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AK railbelt REGA study summary-overview 2008
Overall Summary of REGA Study The following summarizes the overall organizational structure recommendations arising from the REGA Study. e Anew regional entity with responsibility for generation and transmission should be formed. More specifically,the functional responsibilities of this new regional entity should include: 1. 2 3. 4 Independent,coordinated operation of the Railbelt transmission system Economic dispatching of the region's generation facilities Regional resource and transmission expansion planning Joint development of new generation and transmission facilities e This entity should be formed as a State Power Authority for the following reasons: 1.It is projected that the region will need to raise between $2.5-8.0 billion over the next 30 years to build new generation and transmission facilities to reliably serve the electric needs of citizens and businesses in the region.This level of investment,which is dependent upon the future generation resource options and transmission expansion projects chosen in a regional planning process,represents a significant challenge for the region given its small size. State financial assistance,whether in the form of a grant(s)or low interest loan(s),would provide a §icant benefit to the region.This potential assistance represents the single most significant way to reduce the burden on Railbelt citizens and businesses associated with the financing of required generation and transmission investments. It is reasonable to conclude that the Governor and State Legislature would be more willing to provide some level of financialassistance to the region if the new regional entity was formed as a State Power Authority,as opposed to a private business such as a G&T Cooperative. In addition to potential State financial assistance,forming the new regional entity in amannerthatwouldallowittoissuetax-exempt debt would provide a significant economic benefit to the region.A State Power Authority is in a better position to be able to issue tax-exempt municipal debt,although significant restrictions exist that make this a challenge. Generally speaking,a G&T Cooperative is unable to issue tax-exempt debt due to IRS restrictions.A G&T Cooperative could obtain taxable debt through the Rural Utilities Service (RUS)/Federal Financing Bank (FFB)at favorable interest rates relative to the rates that are available in the taxable municipal bond market.However,RUS/FFB funding is subject to Congressional appropriations (approximately $3.2 billion in FY2008 for generation and transmission facilities)and the region would need to compete against other requests from cooperatives throughout the country.As a result,it is unlikely that the region could rely upon the RUS/FFB to meet all of its financing requirements. Furthermore,obtaining financing through the RUS/FFB can take up to two years with no assurance of success,and the resulting covenants are typically more restrictive than what can be negotiated in the municipal bond market.As a result,obtaining RUS/FFB financing is more risky than the municipal bond market. Additional information regarding our recommendations is provided on the following pages. Summary of Recommendations -Organizational Structure aim,(__Distribution Utilities GVEA --- Existing Railbelt Structure Regional Issues Evaluation MEA ML&P GVEA ][Uniqueness of Railbelt_||Alternative Organizational Paths |CEA Relative to Evaluation Scenarios HEA MEA ]L Cost Issues ]SES Power Costs ML&P J [Natural Gas Issues |Fuel Costs .»|Capital and Production Costs Functional CEA |{Load Uncertainties _|Economy Sales Separation HEA ][Infrastructure tssues |Organizational Costs Start-up Costs SES |[Future Resource Options |Annual Operating Costs State '|"LE Political Issues }[Net Present Worth Savings (Costs)| __I Form a State Power Authority With the Following [Risk M:|Functional Responsibilities: 1)Independent,Coordinated Operation of the Railbelt Transmission System L Other Issues J 2)Economic Dispatching of the Region's Generation Facilities -_!3)Regional Resource and Transmission Expansion Planniag 4)Joint Development of new Generation and Transmission Fac Ted BORE Summary of Recommendations -Comparison of Alternative Legal Forms Organizational Form State Power Authorit Retail Requirements Alaska Railroad |Congressional Tax Criteria G&T Cooperative |63-29)Corporation Approach Corporation Exemption ee Core Function Yes Yes Yes No Yes Ability to issue Tax-Exempt Debt No Yes,With Restrictions |Yes,With Restrictions |Yes,With Restrictions |Yes,With Restrictions Risks Associated With Ability to Issue Tax-Not Applicable Limited Limited Moderate Significant Exempt Debt N bs State Oversight Related to State Financial Depends on Number of |Depends on Number of Greatest Greatest Greatest Assistance Voting State Voting State Representatives on Board]Representatives on Board of Directors of Directors Overall Strength of Organizational Structure,Greatest Depends Upon Level of |Depends Upon Level of Current Depends Upon Level of Board and Management Team Board/Management Board/Management Board/Management Board/Management Energy Expertise Energy Expertise Lacks Energy Expertise Energy Expertise Potential Impact of Changing State Political Limited Limited Potentially Significant,|Potentially Significant,|Potentially Significant, Environment Depending Upon Level |Depending Upon Level |Depending Upon LevelofBoardIndependence|of Board Independence |of Board Independence Flexibility Greatest Some Limitations Potential Limitations Potential Limitations Potential Limitations Ability to Spread Risks Significant Significant Greatest Greatest Greatest Direct Customer-Owned Control Moderate Moderate Limited Limited Limited Ability to Fund Large Projects Moderate Significant Greatest Greatest Greatest Summary of Recommendations -Formational Issues LN.Process Issue Recommendation Functional Responsibilities Coordinated Operation of the Grid xX Regional Economic Dispatch xX Regional Resource and Transmission Xx Planning Joint Project Development xX Location Anchorage Area Transfer Ownership of Existing Assets No Establish Hold Harmless Requirement Yes Regarding Allocation of Costs and Benefits _of Regional Entity With Transition Plan \Transfer Selected Existing Employees Yes Extensive Expansion of TransmisstorGrid Yes Governance Structure Depends on Legal Structure of Entity Develop Open Access Transmission Tariff Yes Develop Generator Interconnection Yes Standards Develop Competitive Power Procurement Yes Establish Postage-Stamp or Mileage-Based Rates Generation be Stamp Over rm)om”Transmission Postage-Stamp Regional Development of Renewables Regional Development of DSM/Energy Efficiency Programs Yes (in Close Coordination With Distribution Utilities to Tailor and Deliver Programs to Individual Service Territories) RCA Oversight (No)puuX% Elements of Integrated Resource/N74 Transmission Expansion Planning Process ?Consistency With State Energy Plan and Yes . Related Policies Consistent Evaluation of Supply-Side and Yes <rDemand-Side Resource Options Interactive Analysis of Resource and Yes 7 Transmission Options . Economic Analysis of Replacement/Life Yes 'lExtensionofAgingGenerationFacilities Innovative Rate Structures Yes (in Coordination With Distribution Utilities) Response to CO,and Other Environmental Restrictions Yes Re-evaluate Reserve Margin Targets Public Participation Yes(fon a Limited Basis)\ OU Summary of Recommendations -Implementation Steps 1.Make Decision Whether to Form Regional Entity and Finalize Functional Responsibilities 2.Make Conclusive Determination Regarding Ability of New Regional Entity to Issue Tax- Exempt Debt and Develop Strategy 3.Finalize Legal Form for Regional Entity 4.Establish Transition Management Team to Oversee Implementation (Including State Representative) 5.Adopt Required Legislative/Regulatory Actions a.Formation of Regional Entity (Including Powers,Legal Form,Governance Structure, Ability to Purchase Property,and Selected Bylaw Requirements) b.Modification of Existing Utilities'Service Territory Certificates,as Necessary " c.Establish Direct Privity With Retail Customers if Retail Requirements Approach is SAdopted d.Implement Market Structure Changes (e.g.,Open Access Transmission Tariff,a Competitive Power Procurement Process,and Generator Interconnection Standards) e.Secure State Financial Assistance (e.g.,Grants or Loans)for the Development of Regional Generation and Transmission Infrastructure (Based Upon the Results of Regional Integrated Resource Plan) 6.Complete Formation of New Entity a.Establish Utility/State Implementation Team // b.Determine Need for Outside Assistance / c.Revise Start-up Implementation Plan / 7.Develop Initial Regional Integrated Resource Plan and Transmission Expansion Plan 4 Karl Reiche From:Sherrie M.Siverson Sent:Friday,June 05,2009 11:25 AM To:Pattie Worrell;Henri F.Dale;steve@usibelli.com;Brad Evans;Sara Fisher-Goad;mafa@alaska.net;'mark_fouts@chugachelectric.com';'jfoutz@cityofseward.net';ngoodman@tdxpower.com;Steve Haagenson;HallDW@ci.anchorage.ak.us;Harper,KevinM.(EMS);Jamés Hemsath;tizzo@gci.net;'bjanorschke@homerelectriccom',James Jensen;kknudson@tsocorp.com;lavin@nwf.org;mleland@alaskapower.org;wreel@alaska.net;'bin@gvea.com'';kosterkamp@aarp.org;'oseyJM@muni org Karl Reicha"rokeberg@alaska.net;Rollins,Myron R.;crose@alaska.net;debbie@scottbalice.com; colleen.starring@enstarnaturalgas.com;jsykes@ak.net;'lee_thibert@chugachelectric.com'; Ken Vassar;Webber,Les;janis.wilson@alaska.gov;Schober,Richard;Spengler,Jeb;James"Strandberg , ; Ce:Wilfred Abbott;Helena Hall;Gimarc,Alex;wilnbev@ak.net;Nordlund,Jim; 'jfoutz@cityofseward.net';DeLong,Tom;Schikora,Rick;Pate,Mike;Evans,Timothy;Burchel, Peter;Mire,Arlin Subject:Advisory Work Group Meeting Invitation Dear Member: The Alaska Energy Authority would like to reconvene the REGA Advisory Work Greup+advise us on an important ongoing project,the "Railbelt Integrated Resource Plan (RIRP).” This is a follow on project to the REGA study that you so ably assisted us with last year.We again seek your assistance in the completion of this work.Time commitments will be similar to the REGA study.We plan to hold 4-5 hour meetings once a month for approximately 7 months(lunch will be served).The meetings will be held at the AEA office in Anchorage,313 West |Northern Lights Blvd.I spoke with your chairperson,Norm Rokeberg,who has agreed to nerf lee,seateescontinueaschairperson,if that is the desire of the group.|to We propose to provide you with a report on the status of the project and ask for your consideration of key underlying assumptions for the conduct of planning effort,and advice on other project issues.For your consideration,we think of this integrated resource plan,due out in November of this year,as an ordered progression of energy projects for Railbelt generation and transmission to achieve a diversified power portfolio that will deliver affordable,reliable,and stable priced electricity to all Railbelt consumers.Key to this planning is the assumption that the GRETC concept of unifying generation and transmission assets will be pursued for the Railbelt. The first meeting will include a short briefing from the AEA team and consultants and Railbelt Utility technical staff,and an explanation of how the Governor's Greater Railbelt Energy and Transmission Company (GRETC)initiative,and the Susitna Power Project fit together with this project.A briefing on the status of the GRETC business formation and the Susitna project will be included,since both are closely aligned with the regional planning work. Please email Sherrie M.Siverson at ssiverson@aidea.org and let her know if you are available to meet from 10:00am to 3:00pm on either Tue.June 16 or Fri.June 19,2009.After a consensus has been reached,we will confirm the meeting date with you. 1 For...Jim Strandberg,P.E.,Project Manager Alaska Energy Authority 907-771-3069 jstrandberg@aidea.org Attn:Pattie Worrell for Janet Kincaid cc:GRETC Task Force Sherrie M.Siverson Alaska Industrial Development and Export Authority (AIDEA) and Alaska Energy Authority (AEA) 813 West Northern Lights Blvd.Anchorage AK 99503 Telephone (907)771-3009 Facsimile (907)771-3044 E-mail:ssiverson@aidea.org "AIDEN /B ALASKA cs Please considerthe environment before printing this email. Karl Reiche From:Sherrie M.Siverson Sent:Tuesday,June 24,2008 9:09 AM To:steve@usibelli.com;mafa@alaska.net;ngoodman@tdxpower.com;tizzo@gci.net; bjanorschke@homerelectric.com;kknudson@tsocorp.com;mleland@alaskapower.org; lwebber@marathonoil.com;wreel@alaska.net;blin@gvea.com;kosterkamp@aarp.org; rokeberg@alaska.net;crose@alaska.net;debbie@scottbalice.com; colleen.starring@enstarnaturalgas.com;jsykes@ak.net;janis.wilson@alaska.gov Ce:brad_evans@chugachelectric.com;mark_fouts@chugachelectric.com; connie_owens@chugachelectric.com;poseyJM@muni.org;helmickDB@muni.org; davidovics!r@muni.org;HFDale@gvea.com;skredlin@gvea.com; ssaxton@homerelectric.com;tgamble@homerelectric.com;harley@matanuska.com; don.zoerb@matanuska.com;prworrell@matanuska.com;tobarnum@cityofseward.net;James Strandberg;James Hemsath;Steve Haagenson;Sara Fisher-Goad;Ken Vassar; CheungD@bv.com;RollinsMR@bv.com;Brenda Fuglestad;Karl Reiche;harperkm@bv.com Subject:REGA Study Advisory Work Group Fourth Meeting,Thu.June 26,2008 10am-3pm (documents attached) Attachments:6-26-08 Advisory Group Meeting Agenda Proposed.pdf;6-26-08 Summary ofRecommendations.pdf;6-26-08 Summary Presentation-PPT.pdf;6-26-08 Alaska Railbelt Presentation-PPT.pdf From Kevin Harper,Black &Veatch -To the Advisory Working Group: Good morning to all.|am sending four documents in anticipation of our fourth Advisory Working Group meeting (Thu.June 26,2008 10am-3pm,AEA Board Room). The first is the agenda for the meeting.As you will note,there are two primary purposes for the meeting.First, we will provide a summary of the REGA study results,conclusions and recommendations.This will be followed by a general discussion to provide everyone with the opportunity to ask questions and provide comments regarding our findings. Attached:6-26-08 Advisory Group Meeting Agenda Proposed.pdf -- The second provides a high-level summary of our recommendations. Attached:6-26-08 Summary of Recommenaations.pdf The third is a summary PowerPoint presentation which we will walk through during the meeting.This provides an overview of the objectives of the project,the analysis that was completed,our results and recommendations. Attached:6-26-08 Summary Presentation-PPT.pdf The fourth is structured i asthethird,but provides greater detail in each section.Attached:6-26-08 Alaska Railbelt Presentation-PPT.pdf Please give me a call if you have any questions.|look forward to our discussion on Thursday. Regards,Kevin Kevin M.Harper Director,Enterprise Management Solutions Division Black &Veatch 24513 SE 37th Street Issaquah,WA 98029 (office)425-427-1652 /(cell)425-941-6061 a Sherrie M.Stverson Alaska Industrial Development and Export Authority (AIDEA) and Alaska Energy Authority (AEA) 813 West Northern Lights Boulevard Anchorage,Alaska 99503 Telephone (907)771-3009 Facsimile (907)771-3044 E-mail:ssiverson@aidea.org "AIDEN 7B ALASKA Railbelt Electrical Grid Authority (REGA)Study Advisory Working Group -Fourth Meeting Thursday,June 26,2008 Time Topic Responsibility 10:00--10:10 |Introductory Comments Steve Haagenson Jim Strandberg Norman Rokeburg 10:10-10:20 |Approval of Third Meeting Summary Norman Rokeberg 10:20 -12:30 |Summary of Results,Conclusions and Recommendations Kevin Harper ©Project Objectives Ken Vassar e Situational Assessment e Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues e Assumptions ©Results e Recommendations e Next Steps 12:30--1:00 |Lunch Break All 1:00 -2:45 General Discussion Norman Rokeberg Jim Strandberg 2:45 3:00 |Concluding Comments Norman Rokeberg 6/24/2008 ,1 Alaska Railbelt Electrical Grid Authority (REGA)Study Preliminary Results,Conclusions and Recommendations June 26,2008 Working Draft +Subject to Change es sternerSEERRUSeeate Introductory Comments | Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Organizational Issues Assumptions Results Recommendations Next Steps =June 23,2008 Working Dratt 2" e Introductory Comments |»Project Overview e Situational Assessment ¢Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options ®Organizational Issues e Assumptions e Results e Recommendations e Next Steps sou oune 23,2008 Working Draft Project Overview eeeesteecersn _peeesccemesi Objectives Focus on Organizational Structure Organizational Paths and Evaluation Scenarios Definitions Overview of Models Public Participation What the Project is Not "Sune 23,2008 Working Drak "ERRRDases Project Overview (continued) Summary of Organizational Paths Status Quo Form an Entity That Would be Responsible for Independent Operation of the Grid s Form an Entity That Would be Responsible for Independent Operation of the Grid and Regional Economic Dispatch Form an Entity That Would-be Responsible for Independent.” Op 'of the Grid,R iiji ic Dispatch,Regional|Resource Planning and Joint Project Development | Form a Power Pool no RTrNICIpaNaeaR Project Overview (continued) Summary of Evaluation Scenarios Scenario D Mixed Resource Portfolio Scenario ofeedone23,2008Working|Bratoe Eo PPR aos adenine odaale nb ck Project Overview (continuea) Definitions Coordinated Grid Operations -relates to the coordinated operations of the transmission grid to ensure the reliability ofelectric service throughout the region. Economic Dispatch involves the operation ofgeneration facilities to produce energy at the lowest cost to reliably serve consumers,recognizing any operational limits ofgeneration and transmission facilities. Regional Integrated Resource Planning -a planning process for electric utilities that evaluates many different generation and transmission supply-side and demand- side options for meeting future electricity demands and selects the optimal mix of resources that minimizes the cost of electricity supply while meeting reliability needs and other objectives. Joint Project Development involves the development offuture generation and transmission projects by multiple parties for the joint benefit of all participants. Ua dune 23,2008 Working Draft”2SMESGEES Project Overview (continue) Overview of Models For Each Evaluation Scenario Prescribed ;Input: - Resource 24 AssumptionsInputAssumptionsPlanforEachRelatedto.Related to Existing Organi OrganizatiandPotentialPathPaths Resource Options T J Elactric Capital eae and Annuat OrganizationalProductionFSpreadsheet 4Costs Load Forecast Adjustment (LFA)Module - Net Annual Generation and Benefit {or Cost) Fuel (GAF)Module of Each : :Organizational PathPROVIEW(PRV) Module : grat ee ences ee _.dune 23,2008 Working Draft ies Project Overview (continued) Stakeholder Involvement Process Utility Stakeholders @ individual and Joint Meetings@DataGathering Non-Utility Stakeholders @ Input Survey instrument @ Face-to-Face Meetings : @ Reference Documents Advisory Group Meetings Presentation of Preliminary Results, Conclusions and Recommendations to All Stakeholders Name ae ee rr abohmhaSeEr| ' Draft Report Final Report Public Presentations on.Final Results, Conclusions and Recommendations | _dune 23,20083 Working |Draft : Project Overview (continued) What the Project is Not? A State Energy Plan An Integrated Resource Plan A Selection of a "Fuels Future” A Definitive Projection of Future Natural Gas Availability and Prices An Assessment of the Economic Benefits Related to the Replacement of Existing Generation Assets @ Introductory Comments e Project Overview le Situational Assessment | @ Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e@ Organizational Issues e Assumptions e Results @ Recommendations e Next Steps ovaeseeerregermranarentatanseata -osanSa Se eeRSSEERENEES CONUS ORL aegece a itn eet,Xepooner History of'lndependent but Cooperative Decisions Infrastructure Investments Gas Supply Innovative Solutions Joint Operations and Contractual Arrangements eeeererre une 23,2008 Werkitig brA eee]reer enea ee ee ee) Nadal Gas Futureissues Adopt New Direction pomN Maintain Status Quo i Impact on Railbett i {Businesses and Consumers ; Power Costs i @ Reliability Sustainability :@ Risks i Agenda e Introductory Comments @ Project Overview e Situational Assessment e Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues «Assumptions e Results e Recommendations e Next Steps Ps :=) Summary of Issues (continue) Setting a Course for the Future "Quite frankly,we haveSttadiedtheissuestodeath and only need to act. What is likely preventing implementation is leadership from management and decision making from utility hoardson@courseofdition.” "Hope is not a sirategy.” Source:Anchorage Chamber of Commerce,Findings and Canotustons about ciaska's Energy Crisis "High energy prices and reduced supplies are likely to damage the economy of South-central Alaska and have already damaged rural economies.” , "There has been a lack of courage to make @ decision and plan for the fiture without perfect knwwledge which we ait know does not exist.” Source:Fuel Suy HLDING A WORLD | Paths and Scenarios Organizational Options Folie Ponies :::Consaliduted FEES 'Carnet:ei aevesters,'Bunctbonl Aba Serutgure {Rats (iet|"Ovned Planning J €a LJ J a Project Development LJ LJ a [J e a a Operations a Ld a s [J [] Transmission Infrastructure Planning 7 D)..Cy].0) Project Development e a e a []e e 'Operations €s [J «LJ]a 1 7 Economic Ditpatch LJ z '®a : Distribution o a 2 Customer Services DSM/Energy Efficiency Programs a 8 J [J 8 a Ty Other Services EJ 7 iJ CO] Competitive Procurement Power Supplies 7 e 0 7 Cy Fuel Supplies 7 J a CT]7] Other Products and Services '€J 7 i [Market Development a a Ly e O 7 Paths and Scenarios (continued) Organizational Paths r CeeSeUSLeesa: 'Status Quo me Form an1 EntityThat Wouldbe Responsefor Independent :Operation ofthe Grid 2 : Form:an-Entity That Would be Responsible for Independent Operation of the Grid and Regional Economic Dispatch Form an Entity That Would be:Responsible for IndependentOperationoftheGnd;Regi'Resource Planning and Joint'Project Development g! Form a Power Pool Paths and Scenarios (continuea Question not Answered: Selection of a "Fuels Future” O08 Working rah Paths and Scenarios (continued) Evaluation Scenarios Scenario D Mixed Resource Portfolio Scenario Agenda Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options]e6¢Organizational Issues Assumptions Results Recommendations Next Steps BREPog Future Resource Options Supply-Side Resource Options Traditional Generation Resources Options©Natural Gas@Coal @ Nuclear @ Storage Renewable Energy Resources Options @ Hydro Demand-Side/Energy Efficiency Programs Agenda Introductory Comments Organizational Issy Ss ¢Weatherization e Project Overview@EnergyAuditsBuildingCodes.]7§bullae and Equipment ®Situational Assessment «Residental ..:. 2 Commercial ®Organizational Paths and Evaluation ScenariosoIne ©Market Transformation e Existing System Descriptions and Future Resource Options @ Education @ Organizational Issues e Assumptions Distributed Generation °ResultsReOptions .-e Recommendations Transmission System e Next StepsImprovementsandExpansions. dune 23,2008 Working raft”|en ia dune 23,2008 Working Draft 7 Scopes San Oparbtional e Introductory Comments Responsibjities Issues Issues e Project Overview Soni Projea Fan Generation e Situational Assessment ind Transmissi .Regulat 5 ...Development Planning Issues a versight Issues ®Organizational Paths and Evaluation Scenarios and Legislative og sa : q eFORMATIONOFActions Existing System Descriptions and Future Resource Options Required Skill NEW REGIONAL \e Organizational issuesSetsandENTITY\Staffing Leveis-7 i related issues oleuas.Le AssumptionsTariff/Contractual : e@ Results Requirements-Markt Related Issues Other Required @ RecommendationsStructureStateIssues Issues Tax and e Next Steps Legal Issues Seu ce a an hake eee Se on S08 23,2008 Working Dra dL Pere done 23,2008 Working Drak "2° a cd SSE eed Assumptions Assumptions (continued) Cc ing-iPowerCostModeling-Summary of Scenarios e Cost of Debt *MEA -6.75% e HEA -6.75% »CEA -6.75% e SES -6.75% GVEA -5.00% «ML&P -5.00% «Joint -Tax-Exempt 5.00% »Joint -Taxable 6.75% Scenario D Mixed Resource Portfolio Scenario eea Nararrrr-"'"'<'<'""28,2008 WorkingDra ©USSHae Conventional and Emerging Technology Unit Wind Alternatives Characteristics e 50 MW-2012 (All Costs in 2008 e 50 MW-2018 Dollars) Net Full Load Annual co2 e $2,500/KW in 2008 DollarsOutputForcedNPHRScheduledEmissionName{ey _|(Smitions)|Fue!”|"(percent)”|HHV.|(Dayarvn_|umou)e 35 Percent Annual Capacity Factor GE 6B Simple Cycle 42.1 52.8 Gas 2.00%42,268 10 114.8 aLMS100 Simple ese |1234 |cas |200%262 0 tas e Proportioned to Railbelt Utilities by Ratio of 2007 Peak GE LM6000 Simple Loads Cycle 43 74 Gas 2.00%9,023 10 114.8 AGE SEA ate |2538 |cas |3.00%7208 '4 tas Transmission From Fire Island to Anchorage -2012 2x1 GE 6FA Combined Cycle 235 402.5 Gas 4.00%7,160 7 114.8 Sub-critical Pulverized Coal 100 462.4 Coat 5.00%10,138 21 211 Sune 28,2008 Working Drak Hydro Alternatives Coal Unit Alternatives e 300 MW-2020 e 100 MW Unit 1 -2015 e 300 MW -2025 e 100 MW Unit 2 -2020 ®$5,600/KW in 2008 Dollars @ 100 MW Unit 3 -2025 e Proportioned to Railbeit Utilities by Ratio of 2007 Peak e Proportioned to Railbelt Utilities by Ratio of 2007 Peak Loads Loads e Transmission to Northern Intertie -2020 and 2025 Transmission to GVEA -2015 ine23,2008 re,Sib 28.2008 workingDrallSEARRG Demand-Side Management Transmission System Upgrades e Northern Intertie/Alaska Intertie e $120/MWh «Upgrade Alaska Intertie to 230 kV in 2020 e 0.5 Percent of Net Electric Load (NEL)per Year Starting in *$120 Million -in 2008 Dollars 2015 *Construct Additional 230 KV Transmission Line in 2020 e Maximum -5 Percent of NEL *$250 Million -in 2008 Dollars e Transfer Capability Increased to 250 MW from 75 MW «Losses Reduced From 8.5%to 4% e Southern Intertie e New 230 kV,135-mile Transmission Line in 2020 «$135 Million -in 2008 Dollars e Transfer Capability Increased to 200 MW from 75 MW aay 35,2008 WorkingOral Assumptions (continued) Organizational -Start-Up Labor Costs (continued) Estinated Sart-Up Labor Cust (S000) Assum ptions (continued) Organizational -Start-Up Non-Labor Costs (continueg) Category Pahl Path 2 Path 3 Path4 Estimated Start-Up Non-Labor Cost ($°000) Provide Overall Program $68 $168 $294 $19 Category Path 1 Path 2 Path 3 Path 4 Finalize Business Structure %193 353 243 Software Capital I Secure New Facility 80 iat 167 133 Control Center $0 $500 $500 $500 Develop Business Policies,Processes and 8 3 207 159 E ic Dispatch/Resource Planning CG 34 34 34Compleat(Operations Transition Planning 3 5 23 18 Transmission Planning 9 0 154 99 TIR and Recruiting 7 r)359 Tos Enterprise Back-Office 100 200 200 200 Complete Operations and Exonomic D 0 310 310 Subtotals $100 $734 $888 $832 Dispatch Transition : Complete Generation and Transmission °0 96 96 Other Planning Transition Office Equipment 127 183 591 246 Develop IT Infrastructure 129 19 405 21 Servers 72 88 92 89 Develop Business Systems 166 3u 652 3u Network Infrastructure 27 35 62 4l Provide Training 67 88 176 105 Tel:icati 54 54 54 54 Transition and Cutover Execution 16 82 110 82 Desktop PCs 43 65 a 86Other60285285Subtotals$324 $425 $1,010 $515Subtotals$902 $1,882 $3,331 $2,457 Totals $424 $1,159 $1,898 $1,348Out-of-Pocket Expenses (15%)282 $00 369 Contingency (25%)341 958 708 $4,788 $3,532 e June 23,2008 Working Dat"EE _tune 23,2008 Working Draft" Assum ptions (continued) Organizational -Organizational Chart (continued) Ca Eaetiiese Pz re(oo Garerpt anager T1010 10 80 [secutive tecretery |08 To e6 (Feemeaas ]kez Tora}wtormation Tecnratogy _}Power Suppy,j 77 Pz Ei)me GC a4 Lid Lo *Pr Ci]Ps ot m Pa Cid Lid va 350 ad To 18 wo 78 Te 35d a8 vo 00 10S 35 108 30 Total Peohions.Ber cme rn reerOSVMUIRERRORSRS Assum ptions (continued) Organizational -30-Year A&G Costs Developed Annual Estimates for Each Organizational Path Related to the Following: e Five-Year Amortization of Start-up Labor and Non-Labor Costs e Software Licensing and Maintenance Costs Total Salaries and Benefits Hardware Maintenance and Replacement e@ Other Non-Labor Costs (e.g.,Rent,Office Supplies, Insurance and Outside Services) SEERTS tee Ce REESEPERESSSSNRsoiUDRSSNSDERoROSB iS June 23,2008 Working Drafts Agenda @ Introductory Comments e Project Overview e Situational Assessment e Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues e Assumptions [©Results '| @ Recommendations ®Next Steps CeoeCEeen Had .ie ea esdune 23,200 Results Scenario A 30-Year Average Annual Present Worth Value ($'000) Path 1 Path 2 Path 3 Path &Path 6 Tax-Exempt Financin: Power Costs $368,125)$368,1 $357,823)$322,712 $322,712; Power Cost Savings Relative to Path 1 $0]0 $10,202 $45,413 $45,413 ARG Costs $0]$1,272)$2,435 $6,513)$3,107] Net Savings (Costs)Relative to Path 4 -($4,272)'$7,867 $38,500 $47,306 Taxabie Financing Power Costs $368,125)NotEvaluated|Not Evaluated|$335,871 $335,871) Power Cost Savings Reiative to Path 1 $32,254 $32,254 ASG Costs $0)96.513]$3,107] 'Net Savings (Costs)Relative to Path 1 ---$25,741 $29,147 'lune 23,2008 Working Dran Results (continued) Scenario B 30-Year Average Annual Present Worth Value ($°000) Path Path 2 Path3 Path 4 Path 6 Tax-Exempt Financing Power Costa $296,004 $298,004 $286,717]$277,809)$277,809]Power Cost Savings Relative to Path 1 sy $0 $9287 $18,195 $18,195 ARG Costs 39 $1,272]32.435)$6,513)$3,107) Het Savings (Costs)Relative to Path 1 =|i272)$6652 S17 82 T5688| Taxable Financing Power Coste $296,004}Not Evaluated!Not Evaluated $279,896)$279,896] Power Cost Savings Retative to Path 7 -}Not Evaluated]Not Evaluated $16,108 $16,108 A&G Costs 30 $6,513)$3,107 Net Savings (Costs)Relstive to Path 1 =]==99.595 $13,001 tieminciprcerrozrmSsALROaSaaloe =June 23,2608 VSUSSEDIRSRCRE ee Results (continued) Scenario C 30-Year Average Annual Present Worth Value (§'000) Tax-Exempt Financing Power Costs Power Cost Savings Relative to Path 1 A&G Costs Net Savings (Costs)Relative to Path 1 Taxable Financing Power Costs Power Cost Savings Relative to Path t ARG Costs Net Savings (Costs)Relative to Path 1 5 VarReeEER ETREEnerSEESSOSEESEEE Path 1 Path 2 Path 3 Path 4 Path 6 $325,702]$325,702 $313,261 $285,209]$285,209}30)0 $92,441 $40,493 $40,493 so 31.272 $2,435 36513 33.107] =wT $10,006 $35,080 $37,388| $325,702]Not Evaluated|Not Evatuated $290,934 $290,9341NotEvaluated]Not Evaluated:$34,788 $34,768 $0]Net Evaluated!Not Evahated|36,513 $3,107 =>|=$28 255 337.661 lune 23,2008 Working Draft Results (continued)Agenda @ Introductory Comments .e Project OverviewScenarioD} e Situational Assessment30-Year Average Annual Present Worth Value ($'000 e Path Path 2 Paths Paths Paths Taxdrerp Comer $944,961 $944,961 $334,155]$307,054 $307,054]6 Power Cot Savings Relative to Path 1 $0}$0 $10,806 $37,807 $97,907 ARG Costs 30]$1272]$2,435]36513]$3,107]e Organizational IssuesNetSavings(Costs}RelativetoPath1 =]51,272)Fiz]$a1aa4 $34,800].etcons e Assumptions Taxable FinancingTaxableFane $344,961]Not Evehsted|Not Evatusted|$315,900)$315,900]e Results Power Cost Savings Reletive to Path 1 |NotEvakated|Not Evaluated $29,061 $29,061 ARG Costs $0]NotEvaleted|Not Evahated 38.513 39,107]e@ Recommendations Net Savings (Costs}Retative to Path 1 ===|"$27,548 |(25,954"e Next Steps smuUES FFERE!BING AWOR :NG Recommendations (continueg) Recommended Organizational!Structure Recommendations (continued) aiestuns 23,2008WorkingDraft Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Recommended Organizational Structure (continued) e Potential Savings Associated With Tax-Exempt Financing «Savings Depend Upon the Region's "Fuels Future” »The Greater the Up-Front Capital Costs (e.g.,Development of a Large Hydroelectric or Coal Plant),the Greater the Savings Potential Anuual Savings Associated With Tax-ExemptRequiredCapitalFinancing(Assaming Investment Over Next 175 Basis Point gon!30 Years =Path 4 Differential) Scenario ($°000,000)(3°000,000) A--Hydro/Renewables/DSM $8,070 $141 B -Natural Gas $2,475 $43 C Coal $3,769 $66 D-Mixed $5,533 $97 Recommendations (continued) Issues Associated With Tax-Exempt Financing e Government Obligations »Generally,Must be issued by Either a State or Municipal Government *The Ability of a Regional Public Entity to Issue Tax-Exempt Debt and Sell Power to Electric Cooperatives or Other Private Entities,or Purchase Their Assets is Generally Limited by tax law;Electric Cooperatives Generally Don't Have a way of Directly "Participating”in the Benefits of a Regional Public Entity's Tax-Exemption »Goverment Obligations Becomes a Private Activity Bond if: «More Than 5%of the Proceeds of the Bonds are Used to Provide a Facility That is Used in the Trade or Business of a Person That is not a Governmental Entity,and «More Than 5%of the Money That Will be Used to pay the Bonds is Derived From a Private Business Source «Management Contracts can Also Cause a Government Obligation toBecomeaPrivateActivityBond Recommendations (continued) issues Associated With Tax-Exempt Financing (continued) ®Private Activity Bonds «Taxable Unless There is a Specific internal Revenue Code Provision That Permits it to be Tax-Exempt;in the Case of an Electric Output Facility: e Facility can be Used to Provide Electricity to no More Than Two Contiguous Counties e The User of the Facitity Must Have Provided Electric Service in the Area That the Facility Will Serve Since at Least January 1,1997 or be a Successor to Such an Entity »Alternative Minimum Tax Would Also Apply Which Would Make the Tax- Exemption Less Valuable e Subject to Each State's Annual Private Activity Bond Cap (for Alaska, Approximately $235 Million) BUILDING A WORLO OF Recommendations (continued) Issues Associated With Tax-Exempt Financing (continueg) e Provisions Applicable to All Tax-Exempt Bonds «May Not be Federally Guaranteed »Can be Used to Reimburse Expenditures That Were Incurred Before the Issuance of the Bonds Only if the Expenditures to be Reimbursed Occurred not More Than 60 Days Before the Issues Adopts an "Official Intent” »Subject to Arbitrage and Arbitrage Rebate Provisions eee rrr oeENDUSSRNEUEesee Ge SaJune25,2008 Working Brak Cease Issues Associated With Tax-Exempt Financing (continuea) e Potential Solutions «Retail Requirements Approach *63-20 Corporation «Alaska Railroad Corporation «Tax Exemption Through Act of Congress (e.g.,Bradley Lake) ne23,2008 WorkingDial7ORRIN Recommendations (continued) Recommended Organizational Structure Recommendations (continued) Recommendations -Formation Issues F Issue Recommendation'orm, tate Power Author A sbilitiwalkFunctionalResponsibilities ;Requirements |Alaska fizitroad |Congressional Tax|Coordinated Operation of the Grid xCriteriaG8TCooperative|$3.20 Approach :: Pa.ie Dispatch X Core Function You Ye Yes No Ya --aT XAbilitytolnsueTax-Exempt Debt No Yeu Wah Restnctons |Yee,With Reeiictons |Yeu Wit Resinchora |Ves,Wah Resinchons giona ane Risks Associated With Ability to Issue Tax-Ret Kppiceble Unvted Urneed Woderate Signtrcant Planning Exempt Debt 7 > State Oversight Related to State Financia Depends on umber of |Dependson Rurmber of Greate Greatest rea Joint Project Development x Voting Stata 'Voting -Assistance = Location Anchorage AreaofDwectors,of Dwectors: -- 'Overall Strength of Organizational Suucture,Grested Depends Upon Level of |Depends Upon Level af Current 'Gepends Upon Level of Transfer Ownership of Existing Assets NoBoardandManagementTi-ant tTeam Energy Expertae Energy Expernee [Lacks Energy Experts |Energy Expertoe Establish Hold Harmless Requirement YesPotentialImpactofChangingStatePoliticalUrniedUnitedPotentiallySignficant|Potentalty Signficant.|Potenbally Significant Regarding Allocation of Costs and Benefits'Depending Upon Level |DependingUpon Level |Depending Upon Laval ..'blEnvironmentotroanofoeofBoardofRegionalEntityWithTransition PlanFlexibilityGreate'Some Lentabon'Potenbal Limitations |Potenhal Lirtationa |Potential Limtabons -aoaityry Spread Risks Eantcart 'Sedicant Grestent Greate rested Transfer Selected Existing Employees YesDirectCustomerOwnedConvalTrocerateToderateTimaedUnitedUroiiedFE--'i 'Ability to Fund Large Projects Teodor ste Sopticant Greate Created Craalew E:p of Tr Grid Yes dune 23,2008 Working Draft Recommendations (continueg) Recommendations -Formation Issues (continued) Issue Recommendation""| Governance Structure Depends on Legal Structure of Entity Develop Open Access Transmission Tariff Yes Develop Generator Interconnection Yes Standards Develop Competitive Power Procurement Yes Process Establish Postage-Stamp or Mileage-Based Rates Generation Postage-Stamp Over Time Transmission Postage-Stamp Regional Devel of Renewabl Yes Regional Development of DSM/Energy Efficiency Programs Yes (in Close Coordination With Distribution Utilities to Tailor and Deliver Programs to Individual Service Territories) RCA Oversight No Recommendations (continueg) Recommendations -Formation Issues (continued) Ee Issue Recommendation Elements of Integrated Resource/ Transmission Expansion Planning Process Consistency With State Energy Plan and Yes Related Policies Consistent Evaluation of Supply-Side and Yes Demand-Side Resource Options Interactive Analysis of Resource and Yes Transmission Options E ic Analysis of Repl /Life Yes Extension of Aging Generation Facilities Innovative Rate Structures Yes (in Coordination With Distribution Utilities) Response to CO;and Other Environmental Yes Restrictions Re-evaluate Reserve Margin Targets Yes Public Participation Yes (on a Limited Basis) "dune 23,2068 Working Dra.” Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Organizational Issues Assumptions Results Recommendations Next Steps ESE RE RERE Next Ste PS (continued) REGA Project e Advisory Working Group Meeting (June 26*) ®Technical Conference (Week of July 7%) e Draft Report (July 23") e@ 20-Day Comment Period (July 24 -August 20°) e Advisory Working Group Meeting (Week of August 25*) e Final Report (September 5'") e Utility/State Decisions e Implementation Se ssi san Une 23,2008 Working Drak Setprenr mt terteee je TOPE eas Next Steps REGA Project "The key issues ofconcern in the Railbelt electric utility market are easy to define and have been recognized for many years. fo date,however,attempts to resolve those issues have been unsuccessful. Industry driven progress in addressing the issues requires a chanipion with a clear vision for the future and the skills capable of rallying the Jorces of change necessary to re-shape the system.” "There is a lack of an over-riding vision and goals that aligns electrical production and energy security within a framework that is ecologically sustainable and equitable to all futuregenerations.” Renewable Energy Advocate NTE Native Corporation Representative eecemrnrecorarcaneernSe5june 23,2008 Working DraftaHEERRES Next Steps (continued) Implementation Steps @ Make Decision Whether to Form Regional Entity and Finalize Functional Responsibilities @ Make Conclusive Determination Regarding Ability of New Regional Entity to Issue Tax-Exempt Debt and Develop Strategy e Finalize Legal Form for Regional Entity e Establish Transition Management Team to Oversee implementation (Including State Representative) e Adopt Required Legislative/Regulatory Actions «Formation of Regional Entity (Including Powers,Legal Form,Govemance Structure, Ability to Purchase Property,and Selected Bylaw Requirements) «Modification of Existing Utilities'Service Territory Certificates,as Necessary *Establish Direct Privity With Retail Customers if Retail Requirements Approach is Adopted ioc J0R6 23,2008 Working DraftSea:Pe Next Ste PS (continued) Implementation Steps (continued) e Adopt Required Legislative/Regulatory Actions (continued) «Implement Market Structure Changes (e.g.,OATT,Competitive Power Procurement Process,and Generator Interconnection Standards) e Secure State Financial Assistance (e.g.,Grants or Loans)for the Development of Regional Generation and Transmission Infrastructure (Based Upon Results of Regional Integrated Resource Plan) e Complete Formation of New Entity e Establish Utility/State Implementation Team »Determine Need for Outside Assistance «Revise Start-up !mplementation Plan e@ Develop Initial Regiona!Integrated Resource Plan and Transmission Expansion Plan ER Ee 28,2008 Working Dra TTSBRNeiuRAS Introductory Comments Project Overview Situational Assessment Alaska Railbelt e Organizational Paths and Evaluation Scenarios Electrical Grid Authority (REGA)Study e Existing System Descriptions and Future Resource Options ®Organizational Issues ..®AssumptionsPreliminaryResults,Conclusions and : e Results Recommendations e Recommendations June 26,2008 e Next Steps Working Draft Subject to Change =|dune 23,2008 Working Draft 'y Introductory Comments Agenda Advisory Working Group Members e Introductory Comments |e Project Overview e Norman Rokeberg,Retired State of e Jim Sykes,Alaska Public Interest e Situational Assessment Alaska Representative,Chairman Group oo.;; ¢Chris Rose,Renewable Energy Alaska ©Kip Knudson,Tesoro e@ Organizational Paths and Evaluation Scenarios Project,Vice Chairman »®Lois Lester,AARP ae eo . «Brad Janorschke,Homer Electric +Marilyn Leland,Alaska Power e Existing System Descriptions and Future Resource Options Association Association ®Organizational IssueseBrianNewton,Golden Valley Electric ©Mitch Little/Les Webber,Marathon OilAssociationCompany e Assumptions ©Colleen Starring,Enstar Natural Gas ©Nick Goodman,TDX Power,Inc. Company e Steve Denton,Usibelli Coal Mine,Inc.e Results .Debra Schnebel,Scott Balice Strategies ¢Tony Izzo,TMI Consulting e RecommendationseJanWilson,Regulatory Commission ofAlaska @ Next Steps June 23,2008 WorkingDraft |a ee :ae Pi or dune 23,2008 Working Draft "2°Bux Project Overview Objectives Focus on Organizational Structure Organizational Paths and Evaluation Scenarios Definitions Overview of Models Public Participation What the Project is Not rN erreenT rN TERE--S--eié-i--ees-OséiersNC*OC™C*C*;'=CC_C. Project Overview (continued) Definitions Coordinated Grid Operations -relates to the coordinated operations ofthe transmission grid to ensure the reliability ofelectric service throughout the region. Economic Dispatch -involves the operation ofgeneration facilities to produce energy at the lowest cost to reliably serve consumers,recognizing any operational limits ofgeneration and transmission facilities. Regional Integrated Resource Planning -a planning process for electric utilities that evaluates many different generation and transmission supply-side and demand- side options for meeting future electricity demands and selects the optimal mix of resources that minimizes the cost of electricity supply while meeting reliability needs and other objectives. Joint Project Development -involves the development offuture generation and transmission projects by multiple parties for the joint benefit ofall participants. 25,2008WorkingDrak Sana Project Overview (continued) Summary of Organizational Paths Status Quo Form an Entity That Would be Responsible for Independent Operation of the Grid Form an Entity That Would be Responsible for Independent Operation of the Grid and Regional!Economic Dispatch Form an Entity'That Would be:Responsible for toh RegionalOperationoftheGrid;Regionat Dispatch,R :F Resource Planning and Joint Project Development a Form a Power Pool x»Tune 23,2008 Working Draft Project Overview (continued) Summary of Path 5 e Summary of Path 5 (Power Pool)-Under This Option,the Regional Entity Would be: e Responsible for the Central Dispatch and Control of the Railbelt Grid Including Approving Planned Maintenance Schedules for all Units,Auditing Units'Performance Characteristics and Identifying Operating Protocols «Responsible for Planning Generation and Transmission Capacity Additions That Minimize the Cost of Meeting Load Growth,Replacing Retired Capacity and Providing Adequate Capacity Including Reserves Based on the Total Forecast of Railbelt Requirements;the Forecast may be a Compilation of the Individual Utilities Forecast or the Development of an Independent Forecast as Needed *Individual Utilities may Choose to Participate in These Projects;Third-Party Generation and Transmission Owners may bid to Develop Projects or the Projects may be Developed by a Government or Quasi-Government Entity sg er rerennaeanLsRSIEEOREESSESS dune 23,2008 WorkingDrak = Project Overview (continued) Summary of Path §(continued) @ Summary of Path 5 (Power Pool)-Under This Option,the Regional Entity Would be:(continued). Project Overview (continueg) Summary of Evaluation Scenarios scx eet pe ccNU e Responsible for Preparing the own Load Dispatch for Each Load Serving Entity to Determine the own Load Costs «Bill Each Utility for its own Load Costs Based on the Paper Dispatch of itsownResourcesandpayEachUtilityfortheOperatingCostsofitsUnitsBasedontheCostCharacteristicsandHoursofOperationfortheGrid;the Difference Between Actual Costs and own Load Costs Would be Shared by the Load Serving Entities Less the Cost of Operation for the Power Pool «Determine Requirements Related to Reserves and the Cost (and Value forExcessReserves)Associated With Inadequate Reserves and Bills Load Serving Entities for Inadequate Reserves Based on the Cost of Capacity to Meet Reserve Requirements »«Determine Standards for Interconnection of new Generation (Planned by the Power Pool,Planned by Individual Utilities or Third-Party Planned Units) With the Grid and Determines the Cost to Interconnect OTTT ILDING A WORLD OF D Project Overview (continued) Overview of Models For Each Evaluation Scenario Prescribed Input -Resource Assumptions Input Assumptions Pian for Each Related to Related to Existing Or izational Fay aational and Potential Path Pathse: Resource Options ee T Ho ts IElectricCapital-- and Annual OrganizationalProductionpoPat-fhCosts-ee Net Annual Benefit (or Cost) of Each Organizational Path June 23/2008 WorkingDraft eee Scenario D Mixed Resource Portfolio Scenario reauaeintpn RSS "June 23,2008 Working DraftaR Project Overview (continueg) Stakeholder Involvement Process Utility Stakeholders @ Individua!and Joint Meetings @ Data Gathering .