INTERTIE PARTICIPANTS GROUP MEETING 1/2/03
SOUTHERN INTERTIE 
TESTIMONY OF RAY KREIG

My name is Ray Kreig and I know many of you from my tenure on the Chugach electric board between 1994 and 2000. I was president for two years and was on the ARECA board and executive committee from 95 to 98. I am testifying here as a volunteer on behalf of Chugach Consumers and as a customer of ML&P and Chugach.

I am a registered professional civil engineer and have worked on major project feasibility studies in Alaska for over thirty years.

I got involved with Chugach electric to help take the utility to a more economically efficient mode of operation that would deliver the greatest possible value to our member owners.

As part of that mission I knew, especially when I was board president, that we needed to have a diversity of input in our decision making if we were to make the best decisions for our members.

Consequently we sought outside opinions from independent experts, others in the utility industry and the public. I think we operated in an open manner and I believed in educating our members by candidly discussing major issues before us in my column in the monthly newsletter, the Chugach outlet.

This is why I was extremely distressed to find out six weeks ago that Chugach electric management had suppressed the major credible decisional document on the economic benefits of the southern intertie at the same time they were concealing the non-viability of the project by putting out pumped up numbers from another report that had never been made known to the board. What on earth were they thinking? Had we known about that we would have been all over the differences. And no way allowed the public to have been misled through the EIS process.

All appearances are that Chugach management also kept the 2/98 study secret from four current Chugach board members elected after 1998.

Here is the background on how this "secret" report came about.

While I was board president in 1996, Chugach and all other utilities had to decide whether to be part of the Northern Intertie. Our management recommended that the board approve our participation and provided numbers claiming a $400,000 per year benefit to our ratepayers.

I am sorry to have to say this, but regrettably, our management mislead the board. In reality, after going out to the community and seeking other opinions in the industry, we found it would instead cost our Chugach ratepayers $600,000 per year to be in the Northern Intertie. That was a swing of $one million per year in what our ratepayers would suffer.

Chugach then pulled out, as well as all other southern utilities.

Because of this, the general manager was criticized in his 12/96 evaluation for a lack of rational cost-benefit input to Chugach decision making (on the Northern Intertie as well as other issues).

The board wanted an in-depth look at the costs and benefits of the Southern Intertie. I was one of the representatives on the 10/97 board-staff committee that developed the scope of work for the 2/98 DFI study.

The confidential 2/98 DFI Study identified $56.7 million in benefits, but I did not know until six weeks ago that at the very same time Chugach management had DFI put out another study, the 3/98 DFI, that was being released talking about $143.5 million in benefits. They didn't tell the board about that one.

The 2/98 study was to be the best and most accurate determination of the most likely benefits of the Southern Intertie for Chugach and it included benefit numbers for all the other utilities as well.

The 2/98 DFI report was fine with Chugach management when they briefed it to the board in executive session on February 16, 1998. The sliming of the report by Chugach now should be considered to be nothing more then spin and damage control until the necessary independent review has run its course. You need to allow enough time for that.

I ask you not to set this "decision date" until the conflicts with these numbers has been straightened out by qualified independent review and public examination of the circumstances.

If you do set a decision date today, it should be at least six months away. It is going to take that long to straighten this mess out and have a good faith effort to determine public opinion on the project.

I have to say something about the curtain of secrecy that has descended over Chugach.

The secrecy policy wanted by management and passed by the board in October is absolutely inappropriate for a publicly owned entity. I was essentially threatened with legal action if I didn't keep quiet about the existence of the "secret" 2/98 report. Had I acquiesced to that policy, the best study ever done on this project's economics would have never seen the light of day. Chugach has abused the provision of the co-op open meetings statute. This is not good public policy. Something has to be done about it.

I also want to say something about a coop director's fiduciary duty which Black's says is a duty to act for someone else's benefit. It is the highest standard of duty implied by law. When you as managers put out cost benefit analyses to your boards that claim these intertie grants are "free", in my opinion you are encouraging those directors to violate their fiduciary duty to be protective of the interests of the co-op members who elected them.

The grant money is not "free". It is highly likely that South Central electric customers will pay taxes or sacrifice all or part of their PFD to make up for the grant money and it is not responsible for the coops to ignore this. I urge you to communicate candidly with your consumer-owners. Please put some useful information in these now near-worthless customer newsletters.

Finally, the Southern Intertie will be regarded and measured in the community and by analysts as an indicator of how well/ how rationally public decision making is being done. Are we doing things smarter? Or are we building another worthless $70 million Seward grain terminal¹?

¹$125 million project less $57 million actual benefits = $68 million WASTED.