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HomeMy WebLinkAboutUnalaska Land and Resource Agreement 1986RATIFICATION OF LAND AND RESOURCE AGREEMENTS FOR THE UNALASKA GEOTHERMAL PROJECT A.Action Item Consideration and transmittal of agreements negotiated withtheAleutCorporation(regional)and the OunalashkaCorporation(village)for the use of lands and resources needed to conduct a geothermal feasibility study and to construct and operate a geothermal power system on Unalaska Island. B.Background The Board approved Reconnaissance Study Findings and Recommendations for Unalaska/Dutch Harbor on May 3,1985, recommending initiation of a feasibility study for a geothermal power system on Unalaska Island.The Board directed staff to obtain signed agreements for access,use of lands,and a long-term lease for the project prior to commencing the feasibility study. The Power Authority initiated negotiations with the Aleut Corporation,owner of the surface estate at the geothermal exploration site and of the subsurface estate within the entire project area,and with the Ounalashka Corporation, owner of the surface estate of lands needed for transmission line and road easements.Because the Aleut Corporation owns the geothermal resources required for the project,the agreement sought by the Power Authority was predicated on standard geothermal leases executed in other western states, including a provision to pay royalties on geothermal resources produced.The Agreement sought with the Ounalashka Corporation was a standard right-of-way agreement. After extensive negotiations between the Power Authority and the Aleut Corporation,the Aleut Corporation addressed the Board on November 6,1985,expressing concern over being required to commit to a fixed royalty rate prior to conducting a feasibility study for the project.The Board consideredthisissueonDecember12,1986 and directed staff to (1) continue to seek a contractual royalty agreement prior to initiating the feasibility study,(2)seek provisions that reflect industry practice and national and state standards, (3)provide,if necessary,for a fixed royalty that can be adjusted up or down depending on the outcome of thefeasibilitystudy,and (4)consult with City of Unalaska officials during the negotiations. 4519/590 -l- Negotiations continued and drafting of final contract language was completed for both documents during the week of May 25, 1986.The documents have been reviewed and approved by the staff,attorney,and boards of both corporations;the staff, attorney,and council of the City of Unalaska;Power Authority staff;and the Attorney General's Office. C.Issues Copies of the two agreements and a summary and discussion of issues and provisions contained in the agreements are provided to board members under separate cover. D.Options 1.Approve,ratify,and authorize the Executive Director to sign the land and resource agreement between the Power Authority and the Aleut Corporation and the right-of-way agreement between the Power Authority and the Ounalashka Corporation. 2. Disapprove one or both of the agreements and refer to staff for revisions. E.Recommendation Adopt Option 1:Approve,ratify,and authorize the Executive Director to sign the land and resource and right-of-way agreements between the Power Authority and the Aleut and Ounatashka Corporations. 4519/590 -2- SUMMARY OF AGREEMENT WITH THE ALEUT CORPORATION Rights Granted The Agreement grants the following rights to the Power Authority: 1.It grants access rights to Aleut land on Unalaska Island toconductthegeothermalfeasibilitystudy(Article A,Sec.5, page 3).If the Power Authority does not proceed with the project after the feasibility study,it grants access rights to plug and abandon the existing exploration well. 2.Upon completion of the feasibility study and a commitment by the Board to proceed with the geothermal project,the Agree- ment grants a long-term lease for surface lands needed to con- struct and operate the project and rights to drill for and produce geothermal resources from the subsurface estate of Aleut (Article B,Sec.1,page 4). 3.The Agreement also grants rights needed to operate the project including activities necessary to produce geothermal resources and electricity,to dispose of waste fluids,to maintain operations,and to transmit and sell power to the City of: Unalaska (Article B,Sec.2,page 4).It grants necessary rights-of-way and easements for transmission lines and roads (Article B,Sec.3,page 5). The Agreement grants the following rights to the Aleut Corporation: 1.Aleut has the right to participate in the feasibility study by attending meetings between the Power Authority and its con- tractors and receiving data and materials developed during the feasibility study and to bid on aspects of the project,so long as such meetings,information,and bids are not propri-etary or deemed a conflict of interest (Article A,Sec.3,page 3 and Article C,Sec.12,page 13). 2.Upon completion of the feasibility study,Aleut may opt todevelopthegeothermalprojectifit(a)shows by a memorandum of understanding or power sales agreement with the City that jt can provide power at a delivered cost equal to or betterthanthatwhichthePowerAuthoritycanprovide,and (b)reim- burses the Power Authority for costs incurred to conduct thefeasibilitystudy(Article A,Sec.6,page 4). 4631/387 1l- 3.Should the Power Authority proceed with the project,Aleut has approval rights over the precise location of leased lands andrights-of-way (Article C,Sec.20 page 15). Term of the Agreement (Article C,Sec.1,page 5) The Agreement takes effect upon signing by both parties with respect to rights granted to conduct the feasibility study.The Power Authority Board may terminate the Agreement upon completion of the feasibility study or plan of finance or if it is unable to execute a power sales agreement or obtain financing (Article A, Sec.2,page 2).If the project is developed by the Power Authori- ty,the Agreement will remain in effect for 30 years commencing January 1 of the year commercial operations begin.The 30-year primary term will be extended automatically for two consecutive periods of 10 years each if resources continue to be produced in commercial quantities. Royalties (Article C,Sec.3,page 7) The Power Authority will pay royalties to Aleut for geothermal resources produced and sold from the project.For resources that are converted to electric power before sale,the royalty payment istheproductof:(a)the number of kilowatt-hours produced and sold at the city busbar,multiplied times (b)a specified royalty rate ranging from 3.25%to 6.3%(for sale of under 20 million kWh/yr toover44millionkWh/yr,respectively),further multiplied times (c) the busbar cost the city could expect to incur without the geothermal project. The royalty rates specified (from 3.25%to 6.3%of gross revenues at the busbar)combined with the rental and easement fees described below,are designed to coincide with rates of 10%to 15%of the value of the fuel component required to produce an equivalent amount of electricity.Consequently,the royalty and fee pro- visions are consistent with amounts provided in standard state, federal and private geothermal leases.Commencing with royalty rates of 3.25%which increase stepwise to a cap of 6.3%as produc- tion climbs,allows for minimum payments during the early years of the project when net production and revenues are relatively low and higher payments in later years when production increases,and the project can better afford the expense,without exceeding a reason- able royalty rate. The royalty provision was modified from ones more commonly found in geothermal leases to accommodate the fact that the projectdeveloper(the Power Authority in this case)is not a private entity seeking the highest market price and profit margin for resources developed and power sold.In standard leases,where this 4631/387 -2- is normally the case and where royalty is a percentage of market value or gross revenues,the resource owner is assured of maximum royalty payments because the developer's goal is to sell its product at the highest price the market will bear.As a public agency,the Power Authority has the opposite objective,to provide power at the lowest reasonable cost to the city,and establishing royalties as simply a percentage of the market value or gross revenues of the project would be unfair to Aleut as an owner of geothermal energy seeking market value for its resource. Consequently,in this Agreement,royalties on resources converted to electric power are calculated as a percentage of an "artificial" gross revenue equal to the cost the city could expect to incur to provide power to the busbar if the geothermal project were not developed.The Agreement requires that the expense factors to be included in this artificial busbar cost be established in the power sales agreement with the city. Royalties on geothermal resources produced and sold as thermal energy and on mineral byproducts extracted from geothermal fluids are 15%and 5%respectively of their market values,consistent with standard industry practice.Those market values will be negotiated prior to sale of resources for those purposes. The Agreement requires that the Power Authority pay Aleut an advance minimum royalty of $25,000 per quarter.The advance minimum royalty paid to Aleut is deductible from royalties other-wise due to Aleut in any given quarter (Article C,Sec.4,page 8). Fees (Article C,Sec.2,page 6) In addition to royalty,the Power Authority will pay quarterly to Aleut a rental of $1,250 for up to 10 acres of surface leased lands and $1,250 in easement fees.These fees were established at Aleut's request to maximize payments that would not be subject to the revenue sharing provision Sec.7(i)of the Alaska Native Claims Settlement Act.Royalty rate levels in the Agreement were estab- lished such that the sum total of royalty payments,rental,and easement fees would be comparable to the industry standard of pay- ing landowners 10%to 15%of the market value of the resource with- out additional fees. The Power Authority will pay Aleut $1.50 per cubic yard for aggre- gate materials extracted from Aleut land as measured emplaced in construction of the Project. Power Authority Obligations The Power Authority is obligated under the Agreement to conduct a technical and economic feasibility study of the proposed project 4631/387 -3- and,if the results of the feasibility study are positive,to con- duct a plan of finance and pursue a power sales agreement andfinancingfortheproject(Article A,Sec.1,page 2).The project must be conducted according to a strict schedule allowing nine months to contract for and complete the feasibility study,three months from completion of the feasibility study to complete the plan of finance,six months from completion of the plan of finance to execute a power sales agreement and acquire financing,nineteen months from receipt of financing to complete design and commence construction,and three years from beginning construction to commence operations (Article A,Sec.4,page 3 and Exhibits A and B,page 19).Commencement of construction may be extended one year if the Power Authority pays Aleut the annual rental and easement fee of $10,000 for that year (Article C,Sec.2(c),page 7). The Power Authority must bear responsibility for any taxes assessed against its leasehold interest or for establishing that its lease-hold interest is exempt from taxation (Article C,Sec.8,page 10). Aleut will bear responsibility for taxes assessed against leased lands as if they were unimproved,against improvements placed on the lands by Aleut,and against payments received by Aleut pursuant to the Agreement. Within a year after completion of construction,the Power Authority must provide an as-build survey of leased lands and right-of-wayeasements(Article C,Sec.20,page 15). Other Provisions (Article C) The Agreement contains additional provisions with standard language to address the following: Provision Section Page Indemnification 9(b)10 Insurance 9(c)10 Unitization 11 12 Title warranty 13 13 Force majeure 14 13 Surrenders 15 13 Breach of agreement 16 14 Restoration 17 14 Assignment 18 15 Equal employment 19 15 Notices 22 16 Entirety clause 23 16 Severability 24 16 Binding effect 25 17 Definitions 26 17 4631/387 -4.- SUMMARY OF AGREEMENT WITH THE OUNALASHKA CORPORATION Rights Granted There are two general categories of rights granted to the PowerAuthorityunderthisagreement(Article A,page 1): 1.The Power Authority is granted the right of access to the land for the purpose of conducting the feasibility study. 2.Upon completion of the feasibility study,should the Power Authority obtain financing for the project,it is granted rights-of-way and easements necessary for the project. Consideration Upon completion of the feasibility study,designation by the Power Authority of the location of necessary rights-of-way and easements, and approval by the Corporation of those designations,the Power Authority and the Corporation agree to negotiate consideration tobepaidorexchangedforthepropertyrightsconveyed(Article B, Sec.2,page 2.).However,if agreement is not reached within 60 days,the Power Authority agrees to pay and the Corporation agrees to accept the fair market value for the property rights as determined by registered appraisers and based on the value of the portion of the property to be conveyed as a part of the whole property value.The Power Authority and the Corporation may each have the property appraised.If the appraised values are within plus or minus twenty percent,both parties will accept the value midway between the two appraised values.If the appraised values exceed plus or minus twenty percent and the parties still cannot agree on a fair price,they will mutually select and split the cost of a third appraiser whose determination of the fair market value shall be binding on both parties. Other Provisions As part of the feasibility study,the Power Authority agrees to analyze the potential for hydrothermal development and use of geothermal fluids from the project for direct heating of future agriculture and aquaculture facilities in nearby Makushin Valley(Section 3,page 3). The Power Authority shall indemnify,save harmless and defend the Corporation against claims arising out of Power Authorityactivitiesonitslands(Section 5(c),page 4). 4631/387 -5- The Corporation shall be responsible only for taxes assessed against its interest in lands within Power Authority rights-of-way and easements and against any improvements it places on those lands (Section 6,page 4). The Power Authority may assign its interest in the agreement only to another state agency,unless prior written consent is obtained by the Corporation,and any successor-in-interest shall be bound by the agreement (Sections 7 and 8,page 4). 4631/387 -6 - é Page 1 of 15 Articte A Article B Article C 10. 12. 13. 14, 15. 16. 17. 18, 19. 20. 21. 22, 23. 24, 25. 