Roger: I suggest the following revisions to paragraphs 7 and 8 of the proposed Intertie Grant Agreement: 7.Transfer of Grant Funds.DOA hereby transfers the grant funds of $43,200,000 to GVEA and $46,800,000 to CEA to be held by Alaska Industrial Development &Export Authority (AIDEA).GVEA and CEA agree that such funds shall be held <in-trust>by AIDEA for the benefit of all Participating Utilities,with instructions to AIDEA that no funds are to be released,encumbered,assigned,or pledged until a Participation Agreement and a Grant Administration Agreement,each in a form satisfactory to AIDEA,have been executed by all of the Participating Utilities and,as applicable,the Authority.Pursuant to AS 44.88.190(b),grant funds held by AIDEA and all interest earned thereon shall not be or constitute monies of the State.The Participating Utilities agree to negotiate in good faith with the intent of executing a Participation Agreement by November 1,1993.TheParticipatingutilitiesandtheAuthorityagree_negotiate in good faith with the intent of executing a Grant Administration Agreement by November 15,1993.In the event that the Healy-Fairbanks intertie is not,for Nam BIRCH,HORTON.BITTNER AND CHEROT &PROFESSIONAL CORPORATION Roger R.Kemppel,Esq. October 21,1993 Page 2 any reason,constructed,GVEA agrees that AIDEA shall return any unexpended funds and any interest earned thereon to DOA.In the event that the Anchorage-Kenai Peninsula intertie is not,for any reason,constructed, CEA agrees that AIDEA shall return any unexpended funds and any interest earned thereon to DOA.No Participating Utility shall unreasonably delay progress'toward completion of the interties. 8.Use of Funds.The parties agree to use funds <in-the-trust-aeceeunts>described in paragraph 7 solely for the purposes of design and construction of the Healy- Fairbanks and Anchorage-Kenai Peninsula interties, including all acts necessary for completion of these projects.The parties further agree to return to the State any unexpended grant funds and any interest earned thereon not needed for this purpose. Also,though I appreciate the revisions to Section 4.4, I do not believe the revisions foreclose the desirability (from our . perspective)of a "peace in the valley"representation.I suggest a new section as follows: 4.5 Warranties.The Participating Utilities hereby represent and warrant that the Agreement either resolves all material terms and conditions relating to the development,use,and operation of the interties and to the access to the systems to and from the interties or provides appropriate forums orprocedures,as applicable, to resolve such issues in a fair and equitable fashion. Also,I understand there is a strong desire to execute the Intertie Grant Agreement and the Delegation and Transfer Agreement within the next several days.Your comments,if any,to the Delegation and Transfer Agreement would be appreciated. JBR:ke Sincerely, BIRCH,HORTON,BITTNER and CHEROT CLity Nathan B.Rubini By: cc:Jim Baldwin,Esq. F:\AIDEA\ENERGY \KAE0935 GRANT TRANSFER AND DELEGATION AGREEMENT I.RECITALS 1.1 The legislature appropriated the sum of $43,200,000 to Golden Valley Electric Association for the purpose of constructing a power transmission intertie between Healy and Fairbanks to benefit all utilities participating in the intertie.The appropriation is to he administered as a designated grant under 25 37.05.316.The appropriation named the Department of BGmninistration as the grantor agency. 1.2 The legislature appropriated the sum of $46,000,000 to Chugach Electric Association for the purpose of constructinga power transmission intertie between Anchorage and the Kenai Peninsula to benefit all utilities participating in the intertie. Ths appropriation is to be administered as a designated grant under aS 37.05.316.The appropriation named the Department of Administration as the grantor agency. 1.3 The grant appropriations contain conditions which must be satisfied before the grants can be made.fhe grant appropriation requires that these conditions be established in an agreement executed by and between the Department,AIDEA and the participating utilities. 1.4.The designated grant recipients and the participating utilities have executed an Intertie Grant Agreement which,among other matters,addresses the statutory preconditions.The department and AIDEA have determined that the Intertie Grant Agreement substantially satisfies the statutory preconditions. 1.5 Upon execution of the ji.ae ees ,the Department is legally authorized to enter into a grant agreement with the designated grant recipient. 1.6 In accordance with the Department's grant administration responsibilities,the Department determines that it is essential to establish terms and conditions with respect to the obligation or expenditure of grant funds.The Department further determines that the Authority possesses the expertise necessary to establish and administer appropriate terms and conditions with respect to administration of the grants. 1.7 The department and the participating utilities have determined that the purpose of the grant appropriations and the -intent of the legislature can best be accomplished if AIDEA is designated as the custodian to receive the transfer of the full amount appropriated.As intermediary,AIDEA will provide for custody and administration of the grant appropriation. 1.8 The department has the authority to make this agreement under AS 37.05.316,AS 37.05.1700,among other provisions of law. AIDEA has the authority to make this agreement under AS 44.88.080(9),(11),and (17),among other provisions of law. Pursuant to AS 44.88.190(b),the grant funds held by AIDEA and any interest or other income thereon shall not be or constitute money of the State. II.AGREEMENT In consideration of the promises set out below,the parties agree as follows: 2.1 The Department and AIDEA hereby agree to execute the Intertie Grant Agreement. 2.2 Upon execution of the Intertie Grant Agreement by all Participating Utilities,the Department and the Authority,ana subject to the limitations and conditions described herein,the grants authorized in sec.1 and 2 of ch.19 SLA 1993 are hereby made,respectively,to Golden Valley Electric Association and to Chugach Electric Association for the benefit of the Participating Utilities. 2.3 AIDEA is delegated all powers and duties of the Department of Administration associated with the administration of the grant appropriations made in secs.1 and 2 of ch.19 SLA 1993. 2.4 The AIDEA shall exercise the delegation granted by this agreement according to all statutes and regulations applicable to the administration of grants by the Department of Administration. In addition,no grant funds may be disbursed until the Authority and the Participating Utilities enter into a Grant Administration Agreement which addresses,among other matters: °(a)a disbursement schedule which establishes ceilings, subject to adjustment by the Authority,for phases of Project development; (ob)the reimbursementof unobligatedor unexpended grant funds if development of either,or both,intertie projects is unreasonably delayed; (c)the submittal of a Participation Agreement among the Participating Utilitjes; (a)a determination by the Participating Utilities of which,if any,of the contractual obligations relating to the grant(s)must be submitted to the Alaska Public Utilities Commission;and (e)a schedule which limits the expenditure of grant funds until the participating utilities raise all additional amounts needed to complete construction of the intertie(s). 2.5 The Participating Utilities hereby requests,and AIDEA agrees,to serve as custodian on behalf of the recipients of the grant appropriations made in secs.1 and 2,ch.19 SLA 1993.As custodian,AIDEA will,on behalf of the grant recipients,hold the sums appropriated.AIDEA may designate an institutional trustee to accomplish this purpose. 2.6 Amounts held in custody under this agreement will be invested consistent with the principles set out in AS 37.10.071. 4 will consult with the grant recipients before adopting an stment strategy and asset allocation plan for the amount in ody. 2.7 Interest earned from investment of the amount in custody be retained by AIDEA,kept separate from all other funds and ided for the costs of any custodial arrangements with a private - iclal institution or,if the purpose of a grant cannot be -- plished,returnedto the state treasury.K oe ee . The parties set out below execute this agreement on this £,1993 in Anchorage,Alaska. tment of Administration AIDEA Bear Usera,Commissioner Riley Snell Executive Director ch Electric Association Golden Valley Electric Association uska Electric Association Homer Electric Association ipal Light &Power Alaska Electric Generation & Transmission Fairbanks Municipal Utilities Seward Electric Utility System Fz \AIDEA\GEN\KAE0909 pA eCait Al *iN AND EXPORT AUTHORITY ALASKA INDUSTRIAL DEVELOPMENT 480 WEST TUDOR *ANCHORAGE,ALASKA 99503-6690 *(907)561-8050 +FAX (907)561-8998 September 13,1993 / Michael P.Kelly,General Manager Golden Valley Electric Association P.O.Box 71249 Fairbanks,Alaska 99707-1249 Dear Mr.Kelly: I have carefully reviewed the intertie grant agreements proposed by the utilities.I believe that the agreement provides an excellent definition of the steps necessary to satisfy the conditions set out in the grant appropriations made in ch 19,SLA 1993.The participating utilities have shown substantial good faith and concerted effort to reach this point. However,before the grant can be awarded,you must complete the participation agreement which is a key element to a_conclusive determination that the preconditions to the grants have been satisfied. It is also necessary to resolve any uncertainty about constraints imposed by federal law on the ability of a cooperative electric utility to receive these grants. I have been advised by the Department of Law that the obligations set out in the proposed grant agreement and the yet to be prepared participation agreement may not be final and binding absent review and approval by the Alaska Public Utilities Commission.I would like the utilities position on the necessity for APUC review of the intertie grant and participation agreements.The final grant agreement must anticipate this circumstance so that we all understand the ramifications. Pending full satisfaction of the legislature's conditions,the Authority is prepared to request that the Department of Administration transfer custody of and responsibility for the grant to the Alaska Industrial Development and Export Authority.This means the intertie grant appropriations will be deposited in the revolving fund of AIDEA,where the money will be held and accumulate interest for the purposes of the grants.When the conditions to payment are satisfied,the amount appropriated plus any interest accrued while in the possession of AIDEA will be available for expenditure