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MINUTES OF THE WASHINGTON PUBLIC POWER SUPPLY SYSTEM SPECIAL EXECUTIVE BOARD MEETING SEA-TAC OFFICE, BOARD ROOM SEATTLE, WASHINGTON APRIL 5,1982 - 3:00 P.M.
The Soecial Meeting of the Executive Board of Washington Public Power Supply System was called to order by Chairman Stanton H. Cain at 3:04 p.m. There was a quorum present. An environmental analysis of the April 5,1982 agenda had been prepared which showed that all items on the agenda were exempt under applicable SEPA guidelines.
s ROLL CALL Stanton H. Cain, Chairman Joe Reccht .
Paul J. Nolan Donald R. Clayhold C. Stanford Olsen Howard Richman Jack delch Board 'demeers : resent: A. O. Keiser, Chelan County P00; Harold F.
! Nelson, Grant County ?UO.
Otners 3 resent: Peter T. Jonnson, Ed Mosey, Roy Eiguren, Terry Esvelt, R. E. Ra:cliffe, Jim Curtis, J. R. Lewis, Lee Jonnson and Stuart Clarke, Bonneville Power Acministration; J. A. Hart, Administrative Auditor; Donald F. Petersen, Legislative Budget Committee; Douglas C. Rocruck, Pacific Underwriters; Cean Sundquist, Seattle City Lignt; Jonathan Ungor, Princeton University; Jonn Wolcott, Snoncmish County PUD; Betty
' George and Brad Jones, Wasnington PUD Association; E. O. Dietrich,
- ntex; Clarcy Pirtile and Chuck Jones, Teamsters Local 252; Chuck Witt, Latorers Local 374; Eugene Piazza Stoel, Rives, Boley; Steve Zemke, Oon't Bankrupt Washington; Jim Lazar; Sue Blakely; Steve 3ates; Bob Lane, Seattle Times; Les Blumenthal, Associated Press; Joe Copeland, The Herald; Sandra '4cDonough, The Oregonian; James Oullenty, Tri-City Herald; John Gillie, Tacoma News Tribune; George Harris, XING Radio News; and William !cyd, KSTW TV.
3 Staf* Present: A. Squire, G. E. C. Douce', D. W. wazur, G. F. Bailey, J. O. Perxo, D. A. Thoresen, R. S. Leddick, S. J. Newsom, R. Anderson, R. A. De Lorenzo and S. A. Reese.
l MINUTES i
The Minutes of :ne Soecial Executive Scard meeting held on Maren 12, 1982 were cresentec for consiceration. Chairman Cain cointed ou:
- nat revised Minutes of this meeting were containe: in the Executive Board members' folders. The revised Minutes contained a cnange wnich he 1019:1302 8409270367 840824
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Executive Board Minu:es April 5,1982 1
nad requested. He pointe: out sna: tne enange appeared on Dage 7 of tne Minutes and consisted of tne following added sentence: " Chairman Cair.
rescenced that Mr. Gencler had not re:uested to speak and :nat he hac
, not oeen aware of Mr. Gendler's desire to comment prior to the vote."
'ir. Rienman moved tha: the Minutes ce amoroved as contained in the Board 1 memoers' folders. Mr. Welch seconded the motion. MOTION CARRIED.
REPORT BY THE DEPUTY MANAGING OIRECTOR Mr. A. Squire, Deputy Managing Director, reported that R. L. Ferguson, Managing Director, was recuperating from his surgery faster than had been anticipated by the surgeons. Mr. Squire stated that Mr. Ferguson wished to express his appreciation to those who had sent messages of concern during his stay in the hospital.
Mr. Squire called on D. W. Mazur Director of Projects, to review the recent project events and current status of the three net billed projects . Mr. Mazur stated that WNP-2 was currently 89 percent complete.
The fuel load date for WNP-2 is scheduled for September 1983. With respect to systems turnover at WNP-2, Mr. Mazur reported that 37. systems .
were scheduled to be turned over to the startup group; however, only 10 systems had actually been turned over at this time.
