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Northern Intertie Agreements and Legislation circa 1993
ee< 4.=ORESafnaNORTHERN INTERTIE AGREEMENTS AND LEGISLATION Cireeam (FGS 7 wanwIGeosSexSemaOeates"2 INDEX General Correspondence Agreement No.1 -Intertie Grant Agreement Agreement No.2 -Grant Transfer and Delegation Agreement Agreement No.3 -1993 Alaska Intertie Project Participants Agreement Agreement No.4 -Grant Administration Agreement Agreement No.5 -Intertie Participants Group Norther Intertie System Agreement Agreement No.6 -1993 Alaska Intertie Project Construction Management Agreement Legislation -Chapters 18 &19 SLA 1993 November 20,1995 Wiliam R.Snell E b E Vy fe iExecutiveDirectorHoy©3400s !)Alaska Industrial Development and Export Authority eS hes +80 West Tudor Road .Alaska Industri-|Coveloome-4Anchorage,Alaska 99503 and Exrnort futhority " Re:Northern Intertie Project Dear Mr.Snell: The Intertie Participants Group (IPG)met on November 6,1995.The IPG selected me as chairman of the group for the coming year and asked that I inform you of the actions taken by the group at its most recent meeting. The Intertie Participants are pleased to inform you that they have voted unanimously to resolve certain issues involving the allocation of benefits of the Northern Intertie Project.In addition,the IPG unanimously adopted a Northern Intertie Project budget,scope,and schedule which will be documented as exhibits to the Northern Intertie Construction Management Agreement.Finally,the representatives of the Intertie Participants have finalized and agreed upon a Northern Intertie Construction Management Agreement and a Northern Intertie System Agreement and have recommended that those two agreements be executed as soon as possible by the respective governing boards,councils,and assemblies of the Intertie Participants.Duplicate original copies of those documents are currently being circulated for execution.I have arranged to provide AIDEA with copies of these final agreements as soon as they have been executed by the parties. If you have any questions,please feel free to contact me at 224-4071. Sincerely yours, eeweOeSerPODavecCalvert,Chairman cc:IPG Members CC.B 35Da WH - ALASKA INDUSTRIAL DEVELOPMENT =AND EXPORT AUTHORITY ex ALASKAQa)SENERGY AUTHORITY 480 WEST TUDOR.ANCHORAGE,ALASKA 99503 907 /561-8050 FAX 907 /561-8998 July 14,1995 fir.Thomas R.Stahr General Manager and Chairman IPG Municipal Light &Power 1200 East First Avenue Anchorage,Alaska 99501-1685 Subject:-_intertie Financing Dear Mr.Stahr: |am writing in response to your letter to me dated June 13,1995,relating to the recent Intertie Particizants Group (IPG)action to begin work on the southern intertie.|am pleased with IPG's desire to initiate work on the southern intertie.Your letter also provides a timely opportunity to assess ine progress made to date on the intertie projects. Initially,|would like to note that through informal discussion with the various participants,it is AIDEA perception that although fair progress has been made on preliminary engineering and related tasks on the Northern Intertie,many fundamental issues remain unresolved on both intertie projects.|believe we have reached a juncture where such issues need be specifically addressed and resolved in order to maintain,progress on the intertie projects. With the foregoing objectives in mind,|invite you to respond to the following. First,my letter to you dated November 2,1994,addressed the intended scope of the intertie project and confirms the view that the intertie must have the benefits and functionality envisioned under the AEA feasibility study.Your response of January 12 on behalf of the IPG accepted this view in principle,though it left for resolution in "construction agreements"such critical issues as whether such a line would be developed in phases,or to what extent each Participating utility would be responsible for project costs.|understand that the referenced agreements have not as yet,been adopted by the participating utilities.|believe a date should be set by which such issues will be resolved,and |invite your suggestion as to an appropriate deadline. Second.In my letter of November 2,1994,|noted that AIDEA asked its bond counsel,(Foster, Pepper &Shefelman law firm),to address whether the ownership structure provided for under the Intertie Grant Agreement would enable AIDEA to issue bonds to finance all or part of the Panticicant's share of project costs.|recently received a draft legal opinion which concludes that,for purposes of a public financing,AIDEA would require a legislative revision to the underlying debt-issuance authorization (Sec.29 and 30,Ch.18,SLA 1993),since that authorization references intertie ownership by,respectively,Golden Valley Electric Association (GVEA)and Chugach Electric Association (CEA).|!add that counsel also notes that the Mr.Thomas R.Stahr July 14,1995 Page 2 ownership structure set out in the Intertie Grant Agreement would,assuming specific legislative authorization,enhance the use of tax-exempt financing. There are,of course,several different ways to proceed in response to the legal opinion.For example,the utilities may maintain the current ownership structure and simply finance the participant's share absent AIDEA involvement.Alternatively,the utilities may want to revert back to the ownership structure specifically envisioned by the underlying legislation,which would enable AIDEA to be the issuer without further legislative action.Finally,the utilities may prefer that AIDEA seek legislative approval of the requisite revision to Sections 29 and 30. While |believe such approval would be viewed as ministerial if supported by all utilities,| recognize that,particularly absent full consensus among the utilities on the various unresolved issues,the prospect of legislative involvement may be troubling. |would appreciate an immediate response whether the IPG requests that AIDEA seek legislative action to facilitate an AIDEA financing under the current ownership structure.If no legislative action is desired,please advise how the IPG intends to proceed and how each participant intends to finance its proportionate share of costs. Third.Item No.4 in our respective letters of November 2,1994 and January 12,1995, addressed the enforceability of the various agreements.While |appreciate that final project costs are not as yet known with certainty and,perhaps more importantly,significant issues with substantial economic ramifications remain for resolution in the "construction agreements,” nevertheless,|believe it essential to confirm that each of the participating utilities have the requisite intent and legal capacity to enter into a binding obligation to bear their proportionate share of the project costs in accordance with the ownership interests established in the Intertie Grant Agreement and related documents. As questions continue to arise in informal discussions regarding these matters,I request an unqualified cpinion letter from legal counsel for each of the participating utilities confirming the legal capacity of each entity to enter into such agreements and further confirming that the obligations arising under said agreement,including the obligation to bear a proportionate share of project costs,are fully enforceable.|also request that counsel for FMUS and the City of Seward address the applicability of any requirement of voter approval with respect to these financial obligations. Fourth.Both the Grant Administration Agreement and the Grant Transfer and DelegationAgreementenvisionedpromptnotificationofwhichmattersandobligationsarisinginconnection with the development and financing of the interties need be submitted to the Alaska Public Utilities Commission (APUC).As you know,to the extent such approval is required,APUC approval is a precondition to the expenditure of grant monies.|believe it timely to reach a common understanding of prospective APUC matters.Accordingly,counsel for each of the Participating utilities should also address in the requested opinion letters of counsel which,if any,of the obligations arising in connection with the various intertie agreement,require APUC consideration. The Authority believes the time has come for the participating utilities to resolve basic questions of ownership,management and participation in the intertie projects.While |appreciate that the"unreasonably delayed”standard under Section 3.03 of the Grant Administration Agreement Mr.Thomas R.Stahr July 14,1995 Page 3 does not offer a "bright line”test,|am concerned that,absent substantial progress on thesecoredevelopmentissuesinthenearfuture,the availability of grant monies is subject to review. In light of the foregoing,the Authority believes it would be inappropriate to authorize the release of full Phase 1 funding on the southern intertie before core development issues are resolved. Accordingly,the Authority will make available $500,000 in grant funds for initial work on the southern intertie.No additional funds will be advanced absent settlement of the outstanding differences among the participating utilities or,in the alternative,execution of a reimbursement agreement in the event that the final development of the intertie is not undertaken.Similarly, the Authority intends to restrict use of grant funds on the northern intertie to the pending engineering and permitting work,until a comparable resolution of core development issues are resolved. |look forward to working with you and the other participating utilities toward development of the intertie projects. Sincerely, William R.Snell Executive Director cc:Jim Ayers,Chief of Staff,Office of the Governor Wilson Hughes,AIDEA Board Member WRS:bijf:ks . hiall\bjfiboarc stahripg COMF DENT VA FOSTER PEPPER &SHEFELMAN A LAW PARTNERSHIP INCLUDING PROFESSIONAL SERVICE CORPORATIONS 1111 THIRD AVENUEoOSUITE3499 BELLEVLE.WASHINGTON OFFICE SEATTLE,WASHINGTON 98tol PORTLAND.OREGON OFFICE(296)451-0500 (206)447-440 {503}221-0607TELETOPIER(206)425-5487 a TELECOPIER.(503)221-1510 TELECOPIER;- DIRECT DIAL:(208)447-8967(206)447-9700 -(206)247-9283 x February 8,1995 OC. cCAyWeWilliamR.Snell EG c i)c Executive Director FoR 1)7995AlaskaIndustrialDevelopment&reese Export Authority480W.Tudor Road Anchorage,AK 99503 Jonathan Rubini,Esq.AY an602WestFifthAvenue,Suite 500Anchorage,AK 99501 'ho oha a "otha!Re:Electric Power Intertie Financing MK y Cou Dear Riley and Jon:Wen MAS Enclosed is a draft letter that summarizes the conclusions we have reached based on ourworkthusfaronthereferencedmatter.We hope this is in useful form for your purposes,and,in any event,we wanted to provide you with some tangible evidence of our efforts in reviewingthesequestions. Alaska tndustrial Development and Export Authority 2/1 34> Very truly yours, FOSTER PEPPER &SHEFELMAN William G.Tonkin WGT:djr ce:Hugh Spitzer Dan Dixon son DD WER A2EUAEA Ay tin fvrush.BOS. DRAFT February 4,1995 William R.Snell Executive Director Alaska Industrial Development &Export Authority 480 W.Tudor Road Anchorage,AK 99503 Re:Preliminary Conclusions on Review of Potential Intertie Financing by AIDEA Dear Riley: The purpose of this letter is to briefly summarize theconclusionsthatourfirmhasreachedfollowingourreviewofthe documents you and Jcnathan Rubini furnished to us last fall relating to the electrical transmission interties for which the Alaska Legislature in 1993 SLA CH.18 (the "bond authorization statute")and 1993 SLA CH.19 (the "grant appropriation statute"), among other things,authorized AIDEA to issue bonds and appropriated certain grant funds,subject to the terms of those statutes. The documents reviewed included the Intertie Grant Agreement dated October 26,1993,by'and among the participating utilities(described below),the State of Alaska,Department ofAdministration,and AIDEA;the Grant Transfer and Delegation Agreement dated November 5,1993,by and among the same parties;the 1993 Alaska Intertie Project Participants Agreement (the"Participants Agreement")dated January 24,1994,by and amongAlaskaElectricGeneration&Transmission Cooperative,Inc.,TheMunicipalityofAnchoraged/b/a Municipal Light and Power ("ML&P"),Chugach Electric Association,Inc.,The Municipality of Fairbanksd/b/a Fairbanks Municipal Utilities System ("FMUS"),Golden ValleyElectricAssociation,Inc.,The City of Seward d/b/a SewardElectricSystem("SES")(collectively,the "participatingutilities"),and Homer Electric Association,Inc.,and MatanuskaElectricAssociation,Inc.(the "additional parties");and the GraptAdministrationAgreementdatedAugust20,1994,by and amongAIDEAandtheparticipatingutilities.For convenience,ML&P,FMUS and SES are sometimes referred to as the "municipal utilities,"andtheparticipatingutilitiesotherthanML&P,FMUS and SES are sometimes referred to as the "private utilities." 0169379.01 William R.Snell February 8,1995 Page 2 We also made a preliminary review of certain Alaska statutes other than the bond authorization statute and the grant 'appropriation statute and applicable provisions of the InternalRevenueCodeof1986,as amended (the "Code"),and certain regulations that are currently applicable,or that are proposed tobeapplicable,to tax-exempt bonds,including the proposed regulations on the definition of private activity bonds undersection141oftheCodethatwerepublishedintheFederalRegister on December 30,1994. 1.Ownership Structure.The principal question that arisesunderthebondauthorizationstatuteiswhetherAIDEAisauthorized by the terms of that statute to issue bonds to finance the cost of intertie projects that are owned by the participating utilities astenantsincommon,with each participating utility holding an undivided percentage ownership interest in all of the real andpersonalpropertycomprisingaproject,as required by the Participants Agreement. The question arises because section 29 of the bond authorization statute provides in part that AIDEA may issue bonds to finance the acquisition,design,and construction of a power transmission intertie of'at least 138 kilovolts between Healy and Fairbanks and owned,forthebenefitofalltheutilitiesparticipatinginthe intertie,by Golden Valley Electric Association,Inc. (Emphasis ours.)- Similarly,section 30 of the bond authorization statute provides in part that AIDEA may issue bonds to finance the acquisition,design,and construction of a power transmission intertie of at least138kilovoltsbetweenAnchorageandtheKenaiPeninsulatobeowned,for the benefit of all of the utilities participating in the interties,by Chugach Electric Association,Inc.(Emphasis ours.) At the same time,section 5(a)of the Participants Agreementprovides: Ownership As Tenants In Common.The Participants shall be owners of each Segment of the Project (including all personal and real property interests thereof)as tenantsincommon,with undivided interests and obligations with respect to all Project Segment assets and liabilities intheproportionateamountsoftheirrespectiveParticipants'Shares.Except as otherwise provided 0169379 .01 William R.Snell February 8,1995 Page Clearly, 3 hereunder,the Participants shall share in the ProjectSegments's benefits,burdens,and risks only in proportion to their respective Participants's Shares,notwithstanding that the IPG [the Intertie Participants Group]may select one or more individual Participants to manage,design,build,finance,operate,and/or maintain the Project Segment or portions thereof on behalf of the Participants collectively. this provision of the Participants Agreement does notprovideorcontemplatethatGoldenValleyElectricAssociation,("GVEA"),will "own"the northern segment of the intertieproject"for the benefit of"all of the participating utilities, and also does not provide or contemplate that Chugach Electric Inc. Association,Inc.("Chugach"),will "own"the southern segment oftheintertieproject"for the benefit of"all of the participating utilities.Although the Participants Agreement is not explicit onthepoint,under general real property law,title to property beingacquiredbypersonsastenantsincommonwouldbeconveyedtothose persons in the names of all tenants in common as to their respective percentage ownership interests. participating utilities. We considered whether it would be possible to interpret the bond authorization statute in a manner that would result in treating ownership of the intertie project by the participatingutilitiesastenantsincommonasthelegalequivalentofownership by GVEA or Chugach,aS applicable,for the benefit of theHowever,that interpretation,we believe, would give essentially no meaning to the portion of the bondauthorizationstatutethatrequirestheprojecttobe"owned by" either GVEA or Chugach,as applicable.At a minimum,to invest those words with any meaning,we believe legal title to the real and personal property comprising the projects would have to betakenbyeitherGVEAorChugach,as applicable,which then wouldresultineachparticipatingutilityhavingabeneficialownershipinterestintheproject. with projects "on behalf of the Participants collectively,"fails t That kind of ownership structure arguably would be consistent the second sentence of section 5(a)of the Participants Agreement,which makes it clear that each participating utility istosharethebenefits,burdens and risks of the project only in proportion to its participant's share (or percentage of ownership). However,even that sentence,though it makes express reference to the fact that one or more participating utilities may be selectedtomanage,design,build,finance,operate and/or maintain the [e)make any reference to the possibility that less than all of the |participating utilities would hold title to the project. 0169379.01 *K William R.Snell February 8,1995 Page 4 We also considered whether treating the existing ownership structure under the Participants Agreement as the legal equivalentofthekindofownershipstructurecontemplatedbythebondauthorizationstatutewouldbesupportedbyanylanguagecontainedinthegrantappropriationstatute,on the theory that both laws were enacted at the same time and both dealt with power transmission interties.However,reference to the grant appropriation statute actually appears to reinforce aninterpretationofthebondauthorizationstatutethatwouldrequire the project to be owned by one of the designated participatingutilities,rather than by all of the participating utilities astenantsincommon.This is because section 1 of the grant appropriation statute provides,e.g.,"for payments as a grant under AS 37.05.316 to Golden Valley Electric Association benefit of all the utilities participating in the intertie...." (Emphasis ours.) As will be discussed below,the ownership structure currentlyprovidedbytheParticipantsAgreementishelpful,if notessential,to the ability to reach favorable conclusions on otherimportantlegalquestions,principally (i)the question whether theprovisioninsection10(d)(1)of the Participants AgreementrequiringeachparticipatingutilitytomeetitsAnnualPaymentObligations,Energy Charges and Assessments "whether or not theProjectiscompletedoritsoperationisterminated,interrupted orsuspendedinwholeorinpart,"is valid under Alaska law,and (ii)the question whether the shares of the project held by themunicipalutilitiesmaybefinancedwithtax-exempt bonds. Therefore,we believeit would be preferable to amend the bond|authorization statute ina manner that makes it consistent with the1e |_existing "ownership-structure established by the participating|utilitiespursnant-te-the-Rarticipants Agreement,rather than to change the ownership structure.For example,the bondauthorizationstatutecouldbeamendedtoprovidethatAIDEAmayissuebondstofinancepowertransmissioninterties"owned by theparticipatingutilitiesastenantsincommon."Absent such achangeinthebondauthorizationstatute,we would be unable toprovideanapprovingopiniononbondsissuedbyAIDEAtofinancetheprojecthavingthecurrentownershipstructure(which,as noted above,may be the optimum structure for all other purposes), especially in view of the legal standard that bond counsel mustapply,i.e.,an approving opinion cannot be rendered unless it is determined that it would be unreasonable for a court to hold to the contrary. 2.Validity of Section 10(d)(1)of Participants Agreement. As mentioned above,another important legal question is whethereachoftheparticipatingutilitiesmaylawfullyagree,as provided 0169379.01 William R.Snell February 8,1995 Page 5 in section 10(d)(1)of the Participants Agreement,to make therequiredannualpaymentsregardlessofwhethertheProjectisperational.In Chemical Bank v.WPPSS ("WPPSS"),99 Wn.2d 772,xd666P.2d 329 (1983),the Washington Supreme Court held thatWashingtonpublicutilitydistrictsandcitieswerenotauthorizedtoenterintoajointfinancingagreementsimilartotheParticipantsAgreementcontainingaso-called "dry hole"provisionrequiringtheparticipantstomakepaymentsregardlessofwhether the projects were operational.|In WPPSS,the court reasoned that,while each of the NaNparticipatingmunicipalitieshadstatutoryauthoritytopurchaseelectricity,the "unconditional obligation to pay for rotelectricityishardlythepurchaseofelectricity,"but rather was5 ('goanagreementtopurchaseprojectcapability.Id.at 784.TheWashingtonmunicipalitiesalsowereauthorizedunderstatelawtoconstruct,acquire and operate electric generating facilities.However,the Washington court held that these provisions aid not'authorize the construction or acquisition of "a project in whichtheparticipantsdidnothaveanownershipinterest."Id.at 785.The court noted that,under the participants'agreement involved inWrPss,the participating municipalities did not retain an ownershipinterestintheproject.Moreover,based on provisions of theparticipants'agreement relating to management of the jointundertaking,the court concluded that the participatingmunicipalities"did not retain sufficient control over the project to constitute the equivalent of an ownership interest."Id,at 785.Thus,the agreements 'of the municipalities were held to beultra-vires and void. The participants in the intertie projects here consist ofmunicipalutilitiesoperatedbyhomerulecitiesandprivateutilitiesoperatedbyelectriccooperatives.Unlike themunicipalitiesinWPPSS,Alaska home rule municipalities haveconsiderableautonomy.In particular,under Article x,Section 11oftheAlaskaConstitution,a home rule city may exercise all legislative powers not prohibited by law or charter.We havereviewedAlaskastatutesandthechartersofthemunicipalitiesofAnchorage,Fairbanks and Seward,and found no provisions that wouldprohibitthosemunicipalitiesfromenteringintotheParticipants Agreement. Electric cooperatives are authorized by AS 10.25.020 to"generate,manufacture,purchase,acquire,accumulate,and transmit electric energy."(Emphasis ours.)By analogy to the WPPSS analysis,the electric cooperatives also may be required to have an ownership interest in the project. 0169379.01 William R.Snell February 8,1995 Page 6 If the tenants-in-common ownership structure currently provided by the Participants Agreement is retained,eachparticipatingutilitywouldhaveanactualownershipinterestin the project,and the principal basis for the WPPSS holding would not exist here.If the ownership structure were changed to comply with the bond authorization statute as currently written,the participating utilities other than GVEA and Chugach would not have an actual ownership interest in the project.In that case,an ownership interest might be implied based on the degree ofmanagementcontrolovertheprojectexercisedbytheparticipatingutilitiesthroughtheParticipantsAgreement.However,we cannot conclude with certainty that it would be unreasonable for a court to hold to the contrary on that issue. As one of the conditions to the issuance of any bonds to finance the project,AIDEA should require each participating utility to provide to AIDEA an opinion of counsel stating that theparticipanthasfulllegalauthoritytoenterintotheParticipantsAgreement,and that the terms of the Participants Agreement (including an explicit reference to section 10(d)(1)thereof) represent legal and valid obligations of the participating utility and are enforceable against it. 3.Potential Tax-Exempt Financing of Portions of the Interties Owned and Used by Municipal Utilities.We believe that the portions of the interties that will be owned and used by the municipal utilities (i.e.,by ML&P,FMUS and SES)can be "inancedwithtax-exempt governmental bonds,subject to the favorable resolution of various subsidiary issues that are briefly summarized below.We base this preliminary conclusion primarily upon existing Treasury Regulations §1.103-7(b)(5)and Example (13)under that regulation,IRS Private Letter Ruling 9247012 (the so-called "Grant County Public Utility District"ruling,and Proposed Treasury Regulations §§1.141-6 and 1.141-7.The latter proposed regulations on the definition of private activity bonds provide,in essence,that proceeds of tax-exempt bonds may be specificallyallocatedtotheexpendituresforadiscreteportionofamixedusefacility,which may consist of an undivided ownership interest in an output facility,distribution facilities or any similar utility system.The Preamble to the proposed regulations specificallyrecognizesthechangingnatureoftheelectricgenerationand transmission industry,and notes that the proposed regulations attempt to address those changes by,e.g.,providing guidance on allocations of use of transmission facilities. The following subsidiary federal tax issues would have to be favorably resolved before the issuance of any tax-exempt bonds. First,the exact undivided percentage ownership shares of themunicipally-owned portions of the interties would have to be *0169379.01 William R.Snell February 8,1995 Page 7 finally determined and be reasonably expected to remain fixed inthoseportionsforthetermofthebonds.This means that the procedures contained in the Participants Agreement allowing certainutilitiestowithdrawfromparticipationinoneorbothsegmentsoftheinterties,and allowing or requiring other utilities toincreasetheirsharesaccordingly,must have fully run theircourse.Only then will it be possible to determine the extent ofthediscreteportionsoftheprojectthataretobeownedbythemunicipalutilitiesandpermittedtobefinancedwithtax-exempt bonds. The use of the project also must be consistent with the_percentage ownership interests held by the municipal utilities andfinancedwithtax-exempt bonds.In this respect,we would need toconfirmourunderstandingoftheprovisionsofsection11oftheParticipantsAgreement,which appear to provide that use of theproject,at least when capacity is or may be constrained,must beavailabletotheparticipatingutilitiesinaccordancewiththeirrespectiveparticipantshares.Thus,it appears that the relative extent of use of the project by private and municipal utilities canbeexpectedtobeconsistentwiththerespectiveownershipsharesoftheprivateandmunicipalutilities,but this would have to beconfirmed. The Participants Agreement provides that GVEA will be the O&MManagerofthenorthernsegmentoftheprojectandChugachwillbetheO&M Manager of the southern segment of the project.GVEA and Chugach are treated as private businesses under section 141 of the Code.Unless it can be determined that neither of the O&M Agreements contemplated by the Participants Agreement constitutes a "management or service contract"for the purposes of the privatebusinessusetestunderSection141oftheCode,it would be necessary to alter the duration and compensation and terminationprovisionsofthosecontractstoconformwiththerequirementsof Proposed Treasury Regulations §1.141-3(c)for "qualifiedmanagementcontracts"that will not be treated as private business use by those O&M Managers.For example,one of the requirementsforamanagementcontractprovidingthat100%of the manager'scompensationduringthetermofthecontractwillbebasedona periodic fixed fee is that the term of the contract may not exceed the lesser of 50%of the expected useful life of the related property or 15 years. However,it may be possible to determine that neither of the O&M Agreements is a "management contract"for these purposes under Proposed Treasury Regulations §1.141-3(c)(6)(vi),which providesinpartthat: 0169379.01 *_s William R.Snell February 8,1995 .Page 8 A contract to provide for the operation of a mixed usefacilitydescribedin1.141-6(b)(2)(i)(B)(relating to certain undivided ownership interests [in an output facility,distribution facilities or a similar utility system]))is not a management contract if the only compensation is the reimbursement of the actual and direct expenses paid by the service provider.(Emphasis ours.) Section 10(b)of the Participants Agreement provides in part thattheprojectoperatingbudget shall include costs attributable to overhead or administrative and general costs of the O&M Manager...only to the extent that said costs are approved by the IPG before they are incurred,are reasonablyincurredforlabordirectlyemployedbythatO&M ManagerinperformanceofitsdutiesundertheO&M Agreement,and would not have been incurred but for the activities undertaken as O&M Manager. It is not entirely clear whether the compensation payable to the O&M Manager pursuant to the O&M Agreement thus contemplated by the Participants Agreement is limited solely to "reimbursement of the actual and direct expenses paid by the service provider [O&MManagerjJ"as required by the Proposed Treasury Regulations.It does appear,however,that the participating utilities do desire tostrictlylimittheamountspayabletotheO&M Manager,and perhaps the O&M Agreement itself can limit compensation payable to the O&M Manager in a manner that would allow the O&M Agreements to be disregarded for purposes of applying the private business testundersection141oftheCode. As you know,there are numerous other requirements that must be satisfied for interest on bonds to be,and remain,tax-exempt under the Code,and,for the purposes of this preliminary analysis, we assume those other requirements.could be satisfied in ordinary course.These would include all applicable arbitrage requirements,for example.We also would have to confirm,based on opinions of counsel for the participating utilities,that the IPG itself would not be treated as an association taxable as a corporation under the Code,as intended by the participating utilities.Otherwise,theprojectwouldbetreatedasusedforaprivatebusinessusebythat association,with adverse consequences for the ability to issue tax-exempt bonds for any portion of the project. 0169379.01 William R.Snell February 8,1995 Page 9 , 4.Approval of Project and Agreements by Alaska Public Utilities Commission. Under Section 4.01(b)of the Grant Administration Agreement, disbursement of the grant funds is conditioned on receipt by AIDEA of written notice that the participants have determined and agreed upon which contractual obligations related to the Intertie Grants and Intertie Funds must be submitted to the Alaska Public Utilities Commission for its review and approval. Section 4.02(b)of the Grant Administration Agreement also provides that grant funds will not be applied to reimburse costs incurred for Phase II activities,...until...(b)final approval,not subject to further judicial appeal,of matters submitted to the Alaska Public Utilities Commission related to the financing or use of the intertie(s).(Emphasis ours.) As discussed above,the participants consist of municipal utilities and private utilities,both of which may or may not be"public utilities"subject to the jurisdiction of the Alaska PublictilitiesCommission(the "Ppuc")depending on whether the utility meets any of the various requirements for an exemption under thepublicutilitiesstatute(AS 42.05).Utilities that are generally exempt from the public utilities statute are not exempted from the requirement of a obtaining from the PUC a "certificate ofconvenienceandnecessity"under AS 42.05.2211 through 42.05.281. AS 42.05.311 provides that a public utility may for a reasonable compensation permit another public utility to usedistributionortransmissionfacilitiesundercertain circumstances.If the public utilities fail to agree upon thejointuseorinterconnectionoffacilitiesortheconditionsfor compensation,either public utility may apply to the PUC for an order requiring the interconnection.AS 42.05.321.So long as each of the participants agree to the terms of the Participants Agreement,the PUC would not have jurisdiction over the Participants Agreement under this provision. Pursuant to AS 42.05.431(b),any "wholesale power agreement between public utilities is subject to advance approval"by the Puc.Assuming that some (if not all)of the participants are regulated public utilities,the Participants Agreement would be subject to advance approval of the Puc if it is a "wholesale poweragreement."Unfortunately,the term "wholesale power agreement"is 0169379.01 William R.Snell February 8,1995 Page 10 not defined in the statute;nor has it been interpreted by the Alaska courts. To comply with Sections 4.01(b)and 4.02(b)of theParticipantsAgreement,the participants,among other things,mustdeterminewhethera"certificate of convenience andnecessity"must be obtained from the puc for the intertie projects.TheparticipantsalsomustdeterminewhethertheParticipantsAgreementisa"wholesale power agreement"subject to advance approval of thePuc,and whether any other aspects of the projects are subject toPUCapproval.Section 4.02(b)of the Grant AdministrationAgreementprohibitsthedisbursementoffundsuntilallrequired approvals are final,subject to no further judicial appeal,and thesameconditionshouldbeimposedontheissuanceofanybondstofinancetheproject. 