26. CONDITIONAL LAND AND RESOURCE AGREEMENT FOR THE UNALASKA GEOTHERMAL PROJECT Table of Contents FEASIBILITY PROGRAM cooccccvcccevvccvovscsvesecscesscscescesvseee Administration of Feasibility Program .sccscsccvcesseccesceccecns Termination of Feasibility Program .rcccccssccccccccssccesesccese Participation by Aleut in the Feasibility Program ..ccccsccsvevce Commitment to the Project crcccccccvecccsssscensccvevcssecsccesecs Access to Lands to Conduct Feasibility Program ..csscccsccesccees Option for Project Development by Aleut ...ccsceccccccccecceccece GRANT OF LEASE AND RIGHTS FOR THE PROJECT @eenevevneseeseseeeeenenes Production RIghtS ceccccccccnccsccccccccvcvsesesccencccsceceseses Land,Resource Use,and Disposal Rights ..sccoccsescveccesesecces Right-of-Way Easements Rights Powe ee eeoeeeeeseeeeneeeerereresere TERMS AND CONDITIONS eeeeeoseoeveseeoeeeeneeeeneeeoseeeeesseeneesesneeeoenes Terms of Agreement COSC HH HTH HH EHH REE EEO EH ORES HOOK HEHEHE SHOE ODES Fees PCOS HHOREHHHEHESHHESHEHEHESCH TEESE HH OCHO S EH HHHH EHH ERED OTE H SEES Royalties SCOCEHEH OH ECHHEHHHHEHHSHESEHH HEHE SORE HHESH EEE OHH ES EEE EEEBEOE Payment of Royalty ssccveccescccnvccccecsveessevececcesecseececes Purchase of Aggregate Materials .rccccccscccccesccevesscccceceses Depository wacccverccscccccsccccecscccccsactcesescesesesssseccees Lesser or After-Acquired Interest sescccccccccccccccccccsccccaves TaxeS cceccccccccccccevvcccssevceesseveeseeeseeseerscesescesseeee Operations wacccvecccvccvcccceereseseesescnssssereeressenesseeses Uneconomic Operations ceecscccccvsccsecseccscressecceccessesesece UNI tEZatiOn cccccvccccccccccsccccsevvccscceneeesccesseesveccceees Aleut's Right to Bid cesscoverveccerecvvrsevvccsersevrneseesecons Title Warranty srcccccccccvcccccctcsessecerccccsesccevecseseseces Force Majeure sesceccccccccccsccccecssccsesnsscccssevesseceescess SUPPENdETS cevveccvccecscvcccccsccncnsneereceeenssseseeeseeesenes Breach of Agreement crscvccccccvcccvcscccevecsevesevesesesceveees Removal of Property and Restoration wecescsscvcsssenevvencseveves ASSIGNMENT weccccccccecccecsnscereseseaeereresecevernesesecencess Equal Employment .cscccccccccccccccccccercecceteeccevcesssesseses Location and Survey of Leased Lands .cccecccesccnncccesseccessece Recording of Agreement sessccscccccscevccsccsvesorececcseessenees NOLICES cecccccccsnccnccvverscrecseeeseeessseeeesessseeeseeeseees Entirety Clause ,rcscccccccccscncvseressvcvveresecesecsececsceees Severability ceccccccccsccccccvcconessuvccnseesesrescessessersess Binding Effect .rccccccvevvvcecervescrcesercenvtessscrvvccesscees Definitions SOPH HHEHHHSCHHOTHCHHHEHSHHESH ESHER EH OHHHESHHES HOSE SES ERS Exhibit A ©Feasibility Program Scope of Work wsccccccccsvecccccccceccceecsceces Exhibit 8 -Deadlines for Feasibility Program and Project sesceeerenvecevececece Exhibit C -Schedule of Eligible Power COStS coccseverccccvevervnvveceveseenesees 1594/572(1)+wwwwowwoWO@oooaoaoaaea)oOwwn++ Land and Resource Agreement Page 2 of 15 THIS AGREEMENT is made and entered into as of _the day of »1986,by and between THE ALEUT CORPORATION,an Alaska corpo- ration,hereinafter referred to as "Aleut,"and the ALASKA POWER AUTHORITY,a public corporation of the State of Alaska,hereinafter referred to as the "Power Authority." WHEREAS,the purpose of the Power Authority is to promote,develop,and advance the general prosperity and economic welfare of the people of Alaska by providing a means of con- structing,financing,and operating power projects;and WHEREAS,the Alaska Legislature finds that the establ{shment of said power projects is necessary to supply power at the lowest reasonable cost to the state's electric utilities,and thereby to the consumers of the state;and WHEREAS,it fs the declared policy of the state,fn the interests of promoting the general welfare of a1]the people of the state,and public purposes,to reduce consumer power costs and otherwise to encourage the long-term economic growth of the state,including the development of its natural resources,through the establishment of power projects;and WHEREAS,the Power Authority,in cooperation with Aleut,has completed a four-year geothermal exploration and drilling program near Mount Makushin on Unalaska Island,which re- sulted in the discovery of an extremely productive geothermal reservoir;and WHEREAS,the Power Authority has also completed a reconnaissance study of energy re- quirements and alternatives indicating that a geothermal power system is likely to be the most economic source of electric power for the community of Unalaska/Dutch Harbor;and WHEREAS,the Power Authority Board of Directors has allocated funds to conduct a Fea- sibility Program for developing a geothermal power system on Unalaska Island,with the stipu- lation that the Feasibflity Program be initiated only after agreements have been negotiated with appropriate landowners for the use of lands and resources during the feasibility,design,con- struction,and operation phases;and WHEREAS,Aleut has received interim conveyance,under the Alaska Native Claims Settle- ment Act,to the surface and subsurface land estates on which the exploration and drilling took place; NOW,THEREFORE,witnesseth that: Article A.FEASIBILITY PROGRAM 1,Administration of Feasibility Program,The Power Authority shall,subject to appro- priation,fund and conduct a Feasibility Program for a geothermal power Project on Unalaska Istand.The Power Authority shall designate a project manager whose primary responsibility is administration of the Feasibility Program, 2.Termination of Feasibility Program,The Board may,at its option,and upon written notification to Aleut,terminate the Feasibility Program and this Agreement upon the completion of Phases (1)or (2)or thereafter {f the Power Authority fs unable to execute power sales agreements or obtain financing for the Project after diligently pursuing acquisition of such agreements and financing. 3.Participation by Aleut in the Feasibility Program.(3)The Power Authority shall notify Aleut in advance of,and Aleut shall have the right to attend,at its expense,all review meetings between the Power Authority and its Feasfb{lity Program contractors except meetings regarding bid documents or matters the Power Authority deems proprietary or to constitute a conflict of interest.The Power Authority and Aleut shall meet monthly during the Feasibility Program,at a time and place convenient to both parties,to review the Feasibility Program analyses.Aleut may make recommendations to the Power Authority with respect to continuation of the Feasibility Program;changes in the Feasibility Program,including scopes of work,sched- ules,and final report format;and development or nondevelopment of the Project.The Power Authority shall give full consideration to recommendations of Aleut but such consideration shall not restrict or diminish the Power Authority's responsibility to make final decisions on matters concerning the Feasibility Program and the Project. (b)The Power Authority shall,upon request,at no cost or at a cost not to exceed ten cents per page,provide Aleut with data and materfals developed during the Feasibility Program except data and materials the Power Authority deems proprietary or to represent a con- flict of Interest.Throughout the Feasibility Program,the Power Authority shall document to Aleut on a monthly basis the direct costs actually incurred {n conducting the Feasibility Program, (c)If requested by Aleut,the Power Authority shal!provide to Aleut a written description of the nature of the meetings between the Power Authority and its Feasib{lity Pro- gram contractors to which Aleut {8 prevented from attending and an explanation of the reasons for preventing Aleut's attendance,Likewise,{f requested by Aleut,the Power Authority shall provide to Aleut a written description of the nature of the information being withheld and an explanation of the reasons for withholding such information, 1594/572(2) Land and Resource Agreement Page 3 of 15 4,Commitment to the Project.Upon completion of Phases (1)and (2)of the Feasibility Program,the Board shall commit by June 1,1987 to develop the Project or to terminate this Agreement.The Power Authority shall notify Aleut fn writing of the Board's decfsion on or before June 1,1987,If the Power Authority decides to develop the Project,the Power Authority shall diligently proceed to complete its obligations as set forth in Exhibits A and B.If the Power Authority fafls to commit to a course of action by June 1,1987,this Agreement shall be terminated,unless both parties agree in writing to continue the Agreement. 5,Access to Lands to Conduct Feasibility Program,(a)Aleut shall allow access by the Power Authority,{ts employees,agents,representatives,and contractors to land Aleut owns on Unalaska Istand sufficient to conduct and complete the Feasibility Program.Such access shal] be permitted during the Feasibility Program so long as the Power Authority performs under this Agreement. (b)Access granted to the Power Authority shall not prevent Aleut from allowing access by others to Aleut land and resources on Unalaska Island;however,Aleut agrees that access by others,in the event of any access conflicts,shall be subordinate to the needs of the Power Authority to conduct and complete the Feasibility Program.Aleut shall indemnify,save harmless,and defend the Power Authority from and against any and all liens,claims,judgments, or suits whatsoever arising out of activities and operations of Aleut,or others permitted access by Aleut,other than those arising in whole or in part from the Power Authority's act or failure to act,and this section shall survive termination of this Agreement. (c)If the Feasibility Program is terminated prior to obtaining financing for the Project or ff the Board decides not to develop the Project,Aleut agrees to allow access for plugging and abandonment of the Power Authority's existing exploration well if the Power Author- ity and Aleut cannot agree otherwise in writing to maintain the well, 6.Option for Project Development by Aleut.The parties hereto acknowledge that their consultations fn all phases of the project may be advantageous in providing to the City the most reasonable delivered cost of power;therefore,the parties agree to consult with each other specifically during the financial feasibility analysis and power sales negotiations phases of the Project.The Power Authority shall consider Aleut's proposals to develop the project, Within 60 days after completion by the Power Authority of Phase (4)of the Feasibility Program, Aleut may present proposals and agreements to provide for the funding,development,and/or operation of the Project,any portion thereof,or a reasonably comparable project.If a memorandum of understanding is signed by Aleut and the City providing for the development of the Project by Aleut at a delivered cost of power to the City that {s equal to or Tess than that which the Power Authority can reasonably expect to deliver pursuant to Phase (4)of the Fea- sibility Program,or if the terms and conditions of a power sales agreement between Aleut and the City are preferred by the City,then Aleut's proposal for development of the Project shall be accepted by the Power Authority.Within 30 days after acceptance of Aleut's proposal,the Power Authority shall provide Aleut,if not previously provided,an itemization of direct costs actually incurred on a monthly basis during the Feasibility Program plus supporting documentation,Upon Aleut's repayment to the Power Authority for documented direct costs,this Agreement shall terminate and Aleut shall have the right to develop the Project, Article B.GRANT OF LEASE AND RICHTS FOR THE PROJECT 1,Production Rights.Upon the completion by the Power Authority of the Feasibility Program and after a commitment by the Board to proceed with development of the Project,but prior to any drilling or construction,Aleut shall,{n consideration of the Royalties,Rental, Easement Fee,and covenants herein provided,lease exclusively to the Power Authority surface lands which are specifically identified in the Feasibility Program as necessary to construct and Operate the Project and shall grant separately to the Power Authority the non-exclusive right to drill for,produce,extract,take,and remove Energy Resources and Byproducts from the subsurface estate of Aleut.Further,Aleut hereby grants to the Power Authority the right to explore the Leased Lands by geological,geophysical or other methods and,to the extent of Aleut's rights,to take water from Leased Lands for operations hereunder.Aleut agrees that the drilling for,production,extraction,taking and removal of Energy Resources and/or Byproducts from the subsurface estate of Aleut by a party other than the Power Authority shall be subordinate to the needs and requirements of the Power Authority for so long as this Agreement is in effect, 2.Land,Resource Use,and Disposal Rights,To the extent of Aleut's rights,Aleut grants to the Power Authority the right to:(a)locate wells on the surface of the Leased Lands and drill vertically or slant drill wells into,under,across,and through the Leased Lands and into and under other Aleut Lands;(b)repair,redrill,deepen,maintain,inject fn,rework,and operate .or abandon wells for the production of Energy Resources or Byproductss (c)}store, utilize,process,convert,and otherwise use Energy Resources and Byproducts on or off the Leased Lands;(d)sell the same or any part or derivative thereof on or off the Leased Lands with the right of entry thereon at all times for said purposesy (e)construct,use,maintain, operate,erect,repair,replace,and remove al)roads,pipelines,ditches,tenes,telephone and telegraph lines,utility installations,power Vines,poles,tanks,evaporation oF settling 1594/572(3) Land and Resource Agreement Page 4 of 15 basins,extraction and processing plants,machinery,equipment,buildings,electric power plants,equipment for generation and transmission of Energy Resources,Byproducts,and electric powers;facilities for the handling,treatment,and storage thereof;and all structures, improvements,facilities,and all necessary appurtenances for the conversion of the Energy Resources into heat,power,or another form of energy,and for the extraction of Byproducts from steam,brine,or water produced from the Leased Lands,fncluding all rights necessary or convenient thereto;(f)passage over,upon,and across and ingress and egress to and from the Leased Lands for any or all of the above mentioned purposes;(g)utilize or dispose of waste brine and other waste products from a well or wells on the Leased Lands into a well or wells drilled or converted for that purpose on the Leased Lands,and (h)inject water,brine,steam, and gases from a well or wells on the Leased Lands for the purpose of maintaining or restoring pressure,increasing or maintaining production,or testing fin the productive zones.The Power Authority shall obtain all required permits,consents,or licenses for any activities of the Power Authority,and Aleut makes no representations or warranties as to the requirements of any such permission,consent,or license nor as to the availability of such. 3.Right-of-Way Easement Rights.For the consideration set out fn section 1 of this Article,Aleut grants the Power Authority rights-of-way and easements for a road,transmission line,dock,and associated Project facilities on and over Aleut's surface and subsurface estates on Unalaska Island,Said transmission line rights-of-way and easements shall run from the power generation facilities to the Busbar.All easements shal]be one hundred (100)feet in width,except where a greater width is required to accommodate necessary Project facilities,and are granted with the rights,privileges and authorities to:(a)construct,reconstruct, maintain,repair,operate,improve,and update upon or under lands within said easements an electric transmission line and road system including but not limited to poles,towers, conductor,guys,anchors,bridges,abutments,culverts,supporting apparatus,and such other structures and {improvements the Power Authority determines necessary;(b)provide ingress and egress to lands within said easements;(c)cut,trim,remove,and control the growth of vegetation on or adjoining lands within said easements which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of the Project;(d)clear and keep lands within said easements free from fences,bufldings,pavements,or other structures which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of said line or system or may increase the safety risks to Aleut or its property; and (e)license,permit or otherwise agree to the joint use or occupancy of said line or system by any other person,firm,or corporation for telephone,electrification,utility,or transportation purposes, Article C,TERMS AND CONDITIONS 1.Terms of Agreement.