Mr. Mazur resorted that WNP-1 was currently 61 percent complete, which is four months anead of the projected schedule. Fuel load for WNP-1 is targeted for August 1985.
With respect to WNP-3, Mr. Mazur reported that tne project was currently 50 mercent com:le;e, with a fuel load date targeted for Decemoer 1985. This fuel load date is six months ahead of the scheduled fuel load date.
$ Mr. Mazur then reviewed the manpower at the project sites. The i
Octal manpower for the sites were as followsi WNP 5,200; WNP 6.720; and WNP 5.010. Mr. Mazur stated that WNP-3 was presently at their peak mancower figure.
Mr. Mazur reviewed the major milestones for the three projects. At WNP-2, the hydrostatic test of tne reactor pressure vessel is scheduled
- to take place in August 1982. Mr. Mazur also reported that with respect to the potential litigation on the nuclear steam supply system involving the General Electric Comoany, the Supoly System had reached an agreement with General Electric for GE's near-term support, as well as an agreement to preserve the Supply System's rights, notwithstanding the statute of limitations .
With respect to WNP.1, Mr. Mazur reported that the completion of the containment dome concrete is scheduled for May 1982. In addition, the Supply System has been notified that the Nuclear Regulatory Commission will docket the Final Safety Analysis Report on May 10, 1982.
I Mr. Mazur reported that at WNP-3, the Reactor Auxiliary Building concrete is scheduled to be completed during April 1982. Mr. Mazur also 10103303 l
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April 5,1982 Executive Board Minutes recorted that Ebasco successfully passed their N-Certificate survey.
. Mr. Mazur stated that there nac been a walkout a the WNP-3 site onThe Wednesday, March 31.
pipefitters, wne were protesting the use of a nonunionThe succontractor dispute has at an adjacent site where SPA is building a switchyard.
been resolved with the pipefitters; however, the matter has not yet been resolved with the electricians. Mr. Mazur stated that UNP-3 will lose some productivity during the month of April as a result of the dispute.
Following further discussion on Mr. Mazur's report, the next item on the ,
agenda was considered. !
SELECTION OF THE COST EFrECTIVENESS ST1JDY CONSULTANT Mr. G. F. Bailey, Assistant Director - Technology, pointed out that the Executive Board members' folders contained a letter Following related to the a review selection of a cost effectiveness study consultant.
of the activities which had taken place with respect to the selection process, Mr. Bailey reported that the State Finance Comittee had met on Acril 1,1982. Six consultants had been submitted to the State Finance Ccemittee for their consideration. However, by the time the Committee met, Foster Associates had indicated they no longer wished to be con-sidered. At the meeting on Acril 1,1982, the State Finance Committee disqualified National Economic Research Associates, because one of its In addition, OHR, Inc. was disqualified, officers held bonds for WNP-1.
! because one of its officers, as an individual, held a consulting contract with the Succly System. Mr. Bailey reported that the State Finance a
Committee staff had noted some cifficulty in obtaining infor-nation from the International Energy Associates, Ltd. references and thereforeAs a result, decided they had insufficient information to qualify IEAL.
tne State Finance Commit ee accroved Applied Economics Associates and International Environmental Consultants, indicating a preference for Aeolied Economics Assocfates.
Mr. Bailey reported that the Supply System staff had reviewed The areas and evaluated tne croposals submitted by the two consultants.
evaluated included the technical approach, the qualification of the firm, the :ersonnel involved and the price offered in the proposal.
Following the evaluation, the staff recommended that Applied Economics Associates be selected as the consultant to perform the cost effective-ness study.
