Intertie project opposed

PALMER -- Matanuska Electric Association officials are taking a wait-and-see stance toward a project hailed by the other five members of the Intertie Participants Group as one that is long overdue and would mean greater efficiency for electric cooperatives along the railbelt.

In a Jan. 2 meeting of the IPG, MEA was the lone dissenter in a vote to perform a cost analysis and request $30 million in funds from the state legislature. The money would fund a power line extension from Point Woronzoff to Nikiski, a section of which would run under the Turnagain Arm. The vote also set out a July 15 "decision date" by which members of the IPG must commit to either supporting the project financially or relinquishing any ties to the project.

The project has been discussed for at least two decades. In 1982, Southern Engineering Company performed a long-term planning study that recommended establishing a second line from Anchorage to Kenai. Two more studies reached the same conclusion in 1983 and a 1989 study declared the project economically viable.

The most important benefits of the project would be that it would improve transmission reliability and give electric cooperatives the ability to use hydroelectric power from Bradley Lake, a state-owned hydroelectric plant, instead of using electricity from higher-cost power generators.

"While we have power plants scattered up and down the railbelt, not all of them are equal in terms of economics," said Chugach Electric Association's manager of external affairs, Phil Steyer. "We need to be able to move [power] on the grid to where it's in demand."

But MEA officials say the project costs may outweigh the potential benefits. According to 1997 estimates, the project cost for the "Tesoro Route" would be $106.2 million. They estimate that today, the project cost would range between $126 and $150 million, based on the 1997 conceptual estimate.

Some funding has already been set aside for the project. In 1993, $46.8 million was appropriated for the project and set aside in a grant account through the Alaska Industrial Development and Export Authority. The grant language stipulated that use of the money was contingent on the IPG utilities paying the design and construction costs of the project exceeding the state appropriation. Chugach Electric Association, the largest shareholder of the IPG, estimated that, with accumulated interest, approximately $70 million is now in the Southern Intertie account.

Citing grant language, MEA and the Alaska Public Interest Research Group contend that the interest earnings are not available for IPG's use. The grant, they say, stipulates that $46.8 million would come from the state and everything above that amount would come from the IPG utilities.

"There was no mention of interest earnings in the appropriation language," wrote MEA's director of administration Don Zoerb in a Jan. 10 status report on the project. He added that, since the state's fiscal status is different than it was when the money was appropriated in 1993, it is possible legislators may choose to take back those funds and deny any additional appropriation. "To summarize, the state subsidy for this project will probably be a number between zero and $100 million, with the outcome not known until the end of the 2003 legislative session."

Steyer disagreed with the charge that the interest earnings were unusable. He pointed out that although the interest earnings were not specifically mentioned in the appropriation language, they were discussed elsewhere.

"There's no question in our minds about that," Steyer said. He explained that, after the 1993 appropriation, the IPG utilities and AIDEA, which has management authority over the grant, got together and hammered out a grant agreement that was eventually signed by all the parties involved. The agreement, Steyer said, stipulates that the interest earnings will follow the grant money.

But the interest earnings weren't MEA's only concern. Zoerb reconstructed Chugach's economic evaluation of the project and concluded that the line between project cost and benefit is quite thin. His reconstruction, based on a $100 million project cost, showed negative results. If the whole railbelt were to participate, Zoerb wrote, the project would yield a negative value of nearly $25 million. If reliability benefits were factored in, the project still had a negative value of nearly $10 million to railbelt co-ops.

Steyer pointed out that MEA was the lone dissenter on the IPG -- that other utilities holding 85 percent of the IPG shares were supportive of the plan.

MEA says they have cause to be wary. In addition to paying about 14.2 percent of the cost of construction -- which could be as much as $150 million, or more than $21 million to MEA -- co-op officials are relatively sure they'll be asked, as wholesale customers, part of Chugach's share as well.

According to the power supply agreement between the two utilities, MEA must pay 25 percent of Chugach's generation and transmission costs. The Southern Intertie project costs, MEA spokesman Mike Pauley said, could fall into that category, making MEA responsible for one quarter of Chugach's 30-percent share of the project, bumping MEA's total cost up to $32.6 million.

Steyer could not confirm that MEA would be asked to pay one-quarter of Chugach's share. Pauley said MEA officials had posed the question at the Jan. 2 meeting of the IPG and a senior-level Chugach executive, Lee Thibert, asserted it was his position that the Intertie costs would be factored in to MEA's costs. Pauley said he couldn't say what effect the automatic charges may have on MEA's decisions about the intertie.

"I'm still not at liberty to say how MEA would respond to that," Pauley said.

Pauley said the co-op has other concerns as well, such as the vague cost of design and construction, how much state funding will be available and how each of the six nonprofit electric cooperatives will benefit from the project. He said MEA has not stepped out of the IPG, but is requesting that the IPG consider all aspects of the program before making a decision to build.

"Our bottom line is this -- we want to get a better fix on what the true total cost of the project is," Pauley said. "Once we ... know what the total cost to MEA members will be, then we can analyze ... these claims properly." Part of the reason for concern, Pauley said, is that MEA's power-supply contract with Chugach will wrap up in 2014.

"There is a future, of course, beyond 2014," Pauley said. "There is a possibility that we might not be buying all of our power from CEA ... We have to analyze how this will affect us now, as well as how it will affect us in the future."

Members of the IPG will next meet on Feb. 4. The group plans to discuss a proposal brought forward by Chugach to hire Power Engineers Inc. to update their 1998 project cost study, to hire one or more local firms to perform a peer review of the study, and have Chugach staff perform an analysis of the costs to lay submarine cable. Cost estimates are scheduled to come back by April 15.