(a)This Agreement is effective on »1986 and,unless terminated under any other provision hereof,shal]remain in force until and for so long as there exists an active Lease hereunder,The Primary Term of the Lease shall be for a period of 30 years and shal!conmence effective January 1 of the year {in which Commercial Operations first begin. (b)The term shall be extended automatically for a period of 10 years if any of the Energy Resources are being produced from Commercial Operations on the Leased Lands at the end of the Primary Term,provided that the Power Authority is in compliance with al]the terms and conditions of this Agreement.The term of the Lease shall be extended automatically for an additional 10 years if any of the Energy Resources are being produced from Commercial Operations on the Leased Lands at the end of the initial ten-year extension.If,at the end of the second ten-year extension,Energy Resources are being produced or utilized from Commercial Operations, and the Leased Lands are not needed for other purposes,the Power Authority shall have a preferential right to negotfate a renewal of the Lease, (c)If at the expfration of the Primary Term or at the expiration of the initial ten- year extension,no Energy Resource is befng produced,but the Power Authority has commenced Reworking or Drtlling Operations on the Leased Lands,the Lease will continue jin force for 12 months,provided that the Power Authority continuously prosecutes such operations and fulfills all other terms and conditions of this Agreement,including the payment of the Minimum Royalty,Rental,and Easement Fee,The operations of the Power Authority shall be considered to be continuously prosecuted {if not more than nine months shall elapse between abandonment of a prior production well and beginning of Drilling Operations for or Reworking of a replacement well.If Energy Resources are not once again being produced continuously from Commercial Operations within 12 months from the date when Commercial Operations first closed,the Lease may be terminated at the sole discretion of Aleut.If,as a result of such operations,Energy Reaources are produced from Commercial Operations,tho Lease will remain {n foree for the extended term of 10 years,commencing on the date of expiration of the previous term period, (d)If Energy Resources are being produced from Commercial Operations on the Leased Lands at the expiretion of the Primary Term or the initial ten-year extension,and (1)production shall cease as a result of a depletion of Energy Resources from the Leased Lands or as a result of an Act of God or naturally occurring phenomenon,or (11)production shall he terminated due to well plugging,caving,or other wall problems,the Power Authority may,within 1594/572(4) Land and Resource Agreement Page 5 of 15 12 months from cessation of such production,resume Drilling Operations or Reworking fn an effort to obtain or restore production of Energy Resources.If the Power Authority obtains or restores production as provided herein,the Lease shal!remain in force for the remainder of the term,inclusive of said twelve-month period,provided that ({)Reworking or Drilling Operations are continuously prosecuted and result in production from Commercial Operations and (ii)the Power Authority fulfills all other terms and conditions of this Agreement including the payment of the Minimum Royalty,Rental,and Easement Fee. 2.Fees.(a)After completion of the Project design and before commencement of construction,but fn any case not later than August 1,1988,the Power Authority shall pay quarterly to Aleut (1)Rental of $1,250.00 for up to 10 contiguous acres of surface Leased Landss and (11)an Easement Fee of $1,250.00 for al]easements and rights-of-way granted in this Agreement,The first payment of the Rental and Easement Fee shall be due prior to commencement of construction,and the amounts shall be prorated based on the days remaining in said quarter only,All other payments of Rental and Easement Fee shall be due on January 15,April 15, July 15,and October 15 of each year during the term of the Lease. (b)At the end of the Primary Term and again at the end of the first ten-year extensfon,the quarterly Rental and Easement Fee payments of $1,250.00 each,as provided in 2(a) of this Article,shall be adjusted by multiplying $1,250.00 by a fraction,the numerator of which is the Consumer Price Index,Al}Items,All Urban Consumers (CPI-U)most recently published by the U.S.Department of Labor,Bureau of Labor Statistics,and the denominator of which is »the published CPI-U on the effective date of this Agreement.If publication of the CPI-U is discontinued,the parties shall thereafter utilize comparable statistics on the cost of living for the United States as they shall be computed and published by the U.S.Department of Labor,or if such an index does not exist,by another Federal agency, a financial periodical,or a recognized authority mutually selected by Aleut and the Power Authority. (c)Should production Drilling Operations not be commenced on Leased Lands on or before August 1,1988,this Agreement shall terminate unless the Power Authority,on or before said date,shall pay to Aleut $10,000.00 as annual Rental and Easement Fee,which payment shall extend for 12 months from said date,the time within which drilling operations may be commenced, 3.Royalties.(a)The Power Authority shall pay Aleut a Royalty for Energy Resources and Byproducts produced and sold during each calendar quarter from a single well, which shall be the Project's initially {installed production well or the equivalent output thereof from a replacement well or backup well.The Royalty on Energy Resources converted to electric power shall be the Power Share as determined in 3(b)of this Article.The Royalty on Energy Resources that are not converted to electric power at any time shall be the Energy Share as determined in 3(c)of this Article.The Royalty on Byproducts shall be the Byproduct Share as determined in 3(d)of this Article.Royalty as determined hereunder shall be applicable up to the maximum output of the initial production well or the equivalent output thereof,Royalty on Energy Resources and Byproducts produced in excess of the maximum output of the initial well, or equivalent output thereof,are not subject to this sectfon and shal?be separately negotfated prior to increasing such output capacity beyond the limitations set forth herein, (b)The Power Share shall be the product of the total kilowatt-hours (kWh)produced and sold during the calendar quarter,multiplied by the appropriate royalty rate as set forth below,further multiplied by the City's Busbar cost.Except for line loss and use of electric power by the Power Authority to operate Project facilities,all other electric power generated from energy resources shall be considered sold by the Power Authority and subject to a Royalty payment under this section, (1)The appropriate royalty rate to be used in calculating the Power Share shall be determined as follows: Total kWh Produced and Sold During Quarter Royalty Rate Less than or equal to 5,000,000 0.0325 Greater than 5,000,000 and less than or equal to 6,000,000 0.0350 Creater than 6,000,000 and less than or equal to 7,000,000 0.0375 Greater than 7,000,000 and Tess than or equal to 8,000,000 0,0425 Creater than 8,000,000 and less than or equal to 9,000,000 0.0475 Greater than 9,000,000 and less than or equal to 10,000,000 0.0550 Greater than 10,000,000 and less than or equal to 11,000,000 0.0600 Greater than 11,000,000 0.0630 (if)The City's Busbar cost for any given quarter shall be the quotient of the sum of all costs exclusive of the Project directly attributable to generating electric power and sup- plying said power to the Busbar divided by the total number of kilowattehours exclusive of the Project that are or would be produced and supplied to the Busbar,Costs attributable to electric power generation shall {include all relevant costs under the expense categories set forth in Exhibit C of this Agreement,The Power Authority,Aleut and the City shall consult for the purpose of establishing procedures and accounting controls to appropriately determine the 1594/572(5) Land and Resource Agreement Page 6 of 15 City's Busbar cost,Any power sales agreement between the Power Authority and the City shall include procedures and reasonable accounting controls neccessary to determine the Busbar cost for purposes of calculating the Power Share under this Agreement, (441)Calculation of the quarterly Power Share shall be as follows: Power .Total kWh produced and Appropriate City Busbar Share sold during quarter royalty rate cost As an example:If 8,000,000 total kWh are produced fin any calendar quarter,the appropriate Royalty Rate would be 0.0425,Assuming the City's Busbar cost is $0.20 per kWh,the Power Share due Aleut would be: Power Share =(8,000,000)x (0.0425)x ($0.20)=$68,000.00 (c)The Energy Share shall be 15 percent of the market value at the Wellhead,or at the point of removal of effluent from the geothermal power system,of Energy Resources derived from the Leased Lands and extracted and saved,sold,or used.The market value of such Energy Resources shal?be negotiated and determined prior to delivery by the Power Authorfty to any third party. (d)The Byproduct Share shall be 5 percent of the market value at the Wellhead for all Byproducts derived from Energy Resources and saved,sold,or used.The market value of such Byproducts shall be negotiated and determined prior to delivery by the Power Authority to any third party. &,Payment of Royalty.(2)Upon beginning Commercial Operations and thereafter during the Primary Term or any extended term of the Lease,the Power Authority shall pay to Aleut on January 15,April 15,July 15,and October 15 of each year an advance Minimum Royalty of $25,000.00.The first payment of the Minimum Royalty shall be due within 30 days after beginning Commercial Operations,and the amount of said Minimum Royalty shall be prorated based on the days rematning in the quarter,Minimum Royalty shall be deductible by the Power Authori- ty in the calendar quarter to which safd payment applies and out of said quarter's production of the Energy Resources or Byproducts,and the Power Authority is hereby authorized and directed to deduct the same from Royalty due and payable during said quarter,Following deduction of the Minimum Royalty the Power Authority shall pay Aleut,on or before January 15,April 15,July 15, and October 15,the Royalty accrued and payable for the preceding calendar quarter. (b)Concurrently with making each Royalty payment,the Power Authority shall deliver to Aleut a detailed statement with substantiating documents describing the basis for the deter- mination of the Royalty then paid by the Power Authority,including,but not limited to,an accounting for all Energy Resources and Byproducts extracted,produced,consumed and/or sold from the Leased Lands,The Power Authority shall install and maintain any and all equipment necessary to accurately measure and quantify the Energy Resources and Byproducts extracted from the Leased Lands,Perfodically,{in accordance with industry practices and in no event less frequently than yearly,the Power Authority shall have the accuracy of its measuring equipment certified by an independent State or Federal inspector.Aleut may,at its option and expense and at a time convenient to the Power Authority cause such measuring equipment to be inspected and tested for accuracy by independent inspection, (c)At the end of the Primary Term and again at the end of the first ten-year extensfon,the Minimum Royalty shall be adjusted by multiplying $25,000.00 by a fraction,the numerator of which is the Consumer Price Index,Al]Items,All Urban Consumers (CPI-U)most recently published by the U.S.Department of Labor,Bureau of Labor Statistics,and the denominator of which js »the published CPI-U on the effective date of this Agreement,If publication of the CPI-U is discontinued,the parties shall thereafter utilize comparable statistics on the cost of living for the United States as they shall be computed and published by the U.S.Department of Labor,or if such an index does not exist,by another Federal agency,a financial periodical,or a recognized authority mutually selected by Aleut and the Power Authority. 5.Purchase of Aggregate Materials.The Power Authority shall pay Aleut $1.50 per cubic yard for aggregate materials extracted from Aleut land,as measured emplaced in construction of the Project.Payment shall be due and payable within 30 days after the last day of the month fn which said aggregate matertals are actually extracted.The purchase price herein stated {s effective only until commencement of operation of the Project, 6.Depository,Aleut shall designate,by written notice to the Power Authority,one deposftory to which al]payments required to be made by the Power Authority to Aleut hereunder shall be paid, 7.Lesser or After-Acquired Interest.If,at the commencement of Project development, Aleut owns a lesser interest in the Leased Lands than the fee simple estate,or less than the entire interest in the Energy Resources or Byproducts contained in and under the Leased Lands, 1594/572(6) Land and Resource Agreement Page 7 of 15 then the Rental,Easement Fee,Minimum Royalty,and Royalty accruing to Aleut hereunder shall be paid to Aleut in the proportion which Aleut's interest bears to the entire fee simple estate in the Leased Lands or to the entire interest in said Energy Resources or Byproducts.Should Aleut hereafter acquire any additional right,title,or interest in or to the Leased Lands or said Energy Resources or Byproducts,then any increase in payments of money hereunder necessitated thereby shall commence with the payment next following receipt by the Power Authority of satis- factory evidence of Aleut's acquisition of such additional interest.Notwithstanding the foregoing,Aleut agrees that if,during the term of this Agreement,it conveys grants,or otherwise diminishes its interest in the Lease Lands or in the Energy Resources or Byproducts contained {n and under the Leased Lands,then the terms of this Agreement shall be binding on Aleut's successor-{n-interest. 8.Taxes.(a)The Power Authority shall bear sole responsibility for any taxes levied and assessed against the Power Authority's leasehold fnterest in the Leased Lands or structures,improvements,or personal property placed upon the Leased Lands by the Power Author- {ty or for establishing that the leasehold interest is exempt from taxation, (b)Aleut shall bear sole responsibility for any taxes levied and assessed against the Leased Lands as if such Leased Lands were unimproved and shall pay all]taxes levied and assessed against all structures and improvements placed on the Leased Lands by Aleut.Aleut agrees to pay all taxes assessed upon any payment received by Aleut pursuant to this Agreement. 9.Operations.(a)The Power Authority shall comply with all laws and regulations applicable to its operations hereunder as required by the laws of the State of Alaska and the laws of the United States. (b)The Power Authority,its agents,representatives,and contractors shall indemnify, save harmless and defend Aleut from and against any and all liens,claims,judgments,or suits whatsoever arising out of the Power Authority's activities or operations hereunder other than those arising in whole or in part from Aleut's act or faflure to act,and this sect{on shall survive termination of this Agreement.The Power Authority shall not be liable to Aleut for damages to any geothermal resources reservoir underlying said Leased Lands or for the loss of Energy Resources or Byproducts therein or therefrom or for any subsidence or surface damages resulting from its operations hereunder unless such damage or loss fs caused by the Power Authority's gross negligence or willful misconduct, (c}Prior to exercising any access rights under this Agreement,the Power Authority, its agents,representatives and contractors shall provide Aleut with certificates for general liability and property damage {nsurances in reasonable amounts and form,and a Power Authority contractor shall name Aleut as an additfonal {nsured,All such insurance policies and certifi- cates shall {include the following cancellation or change clause or a similar clause approved by Aleut:"This insurance will not be cancelled by this insurance company nor any changes made fn the poticy which will change the name of the insured,without first giving thirty (30)days notice in writing to The Aleut Corporation,One Aleut Plaza,Suite 300,4000 Old Seward Highway, Anchorage,Alaska 99503,as evidenced by return receipt of registered or certified mail."The {nsurance required under this paragraph shall be maintained in full force and effect throughout the term of this Agreement and any extension hereof, (d)All of the labor to be performed and all of the materials to be furnished in the operations of the Power Authority hereunder shal]be at the Power Authority's sole cost and expense unless otherwise specified herein,and Aleut shall not be chargeable with or liable for any part thereof, (e)The Power Authority shall be entitled to flow and/or blow wells without restriction for testing purposes, 10,Uneconomfic Operations.