- Non-Utility Stakeholders @ Input Survey Instrument @ Face-to-Face Meetings @ Reference Documents Advisory Group Meetings secaeo reemeccaea tnetoereet SSSR LOG Presentation of Preliminary Results, Conclusions and Recommendations to All Stakeholders Draft Report Public Presentations on Final Results, Conclusions and Recommendations creejune23,2008 Working Dra 7” Project Overview (continued) Role of Advisory Working Group e Provide Input on: «Project Scope and Approach e Project Issues e Alternative Organizational Paths e Evaluation Scenarios and Criteria »Input Assumptions e Review Preliminary Results,Conclusions and Recommendations Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Organizational Issues Assumptions Results Recommendations Next Steps ewepeernee enn mere ee are-a:re Ce ee une:3,2008 Working DrakMiaseranath eae18.OS Project Overview (continued What the Project is Not? A State Energy Plan e An Integrated Resource Plan e A Selection of a "Fuels Future” A Definitive Projection of Future Natural Gas Availability and Prices e An Assessment of the Economic Benefits Related to the Replacement of Existing Generation Assets |done 23,2008 Working Dran 9"9 °"% History of Independent but Cooperative Decisions Infrastructure Investments Gas Supply Innovative Solutions Joint Operations and Contractual Arrangements ssett nent tenn sea Sone 23,2008 WarkingDrakoS Summary of Issues Uniqueness \of Railbelt Ca Natural Gasissues Future LoadUncertainties Adopt New Direction Cost Issues Summary of Issues (continueg) RAICBELT "rane Maintain Status Quo Political Issues 'Impact on Railbelt i t Businesses and Consumers : !@ Power Costs : }©Reiiability : {@ Sustainability i i @ Risks i Summary of Issues (continued) Uniqueness of Railbelt Issue Description Size The combined size of the Railbelt is small which creates certain issues facing, and affects the solutions available to,the Railbelt. Limited Interconnections and Redundanci The Railbeit transmission system is an isolated grid with no external i ions to other areas,limited total transfer capabilities and limited redundancies. State Versus Federal Regulation Unlike utilities in other regions of the country,the Railbelt utilities are not under the oversight of the Federal Energy Regulatory Commission (FERC). ING A WOR OF DIFFERENCE Summary of Issues (continued) smeane23°2008 Warkiig Dra' Natural Gas Issues Issue Description issue Description Relative Costs -Railbeit vs.Other States The Railbelt utilities ranked as the eleventh highest cost state in terms of the monthly bills paid by residential customers.Similar results can be seen for small ial and large i Historical Dependence Natural gas has been the predominant source of fuel for electric generation used by the customers of ML&P,Chugach,MEA,Homer and Seward.Additionally, customers in Fairbanks have benefited from natural gas-generated economy energy sales in recent years. Relative Costs -Among Railbelt Utilities ML&P's customers pay the lowest monthly electric bills in the region;GVEA's residential customers pay the highest monthly bills.Chugach,MEA,Seward and Homer are in the middle. Expiring Contracts There are a number of inherent risks whenever a utility or region is so dependent upon one fuel source;risks with regard to prices,availability and deliverability. Economies of Scale The Railbelt utilities have not been able to take full advantage of economies of scale for several reasons,including size,the lack of a robust transmission grid, sub-optimal individual utility resource plans (from a regional perspective),and the dispersion of staffing and skill sets among the six utilities. Declining Developed Reserves and Deliverability An additional problem faced by the Railbelt utilities,due to their dependence on natural gas,is the fact that existing developed reserves in the Cook Inlet are declining as well as the current deliverability of that gas to the region. Historical Increase in Gas Prices Railbelt residential and cial are directly feeling the rise in natural gas prices that have occurred in recent years. CUB Jumie 23,2008 Working Draftsee Potential Gas Supplies . and Prices Whether new gas supplies from the Cook Inlet become available or gas from the North Slope is brought to the Railbelt region,one reality can not be escaped: future gas supply prices will be higher. contr torrente nemenrrE Summary of Issues (continued) Load Uncertainties Stable Native Growth DexeriptionStablenativeloadgrowthiisexpectedtocontinue in the years ahead,absentsignificanteconomicdevelopmentgainsintheregion. Summary of Issues (continued) Infrastructure Issue Aging Generation Infrastructure Issues Description Approxi ly 550 MW of generation capability within the Railbelt region is scheduled to be retired within 15 years. Potential Major New Loads There are,however,a number of potential significant load additions that could result from economic development efforts.These potential load additions could result from the development of new,or expansion of existing,mines Baseload Usage of Inefficient Generation Facilities Another issue that is directly related to the aging nature of the existing Railbelt generation fleet is the fact that certain older,inefficient generation units are being used as baseload,or near-baseload,generation facilities. (e.g.,Pebble and Donlin Creek),d military base reali and other economic development efforts. Cine 2 oe WONDERS Operating and Spinning Reserve Requirements Railbelt reliability procedures require spinning reserves equal to the largestoperatingunitandanoperatingreservelevelofanadditional50%of the largest -unit.In addition,the region's system target reserve margin is set at 30%.Thesereservelevelsreflecttheabofiions,the relative Ppimpactsoflimitedresourcesandtheityofliabili existing size of the system.with the Summary of Issues (continued) Future Resource Options So Tssue Acceptability of Large Hydro and Coal ""DescriptiosLikeotherpartsofthecountryandtheworld,the acceptability and economics of largehydroelectricandcoatfacilitiesareuncertain. Carbon Tax and Other Envi I Another uncertainty relates to the restrictions on carbon emissions,and the related Restrictions ic impact,as well as other environmental restrictions that may impact the|and ibility of various Optimal Size and Location of New Generation and Transmission Faci A very important issue is the optimal size and location of new generation andWhenindividualutilitiesmakeresourcedecisionsthat optimize the future resource mix for their own needs,the resulting regional resource mix will simply not be as optimized relative to the resource mix that would result from aplanningprocess.Limited -IR bl hnologi a signifi 1p ity,An imp Renewables implementation iissue that needs to be add dis whetherthe Ch of should be lished by the individual Railbelt utilities or whether amore regional approach would resultin the more timely,efficient and cost-depl of these Limited Development-|The Railbelt utilities have limited with the planni hi and DSM/Energy Efficiency |delivery of DSM and energy efficiency Ani H jon issue Programs that needs to be addressedis whether a regional approach'would resultin the moretimely,efficient and p of these eres WeRRE DSRUGuse Summary of Issues (continueg Political Issues Issue ©DescriptionHistoricalDependence-_|Previous State-enabled iinvestments have played an important rolein theonStateFundingdevelopmentoftheRailbeltregion. Proper Rote for State Going forward,a question that needs to be answered is what the proper role of the State should be relative to the further development of the region's generation and transmission infrastructure.. Summary of Issues (continue) Risk Management Issue Description Need to Mai Mai ing flexibility is particularly important given the variety and potential Flexibility de of the ies facing the Railbelt utilities.In this context, maintaining flexibility has three di i izational;future i and issi .and fuel lies;and the ability to adjust to changing State and Federal policies. Future Fuel Diversity Fuel supply diversity inherently has value in terms of risk management,the greater a region's dependence upon one fuel source,the less flexibility the region will have to react to future price and availability problems. Aging Infrastructure The fact that the generation and transmission infrastructure in the Railbelt is aging adds to the challenges facing utility managers.On the other hand,this leads to an unprecedented opportunity for the region to diversify its resource mix and improve the overall efficiency of its generation fleet. Ability to Spread Regional Risks One important approach to risk management is to spread the risk to a greater base of investors and consumers so that the impact of those risks on individuals is reduced.Simply stated,the ability of the region to absorb the risks is greateronaregionalbasisthanitisonanindividualutilitybasis. Summary of Issues (continueg) Other Issues Tssvue Description Aging Workforce and The Railbelt is faced with the realities of an aging workforce as are all utilities Ability to Attract Skilled {throughout the nation.There is simply not enough skilled labor andEmployeesmanagementtalententeringtheelectricutilityindustrytooffsetthesignificant Pp ge ofutility ployees that will retire within the next 5 to 10 years. Reliability Historically,the Railbelt utilities have done a good job of maintaining reliableelectricservice.Maintaining future reliability requires planning for additional generation and transmission,and replacing aging infrastructure. Proposed ML&P and Chugach are exploring the potential benefits of merging,or ML&P/Chugach Merger |increasing the level ofjoint operations and project development.At the time that this study was completed,no final decisions have been made by the Anchorage City Assembly or the Chugach Board of Directors. Sustainability Increasing demands are being placed on utility to dinasustainablemannertotheextentpossible.The need to incorporatesustainabilityconceptsmorefullyinfutureplanningandionaldecisions is a challenge that must be met by the Railbelt utilities. Pp Poe ;ee June 23,2008 Working Draft Bite * Be SS ee,dune 23,2008 Working Dra * Summary of Issues (continued) Other Issues Uniqueness:\of Raitbett Natural Gas issues Future -o Adopt New Direction " N Summary of Issues (continued Setting a Course for the Future "Hope is not a strates.” Source.Anchorage Chamber of Commerce,Findings and Conctusions abaut Haske 's Energy Crisis "High energy prices arul reduced supplies are likely to damage the ec pot "Quite frankly,we have Stidied the issues to death and only need to act What is likely preventing implementation is leadership from management arud decision making from utiltty boards ana course of action." Source Utuy Representatice South-central Alaska and "There has been a lack of courage fo make a decision and plan for the Fidture without perfect knowledge which we all now does not exist ” Soure Fuel Supplier Future Maintain Status Quo have already damagedResourcerona Options PUFA!Economies. i"t Source:Anchorage Chamber ofBusinessesandConsumers;Commerce,Findings and Risk Ronni i Conclusions about Alaska's : in Energy CristsManagesnertSustainabilitymre TS)fe RW, dune 23,2008 Working Draft"Ee page 28 Srparceerareeenroeay dune 23,2008 Working Dratt re"ee Agenda e Introductory Comments e Project Overview e Situational Assessment le Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues e Assumptions e Results @ Recommendations e Next Steps soengeseeeeomecs aeneemeea wegenONnonRLdone3,2008 Working Draft ©PAS ofEeePoea Paths and Scenarios Organizational Options Ksmetional Arve Hutitrete t tilities Carpet Sivectues Conelidated Public Imyeatay-Vobuntary |JAGUET State &RTOTSO |Ageney[|Qaned Other Generation Infrastrecture Planning Project Development Operations Trammisston Infrastructers Planning Project Development Operations Economic Dispatch Distribution \Cumtemner Services DSM Energy Efficiency Programs Other Services Competitive Procurement Power Supplies Fuel Supplica Other Products and Services Market Developenent une 23,2008 Working Draft Paths and Scenarios (continued) Organizational Paths 'Status Quo Form an Entity That Would be Responsible for independent Operation of the Grid Form an Entity That Would be Responsible for Independent Operation of the Grid and Regional Economic Dispatch Operation of the Grid,Regional Economic Dispatch,Regional.Form an Entity That Would be Responsible for independent Resource Planning and Joint Project Development Form a Power Pool aU a rcarrSEUILEGRUSRSUASURaeReeeREESES June 23,2008 Working DrakSikes Evaluation Scenarios Paths and Scenarios (centinueg) Scenario D Mixed Resource Portfolio Scenario eae SS,lune 23,20685 Working Dra WILDINGAWORLD OF DIFFERENFDIE LDING FEERENC. Paths and Scenarios (continued)Paths and Scenarios (continued) Evaluation Criteria Question not Answered:¢Economic Inputs «Generation and Transmission Costs (Both Initial and Annual) e Organizational Costs (Both Start-up and Annual) Selection of a "Fuels Future”¢Utility-specific Impacts e Reliability mpacts *Ease of Implementation ®Impact on Flexibility @ Impact of Emissions ®Ability to Spread Risks e Ability to Respond to Economic Development Successes Agenda Existing System Descriptions -ML&P Unit e Introductory Comments Characteristics e@ Project Overview cm Neato Variable}Fixed |Full Lesd|75%Lead (50%Load]Min Leedit7Min|Forced |O&M |}O&M |NPHR NPHR NPHR |NPHR |CO,Emission@SituationalAssessmentvn|Prima capecy|Ouaye|cones |pont pe hetremen ..::Ne Number}Foel_|Winter |Summer|(Net Row |MWh)[kW-¥!HHV Btu)cop DaeOrganizationalPathsandEvaluationScenariosrepriesto]0 3 a asa ae uelant2as4i115.220 NIA *Existing System Descriptions and Future Resource Options nat ft Nef 1h et Ne ee te =lant 56 as 2 il 10.740 14,870 E - i 1 lant 5 as 37.4 11.34 |14,420 16,020 19.390 55 -bd Organizational Issues a Th_{Neos |1095 z 7.60 [9030 [9320 |11,520 a 2030 .jant 7 as ETE]2 7.6 11,930 12.620 14.220 19,240 2030eAssumptionsint?|8 as |876 70 |3.729 [11.930 |12620[|14220 |19,240 2030 *Denotes not available for commercial operation e Results e Recommendations e Next Steps Je ee 3,2008 Working Bratt: Existing System Descriptions -CEA Unit Existing System Descriptions -GVEA Unit Characteristics Characteristics con TNen-fuel]Vartable!Fixed |Fell Laed |75%Lood |58%Lead)Min Lond]Min |Forced |GAM |O&M |NPHR NPHR NPHR NPHR |CO,Easission|Unit |Primary][Capacity]Outage |(2eans |(Zeees'Rete Retirement lame |Number]Foel |Winter |Semmer|(Net)ote |(MWh)|kW.HHV [us M Btw)cop DotjernicexTh6%2|Sern m7 a 798 2014ericeasOe23wa| jeluge as Oe 75 20] jchuga as On 3 27 2017] jcluge as om 34 ST 202|jeluga as o%[77,507 2017 Jcluga a 0%34 [7 3500 2020 deluge 6a Cy Jol$ET ca 44 450 2014 'cigs 7 [10 z o%34 tT 0 at]deluge |7 i LE ET %{11,490 2014] T a [150 E a [3 [36,593 202|2 as 15.1 M%|2637 [3 6,671 2012 3 Cy Rg:(Pe 2637 (20 302,2012] (June 23,2008 Working brat rr Son sore areneon cerryny casiSSREEENCedueo4: Existing System Descriptions -HEA Unit Existing Transmission Constraints as Modeled Characteristics Maz Rom-foel] Variable!Fixed |Full Land |75%Lond |50%Load]Min Load'Mia |Forced |O4M |O&M!NPHR NPHR NPHR NPHR |CO;Eximion'Unit.|Primary]|Capackty|Outage |(2808S |(2008S/Rate Retiremeet tart Lee wo er Lee fim |1s lms war [ie Lam Daena [to Souther Intertie 115 kV F seve uray eerieSAGMUDMRANGLMhdeenasa wiseaeracetcaecummeaacaigesass7TissuesDUNE23,2008 Working DR ine 29,2008 Working Dratt 07Ss Existing System Descriptions -Retirement Dates Future Resource Options Supply-Side Resource Options Traditional Generation Resources Options. @ Natural Gas @ Coal @ Nuclear @ Storage Renewable Energy Resources Options @ Solar @ Tidal and Wave Demand-Side/Energy Efficiency Programs @ Weatherization @ Energy Audits @ Building Codes. @ Buildings and Equipment +Residential +Commercial »Industrial +Governmental @ Market Transformation @ Education [MLaP |Units 6-8 2030 CEA Bernice 2-4 2014 Beluga 1-2 2011 Beluga 3 2012 Beluga 5 2017 Beluga 6 2020 Beluga 7 2021 Beluga 8 2014 Intemational 1-3 |2012 GVEA |Zehnder GT 1-2 |2030 North Pole GT1_|2017 North Pole GT2 |2018 Healy 1 2022 DPP 1 2030 Agenda e Introductory Comments e@ Project Overview e@ Situational Assessment peers TUpeNCHMRESERR TSroreeSUACUEMEaeaNE Organizational Issues f ntegrated Resource Distributed Generation Resource Options "I Transmission SystemImprovementsand Expansions lune 23,2008 Working Draft |” e Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues | ®Assumptions e Results e Recommendations ®Next Steps REESEdune23,2608 Working Drak Ae Uae Market Issues Structure Requirements- Related Issues Scope of F i Op val Responsibilities Issues tssues -7 Regional GenerationJointProjectandTrDevelopmentPlanningIssues Regulatory Issues Oversight IssuesandLegisi FORMATION OF Actions Required Skil NEW REGIONALSetsand Staffing Levels-ENTITY © GovernancerelatedIssuesSeveranceIssues Tariff/Contractual Other Required State Issues Tax and Legal issues "June 23,2608 Working Drait” Organizational Issues (continue) Scope of Responsibilities @ Coordinated Operation of the Grid e@ Regional Economic Dispatch Operational Regional Resource Planning Joint Project Development Issuer) O&M Responsibility Description Who will have ibility for the i peration and maintenance of the region's generation and transmission assets,the new regional entity or the existing six Railbelt utilities? Formation Organizational Issues (continueg) Tesne Lega!Structure Description Should the new entity be a JAA,G&T cooperative,or State agency/corporation? Location Should the new regional entity be located in Anchorage,Fairbanks,or elsewhere? Transfer of Existing Assets and Fuel Supply Contracts Determine whether the hip,or just the dishouldbetransferredtothenewentity. h control,of existing assets Whether to Adopt a Hold Harmless Requirement Should a rule be adopted whereby the formation of the new entity cannot harm any groups of existing customers? Transition Period Related to the issue above is the question of how tong the transition period should be until the final cost/benefit allocation methodology is enacted? SUILDINGA Organization 2008 Working Draft oi al Issues (continued) Regional Generation and Transmission Planning Issues ce =]:ses Deseription :Om He OS Ce einen Monin eee aan ie)Development of New P ing Process Consolidation of Control Centers The region currently has three control centers,which are operated by GVEA,ML&P and CEA.Ifa regional entity is formed,is there a continued need to have three control centers or can they be consolidated into two centers (i.¢.,one primary and one back-up center)? will need to be1 P BPNewregionalgenerationand developed and implemented. Requirement to Follow Results It will need to be determined whether all six Railbelt utilities will be required to abide by the results of the regional planning process or whether they will have the option to continue to pursue their own future direction. Required SCADA/Telecommunications Investments To fully enable certain i in SCADA and tel icati quip will be required, une23,3Hasoua008WorkingDSNcseS Organizational Issues (continued) Joint Project Development Iysue:Descripti All-In or Opt-Out Will ail six Railbelt 'mtlities (and any other utilities that might jjoin later)beOptionrequiredtoparticipateinfutureandPpthatresult froma regional resource planning process,or will they have the option to decidewhichprojectstheywillparticipateinandwhichprojecttheywillnot participate? Responsibility for Will the new regional entity have the responsibility for the construction offutureProjectConstructionandt responsibility? or will the existing six utilities retain thisProj Organizational Issues (continueg) Required Skills Sets and Staffing Levels : Ansue | Total Staffing Levels Description Determining the required level of staffing within the new entity to meet its functional responsibilities. Organizational Structure |Developing an appropriate organizational structure to align staffing withfunctionalresponsibilities. Strategy for Transfer of Existing Employees Determining how many of the existing employees ofthe six Railbelt utilitiesshouldbecandidatesfortransferringtothenew|entity and developing a strategy for encouraging those employees to transfer. Recruiting and Relocation Strategy To fili positions,a relocate additional employees.gy needs to be developed to recruit and Compensation Program The development of an overall compensation structure and benefits package for the new entity. Organizational Issues (continued) Tax and Legal T issue *Description Ability to Issue Tax-This is a very important issue given the magnitude of generation and Exempt Debt transmission investments that need to be made within the Railbelt region over the next 10-15 years.There are two categories of tax-exempt bonds: government obligations and private activity bonds.Both categories contain their own restrictions regarding how the bond proceeds can be used The fact that the Raifbelt utilities include two municipal entities and four cooperatives complicates the ability Transfer of Ownership [Restrictions exist related to the transfer of the ownership of existing assets to a of Existing Assets new entity.For example,in the case of Chugach,in the case of the sale,lease or other disposition of more than 15 percent of its total assets,its bylaws. require an affirmative vote of members constituting not less that two-thirds of the members voting where the number of members voting also constitutes a majority of all of the A the only ption to this is that if thed of assets is to another cooperative or theStateofAlaska,such disposition must be approved by a majority of themembersvotinginanelectioninwhichatleast10%of the members vote. Organizational Issues (continued Tax and Legal (continued) Issue :=°Description Transfer of the City of Anchorage's Ownership of Gas Reserves in the Cook Inlet The City of Anchorage's ownership in Cook Inlet gas reserves was financedusingtax-exempt bonds.As a result,the use of this gas is limited to thegenerationofelectricityinML&P-owned generation facilities. Governance As a practical matter,for the new entity to rely on tax-exempt debt to finance a large percentage of future infrastructure investments,it will need to be formed as a public entity.This has implications related to governance because the required structure for the Board of Directors for a public entity is different than how Boards are typically established for JAAs or G&T cooperatives. Organizational Issues (continued) Regulatory Oversight and Legislative Actions fasuc Regional Integrated Resource Plans Description : oe Will the RCA have the authority to review and app the regional i d resource plans that are developed by the regional entity? Joint Project Development Will the RCA have the authority to review and approve specific generation andtransmissionprojectsthataredevelopedbythenewregionalentity,including the Organizational Issues (continueg) Other Required State Actions Issue : : Description State Energy Plan and Related Policies The Governor has directed that a State Energy Plan be developed.Herionisalsoaddiigotherrelatedissuessuchasclimatechange.Anewregionalentitywillplayan1importantroleintheimplementationofthepoliciesresultingfromtheseinitiatives.of need,the app {of the costs to be r d from and overall!siting authority? Fuel Contracts Will the RCA have the authority to review and approve the fuel supply contracts that are entered into by the regional entity? Cost/Benefit Allocation Will the RCA have the authority to review and approve the methodology used Methodology by the regional entity to allocate the costs and benefits of regionalization to each of the six existing utilities? Transmission Tariff Will the new regional entity develop a transmission tariff to define the terms, conditions,and rates for transmission service and will the RCA have the authority to review and approve this tariff? Annual Reporting What annual reporting requi should be established to enable the RCA Requirements and other parties to monitor the performance of the regional entity? Organizational issues (continued) Market Structure "issue.Description 2 'Required Changes ta Should any changes to the existing Railbelt market structure be implemented to Organizational Issues (continued Tariff/Contractual Requirements Assure' Open Access Tr ission Tariff DescriptionAnOATTwillneedtobedevelopedbytheregional entity to define the terms,and rates for transmission service,and the requirements andMarketStructureenableIPPstoparticipateinthemarket?dards for thei ion of non-utility r Adoption of a Should the regional entity be required to develop andi a Postage Stamp or A decision will need to be made as to whether the rates for transmission service Competitive Power power p process whereby utility-and IPP-iis projects are Mileage-Based Rates will be postage stamp rates (i.e.,everyone pays the same rates regardless of Procure ment Process evaluated on a consistent basis?location)or will be mil -b; gecsmpenenSe d (i.e.,rates vary by location).In addition,it will be necessary to address the determination of rates for power supply and ancillary services including line losses. Contracts Between Individual Parties A decision will need to be made as to whether the six existing utilities will beallowedtocontinuetoenterintobL 2 related to power supply among themselves,outside of the regional entity,or whether all such power supply agreements must be with the regional entity. Organizational Issues (continue) Governance Organizational Issues (continuea) Governance (continued) Issue Description Issue Description Non-Profit Operation Provisions for ensuring that the new entity is operated on a non-profit basis. Requirements for Membership Specified requirements for membership,both at the time of formation as well as in the future. Board Representation Specifying the number of Board members for each utility and whether the Purchase of Power, Adherence to Results of Economic Dispatch, Regional Planning Process and Joint Project Development of the ibilities of the utilities with regard to purchasing power from the regional entity,and abiding by the decisions of the regional entity with regard to economic dispatch,regional resource planning and joint project development. by Po "s Board bers will be personnel or Board representatives of Termination of Specifying the conditions under which a utility can terminate their participation each utility.Also,specifying pr related to rep:ion of the State Membership in the regional entity. of Alaska and/or outside parties on the Board.Merger,Consolidation |Specifying the conditions under which the regional entity can be merged, 7 Tae 7 7 or Dissolution of lidated or dissolved including any icti garding the periodofFormationof"of any that will be formed to support Regional Entity time before such action can be taken.Management the operations of the Board.----- Committees Indemnification of Providing,under certain for of present and Directors,Management [former Directors,pioyees and agents for their acts Meetings Provisions for annual,monthly and special Board meetings,as well as E or omissions during the course of their official responsibilities. committee meetings.and Agents Decision-Ma}and ldentifi of the types of decisions that require Board and/or management Contracting Provisions under which the regional entity can enter into contractual Approval Process committee approval arrangements and the required approval process for such contracts. PP -.7 -Rules,ions and =|Provisions for the of mules,and rate sched relatedIssuanceofDebtProvisionsthatrequireBoardapprovaltoenabletheregionalentitytoissueRateSchedulestotheiionandofthebusinessandaffairsof debt or assume any other financial obligations.the regional entity. 'Serer se etrssores So dune 23,2008 Working Draft"page to co ®Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options e Organizational Issues e Assumptions e Results e Recommendations e Next Steps Hea POE ss cone cage,Sune23,2008 Working Draft "PS Assumptions Power Cost Modeling -Summary of Scenarios $cenario D Mixed Resource Portfolio Scenario "Sune 23,2008 Working Draft no Sune 23,2008 Working Draft ee| weeny Assumptions (continued)Conventional and Emerging Technology Unit CharacteristicseCostofDebt .9«MEA-6.75%(All Costs in 2008Dollars) °te)°HEA 6.75 %Net Full Load Annual co2 Output Forced NPHR Scheduled EmissionatisoTotalCost|Pri Outage Rate Btu/kWh}Maint.Rate«CEA -6.75%Name ww)(Smittions)Fuel”(percent)'HHV )(Daysivr}(IbvMbtu) °GE6B Simple Cycle |42.1 528 |Gas |200%12,268 10 14.8 e SES -6.75%GE LMS100 SimpleCycle 938 |1234 |Gas |2.00%8.262 10 114.8 _9,GE LM6000 Simple«GVEA -5.00%Cycle 43 74 Gas |200%9.023 10 114.8 4x1 GE 6FAeML&P =5.00%Combined Cycle 116 253.8 |Gas 3.00%7,298 14 114.8 2x1 GE 6FA e Joint _Tax-Exempt 5.00%Combined Cycle 235 402.5 Gas 4.00%7,160 17 114.8 Sub-criticat Pulverized Coat 100 |4624 |Coal |5.00%10,138 21 211 sav,U8.23,2008 Working Dra OT emtassSSE vac 0N0 23,2008 Working Draft Mh @cunping Awont OF DIFFEREN Wind Alternatives ,Hydro Alternatives ©50 MW-2012 e 300 MW-2020 e 50 MW-2018 e 300 MW-2025 ®$2,500/KW in 2008 Dollars e $5,600/KW in 2008 Dollars e 35 Percent Annual Capacity Factor e proportioned to Railbelt Utilities by Ratio of 2007 Peakoads e Proportioned to Railbelt Utilities by Ratio of 2007 Peak Loads e Transmission to Northern Intertie -2020 and 2025 ®Transmission From Fire Island to Anchorage -2012 zncolune 23,2008 Working Dra7FiaeRaNsLhe:a RP a ayy Fo aa fe NS Oe@SSeSJune23,2008 Working Draft bo Pee SosiBaSraSadi:Main aianadi AR ee Coal Unit Alternatives Demand-Side Management @ 100 MW Unit 1 -2015 ®$120/MWh @ 100 MW Unit 2 -2020 e 0.5 Percent of Net Electric Load (NEL)per Year Starting in @ 100 MW Unit 3 -2025 2015 *Proportioned to Railbelt Utilities by Ratio of.2007 Peak *Maximum -5 Percent of NEL Loads Transmission to GVEA -2015 Transmission System Upgrades Assumptions (continued) e Northern Intertie/Alaska Intertie «Upgrade Alaska Intertie to 230 kV in 2020 #$120 Million -in 2008 Dollars e Construct Additional 230 KV Transmission Line in 2020 #$250 Million -in 2008 Dollars «Transfer Capability Increased to 250 MW from 75 MW «Losses Reduced From 8.5%to 4% e Southern Intertie «New 230 kV,135-mile Transmission Line in 2020 «$135 Million -in 2008 Dollars e Transfer Capability increased to 200 MW from 75 MW «Losses Reduced From 10%to 5% Organizational -Summary of Organizational Paths 'Status Que! Forman EntityThat Wout be Response fot IndependentOperationoftheGre| Form an Entity That Would be Responsible for Independent Operation of the Grd and Regional Economic Dispatch Form an-Entity-That Would be.Responsible for independent. 4 |Operation of the Grid,Regional Economic Dispatch,Recionaly|Resource Planning and Joint Project Development:eo Form a Power Pool Assumptions (continued)Assumptions (continued) Organizational -Categories of Implementation Steps Organizational -Start-Up Labor Costs e@ Program Management/Governance For Each Organizational Path: e Business Structure e@ Developed a Detailed List of Tasks That Need to be Completed Before "Day 1” @ New Facility for Each Category Shown on the Previous Slide e Transition Planning @ For Each Task: e Business Policies,Processes,and Procedures «Estimated the Number of Days Required to Complete ¢HR and Recruiting *Estimated the Breakdown of Effort Between Utility Personnel (Management @ Operations and Economic Dispatch Transition and Staff)and Outside Contractors (Including Consulting and Legal e Generation and Transmission Planning Transition Assistance) e IT Infrastructure e@ Developed an Estimate of the Total Level of Effort for Each Category of Utility e Business Systems Personnel and Contractors e Training e Applied a Daily Cost for Each Category of Utility Personne!and Outside e Transition and Cutover Contractors @ Other @ Developed an Estimate of the Total Start-up Labor Cost (cae ae Ae aoe erg Drak at :sine 23,2008 Working Brat? 1D Assumptions (continued)Assumptions (continued) Organizational -Start-Up Labor Costs (continued)Organizational -Start-Up Labor Costs (continueg) .Estimated Start-Up Level of Effort (Days}Category 'Path 1 Path 2 Path 3 Path 4 Estimated Start-Up Level of Effort (Days) Provide Overall Program Management 67 147 257 160 Category.Path ¥Path 2 Path 3 Path 4 Finalize Business Structure 62 126 232 158 Allocation of Effort Secure New Facility 56 84 116 92 Cc M.17%17%16%18% Develop Business Policies,Processes and 57 82 151 16 Contractor Staff 39%38%35%37% Procedures :_-Subtotals 56%55%51%55% Complete Operations Transition Planning 10 12 19 15 Utility Senior M:18%15%17%15% HR and oF 135 442 176 - Complete Operations and Economic 16 314 3S 313 Utility Staff 26%30%32%30% Dispatch Transition Subtotals 44%B%49%45% Complete Generation and Transmission 0 0 86 86 Totals 100%100%100%100% Planning Transition Develop IT Infrastructure 125 131 276 139 Develop Business Systems 106 328 418 328 Provide Training 55 73 144 87 Transition and Cutover Execution 50 54 72 54 Other 0 0 196 196 Totals 695 1,486 2,724 1,920 Note:level of effort over 12-month start-up period. seetna ce RANIONee ios eS RD TREE Phe na esa wuss er MASCOT Fe too pa empJute23,2008 Working Draft Pee a Go ueuses penn lune23,2008 Working Oratt Assumptions (continued) Start-Up Labor Costs (continued)Organizational - Estinuied Stact-Up Latour Cost (060)Category Path i Path?Path 3 Path 4 Provide Overall Program $68 $168 $294 $199 Finalize Business Structure %6 193 353 243 Seeure New Facility 80 121 167 133 Develop Business Policies,Processes and B n3 207 159 Procedures 'Complete Operations Transition Planning 13 15 23 18 HR and Recruiting $7 82 252 104 Complete Operations and Economic 12 310 310 310 Dispatch Transition Complete Generation and Transmission @ 0 96 96 Planning Transition Develop IT Infrastructure 199 199 405 2 Develop Business Systems 166 su 652 su Provide Training 87 88 176 105 Transition and Cutover Execution 76 82 110 82 Other 0 0 285 285 Subtotals $902 $1,882 $3,331 $2,457 Out-of-Pocket Expenses (15%)135 282 $00 369 Contingency (25%)259 S41 958 706 $4,788 $3,532 coneRoyEGE.oie __2 June23,2008 Working Draft”es Assumptions (continued) Organizational -Start-Up Non-Labor Costs Developed Cost Estimates for Each Organizational Path Related to the Following: e Control Center System Enhancements e Economic Dispatch and Resource Planning Software ¢Transmission Planning Software e Enterprise Back-Office Systems e Office Equipment (e.g.,Furniture and Printers) e Servers and Network Infrastructure ©Telecommunications e Desktop Hardware and Software _dune23,2008 Working Dra Ass um otiorNS (continued) Organizational -Start-Up Non-Labor Costs (continued) Estimated Start-Up Non-Labor Cost (5'000)Category.Path 1 Path 2 Path 3 Path 4 Software Capital I Control Center $0 $500 $500 $500 Eeonome Dispatch/Resource Planning it)34 34 34 i Planning Lt)0 154 99EnnisBack-Office 100 200 200 200 Subtotals $100 $734 $888 $832 Other Office Equip 127 183 591 246 Servers 72 88 92 89 Network Infrastructure 27 35 62 4l Tel ications 54 54 54 54 Desktop PCs 43 65 211 86 Subtotals $324 $425 $1,010 $515 Totals $424 $1,159 $1,898 $1,348 eepase eesAGRCNU ERENT oe June 23,2008 Working DraftrrCUCU Assum ptions (continued) Organizational!Positions and Salaries e Developed Estimate of the Required Number of Positions in Each of the Following Areas for Each Organizational Path: e General Manager's Office «Finance and Administration Legal and Corporate Affairs Information Technology «Power Supply «Power Delivery e Estimated Salary Levels for Each Position @ Developed Estimate of the Number of Transferred Employees for Each Organizational Path Assumptions (continued) Organizational -Organizational Chart Assum ptions (continued) Organizational -Organizational Chart (continued) Corea --ia- a [BoardofDirectors]a f I snerst Manager J 10 #01000 c--_]Cc |i ]heurapeee [](reeset aa i](pier reas ira)(pension ssosen CG Pownr Suppy 1 C Powe Oainery](eer _]Pa Pet a oarecet oa rewmes |ay ]Cc ---a |[][1 3036)«(OAS TO 25.oO 26 1S 36 136 38 00 00 5 35 WS a 270 wo C 3 1 a |a --1 -_me 1 ee(racemes ieee)Pans OoPanda0-ep Ee)Pam us vm 3288eset-r) Assumptions (continued) Organizational -30-Year A&G Costs Developed Annual Estimates for Each Organizational Path Related to the Following: e Five-Year Amortization of Start-up Labor and Non-Labor Costs Total Salaries and Benefits Software Licensing and Maintenance Costs Hardware Maintenance and Replacement Other Non-Labor Costs (e.g.,Rent,Office Supplies, Insurance and Outside Services) EE LR IE NIP EL HE ERE ia ha ap seemsaane28,2008 Working Dra TooN ® Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Organizational Issues Assumptions Results Recommendations Next Steps |dune 23,2008 Working Drak *rae pene cetaceanscaSAREERESER Results Results (continued) Scenario A Scenario B 30-Yeas Average Annual Present Worth Value (000)30-Year Average Annual Present Worth Value ($000) Paths Path?Path 3 Path 4 Paths Tax-Exempt Financing Path t Path?Path 3 Path &Path &Power Cont aun weaa soenrzs)-Senyze|gsrazsl assez)gra]TREN cone szoecod]2000 zens]aarroo]zr:,PowerCostSavings RelativetoPath1 so|$0 $0,287 $18,185 $18,185 ARG Costs bes sam 82.435)sesis $9.107]AGG Costs $0)$4.272)$2,435)$6513}$3,107]Net Savings (Costs)Relative to Path 1 =Bi27y 7567 $38,500 $az,308 |Net Savings {Costa}Relative to Path 4 _aa}-TEs a oe oot $368,125}seas.ery ss ert Taxable sean $296,004]Not Evaluated]Not Evaluated $279,806 $270,806]Sevinge Relative io Path 1 w]Not Evamated)Not Evatinted $32.254 $32254 Power Cost Savings Relative to Path 1 "={NotEvahated|Not Evalusted|$16,108 $16,108 ARG Costs $0}$6513)$3,107 ARG Costs $0]Not Evaluated]Not Evaluated $6513)$9,107] Net Savings (Costs)Relative to Path t 7 7 7 325,741 328.147]Net Savings (Coste)Relative to Path 4 Z =7 35595 $73,007 ic acencas sca uh®29,2008 Working DratMORGUE:nS Results (continued)Results (continued) Scenario C Scenario D 30-Year Average Annual Present Worth Value ($000) 30-Year Average Annual Present Worth Value ($000) Path t Path 2 Paths Path 4 Path 6 Path 1 Path 2 Path 3 Path &Path §Ti xempt FinancingTax-Exempt Financing Bower Costs $344,961 $344,961 $334,155]$307,054 $307,054 Power Coste $325,702 $325,702 $213,261 $286,209 $205,209)Power Cost Savings Relative to Path 9 $0}cd $10,806 $37,907 $37,907PowerCostSavingsRelativetoPath1$f Ey)$52,441 $40,493 $40,493 A&G Conte sof $1272 $2,435}$6513]$3,107] ABG Costs 30 $1,272]$2,435]$6513)$3,107]Net Savings (Costs)Relative to Path 1 =$51,354 $34,800 Net Savings (Costs)Relative to Path 1 =|($1272)]$10,006 $33,080 37,386 Taxable Financing Taxable Financing Power Costs $344,961]Not Evaluated!Not Evahiated|$315,900 $315,900} Power Costs $325,702]NotEvalueted|Not Evakiated|$290,934)$200,934]Power Cost Savings Relative to Path 1 |Not Evaksated|Not Evaluated $29,061 $29,081 Power Cost Savings Relative to Path 1 |NotEvausted|Not Evahisted $34,768 $34,768 ASG Costs $0 $6513 $3,107] ABG Costs $0 $6,513)$3,107] Net Sevings (Costs)Relative to Path 4 ==|=$22,548 25,954NetSavings(Costs)Relative to Path 1 =]a |928255 $31,667 2 dine 29,2008 Working Bratt Cd Taam _HuRe 28,2008 Workingfiat:=Fen cs Results (continued) Implementation Schedule -Path 4 Task Oescription PROVIDE OVERALL PROGRAM MANAGEMENT/GOVERNANCE, FINALZE BUSINESS STRUCTURE SECURE NEW FACILITY OEVELOP OLICIES,AND COMPLETE OPERATIONS TRANSITION PLANNING HR AND RECRUITING COMPLETE OF COMPLETE GENERATION ANO TRANSMISSION PLANNING TRANSITION DEVELOP IT INFRASTRUCTURE QEVELOP BUSINESS SYSTEMS TRAINING TRANSITION ANO CUTOVER EXECUTION Agenda ©Introductory Comments e Project Overview e Situational Assessment @ Organizational Paths and Evaluation Scenarios e Existing System Descriptions and Future Resource Options e Organizational Issues @ Assumptions ®Results e Recommendations | Recommendations Overview A State Power Authority With Responsibility for Generation and Transmission Should be Formed «Recommendations are Broken Down Into the Following Categories: e Organizational Structure e Organizational Issues ¢Issues {dentified in RFP pn eee 8S OER RS NS -cremiumamiactns_Sune 28,2008 WorkingOral)Peet ued «Next Steps ooSune 23,2008 Working Brat Recommendations (continued) Organizational Structure Recommendations (continued)Recommendations (continued) Recommended Organizational Structure Recommended Organizational Structure (continued) ®This entity should be formed as a State Power Authority for the following reasons: «Itis projected that the region will need to raise between $2.5-8.0 billion over the next 30 years to build new generation and transmission facilities to reliably serve the electric needs of citizens and businesses in the region. This level of investment,which is dependent upon the future generation resource options and transmission expansion projects chosen in a regional planning process,represents a significant challenge for the region given its small size. »State financial assistance,whether in the form of a grant(s)or low interest loan(s),would provide a significant benefit to the region.This potential assistance represents the single most significant way to reduce the burden on Railbelt citizens and businesses associated with the financing of required generation and transmission investments. Pe gsee ee eee dune 23,2008 Working Dratt 0")page._<Sune 23,2008 Working Drat 9 EESI ING A WORLD OF DIFFEREN! Recommendations (continuea) Recommended Organizational Structure (continued)Recommended Organizational Structure (continued) e It is reasonable to conclude that the Governor and State Legislature «Generally speaking,a G&T Cooperative is unable to issue tax-exempt debt would be more willing to provide some level of financial assistance to the due to IRS restrictions.A G&T Cooperative could obtain taxable debt region if the new regional entity was formed as a State Power Authority,through the Rural Utilities Service (RUS)/Federal Financing Bank (FFB)at as opposed to a private business such as a G&T Cooperative.favorable interest rates relative to the rates that are available in the taxable municipal bond market.However,RUS/FFB funding is subject to Congressional appropriations (approximately $3.2 billion in FY2008 for generation and transmission facilities)and the region would need to compete against other requests from cooperatives throughout the country. As a result,it is unlikely that the region could rely upon the RUS/FFB to meet all of its financing requirements,Furthermore,obtaining financing through the RUS/FFB can take up to two years with no assurance of success,and the resulting covenants are typically more restrictive than what can be negotiated in the municipal bond market.As a result,obtaining RUS/FFB financing is more risky than the municipal bond market. e In addition to potential State financial assistance,forming the new regional entity in a manner that would allow it to issue tax-exempt debt would provide a significant economic benefit to the region.A State Power Authority is in a better position to be able to issue tax-exempt municipal debt,although significant restrictions exist that make this a challenge. eee ence cen H8N®28,2008 Working Draft aos ELeam ee jo duRG 23,2008 Working Draftsiasata' Recommendations (continued)Recommendations (continued) Recommended Organizational Structure (continueg)©Additional Discussion Points e Potential Savings Associated With Tax-Exempt Financing ,A iated With Tax-E ti :e Issues Associate I ax-Exem Inancin »Savings Depend Upon the Region's "Fuels Future”P g *The Greater the Up-Front Capital Costs (e.g.,Development of a Large e Potential Strategies Hydroelectric or Coal Plant),the Greater the Savings «Benefits of a Regional Entity That go Beyond thePotentialAnnual. Savings Associated Economics That Were Modeled With Tax-Exempt Required Capital Financing (Assuming e Ways to Improve the Economics of Path 4 Investment Over Next 175 Basis Point :30 Years Path 4 DifferentialScenario{8°000,000)($°000,000)«Path 4 Versus Path 5 A -Hydro/Renewables/DSM $8,070 $141 B -Natural Gas $2,475 $43 C-Coal $3,769 $66 D -Mixed $5,533 $97 i ee re sissauos, 4uN@ 23,2008 Working Draft Pm oa une 23,2008 Working Draft”Td ©SuiLDINGAWORLDOFDIFFEREN Recommendations (continue) Issues Associated With Tax-Exempt Financing «Government Obligations Recommendations (continueg) Issues Associated With Tax-Exempt Financing (continueg) e Generally,Must be Issued by Either a State or Municipal Government e Private Activity Bonds a ..z Taxable Unless There is a Specific Internal Revenue Code Provision That«The Ability of a Regional Public Entity to Issue Tax-Exempt Debt and Sell ° "ee i F on Power to Electric Cooperatives or Other Private Entities,or Purchase Their Permits it to be Tax-Exempt;in the Case of an Electric Output Facility: Assets is Generally Limited by tax law;Electric Cooperatives Generally or .as Don't Have a way of Directly "Participating”in the Benefits of a Regional °Facility can be Used to Provide Electricity to no More Than Two Public Entity's Tax-Exemption Contiguous Counties overnment Obligations Becomes a Private Activity Bond if:«The User of the Facility Must Have Provided Electric Service in the Area*Gov gan y That the Facility Will Serve Since at Least January 1,1997 or be a »More Than 5%of the Proceeds of the Bonds are Used to Provide a Successor to Such an EntityFacilityThatisUsedintheTradeorBusinessofaPersonThatis not a Governmental Entity,and e Alternative Minimum Tax Would Also Apply Which Would Make the Tax- e More Than 5%of the Money That Will be Used to pay the Bonds is Exemption Less Valuable Derived From a Private Business Source «Subject to Each State's Annual Private Activity Bond Cap (for Alaska, »Management Contracts can Also Cause a Government Obligation to Approximately $235 Million) Become a Private Activity Bond BE Rage a a Mine 28,2008 Warking ra Ba Pa ie Fieseoiseca in in cg SURG 23,2008 Working Draft OTT J Recommendations (continued) Issues Associated With Tax-Exempt Financing (continued) e Provisions Applicable to Ail Tax-Exempt Bonds »May Not be Federally Guaranteed «Can be Used to Reimburse Expenditures That Were Incurred Before the Issuance of the Bonds Only if the Expenditures to be Reimbursed Occurred not More Than 60 Days Before the Issues Adopts an "Official Intent” Subject to Arbitrage and Arbitrage Rebate Provisions LOSERSE RE EINUOSS june 23,2008 Working DraNOSSSeSnananmeen Recommendations (continued) Retail Requirements Approach e Being Considered