as provided in the final grant agreement.I further add that given the substantial preliminary agreement reached among the participating utilities,I have requested legal confirmation that grant funds held by the Authority can be expended on preliminary design,engineering and permitting work if the participating utilities think prudent. wevey Michael P.Kelly -Letter September 13,1993 Page Two During AIDEA custody of the grant appropriation,the grant agreement must provide that the utilities will not have a vested right to receive payment beyond amounts necessary to satisfy valid obligations incurred by the responsible utilities.The legislature would be able to appropriate the unencumbered and unobligated money from AIDEA for any valid public purpose.I believe the possibility of further appropriation of intertie grant funds by the legislature is remote.However,as custodian of such a substantial amount of public money,AIDEA must be careful to preserve the legislature's plenary power of appropriation over all publicly held money. I am pleased to host a meeting with your negotiating committee on September 17 to discuss points raised in this letter and the next steps to take to accomplish the intent of the legislature. Sincerely yours, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY Wi Executive Director. cc:Pat Ryan,Chief of Staff,Office of the Governor James Baldwin,Esq.,Department of Law ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITYAc 480 WEST TUDOR *ANCHORAGE,ALASKA 99503-6690 *(907)561-8050 *FAX (907)561-8998 September 13,1993 Mr.Tom Stahr,General Manager Anchorage Municipal Light &Power 1200 E.lst Avenue Anchorage,Alaska 99501 Dear Mr.Stahr: I have carefully reviewed the intertie grant agreements proposed by the utilities.I believe that the agreement provides an excellent definition of the steps necessary to satisfy the conditions set out in the grant appropriations made in ch 19,SLA 1993.The participating utilities have shown substantial good faith and concerted effort to reach this point. However,before the grant can be awarded,you must complete the participation agreement which is a key element to a_=conclusive determination that the preconditions to the grants have been satisfied. It is also necessary to resolve any uncertainty about constraints imposed by federal law on the ability of a cooperative electric utility to receive these grants. I have been advised by the Department of Law that the obligations set out in the proposed grant agreement and the yet to be prepared participation agreement may not be final and binding absent review and approval by the Alaska Public Utilities Commission.I would like the utilities position on the necessity for APUC review of the intertie grant and participation agreements,The final grant agreement must anticipate this circumstance so that we all understand the ramifications. Pending full satisfaction of the legislature's conditions,the Authority is prepared to request that the Department of Administration transfer custody of and responsibility for the grant to the Alaska Industrial Development and Export Authority.This means the intertie grant appropriations will be deposited in the revolving fund of AIDEA,where the money will be held and accumulate interest for the purposes of the grants.When the conditions to payment are satisfied,the amount appropriated plus any interest accrued while in the possession of AIDEA will be available for expenditure as provided in the final grant agreement.I further add that given the substantial preliminary agreement reached among the participating utilities,I have requested legal confirmation that grant funds held by the Authority can be expended on preliminary design,engineering and permitting work if the participating utilities think prudent. Tom Stahr -Letter September 13,1993 Page Two During AIDEA custody of the grant appropriation,the grant agreement must provide that the utilities will not have a vested right to receive payment beyond amounts necessary to satisfy valid obligations incurred by the responsible utilities.The legislature would be able to appropriate the unencumbered and unobligated money from AIDEA for any valid public purpose.I believe the possibility of further appropriation of intertie grant funds by the legislature is remote.However,as custodian of such a substantial amount of public money,AIDEA must be careful to preserve the legislature's plenary power of appropriation over all publicly held money. I am pleased to host a meeting with your negotiating committee on September 17 to discuss points raised in this letter and the next steps to take to accomplish the intent of the legislature. Sincerely yours, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY Executive Director cc:Pat Ryan,Chief of Staff,Office of the Governor James Baldwin,Esq.,Department of Law ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY 480 WEST TUDOR *ANCHORAGE,ALASKA 99503-6690 +(907)561-8050 *«FAX (907)561-8998 September 13,1993 Mr.David L.Highers,General Manager Chugach Electric Association,Inc. P.O.Box 196300 Anchorage,Alaska 99519-6300 Dear Mr.Highers: I have carefully reviewed the intertie grant agreements proposed by the utilities.I believe that the agreement provides an excellent definition of the steps necessary to satisfy the conditions set out in the grant appropriations made in ch 19,SLA 1993.The participating utilities have shown substantial good faith and concerted effort to reach this point. However,before the grant can be awarded,you must complete the participation agreement which is a key element to a conclusive determination that the preconditions to the grants have been satisfied. It is also necessary to resolve any uncertainty about constraints imposed by federal law on the ability of a cooperative electric utility to receive these grants. I have been advised by the Department of Law that the obligations set out in the proposed grant agreement and the yet to be prepared participation agreement may not be final and binding absent review and approval by the Alaska Public Utilities Commission.I would like the utilities position on the necessity for APUC review of the intertie grant and participation agreements.The final grant agreement must anticipate this circumstance so that we all understand the ramifications. Pending full satisfaction of the legislature's conditions,the Authority is prepared to request that the Department of Administration transfer custody of and responsibility for the grant to the Alaska Industrial Development and Export Authority.This means the intertie grant appropriations will be deposited in the revolving fund of AIDEA,where the money will be held and accumulate interest for the purposes of the grants.When the conditions to payment are satisfied,the amount appropriated plus any interest accrued while in the possession of AIDEA will be available for expenditure as provided in the final grant agreement.I further add that given the substantial preliminary agreement reached among the participating utilities,I have requested legal confirmation that grant funds held by the Authority can be expended on preliminary design,engineering and permitting work if the participating utilities think prudent. David L.Highers -Letter September 13,1993 Page Two During AIDEA custody of the grant appropriation,the grant agreement must provide that the utilities will not have a vested right to receive payment beyond amounts necessary to satisfy valid obligations incurred by the responsible utilities.The legislature would be able to appropriate the unencumbered and unobligated money from AIDEA for any valid public purpose.I believe the possibility of further appropriation of intertie grant funds by the legislature is remote.However,as custodian of such a substantial amount of public money,AIDEA must be careful to preserve the legislature's plenary power of appropriation over all publicly held money. I am pleased to host a meeting with your negotiating committee on September 17 to discuss points raised in this letter and the next steps to take to accomplish the intent of the legislature. Sincerely yours, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORJTY Executive Director cc:Pat Ryan,Chief of Staff,Office of the Governor James Baldwin,Esq.,Department of Law ° . Tia:ALASKA INDUSTRIAL DEVELOPMENT|e.AND EXPORT AUTHORITY 480 WEST TUDOR «+ANCHORAGE,ALASKA 99503-6690 «(907)561-8050 «FAX (907)561-8998 September 13,1993 Ron L.Saxton,Esq. Ater,Wynne,Hewitt,Dodson &Skerritt 222 S.W.Columbia,Suite 1800 Portland,Oregon 97201-6618 Dear Mr.Saxton: I have carefully reviewed the intertie grant agreements proposed by the utilities.I believe that the agreement provides an excellent definition of the steps necessary to satisfy the conditions set out in the grant appropriations made in ch 19,SLA 1993.The participating utilities have shown substantial good faith and concerted effort to reach this point. However,before the grant can be awarded,you must complete the participation agreement which is a key element to a conclusive determination that the preconditions to the grants have been satisfied. It is also necessary to resolve any uncertainty about constraints imposed by federal law on the ability of a cooperative electric utility to receive these grants. I have been advised by the Department of Law that the obligations set out in the proposed grant agreement and the yet to be prepared participation agreement may not be final and binding absent review and approval by the Alaska Public Utilities Commission.I would like the utilities position on the necessity for APUC review of the intertie grant and participation agreements.The final grant agreement must anticipate this circumstance so that we all.understand the ramifications. Pending full satisfaction of the legislature's conditions,the Authority is prepared to request that the Department of Administration transfer custody of and responsibility for the grant to the Alaska Industrial Development and Export Authority.This means the intertie grant appropriations will be deposited in the revolving fund of AIDEA,where the money will be held and accumulate interest for the purposes of the grants,When the conditions to payment are satisfied,the amount appropriated plus any interest accrued while in the possession of AIDEA will be available for expenditure as provided in the final grant agreement.I further add that given the substantial preliminary agreement reached among the participating utilities,I have requested legal confirmation that grant funds held by the Authority can be expended on preliminary design,engineering and permitting work if the participating utilities think prudent. Ron L.Saxton -Letter September 13,1993 Page Two During AIDEA custody of the grant appropriation,the grant agreement must provide that the utilities will not have a vested right to receive payment beyond amounts necessary to satisfy valid obligations incurred by the responsible utilities.The legislature would be able to appropriate the unencumbered and unobligated money from AIDEA for any valid public purpose.I believe the possibility of further appropriation of intertie grant funds by the legislature is remote.However,as custodian of such a substantial amount of public money,AIDEA must be careful to preserve the legislature's plenary power of appropriation over ali publicly held money. I am pleased to host a meeting with your negotiating committee on September 17 to discuss points raised in this letter and the next steps to take to accomplish the intent of the legislature. Sincerely yours, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY Und ealExecutiveDirector cc:Pat Ryan,Chief of Staff,Office of the Governor James Baldwin,Esq.,Department of Law "Wwryry .ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY J 480 WEST TUDOR *ANCHORAGE,ALASKA 99503-6690 +(907)561-8050 «FAX (907)561-8998 bike Ra \ MEMORANDUM TO:Patrick Ryan FROM: Executive Director DATE:August 23,1993 SUBJECT:Proposed Intertie Grant Agreements In connection with the comprehensive reformulation of state energy policy, the Legislature appropriated roughly $90 million from the Railbelt intertie reserve to the Department of Administration for payment as a designated grant to Golden Valley Electric Association ($43.2 million)and to Chugach Electric Association ($46.8 million).While GVEA and Chugach were the designated recipients of the grants,the grants were explicitly for the benefit of all the utilities participating in the respective intertie projects. The appropriations were further "contingent upon the execution of a written agreement"between the participating electric utilities and the state which provides that the utilities (i)agree to pay any costs in excess of the grant amount;(ii)pay the O&M costs of the interties,and (iii)allocate such costs essentially in proportion to the system peak demands of the participating utilities. We understand from discussions with Speaker Barnes that the intent of the "contingent"appropriation was to require that the participating utilities reach sufficient agreement on terms such that no utilities could unfairly leverage other participating utilities.Historically,I understand that the utilities have at times had substantial difficulty in reaching a consensus on issues of access availability and terms,control,or cost allocation. The utilities have presented AIDEA a proposed Intertie Grant Agreement which establishes a framework to resolve the "pre-condition"issues set out in the appropriation.While the Grant Agreement provides general assurances to satisfy the statutory pre-conditions,the Agreement anticipates execution of a definitive Participation Agreement on or before November 1,1993,which lyontQitexino Patrick Ryan August 23,1993 Page Two will definitively establish the terms and conditions under which the various utilities will participate.Similarly,the Grant Agreement establishes in general terms an agreement among the utilities to provide "access"to each other's systems (a point of historic contention),however the actual establishment of definitive "terms and rates"for such access is also reserved for the Participation Agreement.Any utility is able to withdraw from the Grant Agreement until the more definitive Participation Agreement is executed. The proposed Grant Agreement is conditional in two other respects.First, the draft Agreement is explicitly contingent on the utilities'receipt of a favorable opinion from the Internal Revenue Service in response to a Private Letter Request (involving whether receipt of the grant funds impairs the tax-exempt status of the utilities).Finally,it is virtually certain that any final agreement reached among the utilities will be subject to Alaska Public Utilities Commission review (and is thus not "final"unless and until approved). The utilities have two primary objectives in seeking the state's immediate execution of a grant agreement which transfer funds to GVEA and Chugach. First,unless otherwise specified,interest earnings on a designated recipient grant (AS 37.05.316)are generally available.for project purposes.It is noteworthy,here,that the grants are roughly half of anticipated Project costs,so interest earnings would substantially mitigate the cost to the participating utilities.Second,the utilities seek execution of a grant agreement which transfers the fund,so that the funds are not amenable to legislative reappropriation.(Once a third party has "vested"contract rights in a grant,it is certainly arguable under Alaska Supreme court rulings that the legislature has no power to modify or rescind the grant appropriation.) The issues of legislative powers of appropriation are particularly significant given the pending litigation involving the Budget Reserve Fund. If,for example,the courts invalidate the approximate $800 million of appropriations in dispute,the Governor or the Legislature may well prefer that the $90 million in intertie grant appropriations be available to redress any budget shortfall.(The grant appropriations are themselves not directly affected by the pending litigation.)And while not as critical, the question of interest earnings involves approximately $10-15 million in interest income,since it is unlikely that actual construction on the interties will begin until 1995 or later. The policy options range as follows: (1)Approve Agreement substantially in the form as presented.Interest income on grant available for project purposes.Grant funds likely subject to third-party contract rights,and thus not subject to Legislative reappropriation. Patrick Ryan August 23,1993 Page Three (2)Approve Agreement structure,but expressly provide in Grant Agreement that,until final definitive agreement is reached among participating utilities,grant funds remain subject to legislative powers. (3)Utilize AIDEA as interim custodian of funds (by agreement with utilities or by RSA agreement between Department of Administration and AIDEA)until utilities reach binding definitive agreement.Interest earnings would be available for project purposes,but assets held by AIDEA are subject to legislative action. (4)Reject agreement structure;grant available only after utilities reach binding definitive agreement.Until pre-condition satisfied,interest income would be a general fund asset.Also,appropriation fully subject to legislative action. I recommend Option 3 -the use of AIDEA as the interim custodian of funds through a structure which allows interest income (from the date of transfer to AIDEA)to be available for project purposes.This option maintains an incentive for the participating utilities to resolve all outstanding business terms through execution of a binding Participation Agreement. Until a definitive agreement is reached,the funds would remain subject to legislative action. WRS:bjf cc:James Baldwin,Esq. Jon Rubini,Esq. Dennis V.McCrohan,Design/Construction Manager INTERTIE GRANT AGREEMENT This Agreement is entered into this 17th day of August,1993,by Golden Valley Electric Association,Inc.("GVEA"),Fairbanks Municipal Utilities System (""FMUS"),Anchorage Municipal Light and Power (""ML&P"),Chugach Electric Association,Inc.("CEA"),Alaska Electric Generation and Transmission Cooperative,Inc.("AEG&T"),on behalf of its members (Matanuska Electric Association,Inc.("MEA"),and Homer Electric Association,Inc.("HEA"), "Additional Parties"),and City of Seward ("Seward")("Participating Utilities”within the meaning of Section 2 of SB 126),and the State of Alaska,Department of Administration ("DOA"),and the Alaska Industrial Development and Export Authority ("AIDEA”). The parties agree as follows: 1.Purpose.The purpose of this Agreement is to satisfy the statutory conditions precedent to DOA's transfer of the grant funds and to provide for the expeditioustransferofsuchfundstothegrantrecipientsforthepurposeofpartialfundingofthedesignand construction of new electric transmission interties between Healy and Fairbanks and between Anchorage and the Kenai Peninsula.Specifically,this Agreement is intended to satisfy the conditions of SB 126 §§1(b)and (c)and §§2(b)and (c). 2.Additional Agreements.The Participating Utilities hereby agree that any additional agreements (whether among the Participating Utilities or with other entities)that are necessary to carry out the purposes of this Agreement and SB 126 shall be negotiated in good faith.Such additional agreement(s)shall address ownership participation ("Participation Agreement"),project management,and project operation. 3.Ownership.Pursuant to this and any other necessary agreements,the Participating Utilities shall hold undivided ownership interest as tenants in common in the proportion set forth in Attachment 1 to this Agreement,such proportions being based on therelationshipoftheParticipants'1990/199 1/1992 three-year average non-coincident peak demand to the sum of the Participating Utilities'1990/1991/1992 three-year average non-coincident system peak demands unless the Participating Utilities agree to a different allocation of specific projectcapacityintheParticipationAgreement.A Participating Utility may elect in writing to withdrawfromparticipationineithertheAnchorage-Kenai Peninsula Intertie or the Healy-Fairbanks IntertiepriortoexecutionofaParticipationAgreementbytheremainingParticipatingUtilities.If anyutilitythatexecutesthisAgreementelectstowithdrawfromparticipationineithertheAnchorage- Kenai Peninsula Intertie or the Healy-Fairbanks Intertie,or both,then that utility shall have no liability under Section 4 hereof,or otherwise,for any costs associated with the Intertie(s)in which that utility has not agreed to participate,and all such costs shall instead be borne by those Participating Utilities which execute Participation Agreements with respett to such Interties. 4.Statutory Conditions.For the purpose of securing transfer of the grant funds,the Participating Utilities hereby agree to the conditions of SB 126,specifically set forth below. 4.1 Design and Construction Costs.The Participating Utilities agree to pay the design and construction costs of the Healy-Fairbanks transmission intertie that exceed$43,200,000 and the design and construction costs for the Anchorage-Kenai Peninsula transmission intertie that exceed $46,800,000 [SB 126 §§1(b)(1)and 2(b)(1)]. 4.2 O&M Costs.The Participating Utilities agree to pay the operation and maintenance (O&M)costs for the Healy-Fairbanks and the Anchorage-Kenai Peninsula interties [SB 126 §§1(b)(2)and 2(b)(2)]. 