HomeMy WebLinkAboutRes2017-083 Sponsored by: Hunt
CITY OF SEWARD,ALASKA
RESOLUTION 2017-083
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SEWARD, ALASKA, APPROVING THE CITY OF SEWARD'S
PARTICIPATION IN THE BATTLE CREEK DIVERSION PROJECT
WHICH EXPANDS THE VOLUME OF WATER TO PRODUCE
HYDROELECTRIC POWER THROUGH THE BRADLEY LAKE
PROJECT, OF WHICH THE CITY HAS 1% OWNERSHIP
INTEREST, AND APPROVING THE EXECUTION OF AN
AGREEMENT FOR THE SALE AND PURCHASE OF ELECTRIC
POWER (POWER SALES AGREEMENT) RELATING TO THE
BATTLE CREEK DIVERSION PROJECT AND APPROPRIATING
FUNDS
WHEREAS, in 1987 the City of Seward participated with the other five interconnected
Alaska Utilities (collectively known as the Railbelt Utilities) in the Bradley Lake Hydroelectric
Project; and
WHEREAS, hydroelectric projects continue to produce power many years beyond their
project amortization period; and
WHEREAS, Hydroelectric Power is classified as clean renewable energy; and
WHEREAS, replacing fossil fuel generation with hydroelectric will reduce the power
generation carbon footprint on the environment; and
WHEREAS, the project qualifies for Clean Renewable Energy Bonds(CREBS)financing
which has a much lower interest rate than almost all other types of financing; and
WHEREAS, the addition of the Battle Creek Diversion will add approximately 37,000
megawatt-hours to the overall output of power from the Bradley Lake Hydroelectric facility; and
WHEREAS, depending on the number of participating utilities,Seward's percentage share
of the additional capacity will be between 1.35% and 1.75%; and
WHEREAS, the Battle Creek Diversion has already been approved by the associated
federal agencies; and
WHEREAS, the studies show that there is no adverse impact to fish and wildlife; and
111 WHEREAS, the cost will be a fixed amount for as long as the project operates; and
CITY OF SEWARD, ALASKA
RESOLUTION 2017-083
WHEREAS,the cost for natural gas,as a fuel source,is expected to continue to remain the
same or rise; and
WHEREAS, the risks to the City of Seward, similar to 1987, under the "take or pay"
provisions of the agreement are outweighed by the advantages to the City in obtaining an assured and
stable source of electrical energy.
NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SEWARD, ALASKA that:
Section 1. The City Manager is hereby authorized to enter into agreements for the City's
participation in,as part owner,the Battle Creek Project,including the financing and construction of
the Battle Creek Diversion Project.
Section 2. In accordance with Seward City Code Section 6.10.120.7, which exempts from
competitive procurement procedures, purchases from a public utility corporation at a price or rate
determined by state or other government authority(in this case Alaska Energy Authority,or AEA),
the Seward City Council hereby finds that it is in the public interest to arrange for the lowest possible
financing of the construction of the project and power purchase.
Section 3. Funding in an amount not to exceed $52,000 is hereby appropriated from the
Electric Fund Reserve account no. 15000-0000-3400 to bond financing account 15000-3090-8011
for the purpose of funding bond reserves and interest costs associated with the Battle Creek Project.
Section 4. The Electric Utility Manager is authorized to vote on matters in concurrence with
this resolution on the City's behalf.
Section 5. This resolution is effective immediately upon passage.
PASSED AND APPROVED by the City Council of the City of Seward, Alaska,this 27th
day of November, 2017.