as Part of Chugach/ML&P Merger Discussions e Public Entity Would be Formed to: e Determine Which Generation and Transmission Assets to add in the Future,and e Oversee the Development,and Fully or Partially Finance These Asset Additions sane 23,2009 working Oran Dm ILDING &WORLD OF DIFFEREN Recommendations (continueg) Issues Associated With Tax-Exempt Financing (continued) e Potential Solutions ¢Retail Requirements Approach e 63-20 Corporation «Alaska Railroad Corporation *Tax Exemption Through Act of Congress (e.g.,Bradley Lake) lune 28,2008 Working Draft: Recommendations (continued) Retail Requirements Approach (continuea) @ The Regional Public Entity Would Finance a Sole or Undivided Ownership Interest in Future Generation Facilities Using Tax- Exempt Debt,and: e Supply its Governmental Customers on a Wholesale Basis, and «Sell Directly to the Retail Customers of Electric Cooperatives @ The Question of How it Would be Determined That the Regional Public Entity Would Sell to Retail Customers in an Electric Cooperative's Service Territory Raises a Number of Policy and Practical Questions (for Example,the Cooperatives are Regulated by the RCA and Would Probably Require CPCN Amendments to Permit Such a Sale) slime25,2008 WorkingDeafoS7) Recommendations (continue) Retail Requirements Approach (continued) e@ The Power Generated by the Regional Public Entity Would be Dispatched and Distributed Throughout the Region Using the Distribution Lines of the Existing Utilities: «The Regional Public Entity Would be in Direct Privity With Each Retail Customer by individual Contract,Tariff or Statutory Provision »The Existing Utilities Would not Take "Ownership”of Power Generated by the Regional Entity e Each Retail Customer Would be Required to Take Power Only to the Extent That it has Requirements and Would Only be Obligated to Pay for the Power it Takes «Each Retail Customer Would Have a Separate Line Item on their Bills to Pay for the Power From the Regional Entity «Each Retail Customer Would Receive a Ratable Amount of Power From the Regional Entity With the Remainder of Their Power Coming From Their Existing Utility slune 23,2008 WorkingBrak Recommendations (continued) Retail Requirements Approach (continued) e Existing Utilities Would act in the Capacity as Limited Agent of the Regional Entity in Billing and Collecting Monies From Retail Customers and Hold Such Monies in Trust for the Benefit of the Regional Entity e Existing Utilities Would Also Distribute the Power Over Their Distribution Lines and Charge a Separate Charge for Such Service «A Monthly Settlements Process Would be Established e Variation «The Existing Utilities Would Enter Into Power Sales Contracts With the Regional Public Entity,Under Which all of the Generation From Their Existing Generation Assets Would be Sold to the Regional Entity,Pooled Together With Other Power Supplies,and Then Resold (at Cost)to Retail Customers Using the Existing Utilities' Distribution Lines and Services spsproetsaten sear Sear erpPee dune 28,2008 Working Bratt” Recommendations (continueg) 63-20 Corporation e The corporation must be formed under the general non-profit corporation law of a state for the purpose of stimulating industrial development within a political subdivision of the state e The corporation must engage in activities which are essentially public in nature ®The corporation must be one which is not organized for profit @ The corporate income must not inure to any private person «The state or political subdivision thereof must have a beneficial interest in the corporation while the indebtedness remains outstanding and it must obtain full legal title to the property of the corporation with respect to which the indebtedness was incurred upon retirement of such indebtedness ¢The corporation must have been approved by the state or a political subdivision thereof,either of which must also have approved the specific obligations issued by the corporation cory serenee ste SeIIeGReaeGee 6 ¥IERCe,,=S-sTr-=jung 23,2008 rkifig Dratee=3 OS Recommendations (continued) Alaska Railroad Corporation e Existing Federal Exemption -all Debt They Issue is Tax- Exempt e Requires Alaska Legislature Action to Issue Bonds e Railroad Board Would Need to Agree With Concept e This Power has Never Been Tested Might Require IRS Private Ruling ok bs Portage Recommendations (continued) Recommended Organizational Structure Criteria itate Power Author Core Function Ability to issue Tax-Exempt Debt Risks Associated With Ability to Issue Tax- Exempt Debt 'State Oversight Related to State Financial Assistance Overall Strength of Organizational Structure,Board and ManagementTeam Depends Upon Lever of Corent Energy Expervae Lacks Energy Expertise 'Potential Impact of Changing State Political Environment Pekentrally Signiteart,Potentially Significant,Cepending Upon Level |Depending Upon LevetaofBoard Flexibility Potential Lintabone Potental Linvtabons "Ability to Spread Risks Greatest Givin Direct Customer-Owned Control Tented "Ability to Fund Large Project Creston Greatest Page 104 Recommendations (continueg) Benefits of a Regional Entity That go Beyond the Economics That Were Modeled (continued) e Ability to Conduct More Sophisticated and Integrated Planning on a Regional Basis e Ability to Better Manage Regional Risks on a Regional Basis «Better Able to Monitor Developments Regarding Project Development and Make Mid-Course Corrections More Efficiently and Effectively in a Timely Manner e Puts the State in a Better Position to Evaluate,Award and Monitor Funding Recommendations (continued) Benefits of a Regional Entity That go Beyond the Economics That Were Modeled e Economies of Scale and Coordination -Staffing e Better Coordination «"Depth of Bench”and Ability to Specialize «increased Ability to Develop and Deliver Renewables Projects and DSM/Energy Efficiency Programs ae Recommendations (continued) Benefits of a Regional Entity That go Beyond the Economics That Were Modeled (continuea) e®Other Potential Cost Savings «Developing One Regional Integrated Resource Plan Versus Multiple Plans «Legal and Consulting Fees e Reduced Staffing in Certain Areas «Coordinated Maintenance «Better Access to Lower Cost Financing due to Overall Financial Strength ®Increases the Flexibility of the Region to Respond to Major Events (e.g., a Large Load Increase,Major Fuel Price increases,etc.) _dune25,2008 WorkingBrat© Recommendations (continued) Ways to Improve the Economics of Path 4 Based Upon the Conservative Assumptions Used e We did not Assume any Savings at the Existing Utilities Resulting from Greater Coordination e We did not Assume That the new Entity Would Staff up Rapidly Which Could Have Reduced the Total Start-up Labor Costs e We did not Assume That any of the Existing Utilities'Business Systems, Policies,and Procedures Would be Transferred to the new Regional Entity @ We did not Assume any Savings From the Consolidation of the Three Existing Control Centers ScuuaneaoennetiinM . Recommendations (continued) Path 4 (G&T Cooperative)Versus Path 5 (Power Pool) e Path 4 is Most Consistent With the Unified Power Provider (UPP)That has Been Proposed by the Utilities e Path 5 Would Generate the Same Annual Power Cost Savings as Long as the Existing Utilities Make Investment Decisions That are Aligned With the Regional Resource Pianning Decisions That are Made by the Regional Entity e Path 5 Would Require Fewer Staff and,Therefore,the Incremental Costs Would be Less Recommendations (continueg) Path 4 (G&T Cooperative)Versus Path 5 (Power Pool) (continued) e A Key Driver is the Small Overall Size of the Region Which Favors a "Incremental”Type of Entity Versus Establishing a Fully Functioning Regional G&T Entity e This is Further Supported by the Limited Number of Players in the Railbelt (i.e.,There is not an Active Competitive Market) e However,the Size of Future Resource Additions and Expected Reliance on Newer Technologies Favor a Fully Functioning Regional G&T Entity eSSNNINNDNFS Recommendations (continued) Organizational Issues RR:nescenceIRERASNSBR Makati sonarus 2HN8 8,2008 Working Bratt 02)SEU a ore Recommendations (continued Organizational Issues -Scope of Responsibilities Functional Responsibility Path 2 Path 3 Path 4 Path 5 Coordinated Operation of the Grid a ®fs]a Regional Economic Dispatch a a B® Regional Resource Planni &Hi Joint Project Development a ne 5,208 Weg Dat NITEiraeSS Page Recommendations (continued) Organizational Issues -Formation Issue Recommendations Legal Structure Form as a public entity Location Anchorage area ©Centralized location *Concentration of skilled workforce *Location of majority of total regional load Transfer of Existing Assets and Fuel Supply Contracts Ownership of existing assets -no Dispatch control of existing assets -yes Whether to Adopt a Hold Harmless Requirement Yes;this is a matter of faimess and equity wee sata OE Recommendations (continued) Organizational Issues -Formation (continued) Tasue :Recommendations Transition Period To move to average regional rates over time,consistent with hold harmless philosophy 'With regard to regional transmission facilities,there is a need to develop a cost/benefit allocation methodology as part of the OATT Existing generation facilities -fully regionalized rates by end of 10 years Future generation facilities -costs regionalized immediately LES Dune 38,2008 WolkingDrak=Erma Recommendations (continueg) Organizational Issues -Operational Essie Recommendations O&M Responsibility and ---- «Initially,retain O&M responsibility with existing utilities©Utilities to develop a plan to transition O&M responsibilitiestonewregionalentityassoonaspractical Future generation and transmission facilities -regional entity Consolidation of Control Centers |Consolidate three existing control centers (GVEA,ML&P and CEA)into two control centers,one primary (either ML&P or CEA)and one back-up (GVEA) Required SCADA/Telecommunications Investments Limited expansion of existing systems that are in place san dite 28,2008 Working BratSue Recommendations (continued) Organizational!!ssues -Regional Planning Issue Recommendations Development of New A new regional jon and i lanning process needs to be Planning Process developed,based on best practi to provide a i proach to planning . Requi to Follow gional entity would take the lead in the develop of future ion and Results transmission facilities elube 28,2008 Working Recommendations (continued) Organizational Issues -Staffing Issne Recommendations Total Staffing Levels Black &Veatch's estimate of the required staffing levels was previously provided Organizational Structure Black &Veatch's proposed organizational structure was previously provided Strategy for Transfer of Existing Employees Utilities,collectively and individually,need to develop a strategy related to the transfer of existing employees to the new regional entity;this strategy should 1)identify the total number of employees to be transferred,2)identify specific employees to be transferred,3)develop an overall compensation structure andbenefitspackage,4)retain each transferred employee's tenure relative to the benefits package,and 5)specify the relocation package to be offered to each 4 empl ploy It would be a mistake to form a new regional entity without transferring a substantive number of employees,consistent with: ©The transfer of functional responsibilities to the new regional entity @ Theneedtotransfer regional,institutional k ledge to the new entity Recommendations (continued) Organizational Issues -Joint Project Development Issue Recommendations All-In or Opt-Out 'New entity will make regional resource planning decisions and take the lead inOptionthedevelopmentoffuturegenerationandtransmissionfacilitieswithallexisting utilities sharing in the related costs Responsibility for Regional entity would take the lead in the develop of future ion and Project Construction transmission facilities Recommendations (continued) Organizational Issues -Staffing (continueg) issue Recommendations Recruiting and Relocation Strategy The utilities will need to develop a strategy to make accepting a transfer attractive to existing employees and to recruit other employees to the new entity Compensation Program It is common practice,in similar cases,to develop compensation programs for a new regional entity that is equal to or greater than existing compensation programs to provide existing employees with an incentive to transfer to the new entity Union issues will need to be addressed in the formation ofthe new regionalentity corer pioneers oreemenargg casosoacmeoeutNUNS.28,2008 Working Draft Pov:319,june 23,2608 Working Drait"abe Recommendations (continued) Organizational Issues -Tax and Legal Issue Recommendations Ability to Issue Tax- Exempt Debt The ability of the new regional entity to issue tax-exempt debt would provide a significant economic benefit to the region;achieving this is a challenging issueandtheutilitiesandtheStateofAlaskawillneedtofurtherinvestigatethisissueasthenewregionalentityisformed Transfer of Ownership |Ownership ofexisting assets with remain with the existing utilities torofExistingAssets« =Protect ML&P against thep ial loss oft pt fi status ¢Eliminate need to refinance existing debt of existing utilities Transfer of the City of |Under IRS regulations,ML&P's existing gas reserves,which were financedAnchorage's Ownership |using tax-exempt debt,must be used within ML&P's generation facilities; of Gas Reserves in the Cook Inlet therefore,ownership of existing assets should remain with the existing utilities Governance As a public entity,the majority of the Board of Directors would need to beindependentoftheexistingutilities Recommendations (continued) Organizational Issues -Regulatory and Legislative Issue Recommendations Regional Integrated RCA ight limited to i igation offiled complai Resource Plans Joint Project RCA ight limitedtoi ion offiled complai Development Fuel Contracts RCA should retain responsibility for reviewing and approving fuel contracts related to existing generation facilities For new generation facilities -RCA oversight limited to investigation of filed complaints "Te 25,2008 Weird vat Recommendations (continued) Organizational Issues -Regulatory and Legislative (cont, Issue Recommendations Cost/Benefit Allocation |With regard to regional transmission facilities,there is a need to develop aMethodologycost/benefit allocation methodology as part of the OATT Existing generation facilities -fully regionalized rates by end of 10 years Future generation facilities -costs regionalized immediately Transmission Tariff An OATT should be developed,modeled after the FERC pro formatariff withappropriatemodificationstoreflectRailbeltcircumstances Annual revenue requirement calculations should be based upon a formulaic rate structure that would be included in the OATT Annual Reporting Requirements Additional annual reporting requirements should not be established seedersta UE . Recommendations (continueg) Organizational Issues -Other State Actions Issue:Reconmmendations State Energy Plan and =|The regional resource pian and 1 ion plandi d by theRelatedPoliciesTegionalentityshouldbedevelopedconsistentwiththeStateEenPian,whichis under development,and related policies Recommendations (continued) Organizational Issues -Market Structure Issue R dati Required Changes to The Railbelt utilities are currently in the process of developing regional Market Structure i i dards,these dards should be finalized and implemented 'The OATT to be developed by the new regional entity should apply also to projects developed by IPPs Adoption of a A petitive power pr process should be developed by the regional Competitive Power Procurement Process entity that will establish a "level playing field”for 1PP-proposed projects Recommendations (continuea) ENCE Organizational Issues -Governance Tssue Recommendations Non-Profit Operation Yes Recommendations (continueg) Organizational Issues -Tariff/Contractual Issue Recommendations Open Access Transmission Tariff An OATT should be developed,modeled after the FERC pro forma tariff with appropriate modifications to reflect Railbelt circumstances Annual qui should be based upon a formulaic rate structure that would be included in the OATT Postage Stamp or Mileage-Based Rates Generation-related costs -over time,move to postage rates Transmission-related costs -postage rates Contracts Individual Parties -retain as is,unless they can be transferred to the new regional entity and there is a benefit New contracts -not allowed _dune 23,2008 Working Draft = Recommendations {continued Organizational Issues -Governance (continued) issuc Recommendations Issuance of Debt Any issuance of debt must be approved by Board Requirements for Membership Rules for participation would need to be established Board Representation As a public entity,the majority of the Board of Directors would need to beindependentoftheexistingutilities Formation of Yes (e.g.,finance,planning,operations,and joint project development Purchase of Power, Adherence to Results of Economic Dispatch, Regional Planning Process and Joint Project Development All utilities required to adhere to the economic dispatch.regional planning,and project development decisions made by the regional entity Termination of Membership Provisions need to be repayment of debt) ified in bylaws (i length of notice and Merger,Consolidation or Dissolution of Regional Entity Provisions need to be specified in bylaws Management whenever anew project is under development) Committees Meetings Annual and monthly Board with public notificati qui Special meetings as required Making and n i develop analysis and recommendations under theDecisi Approval Process Board's and their own direction Need clear definition of which decisions need Board approval and which decisions can be made by management committees Indemnification of Directors,Management Personnel,Employees, and Agents Provisions need to be specified in bylaws Contracting Provisions need to be specified in bylaws Setune28,2008 Working Drak Rules,ions and =|Provisions need to be ified in bylaws Rate Schedules ana 3,2008WotinaDra Recommendations (continued)Recommendations (continued) RFP Issues e Tissue Recommendations Identify any State J+Formation of regional entity (including powers,legal form.governanceStatutoryandstructure,abilityto purchase proparty,and sclected bylaw requirements}Changes \.of existing whines”service territory certificates,as necessaryNecessaryforREGAJ*Establish direct privity with retail customers if retail requirements approachImplementationisadopted >Expand RGA authority Market structure changes -.le State funding of elements of regional gancration and transmissionIssuesIdentifiedinRFPSeecaine Hdentify Required New regional entity will not be under the jurisdiction ofFERC of the RCA.'Changes in theRegulatoryRegime Under Which Utilities Operate (Including Compliance with RCA Statutes,ConsiderationoftheOptionalFERCRufesUnderOrder and FERC Order 2000) and Determine Whether the Entity Should be Regulated by the RCA Determine What Role the RCA Should Play in Regional Planning and Whether the Regional Plan Should Require RCA Approval RCA oversight limited to investigation of filed complaints Workitg Orettcafj = BUILDING A WORLD OF DIEFERENCE®Soe Recommendations (continueg)Recommendations (continued) __clune 23,2008 Working Bratt” RFP Issues (continued)RFP Issues (continued) jon 'Rucommondations nae :Recommendatlons _ Deteremine the Regional entity has ion and functional ibilities and Determine Whether No,decisions would be made by the regional entity's Board of Directors A te sclis power to distribution utilitics (ar directly to their retail customers),also,Under a REGA ShouldRelationshipoftheperhaps,work with distribution utilities on matters of significant regionalREGAtoServingi(ce,of D efficiency be Subject to IndividualUtilitiesUtilityBoardof -Director's ApprovalDetermineWhether[Separate entity Economic Dispatch Should be Through «Identify any Required [Need to develop; Pooled Arrangement or Changes to Market ©Regional generator interconnection standardsThroughaSeparateStructure¢Competitive power procurement process executed by regional entity ntity e OATT Determine Whether [The regional entity would be responsible for the development of one regional Utllities Should Continue [integrated resource pian on a periodic basis (€.g.,every three years)Determine Whether the {A competitive power procurement process should be developed by the regional to de Service Areas REGA Should Consider {entity that will establish a "level playing field”for IPP-proposed projects Specific Integrated Future Sources of Resource Planning,or Generation That Could Whether There Should he Provided by IPPs and, be a Single Regional IRP if Yes,What New SystemOperatingRulesWouldDetermineWhetherall|Yes,once approved by Board of Directorsit be Necessary te AllowpeakedAccesstoThesePowerParticipateinandbeSourcesbyUtilitiesin Bound by the Regional Need of Future Integrated Resource Generation Planning Decisions TERR eee Hie SARE NRscorersSRSsisGapega |dune 23,2008 Working Draft Recommendations (continued) RFP Issues (continued) Issue Recommendations Determine Whether An OATT should be developed,modeled after the FERC pro forma tariff with Open-Access Tariffs appropriate modifications to reflect Railbelt circumstances Should be Required for All Transmission Lines in the Raitbelt to Allow IPPs to Transmit Power to Customers Annual revenue requirement calculations should be based upon a formulaic rate structure that would be included in the OATT Determine the Effect That the Availability of Generation Fuels Have on the Future Functional The scenario analysis completed during this project has lead to the id ion of the best organizational structure Determining the effect that the availability of generation fuels will have on Introductory Comments Project Overview Situational Assessment Organizational Paths and Evaluation Scenarios Existing System Descriptions and Future Resource Options Organizational Issues Assumptions Results Needs of the Railbelt future resource planning decisions will need to be made in the context of the Electrical Grid development of a regional resource pian Identify any Required |The regional entity will assume the ibility for the p of Changes in Utility additional generation resources Management Responsibilities for Procurement of Additional Generation Under REGA @ Recommendations «Next Steps coe te SOSco. BUILDING A WORLDDFDIFFEREN Next Steps REGA Project "There is a lack ofan over-riding vision and goals that aligns electrical production and energy security within @ framework that is ecologically sustainable and equitable to all futuregenerations,” Renewable Energy Advocate in WGDak” "The kev issues of concern in the Railbelt electric utilitv market are easy to define and have been recognized for many years. To date,however,attempts to resolve thase issues have been unsuccessful. Industry driven progress in addressing the issues requires a champion with a clear vision for the Suture and the skilis capable of rallving the forces of change necessary to re-shape the system.” Native Corporation Representative LE Ee Gi AU SSE aE Ua a an BN 'Su ee SER et Pipe oeSeonce.dune 23,2008 Working Bratt :iP BEEBASTBENS Next Steps (continued) REGA Project «Advisory Working Group Meeting (June 26") e Technical Conference (Week of July 7*) ®Draft Report (July 23°) ®20-Day Comment Period (July 24%-August 20°) e Advisory Working Group Meeting (Week of August 25') e Final Report (September 5*) @ Utility/State Decisions @ Implementation 'une 28,2008 working Draft Next Ste PS (continued) Implementation Steps @ Make Decision Whether to Form Regional Entity and Finalize Functional Responsibilities e Make Conclusive Determination Regarding Ability of New Regional Entity to Issue Tax-Exempt Debt and Develop Strategy e Finalize Legal Form for Regional Entity e Establish Transition Management Team to Oversee Implementation (Including State Representative) e Adopt Required Legislative/Regulatory Actions «Formation of Regional Entity (including Powers,Legal Form,Govemance Structure, Ability to Purchase Property,and Selected Bylaw Requirements) e Modification of Existing Utilities'Service Territory Certificates,as Necessary ¢Establish Direct Privity With Retail Customers if Retail Requirements Approach is Adopted Next Steps (continued) Implementation Steps (continued) e Adopt Required Legislative/Regulatory Actions (continued) e Implement Market Structure Changes (e.g.,OATT,Competitive Power Procurement Process,and Generator interconnection Standards) e Secure State Financial Assistance (e.g.,Grants or Loans)for the Development of Regional Generation and Transmission Infrastructure (Based Upon Results of Regional Integrated Resource Plan) ©Complete Formation of New Entity «Establish Utility/State Implementation Team e Determine Need for Outside Assistance «Revise Start-up Implementation Plan e Develop Initial Regional Integrated Resource Plan and Transmission Expansion PlanEneeroLEESe2000wotkngoatSnEeETBRS |dune 23,2008 Working DraftSOLSTada =r- w REGA:CONCEPTS FOR GOVERNANCE AND BEYOND SUGGESTIONS FOR ALASKA'S ENERGY FUTURE aeREGA:CONCEPTS FOR GOVERNANCE AND BEYOND EXECUTIVE SUMMARY Stimulated by the September,2008 Railbelt Energy Grid Authority (REGA)study,the following memorandum recommends that the governor,legislature and interested public commence study of four primary concepts concerning Alaska's electric utility infrastructure.The concepts address:(1)an appropriate governance structure for the new wholesale generation and transmission (G&T)organization proposed by the REGA study for the Railbelt region's electric utilities;(2)expansion of the Railbelt electric grid to substantially all of the state;(3)linkage of the expanded grid with the national grid;and (4)use of North Slope royalty gas at nominal cost to feed new generation sited at the expanded grid's north apex.This Executive Summary presents a condensed version of the recommendations and their supporting rationales. 1.Governance.Although not specifically suggested for its proposed G&T organization, the REGA study (briefly summarized at the memorandum's outset)anticipated a fairly traditional G&T governance composed of utility general managers/designees and political appointments.However,the proposed REGA organization will be the dominant force in the Railbelt's electrical energy infrastructure and consequently a critical influence on the future economic and social well-being of the Railbelt's communities and citizenry.This memorandum recommends that creation of such a profoundly important public institution obligates an effort to depart from the traditional and develop a governance structure that both reaches beyond the utilities alone to include the diverse stakeholders that will be impacted by its operations and,also,is anchored by a public interest force of unimpeachable strength,knowledge and independence. Therefore,borrowing in part from more recent governance models as then adapted for our situation,the recommended governance structure consists of nine directors,with seven drawn from the wide array of stakeholder sectors impacted by the proposed REGA organization.An additional directorship represents the significant public sector dimension,and the final director is to be the permanent chair but without voting authority except to break a tie.The memorandum discusses in detail the rationales and expectancies associated with the choices of sectors,constituent elements,representatives and voting weights,among other matters. This governance would in essence internalize and institutionalize a continuing and dynamic public process to function not only as guide and decision-maker for mandated REGA functions but also as an advisory forum on all Railbelt energy matters.The broad- based governance with its unique and meaningfully positioned public interest sector will also resolve the difficult but important problem of utility regulatory commission oversight of REGA's activities,and should further prove very adaptable for directing REGA if its mission should be expanded in accordance with other proposals in this memorandum.In sum,the REGA study's proposed G&T organization with governance as recommended here should be fully functional for its operational needs,highly credible to its stakeholders and the public at large,and wholly responsive to the imperative that a primary public institution at all times promote the public interest. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 1 2.Expansion of Alaska Grid.The memorandum next recommends that we consider complementing the existing north-south Southcentral or Railbelt transmission corridor by adding (1)two north-south transmission corridors running through the west and east parts of the state,with all three corridors connected at essentially their north (North Slope/Deadhorse)and south (just north of Anchorage)apexes,and (2)a shorter east-west corridor running mid-state generally along the Yukon River connecting the east and west corridors.Described more fully in the memorandum,this grid build-out or expansion produces essentially three looping and interconnected sub-grids that would now permit the substantial majority of rural or Bush Alaska (Southeast is not included at this time)to enjoy comparable access to the grid and associated advantages. The suggested grid expansion would entail approximately 3,000 miles of new,high capacity transmission lines at an approximate cost of $6 billion over probably a 10-15 year period if not longer.However,the projected $6 billion cost for the suggested expansion is of the same magnitude as the $2.5 -$8.1 billion ($5.8 billion for mixed resources future)projected range of required investment to secure the energy future for Southcentral alone over the next 30 years.With such relatively similar amounts being at issue,this should be the appropriate juncture in time to lay the groundwork for a full expansion of our electric infrastructure to secure its benefits for all of Alaska. The benefits that might be expected from sharing in a common electric infrastructure would include,undoubtedly among others,reduction of residential Bush energy costs to reasonably affordable houschold levels;reduction of state PCE burden and state utility costs in Bush Alaska;reduction of utility costs to existing businesses in the Bush; exceptional direct employment opportunities for significant length of build;stimulus for new business development in Bush;stimulus for new and varied permanent employment opportunities in Bush;new utility investment opportunities;and perhaps even stimulus for extending other infrastructure elements to Bush areas with their own benefits. On an operational level,the suggested grid expansion creating its three contiguous and interconnected looping sub-grids will produce a highly reliable and robust transmission grid throughout the state (and more so for the Railbelt than if the grid were limited to Southcentral)because of high voltage multiple redundancies that would be in place.This greatly expanded and highly reliable and robust grid will also open the great majority of the state to development of any hydro,thermal,wind and tidal generation sources,as all will become reasonably accessible with an appropriately designed expanded grid. But beyond these enhanced economic entitlements and opportunities,the suggested dramatic expansion statewide of the backbone electric grid would on a societal level constitute our most effective unifying event since statehood and truly furtherdevelopmentoftheAlaskaidentity.| '"An Alaska society with urban and rural Alaskans together nurturing and sharing this great land will cement Alaska's place as one of the world's great places.Make no mistake,if nothing more is done for rural Alaska than is now being considered all of Alaska will suffer both economically and a society.It is time for the Alaska Marshall Plan.”Byron Mallott,Anchorage Daily News (Compass),Sept.11,2008. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 11 3.Linkage to National Grid:As propitious as the present time may be for considering grid expansion in Alaska,it is dwarfed by the present national imperative to expand the domestic grid and bring on line substantial new sources of renewable energy.Many thousands of miles of new high capacity transmission lines will be built together with thousands of megawatts of new renewable energy generation,all at a cost of many billions of dollars.And when a national renewable portfolio standard (RPS)is congressionally mandated as seems likely pursuant to pending legislation this year or next,the contiguous states will most certainly require access to substantial new amounts of renewable energy not presently available below (national RPS is reportedly a key policy proposal of Obama administration;currently 30 states have RPS in effect). It is in fact very difficult in any assessment of the emerging national landscape for major transmission/renewables projects to overstate the vast scope of this new market over the next 20 years or more,its great fluidity at this time and its consequent potential for new approaches and entrants during the present launch period.Alaska of course has excellent and varied renewable energy resources vastly in excess of our in-state needs.This huge excess could become reasonably accessible through the suggested grid expansion to materially meet the contiguous states'current and evolving state and national renewable energy requirements.Accordingly,this memorandum recommends that we undertake a study to provide a credible (even if preliminary in its first level)overview of the nature, location,transmission options and size of national markets potentially available to us under various scenarios (including usable cost estimates of options for the expanded grid and exit routing to national markets).FERC and NERC involvement must also beanalyzed.All told,this will not be an easy undertaking.* But if our study supports accessing the national market,such linkage would create an opportunity for Alaska to become the site for development of large-scale renewable energy projects by outside utilities alone or in consortiums and under more favorable resource,cost,population,regulatory and/or other circumstances than might be available in the contiguous states.Alaska would benefit from the business stimulus,job opportunities and resource income streams created by the construction and operation of the new generation projects,as would an expanded Alaska grid with such new transmitters paying a fair transmission tariff.It is also conceivable that the grid authority or other Alaska interests might construct such renewable energy projects for the contiguous states'utilities under suitable long-term power agreements or otherwise favorable situations (depending on how aggressively Alaska might choose to enter the contiguous states'energy markets).As an ultimate extrapolation,Alaska may find its renewable resources will become as valuable to it and the nation as its hydrocarbon resources had ever been. ?As noted more fully in the memorandum,we should also at this time make efforts to (1)involve Alaska in the Western Renewable Energy Zone (WREZ)initiative embracing 11 western states and the Canadian Provinces of British Columbia and Alberta (as well as interconnected areas of Mexico),which is moving quickly to lay the foundation in its area (a very likely region for Alaska energy export)for long-term supply of renewable energy;and (2)make our interest in exploring national linkage known at least informally to officials at U.S.Department of Energy (DOE),which will play a critical role in any linkage effort. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page Ili 4.North Apex Generation and Royalty Gas:The REGA study makes clear that the facilities cost of natural gas generation is one-third or less than the cost of hydroelectric generation,with the fuel itself sufficiently clean to be a desirable fuel source for many years to come.However,the commodity supply and pricing uncertainties associated with Cook Inlet gas and the commodity pricing,time and pipeline commitment uncertainties associated with North Slope gas have contributed to a crisis atmosphere surrounding present planning for the Railbelt energy future.The above well-known dilemmas prompt the recurrent and fundamental question of how Alaskans can be so brutalized by energy shortages and high costs while sitting atop huge gas reserves. The expanded grid as proposed contemplates a common north apex for the three north- south transmission corridors on the North Slope in the Deadhorse/Prudhoe Bay area,with principal natural gas generation facilities sited in the region.This configuration and generation would directly and simultaneously feed all three north-south corridors from the north (as well as indirectly feed the mid-state corridor from the north)with natural gas generation and its attendant benefits,and as further discussed in the memorandum thereby contribute to the wide dispersal of varied and major generation sources feeding a robust grid with significantly enhanced overall grid reliability.The gas supply could presumably be made available to the REGA at prices negotiated with selected North Slope producers (or the state for part of its royalty share).Thus,the grid in completed mode will allow almost all of the state to share in the benefits of natural gas generation for decades,with many of the present uncertainties alleviated. But even before completion of full grid expansion,the Railbelt would receive enormous value if REGA as a first leg in grid expansion would undertake building the Southcentral corridor's northern extension and accompanying generation,a construction that could be accomplished within five to six years allowing one to two years for favorable resolutionofpresentfoundationalissues.>This gas supply could also presumably be at pricesnegotiatedwithselectedNorthSlopeproducer(s).*|Moreover,the accelerated >As noted in the memorandum,the north leg of the Southcentral corridor also includes the north leg of the east corridor likely beginning in the Stevens Village area.If there is to be national linkage,one likely exit portal would be at the east corridor's Tok/Northway area on the Canadian border,not overly distant from the Stevens Village area where the east corridor would both link with the Southcentral and mid-state corridors as well as begin its separate run to the southeast and the exit portal.A partial build of the east corridor to reach the exit portal,as well as the link to the contiguous states if appropriately supported at the federal level,should also be achievable over the initial five to six year period.Thus,generation based on the North Slope would also be very useful immediately if we access national markets,with the memorandum noting in some detail the renewable energy sites that would be reasonably accessible through the east corridor's northern apex and transmission run to the indicated exit portal.Further worth noting is that this partial build of the east corridor would also permit delivery of hydro power from a Susitna facility fully expanded to accommodate a national market as soon as the facility is completed. *Moreover,if Alaska accesses the national grid,it is conceivable that we might locate good markets for natural gas generation from this apex as well as the renewables as indicated in the preceding note.Even though strictly speaking not renewable energy,natural gas as observed is considered generally a clean fuel which is still a preferable generation source that should therefore be well-received nationally,such as has been suggested might occur in the Midwest ISO (a possible re-entry portal for an Alaska link)in order to displace the large amount of coal generation in that region.In this connection it must be at least commented that the sale of North Slope commercial gas to REGA for generation of power sold to the Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page iV construction and availability of natural gas generation from the north should dovetail nicely with expected major enhancements to the existing Railbelt transmission grid likely to be recommended in the regional IRP being developed by the REGA consultant and due later this year. Thus,over time for the expanded grid and on an accelerated basis for Southcentral,we can resolve many of our current natural gas uncertainties.But the further and real challenge to us as a society,whether dealing with expanded or accelerated grid construction,is to use our vast abundance of natural gas to generate electricity at its most inexpensive cost,not merely at a negotiated price (even if stable)premised on national or world markets (even at some discount). Accordingly,the memorandum recommends that we fully study the possibility of making the state's royalty share from leaseholder commercial gas production on the North Slope available for in-state use by REGA at only nominal or even no cost.The memorandum discusses at length the reasons for believing such use of the state's royalty share is bothappropriateandthehighestandbestuseofthisnaturalresourceforthebenefitofall.° Other opinions in support of and in opposition to this view will undoubtedly be brought forward,so that the matter will likely be hotly-contested and for some even an emotional issue.Final decision by the responsible officials will likely be very difficult. But if decision is made that use of North Slope royalty gas as recommended is both appropriate and the resource's highest and best use for all our citizenry,we will have taken a substantial step in making Alaska a low-cost energy state which will substantially enhance our entire quality of life.It is also conceivable that such a decision will be the first step in Alaska,with its other advantages and now a low cost energy region as well, transforming itself in this century into a world-class economic force with a future for itschildrenbeyondourpresentimagining.° contiguous states could constitute a very substantial market for the leaseholder(s)and the consequent source of commensurately substantial royalty and tax benefits to the state -all without need of a gas pipeline but which could also nicely continue concurrently with pipeline transmission to the contiguous states if and when in place. °If it should come to pass that REGA generation from the north apex would enter the national market,we would be dealing with royalty gas from concurrent commercial production.If not,then as addressed in the memorandum we would be dealing with advance royalties,with the Point Thomson situation potentially adding a useful dimension to that discussion. ®"Alaska needs....a global paradigm shift to see ourselves as a nation-state member of the Pacific Rim marketplace,not necessarily an extension of Seattle's freight supply chain....We need to become a mini- Iceland,minus their banking system,and explode with cheap energy....Boldness and vision are in order now.As oil income declines,cheap energy should become our new currency....[W]e need to create inexpensive energy for Alaskans while taking advantage of our unique geography to export value-added products.If we pair our geography with cheap energy,industry will find us in the global marketplace.” State Rep.Jay Ramras,R-Fairbanks,Anchorage Daily News (Compass),March 1,2009. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page V REGA:CONCEPTS FOR GOVERNANCE AND BEYOND TABLE OF CONTENTS I Introduction II REGA Report HI GOVERNANCE (i)Desirability of Diversified Governance Sectors A.Public Interest Sector 1,Ned>7 ANEWNEHIAHta RCA Chair (a)Exemption from RCA Regulation (b)Funding (c)Other Benefits Alaska Energy Authority (AEA) Department of Natural Resources (DNR) Public Sector Consultancy -UAA Institute of Social and Economic Research (ISER)SrAIDWAAAMBNNY9 Public Sector Consultancy -UAF Department of Engineering Chair 10 Other Public Sector Members Voting keholder Sectors Public Utilities Small Ratepayers Large Ratepayers Alaska Municipal League (AML) Public Interest Groups Direct Grid Customers Transmitters (ii)Sector Voting (iii)Permanent Chair (iv)REGA as Railbelt Energy Forum (v)Governance Summary and Further Evaluation IV Beyond Governance (i)Grid Expansion A.Alaska Expansion CHKAAMNAYWDHSocietal Development Reduction of PCE and Related Payments Reduction of Energy Costs Business Stimulus Utility Investment Opportunities Employment Local Generation and Security Grid Reliability Access to Renewables B.Linkage to National Grid (ii)North Apex Generation and Royalty Gas V_Conclusion Louis Agi REGA:Concepts for Governance and Beyond 11 11 11 11 12 13 14 14 15 15 15 16 17 18 19 19 19 19 20 20 20 20 20 20 21 21 22 25 29 10/30/2009 Page 1 REGA:CONCEPTS FOR GOVERNANCE AND BEYOND I.INTRODUCTION The Alaska Legislature in 2006 appropriated funds for the Alaska Energy Authority (AEA)to study possible formation of a Railbelt Energy Grid Authority (REGA).AEA engaged Black &Veatch (B&V)as consultant to guide exploration of the need for and potential nature of such an organization.In its September 12,2008 Final Report (Report),B&V recommended creation of the REGA as a regional state entity to be responsible for planning and operation of all electrical transmission and generation assets serving the Alaska Railbelt communities. The Report expressly left development of a suitable governance structure for the REGA entity to subsequent work.This memo hopes to suggest certain concepts that might usefully be employed in approaching the entity's governance,as well as several other items that may merit consideration at this juncture.First,however,it will be valuable to present a brief overview of the Report including elements relevant to later discussion. Il.REGA REPORT A REGA entrusted with the described responsibilities was styled in the Report as a Path 4 entity,and more specifically would (a)undertake all regional resource planning,(b) assume control of all existing Railbelt transmission assets while building and owning all future transmission assets,(c)build and own all future Railbelt generation assets,and (d) contain a "save harmless”provision allowing ML&P to continue its own generation for a transition period.The Path 4 scope of responsibilities was distinguished from Path 1 base or status quo model continuing the existing Railbelt structure of separate (and joint as may be desired from time to time)utility transmission and generation ownership, operation and integrated resource planning;a Path 2 entity responsible only for independent operation (but not necessarily ownership)of the transmission grid;a Path 3 entity responsible for grid operation only but including regional economic dispatch;and a Path 5 power pool providing Path 3 responsibilities but also including responsibility for regional integrated resource planning while allowing separate ownership of generation and transmission assets. The recommendation that a regional state entity (agency,authority or corporation)be used as the business structure for the Path 4 REGA was distinguished from use of a G&T Cooperative or Joint Action Agency,although both were recognized as also acceptable structures.It was also recommended that the operations of the REGA be exempted from at least on-going economic regulation by the Regulatory Commission of Alaska (RCA). The consultant's preference for a Path 4 entity was based largely on its projection that the maximum savings in power and operational costs for delivery of electric energy in the Railbelt over the next-30 year period would be realized under this organizational Path. This was determined through testing the performance of each Path under evaluation scenarios representing four different energy supply futures for the Railbelt,which developed an average annual net present value savings of approximately $8 (using Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 2 taxable financing)and $10 (using tax-exempt financing)for each monthly residentialbill.'It was also advanced that such a Path 4 entity would generally enhance financing strength,flexibility to meet major regional events and business opportunities,and capacity to address regional energy needs. The preference for a state REGA as the Path 4 business structure was premised largely on anticipation that the REGA's future operations would necessitate considerable funding through state grants and zero or low cost loans,and a belief that the state would be more willing to provide such funding if the REGA entity were a state agency,authority or corporation.The state business structure was also viewed as more conducive to the REGA's ability to access and flow through the benefits of tax exempt financing for its capital activities,if future operations should indicate the advisability of such financing. Exemption from on-going RCA economic regulation was suggested for several reasons: (1)regional G&Ts are not normally subject to state regulatory oversight;(2)exemption would avoid potential conflicts where one state agency oversees another;and (3)the benefits of regulation do not outweigh its costs.In connection with last point,the Report also observed that regulation is generally perceived as a negative element in approaching debt markets.It might also be added that there would be considerable value to the REGA's activities in avoiding protracted litigation,which can occur under regulation. There has been wide-spread commendation for the consultant's integrity,breadth of undertaking and identification of relevant issues (as well as appreciation for AEA's guidance of the project through a strong public participation process that allowedcontinuingopportunityforstakeholder/public input as the project progressed®), However,virtually all of the Report's principal recommendations have been seriously questioned,although there appears consensus that something more than the status quo is 'The four energy futures were:Scenario A -large hydro,which assumes majority of future regional generation provided through one or more large hydro projects (200+MW each)together with other renewables and DSM and energy efficiency programs;Scenario B -natural gas,which assumes continuation of dependence on natural gas-fired facilities (as is presently the situation);Scenario C -coal, which projects the addition of coal plants for regional needs;and Scenario D -mixed resource portfolio, which assumes combination of large hydro,renewables,DSM/energy efficiency programs,coal and natural gas resources to meet the Railbelt's needs for next 30 years.Depending on selected future resource portfolio,the Report projects the Railbelt region will require between $2.5 billion (Scenario B)and $8.1 billion (Scenario A)of investment over the 30-year period,with required investment for Scenario D (mixed resources)placed at $5.8 billion.And for Scenario D,the Report projects average annual net present worth savings (for both power and A&G costs)over the 30 years of between 7.5%or $7.90 on a typical monthly residential bill (using taxable debt)and 9.4%or $9.90 (using tax-exempt debt)through a Path 4 organization,as compared to a Path 1 organization.Projected savings are less than half of the foregoing under Scenario B (continuation of natural gas dependency)but about 15%and 5%more (for respectively tax-exempt and taxable financing)under Scenario A (dependency on large hydro). *B&V received input from number of sources,but chief input probably came from the Advisory Working Group that met number of times with the consultant and AEA at different stages of project.The Group was organized by AEA,chaired by retired State House Rep Norman Rokeburg (who had sponsored the REGA legislation)and composed of utilities,principal stakeholders and interested persons including RCA and Alaska Power Association. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 3 required and should be attempted.”Under the Report's Section 10,"Next Steps and Implementation Plan,”a transition team was to decide the critical issues of organizational attributes and business structure,as well as other important threshold matters including the proposed REGA's governance and regulatory status. However,the initial effort at REGA implementation,including proposal of a traditional governance structure,was not successful before the Alaska House (HB 182)and Senate ((SB 143)special energy committees in the spring 2009 legislative session (26" Legislature,First Session).The entire matter of REGA implementation has been set down for further study by the administration and legislative committees between sessions and evolution of new proposals for consideration in the next legislative session.It is hoped that this memorandum will prove useful to the officials continuing their study of Alaska's energy future. Ill.GOVERNANCE (i)Desirability of Diversified Governance Sectors Thus far,the thinking expressed concerning REGA governance appears to anticipate establishment of a fairly traditional G&T structure.Suggested parameters are that governance should avoid political cycles,be comprised of knowledgeable persons (not really always distinguishing directors from staff)and,if to be a state entity,have less than majority voice given to utilities (here mainly to establish its "state”nature in connection with tax exempt financing).Where the REGA is proposed as a G&T cooperative (or presumably as a joint action agency),only the first two elements are mentioned and the implicit premise seems clearly to be that governance will be vested exclusively in the Railbelt utilities'principal executives (most likely each utility's general manager orequivalent,and board chair or equivalent).'° *Written and oral responses to the Report's recommendations by the utilities and others have called into question the recommendation for a Path 4 regional entity,particularly as to its being the mandatory provider alone or through joint projects of future Railbelt energy (questioning in this regard the supporting savings data as well as the prudence/desirability of denying local utility generation outside of the REGA). The recommendation for a state entity business structure has also been attacked (with contentions that state funding preference for a state rather than cooperative or other private G&T is unsupported historically or logically,together with arguments that tax exempt financing could be available to a non-state entity and, more importantly,that potential use of such financing should not drive decisions on business structure as well as assertions of likely bias and bureaucracy resulting from a state structure).As to regulatory exemption,the RCA appears to favor a Path 4 entity (but would undoubtedly welcome any other cooperative Railbelt effort)and looks forward to a future of far less Railbelt electric utility litigation. However,the commission is troubled by a number of questions under the proposed regulatory framework and finds it "potentially volatile.”It is particularly concerned by the failure to include in the REGA advisory process to date or otherwise contemplate in the REGA structure any role for the Attorney General Regulatory Affairs and Public Advocacy (RAPA)section,observing that it does not "view any other ancillary public interest group as a satisfactory substitute.”The RCA suggests that a further workshop be held to address the identified deficiencies,which it would host. '0 No particular criticism is intended here of the participants in our REGA project.Indeed,the Report's profile of generation and transmission (or operating)electric regional entities elsewhere reflects a basic pattern of governance by representatives from involved coop or public power utilities (as selected by internal process or community/member voting)and/or direct political appointees.It is only when the Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 4 However,the future role of REGA in Alaska obligates an effort to depart from the traditional and establish a functional governance structure that is broadly based with a significant public interest dimension.Even at its most minimum endowment initially as a Path 2 transmission-only organization,the proposed REGA will be the dominant force in the Railbelt's electrical energy infrastructure and thus a critical influence on the future economic and social well-being of at least the Railbelt's communities and citizenry.As therefore a profoundly important future institution,REGA governance must elicit a degree of deference and respect for its prospective operational competency,fairness to all and public commitment that is the equal of our best institutions.Achieving and maintaining such trust necessitates REGA governance that is highly competent, comprised of a wide and fairly balanced array of stakeholder interests impacted by its operations,and anchored by a public interest force of unimpeachable strength,knowledgeandindependence.'! Designing an acceptable governance structure therefore involves two major challenges. First,the entity's board must be broad-based so that it includes all users and other persons impacted by the REGA's activities,organized into open voting sectors that are fairly balanced within and between the sectors.Second,the voting structure must include a meaningfully positioned public interest component or sector comprised of disinterested persons with significant,perhaps even unique,functional value to the enterprise's success and whose commitment to the public interest is accepted by all. A.Public Interest Sector 1.RCA Chair:The presence of the RCA Chair as a member of a strong public interest component meaningfully positioned in an otherwise fair and balanced REGA governance structure should invest it with sufficient independence,competence and public interest Report profiles two non-operating or "Centralized Energy Efficiency”(CEE)organizations in New Jersey and New York that governance is provided through a wider array of impacted interests.Not profiled in the Report is the North American Reliability Corporation (NERC),certified by FERC under EPACT 2005 after highly sophisticated and extensive deliberation,to be the national Electric Reliability Organization (ERO) under a mandate requiring its essentially public interest independence from the users,owners and operators of the Bulk-Power System while assuring fair stakeholder representation and balanced decision-making in the selection of its directors and critical committees or subcommittees,which included appropriate protections against over-reaching by an individual stakeholder sector.Arguably,this type of broad-based governance may be reflective of an emerging trend for new energy organizations,whether operating or non-operating entities.At the very least,the NERC experience may provide a treasure trove of thinking on erecting broad-based governance structures. ''It is perhaps also worth noting that not only will any lesser approach jeopardize full realization of REGA's potential value to our future,it further risks loss of public and affected stakeholder support in galvanizing and sustaining over the next several years the necessary political process for establishment of REGA.The enthusiastic endorsement to date for REGA's creation that must feed into the legislature has been very much the product of an exceptional public process that continually involved a broad array of impacted and otherwise interested parties guided effectively in the public interest by public bodies -a birth process calculated to have generated an expectancy that REGA in actuality would be similarly guided. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 5 stature to warrant the legislature and public in supporting critical elements of the REGA's program at the outset and through time,including among others the following matters:"2 (a)Exemption from RCA Regulation.Whatever might emerge ultimately as the REGA's scope of operations,the report as seen makes clear that it will pursue legislative exemption of the organization from RCA regulation of all or some of its activities.The presence of the RCA in REGA's governance structure should certainly and most dramatically aid that pursuit before not only the legislature but in the eyes of the public. Moreover,it is not even proper to consider RCA exemption under these circumstances as truly dispensing with RCA involvement.All that will have been done is to alter RCA's mode of involvement with the REGA utility,from one of removed regulatory oversight through highly stylized rule-making and adjudication to a direct involvement as part of the utility's voting structure. If one argues that this alteration constitutes a public loss because in a governance mode the RCA surrenders its authority as the disinterested final decision-maker on rate disputes or other matters,it is perhaps relevant to bear in mind that RCA decision-making is always an imperfect process.It is the final authority not necessarily because its decision on a matter is the correct or most expert in the situation;it is final because making the final decision is legislatively consigned to the RCA.In fact,few would have the temerity to argue that even the basis on which regulatory decision-making takes place,the "record,”is ever guaranteed to contain all relevant information because of the variable events that not infrequently lead to the exclusion of useful information.Nor is even the RCA's final decision necessarily final as judicial review,particularly in important cases, is always a possibility and always a wild card in its own right. On the other hand,in a governance mode the RCA still retains its disinterested status and is never any less expert than in a regulatory mode.Moreover,by directly participating in decision-making for an operating enterprise,those areas where the RCA is less expert will see more significant input from members of the governance structure having the greater expertise,although for areas where RCA expertise is present it may be expected to provide appropriate direction.And as a member of the governing structure,the RCA will always receive all relevant information for decisions that will be made,and those decisions will rarely be subject to the temporal lags and uncertainties associated with judicial review of regulatory decisions. The placement of the RCA Chair in REGA governance for all practical purposes necessitates complete exemption of the REGA from RCA regulatory processes,as participation in governance and regulation as to the same matters are incompatible. '2 It is interesting to note the presence of the New York State PSC Chair on the governing board of the NY _CEE organization profiled in the REGA report.The reference to the RCA Chair in our context is intended to encompass its full complement of commissioners acting under such internal process as it may establish for REGA decision-making (further guidance can be provided if necessary).There should be noawkwardnessinthisarrangementasthepublicinterestsector,like other sectors to be discussed later,will be operating through a sector director it appoints to the REGA board. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 6 Again,however,this is not to remove the RCA from involvement in REGA activities but to transform the involvement into a different and at least equally effective mode. On the other hand,exemption from RCA processes is not exemption from substantive prescriptions or proscriptions on utility actions as provided for in the RCA statute. Which strictures are to be applicable or modified as suitable to REGA operation will be a matter for specification in whatever vehicle is selected as the REGA charter,which is precisely the same activity that would have to be undertaken for the REGA whether ornottheRCAisincludedinitsgovernance.'*In this connection it may prove useful (at leastin financing matters)for REGA to possess a certificate of public convenience and necessity,and for the legislature to directlyissue that certification. (b)Funding.The REGA should also desire a measure of initial as well as sustaining legislative funding for its activities,which could be quite substantial as the potential range of mandated REGA functions includes involvement in ownership or control and operation of much,perhaps all,of present and future Railbelt transmission assets as well as mega-sized future generation projects.Moreover,even where ratepayer contributions remain an element in the funding mix for these potential assets and projects,new means for securing those contributions may be desirable and require legislative authorization forthatratepayer'funding'mode as well.'*Here also,the credibility and responsibility of a fair and balanced REGA centered by a strong public interest sector including the RCA Chair should prove critical to funding needs before the legislature. (c)Other Benefits.It is not difficult to project other benefits from RCA involvement in REGA governance,but the foregoing should illustrate how such presence will significantly aid in accomplishment of the entity's mission from the outset and as it may be expected to evolve through time. 2.Alaska Energy Authority (AEA):AEA is a state agency operating only in the public interest and with specific responsibility for implementing both legislative and administrative energy policy throughout Alaska,as well as recommending initiatives for future policy as it believes warranted.AEA also owns and operates generation and transmission assets in the Railbelt and elsewhere.These policy functions and proprietary activities have provided AEA with a pervasive and critical role in REGA's development and should continue to do so during REGA's operation,although the modes of interaction may shift through the years.AEA's state public body status and responsibility for state '3 Thus,to accommodate situations where the REGA may receive grants,the charter may specify that rate- making shall be confined to recovery of costs for used and useful,non-contributed or non-grant plant.And even as to recoverable costs,the charter may want to authorize recovery modes that might not satisfy more traditional cost causer/cost payer or cost of service constraints,as reflected somewhat in the next note. '4 This could occur,for instance,if the REGA were granted responsibility for transmission assets and determined that introducing level charges against all system ratepayers,i.e.,flat 'end user”charges,is the most rational and equitable means for recovery of the ratepayer portion of costs incurred to grow and maintain tomorrow's 'robust'Railbelt transmission infrastructure with its demands for upgraded capacity and redundancy,enhanced reliability and extension to remote,particularly renewable resources,as well as to heavy industrial and comparatively light public loads. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 7 energy policy obligate its admission into the public sector of REGA's governance structure,with its present and future specific involvements likely to be of value to REGA's success. Thus,as the guiding force in REGA's development,AEA's continuing presence should provide a strong compass insuring that REGA governance recognizes and does not departfromintendedpurposeswithoutthemostcarefulconsideration,perhaps particularly.valuable in REGA's early operational years.Moreover,AEA traditionally is a provider or sponsor of grant money and low cost loans,so that over the years it has institutionally become a watchdog for proper utilization of state energy funding.As the expectancy is for REGA to receive substantial grant and low cost funding from the state,the AEA watchdog role discharged through participation in governance will provide strong reassurance of proper and prudent utilization of such funding,a valuable funding inducement in early operations and particularly if AEA is not the formal funding conduit. Also,AEA's status as state-wide energy administrator is likely to prove valuable as REGA in later operations is presented with opportunities to integrate the Railbelt grid with other areas;indeed,AEA could become the primary voice in the governance structure continually advocating the social and economic value of grid expansion. Finally in this context of expected contributions to REGA governance,AEA will of all participants most directly be subject to the current political cycle at any point.However, as also discussed later in connection with the small ratepayers sector,allowing a voice in governance for the current political cycle should be viewed as both legitimate and valuable;it is only potential domination by current politics that poses a fatal threat to REGA's success,which potential is not implicated here. AEA's proprietary situation creates an anomaly as it might support AEA admission to governance through the public utilities sector discussed shortly,as well as through the public interest sector now under discussion.However,the proprietary activities are only transitional.With establishment as even a minimum Path 2 regional entity,AEA should be transferring its transmission facilities to REGA.Moreover,even if not a Path 4 entity, most conceptions would support REGA's ability to own and operate singly or jointly particular generation facilities,so it is expected that AEA would transfer its Bradley Lake hydro facility to REGA.In any event,Bradley is run by the utilities under well- established protocols so that AEA's ownership role is essentially passive.Accordingly, there seems in reality little practical necessity to consider AEA for dual sector status where it will not be provided to any other participant in REGA governance. 3.Department of Natural Resources (DNR):REGA development and operation will involve a wealth of right-of-way permitting and other transactions dealing with state public lands.The presence of the DNR Commissioner should provide continuing perspective and knowledge to best manage those transactions so as to facilitate their accomplishment and avoid or at least minimize confrontational opportunities.The value of such facilitation and conflict avoidance/minimization should not be underemphasized as unnecessary delay,expense and frustration in attending to these land matters is a substantial impediment to utility management.The anticipated extensive scope of REGA Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 8 operations suggests that it should also be highly desirable for DNR to have a continuingandmoreefficaciousmodeofinterfacingwiththoseoperations.'° 4.Public Sector Consultancy -UAA Institute of Social and Economic Research (SER):The anticipated profound impact of REGA on the social and economic well- being of Southcentral Alaska,and to a not insignificant extent the balance of the state, justifies if not obligates that REGA's public interest sector include access to disinterested,public oriented and highly competent technical resources for evaluating such economic and societal impacts.This access cannot be sporadically available or available only through a bidding process for each occasion.Continuity will be imperative.So also will be the ability of the resource to initiate reports to the entire governance structure on a regular basis and as it may deem warranted. Utilization of the UAA Institute for Social and Economic Research (ISER)Executive Director on a dedicated consultancy to the governance structure should admirably meet the need for a disinterested,public oriented and highly competent resource for REGA governance in evaluating economic and social impacts from on-going and potentialactivities.'°ISER's dominant status as an Alaska analytical/research resource is well- established,and it will be insulated from normal political cycles with factual integrity and commitment to the state's best interests beyond question.Moreover,ISER has frequently been called upon over the years for work on utility-related matters,so involvement in REGA matters would be well within its capacities. Thus,with ISER continually involved,REGA governance should be well-situated to assess and address through the years the recurring questions it will confront of cost versus value,economic stimulus versus ratepayer benefit,development versus quality of life, growth (via grid expansion,joint infrastructure undertakings and/or involvement in collateral ventures from fuel acquisition to new enterprises)versus security,one segment of our society versus another,and undoubtedly other comparable issues characterized by the intangibles and uncertainties that mark socio-economic planning.These matters will require identification,balancing and articulation of subtle and difficult elements in order to produce objective,consistent,sound and acceptable resolutions.Again,these are determinations calculated to have substantial impact on producing ratepayer fairness and equity,influencing significant legislative decisions,determining the contours of our future economic landscape and ultimately forging the common Alaska identity. There can be no doubt that the REGA will require strong staff departments dealing with rates,economics and new activities.But as a continuing and evolving custodian of essential public infrastructure,REGA governance must include sustaining and credible public oversight and vision to insure its activities maximize social and economic benefits. 'S Similar considerations are present with regard to REGA operations and local government units,but they are addressed through a separate stakeholder sector to be introduced shortly. '®As contemplated here,the dedicated consultancy would involve an annual retainer,provision annually of a stipulated number of reports/studies at request of the governance,and the prerogative/obligation to report on other matters if and as warranted in the consultant's judgment.The consultancy would be established legislatively as part ofthe legislation facilitating establishment of the REGA. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 9 Inclusion of ISER as a continuing consultant assures REGA governance of the assistance of Alaska's best resource in the provision of such sustaining and credible oversight and vision. 5.Public Sector Consultancy UAF Department of Engineering Chair:REGA activities will entail the most sophisticated and current electrical engineering knowledge, and this is of course the reason for the overriding concern to insure governance is by technically competent persons.The necessary technical competency will reside in the REGA staff in the first instance.Moreover,the full governance structure suggested in this memo includes as will be discussed shortly utility representation,which should insure technical involvement in review of staff activities to the extent desired by the utilities. However,care must also be taken that governance oversight of critical grid reliability, safety,adequacy and growth determinations to be made by REGA staff in the public interest does not become de facto the exclusive province of utility input.Initial and sustaining legislative and public acceptance of what should be REGA's targeted role as the custodian of our electric infrastructure,with all the value potentially realizable from such deference,requires that the organization's critical engineering activities not appear dominated by the utilities.And while the RCA component of the public interest sector should bring a useful engineering element to the governance structure,it will not be sufficient. Accordingly,REGA must enjoy its own access to disinterested,public oriented and highly competent technical expertise,with continuity and the ability to initiate reports as critical to the proper discharge of this advisory role as it was for ISER.Here,utilization of the UAF Engineering Department Chair on a dedicated consultancy to the governance structure will constitute our best resource to satisfy the need for disinterested,public oriented and highly competent engineering expertise to support REGA governance'soversightofstaffengineeringactivities.' Considerations as to insulation from political cycles,integrity and public interest commitment are of course similar or identical to those advanced on behalf of ISER.As for competency,the UAF Engineering Chair is for all practical purposes truly the dean of Alaska engineering,bringing also access to comparable talent and necessary support as needed.Indeed,the Chair's involvement should insure that REGA operations and projects always reflect awareness of the latest technological advances,and are driven to meet that standard as much as possible.This interaction between applied and academic knowledge should additionally be of substantial benefit both to REGA personnel and our university and students. It also is of considerable value that REGA be appreciated as more than an emerging primary institution in our public life.It is an institution fully capable of meshing its '?This dedicated consultancy would be similar to that which will be employed for ISER,and should also include participation by UAA Engineering Department Chair as determined appropriate by the University structure. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 10 activities with our other public bodies,not only strengthening their roles but in the case of the university hopefully providing interest and opportunity for students to remain in the engineering profession in Alaska. 6.Other Public Sector Members:There is also value in considering addition of a non- voting legislative representative with special interest in electric energy matters.The representative would be designated jointly by the Alaska House and Senate Commerce Committees.This would allow an accurate and real-time information flow from legislators on behalf of any constituent or themselves concerning any REGA matter.There may also be value in facilitating a reverse flow as well.'® 7.Voting:It would appear appropriate to have voting within this sector conducted on a majority vote basis. B.Stakeholder Sectors The stakeholder membership in REGA's governance would be arrayed by interest into mostly open membership sectors,with the sectors intended to encompass all entities impacted or potentially impacted by REGA. 1.Public Utilities;Certificated electric public utilities connected to REGA will constitute a separate stakeholder sector.No value appears at this time in a further separation into transmission,generation or distribution sectors.In fact,there should be no transmission utilities under a Path 2 REGA and,over time,no generation utilities if and when a Path 4 REGA should be initiated and fully operative in that mode.Nor is there sufficient value in sectoring based on assets at risk,customers or other size determinant.Multiple-utility organizations such as AEG&T or the AREA JAA (if certificated at some point)would not be entitled to separate membership. Similarly,it does not appear worthwhile to pursue intra-sector voting here on any sort of weighted basis.With diversified governance containing a strong public interest sector as well as its other sectors,there should be no significant advantage to one entity possessing superior voting strength within the utility sector or,for that matter,significant apprehension that a relatively small utility may stymie appropriate decision-making. Unless some exceptional circumstance can be established,decision-making within this sector therefore seems best left initially to majority voting allocated on a per capita or one utility/one vote basis.Relative voting of the utility sector within the REGA governance will be considered shortly. '8 Later recommendations in this memorandum include linkage to the national grid.In the event of such linkage,the public interest sector should likely be expanded to include the Department of Energy and a FERC representative.A non-voting Congressional representative could also be included if desirable. Utilities and other entities from the national arena impacted by REGA would be expected,at least on first consideration,to align themselves in accordance with their interests in one of the other sectors to be discussed next,although it may prove preferable on later analysis to add a specific sector(s)for some of those national interests. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page [1 -2.Small Ratepayers:This sector would basically represent residential consumers or end users (and generally small businesses).The most effective,professional and convenient representative for this sector would be the Attorney General Regulatory Affairs and Public Advocacy (RAPA)section,particularly in light of the earlier-noted RCA comments on the desirability of RAPA's inclusion in the REGA structure.RAPA is expected to provide such consumer advocacy in electric utility matters so that,similar to the RCA,participation in REGA governance may be viewed as merely altering the mode of RAPA involvement.But unlike the RCA whose advocacy activities are ordinarily limited in its conventional mode of operation (although it can be an advocate when participating in other forums),RAPA is primarily an advocacy entity so that participation in a governance structure seems very suitable for it. By participating in REGA governance,RAPA also will become involved in matters that it would perhaps not encounter in a conventional regulatory mode although it is probably not unreasonable to observe that the vast majority of decision-making will always have some component of ratepayer impact.Perhaps more importantly in regards to such other matters,they would tend to implicate RAPA's status as a member of the Attorney General's office with its independent and far-ranging common law obligation and prerogative to advance the broad public interest.Although the governance structure will have its separate public interest sector,it is highly desirable that as with the public utilities sector other sectors bring their own institutional public interest commitments to REGA governance.Moreover,with REGA anticipated to be a profoundly important public entity,it is particularly appropriate to allow a structured involvement by the Attorney General. Attorney General involvement does carry with it potential for direct input in governance by the sitting Administration at any point in time,and thus an involvement subject to a political cycle.But this would not be tantamount to having REGA affairs dominated by a transitory political agenda,presumably the primary concern of the REGA report on this point.So long as such dominance is not at issue,direct input by a sitting Administration would be a valid component of diversified governance. Potentially of greater concern is whether the RAPA presence as representative of small end users would and should displace or preempt other small end user or consumer groups from participating in REGA governance?As contemplated here,this would be a closed sector with RAPA as both its director and constituency,so it would displace other advocacy groups on behalf of the small ratepayer.Given its nature,competency and mission,there is unlikely to be any objective question as to the adequacy of this ratepayer class representation within the governance structure.But undoubtedly sub-regional or utility-specific consumer advocacy groups will periodically arise with ratepayer issues they would desire heard and considered by the REGA governance.However,RAPA presumably has in place capabilities for interacting with such groups to insure their issues are heard and they do not feel disenfranchised,as this should be a recurring concern for RAPA even in its conventional operating mode.Moreover,it should not be overlooked that even if an instance of preemption should be objectionable or if a parochial issue should arise conflicting in RAPA's judgment with the regional ratepayer's interests,the sub-regional group will always have an opportunity for either accessing its own utility (or Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 12 utilities)for presentation of its concern or accessing a regional public interest body that will be part of governance. With respect to RAPA displacement of regional ratepayer advocacy groups,REGA governance will also include an open sector for recognized regional (i.e.,not area- specific)public interest groups.Such regional public interest groups are frequently also ratepayer groups or the sponsor of regional ratepayer groups.But even where a pure regional ratepayer advocacy group should arise,there is no reason why it should not be allowed entry into the open membership public interest sector.In general,it seems desirable to vest a fixed and undiluted governance participation interest in RAPA ratepayer representation,as it is the specific state governmental entity chartered and endowed for this purpose. 3.Large Ratepayers:This sector would represent large end users,typically commercial,industrial and institutional users.One possible approach for developing this sector is to somewhat parallel the public utilities sector and invite the Chamber of Commerce that is most co-extensive with each utility's area of operation to be a sector member.That Chamber would then communicate with the large ratepayers in its membership to establish its own procedures for participation in the sector's contribution to governance.Decision-making should again be by majority vote on a per member basis.The sector's board representative could be selected by vote,rotated among the members or perhaps filled by the State Chamber of Commerce.If and when more utilities joined the grid,this sector's membership would also increase. Utilizing the Chambers of Commerce as suggested here would provide the sector with permanent,not overly extensive and appropriately oriented members that seem fully competent to assure that the vast majority of each area's large business concerns with REGA rate-making are heard.As with representation of small end users,where regional representation of the interests of large businesses may conflict with a sub-regional interest,the member(s)advancing the latter interest could also access other sectors such as respective public utilities.This consideration would also be applicable to large users not always considered embraced within a Chamber's constituency such as large state and local government users,as they would have additional access to governance through the AEA and the Alaska Municipal League (to be discussed).The military in each area is typically recognized as a valuable component to its business and social fabric as well as to the serving utility's customer base,so that any particular military interests should be adequately addressed through this Chambers sector and the utility sector access (and quite possibly through the additional access of the large state and local government users which could frequently have common cause). Two final points in connection with large user representation warrant comment.One, this sector should have substantial common ratepayer interest with the small end user sector,as a major issue that will concern both is the continuing need to guard against rates to their constituencies recovering either the costs of plant not reasonably used and useful for that generation of ratepayers or plant provided through capital grants or contributions.Also of concern will be the propriety of the more exotic recovery mechanisms that may be employed.Simply enjoying a legislative exemption that may Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 13 permit their use should be understood as only an authorization to explore such use.The litmus test would and should come through the dialog between the sectors that will occur in the course of governance. The final point is that as with other sectors that would be brought into REGA governance for particular strengths or representation,the Chambers sector will frequently be deciding REGA matters not directly involving ratepayer representation.Here,the use of the Chambers should be particularly beneficial as their residual commitment is always to advancing the public interest,so that they may be relied upon for positive contributions to REGA decision-making and general governance. 4.Alaska Municipal League (AML):As observed earlier in connection with DNR's inclusion in the Public Interest sector,REGA development and operation will involve a wealth of right-of-way permitting and other transactions dealing with state and local government public lands and land use regulations.Paralleling DNR's participation,this sector would provide for a permanent designee from the AML to function as a director in REGA governance representing local government units served or impacted by REGA activities.Use of the AML for this purpose would seem eminently suitable as it exists to represent local government and can be depended upon to accurately ascertain and advance its members interests.It is also highly convenient as continuing participation by individual local units would be unwieldy and unnecessary,although it may be expected that particular units would participate as their interests are engaged. The interests to be protected/advocated by the AML either on a common basis for all impacted local units or individually for a particular unit would include matters such as zoning,eminent domain,esthetics,land swaps,and the like in connection with individual projects.This role should be particularly important as REGA may have to be exempt from mandatory application of local zoning in the interests of effective operation,making AML the source of reasonable input on these matters. Moreover,unlike DNR these local government units have responsibility for the welfare of their citizenry which may well involve interest in REGA matters beyond land concerns.Thus,while other governance sectors will ordinarily be in the forefront on ratepayer concerns,this sector may in certain situations be the primary voice on such issues.Acting through AML,this sector may also provide valuable service as a conduit into REGA governance for those unserved communities interested in grid expansion. 5.Public Interest Groups:Provision within the governance should also be made for substantial and responsible public interest groups whose memberships are regional at least,well-established and by nature or self-declared mission likely to be impacted by REGA and desirous of contributing to its governance.The immediate nominees for this sector would include those that have already demonstrated commitment to and interest in the REGA process by becoming involved as members of its advisory working group. These are the Alaska Public Interest Research Group (AkPIRG),Renewable Energy Alaska Project (REAP)and American Association for Retired Persons (AARP).To these may also be added at this time the Alaska Federation of Natives (AFN)and the Alaska Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 14 Power Association (APA).The sector would presumably vote on a majority basis,and make appropriate provision for selection of its representative director to the REGA board. These well-established groups will bring into REGA governance recognized and respected advocacy for consumer and public interests in utility enterprises (AkPIRG), renewable energy (REAP),significant demographic constituencies both within and beyond the Railbelt (AARP and AFN),and the off-grid utilities that may be impacted by REGA activities and policies including expansion.Equally valuable,the groups from their positions of accurate and detailed knowledge will be able continually to inform their memberships and collectively the broad public of REGA activities and policies. 6.Direct Grid Customers:Upon assumption of full grid transmission responsibilities from the individual utilities by REGA,there should be customers receiving and others desiring direct service for their loads from the grid.Such customers could include large industrial operations,governmental or other institutional users and the military.They will have strong and unique interests in the costs and access conditions of the tariffs affecting them,and should therefore be represented in a separate governance sector.This would be an open membership sector with majority voting on a per capita basis. 