4.3 Rates.The costs of construction of the Anchorage-Kenai Peninsula intertie in excess of $46,800,000 plus accrued interest,the cost of operation and maintenance ofthatintertie,and other costs approved.by the Participants shall first be recovered through a1.5 mill/kWh charge for all energy generated by the Bradley Lake Hydroelectric Project. The costs of construction of the Healy-Fairbanks intertie in excess of$43,200,000 plus accruedinterest,the cost of operation and maintenance of thatintertie,and othercostsapprovedbytheParticipantsshallfirstberecoveredthrougha1.5 mill/kWh charge forenergygeneratedbytheBradleyLakeHydroelectricProjectforthebenefitofreceivingutilitiesinFairbanksandanadditional1.5 mill/kWh charge to be paid by the receiving utility for 60 percentofthenon-Bradley Lake energy transmitted on the existing GVEA transmission line and the new northern intertie between Healy and Fairbanks. Remaining costs of the two interties not recovered by the above 1.5 mill/kWh charges shall be allocated among the Participating Utilities in the proportion set forth in Attachment 1. 4.4 Access and Wheeling.All Participating Utilities agree to provide the other Participating Utilities access both on the new intertie and over the Participating Utilities'systems to and from the intertie for the purpose of assured access to resources,economy energy transactions,and other similar uses on terms and at rates to be resolved in the Participation Agreement.Charges for access to other Participants'capacity rights will be addressed in the Participation Agreement.Resulting rates will be submitted to the Alaska Public Utilities Commission,if required. 5.Designand Construction Management.The Participating Utilities agree tocontractwithGVEAtodesignandconstructtheHealy-Fairbanks power transmission intertie and agree to contract with CEA to design and construct the Anchorage-Kenai Peninsula powertransmissionintertie,subject to the availability of adequate financing and in accordance withPrudentUtilityPracticesandconstructionagreementswhichcontainprovisionsforadequateoversighttomaintainqualityandcostcontrol,and to ensure that total project costs do not exceed amounts budgeted by the Participants'Group and its Participating Utility members. Consistent with the above conditions,it is agreed and understood that GVEA and CEA,as contractors,will be free to subcontract all or any portion of the work associated with the design and construction of the above projects.If,for any reason,GVEA and/or CEA elect not to act as the contractors of the interties,the Participating Utilities may contract for construction with one or more of the other Participating Utilities or Additional Parties. 6.Intertie Participants Group.As common owners of the interties,theParticipatingUtilitiesagreetoformtheIntertieParticipantsGroup(IPG)for the purpose ofexercisingtheirrightsandresponsibilitiesasowners.Each Participating Utility shall be represented on the IPG,and the IPG shall form a technical advisory subcommittee on which each Participating Utility shall be represented,except that MEA and HEA shall be represented on theIPGandanysubcommittees,each of which shall be a voting member,and AEG&T shall not beadditionallyrepresented.The Participation Agreement shall resolve and adopt voting rights andproceduralrulesfortheoperationoftheIPG. Total project cost and financing shall be addressed in the Participation Agreement. Intertie design,construction,construction management,and operation and maintenance,among other issues,shall be resolved by the IPG in accordance with its rules and procedures. INTERTIE GRANT AGREEMENT Page 2 Relative to design and construction issues,the IPG and its technical advisory subcommittee shall be responsible for oversight of GVEA and CEA construction efforts.Suchoversightshallincludeapprovalofatleastprojectscope(including routing and points ofinterconnection),cost estimates and budget,approval of construction agreements,significant change orders,receipt and review of at least monthly reports,and auditing of design andconstructionfunds.Neither the IPG nor any individual Participating Utility shall attempt to make claims against GVEA and CEA for any decisions made by the IPG. Upon completion and commercial operation of the interties,the IPG shall be responsible for all decisions relating to the ongoing operations,maintenance,repair,and improvement of the interties. 7.Transfer of Grant Funds.DOA hereby transfers the grant funds of $43,200,000 to GVEA and $46,800,000 to CEA,together with all interest earnings on such funds from the effective date of the legislation.GVEA and CEA agree to immediately deposit such funds in trust accounts for the benefit of all Participating Utilities in agreed-upon financial institutions with instructions to the trust officer that no funds are to be released,encumbered,assigned,or pledged until a Participation Agreement has been executed by all of the Participating Utilities.TheParticipatingUtilitiesagreetonegotiateingoodfaithwiththeintentofexecutingaParticipation. Agreement by November 1,1993.In the event that the Healy-Fairbanks intertie is not,for any reason,constructed,GVEA agrees to return any unexpended funds and any interest eared thereon to DOA.In the event that the Anchorage-Kenai Peninsula intertie is not,for any reason, constructed,CEA agrees to return any unexpended funds and any interest earned thereon to DOA. No Participating Utility shall unreasonably delay progress toward completion of the interties. 8.UseofFunds.The parties agree to use funds in the trust accountsdescribedinparagraph7solelyforthepurposesofdesignandconstructionoftheHealy-Fairbanks and Anchorage-Kenai Peninsula interties,including all acts necessary for completion of theseprojects.The parties further agree to return to the State any unexpended grant funds and any interest earned thereon not needed for this purpose. 9.Tax Considerations.The parties agree to expeditiously determine whether the receipt of funds pursuant to this Agreement is inconsistent with the tax-exempt status of the Participating Utilities or will result in the grant being subject to taxation.In the event that any oftheParticipatingUtilitiesdetermineataxstatusissueisraised,DOA and AIDEA agree to permit theimmediatereturntoDOAand/or AIDEA of any grant funds received by the Participating Utilities including any interest eared thereon and to work in good faith to effect the grant transfers in a manner which preserves the tax-exempt status of all of the Participating Utilities and the grant funds and further agree that the Participating Utilities may terminate this Agreement,and any Participating Utility may withdraw from this Agreement,if a satisfactory resolution is not achievable for the utilities as a group or any Participating Utility individually.A ParticipatingUtilitymaydeclinetoreceivegrantfundsforpurposesofavoidingbecomingataxableentityby_reason of such receipt but will be permitted,to the greatest extent possible,to have the same rights and responsibilities as other Participating Utilities under this and other related agreements. However,the existence of unfavorable tax consequences for one or more Participating Utilities shall not prevent receipt of the grant and construction of the line by one or more of the other signatories to this Grant Agreement. INTERTIE GRANT AGREEMENT Page 3 IN WITNESS WHEREOF,the parties have caused this Agreement to be executedonthedatefirstabovewritten. INTERTIE GRANT AGREEMENT Page 4 STATE PARTIES: STATE OF ALASKA,DEPARTMENT OF ADMINISTRATION By: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY ADMINISTRATION By: ADDITIONAL UTILITIES: MATANU.,ELECT.TION,INC. HOMER ELE!C ASSOCIATION,INC. a ICIP GOLDEN VALLEY ELECTRIC ASSOCIATION, Mi.Ad INTERTIE GRANT AGREEMENT Page 5 FAIRBANKS MUNICIPAL UTILITIES SYSTEM ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC. py.(eobreit Sse CITY OF SEWARD ANCHORAGE MUNICIPAL LIGHT &POWER By:at Sa Attachment 1 INTERTIE GRANT AGREEMENT Page 6 INTERTIE OWNERSHIP INTERESTS Attachment 1 Golden Valley Electric Association,Inc.15.45% Fairbanks Municipal Utilities System 4.71% Anchorage Municipal Light and Power 22.53% Chugach Electric Association,Inc.31.19% Alaska Electric Generation &Transmission Cooperative,Inc.24.87% Matanuska Electric Association.Inc.13.52% Homer Electric Association,Inc.11.35% City of Seward 1.25% TOTAL 100.00% NOTE:The above percentage ownership interests are subject torecomputationintheParticipationAgreementutilizingconsistent system peak data and methodology unless the Participating Utilities agree to a different allocation of specific project capacity (Section 3 of this Agreement). SENT "BY:B8-12-""3 1:04PM:CHUGACH ELECTRIC-907 361 899854 2/14 ,CHUGACH ELECTRICCathASSOCIATION,INC. ectric 'DAVID L.HIGHERS General Manager Yike August 12,1993 Ray Welk Splrthe 'eal TO:William R,(Riley)Snell,Executive Director Alaska Industrial!Devclopment and Export Authority FROM:David L.Highers,General Manager SUBJECT:Legislative Intent Re:New Interties The proposed Intcrtic Grant Agreement contemplates joint ownership,design, construction,and management of the Northern and Southern Interties (as a single project)- -and of the Intertie grant funds -by all Railbelt utilities collectively.Golden Valley and Chugach are to be "contractors”to the collective utilities for purposes of building the line, under the direction of the collective utilities. Although arguably lawful,and reluctantly accepted by Chugach,the scheme set forth in the Intertie Grant Agreement represents a substantial departure from the apparent intcnt of the Legislature in enacting the statutes that provide for the Intertie grants and authorizeAIDEAtoissuebondstocompletethefundingofIntertieconstruction,The most straightforward reading of the legislative language is that the Legislaturc intended that: (1)'Uhe Northern and Southern Interties would be separate projects.SB 126, Sections 1 and 2. (2)The grants would be made to Chugach and Golden Valley,not to others, although others were to benefit from the grunts.Id. (3)rhegach and Golden Valley,not others,were to "design and construct”theTInterties.Id.See also SB 106,Section 4 (necessarily implying that Chugach and GoldenValleywillbothconstructandowntherespectiveInterties.) (4)SB 126,Scctions 1(c)and 2(c)requires that Chugach and Golden Valley providetheotherutiliticswhowishedtoparticipateaccesstotheInterties,not ownership or control of the Interties.The legislation does not require any utility to provide assured access across its system for other utilities. 