THE CITY OF SEWARD, ALASKA
David Squires, Mayo
CITY OF SEWARD, ALASKA
RESOLUTION 2017-083
AYES: Casagranda, Keil, McClure, Slater, Towsley, Horn, Squires
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST:
Brenda J. Ballou, MMC
City Clerk
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Council Agenda Statement
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Meeting Date: November 27, 2017 '� 74
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From: John Foutz, Manager Electric Utility y
Through: Jim Hunt, City Manager
Agenda Item: Approving the City of Seward's participation in the Battle Creek Diversion
Project
BACKGROUND &JUSTIFICATION:
In 1987 the State of Alaska, through the Alaska Energy Authority(AEA) formerly known as the
Alaska Power Authority, built the Bradley Lake Hydroelectric Project,which is to date the largest
hydroelectric facility in the state. All six Railbelt Utilities agreed to purchase power from that
project and the purchased power is on a percentage basis. The City of Seward's 1% share was
approved by resolution 1987-066. Homer Electric Association (HEA) operates the facility and
Chugach Electric Association (CEA) dispatches the power generated by the project for the benefit
of all the Railbelt Utilities. The State of Alaska, through (AEA), has proposed an addition to the
original Bradley Lake project where Battle Creek is diverted into Bradley Lake. This added flow
increases the amount of energy the project can produce by an additional 37,000 megawatt-hours
while leaving the overall capacity the same. Over the last two years AEA has taken the initiative
to submit applications and initiate the studies necessary for the project. During this time all federal
government agencies associated with this project have signed off with their approval. The studies
show no adverse impact to fish and wildlife habitats. If approved, the City of Seward would take
a 1.35 to 1.75 percent ownership share in the Battle Creek project depending on the other five
Railbelt Utilities having varying ownership percentage shares as determined by their governing
bodies.
INTENT: The purpose of this Resolution is to authorize Administration to participate in the
project and, on a percentage proration, to participate in the capital call for the funding of the
Battle Creek Diversion Project.
CONSISTENCY CHECKLIST: Yes No N/A
Comprehensive Plan ( 1. 3, 3. 7. 3. 1, 3. 7. 3. 2): Continue to upgrade
1 and expand utilities to meet existing needs and encourage future X
development. Expand customer base within the Seward Electric
Utility area as a means to reduce energy costs and improve services.
2 Strategic Plan: The mission of the City of Seward government is to X
provide quality leadership and economic wellbeing of its citizens
3. Other (list): X
218
FISCAL NOTE:
The City of Seward is expected to own between 1.35% and 1.75% of the Battle Creek Project,
depending on the participating entities. The Project is being financed primarily with Clean
Renewable Energy Bonds, with the exception of setting aside monies for a bond reserve. The
bond reserve is equal to the single highest years' debt service on the bonds, or$2 million, and the
City's estimated share which will be required up-front is $42,000 or less. These monies will be
used to pay the final year's debt service payment on the bond, so will be credited back against
the City's share of costs in that final year. In addition, the City may be asked to share in a small
(less than $10,000)annual interest cost during the approximately 18 months of construction,
although the interest costs will be offset by interest earnings, so the City's share of interest costs
is likely to be much lower. The end result of the project is that the City will own its share of
energy produced from Battle Creek (up to 1.75% of an additional throughput of hydro power
estimated at 37,300 megawatts-hours, or an estimated 653 megawatts-hours per year). It is
difficult to quantify the lifetime savings associated with this lower-cost energy, since we cannot
easily estimate future energy needs or the costs of future alternative energy sources. However,
given the current costs of alternative energy sources, it is estimated that the cost for this source of
power is expected to be significantly lower cost than current existing alternative energy sources
available to us, based on the highest estimated borrowing costs for this project, with savings
greater than 30%. The Battle Creek Project costs and savings will be handled in the same way as
the City's current participation in the Bradley Lake Project. That is to say that we will receive
credit for monthly energy cost savings from Battle Creek,on each month's power bill from
Chugach Electric. Funding in an amount not to exceed $52,000 is hereby appropriated from the
Electric Fund Reserve account no. 15000-0000-3400 to bond financing account 15000-3090-
8011 for the purpose of funding bond reserves and interest costs associated with the Battle Creek
Project.
Approved by Finance Department: Y's,, To.- ,t-c/cc• w
ATTORNEY REVIEW: Yes No
RECOMMENDATION:
Seward City Council approves Resolution 2017-083 authorizing the City Manager to participate
in the funding of the construction for the Battle Creek Diversion Project and appropriating funds.