7.Transmitters:In time various entities,including QFs but likely others as well that are not certificated electric utilities,will desire to access the grid to transmit their generated energy to utilities or others.REGA will allow such access to these entities, which will also have strong interests in the transmission costs to them as well as in the conditions for access that will be imposed in the interest of grid security,among possibly other matters depending on the particular nature of the transmitter.Accordingly,a discrete governance sector may also be appropriate for these parties if in existence before or when operations commence.If none are present at that time,this will be a reserved sector until there are recognized entities to nominate for its membership. (ii)Sector Voting As seen in the foregoing discussion,the initial recommendation is that voting within a sector for the sector's director on the REGA board and position on issues would be by majority vote on a per capita basis where the sector has multiple members.Where the sector will be represented by a particular entity (RAPA,Chamber of Commerce,AML), the opening recommendation is that the entity be allowed to establish its own internal procedures to insure its constituency or membership may bring forward REGA matters of concern,as well as procedures for continued reporting back to the represented interests. The representative entity will of necessity also have to make any necessary internal organizational adjustments to assure it will have requisite competency to participate in REGA governance on behalf of its constituency or membership. However,with respect to voting between the sectors,it seems desirable to suggest a different initial recommendation than majority voting on a per capita basis.REGA governance as proposed will have a seven member board (eight if reserve Transmitters sector included),with five (or six)sectors representing the non-utility stakeholder interests that although diverse and wide-ranging in the aggregate can each potentially Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 15 carry a narrow focus.To avoid any concern that such a narrow focus if it were to be simultaneously exercised might override a clear operational imperative for REGA with severe consequences,the initial recommendation is that the public interest sector and public utilities sector (each with a presumed dominant operational objective)have a collective majority voting interest of 50%evenly split between them,with the remaining sectors then evenly dividing the balance of 50%between them (10%each for five members;8.33%for six members). Where the public utilities and public interest sectors are not in accord,their combined 50%interest will be of no consequence in diminishing the value of the other stakeholders'interests as the others will decide the issue.However,the main apprehension of protecting against a remote dysfunctional potential for the enterprise seems adequately addressed by this 50%mechanism,particularly in conjunction with the next-discussed tie-breaking authority of the permanent Chair which may be expected to be the ultimate embodiment of REGA's operating imperative. (iit)Permanent Chair While there is obviously a great deal of benefit to be expected from the recommended governance,it is nonetheless a unique aggregation of entities with very diverse interests that will be expected to operate for some time under untried protocols.Additionally,they will be directing as part-time governance an enterprise built by others embarking on a very complex and even incomplete itinerary with many of its desirable destinations still not even recognized.The contemplation of the entity returning frequently to the legislature particularly in the early years for clarifications,refinements in operation, resolution of internecine conflicts and similar assistance is neither appealing nor functional.Under such circumstances,and without for a moment impugning the advisability of this governance as best for our situation over time,it is only prudent that governance be structured for a great deal of self-correction by also incorporating a mechanism to provide constrained but effective failsafe functions.Establishment of a permanent Chair as a ninth director with particular obligations appears an effective solution to providing both a stabilizing rudder and ultimate compass for the REGA's operation and evolution.Such a person would be intimately familiar with the REGA's foundations,structures and goals.The position would be full-time and appointed by the governor with legislative confirmation for an extended term.In keeping with its constrained failsafe function without undermining the value of our broad based governance structure,the Chair would be non-voting except in cases of a tie between the sectors. The Chair would also function as 'gatekeeper'for insuring member credentials and votes adhere to applicable sector protocols.It would have a reserve authority to monitor whether (particularly the non-utility stakeholder sectors)are functioning well in accordance with their protocols,and direct changes in procedures where necessary to restore or enhance function.Where it appears interests in sectors are too discrete,or new entities with discrete interests not within a sector desire admission,the Chair would be authorized to establish additional sectors from existing ones in the non-utility stakeholder sectors (thus not interfering with the voting arrangement next described).These and Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 16 similar investitures will provide continuity and focus that should prove very valuable for this uniquely Alaska governance and permit the Chair to navigate REGA through themoredifficultofpotentialproblems.” (iv)REGA as Railbelt Energy Forum REGA with governance as proposed should also be ideal to serve as a continuing,broad- based and competent forum solidly anchored by a public interest orientation.In essence, it may function as a Railbelt energy forum (REF),capable upon request or its own initiative of knowledgeably exploring in the public interest any matters significantly affecting the Railbelt energy infrastructure outside of its mandated scope of operations. Utilities (individually,jointly,or through the AREA JAA),AEA,and other grid stakeholders from potential suppliers to end users and including relevant public bodies and individuals,may be expected or invited to make presentations on significant Railbelt energy issues in order to obtain REF feedback or credible support/endorsement before appropriate bodies or individuals including the legislature. Depending on its mandated scope of operations,the matters so explored or presented in the REF mode might extend to initiation of or progress on feasibility studies into alternative Railbelt energy sources,extension of the Railbelt into the Roadbelt or other proximate areas,the desirability of facilitating access to the grid for off-grid major projects,the synergies of complementary or even joint undertakings with other components of the Railbelt infrastructure,the continuing evolution of an advisory regional (and perhaps larger)integrated resource plan,the consistency with that regional IRP of individual utility IRPs and individual generation activities,all among other proposed capital undertakings that might enhance,grow or otherwise positively impacttheRailbeltenergyinfrastructure.” '9 A more precise statement of the Chair's authority can be developed at a later point,which should include relieving other directors from a great deal of the ministerial burdens that normally attend corporate governance.The Chair would probably best administer the public interest consultants on behalf of the entire governance,establish agendas and develop by-laws.In order to share a work burden,guard against undue dominance by a one-person permanent Chair and insure continuity at all times,consideration should also be given to establishing the Chair as a triumvirate with staggered terms. ?°Some of the foregoing REF activities are premised on REGA as only a Path 2 entity.In this connection it may be useful to note that whether REGA will emerge as a Path 4 entity is among other matters ultimately dependent on the litmus test of whether the individual utilities will subscribe to acceptance of all requirements contracts with REGA at average pricing.Such subscription should prudently be dependent on REGA's development of actual project proposals with firm price offerings,which may then be compared to expected costs from the utility's self-generation either individually or jointly (or firm pricing offered by another external generation source).But the occurrence of such a litmus test is likely a number of years into the future so that it is problematic whether REGA will commence operations as a Path 4 REGA or even achieve that status in the foreseeable future following operational commencement.Nonetheless,the value of REGA to the Railbelt will be as significant functioning in a combined Path 2/REF mode as in a Path 4/REF mode,with some latitude to believe that we will enjoy a more vital and secure energy infrastructure if the utilities retain sovereignty over their generation within a cooperative and coordinated environment that could well include joint projects with REGA as well as the other utilities. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 17 It may in fact be fair to surmise that even if not fully expressed or appreciated,the ultimate legislative and gubernatorial intent behind the REGA initiative was to foster creation in REGA of an institutional force that could thereafter responsibly decide all Railbelt energy issues committed to it,credibly analyze and filter all Railbelt energy matters requiring legislative funding or other intercession,maximize the energy infrastructure's contribution to transforming Southcentral into a world-class economic juggernaut,and ultimately guide expansion of the electric grid and its benefits.With the continuity,knowledge,diversity and strong public interest foundation that would be imparted by the proposed governance,REGA in discharge of its mandated and REF activities would seem admirably suited to becoming such a credible and trusted custodian of the Railbelt's energy future. (v)Governance Summary and Further Evaluation The proposed governance for REGA should be fully functional to its operational needs, highly credible to its stakeholders and the public at large,and wholly responsive to the imperative that a primary public institution at all times promote the public interest.The governance would actually internalize and institutionalize a continuing and dynamic public process to function not only as guide and decision-maker for mandated REGA functions but also as an advisory forum on all Railbelt energy matters. As the present proposal is for non-traditional governance involving political/social considerations,it appears desirable for the governor's office to initially review the recommended governance.If that review favors the proposal at least to the extent of desiring further input,it might next be shared with the chairs of the legislative committees evaluating REGA legislation between sessions.At that point if still favorably received,feedback could be solicited from the governance's suggested participants as well as the public,and appropriate refinements suggested.Should it then be determined that these concepts are sufficiently attractive to constitute the basic governance structure for REGA,the final product would be includedin the package forfulllegislativeevaluationinthenextsession. Louis Agi '10/30/2009 REGA:Concepts for Governance and Beyond Page 18 IV.BEYOND GOVERNANCE Presented here and in the next section are two matters beyond the REGA process as committed to its consultant.Nonetheless,they seem very much appropriate concepts to at least surface now for exploratory consideration by the governor and legislature. (i).Grid Expansion A.Alaska Expansion:Assume we complement the existing north-south Southcentral transmission corridor of REGA by adding two north-south transmission corridors running through the west and east parts of the state,with all three corridors connected atessentiallytheirnorthandsouthapexes,”'and then add a shorter east-west connectingcorridorrunningmid-state approximately along the Yukon River.”The result of such a grid build-out or expansion is to encircle the body of the state within three contiguous and interconnected bulk energy or wholesale power transmission sub-grids.The further and critical result is that the collective grid would now permit the substantial majority of Alaska to enjoy feasible and comparable access to the grid and thereby share in a common electric infrastructure.Such an accomplishment would benefit the state in a number of important respects: 1.Societal Development:Because of our dispersal into largely isolated population groupings of greatly varying sizes over vast areas,our energy infrastructure -a primary determinant of societal well-being -is by most measures acknowledged as unsatisfactory over the substantial majority of Alaska. The suggested expansion of the bulk energy transfer grid,with its accompanying significantly enhanced economic and social entitlements and opportunities,will remedy that fundamental deprivation for our formerly unconnected Bush areas. Arguably,the suggested dramatic expansion statewide of the backbone electric grid would constitute our most effective unifying event since statehood and trulyfurtherdevelopmentoftheAlaskaidentity.”7 *!The longer west corridor might start on the North Slope at Prudhoe Bay/Deadhorse,proceed west over the NPRA,turn south on a line west of the NPRA that continues south over the Seward Peninsula and west of the Yukon River to near Bethel,and then loop southeast toward Dillingham and northeast back into the Southcentral grid north of Anchorage.The shorter east corridor might also start in the Prudhoe Bay/Deadhorse region,proceed south to near Stevens Village (with the present north terminus of the Southcentral grid also extended to this point),turn generally west along the Yukon until Eagle,and then proceed southwest along the Taylor Highway through the Tok/Northway area and along the Tok Cut-Off and Glenn (Richardson)Highway through Glennallen returning to the Southcentral grid north of Anchorage (under this routing the west and Southcentral corridors share a common leg to the north apex). 21 The mid-state segment might generally parallel the Yukon River from the west where the west corridor approaches the Yukon (from the north)to the east until connecting with the east corridor (and north terminus of the Southcentral grid)as it follows the Yukon to Eagle. 3 «Aan Alaska society with urban and rural Alaskans together nurturing and sharing this great land will cement Alaska's place as one of the world's great places.Make no mistake,if nothing more is done for rural Alaska than is now being considered all of Alaska will suffer both economically and a society.It is time for the Alaska Marshall Plan.”Byron Mallott,Anchorage Daily News (Compass),Sept.11,2008. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 19 2.Reduction of PCE and Related Payments:Delivery of power through the expanded grid would allow replacement of diesel-fired generation assets (with their removal to reserve status)and elimination of the substantial majority of the approximate $25 million annual PCE burden.For the substantial majority of state customers formerly served from diesel-fired generation but not eligible for PCE subsidy,there would necessarily be substantial reductions in their power bills and further savings to the state budget. 3.Reduction of Energy Costs:The reduction in PCE would not itself benefit the rural residential ratepayer.However,power delivered through the grid should drive down these residential rates below the capped limits and into the realm of reasonably affordable rates within a household budget.To the extent migration from the Bush is exacerbated by high energy costs,grid-provided power should also counter that negative and perhaps facilitate return where desired. 4.Business Stimulus:Reduction of power costs necessarily injects a stimulus for economic development in the Bush by allowing business/industry access to reasonably-priced power and power-dependent infrastructure.The impact of this consideration in finally encouraging feasible,Bush-based business/industry (which is also likely to accelerate once begun)should not be understated.It is probably the key dynamic in determining whether the Bush will permit viable lifestyles in the future. 5.Utility Investment Opportunities:It warrants separate mention that the presence of grid availability will open investment opportunities for regional and village native corporations in utility development,either by providing the links from the expanded grid to the local distribution utilities and/or by investing in such distribution utilities with their enhanced business profiles.Given the paucity of sound business opportunities for the corporations in the Bush,this might be a much appreciated consequence to the suggested grid expansion. 6.Employment:The employment opportunities created by the expansion should be exceptional over the five or more years required for the build, depending on how segmented and staged. 7.Local Generation and Security:The suggested grid expansion should not obviate the value of developing local sustainable power supplies where feasible.Such development would permit full retirement of existing diesel-fired generation and more economic replacement for reserve purposes It only promotes the security of any grid-dependent utility to have load (i.e.,serving-area)basedgenerationforworst-case grid outages. *4 It could also happen that a local area might develop a local sustainable power source that would actually be a competitive alternative to grid power.Whether such power could be used by the local utility,or any excesses sold to the grid or through the grid to other grid-dependent utilities,would depend largely on the REGA mandate,i.e.,whether it becomes a Path 4 entity utilizing all-requirements contracts with served Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 20 8.Grid_Reliability;The suggested grid expansion creating its three contiguous and interconnected looping sub-grids should produce a highly reliable and robust transmission grid throughout the state because of multiple redundancies that would be in place.In fact,the resulting grid should provide greater reliability even to Southcentral than is currently provided or will be provided through anticipated transmission enhancements. 9.Access to Renewables:A most significant benefit from the suggested grid expansion is that its interconnected sub-grids will result in greatly enhancing access to renewable energy resources.We will have opened the great majority of the state to development of any and all hydro,thermal,wind and tidal generation sources,as access to the grid would be pretty much equal and not overly long from wherever a desirable generation source might be situated. The suggested grid expansion would entail approximately 3,000 miles of new,high capacity transmission lines at an approximate cost of $6 billion.However,the development of the proposal here is nothing more than a conceptual overture.The concept will require more study before it can even be dignified as a preliminary proposal, including re-evaluation of the benefits and detriments from the expansion as well as determining whether the suggested routing can be made substantially more economic and/or effective.However,the REGA study for several reasons strongly suggests the advisability of at least surfacing the concept of grid expansion for consideration at this time. First,it appears somewhat inequitable to consider development of a grid-based long- range transmission and generation plan for one part of the state and not at least consider the merits,feasibility and even synergies of a similar and perhaps integrated plan for other areas.Second,this conceptual overture's projected $6 billion cost for the suggested expansion is of the same magnitude as the $2.5 billion-$8.1 billion ($5.8 billion for mixed resources future)projected range of required investment for the Southcentral grid over the next 30 years,so that there appears nothing outrageous at first glance to concurrent evaluation. Third,it is likely that in time the expansion proposed in this conceptual overture would be independently surfaced for consideration.But if consideration of the suggested expansion is deferred to such future indeterminate time,it will lose the benefit of evaluation during this present period when the coalescing of events and forces are generating unique and substantial forward momentum to devising long-term comprehensive solutions to our energy dilemmas.This is a highly propitious juncture in utilities.As suggested earlier in this memorandum,this REGA mandate is not likely to be established in the immediate future,and will probably depend on future REGA decisions.In this connection,the REGA governance earlier proposed would include not only the affected utility or utilities but also the APA,AML and the AFN,so that any ultimate REGA decision on this issue will have been preceded by full and fair debate. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 21 time to consider laying the groundwork for a dramatic extension of our electric infrastructure. It is respectfully recommended that the governor and legislature task a committee comprised of the persons earlier proposed for the public interest sector of REGA governance (including the public interest consultants)and AFN to provide a report for the next legislative session on the merits and drawbacks,including preliminary routing and costing,for the major Alaska grid expansion suggested in this memorandum.The report should also include a compilation of persons who might desire to appear before the legislature on the issue of grid expansion. B.Linkage to National Grid: As propitious as the present time may be for considering grid expansion in Alaska,it is dwarfed by the present national imperative to expand the domestic grid and bring on line substantial new sources of renewable energy.Many thousands of miles of new high capacity transmission lines will be built together with thousands of megawatts of new renewable energy generation,all at a cost of many billions of dollars.And when a national renewable portfolio standard (RPS)is congressionally mandated as seems likely pursuant to pending legislation this year or next,the contiguous states will most certainly require access to substantial new amounts of renewable energy not presently available below (national RPS is reportedly a key policy proposal of Obama administration; currently 30 states have RPS in effect). It is in fact very difficult in any assessment of the emerging national landscape for major transmission/renewables projects to overstate the vast scope of this new market over the next 20 years or more,its great fluidity at this time and its consequent potential for new approaches and entrants during the present launch period.Alaska of course has excellent and varied renewable energy resources vastly in excess of our in-state needs.This huge excess could become reasonably accessible through the suggested grid expansion to materially meet the contiguous states'current and evolving state and national renewable energy requirements.Accordingly,this memorandum recommends that we undertake a study to provide a credible (even if preliminary in its first level)overview of the nature, location,transmission options and size of national markets potentially available to us under various scenarios (including usable cost estimates of options for the expanded grid and exit routing to national markets).FERC and NERC involvement must also be analyzed.All told,this will not be an easy undertaking. But if our study supports accessing the national market,such linkage would create an opportunity for Alaska to become the site for development of large-scale renewable energy projects by outside utilities alone or in consortiums and under more favorable resource,cost,population,regulatory and/or other circumstances than might be available in the contiguous states.Alaska would benefit from the business stimulus,job opportunities and resource income streams created by the construction and operation of the new generation projects,as would an expanded Alaska grid with such new transmitters paying a fair transmission tariff.It is also conceivable that the grid authority or other Alaska interests might construct such renewable energy projects for the Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 22 contiguous states'utilities under suitable long-term power agreements or otherwise favorable situations (depending on how aggressively Alaska might choose to enter the contiguous states'energy markets).As an ultimate extrapolation,Alaska may find its renewable resources will become as valuable to it and the nation as its hydrocarbon resources had ever been. Returning to present tasks,however,it appears prudent to undertake certain activities now on the assumption there may be interest in exploring national linkage.Establishing national linkage will be extraordinarily and probably prohibitively expensive for Alaskatoundertake,so that resort to federal assistance will prove necessary.”>Indeed, considering that linkage would be in furtherance of strong national policies, contemplation of federal involvement appears very appropriate and might also justify some level of assistance in development of the facilitating (i.e.,necessary platform for national service)expanded in-state grid which will be hugely expensive as well. DOE has been traditionally involved in encouraging and developing transmission projectsforrenewableenergy.”°As anticipated in the note,DOE under the nearly $800 billion American Recovery and Reinvestment Act of 2009 (ARRA)is now the primary federal agency for distribution of the substantial majority of some $70+billion for direct investment (and another $20+billion for indirect investment)in clean energy,including projects involving renewables and transmission (other federal agencies are also involved and some have significant additional monies of their own for appropriate energy project investment).DOE's administration of these funds is apparently still somewhat tentative and uncertain,with the absence of foundation regulations and forms complicating the process of determining what might be available for particular projects and applicants. 25 From Tok/Northway near the Canadian border on the expanded grid to Eastern Montana (or other possible entry portal for Midwest ISO),as one point of possible entry into the interconnected United States grid,is a distance of approximately 2,000 or more miles.Somewhat shorter linkages in the 1,500-mile or less range may be possible from the same or another exit portal to existing or proposed entry portals in British Columbia or Alberta in order to access the Western Interconnect grid.The cost for these linkages would probably range from $2-$5 billion each,and appear well beyond Alaska's individual capacity to fund together with in-state grid expansion. 26 There was even a DOE solicitation of proposals for worthwhile projects from at least publicly-owned utilities late this past year.The October 22,2008 memo to ML&P General Manager James Posey from the Northwest Public Power Association,through its Government Relations Consultant,provided in relevant art:P We recently received an informal request for information from the Department of Energy (DOE)... DOE's Office of Electricity Delivery and Energy Assurances is looking for actionable input from industry on ways to encourage development of transmission for renewables and,in other ways, improve the efficiency of the U.S.grid.It is anticipated that ...the new President will want to spend money in these areas,to promote greater energy independence and reduce carbon emissions. *KK DOE is seeking suggestions for specific projects that could be funded by DOE to promote these goals. This is a good opportunity for public power to be proactive on the issue and provide positive solutions that are beneficial to our members. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 23 But two matters seem clear.As of this writing,ARRA appears to have several billion dollars (perhaps as much as $6.5 billion)uncommitted and available for study and development of renewable energy projects including transmission projects.It also seems a certainty that DOE,as it has in the past,will continue to encourage and develop worthwhile transmission/renewable energy projects,and will be active before Congress for many years to come in recommending future funding for desirable transmission/renewable energy projects. It therefore seems desirable to attempt in this time period to establish contact with responsible DOE officials to inform them of the possibility of an Alaska national linkage project and what its benefits might be.These would include the overriding concern of insuring availability of increasingly constrained renewable energy resources to a nation that has made their increasing utilization an urgent priority for the next generation.In this connection,there additionally appears to be mounting interest and effort by the Department of Defense and other federal bodies to secure their own renewable resources for their own loads in the contiguous states,which could offer a supporting synergy for national linkage to access vast federally owned renewable resources in Alaska.There should also be recognition of a legitimate national interest in enabling Alaska to compete for domestic markets on equal footing with contiguous states,particularly if the effort under consideration is otherwise soundly premised in the national interest and its cost appears reasonably related to that national interest even if beyond Alaska's individual capabilities.The foregoing suggests it is not unreasonable to believe that DOE might ultimately consider undertaking the construction of one or even several highly efficient approximate 2,000 mile DC or 765 kV AC transmission lines linking the interconnected U.S.grid to an expanded Alaska grid as sufficiently in the national interest to warrant federal involvement. But more limited for now,it is hoped that a present contact might secure an informal indication from DOE that a national linkage project appears sufficiently meritorious to warrant further exploration.In addition to possibly supporting our investigation of the in- state grid expansion recommendation,such preliminary indication could lead to further discussions that define an appropriate study plan as earlier referenced,perhaps with DOE participation (as appears to have been the case with the WREZ initiative discussed shortly)and even funding (it is also possible that aspects of this study plan might influence parameters of our in-state expansion study as a great deal of interdependence is present).Such DOE participation in an Alaska linkage study seems our best guarantee that the final product will provide as professional and valid an analysis as all interested parties could desire. It should also be observed that if the study's final product is an Alaska national linkage project that warrants development,is supported by DOE and requires federal funding,it is probable that the project will necessitate separate Congressional action in the next year or two.It appears unlikely a sufficient amount of present Stimulus funds would remain uncommitted until our project is ready for financing.However,all indications are that Alaska linkage would constitute a sufficiently compelling and unique project to reasonably anticipate favorable action by Congress. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 24 Another matter to pursue at the present involves The Western Renewable Energy Zone (WREZ)initiative.It was launched in May 2008 by the Western Governors'Association (WGA)and DOE,with both providing staff and technical support (at least as to DOE). WREZ includes 11 states,two Canadian provinces (British Columbia and Alberta),and certain interconnected areas of Mexico. WREZ?'s four-phase mission is to (1)identify zones within the initiative having the highest renewable energy potential;(2)develop "conceptual”transmission plans for moving the identified resources to load centers;(3)stimulate commercial development of zones and transmission projects by coordinating procurement steps across jurisdictional lines to create critical market mass;and (4)facilitate cooperation on siting and other issues that have delayed cross-state generation-transmission projects. The initiative is moving quickly,with identification of zones to be completed June of this year,and transmission studies by the fall of 2009 or early in 2010.Assuming our serious interest in pursuing the possibility of national linkage,then access to the western interconnected grid through either or both British Columbia or Alberta must be considered as a likely scenario.It would therefore serve our and WREZ interests to be reflected in the latter's planning as soon as possible to whatever extent useful for planning (and we do have useful inventory of Alaska renewable resources to share).An early and very preliminary WREZ response indicated that Alaska participation would be welcome. Accordingly,it is respectfully suggested that the governor and energy committee chairs authorize providing DOE with the opportunity to consider whether construction of the transmission link from Alaska to the national grid is a project it might deem worthy of further development.It is further suggested that an appropriate contact be made with WREZ to reflect our interest in being included as a potential resource in its planning. The design efforts by both the grid expansion and national linkage teams should then reflect that potential market as a desired option to the extent feasible market interest is received. (ii).North Apex Generation and Royalty Gas The REGA study makes clear that the facilities cost of natural gas generation is one-third or less than the cost of hydroelectric generation.However,the commodity supply and pricing uncertainties associated with Cook Inlet gas and the commodity pricing,time and pipeline commitment uncertainties associated with North Slope gas have contributed to a crisis atmosphere surrounding present planning for the Railbelt energy future. Accordingly,the strong suggestion is that we shy away from continued significantdependenceonnaturalgasinfavorofsubstantialhydrodependenceinthefuture.?' Perhaps even more unsettling the chaotic gas supply and pricing circumstances are creating critical adequacy concerns for the immediate and near future,as well as electric 27 The REGA suggestions will be subjected to more definitive testing in the IRP that will be prepared by another consulting group,although a similar result is likely to be embodied in the IRP absent significant situational changes in natural gas markets for the Railbelt utilities. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 25 utility pricing for most residential customers in Southcentral that promises to increasingly strain already over-stressed personal budgets.There is also the situation of GVEA in Fairbanks,which must use oil-fired generation at prices buckling the citizenry. The above well-known dilemmas prompt the recurrent and fundamental question of how Alaskans can be so brutalized by energy costs while sitting atop huge gas reserves. However,it is possible the state in the near future can substantially alleviate these gas supply and pricing problems if we decisively move forward with the early stages of grid expansion and are not afraid to examine conventional wisdom. REGA might as a first leg for the expanded grid undertake building the Southcentral corridor's northern extension to the north apex at Prudhoe Bay/Deadhorse (which leg as earlier noted also includes the north leg of the east corridor).This north apex of the expanded grid would appear a very desirable location for siting a principal generation facility for serving the expanded grid.It would directly and simultaneously feed all three north-south corridors from the north (as well as indirectly feed the mid-state corridor from the north),and thereby contribute to the wide dispersal of major generation feeding the grid and significantly enhance overall grid reliability in the event of outages forwhateverreasonatotherprincipalgridgenerationpoints.”* The generation facility to be built at the north apex would be natural gas,the lowestcapitalcostgenerationutilizingthelocation's most immediately available fuel source.” The initial size of the facilities would be relatively modest,probably geared to replacement of GVEA diesel generation,replacement of CEA generation assets retired in the period preceding the build and within five years thereafter,and assuring the adequacy of power supply in the event of curtailment by Cook Inlet producers.Because natural gas generation facilities are relatively modular,additional units of desired capacity may be added as warranted by future circumstances,such as substantial segments of the expanded grid coming on line,delays or other difficulties with Susitna coming on line, difficulties with particular utilities bringing their next anticipated generations of power production on line,and meeting load increments for particular utilities that may stresstheirexistinggeneration.*?However,there are questions concerning natural gas generation at the north apex. ?8 Thus,the three north-south corridors of the expanded grid would be fed from the south apex by Bradley Lake hydro (with significantly enhanced transmission capability/reliability into Anchorage via the Quartz Creek build assumed likely in the REGA report)and CEA/ML&P natural gas out of Anchorage.In the central region,the Susitna hydro project approximately ten years into the future will be able to serve directly,if desired,the Southcentral,east and mid-state corridors and so would function as an east nexus for the grid with principal generation available there.The projected Healy coal and Chakachamma hydro projects could also in time be available to the grid in the central region. 29 It is also worth mention here that this northern transmission leg will likely track the Haul Road for the great majority of its length,which should entail construction cost substantially lower,perhaps half as much, as those used in projecting the cost of the expanded grid as a whole. '30 Moreover,if Alaska accesses the national grid,it is conceivable that we might locate good markets for natural gas generation from this apex.Even though strictly speaking not renewable energy,natural gas is considered generally clean fuel that is still a preferable generation source.And as to renewables,it shouldbementionedthatthereapparentlyexistsitesforlargescalewindpowerwithratedpotentialsfrom Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 26 As to where the gas will come from,the most logical and desirable source is through useofthestate's royalty share from leaseholder commercial production on the North Slope.*! This immediately raises the issue of whether that gas can be made available to the state in the absence of current commercial production,which ordinarily triggers and defines thestate's royalty entitlement.°*But while acknowledging the issue,it is a matter for the leaseholders and state to resolve so that it would be inappropriate to address here how such a negotiation should or might proceed.However,the myriad of issues and mutual interests always present between them suggests it is very unlikely that DNR and its highly competent oil and gas counsel would be unable to reach a mutually equitable arrangement with the leaseholders for advance access to royalty gas if the state so desires. On the assumption the advance entitlement will be allowed,the question is whether the royalty gas will be delivered under conditions that remove quantity,price and other uncertainties and,further,truly promote the public welfare.Absent such beneficial consequences,the attractiveness of north apex generation diminishes. Traditionally,DNR makes available royalty products at competitive bid or market price (depending on whether taken in kind),which revenues are then deposited with the state excellent to superb (i.e.,classes 5-7)accessible to this apex from the west (if we continue the grid as contemplated for just the north NPRA segment)and almost immediately to the east (on the ANWR plain, which considering the societal interest involved might be made available for this purpose).Moreover,it should not be overlooked that Susitna is currently being sized only for the Railbelt market but can potentially be re-sized quite substantially to simultaneously serve the national market if we were to access it.Other hydro as well as significant geothermal (including volcanic)resources also appear accessible to the east corridor at points between the north apex and where the east corridor might join the national link earlier proposed).It must be kept in mind that under discussion are some possibilities for accessing large scale renewable energy generation to serve a national market from only a partial early build of the expanded grid to the north apex region.The expanded grid when completed will offer considerably more possibilities for accessing large scale renewables to serve the national market,perhaps none more fascinating and potentially valuable than that which could materialize from the southwest or Dillingham area of the expanded grid.From that area,the Alaska Peninsula merges into the Aleutian Chain and the start of the continental United States'greatest expanse of ocean (primarily wave but also tidal)resources for renewable energy.Technology for converting ocean resources to generation is not yet at the point of commercial availability,according to AEA information.However,assuming as early as a ten-year build- out for the expanded grid,that may be sufficient time not only to see realization of commercially practical ocean generation but its installation on line in conjunction with completion of the expanded grid. 3!In discussing royalty gas hereafter,it is understood that the Point Thomson situation may potentially add a useful dimension.Also,if it should come to pass that REGA generation from the north apex would enter the national market,natural gas utilized for that production would seem to be commercial production sold by the producer to REGA and not royalty gas.In this connection it must be at least commented that the sale of North Slope commercial gas to REGA for generation of power sold to the contiguous states could constitute a very substantial market for the leaseholder(s)and the consequent source of commensurately substantial royalty and tax benefits to the state -all without need of pipeline but which could also nicely continue concurrently with pipeline transmission to the contiguous states if and when in place. 32 Actually,we would be looking to access royalty gas approximately five-six years into the future,which is the probable length of time that would be necessary to design,build and install the transmission line and generation facility,allowing approximately one-two years for resolution of the foundational issues being considered and assuming favorable resolution. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 27 for redistribution by the legislature as deemed most appropriate for promoting the general welfare.However,while making royalty gas available to REGA from and at the North Slope would remove uncertainties with regard to assured quantities as well as the ratepayer dangers inherent in "open season”or other capital/long-term commitments for pipeline transport,pricing at varying world prices would not remove price uncertainties. Moreover,any attempt by DNR to provide a fixed and long term pricing at a substantial percentage of market would do nothing to lighten the burdens on households and businesses,let alone provide material economic stimulus and quality of life enhancement. What would be truly beneficial is for the state to eliminate or very substantially minimize the payment for royalty gas it makes available to REGA at the north apex.REGA could then make the resulting generation available to (at this time)the Railbelt utilities on terms deemed most equitable by its governance,probably through capacity allocations according to dependency and subject to some trading (similar to Bradley Lake but in a reverse configuration)and at an average pricing blending in all generation REGA provides utilities.The result should be stable,very affordable electric rates to residential consumers that will also provide meaningful stimulation to the economy. The state of course recognizes that the common good is significantly advanced when primary living expenses and business costs are lowered as much as possible.In respect particularly to energy costs,the legislature only this year passed a handsome rebate to offset dramatic spiking in fuel costs.In past years also,the legislature has continually displayed sensitivity to the primacy of reliable,affordable and economically productive electric infrastructure through substantial PCE funding,generous capital grants and other dispensations and disbursements.It has also repeatedly,but not infrequently with questionable effectiveness,recognized the propriety of using royalty product sales to stimulate jobs and economic benefits. The public interest intended to protected and advanced by the suggested price waiver or minimization for north apex royalty gas is therefore an unquestionably valid legislative objective.This use will also provide the most perfect utilization of the asset for its intended purpose,as fully-priced sale to the ratepayers for a revenue stream that would subsequently be returned to them through legislative appropriations is fraught with opportunities for diversion and compromise.For these and other reasons that may be explored at a later date,the last question for present consideration is whether in a proper case such as may be presented here is it obligatory to prohibit transfer of the royalty gas to REGA for no or substantially minimized price? In actuality,our statutory scheme recognizes in AS 38.05.183 that DNR may waive competitive sale in disposition of a royalty product when in the state's best interest, including specifically in dealing with electric utilities after making appropriate findings of consumer and other benefits and detriments.The finding is subject to legislative review and approval.The DNR determination is further subject to prior review under AS 38.06.050 by the Alaska Royalty Oil and Gas Development Advisory Board for consistency with specified (essentially public benefit)criteria,with the Board then to report to the legislature. Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 28 wn The scheme reflects the ultimate reality that decision on whether to permit the suggested disposition of royalty gas to REGA is for the legislature.However,because the issue is so closely connected to REGA formation,the expanded grid and related matters that will concurrently be before the legislature,it may be advisable to somewhat alter the mode for presenting the royalty issue so as to align it with presentation of the REGA matters. Accordingly,it is respectfully recommended that the committee constituted to explore REGA grid expansion be enlarged to include the Royalty Board Chair.The tasks of the committee will expand to include evaluation of whether advance royalty gas on the north Slope should be made available to REGA at no or substantially minimized cost (or at some other value that may be deemed more appropriate),considering particularly the applicable criteria specified in AS 38.05.183(h)and AS 38.06.070 as well as other matters believed relevant.The committee should also compile a list of persons who might care to testify on this royalty issue before the legislature. V.CONCLUSION The REGA report observes that decisions over the next five years will provide the foundation for our energy future over the next 50 years.This memorandum has offered certain concepts to implement the report's proposal with maximum fidelity and effectiveness,as well as further concepts to advance the proposal into areas and activities not previously thought achievable.If recommended analyses of the concepts prove favorable,the memorandum offers a vision of our energy future for the second 50 years of statehood and beyond that will be unifying,secure and highly conducive to social and economic growth for Alaska while significantly addressing urgent concerns of the nation. Louis Agi Louis Agi 10/30/2009 REGA:Concepts for Governance and Beyond Page 29 Alaska Energy Authority Railbelt Electrical Grid Authority (REGA) REGA Study Technical Conference -Summary Notes July 10,2008 Black and Veatch presented the preliminary results,conclusions and recommendations of the REGA study.The study recommendation is to form a State authority to be responsible for planning,generation and transmission of electricity to the railbelt. Comments were given by members of the public including:railbelt utility general managers,members of the regulatory commission of Alaska,environmental organizations,ratepayer advocates,state government managers,business leaders and others.The meeting was the third opportunity for input into the project. Primary drivers in effort to establish regional entity Providing reliable and sustainable energy to the railbelt into future will require large projects.Alone,none of the utilities has the governing or financial capacity to accomplish them. The Governor has asked for an integrated energy plan,if the utilities do not work together to establish a plan the State will not fund new projects. The cost of energy is rising with no decrease in cost in the foreseeable future. The infrastructure of energy generation along the railbelt is aging and will need to be replaced. There is currently no integrated resource planning for the railbelt. The natural gas future is unclear in the Cook Inlet;energy generation may rely on a different resource in the future. Localized planning had a purpose but the time has come to move to regional planning.State participation is required to some degree.If things remain the same we will not be able to afford our future. Overarching comments about the concepts presented in the draft report The best structure is the one that beings the lowest cost to consumers. Residential costs cannot increase without negatively impacting customers,even a $10 increase could hurt some seniors and the AARP is concerned about that. The study does not address uncertainty surrounding the energy source but focuses on the best business structure to provide generation and integrated resource planning. Models used to develop output including all assumptions should be made publicly available. DRAFT notes from AEA REGA Technical Conference Page 1] Summary provided by Information Insights July 10,2008 What is the best business structure for a regional energy authority for the railbelt? State authority e A State authority would likely be able to finance with the lowest rate,decreasing debt by many millions of dollars on large projects. e There is some concern about oversight if the State authority model is implemented and the Regulatory Commission of Alaska (RCA)is no longer an appropriate entity to oversee utility business.Citizenship involvement is important in developing any model and in the ongoing planning for energy development. e Independent power producers can be an important source of revenue for local economies,opportunities for these producers must continue to exist. G &T co-operative e G&T co-operatives are common in the lower 48,if all utilities commit to operating as part of the co-operative rather than in their local silos then this model could work. e Multiple small entities make financing and developing big projects difficult. e RCA would continue to provide regulatory oversight of a co-operative. Business as usual e Utilities are operating in a more cooperative way with one another than they have historically but are still not able to deliver regional integrated resource planning and do not enjoy the economies of scale that a larger entity would. e There is real risk if the planning does not get done.What will be the next resource and next generation opportunity for the region?What will happen if we don't plan? e There is general agreement that the utilities cannot continue to operate as they have historically. Tax exempt financing e Tax exempt financing will save millions in debt service on the types of large capital projects that will be necessary to provide reliable and sustainable energy for the railbelt into the future. e Ability to get tax exempt financing is just one variable that determines what rate an entity will pay.Other variables include:market volatility,underlying credit of the project,manner in which the state participates,and "it is always better to be lucky than smart”in getting a good rating. e Regulatory oversight will always be a negative in getting a good rating. e Having a positive track record and getting familiar with underwriters will increase chances of getting good rating. e Decide ona structure for the entity and then begin the process of getting to know the people who control the financing. DRAFT notes from AEA REGA Technical Conference Page 2 Summary provided by Information Insights July 10,2008 e Native corporations have access to financing at rates that are more attractive than traditional businesses,closer to tax exempt rates.Native corporations might be interested in being partners in a new entity if it 1)provides services to their region and 2)makesa profit. Where do the railbelt utilities stand? e MEA:not ready to take a position,board needs to assess report. e GVEA:has a prediction that it will take a stronger incentive than is currently present to force regionalization.Gas going north could stall the effort since there will be less of an immediate need.Optimistic something will come of the process, some sort of IRP,but not sure exactly what it will look like. e ML&P:board of directors has not vetted the report recommendations.Personal opinion is that the utilities are recognizing that they are in this together and need to look long-term. Chugach:made statements in favor of a regional authority Seward:the report will be discussed at the next board meeting next week. Personal opinion is that maybe the time has come for a regional authority of some kind. What next? e There is a nearly perfect storm forcing cooperation to create a solution to;utilities are being held up by old fears of losing something. e The next steps are a cooperative effort with the utilities,the public,the environmental community and the State to address the needs of the network.AEA will assess the recommendations and public comments and immediately begin consulting with utilities to seriously look at forming a new regional entity. e There is value in this collaborative process but some action is needed to demonstrate that regional resource planning is occurring.The state is flush with cash right now;it is a good time to approach the legislature with a plan. e Stakeholders can communicate directly with Kevin Harper at Black &Veatch HarperKM@bv.com Note:This summary is intended to capture the primary points raised during the meeting. Statements inn the summary may not represent the views of the majority of participants. There were no votes taken on recommendations and virtually all utility participants expressed a need to view the details of the Black &Veatch report and discuss results with their Board of Directors. DRAFT notes from AEA REGA Technical Conference Page 3 Summary provided by Information Insights July 10,2008 .15-07KevinM.HarperPrincipalConsuttantENTERPRISEMANAGEMENT SOLUTIONS BLACK:&VEATCH ,building awo rid of difference ENERGY WATER INFORMATION GOVERNMENT | 25413 SE 37th Street -Issaquah,WA 98029Tel:425-427-1652+Cell:425-941-6061 -harperkm@bv.comR.J.Rudden Associates -Lukens Energy Group Fortegra Myron R.Rollins Project ManagerENTERPRISEMANAGEMENT SOLUTIONS EB,BLACK &VEATCHbuildingaWOT!Gof difference™ ENERGY «WATER e INFORMATION e GOVERNMENT 11401 Lamar Avenue -Overland Park,KS 66211Tel:913.458.7432 »Fax:913.458.3817 +Cell:913.481.7349 +rollinsmr@by.comR.J.Rudden Associates «Lukens Energy Group . Doland Cheung,P.E*Consultant . ENTERPRISE MANAGEMENT SOLUTIONS EB,BLACK &VEATCHbuildingaworldofdifference» U-iS-o7 ENERGY WATER INFORMATION GOVERNMENT 800 Wilshire Blvd.,Suite 600 +Los Angeles,CA 90017 USA Tel:213.312.3329 »Fax:213.312.3399 +Cell:213.447.7933 -cheungd@bv.comR.J.Rudden Associates -Lukens Energy Group "Licensed in CA Mare Marlow Vice President ;cell (907)229-81229WhitneyRoadoffice(307)278.7263AnchorageAk99501-fax (907)278-7448 marlow@ak.net Technical Conference:__Alaska-Railbelt Electrical GridAuthority-- Is there a need for an independent system operator to manage and dispatch electric power in the Alaska Railbelt Electrical Grid? Agenda Monday,November 26,2007 7:00am 'Registration and Coffee 8:05am Welcome and Introductions:Ron Miller,Executive Director,AEA -Tony Price,Chairman,RCA Master of Ceremonies Brad Janorschke,HEA 8:20am Opening Address Governor Sarah Palin 8:50am Break 9:00am SESSION 1 The Railbelt Electrical Grid What is it?How was it built?Who owns it?Who controls it? How is it managed and regulated? Moderator -Dan Rogers,EPS 4 History of the Railbelt,Henri Dale,GVEA &How It Operates:Brian Hickey,CEA'©Network Agreements:Tuckerman Babcock,MEAdAlaskaInterconnectedRailbeltElectricalSystem:Don Edwards,Dorsey &Whitney 11:20am Break _-_- 11:30am SESSION 2 REGA Project Approach and the Unique Alaska Grid:Kevin Harper,Black &Veatch,REGA Study Consultant12:15pm Buffet Lunch and Luncheon Speaker -12:45pm_Lower Cook Inlet Gas Deliverability,New Operational Regime"and Reliability Risks:Tony Izzo,TMI Consultants e ;Cook Inlet -Natural Gas Industry Perspective:T.Mitch Little,Marathon Oil3:30pm Break1:40pm SESSION 3 Planned and Potential Developments {in theRailbeltGrid Moderator-Jim Posey,ML&PwAddressingNewGenerationNeedsofAlaskaRailbelt Utilities: Randy Hobbs,TiqunYGasFuturesfortheRailbelt:Harold Heinz,ANGDA c_Renewable and Alternative Energy at $95 oil and $800 gold: Kate Lamal,GVEAaLevelPricedEnergyfortheRailbelt:Steve Gilbert,enxXco@-ML&P/Chugach Proposed Merger:Liz Vazquez,CEA3:10pm Break 3:20pm SESSION 3 continued Moderator-Jim Posey,ML&P New Generation Plans:MEA's Public Process:Lorali Carter,MEA Q Hydropower Prospects for Southcentral Alaska,(Susitna and 4 Chakachamna Projects):Eric Yould,Wood Canyon Group Mine Mouth Coal Fired Power Plant:Steve Denton,Usibelli i¢AEA Renewable Energy Programs:Peter Crimp,AEA§:00p:Adjourn Agenda Tuesday,November 27,2007 7:30am 'Registration and Coffee ; 8:30am SESSION 4 Financing Energy Infrastructure _loderator -Dick Schober,Seattle-Northwest Securities G (Frank Ingras ldman,Sachs &Co.--- 7)'aul Blood Oldman,Sachs &Co.- ¢_Ken Vassar,Birch Horton Bittner and Cherot- 9:30am Break 9:45am SESSION 5 The Future of the Railbelt Electrical Grid Moderator-Steve Haagenson,GVEA c Future Generation Options:Mark Foster,Mark Foster &L-Associates&Future Transmission Options for the Railbelt:Bill Stewart,CEA 10:45am Break -_ 11:00am SESSION5 continued Moderator:Steve Haagenson,GVEA C Regulatory Factors:Robin Brena,Brena Bell &Clarkson L l_-4a Political Factors:Norm Rokeberg,Retired Legislator v . 12:00pm Buffet Lunch and Luncheon Speaker12:30pm Integrating Wind Energy into the Railbelt Grid Grant Brohm,WindLogics,Inc. 1:15pm Break 3:00pm .Break:. 3:15pm Round-Up continued D-UP Railbelt Issues Development Round Tabie Facilitated by Brian Rogers,CFO,Information Insights x5:00pm Adjoum ae Mowe ty Gack!LinancgeYGYollorwenCSnort) +Oud:dire."Wo gaad)trun (Reon"i. Rolo.;fre«mkadVecety © Technical Conference -Al os segeaerenen in mE ENERGY AUTHORITY ical Grid Authority x"apie've ee aska Railbelt Electr TLE Is there a needfor an independent system operator to manage and dispatch electric power in the Alaska Railbelt Electrical Grid? November 26 &27,2007,Anchorage Sheraton Hotel,401 East Sixth Avenue Agenda Monday,November 26,2007 7:00am 8:05am 8:20am 8:50am 9:00am 11:20am 11:30am 12:15pm 12:45pm 1:30pm 1:40pm 3:10pm 3:20pm 5:00pm Registration and Coffee Welcome and Introductions Ron Miller,Executive Director,AEA Tony Price,Chairman,RCA Master of Ceremonies Brad Janorschke,HEA Opening Address Governor Sarah Palin Break SESSION 1 The Railbelt Electrical Grid:What is it?How was it built? Who owns it?Who controls it?How is it managed and regulated? Moderator -Dan Rogers,EPS History Henri Dale,GVEA How It Operates Brian Hickey,CEA Network Agreements Tuckerman Babcock,MEA Regulatory Structure Don Edwards,Dorsey &Whitney Break SESSION 2 Project Approach and the Unique Alaska Grid Kevin Harper,Black &Veatch,REGA Study Consultant Buffet Lunch and Luncheon Speaker Lower Cook Inlet Gas Deliverability,New Operational Regime and Reliability Risks Tony Izzo,TMI Consultants Gas Deliverability from a Producers'Standpoint -T.Mitch Little,Marathon Oil Break SESSION 3 Planned and Potential Developments in the Railbelt Grid Moderator -Jim Posey,ML&P Qualifying Facility CT Project Randy Hobbs,Tiqun Gas Futures for the Railbelt Harold Heinz,ANGDA Renewable and Alternative Energy at $95 oil and $800 gold Kate Lamal,GVEA CIRI's Fire Island Wind Farm Steve Gilbert,enXco ML&P/Chugach Proposed Merger Liz Vazquez,CEA Break SESSION3 continued Moderator -Jim Posey,ML&P New Generation Plans:MEA's Public Process Lorali Carter,MEA Susitna Project and Chakachamna Hydro-Geothermal Projects Eric Yould,Wood Canyon Group Mine Mouth Coal Fired Power Plant Steve Denton,Usibelli AEA Renewable Energy Programs Peter Crimp,AEA Adjourn Day 1 draft_agenda Wednesday,November 21,2007 1:01 PM =I=MES =ENERGY AUTHORITY Sa pony ce tgTechnicalConference-A aska Railbelt Electrical Grid Authority Is there a needfor an independent system operator to manage and dispatch electric power in the Alaska Railbelt Electrical Grid? November 26 &27,2007,Anchorage Sheraton Hotel,401 East Sixth Avenue Agenda Tuesday,November 27,2007 7:30am 8:30am 9:30am 9:45am 10:45am 11:00am 12:00pm 12:30pm 1:15pm 1:30pm 3:00pm 3:15pm 5:00pm Registration and Coffee SESSION 4 Financing Energy Infrastructure Moderator -Dick Schober,Seattle-Northwest Securities Paul Bloom,Goldman,Sachs &Co. Frank Ingrassia,Goldman,Sachs &Co. Ken Vassar,Birch Horton Bittner and Cherot Break SESSION 5 The Future of the Railbelt Electrical Grid Moderator -Steve Haagenson,GVEA Future Generation Options Mark Foster,Mark Foster &Associates Future Transmission Options Bill Stewart,CEA Break SESSION5 continued Moderator:Steve Haagenson,GVEA Regulatory Factors Robin Brena,Brena Bell &Clarkson Political Factors Norm Rokeberg,Retired Legislator Buffet Lunch and Luncheon Speaker Luncheon Speaker tba Break ROUND-UP Railbelt Issues Development Round Table Facilitated by Brian Rogers,CFO,Information Insights Steve Colt,Institute of Social and Economic Research,University of Alaska Anchorage Break Round-Up continued Adjourn draft_agenda Wednesday,November 21,2007 1:01 PM remPeeeereTNE SeSeance a Historyofthe Railbelt November 26,2007 °seersnamaeeranLES:.aeson8Y"s ..\a :::i :;:-|HenriDale Na TR ge ab foyonBS,can ie he ca e fog can ul ot "fe :a :é i3 ny x3 veroGolisaalepHEME Naan -ee .a Your Touchstone Energy”Cooperative KI ware,"heatnny e COMMUNITIES a GENERATION PLANTS ba .4H penal pict come >>¢Sheeran ie aepeeriyt VICINITY HEALY CADET-NOTA PLEencaseEHHODHYome AOL PY Le OTE TENTIAL WORTHPOLS G7YEAD emacsPOTASOTPOAT]a Aner ware?s ATIONS mew [as @NEHOA Pose ¢)tJ mn ag OTTER 9abow eKnnom, SOAs iTerET>SadeRasenewepeei-TRANEMISSION LINES a CENTRAL ALASKA TRANSMISSION LINES The Railbelt Today GVEA MEA AMLP CEA SES HEA en a op The 1940's _ eon ere 1941 MEA incorporates. my 1942 City of Anchorage buys Eklutna project from Anchorage CENTRAL ALASKA Power and Light 1942 Reed to Eklutna (old Eklutna hydro 1928) 1945 HEA incorporates 1946 GVEA incorporates 1947 Sacketts Harbor 1948 CEA incorporates 1949 AMLP Diesel Plant ro CENTRAL ALASKA TRANSMISSION LINES a |ae . gm@arcm me CENTRAL ALASKA eDmLE, CENTRAL ALASKA TRANSMISSION LINES The 1950's 1950 HEA energized 1951 Chena 2 1951 Chena 3 1952 Purchase FE Plant 1953 CEA-MEA PSA 1954 Chena 1 1955 Eklutna 1&2 1958 CEA takes over KAPP 1958 115 kV line to Portage 1959 Alaska Statehood 1959 Kenai Gas Fields The 1960's 1960 ZNS-FWS-69 (FWP) 1960 FWS-HPS-69 1960 Cooper Lake 1&2 1962 FWP &FGP 1962 AMLP unit 1 1962 AMLP unit 2 1962 115 to Kenai 1964 International 1 1964 SES 1 1964 SES 2 1964 Good Friday EQ 1965 International 2 1965 HPS-JRS-69 ELP 1965 AMLP unit 4 1967 HLS-GHS-138 1967 Healy Power Plant 1967 Fairbanks Flood 1967 GHS-FWS-69 1968 ZNS-CHS-69 GV&FMUS 1968 138 kV line to Beluga 1968 Beluga 1 1968 Beluga 2 -CENTRAL ALASKA TRANSMISSION LINES 1969 International 3 CENTRAL ALASKA TRANSMISSION LINES The 1970's 1970 APUC created 1970 Chena 5 1971 FE plant shut down 1971 Bernice Lake 2 1971 ZNP GT1 1972 ZNP GT2 1972 Beluga 3 1973 TLS-Big Lake 115 1975 AMLP unit 5 1975 Beluga 5 1975 Beluga 6 1976 Chena 6 (DPP) 1976 FWS-NPS-138 1976 HPS-NPS-69 1976 APA created 1976 NP GT1 1977 NP GT2 1977 TAPS 1978 JRS-JCS-138 1978 Bernice Lake 3 1978 Beluga 8 1978 AMLP unit 6 1979 AMLP unit 7 CENTRAL ALASKA TRANSMISSION LINES The 1980's 1980 SES 3 1981 Bernice Lake 4 1983 CEA AMLP interconnect agreement and 230 kV yard 1984 GVEA SCADA 1984 SSS-PGS-69 1984 AEGT formed 1984 SES 4 1984 SES 5 1985 Alaska Intertie 1985 AMLP unit 8 1985 GHS-FWS-138 1985 Soldotna 1 1985 CEA SCADA 1986 Susitna dies 1986 SES interconnect agreement 1987 Tripartite Agreement (CEA & AEGT) YICINITT eo QM rasscren "es CENTRAL ALASKA eB, pega Fe wevonme /9PAS,;wm fhe ie ./4Crae)qe ee>ee 2 pee soma a a oA pyyp . v CENTRAL ALASKA TRANSMISSION LINES The 1990's 1991 BLH 1&2 1994 Peace in the Valley (SILOS) 1996 GHS-FKS-138 1997 GVEA acquires FMUS 1996 MEA,CEA and AMLP acquire Eklutna 1996 AMLP gas field 1998 HCCP 1999 HCCP mothballed CENTRAL ALASKA TRANSMISSION LINES The 2000's 2000 Y2k -nonevent 2003 Northern Intertie 2003 AMLP supplies Ft Rich 2004 JCS-MDS-138 2004 RES,Energy Task Force 2005 AMLP supplies Elmendorf 2006 MDS-PNS-138 2006 PTS-TPS-138 2006 NIS-CNS-138 2006 AEA gives notice of AIA termination 2007 NP GT3 >4 2007 2™Eklutna line 2007 Ad Hoc committee on reliability formed 2007 AMLP unit 3 (new) 222? VICINITY CENTRAL ALASKA CENTRAL ALASKA TRANSMISSION LINES What can we take back from this conference? 1)Islands 2)Some cooperation 3)Weak System 4)Age of Plant Railbelt "11/26/07 eeepireBoe, aa ewe-Rese 0ean conan mma" @ :A Your Touchstone Energy'Cooperative KT 'aii,"eae”Sadiewe. oid, HB 'Spinning Turbine Generator Rotor Mill ef from One generator"only be added to that of anotherihetwogeneratorsareGDaoxact ASN RS\Splnning Reserve. 'Traestrets vat.Over: Inforecrrtetionionsmachine she mustisrainedrepairedandlespandedeuch ))DORSEY DORSEY &WHITNEY LLP eeeyee,-%aloeenearecyhers aeekfeweeignwy arnaaeoe Looe biter a Ray reg rho PUNDESEonable =romote +' .-” e Loa s oh =Soma ' "3 so =ota petilo cssven encareer7aSejustifies)SME CPi moclitecttonnee2an§oehams rn : evid .wee i soo :. ;ae ee i ean toeSoonpiecare a od Noticclofilm ;"ie geje Aye aap AER Sars FSIS EL ees rt . tena heebapeithe ayiebeareeerewaken§ is belwweEM at mee: aay.i ayn 4 MuntateseS Alaska Interconnected Railbelt Electric System Donald W.Edwards |Dorsey &Whitney LLP November 21,2007 ()DORSEY Alaska Interconnected Railbelt Electric System:How is it Regulated? ¢Railbelt utilities are regulated by the RCA *There are other sources of authority, oversight and joint action RCA Authority ¢What does the RCA do and what is it authorized to do? *Mainly it sets rates,but it has authority to do more RCA Authority Rates §141,§431 Certification (CPCN)§221 Joint Use §311 *Service and safety standards §291 *Unreasonable management practices §511 ¢Other RCA Authority *141(a)(rates) 1.regulate every public utility ...except to the extent exempted by AS 42.05.711 2.investigate,...rates,classifications,rules, regulations,practices,services,and facilities ....and hold hearings on them 3.make or require just,fair,and reasonable rates,classifications,regulations,practices, services,and facilities for a public utility RCA Authority *Certification (CPCN)§221 -public convenience and necessity require or will require the service -fit,willing,and able to provide the utility services -grant application in whole or in part -terms and conditions to protect and promote the public interest RCA Authority ¢Joint Use §311 *A public utility having ...distribution or transmission facilities shall,for a reasonable compensation,permit another public utility to use them RCA Authority *Service and safety standards §291 -If the commission ...finds ...facilities ... unreasonable,unsafe,inadequate,...unreasonably discriminatory...the commission shall prescribe,by regulation or order,the reasonable,safe,adequate, sufficient service or facilities ...including all repairs, changes,alterations,extensions,substitutions,or improvements ...reasonably necessary... RCA Authority «Unreasonable Management Practices §511 -The commission may investigate the management of a public utility,...for the purpose of determining inefficient or unreasonable practices ...may ...,take appropriate action to protect the public... RCA Authority *AS 42.05.141 includes penumbral authority to "do all things necessary or proper to carry out the purposes and exercise the powers expressly granted or reasonably implied in this chapter'? RCA Authority *There are some limits on Commission authority,as well: -§301 (cannot discriminate in rates) -§381 (rates just and reasonable-promote conservation) RCA Authority Constitutional limits *Hope and Bluefield -rates cannot be confiscatory -includes reasonable return commensurate with other businesses operating with similar risks *14 amendment prohibition on taking property without due process RCA Authority *Can the Commission require formation of a G&T? *Can the Commission require existing utilities to place their assets into a different corporation? *No explicit authority RCA Authority *Is the action "necessary or proper to carry out the purposes and exercise the powers expressly granted or reasonably implied in this chapter'? *Necessary or proper under the Commission's authority to: -set Rates?§141,§431 -determine whether public convenience and necessity justifies issuance or modification of a CPCN?§221 RCA Authority *Necessary or proper under the Commission's authority to: -regulate joint use of facilities?§311 -establish and enforce service and safety standards?§291 -curtail unreasonable management practices?§511 Other Oversight *All Railbelt electric utilities are either cooperatives or municipally-owned *Municipals have a board,the Mayor and the Assembly overseeing them *Cooperatives have boards directly elected by their members Self-Regulation Acting according to their own views about what their customers need,Railbelt utilities frequently act together Indeed,the fact that the lights are on here is evidence of cooperation that goes on 24/7 Day-to-day cooperation of the Chugach, ML&P and GVEA dispatchers Self-Regulation Two agreements are emblematic self- regulation Alaska Intertie Agreement and the Bradley Lake Agreements Nominally these agreements set out the terms and conditions of sharing in State of Alaska-owned facilities but they have taken on another much larger role Self-Regulation *BPMC *10C *Out of these grew the RUG -Railbelt Utility Group,an ad hoc committee of Railbelt managers used as a forum for discussion and even the occasional argument Self-Regulation *The State of Alaska has given notice of termination of Alaska Intertie Agreement -set to terminate in 3 years «Addendum #1 to the Alaska Intertie Agreement sets out the rules of the road for transmission interconnection in the Railbelt ¢HEA,ML&P,Chugach,GVEA and AEA developing substitute rules based on Federal standards-will take a year or more to complete 20 Self-Regulation *Contracts can be the vehicle for joint action -The wholesale power agreements between Chugach,MEA,Seward and HEA are examples -The nonfirm sales agreement between Chugach and GVEA -Sales by ML&P to GVEA Self-Regulation *The JAA was recently formed *Chugach and ML&P are currently investigating joint action 22 Future Oversight *Current Oversight: -RCA regulation -Consumer-elected oversight -Contractual and other joint activities ¢What additional oversight is needed? REGA Project Approach and the Unique Alaska Grid Presented by Kevin M.Harper November 26,2007 BUILDING'A WORLD.OF DIFFEREN CE (ganas iil ic BLACK&VEATCH Agenda o Introductory Comments o Project Overview o Project Issues o RTO/ISO Overview and Lessons Learned o Conclusion /Page-4 November 26,2007 Re ae eee co ee fpDING'A WORLD DIFFEREN a aie 8 Overview of Black &Veatch e Utility strategy and planning expertise e Project management experience e Core competence in power technology I Seat,-and operations portend ,+p.soe vote >;4 ee aExtensiveregulatoryandutilityrates(fees "Minneapotso a EstonexpertiseéanfebaroitYifmSacrantento"SaltLake City ':chicagait?hed on dell*al .e Technology solutions and 1 8 Concord |©enyer!Kansas iN ene Cathe a ieeeimplementationexpertise\Las Vegas _"Cglofado Ovgriandt st.(ovis OLoui eae?:."Springs ar ;ye SighePreviousAlaskaexperienceLosAngeles,»ephodnix Fle ag cad ott ..San Diego™:Ft Worth >|ti):*aes nvilleeNo.1 in generation ->120,000 MW Nk FEW ethpats Sivabuilt \y Austino®Onoustont .'gcksonville(No.1 in coal,No.1 in gas,No.4 in San Aan ampeeyience hyd ro)¥&Worldwide Headquarters .»...»oO j OffieNo.2 in transmission and distribution °"P"ors mee e No.4 and 5 in wastewater and water e 47 U.S.Offices and 8,500+ professionals Page-2 -. November 26,2007 BeBe BLACK &VEATCH Pr nnn wl.'r wt Te ges -aS : eM tet ste ga':.oe ca a ari"Oo oeAwe',||.=hr oh ec zt " i j ee a rr Enterprise Management Solutions (EMS) Strategy Solutions e Business Strategy Energy Procurement/Risk Mgmt. Mergers and Acquisitions Financial and Business Advisory Services e Regulatory and Environmental e Resource Planning Process Solutions Technology Solutions e Performance and Project Management e Generation Options e Fuels Management Power Delivery e Independent Engineering Carbon Management e Asset Management IT Planning and Integration e Organizational Strengthening Customer Technology Operations Technology Page -3 -_November26,2007 geek BLACK&VEATCH Agenda o Introductory Comments o Project Overview o Project Issues eo RI O/ISO Overview and Lessons Learned o Conclusion |Page-4 =as November 26,2007 BUILDING'A WORLD,OF DIFFERENCE qantas aR RRUOREREAEBLACK&VEATCHa Project Objectives °Study the management,operation,access rules,ownership, integrated resource planning,and regulatory structures of the Railbelt electrical grid o Analyze and provide recommendations of possible alternative structures to manage and dispatch electric power in the Railbelt electrical grid ©Provide a final work product for stakeholders and decision makers to consider in planning how to meet the Railbelt's energy needs over the next 30 years a eee BLACK &VEATCH. Pere Meee hth She ote yg rieiiy engi yn Bn ty nOCESPREEbecCereegaeyeegcaoaSeaORANGEYeeeee fa BUILDING A WORLD.OF,DIFFERENCE °gieeeaeaeeesaeetainmneearaE®h i a are pode Be _ a .. Project Scope ©Review existing reports and available grid data ©Conduct interviews and discussions with utilities and stakeholders o Provide additional modeling necessary to provide a range of options o Analyze a range of scenarios o Develop recommendations on whether and how the Railbelt grid should be reconfigured o Assess whether a REGA can be implemented cooperatively or whether a separate business entity is required TT errrncember26,2007 Project Scope (con't) o Consider existing power sales agreements and fuel supply contracts e Consider all aspects of grid operations o Rank scenarios on the basis of a feasibility analysis andsuggestuptothreepotentialpaths 0 Develop implementation plans and budgets for feasiblescenarios o Provide a final report and presentations November26,2007 )ee re ina oe at mo ,OE BLACK& Project Work Plan Task 1 -Initiate Project Task 2 -Collect and Evaluate Existing Reports and Documents Task 3 -Attend and Assist in a Technical Conference Task 4 -Collect Additional Information from Stakeholders Task 5 -Participate in Advisory Group Meetings Task 6 -Develop and Evaluate REGA Scenarios Task 7 -Develop Implementation Plans "7 JR NEATCH, Task 8 -Make Presentation of Scenarios and Plans to Stakeholders Task 9 -Prepare Draft Report Task 10 -Prepare Final Report Task 11 -Provide Presentation Services Page-8 November 26,2007 Project Schedule Task Initiate Project Collect and Evaluate Existing Reports and Documents Attend and Assist in a Technical Conference Collect Additional Information From Stakeholders Participate in Advisory Group Meetings Develop and Evaluate REGA Scenarios Develop Implementation Plans Make Presentation of Scenarios and Plans to Stakeholders Prepare Draft Report Prepare Final Report Provide Presentation ServicesSSoMPPNAYMPYeHSD --©ore IY fm BLACK &VEATCH December January February March AprilNovember )Page -9 November 26,2007 fa BUILDING'A WORLD OF DIFFERENC E jcaaeeeiemneiaesannsan aetna eeacnaeeanEnny eeeeeereee BLACK &VEATCH Agenda o Introductory Comments o Project Overview o Project Issues o RTO/ISO Overview and Lessons Learned o Conclusion e Page-10.a Sos."November 26,2007 | ee sc os TRPSBeeegeBLACK&VEATCH ees f'WORLD.OF DIFFERENCESames "Big Ten Strategic Issues”For Power Industry e Aging Infrastructure ©Aging Workforce e Adequate Security ©Reliability e Environment e Long-term Investment ©Technology ©Fuel Policy e Market Structure ©Regulation Page -11 =__«.November 26,2007 cueI edeeeBLACK&VEATCH Project Issues o Uniqueness of Railbelt °Size o Limited interconnections o Limited redundancies o State vs.Federal regulation &; -Page -12 :-.November 26,2007 - DING'A WORLD OF DIFFEREN CEC ARIE Project Issues (con't) o Changed conditions o Limited renewables and DSM programs o Addressing climate change ©Reliability °o Aging infrastructure o Fuel supply uncertainties o Best means of achieving benefits "Page -13 .-November 26,2007 FUTON aT FERENCESS ee.ER: |Agenda o Introductory Comments o Project Overview o Project Issues oRTO/ISO Overview and Lessons Learned o Conclusion _Page-14.November 26,2007 "2 STA EAT co What is Happening to Transmission? ©Historically,transmission owned by vertically integrated utilities o From a "deregulated wholesale market perspective,”many feel there are major issues with this ownership profile e Who controls pricing? e How do you ensure fair (comparable)pricing? e Who controls scheduling access to the wires? e How do you guarantee a focus on reliability? o The consequence e Wholesale deregulation has targeted the separation of transmission operations -functionally,operationally or physically -from the rest of the utility e Creation of independent organizations such as ISOs and RTOs to maintain a vigil on the use and pricing of the transmission systems :Page -15 oa e a -_November 26,2007 . n Wee.TEL nee BLACK&VEATCH Current Transmission Perspectives o Energy Act has passed,impact is starting to be implemented o Perceived mixed financial benefits of deregulation in the U.S. 0 Existing ISO/RTOs now focusing on reducing operational cost and demonstrating value to justify existence ©Most markets still evolving and maturing Page-160 -November 26,2007 NCEA ppuemna ees cee ea MEOME Ack &VEATCHgreDING'A WORLD.OE DIFFERTenStatedReasons toCreate ISO/RTOs 1.Enhanced reliability 2.Efficient grid dispatch 3.Significantly better price transparency 4.Ease of entry and private investment 5.Green power added to grid Po PagetF "November26,2007 a roms tt ge te ae eo toa te DB bee ae a ren eos tr AeeesapeoReTaeEeeetSeeseteeeOeenaeearae.oar gee at .f Z :-Uyeda et a es me TE wea ae COR a Se A ag :rnd woes a a.Py >Ps '»a A ME a ye .Fy Ten Stated Reasons to Create ISO/RTOs (c 6.Market monitoring benefits 7.Market flexibility 8.Market liquidity 9.Market diversity 10.Demand response development age BLACK &VEATCH fe on't) Page 18 sali ili .;November 26,2007 wo Tee Re le ee BS a Le ete .Se eyo viet eye esarteSURyenaanarinOc:as rl.:aloe tote ee RR a OG!.ee as rent a -elBeReeWe2enaPecansmeetBRek,rn ws rs tee:: ALBEATA ELECTRIC SYSTEM OPERATOR HICTEST 150 OHTARICS INDEPENDENT th ELECTRICITY SYSTEM OPERATOR MEW BRUNSWICK SYSTEH OPERATOR SOU THRPYEST POPER POOL HEW YORK 150 ELECTRIC RELIABILITY COUNCIL of TEXAS EB Footprint of the North American ISOs and RTOs Ps Ss :;::ie ae nem AOObah Una yh Mr'Pages10 _November 26,2007} Ra eee rs ame Tbs eee ee ae EE;A WORLD.OFR DIFFER NCESd rr a ee ee BLACK&VEATCH Lessons Learned o Initial set-up costs greater than predicted o Operating costs greater than predicted o Evolution slower than predicted o Scope creep o What is optimal size? °Continued market rule changes °o Significant investments in generation and transmission have occurred 7 Page -20 co ee er ae SIE tte age et NS PhS Sra AeAmahSe ESDM A ee SHE MI rae metres ET AAR EMER OA epee ea"=November26,2007.sidiilasin ae oo RS ,ma BLACK&VEATCH New Generation Investment }nage (eae ene i *|New Generation |%of 2006 Generation Region |2006 Installed Generation 2001-2006 from New Sources AESO”11,501 3,056 ,26.6% CAISO 54,500 15,986 29.3% ERCOT 60,141 21,883 27.3% MISO 137,016 25,114 18.3% IESO 31,214 2,624 8.4% ISO-NE 30,825 --8,304 26.9% NBSO 4,302 102 2.4% NYISO 40,536 4,754 11.7% PJM 162,143 19,465 12.0% SPP 45,950 10,883 23.7% (a)Winter ratings are indicated for Alberta because that region is a vinter-peaking system. Source:ISO/RTO Council. Page =21 _November 26,2007 uM ONT)er ESA New Transmission Investments o PJM -over $7 billion approved o MISO -nearly $1 billion on-line;$2.1 billion committed ©ISO-NE -$833 million on-line;$4.4 billion planned °o CAISO -$8.2 billion approved o ERCOT -$3.5 billion invested ©AESO -$1.5 billion invested Source:ISO/RTO Council. pa Page-22 2)A ek es es se ME Ete ARIE:CSO the ra ENa a A ee i a aad xe ee habla a A aaa eee en ace "November 26,2007 {Rk A\NOR ».ee BLACK&VEATC! o Introductory Comments o Project Overview o Project Issues Agenda o RTO/ISO Overview and Lessons Learned o Conclusion November26,2007 DING'A WORLD OFD FERENCEC Ae ne re ete aeGUNTER Conclusion ©Options both significant and limited o Lessons from lower 48 of limited value due to uniqueness of Railbelt o Objective assessment o Frame future uncertainties o Stakeholder involvement o Leveraging assets and circumstances "November 26,2007 | REGA Project Approach and the Unique Alaska Grid Presented by Kevin M.Harper November 26,2007 Airis Merce SeayseSRacoREBOR Agenda e Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion BONDINGAWORLDOF Overview of Black &Veatch ¢Utility strategy and planning expertise ©Project management experience «Core Pp in power logy +pete and operations Pertend®ERB §@ Extensive regulatory and utility rates : : ". expertise ®Technology solutions and implementation expertise e Previous Alaska experience @ No.1 in generation ->120,000 MW built (No.1 in coal,No.1 in gas,No.4 in hydro) @ No.2 in transmission and distribution @ No.4 and 5 in wastewater and water e 47 US.Offices and 8,500+ professionals meen SEE eS mr 11/21/2007 Fag a laphpGnacice cic Sei aWaunnigawo Enterprise Management Solutions (EMS) Strategy Solutions «Business Strategy e Energy Procurement/Risk Mgmt. e Mergers and Acquisitions e Financial and Business Advisory Services e Regulatory and Environmental e Resource Planning Process Solutions Technology Solutions ©Performance and Project Management ©Generation Options e Fuels Management Power Delivery e Independent Engineering Carbon Management e Asset Management IT Planning and Integration *Organizational Strengthening Customer Technology Operations Technology Agenda @ Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion F eunbikeAWorthoF beFER Project Objectives e Study the management,operation,access rules,ownership, integrated resource planning,and regulatory structures of the Railbelt electrical grid e Analyze and provide recommendations of possible alternative structures to manage and dispatch electric power in the Railbelt electrical grid e Provide a final work product for stakeholders and decision makers to consider in planning how to meet the Railbelt's energy needs over the next 30 years 11/21/2007 ee eteFadabingawordorbirrenenice Project Scope @ Review existing reports and available grid data e Conduct interviews and discussions with utilities and stakeholders e Provide additional modeling necessary to provide a range of options e Analyze a range of scenarios e Develop recommendations on whether and how the Railbelt grid should be reconfigured e Assess whether a REGA can be implemented cooperatively or whether a separate business entity is required ene 2ee Project Scope (con't) e Consider existing power sales agreements and fuel supplycontracts e Consider all aspects of grid operations e Rank scenarios on the basis of a feasibility analysis andsuggestuptothreepotentialpaths e@ Develop implementation plans and budgets for feasiblescenarios e Provide a final report and presentations Project Work Plan Tosk 1 Initiate Project \D gd Ted -Cotect and Evaluate Existing Report and Documeno|¢4 "Task 3-Attend and Assist in »Technical Conference |Task 4-Collect Ad from | --C 'Teek 6 Develop and Evaluate REGA Scensrios |¢'Task 7 -Develop Implcmentation Ptans |C=8 Make Proseatution of Scenarios and Plans to Stakebokters|Task 9 -Prepare Draft Report \D gil Teck 10 -Prepere Final Report ND [resi 1t Provide Presentation Services | 11/21/2007 id anja gp Ma,RAiipcbasHSA oi4BUILDINGAWORLDOFDIFFEREN! Project Schedule 'Tek Nevember |Deceasber|January |Frereary Marth Ae Mayfate Collect md Bvalvate Existing Reports wed DocunanteAnewdsadAssan#2 Vochaice!Confermoe : Coslet Ackinwnet Information Prom Shakehohders y oo [oeParmymiewsAchisnryGrowpMevtmgs.rare i Ce Pees Pera Develop ond Bveluete REGIA ScenariosDevelopbuplenantatcnPrams .Make Prenentation of Sonera ond Plem to Stakeholders cee [OS rpeeeeeea Sayre aNd eaeBeesPMoRa e Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion CBUMDING A ERENCECCE Rome uNOl "Big Ten Strategic Issues”For Power Industry @ Aging Infrastructure @ Aging Workforce e@ Adequate Security e Reliability e Environment e@ Long-term Investment e@ Technology e@ Fuel Policy e@ Market Structure e@ Regutation Page tt are eee ee ETSOT Tenge,Memona,ao 11/21/2007 Project Issues e@ Uniqueness of Railbelt e Size e Limited interconnections e Limited redundancies e State vs.Federal regulation Project Issues (con't) @ Changed conditions e Limited renewables and DSM programs e Addressing climate change e Reliability @ Aging infrastructure e Fuel supply uncertainties e Best means of achieving benefits Bone@ EM ELT Ne a ae e Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e@ Conclusion 11/21/2007 Pes owt or osBUILDINGAWORLDOF What is Happening to Transmission? e Historically,ttansmission owned by vertically integrated utilities e From a "deregulated wholesale market perspective,”many feel there are major issues with this ownership profile e@ Who controls pricing? e How do you ensure fair (comparable)pricing? e Who controls scheduling access to the wires? e How do you guarantee a focus on reliability? e The consequence e Wholesale deregulation has targeted the separation of transmission operations -functionally,operationally or physically -from the rest of the utility «Creation of independent organizations such as ISOs and RTOs to maintain a vigil on the use and pricing of the transmission systems Current Transmission Perspectives e Energy Act has passed,impact is starting to be implemented e Perceived mixed financial benefits of deregulation in the U.S. e Existing ISO/RTOs now focusing on reducing operational cost and demonstrating value to justify existence e Most markets still evolving and maturing 1.Enhanced reliability 2.Efficient grid dispatch 3.Significantly better price transparency 4.Ease of entry and private investment 5.Green power added to grid 11/21/2007 mK wee gD ywhsBUMLDINGAWORLG-OF DIFFERE! Ten Stated Reasons to Create ISO/RTOs (con't) 6.Market monitoring benefits 7.Market flexibility 8.Market liquidity 9.Market diversity 10.Demand response development Basebahspate Footprint of the North American ISOs and RTOs Aen LCE PreRr OOCRAroR PEs Po ONTARIO MeO TPLNOETPLCTREEYIVETEOETON . ELECTRIC RELURKITY SCUNC Lf Bas tee eae BEA lahat a. Lessons Learned Initial set-up costs greater than predicted e Operating costs greater than predicted e Evolution slower than predicted e Scope creep e Whatis optimal size? e Continued market rule changes e Significant investments in generation and transmission have occurred I encesMe2008 11/21/2007 P or merS'GUILOINGAWORLDOFDIFFERENCES New Generation Investment New Generation %of 2606 GenerationRegion2006InstalledGeneration2001-2006 from Kew Sources: AESO™21.501 3.056 26 6% CAISO 54.500 15.906 29.3% ERCOT 80.141 21.883 27 3% wiso 137,018 25.114 18.3% SO 9,214 2524 84% iSO-NE 825 8.304 26% NBSO 4,92 102 24% NYISO 49 536 4,754 14.7% PJM 162.143 19.485 120% SPP 45.950 10.883 237% {e)Winter redings ave indicated for Alberta because that region jt ®warter-peaking sysien. Source:ISO/RTO Council. Sime New Transmission Investments e PJM-over $7 billion approved e MISO-nearly $1 billion on-line;$2.1 billion committed ISO-NE -$833 million on-line;$4.4 billion planned CAISO -$8.2 billion approved ERCOT -$3.5 billion invested e AESO -$1.5 billion invested Source:!SO/RTO Council. etisi 5 Agenda @ Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion Pe ee 11/21/2007 11/21/2007 ee cePpunlinsAWor OFDIFEREN Conclusion Options both significant and limited e Lessons from lower 48 of limited value due to uniqueness of Railbelt Objective assessment e Frame future uncertainties e Leveraging assets and circumstances Stakeholder involvement REGA Technical Conference Cook Inlet Deliverability Tony Izzo November 26,2007 Cook Inlet - O Gas Supply O Pipeline Infrastructure O Deliverability 2004 Cook Inlet Gas Production Cook Inlet Hiistoric and Projected Natural Gas Production 1958 -2022 2£0.0 200.0 1£0.0 O Under-Developed O All Other O Swanson River O Kenai O McArthur River ©Beluga River O North Cook Inlet BcfperYear100.0 £0.09 rurryrrrtryr rr rrr area aaa aa aa a Ores oS&Ca Ca a Ce SF os ee ee ee ee ee ee ee ee ee ee ee ee ee bSFgsgh ge BcfperYear2007 Cook Inlet Gas Production Cook Inlet Historic and Projected Natural Gas Production 1958-2026 u Under-Development 250.0 .-=Nnilchk/Deep Creek BAIOner 2 Swanson River " ™ roar PK 2007 -200.0 4-a McActhur River ae .-Amey F Noe \| wu Be'uga River ; North Cook inlet Pe 150.0 -: ! I 100.0 : ; $0.0 -7 PN ee ; 0.0 r ¥L T oy e LS)FP et SF SS a St = as _ee Cook Inlet Gas Supply O Remaining recoverable reserves forecast: o 1997 -3.28 Trillion cubic feet (Tcf) o 2004 -2.09 Tcf o 2007 -1.68 -Tcf O 49%decrease since 1997 O Division of Oil and Gas 2007 Annual Report notes that actual produced volumes will be greater than those projected as new reserves are discovered, developed and produced to meet demand. an =) Power Generation Gas Consumption Year Annual Bcf |%of Total CI Production 1997 37.7 Bef 17.6% 2004 42.1 Bef .20.6% 2006 41.4 Bef 21.8% since 1997 Annual Consumption has increased 10% Cook Inlet Pipeline Infrastructure %\ I9 aSO5ceiee=Palmerlz--Alaska Highway Svste --Other Natural Gas Systé) -Enstar Natura -Natural Gas SystemsOwnedByProducers ©Gas Fields |sete ',OX.. .Py i - Sterh oldotna Kasilof "mS a .- t ; Anchor Point sl C-,+3 ra %for .'©aM ral 4 o omer3©cewor?