Electric utilities in the railbelt typically spend about $40 million each year on capital construction and maintenance. In addition there is $200 million proposed for construction of three electric transmission interties over the next five years. Chugach Electric Association does about half of the construction and maintenance contracting and is currently planned to be responsible for over 40% of the total of all three intertie costs.

Chugach has taken the lead in exploring cost - reduction alternatives because, as the railbelt's largest utility, Chugach pays the largest share of intertie and other construction costs. The Chugach board recently retained consultants to evaluate whether the Memorandum of Understanding Chugach and other utilities signed in March 1990 with the International Brotherhood of Electrical Workers Union would affect the cost of intertie construction.  Here is what we found:

Full, open and competitive bidding which would allow other unions and open shop contractors to work on the projects, could cut the cost of the intertie construction by over $15 million.

The study analyzed a preliminary cost estimate prepared by an Alaska engineering consultant for the transmission line portion only of the Northern Intertie system. The study estimated that it would cost $50.5 million to build the Northern Intertie between Healy and Fairbanks if it were bid out under the National Electrical  Contractors Association - IBEW Union agreement (this agreement controls over $10 million of Chugach's present annual capital construction program.) The study evaluated concessions already granted by the IBEW for this intertie at $2.8 million and identified $6.7 million in additional savings that would be possible under full and open contracting. Full and open contracting means no restriction on the source of labor, wages rates, fringe benefits, and a finding that the Alaska "Little Davis Bacon" Act does not apply to the project. Under that scenario the Northern Inter tie could be constructed for $41 million, 19% less than under the standard NECA-IBEW agreement. The study estimated that Alaska "Little Davis Bacon" bidding restrictions add 12% to the cost of the Northern Intertie.

The Chugach economic study was performed by Herbert R. Northrop and Armand J. Thieblot.  Northrop is Professor Emeritus of The Wharton School, University of Pennsylvania; Thieblot is former Associate Professor of Management at the University of Maryland. Both are noted for their expertise in labor and manpower policy, labor economics, and labor relations.

The study only included savings from readily quantified differences in labor costs such as wages, fringe benefits, special payment requirements, crew makeups, etc. Not included were additional savings that could result from other factors such as increased competition, differences in equipment costs, supervision, insurance and bonding; as well as other items.

A problem with negotiated project agreements is that the public never knows if it is getting the best price. No one can predict what the open market best price would be from contractors that are free to use their creativity in approaching a project. Project agreements generally stifle creativity since, by nature, labor productivity becomes regimented to the terms of the agreement.

On June 5, 1996 the Chugach Electric Board of Directors exercised its options and stated that it did not intend to operate under the March 1990 Memorandum of Understanding with the IBEW Union. This action was taken by the board in order to carry out the overwhelming mandate by our membership to realize the benefits of full, open and competitive bidding for our construction projects. We fully expect, however, that the IBEW will ultimately perform a large part of the work on these projects by being competitive in an open and fair process and we welcome their many qualified and experienced workers on our projects.