0169379.01 NY a=\Municipality of Anchorage Municipal Light &PowerTomFink,Mayor 1200 East First Avenue Anchorage,Alaska 99501-1685 (907)279-7671,TelecogTers>(907}278-2961.277-9272 |\2 NPidsBuy2yf}January 12,1995 i Sues |F |pan 7 7 HOS Alaska Sedustnt Cavilocmesi William R.Snell end fecer:tuthestey Executive Director Alaska Industrial Development&Ce,Vand. Export Authority Ovum 480 W.Tudor Road WRS Anchorage,AK 99503 Son &. Re:Intertie Letter of November 2,1994 Dear Riley: By unanimous action of the IPG,the Intertie Participants want to respond to the points raised inyourlettertoTomStahr. 1.We are pleased that AIDEA may be available as a financing option for the Project. 2.We understand that your concerns regarding the joint ownership arrangement arise only inthecontextofpossibledebtfinancingbyAIDEAanddonotaffectAIDEA's previous acceptancesofthejointownershiparrangementforpurposesofthegrant.If you determine that thisarrangementcreatesaseriousproblemforAIDEAfinancing,please advise us as soon as possible.We are prepared to explore other methods of financing the costs in excess of the grant.We arecommittedtomovingforwardinamannerthatpreservestherespectiverightsandresponsibilitiesoftheParticipantssetforthintheexistingagreements., 3.We agree that the \ntertie will))provide benefits consistent with the project envisioned by theAEAreports.We commit to provide all funding in excess of the grant in accordance with prioragreements.The construction agreements will be the vehicles for setting project budgets andestablishingtherespectiverolesandlevelsofparticipationinindividualprojectphasesor components. Putting Energy Into Anchorage William R.Snell,Executive Director January 12,1995 Page Two 4.The utilities believe the terms of the various existing agreements,including theParticipants'Agreement and the Construction Management Agreements,can certainly be enforced as written for all parties.Subject to the termination provisions of those agreements,the utilities are collectively committed to proceed with design andconstructionofboththeNorthernandSouthemIntertieProjects.The ConstructionManagementAgreementswillbethevehicleforsettingProjectbudgetsandestablishing the respective roles and levels of participation in individual Project phases or components. a SEIntértieParticipantsGroup Thomas R.Stahr,Chairman olor i bile hat ad aN z .0 ht3Lette ALASKA INDUSTRIAL DEVELOPMENT AN tA[_)AND EXPORT AUTHORITY a qm =ENERCY AUTHORITY 480 WEST TUDOR ANCHORAGE,ALASKA 99503 907 /561-8050 FAX 907 /561-8998 November 2,1994 Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER 1200 East First Avenue Anchorage,Alaska 99501-1685 Re:Intertie Financing Dear Tom: Your letter to me of August 16,1994 inquired whether, without further legislative authorization,AIDEA or AEA is in a position to finance the Participant's share of the intertie costs. In a related vein,I recently received an inquiry from GoldenValleyElectricAssociation,a copy of which is attatched.As you know,I have also participated in discussions among AIDEA staff andconsultants,as well as with several of the participatingutilities,on matters generally relating to these two inquiries.While I believe there are several issues which require furtheranalysisandconsideration,I thought it advisable to offer mypreliminarythoughtsfortheIPG's consideration. 1.In light of the specific legislative authorization,we believe that,as between AIDEA or AEA,AIDEA is the appropriateissuer. 2.Several parties have raised questions regardingwhethertheformofownershipprovidedforundertheIntertieGrantAgreementrequireslegislativeaction.As you know,the language.in Chapters 18 and 19 refer to interties owned,respectively,by Golden Valley and Chugach Electric "for the benefit"of all the participating utilities.In the context of our collective efforts to satisfy the grant preconditions,it was determined that the form of collective ownership provided under the Intertie Grant Agreement (and other related documents)was an acceptable alternative for purposes of the grant.As the question of ownership structure hasbeenrenewedinthecontextofapossiblepublicfinancing,I have asked that AIDEA bond counsel for the intertie financing considerthisissue. act SWB SES EC + Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER November 2,1994 Page 2 3.GVEA''s recent letter,as well as our earlier discussions,present questions regarding the scope of the intertieproject.As I understand the issue,the IPG is considering a phased development of the intertie,with the initial phase limited to only a "basic line."I have requested that AIDEA's legal counsel review whether,and under what circumstances,a scaled-down project,or phased development,is consistent with the grant appropriation and debt issuance authorization set out in Chapters 18 and 19. As I anticipate that this issue is likely to heconsideredbytheIPGbeforethelegalreviewbyoutsidecounsel and the Department of Law is complete,I thought it instructive to offer AIDEA's view on this issue.We believe that Chapters 18 and 19,read together,envision a roughly "equal"snaring of costbetweentheutilitiesandtheState.The broader scope of theintertieprojectisalsoconsistentwiththeAEAfeasibility studies presented to the Legislature at various times.Finally, our analysis is that the basic line,standing alone,would not result in the scope of intended benefits to warrant use of grant funds.While a phased approach to development may well be prudentandacceptable,AIDEA staff concludes that the availability of grant funds will jikely require binding monetary commitments with respect to subsequent project development phases. 4.In several of my meetings with utility representatives,questions have arisen as to the enforceability or binding nature of obligations arising under the Intertie Grant Agreement and related contracts.This issue is particularly troubling as the Intertie Grant Agreement was itself the basis fortheState's determination that the preconditions to the intertie grants had been satisfied.While I do not believe these questions directly relate to your inquiry of whether further legislativeactionisnecessary,I.have asked legal counsel to address whether use of grant funds is affected were the Intertie Grant Agreement to include unenforceable provisions. With these comments in mind,it is,in my view,uncertainwhetherAIDEAisnowinapositiontoproceedwithafinancing absent further legislative authorization or clarification.If the IPG,or the participating utilities,have comments or opinions which they would like considered as AIDEA and its counsel addresses these matters,I invite any party to submit such comments for our Mr.Thomas R.Stahr General Manager and Chairman,IPG MUNICIPAL LIGHT &POWER November 2,1994 Pace 3 consideration.And while this letter addresses only the relatively narrow question of whether further legislative action is required, there are various other issues which need be resolved before a public financing can be concluded. As I trust you appreciate,in anticipation of the change in administration and the new legislative session,AIDEA desires to resolve issues relating to scope and financial participation in the immediate future.We request that the IPG advise AIDEA as promptly as possible,but no later than January 13,if questions remainregardingwhichutilitiesdesiretoparticipateineachofthe respective interties,and if so,a schedule for how each of the utilities intend to resolve any prerequisite actions (e.g.voter approval)if such actions are deemed necessary to enter into binding financial commitments. I look forward to discussing these issues with you and your colleagues in the near future. Sincerely, ALASKA INDUSTRIAL DEVELOPMENT AND °EXPORT AUTHORITY tifiam R.Snell Executive Director /ke Enc. cc:Jim Baldwin,Esq. Keith Laufer,Esq. Jonathan Rubini,Esq. a GAM:U2 2/75 ®Municipality of Anchorage ,Municipal Light &PowerTomFink,Mayor 1200 East First Avenue Anchorage,Alaska 99501-1685(907)279-7671,eCEITE,9272=|August 16,1994 ;Dvie William R.Snell AUG 1 3 1994 Executive Director Alask . Alaska Industrial Development aska Jensnial Development&Export Authonty and Export Authority 480 W.Tudor Road Anchorage,AK 99503-6690 Re:tertie Financin Dear Riley: We had earlier talked about the possibility of AIDEA providing the additionalfinancingnecessarytocompletethenorthernandsouthemsegmentsoftheParticipantsIntertieProject.The Intertie Participants Group ("IPG”)at its last meeting directed me,as chairman,toformallyaskyoutodeterminewhetheryouareinaposition,without further legislativeauthorization,to finance the Participants'share of the additional cost of these projects,either asAIDEAorthroughAEA.' If you determine that you are in a position to arrange for the joint financing of theParticipants'additional cost of these projects,the IPG would like to request that you take thosepreliminarystepswhicharenecessarytodeterminetheconditionsandcostsofthisjointfinancingoftheproject., The IPG is anxious to determine whether joint financing through AIDEA or AEA isanoptionandtherelativefinancingcostofthisoptiontotheParticipants.Please feel free tocontactmeifyouhaveanyquestionsorrequirefurtherinformationfromtheprojectParticipants. Sincerely yours, MUN AL LIGHT &POWER ww”? omas R.Stahr General Manager and Chairman,IPG TRS:lka - co:Norm Story,HEA James N.Woodcock,MEA Dave Calvert,City of Seward Vince Mottola,FMUS Robert Hufman,AEG&T Gene Bjormstad,CEA Mike Kelly,GVEA . Putting Energy Into Anchorage Cnolaemoanen9,ET Ord ' DEN VALLEY ELECTR 2esers Js=e :ove f +.Pow S14 Donebanks,Alasku 99707-1249,Phone 907-452-1151 Octeber 27,1994 William R.Snell Executive Director AIDEA 480 West TudorAnchorage,Alaska 99503-6660 Re:Healy-to-Fairbanks Interiie Dear Riley: As we discussed at our recent breakfast meeting,some membersoftheIPGseeminclinedtobreaktheNorthernIntertieprojectintophasesbyreducingthescopeoftheinitialconstructionefforttobuildonlyabasictransmissionlinewithoutvoltagecompensationorbatteryenersystorage.A basic line will notdeliverthebenefitswhicnwerepredictedbythe1991AEAfeasipilitystudy.our consultant predicts that only a 4 megawattpowertransferincreasewillresult.Additionally,there is no present contractual commitment to any future "phases". It would be most helpful if you will tell us at our meeting in x7 °Fairbanks on November 1 whether AIDEA will allow application of the$45 million grant for the Northern Intertie against the roughly $55millioncostofabasiclinewithoutautilitycommitmenttofundthefullproject.This decision wil].help the IPG in consideringwhethertoproceedwiththe'present preliminary scope and budget(line plus battery energy storage at approximately $75 million)orarecucedscopeandbudget. In spite of the difficulties expexienced by the IPG,we areprogressingsmoothlywiththedesignoftheNorthernIntertie.rfthescopeisreduced,somn members will proceed with thecompensationorbatterystorageseparatelysoIamnottryingto lobby you one way or the other. See you on Tuesday. Best Regards, Hike (us Michael P.KeYly Golden Valley cc:Jon Rubini Gww DEN VALLEY ELECYR&:resis oeLSetSet .Paes A184,panetaiks,Alaska 99707-1249,Phone 907-452-1151 SL October 27,1994 William R.Snell Executive Director AIDEA - 480 West Tudor Anchorage,Alaska 99503-66¢C Re:Healy-to-Fairbanks [ntertie Dear Riley: As we discussed at our recent breakfast meeting,some membersoftheIPGseeminclinedtobreaktheNorthernIntertieprojectintophasesbyreducingthescopeoftheinitialconstructionefforttobuildonlyabasictransmissionlinewithoutvoltagecompensationorbatteryenersystorage.A basic line will notdeliverthebenefitswhicnwerepredictedbythe1991AEAfeasibilitystudy.our consultant predicts that only a 4 megawattpowertransferincreasewillresuit.Additionally,there is no present contractual commitment to any future "phases". It would be most helpful if you will tell us at our meeting inFairbanksonNovember1whetherAIDEAwillallowapplicationofthe$45 million grant for the Northern Intertie against the roughly $55millioncostofabasiclinewithoutautilitycommitmenttofundthefullproject.This decision will.help the IPG in consideringwhethertoproceedwiththepresentpreliminaryscopeandbudget(line plus battery energy storaqa at approximately $75 million)orareducedscopeandbudget. In spite of the difficulties experienced by the IPG,we areprogressingsmoothlywiththedesignoftheNorthernIntertie.Ifthescopeisreduced,some members will proceed with thecompensationorbatterystorageseparatelysoIamnottryingto lobby you one way or the other. See you on Tuesday. Best Regards, Hpk (up Michael P.KeY¥ly Golden Valley cc;Jon Rubini 0 SWB VA aCL fm ne ee :kilo .Goldman,Sachs &Co.|85 Broad Szeet|New York,New York 10004 oe Ca Ole OU:Tel:212-392-6417 Francis J.ingrassia Vice Presicant Municipal Finance Departmen GoldmanSia September 26,1994 Mr.William R.Snell Executive Director Alaska Industrial Development and Export Authority 480 West Tudor Road Anchorage,Alaska 99503-6690 Dear Riley, In response to your request for our thoughts on major credit issues relating to Intertiefinzncing,we have identified three major categories you should think about general credit issues;credit issues related specifically to AIDEA authorization;and tax issues.We examine each area briefly below.eS meee aetatmaratindot°* General Credit Issues: Regardless of whether the Intertie is financed directly by the participants through formationofajointactionagencyorwhethertheparticipantsjointlyobligatethemselvestomakeconduitpaymentstoAIDEAasbondissuez,identical credit issues arise.Therefore,the maincreditrequirementsofsuchafinancingincludethefollowing: 1)Each participant needs clear APUC authorization to enter into what ever financing arrangements are taken and authorization to make payments over time; 2)Regardless of the existing language in the participants'agreement,a core,creditworthy group of obligors must remain obligated from the closing of financing onward; 3)Appropriate and customary joint action agency step up clauses need to be ineffecttoprovideforparticipantdefaults,if they occur; 4)Annual charges to participants need to provide by formula for proper allocationofbenefitsoftax-exempt financing among participants,if any. AIDEA Authoritzation Issues: Assuming that the underlying credit cun be structured in a manner acceptable to AIDEA,AIDEA may wish to provide conduit financing with a state moral obligation.However to S New York |Lonaon |Tokyo |Boston |Chicago |Callas |Franktun |Hong Kong |Housion |Los Angeles(Memphia |Miami |Moreresl |Osaka|Paris |Phitsaeiptia |San Francisco |Sqapore |Sydnay|Toronto |Zutict.AN me)[oaissue bonds,AIDEA will need its bond counsel to opine that the bonds are validly authorizedbythestatelegislature.Therefore,the conflicting provisions regarding intertie ownership must be resolved. Tax Issues: AIDEA's bond counsel should immediately confer with tax counsel for the participant grouptodetermineonwhatbasistax-exempt debt could be structured as part of the overall intertie financing.Wohlforth's review should indude whether the Grant County ruling can bereliedupon. While the above briefly summarizes the major issues,we would like to discuss each withyouinmoredetail.Please feel free te call when you are free. Sincerely, Fnanh- Francis J.Ingrassia |PrN .a . A PUBLIC FINANCIAL MANAGEMENT,INC.tzEs Financial and Investment Advisors 1000 SW Broadway,Suite 1500 Portland,Oregon 97205-3067 503-223-5385 (Fax)503-223-7002 September 23,1994 TO:Riley Snell Valorie Walker FROM:Pat Clancy Scott Clements RE:Intertic Financing We have completed our review of the documents you provided us on the Intertie Financing.We concur with your observation that there are a number of issues thal need resolved prior to proceeding with a financing.Here is a list of the issues we believe nced to be resolved.As these issues get resolved,in all likelihood,new issues will emerge. 1,Authority of the various parties to enter into this long term agreement.In reviewing the problems of the Washington Public Power Supply System financings,the most important assumption -which proved wrong -was clear authority on the part of the participants to enterintothesupplyagreement,We would suggest that each participant provide,up front,an opinion letter from their counsel as to their authority to enter into the Intertie agreement. 2.Clear agreement on who will participate in the financing.It is unclear that AIDEA can issue tax-exempt bonds for this project with Chugach and GVEA as participants.Therefore, FMUS and ML&P would become liabts for a seam of payments for taxable bonds.It seems unlikely that ML&P would agres to this situation.On the other hand,if 4 tax-exempt participant issues bonds separately,itis not clear what happens tn those.bonds if they stop parucipating in the Agreement because the project would all be taxable and the payments would now be coming from non-exemyt parties.A different type of arrangement may be needed.fa'Increasing concentration of debt burde:..On the Healy -Fairbanks Intertie,the only participants that cannot withdraw are GVEA and FMUS.Given the debt burden of the Healy Clean Coal Project,it is not clear that GVEA can maintain its "investment grade"status. This is even more the case for FMUS which is already a struggling utility.In a worst case, all the debt ends up on these two parties and it is not clear they can handle i.We need to develop a financial analysis (or have ore developed by the participants)that shows the effect of all the debt being with the last partics on those parties and assess the financial viability of financing based on that analysis. of the potential last shareholders with a liability of almost 15%.The utility is not healthy4.Analysis of what happens with a bankruptcy of one of the remaining parues.FMUS is one Jandhastakenon-going supportof the City to continuc lo operate.We should prepare an Agang Austin Boston Denver Fort Myers Harlsbarg Houston Los Angzies Memphis Minneapolis New York Orlando Philadelphia Porland San Prancisco /A {<}An Afiiiate ef Marine Midland Bank,KA Ats14AIDEA Intertie Financing on "eae Page 2 = analysis of what would happen if only GVEA and FMUIS were left and then PMU3 weut bankrupt. 5.Legal analysis of APUC authority for rate increases related to the Intertie system.To the extent the payments exceed the revenues produced by the 1.5 mil rate increases authorizedtheInterticAgiecuent,WIL Ine APUC grant rate increases to accommodate the increased debt payments?' 6.Effect of rate increases on electricity rates in Fairbanks.The rates need to stay compctitive Yorthedemandforelectricitymaydrop.Long term conversion to altemative heating and energy sources would be detrimental to the ability of GVEA and FMUS to meet the long term payment obligations. 7.Unlimited exposure to future assessments.Section 10¢of the Participants Agreement leaves the participants with an unlimited exposure to future assessments.Without a Clear mechunism for financing those assessrients (bonding authority may be used up by then)it is not clear that all of the participants have the capacity to pay cash as needed.A mechanism for financing future assessments should be explored especially for the weaker of the participants. Please feel free to call either of us to discuss any of these points.It is our opinion that the documents may form a base for a financing bur we do not believe the project would be viable without the use of the moral obligation of the State.We suggest stronger agreements on the part of the parties involved and 4 clear picture of who is in and who is out before proceeding with more analysis. So Intertie Grant Agreement INTERTIE GRANT AGREEMENT Tr This Agreement is entered into this_Z@ day of October,1993,by Golden Valley Electric Association,Inc.("GVEA"),Fairbanks'Municipal Utilities System ("FMUS"), Municipality of Anchorage d/b/a Anchorage Municipal Light and Power ("ML&P"),ChugachElectricAssociation,Inc.("CEA"),Alaska Electric Generation and Transmission Cooperative,Inc. ("AEG&T"),on behalf of its members (Matanuska Electric Association,Inc.("MEA"),and Homer Electric Association,Inc.("HEA"),"Additional Parties"),and City of Seward ("Seward") ("Participating Utilities"within the meaning of Section 2 of SB 126),and the State of Alaska,Department of Administration ("DOA"),and the Alaska Industrial Development and Export Authority ("AIDEA”). The parties agree as follows: 1.Purpose.The purpose of this Agreement is to satisfy the statutoryconditionsprecedenttoDOA's transfer of the grant funds and to provide for the expeditioustransferofsuchfundstothegrantrecipientsforthepurposeofpartialfundingofthedesignandconstructionofnewelectrictransmissionintertiesbetweenHealyandFairbanksandbetweenAnchorageandtheKenaiPeninsula.Specifically,this Agreement is intended to satisfy theconditionsofSB126§§1(b)and (c)and §§2(b)and (c). 2.Additional Agreements.The Participating Utilities hereby agree that anyadditionalagreements(whether among the Participating Utilities or with other entities)that may benecessaryorusefultocarryoutthepurposesofthisAgreementandSB126shallbenegotiatedingoodfaith.Such additional agreement(s)shall address ownership participation ("Participation Agreement"),project management,and project operation. 3,Ownership.Pursuant to this and any other necessary agreements,theParticipatingUtilitiesshallholdundividedownershipinterestastenantsincommonintheproportionsetforthinAttachment1tothisAgreement,such proportions being based on therelationshipoftheParticipants'1990/1991/1992 three-year average non-coincident peak demand tothesumoftheParticipatingUtilities'1990/1991/1992 three-year average non-coincident systempeakdemandsunlesstheParticipatingUtilitiesagreetoadifferentallocationofspecificprojectcapacityintheParticipationAgreement.All intertie costs shall be borne by those ParticipatingUtilitieswhichexecuteParticipationAgreementswithrespecttosuchInterties. 4,Statutory Conditions.The Participating Utilities hereby agree to theconditionsofSB126,specifically set forth below. 4.1 Design and Construction Costs.The Participating Utilities agree topaythedesignandconstructioncostsoftheHealy-Fairbanks transmission intertie that exceed$43,200,000 and the design and construction costs for the Anchorage-Kenai Peninsula transmission intertie that exceed $46,800,000 (SB 126 §§1(b)(1)and 2(b)(1)]. 4.2 O&M Costs.The Participating Utilities agree to pay the operationandmaintenance(O&M)costs for the Healy-Fairbanks and the Anchorage-Kenai Peninsulainterties(SB 126 §§1(b)(2)and 2(b)(2)]. ;4.3 Rates.The costs of construction of the Anchorage-Kenai Peninsulaintertieinexcessof$46,800,000 plus accrued interest,the cost of operation and maintenance ofthatintertie,and other costs approved by the Participants shall first be recovered through a1.5 mill/kWh charge for all energy generated by the Bradley Lake Hydroelectric Project. The costs of construction of the Healy-Fairbanks intertie in excess of$43,200,000 plus accrued interest,the cost of operation and maintenance of that intertie,and othercostsapprovedbytheParticipantsshallfirstberecoveredthrougha1.5 mill/kWh charge for energy generated by the Bradley Lake Hydroelectric Project for the benefit of receiving utilities inFairbanksandanadditional1.5 mill/kWh charge to be paid by the receiving utility for 60 percentofthenon-Bradley Lake energy transmitted on the existing GVEA transmission line and the newnorthernintertiebetweenHealyandFairbanks. Remaining costs of the two interties not recovered by the above 1.5mill/kWh charges shall be allocated among the Participating Utilities in the proportion set forth in Attachment 1. 4.4 Access and Wheeling.All Participating Utilities agree to provide theotherParticipatingUtilitiesaccessbothonthenewintertieandovertheParticipatingUtilities' systems to and from the intertie for the purpose of assured access to resources,economy energytransactions,and other similar uses.Terms and rates for such access shall be resolved in the Participation Agreement.Resulting rates will be submitted to the Alaska Public UtilitiesCommission,if required,but this Agreement is not conditional upon APUC approval of such rates. 4.5,Warranties.The Participating Utilities hereby represent and warrant |that they have either resolved all material terms and conditions relating to the development,use,and operation of the interties and to the access to the systems to and from the interties or haveappropriateforumsorprocedures,as applicable,to resolve such issues in a fair and equitablefashion. 3.Design and Construction Management.The Participating Utilities agree tocontractwithGVEAtodesignandconstructtheHealy-Fairbanks power transmission intertie andagreetocontractwithCEAtodesignandconstructtheAnchorage-Kenai Peninsula powertransmissionintertie,subject to the availability of adequate financing and in accordance withPrudentUtilityPracticesandconstructionagreementswhichcontainprovisionsforadequateoversighttomaintainqualityandcostcontrol,and to ensure that total project costs do not exceed amounts budgeted by the Participants'Group and its Participating Utility members. Consistent with the above conditions,it is agreed and understood that GVEA andCEA,as contractors,will be free to subcoritract all or any portion of the work associated with thedesignandconstructionoftheaboveprojects.If,for any reason,GVEA and/or CEA elect not toactasthecontractorsoftheinterties,the Participating Utilities may contract for construction withoneormoreoftheotherParticipatingUtilitiesorAdditionalParties. 6.Intertie Participants Group.As common owners of the interties,theParticipatingUtilitiesagreetoformtheIntertieParticipantsGroup(IPG)for the purpose ofexercisingtheirrightsandresponsibilitiesasowners.Each Participating Utility shall berepresentedontheIPG,and the IPG shall form a technical advisory subcommittee on which eachParticipatingUtilityshallberepresented,except that MEA and HEA shall be represented on theIPGandanysubcommittees,each of which shall be a voting member,and AEG&T shall not beadditionallyrepresented.The Participation Agreement shall resolve and adopt voting rights andproceduralrulesfortheoperationoftheIPG. Total project cost and financing shall be addressed in the Participation Agreement.Intertie design,construction,construction management,and operation and maintenance,amongotherissues,shall be resolved by the IPG in accordance with its mules and procedures. Relative to design and construction issues,the IPG and its technical advisorysubcommitteeshallberesponsibleforoversightofGVEAandCEAconstructionefforts.Such INTERTIE GRANT AGREEMENT Page 2 oversight shall include approval of at least project scope (including routing and points ofinterconnection),cost estimates and budget,approval of construction agreements,significant change orders,receipt and review of at least monthly reports,and auditing of design and construction funds.Neither the IPG nor any individual Participating Utility shall attempt to make claims against GVEA and CEA for any decisions made by the IPG. Upon completion and commercial operation of the interties,the IPG shall beresponsibleforalldecisionsrelatingtotheongoingoperations,maintenance,repair,andimprovementoftheinterties. 7.Transfer of Grant Funds.DOA hereby transfers the grant funds of $43,200,000 to GVEA and $46,800,000 to CEA to be held by Alaska Industrial Development & Export Authority (AIDEA).GVEA and CEA agree that such funds shall be held by AIDEA for the benefit of all Participating Utilities,with instructions to AIDEA that no funds are to be released, encumbered,assigned,or pledged until a Participation Agreement and a Grant AdministrationAgreement,each in a form satisfactory to AIDEA,have been executed by all of the Participating Utilities and,as applicable,the Authority.Pursuant to AS 44.88.190(b),grant funds held by AIDEA and all interest earned thereon shall not be or constitute monies of the State.The Participating Utilities agree to negotiate in good faith with the intent of executing a ParticipationAgreementbyNovember30,1993.The Participating Utilities and the Authority agree to negotiateingoodfaithwiththeintentofexecutingaGrantAdministrationAgreementbyNovember30,1993.In the event that the Healy-Fairbanks intertie is not,for any reason,constructed,GVEAagreesthatAIDEAshallreturnanyunexpendedfundsandanyinterestearnedthereontoDOA.IntheeventthattheAnchorage-Kenai Peninsula intertie is not,for any reason,constructed,CEA agrees that AIDEA shall return any unexpended funds and any interest earned thereon to DOA.No Participating Utility shall unreasonably delay progress toward completion of the interties. 8.Use of Funds.The parties agree to use funds describedin paragraph 7solelyforthepurposesofdesignandconstructionoftheHealy-Fairbanks and Anchorage-KenaiPeninsulainterties,including all acts necessary for completion of these projects.The partiesfurtheragreetoreturntotheStateanyunexpendedgrantfundsandanyinteresteamedthereonnotneededforthispurpose. IN WITNESS WHEREOF,the parties have caused this Agreement to be executed on the date first above written. STATE PARTIES: STATE OF ALASKA,DEPARTMENT OF AD STRATION fo By:ogi Aeatace_ ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY ADMINIS TIONBy:Whee 9?29 af INTERTIE GRANT AGREEMENT Page 3 INTERTIE GRANT AGREEMENT Page 4 ADDITIONAL PARTIES: MATANUSKA ELE RIC ASSOCIATION,INC. By:; V q Cc HOMER ELECTRIC ASSOCIATION,INC. GLtfheLe PARTICIPATING UTILITIES: GOLDEN VALLEY ELECTRIC ASSOCIATION, .ch.zatFAIRBANKSMUNICIPALUTILITIESLe CHUG LJ ASSOCIATION,INC. o Leer:iheAttachment 1 ss INTERTIE GRANT AGREEMENT Page 5 ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC. py:BOOZ Sefer MUNICIPALITY OF ANCHORAGE d/b/a ANCHORAGE MUNICIPAL LIGHT & POWER »Vn Fi Attachment 1 INTERTIE OWNERSHIP INTERESTS. Golden Valley Electric Association,Inc.15.41% Fairbanks Municipal Utilities System 4.70% Anchorage Municipal Light and Power 22.43% Chugach Electric Association,Inc.30.23% Alaska Electric Generation &Transmission Cooperative,Inc.25.79% Matanuska Electric Association,Inc.14.19% Homer Electric Association,Inc.11.60% City of Seward 1.44% TOTAL 100.00% NOTE:The above percentage ownership .interests are subject torecomputationintheParticipationAgreementutilizingconsistentsystempeakdataandmethodologyunlesstheParticipatingUtilitiesagreetoadifferentallocationofspecificprojectcapacity(Section 3ofthisAgreement). INTERTIE GRANT AGREEMENT Page 6 Grant Transfer and Delegation Agreement ve GRANT TRANSFER AND DELEGATION AGREEMENT I.RECITALS 1.1 The legislature appropriated the sum of $43,200,000 to Golden Valley Electric Association for the purpose of constructing a power transmission intertie between Healy and Fairbanks to benefit all utilities participating in the intertie.The appropriation is to be administered as a designated grant under AS 37.05.316.The appropriation named the Department of Administration as the grantor agency. 1.2 The legislature appropriated the sum of $46,800,000 to Chugach Electric Association for the purpose of constructing a power transmission intertie between Anchorage and the Kenai Peninsula to benefit all utilities participating in the intertie. The appropriation is to be administered as a designated grant under AS 37.05.316.The appropriation named the Department of Administration as the grantor agency. 1.3 The grant appropriations contain conditions which must be satisfied before the grants can be made.The grant appropriation requires that these conditions be established in an agreement executed by and between the Department,AIDEA and the participating utilities. 1.4 The designated grant recipients and the participating - utilities have executed an Intertie Grant Agreement which,among other matters,addresses the statutory preconditions.The department and AIDEA have determined that the Intertie Grant Agreement substantially satisfies the statutory preconditions. 1.5 Upon execution of the Intertie Grant Agreement by the Department and AIDEA,the Department is legally authorized to make the grants to the designated grant recipients. 1.6 In accordance with the Department's grant administration responsibilities,the Department determines that it is essential to establish terms and conditions with respect to the obligation or expenditure of grant funds.The Department further determines that the Authority possesses the expertise necessary to establish and administer appropriate terms and conditions with respect to administration of the grants. 1.7 The department and 'the participating utilities have determined that the purpose of the grant appropriations and the intent of the legislature can best be accomplished if AIDEA is designated as the custodian for the full amount appropriated. AIDEA will provide for custody and administration of the grant appropriation. 1.8 The department has the authority to make this agreement under AS 37.05.316,AS 37.05.170,among other provisions of law. AIDEA has the authority to make this agreement under AS - 44,.88.080(9),(11),and (17),among other provisions of law. II.AGREEMENT In consideration of the promises set out below,the parties agree as follows: 2.1 The Department and AIDEA hereby agree to execute the Intertie Grant Agreement. 