\ foa >nnn .7L. Cook Inlet Pipeline Flow m PalmerMAPKEY --Alaska Highway System -Enstar Natural Gas System --Other Natural Gas Systems Natural Gas Systerns Owned By Producers ny OC Gas Fields ;vf }Sn uae f é'5 é i_-f fteraa{5 Mee a- weae "}"5 rd ayEeeneai=PS) %i i,</-, _eo ">Jcamerasipo N ea 3 7 . Anch weaonPs=Ge o 8 Gc Cook Inlet Pipeline History O 1960's o Pipelines were built to serve specific markets Oo -First Utility Pipeline from Kenai to Anchorage -12” O Pipeline from Kenai to Nikiski -20” O Pipeline from Tyonek to Nikiski (CIGGS) oO 1970's o Utility Pipeline upgraded (Kenai Field to Anchorage) o Small diameter interconnect (Nikiski to Utility Pipeline) O 1980's Oo Pipeline from Beluga through Mat/Su to Anchorage oO Provided a second feed into Anchorage Cook Inlet Pipeline History (continued) O 1990's Oo Pipeline constructed from Beluga to Tyonek O Brought gas from west side to CEA and then into Anchorage O 2002-2005 o Kenai Kachemak Pipeline (KKPL)constructed O Brought gas north to Anchorage from Ninilchik and then Happy Valley 10 1 Le 1 Cook Inlet Deliverability O Deliverability -Most often expressed as a measure of the amount ofgas that can be delivered on a daily basis. Oo Millions of cubic feet per day -Mmcf/day O Capacity -Maximum throughput capability of a pipeline system on any given day. O Based on various conditions including operating pressures,temperature,etc. 11 Cook Inlet -Peak Day Comparison 2/3/99 1/9/07 Change Average Temp -19 degrees -10 degrees +9 degrees ENSTAR System 272 Mmcf 292 Mmcf +20 Mmecf =8% increase CEA Beluga 78 Mmcf 83 Mmcf +5 Mmecf=7% increase Nikiski LNG 224 Mmcf 150 Mmef -74Mmcf =33% decrease Fertilizer Plant 157 Mmef 0 Mmef -157 Mmcf =100% decrease Tesoro 13 Mmcf 6 Mmecf -7 Mmcef =54% decrease Cook Inlet 744 Mmecf 531 Mmcf -213 Mmecf = Deliverability 29%decrease --a Natural Gas Demand Forecast Peak Daily Demand 600 300 + 200 + 100 + Spur Line Capacity 0 T T T T T T T T w ©hh wo Qa o -N "wv wo o aod wo os]So =N *)st w i=i=ce i=Cc e&ce Cc C Cc i=c i=Cc i=Cc c Cc Cc Cc CciJwiJiJwwiJO]i)iJ i]iJ Li)w iJ wo tJ i](J wa i]4 3 5 pi 3 Ss 5 4 Ss pbs 3 3 4 5 >4 >4 4 5 4 O Fertilizer Production ENLNG Production O Electric Utilities (MMcfiday)&Gas Utilities | 2007 Peak Day Compared to 1999 Oo From the Kenai Peninsula o Production increased by 26 Mmcf/d (30%)over 1997 o Without KKPL production would have been 23% lower than 1997 mo KKPL provided 53 Mmcf/d o Gas Storage at Swanson River provided 55 Mmef/d (33%of total) O In addition to total production of 115 Mmcf/d 14 /_-re a 2007 Peak Day Compared to 1999 (continued) O From Beluga (west side of Cook Inlet) o Production decreased by 69 Mmcf/d (38%) o Gas Storage at Pretty Creek provided 8 Mmcf/d (8%of total)| O 35 Mmct was diverted from the Kenai LNG plant. 15 'aesLLNatural Gas Systems Owned By Producers #9 Gas Fields 10r Point " 4 2,) :ome r co } Deliverability Solutions Include O Infrastructure Investment a Increase Pipeline Pressure oO Add Compression Oo Remove Bottlenecks /Restrictions O Construct Larger Pipelines O ©Loop Pipelines o Add flexibility to Pipeline Systems O Build Interconnects between Utility and Industry Pipeline systems a Facilities are needed to meet Peak Demands O Underground storage Oo LNG gq Spur Line or Bullet Line to North Slope 7 4 i Questions? Thank You Tony Izzo 907-351-1212 tizzo@gci.net -The Cook Inlet Gas Marketplace PRICES PAID BY L-48 UTILITIES vs,ALASKA''s PREVAILING VALUE =US AVG CITIGATE /LDC --PAIDBY ELECTRIC UTLTIES «=: : :clproducersave integrated moderat 'gas©AK PREVAILING VALUE existing operations to:help facilitat otherbuyers:(¢.gZallowing temload),to ensure peak ity ?win $2 TAO gyBoeKaMRg90:RPC AY $0 v T r Jan-89 Jan91)Jam93 Jan-95)Jan-97)Jan-990 Jare01 Jan-03 Jan-05) Jan-07 tral Alaska gas price:elow be Substantial resources discovered and devel of Alaska and:Reguiatory Agenkexistingpolicy,and develop new policy that eninvestmentin,Cook Inlet.ga -»Suppliers,Buyers,The Kenai LNG plan[77 4 tr]+Pty In :the "Bridge”using "Cook t irtual”stora pur'pipeline yiimproveCapitalefficiency,Central Alaska consume' 11/21/2007 Addressing New Generation Needs of Alaska Railbelt Utilities Presentation to:Alaska Railbelt Electrical Grid Authority Tiqun Energy's Proposed New Development Projects Prepared by:Tiqun Energy,Inc "teekun” November26,2007 €fDevelopment Team s Developer Tiqun Energy »Potential Partners GE,Harbert Power »Engineer SNC Lavalin «Transmission Sakata Engineering =Permitting Stiegers Corporation «District Energy PDC «Equipment Supplier GE Aero Energy «Bond Authority AIDEA,ARC Our Mission Construct highly efficient Combined Heat &Power plants "CHP”strategically located in railbelt load- centers,resulting in the most cost effective Electricity and Heat to the Consumer Combined Heat &Power "CHP” a By capturing and making beneficial use of a significant portion of the waste-heat produced from the generation of electricity,CHP systems can typically achieve total system efficiencies of 60 to 80 percent for the production of electric and thermal energy. =Because CHP is more efficient,less fuel is required to produce a given energy output than with separate heat and power.Higher efficiency translates into: Lower operating costs Reduced emissions of all pollutants Increased reliability and power quality Reduced grid congestion and avoided distribution losses Energy-Efficiency Comparisons 11/21/2007 30% Useful energy produced 2S.1/for heating and or. cooling via district energy system P toxFue!Input 'tail 80% Waste heat rejected to. environment oy Standard Fuel Input Power Plant What is district energy «District energy systems produce steam,hot water or chilled water at a central plant and then pipe that energy out to buildings in the district for space heating, domestic hot water heating and air conditioning.Individual buildings don't need their own boilers or furnaces,chillers or air conditioners.A district energy system does that work for them. 11/21/2007 Advantages of CHP/Distributed Generation "DG” »Improved fuel efficiency «Lower capital cost per KW than central system «Reduced emissions per unit of useful +byavoiding pew THD output e Reduced system vulnerability +Redundancy reduces vulerabitityeOptimizationofscarcenaturalgas*Reduced dependenceonwansmiasionsupplyandinfrastructure +Conserves natural pax e Shorter lead-time,off-the-shelf,load-+Improves deliverability following modular technology Improved power quality &reliability =Supports competitive electric Industry structure =Reduced grid congestion +deferred T&D investmem+Reduces line losses »Reduced land-use impact Tiqun's Near-Term Gas-Fired Combined Heat and Power ("CHP”)Projects Base Spin Peak Date (Mw)(ww)(Mw) e Knik Arm Power Plant ("KAPP”)120°20 140 2010-2011 +North-Anchorage +Gas-fred 2.5 1 LM6000PF/CC e Pioneer Energy Project 60 10 70 2010-2011 +Palmer.Gan fied [x LLM S000PF/CC s Dimond Energy Project 20 20 140 2011-2012 +South-Anchorage » Gas-fired 2 x 1 LM6000PF/CC *Totals 30050 350 Knik Arm Power Plant "KAPP” Rr pg AE ARE LI Re-powering KAPP (120-140 MW) a 2x 1 LM6000PF natural-gas fired units incombined-cycle to deliver power into North-Anchorage (ML&P)load-center. «With fuel-oil backup and ability to switch fuels when needed to helpwithdeliverabilityofnaturalgasduringpeaktimes. «Nominal unfired capacity of 120 MW(net)with heat-rate of about8,000 btu/kWh and fired capacity of 140 MW(net)with heat-rate of about 8,200 btu/kWh (HHV)at 36.8°F. «=Interconnection with ML&P at 115 kV to deliver output to ML&P and/or Chugach. *Potentially making it possible for ML&P to retire Plant 1. Pioneer Energy Project (60-70 MW) "=1x 1 LM6000PF natural-gas fired units in combined-cycle to deliver power into the Palmer (MEA)load-center. «With fuel-oit backup and ability to switch fuels when needed to help with deliverability of natural gas during peak times. «Nominal unfired capacity of 60 MW(net)with heat-rate of about 8,200 btw/kWh and fired capacity of 70 MW(net)with heat-rate of about 8,400 btu/kWh (HHV)at 36.8°F. =Interconnection with MEA to deliver output to MEA and/or Chugach. Dimond Energy project (120-140 MW) »2x 1 LM6000PF natural-gas fired units in combined-cycle to deliver power into South- Anchorage (Chugach)load-center. «With fuel-oil backup and ability to switch fuels when needed to help with deliverability of natural gas during peak times. «Nominal unfired capacity of 120 MW(net)with heat-rate of about8,000 btw/kWh and fired capacity of 140 MW(net)with heat-rate of about 8,200 btu/kWh (HHV)at 36.8°F. e Interconnection with Chugach at 115 kV to deliver output to Chugach and/or ML&P. 11/21/2007 11/21/2007 Tiqun's Longer-Term Coal-Fired Combined Heat and Power ("CHP”)Projects Base Date (iw) we Wishbone Energy Project 50 2015-2020 +NearSunon+Coabtived CFB s Seward Cogeneration Project 20 2015-2020 +Seward+CoabtiredCFB : Total 1 Tiqun's Distributed CHP Projects Timely For Meets Needs of Alaska Railbelt Utilities =18 months ahead ofother options resulting in S6OMM of fuel savings alone. «Conserves the most natural gas (approx 8 Bef/yr for power +2 Beffyr for district energy). a Reduces system vulnerability iated with deliverability of natural gas from thesignificantconservationofgasandabilitytoswitchtofuel-oil during peak times. =Designed around multiply GE LM6000 units,one of the most efficient gas turbines on themarketandideallysuitedforAlaska's railbelt,to provide a high level of redundancy andteliability. e Creates greatest reduction in total air emissions (about 40%). =Capital costs at or below that of utilities with burden shifted to private sector. Summary «Tiqun's plans to provide up to 300 MWs of new highly efficient gas- fired capacity from Anchorage and Palmer is timely for meeting the new generation needs of ML&P,Chugach and MEA for the foreseeable future. «Tiqun's proposed projects will provide the greatest benefit to the consumer and the environment.They will achieve highest possible thermal efficiencies thereby conserving the most natural gas and producing the least emissions. "Connecting Alaskans To Their Natural Gas”Railbelt "Opportunities”-NS Gas Technical Conference *Gas Transmission Pipelines -AGIA Alaska Railbelt Electrical Grid Authority ¢Propane on Rivers,Ocean,&Highway November 26,2007 *Production Tax Advantage to Gas As Fuel a |*Gas Storage for Seasonal &Needle PeakOPPORTUNITIES:For The RAILBELT Demands (Both Power &Heat) In-State Use of North Slope Gas:*"Open Season”Workshops (Sponsored by ANGDA &APA)-Next on Dec 6 *Aggregate Long-Term Gas Needs &Gas Supplies *Understand Reliability of Energy System Natural Gas Demand Forecast Elements:of the Peak Dally emang In-State Gas Transmission System *High-pressure gas transmission pipeline linking "mainline”to Cook Inlet *Mainline take-off connections &metering to utilities,gas users and wholesale propane facilities (Yukon,Fairbanks,etc.) *Access connector transmission pipelines linking new gas discoveries to mainline (Nenana,North Slope Foothills,etc.) 5s 3 =3 8 5 4 5 45 5 RaY8&&(2 REERE REET EER ETT TEES (DF ertikzer Procucton mUNG Producnon Elecine Utiibes (MMctday)@ Gas Uuities| % tog Prudhoe Bay2 a :<NS Foothills €af Bevo 'Byoe ¢wale sy : eee Sei., own "ok mS * neetad Yukon Fiver: :oe -Farken +re wtwo SS iated Power 2xii lap :ae "oiene JYaasigneKenaieh”YallfaAncuatcatBie™pend fe "Connecting Alaskans To Their Natural Gas” "|To Alberte andChicago Aa eae eee!fer ce f ne ee J wtZézegetfASeifieetolia EW,canoe © «=fiom slope a0 om Siope |Alaska Gas |,tyumne Alaska Gas |trun|Spurline |?Spurline 'i ch yore eS yen370milesof20"pipe Se ana net 220 miles of 20"pipe 8 ett anet $1,250 million cost .$725 mitlion cost 250 mmefpd throughput ah 250 mmefpd throughput ."&yo, $2.35 /mmbtu tarlff $1.40 /mmbtu tariff ' Beluga Patmer Glennatien 'Beluga Palmer 180 mies ;Glennaien 'ne Oe Alaska Natural Gas; Development Authority' www.angda:state.ak.us: www.jpo.doi.gov/ANGDA/ANGDA.htm, www.allalaskalng.com, For Further Information Contact: Harold Heinze 411 W.4"Ave,Anchorage 99501 (907)257 -1347 hheinze@jpo.doi.gov raeueBy tee Alternatives Solutions to Cook Inlet Gas Supply Shortage *More gas exploration &extension in Inlet *Import Indonesian LNG thru Kenai plant Fully develop coal bed methane Convert &build new coal-fired electric power generation plants *Increase "renewable”sources for gas & electricity (wind,geothermal,...) Natural Gas Demand Forecast fiililiiiiiiiiililiit [GFeiizer Production ©LNG Production G Electric Uidities (MRct/day)@ Gan Usiktion} Natural Gas Demand Forecast Peak Daily Demand 328he82§8 GF as 8 [BFecizer Producton EILNG Production G)Efectnc Utulites (AMMcI'day)Gas Unitesdan-12Jaet3JanisJanetsJanieant?S018JanisJai-20JanetJan22JanzJanaeJar2sThe Next Year's Game Plan Complete the inclusion of ANGDA's "addendum”to any AGIA application Sponsor "open season”informational workshops leading to a negotiated in- state open season Conduct high-priority field work along in- state connector pipeline alignments Continue development of major elements of design,logistics,&construction Secure financing with public,private, utility &industrial partners Golen Valley Electr Renewable and Energy at $95 Oila rnative 1$800 Gold Supplying Oil and Gas Demand Will Require Major tivestment Miltons of Barrels per Day of Ol Equivalent (MBD0E) CI HR (Wort demand.|+ Existing Field Decline 4-8% 1980 1965-1900 1995-2000 20052010 015 anand Oil Supply FIGURE 2.WORLD OIL DEMAND AND SUPPLY SCENARIO World Ol Dem and Fuel Saud Cepacty -e-OPEC Capacity -+-World Capacity he Synthetic Transport Fuel 6 s oe peas SP SK KS KK MK SK Year Courtesy of William Sackinger, PHD ALASKA LARGE MINES &PROJECTS Producing mine aoe as ae a ae es arMaphyRaySterner,Julin Hopkin Appled Phyrice Labneatory,liceamodtoNort Sar Sereaoe wdTechtedugy,LCCourtesyofSteveBorell,Klaska” Miner's Association Futures -Crude and Gold $100.00 $95.00 \ $1,000 °$950 : cd ¢ .$900 $90.00 + $s 33e°$8506 °ee”al °$85.00 $800 $380.00 $750 $75.00 $700 f-Jan-08 41-Nov-08 1-Sep-09 1-Jul-10 1-May-11 1-Mar-12 1-Jan-13 [-s-Crude Futures -e-Gold Futures |GVEA a oneatenwoanteGR Looming Energy Issues © Scenario Issue Interior Issues Council Cost-of-Energy Taskforce ¢.Fairbanks pulling together and asking the tough questions to find an energy solution. *»Partnering with:FEDCO,utility,industry, environmental community,University of Alaska -Fairbanks,CCHRC,government *..Finding common ground in a diverse group. Courtesy of the ICC Issues to be Resolved TAPS Pipeline could shut down by 2014 =low volume Issue PM2.5 &.Particulate matter under 2.5 microns Anchorage Gas Supply Anchorage could run out of gas by 2011 Municipal Waste Paper,plastics,tires,wood and metals Cost of Energy Our original goal:"Reduce the cost of energy” Sustainability Fuel for the 100 year plus timeframeBulletLineLinenotbuilttill2011 Natural Gas Line not built till 2017-2022 Pipeline : Kenai gas supply No additional gas found Aging Generation 1,000 MW to be replaced in next 10 years Cost of crude oil «Crushing the economy throughout Alaska = Joint Utility Multiple directions and goals Courtesy of the liC Global Warming CO2 reduction Green Energy Helping ourselves and others meet an RPS Economic _|Local jobs,economic diversification and growth Development |:;; Wildfire Mitigation ..|Fire buffers around populated areas Fuel Supply Fuel that is vertically integrated,economic,long- term stable priced and sustainable Planning Courtesy of the [IC IC Energy Taskforce Members |Chair:Steven Haagenson | Frank Abegg Carol Lewis Henry Cole Eric Lidji Ryan Colgan Kari Monetti "John Davies Paul Morgan Jim Dodson Mike Musick _,Mark Eltiot Paul Parks Hugh Fate Cassie Pinkel Lori Fickus Jack Hebert Dave Hoffman Gwen Holdman William Sackinger Rick Solie Jomo Stewart David Van Den Berg Sue Hull Jeff Werner Bernie Karl Dan Wells Kate Lamal Dan White Courtesy ofthe NIC Energy Flow Model Residential . Base Long-term Petroleum ]sasn $3,142Coal;Nat.Gas Electric i Hydro Petroleum =fice :2©Coal Realeelgts ce 3 s Be, Nat Gas |Space Heating JosWoodLoan|i,Electric wr Commercial Petroteum'|,Transportation =| Base Yearly Total:$434,700,000 Industrial Long-term Yearly Total:$337,800,000 Courtesy of the {IC Workgroups ALTERNATIVE Chair Waste-to-Energy Ryan Colgen Biomass Gwen Holdmann Gasification Dave Hoffman Fischer-Tropsch Paul Park Hydroelectric John Davies Geothermal Dan White Distributed Generation Jack Hebert Conservation/Rich Seifert Efficiencies Modeling Henry Cole Courtesy pf the 1C Financial Model SS JetA :::;Fischer-Tropsch¥y NaphthaFuelSources'||:Gasification FT Diced!Municipal Waste =wl uareic 2Coat::..$1.92/mBTU - Biomass:$4.1?#mmBTU Combustion ¥%rectric kwhaeGasTurbine«}so.onawn [Natural Gas $9.00hanBTU re ] [Diesel ce [Solar ee BE]seoonmwn [Direct Combustion-CHP.25 $0.0633/kWh Wind ©oS ae ] $0.0840/KWh |Geothermal $87.J0naeBTO Teed |sooseanwn i <8 916 364mm BTU.PO ee $0.0558/KWh F Conservation'efficiency improvements (5 93ymmBTU Tye]csonzosykwn Courtesy of the lIC Options Sorted by Price Cost Curve $0.110 $0.100 $0.090 4 $0.080 $0.070 $0.060 4 $0.050 + $0.040 4 $0.030 +HYDRO-StorageoCCHPBoNPGT.LMsooowiOCPalletConservation!GEOTHERMALSpurGEOTHERMALcHsHYDRO-iniineDCMasonrySolarCourtesy of the lIC :What GVEA is doing to help the Near term solutions «Energy Efficiency _Energy$ense programs ¢Small scale renewables -Sustainable Natural Alternative Power (SNAP)*Renewable Energy Pledge -10%by 2007 -20%by 2014 +Identifying wind resources -Draft Recommendations for Interior: Short,Mid,&Long Term Conservation of energy throughShort-term weatherization and efficiency increases Mid-term Gasification for existing Gas Turbines5,000 bpd Fischer-Tropsch Plant Boa,600 MW Susitna Hydro Project + Long-term |Interties 100 MW Mt.Spurr Geothermal Project Courtesy of the 1IC How does wind fit in *ONTHEMINUS SIDE +ONTHEPLUS SIDE *High capital cost «Proven technology *High integration cost'......*.Will not need mercury *Must have spin use fuel allowances *Potential avian issues +.Does not produce *Can not meet energy requirement -intermittent greenhouse gases CO2 taxes *GVEA has proven *Will not be subject to resources -Murphy Dome and Eva Creek GVEA GVEA's Met Towers Gefen Ao,3aaseeot! nr Metsit The first of nine towers,one of a pair on Murphy Dome,17 miles from Fairbanks. Eva Creek Tower 202,30m,installed in 2004 Four additional towets installed in 2007,two 30m and two 50m Extreme wind gusts to date 41 mps (93 mph) Average wind speed at 80 m AGL 7.5 mps (16.8 mph) 35-37%gross capacity factor Minimum temperature for the 3 years of data collection -35.6°C More than 75%of the annual energy comes from the 90-degree sector centered around the south GVEABecinatweatleciies Steere erttinin BP Pending Issues System integration -some technical challenges Avian studies have not been done Capital constraints Little interest from manufacturers to produce develop ultra-low temperature models,or to work with GVEA on a small installation. Cost of spin To Weld or Not to Weld... 7 Eva Creek,Ste 202,Wind Power Rose, is :'st gy September 2004-August2008 x GVEA seen dollarsCost of CT spin uw ome Avoided MW "mee Cost of Spin sme Net annual savings from fuel offeet| 40 GVEA In summary Oil prices are not likely to drop significantly Alaska needs to look to their renewable and sustainable sources of energy to meet electric,transportation and home heating needs and to promote jobs Energy conservation is a near term solution Wind may help in the.mid term but can not replace base load generation and will only slightly reduce reliance on existing fuel sources,coal and biomass gasification and/or liquefaction for existing electric infrastructure and transportation Need to seriously consider large scale hydroelectric for long term :ee_THANK YOU Jadaat "ome rae Tandene mn Coannain RE Renewable and AlternativeEnergyat$950-_Gold”ill and $800 ” Level Priced Energy for the Railbelt REGA Technical Conference _ November26,2007 en<coS«EDF EN CompanySteveoveGiver Manager,Alaskan Projects enXco Development Inc.ct SSeg Ve "RenewableEnergyiioa Generally recosognized renewables: Biomass.:oo Solar 7WaceandTidaloes .Geothermal -Hydro es Wind a S "wind '@ ,ENCTIYisas proscoreWave Technology Examples Photos courtesy of Wave Energy Center eae In Stream Tidal Technologies sang-Photos courtesy Electric Power -Research Institute 4FSTYEforasereeeemememecargSYCTAMIIG OCDE cS ait Cerny:Petarcemeerigespacoaa Cairn Point Tidal Study Up to 75 MW Possible 06 Study funded by Chugach, ML&P,and AEA. Photos courtesy of EPRI |Ory Steam Power Plant Turbing Generator FARE 2 SY Snee emmmmrs es alah Mere Se ee2slesjae|Tegwnt Ancromenatl i...Lee )ell :mn Ge wind,hes = -1 Rock layers = 7 es "soa Gl a ae ™a,L « ' .a,”A IAA wen Boge te :yea :a |oa.ae WELL. |oe f . ¢Level Priced Power ¢Diversification of Resources ¢Reduced Emissions (Carbon Tax Risk) Fg RT TOUTREIRE AeTeme Cramer cree an seg germ nae Ses BORE Reneamein eet eager -"arUPome on!7)Layesaaeaewt. a8 iy bes orires Renewable Energy Lab Photos for Kids Courtesy National www.nrel.gov & F ® a ry ansaea2 atest ..a.nS ye ¥aes : = ";Lathe *ae eeeBeeieg2ee :a ;Ov .ative mann arate "WIND GENERATION_.CONCEPT PLAN._SEPTEMBER 2006 '-acaine wine 3waterye-Cash DOR Benefits ¢Small pockets of generation would stiffen the grid ¢Distributed generation provides ancillary services and adds reliability "gatmekBOLDOTNAs>." 4 2BabedesbbeSaleoo Renewable Energy Economic Considerations Wind:G;.Fnergy,@ALAS Wind Economics ¢More than 90 %of Southcentral Alaska's power 1s generated by natural gas. ¢A 50 megawatt wind project would generate approximately 150,000 MWhs ¢Enough for 16,000 -18,000 average homes Residential Bill by Component Based on 700 kWh Consumption 1993-2006 $105 100 Fuel and Purchased Power Expense SRERBERBRSRAAFSBRER1993 1994 1995 1999 1907 1998 1999 2000 2001 2002 2003 2004 2005 2008 Year Ending °e ewind©). Source:Chugach Electric April '07 Newsletter |a e ne LO Ysuasta Wind Economics Wind turbine reliability has risen and cost has dropped $4 billion invested in wind power in '06 Up-front cost for any new plant is higher Life cycle cost is lower Adding renewables to the generation mix helps stretch natural gas supplies Recent comparison ¢Bradley Lake hydro was more expensive at first but is now among the lowest cost ¢Why ?-no fuel cost ¢Natural gas has nearly doubled in price during the last three years _Wind :©.Energy,Sy@ @ ALASKA O O Fire Island Early Interest ¢Developers estimated the cost of power in '05 ¢If Fire Island had been installed then.Power from the island would already be competitive with natural gas generation. Wind.Energy,© ¢Renewable power is "flat priced”and helps to diversify generation investments. -A policy establishing targets to "graft”renewable power into the system over time is needed. ¢Golden Valley and Chugach have renewable energy committees that have made recommendations..'..Wind *@).Energy;@ @ ALASKA a| _Discussion t : se emt NE ERE Mt eee , oe at ae te a Ry a.aAEfeescgayopenesforse© heeealIre "Sgn a a EAT 3ohanaPCtriCHnNaMeearyUFrebakLBeaa |Level Priced Energy for the Railbelt*>»REGA Technical Conference November 26,2007 xSSpe Steve Gilbert Manager,Alaskan Projects - enXcoDevelopmenting, _Wind ©.Energy, Aint vecture of CIPS ened aco Development Corp.¥-CIRI enxco Renewable Energy Generally recognized renewables: Biomass Solar - Wave and Tidal Geothermal Hydro Wind wind.Energyuncn Wave Technology Examples In Stream Tidal Technologies Cairn Point Tidal Study Up to 75 MW Possible °06 Study funded by Chugach, ML&P,and AEA. Photos courtesy of EPRI Dry Steam Power Ptant Turbine qd Economic Benefits *Level Priced Power ¢Diversification of Resources ¢Reduced Emissions (Carbon Tax Risk) REGA Project Approach and the Unique Alaska Grid Presented by Kevin M.Harper November 26,2007 Agenda e Introductory Comments e Project Overview e Project Issues @ RTO/ISO Overview and Lessons Learned e Conclusion 7 :ance TET 7es Overview of Black &Veatch @ Utility strategy and planning expertise @ Project management experience @ Core in power @ Extensive regulatory and utility rates expertise Technology solutions and implementation expertise @ Previous Alaska experience @ No.1 in generation->120,000 MWbuilt (No.1 in coal,No.1 in gas,No.4 inhydro) @ No.2in ion and dis @ No.4 and 5 in wastewaterandwater ®47 U.S.Offices and 8500+ professionals 11/21/2007 'ean .J Tete | 11/21/2007 Enterprise Management Solutions (EMS) Strategy Solutions onsigineete> «Business Strategy yore at«Energy Procurement/Risk Mgmt.* «Mergers and Acquisitions :he «Financial and Business Advisory peServiceseee¢Regulatory and Environmental ay := e Resource Planning Bb etaitaeswsell Process Solutions Technology Solutions «Performance and Project Management »Generation Options e Fuels Management e Power Delivery «Independent Engineering e Carbon Management e Asset Management e IT Planning and Integration «Organizational Strengthening e Customer Technology e Operations Technology Poo i Noverber$8 2007 Fgun pine a wore.oFDIFFERENCE™xe VEATC Agenda @ Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion Project Objectives e Study the management,operation,access rules,ownership, integrated resource planning,and regulatory structures of the Railbeit electrical grid @ Analyze and provide recommendations of possible alternative structures to manage and dispatch electric power in the Railbelt electrical grid e Provide a final work product for stakeholders and decision makers to consider in planning how to meet the Railbelt's energy needs over the next 30 years aD :'*ce ae Project Scope e Review existing reports and available grid data Conduct interviews and discussions with utilities and stakeholders Provide additional modeling necessary to provide a range of options @ Analyze a range of scenarios @ Develop recommendations on whether and how the Railbelt grid should be reconfigured e Assess whether a REGA can be implemented cooperatively or whether a separate business entity is required aFace-6.Novariea 252007 Project Scope (con't) @ Consider existing power sales agreements and fuel supplycontracts e Consider all aspects of grid operations e Rank scenarios on the basis of a feasibility analysis andsuggestuptothreepotentialpaths @ Develop implementation plans and budgets for feasiblescenarios @ Provide a final report and presentations TCH Project Work Plan "€Task2-Coliect aed Evalaste Exhtiog Reports aud Docement |C "Task 3 Attend and Asst laa Techmical Conference|---information from Stakebokien |ee4Task6-Developand Evatuate REGA Scenarios | 9 a S 8 [ies F Tovarbe 38 S07 11/21/2007 PouoeeeaworloF omrERENC 28 Project Schedule Tek November|December]Jeauary |Frermery |March Apr May1,tations Project2CobiectandBvaherte Hinting Reports mad Documents can 7"3 Aton and Asoint a Tochaalc<z 4.Collect Additional:From Stakeholders &4 7PartiemAdveoryweak:oy GEE6&=Develop and Bvaluse REGA Soomarics vii 1 Imphoneniation Plans - ®xk.a9.ProperwDeafReport acntin'-10,PreparefimalReport ™ os Prmemtation Services Lo Sere] e Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion wage if °Novarioe36 S007 "Big Ten Strategic Issues”For Power Industry Aging Infrastructure @ Aging Workforce e@ Adequate Security e Reliability e@ Environment @ Long-term Investment e Technology @ Fuel Policy e Market Structure e@ Regulation aes Tovcrkd WR" 11/21/2007 %LACK&VEATCI Project issues e@ Uniqueness of Railbelt e Size e Limited interconnections e Limited redundancies State vs.Federal regulation Bie =Vnooe8 Project Issues (con't) e@ Changed conditions e Limited renewables and DSM programs @ Addressing climate change ©Reliability e Aging infrastructure e Fuel supply uncertainties e Best means of achieving benefits Faget °'""Riverow36SOF vEATCS e Introductory Comments e Project Overview e Project Issues eRTO/ISO Overview and Lessons Learned e Conclusion Seen "'ici BP 11/21/2007 What is Happening to Transmission? e Historically,transmission owned by vertically integrated utilities e From a "deregulated wholesale market perspective,”many feel there are major issues with this ownership profile «Whocontrois pricing? «How do you ensure fair (comparable)pricing? «Whocontrols scheduling access to the wires?«How do you guarantee a focus on reliability? e The consequence «Wholesale deregulation has targeted the separation of transmission operations -functionally,operationally or physically -from the rest of the utility *Creation of independent organizations such as ISOs and RTOs to maintain a vigil on the use and pricing of the transmission systems =-Wee SE] 11/21/2007 Current Transmission Perspectives e Energy Act has passed,impact is starting to be implemented e Perceived mixed financial benefits of deregulation in the U.S. e Existing ISO/RTOs now focusing on reducing operational cost and demonstrating value to justify existence @ Most markets still evolving and maturing Ten Stated Reasons to Create ISO/RTOs 1.Enhanced reliability Efficient grid dispatch2 3.Significantly better price transparency 4.Ease of entry and private investment 5 Green power added to grid an "Keverar 38 a5” Ten Stated Reasons to Create ISO/RTOs (con't) 6.Market monitoring benefits 7.Market flexibility 8.Market liquidity 9.Market diversity 10.Demand response development Noveroe2607f Lessons Learned @ Initial set-up costs greater than predicted e Operating costs greater than predicted e Evolution slower than predicted e Scope creep What is optimal size? @ Continued market rule changes Significant investments in generation and transmission have occurred ane)eae 11/21/2007 Finiiinene a wornOFDIFFERENC New Generation Investment New %of 2006Region2006instatiedGeneration2001-2006 from New Sources aEso 11.501 3.058 266% CAO $a 500 18.986 293% eRCcOT 00.141 21.483 2am 4180 137016 25114 18% #90 N24 26 aan 1S0-ME 3.825 8.04 FE) BS 4.32 102 24% nnso 40.536 aTh4 phe) Put 162 143 19-485 Pau. 3p 40 10 383 2am (0)Weeer ratings am mcicaind for Aberte cecaves hal region 6 @ ante-peaking este, Source:ISO/RTO Council. pre Novarbw 0 2007 New Transmission Investments e@ PJM -over $7 billion approved @ MISO -nearly $1 billion on-line;$2.1 billion committed e@ ISO-NE -$833 million on-line;$4.4 billion planned e CAISO -$8.2 billion approved e ERCOT -$3.5 billion invested e AESO -$1.5 billion invested Source:ISO/RTO Council. sho e Introductory Comments e Project Overview e Project Issues e RTO/ISO Overview and Lessons Learned e Conclusion 11/21/2007 11/21/2007 Conclusion e Options both significant and limited e Lessons from lower 48 of limited value due to uniqueness of Railbeit @ Objective assessment Frame future uncertainties Stakeholder involvement e Leveraging assets and circumstances Fins :Kove0BoP Level Priced Energy for the Railbelt.REGA Technical Conference November 26,2007 Steve Gilbert Manager,Alaskan Projects enXco Development inc. -Windea&.ENerY. :OSE:a :aSAjointventureofCIR]end enXco Development Corp.SCIRI enXco Renewable Energy Generally recognized renewabies: Biomass Solar Wave and Tidal Geothermal Hydro Wind wind.Energyycasca Wave Technology Examples Photos courtesy of Wave: Energy Center In Stream Tidal Technologies oursN77 ¥ro Cairn Point Tidal Study Up to 75 MW Possible "06 Study funded by Chugach, ML&P,and AEA. Photos courtesy of EPRI Dry Steam Power Plant Production well Economic Benefits ¢Level Priced Power *Diversification of .=BO Mg3 Resources 'ai *Reduced Emissions i ae(Carbon Tax Risk)i ;)aS a.SR 8 7”UEP AEN HS System Benefits ¢Small pockets of generation would stiffen the grid ¢Distributed generation provides ancillary services and adds reliability Renewable Energy Economic Considerations Wind <<.Energy. Wind Economics *More than 90 %of Southcentral Alaska's power is generated by natural gas. *A 50 megawatt wind project would generate approximately 150,000 MWhs ¢Enough for 16,000 -18,000 average homes Residential Bill by Component Based on 700 kWh Consumption we Besanaseaaeaeeaawn 1 1 ee ee a A'Wea Icing wind. 'Sowos ChugaohBecticAgel 07 Neerstener CNECTOY i asa Wind Economics ¢Wind turbine reliability has risen and cost has dropped ¢$4 billion invested in wind power in '06 *Up-front cost for any new plant is higher *Life cycle cost is lower ¢Adding renewables to the generation mix helps stretch natural gas supplies Recent comparison *Bradley Lake hydro was more expensive at - first but is now among the lowest cost «Why ?-no fuel cost *Natural gas has nearly doubled in price during the last three years Wind -@.Energy,.<, Fire Island Early Interest *Developers estimated the cost of power in '05 +If Fire Island had been installed then.Power from the island would already be competitive with natural gas generation. Wind's.Energy. Renewables Economics ¢Renewable power is "flat priced”and helps to diversify generation investments. *A policy establishing targets to "graft” renewable power into the system over time is needed. *Golden Valley and Chugach have renewable energy committees that have made recommendations....Wind'@. Discussion Exploring ConsolidationTheChugach-ML&P Study ProcessElizabethVazquez,aa re o Chugach Electric Association ae :Alaska Railbelt Electrical Grid Authority.Technical Conference November 26,2007: _Why Study the Possibilities? .Close Geographical Proximity 2 *?Small Size of Each Utility : oo Chugach Electric -%"=64,400 members -Municipal Light &Power "30,000 customers©Both Have Aged and Inefficient Natural Gas_Generation Facilities *dncreases in Fuel Cost; exploring ConsotdatonThe OiogacihMGP Study Process ai"Exploring ConsolidationsThe Chugach-ML&P Study Process #iiptine "Objective of Phase |Study Determine Benefit,if Any,to ElectricCustomersfromaReorganization,Merger,Consolidation,Joint Operation of Chugach-Electric and1 Municipal Light &Power Hehe He "Exploring Consolidation:"The Chugach-ML&P Study Process Sisnniininn mars Key Principles of Phase |Study > 1.Ensure greatest benefit for existing ratepayers of the two utilities. 2.Eliminate duplication of services. 3.Increase efficiency of services.4.Create rate stability for current and future zeeeratepayers.8.Maximize asset value for owners of bothcompanies. 'Exploring ConsolidationThe ChugachiML&P Stody ProcessSe a The Participants ||-.The Participants eee a .Advisory Panel Chugach Electric]|..MOA.oe *.Chugach BOD Chair Elizabeth Vazquez,co-chair «Board of Directors |||*Mayor &am *Mayor Mark Begich,co-chair*Management -Administration |---_-___*_Robert Ballow-CPA and investor Say -ML&P Management :=|Mike Barry-Former chair of AIDEAosChrisBirch-Anchorage 'Assemblyman"Advisory Panel «Steve Pratt -ML&P Advisory CommissionerEachsidehasuniqueresponsibilitiesoaDonMay-Former Alaska Public UtilityCommissionerEachdesiringannopen,transparent process - éExploring Consolidation:The Chugach LGR Study Process 6st _Phase!Study Schedule Where Are We Now?_ »Report Released November 5,2007.--*MOA &CEA's Comments held until November 200 co ae "Advisory =I Sprain Agreement |Panel Formed Data Gathering a Signed:Consultant |_Report Preparat One.|Selected =Cen :ee er Chugach Submits Extensive Questions to Navigant,: .on me :Consultant.To date,MOA and ML&P Have no Questions -: Management &Consultants to Review and Analyze Report ee ee -Consultant Provides Answers on November 22,24 &25DataGathering.Draft Phase |Report |:{Report Released Chugach Staff and Consultants Presently Reviewing.Preparation _:Review&OP ao :Answors-Possible Additional QuestionsAnalysis©7 cans (es : Public Comment ae eS ee Public Comment November 29 "Exploring Consolidation:The Chugach ML&P Study ProceseeeeoPEI __The Phase |Report .Intended to be a High--Level Screening Study «Identifies Alternatives for Possible Further-Study. -«7 Scenarios Considered7JointOwnershipofNew GenerationaJointOperations os Acquisitions Some Assumptions of Consultant . _*Ability to Issue Tax Exempt FinancingforCertainCaseModels:Boe -Case 1-ML&P Acquires Chugach -Case 4-Governmental Entity Acquires Both -Case 5 -New G&T (Govt.Entity)acquires all of the .Generation &Transmission Assets of Both: «No Ability to Issue Tax Exempt Financing FForOtherCaseModels- Exploring Consolidation:The Chugach-MI&P Study Procesav ern "Exploring Consolidation:The Chigach-ML&P Stuy ProcegsBPC AEM WOROE AD ERR The Phase |Report Results7SavingsThroughJointOwnershipofNewGenerationaPotentialSavingsThroughJointtOperations«Potential Savings Through Change iin UtilityOwnership-but Uncertain Due to Tax andLegal:Issues NOTE:Cost of capital differences between tax exempt government (Authority,Municipal)& taxable (Coop and IOU)forms were the primary considerations evaluated in this study. "Exploring Consolidation The Chugach-ML&R Study Process 28H 10e ERO ROO Rea CP Additional Assumptions of Consultant +Focus on Cost of Capital Differences -Between taxable and non-taxable debt issued to finance transaction -.Difference of 1.5 basis points between _taxable and non-taxable debtme-5%interest for non-taxable debt '-6.5%interest for taxable debt Additional Assumptions by Consultant - Acquisition Price = Outstanding Debt +Defeasance Premium _+Capital Credits/Retained Earnings This Should not be Considered a Market Value, Only a basis for Screening Comparison of the Alternatives a ent a arcte R R A BEO S: Phase |Report Findings Table CASE Savings*|%Savings ($millions) 1-ML&P Acquires CEAco-op |$168 °|°-6.3%- 2 -CEA co-op Acquires ML&P_|($45)|.: quires both $243)|. ov'uthority buys both ©$218. 5 -New Gov't G&T $30 6 -Joint Contracted -$97 Operations 7 Jointly Owned Power Plant $86 3.2% *Net Present Value of retail rate savings 2009-2020 _Summaryof Anticipated Issues *Tax Questions -Tax-exempt Financing -Tax Consequences to CEA (membership and co-op) +Legal Issues | Statutory Restrictions -Voting Requirements -Debt Restrictions . °Regulatory Requirements &Policy. Exploring Consolidation:The Cttugack-ML EP Sturdy Proce ey FEL SEAN EN ASR MR PERE GE 'Exploring Consolidations'The Chugach-M&6P Study Process:Si iiiIIe Anticipated Issues Tax Questions Issuance of Tax-exempt Bonds to Finance Acquisitions -Critical for Case 1,4 &5 =Case 1-ML&P Acquiring CEA _®Case 4-Governmental Entity Acquires Both a Case 5 =New G&T (Governmental Entity)Acquires all of the Generation &Transmission Assets of Both | Totally Dependent on Tax-Exempt Financing-"each assumes the ability to issue tax-exempt debt for the acquisition”page 61 of Report _Anticipated Issues ae Fs _.Anticipated Issues. Tax Questions ae Regulatory -Taxable consequences to CEA:°'Example =:°Case 4 -Governmental Entity Acquires Both-«The Cooperative -presently exempt from:a ML&P &Chugach° paying federal income tax.Income from non-: , electric sources cannotIntion fi aba Income.«Involves creating an entity that is 100%debt financed :»No equity ownership . %or acquisition.Income would be taxed at ce «Unusual for regulated utilities in Alaska "If this option were to be pursued,extensive consultation ; with the RCA would likely be necessary to demonstrate the -.ability to maintain financially secure performance withoutequity."Page 63 of Report.: *Members -would need tto pay tax on theirdistributionshare. "Exploring Cansolidations:The Chugach'ML GP Study Process'i 'Exploring Consolidation=The Chugach ML RP Study Process oe Anticipated Issues-Legallssues._-_Anticipated Issues -Legal :Statutory Limitations on Merger Activity Es oo =7 eo Limitations on Selling,Leasing,or:me :oS ..Disposing of Utility 4Assets-Chugach -is only permitted to merge with other Bee oe ML&P-MOA's charter requires 60%of voterscooperatives.AS 10.25.240 a :...to approve (Section 16.02). :ee a eee :oe=BUT:Only 50%is required to amend the charter.=ML&PDis not:a cooperativeeo oa us oes i .ee .Chugach -Bylaws require 2/3 approval ofaSEOPAROY,CER minimum 50%members voting (Article IX».-Thus,Chugach and ML&P cannot merge with Section |).present state statutory restriction unless ee <0 Es BUT!There has never been more than 30%voter.successor corporate form is changed...ee we 45 participation in any previous CEA election. Exploring Consolidation:The Chugach+ML&P Study Process fs il :Exploring Consolation)ThasChugach-ML&P Sindy Proves genio Anticipated Issues -Legal. -Debt Restrictions a +ML&P-If Assets are Acquired or Transferred,Tax-exempt Debt Must be Defeased &NoticeProvidedtoIRS-: We Chugach may'have limitations on their bonds "ufxplering Consolidation:"The Chugach ML EP.Stidy Process FARA ETL PPLE INE EL BRINE IO: Actual Recommendation of Phase |Draft Report Evaluate whether tax-exempt pnancingcanbeusedforcase1and4.if this is not possible,. Focus on the combination Cases of 6 &7 -Joint Contracted Operations -Jointly Owned Power Plant Case 6 Analysis_Joint Contracted Operations No sale2 of assets or utility.: '«Each utility places large portion of their employees into a separate operating entity to manage,operate'and maintain|many functions. *Functions such as distribution,customer service,. G&T operation,maintenance,etc. Case 7 Analysis Single Jointly-Owned Power Plant "|.Both utilities would retain all their assets,including ©:generation,transmission and distribution. .Jointly own a 260 MW gas-fired combined cycle=.generating plant,each owning 50%of the plant.| +Each Utility brings their own financing and their ownfuelfortheirproratashareofelectricityproducedbyPlant.3 , a aS SSCS NEADS SSNUUSaNINDSEE Next steps Electric Industry Restructuring iy SEE mae aaa Coming to Anchorage?«After Careful Analysis,Chugach Submitted Extensive List of Questions to Consultant . ce :°YES!It's alread here with the ID of several options for an=Consultant Submitted Answers to Chugach on ML&P-CEA reoryanization or joint operations. November 22,24 and 25 :*Electric consumers worldwide have benefited from 2 Analysis of Answers &Possible Additional realigning assets in more economic and efficient ways. Questions :*This study has Identified up to 8%in savings looking only =Hold Comments on Report Until November 2gth at consolidation and financing changes. . :_*The Future Task :Think beyond those two items and_»-Next Public Meeting November 29"explore other opportunities for even greater cost savings .for our consumers! *.Determine Next Course of Action 'Exploring Consoldation:Fhe Chugach -ML&P Study Proonss:*# Questions? O POWER: NEW GENERATION Matanuska Electric Association New Generation Plans:The Public Process AEA/REGA Conference November 26,2007 Lorali Carter Mgr.Government &Corporate Communications C O--'POWER=: NEW GENERATION Public Process ¢Articles in Power Lines ¢Annual Meetings ¢Member Advisory Committee Meetings ¢Adoption of Integrated Resource Plan (IRP) ¢Public Meetings on IRP |POWER=:NEW GENERATION Public Process ¢Land Call ¢Reviewed 23 Potential Sites ¢Narrowed Site Selection to 5 ¢Public Meetings on Site Selection UU Search Area f**p * a Wray attBe, Sapeneaahs "s,eWasilla/"mente e fanseees,Alaska #Se iadCay |POWER==: NEW GENERATION Public Process ¢Advisory Vote:Site Selection ¢4283 Ballots Counted ¢#1:Glenn Hwy Gravel Pits South @ C)e MEA POTENTIAL GENERATION AREA NORTH AND SOUTH SITES oe G ,:Tae i ''pci ¢Ry Sa.Pe Ey,ee,oe fate pe ee PEsooNatepSaes wtfPeeageSe, mowed: peeyes POWERroaNEWGENERATION Public Process ¢Renewable Energy Workshop¢2007 IRP ¢Borough Power Plant Ordinance ¢Advisory Vote:Local vs.Imported Power ¢75%Voted in Support of LocalGeneration POWER |r>as atFORAf,ReneNEWGENERATIONa Conclusions POWER: NEW GENERATION Matanuska Electric Association WWww.mea.coop Lorali Carter lorali.carter@matanuska.com 161-9266 Matanuska Electric Association New Generation Plans:The Public Process AEA/REGA Conference November 26,2007 Lorali Carter Mgr.Government &Corporate Communications Public Process *Articles in Power Lines *Annual Meetings *Member Advisory Committee Meetings «Adoption of Integrated Resource Plan (IRP) *Public Meetings on IRP Public Process «Land Call *Reviewed 23 Potential Sites *Narrowed Site Selection to 5 *Public Meetings on Site Selection 11/21/2007 ?ae, *» 11/21/2007 Search Area 7Suttons pf.a s y '| 3 ewer ., Bye,HOUSON pe em "j "ne pond i.| /7 [enyayy )4 :_t | S ;/ a terverstteas ; fije Wasill Public Process *Advisory Vote:Site Selection *4,283 Ballots Counted *#1:Glenn Hwy Gravel Pits South MEA POTENTIAL GENERATION AREA GLENN HIGHWAY GRAVEL PITS NORTH AND SOUTH SITES Public Process *Renewable Energy Workshop 2007 IRP *Borough Power Plant Ordinance +Advisory Vote:Local vs.Imported Power 75%Voted in Support of Local Generation Conclusions Matanuska Electric Association www.mea.coop Lorali Carter lorali.carter@matanuska.com 761-9266 11/21/2007 -_,Hydropower Prospects for-Southcentral Alaska TDX Power | Nicholas Goodman Eric Yould for Renewable Energy Project Alaska October 30,2007 t Hydropower o Statewide o Southcentral o Susitna project o Chakachamna +r :Characteristics of Hydropower Cnaeea en ns Renewable energy a High front end cost s LOW annual costs n Long lead time for permitting and construction n Long operational life (200 years or more) a Can be very environmentally benign a Can impart major environmental impact Inventory of Alaska Hydropower Potential o U.S.Bureau of Reclamation on U.S.Army Corps of Engineers no 256 sites with con than 2500 KW o 192 billion KWH e tinuous power greater nergy potential o 40%of the Unitec hydropower States'untapped aay [Potential Major Alaska -.Hydropower Projects Project Name River System in Megawatts)(Million KWH /yr) Holy Cross Yukon 2,800 12,300 Ruby Yukon 1,460 6,400 Rampart Yukon 6,000 34,200 Porcupine Porcupine 530 2,320 Woodchopper Yukon 2,160 14,200 Yukon-Aaiya Yukon 3,200 21,000 Susitna Susitna 1,500 6,500 Chakachamna Chakachatna 320 1,600 Wood Canyon Copper 3,600 21,900 Stikine Stikine 2,260 9,900 Note:Chugach Electric Energy Sales approximately 2,500 million KWH Existing Hydropower Statewide o 40 projects o Most located in Southeast Existing Hyd ropower Southcentral o Eklutna 37.5 MW o Bradley Lake 90 MW no Cooper Lake 5 MW VICINITY MAP m ie 7 Rcvanale , U.$.OEPARTMENT OF THE INTERIOR ALASKA POWER ADMINISTRATION UPPER SUSITNA BASIN LOCATION MAP SCALE ofhe Interior,Alaska Pewee A hon tay 1074 - Yq Susitna Four Dam Scheme NXUPPER SUSITNA RIVER PROFILE :'o US.DEPARTMENT OF THE INTERIOR y 7 aALABKAPOWERADMINISTAATIONyjWANRESERVOIRMAPaUPPERSUSITNABASIN_| 2 i 4 SCALE ff { é ©meee7 Source:Devil Canyon Status Report,United States Department of the Interior,Alaska Power Administration,May 1974 [Profile of Watana-Devil Canyon Developmentz < z <os$- 200°z .2 2100'_-{3 2000 a o 2 1450"240 280 300aath1000"|S|GOLD CREEK GAGE =15292000 500°<<ci (v9) WATANA EL.2200° 0 .120 140 160 180 200 WATANAI EL.2100 RIVER MILES------_>- WATANA Il EL.2000'EF&8ELEVATION(FEET): Results of Screening Process Elimination Elimination Elimination Elimination Iterationt?Iteration}?Iterationt?Iterationt? Sitet!123 4 Sitet?12.3 4 Sitet}123 4 Sitet!123 4 Allison Creek Fox *Lowe * Talachulitna River * Beluga Lower *Gakona Lower Chulitna Talkeetna R.-Sheep xBelugaUpper*Gerstle x Lucy *Talkeetna 2 Big Delta *Granite Gorge *McClure Bay *Tanana River x Bradley Lake x Grant Lake *McKinley River *Tanzlina x Bremmer R.-Salmon *Greenstone *McLaren River *Tebay Lake * Bremmer R. S.F.*Gulkana River *Million Dollar *Teklanika x Browne Hanagita Moose Horn x Tieke]River x Bruskasna Healy -Nellie Juan River x Tokichitna il Cache Hicks Netlie Juan R.-Upper * Totatlanika x Canyon Creek *Jack River x.Ohio *Tustumena x Caribou Creek *Johnson Power Creek *Vachon Island-x Carlo *Junction Istand Power Creek -1 x Whiskers x Cathedral Bluffs *-Kanhshna River x Ramport x Wood Canyon * Chakachamna Kasilof River Sanford *Yanert -2 x Chulitna E.F.x Keetna Sheep Creek x Yentna x Chulitna Hurrican-x Kenai Lake Sheep Creek -1 x Chulitna W.F.*Kenai Lower x Silver Lake x Cleave x Killey River *Skwentna x coal x King Mtn x Snow * coffee * Klutina Solomon Gulch x crescent Lake *Kotsina x Stelters Ranch * crescent Lake -2 x Lake Creek Lower Strandline Lake Jeadman Creek .Lake Creek Upper Summit Lake x *Eagle River Lane Talachulitna ft!Final site selection underlined. 