'4r. Recchi stated that at the time the resolution was passed by the Executive 3 card recommencing the six consultants, the Board hac directed that Applied Economics Associates was to te suomitted only if the staff determined that its proposed subcontractor. TERA, was free of conflicts of interest. The s:ecific concern which NJ been Mr. expressed was whether Sailey reclied that or not TERA had an interest in uranium 11ng.
it had been determined that TERA did not ' ave an organi:stional interest in uranium mining or exploration compania and, further, had no interest I
in uranium properties. Mr. Clayhold also pointed out that this informa-l tion was contained in the doc:imentation Mr. Recchi which asked if both nad of the been submitted to the finalists State Finance Committee.
recognized the time frame under which they must prepare the st'udy in toin:13n.3
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orcer to met tne recuired deadlines. He also asked if tnese ceadlines would corresconc w1:n the Novemoe- election. Mr. Sailey replied sna:
botn consul: ants unoers: cod'the time restraints and 'fel: that tney could conduct :ne study and publish a final report by August 1,1982. Compie-tion of :ne study by August 1,1982 would allow :ne ma::er to appear on the ballot for the Novemoer election.
Following further discussion, Mr. Clayhold moved that Resolution 61 be adopted, identifying Applied Economics Associates as the consultant to conduct the cost effectiveness study. Mr. Nolan seconded the motion.
EXECUTIVE 30ARD RESOLUTION 61 ENTITLED "A RESOLUTION SELECTING A CONSUL-TANT TO CONDUCT THE COST EFFECTIVENESS STUDY REQUIRED BY INITIATIVE 394" ADOPTED BY UNANIMOUS VOTE.
DISCUSSION RELATING TO BONNEVILLE POWER ADMINISTRATION'S ORAFT DOWER LOAD FORECAST Peter Johnson, Bonneville Power Administrator, stated that the occument which was to be reviewed at this meeting was a draft report of. .
BPA's forecast of electricity consumption in the Pacific Northwest. He continued that the report had been developed during the past several montns and had extensive public inout. He stated that this forecast was to serve as a clanning tool for Bonneville as it fulfills its responsi-bilities and authority under :ne Regional Power Act. Mr._ Johnson con-tinued that BPA had sought reviews of the forecas: Dy the Regional l' planning Council. The Planning Council believes that BPA had erred to
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the conservative side. Mr. Jonnsen continued that the forecast clearly snowed that Projects 1, 2 and 3 were needed in the region; however, the report also may indicate that there may be short-term suroluses of electricity. Me stated that he was not crepared to speculate as to the influence the reocrt would have on the construction schedules for Projects 1, 2 and 3. Mr. Johnson then called on Terry Esvel: Tor furtner review of the draft recort.
! Mr. Esvalt distributed cocies of the draft report, as well as an j executive summary. he stated that more than 1,900 copies of ta.e draft report had been mailed througnout the region on Friday, April 2,1982.
He pointed out that the forecast had been prepared, utilizing a large number of assumptions and inputs, such as assumptions concerning the economy and population growth, conservation programs and practices, fuel
! and electricity prices and technical-engineering factors. He stated l that in the baseline case, regional employment is expected to grow by an average annual rate of 2.1 percent. He pointed out that two types of conservation were included in :ne forecast... price-induced conservation and existing government, BPA and utility conservation programs. Following a thorough review of the executive sunnary, Mr. Recchi referred to Page 3 of the summary, which stated, "This conservation potential is to be -
analyzed outside the framework of these forecasts in a ser.arate conserva-tion assessment." Mr. Recchi asked who would provide this assessment.
Mr. Esvelt replied that this assessment would be provided by Applied Management Sciences. AMS's recort is due in draft form in approximately two weeks. The final report will be released by May 15, 1982. Following further discussion, Mr. Esvelt pointed out that this forecast was a draft report and that there would be a public connent period of 60 days.
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Mr. Olsen excressed his concern that suen a document hac caen develooed by using information from a model developed by the Oak Ridge Mr.
National Laboratory, but applied to the Pacific Northwest Region.
Recchi asked if adjustments had been made in the Mr.Oak Ridge Esvelt replied model to that reflect conditions in the Pact fic Northwest. i when using any model, the model must be calibrated to reflect the condi-tions of a specific region. He stated that 1979 actuals for the Pacific Mr.
Northwest had been used as the base year in preparing the report.
