An analysis of the financial status of the Southeast Alaska Power Agency by Alaska Power & Telephone is estimating what the member utilities it serves are valued at – and makes a conclusion that the member municipalities of Wrangell, Petersburg and Ketchikan should take over ownership of the Tyee Lake and Swan Lake power plants.
The analysis, which was performed in-house by AP&T CEO Robert Grimm, states that SEAPA currently holds $16 million in total debt, with a liquidation debt of $15 million – the amount the communities would have to pay to remove themselves from agency control.
The Tyee and Swan plants are a part of the analysis and are estimated to be worth $8.018 million and $6.981 million respectively, for a combined value of $15 million. The transmission lines between the three communities, which totals 187 miles of cable, is estimated to be worth $3.75 million.
In order to buy out of SEAPA ownership of the properties the analysis suggests that if the communities were to purchase the facilities, a recommended annual payment of $463,712 would be split between Wrangell and Petersburg and would amortize in just over 30 years according to Grimm.
“In order to accomplish this, the communities would most likely need to generate a General Obligation or Municipal bond,” Grimm added.
Grimm also goes on to state that municipal ownership of the two hydroelectric plants is advisable.
“I conclude based upon this preliminary data that it very well be in the Municipal’s best financial interest to refinance the current liabilities of SEAPA and assume direct ownership of the hydropower plants at Swan and Tyee,” Grimm states in the report.
According to Thomas Bay Power Authority GM Paul Southland, and holding the line with what Grimm’s report states, the loan from the State of Alaska to construct Tyee is currently capitalized at $15 million worth of debt.
“My understanding is that, at the divestiture of the Four Dam Pool to the newly named SEAPA, all the underlying financing was re-financed and that there is currently about $15 million in new debt instruments remaining on the two facilities and transmission lines,” he said.
Section 17 of the Third Amended Joint Action Agency Agreement, which covers the partnership of the three Boroughs, outlines how a member utility can be sold or transferred to a municipality.
“The Agency, by unanimous written consent of all members of the Board of Directors, may agree to transfer ownership of a hydroelectric facility that is one of the Projects and related transmission and substation facilities to a Member Utility, provided, however, that the Agency may not transfer ownership of a hydroelectric facility that is one of the Projects and related transmission and substation facilities to a Member Utility if any long-term Bonds, indebtedness or obligations remain outstanding or any obligations payable to any third party providing credit enhancement or liquidity support for such Bonds remain outstanding, unless such withdrawal is consented to by such third party, and further subject to the following conditions: (a) the acquiring Member Utility shall pay a purchase price to the Agency or other valuable consideration shall be exchanged as established by a resolution of the Board duly adopted by the unanimous consent of all members of the Board of Directors; (b) the acquiring Member Utility must purchase power generated from the facility or facilities being acquired by the Member Utility at the time of the proposed transfer; (c) the Agency and the acquiring Member Utility shall comply with the requirements of any State or federal law applicable to the transfer and all covenants, restrictions or other requirements imposed by any financing or other agreement related to such facility or facilities and by which the Agency or the acquiring Member Utility is bound; and (d) the Director appointed by the Member Utility shall resign from his or her position as a member of the Board of Directors and such position shall be eliminated from the board,” the agreement states.
Grimm also said that after watching what he considers an attempt by SEAPA to become a regional power distributor – and the costs associated with the day-to-day business of the agency – his company thinks they can offer a better service and lower costs to the ratepayers as well.
“Under current circumstances we would be interested in looking at it,” Grimm said.
SEAPA commissioner Brian Ashton said that because he believes the agency is also holding a regional outlook, the AP&T analysis makes sense.
“AP&T is a recognized stakeholder of power generation and transmission in Southeast Alaska. They have been developing and operating power generation in several regions of Alaska for a long time and have a proven track record,” he said. “Given that SEAPA staff has opened the door in requesting we approve a mission statement, that implies SEAPA assumes a regional power agency position (without clearly defining where those regional borders are) it is imperative that we welcome all power generation stakeholders and communities to the table for such open discussion, as it could directly affect them. I appreciate Mr. Grimm for engaging in such open dialog and presenting his perspective.”
