By Tim Bradner
Alaska Journal of Commerce

Debate over a new $140 million "Southern Intertie" to provide an alternative power transmission line between Anchorage and the Kenai Peninsula now moves to the state Legislature.

Four of five utilities along the state's "railbelt" and the Kenai Peninsula agreed Jan. 2 to set July 15 as a final decision date on the project, and to ask legislators for an additional $30 million to finance the project.

However, a group of consumer activists who are criticizing the project say they will take their concerns to legislators, according to Ray Kreig, an Anchorage consulting engineer and former board member of Chugach Electric Association. Chugach is managing the intertie project.

Kreig and his group, which call themselves "Chugach Consumers," argue the project's costs outweigh benefits and that $70 million in state funds already pledged to the project are better spent by the utilities in retiring their debt, or reappropriated by legislators for local school and road improvements.

One electric utility, Matanuska Electric Association, voted against the resolution adopted by group.

MEA general manager Wayne Carmony said a refined cost estimate is needed for the project before the utilities commit to a date for a decision. He said his board hasn't decided whether to participate in the project.

Utilities voting to move ahead were Chugach and Municipal Light & Power of Anchorage, Golden Valley Electric Association of Fairbanks, Homer Electric Association and the City of Seward.

Mike Scott, general manager of Anchorage's city-owned utility, Municipal Light and Power, said ML&P is anxious to get the project under way so that ML&P can get more low-cost power from the Bradley Lake hydroelectric project near Kachemak Bay, on the southern Kenai Peninsula.

The existing Quartz Creek transmission line is vulnerable to service interruptions due to avalanches, Scott said. Even when it's working, it doesn't have the capacity to move large amounts of power from Bradley Lake to Anchorage and utilities farther north, he said.

ML&P is paying $3.6 million a year as its part of debt-service and operating costs of the Bradley Lake project. "Because of the constraints on the current transmission line, this is a stranded asset for us," Scott said Jan. 2.

Establishing a decision date on the Southern Intertie project is required by the agreement between the utilities on the project, according to Dora Gropp, Chugach's manager for transmission and special projects. At that point the utilities will have to decide whether to stay in the project and share costs, she said.

The resolution approved by the five utilities also called for an updated construction cost estimate before July 15. The most recent cost estimate for the project was done in 1997 and is $106.2 million. If costs increase 5 percent per year, the cost in 2003 dollars is $142.3 million, MEA's Carmony said.

There are approximately $70 million in state funds available for the project. If costs have increased from the previous estimate of $106 million, the utilities will have to pay more than the $30 million they originally planned. This is what prompted the group to ask legislators for more money.

However, legislators are likely to hear from at least someAnchorage residents who don't think the project is needed, according to Kreig.

At the Jan. 2 meeting Kreig was critical of Chugach for withholding a revised estimate of costs and benefits of the intertie project from the public and some board members for four years, and released a few weeks ago.

In its initial cost-benefit analysis, which is public, Chugach estimated benefits to consumers totaled $143.5 million, compared with approximately $100 million in costs. In the revised estimate, benefits were calculated at $56.7 million, below costs of $100 million. Costs, meanwhile, are likely to increase with inflation, he said.

Joe Griffith, Chugach's general manager, said the estimate wasn't withheld from the public. It was done by Chugach's board several years ago and not released because no one ever asked for it, Griffith said.

When a request did come a few weeks ago it was released, he said.

The numbers are different because one study measured benfits for the entire railbelt, which is a larger number, while the other study measured benefits only to Chugach customers, which is a smaller number, Griffith said.

Alan Mitchell, an Anchorage economist and also a Chugach Consumers volunteer, said he didn't think the state subsidy is needed or is appropriate for the project.

"These utilities have the financial capability to finance a $100 million project by themselves. The existence of the $70 million subsidy tends to distort their normal decision-making process," Mitchell said Jan. 2. If the state money were not available the utilities would probably feel the project isn't worth it if they had to use their own money, Mitchell said.

And because the utilities would pay at least $30 million of the project cost themselves, the result is that other utility projects are delayed, Mitchell said. Also, the risk of cost overruns are borne by the utilities, he said.

A 10 percent construction cost overrun for the project, or $10 million if the cost is $100 million, amounts to a 33 percent increase in the utilities' $30 million share of the project, because all of the cost increase must be paid by them, Mitchell said.