(a)Nothing in this Agreement shall require the Power Authority to produce,recover,save,or market any of the Energy Resources or Byproducts con- tained in the produced brines or effluent from operations on the Leased Lands,which,fn the Power Authority's judgment,is not economic to produce,recover,save,or market.The Power Authority shall have the right to waste or dispose of any such uneconomic Energy Resources or Byproducts by such lawful manner or means as the Power Authority shall deem appropriate in the circumstances. (b)It fs recognized that the market demand for the Energy Resources or Byproducts may vary from time to time and during such periods as there is no market for any of the Energy Resources or Byproducts,the Power Authority may suspend praduction,precessing,and extraction of Energy Resources or Byproducts,The Power Authority shall have no obligation te save or process Byproducts. (c)Subject to the foregoing and except as otherwise provided in this Agreement,the Power Authority agrees to drill wells and operate each completed well with reasonable diligence and {n accordance with good operating practice and all applicable Jews so long ae Energy 1594/572(7) Land and Resource Agreement Page 8 of 15 Resources and/or Byproducts shall be produced from Commercial Operations while this Agreement is in force, 11.Unitization,(a)The Power Authority shal?have the right,at its sole option, either before or after production,to pool,unitfize or combine all or any part of the Leased Lands with other lands or leases adjacent or adjoining the Leased Lands to comprise one or more operating or development units of not more than 1920 acres each,and drilling operations or production on any such unfit shall constitute compliance herewith to the same extent as though such operations or production were on the Leased Lands.Under this Agreement,such unit shall be established upon the Power Authority's written notice to Aleut and execution fn writing and recordation,in the conveyance records of the State of Alaska Recording District in which the Leased Lands are sftuated,of an instrument identifying and describing the unit lands.Aleut, at its option,shall participate in the Minimum Royalty and Royalty from any such unit either in the proportion to which the number of acres owned by Aleut within the unit bears to the total number of acres in such unit or in the proportion to which the volume of Energy Resources that are produced on the Leased Lands owned by Aleut within such unfit bears to the total volume of Energy Resources produced on such unft,whichever Aleut chooses.In any event,Aleut shall be entitled to receive,during the Primary Term or any extension term of the Lease,the Rental, Easement Fee,Royalty and Minimum Royalty as provided for in 2(a),3,and 4&of Article C. (b)The Power Authority shall have the right to commingle for the purpose of utilizing,selling or processing,or causing to be processed,the steam or steam power and/or extractable minerals produced from each operating or development unit with the steam or steam power and/or extractable minerals produced from other lands or units,so long as the production from the unit which includes all or portions of the Leased Lands is measured,metered or gauged as to such unit production;unit production so measured,metered or gauged shall then be allocated to the Leased Lands in accordance with the provisions of (a)of this section. (¢)Allocation pursuant to (a)and (b)of this section shall cease upon any termination in whole or in part (by surrender,forfeiture or otherwise),of this or any other agreement covering lands fn the operating or development unit as to the Jands covered by such terminated agreement or part thereof.If title is defective as to any portion of the land included in any operating or development unit,such portion of land shall be excluded in allocating production from such unit;provided,however,the Power Authority shall not be held to account for any production allocated to any lands to be excluded from such unft unless and unt!l the Power Authority has actual knowledge of the circumstances requiring such exclusion. (d)The Power Authority may,at its sole option,at any time when there are no Commercial Operations on a unit of Energy Resources or Byproducts dissolve such unit by a written declaration thereof,in the manner in which it was established, 12,Aleut's Right to Bid.Aleut shall be notified as a potential bidder on any phases or tasks contemplated under this Agreement which the Power Authority or its agents or contractors may let for competitive bidding,Any bid that Aleut may submit for which the Power Authority determines there would be no conflict of interest in awarding the bid to Aleut,shall receive equal consideration to other bids submitted. 13.Title Warranty.Aleut agrees to defend title to the Leased Lands except for rights-of-way and easements of record,and further agrees that the Power Authority at {its option may pay and discharge any delinquent taxes,mortgages,trust deeds or other delinquent liens or encumbrances existing,levied or assessed on or against the said Leased Lands;and,in the event the Power Authority shall exercise such optfon,the Power Authority shall be subrogated to the rights of any holder or holders hereof and shall have the right,in addition to other remedies provided by law or equity,to reimburse itself by applying to the discharge of any such mortgage,tax,or other Tien or encumbrances any and a1]payments accruing to Aleut hereunder, 14,Force Majeure.The Power Authority's obligations hereunder shall be suspended; and the term of this Agreement,the schedule contained in Exhibit B of this Agreement,and the period for removal of the Power Authority's property in the event of termination shall be extended when the Power Authority 1s prevented from complying therewith by strikes,lockouts, riots,action of the elements,delays in transportation,inability to secure labor or materials {n the open market,laws,rules or regulations of any Federal,State,Municipal or other governmental agency,authority or representative having jurisdiction,litigation or administrative proceedings affecting title to lands covered hereby or operations thereon,or by other matters or conditions beyond the reasonable control of the Power Authority,whether or not similar to the conditions or matters specifically enumerated fn this section, 15.Surrenders,The Power Authority may,et any time,surrender this Agreement to Aleut in its entirety or surrender only so much of the Leased Lands as the Power Authority may elect in the instrument of surrender.Such surrender shall be accomplished by executing and delivering to Aleut and placing on record in the State of Alaska Recording District in which the Leased Lands are located a quitclaim deed covering the Leased Lands selected by the Power Authority for surrender and the Power Authority shall thereby be relfeved of all obligations as to the acreage surrendered,except for obligations already {neurred by the terme ef this 1594/572(8) Land and Resource Agreement Page 9 of 15 Agreement.Notwithstanding such surrender,the Power Authority shall nevertheless retain such rights-of-way,easements and privileges over,upon,through and across the lands so surrendered as shall be necessary or convenient for the Power Authority's operations on the Leased Lands retained by the Power Authority under this Agreement and on the Power Authority's other lands referred to in section 11 of this Article.Prior to the execution of the power sales agreement with the City,the Power Authority may surrender this Agreement to Aleut upon 30 days written notice.After execution of the power sales agreement,the Power Authority may surrender this Agreement only upon 180 days written notice to Aleut. 16.Breach of Agreement.(a)If,in Aleut's opinion,the Power Authority defaults in any material respect in its obligations hereunder,Aleut shall so notify the Power Authority in writing,setting out fn what respects Aleut deems the Power Authority to be in default.If, within 60 days after receipt of such notice,the Power Authority has begun to cure the alleged default and cures the alleged default with due diligence,the Power Authority shall not be deemed in default of this Agreement.The service of said notice and the lapse of 60 days without the Power Authority's commencing to cure the alleged default is a condition precedent to any action by Aleut for or on account of such default.Neither the service of said notice nor any acts by the Power Authority afimed to cure any alleged default shall be deemed an admission that the Power Authority has failed im any respect to perform {ts obligations under this Agreement. (b)Termination or cancellation of this Agreement shall be the sole remedy of Aleut for failure of the Power Authority to perform any obligation set forth herein.The Power Authority shall be obligated to and shall pay to Aleut al!Royalty,Minimum Royalty,Rental,and Easement Fee due up to the date of termination and surrender,Prior to termination or cancellation for the Power Authority's alleged failure to perform an obligation under this Agreement,Aleut shall give the Power Authority notice of its intent to terminate the Agreement. If the Power Authority believes that it has duly performed under this Agreement,the Power Authority may submit the matter to the the Superior Court of the Third Judicial District at Anchorage.During the prosecution of the matter,the Agreement shall remain fn full force and effect as to both parties,In the event of termination or surrender,the Power Authority shall execute and deliver to Aleut a recordable instrument whereby the Power Authority relinquishes all of its rights and interests in Aleut lands and this Agreement. 17,Removal of Property and Restoration,(a)The Power Authority may at any time during the term of this Agreement remove the property and fixtures placed by it fn or upon the Leased Lands,as well as draw and remove all casing. (b)Following termination of this Agreement or any part thereof for any cause,and following abandonment of any well drilled pursuant to the provisions hereof,the Power Authority shall,within 12 months thereafter or in accordance with a schedule agreed upon by both parties, remove all personal property which the Power Authority shall have brought upon the lands affected by such termination or upon the drillsite of such abandoned well;shall fill all sumps, remove all foundations and so nearly as practicable restore the areas affected by such termination or abandonment to the condition in which they were prior to the commencement of its operations hereunder,Any property not removed by the Power Authority during the period herein provided shall,in the absence of force majeure,be deemed abandoned by the Power Authority and ownership of the property shall pass to Aleut without further act of the parties. 18,Assignment,(a)The Power Authority shall have the right to assign all or any part of its rights or interest fn and to this Agreement,including but not limited to the Power Authority's right to occupy such portions of the surface of the Leased Lands as may be necessary for the construction of plants and other facilities,only to another state agency,No assignment by either party hereunder shall be effective for any purpose whatsoever until a certified copy of the recorded {nstrument of assignments or,if such assignment shall have been recorded only {in short form,a true and complete copy of the instrument described {in such short form under the true signatures of each of the parties thereto,together with a certified copy of such recorded short form,shall be given to the other party,in the same manner as is provided for a notice hereunder, (b)If the Power Authority assigns this Agreement as to a portion of the Leased Lands, payments due Aleut hereunder shall be apportioned among the several leasehold owners according to the surface area of each of their respective leaseholds;however,the Power Authority or its successor-in-interest shall remain responsible under the terms of this Agreement for performance by the assignee, 19,Equal Employment Opportunity.In selecting employees to carry out its obligations hereunder,the Power Authority shall make good faith effort to employ minorities as defined by AS 18,80.220 in skilled,technical,and administrative positions,When reasenable and practical, the Power Authority shall provide training for such employees, 20,Location and Survey of Leased Lands.The exact locatfon of the Leased Lands and right-of-way easements within the Project Area as well as the location on said Leased Lands of the facilities and other improvements to be constructed as contemplated in the Projeat,shall 1594/572(9) Land and Resource Agreement Page 10 of 15 be subject to approval by Aleut.Aleut shall exercise its approval rights so as best to facilitate the purpose for which the Leased Lands are to be leased and in accordance with the determinations set forth in the Feasibil{ty Program.It is agreed by both parties to this Agreement that an as-built survey shall be conducted to establish by legal description the precise location of the Leased Lands and right-of-way easements,and the costs of such survey shall be borne by the Power Authority.The as-buflt survey shall be completed within 12 months after completion of construction. 21.Recording of Agreement.This Agreement may be recorded by either party upon written notice to the other, 22,Notices,Any notice or other communication hereunder from Aleut to the Power Authority shall be given in writing by sending the same by prepaid registered or certified mail with return receipt requested addressed to the Alaska Power Authority at P.0.Box 190869,701 East Tudor Road,Anchorage,Alaska 99519-0869,and any notice or other communication hereunder from the Power Authority to Aleut shall be given in like manner to Aleut addressed to The Aleut Corporation,One Aleut Plaza,Suite 300,4000 Old Seward Highway,Anchorage,Alaska 99503.Any notice mailed as aforesaid shall be deemed given and received within 72 hours after the deposit thereof {n the United States mail if mailed within the State of Alaska and if deposited in the United States mail outside of the State of Alaska,such notice shall be deemed to have been given and received within 120 hours after deposit in the United States mail,The parties may, by like notice at any time,and from time to time,change their respective addresses for the purposes hereof.Postmark dates on registry receipts for such notices shal]be conclusive as to the dete of mafling. 23.Entirety Clause.If the Leased Lands shall hereafter be owned in severalty or in separate tracts,the Leased Lands nevertheless shall be developed and operated as one Lease,and all Royalties accruing hereunder shall be treated as an entirety,and shall be divided among and paid to such separate owners in the proportion that the acreage owned by each such separate owner bears to the entire leased acreage,There shall be no obligation on the part of the Power Authority to off-set wells on separate tracts unto which the Leased Lands may be hereafter divided by sale,devise,unitization,or otherwise,or to furnish separate measuring or receiving facilities. 24,Severability.If any part,portion or provision of this Agreement shall be found or declared null,void,or unenforceable for any reason whatsoever by any court of competent jurisdiction or by any governmental agency having authority thereover,then only such part, portion,or provision shall be affected thereby and the remainder of this instrument shall con- tinue in full force and effect. 25.Binding Effect.This Agreement and all of the terms,covenants and conditions hereof shall extend to and be binding upon the respective heirs,executors,administrators, grantees,successors and assigns of the parties hereto. 