Risk review clears AEL&P on insurance question

Consultant says utility could not have insured lines against damage

Posted: Sunday, November 16, 2008

A risk management consultant found that Juneau's electric utility could not have insured its transmission lines against damage.

On April 16, avalanches took out the line that supplies Juneau's electricity from the Snettisham hydroelectric plant. Alaska Electric Light & Power Co. was forced to burn dirty, expensive diesel to light up the city.

Almost immediately, Juneau residents were asking questions about whether AEL&P was properly prepared for disaster, such as: Why weren't the transmission lines insured?

"We're not surprised. This is exactly what we expected," said Jim Hemsath, deputy director for development at the Alaska Industrial Development and Export Authority.

He also said it was important to have an independent party answer the public's concerns.

The state owns the Snettisham project and transmission lines, while AEL&P insures, maintains and operates them. The state and the utility agreed in 1998 that an independent consultant must review Snettisham insurance at least every five years.

In light of the post-avalanche questions, AEL&P asked the risk management firm doing this year's review specifically to examine the possibility of insuring the lines.

"Insurance for overhead transmission and distribution lines is not available at any reasonable cost," said Warren, McVeigh and Griffin Inc., a Newport Beach, Calif.-based firm.

The Oct. 24 report quoted the state's insurance broker, who said line coverage has been "specifically excluded by all insurers" since 1993's Hurricane Andrew.

An insurance account manager also told them none of his office's 25 utility clients had coverage for lines.

"The common theme was that damage to this type of property was so frequent that it is viewed by the Power Generation industry as more of a maintenance item than a fortuitous event," the report quoted the manager.

The report also reviewed the rest of AEL&P's insurance coverage. Risk managers checked out the Snettisham facilities, plus they interviewed AEL&P employees, its insurance broker, and the state risk manager.

The firm recommended that the utility look into increasing some kinds of coverage and tweak some policies; it did not find any current coverage levels inadequate.

A July 16 informal audit by the state Legislature's Budget and Audit Committee found similar results: That AIDEA had acted properly according to its agreement with the utility, and that the utility didn't need insurance for its transmission lines.

AEL&P spokesman Scott Willis said, "We're pleased that these reviews found that both AIDEA and (AEL&P) were operating the Snettisham project as we should have been, as prescribed in the agreements with the state."

• Contact reporter Kate Golden at 523-2276 or e-mail kate.golden@juneauempire.com.

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