2.2 Upon execution of the Intertie Grant Agreement by all Participating Utilities,the Department and the Authority,and subject to the limitations and conditions described herein,the grants authorized in sec.1 and 2 of ch.19 SLA 1993 are hereby made,respectively,to Golden Valley Electric Association and to Chugach Electric Association for the benefit of the Participating Utilities. 2.3 AIDEA is delegated all powers and duties of the Department of Administration associated with the administration of the grant appropriations made in secs.1 and 2 of ch.19 SLA 1993. 2.4 The AIDEA shall exercise the delegation granted by this agreement according to all statutes and regulations applicable to the administration of grants to named recipients under AS 37.05.316 by the Department of Administration.In addition,no grant funds may be disbursed until the Authority and the Participating Utilities enter into a Grant Administration Agreement which - addresses,among other matters: (a)a disbursement schedule which establishes ceilings, subject to upward adjustment by the Authority for phases of Project development; (b)the reimbursement of unobligated or unexpended grant funds to the extent development of an intertie project is unreasonably delayed by the Participating Utilities; (c)the submittal of a Participation Agreement among the Participating Utilities; (ad)a determination by the Participating Utilities of which,if any,of the contractual obligations relating to the grant(s)will be submitted to the Alaska Public Utilities Commission;and (e)a schedule which limits the expenditure of grant funds until the participating utilities have demonstrated the ability to raise all additional amounts needed to complete construction of the intertie(s). > 2.5 The Participating Utilities hereby request that AIDEA agree to serve as custodian on behalf of the recipients of the grant appropriations made in secs.1 and 2,ch.19 SLA 1993.As custcdian,AIDEA will,on behalf of the grant recipients,hold the sums appropriated.AIDEA may designate an institutional trustee to accomplish this purpose. 2.6 Pursuant to AS 44.88.190(b),the grant funds held by AIDEA and any interest or other income thereon shall not be or constitute money of the State.However,amounts held in custody under this agreement will be invested consistent with the principles set out in AS 37.10.071.AIDEA will consult with the grant recipients before adopting an investment strategy for the amount in custody. 2.7 Interest earned from investment of the amount in custody will be retained by AIDEA,kept separate from all other funds and accounts of AIDEA and expended for the purposes of the grants, expended for the costs of any custodial arrangements with a private financial institution or,if the purpose of a grant cannot be accomplished,returned to the state treasury. The parties set out below execute this agreement on this _5th day of November ,1993 in Anchorage,Alaska. Department of Administration AIDEA .; ae os : ,\';eg Nancy Bedr Usera,Commissioner Riley Snell . Executive Director Chugach Electric Association Golden Valley Electric ll AssociationSG-AMatanuskaAssociationHomerofNg,associaion;bhé,'Lars Municipal Light &Power Alaska ElectricLob toy & 1993 Alaska Intertie Project Participants Agreement COPY mee oe 1993 ALASKA INTERTIE PROJECT PARTICIPANTS AGREEMENT by and among ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC., The MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER, CHUGACH ELECTRIC ASSOCIATION,INC., The MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM, -GOLDEN VALLEY ELECTRIC ASSOCIATION,INC., The CITY OF SEWARD d/b/a/SEWARD ELECTRIC SYSTEM, ("Participants") and HOMER ELECTRIC ASSOCIATION,INC., MATANUSKA ELECTRIC ASSOCIATION,INC., ("Additional Parties") Sanvuney &Z 1G OY eeetoeFoneceemnentas r= IndexofSections Section Page Recitals .......ceccssccsssccssessceeceesscencessesecececseeecsnseaeesessedsesesesonsessseseseeeenensesesresssessrenseeaeeeseeeeaseeeooes 1 Section 1.Parties .....ccscscsesssssscscessescseccecoesessseesnssecssssaecesesseseessensesssssesenssscssesestesesecsaeeeeensenes 1 Section 2.Term of Agreement .u........cccccssesscecesssneceeceesnsessseceecossessestensresseessenecnseseessaearseeeseeeees 2 Section 3.Definition and Scope of the Project ........eecessccsssesscesssesseseseeeseeseeessenesseseaseseneeensesees 2 Section 4.The Participants .0........cccccscsscessccecencceeceessececsesecssesssesessseseacesecssssseaseascaeeessaneseneseees 3 Section 5.Rights &Obligations of Participants ...........ccccssecsssesecssessseseessecseesseereesseeeseessesenensaes 7 Section 6.Decision Making by the Participants .........seesssessssssssssecseesessecsesssseeenssenseessenseeesonses 8 Section 7.Construction Matters ........"ecensessteesacecescessceceeeesaeseeseesesseeseeeesseacesseeesessenseeeseeeseesee®13 Section 8.Construction Financing .0........cccccscscssesscscescceceseesccessecacseseeeeseeesecsssscsesseseeeeeeasnnseaees 15 Section 9.Operation &Maintenance;Related Matters ...........ccssssseccseccecceerscesseseeceseeeeessersensees 18 Section 10.Project Costs &Cost ReCOVery .o....cccccsssccssceceseecesescceeseseesessssscsssseaeenseeseensesneseeees 18 Section 11.Use of Project Capacity ...........ccccccssssssesscesssecsescceeccseeetsecsscescesssseesecsseeecesseeersaneeees 22 JAdhr\15289-00.005\Pan09cl.doc Section 12.Miscellaneous Provisions.............-.sssccsssescsssssscccesssssscessncsceeceescescsscseceececeeasecenceeeeeos 24 Section 13.Definitions 0...eeeeeeeeeeeeeeeeLevseeseesesessconecssesessseseasossescestenessessenssesesssseeseeneenees 28 Section 14.Defaults and Remedies ooo.eeessscsscscceccccsuccessecescecseeecsssssssceesseessssssssegeseeeeesees 32 JAdhrAT$289-00.005\Part09cl.doc PARTICIPANTS AGREEMENT THIS AGREEMENT ("Agreement")dated as of December__,1993,is entered into by and among the Parties hereto,namely the ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC.,The MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER,the CHUGACH ELECTRIC ASSOCIATION,INC.,The MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM, the GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.,The CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM,each of which shall be a "Participant,"and the HOMER ELECTRIC ASSOCIATION,INC.,and the MATANUSKA ELECTRIC ASSOCIATION,INC., each of which shall be an "Additional Party." ) WITNESSETH: WHEREAS,the State of Alaska ("State")has by statute authorized,and has partially funded,the design and construction of two segments of high voltage electric power transmission line,namely (1)a Healy-Fairbanks Segment,and (2)an Anchorage-Kenai Peninsula Segment (said two Segments referred to collectively as "the Project");and WHEREAS,the State's action is intended to benefit the general public through greater electric power reliability and improved efficiency of electric power supply for consumers served by electric utilities that agree,collectively,to provide the remaining funds needed to design,con- struct,operate and maintain the Project;and WHEREAS,each Party hereto is an electric utility or operates as an electric utility,and is entitled under the relevant State statutes to be a party to this and other contractual agreements that are necessary to the Project;and WHEREAS,each Party hereto has already executed the Intertie Grant Agreement ("Grant Agreement")and Grant Transfer And Delegation Agreement for the Project,which are attached to this Agreement as Exhibits A(1)and A(2);and WHEREAS,each Party has independently determined that its participation in the Project under the terms and conditions set forth in this and related Agreements is prudent under the circumstances,and that over its expected useful life the Project is likely to produce net economic benefits (directly and through improved reliability)for the electric ratepayers served by that Party; NOW THEREFORE,IN CONSIDERATION of the mutual covenants set forth herein,the Parties agree as follows: Section 1.PARTIES (a)Participants And Additional Parties As Parties To This Agreement.The Parties to this Agreement are the Participants,as defined in Section 1(b),and the Additional Parties,as defined in Section l(c).As further set forth in Section 5(a)and in other provisions of this Agreement,the Participants will own (as tenants in common)certain transmission facilities that PARTICIPANTS AGREEMENT --Page 1 ee are the subject of this Agreement,and will exercise the rights and bear the responsibilities of such ownership.The Additional Parties are electric utilities who collectively constitute Alaska Electric Generation and Transmission Cooperative,Inc.,one of the Participants,and whose systems will be electrically interconnected with,and will affect and be affected by,the transmission facilities that.are the subject of this Agreement.The Additional Parties will participate in the governance and control of the Project,but will not be among the owners of such facilities. (b)Participants.The Participants are the ALASKA ELECTRIC GENERATION & TRANSMISSION COOPERATIVE,INC.("AEG&T"),The MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER ("ML&P"),the CHUGACH ELECTRIC ASSOCIATION,INC.("Chugach"),The MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM ("FMUS"),the GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.("GVEA"),and The CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM ("SES"). (c)Additional Parties.The Additional Parties are the HOMER ELECTRIC ASSOCI- ATION,INC.("HEA")and the MATANUSKA ELECTRIC ASSOCIATION,INC.,("MEA"). Section 2,TERM OF AGREEMENT (a)Effective Date.This Agreement shall become effective at 24:00 hours on the first date that it has been executed by all of the Parties ("Effective Date"). (b)Expiration Date.Unless earlier terminated pursuant to other provisions of this Agreement,this Agreement shall expire at 24:00 hours on the first date that the Project has reached the end of its actual useful life ("Expiration Date"),as reasonably determined by the Intertie Participants Group ("IPG"). Section 3.DEFINITION AND SCOPE OF THE PROJECT (a)The Healy-Fairbanks Segment.The Healy-Fairbanks Segment of the Project shall consist of a 138-kV (minimum)electric power transmission line between Healy,Alaska,and the proposed Wilson Substation in south Fairbanks,Alaska,the routing and design of which will be approved by the IPG,and a description of which will thereafter be attached hereto as Exhibit B and incorporated by reference herein.The proposed Wilson Substation shall be designed to accommodate appropriate direct interconnection for FMUS,and FMUS shall interconnect to the Project at that location within 18 months of the Date of Commercial Operation of the Healy- Fairbanks Segment. (b)The Anchorage-Kenai Peninsula Segment.The Anchorage-Kenai Peninsula Segment of the Project shall consist of a 138-kV (minimum)electric power transmission line between Anchorage,Alaska,and the Kenai Peninsula of Alaska,the routing and design of which will be approved by the IPG,and a description of which will thereafter be attached hereto as Exhibit C and incorporated by reference herein. PARTICIPANTS AGREEMENT --Page 2 Section 4.THE PARTICIPANTS (a)Participants'Shares.Each Participant's rights to Project capacity,and each Partici- pant's responsibility for Project costs,shall be determined as set forth in this Agreement on the basis of that Participant's Share of each Project Segment.The Parties have computed and agreed upon the respective individual Participants'Shares in a manner consistent with applicable statutory provisions.Unless otherwise changed in accordance with this Agreement,each Participant's Share with respect to both Segments shall initially be as follows: BEGET ooo.cecccccessseeessseees 25.79% of which: HEA...ceecceeeceeeeeee 11.60% MEA0...cceecccceeeteeeee 14.19% ML&P oo eeccessseeeeeeeees 22.43% Chugach...eeeceeesees 30.23% FMUS oo..eececcecccescesscecssecscaceenes 4.70% GVEA oo ccceccccccssecesseeesseeceseee 15.41% SS SAS 1.44% (b)Changes In Participants'Shares.Except as otherwise specifically provided herein, changes in Participants'Shares shall be subject to the terms and conditions set forth in this Section 4(b).If either or both Additional Parties change their Shares independently of one another,then the Share of AEG&T shall be divided into separate Shares of HEA and MEA in accordance with their interests in each Segment of the Project as applicable at the time of such division.In the event of such division and for the purposes of this Section 4(b),the Additional Parties shall be deemed Participants. (1)General Conditions. (A)Except as provided in Sections 4(b)(3),4(b)(4),and 4(b)(6),no Participant's Share or any portion thereof shall be assigned or transferred, voluntarily or involuntarily,to any entity,unless said entity: (i)is capable of being a "participating electric utility"for purposes of Sections 1 and 2 of chapter 19 SLA 1993,which authorize and partially fund the Project;and , (ii)is capable of carrying out all the electric utility services,duties,- obligations,and functions of a Participant,as reasonably determined by the IPG; (iii)has validly assumed,in writing,all of the transferring Participant's obligations hereunder,provided that such assignment or transfer shall not relieve the transferring Participant of its obligations under this Agreement (although said transferring Participant may become PARTICIPANTS AGREEMENT --Page 3 secondarily liable and the transferee may become primanlly liable)without the express written approval of the IPG;and (iv)has provided the Parties with an opinion of counsel that this Agreement is enforceable against the transferee or assignee. (2)Consent.Except as provided in sections 4(b)(3)and 4(b)(4),no Participant's Share shall be changed (i.e.,increased or decreased,including eliminated or reduced to zero),either voluntarily or involuntarily,by assignment or otherwise,except with the prior written consent of: (A)each and every Participant,which consent shall not be unreasonably withheld; (B)any Project lender,bondholder,bond fund trustee,or other party whose consent is a precondition to any such a change by that Participant as a result of agreements or arrangements entered into by that Participant for the purpose of financing the Project;and (C)if applicable,any lender or regulatory agency whose consent the Participant(s)may require in order to increase,decrease,or eliminate its (their) respective Participant's Share(s). (3)Limited automatic rights of withdrawal. (A)Generally.Each Participant other than GVEA and FMUS shall have a limited automatic right of withdrawal from participation in the Healy-Fairbanks Segment,and each Participant (including GVEA and FMUS)shall be entitled to withdraw from participation in the Anchorage-Kenai Peninsula Segment,but,in each case,only in accordance with the provisions of this Section 4(b)(3). (B)Timing.A Participant that withdraws from participation in either Segment may do so only by delivering written notice to the other Participants on or before a particular date (hereinafter the "decision date")reasonably established by the IPG.The decision date shall be a date certain,after completion of the requisite Anchorage-Kenai Peninsula Segment route studies and cost estimates,on which a final decision will be made to proceed or not to proceed with constructionofthatSegmentalongaparticularrouteandwithparticularendpoints.The Participants will cooperate with one another in good faith to help devise and implement such additional procedures,including reasonable meeting and notification schedules,as the IPG may adopt to facilitate decisionmaking on the potential transfers and assumptions of rights and obligations among Participants that may occur pursuant to this Section 4(b)(3). (C)Effect _of withdrawal on Participant Shares and_related obligations.The Participant's Share of any withdrawing Participant shall be PARTICIPANTS AGREEMENT --Page 4 reallocated among other Participants in accordance with paragraph (D)below. The withdrawal of any Participant from the Healy-Fairbanks Segment,however, shall become effective only one year after the Date of Commercial Operation of that Segment,or,if later,one year after the date of that Participant's withdrawal notice.Until its withdrawal becomes effective,such Participant shall remain liable for all costs and obligations associated with its Participant's Share of the Healy- Fairbanks Segment.The withdrawal of any Participant from the Anchorage-Kenai Peninsula Segment shall become effective sixty (60)days after the decision date, subject to the last sentence of Section 4(b)(3)(D)(ii). (D)Reallocation of the Participant's Share of a withdrawing Participant. (i)Healy-Fairbanks Segment.The Participant's Share of a Participant that withdraws from the Healy-Fairbanks Segment shall first be offered to other Participants in that Segment in proportion to the respective Participant's Shares of such other Participants in that Segment.Any por- tion of the withdrawing Participant's Share that remains available after this first-round offer shall next be accepted by FMUS and GVEA in proportion to their respective Participant's Shares,provided,that FMUS shall not be required to accept said portion to the extent FMUS's total Participant's Share of the Healy-Fairbanks Segment would thereby exceed 15%.If any portion of the withdrawing Participant's Share remains available after this second-round offer,then that portion shall be accepted by GVEA. (ii)Anchorage-Kenai Peninsula Segment.The Participant's Share of a Participant that withdraws from the Anchorage-Kenai Peninsula Segment shall first be offered to all remaining Participants in that Segment, in proportion to their respective Shares in that Segment.Any portion of the withdrawing Participant's Share that remains available after this first- round offer shall next be offered to all Participants in that Segment that have committed to withdraw from the Healy-Fairbanks Segment ("South- only Participants").If and to the extent that the South-only Participants decline to accept this second-round offer,then the withdrawing Participant's Share (or any remaining portion thereof)shall again be offered to all remaining Participants in that Segment (including the South-only Participants)in proportion to the respective Participant's Shares of such Participants in that Segment.Each such Participant shall either accept such third-round offer,obtain agreement from another Participant to accept such third-round offer,or shall itself withdraw from participation in that Segment.In the event this process leads one.or more additional Participants to withdraw from participation in that Segment,then their Participant's Shares shall be offered to the remaining Participants in a like first-round,second-round,and third-round manner.If,at the conclusion of this process,one or more Participants have accepted Participant's Shares in the Anchorage-Kenai Peninsula Segment that total one hundred percent PARTICIPANTS AGREEMENT --Page 5 woe (100%),then construction of the Segment shall commence and there shall be no further automatic rights of withdrawal available to any Participant; otherwise this Project Segment shall be considered Abandoned and all Participants in it (notwithstanding the attempted withdrawal of any of them under this paragraph)shall proceed,in accordance with procedures the IPG shall adopt,to wind up this Project Segment.No Participant shall in that event be excused from its Participant's Share of any obligations associated with this Project Segment until all such obligations have been satisfied. (E)Financial arrangements with a Participant that withdraws from participation in the Healy-Fairbanks Segment.Upon acceptance of a transfer and assumption by one or more other Participants of the rights and obligations associated with the Participant's Share of a Participant that withdraws from participation in the Healy-Fairbanks Segment,and after such withdrawal becomes effective pursuant to Section 4(b)(3)(C),the Participant(s)assuming such rights and obligations shall proceed to pay the withdrawing Participant's Annual Payment Obligations and Assessments for that Project Segment.Such payment shall include any then-unamortized amounts of the transferring Participant's Share of such Design and Construction Costs as may exceed the sum total of the Grant Funds plus available interest thereon for that Segment.In the event that the withdrawing Participant's Share of Design and Construction Costs for that Segment has not been financed through a collective financing arrangement,then the Participant(s)assuming such Share shall pay the withdrawing Participant directly,over a period of twenty-five (25)years (unless otherwise agreed)and ona mutually-agreed amortization schedule,for amounts that would at that time be unamortized,assuming said withdrawing Participant's Share had been financed by means of a collective financing arrangement or other loan. * (F)In the event a Participant exercises the limited nght of withdrawal pursuant to Section 4(b)(3),then each remaining Participant shall continue to be a Member with a single vote,notwithstanding its assumption of the transferring Participant's Share,but the Share of said remaining Participant shall be increased by the amount transferred for all other purposes,including for purposes of determining the affirmative vote of Members whose percentage Shares exceed 50%under Section 6(e)(3)(a). (4)Default and Step-up.If,by reason of a Participant's default or otherwise byoperationoflaw(includingby order of any regulatory body with jurisdiction),aParticipant's Share is reduced or eliminated,or a Participant ceases to be a Participant and ceases to pay the costs associated with its Participant's Share,then the Shares of the remaining Participants shall be proportionately increased so that the total of all Shares continues to equal 100%.No Party shall initiate or otherwise seek such an order reducing or eliminating its Share or terminating its role as a Participant. (5)Voluntary Transfers.In the event that a Participant transfers or assigns its Share or portion thereof to another Party,the Share of the transferee shall be increased PARTICIPANTS AGREEMENT --Page 6 accordingly,but it shall continue to be a Member with a single vote on the IPG.In the event that a Participant transfers or assigns its Share or portion thereof to an entity that is not a Party,the transferee may become a Member with a single vote on the IPG. (6)Assignment for Security Purposes.Nothing in this Agreement shall prevent an assignment of a Party's rights hereunder for security purposes only,or shall prevent a financing entity with recorded or secured rights from exercising all rights and remedies available to it under law or contract,provided that performance of this Agreement is not thereby impaired.The Parties shall have the right to be reasonably notified by the financing entity prior to the time of exercise that it is exercising such rights or remedies. Section 5.RIGHTS &OBLIGATIONS OF PARTICIPANTS (a)Ownership As Tenants In Common.The Participants shall be owners of each Segment of the Project (including all personal and real property interests thereof)as tenants in common,with undivided interests and obligations with respect to all Project Segment assets and abilities in the proportionate amounts of their respective Participants'Shares.Except as ctherwise provided hereunder,the Participants shall share in the Project Segment's benefits, surdens,and risks only in proportion to their respective Participants'Shares,notwithstanding that the IPG may select one or more individual Participants to manage,design,build,finance,operate, and/or maintain the Project Segment or portions thereof on behalf of the Participants collectively. (b)Waivers. (1)Right of partition.Each Participant hereby waives (on behalf of itself and of any assignee or transferee of all or any portion of its respective Participant's Share)any right or power that a tenant in eommon might otherwise possess to compel a partition of the Project or any element thereof as commonly held property;provided,that this provision shall not prevent the Additional Parties or any other Parties from seeking to divide AEG&T's Participant's Share into two Participant's Shares in proportion to the actual interests of said Additional Parties applicable at that time. (2)Claims against other Parties.Each Party shall be entitled to enforce this Agreement;provided,that no Party shall be entitled,without the prior approval of the IPG,to.assert claims against a Participant based on or arising out of that Participant's acts or omissions as a Construction Manager or an O&M Manager. (c)Payment Obligations.Each Participant shall (1)meet in timely fashion each and all of its obligations under this Agreement,including without limitation its obligations to make payments of money for or with respect to the Project,and (2)make such payments of money in such amount,in such manner,and at such time as may be required by this Agreement,or by operation oflaw. (dc)Rights And Duties Regarding Use Of Party's Facilities. PARTICIPANTS AGREEMENT --Page 7 (1)Duty of Parties to allow use of their own transmission capacity.Each Party shall make available to the other Parties,on a just and reasonable and nondiscrimi- natory basis,and in the manner and subject to the conditions set forth in this Section 5(d), capacity in that Party's own non-Project electric power transmission facilities for the purpose of affording the Participants access to/from the Project in order that each may make use of the Project. (2)Initial terms and conditions governing Chugach facilities.Subject to approval by the Alaska Public Utilities Commission ("Commission"),the use of Chugach's facilities for access to/from the Anchorage-Kenai Peninsula Segment by other Parties shall be governed initially by the terms and conditions,including rates,described-in Exhibit D(1),attached hereto and incorporated by this reference herein.Chugach shall submit said terms and conditions to the Commission for review and shall seek approval thereof. (3)Terms and conditions governing GVEA facilities.The terms and conditions governing use of GVEA facilities are set forth in Exhibit D(2),attached hereto and incorporated by this reference herein. (4)Other terms and conditions.When appropriate to effect the duty set forth in Section 5(d)(1)under circumstances other than those described in Sections 5(d)(2)and 5(d)(3),the Parties shall promptly negotiate in good faithin an effort to reach agreement on reasonable terms and conditions,including rates,that will apply when a particular Party provides to Participants access to/from either Project Segment over its non-Project transmission facilities.Any such terms and conditions that become:effective shall be set forth in Exhibit D,and shall be attached hereto and incorporated by reference herein during such time as they remain effective. (5)Submission of terms and conditions to the Commission.If,despite the good faith negotiation efforts of the Parties,agreement is not reached on the terms and conditions governing the Participants'use of any particular Party's non-Project transmis- sion facilities,then that Party shall submit to the Commission for review and approval the terms and conditions,including rates,which that Party proposes with respect to its facilities. (6)Additions to Exhibit D.Any terms and conditions,including rates,that ultimately become effective through order of the Commission or of a reviewing court shall be set forthin Exhibit D,and shall be attached hereto and incorporated by reference hereinduringsuchtimeastheyremaineffective. Section 6.DECISION MAKING BY THE PARTICIPANTS (a)Nature of the IPG. (1)Each Participant or Additional Party,as the case may be,shall exercise certain of its rights and carry out certain of its responsibilities with respect to the design,planning, construction,operation,management and,as appropmiate,partial funding of the Project by PARTICIPANTS AGREEMENT --Page 8 acting through the IPG in accordance with this Agreement or with rules adopted by the IPG pursuant to this Agreement.When used in this Agreement,the term "IPG"refers to the Participants and Additional Parties acting collectively as set forth herein.Nothing in this Agreement is intended to establish the IPG as a separate entity,nor do the Parties intend to delegate any authority or confer any powers or impose any obligations on the IPG,apart from the authority,powers and obligations of each Participant and Additional Party expressly conferred pursuant to this Agreement.The IPG shall have no power or authority to take actions which modify,directly or indirectly,the terms and conditions of this Agreement. (2)The IPG,in making certain decisions and carrying out certain Project activities with respect to the ownership and management of the Project,shall at all times act in accordance with voting procedures and rules set forth in or adopted pursuant to this Agreement. (b)Membership.The IPG shall consist of the following initial members ("Members"), each of which shall be entitled to one vote as further set forth herein:ML&P,Chugach,FMUS, GVEA,SES,HEA,and MEA.No Member shall obtain an additional vote through merger with, acquisition of,or assignment from any other Member.In the event a Party ceases to have a Share,either directly or,in the case of an Additional Party,indirectly,then said Party shall cease to be a Member.