219
RESOLUTION
OF
BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE
RESOLUTION NO. 2017 –02;Battle Creek Diversion Project
Introduction: The Bradley Lake Project Management Committee(“BPMC”) is considering the
development ofa project to divert the water flows of Battle Creek into Bradley Lake to increase
the water for use bythe Bradley Lake Hydroelectric Project (“Bradley Lake Project”). All
Purchasers are supportive of the expansion of the capabilities of the Bradley Lake Project through
the development of the Battle Creek Diversion Project (“BCD Project”). While all Purchasers wish
forthe BCD Project to move forward, all Purchasers may not wantto participate in the BCD
Project.The activities of the BPMC regarding the BCD Project are authorized as Optional Project
Work under the Power Sales Agreement.
Purposeof Resolution No. 2017-02:Resolution No.2017-02,andAttachment 1 to Resolution
No. 2017-02Battle Creek Diversion Project Framework, set forth the terms and conditions under
which participation in the costs and benefits of theBCD Project as Optional Project Work under
the Power Sales Agreementwill be managed by the BPMC.
Definitions: In addition to the definitions contained in Power Sales Agreement, the following
definitions are used as part of this Resolution 2017-02and Attachment 1:
“Non-Participating Purchaser” means a Purchaser that is not participating in the BCD Project.
“Participating Purchaser” means a Purchaser participatingin the development of the BCD Project.
RESOLUTIONNO. 2017-02
WHEREAS, Chugach Electric Association, Inc. (“Chugach”), Golden Valley Electric
Association, Inc. (“GVEA”), Homer Electric Association, Inc. (“HEA”), the Municipality of
Anchorage d/b/a Municipal Light and Power (“ML&P”), Matanuska Electric Association, Inc.
(“MEA”), and the City of Seward (“Seward”), are the purchasersof the power generated by
Bradley Lake Project under the Power Sales Agreement (hereinafter referred to jointly as the
“Purchasers” and individually asa“Purchaser”);
WHEREAS, the Purchasers along with the Alaska Energy Authority (“AEA”) constitute
the BPMC;
WHEREAS, the BPMC has authorized preliminary work comprised of completing design,
environmental, and bid-related documentson the BCD Project as Optional Project Work under
the Power Sales Agreement;
WHEREAS, the BCD Project is designed to supplementthe water available for the Bradley
Lake Project and the BCD Project will be using the facilities of the Bradley Lake Project, the BPMC
will oversee and manage all aspects of the use of facilities of the Bradley Lake Project under the
BPMC’s authority provided by the Power Sales Agreement;
WHEREAS, all Purchasers support the development of the BCD Project;
{00029961.1}Page 1of 4–Resolution 2017-02; Battle Creek Diversion Project
WHEREAS, AEA is now moving forward with obtaining financing of the BCD Project;
WHEREAS, not all Purchasers may wantto participate in the development and resulting
benefits of the BCD Projectat this time;
WHEREAS, Purchasers desirean arrangement under which a Purchaser not wishing to
participate in the BCD Project nowcan preserve the ability to participate in the BCD Project at a
later date;
WHEREAS,theParticipating Purchaserswish tohold harmless the Non-Participating
Purchasersfrom incurring any costsassociated withthe development of the BCD Project;
WHEREAS, the Participating Purchasers shall reimburse the Non-Participating
Purchasers for anyamounts previously advanced by a Non-Participating Purchasers;
WHEREAS,the Participating Purchasers wish to provide an opportunity for the Non-
Participating Purchasers to participate in the BCD Project later so long as the Non-Participating
Purchasers reimburse theParticipatingPurchasers for an equitable portion of the reasonable
costsincurred to develop the BCD Projectprior to the time their respective participation begins;
WHEREAS, the development and financing ofthe BCD Project will be required to have no
effect onthe Bradley Lake ProjectPower Revenue Bond Resolution (“Bond”) and related bond
covenantsassociated with the Bradley Lake Project;
WHEREAS, this Resolution No. 2017-02along with the Power Sales Agreement and the
BPMC Bylaws provide the authorization forthe BPMC to manage the allocation of costs and
benefits of the BCD Project including the determination of the equitable costs to be paid by a Non-
Participating Purchaser toa Participating Purchaser should the Non-Participating Purchaser
choose to participate in the BCD Projectat a later date;
WHEREAS, approval ofthe BCD Project as Optional Project Work under the Power Sales
Agreement will require the affirmative vote of at least four (4) representatives of the Purchasers,
whose percentage shares of the output from the Bradley Lake Project are greater than fifty-one
percent (51%), plus the affirmative vote of the AEA; and,
WHEREAS, approval for the financing of the BCD Project as Optional Project Work under
the Power Sales Agreement will require the affirmative vote of members whose percentage
shares of the output from the Bradley Lake Project are equal to or exceed eighty percent (80%)
of project capacity and annual project costs.