12 An asterisk (*)denotes site eliminated from further consideration. Source:Exhibit E,Table £.10.1. _t Alternatives Outside the = Susitna Basin _Estimated Total Average Total Cost Installed Annual of Project Capacity of Energy ofAlternative($million .Alternative Alternative Investigated 1982)(MW)(GWh)7 Johnson 319 210 ,920 Chakachamna | _905 333 1,300 Snow .305 100 | 375 Keetna 519 100.420 Browne 681 100 .418 ro Alternatives - o Z 46 Milesa- o JOHNSON ' z .j”me mem me a o %KEETNA%%a z 'Myom<*,£ c)5 *3=WILLOW 3 $q]3 3 a ALTERNATIVES G o {s&s ANCHORAGE @ Hydro c4 le)HUTTNA 9X 0 Gas-é°©Coal (KENAI A Susitna £eam snow Yk ns<¢3 é {7 fi) j | |z : °et ah ::=ss W 151°w 49°W 47"Ww " Figure 2-18.Location of Thermal and Hydroelectric Alternatives. [ Chakachamna Hydropower Se a ae iy 28 re Investigations Department of Interior U.S.Army Corps of Engineers Alaska Power Authority TDX Power Late 1940s 1 970s Early 1980s 2006 Reconnaissance Reconnaissance Pre-feasibility FERC permit tq Chakachamna Hydro Power Studied by Alaska Power Authority in early 1980's Divert stream flow from Chakachatna River to a powerhouse on the McArthur River by way of a 10 mile 25 foot diameter power tunnel Minimal dam on Chakachamna Lake Installed capacity of 330 MW,generating 1.6 billion KWH annually Total cost of project in 1980 dollars =$1.0 billion Project is 40 miles from Chugach Electric power facilities at Beluga wh ie'.. Detisd "POP A Saveiicle ASS ie thgefo"lo ih,Inage@2007 DigasiGio =y kn ON A aaa Oe aaeesae;iBiStrearragollIPINMCIO0SMe6.MRS «1 at *,ee =aa heDattaetTTYyesWarewh *xee %'el4 :1.:: . a .- .*a ' 2 :. :. vo Bere ta, .. we .ewe eee at '. y "4 'fl alo ww ie :"|we):moe TT etwas ae a :*:.?a .'. .{may fe 5 ._. 't t ::sane9000foursPeetae,2)-:(Tyeeane)ast &®'eure.|(Onovra:. ,|*'+ ee fn 2 oe ..:aa ; mo .ae - . )?' poet .: : ew cies OS .:oe s.ora,au.0-8 : ALAS om 0 ': a .'.-Nye ;beeN BO GORCAAR Fibrin!Be 88 9.come a”. iN 6mEO PENSTOCR 4oe=na me hs 198-0 edoretie'wontons sce tele -: L ! wr +: oo a ".---_=|be ,HOATICAL SCALE ee ee 4areas le .' . ..'l 7 :-.-ry otk :: : . wpm smuere .209 +98 aonsee enero et0 +00 ue -{__Chakachamna Lake Tap Gate Shaft_+Inflow to Power Tunnel McArthur River Underground LE CHAKACHAMNA FISHERIES n 5 species of salmon use the basin n Sockeye the main salmon species a Dolly Varden ubiquitous in the streams a Lake trout observed in lake x Not a large anadromous fishery but worthyofprotecting a Fish ladders at lake outlet required n Possible temperature enhancement to river TZ CHAKACHAMNA WILDLIFE s 56 species of birds s 16 species of mammals Moose,wolves,lynx,bear,wolverine, other fur bearers as None on the endangered species list a Less impact than other hydro projects of similar size Li Geotechnical Considerations o Seismic -Castle Mountain Fault n Volcanic -Mount Spurr (1992 &1953 eruptions) n Glacial -Barrier,Blockade,McArthur, Shamrock na'enterwi A eet lh,on "a,TR pep yrage:i : ' we eta C1 Next Steps 49 Project construction Preliminary permit investigations FERC licensing Power on line > 36 months 18-36 months 76 months 2015 O Hydropower Prospects forSouthcentralAlaska TDX Power Nicholas Goodman Eric Yould for Renewable Energy Project Alaska October 30,2007 a"Hydropower a Statewide »Southcentral »Susitna project «Chakachamna o Characteristics of Hydropower «Renewable energy a High front end cost =Low annual costs a Long lead time for permitting and construction «Long operational life (200 years or more) s Can be very environmentally benign s Can impart major environmental impact r=Inventory of Alaska Hydropower Potential a U.S.Bureau of Reclamation #U.S.Army Corps of Engineers =256 sites with continuous power greater than 2500 KW a 192 billion KWH energy potential s 40%of the United States'untapped hydropower * Potential Major Alaska Hydropower Projects Project Meme River Systamn Tnetaned Capacity Enersy iHEEHBBHBoBENote:Chugach Electric Energy Seles appreadeately 2,500 milion KWAT .Existing Hydropower"a Statewide =40 projects a Most located in Southeast rr"or Existing HydropowerSouthcentral s Eklutna 37.5 MW »Bradley Lake 90 MW =Cooper Lake 5 MW rr "yz Susitna Project Location en os ;im a rt Profile of Watana-Devil Canyon Development waren mae rv"Ez Results of Screening Process Ettatnat fon Tiainenie Etetnation Eieteet tonIperntont?Sersetentt "y2a4 Stat?rina Site?azaé Stat 2204 toa *we *Tatacalttas River 'a .Lower Cet tag ©Talteetae @.-Show * ©Grstte soy .Vheetag_ .Sanita core eel toy «Hea tier " greet tame Rektniey three .Tanation . *=Marae those .' a folhane Cer ©at tTtee patter .Farland . a *forse tore *Vetat River .meaty .Bellve name fiver #Tonieni .wicks ai tie Saas &."taper ©Fetrtloates * *Jerr .rte .te . *Seaneaa 8 Pewee Covet .Yate stent . .Seccion tslang 0 #Power Sree =2 .var . .ter ©Renwort!:inne Canyon.: Kester River «Senters 'Youre 2 . 'Seeee Croce *ee . °'ae ©Stomp Crest =2 * feral Lowe s Sttvee take . .Ailey Fw Severn aead*Aten ee «*Ratton ©Retine 0 Fn on ' rescent.Lotm +ete .Fteltore Ranch . ireccent Gha-8 #Line Creek taver #br .Lata freak taper *. fagle Steer *Lane ©Talachelites . 1)Final arte selection wntert ined.1 Ae aaterton (")manton cite oliatanted trem farther consideration. freee Enmtort @,Tents €.182 r Alternatives Outside the"Hz Susitna Basin Estimated Total AverageTotalCastInstalledAnnualofProjectCapacityofEnergyofAlternative($willion Alternative AlternativeInvestigated1982)(ay (Gib) Jonnson 39 210 920 Chatachanna 905 333 1,300 Snow 305 100 378 Keetna 59 10 420 Browne 682 100 ae r=Chakachamna Hydropower Investigations =»Department of Interior «U.S.Army Corps of Engineers Late 1940s Reconnaissance 1970s Reconnaissance Alaska PowerAuthority Early 1980s Pre-feasibility =s TDX Power 2006 FERC permit a Chakachamna Hydro Power =Studied by Alaska Power Authority in early 1980's «Divert stream flow from Chakachatna River to a powerhouse on the McArthur River by way of a 10 mile25footdiameterpowertunnel e Minimal dam on Chakachamna Lake Installed capacity of 330 MW,generating 1.6 billion KWH annually Total cost of project in 1980 dollars =$1.0 billion a Project is 40 miles from Chugach Electric power facilities at Beluga ™ry Chakachamna Project Location ™ET Chakachamna Aerial View rt rv "EI Chakachamna Dam Site "EI Power Plant Site ns:&&:»,waltaiEAS3°bo <==trae A : Pie =a Lb ltnid _-hee ==_==--Wd F™Chakachamna Lake Tap Gate Shaft"HH rr .McArthur River Undergroundes|9 Powerhouse (Chakachamna) o Chakachamna Lake Outlet Plan rr ™EL CHAKACHAMNA FISHERIES «5 species of salmon use the basin Sockeye the main salmon species a Dolly Varden ubiquitous in the streams Lake trout observed in lake «Not a large anadromous fishery but worthy of protecting Fish ladders at lake outlet required «Possible temperature enhancement to river r ET CHAKACHAMNA WILDLIFE 56 species of birds 16 species of mammals =Moose,wolves,lynx,bear,wolverine, other fur bearers e None on the endangered species list «Less impact than other hydro projects of similar size ro "EI Geotechnical Considerations a Seismic -Castle Mountain Fault a Volcanic -Mount Spurr (1992 &1953 eruptions) «Glacial --Barrier,Blockade,McArthur, Shamrock rT "EI Geotechnical Overview eSCaseenhcpeeFSee.ot gs rv "EE Next Steps ®Preliminary permit investigations 36 months "FERC licensing 18-36 months ="Project construction 76 months ®"Power on line 2015 10 a,Hydropower Prospects for "Southcentral Alaska TDX Power Nicholas Goodman Eric Yould for Renewable Energy Project Alaska October 30,2007 "ee Hydropower «Statewide »Southcentral «Susitna project «Chakachamna "yn Characteristics of Hydropower «Renewable energy =High front end cost s Low annual costs «Long lead time for permitting and construction Long operational life (200 years or more) Can be very environmentally benign «Can impart major environmental impact _-Inventory of Alaska Hydropoweri:Potential «U.S.Bureau of Reclamation »U.S.Army Corps of Engineers =256 sites with continuous power greater than 2500 KW =192 billion KWH energy potential s 40%of the United States'untapped hydropower nm,Potential Major AlaskaiHydropowerProjects Project Nama River System ttnegewentnats tionef) Holy Cross,Yukon 2,800 12,300 Ruby akon 1,460 6,400 Rampart Yukon 6,000 34,200 Porcupine Porcupine 330 2.320 Woodchopper Yukon 2,160 44,200 Yukon Asis Yukon 3,200 21,000 Sustna Sustna 1,500 6,500 Chalachamnae Chakachatna 320 1,600 Wood Canyon Copper 3,600 21,900 stidne sokine 2,260 9,900 Note:Chugach Electric Energy Sales approximately 2,500 million KWH stom,_Existing HydropowerStatewide «40 projects =Most located in Southeast we Existing Hydropower"Southcentral «Eklutna 37.5 MW »Bradley Lake 90 MW »Cooper Lake 5 MW "yr Susitna Project Location " Bass Profile of Watana-Devil Canyon Development Stet!22t oofalh8serge at LakeGront Graena yan Creek *Spats Paver *lane =Tahachet tins ® oT Fina)atte selectlgn wader timed1dnasteriak(">eenetes site eTiminsted from furtarr cantidoreiion, Screw:Ewbipss £,Yabio €.19.1. -m,,.Alternatives Outside the Susitna Basin - Estimated Total AverageTotalCostInstalledAnnualofProjectCapacityofEnergyofAlternative($aillion Alternative AlternativeInvestigated1982)(GWh) Johnson 319 210 920 Chakachamna 905 333 1,300 Snow 305 100 375 Keetna 519 100 420 Browne 681 300 as "rs Hydro Alternatives _»,,,Chakachamna Hydropower«=Investigations =Department of Interior Late 1940s Reconnaissance »U.S.Army Corps of Engineers 1970s Reconnaissance s Alaska PowerAuthority Early 1980s Pre-feasibility »TDX Power 2006 FERC permit "ys Chakachamna Hydro Power s Studied by Alaska Power Authority in early 1980's s Divert stream flow from Chakachatna River to a powerhouse on the McArthur River by way of a 10 mile 25 foot diameter power tunnel a Minimal dam on Chakachamna Lake Installed capacity of 330 MW,generating 1.6 billion KWH annually Total cost of project in 1980 dollars =$1.0 billion Project is 40 miles from Chugach Electric power facilities at Beluga "gz Chakachamna Project Location PRES yewere etrnfa ix.Chakachamna Aerial View POA ee re "EE Chakachamna Dam Site "=Chakachamna Selected Plan eddialtratetitla Chakachamna Lake Tap Gate ShaftBoas«+Inflow to Power Tunnel "rte McArthur River Underground"+Powerhouse (Chakachamna) "er Chakachamna Lake Outlet Plan "EE:CHAKACHAMNA FISHERIES 5 species of salmon use the basin »Sockeye the main salmon species «Dolly Varden ubiquitous in the streams »Lake trout observed in lake =Not a large anadromous fishery but worthy of protecting «Fish ladders at lake outlet required «Possible temperature enhancement to river "EE CHAKACHAMNA WILDLIFE 56 species of birds 16 species of mammals Moose,wolves,lynx,bear,wolverine, other fur bearers None on the endangered species list Less impact than other hydro projects of similar size £2 Geotechnical Considerations a Seismic -Castle Mountain Fault «Volcanic -Mount Spurr (1992 &1953 eruptions) s Glacial -Barrier,Blockade,McArthur, Shamrock he ,ii.Geotechnical Overview Be EE ETweete7 us Next Steps ="Preliminary permit investigations "FERC licensing 18-36 months 36 months ="Project construction 76 months *Power on line 2015 10 Power Plant Option' Alaska Energy Authority Railbelt Electrical Grid AuthorityTechnicalConference November 26,2007 Steve Denton,VP Business Development Healy Mine Mouth Generation e Disadvantage -Remote frow load center e Advantages Located in middle of grid -Existing transmission infrastructure -Permitting -Remote from load center -Reduced fuel cost e Transportation -adds 30-40% e Opportunity fuel -low quality coal -Ash disposal at mine Over half of all electricity produced in America is from Coal. Coal Effect on Electricity Rates By State .Sasce Bay"4 2004 Da art =p w? 2 a ca .. :aK ' =wet ee °:P|. =5 an G <oS L .D pt .u ¢|*co |OHe ore oe Tr '«0 Ae 'ry ry pte ee.Wle« ' ons no 200%0%an 0%ry a ons an rae, Porcartage Coal Generation a's Energy Resources Alaska Fossil Fuel Energy Resources (Bmeed on comained energy) Once Discovered &Gas GQUndiscoveredDiscovered &Resources k Undecovered (31 Bitton Berrete)i Resources (94 Tritton Cubic Feet) identified Resources(171 Bitton Tone}OR 6 Ges Date Source:Almeh'a DNR DOG,32001CoalDatsSouon:Alka ONE DGGS Spec,Ret.#97,1000 Electricity Cost@omparison e:GVEA,COPA Filing 3= 8FY34 a fgie beei *Fuel cost only **Purchased power Technology and Natural Gas"Emissi Nenana Coal Field Jumbo Dome Reserves +50 years supply for 200 mW plant 8 Seam Sam ple Trench Jumbo e Coal Quality Emma CreékeEnergy Project Project Description @ Mine mouth power plant. @ Proven fuel resources for life of the pret. @ 200 megawatt net output. @ 1,600,000 megawatt-hours per year output. ®@ Circulating Fluid Bed (CFB)technology. ®Cooling water impoundment constructed from i mine excavation. @ 7.5 years to permit,design and construct. @ 1.5 million tons per year coal consumption. ®100 jobs in mine and power plant. Emma CreékEnergy Project Project Description @ Mine mouth power plant. @ Proven fuel resources for life of the pry @ 200 megawatt net output. @ 1,600,000 megawatt-hours per year output. ®Circulating Fluid Bed (CFB)technology. ®Cooling water impoundment constructed from i mine excavation. @ 7.5 years to permit,design and construct. @ 1.5 million tons per year coal consumption. @ 100 jobs in mine and power plant. Ran ag er RN rE a % { Proposed Emma Creek UROL CRITE OSProjectSite Creek Energy Project Plan WE HA a8 HS e'e's ere: OCOD OOOUGT ali =)ail :Tt Circulating sabe Fluidized Bed TN Boiler EmmarGreek Energy Project Economics (Feb_2002 dollars) @ Capital cost $421 million. 100%financing assumed at 6%inteDagt. e Electricity cost $41 per megawatt-hoRy -$20.5 per mWh debt service -$20.5 per mWh operating cost @ Operating Cost -Fuel -$14 per mWh -Labor -$3 per mWh -Other-$3.5 per mWh @ Present value savings over natural gas option of to $500 million.ProductionCostinComparative Etoctricity Production Cost[-=NG at 0%Escalation s Coal at 2%Escalation} 150 'Year 1,Natural Gas at $2.50 and Coal at $1 per Miion 3. 3 =1003 E2 50£er nlleo 0 New Life For An Old Technolog Fischer-Tropsch (FT)Fuel -Fertilizer/Ammonia -Integrated Gasification Combined Cyc (IGCC) Gasification Process Organic material (C +H)+Water +Not Enough (0,) +little heat Results in gasification: Some Heat +Carbon Monoxide (CO) +Hydrogen (H,)+ash +pollutants e Can convert almost any organic material into heat and a combustible gas ¢Typically the organic material is coal or pet coke, but biomass,municipal waste,natural gas,etc.will all work (pet coke is refinery waste) N=TL aren'{OC ao ta Fangs tere Oe Las ond Pee PngCare 2 Gasification Process #2 Extreme Conditions: *up to 1,000 psig ®2,600 °F *Corrosive stag (molten rock) Products (syngas) CO (Carbon Monoxide) H,(Hydrogen):[COM,ratio can be adjusted) ;)By-productsH,S (Hydrogen Suifide) CO,(Carbon Dioxide) Slag (Minerals from Coal) Mercury,arsenic,cadmium, selenium... a «Out be ener tare Cag ete engine OA TEE Gasification Syngas Possibilities Zz PowerSyngas _-Reiineries}(CO+H2)-----Hydrogen " Future (Power,Cars) furrent |;ee {Products Chemicals ---[Feitizer] Product with ilastic, Subsidies ties Flsi] e Advantages eredWC:Date ae Ho rae Oa Cad ny Pe Mange aT -Tampa Electric -low cost/high availabi -Higher efficiency (9000 btu/kwh) -Very low emissions -Carbon capture ready -Supported by environmental community Mine Mouth Generation ®Conventional PC Power Plait,©Circulating Fluid Bed -fuel dive @ Super and Ultra Supercritical PC Better efficiency and modest cost e IGCC -high cost and high efficiency ©Gasification for polygeneration -Electricity plus liquid fuel or chemicals 10 ARS 4SORALINDLY.BALA ed Seely av eloeFSaaehefoiu |Renewable Energy Resources -Railbelt NERGY AUTHORITY! isHSA Ake enseJEahGRAS spraySB ONESSIREN Sionems ep i Life Cycle Savings ae $Million a aM Financing Electric Utility Infrastructure Overview of the Trends in the Lower 48 ALASKA/ENERGY AUTHORITY Alaska Energy Authority -Railbelt Utility Conference November 27,2007 tH 4 Table of Contents Tab Lower 48 Strategic Utility Trends Future Demand and Potential Challenges Capital Markets Considerations Goldmanachsat I.Lower 48 Strategic Utility Trends ecSince the late 1970s,the strategic direction of the industry has changed frequently 1970s to 1980s: e Natural gas crisis 2000 to Present: -Texas Railroad Commission order prohibits natural gas boiler fuel -Proliferation of coal and nuclear plants «Deregulation fails to live up to its potential e Enron and PG&E bankruptcies e Problems in nuclear power industry e Large scale credit downgrades -Cost overruns and delays «@ High and volatile natural gas prices -Three Mile Island @ Increased consolidation e Load growth slows «Stalled initiative to implement widespread os Independent System Operators (ISO)and-Overcapacity in industry ,Regional Transmission Organizations (RTO) -Commodity prices decline Deregulation Bit «Increase focus and regulation related to wih AB 1890 renewables 1996 st : ao 2 Laine ee "SeoatROORERNONNEITact,ad Shoe 1976 1979 Skea an en me ee ae :2001 2002 2003 2005 2006 2007 TRC 'Three Mile Enron TXU Mirant and Calpine Global Adoption order Island 1990s:and PG&E Europe Northwestern Bankruptcy Warming of RPS ;.aa Bankruptcies Bankruptcy Bankruptcies Concern Standards e Creation of deregulated generation subsidiaries (e.g.,US Genco)Increases «Diversification into unrelated businesses (telecom,S&L's) e Improved heat rates end low commodity prices,result in shift to natural gas plants e Domestic M&A activity -Enron buys Portland General Electric -Dynegy buys Illinois Power e¢Globalization -Scottish Power purchases PacifiCorp -Texas Utilities buys Eastern Energy (UK) AES buys several utilities in Latin America oldman achs After the initial groundswell,we have seen deregulation questioned. m™Some states are having second thoughts regarding deregulation m Illinois,Maryland,Ohio and Pennsylvania are the largest question marks at this point e Significant rate increases caused backlash in these states Electricity Restructuring by State MA Not Active C7]Active Suspended Source:Energy Information Administration oldman achs |_|The credit outlook for utilities has continued to stabilize. #of Companies 200 5 a Upgrades 180 -Downgrades 160 140 4 120 + 100 + 804 60+ 404 205 Hoe Eee 1993 1994 1995 1996 1997 1998 233 1999 2000 2001 2002 2003 2004 2005 2006 2007” Source:Standard &Poor's (a)Data through third quarter of 2007. oldman mT||The current rating outlook for the industry is generally stable US Utility Outlook Distribution as of Third Quarter 2007 Credit Watch Credit Watch NegativePositive4% Source:Standard &Poor's Equity investors have rewarded utilities for improved performance in the sector. Indexed Price Performance Since 2002 200% S&P 500 480%[=]Dow Jones Utility Index (v) 160% 140% 120% 2002 2003 2004 _2005 2006 2007 The industry currently trades at premium valuations as compared to historical levels. Mean Electric Utilities Index FY1 P/E Multiples:Last 20 Years') Pre-2003 Post-2003 20.0x 5 15.9x 15.7x 15.0x 4 14.1x 10.0x 5.0x 0.0x 1987 -2003 1993 -2003 1998 -2003 2003 -Present Last Twelve Months Current ®Factors supporting current valuations: @ Low interest rate environment @ 2003 Dividend Tax Cut -Re-basing of competitive yield relative to 10-year Treasury -Enhanced after-tax total return e Large global capital pool seeking yield e Global economic and geopolitical uncertainties (a)Goldman Sachs Benchmark Utility Index ('GSBUI")includes:AEE,AEP,D,DTE,DUK,ED,EIX,ETR,EXC,FE,FPL,LNT,NU,PCG,PGN,PPL, SCG,SO,SRE,WEC,WR,XEL. (a)Exelon /PSEG terminated merger on Sep 14,2006. (b)FPL /Constellation terminated merger on Oct 25,2006. Consolidation AGL /NUI Exelon /PSEG@) Duke /Cinergy Mid-American /Pacific Corp. FPL /Consteilation® National Grid /KeySpan Equitable /Dominion Macquarie /Duquesne WPS /Peoples MDU /Cascade Black Hills &Great Plains /Aquila Iberdrola /Energy East 9 Goldman Non-traditional financial institutions have become important market participants. Private Equity with Funds Dedicated to Power Industry Apollo Arclight Partners Bear Stearns Blackstone Group Cerberus Evercore Capital First Reserve Fortress Group Hellman &Friedman JP Morgan Partners Kohlberg Kravis Roberts &Co. LS Power Macquarie Madison Dearborn Metalmark Perry Capital Riverstone Tenaska Texas Pacific Group Trimaran Warburg Pincus Private Equity Firms and Hedge Funds e Private Equity has indicated over $50 billion of specific interest in the power industry which translates to buying power exceeding $100 billion EB Financial Services companies -focus on generation e KKR and TPG acquisition of TXU for $45 billion e Announced acquisition of Puget Energy for $3.5 billion by an investor consortium led by Macquarie Warren Buffett's Berkshire Hathaway e Majority owner of MidAmerican Energy,which is continuing to make acquisitions (i.e.,PacifiCorp) e Announced plans to invest heavily in the transmission business 10 oldman achs Pti infrastructure assets. Another interesting dynamic is the rise of private investment in Infrastructure Investment Thesis Financial Sponsors (Financial Investors) m Insurance companies,pension funds and other investors are seeking to march long duration liabilities with long-term cash flows. @ Seek high dividend yields with high leverage and financial engineering potential. @ Very low equity hurdle rates and capital markets expertise allows aggressive valuations. Market Size North American Equity Capital Total $300+Bn Capital Buying Power Infrastructure Potential Equity Under Single Management Investment Investor ($Bn)($Bn) Macquarie Funds $15.0 $1.0 Babcock &Brown N/A N/A Hastings 2.5 0.3 Challenger 0.3 0.1 Borealis $12 .0 $1.0 OTPP 8.0 1.0 CDPQ 9.0 1.0 GSIP $6.0 $0.5 AIG HighStar 2.0 0.3 Allenda 2.0 0.3 GE/Credit Suisse 1.0-4.0 0.1-0.3 JPMorgan 1.0 N/A Deutsche Bank/RREEF 1.0 N/A Morgan Stanley 1.0 N/A Merrill Lynch 1.0 N/A The Carlyle Group 1.0 0.1 American Infra.Fund 1.0 0.1 Cerberus $17.0 N/A Fortress 16.0 N/A The Blackstone Group 12.5 N/A 11 Infrastructure equity investors want an opportunity to invest in the "growth wedge”in future revenue increases. Municipal bond investors rely on historical revenues to determine the leverage levels mM Equity investors look for future returns based on growth H Debt +Equity =Greater Proceeds Municipal Bond Leverage Concession Sale Net Toll Net Toll Revenues Revenues 40 yrs 99 yrs Debt Plus Equity 12 oldman ch ll.Future Demand and Potential Challenges Electricity demand is only expected to grow. US Excess Capacity Forecast Expected Electricity Demand m™Total electricity sales are expected to increase by 90,000 +41%from 3,660 billion kwh in 2005 to 5,168 billion kwh in 2030. 80,000 -¢39%in the residential sector; e 63%in the commercial sector; 70,000 +e 17%in the industrial sector. 60,000 +m Represents a CAGR of 2.3%from 1980 to 2005=and 1.4%from 2005 to 2030 =: g 90.000 15 Annual Electricity Sales by Sector,1980-2030eo(billion kilowatt hours)©40.000 + o 2,500 4 x -ResidentialWi30,000 - 2,000 4 ---=Industrial \ ----Commercialf |20,000 4 ' 1,500 -!History Projections 10,000 - 1,000 -7 i] a 4 2007 2008 2009 2010 2011 2012 2013 2014 2015 500 -' ' 0 ee 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source:Cambridge Energy Research Associates Source:EIA,"Annual Energy Outlook 2007.”14 oldmanachsLi generation. Capacity additions have moved toward natural gas and wind Historical Trend in Electricity Capacity Additions Coal NameplateCapacityAdditions(MW)SSNuclear Natural Gas Wind T T T T t -=T 1950 1855 1960 1965 1970 1975 1980 tse ;" 1985 1990 1995 2000 Source:Black &Veatch Analysis of data from Global Energy Decisions Energy Velocity database. - 2005 15 Going forward,there are many challenges for capacity addition. @ Natural Gas e Pricing has accelerated rapidly in recent years B Coal e Due to concerns regarding greenhouse gas emissions,many proposed plants have been cancelled recently e Potential future carbon reduction measures increases risk Nuclear e Gaining popular acceptance,but has many regulatory and technical issues e Will likely take at least 10-15 years for new generation to come online @ Wind and Renewables e Current wind cost is not competitive with other sources of generation e Variability of generation requires firming of resources 16 Climate change and the environmental are major concerns. ™One example is a scientific study that analyzed our current situation and projected that we would need to accomplish all of the following things in order to prevent earth's climate from going "haywire.” Cut electricity use in homes, offices and stores by 25 percent; Increase solar power 700-4 Add twice today's nuclearfoldtodisplacecoal;eg :output to displace coal; Sources:Thomas Friedman,"The Power of Green,”The New York Times,April 15,2007. Robert Socolow and Stephen Pacala,"Stabilization Wedges:Solving the Climate Problem for the Next 50 Years with Current Technologies,” Science,August 2004.17 Capacity additions going forward are expected to continue the trend and focus more on natural gas and wind. Current Expectations for Capacity Additions 18,000 --45% 16,000 -«40% . g .ack 2 a 14,000 -+35%§& Oo I g 12000 |-30%S =P z 2810,000 4 F 25% 3 se >8,000-L 20%S'9 feg:©6,000-+15% : 4,000 -L 10%£ 2 2 2,000 4 L 5% 0 L 0% 2007 2008 2008 2010 2011 we Gas-CC ma Gas-CT ==Wind Coal °°Other Source:CERA 'Assumes capacity factors of 35%for Wind,85%for Coal,50%for Gas-CC,25%for Gas-CT and 50%for other. oldmanachs There has also been increased investment in renewable energy. Value of Equity Issuance Recent Renewable Equity Transactions >$50 Mn Trade Deal Deal Date Issuer Type Value Sector --$10,253 $10,000 4 Solar Fuel Cells $10,078 18-Oct-07 Greentech Energy Systems Follow-on $216.8 Wind ' smn Biodiesel #Wind :11-Oct-07 Centrotherm Photovoltaics AG IPO 227.9 Solar cous Et Geothermal 10-Oct-07 JA Solar Holdings Ltd Follow-on 256.9 SolarweesEthanoleotherm19-Sep-07 Solar Fabrik AG Follow-on $59.8 Solar someone Crude Oil 16-Aug-07 Cosan Ltd IPO 1,172.7 Biodiesel e000," - S&P 788.8%09-Aug-07 First Solar inc Follow-on =617.5 Solar'20-Jul-07 Acucar Guarani IPO 358.7 Biodiesel 19-Jul-07 Nordex AG Follow-on 101.2 Wind 12-Jul-07 EnviTec Biogas AG ,IPO 287.5 Biodiesel 11-Jul-07 Fersa Energias Renovables SA Follow-on 125.9 Wind 10-Jul-07 PNOC Energy Development Corp _Follow-on 369.7 Geothermal}£$6,000 5 03-Jul-07 Jetion Holdings Ltd IPO 91.3 Solar =18-Jun-07 Solaria Corp IPO 298.5 Solar E 13-Jun-07 Biofuel Energy Corp IPO 55.1 Ethanol ”08-Jun-07 Yingli Green Energy Holding Co Ltd IPO 319.0 Solar 06-Jun-07 PV Crystalox IPO 434.8 Solar $4,000 -31-May-07 Trina Solar Follow-on 243.3.=Solar 31-May-07 LDK Solar Co Ltd IPO 469.4 Solar 29-May-07 NZ Windfarms Ltd Follow-on 55.1 Wind : fe Current Backlog:Selected Deals >$50 Mn2,000 -: Current Filing Deal Deal Date Issuer Name Type Value Sector .15-Oct-07 Biocapital Participacoes IPO NA Biodiesel te 28-Sep-07 FRI-EL Green Power Spa IPO 284.4 Biodiesel 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20-Aug-07 Orion Energy Systems IPO 400.0 Power¥TO 16-Jul-07 Renewable Energy Group IPO 150.0 Biodiesel 19 oldmanee|Concern about environmental impact has taken on a greater urgencyinationwideandhasimpactedwhatregulationsforgeneration. Individual states and regional coalitions are adopting greenhouse gas standards State laws requiring renewable resources are proliferating US Congress exploring caps on greenhouse gases,carbon trade proposals and a Renewable Portfolio Standards Cost of carbon should drive up electricity prices for fossil fuel generation absent offsetting efficiency gains @ Electric utilities are likely to bear the major share of CO2 reduction commitments Increases in CO2 Emissions®)Sources of GHG Emissions by Sectors (Tons)!) 380 7,000 <>Residential U.S.Territories " $ :6%7%1%Atmospheric Anthropogenic Commercial © wrwenes_360F Concentrations Emissions |6.900 6%NS, .a net ¢:&340}4 §,000 =Agriculture £ 4 ,g 7% s&320+44,000 =S i 300 |3.000 { O 280r 41 2,000 § °i266a71.000 6ea3) o .'db.4.4 i de 4175018001850190019502000 Source:Oak Ridge National Laboratory,Carbon Dioxide Information Analysis Center,hitp-//ed ac.esd.cml.gow/. (a)Source:Department of Energy. (b)Source:US Environmental Protection Agency,2004.20 na Renewable Portfolio Standards are becoming more prevalent acrosstheUS. States with RPS -July 2001 States with RPS -June 2007 te Pee petes®eevewee,Municipals Subject toRPS & States with an \ RPS @ 10 States >es me _--.o ..Municipals Exempt%24 States From RPS @ State RPS Summary 2001 2007 Comment Number of States with RPS Targets 10 24 More states adopting RPS 21 Greenhouse gas initiatives are also being adopted by states. States with Active Climate Legislative Commissions States with Climate Action Law and Executive Branch Advisory Groups Completed Revision In-Progress In-Progress (]Not Started Source:PEW Center for Global Climate Change.22 In addition to State initiatives,regional initiatives are in progress to address greenhouse gas emissions. --Powering The Plains (North Dakota,South Dakota,Minnesota, lowa,Illinois)a a =Goal of 30,000 MW -aDp A 2015 y Eym20%improvementffé2020UY yy Western Regional Climate Action Initiative (California,Oregon,Washington,Arizona, New Mexico,Utah and British Columbia) ™Aggregate reduction of Greenhouse- Gas Emissions to 15%below 2005 levels by 2020 Source:PEW Center on Climate Change,August 2007. Consortium of state officials,industry __'participants,agriculture representatives and renewable energy advocates working on energy and agriculture initiatives that address climate change - New England Governors Climate Change Action Plan (Connecticut,Rhode island,Massachusetts, Vermont,New Hampshire,Maine) mM 1990:levels by 2010,10%below 1990 _ devels by 2020,and 75-80%below 2001levelsinthelongterm Regional Greenhouse Gas Initiative (RGGI) (Maine,Massachusetts,New York,Vermont,New Hampshire,Connecticut,Rhode Island,New Jersey, _-e:Delaware;Maryland;other states and Canadian provinces have observer status) Applies to only CO2 and utilities January 2009 start date At least 75%auction (most states are going 100%) Complex safety valves and price caps Stringent rules on the use of offsets Western Climate Initiative Powering the Plains oO WGA []NEG-ECP (] RGGI (J 23 Current wind capacity is about 12,634 MW. Installed US Wind Energy Capacity As of June 30,2007 Hawaii:63 Source:American Wind Energy Association.24 oldman a Wind demand is expected to reach 45,000 MW by 2015,which is only enough to satisfy renewable standards. Expected Wind Demand by 2015 VT.150 MAW MA:1000 MW Ri:200 Mit CT:600 MW NJ:2000 NaN DE:150 MW MD:1000 MW DC:150 MAW 'Hi:200 MV RPS Estimates Wa Other Estimates Source:Horizon Wind Energy presentation October 2006.25 taas7lll.Capital Markets Considerations oldman aa There are a wide range of financing alternatives available to Alaska's utilities. H Financings can take a variety for forms: e Debt (fixed,variable,derivatives) e Direct equity (individual investors) e Public equity (public offering -initial or follow-on,etc.) e Co-op specific financing tools @ The security for any of financing can be flexible e Secured solely by the project -Sell project debt -Solicit private investors to contribute capital -Others e Backed by the issuing entity -Sell system revenue debt -Private investment in the system as a whole -Others | @ Depending on use and issuer ®Tax-exempt debt e Taxable debt 27 3 Examples of Utility Financing Structures used in Alaska @ Traditional Municipal Revenue Bonds -Example,Anchorage ML&P issues debt backed by revenues of its system. e Taxable and Tax-Exempt e Fixed and Variable e Highly-defined security structure and lien on revenues 8 Traditional Corporate Utility Finance --Example,Chugach has issued taxable corporate bonds backed by a "corporate debenture”or promise to pay. Joint Powers Authority Debt -Example:Bradley Lake Hydro Project e Issued via Alaska Energy Authority e Backed by take or pay contracts of participant utilities H State Facilitated Debt-Examples:Healy Project Debt,Snettisham Project 'e Issued through Aidea e Backed by Aidea revenues (Healy)or back-to-back contract with borrower (Snettisham) 28 "A”Spreadto"AAA”CreditSince August,credit spreads have widened and the yield curve has steepened.. m A general re-pricing of risk caused by the sub-prime meltdown has caused a widening of credit spreads and a steepening of the yield curve,as reflected in the graphs below. H The markets strengthened in September,with credit spreads backing off their August highs, but recent financial market concerns have caused spreads to widen again. Spread Between MMD (Triple-A)and Single-A Municipal Revenue Bonds in the Past Year Steepening of MMD Yield Curve Current 90 bp -30-Year Rates (11/16/07)Min Max Average 4.65 -MMD-01/02/07 | -'A'Spreadsto"AAA”75bp 36bp 80bp 54bp 4454 lec MD 116/07 80 bp - , 4.25 4 70 bp - 4.05 5 60 bp - 3.85 4 Long end of MMD curve not benefiting 50 bp 4 from flight to liquidiP3.65 4 i 40b Short end of MMD P 4 3.45 curve benefiting from flight to liquidity 30 bp 7 T T T T 'B25 ttt Nov-06 Jan-07 Mar-07 May-07 -Jul-07 Sep-07 Nov-07 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 29 The markets have also been extremely volatile. m Volatility can be measured historically by looking at the swing in rates between time periods. e As seen on the graph on the left,volatility in the municipal market has increased since January. 2-Week Moves in 30-Year MMD Since January 40 bp Current 30 bp 2-Week Change: +/-10.0 bps 20 bp - 10 bp -wa Ob :|WN”(10)bp 4 iW : (20)bp 4 Average 2-Week Change: +/-2.1 bps (30)bp (40)bp (50)bp T T r T T Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov07 30 The future of rates is uncertain. Hi Interest rates are volatile and impossible to accurately forecast e According to the volatility currently implied by the options market,a one standard deviation move in the 20-Year LIBOR rate can translate into an approximately 135 bp change in forward rates over the next two years,as depicted in the graph below. 7.25 5 7.00 4 6.75 4 -Historical 20-Year LIBOR 6.69% seers Forward 1 St.Dev.Upper Bound Jee "46.507 |ores Forward1 St.Dev.Lower Bound ween”° 6.25 4 :6.13%_.-°"7" «*"#4 Standard6.00 4 5.79%2"4 Deviation 135 bp 5.75 4 eth 5.50 4 -*90 bp °, ,-*62 bp 20-Year 100%LIBOR Fair Forward Pal a, 5.25 +'5.34% 5.00 4 . 4.75 .SS PP 77 bp 108 bp oe "se.y -1 Standard 4.50 4 5.15%4.62%|Tee ll y._.Deviation 4.25 4 445%weer il' 4.26% 4.00 4 6 Months 6 Months 2 Years 3.75 :---;||:| 11/16/06 2/16/07 5/16/07 8/16/07 11/16/07 2/16/08 5/16/08 8/16/08 11/16/08 2/16/09 5/16/09 8/16/09 11/16/09 Why does volatility matter to the Railbelt? H In planning for upcoming capital needs,issuers are exposed to future rate movements. e Assuming approximately $200 million of financing needs over the next year for a generation project. Up-Front Dollars at Risk 20-Year Average Life 1 Standard Deviation Move Dollars at Risk 6-Months 47 bp $11,977,629 12-Months 65 16,418,259 24-Months 101 24,621,518 Note:Standard deviation is based on the 6-month,12-month,24-month implied volatility of LIBOR,respectively. Assumes $200,000,000 notional priced to 5/16/08,11/16/08,11/16/09,respectively.Data as of 11/16/07 COB.32 Goldmanachs;Despite recent market turmoil,long-term rates are still below long- term averages. %of Time Lowerthan 10-year 10-year 10-year 7.50%5 11/16/07 Current Low High Average =- 30-year Treasury4.52 5.5 4.16 6.75 5.26 comwowe 30-year MMD 4.49 23.7 3.89 6.04 4.88 6.50%4 5.50%- 4.50%5 3.50%:--: 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Rates Since May 2007 5.50%- 5.25%- 5.00%4 4.75%4 fxyJPng¢a ,4.50%r PAS Wn of aw Ma at4.25%4 ae ' nase 4.00%:t :T r :T :r §/1/07 §/22/07 6/12/07 7/3/07 7/24/07 8/14/07 9/4/07 9/25/07 10/16/07 11/6/07 33 Implications for Alaska's Electric Utilities ®Increased volatility and credit spreads indicate premium value on credit quality. Hi increase in private capital interested in infrastructure assets dictate looking beyond traditional debt approaches to raise capital. @ Despite recent financial market turmoil, Utility sector is strong; Rates are low; Railbelt "credit story”insulated from many competitive pressures faced by lower 48 utilities;and | Many sound financing options are available. 34 Disclaimer This material is not a product of the Fixed Income Research Department.tt is not a research report and it should not be construed ds such.All materials,including proposed terms and conditions,are indicative and for discussion purposes only.Finalized terms and conditions are subject to further discussion and negotiation and will be evidenced by a formal agreement.Opinions expressed are our present opinions only and are subject to change without further notice.The information contained herein is confidential.By accepting this information,the recipient agrees that it will,and it will cause its directors,partners,officers.employees and representatives to use the infcrmation only to evaluate its potential interest in the strategies described herein and for no other purpose and will not divulge any such information to any other party.Any reproduction of this information,in whole or in part,is prohibited.Except in so far as required to do so to comply with applicable law or regulation,express or implied,no warranty whatsoever.including but not limited to, warranties as to quality,accuracy,performance.timeliness,continued availability or completeness of any information contained herein is made.Opinions expressed herein are current opinions only as of the date indicated.Any historical price(s)or value(s)are also only as of the date indicated,We are under no obligation to update opinions or other information.The information contained herein has been prepared solely for informational purposes and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any trading strategy.The Goldman Sachs Group,Inc.does not provide accounting,tax or legal advice;however,you should be aware that any proposed indicative transaction could have accounting.tax,legal or other implications that should be discussed with your advisors and or counsel,The materials should not be relied upon for the maintenance of your books and recards or for any tax,accounting,legal or other purposes.In addition,we mutually agree that,subject to applicable law,you may disclose any and all aspects of any potential transaction or structure described herein that are necessary to support any U.S.federal income tax benefits.without the Goldman Sachs Group.Inc.imposing any limitation of any kind.The Goldman Sachs Group.Inc.and affiliates,officers.directors,and employees,including persons involved in the preparation or issuance of this matenal.may from time to time have "Iong" or "short”positions in,and buy or sell,the securities.derivatives (including options)or other financial products thereof,of entities mentioned herein.In addition,the Goldman Sachs Group.inc.and/or affiliates may have served as manager or co-manager of a public offering of secunties by any such entity.Further information regarding this material may be obtained upon request. 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Railbelt Utility Energy Projections -2010 AnnualGWhChugach (Retail ) ee eaeS Potential Range of ANS Natural Gas Prices Delivered to Railbelt EIA AEO 07 +NYMEX Adjustment,ANS Wellhead Netback +Pipeline Tariffs (North Slope to Fairbanks,Spur to Southcentral) Southcentral High,$9 Southcentral Mid rr ar aS Fairbanks Mid Fairbanks Low,$4 "One Way to Look at” the Long Run Natural Gas Price Uricertainty in the Railbelt oe Vay ro) So ad = Pa [on = = fam ® a. ad T 2016 2017 2018 2019 2020 2021 2022 2023 2024 2026 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 qT qT q u qT T Tv - ad Ve] S = pad = ° pea = === a Sad $100.00 $90.00 $30.00 $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 Figure __:CO2 Emissions Tax Scenarios $24 'tonne -e-MIT Low -a@-MIT High CO2 Emissions Cost Projections Bingaman TAP vs.$24itonne Levelized Screening Study Assumption -@-Bingaman TAP -i-$24 /tonne -_ id wo oO Oo aS @o Cc c oO i ®@ a Sd c 2 i) 2 = lox @o N oO O Figure _:Railbelt Levelized Cost of Electricity (2015-2040) $200.00 $180.00 $160.00 $140.00 $120.00 CO2 =$36/tonne $100.00 $80.00 $60.00 $40.00 im, & lp Fone] So bal =* = o =o 2 ee) ra ° - a ° oO " ct) a 3 ol $20.00 $0.00 ANGDA Business Plan (Nov 06)-Estimated Tariff -Spur Line South (Spur Line Market:No LUG,Ho Fertilizer Scenario) For a typical household in Southcentral using 182 mcffyear of natural gas,the difference in the spur line tariff due to a 100MVV coal fired power plant amounts to an Increase increase of $200 per year. in tariff of $1.10 per mmBtu 4 237 mmBtu per day,approx $4.00 per mmBtu 216 mmBtu per day,approx $5.10 per mmBtu Decrease in natural gas demand of 21 mmbBtu per day due to 100 MW coal fired power plant instead of natural gas =i -_ ise) = = ins 2 = F - = fom bo] _ = 2 5 t ° a a = fc} _ = a = 5 i = = ” cae nae sgt: ehae BahaeeM LATEBEemt, Selsore tlyMA:pai?wheter,af4 ke+hyeteusa.ay elder.PrerayweICycAps% alareat,-4pet73 ynanwheeRPga :titheS*Mende5 Transmission i GVEA | a MEA @ €Eklutna Op.Com.Ls Chugach rica sti antSodinct Secscrssapr 2 pel MaceyTRSOMerge. "i yeeironmealyaea ¥ Fairbanks Flooding Anchori5 'Soldotna”weet voyyana®: |awe -oy*Missing 3-Pole ” pa taieia rea of Maan*ae Panetta PEP CNET ETE ee Ty'ey >te :> Fairbanks zi Wasilla 0;ae fF Berni¢e. Soldotnaweiesn "SteePalms>Oe Ki proce "eriLeoeos7«-!oFeiYewx?Pad .eyes :oF a %yefiedwoo tot ine i'.:The,woe ha neerHeatyCahillareAmeriasst veeRarearthhaeeedt hoe Te iS aeSater foneeee,Talesmyeco :nsese?*Seegetive = 4 Pea fe a ateaoeoscA8g ba(NOS seapecan -panne Sata coon Pty,i en hoy it termeatenee >;some Cae iNovember;; 6 eA Yate (say: eels:4 fr saeLimitedredundancy reBoks *Transmission KR ocvea =¢ Two municipal systemsae iy ©s Redundancy iecues .Three islands of fsupply and :Service Areas ll GVEA _GVEA AEA MEA Eklutna Op.Com. Chugach , HEA SES ee WheTransmission ANEBppecertiongers ype x @--.) |=Birds | foie sont oe rac ||Vehicles a gut Pan -sha thaneay Pee alleng 1. Wy Re een ee lyn?oerab on vaehy IC perative: maeasay Ip, see 2. aint3oe Fa ed ission coo ty ownersh Te hyn coweekBes e til =,Transm ibl ot oss phewte 5beeaedeeSr transmission challenges :| [Avalanches] hee 3fole' sionte7crans ullets na More Bullet: an.»Soldoti ry9 ges; ty:¥ Pax lee a gioeLo Ue eySStaiiy oeWieLeLyges <A-' eeee eegee NeSeed erees PeRG eRePoaRU geesoie ce * Ue ee j a EEE:ae SD beeMey ee ZB Le SeeLo we Sosyeeoe Hegre RES ee:omPegs eoSsLea Dy ee i ee Lae oe oege:: J to.a\ oo ae :a |||: es er ee be o ee al a eeAgsaaeTie3neceeSets -es oeiesaeoei Se oeSpe ae eeeeeee :Oeoo:me 2 LyYj, PEO.pee wok an Ss :a ' Be es aJeSa Alaska Energy Authority Railbelt Electrical Grid Authority Technical Conference -Roundtable Summary November 27,2007 Is there a need for an independent system operator to manage and dispatch power in the Alaska Railbelt Electric Grid? Primary drivers e The state needs a long-term comprehensive energy plan -urban and rural -that addresses the entire supply chain over the millisecond to 30-year timeframe e This is a serious issue;there is an urgent need to address the aging infrastructure of electrical generation and to ensure natural gas availability;the emphasis needs to be on redundancy,reliability and sustainability e The cost of energy and power affects the state economy and employment e The Railbelt utilities must work together on generation and transmission issues; unless the utilities work together,the state will not be a source of funding e Large projects with extended timelines require the utilities and the state to work together Planning e There needs to be an energy planning organization that deals with the "big picture”issues of electrical generation and transmission -perhaps the REGA Advisory Group o Lay out all options *Consider effect of electrical generation on gas utilization and supply =Consider all governance options =Consider independent power producers among the energy options =Consider the impact on consumers and the socioeconomic fabric of communities ="Analyze the unbundled costs of generation,transmission,distribution o Create an intensive,open,transparent public process «Identify a formal advisory /stakeholder group,representing the whole Railbelt,not just utilities o Establish working groups in four functional areas ="Governance *Gas purchasing «Generation ®Transmission e Railbelt utilities'general managers need to meet on a regular basis to build trust and create opportunities for joint action o The Alaska Power Association can provide a forum for utilities to work together,discuss strategic plans DRAFT notes from AEA REGA Technical Conference Roundtable Page 1 Nov.27,2007 Transmission e Begin with consideration of a transmission entity to ensure there is a robust reliable Railbelt transmission system fitting the 21"century needs of the Railbelt o Establish an open transparent governance approach with stipulated voting rights,that includes cooperatives,municipalities,independent power producers,qualified facilities,and public sector (including legislative) energy interests o Ensure open access to the transmission system Generation e The public policy should encourage diversification of generation sources ¢Combine the market power of utilities in purchasing fuel for generation e Utilities should have the primary responsibility for ensuring sufficient generation ¢Develop marketplace solutions,with consideration of social and environmental effects Encourage alternative and renewable energy sources by removing barriers e Create incentives for energy efficiency and conservation e There should be a level playing field for all (especially with regard to use of state resources) e For generation -determine what plants to build in the future o Next 5-10 years likely to be primarily gas o Then hydro projects like Susitna and Chakachamna o Keep the opportunity for independent power producers and qualified facilities to provide additional solutions Note:This summary is intended to capture the primary points raised in the Roundtable. Statements in the summary may not represent the views of a majority of participants. There were no votes taken on recommendations.Participants did agree,however,to participate in the planning and working group process,and utility managers agreed to begin regular meetings on generation and transmission issues. DRAFT notes from AEA REGA Technical Conference Roundtable Page 2 Nov.27,2007