° (c)Designation of representatives.Each Member shall designate one representative and one alternative representative to the IPG.Each Member shall notify all other Members in writing of the names,addresses,and telephone numbers of its representative and designated alter- nate.Any Member may change its designated representative or alternate representative at any time and shall promptly provide written notice of such change to the Members.The alternative representative shall serve as the designated representative in the absence of the designated repre- sentative., (d)Meetings. (1)Annual Meeting.The annual meeting of the IPG shall be the first regular meeting of each Project Year,and shall be convened for the purpose of electing officers and transacting such other business as may come before the meeting. (2)Regular Meetings.Regular meetings shall be held at least quarterly,with the specific date and time to be determined by the IPG. (3)Special Meetings.Special meetings of the IPG may be called by the Chairman or by three Members at any time by so advising the Secretary of the IPG.Business at a special meeting of the IPG shall be limited to the purpose stated in the notice of such special meeting. (4)Quorum.At all meetings of the IPG,the presence of the representatives of any five Members shall constitute a quorum for the transaction of business. PARTICIPANTS AGREEMENT --Page 9 (e)Manner of Acting. (1)IPG actions may be taken by any reasonable voting method,provided that any Member may request an open roll call vote.A Member may not vote on a matter solely or primarily affecting a Segment of which said Member does not hold a Share,either directly or,in the case of an Additional Party,indirectly.Telephonic participation shall constitute presence at a meeting of the IPG.All actions taken via teleconferencing shall be taken by roll call vate. (2)Except as otherwise provided herein,all actions of-the IPG that are decided by vote shall require a majority vote of the Members,such vote to be taken during a meeting at a time when a quorum is present. (3)The actions listed in this Section 6(e)(3)shall require (a)the affirmative vote of a majority of the Members,and (b)the affirmative vote of those Members whose Participant's Shares of Project capacity total greater than 50%("double majority"),but only if at least three Members are eligible to vote on such actions.Otherwise the actions listed in this Section 6(e)(3) shall require the affirmative vote of those Members whose Participant's Shares total greater than 50%,and shall be made in good faith and consistent with Prudent Utility Practice for the benefit of both Segment Participants. (A)Approval and modification of Construction Budget. (B)For each Project Segment,selection,removal,or replacement of the Construction Manager and the O&M Manager,subject to the requirements of Sections 7 and 9,and approval of terms and conditions of the Construction and O&M Agreements. (C)Adoption and modification of the budget of Annual Project Costs. (D)Establishing for each Project Year the estimated Annual Payment Ob- ligation of each Participant,together with a schedule for each Participant of payments that such Participant shall be required to make during the year. (E)Determination after the conclusion of each Project Year of the actual Annual Project Costs for that Year. (F)Evaluation of necessity for and scheduling for major change orders, Required Project Work and Optional Project Work;provided,that Optional Project Work may be undertaken only if all Parties agree that said Work is consistent with the terms of this Agreement,including Section 6(a)hereof. (G)Determination of the appropriate amount of and method for obtaining insurance for or related to the Project. (H)Creation of specific Project accounts or funds,if any,and deter- mination of minimum funding amounts for the same. PARTICIPANTS AGREEMENT --Page 10 (I)Adoption or amendments of procedural rules of the IPG (except for procedures for dispute resolution,which shall be adopted or amended by unanimous agreement). (J)Final approval of maintenance schedules,breaker settings,and similar protocols for each Segment (to be proposed to the IPG in the first instance by the O&M Managers). (K)Determination of when the Project has reached the end of its actual useful life. (L)Determination of whether claims may be asserted against any Party providing Project services under a related agreement. (M)Adoption of procedures for Assessments pursuant to Section 10(e)(2). (N)Approval of material routing and design decisions for each Project Segment.The IPG shall select among potential alternative routings and end points for the Project Segments reasonably and in good faith in order to (1)satisfy such reasonable objectives for electric reliability,transfer capability,safety,feasibility, environmental quality,and similar objectives as the IPG may adopt for the Project consistent with Prudent Utility Practice,at (2)the lowest reasonably expected Project cost;provided,that the northern terminus of the Healy-Fairbanks Segment shall be located at the proposed Wilson substation and designed to accommodate direct interconnection by FMUS unless FMUS expressly and in writing approves a different location or design. (O)Relief of a Participant of its obligations pursuant to this Agreement as a consequence of assignment or transfer. (P)Adoption of standards and procedures pursuant to which a Party may be compensated by the others for any reasonable cost,expense,or loss (or portion thereof)that (i)such Party would not have incurred but for the Project,and (it) should properly be considered a cost of the Project. (Q)All other matters that this Agreement would otherwise allow to bedecidedbyasimplemajorityoftheMembers,but that the IPG decides,by double majority vote,should require the affirmative vote of a double majority. (4)All significant actions or determinations of the IPG shall be reduced to writing and promptly disseminated among the Participants in the form of meeting minutes or IPG Resolutions,provided that failure to comply strictly with this provision shall not by itself render said action or determination invalid. PARTICIPANTS AGREEMENT --Page 11 eed (5)Decisions on which only two Members are eligible to vote shall be subject to notice and opportunity to comment by the minority Participant,and to appeal to the Commission for consistency with good faith and Prudent Utility Practice for the benefit of both Segment Participants. (f)Committees. (1)Designation.The IPG may appoint committees from time to time,subject to such conditions as may be prescribed by the PG.The designation of any such commit- tee shall not relieve the IPG or any Member of any responsibility by law or the Agreement. (2)Powers.Any delegation of decisionmaking authority by the IPG to any committee,officer,or other individual shall be evidenced in writing. (g)Officers. (1)Number.The officers of the IPG shall initially consist of a Chairman,a Vice Chairman,a Secretary,and a Treasurer,who shall serve at the pleasure of the IPG.The IPG may reduce the number of its officers and may elect such other officers and agents as it shall deem necessary,who shall hold office for such terms and shall exercise such powers and perform such duties consistent with this Agreement as shall be determined from time to time by the IPG.The IPG may,by separate resolution,provide for the indemnification ofits officers,Members,and the members of any special purpose commit-tees appointed by the IPG. (2)Election and Term of Office.Officers shall be elected by the IPG at its annual meeting.Only designated representatives of Members shall be eligible to serve asofficers.Each officer shall hold office until a successor is elected and accepts office unless the officer resigns or is removed by the IPG. (3)Vacancies.In the event any vacancy occurs in any elected office of the IPG, the remaining members of the IPG shall elect a successor to the office at the next regularorspecialmeetingoftheIPG. (h)Auditing Standards and Procedures. (1)Unless otherwise waived by the IPG,an annual audit of each Project Segment shall be performed by qualified independent auditors selected by the IPG.The primary purpose of the audits shall include verification of Project expenses and determination of amounts to be carried forward or collected pursuant to an annual true-up of Project costs. (2)In accordance with rules established by the IPG,the IPG shall (a)keep or cause to be kept complete and accurate records and accounts for each Segment of the Project,which records and accounts shall be subject at reasonable times to inspection by any Participant,and (b)require Construction Managers and O&M Managers to provide PARTICIPANTS AGREEMENT --Page 12 progress reports,transaction records,Project certifications,or other information that the IPG reasonably deems relevant to Project ownership or operation. Section 7.CONSTRUCTION MATTERS (a)Construction Manager.GVEA shall serve as the Construction Manager of the Healy-Fairbanks Segment,and Chugach shall serve as the Construction Manager of the An- chorage-Kenai Peninsula Segment,unless said Managers elect to withdraw or are removed pursuant to Section 7(j).Each Construction Manager shall be responsible for the preparation of its Project Segment's design for approval by the IPG and shall be responsible for the construction of its respective Segment of the Project utilizing Prudent Utility Practices and subject to con- struction budgets approved by the IPG.Each Construction Manager shall be responsible for selecting and supervising any design engineering firms or subcontractors necessary for the suc- cessful completion of construction of its Segment of the Project. (b)Project Schedules/Commercial Operation.Each Construction Manager shall,upon execution of the apposite Construction Agreement,proceed with the design,nght-of-way acquisition,permits,and construction with due diligence and in accordance with Prudent Utility Practice;provided,that detailed design and construction of the Anchorage-Kenai Peninsula Segment shall not commence until after completion of the process described in Section 4(b)(3). Each Construction Manager shall submit a Project schedule to the IPG,and shail use its reasonable best efforts to achieve the scheduled dates of commercial operation,but shall not be responsible for delays which are beyond its reasonable control. (c)Project Budgets/Construction Costs.'Each Construction Manager shall, immediately upon execution of the apposite Construction Agreement,prepare a budget of the total estimated Design and Construction Costs of the Healy-Fairbanks or Anchorage-Kenai Peninsula Segments,as the case may'be,and submit that Construction Budget to the IPG, together with Construction Budgets for the 1994 calendar year,for approval by the IPG, provided,that in the case of the Anchorage-Kenai Peninsula Segment,the first such budget shall be prepared for submission to the IPG only after the Segment's routing and end points have first been selected.Thereafter,no less than one hundred and twenty (120)days before the beginning of each succeeding Construction Year,each Construction Manager shall submit to the IPG for its approval a budget (or,as the case may be,a revised budget)for each succeeding Construction Year.The IPG shall approve a budget or revised budget no less than 60 days before the beginning of each succeeding Construction Year. The Construction Managers shall not without the express approval of the IPG incur costs or obligate funds beyond those amounts contained in an approved budget. The Construction Managers shall not make material intra-budget transfers without the IPG's approval. The Construction Managers shall not be compensated for their services as Construction Managers,except that each Construction Manager may include within the Project budget a reasonable amount for labor (i.e.,compensation,including associated payroll benefits)to the PARTICIPANTS AGREEMENT --Page 13 ed extent directly assigned to the Project by that Construction Manager.Any such costs contained in Project budgets shall be set out in sufficient detail so as to allow the IPG to assess the reasonableness of those costs.The Construction Managers may also include within the Project Budget an amount for its general and administrative overhead,including construction overhead, of 0.5 %of Design and Construction Costs. (d)Advancement of Funds.The IPG shall instruct the administrator under the Grant Administration Agreement ("Grant Administrator")to advance funds to each Construction Manager (1)either upon the submission of progress payment invoices from subcontractors certified as to accuracy by said Construction Manager or direct labor invoices submitted by said Construction Manager showing personnel and hours involved in connection with the Project,or (2)otherwise in accordance with the Grant Administrative Agreement. (e)Change Orders.The Construction Managers may not enter into or agree to major change orders without the prior approval of the IPG.Each Construction Manager may,however, agree to minor change orders without the approval of the IPG;the Construction Manager shall report all such minor change orders in that Construction Manager's next applicable construction report to the IPG.Minor change orders are defined as those changes to the design or construction of the Project which are not expected to affect the Project capacity,general routing, points of interconnection,or basic design of the structures,and which are not expected to exceed $50,000 individually or,in the aggregate,exceed the approved budget for that phase of the design or construction. (f)Separate Books and Records.Each Construction Manager shall maintain separate books and records for the design and construction of its Segment of the Project.Such books and records shall be available to the Participants for their inspection.Copies of such books and re- cords shall be made available to any Participant upon request provided that such ParticipantreimbursestheConstructionManagerforthereasonablecostofreproducingorotherwisemaking available such books and records. (g)Monthly Reports.During construction,each Construction Manager shall submit monthly reports to the IPG setting out in sufficient detail the status of the design and construction of its Segment of the Project so as to allow the IPG to compare the percentage of completion of the Project with total expenditures as a percentage of budgeted amounts.Each Construction Manager shall immediately inform the members of the IPG by fax of any design or construction problems encountered which,in that Construction Manager's opinion,might result in significant future litigation,the request for a major change order,or a significant deviation from the Projectschedule.The IPG may from time to time establish standards and criteria for determining what constitutes "significant"litigation and "major"change orders for purposes of this provision. (h)Audit.The IPG,or any Participant,shall have the right to audit the books and records of each Construction Manager at any time.The costs of such an audit shall be borne by the party requesting the audit unless such audit discloses that the Construction Manager has (1) failed in some significant manner or (2)acted in bad faith,in performing its obligations under the Construction Agreement,in which case the Construction Manager shall pay the reasonable costs of the audit. PARTICIPANTS AGREEMENT --Page 14 (i)Liability of Construction Manager.The Participants are entitled to compel each Construction Manager to disgorge any unjust enrichment gained in connection with its performance under the Construction Agreement.Each Construction Manager shall also be responsible for the consequences of its own intentional or willful misconduct,or of its grossly negligent action in performance of its obligations under the Construction Agreement (including such actions by its officers,employees,or agents);provided,that the Construction Manager shall not be liable (except with other Participants,and to the extent of its Participant's Share of Project liabilities)for: (1)Damages resulting from design or construction decisions presented to and approved by the IPG;and/or (2)The intentional or negligent acts of engineering design firms or subcontractors retained by the Construction Manager,provided that the Construction Manager has madeagood-faith effort to supervise and inspect the activities of such engineering design firmsorsubcontractors,and/or (3)Damages or other costs and expenses resulting from the Construction Manager's ordinary negligence in the performance of its duties as Construction Manager. The Participants shall treat such damages,costs,and expenses as costs of the Project,to be recovered from all Participants in proportion to their Participant's Shares;provided,that the Construction Manager shall remain obligated as a Participant to pay its Participant's Share of any Project costs,including the costs of any indemnification. (j)Removal or Withdrawal,of Construction Manager.The IPG may remove the Construction Manager for reasonable cause,and may replace that Construction Manager with another Party;provided that the IPG gives the Construction Manager at least thirty (30)days' prior notice in writing and reasonable opportunity to cure.All Members of the IPG may participate in the vote for such removal and replacement.The Construction Manager may,for any reason,voluntarily withdraw from its duties as Construction Manager if written notice thereof is tendered no less than 60 days prior to the anticipated date of commencement of construction. After commencement of construction,the Construction Manager may withdraw from said duties only upon reasonable notice (but not less than 90 days)and only for good cause shown.In either event,the Construction Manager shall use its reasonable best efforts to cooperate with the new Construction Manager,and to mitigate any costs arising from the withdrawal and replacement of the Construction Manager. (k)Duty to Negotiate Construction Agreement.The Parties shall negotiate in good faith in an effort to reach agreement on reasonable terms and conditions for,and to enter into,a Construction Agreement containing terms and conditions substantially as set forth in this Section 7. Section 8.CONSTRUCTION FINANCING PARTICIPANTS AGREEMENT --Page 15 (a)Disbursement of Grant Funds.Grant Funds deposited to each Intertie Grant Account established pursuant to the Grant Administration Agreement shall be disbursed and expended for the design and construction of the appropriate Segment of the Project in accordance with the provisions of this Section 8,the Construction Agreement,and the Grant Administration Agreement. (1)The Participants shall exercise overall control over the disbursement of Grant Funds through the IPG,which shall act in accordance with its rules,the Construction Agreement,and the Grant Administration Agreement.Upon approval by the IPG,Grant Funds shall be disbursed for the purpose of undertaking preliminary investigation and design work,including but not limited to environmental and route studies.No Grant Funds shall be disbursed for the actual construction of the Project unless and until the IPG has considered and approved the construction budget and schedule,as provided for in Sections 6 and 7,whereupon the Participants shall cause the appropriate Construction Manager to commence design and construction of its Segment of the Project as set forth in the Construction Agreement. (2)Thereafter,and from time to time until the Date of Commercial Operation,the IPG shall consider and either approve or disapprove (i)any design or construction activities required by the IPG to be approved prior to commencing said activities,(ii)any payments or reimbursements to the Construction Manager for costs incurred and expenditures made that are not in accordance with the approved construction budget and schedule,and (iti)any changes to the construction budget and schedule.The procedure for such consideration and approval shall be as set forth in rules and procedures duly adopted by the IPG as provided for in Section 6. (3)Payments and reimbursements from the Intertie Grant Accounts shall be made only for costs incurred and expenditures made pursuant to the approved construction budget and schedule or otherwise as approved by the IPG.Documentation required to make draws against the appropriate Intertie Grant Account shall be provided in the manner determined by the IPG in accordance with the Grant Administration Agreement, and shall be evidenced by a certification executed by the Chairman or Treasurer of the IPG,or otherwise as the IPG may by rule determine. (4)The Participants,through the IPG,shall consider and act upon such modifications and amendments to the construction budget and schedule as are proposed by the appropriate Construction Manager or on the initiative of any Participant. (5)Each Participant hereby pledges all Grant Funds received to payment of Design and Construction Costs,except as provided in paragraph (c)of this section. "Design and Construction Costs"means all capital costs of the Project,including but not limited to planning,permitting,design,acquisition of real property interests,construction, equipment,testing,and insurance costs,but not administrative and general costs of any Participant,State agency,political subdivision,or Construction Manager,except pursuant to Section 7(c),unless such costs are expressly approved by the IPG prior to being incurred, PARTICIPANTS AGREEMENT --Page 16 (b)Additional Financing.Notwithstanding any other provision of this Agreement,and in order to complete the Project,each Participant shall pay its Participant's Share of any Design and Construction Costs that exceed the sum total of the Grant Funds plus available interest thereon ("Additional Costs"). (1)The Parties recognize the possibility of completing the Project through collective financing arrangements,including bonds issued by AIDEA or other State agency,as may be provided by separate agreement. (2)Ifthe Parties agree unanimously,each in its own discretion,to participate in a collective financing arrangement and to approve the Bond Resolution adopted to imple- ment said collective financing arrangement,then amounts required to be paid during each Project Year by the Participants pursuant to said Bond Resolution shall be included in Annual Project Costs.Each Participant shall discharge its obligation,in whole or in part, to pay its Participant's Share of Additional Costs through payment of its Participant's Share of Annual Debt Service and certain other Annual Project Costs in accordance with Section 10 and any applicable Bond Resolution. (3)Each Participant reserves the right to finance separately its Participant's Share of Additicnal Costs,or any other payments required by this Agreement.Such separate financing shall not impair any Party's legal rights or obligations under this Agreement.In the event the Parties do not agree to a collective financing arrangement,then each Party shall pay,by any lawful means,its own Participant's Share of Additional Costs and other payments required by this Agreement. (4)The time and manner of payment of such Additional Costs shall be determined by the IPG in accordance with its rules.Each Participant shall pay its Participant's Share of Additional Costs upon receipt of certification in the same manner as is provided in paragraph 8(a)(3)for the disbursement of Grant Funds by the Trustee. (5)The IPG may take appropriate actions to facilitate collective financing among some or all of the Parties,but the costs of collective financing arrangements undertaken by less than all of the Participants shall not be considered Project Costs or be borne by other Participants. (c)Disposition of Unexpended Grant Funds.To the extent permitted by applicable law,any Grant Funds that remain unexpended after the Date of Commercial Operation each Segment of the Project shall be held and applied for use in connection with the Project for the benefit of the Participants,as provided for in rules to be adopted by the IPG.Any Grant Funds that remain unexpended after Abandonment of the Project and discharge of outstanding obligations in connection therewith shall be deposited to the account of AIDEA for retum to the State. (d)Insurance.The Participants shall obtain and maintain insurance on the Project during design and construction if and as determined by the IPG in accordance with Section 6. PARTICIPANTS AGREEMENT --Page 17 Section 9.OPERATION &MAINTENANCE:RELATED MATTERS (a)Selection Of O&M Managers.GVEA shall serve as the O&M Manager for the Healy-Fairbanks Segment,and shall be removable only for reasonable cause,after reasonable notice and opportunity to cure.Chugach shall be the initial O&M Manager for the Anchorage- Kenai Peninsula Segment for a period of three (3)years from and after the Date of Commercial Operation of that Segment;during such period,the IPG may remove Chugach for reasonable cause after reasonable notice and opportunity to cure,and thereafter the IPG may remove Chugach after reasonable notice by the affirmative vote of Members whose Participant's Shares in total exceed fifty percent (50%).Chugach shall subcontract with AEG&T and/or HEA to provide some or all of the Project maintenance services for Project facilities located on the Kenai Peninsula,if and to the extent that doing so will reduce Project expenses.The Parties shall negotiate in good faithin an effort to reach agreement on reasonable terms and conditions for, and to enter into,an O&M Agreement containing terms and conditions consistent with this Agreement.The rights and obligations of the O&M Manager(s)and of the IPG and its Members with respect to the Project shall also be governed by the O&M Agreement(s)for the Project. (b)Duties Of Parties Re:Electrical Connection &Coordination.Because each Par- ty's own facilities will be electrically interconnected,directly or indirectly,with the Project,each Party shall operate and maintain its own facilities in a prudent and reasonable manner.The Parties agree that: (1)they will negotiate in good faith to reach agreement on such protocols as may be necessary to ensure that the efficient operation of the Project is consistent with and adequately supported by (A)the Parties'interconnected systems,and (B)reasonable coordination of the Parties'respective system operations;and (2)each Party shall in good faith operate its own system in a manner that will reasonably accommodate operation of the Project,but nothing in this Agreement shall obligate any Party to (A)operate its system in a manner inconsistent with its own needs and requirements,or (B)incur solely for the benefit of the Project or its operation,or for the benefit of the other Parties,any uncompensated cost,expense,or loss in the design, construction,maintenance,or operation of that Party's own system. (c)InterveningTaps &Other Connections.No Party or other entity shall be allowed to establish an intervening tap or other electrical connection to the Project except in accordance with standards and rules promulgated by the IPG to protect the Project's operation,financing, capability,and electric integrity. Section 10.PROJECT COSTS &COST RECOVERY (a)Funds &Accounts.The following funds and accounts shall be owned by the Participants in proportion to their Participants'Shares,or,if established through Participants' contributions,then in proportion to said contributions.Said funds and accounts shall be held and PARTICIPANTS AGREEMENT --Page 18 administered in accordance with the provisions of this Agreement,with rules adopted by the IPG, or with applicable requirements set forth in any controlling Bond Resolution: (1)Grant Account.AJI Grant Funds,including available interest thereon,as described in Section 8(a)above. (2)Funds and Accounts established pursuant to any applicable Bond Resolution. (3)Operating Fund,including a Working Capital Account therein. (b)Operating Budget. (1)The IPG shall adopt in each Operating Year (and revise as necessary or prudent during such Operating Year),in accordance with its rules,an Operating Budget of Annual Project Costs for that Operating Year,which budget shall be in an amount estimated by the IPG to be sufficient to pay all Annual Project Costs.Such budget of Annual Project Costs shall be composed of separate budgets for each Segment of the Project,and shall be broken down into categories approved by the IPG.No less than 120 days prior to the beginning of each Operating Year the O&M Managers for each Segment shall prepare and submit to the IPG an annual budget of costs,which budget (or a revised budget)the IPG shall approve or disapprove no later than sixty (60)days prior to the beginning of said Operating Year;provided,that the annual budget shall include costs attributable to overhead or administrative and general costs of the O&M Manager,any Participant,or any agency or political subdivision of the State only to the extent that said costs are approved by the IPG before they are incurred,are reasonably incurred for labor directly employed by that O&M Manager in performance of its duties under the O&M Agreement,and would not have been incurred but for the activities undertaken as O&M Manager. (2)In accordance with rules established by the IPG,the Participants shall establish for each Operating Year the estimated Annual Payment Obligation of each Participant, together with a schedule for each Participant of payments that such Participant shall be required to make during the Operating Year pursuant to Section 10(d)of this Agreement, which payment schedule shall be (i)designed to recover such estimated Annual Payment Obligation from that Participant during the Operating Year,and (ii)revised during such Operating Year to reflect any revisions to the Operating Budget.After the conclusion of each Operating Year,the IPG shall determine the actual Annual Project Costs for that Project Year,the actual Annual Payment Obligation of each Participant for that Operating Year,and the amount of any additional payment required from (or the amount of any refund to be returned to)each Participant to ensure that the total of ail payments received from each Participant for each Operating Year is equal to that Participant's Annual Payment Obligation for that Operating Year.Said payment or refund shall be made in periodic installments as an adjustment to the Participants'billing statement over the next succeeding Operating Year,unless otherwise determined by the IPG. PARTICIPANTS AGREEMENT --Page 19 me ee (c)Expenditure of Project Funds. (1)The Participants shall exercise overall control over the disbursement of funds to pay Annual Project Costs through the IPG,which shall act in accordance with its rules, the Operation and Maintenance Agreement,and any applicable Bond Resolution.The Participants shall exercise their powers as members of the IPG to consider and either approve or disapprove (i)any activities related to managing the Project that are required by the IPG to be approved prior to commencing said activities,(ii)any payments or reimbursements to the O&M Manager for costs incurred and expenditures made that are not in accordance with the approved operating budget,and (iil)any changes to the operating budget,as provided for in Section 6. (2)Payments and reimbursements for Annual Project Costs shall be made only for costs incurred and expenditures made pursuant to the approved annual budget or otherwise as approved by the IPG.Documentation required to make draws against the Operating Fund shall be provided in the manner determined by the IPG in accordance withtheO&M Agreement,and shall be evidenced by a certification executed by the Chairman or Treasurer of the IPG,or otherwise as the IPG may by rule determine. (3)The Participants,through the IPG,shall also consider and act upon such modifications and amendments to the budget as are proposed by the O&M Manager or on the initiative of any Participant.Any revisions to the operating budget shall be made in accordance with Section 9(b)(2)of this Agreement. (d)Recovery of Annual Project Costs. (1)Each Participant agrees and is hereby obligated to pay all Annual Payment Obligations,Energy Charges arid Assessments for the appropriate Project Segment,as set forth in this Section 10(d).To the extent provided in the Bond Resolution,if any,each Participant shall make said payment whether or not the Project is completed or its operation is terminated,interrupted or suspended in whole or in part.A Participant's Annual Payment Obligation for each Project Segment equals the actual Annual Project Costs for that Segment,Jess the total amount of actual Energy Charges incurred by allParticipantsduringeachProjectYearforthatSegment,and less any revenues receivedduringsaidProjectYearthatareallocabletosaidSegment,multiplied by the Participant's Percentage Share in that Segment.Such Annual Payment Obligation is exclusive of any Assessments for that Segment duly adopted by the Participants acting through the IPG. (2)"Annual Project Costs"for each Project Segment means costs and expenses of every type,except as provided in subsection (3)of this Section 10(d),resulting from the owneiship,operation and maintenance of that Segment,that are incurred or paid by the Participants,acting through the IPG,during each Project Year in connection with that segment,including but not limited to the following: (A)Operation and maintenance costs relating to the Project ("O&M"), PARTICIPANTS AGREEMENT --Page 20 eee eee (B)Other costs,reimbursements or compensation as may be allowed under any O&M Agreement; (C)Insurance,as determined by the IPG in accordance with Section 6 of this Agreement; (D)Amounts required to be set aside by the Participants for the payment of debt service,or for any reserve or contingency fund,by any Bond Resolution; (E)Professional services,including accountants and auditors,insurance consultants,attorneys,engineers,arbitration or alternative dispute resolution professionals; (F)Costs of the IPG,but only to the extent approved by the IPG prior to being incurred;and (G)Other necessary and appropriate costs,but only to the extent approved by the IPG. (3)"Annual Project Costs”shall exclude: '(A)Design and Construction costs financed under Section 8 of this Agreement (but not the costs of debt service and related expenses associated with such financing); (B)Renewals and replacements funded by insurance proceeds or by Assessment or any specially-dedicated funds or accounts. (4)From and after the Date of Commercial Operation of each Segment,each Participant shall make payment,in a manner to be provided by IPG resolution,for that individual Participant's Energy Charge amounts. (A)"Energy Charge"means (i)for the Anchorage-Kenai segment of the Project,a 1.5 mill/kwh charge for all energy generated by the Bradley Lake Hydroelectric Project, to be paid by each Participant for its Bradley Lake energy (including,in the case of AEG&T,for the Bradley Lake energy of HEA and MEA);and (ii)for the Healy-Fairbanks segment of the Project,a 1.5 mill/kwh charge for energy generated by the Bradley Lake Hydroelectric Project for"receipt by utilities in Fairbanks,and an additional 1,5 mill/kwh charge to bepaidbythereceivingutilityfor60percentofthenon-Bradley Lake energy transmitted on the existing GVEA transmission line and the Healy- Fairbanks segment of the Project,in each case net of losses. PARTICIPANTS AGREEMENT --Page 21 (B)The IPG may provide by resolution for the Participants to pay Energy Charges in advance,in which case the IPG Treasurer shall estimate each Participant's Energy Charges for the upcoming Operating Year.The Treasurer may rely on historical data,energy transfer forecasts,or other relevant information in preparing such estimates. (C)The IPG shall establish procedures for collecting information regarding each Participant's Energy Charges due,and the manner of their payment. (5)Prior to the beginning of each Project Year,the Treasurer of the IPG shallprepareandmailtoeachParticipantaproformastatementshowingadetailedestimateof the Annual Project Costs,a detailed estimate of the Participant's Annual Payment Obligation,and the amount of equal payments to be made by the Participant in the upcom- ing Project Year.Said statement may be in lieu of the issuance of periodic bills to each Participant. (6)The IPG shall adopt all other procedures for billing and collection,including accounting for extraordinary receipts. (e)Assessments, (1)The Participants agree to fund by Assessment amounts that the Participants determine are needed to pay for the prevention or correction of any major loss or damage, and for major replacements or renewals,to keep each Project Segment in good operating condition to the extent that such costs are not covered by insurance or by