Susitna Dam will cost more, study says

TALKEETNA — An estimate of the cost of the Susitna-Watana Dam is low by almost a billion dollars, according to a survey released this week.

Figures for the dam’s construction provided by the Alaska Energy Authority put the construction cost at $5.2 billion. That amount does not include the about-$880 million required to construct transmission facilities capable of carrying the dam’s electricity to consumers and an unestimated amount required to lease or buy Alaska Native lands for the project, according to a report issued Monday by Anchorage economist Gregg Erickson of Erickson and Associates.

In addition to underestimating construction costs, AEA figures also adopt an extremely optimistic estimate of interest rates likely to be charged for debt for the project. The AEA assumes 5 percent, which Erickson says is “exceedingly optimistic given the state of capital markets, project risks, and the absence of a state commitment to pay off the debt if the project can’t do so,” according to the report.

The project also would compete with another large-scale project to provide energy to the state, the North Slope natural gas pipeline. AEA assessments assume energy use will grow, and don’t reflect possible savings with increasing energy efficiency. Projections assume the pipeline will serve about half the energy needs and the dam will take the other half, but that would require substantial energy growth, according to the report.

Erickson spoke to the recent transition conference, and outlined four projects with questionable economics: the dam, the Ambler Mining District Industrial Access Road, the Knik Arm bridge, and the Juneau road.

“All of those seem like they were ripe for a writ of execution,” he said.

The costs for past AEA projects have been seriously underestimated, Erickson said.

“It doesn’t appear that AEA has taken any lessons to heart from this,” he said.

The AEA could do a better job by following practices established by the Congressional Budget Office, and appoint a truly independent person to review cost estimates in the future, Erickson said.

The AEA has always been transparent, and welcomed the opportunity to discuss the project with Erickson, said spokeswoman Emily Ford.

“We obviously disagree with a lot of his assertions that the AEA has not accurately reflected costs,” she said.

Officials at the AEA also disagree that the pipeline and the dam will compete, in part because natural gas, which is not used to generate electricity, can go instead to provide heat, Ford said.

“He’s assuming that we’re both trying to serve the same markets and we’re not,” she said.

Dam opponents, like Susitna River Coalition board President Mike Wood, say economic concerns should be the top consideration. Coalition member Trout Unlimited sponsored the study.

“I think the economics of this project is something that should have been questioned,” he said. “I don’t think we’ve had full disclosure through the AEA concerning how much this is going to cost.”

“The state’s been trying to sell us something and it’s going to cost way more than people expect,” Wood added.

Economics aren’t the only reason Wood opposes the dam, but Coalition members say they hope the survey will contribute to the project’s eventual demise.

“I hope this is a heavy straw,” he said.

Contact Brian O’Connor at 352-2269 or brian.oconnor@frontiersman.com.