Communities discuss future hydropower

contract and structure

Ryan Long

November 6 , 2008.

Wrangell, Petersburg and Ketchikan held a teleconference on October 30 to discuss the needs of each community to make an acceptable division from the Four Dam Pool Power Agency (FDPPA) to the Southeast Alaska Power Agency (SEAPA). SEAPA would be a joint action agency combining the resources of the Swan and Tyee projects.

Wrangell Borough Assembly member Ernie Christian had drafted a list of contentious points that the community of Wrangell would like to have clarified before proceeding with divestiture. One concern expressed by Christian was the classification of power. “Personally, I think it would be better to qualify power above the dedicated needs of each community as surplus power, so we could sell that and improve the incentive for income industry, and be able to offer a different rate. If you could offer an industrial rate I think that would be something else that could go in the Power Sales Agreement (PSA),” said Christian.

Other concerns included the number of members on the board of directors, the length of the long-term power sales agreement, the classification of surplus power for industrial incentive, allowing member utilities to buy out their project, measures to encourage development of new hydro and a clear budget for SEAPA.

Assembly member Warren Edgley pressed for a serious consideration as to the impact of divestiture on Wrangell’s ability to develop hydro resources, both new projects and transmission lines, in the future. “I don’t want to get into this agreement if it’s going to get in the way of the Wrangell Borough’s development of resources on its own and I don’t want to see it get in the way of the AKBC intertie which is going to be the source of all hydro development in Southeast. We need to have an independent consultant look at this entire issue,” said Edgley.

According to Mayor Bob Weinstein of Ketchikan, the issue of divestiture may have some small catches, but most of the overall framework is fairly understood in each community to be a boon for southern Southeast. “The question is what’s better for Southern Southeast, staying with the Northern co-ops which have thwarted us over the years or to cut them off. We’re better off from a long-term economic viewpoint, a management viewpoint, and a financial viewpoint. It’s much better for all three of us if we can move the co-ops away,” said Weinstein. “The proposed PSA says that utilities can pursue their own projects and as long as capacity is being used from SEAPA you can develop all the power you want,” continued Weinstein.

Edgley countered, “you have to build a load before you can build a power plant.”

Weinstein also indicated that issues such as the length of the long-term power sales agreement could be altered if the communities involved wish. Weinstein noted that the 45-year commitment outlined in the initial agreement might be better set at 25 years.

According to Weinstein, the divestiture will allow SEAPA to pay off much of the debt accrued initially within a very short timeframe. “The financial analysis that we have shows that by not having a big debt service component, if we keep our rate where it is today, we’ll be able to build up reserves quickly and be at a place where we can maintain long-term consistent rates,” said Weinstein.

FDPPA CEO Dave Carlson clarified the claim made by Weinstein. “By quickly, we’re talking about within the first three to four years of restructuring. If you left the wholesale power rate where it is there’s an additional $3 million a year that you can use to pay off debt, upgrade turbines or lower the rate of power,” said Carlson.

One charge that has floated around Wrangell in recent months is that Ketchikan has plans to hook up cruise ships to the local power infrastructure, and if Wrangell and Petersburg pool with Ketchikan, that this maneuvering will siphon off any excess power from the Tyee project to the detriment of Wrangell and Petersburg. Weinstein outlined some of the recent plans in Ketchikan. “We are connecting at the request of the federal government, the Coast Guard base. We’re upgrading the line to Gravina island and, if at some point in the future, if there is surplus power we’ll talk to cruise ships to see if they want to purchase it. We’ve had a pretty good rain period here so we’ve been spilling water ourselves and when we’re doing that that’s power that can be transmitted up the intertie,” said Weinstein.

Al Dwyer, Mayor of Petersburg noted that many of Wrangell’s concerns were both legitimate, but none were apparent deal-breakers. “Most of the items on Wrangell’s list I think are doable. The way the bylaws are written, I would think that any number of members on the board would work. The real important stuff requires either a unanimous vote or a super majority. I agree with Wrangell that the 45 year long term power sales agreement is too long,” said Dwyer.

Weinstein expressed the position of Ketchikan on the placement of the controls for the flow of power between facilities. Currently, the infrastructure is in place in Ketchikan, which has made some in Petersburg and Wrangell nervous that Ketchikan may possess too much control over both projects. “We certainly are aware of the preferences of Wrangell and Petersburg. Ketchikan still feels very strongly that it needs to be managed by project. The compromise is having the fifth seat rotate. The other issue has to do with the controls. The three utilities recommended that it came out of Ketchikan, in part because the equipment is here to do that at relatively little incremental cost,” said Weinstein. “Ketchikan doesn’t want to be in a position to be asked to pay a lot of additional dollars to replicate a lot of equipment that’s in Ketchikan to replicate that function. It’s not 100% ready, but in order to get where you need to be it would be a lot less expensive for SEAPA,” continued Weinstein.

Yet another concern presented by Wrangell was as to the encouragement of industry through the availability of cheap power. Were the sawmill to begin operations in the near future, it would need an interruptible rate, and many fear that interruptible power may not be available under SEAPA. According to FDPPA attorney Joe Earsley, the current system has no mechanism to handle interruptible power negotiations. “As of now, under the Four Dam Pool, assuming you don’t restructure, there is absolutely no process for interruptible sales and everything has to be approved unanimously. There is an interruptible process in the new PSA; it’s called surplus power. The idea would be that while it is subject to interruption, any city would be able to claim it as its firm power and it would not be subject to firm power. If any community wants to consider a rate lower than the wholesale power rate it would take a unanimous vote from the board to do that, but there is a process to do this,” said Earsley.

According to Weinstein, Ketchikan would work with Wrangell and Petersburg to meet interruptible power rate needs. “We’ve supported the mill, we’ve supported the pool in Petersburg. If there is surplus power we could support that,” said Weinstein.

On the subject of further division of SEAPA into separate independent projects, Weinstein indicated that the plan was not currently feasible. “We need to remain a Joint Action Agency and have at least two projects. Even if that were not the case it requires unanimous consent of the board, and Ketchikan wouldn’t do that,” said Weinstein.

One of the largest points of contention for all communities involved, and possibly the most difficult point for negotiation, is the make up of the Board of Directors. Currently the proposed constitution of the Board of Directors will be one member from Wrangell, one member from Petersburg, two members from Ketchikan and one member at large to rotate yearly. The division of power is not divided between the communities but between the projects.

Wrangell has proposed creating a seven-member board with two members from each community, however this scheme would put Ketchikan at a constant disadvantage in voting. According to Ketchikan City Council member Chuck Freeman, “If there is any idea that Ketchikan is going to come in at anything other than an even footing then that’s a non-starter. If people are married to the idea that idea the Wrangell and Petersburg are going to run the show then they’re sorely mistaken.”

Weinstein pointed out that the current setup of the board of directors would protect all communities through the voting structure. “What has been proposed presents no circumstance where Swan could have a super majority, that would take four out of the five members,” said Weinstein. “I don’t think from year to year any of us are going to do something radical knowing that in the next year, when the other entity has three votes and can undo it. I think at the end of the day that we’re all going to be working for the interest of the three utility rate payers,” continued Weinstein.
Many fears were allayed and issues explained at the teleconference. But all communities came away with something they wanted including a truncated long-term power sales agreement and increased comfort with representation on the Board of Directors.