borrowed money,the debt service of which is included in Annual Project Costs."Assessment" means the Participants'duly-approved obligation to pay the total amount,according to each Participant's Share and any agreed schedule,of any such contingency. (2)When a Construction Manager,O&M Manager,or Participant requests an Assessment for any contingency or renewal and replacement,the IPG shall consider such request at its next regular or special meeting.The IPG may,in its discretion,continue consideration of such request to future meetings.The IPG shall approve an Assessment pursuant to the procedures established in Section 6 of this Agreement. Section 11.USE OF PROJECT CAPACITY (a)Use Of Project Capacity When No Transmission Capacity Constraint Exists.At all times after the Date of Commercial Operation of each Project Segment when (1)that Segment's facilities and any parallel utility-owned transmission facilities are both in normal operation,and (2)the total combined transfer capabilities of those facitities are sufficient to allow all desired transmission by all Participants to take place simultaneously between,respectively,Healy and Fairbanks,and Anchorage and the Kenai Peninsula (i.e.,at all times when parallel facilities are in operation and no transmission capacity constraint exists),then no distinction will be made between power transmitted over the facilities of that Project Segment and power transmitted over the parallel utility-owned transmission facilities,and,instead,all such power shall PARTICIPANTS AGREEMENT --Page 22 be deemed to move over the facilities of the Project Segment.Transmission access to/from the facilities of the Project Segment over the facilities of any Participant shall be in accordance with the applicable terms and conditions set forth in Section 5(d). (b)Operation For Stability.If,on either Segment,the Project facilities and the parallel utility-owned transmission facilities are both in operation,then the combined total transfer capability or operating limit of the parallel transmission facilities will be the stability-limited amount,not the thermal limit of those facilities,as reasonably established through agreement between the IPG and the owner of the parallel utility-owned facilities.If on either Segment, either the Project facilities or the parallel utility-owned transmission facilities are not in operation, then the operating limit of the remaining facilities shall be that which is reasonably established,as the case may be,by the IPG for the relevant Project Segment,or by the owner of the parallel utility-owned transmission facilities,under the circumstances as they exist at that time. (c)Fixed Capacitv Shares When Capacity Is Or May Be Constrained. (1)If either Project Segment is in operation but the parallel utility-owned transmission facilities are not,then each Participant shall be entitled to its Participant's Share of the transfer capability of the facilities of that Project Segment,as established by the IPG. (2)If the parallel utility-owned transmission facilities are in operation but the facilities of the Project Segment are not,then the owner of the parallel utility-owned transmission facilities will provide wheeling and related services to the other Participants under the applicable terms and conditions set forth in Section 5(d). (3)Ifthe Project facilities and the parallel utiliry-owned transmission facilities are both in operation,but for either-Segment their total combined transfer capabilities are not sufficient to allow all desired transmission by all Participants to take place simultaneously (i.e.,1f Project and parallel facilities are both in operation but a transmission capacity con- straint exists),then so long as such constraint exists the available transmission capacity shall be allocated between the applicable Project facilities and the parallel utility-owned facilities by one of the following methods: (A)The IPG and the owner of the parallel utility-owned facilities may by agreement establish any reasonable allocation of such capacity,or (B)The parallel utility-owned facilities shall be deemed to have the transfer capability that they would have if operated alone,less some amount reasonably adopted by the IPG to reflect the reliability/stability benefits such facilities receive from the existence of the parallel Project facilities.The remainder of the total combined transfer capability shall be deemed to be that of the Project facilities,and shall be available to each Participant in accordance with its Participant's Share. PARTICIPANTS AGREEMENT --Page 23 td (d)No Duty To Transmit Power For Ultimate Consumers.The Project represents a bulk power transmission facility whose benefits are made possible by the agreement of the _Participants to assume responsibility for various costs on behalf of their respective customers collectively.The Project is not a common carrier.No Party has assumed any duty to use its Participant's Share of Project capacity to transmit power for individual users/consumers or for non-utility generators. Section 12.MISCELLANEOUS PROVISIONS (a)Waiver Not Continuing.Any waiver at any time by any Party to this Agreement of its rights with respect to any default of another Party,or with respect to any other matter arising in connection with this Agreement,shall not be considered a waiver with respect to any prior or subsequent default,right or matter. (b)Applicable Law.The laws of the State of Alaska (including without limitation the equal opportunity laws set forth in AS 18.80.220,as the same may be amended from time to time) shall govern the interpretation and application of this Agreement and the actions of the parties hereunder. (c)Section Headings.The Section headings in this Agreement are for convenience only, and do not purport to and shall nox be deemed to define,limit or extend the scope or intent of the section to which they pertain. (d)No Third Party Beneficiaries,In promising performance to one another under this Agreement,the Parties intend to create binding legal obligations to and rights of enforcement in (a)one another,and (b)such assignees or successors in interest of the Parties as may enjoy a right . to enforce this Agreement by virtue of provisions of this Agreement that expressly create such a right in such assignees or successors if interest.By entering into this Agreement,the Parties expressly do not intend to create any obligation or liability,or promise any performance to,any third party,nor have the Parties created for any third party any right to enforce this Agreement. (e)Execution In Counterparts.This agreement may be executed in any number of counterparts,and each such counterpart shall be deemed to be an original instrument,but all such counterparts together shall constitute one agreement. (f)Severability;Effect Of Partial Invalidity.If after this Agreement has become effective any article,paragraph,clause or provision of this Agreement shall be finally adjudicated by a court of competent jurisdiction or a regulatory agency with jurisdiction over the parties to be invalid or unenforceable,or if any administrative agency with authority over the parties shall require changes to this Agreement,then the parties shall in good faith meet promptly to negotiate lawful amendments or modifications to this Agreement that will effectuate the original intent of this Agreement and retum the parties as nearly as possible to the position that each would have enjoyed in the absence of such judicial,regulatory,or administrative action. (g)Notices &Computaticn Of Time,Any notice required by this Agreement to be given to any Party shall be effective when it is received by such Party,and in computing any PARTICIPANTS AGREEMENT --Page 24 period of time from such notice,such period shall commence at 12:01 p.m.prevailing time at the place of receipt on the date of receipt of such notice.Whenever this Agreement calls for notice to or notification by any Party the same (unless otherwise specifically provided)shall be in writing and directed to the General Manager of the Party notified.Ifthe date for making any payment or performing any act is a day on which banking institutions are closed in the place where payment is to be made or a legal holiday,payment may be made or the act performed on the next succeeding day which is neither a legal holiday nor a day when banking institutions are closed in such place. (h)Inspection Of Facilities.For purposes of this Agreement,each Party may,but shall not be obligated to,inspect any other Party's facilities relating to the Project at any time upon reasonable notice,but such inspection or failure to inspect shall not render the inspecting party,its officers,agents or employees,liable or responsible for any injury,loss,damage,or accident resulting from defects in such electric installation,or for violation of this Agreement. (i)Remedies Cumulative.No remedy conferred upon or reserved to the Parties hereto is intended to be exclusive of any other remedy or remedies available hereunder or now or hereafter existing at law,in equity,by statute or otherwise,but each and every such remedy shall be cumulative and shall be in addition to every other such remedy., (j)Covenant of good faith and fair dealing.In order to permit this Agreement, throughout its term,to be fully effective in accordance with the original intent of the Parties,each Party agrees that it shall at all times act in good faith and with fair dealing in performing its obligations and in exercising its rights under this Agreement. (k)Exhibits Incorporated By Reference.The exhibits attached to this Agreement shall be incorporated by reference into this Agreement if the provisions of this Agreement identifying such exhibits so specify,but otherwise shall be attached for convenience only. (I)Successors &Assigns.Subject to section 4(b)(6)governing assignment for security purposes,this Agreement and all of the terms and provisions hereof shall be binding upon and inure to the benefit of the respective successors and assignees of the Parties. (m)Performance Pending Resolution Of Disputes.Pending resolution of any dispute, each Party shall continue to perform its obligations under this Agreement,including but not limited to the obligation to make the payments required by this Agreement.All Parties shall be entitled to seek immediate judicial enforcement of this continued performance obligation notwith- standing the existence of a dispute.Application for such enforcement shall be made to the Supenor Court for the State of Alaska,at Anchorage. (n)Force Majeure.In the event any Party,by reason of an Uncontrollable Force,is rendered unable,wholly or in part,to perform its obligations under the Agreement (other than its obligations to pay money),then upon said Party giving notice and particulars of such Uncontrollable Force,its obligation to perform shall be suspended or correspondingly reduced during the continuance of any inability so caused,but in no greater amount than required by the Uncontrollable Force and for no longer period,and the effects of such cause shall,so far as possible,be remedied with all reasonable and prompt dispatch.The affected Party shall not be PARTICIPANTS AGREEMENT --Page 25 responsible for its delay in performance under this Agreement during delays caused by the Uncontrollable Force. (0)Other Agreements.Except as otherwise expressly provided herein,this Agreement does not modify,alter,or amend any other contract or agreement that may exist between or among any of the Parties. (p)Amendment Of Agreement.This Agreement may be amended,extended,or terminated at any time by the written consent of all Parties,but no such amendment,extension,or termination shall be effective unless approved by the federal and state agencies (if any)whose approval is required at the time. (q)Records.The Parties shall make available to each other,for inspection and copying curing business hours,all books,records,plans and other information relating to the Project; including but not limited to information relating to its cost,construction and operation,and any calculation or determination made pursuant to this agreement.In addition to meter records,the Parties shall keep log sheets and other records as may be needed for the purposes of this Agreement.In keeping books of account,each Party will,to the extent that different rules are not prescribed by this Agreement or by federal and state laws or agencies,follow the system of accounts prescribed for public utilities and licensees by the Federal Energy Regulatory Commis- sion,except that as long as a Party is a borrower from REA then it shall follow the system of accounts prescribed by REA for its electric borrowers. (r)Obligations Several.Notwithstanding any Party's failure to perform its obligations under this Agreement,or any IPG action or inaction under this Agreement,each Party's obligation to perform as called for by this Agreement,including the obligation to make payments under the terms of this Agreement,shall be absolute and unimpaired.Except where specifically stated in the Agreement to be otherwise,the duties,obligations and liabilities of the parties are intended to be several and not joint or collective.Nothing contained in this Agreement shall ever by construed to create an association,trust,partnership or joint venture or to impose a trust or partnership duty,obligation or liability on or with regard to any party.Each party shall be individually and severally liable for its own obligations under this Agreement. (s)Mutual Covenants &Warranties. (1)Retail rate approval.Each Party will affirmatively and promptly pursue all administrative and judicial remedies necessary to secure Commission approval of retail rates required to meet the terms of this Agreement where Commission approval is required. (2)Compliance with law.Each Party will take all necessary steps to comply with applicable federal and state laws and regulations,licenses and permits relating to the use and operation of the Party's System. (3)Licenses and permits.The Parties will take all necessary steps within their control to comply with applicable federal and state laws and regulations,and to obtain and PARTICIPANTS AGREEMENT --Page 26 thereafter comply with all applicable licenses and permits relating to the construction,use and operation of the Project. (4)Sales and mergers.No Party shall abandon,sell,mortgage,lease or otherwise dispose of a substantial portion of the Party's system (including by sale to or merger with any other utility),unless such disposal is evaluated by a consultant approved by the IPG and that consultant certifies that,taking into account the other obligations of the Party, that Party will have (a)substantially the same or greater ability to produce sufficient revenues to meet its payment obligations as would the Party absent the transaction,and (b)the ability to perform all obligations under this Agreement. (t)Indemnification.To the extent permitted by applicable law,each Party shall protect, indemnify,defend and hold harmless every other Party,its officers,directors,employees,agents, attomeys,contractors,subcontractors,and successors and assigns from and against any and all including but not limited to appeals and reasonable attorneys'fees,to the extent caused by the negligent or wrongful acts or omissions of the indemnifying Party,its officers,directors, employees,agents,attorneys,contractors,subcontractors,and successors and assigns arising Out of or as a result of this Agreement or the performance of any obligations hereunder;provided,that the indemnification set forth in this Section is subject to Section 7(i)and shall not require the Construction Manager to indemnify other Parties in any manner inconsistent with Section 7(i). (u)Guarantees by Additional Parties.If AEG&T at any time fails to meet any of its odligations under this Agreement,then to the extent of such failure by AEG&T and for so long as such failure continues,HEA and MEA shall each be obligated to meet directly its respective Share of AEG&T's payment obligation and every other obligation in the same manner as if HEA and MEA were individual Participants obligated to make payments and perform other obligations in accordance with this Agreement.All rights and remedies available to the other Parties against AEG&T shall also be available to the other Parties against HEA and/or MEA,as applicable.For purposes ofthis Section 12(u),HEA's Share and MEA's Share of Project capacity shall be as set forth in Section 4(a),as modified by Section 4(b). (v)Relationship To The Transmission Services Agreement.The Transmission Services Agreement (attached as Exhibit E to this Agreement for reference only)shall not be terminated by this Agreement,but from and after: (1)January 1,1997,any Party may elect to pay Chugach for wheeling services the applicable Chugach wheeling rate as approved by the Commission pursuant to Section 5(d)and Exhibit D(1)of this Agreement,in lieu of paying the applicable Chugach wheeling rate computed in accordance with the Transmission Services Agreement;and (2)the Effective Date,the provisions of the Transmission Services Agreement requiring Chugach to provide free Bradley Lake energy storage services in Chugach's Cooper Lake reservoir will no longer apply. PARTICIPANTS AGREEMENT --Page 27 (w)Consideration Of Other Benefits Facilitated By The Project.In order to ensure that all potentially beneficial uses of the Project are appropriately investigated,the Parties agree that,promptly after this Agreement becomes effective,they will begin to meet periodically in order to discuss and explore in good faith potential mutually agreeable opportunities to reduce the costs of providing electric power service to their respective consumers through power pooling, transmission pooling,reserve sharing,exchanges,economic dispatch,hydrothermal coordination, maintenance of competitive economy energy markets,and other arrangements. Section 13.DEFINITIONS. The following terms shall,for purposes of this Agreement,have the meaning specified. (a)"Additional Costs"shall have the same meaning given to it in Section 8(b)of this Agreement. (b)"Additional Parties"shall have the same meaning given to it in Section 1 of this Agreement. (c)"Agreement"means this 1993 Alaska Intertie Project Participants Agreement,also referred to herein as Participants Agreement. (d)"Annual Debt Service'means the amount payable by a Participant in or for a Project Year pursuant to the Bond Resolution. (e)"Annual Payment Obligation"shall have the same meaning given to it in Section 10(d)(1)of this Agreement. (f)"Annual Project Cost"shall have the same meaning given to it in Section 10(d)(2)of this Agreement. (g)"Assessment"shall have the same meaning given to it in Section 10(e)(1)of this Agreement. (h)"Bond Resolution"means a resolution,ordinance,indenture,or similar instrument, approved by all of the Parties,pursuant to which bonds,notes or other evidences of indebtedness (including refunding bonds),are issued,the proceeds of which are used to pay or reimburse Additional Costs,pursuant to a collective financing arrangement entered into by all Parties under Section 8(b). (i)"Construction Agreement"means an agreement entered into pursuant to Section 7(k)between the Construction Manager of a Project Segment and the Participants acting through the IPG setting forth the rights and obligations of the Construction Manager and of the IPG and its Members and such details regarding the design and construction of that Project Segment as the Construction Manager and the IPG determine to be necessary. PARTICIPANTS AGREEMENT --Page 28 (j)"Construction Budget"means the annual budget for Design and Construction Costs for a Project Segment as adopted or in effect for a particular Construction Year,and amended or supplemented from time to time as provided for in this Agreement. (k)"Construction Manager"means the Participant that,for the benefit of all of the Participants,manages or carries out the design and construction of either Segment of the Project. As provided in Section 7(a)of this Agreement,Golden Valley Electric Association,Inc.shall be the Construction Manager of the Healy-Fairbanks Segment and Chugach Electric Association, Inc.shall be the Construction Manager of the Anchorage-Kenai Peninsula Segment (unless and until either is replaced by another Participant by action of the IPG pursuant to Section 7()),and may be referred to collectively herein as Construction Managers. (1)"Construction Schedule"means a projection of significant design and construction milestones marking progress from the Effective Date of this Agreement to the projected Date of Commercial Operation of a Project Segment,to be prepared by the Construction Manager for that Segment. (m)"Construction Year"means a Project Year during which a Project Segment is being designed or is under construction.The first Construction Year starts on the Effective Date of this Agreement and corresponds to the first Project Year.The last Construction Year for a Project Segment shall be that portion of the twelve-month period between the last full (i.e.twelve month)Project Year and the Date of Commercial Operation.The Construction Year for both Project Segments shall run concurrently,except that the conclusion of the last Construction Year for one of the Project Segments (when it reaches its Date of Commercial Operation)shall not affect the calculation of Construction Years for the other Project Segment,which shall continue until that segment reaches its Date of Commercial Operation. (n)"Date of Commercial Opération"means the date on which a Construction Manager reasonably declares that a Segment of the Project is fully available to be operated on a commercial basis and in accordance with this Agreement. (o)"Design and Construction Costs"means all capital costs of the Project,including but not limited to planning,permitting,design,acquisition of real property interests,construction, equipment,testing,and insurance costs,but not administrative and general costs of any Participant,State agency,political subdivision,or Construction Manager,except pursuant to Section 7(c),unless such costs are expressly approved by the IPG prior to being incurred. (p)"Effective Date"shall have the same meaning given to it in Section 2(a)of this Agreement. (q)"Energy Charge"shall have the same meaning given to it in Section 10(c)(4). (r)"Expiration Date"shall have the same meaning given to it in Section 2(b)of this Agreement. PARTICIPANTS AGREEMENT --Page 29 (s)"Grant Account"means the Healy-Fairbanks Intertie Account or the Anchorage- Kenai Intertie Account,or both,as established by section 2.02 of the Grant Administration Agreement. (t)"Grant Administration Agreement"means the agreement dated among the Alaska Industrial Development and Export Authority and the Parties to this Agreement setting forth the terms and conditions governing the administration of Grant Accounts. (u)"Grant Funds"means the $43,200,000 appropriated by section 1 of ch.19,SLA 1993,for payment as a grant under AS 37.05.316 for construction of the Healy-Fairbanks Segment and the $46,800,000 appropriated by section 2 of ch.19,SLA 1993,for payment as a grant under AS 37.05.316 for construction of the Anchorage-Kenai Peninsula Segment. (v)"Intertie Grant Agreement"means the agreement dated October 26,1993 among the Parties to this Agreement,the Alaska Industrial Development and Export Authority and the State of Alaska,Department of Administration (DOA)satisfying the statutory conditions precedent to DOA's transfer of the Grant Funds and providing for DOA's transfer of such Grant Funds. (w)"IPG"is an abbreviation for "Intertie Participants Group"and means the Participants and Additional Parties acting collectively as set forth in this Agreement.As provided elsewhere in this agreement,AEG&T,while a Participant,is not a Member of the PG.The Additional Parties to this Agreement,HEA and MEA,collectively constitute AEG&T and are individually Members of the IPG. (x)"Member"means a member of the IPG.The members of the IPG are identified in Section 6(b). (y)"Operating Budget"means the budget for Annual Project Costs as adopted or in effect for a particular Operating Year,and amended or supplemented from time to time as provided for in this Agreement. (z)"Operating Fund"means a fund established pursuant to Section 10(a)of this Agreement,consisting of Annual Payment Obligations,Energy Charges,Assessments,insurance proceeds and other revenues available to pay Annual Project Costs. (aa)"Operating Year"means that Project Year,and is a period used for computation of Annual Project Costs for a Project Segment or both Segments and preparation of annual budgets for recovery of the same pursuant to Section 10 of this Agreement.The initial Operating Year for each Segment shall start on the Date of Commercial Operation of that Segment and continue through and include the last day of that Project Year.Subsequently,the Operating Year for 'hat Segment shall be the Project Year. (bb)"Operation &Maintenance Agreement"may also be referred to herein as O&M Agreement and means an agreement pursuant to Section 9(a)between the O&M Manager of theProjectoraProjectSegmentandtheParticipantsactingthroughtheIPGdetailingthenghtsand PARTICIPANTS AGREEMENT --Page 30 obligations of theO&M Manager and of the IPG and its members with regard to the operation and maintenance of the Project or relevant Project Segment. (cc)"Operation &Maintenance Manager"may also be referred to herein as O&M Manager and means the Participant selected by the IPG pursuant to Section 9(a)of this Agreement to be responsible for the operation and maintenance of the Project or a Project Segment,for the benefit of all of the Participants.The O&M Manager may exercise this responsibility by conducting operation and maintenance activities with its own personnel,or by supervising a contractor selected by the O&M Manager expressly for the purpose of conducting such activities. (dd)"Optional Project Work"means project repairs,renewals and replacements, improvements,betterments,additions,or expansions that do not constitute Required Project Work.- (ee)"Participants"shall have the same meaning given to it in section |of this Agreement. (ff)"Participant's Share'means the percentage interest a Participant holds in the Project or a Project Segment under the terms of this Agreement.A Participant's Share is used to calculate its Annual Payment Obligation,including its share of Annual Project Costs,and to determine its share of Assessments,Additional Costs,or Annual Debt Service,and includes a Participant's Energy Charges. (gg)"Project means the Intertie Project to be designed,constructed,operated and maintained pursuant to this Agreement,which shall consist of two Segments;the Healy-Fairbanks Segment defined by Section 3(a)of this Agreement and the Anchorage-Kenai Peninsula Segment defined by Section 3(b)of this Agreement,which may also be referred to individually herein as a Project Segment. (hh)"Project Year"means that calendar year unless and until the IPG converts the calculation of the Project Year to a fiscal year consisting of a twelve-month period starting on such date as the IPG shall select.The initial Project Year for purposes of this Agreement shall start on the Effective Date of this Agreement and continue through and include December 31, 1994.When and if calculation of the Project Year is converted to a fiscal year,the IPG shall provide for a transition from calendar year to fiscal year by shortening or lengthening the firstProjectYearcalculatedonafiscalbasis.The last Project Year for purposes of this Agreement shall be that portion of the twelve-month period between the end of the last full (i.e.twelve month)Project Year and the expiration of this Agreement.For each Project Segment,those Project Years,or portions thereof,prior to the Date of Commercial Operation are designated Construction Years (see the definition of Construction Years,above)and those Project Years,or portions thereof,following the Date of Commercial Operation are designated Operating Years (see the definition of Operating Years,above). (ii)"Prudent Utility Practice"means at a particular time any ofthe practices,methodsandactsengagedinorapprovedbyasignificantportionoftheelectricutilityindustryatsuch PARTICIPANTS AGREEMENT --Page 31 time,or which,in the exercise of reasonable judgment in light of facts known at such time,could have been expected to accomplish the desired results at the lowest reasonable cost consistent with good business practices,reliability,safety and reasonable expedition.Prudent Utility Practice is not required to be the optimum practice,method or act to the exclusion of all others,but rather to be a spectrum of possible practices,methods or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability,safety and expedition.Prudent Utility Practice includes due regard for manufacturer's warranties and the requirements of governmental agencies of competent jurisdiction and shall apply not only to functional parts of the Project,but also to appropriate structures,landscaping,painting,signs, lighting and other facilities.. (jj)'Required Project Work"means repairs,maintenance,renewals,replacements, improvements,or betterments required by federal or state law,a licensing or regulatory agency with jurisdiction over the Project,or this Agreement,or otherwise necessary to keep the Project in good and efficient operating condition,consistent with (1)sound economics for the Project and (2)Prudent Utility Practice. (kk)"Segment"means either of the two electric power transmission lines and associated facilities constituting the Project to be designed,constructed,operated and maintained under the terms of this Agreement. (1)"Uncontrollable Force"means any cause beyond the control of a Party hereto and which by the exercise of due diligence that Party is unable to prevent or overcome,including but not limited to an act of God,fire,flood,volcano,earthquake,explosion,sabotage,and act of the public enemy,civil or military authority,including court orders,injunctions and orders of governmental agencies of competent jurisdiction,insurrection or riot,an act of the elements, failure of equipment,or the inability to obtain or ship equipment or materials because of the effect of similar causes on carriers or shippers.Strikes,lockouts,and other labor disturbances shall be considered Uncontrollable Forces,and nothing in this Agreement shall require any Party to settle a labor dispute against its best judgment;provided,that during any labor dispute all Parties shall make all reasonable efforts under the circumstances,including,to the extent permitted by law,the use of replacement personnel and or management personnel and/or other personnel under the provisions of a mutual aid agreement,to ensure,if possible the continued ability of the Parties to Carry out their obligations under this Agreement. (mm)"Working Capital Account"means an account within the Operating Fund which is to be managed so that funds from that account are available to meet reasonable current expenses and contingencies as they arise in the course of the design,construction,operation and maintenance ofthe Project. Section 14.DEFAULTS AND REMEDIES. (a)Each of the following shall constitute an Event of Default: (1)A material breach in performance of this Agreement by a Party,which breach has continued for a period in excess of sixty (60)days after the defaulting Participant has PARTICIPANTS AGREEMENT --Page 32 been notified in writing that such breach will,unless corrected within such 60-day period, constitute an Event of Default;such material breaches shall include,but not be limited to, the failure to make any payments required by this Agreement,including but not limited to Annual Payment Obligation,Energy Charges,Assessments,and Additional Costs; (2)A continual or repeated failure or refusal by a Party to perform,substantially in accordance with this Agreement,all or any of its obligations under this Agreement, thereby materially impairing the value of this Agreement to the other Parties,which failure or refusal recurs after the breaching Party has been notified in writing that such breach will,if repeated,constitute an Event of Default; (3)A filing by a Party to seek protection under any applicable bankruptcy, -,reorganization,insolvency,dissolution or liquidation law,which filing has not been dismissed within 90 days; (4)Default under the Bond Resolution or separate financing instrument used by a Participant to finance all or part of its obligation under this Agreement. (b)Upon the occurrence of any Event of Default by a Party,any other Party may exercise any remedy or combination of available remedies,including but not limited to the following: (1)Termination of this Agreement with respect to that defaulting Party,provided however that said termination shall not be effective to increase the Annual Payment Obligations or Assessments of non-defaulting Parties unless termination is first approved in writing by all Members whose Annual Payment Obligations or Assessments would be increased as a consequence of said termination; (2)Suspension or expulgion of the defaulting Party from the IPG and loss of the defaulting Party's right to use the Project; (3)An action to recover compensatory or other damages provided by law,or to seek specific performance of any and all obligations required under this Agreement. (c)The remedies provided herein for Events of Default are not exclusive and the Parties retain all rights of action that exist at law and in equity,or pursuant to this Agreement,to remedy any breach,irrespective of whether said breach constitutes an Event of Default or results in termination of the Agreement. PARTICIPANTS AGREEMENT --Page 33 sat ws IN WITNESS WHEREOF,the Parties have caused this Agreement to be executed ine day and year first above written. ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC. AS Creche PD Et oo*The MUNICIPALITY OF ANCHORAGE d/b/a/MUNICIPAL LIGHT &POWER | AS SAVY b/2- CHUGACH ELECTRIC ASSOCIATION,INC. hubba: AS Che Ele.1 PW BG foe The MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM By ---As Eel Be Misys Lith sre GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. PARTICIPANTS AGREEMENT --Page 34 7 nah.LeAsGu.ane | The CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM aN,aes-_LAELAByeTTa"Lt <¢/>C LEASALmaaeeapeC/CK atte,z LZ Ce4 HOMER ELECTRIC ASSOCIATION,INC. MATANUSKA ELECTRIC ASSOCIATION,INC. Ana Lbas(@enera!Mankgo, PARTICIPANTS AGREEMENT --Page 35 EXHIBIT D(1) INITIAL CHUGACH WHEELING RATES &RELATED MATTERS The following rates,terms,and conditions shall apply pursuant to Section 5(d)(2)for use of Chugach's facilities under Section 5(d)(1): 1.Effective date and term.The wheeling rates and related terms and conditions de- scribed herein shall become effective on January 1,1997 and shall remain in effect for fifteen (15) years,i.e.,through December 31,2011. 2.Applicability. (a)The rates and related terms and conditions described herein will apply to electric power transmitted to or from the Anchorage-Kenai Peninsula Segment (i)by Participants in,or Additional Parties who are participating through a Participant in,that Segment,and (ii)from generators already existing as of December 1,1993. (b)If for any reason the Segment is not completed but is instead terminated/abandoned by the Participants,then the rates and related terms and conditions described herein will apply under the Transmission Services Agreement,during the term described in Paragraph 1 of this Exhibit D(1),to electric power that is: (i)the power of a Wheeling Utility (as defined in the Transmission Services Agreement)that is also a Participant in the Healy-Fairbanks Segment of the Project at the time;. ; (it)generated either: (A)by the Bradley Lake Hydroelectric Project,or, (B)by the Soldotna No.|generating unit,if and to the extent that power generated by such unit is eligible to receive wheeling services under the terms and conditions set forth in Section 8(f)of the Transmission Services Agreement;and (iil)transmitted from the Soldotna Substation to that Wheeling Utility's Delivery Point,as the latter is defined in the Transmission Services Agreement. (c)For wheeling services not within the scope of Paragraphs 2(a)or 2(b)of this Exhibit D(1)and not within the scope of the Transmission Services Agreement,Chugach will prepare (on request and/or periodically)and will submit to the Commission fcr review and approval, nondiscriminatory and just and reasonable (i)wheeling rates,and (ii)terms and conditions governing such wheeling services.Such rates,terms,and conditions may be revised from time toume. PARTICIPANTS AGREEMENT --Page 36 3.Basic wheeling rate.In each year,the basic wheeling rate,"R,"will be computed in accordance with the formula set forth in Appendix A of the Transmission Services Agreement, with the exception that the value of "K"in such formula shall be established at "0.50"in each year. 4.Cost review and control. (a)Standard.After the effective date,the costs of any new transmission in- vestment by Chugach shall be added to the costs used to compute the wheeling rate only if and to the extent that such transmission investment supports Chugach's bulk power network transmission system,and not Chugach's retail distribution system.If any investment supports both such systems,then the costs of that investment shall be allocated equitably and reasonably between such systems for purposes of applying the foregoing standard. (b)Procedure.Chugach will provide reasonable notice to the Participants of the costs of any new transmission investment that Chugach proposes to add to the costs used to compute the wheeling rate.With such notice,Chugach will also explain in writing why the inclusion of such-costs in the wheeling rate meets the standard set forth above.On request,Chugach will meet with the Participants to discuss these matters.If,after such meeting,any Participant believes that including any such costs (hereinafter "disputed costs")in the wheeling rate would violate the standard set forth above,that Participant shall so notify Chugach and provide a written explanation for that Participant's position. In response to any such notice and explanation,and before Chugach makes any final decision to include any such disputed costs in the wheeling rate,Chugach may,but shall not be obligated to,offer to engage in further discussions with that Participant,and/or afford that Participant additional épportunities to present its position to the Chugach staff and/or Board,or to a joint Board or other inter-utility panel that Chugach may elect to convene. (c)Review.Chugach's final decision to include or not include any such costs in the wheeling rate,if disputed,shall be submitted to the Commission for resolution.Each Participant shall be entitled to challenge Chugach's decision before the Commission,but only if and to the extent that such Participant took part in the pre-filing discussions and presentations described in Paragraph 4(b)above. 5.Rate applies during Intertie outages."R"would apply to transmission even at times when the Segment,having been completed,is out of service and Chugach's parallel transmission facilities alone are available for wheeling services. 6.Other services.Under the Transmission Services Agreement,Chugach will continuetoprovide(a)assured wheeling services,for periods of up to two weeks at a time,at a ratecomputedinthesamemannerasthebasicwheelingratebutusingavalueof"1.15"for the constant "K,"and (b)displacement energy purchase services for the Bradley Lake energy of Wheeling Utilities that cannot be transmitted from the Kenai Peninsula.From and after the PARTICIPANTS AGREEMENT --Page 37 Effective Date of this Agreement,Chugach will no longer continue to provide free reservoir storage for such energy in Cooper Lake. 7.Other terms and conditions.Such matters as the scheduling of transmission or displacement purchase services,accounting for line losses,the effect of offsetting flows,and other matters dealt with in the Transmission Services Agreement (including Chugach's duties, limitations on such duties,and priority use of its own facilities),as reasonably applicable to the circumstances.of this Agreement,will continue to be governed by the Transmission Services Agreement. 8.Reciprocal services.Each Participant and Additional Party agrees that,at Chugach's request,it will make wheeling services available to Chugach over its system,subject to like conditions and limitations as those set forth in this Exhibit D(1),at a rate no higher than the rate computed in accordance with the following formula: Rate =C/E x 0.5 Where "C"represents the applicable utility's annual costs of bulk power network transmission investments,and "E"represents the firm energy and Bradley Lake energy transmitted annually over that utility's system. PARTICIPANTS AGREEMENT --Page 38 EXHIBIT D(2) GVEA WHEELING RATES AND RELATED MATTERS The following rates,terms and conditions shall apply pursuant to Section 5(d){3): (a)Wheeling Rate.The wheeling rate for any use of the GVEA system shall initially be 1.5 mills/kwh for the period commencing with the Date of Commercial Operation of the Healy- Fairbanks Segment,and shall remain in effect at least until the third anniversary thereof. Thereafter,the rate may be revised either by mutual agreement of GVEA and FMUS or by the Commission in a proceeding initiated by either GVEA or FMUS. (b)Use of Lines and Calculation of Charges.For purposes of computing wheeling charges,GVEA and FMUS are deemed to transmit 60%of energy transmitted from Healy to Fairbanks on the Healy-Fairbanks Segment,and 40%on the existing GVEA transmission line.At any time the GVEA line is inoperable,FMUS shall pay to the IPG 1.5 mills/kwh for 100%of power transmitted.At any time the new Healy-Fairbanks Segment is inoperable,FMUS shall pay to GVEA the then-current rate for 100%of power transmitted.During any period in which FMUS is not directly connected to the Wilson substation,FMUS shall be responsible for payment of wheeling charges to GVEA for 100%of energy transmitted and to the IPG for 60%of energy transmitted. (c)Losses. (1)Existing GVEA Line.FMUS losses shall be incremental on the existing GVEA line. (2)Healy-Fairbanks Segment.'FMUS and GVEA losses on the Healy-Fairbanks Segment shall be computed on an average basis. PARTICIPANTS AGREEMENT --Page 39 Grant Administration Agreement GRANT ADMINISTRATION AGREEMENT THIS AGREEMENT (the "Agreement")is made and entered into this 30 day of BE oo 4,by and between the ALASKA INDUSTRIAL DEVELOPMENT &EXPORT AUTHORITY ("AIDEA"),GOLDEN VALLEY ELECTRIC ASSOCIATION,INC.("GVEA"),FAIRBANKS MUNICIPAL UTILITIES SYSTEM ("FMUS"),ANCHORAGE MUNICIPAL LIGHT AND POWER ("MLEP"),CHUGACH ELECTRIC ASSOCIATION,INC.("CEA"),ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.(""AEG&T")on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.),and the CITY OF SEWARD ("Seward")(ML&P,CEA, AEG&T and Seward hereinafter collectively referred to as the "Southern Participating Utilities";GVEA and FMUS hereinafter collectively referred to as the "Northern Participating Utilities"; the Southern Participating Utilities and the Northern Participating Utilities hereinafter collectively referred to as the "Participating Utilities"). "RECITALS WHEREAS,pursuant to Section 1 ch.19,SLA 1993,the Legislature appropriated $43,200,000 to the Department of Administration ("DOA")for payment as a grant under AS 37.05.316 to GVEA for the purpose of constructing a power transmission intertie between Healy and Fairbanks ("Healy-Fairbanks Intertie")to benefit all utilities participating in the intertie;and WHEREAS,pursuant to Section 2 of ch.19,SLA 1993 (Sections 1 and 2 of ch.19,SLA 1993 hereinafter referred to as the Grant Administration Agreement Page 1 "Intertie Appropriation"),the Legislature appropriated $46,800,000 to DOA for payment as a grant under AS 37.05.316 to CEA for the purpose of constructing a power transmission intertie between Anchorage and the Kenai Peninsula ("Anchorage-Kenai Intertie")to benefit all utilities participating in the intertie (the two intertie appropriations are hereinafter collectively referred to as the "Intertie Grants");and WHEREAS,pursuant to Section 1(b)and (c)and Section 2(b)and (c)of the Intertie Appropriation,DOA,AIDEA,and the Participating Utilities were to enter into a written agreement satisfying certain statutory conditions precedent to DOA's transfer of the Intertie Grants;and WHEREAS,in order to satisfy such requirement,DOA, AIDEA,and the Participating Utilities have entered into an Intertie Grant Agreement (the "Intertie Grant Agreement"),which among other things,provides that the Intertie Grants are to be transferred to AIDEA for,the benefit of the Participating Utilities,and that certain conditions are to be met prior to AIDEA releasing any of the grant funds to the Participating Utilities; and WHEREAS,also as part of the Intertie Grant Agreement, the Participating Utilities have agreed to form an Intertie Participants Group ("IPG")to,among other things,oversee the construction of the interties and address grant expenditure matters;and Grant Administration Agreement Page 2 WHEREAS,pursuant to the Intertie Grant Agreement,DOA and AIDEA have entered into a Grant Transfer and Delegation Agreement ("Grant Transfer Agreement")whereby the Intertie Grants were transferred to AIDEA to act as custodian and administrator of the Intertie Grants;and WHEREAS,Section 7 of the Intertie Grant Agreement requires that AIDEA and the Participating Utilities enter into a Grant Administration Agreement which shall set forth the terms and conditions to be satisfied by the Participating Utilities in order for there to be a disbursement of the Intertie Grants,and which shall also provide for AIDEA's obligations with respect to the Intertie Grants. AGREEMENT NOW,THEREFORE,in consideration of the recitals above (which are hereby incorporated into and shall be deemed part of this Agreement),and of the covenants and agreements hereinafter set forth,it is agreed by and between the parties hereto as follows: Section 1.Custodian and Administrator.The parties acknowledge that pursuant to the Grant Transfer Agreement,DOA has celegated all its powers and duties with respect to the administration of the Intertie Grants to AIDEA and that the Intertie Grants have been transferred from DOA to AIDEA for the benefit of the Participating Utilities.The Participating Utilities have requested that AIDEA serve as custodian and Grant Administration Agreement Page 3 administrator of the Intertie Grants.AIDEA hereby accepts such appointment and agrees to act as custodian and administrator of the Intertie Grants for the benefit of the Participating Utilities, subject to the terms and conditions of,and authority and powers granted by,this Agreement and applicable law,including but not limited to those statutes and regulations applicable to the administration of grants to named recipients under AS 37.05.316 by the DOA. Section 2.Custody/Investment of Grant Funds. 2.01.Appropriation Accounts.AIDEA shall establish two appropriation accounts to account for and to disburse the Intertie Grants.One account shall be designated the "Healy- Fairbanks Intertie Account"which shall be comprised of the $43,200,000 appropriation made by Section 1 of the Intertie Appropriation and all interest and other income to be earned thereon.The other account shall be designated the "Anchorage- Kenai Intertie Account"which shall be comprised of the $46,800,000 appropriation made by Section 2 of the Intertie Appropriation and all interest and other income to be earned thereon (the monies collectively comprising the Healy-Fairbanks Intertie Account and the Anchorage-Kenai Intertie Account hereinafter referred to as the "Intertie Funds").AIDEA shall have the authority to create and designate subaccounts for these two accounts as it deems necessary from time to time. Grant Administration Agreement Page 4 2.02.Institutional Custodian.In order to carry out its custodial duties under this Agreement,AIDEA may designate and hire one or more institutional trustees to act as custodian for all or any portion of the Intertie Funds and any securities which such funds may be invested in.Such institutional custodian shall hold the Intertie Funds and any securities subject to the terms and conditions of this Agreement and applicable law.AIDEA shall ensure that any institutional custodian provide the appropriate procedures to separately account for the monies,and interest and other income earned thereon,in each of the intertie accounts established pursuant to Section 2.01. 2.03.Investment of Intertie Funds. (a)Generally.AIDEA shall develop and implement an investment strategy (the "Investment Strategy")in cooperation with GVEA and CEA for the investment of the Intertie Funds.In developing the Investment Strategy,AIDEA may also consult with and hire the services of professional investment advisers.AIDEA is hereby authorized,on behalf of the Participating Utilities,to make,execute,acknowledge and deliver any and all documents or instruments that may be necessary or appropriate,to exercise all other rights and powers,and to take all appropriate actions which it deems necessary,to implement the Investment strategy. (b)Limitations.The Investment Strategy shall be consistent with the principles set out in AS 37.10.071.Investment of the Intertie Funds shall be limited to United States Treasury Grant Administration Agreement Page $ debt obligations,or obligations insured by or guaranteed by the United States or agencies or instrumentalities of the United States.The Investment Strategy shall take into consideration the cash flow needs of the Participating Utilities.The IPG shall submit to AIDEA a schedule for the use of grant funds,and any amendments or changes thereto as necessary from time to time,to assist AIDEA in developing the Investment Strategy. (c)Institutional Investor.In order to implement the Investment Strategy,AIDEA may designate and hire either the institutional custodian hired pursuant to Section 2.02 or another institutional entity to invest the Intertie Funds pursuant to the Investment Strategy,the terms and conditions of this Agreement and applicable law.AIDEA shall provide the necessary direction to provide for the investment of the Intertie Funds. Section 3.Use of Intertie Funds. 3.01.Healy-Fairbanks Intertie Account.Monies in the Healy-Fairbanks Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Healy-Fairbanks Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and 2.03(c);and Grant Administration Agreement Page 6 (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). 3.02.Anchorage-Kenai Intertie Account.Monies in the Anchorage-Kenai Intertie Account and any designated subaccounts of such account shall only be used for the following purposes: (a)all costs reasonably related to the design, permitting,and construction of the Anchorage-Kenai Intertie; (b)to pay the costs associated with any institutional custodian and/or investor hired pursuant to Sections 2.02 and 2.03(c);and (c)to pay the costs associated with any professional investment adviser hired pursuant to Section 2.03(a). 3.03.Unexpended Funds. (a)Project Completion.Any monies remaining in either the Healy-Fairbanks Intertie Account or the Anchorage-Kenai Intertie Account at the completion of the respective intertie project and payment of all outstanding obligations for the applicable project shall be returned to DOA and deposited in the State General Fund. (b)No Construction of Project.As required by Section 7 of the Intertie Grart Agreement,in the event the IPG Grant Administration Agreement Page 7 notifies AIDEA that one or both of the intertie projects will not be constructed,the monies in the account associated with the respective intertie,after the payment of all outstanding obligations,shall be returned to DOA and deposited in the State General Fund. (c)Unreasonable Delay of Projects.As required by Section 2.4(b)of the Grant Transfer Agreement,in the event that AIDEA determines,in its reasonable discretion,that development of either intertie project is unreasonably delayed by the affected Participating Utilities,the unobligated and unexpended monies in the account associated with the respective intertie shall be returned to DOA and deposited in the State General Fund.AIDEA shall give fifteen (15)days prior notice of such decision to the affected Participating Utilities. Section 4.Disbursement of Intertie Funds.Except for the payments of costs incurred by the Authority under Sections 3.01(b),3.01(c),3.02(b),and 3.02(c),any disbursement,release, encumbrance,assignment or pledge (hereinafter collectively referred to as "disbursement"for purposes of this Section 4)of the Intertie Funds from the intertie accounts shall be subject to the procedures,conditions precedent,and limitations/ceilings set forth in this Section 4. 4.01.Conditions Precedent.The disbursement of Intertie Funds for the purposes described in Section 3.01(a)and Grant Administration Agreement Page 8 3.02(a)is not permitted until the following conditions precedent have been satisfied by the Participating Utilities: (a)the Participating Utilities have entered into and executed a Participation Agreement,in a form satisfactory to AIDEA,as required by and in accordance with the Intertie Grant Agreement and Section 2.4(c)of the Grant Transfer Agreement,and transmitted a copy of the signed and executed agreement to AIDEA; and (b)the Participating Utilities have determined and agreed upon which contractual obligations related to the Intertie Grants and Intertie Funds must be submitted to the Alaska Public Utilities Commission for its review and approval,and provided written notice to AIDEA of such determination and agreement. 4.02.Disbursement Schedules.Any disbursement of the Intertie Funds shall be subject to the limits and'ceilings set forth in this Section 4.02. (a)Project Phases Ceilings.The Schedule A,which is attached to and hereby incorporated into this Agreement,and has been approved by AIDEA and the IPG,sets forth certain dollar ceilings for the initial phase of development for each of the intertie projects.The IPG shall submit to the Authority,for the Authority's review and approval,a proposed budget for subsequent phases of development.No disbursement of Intertie Funds for each of the respective interties which exceeds the established ceilings set forth in Schedule A shall be permitted.The parties agree that Grant Administration Agreement Page 9 the IPG is authorized to request amendments to Schedule A,subject to AIDEA's approval,to provide for upward adjustment only of the ceilings set for the project phases.The IPG shall submit any requests for amendments to Schedule A to AIDEA in writing.The submittal shall include appropriate findings and an explanation as to why the existing ceiling is not sufficient.AIDEA agrees to consider any request for amendment within fifteen (15)days of the receipt of such request.No amendment shall be effective until approved by AIDEA. (b)LimitationonPhaseITExpenditures.Except as may be approved by the Authority,grant funds will not be applied to reimburse costs incurred for Phase II activities,as described in Schedule A,until (a)the Participating Utilities have demonstrated,to the satisfaction of AIDEA,the ability to raise all additional amounts needed to complete construction of the intertie(s),and (b)final approval,not subject to further judicial appeal,of matters submitted to the Alaska Public Utilities Commission related to the financing or use of the intertie(s). 4.03.Disbursement Procedures.Subject to the conditions,limitations,and ceilings set forth in Sections 4.01 and 4.02,and the terms and conditions of this Agreement, disbursement of the Intertie Funds shall be subject to the following procedures: Grant Administration Agreement Page 10 (a)All invoices shall be initially submitted to the IPG for its review and approval. (b)After IPG review and approval,the IPG shall submit,on a monthly basis all approved invoices to AIDEA for payment.Each invoice shall be referenced to a particular intertie project and a specific phase for that project to allow AIDEA to properly charge the invoice against the appropriate project and to determine if payment is authorized pursuant to the Intertie Appropriation or the disbursement schedules set forth in Section 4.02.AIDEA may request further documentation or explanation with respect to any invoice and is authorized to withhold payment until documentation,acceptable to AIDEA,is submitted. (c)If payment of an invoice is authorized in accordance with (b),AIDEA shall pay such invoice within fifteen (15)days of receipt of the invoice.. Section 5.Audit Requirements. §.01.General.The parties acknowledge that the audit requirements of 2 AAC 45.010 apply to the Intertie Grants, Intertie Funds,and the use of such monies for the purposes set forth in this Agreement.The Participating Utilities,through the IPG,agree to have performed annual audits as required by 2 AAC 45.010 on the departments,agencies,or establishments of that entity which actually received,spent,or otherwise administered the grant funds,and to submit to the state coordinating agency,as such term is defined in 2 AAC 45.010(0)(4),separate audit reports, Grant Administration Agreement Page 11 as required by and in accordance with 2 AAC 45.010,on an annual basis,for both the Healy-Fairbanks Intertie project and the Anchorage-Kenai Intertie project.Each audit and the resulting audit report shall cover the preceding calendar year,and the audit report shall be submitted no later than April 15 of each year, beginning on April 15,1995.A copy of each audit report shall be transmitted to AIDEA at the same time each audit report is transmitted to the state coordinating agency.The Participating Utilities shall also submit copies to the state coordinating agency to the extent required by 2 AAC 45.010(h). 5.02.Audit Standards and Report Contents.The audits required by Section 5.01 shall be conducted by an independent auditor in-accordance with the audit standards set forth in 2 AAC 45.010(c).The audit reports shall address at a minimum the items set forth in 2 AAC 45.010(d)through (g). 5.03.Additional Requirements.The audits and audit reports required by this Section 5 shall comply fully with all requirements imposed by 2 AAC 45.010,and any amendments or modifications thereto,regardless of whether such requirements are specifically set forth in this Agreement.In addition,the Participating Utilities shall ensure that the requirements of 2 AAC 45.010(j)are satisfied by any applicable third party recipients. 5.04.Books and Records.In addition to complying with the audit réquirements of Sections 5.01-5.03,the Participating Utilities and the IPG shall permit AIDEA to have Grant Administration Agreement Page 12 reasonable access upon request to all books and records (except those protected by law or court rule,such as attorney-client or work product privilege)related to the (a)design,permitting and construction of the interties;(b)Intertie Grants;and (c) Intertie Funds. Section 6.Waiver of Liability/Indemnification. 6.01.Waiver of Liability/Indemnification on Custodial/Investment Duties.The Participating Utilities,and all their successors and assigns,hereby waive and release AIDEA,and all its officers,directors and employees,from any and all claims and liabilities of any nature and kind whatsoever which are related to or may arise out of AIDEA's obligations and duties as custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors and employees, from and against,any and all demands,claims,causes of action, losses,fines,penalties,judgments,damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising| out of or in any way related to AIDEA's obligations and duties as custodian and investor under this Agreement,except those which may arise from the gross negligence or willful misconduct of AIDEA. Grant Administration Agreement Page 13 6.02.Indemnification on Contractor Claims.The Participating Utilities agree to and shall indemnify,defend and hold harmless AIDEA,and all its officers,directors and employees, from and against,any and all demands,claims,causes of action, losses,fines,penalties,judgments,damages (including punitive and consequential damages),or liabilities of any nature and kind whatsoever (including attorney's fees,and other legal fees and expenses)incurred in connection with or resulting from or arising out of or in any way related to the design and construction of the interties,which may be asserted against AIDEA,or its officers, directors or employees,by any contractor,subcontractor, consultant,or third party or entity. Section 7.Miscellaneous/General Terms. 7.01.No Third-Party Beneficiaries.Nothing in this Agreement shall be interpreted or construed as creating any rights or privileges of any kind whatsoever in persons or entities who are not parties to this,Agreement. 7.02.Applicable Law and Venue.This Agreement shall be construed under the laws of the State of Alaska and any dispute shall be resolved in the Superior Court for the State of Alaska,Third Judicial District,at Anchorage,Alaska. 7.03.No Strict Construction.This Agreement was rafted in accordance with the wishes of all parties and after negotiation and discussion between all parties,and all parties have been represented by counsel in such negotiations.The rule of Grant Administration Agreement Page 14 construction that a contract shall be construed against the party who drafted it shall not apply to construction of this Agreement. 7.04.Counterparts.This Agreement may be executed in counterparts,in which case all such counterparts)shall constitute one and the same Agreement. 7.05.Successors and Assigns.This Agreement shall be binding upon the parties and their successors and assigns. 7.06.Modifications/Amendments.This Agreementmay not be modified or amended except by a writing signed by all the parties. 7.07.Captions/Headings.All captions and headings used in this Agreement are for the convenience of reference only and shall not be construed as part of the Agreement. IN WITNESS WHEREOF,the parties have caused this Agreement to be executed on the date first above written. ALASKA Wy)LY MENT &EXPORT AUTHORITYwv,Mina,tal Its:Executive Director GOLDEN VALLEY ELECTRIC ASSpe INC.By:11 lular y \*"y Its:Veneral Manager \/FAIRBANKS MUNICIPAL orriitfes SYSTEMny,Vawtbin/Ucty Maney Grant Administration Agreement Page 15 F:\AIDEA\ENERGY \KAE2364 ANCHORAGE MUNICIPAL LIGHT AND POWER Its:Mayor,Municipality of Anchorage CHUGACH ELECTRIC ASSOCIATION,INC. By:SF UN.ce Its:©\General Manheobr=AS ALASKA ELECTRIC GENERATION AND TRANSMISSION COOPERATIVE,INC.on behalf of its members (Matanuska Electric Association,Inc.and Homer Electric Association,Inc.) py:G2 S+GvwnIts:CpaJani AYE, CITY OF SEWARD Grant Administration Agreement Page 16 SCHEDULE A-1 HEALY-FAIRBANKS INTERTIE 1.PHASE DESCRIPTION Phase I -Design Phase 0 -Construction These phases will be conducted sequentially.However,efficient performance will dictatesomeoverlappingofphases. 2.PHASE I -DESIGN a.The Phase I ceiling shall be $6.64 million. b.Phase I includes the project permitting,engineering,and design including bothprojectdefinitionanddetaileddesignactivities.Specifically,Phase I shall include: (1)Environmental Assessment .DVG Survey System °Archaeological Investigation (2)Line -Engineering and Design °Geotechnical °Easements and Land Rights (3)Substation Design )(4)Energy Storage System Design °System Studies for Scoping (5)APUC and/or REA Approvals (6)Develop Finance Plan (7)Develop and Issue Bid Documents (8)Development of the Phase II CeilingforSubmissiontoAEIDAforApproval 3.PHASE If -CONS CTION a.Phase II ceiling shall be $Jj _ 4b.Phase II shall include the procurement and receipt of equipment and materials at thejobsixesandsitemanagementforinstallation,checkout,and start-up. C.Specifically,Phase I shall include: (1)Transmission Line Construction Link 1 Link 2 Link 3 Link 4 Link 5 Construction Management Right-of-Way Clearing (2)Substation .Wilson Substation °Healy Substation °Construction Management (3)Energy Storage System Fabrication Installation 1 To be determined pursuant to 2(b)(8),above. SCHEDULEA-2 ANCHORAGE-KENAI INTERTIE 1.PHASE DESCRIPTION -Anchorage-Kenai 138 kV Intertie ($84.1 Million) PhaseI --Route Selection and Preliminary DesignPhaseII-Final Design and Construction These phases will be conducted sequentially.However,efficient performance will dictatesomeoverlappingofphases. 2.PHASE I -ROUTE SELECTION &PRELIMINARY DESIGN a.The Phase I ceiling shall be $5.1 million. b.Phase J includes the following: (1)Development and Approval of Project Team(2)Preliminary Environmental Assessment (3)Preliminary Geotechnical and Archaeological Investigation (4)Preliminary Easement Investigation(5)Identify Corridors,Determine Alternate Route Alignments (6)Prepare Route Selection Report(7)Investigate Design Alternatives(8)|Approval of Line Route End Points and Preliminary Design(9)Development of the Phase I Ceiling for Submission to AIDEA for Approval 3.PHASE I -FINAL DESIGN AND CONSTRUCTION a.The Phase II ceiling will be $J b.Phase II includes the completion of the following tasks: (1)|Final Environmental,Geotechnical,and Archaeological Investigations (2)Selection of Specific Location of Facilities(3)Procurement of Easements (4)Design Modifications to Bernice Lake Substation (5)Design Submarine Cable Terminal Stations(6)Design Submarine Cable Crossing Specifications(7)Preparation of Functional Design,Drawings,Specifications,and Bid Documents and Award (8)Preparation of Construction and Material Contracts (9)Right-of-Way Clearing 1 To be determined pursuant to 2(b)(9),above. (10) (11) (12) (13) (14) Transmission Line Construction °South Kenai Line °North Kenai Line °Anchorage Line Modification of Bernice Lake Substation Submarine Cable Terminal Stations Submarine Cable Crossing Commissioning and Project Closeout *ove 1-95 KED 15:44 ALASKA AL ELECTRIC |=FAK NO,561554"P,02/04 INTERTIE PARTICIPANTS GROUP NORTHERN INTERTIE SYSTEM AGREEMENT Whereas;the Intertie Participants Group (IPG)intends to settle the issues of the Healy- Fairbanks Project Segment of the Northern Intertie System related to: (a)Capacity allocations (b)Scope of the project segment,and (c)Budget for the project segmentinordertopermitthetimelyexecutionofthe Construction Management Agreement; Therefore The Parties Agree: 1,The existing Healy-Fairbanks 138 kV line owned by Golden Valley Electric SZ emAssociation(GVEA)and used for transfers north by GVEA and Fairbanks Municipal g)gnUtilitySystem(FMUS),shall have a transfer capacity of 100 MW into Fairbanks.All '\Y e ple'transfer capacity in excess of 100 MW of the combined lJealy-Fairbanks lines after wy construction of the new line shall belongto the IPG.All southbound transmission "7capacityoftheexistingAlaskaIntertieshallbelongtoAvaskaElectricGeneration&to eSTransmissionCooperative(AEG&T),Chugach Electric Association (CEA)and WtyAnchorageMunicipalLight&Power (ML&P)as provided in the Alaska Intertie 6 a ver)Agreement.GVEA and FMUS agree that all southbounc!transfer rights on the existing : GVEA transmission line in excess of the transfer require:nents they have to serve their own retail loads shall belong to AEG&T,CEA and ML&P,-- 2.The Healy-Fairbenks Project Segment shali consist of 2230 kV line energized at 138 kV and a 40 MW battery,The line shall be a freeway"as specified in the Participants Agreement and capacity shares shall be bi-directional.However,the battery spinning reserve benefits shall be divided by IPG shares. 