Chugach Electric Association, Inc. press release
For immediate release
For more information call Gene Bjornstad, 762-4708
January 26, 1996
The study identified $9.5 million in savings on the cost of building a northern intertie between Healy and Fairbanks, from an estimated project cost of $50.5 million. Similar savings could be made on the southern intertie between Anchorage and the Kenai Peninsula, and on a proposed Copper Valley intertie between Sutton and Glennallen. In all, the authors estimated that using open bidding could save $23.8 million -- or nearly 19 percent of the estimated construction cost of the three lines.
The economists pointed out that there are three major areas which exist for contractors to try and differentiate their bids from those of their competitors: equipment, labor and margin. The authors assumed that every contractor will face about the same costs for equipment and margins. They concluded that the major opportunity for savings comes from the management of labor.
It is not so much a matter of the wages paid, but the flexibility in assigning and scheduling work which cause the savings to mount. The study points out that the IBEW Union contracts contain restrictive work rules which require most jobs to be done by journeymen linemen which could just as easily be performed by others. Contractors who are not bound by these types of restrictions would be able to do the job for less by having greater freedom in making work assignments. Differences in overtime and specialized pay and an assortment of benefits offer additional savings. The study also suggests getting larger contracting firms from inside and outside the state which will increase the competitive bidding process.
The authors noted that the IBEW Union has "adopted something of a retail 'Sale!' mentality to combat the increased inroads of the merit shop." They point out that "in Alaska, it like the only ones paying list price for line work are captive customers where end users like the ratepayers of regulated utilities have no market alternative." When exposed to competition, the IBEW Union has made concessions on projects on the North Slope, on the Healy C]ean Coal Project and for the Sheep Mountain job. The IBEW also granted concessions to Newbery Alaska for work on the Bradley Lake hydroelectric project. Similar concessions on the northern intertie could cut $2.8 million in costs.
However, the economists point out that the IBEW has made more serious concessions for Alyeska Pipeline work. Here the actual wage rates have been reduced as much as 22 percent from contract rates, they say. If a similar arrangement was possible for the northern intertie, combined with the Bradley Lake concessions, the labor savings could cut almost $5.4 million or 10.7 percent from the overall cost of the project.
Chugach is one of seven regional electric utilities working to construct two new power lines to strengthen the Railbelt power grid. These seven utilities have formed an Intertie Participants Group to oversee the Railbelt intertie projects. The route for a northern intertie between Healy and Fairbanks is currently undergoing environmental review. The route selection process is just beginning for a southern intertie between the Anchorage area and the Kenai Peninsula.
In 1993 the Legislature authorized $90 million in grants from the former Railbelt Energy Fund to help pay for the new lines. Construction costs are expected to exceed the grants, and any excess construction costs will be borne by customers through their utility bills. Consequently, the Chugach board Commissioned the study in an attempt to see if cost savings were available. It is unclear what impact the study will have on the contracting process, which is overseen by a group of all Railbelt utilities and not just Chugach alone.
In 1990 Chugach was one of several Railbelt electric utilities which signed a memorandum of understanding on intertie contracting with International Brotherhood of Electrical Workers Local 1547 in return for the union's help in getting the Legislature to award the grants for the projects. The memorandum requires that any contractor selected to build one of the interties be an Alaska company employing Alaska workers through contracts with IBEW Local 1547.
The $25,000 study was performed by Dr. Herbert R. Northrup and Dr. Armand J. Thieblot. Northrup is Professor Emeritus of the Wharton School, University of Pennsylvania and the author of numerous books and articles dealing with labor and manpower policy, labor economics and labor relations. Thieblot is a former Associate Professor of Management at the University of Maryland, and has authored a number of articles specific to the Davis-Bacon Act and other federal and state prevailing wage issues.
Chugach is a member-owned cooperative, and the largest electric utility in Alaska. Chugach serves approximately 65,000 retail metered locations, and provides wholesale and economy energy to other utilities from Homer to Fairbanks.
(Note: Copies of the study are available from Chugach by calling 762-4709.)