Bradley hydro expansion moves forward with AEA approval

The Alaska Energy Authority board of directors unanimously approved a $46.4 million expansion of the Bradley Lake hydroelectric plant at its Aug. 10 meeting in Anchorage.

The board’s vote allows the AEA to move forward to pursue financing and developing the Battle Creek diversion project at the headwaters of Kachemak Bay, a move that will boost production by about 10 percent and add 37,300 megawatt hours per year to its current output. That’s equal to powering an additional 5,200 homes.

The project has received approval from the Federal Energy Regulatory Commission, and is “shovel ready,” AEA Executive Director Michael Lamb told the board.

Now it is up to the energy authority to decide between five funding options. The least expensive involves New Clean Renewable Energy Bonds or NCREBs. The most expensive involve financing from the utilities for a project estimated to be complete by 2020 but will not be paid off for 30 years or more.

The board’s decision means moving swiftly ahead in its application for a U.S. Treasury Department allocation that would cover 70 percent of interest on the hydro project.

The allocation would come from leftover American Recovery and Reinvestment Act funds in President Obama’s 2009 economic stimulus package. The request is for NCREB funds that were made available to expand renewable energy projects under certain criteria. Between 2008-2009, $2.4 billion in NCREB funding was made available to U.S. utilities.

“There aren’t many of those funds left, but there is enough,” Fred Eoff, the director of PFM Financial Advisors LLC of Seattle, told the board.

AEA board member and Deputy Commerce Commissioner Fred Parady advocated “moving ahead as quickly as possible to get in line for the lowest possible financing.”  

There’s a lot of variation between the five options, said Eoff, whose firm is advising the authority on possible financial arrangements to fund the Bradley Lake hydro expansion. Interest rates range between 1.47 percent to more than 5 percent, depending on which financing scenario is chosen.

Among the various financing options, interest totals ranged from $12.4 million to $50.9 million over 30-year life of the financing.

“There’s a wide disparity in the total and the reason for that is that the most effective financing available would be from the Treasury Department, a 70 percent subsidy equal to 70 percent interest costs over a 30-year period,” Eoff said. “That radically reduces the cost of financing.”

AEA would then pay the lower costs — around $12 million for financing the $46.4 million over 30 years.

“But that is only if they are successful in their application to the U.S. Treasury and are granted an allocation of congressionally-authorized limits,” Eoff said, referring to the NCREBS funding.

“There is not a lot of capacity left, so we have to submit the application at the earliest date possible. Until they get an answer from Treasury, we don’t know if that’s available. But we do believe the characteristics of the project — clean renewable energy — meets the criteria established.”

Lamb told the board that the application is already in the works.

Another factor that could influence the cost of borrowing money is Alaska’s poor credit rating, which was downgraded in July by two different agencies after the Alaska Legislature failed to come up with a long-term fiscal plan.

 “A score of AA- or AA+ affects the interest, and the cost of the project would go up or down based on that,” Eoff told the board, in response to a question from Parady about what impact the state’s economic situation could have on the Bradley Hydro financing.

Eoff, whose firm also acts as financial advisor for the Alaska Industrial Development and Export Authority, the Yukon Kuskokwim Health Corp., and the Alaska Municipal Bond Bank Authority, said he is optimistic that this year’s credit rating is “as low as it will go, and it will stay in the A category.”

If it did decline to BBB rating, the bonds would be sold at a higher interest.

“The Alaska credit rating is the bell weather of everything that goes on up here,” Eoff said.

If AEA does not receive NCREB funding, one option is to issue taxable bonds. Another option is for Chugach Electric Association financing. CEA has offered to finance, procure and manage the project for all the participating utilities “if necessary,” according to an agreement signed July 1 by CEO Lee Thibert.

The project has the support of all six Bradley Lake utility associations: Homer Electric Association, Chugach Electric Association, Matanuska Electric, Seward Electric Utility and Golden Valley Electric Association and Anchorage Municipal Light and Power.

All will have the ability to tap into the power generation, but so far, four have agreed to help plan the funding and development: CEA, HEA, MEA and the City of Seward.

The Battle Creek project consists of constructing a 16-foot high, 60-foot wide concrete dam to divert water into a five-foot diameter, high-density polyethylene pipe. The pipe — using natural gravity — would carry the water 1.7 miles to the Bradley Lake facilities.

A 2.9-mile gravel road would be built to access the dam. It would be located atop buried water pipe to make the most use out of the pipeline corridor. The water from Battle Creek would be stored in Bradley Lake, thus providing additional water to be run through the existing powerhouse, said AEA Owned Assets Manager Bryan Carey.

In other AEA board action, members accepted the resignation of Lamb, effective Aug. 15. Current AIDEA Executive Director John Springsteen will serve as interim director for AEA as well as his AIDEA role. AEA has started accepting applications for the new executive director.

Naomi Klouda can be reached at naomi.klouda@alaskajournal.com

 

 

Updated: 
08/10/2017 - 4:04pm

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