3,The budget for the Healy-Fairbanks Project Segment will be $75 million. 4.The parties will fully cooperate to achieve expeditiously all necessary approvals by the Alaska Public Utilities Commission (APUC). S.The parties will pursue financing at the lowest reasonable cost and will seek technical endments to existing legislation if necessary. 6.The parties will continue to cooperate to achieve fést-tracking of the construction schedule.The goal is to begin construction during the first quarter of 1996. ret LOT IEMESTIITAICH EAS Mesa ce tT”Att NOV-1-$5 WED 15:44 ALASKA |L ELEUIKIV |PHA NU.D010941 Leu us T'sya]7.The parties will support the following after completicn of the Healy-Fairbanks Project Segment: (a)Future upgrades resultingin increased transfer capacity of the Alaska RY ot TPC Intertie andincrease ited on the Healy-Fairbanks Project Segment shall be paid for and allocated based on Alaska Intertie shares."This provision for increasing shares of transfer capacity shall remain in effect until the potential transfer capacity of this project segment is realized.GVEA and the IPG commit that when both their line;between Healy and Fairbanks are operational,FMUS will be assured delivery to Fairbanks of their "minimum,intertie transfer capacity right"(MITCR)over the Alaska Intertie. When improvements to the Alaska Ixtertie result in an increased MITCR for FMUS,this provision will applyso long as there is an increase in Healy-Fairbanks delivery capability at least equal to the increase on the Alaska Intertie, (b)When the existing GVEA 138 kV Healy-Fairbanks line is upgraded, participants in the Healy-Fairbanks Pi :ject Segmentshallbeofferedan'Opportunity to participate in proportion to their IPG shares.Any increased transfer capacity and increased stable/secure capacity shall be shared on the basis of each utility's participation.If any par'icipant declines the opportunity to participate in the upgrade of the GVEA line,that participant's share shall be offered,on a pro rata basis,'to the other participants in the Healy-Fairbanks Project Segment.If any participant declines its portion of this declined share, that portion shall revert to GVEA. (c)The Northern Intertie System shall be operate]in the stability/secure mode. However,participant utilities may access the edditional transfer capacity increment and the increased additional transfer capacity increment resulting from future upgrades of the Alaska Intertie or the Healy-Fairbanks Project Segment,provided they employ sufficient IPG approved rapid load shed or equivalent to return immediately to the stable/secure transfer limit following a first contingency.The parties intend that the Northern Intertie System may bebeoperatedabovetheseourelimitItisfurthertheintentofGVEAandFMUSthat,wi s ealy-Fairbanks Project Seement,they will install equipment necessary to permit the above mentioned rapid load shed. NOLLEMLSINIWOY U3A9 waidiea1€05: Pe Uas usiLELEUINIV!PHA NU.SOLS04!"yUve In¥b WED 19igo HLHDAH |NOV-1PYy HAL "Pe,g8F4SA SR nist |FAK NO,5815547 P22 3 8.The parties will expedite IPG action under the Participznts Agreement necessary tosupportthisagreementandtoapproverelatedexhibitstotheNorthemIntarieConstructionManagementAgreement. 9.GVEA hereby re-state;its strong intent to participate jn the Ancho3rage-KepalPeninsulaProjectSegmentandlooksforwardtodesignandconstructionproceeding onafasttrack. PROPOSED ON 10-31-95 BY: MUNICIPALITY OF ANCHORAGE GOLTIEN VALLEY ELECTRIC a.b.a.MUNICIPAL LIGHT &POWER ASSOCIATION;INC. '\ NOLLHMISTNTLIQH HAAS MISSA SF.TIA ANHpred MA/UL/95 15353 @503 226 79 kTER WYNNE Zoos/o3L ;bntil meet 4/11/95 pak .(Tine 1)I ty 13-98 1993 ALASKA INTERTIE PROJECT CONSTRUCTION MANAGEMENT AGREEMENT BETWEEN ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC., THE MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER, CHUGACH ELECTRIC ASSOCIATION,INC., THE MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM, THE CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM AND GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. ("PARTIES") AND HOMER ELECTRIC ASSOCIATION,INC MATANUSKA ELECTRIC ASSOCIATION,INC. ("ADDITIONAL PARTIES") ond .tf 7d a CANTBetEOPUI ee ee me ee mm,contol Fr se O4711/95 15:54 303 22°179 \TER WYNNE 004/031 DRAFT 4/11/95 CONSTRUCTION MANAGEMENT AGREEMENT THIS AGREEMENT ("Agreement")is made and entered into this day of ,1995,by and between:ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC,("AEG&T),THE MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER ("ML&P"),CHUGACH ELECTRIC ASSOCIATION,INC,("Chugach"),THE MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM ("FMUS"),THE CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM ("Seward"),HOMER ELECTRIC ASSOCIATION,INC.("HEA"), MATANUSKA ELECTRIC ASSOCIATION,INC.("MEA")and GOLDEN VALLEY ELECTRIC ASSOCIATION,INC,("GVEA").AEG&T,ML&P, Chugach,FMUS,Seward and GVEA are sometimes referred to individually as "Party"and collectively as "Parties."HEA and MEA are referred to as"Additional Parties". WITNESSETH: WHEREAS,the State of Alaska ("State")has by statute authorized, and has partially funded,the design and construction of a 138 kV (minimum) transmission line between Healy and Fairbanks,Alaska (hereinafter called the "Healy-Fairbanks Segment”or "Segment");and WHEREAS,the Parties and the Additional Parties and the State,acting through the Department of Administration and the Alaska Industrial Development and Export Authority,have entered into the Intertie Grant Agreement ("Intertie Grant Agreement”),dated October 26,1993 under which the Participating Utilities have agreed to contract with GVEA to design and construct the Healy-Fairbanks Segment and requires that the Intertie Participants Group ("IPG")be formed by the Participating Utilities for the purpose of exercising the rights and responsibilities of the owners and to provide oversight of GVEA's construction efforts;and 1 -CONSTRUCTION MANAGEMENT AGREEMENT PE/S*d MINT IHMICTRITIIAM WoAgQ tuam.em CE eT MU 94/11/35 25:54 @ios 226 79 TER FYNNE Zoos/os1 DRAFT 4/11/95 WHEREAS,the Participating Utilities have entered into the Participants Agreement,dated January 24,1994 ("Participants Agreement")which designates GVEA as the Construction Manager of the Healy-Fairbanks Segment,forms the IPG and provides for the basic requirements for budgeting and oversight by the IPG regarding GVEA's design and construction of the Healy-Fairbanks Segment and provides for a means of financing the remaining cost of the Segment by AIDEA or the Participants; and WHEREAS,the Participants have entered into the Grant Administration Agreement dated August 30,1994 ("Grant Administration Agreement"), which provides the terms and conditions to be satisfied prior to disbursement of Grant Account funds and provides for AIDEA's obligations with respect to the administration of the Grant Account:and WHEREAS,in order to assure that the Participating Utilities and GVEA meet their obligations under the Intertie Grant Agreement and the Participants Agreement,the Parties and Additional Parties desire to detail GVEA's responsibilities as Construction Manager for the Healy-Fairbanks Segment and the procedures necessary to assure that the IPG provides oversight of the design and construction of the Healy-Fairbanks Segment. NOW,THEREFORE,IN CONSIDERATION of the mutual covenants set forth herein,the Parties and Additional Parties agree as follows: SECTION 1.TERM. Unless otherwise provided in this Agreement,this Agreement shall become effective on May 10,1995 and shall continue until the Final Acceptance Date or terminated as provided for herein;provided,that all obligations incurred hereunder shall be preserved until satisfied. 2 -CONSTRUCTION MANAGEMENT AGREEMENT Cc .PoE *d MATIMMICTIITIIM@U UDAD PluTtm.eR Fe oT ON 04/11/33 15:55 509 22°79 \TER WYNNE 006/031 DRAFT 4/11/95 SECTION 2.DEFINITIONS. Whenever used in this Agreement the following terms shall have the meaning stated below: (2)"Additional Costs”means approved Project construction costs in excess of available Grant Funds as defined in the Participants Agreement. (b)"Agreement”shall mean this Construction Management Agreement. (c)"Commercial Operation Date”means the date that the IPG receives an opinion from the Project Engineer(s)that the Healy- Fairbanks Seament is fully available to operate at rated capacity on a commercial basis. (d)"Canstruction Budget”means the budget for Design and Construction Costs spproved by the IPG in accordance with this Agreement. (e)"Construction Manager”means GVEA. (f)"Construction Manager's Design and Construction Costs"means all capital costs of the Healy-Fairbanks Segment incurred under and consistent with the Participants Agreement,Section 11 of this Agreement and the Construction Budget approved by the IPG, including but not limited to planning,permitting,design,acquisition of real property interest,construction,equipment,testing,and insurance costs and payment of claims,regulatory activities,judgments, settlements,or claims,legal and consulting costs,GVEA's labor costs directly assigned to the Project (including associated payroll benefits) and equipment costs related to design and construction and GVEA administrative and general overhead,including construction overhead, of 0.5%of the sum of the above direct Construction Manager's Design and Construction Costs contained in an approved Construction Budget. The Parties and Additional Parties recognize the IPG will incur 3 -CONSTRUCTION MANAGEMENT AGREEMENT PE/RI'A IAT ILO TO ee 04/11/95 15:55 503 22°1079 ATER WYNNE \gooTso3L DRAFT 4/11/95 additional Design and Construction Costs as defined in the Participants Agreement. (g)"Construction Schedule”means the schedule prepared by GVEA under Section 6(a). (h)"Contract Year"means calendar year,except that the initial Contract Year shall begin on the effective date of this Agreement and the final Contract Year shall end on the termination of this Agreement. (i)"Final Acceptance Date"means the date GVEA notifies the IPG . that all design and construction of the Project has been completed,all invoices submitted ta the IPG have been paid and GVEA has made final payment to its contractors for the design and construction and the IPG determines that the Project has been completed. (j)"Grant Funds”means the $43,200,000 appropriated by Section 1 of Ch.19,SLA 1993,for payment as a grant under AS 37,.05.316 tor construction of the Healy-Fairbanks Segment and accrued interest. (k)"Major Equipment and Construction Contracts”means contracts for the acquisition of equipment,design or construction in the categories listed jn Exhibit D that commit expenditures for the Project in excess of $100,000,as such Exhibit D may be revised from time to time by GVEA and approved by the IPG in accordance with Section 8(e)(3)of the Participants Agreement. (1)"Participant's Share”means Participant's Share as determined in Section 4 of the Participant's Agreement. (m)"Project”means the design and construction of the Healy- Fairbanks Segment as described in Project Scope. (n)"Project Engineer(s)”means the engineering firm of national reputation engaged by GVEA to pravide preliminary and final engineering design and specifications for the Project and provide construction liaison and oversight for the Project. 4 -CONSTRUCTION MANAGEMENT AGREEMENT ve/It td VINTEC Teri a ptmes ne oT ND hed 04/11/95 15:56 503 228 "479 ATER WYNNE 1005/0031 DRAFT 4/11/95 (0)"Project Scope”means the description of the Northern Intertie Scope attached hereto as Exhibit A,as revised from time to time pursuant to this Agreement. (p)"Prudent Utility Practice”means at a particular time any of thepractices,methods and acts engaged in or approved by a significantportionoftheelectricutilityindustryatsuchtime,or which,in the exercise of reasonable judgment in light of facts known at such time, could have been expected to accomplish the desired results at the lowest reasonable cost consistent with good business practices, reliability,safety and reasonable expedition.Prudent Utility Practice is not required to be the optimum practice,method or act to the exclusion of all others,but rather to be a spectrum of possible practices,method or acts which could have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability,safety and expedition.Prudent Utility Practice includes due regard for manufacturers'warranties and the requirements of governmental agencies of competent jurisdiction and shall apply not only to functional parts of the Healy-Fairbanks Segment,but also to appropriate structures,landscaping,painting,signs,lighting and other facilities. (r)"Trustees"means AIDEA or the successor to AIDEA named by the State, (s)"Uncontrollable Force”means any cause beyond the control of a Party hereto and which by the exercise of due diligence that Party is unable to prevent or overcome,including the following causes,if they Cannot be overcome by due diligence,but not limited to,an act of God,fire,flood,volcana,earthquake,explosion,sabotage,and act of the public enemy,civil or military authority,including court orders, injunction and orders of governmental agencies of competentjurisdiction,insurrection riot,an act of the elements,failure of equipment,or the inability to obtain or ship equipment or materials because of the effect of similar causes on carriers or shippers.Strikes, lockouts,and other labor disturbances shall be considered Uncontrollable Forces,and nothing in this Agreement shall require either Party to settle a labor dispute against its best judgment: 3 -CONSTRUCTION MANAGEMENT AGRESMENT .VE/2T d Ce ee le ied anh OY Olvit/9s)=--15:356 @503 228 079 KTER WYNNE Moo0s/o31 DRAFT 4/11/95 provided,that during any labor dispute each Party shall make ail reasonable efforts under the circumstances,including,to the extent permitted by law and collective bargaining agreements,the use of replacement personnel end or management personnel and/or other personnel under the provisions of a mutual aid agreement,to ensure,if possible the continued ability of the Parties and Additional Parties to carry out their obligations under this Agreement. SECTION 3.CONSTRUCTION MANAGER. (a)GVEA as Construction Manager.GVEA shall serve as the Construction Manager on behalf of the Parties and the Additional Parties of the Healy-Fairbanks Segment for the term hereof,unless either GVEA gives written notice to the [PG of termination,or the IPG removes GVEA as Construction Manager pursuant to the terms of Section 9(b)of this Agreement.GVEA,as Construction Manager,shall be responsible for (i)selection and supervising of qualified contractors employed to design or construct the Healy-Fairbanks Segment,subject to the oversight and approval of the IPG as provided in this Agreement and (ii)the administration of all cantracts to insure compliance with all contract plans,specifications and the Construction Budget.All contracts between GVEA and a contractor shall contain an assignmentclauseinfavorofthePartiesandAdditionalPartiesintheeventthat this Agreement is terminated. (5)Management of Desian and Construction.GVEA shall manage the design and construction of the Healy-Fairbanks Segment in accordance with Prudent Utility Practice and the requirements of the IPG as described in this Agreement. (c)Reports to the IPG.GVEA shall submit monthly reports to the IPG members setting out in sufficient detail the status of the design and construction of the Healy-Fairbanks Segment.Monthly reports shall be in such detail as is requested fram time to time by the IPG but shall,at a minimum,allow the IPG members to compare the percentage of completion of the Project with total expenditures as a percentage of budgeted items.GVEA shall promptly inform,so as to allow the Parties and the Additional Parties to protect their interests,the 6 -CONSTRUCTION MANAGEMENT AGREEMENT moePESET d CONT PUNTEGQTIITETU tran Ce mam lee ar NP we 04/11/85 15:37 @503 22 379 ATER WYNNE Zo10/031 DRAFT 4/11/95 members of the IPG or,in the case of litigation or significant potential litigation,the legal representatives designated by each Party by fax regarding any design or construction problems encountered which,in the opinion of GVEA,might result in significant litigation,require a significant Change Order or a significant deviation in the schedule for completion of the Segment.For the purposes of this section, significant shall mean potential litigation or a Change Order which GVEA determines has-a-reasonableJikelihood-_of resulting liability.or-2estof $50,000 or an increase in the cost of a Major Equipment or Construction Contract of 10%,whichever is lower,or a delay in the proposed Commercial Operating Date of 30 days or more.The IPG,its members and the Parties and the Additional Parties shall treat as exempt from public disclosure any commercial or financtal information furnished pursuant to this Agreement that Is privileged or confidential and is so designated by GVEA.In the event a third party seeks disclosure under any applicable Alaska law,the IPG,its members and the Parties and the Additional Parties shall notify GVEA of such effort and to protest such disclosure.The IPG,the Parties and the Additional Parties shall use their best efforts to avoid disclosure of any privileged or confidential information. (d)GVEA shall include''in all of its construction contracts and any engineering contracts or amendments entered into after the date of this Agreement,provisions for insurance and bonding naming the Parties and the Additional Parties as additional insureds or third party beneficiaries to protect the Parties and Additional Parties from contractor negligence and willful misconduct and other risks normally included in construction contracts. 7 -CONSTRUCTION MANAGEMENT AGREEMENT moO se Th 04/11/83 15:58 3503 22°78 ATER WENNE 011/031 DRAFT 4/11/95 SECTION 4..OVERSIGHT. The IPG acting on behalf of the Parties and the Additional Parties shallberesponsibleforoversightofGVEAconstructionefforts.Such oversight shall include approval of: (a)Any material revisions to Project Scope including: (1)selection of final segment routing; (2)changes in Project design voltage; (3)changes in final location and specifications for points of interconnection; (4)changes in design criteria for reliability and transfer capability; (5)substation one line drawings and major equipment ratings; and (6)ratings and operational limits of station compensation and capacity. (b)Construction Budget,including any revision thereof. (c)Selection of Project Engineer(s),Major Equipment and Construction Contracts. (d)Construction Schedule. SECTION 5.SCOPE OF PROJECT,PRELIMINARY DESIGN OF SEGMENT,CONSTRUCTION CONTRACT. (a}Project Scope.The Project Scope is attached hereto as Exhibit A.Project Scope may be amended from time to time by the IPG to reflect the results of design and engineering studies undertaken 8 -CONSTRUCTION MANAGEMENT AGREEMENT ee rvcTea at a ee od 04/11/95 15:58 @503 22€"9 hTER ¥YNNE 012/031 DRAFT 4/11/95 as part of Phase 1 of the Construction Budget,including,but not limited to: (1)final segment routing; (2)interconnection location and design specifications; (3)Project design voltage;and (4)System voltage compensation and stability facilities. (b)Preliminary Desian of Seqment.Subject to the terms of this Agreement,GVEA shall proceed with the selection of the ProjectEngineer(s),preliminary engineering,design survey of the Segment and related environmental and geotechnical studies detailed in Exhibit B. Prior to the execution of this Agreement,the IPG approved GVEA proceeding with preliminary contracts for services to allow GVEA to prepare the Construction Budget attached as Exhibit C.. (c}Final Desian and Construction of Project.Upon approval of Phase 2 of the Constructian Budget,GVEA shall proceed as appropriate with contracting for detailed construction design,purchase of equipment and material and construction of the Segment.GVEA shall submit the Major Equipment and Construction Contracts to the IPG for approval prior to their execution. SECTION 6.CONSTRUCTION BUDGET. (a)Initial Construction Budget.The initial Construction Budget for the Project,including a Construction Schedule,is attached hereto as Exhibit C.The Construction Schedule may be revised from time to time with the concurrence of the IPG without further change to theSsConstructionScheduleattachedheretoaspartofExhibitC.GVEAwrshallnot,without the express approval of the IPG,incur costs orOobligatefundsbeyondthoseamountscontainedinandapprovedfor__each line item of the Construction Budget,adjusted for Change Orders"as provided in subsection (d)below and intra--budget transfers as providedin subsection (e)below.Prior to the cormpletion of Phase 1 of 9 -CONSTRUCTION MANAGEMENT AGREEMENT fo ratrta Odvtiv3s 15:59 =H503 226°ATER WYNNE @013/032 DRAFT 4/11/95 the Construction Budget,GVEA shall provide the IPG a revised Phase 2estimateandConstructionScheduleforapproval.The Project Schedule shall be detailed showing the commencement and completiondatesofmajorProjectcomponentsandaprojectedcashflowby months for each phase of the Project. (b)GVEA Direct Labor and Related Direct Expenses.The Construction Budget may separately itemize a reasonable amount for GVEA's direct labor,including normal associated payroll benefits and related direct expenses during the design and construction of the Project to the extent such labor was directly assigned to the Project by the Construction Manager.GVEA's other administrative and general expenses shall not be included as part of such direct labor and related direct expenses.Direct labor includes all hours actually worked on the Project by GVEA employees,excepting the General Manager,even though the employee performing the work may be employed less than 100%on the Project;provided,that the claim is supported by itemized descriptions of the work performed and the time taken to perform the work. (c)Working Capital and IPG Expenses.The estimated amount cf Working Capital needed to.cover GVEA's estimated contractual payment obligations for each month of the Contract Year and the IPG expenses allocated to the Project by the IPG shall be separately designated in the Construction Budget. (d)Annual Revisions to the Construction Budget.GVEA shall provide the IPG a revised Construction Budget,including a revised Project Schedule and Project Scope,if appropriate,120 days prior to the beginning of each Contract Year.The IPG shall approve or disapprove within 60 days any revision to the Construction Budget. Proposed revisions or modifications must be submitted in sufficient detail or with sufficient explanation so as to clearly show the scope and justification for the requested expenditure or revision.If the IPG disapproves the revised Construction Budget,it shall provide GVEA an explanation of the items disapproved and an alternative that would be acceptable to the IPG. 10 -CONSTRUCTION MANAGEMENT AGREEMENT PEs"atid NOTPHAISTNITLICH BRAS Linbaeem COO ORT Ma o4/11/95 15:59 M503 226 %TER WYNNE Mo147031 DRAFT 4/11/95 (e) Limits_on Intra-Budget Transfers.GVEA may make intra-budgettransfers,not to exceed $50,000 to any single budget item;provided, that GVEA shall report such intra-budget transfers at the next IPGmeeting.Any proposed intra-budget transfer over that amount shall besubmittedbyGVEAasaproposedChangeOrderasprovidedin subsection (f)below. (f)Change Orders.GVEA may approve Change Orders to its agreements with design or construction contractors if: (i)the Change Order does not exceed $50,000 or the aggregate of all Change Orders in the Contract Year do not increase the applicable line item in the Construction Budget,and (ii)the Change Orders do not affect the Project Scope,including Project capacity,general routing,points of interconnection,or basic design of the structures;and (iii)the total of all Change Orders in the Contract Year does not cause the budgeted costs for that phase of the Project to increase. GVEA may proceed with the above Change Orders it determines are required to maintain the Project Schedule;provided,that GVEA shall report all such Change Orders to the IPG on its next regular monthly report. SECTION 7.FUNDING OF THE HEALY-FAIRBANKS SEGMENT. (a)Funding of Preliminary Costs.GVEA costs and expenses incurred or obligated by GVEA and approved by the IPG pursuant to Section 4(a)and approved IPG expenses shail be funded from Grant Funds held by Trustee for the account of GVEA under the Intertie Grant Agreement,subject to the availability of such Grant Funds. (b)Financing Plan and Funding of Costs in Excess of Grant Funds. Each Party shall notify the IPG prior to July 1,1995,of its decision regarding the source of funding for its Participant's Share of Additional 11 -CONSTRUCTION MANAGEMENT AGREEMENT PO votes 04711735 16:00 503 226 4 ATER WYNNE 2015/0321 DRAFT 4/11/98 Costs.If such Party elects to finance its share separately,such notice shall include an financing plan demonstrating that such plan is a feasible method to assure the funding of that Party's Participant's Share of Additional Costs,provided,that the costs of financing arrangements which do not finance all Participant'Shares shall not be considered Project costs or be born by the Participants.If the Parties and Additional Parties elect to jointly finance such Additional Costs, each Party shall act in good faith to enter into agreements with the issuer within 30 days after GVEA submits its revised Phase 2 estimate pursuant to Section 6(a)to allow timely funding of Additional Costs: (c)Assurance of Adequate Funding.The Parties and Additional - Parties shall use their best efforts to secure adequatefinancing_oftheHealy-Fairbanks Segment and cooperate with AIDEA,if AIDEA is requested by any !|PG member to issue bonds to finance all or a part of the remaining cost of the Segment. SECTION 8.INVOICING AND PAYMENT, (a)Invoicing.GVEA shall prepare and submit an invoice to the IPG, Or its designee,by the twentieth of each month stating the amounts paid to its contractors for progress payments for work accomplished in the prior month,the amount of additional Working Capital,if any, needed to cover the ensuing month's estimated costs,the amounts to be paid to GVEA for direct labor and other related direct costs and the amount of authorized overhead (0.5 percent of direct Design and Construction costs)and any other Design and Construction Cost relating to the Healy-Fairbanks Segment.GVEA shall maintain copies of all invoices subject te audit and include copies of invoices in excess of $10,000 submitted by such contractors and a summary statement of invoices that are less than $10,000 and certify their accuracy and that the invoice is consistent with the Construction Budget and the terms of this Agreement.The GVEA invoice shall also detail the hours of direct labor and other related direct costs provided by GVEA personnel involved in support of the design and construction of the Healy-Fairbanks Segment and any other Design and Construction Cost expended by GVEA.GVEA shall certify that all progress payments andinvoicessubmittedforIPGapprovalareaccurateandinconformance 12 -CONSTRUCTION MANAGEMENT AGREEMENT rn ewe 4/11/95 16:00 505 22603 hTER WYNNE 2016/031 DRAFT 4/11/95 with contract and budget requirements.All invoices submitted shall conform to the requirements of the Grant Administration Agreement. (b)Review of Invoice.The IPG or its designee shall review GVEA's invoice and approve the invoice in whole or in part or disapprove any part not consistent with the Construction Budget or not conforming to the requirements of the Grant Administrative Agreement at the next IPG meeting.The approved invoice or the approved parts of the invoice shall then be forwarded to AIDEA authorizing payment to GVEA.Once grant funds available from AIDEA are fully committed, GVEA's invoice shall be forwarded to AIDEA or the individual IPG member for payment of its proportionate share of such invoice.AIDEA or individual |PG members will reimburse GVEA upon approval of the invoice by the IPG. {c)Working Capital.(f authorized in the Grant Administration Agreement,in addition to costs actually incurred,GVEA may include in each invoice an amount to maintain working capital at the level provided in the Construction Budget for the ensuing month approved by the IPG solely for Project purposes.Working Capital shall be adjusted for each month in such Contract Year to an amount requested by GVEA,but not to exceed the highest estimated monthly payment to GVEA estimated in the approved Construction Budget.Interest earned by GVEA on Working Capital shall be credited to Working Capital and used solely for Project purposes,To the extent Grant Funds are not available to pay Working Capital,each Party shall pay,as its share of Additional Costs,within 15 days of approval by the IPG its Participants Share of the amount to maintain Working Capital at the level provided in the Construction Budget for the ensuing month as approved by the IPG. SECTION 9,TERMINATION AND DEFAULT. (a)Termination by GVEA.GVEA may,for any reason,terminate this Agreement if written notice of such termination is tendered no less than 60 days prior to the anticipated date of commencement of construction specified in the notice to proceed,If such notice is not given,GVEA may terminate this Agreement upon reasonable notice 13 -CONSTRUCTION MANAGEMENT AGREEMENT PES?*A LIAT tune '04/11/33 =16:01 @303 226 79 \TER WYNXE 01T/031 DRAFT 4/11/95 (not less than 90 days)if GVEA can demonstrate that termination is forgoodcauseshown.In either event,GVEA shall use its reasonable best efforts to transfer Project files,contracts and responsibilities andcooperatewith,the new construction manager selected by the IPG,and mitigate any costs arising from the termination of this Agreement and the transfer of responsibility to the new construction manager. (b}Removal of Construction Manager.The IPG may remove GVEA as Construction Manager and terminate this Agreement for reasonable cause provided that the IPG gives GVEA at least 30 days'prior notice in writing and reasonable opportunity to cure,Reasonable cause shall include,but not be limited to,the unavailability of adequate financing to complete the Segment,substantial cost overruns in any phase of the Project,significant threatened or pending litigation or claims,material discrepancies in the books and records of GVEA,or negligence of GVEA,irrespective of whether GVEA would be liable for any of the above causes under this Agreement. (c)Notification of Material Breach or Default,If a Party is in material breach of or default under this Agreement (Defaulting Party),the other Party or Parties (Terminating Party)may notify in writing the Defaulting Party that it is in material breach or default.Such notice shall beeffectiveuponitsreceiptbytheDefaultingParty.For the purpose of this section,material breach or default under this Agreement includes, but is net limited to: (1)rernoval,withdrawal or termination as set out above; (2)insolvency,/,e.,a Party is unable to meet its obligations as they become due; (3)general assignment of substantially all of a Party's assets for the benefit of it creditors,filing of a petition for bankruptcy or reorganization or seeking other relief under any applicable insolvency laws;and (4)material failure of a Party to meet its obligations under this Agreement. 