Haida Energy and AEA agree on loan for Prince of Wales hydro

It took a few tries, but the Alaska Energy Authority approved a loan June 26 that everyone involved could support to get Prince of Wales Island off diesel power.

The $20 million loan to Haida Energy Inc., a joint venture between the village corporation of Haida Corp. and Alaska Power and Telephone, will be used to construct the Reynolds Creek hydro project about 10 miles east of the village of Hydaburg on Price of Wales Island in Southeast Alaska.

When completed, the five-megawatt Reynolds Creek power plant will supplement the roughly 6.8 megawatts of hydropower currently available on the island and, with the needed interties, allow nearly all of the island’s residents to use exclusively hydro power.

Alaska Power and Telephone President and Haida Energy board member Bob Grimm said in an interview that diesel-generated power on Prince of Wales costs about 32 cents per kilowatt. Projections are for first Reynolds Creek power to cost 14 cents per kilowatt.

The loan comes just in time for Haida Energy, Grimm said, and is the end of a long negotiating process. AEA’s Power Project Fund team and Haida Energy agreed to a 3.78 percent interest rate with a seven-year interest-free grace period for the $20 million, 50-year loan.

Those financial terms are contingent upon Haida Energy securing approval of a power sales agreement from the Regulatory Commission of Alaska for the sale of Reynolds Creek power, and in turn, a revenue stream from the plant to begin repayment.

To get Reynolds Creek on line by June 2016 and fall within the window provided by its Federal Energy Regulatory Commission, or FERC, license, Grimm said Haida Energy will ask the RCA to speed up its normal process.

“The RCA statutory requirement is to (make a decision) within six months,” Grimm said. “However, we’re going to ask for expedited treatment in an effort to comply with FERC requirements. If they are unable to do that we will be requesting a waiver and requesting a schedule modification from FERC.”

If the RCA continues on its normal timeline, with the loan commitment in place, Haida Energy is hopeful FERC will grant a waiver to extend the construction window, he said.

Haida Energy rejected loan terms approved by the AEA board at its April 24 meeting because they would have forced the company to charge more for its power, Grimm said at the time.

AEA’s original loan terms were for a 4.6 percent interest rate and a two-year grace period with no payments on the $20 million. That repayment structure would have forced Haida Energy to charge a price close to that of diesel power and the project likely would not have been approved by the RCA, the company contended.

Under the revised terms, the price of power will jump for a short time near the cost of diesel power when the repayment schedule kicks in, according to AEA’s projections. However, that cost will quickly stabilize and gradually decline rather than escalate, as is predicted to happen with diesel.

Haida Energy’s original loan proposal in early 2013 was for a variable interest rate depending on the amount of power produced from Reynolds Creek.

It called for no interest until the project produced 7,300 megawatt hours of power annually, with interest ramping up to 4.84 percent at maximum capacity production of 20,000 megawatt hours per year.

That loan was tentatively agreed to by AEA staff but did not receive board approval.

With Reynolds Creek projected to run at about 25 percent capacity in its first years of operation, Grimm said Haida Energy has been in contact with prospective mine developers in search of more affordable power — Niblack and Bokan — on Prince of Wales Island.

Even if a mine doesn’t come to fruition, he hopes the extra power will be used by local businesses to reinvigorate an economy damaged by a dwindling timber industry in the region, Grimm said.

“The lower the (power) rates the more competitive you are,” he said.

AEA board member and former state senator from Fairbanks Gary Wilken said, “I’ve never met a hydro project that I didn’t like,” but that he was concerned with the way Haida Energy was able to simply reject

AEA’s loan terms to get something they liked better.

“I don’t want the action of this board to set a precedent that we are going to live with and will become the de facto loan that we have and then we’ll just ratchet it down as other folks have the same issues,” he said during board discussion.

Ultimately, Wilken was the only board member to vote no on the loan resolution, which was approved. Board chair Russell Dick recused himself from voting.

AEA Executive Director Sara Fisher-Goad said each project is looked at in three ways: its financial feasibility, economic viability, and technical feasibility.

“We look at each application separately on that part,” she told the board.

AEA does not agree to a lower interest rate unless it is needed to make a project viable, Fisher Goad said.

She noted that the Reynolds Creek project loan is the largest and most complicated loan approved for the Power Project Fund.

The Power Project Fund statutory interest rate is a 12-month running average of the municipal bond rate.

AEA has the authority to lower that rate to zero percent if the authority sees fit.

Board member and Revenue Deputy Commissioner Mike Pawlowski, representing Revenue Commissioner Angela Rodell on the board, said he hopes the approval of future loans can be tied to the approval of a power sales agreement, as the Reynolds Creek loan is.

Fisher-Goad said AEA would work to put more responsibility on the loan applicant to prove why they need a lower interest rate and make the application process more rigorous in the future.

Elwood Brehmer can be reached at [email protected].

11/21/2016 - 4:18pm