Clayhold asked what services the National Economic Research A were performing.
an independent assessment of the reasonableness of the forecast report.
NERA's report is due by the end of the current week.
Following this report, Mr. Jack Welch, Chairman of the Finance Committee, reported that the Finance CommitteeAthad metmeetings, these a numberthe of times since the last meeting of the Executive Board.
Committee had reviewed elements which will control the annual budget and have considered the factors that will control financial planning in the On a cash flow basis, the staff has imediate and near-term future.
estiented that the Supply System has funds on hand to cover expenses which will be payable on all three net billed projects until October 1982. However, under present construction schedules, funds on hand will be committed by Way 1,1982; but, unlike the WNP 4 and 5 situation, the ne: billing agreements, as tne Finance Ccmmittee reads them, provides that funds will be available to cover commitments accruing after May 1.
Mr. Welch stated that the Finance Committee will be discussing this ma::er witn SPA regularly to confirm their understanding of the Mr.contracts Welch anc to get their instructions on management of commitments.
also stated :ha: :ne Finance Committee will consider the SPA load foreca infornation received at :nis meeting and those comments wnten will be received by Bonneville.
Mr. Welch recorted that the Finance Committee, with the staff of tre Supply System, have engaged in analyzing some imoacts of various Among the oo:icns for construction scheduling and financial planning.
consicerations are (1) effects of plant deferrals on unemoloyment in the Grays Harcor County and Tri-Citics areas; (2) effects of deferrals on State tax revenues; (3) additional costs and :ensumer rate effects as a result of plant deferrals; (4) effects of various results uncer Initiative 394 on construction schedules and costs; and (5)Inshort-term concl.usion, rateMr.effects Welch of deferring financing for one or more olants.
stated that it is excected that these analysesIt will help the Supply is expected tha: the System and SPA get a more complete cicture. Finance Committee wi 6his matter at tne next Executive Board meeting.
Following this recort, Chairman Cain suggested that the Finance Committee review this matter and offer Mr.theirOlsen reports;ated and recommendations that the Succly at the next Executive Board meeting.
System was continuing cons:ruction at a rate wnics was consistent Mr. Olsen witn
- na: experienced prior to tne release of :ne draft recort.
referred to a sta:ement ace by Mr. Welch wnien indicated :nat f the Committee would also te consicering tne SPA load forecast irJ ormation 10Pl:130G i
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.c received at-this meeting. 'i . Olsen suggested ina: the Finance Cc=1::ee remove this factor from nei- consiceration. Mr. Olsen statec :na:
anytning which is done witn ressect to the imoact of the forecast mus:
oe cone as directed by SPA.
Following further discussion, Mr. Squire stated that input from SPA, the Participants' Review Scard and private owners was exceedingly important. He continued that-in the absence of any other instruction,.
the Supply System was continuing to proceed with the construe:fon of the net billed projects until otnerwise directed. Mr. Reccat asked that the Finance Committee' furnish information to the Executive Board which was used in their analysis, as well as a listing of possible alternatives,~
as epoosed to just submitting a recomendation to the Executive Board.
Mr . Welch assured Mr. Recchi that background information on the analysis, as well as options, would be included in the Finance Comittee's report.
REDORT BY THE WNP-4/5 TERMINATION PROGRAM DIRECTOR '
R. A. De Lorenzo, Program Director, presented a series of slides illustrating the progress of the WNP-4/5 termination program. The first char: illustrated the cash balances for the termination program for the months of January and February. The cash balance at the end of January was 510,324,000_, while the February cash balance was $26,753,000. Mr.
De Lorenzo pointed out that the temination program has received loan commitments # 1 the amoun: of $70,539,000. The second enar: presented by Mr. De Lorenzo illustrated actual and planned cumulative discursements
.throuch the end of June 1982. He pointed out that during the mon:n of February, more money than planned had been spent due to the settlement of the Gardinier contract. He stated that the Supply System had been able to save an additional $150,000, inasmuch as Gardinier had offered a
$150,000 discount for payment of the settlement in one cayment rather than two payments.