14 -CONSTRUCTION MANAGEMENT AGREEMENT 7s.VEST]d PUNT UENOTITete teme ne we Ae 04/11/35 16:01 Gs503 226 '3 ATER WYNNE 018/031 DRAFT 4/11/95 Notwithstanding the foregoing,this Agreement shall not be terminated as a result of an Uncontroillable Force. (d) Riqhtto Cure. (1)The Defaulting Party shall have the right to cure the material breach or default within 60 calendar days of the mailing date of notification of the material breach or default. (2)Inthe case of a material breach or default which may not reasonably be cured within 60 calendar days,the Defaulting Party shall have the right to provide the Terminating Perty with a plan for the appropriate actions to cure the breach or default.Within this 60 calendar days, the Defaulting Party must commence diligently pursuing appropriate action under the plan to cure the default and continue until the default is cured. (e)Payments Upon Termination.Upon receipt of notice of termination,GVEA shall not incur additional cost obligations without the approval of the [PG and shall limit additional cost to thoseabsolutelynecessarytomaintainessentialprojectmanagement pending determination of allowable close-out costs.Such allowable close-out costs shall include costs irrevocably incurred by GVEA in accordance with this Agreement,costs of terminating related contracts not assigned to the new construction manager and,subject to negotiation and agreement of GVEA and the IPG,GVEA's direct costs associated with the close-out of its obligations as Construction Manager.GVEA shall be reimbursed from Grant Funds or from Additional Funds for such allowable close-out costs,in accordance with subsection (f),less GVEA's share of such costs.GVEA shall submit to the IPG within 30 days of termination a'summary of its obligations and an estimate of such costs.Any obligation of AIDEA or the Participants for reimbursement of GVEA shall survive termination and shall remain in full force and effect until satisfied. 15 -CONSTRUCTION MANAGEMENT AGREEMENT posta? O4/11/95 16:02 503 22F 9-9 hTER WONXE (018/031 DRAFT 4/11/95 (f)In any event,GVEA shail use its best efforts to cooperate with a new construction manager selected by the IPG and to mitigate any costs arising from the removal,withdrawal,or replacement of GVEA and the transfer of responsibilities to a new construction manager, including the immediate transfer of all Project records and books and the immediate assignment of any subcontracts entered into by GVEA in connection with the Project. SECTION 10.IPG DECISIONS DURING CRITICAL CONSTRUCTION PERIODS. The Construction Manager shall use its best efforts to anticipate construction problems,and bring matters related to such problems that require action or could require action by the IPG under this Agreement to the IPG for decision at regularly scheduled meetings of the IPG. During critical construction periods,designated by GVEA and agreed to in advance Fy the IPG,the members of the IPG shall each designate one or more representatives,fully empowered to vote on behalf of that member,who shall be available by telephone.These voting representatives shall be available to decide matters that cannot wait for consideration until the next scheduled meeting of the IPG without exposure to delay claims or substantial additional cost.Diligent efforts aS are reasonable under the circumstances shall be made to convene an emergency telephonic meeting of the IPG. SECTION 11,LIABILITY. GVEA shall defend,indemnify and hold harmless the IPG,AIDEA and Project Participants,their agents,employees,and consultants from and against all liability,damages,claims,lawsuits,demands,causes of action and expenses (including,but not limited to,reasonable attorneys'fees)resulting from GVEA's,its directors',agents',officers',Stafi's,s,or employees'grossly negligent acts or intentional orwillfulmisconductinperformanceofVEA's obligations under this"Agreement.Except that GVEA shall not be liable (except with otherParticipantsundertheParticipantsAgreement,and to the extent of its Participant's Share of Project liabilities )for: 16 -CONSTRUCTION MANAGEMENT AGREEMENT 1 4 ee| O4d711/95 =:16:03 503 726 eng ATER WYNNE 2020/02) DRAFT 4/11/95 ,vt 4(a)Damages resulting from design or construction decisions \presentedto and approved by the IPG;and/or = (b)The intentional or negligent acts of engineering design firms or contractors retained by GVEA;and/or {c)Damages or other costs and expenses resulting from GVEA'sordinarynegligenceintheperformanceofitsdutiesasConstruction Manager. All such damages,costs,and expenses other than those indemnified by GVEA under this Section shall be Construction Costs and Expenses. To the maximum extent allowed by Jaw,each signatory recognizes the principles of !aw contained in Alaska Statutes Section 45.45.900 and agrees that no part of this Agreement shall be construed so as to be invalid or unenforceable because of those or similar principles, SECTION 12.MISCELLANEOUS PROVISIONS. (a)Audit.The Parties and Additional Parties,acting through the IPG,may conduct an annual audit,the cost of which shall be a Design and Construction Cost as defined in the Participants Agreement. GVEA shall cooperate with the IPG in the conduct of the annual audit or final audit of funds disbursed pursuant to this Agreement as required in 2 AAC 45.010 and the Grant Administration Agreement and such audit shall be submitted to the IPG for submission to the Alaska State Coordinating Agency designated by AIDEA. Any Party or Additional Party shall have the right to audit the books and records of GVEA relating to GVEA's performance of this Agreement at any time upon reasonable notice to GVEA.The cost of such audit shall be borne by the requesting Party,unless such audit discloses that GVEA has (1)failed to account for Construction Manager's Design and Construction Costs in some significant manner or (2)acted in bad faith,in performing its obligations under this Agreement,in which case GVEA shall pay the reasonable costs of the 17 -CONSTRUCTION MANAGEMENT AGREEMENT CpePRror a .ade er Se 04/11/85 16:03 503 7s 0079 ATER WYNNE 20217032 DRAFT 4/11/95 audit.The right to audit shall extend for a period of three years following the Commercial Operation Date . (b)Separate Books and Records.GVEA shall maintain separate books and records for the design and construction of the Healy- Fairbanks Segment.Such books and records shall be available to the Parties and Additional Parties for their inspection.Copies of such books and records shall be made available to any such entity upon request;provided,that such entity reimburses GVEA for the reasonable cost of reproducing or otherwise making available such books and records, (c)Waiver Not Continuing.Any waiver at any time by a Party of its rights with respect to any default of the other Party,or with respect to any other matter arising in connection with this Agreement,shall not be considered 4 waiver with respect to any prior or subsequent default, right or matter. (d)Applicable Law.The laws of the State of Alaska (including without limitation the equal opportunity laws set forth in AS 18.80.220,as the same may be amended from time to time)shall govern the interpretation and application of this Agreement and the actions of the Parties and the Additional Parties hereunder. (e)Assianment.Each Party and Additional Party agrees that it shall not sell,assign or transfer its interest,rights,or obligations under this Agreement to any other entity without the written permission of the IPG.; (7)Section Headings.The Section headings in this Agreement are for convenience only,and do not purport to and shall not be deemed to define,limit or extend the scope or intent of the section to which they pertain. (g)Third Party Beneficiaries.By entering into this Agreement,the Parties and the Additional Parties expressly do not intend to create any obligation or liability,or promise any performance to any other third 18 -CONSTRUCTION MANAGEMENT AGREEMENT RINT Poet erent BAe.teem me ae 7 st me 04/11/95 16:04 503 °'6 oo79 )TER WYNNE @10227031 DRAFT 4/11/95 party,nor have the Parties and the Additional Parties created for anyotherthirdpartyanyrighttoenforcethisAgreement. (h)Severability.If after this Agreement has become effective any article,paragraph,clause or provision of this Agreement shall be finallyadjudicatedbyacourtofcompetentjurisdictionoraregulatoryagencywithjurisdictionoverthePartiesortheAdditionalPartiestobeinvalid or unentorceable,or if any administrative agency with authority over the Parties or the Additional Parties shall require changes to this Agreement,then the Parties and the Additional Parties shall in good faith meet promptly to negotiate lawful amendments or modification to this Agreement that will effectuate the original intent of this Agreement and return the Parties and the Additional Parties as nearly as possible to the position that each would have enjoyed in the absence of such judicial,regulatory,or administrative action. (i)Notices and Computation of Time.Any notice required by this Agreement to be given to a Party or Additional Party shall be effective when mailed,and in computing any period of time from such notice, such period shall commence at 12:01 p.m.prevailing time at the place of receipt on the date of mailing of such notice.Whenever this Agreement calls for notice to or notification by a Party the same(unless otherwise specifically provided)shall be in writing and directed to the General Manager of GVEA or the members of the IPG as appropriate.If the date for making any payment or performing any act is a day on which banking institutions are closed in the place where payment is to be made or a legal holiday,payment may be made or the act performed on the next succeeding day which is neither a legal holiday nor a day when banking institutions are closed in such place. (})Inspection of Facilities,For purposes of this Agreement,the Parties and the Additional Parties or designees may,but shall not be obligated to,inspect GVEA's plans and specifications related to theHealy-Fairbanks Segment and to visit the construction sites related thereto at any time upon reasonable notice,but such inspection or failure to inspect shall not render the Parties,the Additional Parties or their designees,liable or responsible for any injury,loss,damage,or 19 -CONSTRUCTION MANAGEMENT AGREEMENT PEs97°A RINT PEOTAITIaT BAN tem om cc maT ON no 04/11/95 16:04 Bsor 26 0078 |TER WYNNE 023/031 DRAFT 4/11/95 accident resulting from defects in such plans and specifications or construction of the Healy-Fairbanks Segment. (k)Covenant of Good Faith and Fair Dealing.In order to permit this Agreement,throughout its term,to be full effective in accordance with the original intent of the Parties and the Additional Parties,each Party and Additional Party agrees that it shall at all times act in good faith and with fair dealing in performing its obligations and in exercising its rights under this Agreement. ({)Exhibits.The exhibits attached to this Agreement shall be incorporated by reference into this Agreement. (m)Performance Pending Resolution of Dispute.Pending resolution of any dispute,each Party shall continue to perform its obligations under this Agreement,including but not limited to the obligation to make the payments required by this Agreement.A Party shall be entitled to seek immediate judicial enforcement of this continued performance obligation notwithstanding the existence of a dispute. Application for such enforcement shall be made to the Superior Court for the State of Alaska,at Fairbanks or Anchorage. (n)Other Aareements.The Parties have entered into an Intertie Grant Agreement,a Grant Transfer and Delegation Agreement,and a Participants Agreement in connection with the design and construction of the Project.In addition,the Parties contemplate entering into a Grant Administration Agreement and a Project Financing Agreement in the near future.This Construction Agreement has been entered into pursuant to Section 7(k)of the Participants Agreement between the Parties,and it should be interpreted and construed in harmony with the Participants Agreement,the Intertie Grant Agreement,and the GrantAdministrationAgreementandisintendedtoimplementtheprovisions of Section 7 of the Participants Agreement.Except as otherwise | expressly provided herein,this Agreement does not modify,alter,or 20 -CONSTRUCTION MANAGEMENT AGREEMENT .PEs?a IAT PSPC TAITLITH HIARD tnimt.ram ce -_T NL O4/11/55 =18:03 502 26 0079 NTER WYNNE . 024/031 DRAFT 4/11/95 amend any other contract or agreement that may exist between or among any of the Parties or Additional Parties. IN WITNESS WHEREOF,the Parties and the Additional Parties have caused this Agreement to be executed the day and year first above written. ALASKA ELECTRIC GENERATION &TRANSMISSION COOPERATIVE,INC. By: As: THE MUNICIPALITY OF ANCHORAGE d/b/a MUNICIPAL LIGHT &POWER | By: As: CHUGACH ELECTRIC ASSOCIATION,INC. By: As: 21 -CONSTRUCTION MANAGEMENT AGREEMENT =cv:pPe/s2 d MAT thera WAN bar .caA ocr er NE Odv11/35 16:05 50°26 0078 TER WYNNE 0287031 DRAFT 4/11/95 THE MUNICIPALITY OF FAIRBANKS d/b/a FAIRBANKS MUNICIPAL UTILITIES SYSTEM By: AS: THE CITY OF SEWARD d/b/a SEWARD ELECTRIC SYSTEM By: As: GOLDEN VALLEY ELECTRIC ASSOCIATION,INC. By: AS: ADDITIONAL PARTIES: HOMER ELECTRIC ASSOCIATION,INC. By: As: 22 -CONSTRUCTION MANAGEMENT AGREEMENT RAT EHIOTAITi i moa on mr LF ce eT Sot 04/11/85 16:06 =Sse *28 0073 KTER WYNKE 026/031 DRAFT 4/11/95 MATANUSKA ELECTRIC ASSOCIATION,INC. By: AS: 23 -CONSTRUCTION MANAGEMENT AGREEMENT LGM\eSSigh.agr PO sracm O4/11/85 16:06 @50°28 0079 NTER WYNNE 7 9° ope BS °S Qo27/091B4:2ePM GVE.ENGINZERING Pees memeoeUeExhibit A (page1 of 3) | April 6,1995 KORTHERN INTERTIEZ SCOPE |Healy to Fairbanks | TRABSMISSION Linz ).. Several]sub-routes have been added to the existing alternativerouteswhichwereselectedfortheHF-138 transmission line.Alltheproposedroutesareshownontheattachedmap.The proposedlineisplannedtobeconstructedcf230kVtowerswhichwillmeinly¢onsist of weathering steel Zeframe structures.Although thelineisplannedtobeconstructedfor230kV,the line willinitiallybeoperatedat138kV.All xiver crossings will beaccomplishedwithoverheadspansandarenotproposedtoincludeanysubmarinecrossingsoranyundergroundsections.Short sectionsoftransmissionlineswillberequiredtointerconnecttheWilsonSubstationtotheexistingGoldenValleyandFMUStransmission system. SUBSTATIONS substation modifications to accommodate the new breaker bay are proposed to be added at Healy Substation. A new substation (Wilson Sub.)is proposed near Van Horn andCushman!at the North Star Terminals,located by the existing GVEA€9 kV and 138 kV lines,and the FMUS 69 kV.back door tie.The newsubstationwillbethenorthernterminaloftheintertie,and siteoftheBatteryEnergyStorageSystem(BESS).The proposedsubstationwillhavefive138kVbreakersbayswithtwotiestotheexistingGVEAGHS rWS 138 kV line,one to the new intertie,one forthenew|40MW BESS installation,and one for a 60/80/100 MVA,135 kvto69kVtransformer,The 69 kV portion of the substation will havefour69|kV breaker bays with one for the transformer,one to GoldHill,one to Ft.Wainwright,and ona to the FMUS back door tie.Seeattachedsketch. ENERGY STORAGE and REACTIVE COMPENSATION A new Battery Energy Storage System will be installed at thenorthernterminaloftheintertieintheNorthStarBuildingadjacenttoWilsonsubstation.Tha Wilson BESS is proposed to besizedat40MW/MVAR for 20 minutes,(14.1 MWh).The BESS will bedesignedtoprovideprimarilyreactivecompensationduringnormaloperationinlieuofstaticvarcompensation,and in additionetoredjenergyduringtransmissiondisturbancestoreduceflows,black start and spinning reserves for generation loss. DE TS *4 oeeeokSirSeyir ney SUD-RCI.XLS -”tT 'oy>the;,As :49 KV to South Sido Interconnection Drawing (or the Nodhoin Tennina)of fho Norlhesn Intorio a x138kVfoGoldFil138KVtoFLWolrrenighton 0 mse ne en een.o-ote ee ee UT pe a RoXNoo69KVtoiNPegerRead4QMVA{cr 20 minutes aBatteryEnaigyme Slorage System a 2 .VwaLa. Ho Ooatl|_Ta al wo\-py-t ry a .130 KV , 5 369KVats060/90/100MIVA xtra 3oO| |oakvr v- rt by i Fulure230WV aieare}|.@ uy 0 psouy Nohem inlertle from Heoty to Foltanks Th (operated at 138 kV) Ww - 69 KV fo South Faltsonys i us) oS ta wo "\ oPage1}e 04721755 16:06 50 26 0079as-52 jae .=q my ie.-aRRR,eS +S 94:12FM GV.ENGINEERINGdove:= |.= \TER one | ot ae t : tt | ' e | t é .' t|i|i - '! ' ---. '- { |a x : er oralwaInwitigth .4 .ai =, -i -"))IxH ZING iy \ae a SESS- s rey Legislation (Chapters 18 &19 SLA 1993) ¢.Chapter 18 AN ACT Transferring certain projects of and amending and transferring programs of the Alaska Energy Authority to the Deparment of Community and Regional Affairs;relating to the Alaska Energy Authority;permitting the Alaska Induscrial Developrnent and Export Authority to issue revenue bonds for certain plants or facilides for energy resources;permiting udlides to form joint action agencies;authorizing the Alaska Indusmrial Development and Export Authoriry to issue revenue bonds for power transmission interties;relating to rates for a public udlicy that sends of receives power over certain power rransmission interties:relating to the power cost equalization and capital improvement fund:amending the purpose of the Railbelt energy fund. *Section 1.FINDINGS AND INTENT.(a)The legislature finds that adequate.reliable. elecmic service at affordable rates is a necessary ingredient of a modern society and a prosperous ceveloping economy.The legislature further finds that at the current stage of social and economic development in the state,direct participation by the stare is necessary to assist in the development of a regional electric rransmission infrastructure and to assist in holding rates in high cost service areas to affordable levels. *Sec.4.AS 42.05.431 is amended by adding a new subsection to read: (h)When serting or reviewing rates for a public utility thar sends or receives power over the power transmission interties between Fairbanks and Healyorbetween Anchorage and the Kenai Peninsula,the commission shall coasider those costs that have not been direcuy assigned to other individual generating utilities by the utiliry responsible for the construction of the intertie to have been incurred for the system existing on the effective date of this subsection. HCS CSSB 106(FIN) ; -2- S3RYURRROGynOW&WwWYEeChapter 18 Sec.42.45.040.SOUTHEAST ENERGY FUND.The Southeast energy fund is established as a separate fund.The fund consists of money transferred to it underAS42.45.050.The department may make grants from the Southeast energy fund to utilities participating in the power transmission inertie between the Swan Lake and Tyee Lake hydroelectric projects for power projects,for repayment of loans,and for Paytnents on bonds. Sec.42.45.050.FOUR DAM POOL TRANSFER FUND.(a)The four dam pool transfer fund is established in the department.The fund consists of repayments of principal and income thar would have been deposited in the former power development revolving loan fund under former AS 44.83.500. (0)Subject 1 appropriation,the deparunent shall transfer the balance of the four dam pool ransfer fund each month in accordance with this subsection.Subject to appropriation (1)40 percent of the balance in the four dam pool transfer fund shallbetransferredtothepowercostequalizationandruralelectriccapitalizationfundto be used for power cost equalizarion and rural electric projects: (2)40 percent of the balance in the four darn pool ransfer fund shall be transferred to the Southeast energy fund to be used for power projects for urilides participating in the power transmission intertie berween the Swan Lake and Tyee Lake hydroelectric projects:and (3)20 percent of the balance in the four dam pool transfer fund shall be ransferred to the power project fund to be used for statewide utility projects. 6 *Sec.23.AS 44,88.105(4)is amended to read: 7 (d)The chairman of the authority shall annually,no later than January 2, 8 cerufy in writing to the governor and the legislamure the amount,if any,required to 9 restore a capital reserve fund to the capital reserve fund requirement.The legislacure 10 may appropriate to the authority the amount certified by the chairman of the authoriry. zB (The authoriryshalldeposit the amounts appropriated under this subsection duringa 12 fiscal year in the proper capital reserve fund.Nothing in this section creates a debt or 13 liability of the state.In this subsection,"capital reserve fund”means a capital reserve 14 fund thar 15 (1)is created under this section on or before January 1,1989;[,OR] 16 (2)secures refunding bonds if the refunding bonds are issued so refund 17 bonds that are secured by 2 capital reserve fund created under this section on or before 18 -January 1,1989;or 19 fter ffective dst this section 20 for a power transmission intertie. 21 *Sec.24.AS 44.88.155(d)is amended to read: 22 (d)A loan participation purchased by the authoriry with assets of the enterprise 23 development account or with proceeds of bonds secured by assets of the enterprise 24 development account 25 (1)may nox exssed $10,000,000 however,in the cxse of 9 loan26 27 28 (2)may not be purchased unless 29 (A)the project applicant is not,ov,if the applicant is noa 30 single proprietorship,all members of the besiness enterprise or eaterprises iM constinitingtheproject applicant are noc,in default on another loan made by -33-HCS CSSB 106(FIN) 'Oo08+8BDteBhO&OoeS$FewanemwerReOKRZSbeS&FGFaeaAABRBBG-_OoChapter 18 the state or by a public corporarion of the state;and (B)at lease 20 percent of the principal amount of the loan is recained by the loan originator: (3)may no be purchased if the loan to be purchased exceeds the cos: of the project or 75 percent of the appraised value of the project,whichever is less, unless the amount of the loan in excess of this limit is federally insured or guaranteed "or is insured by a qualified mortgage insurance company; (4)may not be purchased if the participation in the loan to be purchased is for a term longer than three-quarters of the authoriry's estimaze of the Life of the project or 25 years from the date the loan is made,whichever is earlier, however,in the case of 9 loan perticipgtion for 9 power transmission intertie,the term than v he ig ma (5)may be made only if the participation in the lozn to be purchased contains amortization provisions;the amortization provisions (A)must be complete and satisfactory to the authority and require periodic payments by the borrower,: (B)may allow the loan originator to amortize the portion ofthe loan retained by the loan ociginasor using a shorter amortization schedule than the amortization schedule for the portion of the loan held by the authoriry if (i)in the authority's opinion,the project financed can support the increased debt service:and (ii)the accelerated amortization schedule is required to induce the originator to make the loan; (6)may be made only if the participation in the loan wo be purchased'is in the form and contains the terms and provisions with respect to insurance,repairs, alterations,payment of taxes and assessments,default reserves,delinquency charges, default remedies,acceleration of maturity,secondary liens,and other manters the authority prescribes;and (7)may be made only if the participation in the loan to be purchased is secured as to repayment by a moctgzge or other security instrument in the manner the authority determines is feasible to assure dmely repayment under a loen agreement HCS CSSB 106(FIN)-34- Chapcer18 l entered into with the borrower, 2 *Sec.25.AS 44.88.155(g)is armended to read: 3 (g)Notwithstanding any other provision of this section,the authority may 4 waive or modify the requirements of this section as it considers appropriate and 5 prudent in order to finance a project if the authority intends to own the project or in 6 order to finance a power transmission intertie project. 7 *Sec.26.AS 44.88.900(10)is armended to read: 8 (10)"project”means 9 (A)a plant or facility used or intended for use in connection 10 with making,processing,preparing,transporting,or producing in any manner, 11 ;goods,products,or substances of any kind or nasure or in connection with 12 developing or uclizing a narural resource,or exrracting,smelting,transporting, 13 converting,assernbling,or producing in any manner,minerals,raw mazerials, 14 chemicals,compounds,alloys,fibers,commodities and materials,products,or 15 substances of any kind or nanre; 16 (B)a plant or facility used o¢intended for use in connecdon 17 with a business enterprise:, 18.(C)commercial activity by a small enterprise; 19 (D)a plant or faciliry demonszrating technological advances of 20 new methods and -procedures and protocype commercial aplicacions for the 21 exploration,developrnent,production,transportation,conversion,and use of 22 energy resources; ) 23 (E)infrastructure for a new tourism descinasion facility or for 24 the expansion of a tourism destination faciliry; 25 ({F)__a plant or facility,other than 3 pigat or facility -35-HCS CSSB 106(FLN) Chapter 18 *Sec.29.The Alaska Industrial Development and Export Authority may issue bonds tofinancetheacquisition,design,and consruction of a power transmission intertie of at least 138 kilovolts between Healy and Fairbanks and owned,for the benefit of all of the uailities parucipating in the intertie,by Golden Valley Elecmric Association,Inc.The principal amount of the bonds may not exceed $60,000,000. *Sec.30.The Alaska Indusaial Development and Export Authoriry may issue bonds to finance the acquisition,design,and construction of a power transmission intertie of at least 138 kilovolts between Anchorage and the Kenai Peninsula to be owned,for the benefit of all of the utilices participating in the interties,by Chugach Electric Associarion,Inc.The principal amount of the bonds may noc exceed $60,000,000. *Sec.31.The Alaska Indusrial Development and Export Authority may issue bonds to finance the acquisition,design.and consmruction of a power transmission intertie of at leas: 115 kilovolts berween the Swan Lake and Tyee Lake hydroelectric projects and owned,for the benefit of all of the utilities participating in the intertie,by Ketchikan Public Utilities.The principal ammount of the bonds may not exceed $40,000,000. *Sec.32.The Alaska Induscrial Developrnent and Export Authoriry may issue bonds to "finance the acquisition,design,and construction of a power transmission intertie of ar least 138 kilovolts between Sutton and Glennallen and owned,for the benefit of all of the utilities participating in the intertie,by Copper Valley Electric Association.The principal amount of the bonds may not exceed $25,000,000. *See.33.APPLICABILITY.'The repeal of statutes by sec.28 of this Act does not affectexistingbondsoractionsthathavebeentakenundertherepealedprovisions. HCS CSSB 10&(FLN)36. Chapter 19 AN ACT Making appropriations for grants and loans for hydroelectric projects including power transmission interties,to capitalize certain funds for energy grant and loan programs in the state,including the power cost equalization and rural electric capitalization fund,to the Department of Community and Regional Affairs for operating costs related to power projects and programs and to capitalize the Railbelt energy fund. *Section 1.(a)Subject to the conditions set out in (b)and (c)of this section,the sum of $43,200,000 is appropriated from the Railbelt intertie reserve (sec.159,ch.208,SLA 1990) to the Department of Administration for payments as a grant under AS 37.05.316 to Golden Valley Electric Association for the benefit of all the utilities participating in the intertie for design and construction of a power transmission intertie of at least 138 kilovolts between Healy and Fairbanks. Chapter 19 (b)The appropriation made by (a)of this section is contingent upon the execution of a written agreement between the electric utilities participating in the Healy-Fairbanks power transmission intertie.the Department of Administration,and the Alaska Indusrial Development and Expom Authority that provides that the participating utility or utilities agree to ) (1)pay the design and construction costs for the Healy-Fairbanks power transmission intertie that exceed $43,200,000: (2)pay the operation and maintenance costs of the Healy-Fairbanks power transmission intertie;and (3)allocate,in proportion to the system peak demands of the utilities participating in the intertie,less a 1.5 mill per kilowatt hour charge for all energy assessed to the line paid by the receiving utiliry, (A)the costs of construction that exceed the amount of the grant under this section; (B)the operation and maintenance costs;and (C)the costs that may reasonably be charged for services provided. 'including transmission to the intertie. (c)The appropriation made by (a)of this section is contingent upon the execution of a written agreement between the electric utilities participating in the intertie and the department in which Golden Valley Electric Association agrees to provide the other participating utilides access to the intertie for the purpose of assured access to resources. economy energy transactions,and other similar uses. *Sec.2.(a)Subject to the conditions set out in (b)and (c)of this section,the sum of $46,800,000 is appropriated from the Railbelt intertie reserve (sec.159,ch.208,SLA 1990) to the Department of Administration for payment as a grant under AS 37.05.316 to Chugach Electric Association for the benefit of all the utilities participating in the intertie for design and construction of a power transmission intertie of at least 138 kilovolts berween Anchorage and the Kenai Peninsula. (b)The appropriation made by (a)of this section is contingent upon the execution of 4 written agreement between the electric utilities participating in the Anchorage-Kenai Peninsula power transmission intertie,the Department of Administration,and the Alaska HCS CSSB 126(FIN)-2- Chapter 19 Industrial Development and Export Authority that provides that the participating utility or utilities agree to (1)pay the design and construction costs for the Anchorage-Kenai Peninsula power mansmission intertie that exceed $46,800,000:| (2)pay the operation and maintenance costs of the Anchorage-Kenai Peninsula power transmission intertie;and (3)allocate,in proportion to the system peak demands of the utilities participating in the intertie less a 1.5 mull per kilowatt hour charge for all energy generated by the Bradley Lake hydroelectric project purchased by the receiving unlity, (A)the costs of consrruction that exceed the amount of the grant under this section; (B)the operation and maintenance costs;and (C)the costs thar may reasonably be charged for services provided, including transmission to the intertie. (c)The appropriation made by (a)of this section is contingent upon the execution of a writen agreement between the electric utilities participating in the intertie and the deparrment in which Chugach Elecrtric Association agrees to provide the other participating . uulides access to the intertie for the purpose of assured access to resources,economy energy transactions,and other similar uses.*Sec.3.The balance in the Railbelt intertie reserve,after the appropriations made by secs.|and 2 of this Act are paid,is appropriated to the Railbelt energy fund (AS 37.05.520). *Sec.4.(a)Subject to the conditions set out in (b)-(d)of this section,the sum of $35,000,000 is appropriated from the Railbelt energy fund (AS 37.05.520)for deposit in the power project fund (AS 42.45.010)for payment as a Joan under AS 42.45.010 to the participating utilities for the design and construction of a power transmission intertie of at least 138 kilovolts between Sutton and Glennallen. (b)Notwithstanding AS 42.45.010(g),repayments of principal and interest on the loan for which an appropriation is made under (a)of this section are appropriated to the Railbelt energy fund (AS 37.05.520). (c)The appropriation made by (a)of this section is contingent on the participating utility or utilities and the Deparment of Communiry and Regional Affairs entering into an -3-HCS CSSB 126:FIN) wooNDHnwmkh|WNYHHfoaoooS>BBGaeuwranweunesChapter 19 agreement for a loan at zero interest for a term of 50 years. (d)The appropriation made by (a)of this section is contingent upon the completion of a feasibility study and finance plan satisfactory to the Department of Community and Regional Affairs as set out in former AS 44.83.181. (e)In this section,"participating udlines”means the utilicy or unlides participating inthedesign,constuction,operation,and maintenance of the power transmission intertie berween Sutton and Glennallen. *Sec.5.(a)Subject to the conditions set out in (b)and (c)of this section,the sum of $20,000,000 is appropriated from the Railbelt energy fund (AS 37.05.520)for deposit in the power project fund (AS 42.45.010)for payment as a loan under AS 42.45.010 to the participating utilities for design and construction of a power transmission intertie of at least 115 kilovolts berween the Swan Lake and Tyee Lake hydroelectric projects. (b)Notwithstanding AS 42.45.010(g),repayments of principal and interest on the loan for which an appropriation is made under (a)of this section are appropriated to the Railbelt energy fund (AS 37.05.520). (c)The appropriation made by (a)of this section is contingent on the participating utility or utilides and the Department of Community and Regional Affairs entering into an agreement for a loan at three percent interest for a term of 15 years. (d)In this section,"participating utilities”mean the utilities participating in the design, construction,operation,and maintenance of the power transmission intertie between the Swan Lake and Tyee Lake hydroelectric projects.