5601 Minnesota Drive «RO.Box 196300 «Anchorage.Alaska 99519-6300 Phone 907-563-7494 «FAX 907-562-0027 SENT'BY:8-12-94 5 1:05PM:CHLUACH ELECIRICZH UU DUL O9DO+.F a14 Riley Snell August 12,1993 Page 2 (5)Chugach and Golden Valley would own their respective Interties,albeit for the benefit of the utilities participating in the Interties.This is an express condition of AIDEA financing under SB 106,Sections 29 and 30.It is also implied by all the provisions of SB 126 and SB 106 already cited above.For example,if the other utilities were each intended to own the Intertics,why didn't the Legislature direct Chugach and Golden Valley to offer the other participants ownership (or even "capacity")instead of access?If you need access to my property,it is because I own it and you don't. Finally,the other prospective Participating Utilities have taken the position that the failure of any of them to agree to a Participation Agreement means that the others cannot proceed with the Intertics (this is the "onc-party veto").'The Legislature cannot reasonably be understood to have intended this.A better reading of the legislation is that Chugach and Golden Valley (and,for other lincs,the specific utilities designated to receive the grunts, design and construct the lines,and own them as a condition of AIDEA financing)must offer each relevant utility the opportunity to participate.The alternative would be to make all Intertie constniction in the Railbelt contingent upon,for example,a favorable vote of the municipal legislative body of the City of Seward.This is absurd. The Intertie Grant Agreement may representa reasonable set of compromises on the part of Chugach and Golden Valley,and it may even be defensible as a creative application of the literal terms of the new statutes,but accepting this scheme does involve costs (¢.¢., the potential lost of AIDEA financing)and Jegal risks (e.g.,citizen suits to block Intertie construction and alleging failure to have complied with the requirements of the new laws). SENT BY:8-12-9%5 1:09PM ;CHUGACH ELECTRIC-907 561 8998+#12/14 CHUGACH ELECTRIC ASSOCIATION,INC. DAVID L.HIGHERS General Monager August 12,1993 Fe Sat Norman L.Story y thieGeneralManager Homer Electric Association,Inc. 3977 Lake Street Homer,Alaska 99603 VIA Facsimile -235-3313 Dear Norm: Thank you for your letter of today's date,offering a revised draft of the Intertie Grant Agreement. Chugach appreciates the effort you and the other prospective participants have made to accommodate the concerns expressed in Chugach's letter of August 10.For the most part,that effort has been successful.The Intertie Grant Agreement still contains many provisions that Chugach considers ill-advised or unfavorable.But based on the changes you have made in the most recent draft,and subject to a satisfactory resolution of the matters discussed in this letter,I will recommend to the Board that Chugach (1)execute the Intertie Grant Agreement,and (2) proceed to negotiate a Participation Agreement.Chugach will attempt to resolve its remaining concerns --which,as you know,are numerous --in the latter Agreement. I note,first,that the draft Grant Agreement is now very ambiguous on the issue of the one-party veto.This has important implications.On the one hand,Section 7 still requires that the Participation Agreement must be signed by all the Participating Utilities (a defined term which includes all of us),or otherwise no funds may be spent,all funds must be returned to the State, and the Interties may not be built.On the other hand,the change you have made to Section 3 seems to imply that the other utilities can proceed to spend the funds and construct the Interties even if one or more of the utilities listed as a Participating Utility declines to execute a Participation Agreement with respect to the Northern Intertie,or the Southern Intertie,or both --in other words,one utility's refusal to execute the Participation Agreement does not veto either the Agreement or the Interties for the other utilities.|We are unclear as to which of these results you intend.Assuming that you intend to let a utility decline to participate in one or both lines without that action bringing the Participation Agrcement and the Interties to a halt,the Grant Agreement must make clear that (1)the utility which drops out is not liable for any costs,and (2) that utility's percentage share of costs and of Intertie capacity will be reallocated among the remaining Participants,who agree to be responsible for 100 percent of those costs. To accomplish the foregoing,we ask that Section 3 be amended by adding the following sentence at the conclusion thereof: 5601 Minnesota Drive =P.O.Box 1946300 «Anchorage,Alaska 99519-6300 Phone 907-563-7494 ©FAX 907-562-0027 SENT BY:8-12-99 +1:10PM ;CHUGACH ELECTRIC-907 561 8998:#13/14 "If any utility that executes this Agreement does not execute a Participation Agreement with respect to the Anchorage-Kenai Peninsula Intertie or the Healy-Fairbanks Intertie,or both,then that utility shall have no liability under Section 4 hereof,or otherwise,for any costs associated with the Intertie(s)in which that utility has not agreed to participate,and all such costs shall instead be bome by those Participating Utilitics who have executed Participation Agreements with respect to such Interties." This clarification is necessary not only for the protection of Chugach and other utilities who may decline to participate in one or both Interties,but also in order to comply with the statute and to protect the State,since otherwise there would be no clear assurance of 100 percent of the relevant casts heing covered by those utilities who elect to participate in the Interties.(Note that this clarification also necessarily implies that there is no longer any one-party veto of the Participation Agreement.) If the foregoing clarification is made to the Agreement,J will recommend to the Board that Chugach execute it.In so doing,however,I want to make clear to you and the other prospective Participants that Chugach interprets the draft Agreement in the following manner,and expects the Participation Agreement to be consistent with these points.Please let me know if there is any disagreement on this. (1)Section 4.4,"Access and Wheeling,"does not as written require of Chugach any commitment that Chugach indicated in its August 10 letter that Chugach is unwilling to make at this time. (2)Chugach intends to submit to the Alaska Public Utilities Commission for review and approval any proposed terms,conditions,and rates for either assured or non-firm wheeling services over Chugach's system for power transmitted across that system to/from the Intertie. (Chugach will first attempt to negotiate such terms,conditions,and rates with the other prospective Participating Utilities.) (3)Chugach will make every reasonable effort to accommodate the wheeling needs of other utilities if Chugach can do so without interfering with the use of its own system for its own wholesale and retail customers,but Chugach does not interpret SB 126 or the Intertic Grant Agreement as requiring Chugach to provide assured access to other utilities for the transmission of power to/from the [ntertie across Chugach's system. (4)If funds must be returned to the State under Section 7,the return will be from the trust accounts mentioned in that Section,and not by Chugach and/or Golden Valley from any other source. Finally,we note that the computations used to produce the percentage interests shown in Attachment 1 must be re-checked,and,if appropriate,the percentage interests must be adjusted accordingly,before the Grant Agreement is finally executed by all parties and becomes effective. SENT BY*8-12-89 =L:1LLPM :CHUGACH ELECTRIC-907 561 8998:#14/14 @¢" Chugach's percentage interest as shown in Attachment 1 may be too high because it apparently includes the loads of Seward,which should be netted out of Chugach's total (and not double- counted). I hope the foregoing is satisfactory to the other prospective Participants.Ifso,please contact me so that we can take the appropriate steps to memorialize our agreement. David L.Highers General Manager CC:RUG Managers Chugach Board of Directors SENT BY:g-19-7*+1:05PM: CHUGACH ELECTRIC-907 361 8998:#4/14 gu 3-00ssr 32,285 ost aécat KemPeeChurery «=Enc)KBMPPEL/HUPMAL PQ02/p.2/9 G¥ESe9 Homer Electric Association,Inc.Rigs'pts:aes 7 ."of CORPORATE OFFICR Oeneral Maalusula Gerviee Center fn .»)JOTI Lake Biraet 9570 Alrperi Way#8 .Pe icamer,Aleve Q0000-Ta¥a Puuch Faaa i Fike Moca SAF Phane (UO7)295-0167 Kaasi,Alaska GOGL2 BiheoSFRdaleefa#&VAY (207)296-9513 Fhoae (607)263-6431 PAX (007)ZAR 7145 August 12,1993 wurye res David L.Highera,Ganeral ManagerChugachZlectricAssociation,Inc. coe ¥.6.Box 196336 Anchorage,AK $9519-6300 Dear Davai RE:CEA''S LETTER OF AUGUST 16,1933 The other tia-line participants hava agked ne to provide you withtheafollowingproposedchangeetothadraftIntertieGrantAgreenentinresponsetotheconcernevontainedinCEA's letteratedAuguat10,1993.Hopefully,thasa changes vill allow CEA tojoinwiththeotherparticipantsinexecuting&@ grant agreewent andaubmittingthatagreementtotheStateagsoonaapossible. The Intertie Grant:Agreanent attached 4a the moat recent (8/8/93)draft.Tha hightighted changes to that draft are in sapecitioaresponsetoCEA's 8/10/93 soncarns, The change to the:aecond paragraph of Saction 5 clarifiea CRA'aahilitytounilaterallydacidenattoacta@thecontractorforthesouthernintertie.. The addition to section 3 clarifies CZA's right to withdyaw frompartiaipatieninthanortherninterttie. CEA'a 1(¢c)concernig algo satisfied by tha above modicication tasection3sinceCRAmayfreelyalacttawithdrawfromeitherorbothintertieaandrefuseteexecutestheParticipationAgreementLz?the latter cannot be nogatiated to CZA''s aatisfaction. CEA'c,concarms with respect to access are divided into that whichCEAiswillingtodpandthatwhichCRAigunwillingtocommit.ItisthefeelingoftheparticipantsthatthasethingswhichOmAiswillingtoda,do not all naceagarsly have to he {noorporated intothegxantagreementatthiastage,but rather that those things towhichCEAisunwillingtocommitwhouldbeaddressed.It has neverbaenthedatantoftheparticipantsthatthayhave4guaranteeofWequalpriorityuseofChugach'a seysten,xegardiess of thaCongaquance,Lf the result would be to pravent Chugach from ueingitsownsystemfortheneedsofitsownwholesalaandratail ga7 276 2493 08-12-93 fa:44am POO?HO4 R-96% NT BY:8-12-"°.1:06PM:CHUGACH ELECTRIC-907 561 8998:#4 5/14 Sect DeAbeie"783 OBAMA KeRPEC LEA...freRO KEMPPEL/HUPTHAN -POQS/P38 David L.Highers,Ganeral Manager Ppaga 2 Auguat 12,19923 oustomera,"and we can find nothing in the preaent draft grantagreementwhiohwouldsupportauchaclalisbYanyparticipant.ThelanguagecontainedintheexistingdraftIntartieGrantAgreomentiabasedupontherequiremantsof£3 126 and is arguably néedassaryinordertopersuadetheStatetoreleasegrantfunds.This iagsuewill,of courage,be totally raaolvad in the ParticipationAgreanent. In reegponea fo yor concern a(b)(ii).we hava alininated thatentixesentencecontainingrestrictionaonthadevalopmentof acceptable wheeling rates. Again,wa would hope that thease "final®nedifiaations to the draftIntartiaGrantAgreenantwillallowCEAtojoinwiththeotherparticipantsinoxecutingthatagreementandsubmittingittotheStateyatthiaweek. Sinceraly, HOMER HLECT AGECCIATION,INC. N.UG.Story General Manoger _NEADHOK399.tavie cor .Ken Ritchey,MEAiDaveCalvert,Gity of SewardVinoeMottola,FHUS Mike Xelly,QVEABobHufman,AEGGTRonSaxton,Attorney Dave Rutchens,,ARECANUS-xrf H/K : 907 276 2493 08-12-93 09:44AM POG3 #04 R=96X% SENT BY:8-12-97 3 1:06PM ;CHUGACH ELECTRIC-907 561 8998-2 6/14 ALG 12°93 9:47AM KEMPPEL HUFF =SINDER P.4/9 INTERTIEGRANTAGREPMENT This Agreementisentered into this___.