Mr. De Lorenzo then reviewed the contracts status for Projects 4 anc 5. Mr. Recchi asked if the ecuipment contracts wnich were identified were owner-furnished equipment. Mr. De Lorenzo replied tha: the ecuipment contracts were administered by Ebasco for WNP-5 and reflected procurement of the equivalent of " owner-furnished equipment".
Mr. De Lorenzo presented a viewgraph which identified the monthly costs to stay in Phase 1 of the termination program. He pointed out that these figures reflected an " upper bound" on the costs to preserve the ass (!s and retain the licenses during Phase 1 'He stated that transition from Phase 1 to Phase 2 would not eliminate all of these costs. Mr. Clayhold referred to the cash flow forecast which had been released on March 31, 1982. He observed that this forecast indicated that the Supply System's cash on hand would extend further than had been l
expected. Mr. Clayhold read from the cash flow forecast, which stated:
"Sased on the reduced requirement for cash for disbursement in the June {
j time frame, it is recommended that sufficient cash be made available via termination loans from the project participants to meet disburseme'nt forecasts and to establish a working capital balance. The implementation l
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of loans in June 1982 is consistent with the ' management plan' casa flow projections; working capital balance, althougn never specifically adcressed ,
in any cash forecast schedule, is a prudent business practice to guard I against un'areseen cash demands." Mr. Clayhold stated that he felt this statement represented a policy decision. He asked if this approach needed to be taken and if so, wno would make the final decision. Mr. De Lorenzo replied that this recommendation had been made by the Program Controller in an effort to provide sufficient funds to guard against unforeseen cash demands. He continued that in the case of the settlement with Gardinier, the Supply System had the opportunity to save 5150,000; however, under the current program, there would have been no opportunity to make this type of settlement, due to the cash availability. Mr.
Soutre added that these types of decisions will be discussed early with the Participants' Coenittee and others. He also indicated that he intended to be involved in tne decision making process at the senior staff level.
Resolution 60 entitled "A RESOLUTION AUTHORIZING IMPLEMENTATION OF 1981 SECURITY LEGISLATION" was presented for consideration. Mr. G. E. C. -
Doupe'. Acting Chief Counsel, stated tnat during the 1981 legislative session, legislation had been passed which authorized operating agencies to establish a security force and authorized limited law enforcement powers for said security force. He continued that Resolution 50 delegated autnerity to Supply System staff to carry cut the intent of the legisla-tion. Following this discussion, Mr. Clayhold moved that the resolution be adooted. Mr. Olsen seconced the motion. Mr. Clayhold ooserved that the resolution delegated the authority to implement this legislation to the Director of Safety and Security or the Manager of Security Programs.
He asked if this was the manner in wnich delegations of authority were normally handled. Mr. Douce' replied that normally, delegations of authority were given to tne anaging u Director. Following further discus-sion, Mr. Clayhold withdrew his orevious motion for adoption of the resolution; Mr. Olsen withdrew his second.
Mr. Couce' indicated that the resolution could be amended to state:
"It is resolved tnat the Managing Director or his delegee is hereby granted autnority to implement Chapter 301, House Bill 304 of the 1981 Washington State Legislature." Mr. Clayhold moved that the resolution be adopted as suggested by Mr. Doupe'. Mr. Olsen seconded the motion for amendment of the resolution. Following further discussion, the question was called for. EXECUTIVE 20ARD RESOLUTION 60, AS AMENCED, ADOPTED BY UNANIMOUS VOTE.