26.Definitions,For the purposes of this Agreement,the following definitions shall apply: (a)"Aleut"means The Aleut Corporation. (b)"Board''means the Alaska Power Authority Board of Directors. {c)"Busbar"means the point or points at which electric power is supplied to the City's electric distribution system. (d)"Byproducts"means any minerals (exclusive of oi]or hydrocarbon gas that can be separately produced)which are found in solutfon or association with or derived from Energy Resources, (e)"Byproduct Share"means the Royalty on Byproducts, (f)"City"means the City of Unalaska, (g)"Commercial Operations"means the extraction of Energy Resources and/or Byproducts,and/or delivery of the products derived therefrom,for the benefit of the Power Authority and/or third party for purposes other than start-up and testing. (h)"Drilling Operations"means any work physically occurring on Leased Lands or actual operations undertaken or commenced for the purpose of drilling a well on Leased Lands, {ncluding the preparation of the ground,the building of roads and other facilities,the construction of a derrick and other necessary structures for the drilling of a well,followed by the actual operation of drilling in the ground. (i)"Easement Fee"means the payment to Aleut for easements and rights-of-way granted in this Agreement in amounts described in 2(a)and (b)of Article C, (J)"Energy Resources"means all products of geothermal processes embracing indigenous steam,hot water,and hot briness steam and other gases,hot water,and hot brines resulting from water,gas,or other fluids artificially {ntroduced {nto subsurface formations; heat or other associated energy found beneath the surface of the earths and water from geopressured zones, (k)"Energy Share"means the Royalty on Energy Resources that are not converted to electric power at any time, 1594/S72(10) Land and Resource Agreement Page 11 of 15 (1)"Feasibility Program"means a feasibility analysis of the Project consisting of the Phases described in Exhibit A and conducted in accordance with the schedule described in Exhibit B of this Agreement, (m)"Lease"means the rights granted to the Power Authority under Article B of this Agreement. (n)"Leased Lands"means the surface lands leased by Aleut to the Power Authority and the subsurface estate of Aleut. (0)"Minimum Royalty"means a Royalty payment paid in advance fn amounts described in section 3 of Article C of this Agreement. (p)"Phase"means a stage of the Feasibility Program as described in Exhibit A. (q)"Primary Term"means the initial Lease period of 30 years commencing January 1 of the year in which Commercial Operations first begin. (r)"Power Authority"means the Alaska Power Authority,its employees and agents. (s)"Power Share"means the Royalty on Energy Resources converted to electric power before sale, (t)"Project'"means the geothermal power systems to be located within the Project Area,on and over Aleut lands on Unalaska Island,consisting of geothermal wellsites,wells, piping,power generation facilities,transmission lines,roads,and other appurtenances required to produce and transmit power to the Busbar. (u)"Project Area"means Township 72 South,Range 117 West,Sections 31,32,33,and 34;Township 72 South,Range 118 West,Sections 20,21,22,23,24,25,26,27,28,29,30,31, 32,33,34,35,and 36;Township 72 South,Range 119 West,Sections 2,3,4,9,10,11,14,15, 16,22,23,24,25,26,27,33,34,35,and 36;Township 73 South,Range 118 West,Sections 3, 4,5,6,7,8,and 9;and Township 73 South,Range 120 West,Sections 1,2,and 3;Seward Meridian. (v)"Rental"means the payment to Aleut for up to 10 contiguous acres of surface Leased Lands in amounts described in 2(a)and (b)of Article C of this Agreement. (w)"Reworking"™means,among other things,cleaning,testing,repair,and replacement of wells,related facilities,and equipment necessary to produce from such wells, (x)"Royalty"means the payment to Aleut for Energy Resources and Byproducts produced and sold from the Project in amounts described in section 3 of Article C of this Agreement, (y)"Wellhead"means the point of removal of Energy Resources or Byproducts from the earth, IN WITNESS WHEREOF,the parties hereto have executed this instrument as of the date hereinabove first written. The Aleut Corporation The Alaska Power Authority By By 1594/572(11) Land and Resource Agreement Page 12 1594/572(12) PHASE (1) (2) (3) (4) (5) ON _OR BEFORE March 1,1987 June 1,1987 January 1,1988 August 1,1988 August 1,1991 EXHIBIT A FEASIBILITY PROGRAM SCOPE OF WORK TECHNICAL AND ECONOMIC FEASIBILITY ANALYSES, PLAN OF FINANCE, ACQUISITION OF POWER SALES AGREEMENTS, FINANCIAL FEASIBILITY ANALYSIS, ACQUISITION OF FINANCING FOR THE PROJECT, EXHIBIT B DEADLINES FOR FEASIBILITY PROGRAM AND DEVELOPMENT OF PROJECT Complete Technical and Economic Feasibility Analyses,accept final report. Complete Plan of Finance.Commit to course of of action for proceeding with the Project or terminating this Agreement, Acquire power sales agreements,complete financial feasibility analysis, Complete project design,commence construction phase. Complete construction,commence operation, Land and Resource AgrePage13of15 nt oti EXHIBIT C tESULE OF ESLIGISLE Power COSTS UTiflet acts ©Van dficave HO, ACCOUNT NUNIEER PREFERENCE OT:SR Co-op (INDICATES) FPC/FESC CLASS A/8 REA $45 $66 848 $49 $30 $381 $82 $$3 $$4 $36 $37 $60 361 $62 563 $64 $65 $66 $67 n68 $69 REPORTING VERICO (Test Year) ' ENPENSE CaTecoRy 1..POKER PROCLCTION EXPENSES A.STEAM POWER CENTOATION Operation supervision &engineesing Stesm expenses Steam frem other sources Steam transferred -Cradit Electric expenses Mise.steam power expenses Rents Maintensnce supervision &engineering Maintenance of structures Maintenanceof boiler plantMaintensaceofelectricplant Maincenance of aise.steam plant 3.MYDRAULIC POLER GENERATION oe Operation supervision &engineeringVaterforpower Hydraulic expenses Electric éxpenses Misc.hydraulic power gen.expenses Rents Maintenance of supervision &engineering Maintenance of structures Maistensace of reservoirs,dans &vatervays Maintenance of electric plant Maintenance of mise.hydraulic plant C.OTHER POWER GENERATION Operation supervision &engineering Generstion Expenses Mise.other power generation expenses Rents . Maintenance supervision &engineesing Maintenance of structures Maintenance of generating &electric plant Maintenance of mise.other power generstion planet D.OTIER POWER SUPPLY EXPENSES Systes control and load dispatching Other expenses 2,TRANSMISSION EXPENSES Operation supervision &enginceriag Load dispatching Stavior expenses Overhead line expenses Unders:round line expenses Tranesissiyon of electricity by others Misc.transaission expenses Renta Maintenance supervision &engineering*vinsensnce of Structures "9 AMOUNTawewets ---ee Land and Resource.Agreement'Page 14 of 15 ACCOUNT NUNSER REFERENCE SCHEDULE OF ELICLELE POSER COSTS FPC/Feac REA CLASS A/B Co-op (INDICATE $790 $70 $7i $71 $72 $72 $73 $73 $80 $80 $81 $81 $82 $$2 $383 5383 $84 S84 58S S85 $86 $86 587 $87 583 588 $89 589 590 590 $91 §91 592 592 §93 $93 $9 $94 595 $95 $96 $96 §97 $97 $98 $98 901 901 902 902 903 903 904 904 908 908 907 907 908 908 $03 905 910 910 91}91% 912 912 91)912 916 916 Use ektY HAE ©COATIFICATS 80. EXPENSE CATICORY 2.TRANSUISSION Granses CcoOxuT'D Maintenance of station equipment Hsintensnce of overaesd lines Maintenance of underground lines Maintenance of misc.transmission equipment 3.DISTRIBUTION EPENSES Operation supervision &engineering Load dispatching Station expenses Overhead line expenses Undergscound line expenses Streec lighting and signal systes expenses Meter expenses *Customer installation expenses Misc.distribution expenses Rents Maintesasce supervision &engineering Maintesance.of structures Haintensnce of stacion equipment Maintenance of overhead Lines Mainterance of underground lines Maintes3znce of line transformers Maintenance of street lighting and signsl systes Maintenance of metess Maintenance of misc.distribution plant '&«CUSTOMER ACCCLITS EXPENSES Supervision Meter readiog expenses Customer records and collection expenses Vacolleccible accounts: Misc.customer accounts expenses 8.CUSTOMER SERVICE & INFORMATIONAL ENPENSES Supervision Customer assistance expenses Informationsl &instructional ° advertising expenses Mise.customer service & inforsstionsl expenses 6.SALES EXPENSES Supervision Demenssrating &selling expenses Adveretssiag expenses Mise.sales expenses warn: 'Land and Resource Agreement Page 15 of 15 =*gC/Fiae ACCOUNT NUMZER REFERENCE ENPENSE CATEGORY pee REA OTRCLASSA/S Corop (INDICATE)* 7.AOMINISTRATIVE &CENERAL EXPENSES 920 ;Administrative &general salaries 92%Office supplies &expenses 922 ,Administrative expenses transferred ©Cr. 923 Outside services employed 924 Property Insurance 928 Injuries &damages 926 Esployee pensions &benefits 927 .Feaachise requizeneats 928 Regulatory comnissioa expenses 929 Duplicate echseges ©Cr.- 930.1 Genersl advercising expenses 930.2 Mise.genersl expenses «932 ote Rents,. 932 Maintenance of general plsat CO 8.ALLOWABLE FIXES COSTS (to the extent expensed) Depreciation Taxes Interest on debt t SCHEDULE OF ELISICLE POCA COSTS UTrerir es *°CORTizicaie i. Total Expenses,Excludisg Fuel Costs NOTz:An adjustseat for current fuel costs will be made by Commission Staff.The following inforastion is therefore required: Rerulseed ueiiieces vith surchsrves in effect 1.Cusrent prace per gsilon of fuel shovn in aost recest surcsarge eslculation approved by the Cocmission. 2.Yearly gallons consumed and Xbd sales shown in most recent surcsarge calculation approved by the Commission. b "Ueilfeces vieh no surcharce ix effeee or-unrerulated ). 2. 3. Fuel stozage capacity Actual price per gallon of fuel on hand,assuming thae Latest purchases are sold last (i.e.FIFO) Attach schedule showing components of total,Sch.Ref. Latest invoiced price of fucl per gallon Attach cosy of iavoice.Sch.Ref. wares Page 1 of 4 Conditional Right-of-Way Easement Agreement for the Unalaska Geothermal Project THIS AGREEMENT is made and entered into as of the day of,1986,by and between THE OQUNALASHKA CORPORATION,an Alaskan Corporation,hereinafter referred to as the "Corporation,"and the ALASKA POWER AUTHORITY,a public corporation of the State of Alaska, hereinafter referred to as the "Power Authority." WHEREAS,the purpose of the Power Authority is to promote,develop, and advance the general prosperity and economic welfare of the people of Alaska by providing a means of constructing,financing,and operating power projects;and WHEREAS,the Alaska Legislature finds that the establishment of said power projects is necessary to supply power at the lowest reason- able cost to the state's electric utilities,and thereby to the con- sumers of the state;and WHEREAS,the Power Authority has completed a four-year geothermal exploration and drilling program near Mount Makushin on Unalaska Island, which resulted in the discovery of a commercially productive geothermal reservoir;and WHEREAS,the Power Authority has also completed a reconnaissance study of energy requirements and alternatives indicating that a geother-mal power system is likely to be the most economic source of electric power for the community of Unalaska/Dutch Harbor;and WHEREAS,the Power Authority Board of Directors has allocated funds to conduct a feasibility study for developing a geothermal power systemonUnalaskaIstand;and WHEREAS,the Corporation has selected or received interim convey-ance,under the Alaska Native Claims Settlement Act,to lands needed for transmission line and road corridors to develop such a system; NOW,THEREFORE,witnesseth that: Article A.GRANT OF ACCESS RIGHTS AND RIGHTS-OF-WAY 1.Access to Lands to Conduct Feasibility Study.The Corpo-ration,in consideration of the covenants and conditions provided inthisAgreement,grants rights of access to the Power Authority,itsemployees,agents,representatives,and contractors to land the Corporation owns on Unalaska Island sufficient to conduct and complete adetailedfeasibilityanalysis,hereinafter referred to as the "Feasibil- ity Study,"for a geothermal power project,hereinafter referred to as the "Project."Said access rights shall be for the sole purpose ofconductingtheFeasibilityStudy. 2.Right-of-Way Easement Rights.Should the Power AuthorityobtainfinancingfortheProjectonorbeforeJuly1,1988,the Corp-oration,in consideration of the covenants and conditions contained in this Agreement,hereby grants to the Power Authority rights-of-way andeasementsforaroad,transmission line,dock,and associated ProjectfacilitiesonCorporationlandasdescribedinSection4ofArticleBof this Agreement.Easements shall be 100 feet in width during con-struction,reduced to 40 feet in width upon completion of construction,except at transmission line angle points,terminals,and other Projectfacilitieswhereawidereasementisnecessary.No as-built easementshallexceed100feetinwidthwithoutpriorwrittenconsentofthe Corporation.All easements are granted with the rights,privileges,andauthoritiesto:(a)construct,reconstruct,maintain,repair,operate, improve,and update upon or under lands within said easements anelectrictransmissionline,road,dock,and associated facilitiesincludingbutnotlimitedtopoles,towers,conductor,guys,anchors, 3883/592/1 Page 2 of 4 bridges,abutments,culverts,supporting apparatus,and such otherimprovementsthePowerAuthoritydeterminesnecessary;(b)provideingressandegresstolandswithinsaideasements;(c)cut,trim,remove,and control the growth of vegetation on or adjoining lands within said easement which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of theProject;(d)clear and keep lands within said easements free from fences,buildings,pavements,or other structures which the Power Authority determines interfere with,threaten,or endanger the operation and maintenance of said line or system or may increase the safety riskstotheCorporationoritsproperty;and (e)license,permit or otherwise agree to the joint use or occupancy of said line or system by any other person,firm,or corporation for telephone,electrification,utility,or transportation purposes. Article B.TERMS AND CONDITIONS 1.Term.This Agreement is effective on.»1986. Uniess terminated under any other provision hereof,the access rights granted under Section 1 of Article A of this Agreement shall remain in effect until the Power Authority has completed the Feasibility Study or until July 1,1988,whichever comes first.Should the Power Authority obtain financing for the Project on or before July 1,1988,the right-of-way easement rights described in Section 2 of Article A of this Agreement shall take effect upon receipt of financing and remain in effect in perpetuity. 2.Consideration.Upon completion of the Feasibility Study anddesignationofthelocationofrights-of-way and easements as provided in Section 4 of Article B of this Agreement,the Power Authority and the Corporation shall negotiate the consideration to be paid or exchangedforthepropertyrightsonsaidlandsgrantedinSection2ofArticleA of this Agreement.However,if the Power Authority and the Corporation do not reach agreement on consideration within 60 days after completion of the Feasibility Study,the Power Authority shall pay the Corporationthefairmarketvalueofthepropertyrightstobeconveyed.The fair market value shall be determined in the following manner: (a)The Power Authority shall have the land and property rightsappraisedbyanappraiserwhoisaresidentoftheStateofAlaskaandwhocarriesaMemberAppraisalInstitute(MAI)or Senior Real PropertyAppraiser(SRPA)designation.The Power Authority and the Corporationshallnegotiatethefairmarketvalueofthepropertyrightstobeconveyedbasedontheresultsofsaidappraisal. (b)If agreement on the fair market value is not reached within 30 days after completion of the appraisal described in (a)of this section, the Corporation shall,at its expense,have an independent appraisalconductedbyanappraiserwhoisaresidentoftheStateofAlaskaand who carries an MAI or SRPA designation. (i)If the difference between the appraised market values deter-mined in accordance with (a)and (b)of this section is 20 percent orlessofthelargervalue,then the fair market value shall be the valuewhichismidwaybetweenthetwoappraisedvalues. (ii)If the difference between the appraised market values de-termined in accordance with (a)and (b)of this section is greater than20percent,then the Power Authority and the Corporation shall negotiatethefairmarketvalueofthepropertyrightstobeconveyedbasedontheresultsofthetwoappraisals. (c)If agreement on the fair market value is not reached within 30 days after completion of the appaisal described in (b)of this section, the Power Authority and the Corporation shall mutually select a thirdindependentappraiserwhoisaresidentofAlaskaandcarriesanMAIor SRPA designation,If the parties are unable to agree otherwise,thethirdappraisershallbechosenbyalternatelystrikingnamesoffalist of 10 such appraisers,made up of 5 names submitted by each party,in which case the Corporation shall strike the first name.The cost ofsaidappraisershallbesharedequallybythePowerAuthorityandthe 3883/592/2 Page 3 of 4 Corporation,and the fair market value as determined by said appraiser shall be binding upon both parties. (d)All appraisals conducted under this section shall be based on the fair market value of the portion of the property to be conveyed as a part of the whole property value,whether or not damages or benefits arecreatedasaresultoftheProject.The Corporation shall be entitled to any severance damages,valued separately,but any special benefit resulting from the Project shall be offset against the amount of Sever- ance damages only,not against the portion conveyed.The fair market value of property rights to be conveyed hereunder,therefore,shall be the value of the part taken as a part of the whole property,plus severance damages that are not offset by special benefits resulting from the Project. (e)The date of evaluation for purposes of this Agreement and al] appraisals conducted hereunder shall be the date of the first appraisal conducted. 