State agency OKs $8 million loan for AEL&P

Funds will enable electric utility to pay back a higher-cost bank line of credit

Posted: Wednesday, June 18, 2008

Alaska Electric Light & Power Co. has received authorization from a state agency to borrow as much as $8 million to pay for avalanche repairs to the Snettisham Hydroelectric Project power lines.

The loan will enable the Juneau electric utility to pay back a higher-cost bank line of credit, said Scott Willis, spokesman for AEL&P.

"We've had to borrow money to pay for the cost of fuel, and (contractor) City Electric for repairs," he said.

Rates were increased to pay for the higher fuel costs, but Willis said there's always a lag between when fuel suppliers must be paid and when customers pay their bills.

The lower cost borrowing through the Alaska Industrial Development and Export Authority will save money for AEL&P, and mean less cost will have to be passed on to Juneau rate payers to pay for the damage caused by the massive April 16 avalanches that took out transmission lines between Snettisham and Juneau.

Those avalanches left Juneau mostly reliant on backup diesel generators, and costly diesel fuel drove power rates up to more than 50 cents per kWh for a month, but have since declined.

Borrowing from AIDEA may enable AEL&P to get a lower interest rate, but details of the loan have not yet been finalized, said Jim Hemsath, the authority's deputy director for development.

The state-owned authority technically owns Snettisham, but AEL&P is responsible for operating it and paying off the debt incurred to buy it from the federal government.

AIDEA's board of directors approved the loan in concept last week, but terms such as interest rate and length have yet to be decided.

The Snettisham contract requires AEL&P to maintain a renewal and replacement fund for the project. That fund has already been tapped for about $3 million, Hemsath said, and will be repaid with the loan.

"When the loan comes in they'll pay back the R&R fund. We want to make sure we've got enough there to take care of a similar slide," he said.

Also recently, the rating agency Standard & Poor's has placed bonds issued though the authority on "credit watch," for possible downgrade.

The bond insurance company that insured the Snettisham and Lake Dorothy hydroelectric project bonds for AEL&P, Ambac Financial Group Inc., has struggled with the fallout from the national mortgage crisis.

Willis said that's the reason for the downgrade of the bonds, not problems stemming from the avalanche.

"S&P is saying 'We want to put Ambac on credit watch,' and they're doing that with every bond that Ambac is insuring," Willis said.

"That's not assessing our credit worthiness, that's Ambac's," he said.

Ambac's AAA rating was recently lowered, and in the last year Ambac's stock has fallen from more than $88 a share to Tuesday's close of $2.14 a share.

Willis said that is unlikely to affect AEL&P in any way, and would only be important to bond holders if AEL&P is unable to make payments on the bonds. If AEL&P needs to insure new bonds, it would just go to a financially healthier insurer.

And on June 4, Gov. Sarah Palin signed Senate Bill 255, sponsored by Sen. Kim Elton, D-Juneau, and other members of the Juneau delegation.

That bill makes technical changes to state law helping AEL&P refinance outstanding bonds issued though the authority.

At one time that was expected to save Juneau residents $600,000 a year with lower interest costs, but rising rates now make that unlikely to happen, Hemsath said.

"It does not look at this time like it would make sense, we're better off where we are," he said.

The option remains available, however, and if interest rates drop again the refinancing may yet occur.

• Contact reporter Pat Forgey at 523-2250 or e-mail

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