Cascade may become second

regional power facility manager

Ryan Long

August 28, 2008.

WRANGELL — Cascade Creek LLC plans to develop hydropower in Southeast Alaska and looks to Wrangell as a logistical key. Wrangell is strategically placed for intertie, between the proposed projects at Cascade Creek, Scenery Creek and Ruth Lake, as well as intertie with the North American grid. In addition to an integral placement in infrastructure, communities in Southeast will also be the customers to whom Cascade Creek LLC expects to sell their power. However, for Wrangell and Petersburg, and the Thomas Bay Power Authority (TBPA) that manages power issues for Wrangell and Petersburg, the impact of a separate power authority through Cascade Creek LLC remains to be seen.

Duff Mitchell, Business Development Director for Cascade Creek LLC, said at the June 26 Borough Assembly meeting. “There’s only a few companies in the world that competently do lake-tap hydro projects. We’ve done two and people are happy with the power produced from them. We believe we can get these done more quickly than the public way. We can justify the AK-BC if the Borough has the wherewithal to push the intertie. We’ve done three multi-million dollar projects in Southeast Alaska and two of them have been lake-tap projects. Our information is not just engineering but financial and shows how this is going to work. We think there should be public and private partnership,” said Mitchell.

The two projects to which Mitchell refers are the Black Bear project on Prince of Wales Island, the Goat Lake Project in Skagway, both of which bare similarities to the Tyee project, which supplies both Wrangell and Petersburg with power.

Though Whitewater Engineering Corporation, a child company of Tollhouse Energy like Cascade Creek LLC, built both of these projects neither project is managed through Tollhouse. Alaska Power and Telephone manage both Black Bear and Goat Lake.

In fact, Cascade Creek LLC was formed in 2004 to pursue both the development and management of hydro projects at Cascade Creek, Scenery Creek and Ruth Lake. As a fledgling entity, Cascade Creek LLC has no experience managing a hydro facility. In addition, no child company of Tollhouse Energy has experience managing a hydro facility. The current development pursuits of Cascade Creek LLC will be breaking new ground for the company.

Recently, Cascade Creek LLC has made an offer to the community of Kake to sell wholesale power at $0.068 kWh, in exchange for Kake's support of both the development proposed by Cascade Creek LLC and Wrangell's efforts at creating an Alaska-British Columbia intertie. Kake, which currently pays $0.58 kWh with a price hike scheduled for the end of August.

While possibly a boon for Kake, the wholesale rate of power offered by Cascade Creek LLC is equivalent to the wholesale power rate out of the Tyee project. Current plans to develop a Kake intertie to Petersburg would have opened Kake to power sales out of Tyee.

In addition, a letter written by Jodi Mitchell, CEO and General Manager for Inside Passage Electric Cooperative, INC, (IPEC) the RCA-certified and regulated electric provider for Kake expressed concern regarding Cascade Creek LLC’s offer.

Mitchell cited several questions IPEC would like answered by Cascade Creek LLC. One of the most concerning questions was put by Mitchell, “Who owns Cascade Creek, LLC? IPEC needs to know what individuals it would be doing business with, and who will be responsible for meeting contractual obligations of Cascade Creek LLC if we were to enter into a contract.”

Mitchell also asks, “When will Cascade Creek hydroelectric be available? Last we spoke you said it would be 10-15 years. Do you have an estimated project completion date? Have you broken ground yet?…How was the $0.068 wholesale rate set? How can you ensure this rate before all the project costs are known? Normally, rates are set to cover operating and plant costs, and a reasonable rate of return…Why do you impose a time limit on your offer, even though you aren’t able to sell power and may not be for many years?…Does Cascade Creek have to comply with any State or Federal regulatory requirements, and if so, what is the status of your compliance?”

Mitchell also pointed out several points of contention with Cascade Creek LLC, which may break any deal sought between Kake and Cascade Creek LLC. “You offer Kake ‘2500 MWh per year, or the annual amount of electricity that your community consumed in 2007, whichever is greater” at $0.068 per kilowatt-hour. Kake’s consumption in 2007 was 2.224 million kWh, and thus IPEC would not be willing to accept this provision of your proposal,” said Mitchell.

Mitchell did wish Cascade Creek LLC success in their projects however, stating “It could potentially ensure hydroelectric capacity in the southeast region for decades to come. However, it may be too soon for IPEC to enter into an agreement with Cascade Creek LLC depending on the answers to the questions listed therein.”

According to Mitchell, the sale of power from any Cascade Creek LLC project would not preclude the sale of power from Tyee to Kake. "They have to make an economic decision, if somebody offered them a lower rate. Nothing precludes them from picking us and then picking someone else. They may want a blended rate. If they put a log mill out there that consumes more electricity then they may want to purchase power from other resources," said Mitchell.

According to Mitchell Cascade Creek LLC is looking to collaborate, not compete directly with power sales from the Tyee project or the Four Dam Pool. "TBPA has resolutions supporting the public and private development of Thomas Bay and Cascade Creek is in those resolutions. We have a long-term relationship; I would call it, with TBPA. Both entities are on record going back to 2006. Where we can go with TBPA needs to be determined. We have a non-competitive agreement with Wrangell, which means that Wrangell can't directly participate. If we came up with an amicable relationship with TBPA there's nothing to discourage Wrangell being a part of that. Some people seem to think that our agreements preclude communication and nothing could be farther from the truth. We have never asked to be competitive with anyone and can't see why TBPA can't work collaboratively with us," said Mitchell.

Mitchell indicated that even if Cascade Creek LLC were to come into play as a second regional power authority, that TBPA would not be superseded. "I feel that TBPA has several roles to play. One, they are the operator of the power line between Petersburg and Tyee. With or without the Four Dam Pool divestiture they will be an entity we need to work with along that intertie," said Mitchell.

"I guess the $64,000 dollar question is how do we work it together? I see this boiling down to Petersburg not wanting to work with Cascade Creek or seeing the benefit in working with Cascade Creek while Wrangell sees it differently and TBPA may be the mediator between the two," said Mitchell.

Though it remains to be seen just how the interaction between Cascade Creek LLC and TBPA will affect the peoples of Southeast, and particularly Wrangell and Petersburg, the issue of pursuing hydro development with Cascade Creek LLC, and taking steps towards improving and increasing available energy in the region has thus far been tempered with questions and concerns, and steps by both municipalities and the power authorities which represent them have been tentative. TBPA has yet to formally discuss the ramifications of Cascade Creek LLC and the power issues brought on by the addition of another regional power manager, but plans to discuss the issue at a meeting in the near future.