Currently Wrangell and Petersburg pay 6.8 cents per kilowatt-hour. Under Grimm’s analysis, the raw cost of power generated by Tyee Lake could drop to 1.18 cents per kilowatt-hour absent administrative costs associated with SEAPA.
“That is one of the reasons I performed the analysis,” Grimm added. “This analysis is a rough draft at this point, so the numbers may move, but what it shows is there is a lot of revenue being collected by SEAPA that is going into renewal and replacement funds and other areas. Essentially, the money being paid to SEAPA as part of the rate is what makes the 6.8 cent per kilowatt-hour happen.”
When contacted for a response to the analysis, SEAPA CEO Trey Acteson said it was “unorthodox for the media to request a response to a spreadsheet without context and that is not validated or even signed by the author,” he stated, though he did provide an opinion on the issue in an email to the Wrangell Sentinel.
“The small group of folks that have an agenda to dissolve SEAPA should consider the significant cost and effort that went into creating a regional entity and the value it brings,” Acteson wrote. “SEAPA is well respected at the State level and provides the communities of Wrangell, Petersburg, and Ketchikan a mechanism to speak with a unified voice in the pursuit of funding for future transmission and renewable energy projects.”
Grimm confirmed that he was the author of the analysis in a phone interview.
AP&T currently serves customers on Prince of Wales Island and Grimm said he constantly hears concerns about rates on the island and said he hears his energy consumers ask why Wrangell, Petersburg and Ketchikan pay lower rates in the region.
“We constantly get asked by people on POW why their rates aren’t as low as the other communities in Southeast,” Grimm said. “When you do the analysis, you’ll see the reason the rates are lower in Wrangell, Petersburg and Ketchikan is due to a large amount of public investment by both state and federal dollars. When you look at the SEAPA arrangement it appears that there is a proprietary interest in each of the communities owning their own plants.”
Because of that, Grimm calls for the creation of a regional organization to manage transmission for the three communities – and possibly more that want to join the energy network in rural Southeast.
“As the situation changes, I think you will see political pressure regarding a sharing arrangement between the communities,” Grimm added. “I think you’ll see the mindset that more communities will want in to the sharing arrangement, rather than just the three we currently have.”
Acteson also commented on what he sees as the purpose of SEAPA as the current regional organization serving the three client communities.
“It also serves a vital role in coordinating the existing Swan and Tyee hydro resources for the maximum benefit of the member utilities and the ratepayers,” he stated. “It provides expertise for new project development, such as the Swan Lake Reservoir Expansion, and manages major replacement and repair of existing transmission and hydropower infrastructure. Additionally, SEAPA shelters the member utilities from significant uninsured risk and liability for bond indenture.”
Ashton weighed in as well on his thoughts about the money expended by SEAPA.
“Relevant to this area of discussion is that SEAPA is currently spending significant amounts of revenue on “Repair and Replacement” and upgrades to the power infrastructure, as the facilities are pushing three decades in age,” Ashton said. “Tyee recently had its generator windings remanufactured and should be good for another 30 years. The board has been advised that we are in need of installing/replacing many helicopter pads, the costs of which have been estimated at a staggering 5 million dollars. A reactor, an electrical device that feeds Petersburg power from Wrangell, is estimated by staff to cost up to 3 million dollars to replace. The new fiber line that will connect Swan Lake to the SEAPA office in Ketchikan is estimated to cost over 2 million dollars. My effort has been to critique these expenditures to assure that what we are being told we need, are in fact necessary for reliability and not merely a ‘want.’”
Ashton also said he is looking for input from ratepayers at the agency’s next meeting set for early March in Wrangell.
“Part of my agenda for the upcoming board retreat, to be held in Wrangell, after the regular meeting, is to discuss how we address such needs, to be assured the volunteer board is being given complete and unbiased information, so we can make appropriate decisions,” Ashton said. “I welcome rate-payers to contact me with any questions, suggestions or comments they have.”
The commission will meet March 5, from 11:00 a.m. to 6:30 p.m., and March 6, from 8:30 a.m. to 2:00 p.m. at the Nolan Center.
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