3.Feasibility Study.The Power Authority shall conduct a Feasibility Study consisting of a technical and economic analysis of theProject.Among other specific items,the Feasibility Study shall (a) analyze potential road and transmission routes reasonably necessary fortheProject,(b)analyze the potential for utilizing geothermal fluids from the Project for direct heating of agriculture and/or aquacultureprojectsinMakushinValley,and (c)conduct a preliminary assessment of hydrothermal resources in Makushin Valley. 4.Designation of Easements and Rights-of-Way.Upon completion of the Feasibility Study,the Power Authority shall designate lands and property rights reasonably necessary for the Project.All easements and rights-of-way granted hereunder shall be located on lands owned by the Corporation within the area described as follows:Township 72 South, Range 117 West,Sections 31,32,33,and 34;Township 72 South,Range 118 West,Sections 20,21,22,23,24,25,26,27,28,29,32,33,34, 35,and 36;Township 72 South,Range 119 West,Sections 2,3,4,9,10, 11,14,15,16,22,23,and 24;Township 73 South,Range 118 West,Sections 3,4,5,6,7,8,and 9;Seward Meridian.The precise location of right-of-way easements within this area shall be subject to approval by the Corporation to the maximum extent consistent with its own concerns.The Corporation shall exercise its approval rights so as besttofacilitatethepurposeforwhichtherights-of-way are to be estab- lished,in accordance with determinations set forth in the Feasibility Study.An as-built survey shall be conducted to establish,by legal description,the exact location of the right-of-way easements and access roads,and the costs of such survey shall be borne by the Power Authority.The as-built survey shall be completed within 12 months after completion of construction, 5.Operations.(a)The Power Authority shall comply with alllawsandregulationsoftheStateofAlaskaandoftheUnitedStates applicable to its operations on Corporation lands and shall obtain all required permits,consents,or licenses.The Corporation makes no representations or warranties as to the requirements of any permission,consent,or license nor as to the availability of such. (b)All of the labor to be performed,activities to be conducted, and materials to be furnished in the operations of the Power AuthorityhereundershallbeatthePowerAuthority's sole cost and expense,and the Corporation shall not be chargeable with or liable for any partthereof. (c)The Power Authority,its agents,representatives,and con- tractors shall indemnify,save harmless,and defend the Corporation,itsofficers,and agents from and against any and all liens,claims, damages,losses,liabilities,judgments,or suits of any nature whatsoever which may arise out of the Power Authority's activities oroperationsonCorporationlandsotherthanthosearisinginwholeorinpartfromtheCorporation's act or failure to act, 3883/592/3 Page 4 of 4 (d)The Power Authority shall use due diligence in attempting tomaintaintherights-of-way granted herein as private easements,andagreestotakeallstepsreasonablycalculatedtoensurethataccessinandtosaidlandswillberestrictedtotheagents,officers,and assigns of the Power Authority,and further to take those steps rea-sonably practicable to obviate the creation of a public easement,or otherwise confer any right upon the general public to access all or any portion of said rights-of-way. (e)It is understood by both parties hereto that the failure of the Power Authority,its successors,or assigns to exercise any right herein granted shall not be construed as a waiver or abandonment of the right. 6.Taxes.(a)The Power Authority shall bear sole responsibilityforanytaxesleviedandassessedagainstthePowerAuthority's interest in the rights-of-way and easements granted under this Agreement or structures,improvements,or personal property placed upon the rights-of-way and easements by the Power Authority or for establishing that the Power Authority's interest is exempt from taxation. (b)The Corporation shall bear sole responsibility for any taxes levied and assessed against the lands within said rights-of-way and easements as if such lands were unimproved and shall pay any taxes levied and assessed against any structures and improvements placed by the Corporation on the lands within said rights-of-way and easements. 7.Assignment.The Power Authority shall have the right,uponwrittennoticetotheCorporation,to assign all or any part of.itsrightsorinterestinandtothisAgreementtoanotherstateagency.Any other assignment,sale,or conveyance by the Power Authority of therightsconferredhereundershalltakeplaceonlyuponthepriorwrittenconsentoftheCorporation. 8.Binding Effect.This Agreement and all of the terms,cove- nants,andconditions hereof shall extend to and be binding upon the respective heirs,executors,administrators,grantees,successors,and assigns of the parties hereto. 9.Severability.If any part,portion or provision of thisAgreementshallbefoundordeclarednull,void,or unenforceable for any reason whatsoever by any court of competent jurisdiction or by agovernmentalagencyhavingauthoritythereover,then only such part,portion,or provision shall be affected thereby and the remainder of this instrument shall continue in full force and effect. IN WITNESS WHEREOF,the parties hereto have executed this instru-.ment as of the date hereinabove first written. THE QUNALASHKA CORPORATION THE ALASKA POWER AUTHORITY BY BY 3883/592/4 Bill Sheffield,Governor N Alaska Power Authority State of Alaska November 26,1986 Mr.Marvin Feldman Senior Economist Dames &Moore 500 Sansome Street San Francisco,California 94111 Dear Marvin: The attached graph and table portray the current oi?price forecast being used by the Power Authority.The "lower bound"forecast differs slightly from the one we discussed previously due to a modification made on November 26,1986 (See memo attached).The forecast includes upper and lower bounds which bracket the expected range of the price of oi]over the next 20 years.We are not,at this time,forecasting a medium or "most likely"scenario. In the graph and table,I have translated the world oil price forecast to a price per gallon at Unalaska,based on the 1986 cost to the city utility of $.70/gal.As we discussed by phone,for the purposes of the geothermal feasibility study,it would be appropriate for you to analyze proposed geothermal alternatives first with respect to the upper limit of the forecast.If a given alternative is not economic using the upper limit,there is no need to further evaluate that alternative.If a given alternative is economic using the upper limit,it should be tested against the lower limit.If it is not economic using the lower limit,a discussion should be provided describing the alternative as oil price dependent and giving some indication as to where within the range of the forecast the breakeven point might occur. If you have any questions about this forecast,feel free to call me David Denig-Chakroff Project Manager Attachments as stated DDC/fsin cc:¥Don Shira,Director/Program Development Brent Petrie,Director/Rural Technical Support Dick Emerman,Senior Economist PO.Box 190869 701 East Tudor Road Anchorage,Alaska 99519-0869 (907)561-78776705/673 OILPRICE(1988$-Barre))OILPRICE(19888-/Gallon)PRICE FORECAST WORLD PRICE OIL 35.00 34.00 - 33.00 32.00 - 31.00 30.00 4 29.00 - £8.00 - 27.00 + 26.00 - 25.00 - 24.00 4 23.00 - 22.00 - £1.00 - 20.00 19.00 18.00 - 17.00 4 18,00 + 15.00 + 14.00 Oo 1881 2008 UPPER BOUND G LOWER BOUND OIL PRICE FORECAST UNALASKA PRICE \¢4q0 UPPER BOUND ©LOWER BOUND OIL PRICE FORECAST UPPER BOUND LOWER BOUND World Percent Unalaska World Percent Unalaska Price Annual Price Price Annual Price YEAR (%/barrel)Increase (%/gallon)($/barrel)Increase (%/gallon) 1986 14.00 0.70 14.00 0.70 1987 18.00 28.6%0.90 15.00 7.1%0.75 1988 18.43 3.5%0.93 15.31 2.0%0.77 1989 19.28 3.5%0.96 15.462 2.0%0.78 1990 19.96 3.5%1.00 15.94 2.0%0.80 1991 20.66 3.5%1.03 16.27 2.0%0.81 1992 21.38 3.5%1.07 16.40 2.0%0.83 1993 22.13 3.5%1.11 16.94 2.0%0.85 1994 22.90 3.5%1.15 17.29 2.0%0.86 1995 23.70 3.5%1.19 17.44 2.0%0.88 1996 24.53 3.5%1.23 18.00 2.0%0.90 1997 e5.39 3.5%1.27 18.00 0.0%0.90 1998 26.28 3.5%1.31 18.00 0.0%0.90 1999 27.20 3.5%1.364 18.00 0.0%0.90 2000 28.15 3.5%1.41 18.00 0.0%0.90 20ol 29.14 3.5%1.46 18.00 0.0%0.90 2002 30.146 3.5%1.51 18.00 0.0%0.90 2003 31.21 3.5%1.56 18.00 0.0%0.90 2004 32.30 3.5%1.462 18.00 0.0%0.90 2005s 33.43 3.5%1.67 18.00 O.0%0.90 2006 34.61 3.5%1.73 18.00 0.0%0.90 MEMORAI JUM sta ot Alaska TO: THRU: FROM: 72-001 A(Rev 10-84) Don Shira pate:November 26,1986 Director/Program Development FILE NO.: TELEPHONE NO.: sugsect:011 Price Forecasts Richard Emerman ASenioreZ We recently discussed the oil price forecasts presented in my memo to you dated November 12,1986,and agreed that the upward movement in therealoilpricefrom$15/barrel to ¢18/barre]anticipated within the"lower trend"was probably too abrupt.Because these forecasts are intended only as broad representations of possible.long-term trends,it is appropriate that any price changes incorporated within a trend be smoothed out over time.Consequently,I suggest that the oi]price forecasts displayed below be substituted for those presented in my November 12 memo: World Oil Price (1986 $/Barrel) Upper Lower Year Trend Trend 1987 $18.00 $15.00 1988 18.63 15.31 1989 19.28 15.62 1990 19.96 15.94 1991 20.66 16.27 1992 21.38 16.60 1993 22.13 16.94 1994 22.90 17.29 1995 23.70 17.64 1996 24.53 18.00 1997 .25.39 18.00 1998 26.28 18.00 1999 27.20 18.00 2000 28.15 18.00 2001 29.14 18.00 2002 30.16 18.00 2003 31.21 18.00 2004 32.30 18.00 2005 33.43 18.00 2006 34.60 18.00 RE:kyf Bill Sheffield,Governor \ Alaska Power Authority State of Alaska November 21,1986 Mr.John Heberling,Supervising Engineer R.W.Beck &Associates 2121 Fourth Avenue Seattle,WA 98121 Subject:Work Order Under Contract No.0855027 Dear John: This letter authorizes you to perform a task for the Unalaska Geothermal Feasibility Program under the above referenced contract. The task is to generate hourly load curves for Unalaska for three typical weeks during the forecast period covered by your draft Load Forecast and Power Market Analysis for Unalaska.The task is to be conducted in cooperation with Dames &Moore,our prime contractor for the Unalaska Feasibility Study.Dr.Marvin Feldman is Dames &Moore's project manager,and Mr.David Denig-Chakroff is the Power Authority's project manager for this task.You are authorized to submit invoices for this task in the amount not to exceed $1,500.00. Sincerely,Wye ae Michael D.Hubbard Finance Manager DDC:MDH:it cc:"Don Shira,Alaska Power Authority Brent Petrie,Alaska Power Authority David Denig-Chakroff,Alaska Power Authority John Palmquist,Alaska Power Authority Marvin Feldman,Dames &Moore,San Francisco 6995/DD16 PO.Box 190869 701 East Tudor Road Ancnorage,Alaska 99519-0869 (907)561-7877 _. MEMORAI JUM Sta of Alaska « Gloria Manni,Director pate:November 20,1986TO:Administration and Accounting -FILE NO.: Don Shira,Diregt NE NO.:THRU:Program Dial TELEPHO . nN .Dames &Moore ContractSUBJECT:No 2800020 ER ayid Denig-Chakroff roject Manager As you have requested,this memo clarifies provisions of the above referenced contract and explains differences between the contract signed and the original proposal submitted by Dames &Moore in response to our RFP.The provisions and agreements reflected in the contract were negotiated with Dames &Moore by Tom Andreola and me based on the standard contract forms in effect at that time. As I have discussed with you,I assumed that the proposed contract would be reviewed by Accounting and Administration staff,prior to signing,during our established contract approval process,and that any concerns they might have would be expressed and addressed at that time.I have only recently learned that key Accounting and Administration staff did not have an opportunity to review the contract before it was executed. Payroll Costs (Article D-1(a)): The fringe benefit rate negotiated was 39%of the base salary. Overhead Costs (Article D-1(b)): Despite an inadvertent discrepancy in the wording of the contract, the negotiated overhead cost was 105%of the sum of base salary plus fringes. Fee (Article D-1(c)): The negotiated fee was 10%of the sum of base salary plus fringes plus overhead.This sum is described in the contract as the "loaded salary rate." Dames &Moore initially requested an additional 5%handling fee on subcontractor costs.This provision was unacceptable to the Power Authority and was not included in the contract.Dames &Moore requested that the dollar limit of the contract not be reduced by the amount of the proposed handling fee since,without the handling fee,administration of the subcontracts would have to be covered through salary and direct costs of a similar amount.Because it was a cost reimbursable contract,requiring full support for al] salary and direct costs,Power Authority staff decided it was not 6989/668 N7.NNt AfReav 1 AA re Gloria Manni November 20,1986 Page 2 necessary to reduce the dollar limit of the contract. No other agreements were discussed or made between Power Authority and Dames &Moore staff with respect to disallowing the 5%handling fee.Specifically,the Power Authority did not discuss or agree, during contract negotiations,to pay Dames &Moore's subcontractors directly or to issue separate checks to Dames &Moore in the amounts of the subcontractors'invoices.This request was made later on Dames &Moore's first invoice and as a verbal request to Power Authority staff.Dames &Moore was informed at that time that the Power Authority could not make direct payment to subcon- tractors,since it had no contractual relationship with subcontrac- tors,and that internal policy dictated that a single check be issued to the prime contractor for all costs,including subcontrac- tor costs,on a monthly basis upon receipt of invoice. Other Agreements: The original proposal submitted by Dames &Moore in response to ourRFPcontainedacostproposalof$224,550 with an optional cost of $3,814 to perform an air quality task not contained in the RFP. Power Authority staff decided to include the air quality task in the contract,bringing Dames &Moore's proposal to $228,363.The contract was written for an amount not to exceed $230,000.The contract amount was rounded up,on the basis that it was a cost reimbursable contract requiring full support for all costs,to provide a limited buffer against small unforeseen contingencies. The engineering geology study prepared for this project by theDepartmentofNaturalResources(DNR)did not include some essen- tial soils lab work that Dames &Moore expected would be included when it submitted its proposal and signed the contract.Power Authority staff determined that this misunderstanding was due to an oversight out of Dames and Moore's control.Dames &Moore proposed to conduct the required lab work at a cost of $2,500.Power Authority staff determined that the work could be accomplished under Article C-10,tasks II.B and III.A of the contract and agreed for Dames &Moore to perform the work under the existing contractatacostof$1,600.Dames &Moore accepted this figure,bringing its preposal for the feasibility study to $229,963. DOC:kyf cc:Brent Petrie,Director/Rural Technical Support Tom Andreola,Contracts Administrator John Palmquist,Accountant 6989/668 GEOTHERMA S.A. INGENIERIE DES EAUX SOUTERRAINES ET GEOTHERMALES GROUND WATER AND GEOTHERMAL ENGINEERING e Blanc Mesnil,Sept.12th,1986Cenired'Affaires -Paris NordContinental-B.P.35893153LEBLANCMESNIL <Tr1 6 198¢Tél.:(1)4865 44 46 ALATELEX:GEOCAL 240219 F SKA POWER S.A.au capital de 4500000 F AUTHORITY A.C.Pontoise 8 SC3 410 484 SIRET 303 410 1484 00024 MEMBRE SYNTEC Mr.Robert Heath Executive Director Alaska Power Authority Geotherma recently proposed in joint venture with Arctic Slope Con- sulting Engineers (ASCE),on the Unalaska geothermal request for proposal.Our Company was short listed and participated in final round presentations.We have since read the winning proposal for the Unalaska geothermal project.We are firmly convinced of an unfair and highly biased decision by the Alaska Power Authority and therefore we feel compelled to formally request an independent re-evaluation of our and the winning proposal.There is no question in our mind that our proposal is technically and professionally superior to the one that the APA has chosen to award the contract.By virtue of this letter we are requesting the APA to initiate such a procedure. You will appreciate that is requested by Geotherma alone and that no such request is formulated by our joint venture partners ASCE.Neither does ASCE endorse all of the opinions and remarks expressed in the forthcoming.In the meantime we would expect that the contract nego- tiations with the other organization be suspended. In a formal debriefing conducted by your Mr.Denig-Chakroff he informed us that the consensus among the referees was that our proposal contain- ed by far the best scope of works,the most complete awareness of the project and the most far-reaching plan of action.Despite having the best work plan according to your referees,we have not been awarded the contract on the basis of other,arbitrary,unfair and untrue (to our opinion)considerations.We have detailed rebuttals to all conten- tions,which were minor in nature at the APA admission.Furthermore we © believe that the winning team not only was not subjected to the same critique but,in fact,glaring shortcomings and claims of outright irrelevant experience were not scrutinized. We can provide you with detailed affidavits if you so desire.We be- lieve however that recriminations are not in order at this stage. Instead,we are convinced that an independent re-evaluation by some- body with techincal geothermal experience would vindicate our position fully. "GEOTHERMA There are certain important comments that we need to make at this stage: 1,Your RFP addressed a detailed feasibility analysis of an innovative, not a conventional,geothermal power plant design,subject to unusual and challenging reservoir,climatic,logistical and grid (peak vs,base) load conditions.You did-not request the construction of a power plant proper.Our team has been assembled in view of this objective.It should be quite obvious that should a power plant be constructed a significantly different organization,management and team composition would be contemplated. 