12/12/02 - ML&P Commission

HIGHLIGHTS FROM MEETING

Chugach Electric gave a half-hour presentation on the Southern Intertie  

The DFI-Aeronomics 2/98 "Secret" study had been placed in the Commissioner's board packets by ML&P management. A commissioner asked about that document and why the numbers differed from the DFI-Aeronomics 3/98 EIS study. Lee Thibert (Chugach Electric Chief of Staff), looked to Mark Fouts to respond: "In 1989 [misspoke, he obviously meant 1998] we were getting ready to slug it out in retail competition. That internal study was done in 1998. You have to remember the environment we were in then.  It was a worst, most conservative case.  We intentionally set worst case production cost and other [parameters] {contradicted by statement of Ray Kreig later in Public Comments}...."  The [DFI 3/98] EIS was statewide. They had different purposes. They did their model in six weeks, the ATLAS full production costing model. As we went into it we found the production costing model factors have changed and how the model affects the system. The smallest increment in the ATLAS model was 3 days...100 Mondays in a year. Didn't provide the resolution...

Commissioner Hochstein asked about construction cost overruns, "Those familiar with construction projects in the South Central area know that for every project coming in under budget and on time there are twenty that miss by big margins". Dora Gropp, Chugach Manager, Transmission & Special Projects, said she is very comfortable with the $100 million construction cost estimate. Another Commissioner (Eberle or Nogg?) asked about the recent Northern Intertie construction experience. Ms. Gropp said they had requested information but didn't have the bids back on it and were not ready to make a comparison to that project now under construction.

Commissioner Fryer asked if an unbiased outside third-party, such as Prof. Scott Goldsmith, UAA - ISER, could assist in reviewing the numbers and advise ML&P.  ML&P General Manager Scott replied that because they have a firm already under contract [later identified as EES Consulting], and were not really in a position to simply select someone because they think they will do a good job.  They are limited by municipal procurement requirements in what they can do.

Several resolutions from ARECA were presented for passage by the Commission (including one supporting an additional $25 million grant from the Railbelt Energy Fund for the remaining cost of the Southern Intertie). Action on all the resolutions was delayed until the next meeting because commissioners had not received them with enough advance notice before the meeting.

In the public comment at the end of the meeting:

RAY KREIG

Apparently added to your packets is this DFI-Aeronomics 2/98 study [Ratepayer Impacts of Proposed Transmission Projects, Final Report; Includes Chugach Electric Association's Comments]. I want to give you some of the background on how it came about. I will suggest that you should delay support for the Southern Intertie until the discrepancies have been cleared up.

I was on the Chugach Electric board from 5/1994 to 4/2000. While I was board president in 1996, Chugach and all other utilities had to decide whether to be part of the Northern Intertie [Healy to Fairbanks line]. Chugach 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.

Chugach then pulled out, ML&P then did, too, as well as all other southern utilities.

Because of what had happened, 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). [2-page handout of excerpts from the evaluation which had become public in 97].

Because of that background, the board wanted an in-depth look at the costs and benefits of the Southern Intertie, especially from the Chugach ratepayer perspective. 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 very recently that at the same time there was another study, the 3/98 DFI, that was being released talking about $143.5 million in benefits. [Handout of one page comparison table, SOUTHERN INTERTIE COST-BENEFIT: TWO REPORTS PREPARED BY DECISION FOCUS - AERONOMICS ONE MONTH APART; ONE PUBLIC - ONE KEPT CONFIDENTIAL (until 12/6/02); WHY ARE THEY SO DIFFERENT? ]

The 2/98 study was to be the best and most accurate determination of the most likely benefits of the Southern Intertie for Chugach. I am hearing for the first time these comments from staff earlier here that it was a very conservative study. That was not in the scope of work, which I worked on, nor stated in the report itself.

I would urge that ML&P not do anything to set the "decision date" at next Monday's IPG meeting so that you can preserve your options until the conflicts in these numbers is straightened out.

EARLE AUSMAN

Emphasized that the Intertie grant money from the state is not free. Utility customers will be paying for it with increased taxes. The utilities need to take this into account as they decide whether or not to participate in the intertie.