__-day of August,1993,by Golden ValleyElectricAssociation,Inc.("GVEA"),Fairbanks Municipal Utilities System CEMUS"),AnchorageMunicipalLightandPower(""ML&P"),Chugach Electric Associaton,Inc.("CBA"),AlElectricGenerationandTransmissionCooperative,Inc.("AEG&T"),on behalf of itg members(Matanuska Blectric Association,Inc,(""),and Homer Electric Association,Inc.("HEA"),"Additional Parties”),and City of Seward ('Scward")("Participating Utilides”within the meaningofSection2ofSB126),and the State of Alaska,Department of Adeninistrationn ("DOA"),and theAlaskaIndustrialDevelopmentandBxportAuthority('AIDEA"). The parties agree as follows: 1.Purpose,The purpose of this Agreement is to satisfy the statutoryconditionsprecedenttoDOA's transfer of the grant funds and t provide for the expeditioustransferofsuchfundstothegrantrecipientsforthepurpaseurposeofpartialfundingofthedesignandconstructionofnewelectrictransmissionintertlesbetweonHealyandFairbanksandbetweenAnchorugsandtheKenaiPeninsula.S ally,this Agreement is intended to satisfy theconditionsofSB126$8 1(b)and (¢)and§§2(b)ant (c). 2.Addidonal Agmements.The Purticiputing Udlides hereby agree that anyadditionalagreements(whether among the Partlelpating Utilities or with other entities)that arenadeoutthepurposesofthisAgreementeadSB126shallbenegotiatedingoodfaiththSuchtionalagroemont(s)shall address owncrship participasion (*ParticipeduaAgreement'),ves managempnt,and projectOunesahigPursuant to this and any other necessary agrecmenta,thoParticipatingLtiittesshallholdundividedownershipinterestastenantsincommonintheProportiongatforthinAttachment1tothisAgreement,such proportions being based on theofthePasticipants'1990/1991/1992 ¢corhr average non-coincident peak demand tothesumoftheParticipatingUtlities'1990/199 V/1 three-year aaverage non-coancldent systempeakdemandsunlesstheParticipatingUtilitiesjpartetoaallocationof¢fic projectacityinthe-Participation t.A Participating Utility may elect ding tnwthdrawfromparticipationinefthertheAnchorage-Kenal Peninsula Intertie orthe,Healy-Fairbanks titer prior to execution of a Participation Agreement bytherningParticlpatingUtilities.|4,Statutory Conditions.For the porpose of sec transfer of thefunds,the Participating Utilities hereby agree td the conditions of SB 126,specifically set forthow.| 4.1 i ipating Utilities agres toBei2004ythedesignandconstructioncostsoftheHealyPasteekstnenenonintertiethatexcead43,200,000 and the design:and construction costs for the Anchorage-Kenal Peninsulatransmissionintertiethatexceed$46,800,000 [SB 126 8§1(b)(1)and 20b)(191, 4.2 .The|Partici ating Udlitios to pay the operationand:maintenance (O&M)costs for ths Healy-airbanks andand orage Kenai Peninsulainterties[SB 126 §§1(b)(2)and 2(b)(2)].4.3 Ras The costs of construction of the Anchorage-Kenai PeninsulaIntartiainexcessof$46,800,000plus acorved intorcst,the cost of ation and maintcnance ofthatintartis,and other costs apuroved by the Parici ants shall first be recovered through a1.5 mill/«Wh charge for all energy gencrated by U y Lake Hydroelectric Project. Re-96%'907 276 2493 O8-12-93 O8:44AM PODS HOS SENT BY:8-12-©L:Q7PM CHUGACH ELECTRIC=907 561 8998:#7/14 AUG 12 793 @9:4A4 KEMPPEL HUFFM..SINDER P.S5/9 The costs of construction of the Healy-Pajrbanks Intectle ln cacess of$43,200,000 plus accrued interest,the cost,of operation and maintenance of that intertic,and othercostsapprovedbythePardcipantsshallfirstborecoveredthrougha1.5 mifl/kWh charge forcuergygeneratedbytheBradicyLakeHydroelectricProjectforthebenefitofreccivingutilitiesinFairbanksandanadditional1.5 mill/kWh charge to be paid by the receiving utility for 60 nt of the non-Bradley Lake energy tranamitted on the existing GVBA transmission Line and the new'northem intertle between Healy and Fairbanks. Remaining costs of the two Intertes not recovered by the above 1.5mill/kWh charges shall be allocated among the Participating Utilities in the proportion set forth inAttachment1. 4.4 AccessandWheeling.All Participating Utilides agree to provide theotherParticipatingUtilitiesaccessbothonthencwinterticandovertheParticipatingUtilities'systems to and from the intertie for the purpose of assured acccss to resources,economy energytransactions,and other similar uses on terms and at rates to be resolved in the ipationAgreement,Charges for access to other Participants'capacity rights will be addressed in theParticipationAgreement.[The terms,conditions,and rates for access will be calculated on aacilines-unlized and required basis.]Resulting rates will be submitted to the Alaska PublictilitiesCommission,if required. 5.Design and Consmmuction Management.The Participating Utilitles agree tocontractwithGVEAtodesignandconstructtheHealy-Fairbanks power transmission intertic andagreetocontractwithCEAtodesignandconstructtheAnchorage-Kenai Peninsula powertransmissianiptertic,subject bo the availability of adequate financing and in accordance withPrudentUtilityPracticesandconstructionagreementswhichcontainprovisionsforadequateoversighttomaintaingualityandcostcontrol,and to cnsure that tatal project costs do not exceedamountsbudgetedbytheParticipants'Group and its Participating Utility members. Consistent with the above conditions,it is agreed and understood that GVEA andCEA,as contractors,will be free to subcontract all or any portion af the work associated with thedesignandconstructionoftheaboveprojects.If,for any reason,GVBA and/or CEA fare unabletoconstruct]elect not to act.as the contractors of the interties,the Participating UtilitiesmaycontractforconstractionwithoneormoreoftheotherParticipatingUtilitiesorAdditionalarlics.:' 6.Intertie Particinants Group.As common owners of the interties,theParticipatingUtilidesagreetoformtheIntertieParticipantsGroup(IPG)for the purpose ofexercisingthelrrightsandresponsibilitiesasowners.Each Participating Utility shall berepresentedontheIPG,and ths IPG shall form a technical advisory subcommittees on which cach Participating Utility shall be represented,except that MEA and shall be represented on theIPGandanysubcommittees,each of which shall be a Voting member,and &T shall not beadditionallyrepresented,The Participation Agreement resolve and adopt voting rights andproceduralrulesfortheoperationoftheIPG. Total project cast and financing shall be addressed in the Participation Agreement.Intertie design,construction,construction management,and operation and maintenance,amongotherissues,shallberesolved by the IPG in accurduncewith its rules and procedures. Relative to design and construction issucs,the IPG and its technical advisorysubcommitteeshallberesponsibleforoversightofGVEAandCEAconstructionefforts.Suoversightshallincludeapprovalofatleastprojectscope(including routing and points of . INTCRTIZGRANTAGREEMENT!Pago 2 R=96%907 276 2493 O8-12-93 C9:44Am POOS HOS .SENT BY:6-12 °°|1:08PM :CHUGACH ELECTRIC-907 561 8938-2 8/14 AUG 12°93 @9:4944 KEMPPCL HUFF =GINDER P.6/3 interconnection).cost estimates and budget,approval of construction agreements,significantchangeorders,receipt and review of at least monthly reports,and auditing of design andconstructionfunds.Neither the IPG nor any individual Participating Utility shall attempt to makeclaimsagainstGVEAandCEAforanydecisionsmadebytheIPG. Upon completion and commercial operation of the intcrties,the IPG shall beresponsibleforalldecisionsrelatingtotheongoingoperations,maintenance,repaic,andimprovementoftheinterties. 7.'TransferofGrantPunds.DOA hereby transfers the grant funds of$43,200,000 to GVEA and $46,800,000 to CEA,together with all interest carnings on such fundsfromtheettectivedateofthelegislation.GVEA and CRA agree to immediately deposit such fundaintrustaccountsforthebenefitofallParticipatingUtilitiesinagreed-upon financial institutionswithinstructionstothetrustofficerthatnofundsaretobereleased,encumbered,assigned,or ledged untll a Pardcipation Agreement has been executed by all of the Participating Utilides.ThebarticipatinUtilitiesagreetoRepotiateingoodfaithwiththeintentofexecutingaParticipationAgreementbyNovember1,1993.In the event that the Healy-Palrbanks intertie is not,for anyreason,constructed,OVEA agrees lo return any uncaponded funds and any interest earned thereontoDOA,In the cvent that the Anchorage-Kenal Peninsula intertie Is not,for any reason,constructed,CBA a to retum any d funds and any interest camed thereon to DOA.No Participating Utility shall unreasonably delay progress to completion of the intertics. 8.UseofFunds.The parties agree to uso funds in the trust accountsdescribedinph7solelyforthepurposesofdesignandconstructionoftheHealy-FairbanksarAnchorage-ai Peninsula interties,including all acts necessary for completion of thesepraects.The parties further agree to retum to the State any unexpended grant funds and anyteresteamedthereonnotneededforthispurpose. :9.TaxConsiderations.The ¢$agree to expeditiously determine whetherthereceiptoffundspursuanttothisAgreementisinconsistentwiththetax-exempt status of theParticipatingUtilidesorwillresultinthegrantbeingsubjecttotaxation,In the event that any oftheParticipatingUtilitiesdetenmineataxstatusissue1sraised,DOA and AIDEA agree to permit theimmediateretumtoDOAand/or AIDEA of any grant funds received by the Participating Utilitiesincludinganyinterestearnedthereonandtoworkingoodfaithtoeffectthegranttransfersinamannerwhichpreservesthetax-cxempt status of all of the Participating Utilities and the grantfundsandfurtheragroethattheParticipatingUtilitiesmayterminatethisAgreement,and anyParticipatingUtilitymaywithdrawtromthisAgreement,if a satisfactory resolution is notachievablefortheutilitiesasagroupofanyParticipatingUtilityindividually.A ParticlpatingUtilitymaydeclinetoreccivegrantfundsforpurposesofavoldingbecoming@taxableentitybyxeusonofsuchreceiptbutwillbepermitted,to the greatest extent possible,ta have the same rightsandresponsibilitiesasotherParticipatingUtilitiesunderthisandotherrelatedagreements.However,the existence of unfavorabie tax consequences for one or more Participating UtilitiesshallnotpreventrecciptofthegrantandconstructionofthelincbyuneormoreoftheothersignatoriestothisGrantAgreement. R=S6%.907 276 2493 08-12-93 09:44AM POOG #04 SENT BY:8-12-94 5 1:08PM :CHLGACH ELECTRIC=$O/DOL BYUS+F Us 14 j ° AUG 12 793 ¥9=5UNM KEMPPEL HUFFT =STNDER P29 IN WITNESS WHEREOBP,the partica have causcd this Agreement to be oxcouted on the date ficst above written. STATE OF ALASKA,DEPARTMENT OF ADMINISTRATION By ALASKA INDUSTRIAL DEVELOPMENT AND -EXPORT AUTHORITY ADMINISTRATION By: PARTICIPATING UTILITIES: GOLDEN VALLEY ELECTRIC ASSOCIATION,IN i By: FAIRBANKS MUNICIPAL UTILITIES SYSTEM By: --ANCHORAGE MUNICIPAL LIGHT&POWER By: INTERTIE GRANT AGREEMENT Page 4 R-G6%907 276 2493 08-12-93 O8:44AM POOT #04 SENT BY:8-12-**3 1:03PM :CHUGACH ELECTRIC-907 561 8998:#10/14 °AUG 