APPROVAL OF CLAIM VOUCHERS Mr. Olsen moved that the following claim vouchers be approved, with the exception of any payments which would reimburse the Bond Fund Trustee for litigation expenses associated with Initiative 394: GENERAL FUND -
I 117360 througn 119033; NUCLEAR PROJECT NO.1 CONSTRUCTION RE'/0LVING i FUND *2996 througn 3003; NUCLEAR PROJECT NO.1 CONSTRUCTION PJND -
=5194 through 5379; NUCLEAR PROJECT NO.1 CONSTRUCTION FUEL PJND =123 tnrough 126; NUCLEAR PROJECT NO. 2 CONSTRUCTION PJND - =14668 througn 14985; NUCLEAR PROJECT NO. 2 CONSTRUCTION FUEL FUND 494 througn 95; 1010:1 Jn3 L
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- U* LEAR 8ROJECT NO. 2 REVENUE FUND =154; NUCLEAR PRCJE T NO. 3 CCNSTRU~- .
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T!ON TRUST ACCOUNT
- 8592 :nrough 876h NUCLEAR PROJE*T NO. 3 CONSTRU~-
T!ON FUND *A65 through 483; NUCLEAR FF.~JE*T NO. 3 CONSTRUCTION M;ND -
Wire Transfers 7-82 through 10-82. Mr. Olsen recuested that in the future, any vouchers which authorized payments for litigation expenses associated with Initiative 394 be brougn: to the attention of the Execu-tive Board. Mr. Squire agreed that this set of vouchers would be reviewed to determine wnether or not it included any payments to the Bond Fund Trustee for litigation expenses related to Initiative 394 He continued that in the future, these payments would be identified and called to the attention of tne Executive Board. Following this discussion, Mr. Richman seconded the motion. %i!ON CARRIED.
CO*MENTS FROM MEMBERS OF THE DUBLIC Chairman Cain asked for comments from members of the public present.
Mr. Clancy Pirttle, Business Agent for. Teamsters Local 252, stated that he felt slowing down the construction of Projects 1, 2 and 3 at this time would not be in the best interests of the pecole of the State of Wa shington. He suggested that construction efforts on the plant be' accelerated rather : nan slowed down. He stattd that the slowdown of the projects would add millions of dollars to the cost of the projects in addition to causing further unemoleyment for the citizens of the State of Washington, Mr. Pirt:le cointed out that the production at WNP-3 was among :ne nignest ceing excerienced at any construction site in the United States. He also pointed out that the region's electrical rates per kilowat: hour were among the lowest in the nation.
Hr. Chuck Witt, Business Agent for the Laborers Local in Aberdeen, stated :nat he fully succorted Projects 1, 2 and 3. He continued that if the Sucoly System were to slow down construction on these plants, it would cos: :ne ra:epayers an additional 5650 million for a one-year deferral. He concluded by stating that he believed the present rate of construction of two percent completion oer month could be maintained, and the projects would be brought on-line as scheduled. He stated that for every primary job at the construction sites, four secondary jobs were created.
Jim Lazar requested an opportunity to speak, stating that he was I appearing at this Executive Board meeting on his own time and was repre-senting no group or individual other than himself. He exeressed his confidence that the cost effectiveness consultant process could now go forward, inasmuch as the Executive Board had selected a responsible consulting firm. Wi;r. respect to the SPA load forecast, Mr. Lazar stated that he hooed SPA's load forecast preved to be more accurate than their 1979 rate forecast had been. In conclusion, Mr. Lazar urged that
( ' each of the Board members and the utilities represented would submit coments to the Bonneville Power Administration to ensure the best forecast possible.
Steve Zemke, representing Don't Bankruct Washington, stated that j
the Board was to be commended on the effort they had put forth in select-ing the cost effectiveness consultant. Mr. Zemke also stated that he 101033C9
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." Executive Board 'tinutes Acril 5, 1982 had not received a response to his letter which ne had sent to the l Executive Board. This letter had requested public hearings to discuss the subject of bond sales prior to July 1,1982. Mr. Zemte requestec that he receive a response to his letter. Chairman Cain indicated that Mr. Zemke's letter had been taken under advisement.
MEETINGS The next Regular Meeting of the Executive Board is scheduled to be held on April 23,1982 at 11:00 a.m. in the Sea-Tac Office, Seattle, Washington.
ADJOURNMENT Hearing no objection, Chairman Cain adjourned the Special Executive Board meeting at 4:50 p.m.
