Southern Intertie Briefing
Revised 1/22/2003

Introduction 

The Southern Intertie is a 62 mile transmission line proposed from Pt Woronzof at the Anchorage Airport to Nikiski.  Of that 17 miles would be a sub sea cable under Turnagain Arm. 

See also othermaps:  map(EIS)    map(CEA)

The Southern Intertie subsidy issue has been made more complicated and confusing by the public utilities then need be to cover up poor project economics.   We have now had twelve years of failed deliberative process in both the utility boards and the legislature.  People in the community who are in a position to know the underlying realties of what has happened have come together to try and get a more rational consideration of the basic benefits and costs one last time before $70 million of public money is wasted.  But beyond that amount of money, which is not trivial, the Southern Intertie is an example of the disregard of rational decision making that we simply have to change in this state if we are to confront the new financial challenges.  

2nd - THE ANCHORAGE DAILY NEWS EDITORIALS: 1/24/03: ADN-Editorial  

Alan Mitchell  - Former State Utility Consumer Advocate (1990); now Senior Manager, Economic Analysis, GCI (this work is not funded or endorsed by GCI).

• Southern Intertie Benefit/Cost Studies graph of past benefit studies shows the timeline of the wildly fluctuating claims.    

• Project is Not Cost Effective 
  There has only been one study that claims that the project is cost-effective.  I reviewed that study in 1990 and showed that it was severely flawed and grossly overstated benefits.  Just recently, the consulting company that performed the study, DFI, admitted that the study was not as accurate as a newer secret study they did for Chugach Electric.  That secret study was recently released (12/5/02) and shows benefits of the project far less than costs.

• Railbelt Transmission Lines Should not be Funded through State Grants

  • Railbelt utilities have the capability to fund, without subsidy, transmission lines such as the Southern Intertie.  Railbelt utilities have financed and built $1.9 billion dollars of utility plant.  The utilities can finance a $106 million Southern Intertie on their own without state assistance.

  • Targeting a particular project for subsidy distorts the utilities’ capital decision-making process.  Targeting one project for subsidy distorts investment in favor of that project.  Other more worthwhile projects are given less priority because they don’t receive subsidy.  If we must subsidize electric power in the Railbelt, it would be better to provide generic subsidies, such as paying off utility debt or simply writing checks to the Railbelt utilities and ensuring those payments are used to reduce electric rates.

  • Power transmission lines are very different from roads, which do justify government funding.  In most cases it is impractical to measure and charge for the usage of roads.  A private road owner would need to put toll booths at every driveway to collect payment for use of the road.  Thus, roads are more efficiently funded through the government.  With transmission lines, measurement and billing for usage of the line is straightforward and costs little relative to the cost of the power line.

  • Power lines don’t deliver benefits external to those using the lines.  Education is subsidized by the government because people in society at large benefit from you becoming educated.  Without subsidy, people’s private decisions will lead to less than the optimal amount of education.  The benefits of power lines accrue directly to the owners/users of the lines in the form of reduced system cost and improved reliability; no significant benefits accrue to entities other than the owners/users.  An economist would say there are no positive externalities associated with transmission lines.

  • It is unlikely that any significant portion of transmission lines in the Lower-48 are funded by state or federal grants.  I have not collected the data, but I suspect that state/federal grants for electric transmission lines are very rare.

Ray Kreig - Former Chugach Electric Board President; former ARECA Board Executive Committee

• I spent six years on a utility board, two as president of Chugach.  I tried to run as open a process as possible to make sure we got a diversity of opinions and information to make good decisions.  That is why I was extremely distressed to find out in November 2002 Chugach Electric management had suppressed the 2/98 DFI report.  It is the major credible decisional document on the economic benefits of the Southern Intertie.  It also turns out at the same time they were concealing the non-viability of the project by putting out pumped up numbers from another report that had never been made known to the board. 

• I am appalled by this behavior from officials of a publicly owned entity.  Had we [the 1998 Chugach Board] known about that we would have been all over the differences.  And no way allowed the public to have been misled through the EIS process for the following four years.

• Clearly, the Southern Intertie has some benefits.  The question is, are they worth the cost?  Are there better uses for $124.1 million in public and ratepayer funds?  Presently, power is on 99.975% of the time.  How much is it worth to gain a part of that remaining 0.025% (two hours/year)?

• Having an independent duplicate pathway for power flow between Anchorage and the Kenai sounds good.  But what exactly are the true benefits of that and the costs?

• Utility boards, legislators and the public have no way of judging these claims without fair, impartial, and unbiased project economic advice from independent experts.

• Of great concern should be the history just described of deceptive manipulation of Intertie benefit claims by public utility managers.

• Another concern should be the increasing use of secrecy by the co-ops, especially Chugach, the largest one, in their board deliberations.  The co-op open meetings statute is being abused.  What has unfolded with the suppression of this Southern Intertie “secret” report, would be “Exhibit A” of this problem.  The best and most accurate study was unavailable during the whole decision process.  Secrecy is being used to shield bad managers and decisions from accountability.