12 793 @9:S5QAM KEMPPEL HUFFI -GINDER P.4/9 CHUGACH BLECTRIC ASSOCIATION,INC. By: ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC. By. By: ADDITIONAL UTILITIES: MATANUSKA ELECTRIC ASSOCIATION,INC. By: HOMER ELECTRIC ASSOCIATION,INC. By: Attachment 1 INTHRTIAGRANTAGREEMENTPage5. R-96X 907 278 2463 08-12-03 09:44AM FOO #Od * SENT BY:6-12-99 5 1:09PM :CHUGACH ELECTRIC YU/DOL OUUG-Fil/y 14 q : RH 95% AUG 12 "SQ @9:S1AM KEPPEL HOF]GINDER INTERTIE OWNERSHIP INTERESTS Golden Valley Blectric Association,Iac.15.26% Fairbanks Municipal Utilities System 4.65% Anchorage Municipal Light and Power 22.25% Chugach Electrica Association,Inc.32.04% Alaska Dlectri¢Generation &Transmission Cooperative,Inc.24.56% Matanuska Electric Association,Inc.13.35% Homer Electric Association,Inc.11.21% cy of Seward |1.24% TOTAL!100.00% P.9-9 Attachment1 NOTE:The above percentages shall apply unless otherwiseagreedtointheParticipationAgreement(see Section 3 of this Agrecmentt).mn907 276 2483 08-12-93 O8:44AM POOS HOS ll A ygs02-G3 LE:U6 503 226 GUT ATER WYNNE ATER WYNNE HEWITT DODSON S&SKERRITT ATTORNEYS AT LAW July 30,1993 VIA FACSIMILE James Baldwin Assistant Attorney General State of Alaska,Department of Law Office of the Attorney General P.O.Box 110300 Juneau,AK 99811-0300 Dear Jim: fua2-u0s aSuite 1800 222 SW.Columbia Portland,Oregon 97201-6618 (503)226-1191 rike Fax (503)226-0079 Ro\\gekit Wi LoTck \C© This will confirm that David Highers and |will be meeting with you and Riley at 9:00 a.m.on Tuesday,August 10th,at the AIDEA offices for the purpose of discussing the Bradley Lake Project and the existing intertie. Mr.Highers and |are the designated representatives of the Railbelt Utilities Group for these two matters. We will be prepared to discuss in a general manner the issues relating to Bradley Lake and the existing intertie that are raised by the changes to AEA.[tis our expectation that this meeting will last only until noon,and that the purpose of it will be to identify issues and agree on a format and schedule for proceeding.Prior to our meeting,I will provide an outline of issues,similar to that provided to you for the Four Dam Pool projects under separate cover. It is not our intention to discuss plans for the new interties at the August 10th meeting.As I have indicated to Riley,the Railbelt managers have asked that David Highers,Tom Stahr and Mike Kelly join me as the Searde,Washingtoa Washington,D.C.San Francisco,California (208)623-4711 QON 785-0303 (415)421-4143 Fax (206)467-8406 Fax (202)785-6676 Fax (415)989-1263 Affiliated offices tn Anchorage.Fairbanks and Juneau,Alaska o "ngey27G3 2407 503 226 0071 ATER WYNNE _-.(003-005 ATER WYNNE James Baldwin July 30,1993 Page 2 negotiating team for these issues.When the utilities are ready to proceed with these discussions,|will contact you to schedule such a meeting. Thanks for your continued cooperation. Sincer Ronald L.Saxton cc:Riley Snell,AIDEA David Highers,CEA --7 Railbelt Utilities Group Managers David Calvert,Seward Kenneth Ritchey,MEA David Highers,CEA Norman Story,HEA Michael Kelly,GVEA Thomas Stahr,ML&P Robert Hufman,AEG&T Vince Mottola,FMUS Ld ALS\938der.her vruorm 6 yurégoguyay yur vul voorlD FileRei\leelS DUTIES,RESPONSIBILITIES,AND OBLIGATIONS |HQ MLOFORAIDEA/AFA NEW INTERTIE . oENI BY WONLTURIMANUCIOLNUCN 5 yrayrse 4 1.0 Draft Intertle Agreement 1.1 No management or oversight role. cmeetemee co me ww >we wwe vvreatrvaveuw wVVir WVI WUOUUIe £ WOHLFORTH,ARGETSINGER,JOHNSON &BRECHT PETER ARGETSINOER A PROFESSIONAL CORPORATION TELEPHONEwJULIVSJ.BRECHT CYNTHIA L.CAMTLEDGE ATTORNEYS AT LAW (807)£76-8401 ROBERT M,JOWNBON THOMAS *.KLINKNER 9OO WEST BTH AVENUE,BUITE 660 TELECOPY BRADLEY &.MEYEN ANCHORAGE,ALASKA 9950-2048 (907)276-8003JAMEDA.BARAPIN KENNETH ©.VAGBSAA ERIC &.WOHLFORTH MEMORANDUM TO:Dennis McCrohan,Deputy Director (Energy) FROM:-Erle E.Wohiforth G ¢Ja DATE:July 27,1993 SUBJECT:Railbelt Intertie Grant Agreement Memorandum dated July 21,1993 With respect to your paragraph four,here's how |read the 1.5 mil/kwh charge language In the Healy-Falrbanks Intertie and the Anchorage-Kenai Intertia part of the Act:For the Healy-Falrbanks line the Particlpating Utility or Utilitles must pay design,construction,operation and maintenance costs as outlined and first allocate those costs through a "1.5 mil/kwh charge for all energy assessed to the line paid by the receiving utility."This means that each utility usingpowerovertheHealy-Fairbanks line pays 1.5 mils/kwh for all energy transported over the line used by the utllty. With respect to the Anchorage-Kenai lina the language is "a 1.5 mil/kwh charge for all energy generated by the Bradley Lake Hydroelectric Projectpurchasedbytherecelvingutility."Each utility using the Anchorage-Kenal line, then pays 1.5 mils/kwh for all energy generated by Bradley Lake purchased by the recelving utility.Note that the phrase "assessed to the line"is absent from the Kenal Peninsula 1.5 mil/kwh charge. This Is my best attempt at analysing the language.The statutory history of It would be Interesting.Brent Petrie can't answer the question and referred me to other sources. In any event,Section 4.3,which is Rates of the draft Saxton-Kemppel agreement goes off on a naw Iteration of the 1.5 mil/kwh charge.Kemppel's language for the Anchorage-Kenai rate leaves off the phrase "purchased by the utility."His language for Healy-Fairbanks is completely different from the statute. AFFO381F eeeeis -”-.--°-woe uy v wvre rw wwe wv weuUUlF vy The Healy-Fairbanks line participants will pay 1.5 mil/kwh for energy generated by the Bradley Lake Hydroelectric Project for the benefit of receiving utilities in Fairbanks and an additional 1.5 mil/kwh charge to be paid by the receiving utility for sixty percent (60%)of the non-Bracley Lake energy transmitted on the existing GVEA transmission line and the new northern intertie between Healy and Fairbanks.I'm sure there Is 4 good reason for the difference between the statute and the Agresment. There certainly is a confusion here which needs to be mined out early. |enclose suggestions or questions of your summarization of AIDEA/AEA duties,responsibilities and obligations.|did this through the Alaska Intertio Agresment of the memo. cc:Distribution List EEW:mag Enclosures as stated AFFosaIF °.4 M ALASKA INDUSTRIAL DEVELOPMENT|AND =XPORT AUTHORITY 480 WEST TUDOR *ANCHORAGE,ALASKA 99503-6690 «(907)561-8950 *FAX (907)561-8998 MEMORANDUM TO:William R.Snell,Executive Director John B.Olson,Deputy Director (Development) FROM:Dennis V.McCrohan Deputy Director (Energy) DATE:July 21,1993 SUBJECT:Railbelt Intertie Grant Agreement I briefly reviewed the draft intertie agreement provided July 15,1993,by Mr.Kemppel and Mr.Saxton.The following items may deserve consideration: 1.The agreement refers to rights of the Participating Utilities and formation of the Intertie Participants Group.It appears that AIDEA /AEAis not a "Participating Utility",not a member of IPG,and may have no oversight. 2.The time schedule for negotiation of additional agreements needs to be defined as well as "in good faith". 3.The interest-bearing trust accounts are for the "benefit of the Participating Utilities".Why does the state not benefit? 4.Section 4.2 obligates the Participating Utilities to pay O&M costs.Who receives payment?Section 4.3.states the cost of O&M shall first be recovered for GVEA and CEA by a 1.5 mil/kwh charge on all energy generated by Bradley Lake.Is the Bradley wholesale rate raised or is the charge an expense reducing Bradley net income?The legislation states the 1.5 mil/kwh charge on energy by Bradley applies goes to CEA. The legislation does not refer to Bradley energy for GVEA costs. Please let me know if you have any comments. DVM:tc cc:Eric Wohlforth Jon Rubini Jim Baldwin Alaska Energy Authority &Sone Toroorater July 19,1993 To:James L.Baldwin Assistant Attorney General FWDepartmentofLaw From:Ronald A.Garzini Executive Director Alaska Energy Authority Subject:Draft Grant Agreement --Railbelt Interties The proposed Railbelt Intertie Grant Agreement provided to you by Roger Kemppel and Ron Saxton on July 15,1993,was forwarded to me by Riley Snell.Based on review of this document by Energy Authority staff,the following areas appear to require additional legal research: 1.Interest Retention.In Sections 4.3 and 7,the Agreement provides that interest earnings on the unexpended grant balance will accrue to the benefit of the project rather than revert to the State general fund.However,the Agreement also provides in Section 4.1 that the participating utilities will pay the design and construction costs that exceed the appropriated grant amounts, in conformance with the provisions of Sections 1(b)(1)and 2(b)(1)of Chapter 19,SLA 1993. These provisions within the grant agreement appear to be in conflict.Overall, the State needs to determine whether the interest earnings on the unexpended grant balance can be retained to offset additional project costs. 2.Project Ownership.In Sections 3,4.4,5,and 6,the Agreement either provides or infers that ownership of the interties will be shared among the participating utilities.However,the recent legislation appears to provide that project ownership will be vested solely in Golden Valley Electric Association and Chugach Electric Association.This is found explicitly in Sections 29 and 30 of Chapter 18,SLA 1993.It is also implied in Sections 1(c)and 2(c)of Chapter 19,where it states that Golden Valley and Chugach will provide access to the intertie to the other participants.The ability to provide access suggests ownership. The question is whether the shared ownership concept provided in the proposed Grant Agreement is allowable in view of these legislative provisions and apparent intent. PO.Box 190869 701 East Tudor Road Anchorage.Alaska 99519-0869 (907}561-7877 Fax:(907)561-8524 kee :EN A EP 2 ae se Peay eae .biog James L.Baldwin JUL 22 1893July19,1993 Page 2 Alesis Inducyis!Develooment .and Exnart Authority3.Rates.Section 4.3 of the Agreement includes language on Healy-Fairbanks intertie rates that may not be entirely consistent with the rate structure 'requirement in Section 1(b)(3)of Chapter 19.The statute requires a 1.5 If you mill/kWh charge for all energy "assessed”to the new line.Since there is an existing line,it may be appropriate to assess to the new line a given percentage of transfers to or from Fairbanks.It would seem that this same percentage should apply to all transfers regardless of the generation source. Finally,there may be an issue with respect to Anchorage-Kenai transfers. Section 2(b)(3)of Chapter 19 requires a 1.5 mill/kWh charge "for all energy generated by the Bradley Lake hydroelectric project purchased by the receiving utility”(emphasis added).In Section 4.3 of the Agreement,this last phrase is dropped.The question is whether the phrase means that only those utilities receiving Bradley Lake energy