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HomeMy WebLinkAboutRes2022-090 Bradley Lake SupportSponsored by: Bower CITY OF SEWARD, ALASKA RESOLUTION 2022-090 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA, APPROVING THE ONGOING SUPPORT OF THE BRADLEY PROJECT MANAGEMENT COMMITTEE'S USE OF EXCESS PAYMENTS TO FINANCE A SERIES OF REQUIRED PROJECTS TO UPGRADE THE TRANSMISSION SYSTEM SERVING THE BRADLEY LAKE PROJECT AREA FOR IMPROVED OPERATIONAL EFFICIENCY WHEREAS, Seward Electric System ("Seward Electric"), along with the four other Raiibelt electric utilities, is a purchaser of the power generated by the Bradley Lake Project; and WHEREAS, the City of Seward, through the Seward Electric utility, maintains a board seat on the Bradley Project Management Committee ("BPMC"), which manages the project; and WHEREAS, On May 20, 2022, the BPMC adopted Resolution No. 2022-04 accepting the recommendations from its special committee that the project list it prepared was comprised of Required Project Work. WHEREAS, the project list approved by the BPMC is attached to this resolution, and incorporated as if fully set forth herein; and WHEREAS, the BPMC resolved that the project list contains projects that are essential for the removal of the transmission constraints on the deliverability of energy generated by the Bradley Lake Project and can be financed using the excess payment funds for the required project work; and WHEREAS, excess payments represent annual payments from the utilities/purchasers initially pledged to pay for the original construction bonds, and now being pledged for the required project work list, and WHEREAS, each of the projects listed in the project list have been reviewed by the Department of Law at the request of the Alaska Energy Authority ("AEA") and the Utilities/Purchasers, and the Department of Law has determined that the Project List constitutes Required Project Work consistent with the Power Sales Agreement; and WHEREAS, the BPMC supports the project Iist and Proposed Transaction subject to the following: (1) final approval of an independent economic and engineering analysis; and (2) that the final Proposed Transaction does not exceed the amount of the excess payments; and WHEREAS, Seward Electric has reviewed and considered the project list, and the Resolution No 2202-04 approved by the BPMC; and CITY OF SEWARD, ALASKA RESOLUTION 2022-090 WHEREAS, the BPMC is responsible for selection among alternative methods that involve AEA for funding required project work; and WHEREAS, the BPMC has authorized entering into the Proposed Transaction subject to the total amount of the financing not exceeding the excess payment amount as defined in the Power Sales Agreement; and WHEREAS, the financial impact to the City of Seward will remain at its existing 1 percent commitment (currently $18,628/month) as set forth in the Power Sales Agreement; and WHEREAS, Bradley Lake power is among the lowest priced energy in the Railbelt at $30 to $40 per megawatt hour, saving the City an estimated $125,000 to $150,000 each year; and WHEREAS, the Members of the BPMC would like an indication from their respective governing boards whether the Proposed Project List and the Proposed Transaction are acceptable to the individual utilities comprising the BPMC. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEWARD, ALASKA that: Section 1. The Seward City Council hereby supports the proposed Bradley Project Management Committee (BPMC) Transaction. Section 2. The city manager has carefully reviewed and considered the cost and benefits of the Project List and Proposed Transaction. Section 3. The City of Seward, through Seward Electric's representation on the BPMC, approves entering into the financing for the Proposed Transaction to be approved by the BPMC and AEA so long as (1) final approval of the project list and Proposed Transaction by independent economic and engineering analysis has been completed; (2) the BPMC approves the Proposed Transaction and the Required Project Work; and (3) that the final Proposed Transaction does not exceed the amount of the Excess Payments. Section 4. This resolution shall take effect immediately upon adoption. PASSED AND APPROVED by the City Council of the City of Seward, Alaska, this 22nd day of August, 2022. CITY OF SEWARD, ALASKA RESOLUTION 2022-090 OF SEWAJU)-,�SKA C.� erry, AYES: Osenga, McClure, Casagranda, DeMoss, Calhoon, Teary NOES: None ABSENT: Wells ABSTAIN: None ATTEST: Brenda J. Ballou MC City Clerk (City 4�a S��"i'•Q ��•� ®i SEAL i o � l City Council Agenda Statement Meeting Date: August 22, 2022 To: City Council Through: Janette Bower, City Manager From: Rob Montgomery, General Manager - Electric Agenda Item: Resolution 2022-090: Approving the Ongoing Support of the Bradley Project Management Committee's Use of Excess Payments to Finance a Series of Required Projects to Upgrade the Transmission System Serving the Bradley Lake Project Area for Improved Operational Efficiency Background and justification: The Bradley Project Management Committee ("BPMC") is responsible for the management, operation, maintenance, and improvement of the Bradley Lake Project ("Project'), subject to the non -delegable duties of the Alaska Energy Authority ("AEA'). Seward has a seat on the BPMC, along with single representatives from the other four Railbelt utilities and AEA. The BPMC receives its authority under the Bradley Lake Hydroelectric Project Agreement for the sale and purchase of electric power. Through the Power Sales Agreement, Seward and the other Railbelt utilities each pay a percentage to the Bradley Lake Hydroelectric Project for power from the Project. Of the Railbelt utilities, Seward receives the smallest share of the power generated by Bradley Lake at 1 percent while Chugach Electric receives the highest share at 56.3 percent. The BPMC began evaluating Project improvements over the past eighteen months. It reviewed a series of improvements and upgrades to the Project to be financed through the use of existing funds for essential and agreed -upon Required Project Workl. Through the use of Project funds already being paid by the utilities purchasing