NOW, THEREFORE, IT IS HEREBY RESOLVED BY THE BPMC, thatthe costs and
benefits of the BCD Project shall be managed and allocated in accordance with this Resolution
No. 2017-02 and Attachment 1 to this Resolution No. 2017-02,Battle Creek Diversion Project
Framework, as part of the BPMC process for determining Annual Project Costs for the Bradley
Lake Project; and,
BE IT FURTHER RESOLVED BY THE BPMC, thatthe BCD Project is approved as
Optional Project Work under the Power Sales Agreement and this Resolution No. 2017-02and
the terms and conditions set forth in Attachment 1 to this Resolution No. 2017-02; and,
BE IT FURTHER RESOLVED BY THE BPMC, thatthe above Recitals be incorporated
and made part of to this Resolution No. 2017-02; and,
{00029961.1}Page 2of 4–Resolution 2017-02; Battle Creek Diversion Project
BE IT FURTHER RESOLVED BY THE BPMC, that the right to the capacity of the BCD
Project shall initially be allocated to all Purchasers in accordance with their respective shares of
Bradley Lake Project capacity(hereinafter referred to as their “BCD Share”).
BE IT FURTHER RESOLVED BY THE BPMC, that Purchasers will have until financing
terms and bid results are known(tentatively November 8, 2017) before deciding whether to
participate and obtain their respective right to the capacity in the BCD Project; and,
BE IT FURTHER RESOLVED BY THE BPMC,that the costs and benefits of the BCD
Project should not affect the rights, duties,and obligations of the Purchasersas set forth in the
Power Sales Agreement and Bond; and,
BE IT FURTHER RESOLVED BY THE BPMC, thatthe costs and benefits associated with
the BCD Project shall be allocated by the BPMC to only those Purchasers choosing to participate
in the BCD Project(i.e., Participating Purchasers);and,
BE IT FURTHER RESOLVED BY THE BPMC, thatPurchasers wishing to participate in
the BCD Project shall expressly notify the BPMC of their election to participate in the BCD Project,
andthepercentagelevel of their BCD Share at which it would like to participatein the BCD
Project; and,
BE IT FURTHER RESOLVED BY THE BPMC, that a Participating Purchaser shall have
the unfettered right to arrange for the sale or transfer of its respective BCD Share to another
Participating Purchaser and the BPMC shall honor such arrangement in the allocation process
for BCD Shares; and,
BE IT FURTHER RESOLVED BY THE BPMC, thatany Purchaser failing to expressly
notify the BPMC (or notifying the BPMC that it does not wish toparticipate in the BCD Project) by
November 30, 2017shall be deemed to be choosing tonot participatein the BCD Projectand
that Purchaser’s share of the BCD Project (i.e., its respective BCD Share) shall be reallocated by
the BPMC between the Participating Purchasers; and,
BE IT FURTHER RESOLVED BY THE BPMC, thataNon-Participating Purchaserhaving
its BCD Share reallocated shall continue to have its ability to participate in the BCD Project without
restrictionsubject to the notice requirements inthis Resolution 2017-02; and,
BE IT FURTHER RESOLVED BY THE BPMC, thatthe Non-Participating Purchasers will
notbear any costs or suffer any adverse effect due to the BCD Project; and,
BE IT FURTHER RESOLVED BY THE BPMC, the BCD Project will be charged four percent
(4%) of the Bradley Lake annual O&M or an amount to be determined by a study of the impacts
of the BCD Project to the Bradley Lake Project.The results of the study will be approvedby the
affirmative vote of members whose percentage shares of the output from the Bradley Lake
Project are equal to or exceed eighty percent (80%) of Bradley Lake Project capacity and
Annual Project Costs;and,
BE IT FURTHER RESOLVED BY THE BPMC, thattheNon-Participating Purchasers
have no restriction to participate at a later datebut must provide notice of their intent to become
st
a Participating Purchaser one year in advance of the start of the Project Water Year, June 1;
and,
{00029961.1}Page 3of 4–Resolution 2017-02; Battle Creek Diversion Project
ATTACHMENT 1
TO
RESOLUTION NO. 2017-02
OF
BRADLEY LAKE PROJECT MANAGEMENT COMMITTEE
Battle Creek Diversion Project Framework
The costs and benefits of the Battle Creek Diversion BCD Project shall be managed in
accordance with Resolution No. 2017-02 and this Attachment 1 to Resolution No. 2017-02, Battle
Creek Diversion Project Framework , as follows:
A. General Applicability of Bradley Lake Project Provisions:
1. The provisions of the Power Sales Agreement and any of the documents, agreements,
and understanding generally referred to as the Bradley Lake Agreements, where
applicable, will be used to manage the energy generated and delivered from the BCD
Project.