2.How could our team write by far the best proposal (over a number of recognized competitors)and be judged unable to perform our own work statement?How could one conceive and design in a sound manner a complex feasibility assessment and rationale and be suddenly unable to complete it?You should recall here that we are dealing with a feasibility study of engineering nature and not a plant construction.We were to set up design features and specifications and obtain quotes by consulting ap- propriate manufacturers,suppliers,service companies and builders.Our team composition clearly reflects this multidisciplinary assembly of 'skills. One of the reasons of our mature awareness of the project is the fact that our pre-proposal activities for the Unalaska project cost us over $50,000.The APA certainly used our team expertise in preparation of the Unalaska reconnaissance study.How in light of the APA reliance on Mr.Ungemach's and Mr.Huttrer's technical knowledge at the reconnais- sance stage,are our team's technical capabilities for the purposes of power cycle evaluation used as the criteria for rejection at the feasi- bility stage? 3.Our experience with high enthalpy geothermal resources has been unduly and unjustifiably criticized.Our Dr.P,Ungemach has served as Manager of the European Commission's multinational geothermal energy program with a $60 million budget where he had to evaluate and propose and oversee a number of costly,multidisciplinary projects,including power prototypes and geothermal power plants such as in Milos (Greece), Latera (Italy)and the Mofete fields.He is now managing director of a well and production service company involved in drilling of deep wells and constructing many geothermal couplets.He presently serves as technical expert and consultant on two high enthalpy development projects at Djibouti (East Africa -World Bank)and Panama (Central America -Inter- American Development Bank).His company is perhaps one of only two to three companies worldwide making a living out of geothermal in the present energy climate,Our Messrs.D.Markle and G.Huttrer were instrumental, from within the APA and from the contractor point of view,in your own Unalaska exploration project.Our team has had enormous worldwide experience in the construction of all kinds of power plants,especially those using cycles deemed most appropriate to the Unalaska project. -""GEOTHERMA We never would have imagined that this would prove a shortcoming. In other words our geothermal experience and our power conversion experiences would be very hard to duplicate let alone beat.We did not emphasis the power plant construction and oversight references during the oral presentations because that was not what was asked for at the presentation. 4,The winning organization has used as a reference their work at The Geysers.In our opinion this is an irrelevant reference since the field is a vapor-dominated reservoir,now routinely developed.(Present capacity 1,1 MWe). Their studies in China and Nicaragua (the latter was purely specu- lative since all of the wells drilled previously to the successfull Foramines-Electroconsult development at Momotombo proved dry)can be easily counterbalanced by our worldwide and much more substantial in scope studies.Our Dr.Ungemach,again,has been commissioned by the International publishing firm John Wiley and Sons to author the book on the subject of choosing power cycles for geothermal develop- ment.(A copy of the relevant chapter has been given to APA personnel several months ago and included in the proposal).Counterbalance the engineering expertise sited by the APA in the winning proposal with not only our own engineering experience of Geotherma,Bouvier,and Bertin in all forms of power plant construction and evaluation,but the fact that our team represents manufacturers of the equipment deemed most likely to be appropriate to the Unalaska project in the APA reconnaissance study. It is our sincere hope that you amicably see our point and pursue the matter further on your volition.We further wish to express our grave concern as to the manner with which APA evaluated the Unalaska geo- thermal project proposals.We can not believe that the opinion of geothermal experts was sought or considered judging from the criteria used to reject our admittedly superior proposal.We would appreciate your response on our request for a formal and professional independent re-evaluation of our proposal against the one submitted by the winning firm.We are confident that we would win such an evaluation because our team committed to doing a complete feasibility of the project which would far exceed in cost the $225,000 the APA has made availabla to the project.The extra costs to complete the required scope of work will be provided by our team as stated in our proposal,It is obvious the winning team planned to complete a study based on the available money wich will prove inadequate to prove feasibility in the manner asked for by the APA, Yours truly,CORRESPONDENCE DISTRIBUTIONACTION:y y ty SIN foee |Db.Sire,¢ To: Thru: From: Alaska Power Authority MEMOQORANOUM Han Choe Date: General Ledger Accountant Gloria Manni fonDirector/Acct.Admin. Subject: Don Shira Director/Pr Development Susan Rogers\yer"leyProgramDevglopment;Analyst September 10,1986 Management Budget for Unalaksa Feas. In order to set up a separate account for the Unalaska feasibility study,please use the following management budget authorizations. Line 100 200 300 400 500 Total Amount $65,000 20 ,000 751,000 2,000 2,000 $840 ,000 The $751,000 includes these encumbrances: The remaining $116,000 is unencumbered at present. $25,000 R.W.Beck 230,000 Dames &Moore 180,000 RSA w/Div.Mining &Geology 200,000 RSA w/Div.Oil &Gas (not yet complete) SGR:kyf cc: 6074/ Dave Denig-Chakroff Arnold Reimer Brent Petrie Kathy Hicks 636 MEMORAN UM Stat of Alaska TO: THRU: FROM 001 AfRau +nAai File DATE:September 9,1986 FILE NO.: TELEPHONE NO.: SUBJECT:Trip Report: Unalaska/Dutch Harbor avid Denig-Chakroff 9/4/86 -9/6/86 oject Manager Purpose of Trip The purpose of this trip was to accompany the feasibility study contrac- tor,Dames &Moore,and its subcontractor,SAI Engineers,to Unalaska/Dutch Harbor to meet with city officials and conduct field investigations for the Unalaska geothermal feasibility study. Thursday,September 4,1986 I travelled to Unalaska/Dutch Harbor with Marvin Feldman and Tom Krzewinski of Dames &Moore and Bob Membreno of SAI Engineers.I met Kim Sundberg of Fish and Game at the airport as he was Jeaving from completing his survey of the Makushin,Driftwood,and Glacier Rivers. We were met at the airport by Nancy Gross who dropped us off at the Unisea Inn.I called the Maritime Helicopter pilot,Rufus Crow,who did not recommend flying due to the weather.We set up a meeting with city officials for that afternoon. Marvin,Tom,Bob,and I met with Nancy,Jeff Currier,Bob Burton,and John Flory.We discussed the project,the City's schedule for bringing on new loads,and the City's capabilities for operating and maintaining a geothermal power plant.Jeff emphasized that the City would prefer a remote control operated system and expressed his preference for under- ground cable.We also discussed possibilities for direct cascading uses of the geothermal effluent.The consultants were very receptive to the concerns and ideas of the City.After the meeting,Jeff drove us to the powerhouse and gave us a tour of the facilities. Friday,September 5,1986 The weather did not clear up until late Friday morning.Then the pilot had to fly Wayne of Fish and Game to Glacier Creek to retrieve some equipment.We finally were able to fly late Friday afternoon.We flew to the site via Captains Bay and Nateekin Valley to observe that route as a potential transmission corridor.We walked around the plateau on which the exploration well is situated and discussed numerous transmis- sion and road access alternatives.Tom took soil samples near the wellsite.We flew and walked several potential corridors including a walk down the switchbacks between Makushin Valley and Driftwood Valley. We attempted to fly down Driftwood Valley but were unable to due to heavy fog.We landed on the muskeg in the lower part of Makushin Valley where Tom attempted another soil sample but was unable to retrieve one due to the high water content of the soils.We tried to reach Driftwood Valley by flying around to its mouth,but again we were obstructed by 6051/0003 Memo to File Trip Report:Unalaska/Dutch Harbor September 9,1986 Page 2 fog.We returned to Unalaska by way of Nateekin and Captains Bay to inspect those areas for possible transmission lines. Saturday,September 6,1986 At 7:30 a.m.Rufus called to say the weather was clear and looked good for reaching Driftwood Valley.By 8:30 a.m.we were inspecting the airstrip and beach at Driftwood Bay.We followed the old road up the valley and flew around Sugarloaf cone looking at the potential road and transmission corridors.Upon reaching the head of the valley,we found a break in the clouds to the summit of Mt.Makushin.We flew to the summit and circled the caldera before returning to Unalaska by way of Makushin Valley. After breakfast,I checked out and got a ride with Wayne in a Fish and Game pickup to Victory Services to pick up the wind tower and deliver it to the helicopter pad.Afterwards,I met Marvin,Tom and Bob at the airport,and we returned to Anchorage. DDC:it CC.Dow Suer- 'Beeat "Ce7RE_ 6051/DD03 Ak ALASKA POWER AUTHORITY * TELECOPY (Telecopy Phone No.(907)561-8584) TELECOPY SENT TO:MAR t/FELD M4NAMEOFCOMPANY:DAMES YS MoePe. COMPANY ADDRESS: TELECOPY PHONE NUMBER:QS.)SIF -S563 g SENDER:Ome Dene -pe heeécSTELEPHONENUMBER:So /-7h 77 CHARGE CODE:CVO NUMBER OF PAGES SENT:LO INCLUDING THIS COVER PAGE DATE SENT:_'/22/¢6 IF YOU DO NOT RECEIVE ALL OF THIS TELECOPY PLEASE CALL: (907)261-7240 SPECIAL INSTRUCTIONS: \21 2 2455/108 0 ole\ Article C-10.Scope of Work I.ASSESSMENT OF APPROPRIATE GEOTHERMAL POWER SYSTEMS A.Resource Development The Contractor will evaluate the costs associated with resource development,including the transportation of drilling equipment to the wellsite and a determination of the optimal number of production and reinjection wells required.Evaluation of the optimal number of production wells will address the following: 1.The cost of transporting various size drill rigs to the wellsite. 2.The cost of drilling a single large well versus multiple smaller diameter wells. 3.The cost of multiple pads and a gathering system to collect geothermal fluids from multiple wells. 4.The effect of multiple wells on royalty rates as defined in the agreement between the Power Authority and the Aleut Corporation. 5.The risk of drilling multiple wells and encountering dry holes and the risk of well outages in the case of a single production well. B.Conversion Technologies The Contractor will evaluate the following geothermal energy conversion technologies as they relate to the resource and logistical characteristics at Unalaska: 1.Single flash condensing and non-condensing cycles. 2.Double flash condensing cycle. 3.Binary cycle using single-phase and two phase geothermal fluids. 4.Total flow concepts including the bi-phase rotary separator technology and the two-phase expansion turbine technology. 5871/632(1)-1- 5.Hybrid cycles employing flash steam in a turbine and the balance of the geothermal fluid in a binary or total flow cycle machine. In making the comparison of the conversion technologies, the Contractor shall evaluate the following factors: 1.Manufacturers'experience. .Previous actual applications of the equipment. Capital cost of the complete plant.>Ww-Operation and Maintenance considerations. 5.Reliability. 6.Efficiency of resource utilitization. 7.The need for chemical treatment to prevent scaling in the production wellbore. 8.Special features such as steam-water separators and demisters. 9.Icing potential. 10.Modular fabrication of components. Utility System Requirements The Contractor will size the geothermal system and develop an optimum generation mix between diesel and geothermal power production based on the electrical demand and energy forecasts,load duration curves,minimum daily loads,swing loads,seasonal peaks,remaining useful life of existing diesel units,and other relevant factors. Site Access and Terrain The Contractor will evaluate appropriate geothermal power systems with respect to site access and_terrain restrictions based on the geotechnical report provided by the Power Authority and on the results of tasks IV and III below.The Contractor will analyze all reasonable alternative power plant sites and select a preferred site based on technical,economic,and environmental considerations,including options for piping geothermal 5871/632(2)-2- Il. fluids from the existing wellsite to a remote power plantsiteandfordirectionaldrillingfromaremotesitetothe existing wellsite. ANALYSIS OF TRANSMISSION LINE REQUIREMENTS The Contractor will analyze all reasonable potential transmission line systems and corridors from the power plant site to the City of Unalaska and determine the most feasible system and route based on geotechnical,economic,reliability, operation,maintenance,and environmental concerns including the following: A.System Considerations 1.Determine transmission voltage,ampere'rating, conductor type and size,structure types,and loading conditions for overhead lines;conductor size and installation methods for submarine and/or underground cable;and transition structures,based on projected load and capacity requirements with consideration for timing of increases in line loading,voltage drop at maximum line loading,and projected line loss.Review potential routes,air and sea traffic patterns,and available meteorological data to determine line design parameters such as extreme loading conditions,loading zone,need for marker balls or buoys,and allowance for extreme wind,snow,and ice conditions. 2.Develop functional requirements for the substation to interconnect the transmission line to the generation plant and for the termination substation or switchgear to interconnect the transmission line to the City of Unalaska distribution system,including relatedcircuitbreakers,transformers,and _protectiverelaying,and identify the major items of equipment in a single line diagram. 3.Analyze costs of transmission system including initial investment,operation and maintenance costs and cost of spare cable and equipment inventory consistent with transmission reliability factors.One transmission system option analyzed will be based on an assumption of remote operation of the power plant from the City of Unalaska. 