• Considering the deterioration that has occurred in the State of Alaska’s financial condition since the original appropriation in 1993, Southcentral utility boards and local governments should look very hard at the Southern Intertie and ask the Legislature to reappropriate the $70 million in state funds already pledged to the project.  The money would better benefit Southcentral Alaskans if used to reduce utility or municipal and school debt by $525 per household.

• This is going to take quite a bit of public education and discussion.  Many feel justified in treating the $70 million state subsidy as a done deal & not up for further consideration. 

• Opposition to the Southern Intertie is not just another anti-development stance from the usual sources.  Concern crosses the political spectrum to include all who want responsible use of public and ratepayer funds:  Conservative Republican to Liberal Democrat.     

• There is skepticism that if the intertie is not built and the funds go back, the grant money will be seized by legislators or the governor and wasted on other pork that may pay even less then the 50 cents on the dollar yield of the Southern Intertie.   

• One way to appeal to legislators from other regions to resist the temptation to try and seize the money is:  If the intertie is built, you get none of the funds for your area anyway.  Let it be reappropriated to a better Southcentral purpose (debt reduction) and claim credit for being responsible and confronting Alaska's new fiscal realities.

• However, note that the money was acquired by the Railbelt Utilities actively putting forth cost/benefit figures that were grossly inaccurate.  They maneuvered through the EIS process by using these false benefit figures.  This is not acceptable behavior.

• The Southern Intertie will be regarded and measured in the community and by analysts as an indicator of how well/ how rationally public decision making is being done. Are we doing things smarter?  Of the $124.1 million in project costs, if the lower benefits are true, then building the Southern Intertie will waste $67.4 million.

• Note that $7 million of the grant has already been spent and still no decision based on a good faith consideration of true costs and benefits has been made!  No private sector organization would act in this way; no well managed public sector entity should either. 

• More testimony

Lee Ann Gerhart - CPA (Texas), Business Process Analysis; former Alyeska Pipeline and BP Prudhoe Bay management team.

• That our ostensibly non-profit utilities are willing to waste $67.4 million of their owner’s assets on the Southern Intertie is an indication of a much larger problem with the co-ops and municipal utilities, all of which exhibit excess costs and inefficiency compared to other utilities around the country.

• For example see Chugach Consumers’ 1995 benchmarking study showing that distribution costs charged by Alaskan cooperatives compared to over 800 other electric cooperatives around the country are way over industry norms.  Most are charging twice the average to distribute power compared to those with like population densities. 

• The only cooperative that has been steadily lowering its costs is Matanuska Electric which, after 15 rate reductions, now charges less then Chugach Electric even though it would be expected to have higher costs with only 12 services per mile of line to share maintenance costs compared Chugach with its 42 services per mile of line.  While MEA has reduced its portion of rates by 18%, Chugach has increased its rates for its customers.

• Note that Matanuska is also the only utility that is questioning the logic of the Southern Intertie!

• The IPG has decided that the questionable benefits are not to be revisited, & now Chugach General Manager Joe Griffith is trying to renege on his 1/2/03 promise to obtain an independent review of costs.

• The message:  The Southern Intertie will be built at all costs, and benefits are of no concern.  As cost-pass-through organizations with captive customers, the ratepayers will pay any excesses or overruns.  

• More testimony

Gene Kulawik - Vice-President, Argetsinger & Kulawik, Inc., Construction Consultants; former director of maintenance for Alaska DOT, South Central district

• Several hundred million state dollars have been irresponsibly invested in [failed] projects with little or no return.  This should not continue.  Two estimates of Total Benefits to be achieved are $143.5 million or $56.7 million...made by the same company.  Bring them back to justify the two different benefits numbers and quantify the differences.  Also, a different review by bringing in a disinterested consultant to make an independent analysis of all reports would be a better plan.  There should not be any rush to judgment until this matter is resolved.

• More testimony

Steve Cleary - Executive Director, Alaska Public Interest Research Group

• High utility rates hurt low income people more then any other sector in the community.  

• AkPIRG intends to challenge the use of any interest earnings from the Southern Intertie grant to be used for the design and construction of the intertie. 

• The EIS approval was based upon the trumped up benefits included in the Updated 1998 Study, which made the economic benefits greater than they really are.  AkPIRG is investigating the legal ramifications of challenging the EIS approval for the Southern Intertie.

• More AkPIRG testimony

Earle Ausman - Consulting engineer, Snettisham and other transmission lines

• The EIS approvals were achieved by concealment of an earlier study that showed the project was uneconomical.  The fact that a new study with different conclusions followed right after and was used to get approval for the Southern Intertie is highly suspicious.

• ...the intertie is a loser.  The people who will lose this money are members of the Railbelt that could use this money for other important needs such as schooling.

• More testimony

MORE INFORMATION

www.chugachconsumers.org/si.htm  

http://www.chugachelectric.com/news/events/sintertie.html