2. Subject to the rights held by the Alaska Energy Authority, the BPMC will be the final arbiter
on any issue involving the BCD Project and the Bradley Lake Project and/or the
Purchasers, and any such issues shall be resolved in accordance with the voting
requirements set forth in Resolution No. 2017-02 and the Dispute Resolution provisions
of the BPMC Bylaws.
3. For purposes of governance of any conflicts, the terms and conditions of Resolution No.
2017-02, will control over this Attachment 1, which will control over the BPMC Bylaws.
B. BCD Project Capacity:
1. The original shares of Bradley Lake Project capacity, i.e., Chugach (30.4%), GVEA
(16.9%), HEA (12.0%), ML&P (25.9%), MEA (13.8%), and Seward (1.0%) will not change
in any manner by Resolution 2017-02 and this Attachment 1.
2. Each Purchaser shall have the right to participate in the BCD Project at the same
percentage that it holds capacity in the Bradley Lake Project subject to Resolution No.
2017-02 and this Attachment 1.
3. The right to the capacity of the BCD Project shall initially be allocated to all Purchasers in
accordance with their respective shares of Bradley Lake Project capacity (hereinafter
.
4. To participate in the BCD Project each Purchaser must expressly so notify the BPMC in
writing by November 30, 2017, indicating it wants to maintain its allocated BCD Share (or
a specific percentage of its total allocated BCD Share) of BCD Project capacity.
{00029962.1} Page 1 of 4 Attachment 1 to Resolution 2017-02
5. Any Purchaser that notifies the BPMC that it does not want to participate in the BCD
Project, or a Purchaser that fails to provide any notice regarding participation, shall be
deemed by the BPMC to have declined its initial opportunity to participate in the BCD
Project and thereafter such Purchaser shall be a Non-Participating Purchaser. A Non-
Participating Purchaser shall have the right to participate at its BCD Share without
restriction subject to the notice requirements in Resolution 2017-02.
6. The BCD Share for any Non-Participating Purchaser shall be placed into a share pool
(BCD Pool) and reallocated by the BPMC in accordance with the respective percentage
of original shares of Bradley Lake Project capacity held by the Participating Purchasers
taking into account any arrangement made by any Participating Purchaser. The
Participating Purchasers may allocate their BCD Share and/or the redistributed BCD
Shares from the BCD Pool by agreement.
7. A Participating Purchaser shall have the unfettered right to arrange for the sale or transfer
of its respective BCD Share to another Participating Purchaser and the BPMC shall honor
such arrangement in the allocation process for BCD Shares.
8. Any Purchaser desiring to maintain its respective share (or a percentage of their
respective shares) of BCD Project capacity but not immediately participate in the BCD
Project (i.e., Non-Participating Purchasers) shall have the right to call back its respective
BCD Share by providing written notice to the BPMC .
9. A Call Back Notice must be provided to the BPMC by a Non-Participating Purchaser of its
intent to become a Participating Purchaser one year in advance of the start of the Project
st
Water Year, June 1 to be effective for participation in the BCD Project beginning at the
start of the next Project Water Year. A Call Back Notice provided with less than one year
st
in advance of the start of the Project Water Year, June 1 shall be effective for participation
in the BCD Project to begin one year from the start of the next Project Water Year. A Call
Back Notice can be made without restriction.