Submitted.
.- g .:e w A e.
G. E. Craig Douce' Acting Secretary - Executive Board Prepared by,
. sa o Shirley A. ease Administrative Assistant - Legal 10103310
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$ I Department of Energy Bonnevtlie Power Administration omcz or THe eersTwee P.O. Box 3621 Portland. Oregon 97208 i April 19, 1982 h,essneser m AP Mr. Stanton H. Cain i Chairman, Executive Board Washington Public Power Supply System I 17930 Pacific Highway South Suite 400
- Seattle, Washington 98188
Dear Mr. Cain:
In accordance with my commitment to express my recommendation regarding the construction schedules to be maintained for the WP 1, 2, and 3 projects, I am hereby notifying you of the conclusions which have been reached. It is necessary that these recon =endations be fully understood by you and '
the members of your Board in the development of the Washington Public Power -
Supply System's 1933 budget and in the development of a future financing plan. !
To assist in this understanding, members of my staff and I will be available .
at the Executive Board meeting of April 19, 1982 to review the factors lead-ing to this recommendation and will be available thereafter to respond to any further inquiries which you or members of your Board may develop.
I am recommending to the Board and staff of the Supply System that:
- 1. The construction of WP #2 and WP #3 proceed at full pace to maintain projects.
or improve the existing corstruction schedules for these 2.
The construction completion schedule of WP #1 be delayed for a period of from 2 to 5 years; and 3.
The Board instruct the staff of the Supply System to prepare a budget and financing plan consistent with these recommendations.
This recommendation is the result of careful consideration of many factors and, in view of the significant impact it will have on the region, was not an easy choice.
However, I believe that as you and the other members of your Board become more fully acquainted with all of the financing, economic, marketing and load / resource balance studies and investigations which have preceded this recommendation you will share my belief that adherence to the proposal is the prudent action to be taken.
Sincerely, ,
f
/
l Administ r
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MINUTES OF THE WASHINGTON :UBLIC POWER Supoty sy37g3 SPECIAL EXEC'JTIVE SOARD MEETING SEA-TAC OFFICE, gcAgo gooy SEATTLE, WASHINGTON APRIL 19,1982 3:00 P.M.
The Special Meeting of the Executive Board of Washington Public Power Supply System was called to order by Chairman Stanton H. Cain at 3:00 p.m.
There was a quorum present. An environmental analysis of the april 19,1982 agenda had been prepared which showed that all items on the agenda were categorically exempt from procedural compliance with the State Environmental Policy Act.
ROLL CALL Stanton H. Cain, Chairman Ed Fischer Jack Welch Donald R. Clayhold C. Stanford Olsen Howard 3. Richman 8aul J. Nolan Joe Receni Others Dresent:
R. O. Keiser, Chelan County PUD; D. Sundoutst, Seattle City Lignt; Peter T. Johnson, E. N. Sienkiewicz, James Curtis, R. L.
Eiguren and J. R. Lewis, Sonneville Power Administration; Ray Foleen, Consultant
'?. to the 'JNP 4/5 Particicants' Committee: Carolyn Johnson and Eiguren; John Gillie, Taccma News Tribune; Dennis Godfrey, Tri-City Herald; Tom Green, United Dress International; Joe Copelano, The Herald; Bob Lane, Seattle Times; Les Blumenthal, Associated Press.
(This list is not all complete, inasmuch as the attendance book was not circulated to present.)