5871/632(3)-3- B.Routing Considerations 1.Identify and map transmission line avoidance areas based on analysis of available data on physical,geotechnical,environmental,and archaeological constraints,restrictions set by regulatory agencies; land status;and land use conflicts and agreements. Submarine cable avoidance areas will,in addition,be based on underwater topography and bottom conditions, existing cable locations,and fishing and navigational uses. 2.Qutside avoidance areas,identify and map alternative routes and select preferred corridors considering ease of construction,access for maintenance,mitigation requirements,reliability,construction and maintenance costs,visual impacts,and special designrequirements.Selection of preferred submarinecorridorswill,in addition,be based on feasible beaching points,water depth,currents,and tidal effect. IIT.ANALYSIS OF SUPPORT FACILITIES A.The Contractor will analyze the need for roads,docks, airstrips,material sites,water and sewage systems,and other support facilities and will evaluate alternative siting and corridors and develop alternative scenarios for transportation and access during construction and operation phases of the project.At least two access routes will be analyzed in detail:access from Broad Bay via Mukushin Valley and access from Driftwood Bay via Driftwood Valley, including the potential for upgrading existing roads and airstrips.Analysis will be based on technical,economic, and environmental considerations.At a minimum the following alternatives for meeting construction and operational requirements will be evaluated: 1.Construction Alternatives a.Mobilization by helicopter direct from DutchHarbor. b.Dock and/or airstrip at the mouth of Makushin or Driftwood Valley with mobilization by helicopter to site. 5871/632(4)-4- c.Dock and/or airstrip at the mouth of Makushin or Driftwood Valley with construction road access to site. 2.Operation Alternatives a.Remote operation with helicopter pad or airstrip at plant site for maintenance access. b.All-weather road in Makushin Valley for operation and maintenance access. c.Summer road in Makushin Valley with cat-track access to site. IV.ENVIRONMENTAL CONCERNS A.Mitigation of Thermal Fluid Impacts The Contractor will evaluate alternatives for disposal of waste thermal fluids,including reinjection and disposal to surface waters.Potential qualitative and quantitative effects on surface water characteristics and fish and wildlife populations will be assessed and mitigation plans will be developed.Mitigation plans for surface disposal will,at a minimum,analyze cooling techniques,dilution, chemical treatment,and discharge scheduling. B.Mitigation of Construction Impact The Contractor will evaluate potential environmental effects of construction on natural resource'values, including water quality,fish and wildlife habitat, vegetation,marine tidal and subtidal zones,cultural resources,and aesthetics.Siting and mitigation plans will be developed including consideration of timing of construction activities to avoid work during migration or spawning,limiting withdrawal of water from streams, transporting of waste materials to approved sites, development of contaminant spill plans,revegetation of disturbed areas,optional culvert sizes and designs,and stabilization effects to avoid run-off and sedimentation. The Contractor will use the Alaska Power Authority Best Management Practices Manual to develop siting plans and mitigation measures. 5871/632(5)-5- C.Mitigation of Air Quality Impacts The Contractor will conduct a screening level of modeling, including extrapolation from existing local and regional meteorological data and geothermal vapor data available from the existing wellsite,to develop controls for particulates,hydrogen sulfide,ammonia and other emissions for compliance with state and federal air quality standards. D.Permitting Considerations The Contractor will identify all necessary environmental and regulatory permits and will review agency requirements, permit processing schedules,and permit interrelationships to develop a permitting strategy for the project. V.POTENTIAL FOR DIRECT AND CASCADING USES OF GEOTHERMAL EFFLUENT The Contractor will analyze the feasibility of potential direct uses of the geothermal power plant effluent,including agriculture and acquaculture applications.The costs and benefits of alternatives will be estimated for inclusion in the overall economic analysis. VI.ECONOMIC ANALYSIS The Contractor will estimate the cost for geothermalalternatives,including different power plant unit =sizes,transmission routes and access routes.These estimates will be separable cost elements so that their impacts on power costs can be addressed separately.Detailed cost estimates for each alternative will be prepared taking into effect the cost of factors unique to Unalaska,the particular site,and the construction methods considered appropriate.Direct use costs and benefits will also be separable elements so that their effects or lack thereof can be fully evaluated. Load growth considerations and their effects on the timing of generation additions will be evaluated as well as the effects of retirement of existing generation equipment.The condition of existing generation will be evaluated to estimate the remaining life expectancy of that equipment.The requirement for and cost of these replacements will be considered in developing the life-cycle costs of the geothermal generation and diesel generation alternatives. 5871/632(6)-6- An economic model will be utilized to evaluate all economic considerations.The economic analysis will accomplish four purposes: A.Definition of a diesel base case. B.Identification of geothermal component alternatives. C.Comparison of geothermal component alternatives undervaryingassumptions(sensitivity analyses). D.Selection of a preferred system. The Contractor will use the ELFIN discounted life-cycle cost computer model to compute,on an annual basis,capital, operating,maintenance,fuel,and total system costs for generating and delivering the specified load requirements to the Unalaska distribution grid.The net salvage value of the system in the last year will be shown as a negative cost.Negative costs will also be shown for the value of direct use heat applications where appropriate.The costs for each year will be discounted back to the first year to permit comparison of the discounted life-cycle costs of the entire system. Life-cycle system costs will include the entire generating system.For geothermal systems,they will include the cost of diesel peaking and reserve requirements.Costs for the reference diesel system will be included such that both cases can be compared on a like basis.Both types of systems will accountfortheexistingdieselgeneratingequipmentandallowforits maintenance and eventual replacement and expansion as_the required to meet the system load forecasts provided by the Power Authority. Assumptions on diesel fuel costs,fuel escalation rates,labor and capital equipment escalation rates,load growth forecasts,andchangesinloaddurationcharacteristicsovertimewillbeselectedinconjunctionwiththePowerAuthority.The analysis will be conducted in real terms. VII.FINDINGS AND RECOMMENDATIONS AND CONCEPTUAL DESIGN Findings and recommendations will be summarized in a separatechapterofthereport.If the conclusions are that a geothermal power plant is the recommended alternative,a conceptual design will be prepared as an adjunct to the feasibility report. 5871/632(7)-7- The conceptual design of the selected geothermal power plant will consist of drawings,equipment,and system descriptions and estimates.The following drawings will be prepared: A.Process flow diagram/heat balance. Schematic plant arrangement/equipment arrangement.B C.Single line metering and relay diagram. D.Transmission line routing drawing. E.Schematic geothermal wells and collection/disposal or reinjection system plan. F.Access roads. In addition,the Contractor will provide cost estimates for the recommended major equipment which may include turbine generator, condenser,cooling tower,major pumps,piping,production and injection wells.Electrical equipment will include switchgear, transformers,and transmission line components.The Contractor will also provide preliminary estimates of all structures,site work,and drilling activities. VIII.PROJECT REPORTING The Contractor will provide the following meetings, communications,and reports to the Power Authority: A.A project kickoff meeting attended by the Contractor's Project Director and Manager,representatives of its subcontractors,the Power Authority Project Manager,and other project participants,will be conducted to assure that all parties have a mutually agreed upon understanding of the goals and methods of the project. B.A site visit to Unalaska attended by members of the Contractor's study team and the Power Authority Project Manager will be conducted to collect information on existing generating equipment and needs,to familiarize the team with potential site and access/transmission corridor conditions,and to gain input from local officials. C.Weekly status briefings will be conducted by the Contractor's Project Director and/or Manager in person or by telephone and a written progress report will be provided on a monthly basis. 5871/632(8)-8- D.A tentative outline of the feasibility study report will be provided to the Power Authority within 60 days after the effective date of this contract.Ten copies of a draft feasibility report will be provided within 135 days after the effective date of this contract. E.Thirty copies and a camera-ready master of the final feasibility report will be provided to the Power Authority within 15 days after receipt of the Power Authority's comments on the draft report.If a geothermal power system is recommended,the final feasibility report will include aconceptualdesignoftherecommended=system.Uponsubmittingthefinalreport,the Contractor will also provide backup materials developed during the study and any software programs and/or computerized spreadsheets developed specifically for the project. 5871/632(9)-9- -MEMORAI DUM.- -Stat of Alaska ae J TO:Don Shira DATE:August 13,1986 Director/Program Development FILE NO.: Brent Petrie TELEPHONE NO.: Director/Rural Technical Support SUBJECT:Unalaska Geothermal Contract Recommendations Fi David Denig-Chakroff Project Manager The review committee for the Unalaska Geothermal Feasibility Study (RFP No.APA-86-R-015)has reached a consensus on a recommendation to the Power Authority Board of Directors for selection of a contractor.The review committee for the Unalaska/Dutch Harbor Load Forecast and Power .Market Analysis (RFP No.APA-87-R-001)has also made a selection for award of a contract. The RFP for the feasibility study was issued on June 25,1986.ThirteenproposalswerereceivedbythePowerAuthority.(See memo attached,dated July 30,1986).A committee consisting of four Power Authorityemployees(Denig-Chakroff,Petrie,Hansen,and Hubbard)was established to review the proposals and make a recommendation to the Board ofDirectors.(See memo attached,dated July 29,1986).The committee also designated two advisors:Dr.Michael Economides,a geothermal consultant and Mr.Paul Fuhs,Mayor of Unalaska.The advisors reviewed proposals and participated in review committee meetings but did not havevotingstatusonthecommittee.On Friday,August 8,1986,the review committee short-listed three firms from which they requested oral presentations before the committee,including Dames &Moore,Geotherma/ASCE (JV),and Power Engineers.The oral presentations were conducted on August 11 and 12,1986.The review committee met on the afternoon of August 12 and selected Dames &Moore as the contractor torecommendtotheBoardofDirectorsforawardoftheUnalaskaGeothermal Feasibility Study contract.Review committee rating sheets were submitted and are on file. The limited solicitation RFP for the load forecast/power market analysiswassenttofivefirms,all of whom responded with proposals.(See memo attached,dated July 30,1986).A committee consisting of three PowerAuthorityemployees(Denig-Chakroff,Petrie,and Hubbard),was estab- lished to review the proposals and select a contractor for award of thecontract.(See memo attached,dated July 29,1986.)The committee designated Mayor Paul Fuhs as an advisor to the committee.Thefollowingthreefirmswereshort-listed and requested for interview withthecommittee:Arthur Young,Harza,and R.W.Beck.Interviews were held on August 7 and 11,1986,and on August 12,R.W.Beck was selected by the committee for award of the Unalaska/Dutch Harbor Load Forecast and Power Market Analysis contract.Due to the low budget of the proposed contract,selection and award does not require approval of the Board of Directors.Review committe rating sheets were submitted and are on file. 5668/629/1 2-001 A (Rev 10-84) Unalaska Geoth 11 Contract Recommendations August 13,1986 Page 2 The recommendation to the Board of Directors for award of the feasibility study contract to Dames &Moore will be made at the August 13,1986,Board meeting.At that time,the Board will also be advised of the selection of R.W.Beck for the load forecast/power market analysis contract. DDC:tg 5668/629/2 _.,MEMORADR )UM Stat.of Alaska TO: FROM: Don Shira,Director DATE:July 30,1986 Program Development FILE NO.: Brent Petrie,Director TELEPHONE NO.: Rural Technical Support SUBJECT:Unalaska Geothermal Project Proposals vid Denig-Chakroff ject Manager Thirteen proposals have been received by the Power Authority in response to the Request for Proposals for the Unalaska Geothermal Feasibility Study (RFP No.APA-86-R-015).Five proposals have been received for the Unalaska/Dutch Harbor Load Forecast and Power Market Analysis (RFP No.APA-87-R-001).I propose that each proposal be evaluated on the basis of the criteria in the RFP, rather than following a "short 1ist"procedure.The proposals are listed below in alphabetical order according to the prime contractor followed by proposed subcontractors. Unalaska Geothermal Feasibility Study Bechtel North American Corporation,Norwalk,California Peratrovich,Nottingham,and Drage,Inc. Mesquite Group,Inc. Brown &Root Development,Inc.,San Ramon,California Harding Lawson Associates CH2M Hill,Anchorage,Alaska Geothermex,Inc. Douglas Energy Co. Dames &Moore,Anchorage,Alaska SAI Engineers Mesquite Group,Inc. EBASCO Services,Inc,Bellevue,Washington The Ben Holt Company Frank Moolin &Associates Mesquite Group,Inc. Fluor Alaska,Inc.,Anchorage,Alaska Northern Technical Services,Inc. Forsgren-Perkins Engineering,Salt Lake City,Utah Morrison-Knudsen Engineering Higginson and Barnett,Inc. Geotherma-Arctic Slope Consulting Engineers (JV),Anchorage,Alaska Teshmont Consultants,Inc. 5355/622 Memo to Don Shira July 30,1986 Page 2 Wayne Hanson Associates Coopers &Lybrand Aleut Unalaska Development Corp. Gibbs &Hil],Inc.,San Jose,California Woodward-Clyde Consultants L.E.Breeding Professional Engineer,Anchorage,Alaska Polarconsult Alaska,Inc.,Anchorage,Alaska Barber-Nichols Engineering Co. Woodward-Clyde Consultants Power Engineers,Inc.,Hailey,Idaho Hart Crowser,Inc. URS Engineers Stone &Webster Engineering Corporation,Denver,Colorado Dryden &LaRue Engineers,Inc. Argetsinger &Kulawik,Inc. Unalaska/Dutch Harbor Load Forecast and Power Market Analysis Arthur Young &Company,Anchorage,Alaska Jannette Professional Services Calista Professional Services,Inc.Anchorage,Alaska Howard Needles Tammen &Bergendoff Harza Engineering Company,Anchorage,Alaska Kinetic Energy Systems,Inc,Anchorage,Alaska The Institute of Social and Economic Research James K.Landman,P.E. R.W.Beck and Associates,Seattle,Washington 5355/622 -MEMUHAN_UM Statt ot Alaska TO: THRU: FRO -001 A (Rev 10-84) FILE DATE:July 29,1986 FILE NO.: TELEPHONE NO.: SUBJECT:Unalaska Geothermal Proposal Evaluation Robert D.Heath Committees Executive Director This memo establishes evaluation committees for the Unalaska Geothermal Feasibility Program.The following staff members are appointed to the evaluation committee for the Unalaska/Dutch Harbor Load Forecast and Power Market Analysis (RFP No.APA-87-R-001): David Denig-Chakroff,Chairman Brent Petrie Mike Hubbard The following staff members are appointed to the evaluation commit-tee for the Unalaska Geothermal Feasibility Study (RFP No. APA-R-86-015): David Denig-Chakroff,Chairman Brent Petrie Peter Hansen Mike Hubbard The committees may appoint non-voting advisors;however,final authority for a selection recommendation to the Board shall rest with the committees.The target date for completion of the eval- uations is August 11,1986,with presentation to the Power Author- ity Board for consultant selections at the next following Board meeting. DDC/RDH/tg 5351/625/1