10. The Non-Participating Purchaser providing a Call Back Notice and complying with all other
obligations and responsibilities set forth in Resolution 2017-02 and this Attachment 1 shall
be able to participate at the level equal to the capacity percentage it holds in the Bradley
Lake Project (i.e., its initial BCD Share). The BPMC shall make the necessary adjustments
to the BCD Shares held by the other Participating Purchasers to accommodate the return
of the Non-Participating Purchaser providing a valid Call Back Notice.
11. Any Non-Participating Purchaser providing a Call Back Notice must reimburse the
Participating Purchasers then participating in the BCD Project for the equitable portion of
the reasonable costs incurred to develop the BCD Project as determined by the BPMC at
the time the Non-Participating Purchaser chooses to participate in the BCD Project with
such reasonable development costs including the Non--rata
share of AEA cash calls and Interest During Construction (IDC) paid up front by the
Participating Purchasers and adjusted for the time value of money using a discount rate
equal to the long-term financing cost for the BCD Project net the credit from the Clean
Renewable Energy Bonds (CREBS). This reimbursement must be paid to the Participating
{00029962.1} Page 2 of 4 Attachment 1 to Resolution 2017-02
Purchasers by the Non-Participating Purchaser providing a Call Back Notice on or before
st
May 1 prior to the Project Water Year in which that Non-Participating Purchaser shall be
eligible to participate in the BCD Project.
C. BCD Project Cost Responsibility:
1. The amounts contributed to date towards the development of the BCD Project by the Non-
Participating Purchasers shall be reimbursed by the Participating Purchasers in amounts
determined by the BPMC within forty-five (45) days following the financing for the BCD
Project. The responsibility of payment of such costs associated with this reimbursement
shall be allocated by the BPMC to the Participating Purchasers in accordance with their
respective BCD Shares, adjusted by the amount of the BCD Share allocated from a Non-
2. The Operator for the Bradley Lake Project will be required to develop and propose for
BPMC approval, the methodology and procedures for tracking all costs involved or
associated with the BCD Project; such approval by the BPMC shall be in accordance with
the voting requirements set forth in Resolution No. 2017-02. The methodology and
procedures for tracking all costs involved or associated with the BCD Project will be
approved by the BPMC.
3. The BCD Project will be charged four percent (4%) of the Bradley Lake annual O&M or an
amount to be determined by a study of the impacts of the BCD Project to the Bradley Lake
Project. The results of the study will be approved by the affirmative vote of members
whose percentage shares of the output from the Bradley Lake Project are equal to or
exceed eighty percent (80%) of Bradley Lake Project capacity and Annual Project Costs.
4. Participating Purchasers will hold harmless the Non-Participating Purchasers from all of
the costs (including cost of financing) associated with the BCD Project as follows:
a. The Participating Purchasers, in accordance with their Adjusted BCD Shares, will
pay all of the costs (including cost of financing) associated with the BCD Project.
b. The BPMC shall determine and allocate the BCD project costs to the Participating
Purchasers during the determination of the Annual Project Costs for the Bradley
Lake Project.
c. The costs associated with the BCD Project will be invoiced to Participating
Purchasers as a separate surcharge amount shown on a schedule similar in form
to the Schedule C accompanying the Bradley Lake Project determinations of
d. Any amounts received from Participating Purchasers for the costs associated with
the BCD Project in excess of the actual costs associated with the BCD Project in
a given fiscal year will be distributed to the Participating Purchasers in accordance
with their respective Adjusted BCD Shares for that fiscal year.
e. Any additional amounts required for more than the budgeted costs associated with
the BCD Project in each fiscal year shall be the responsibility of the Participating
{00029962.1} Page 3 of 4 Attachment 1 to Resolution 2017-02
Purchasers in accordance with their respective Adjusted BCD Shares for that fiscal
year.
D. BCD Project Water Tracking & Allocation:
1. The Operator for the Bradley Lake Project will be required to develop for BPMC approval
the methodology and procedures for the tracking and allocation of water; such approval
by the BPMC shall be in accordance with the voting requirements set forth in Resolution
No. 2017-02.
2. fiscal year from the BCD Project will be
allocated based upon its Adjusted BCD Share.
___________
{00029962.1} Page 4 of 4 Attachment 1 to Resolution 2017-02