INTERTIE PARTICIPANTS GROUP MEETING 1/2/03
SOUTHERN INTERTIE 
TESTIMONY OF ALAN MITCHELL 

[Notes] 

Introduction

Hello, my name is Alan Mitchell.  I am currently employed at GCI as Senior Manager of Economic Analysis. My comments today are not associated with my current job and are made as a Chugach ratepayer and citizen of Alaska.  I have a degree in Electrical Engineering and a masters degree in Energy and Resource Planning.  My involvement with the Southern Intertie project results from being the State's Utility Consumer Advocate in 1990. Through that contract, I did extensive analysis of this project.

I would like to make 3 Points today.

1. No need for state financing of Electric Utility projects such as the Southern Intertie.

• Railbelt Utilities have financed on the order of $1.5 billion of projects on their own. Utilities have ability to finance $100 million intertie project without subsidy.
  

• Subsidy distorts project decision making process. This subsidy is ear-marked for one particular project and favors it over all other utility capital projects. That sort of subsidy causes Utilities to go forward with the subsidized project ahead of projects that are more cost-effective.  
  

• With our current state fiscal problems, we absolutely do not need to be spending state money on activities that work just fine without government involvement. The $70 million of state money represents $420 per Railbelt Household, which could be used to defer taxes and protect our Permanent Fund checks.  
  

• Conclusion of 1^st Point: Even if the project is a good one, there is no need for State financing.  

2. Project is Not Cost-effective

• The reasonable cost/benefit studies of this project have shown that the project only produces about 50 or 60 cents of benefit for every $1 of cost, when you consider all costs including the subsidized portion.  Thus, the project is not cost justified.
  

• 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 that 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 and shows benefits of the project far less than costs.
  

• Even if you take the narrow perspective that state money is free, this project still presents risk. A 10% cost over-run of $10 million represents a 33% increase in the capital costs that the Utilities will pay. Cost over runs do not get subsidized by the state.  

3.  Many of you may feel justified in treating the $70 million state subsidy as a done deal & not up for further discussion.   

• I however believe that the money was acquired by the Railbelt Utilities actively putting forth cost/benefit figures that were grossly inaccurate.
  

• You also passed the EIS process by using grossly inaccurate cost/benefit figures.
  

• I feel it is your responsibility to admit that this project is not cost-effective and come up with a more beneficial use of this money, such as paying off utility debt, or you should return the money to the state to be used for normal state government services.

Thank you for listening to my testimony today.