energy produced by the Project (the "Purchasers") the BPMC will be able to fund work that will benefit the Project, and enhance the deliverability of the Project's energy. This work will help to fully realize the benefits of the Project throughout the Railbelt Transmission System. In 2021, the BPMC appointed a Special Committee to evaluate the Project improvements and develop a finance plan. The Special Committee has made recommendations to the BPMC regarding the improvements, whether they constitute Required Project Work under the BPMC's Power Sales Agreement, and how to finance the proposed improvements. The projects identified by the Special Committee and the BPMC involve capital projects that will improve/enhance the critical transmission path from Bradley Lake to the Purchasers' electric utility systems. After evaluating the list of projects, the BPMC requested that the State of Alaska - Department of Law ("DOL') confirm whether the work identified by the BPMC can be considered Required Project Work as that term is defined in the original Power Sales Agreement. Each of the following proposed Required Work Projects have now been reviewed by the Department 1 Required Work is defined in the Power Sales Agreement to mean "...repairs, maintenance, renewals, replacements, improvements or betterments required by federal or state law, a licensing or regulatory agency with jurisdiction over the Project, or this Agreement, or otherwise necessary to keep the Project in good and efficient operating condition, consistent with ( 1) sound economics for the Project and the Purchasers, and (2) national standards for the industry." See PSA at Required Project Work, Section 1(hh). PAN of Law: 1. AEA's 2020 acquisition of the transmission lines, transmission capacity and substation between Soldotna, Sterling and Quartz Creek; 2. The upgrade to the Sterling to Quartz Creek Line, approved in the Fall of 2021; 3. The Bradley Junction to Soldotna Line upgrade, approved in 2022; 4. The upgrade of the Soldotna to Sterling Line, approved in 2022; and 5. The acquisition of Battery Energy Storage Systems for the three Load Balancing Areas of the Railbelt The above listed transmission upgrades serve to relieve transmission constraints on the Project, and the placement of Battery Electric Storage Systems ("BESS") in each of the three load balancing areas served by the Project addresses long-term inherent instability in the Project (collectively the "Project List'). The Project List has been determined to meet the definition of Required Project Work by the Special Committee and the BPMC. As the owner of the Project, the Alaska Energy Authority ("AEA") requested that the recommended Required Work Projects be reviewed by the Department of Law. After the review by the Department of Law, the Project List was approved by the BPMC pursuant to BPMC Resolution No. 2022-04. The Proposed Transaction and Excess Payments The Proposed Transaction provides financing for AEA to continue improving the Project and provide funds for the Required Project Work. As outlined above, the BPMC proposes to apply Excess Payments to pay for the Required Project Work. The Excess Payments represent annual payments from the Purchasers initially pledged to pay for the original construction bonds, and now being pledged for the Required Project Work list. The estimated costs of the financing will not exceed the annual Excess Payment amounts currently in the Bradley Lake Project costs. The Proposed Transaction should eventually increase the amount of power available providing economically sound results for each Railbelt utility. Financing of the Proposed Transaction The BPMC is responsible for selecting between alternative methods for funding Required Project Work that involves AEA. AEA has been working on financing that would apply the Excess Payment amounts to the financing for the Project List approved by the BPMC. AEA, the BPMC and its the Special Committee are awaiting final terms and conditions for the proposed bond funding. The BPMC will provide its final approval upon the receipt of the approvals from the governing bodies of the individual BPMC Members, and the receipt of the approved independent economic and engineering analysis from AEA. It is understood that in no event will the proposed transaction exceed the Excess Payment amounts as determined in the Power Sales Agreement for the Project. Financial Impact to Seward Seward Electric, like all of the Railbelt utilities, is obligated through the Power Sales Agreement to make Excess Payments to the Project. As previously stated, Excess Payments represent annual payments from the utilities initially used to pay for the Bradley Lake Project construction bonds, and now being pledged for the Required Project Work list. Therefore, the financial impact to Seward will remain at its existing 1 percent commitment as set forth in the Power Sales Agreement, resulting in a monthly payment of $18,628. Please note, however, that Bradley Lake power is among the lowest priced energy in the Railbelt, averaging $30 to $40 per megawatt hour, which compares with thermal generation of $50 to $60 per MWh. Therefore, the estimated savings for Seward as a result of Bradley Lake is between $125,000 and $150,000 per year. 01VA Comprehensive and Strategic Plan Consistency Information This legislation is consistent with (citation listed): Comprehensive Plan: 3.7.1.4 "Continue to upgrade and expand utilities to meet existing needs and encourage future development. Strategic Plan: 13.3 Utilities Other: Certification of Funds Total amount of funds listed in this legislation: $ 0 This legislation (✓): Creates revenue in the amount of: $ Creates expenditure in amount of: $ Creates a savings in the amount of: $ X Has no fiscal impact Funds are (✓): Budgeted Line item(s): Not budgeted X Not applicable Finance Signature: 67 Attorney Review ✓ Yes Attorney Signature: bs,,-ko Not applicable Comments: Iamrelying on Department of Law opinions referenced in the Resolution and Agenda Statement and labeled Exhibit D. Those opinions have not been independently reviewed. Administration Recommendation e✓ Adopt Resolution Other: PAR