over the new intertie are subject to the 1.5 mill/kWh charge,or whether all utilities receiving Bradley Lake energy are subject to the charge.Homer Electric and,perhaps,Chugach Electric might be affected by the interpretation. wish to discuss these or other technical issues with regard to the proposed grant agreement,please contact Dick Emerman at the Energy Authority. cc:Riley Snell Executive Director AIDEA JUL 15 '93 64:57PM KEMPPEL '"""FMAN GINDER ROGER R.KEMPPEL RICHARD R.HUPFMAN PETER C.GINDER DONALD C,ELIS ANDREW J.FIERRO LAW OFFICE?OF KEMPPEL,HUFFMAN AND GINDER A PROFESSIONAL CORPORATION July 15,1993 GEORG#&.HARRINGTON JR. BOCasSyY DEAN SMITH JAY D.DURYCH FROM: PAGES: Jim Baldwin Assistant Attomey General Roger R.Kemppel and Ron Saxton Railbelt Intertie Grant Agreement 7 ANCHORAGE OFFICE 238 ©.FIREWEED LANE,SUITE 206 ANCHORAGE.ALASKA 66803°2004 (607)277-1604 TELECOPIER (907)276-2499 CORDOVA OFFICE $20 2N5 STREET P.O.BOX 1828 CORDOVA,ALABKA 89574 (907!424-7410 TELECOPIER 16071 424-7454 FAX:465-6735 If you have any questions,please contact either Ron Saxton or me. ce:Riley SnellExecutiveDirector,AIDEA FAX:561-8998 \ JUL 15 °93 @4:57PM KEMPPEL '""FMAN GINDER P.2/7 INTERTIEGRANTAGREEMENT _,This Agreement is entered into this day of August,1993,among the AlaskaIntertieParticipants'Group and comprised of the following "Participating Utilities”within themeaningofSection2ofSB126: Golden Valley Electric Association,Inc. Fairbanks Municipal Utilities System Anchorage Municipal Light and Power Chugach Electric Association,Inc. Alaska Electric Generation and Transmission Cooperative,Inc. Matanuska Electric Association,Inc. Homer Electric Association,Inc. City of Seward and the State of Alaska,Department of Administration ("DOA”),and the Alaska IndustrialDevelopmentandExportAuthority('AIDEA”).aee, The parties agree as follows: 1.Purpose.The purpose of this Agreement is to satisfy the statutoryconditionsprecedenttoDOA's transfer of the grant funds and to provide for the expeditioustransferofsuchfundstotheGrantRecipientsforthepurposeofpartialfundingofthedesignandconstructionofnewelectrictransmissionintertiesbetweenHealyandFairbanksandbetweenAnchorageandtheKenaiPeninsula.Specifically,this Agreement is intended to satisfy theconditionsofSB126§§1(b)and (c)and 8§2(b)and (c). 2.Additional Agreements.The Participating Utilities hereby agree that anyadditionalagreements(whether among the Participating Utilities or with other entities)that arenecessarytocarryoutthepurposesofthisAgreementandSB126,will be negotiated in goodfaith.Such additional agreements shall address ownership participation,project management,and"project operation. 3.Ownership.Pursuant to this and any other necessary agreements,theParticipatingUtilitiesshallholdanundividedownershipinterestastenantsincommonintheproportionsetforthinAttachment1tothisAgreement,such proportions being based on therelationshipoftheParticipants'1990/1991/1992 three-year average non-coincident peak demand tothesumoftheParticipatingUtilities1990/1991/1992 three-year average non-coincident systempeakdemandsunlesstheParticipatingUtilitiesagreetotheallocationofspecificprojectcapacity. 4,Statutory Conditions.For the purposes of securing transfer of the grantfunds,the Participating Utilities hereby agree to the conditions of SB 126,specifically set forth below.; 4.1 Design andConstnictionCosts.The Participating Utilities agree topaythedesignandconstructioncostsoftheHealy-Fairbanks transmission intertie that exceed$43,200,000 and the design and construction costs for the Anchorage-Kenai Peninsulatransmissionintertiethatexceed$46,800,000 [SB 126 §§1(b)(1)and 2(b)(1)]. Ss JUL 15 '93 @4:5MPM KEMPREL HIIFEMHN GLNDER Pio? 4.2 O&M Costs.The Participating Utilities agree to pay the operationandmaintenance(O&M)costs for the Healy-Fairbanks and the Anchorage-Kenai Peninsulainterties[SB 126 88 1(b)(2)and 2(b)(2)). 4.3 Rates.The costs of construction of the Anchorage-Kenai Peninsulaintertieinexcessof$46,800,000 plus accrued interest,the cost of operation and maintenance ofthatintertie,and other costs which have been budgeted and agreed to by the Participants shalt firstberecoveredthrougha1.5 mill/kwh charge for all energy generated by the Bradley Lake Hydroelectric Project. The costs of construction of the Healy-Fairbanks intertie in excess of$43,200,000 plus accrued interest,the cost of operation and maintenance of that intertie,and othercostswhichhavebeenbudgetedandagreedtobytheParticipantsshallfirstberecoveredthrougha1.5 mill/kwh charge for energy generated by the Bradley Lake Hydroelectric Project for the benefitofreceivingutilitiesinFairbanksandanadditional1.5 mill/kwh charge to be paid by the receivingutilityfor60percentofthenon-Bradley Lake energy transmitted on the existing GVEAtransmissionlineandthenewnorthernintertiebetweenHealyandFairbanks. Remaining costs of the two interties not recovered by the above 1.5mill/kwh charges shall be allocated among the Participating Utilities in the proportion set forth in Attachment 1. 4.4 Access.All Participating Utilities shall have access to and from the interties on terms and at rates that must be resolved in the Participating Agreement.ParticipatingUtilitiesshallhavecapacityandaccessontheintertiesinproportiontotheirownershipinterestforallpurposesincludingassuredaccesstothatParticipant's capacity,resources,economy energy transactions,and other similar uses. 5 Design and Construction Management.The Participating Utilities agree to |contract with Golden Valley Electric Association,Inc.,to design and construct the Healy-Fairbanks power transmission intertie and agree to contract with Chugach Electric Association,;Inc.,to design and construct the Anchorage-Kenai Peninsula power transmission intertie,subject |to adequate oversight and audit,the details of which will be addressed in the ParticipationAgreement,and further subject to the availability of adequate financing. 6.Intertie Participants Group.As common owners of the interties,theParticipatingUtilitiesagreetoformtheIntertieParticipantsGroup(IPG)for the purpose ofexercisingtheirrightsandresponsibilitiesasowners.Each Participating Utility shall initially berepresentedontheIPGbyitsgeneralmanager,and the IPG shall form a technical advisorysubcommitteeonwhicheachutilityshallberepresented.The Participating Utilities agree todevelopandadoptproceduralrulesfortheoperationofthecommitteepatternedaftertheBradleyLakeProjectManagementCommitteeBylaws. Relative to design and construction issues,the IPG and its technical advisorysubcommitteeshallberesponsibleforoversightofGVEAandCEAconstructionefforts.Suchoversightshallincludeapprovalofprojectscope(including points of interconnection),costestimatesandbudget,approval of construction agreements,receipt and review of at least monthlyreports,and auditing of design and construction funds. Upon completion and commercial operation of the interties,the IPG shall beresponsibleforalldecisionsrelatingtotheongoingoperations,maintenance,and repair of the interties, INTERTIE GRANT AGREEMENT Page 2 Wat Ach. vee ae " em eee ee 7.Transfer _of Grant Funds.DOA hereby transfers grant funds of$43,200,000 to GVEA and $46,800,000 to CEA,together with all interest earnings on such fundsfromtheeffectivedateofthelegislation.GVEA and CEA agree to immediately deposit such fundsininterest-bearingtrustaccounts for the benefit of all Participating Utilitiesin agreed-upon bankswithinstructionstothetrustofficerthatnofundsaretobereleaseduntilalloftheAdditional Agreements have been executed by the Participating Utilities.In the event that either or bothintertiesasnot,for any reason,constructed,GVEA and CEA agree to return any unexpendedfundstoDOA. 8.UseofFunds.The parties agree to use grant funds and interest accruedsolelyforthepurposesofdesignandconstructionoftheHealy-Fairbanks and Anchorage-KenaiPeninsulainterties,including all acts necessary for the completion of these projects.The parties Th Wweagreethatnopartofthefundsshallbeexpendeduntilagreementshavebeenexecutedwhichteaddressatleastthetermsofintertiedesictionmanagement,cost,|"4*&financing,oversight,access rights,,fnaintenance,and operational control. 9.Tax Considerations.The parties agree to expeditiously determine whetherthereceiptoffundspursuanttothisAgreementisinconsistentwiththetax-exempt status of theParticipatingUtilities.In the event that any of the Participating Utilities determine a tax status issueisraised,DOA and AIDEA agree to work in good faith to effect the grant transfers in a mannerwhichpreservesthetax-exempt status of all of the Participating Utilities and further agree that theParticipatingUtilitiesmayterminatethisAgreement,and any Participating Utility may withdrawfromthisAgreement,if a satisfactory resolutionis not achievable for the utilities as a group or anyParticipatingUtilityindividually. In witness whereof,the parties have caused this Agreement to be executed on thedatefirstabovewritten. POE DEN VALLEY ELECTRIC ASSOCIATION, By: FAIRBANKS MUNICIPAL UTILITIES SYSTEM By: ANCHORAGE MUNICIPAL LIGHT &POWER By: INTERTIE GRANT AGREEMENT Page 3 JUL 15 °93 @4:59PM KEMPPEL HIIFFMAN GINDER P.S/7 INTERTIE GRANT AGREEMENT Page 4 CHUGACH ELECTRIC ASSOCIATION,INC. By: ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC. By: MATANUSKA ELECTRIC ASSOCIATION,INC, By: HOMER ELECTRIC ASSOCIATION,INC. By: CITY OF SEWARD By: STATE OF ALASKA,DEPARTMENT OF ADMINISTRATION By: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY ADMINISTRATION By: JUL 19 6°93)WD wer!KReMIPrE Murr rir olin.a Pib/¢ The Participating Utilities agree to retain Golden Valley Electric Association,Inc.,to design and construct the Healy-Fairbanks power transmission intertie and to retain ChugachElectricAssociation,Inc.,to design and construct the Anchorage-Kenai power transmissionintertieinaccordancewithPrudentUtilityPracticesandconstructionagreementswhichcontainprovisionsforadequateoversighttomaintainqualityandcostcontrol,and to ensure that totalprojectcostsdonotexceedamountsbudgetedbytheParticipants'Group and its Participating Utility members. Consistent with the above conditions,it is agreed and understood that Golden Valley Electric Association,Inc.,and Chugach Electric Association,Inc.,as contractors,will befreetosubcontractanyportionoftheworkassociatedwiththedesignandconstructionofthe above projects. DATED at Anchorage,Alaska,this day of August,1993. PARTICIPATING UTILITIES GOLDEN VALLEY ELECTRIC FAIRBANKS MUNICIPAL UTILITIES ASSOCIATION,INC.SYSTEM By:By: ANCHORAGE MUNICIPAL LIGHT &POWER CHUGACH ELECTRIC ASSOCIATION, INC, By:By: ALASKA ELECTRIC GENERATION &MATANUSKA ELECTRIC TRANSMISSION COOPERATIVE,INC.ASSOCIATION,INC. By:By: Ju LY 9D WY WET)LN a PB ee Kot vs HOMER ELECTRIC ASSOCIATION,INC.CITY OF SEWARD By:By: CONTRACTORS ,GOLDEN VALLEY ELECTRIC CHUGACH ELECTRIC ASSOCIATION, ASSOCIATION,INC.INC. By:By: Memorandum of Understanding ;Design and Construction of Power Transmission Interties Page 2