Staff Present:
A. Squire, 3. A. Thoresen, G. E. C. Doupe' , P. K. Shen, S. J. Newsom and S. A. Reese.R. 5. Leccick, R. N. Williams , D. A. Neale; J. A MINUTES 1982 were presented for consideration.The Minutes of the Special Executive be aporoved as distributed. Mr. Nolan moved that the Minutes CARRIED. 'tr. Richman seconded the motion. MOTION REPORT BY THE DEPUTY MANAGING DIRECTOR Managing Of rector, wts recuoerating rapidly from his recent was expected weeks. to return to his duties at the Supply System within' two 1010:1311
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'Witn res:ect to recen, newspa:ee articles concerning emoe::lemen-c' fr.ds by a Sittstuegh-Oes v. cines heel employee at WN:-2, "r. Scuire rec:rted tnat 5". aron Howard, wn: nad :een em:loyed by tne Sittsburgi,-Des voines Stee_1 Company as a Payroll Supervisor during 1980 :nrougn 1952, nac :een cnarged with thef t in tne first cegree. A searcn of the howard pro:ecty resulted in the discovery cf approximately $10,000' worth of tools which nad been taken from Hanford sites. Mr. Squire continued that apart from the tools which had seen taken from the construction sites.- the money which was embez: led was that of Pittsburgh-Dee. Moines Steel Company. He stated that the Supply System is continuing to review the situation, and appropriate action will be taken.
REPOPT BY THE BONNEVILLE POWER ADMINISTRATOR Peter Johnson, Bonneville Power Administrator, opened his remarks by stating that he appreciated the opportunity to discuss matters which were of gravity to the Pacific Nortnwest. He continued that tnis issue had to be dhcussed as a result of extensive analysis of power financing and perceptions as to load growth in the Pacific Northwest. Mr. Johnson distributed copies of a memorandum concerning options relating to comple-tion o' Supply System Drejects 1, 2 and 3 and an analysis of resource alternatives. Mr. Johnson continued that the Bonneville Power Adminis-tration had sought tne aovice of the ilegional Power Planning Council in 4
this matter. In addition, the subject had been discussed with the Executive Board Finance Committee, management of the -3upoly System, utility leaoers, both cublic and rivate, as well as ex:erts insice and outside the region. Mr. Jonnson stated that he had personally discussed nis matter with Governors Soellman and Atiyek, the Secretary of Energy and several congressmen and senators in "ashington, D.C.
'tr. Jennsen stated that a series of objectives had been deveicoed in performing the analysis and testing the decision. Inese objectives
! were (1) to furtner the best interests of current and future ratepayers l
of the region; (2) to minimize the financial risks to and maximize the fiscal integrity of BPA and the region as a whole; (3) tc oreserve tne region's economic ability to deliver the benefits of the Pacific North-west Electric Power Planning & Conservation Act, including conservation and renewable resource development; (4) to bring greater certainty, stability and credictability to rates and resource decisions; (5) to
- _ provide a maximum opportunity for tne region's economy to recover and l
remain prosperous; (6) to identify the most effective strategy for marketing the bonds needed to finance the com;letion or creservation of 1 _the Supply System projects; (7) to maximize the region's flexibility to accommodate change load and economic conditions; and (8) to identify a choice which assures a healthy and positive construction environment within the Supply System in order that maximum efficiencies can be i achieved.
- - Following the review of the objectives, Mr. Johnson read the summary of the analysis of resource alternatives. Mr. Johnson stated that he felt Plants 1, 2 and 3 will be needed in the region. He also pointed out that WNP-1 would be in commercial operation earlier than would WNP-
- 3. In addition, the power from WNP-1 would be less expensive th'an the I
L 1019:0W L
- 3 ~- April 19,1982
Executive Board Minutes s
cower produced by !!NP-3. However, it wat belvf/ed tnat WNP-1 could be Mt a ho pointed out that.mP-3 is
- restarted faster than could !aP-3.
closer to the major Pacific Ncrtnwest load centers taan '4NP-1, ut.icn i This fact reduces line results in shorter transmission. distances. In addition, Mr. Jonnson :
losses'and increases transmission reliability. t pointed out _ that WNP-3 had a 30 percent ownership by private utilities.
A decision to extend the construction schedule of WNP-3 would require the agreement of the private owners, and it appeared that the private owners needed power earlier than the Sonneville Power Administration.
Mr. Johnson stated that extending construction on WNP-1 would result in a slightly lower BPA rate increase in October 1982.
Mr. Johnson then read his letter addressed to Stanton H. Cain, Chaiman of the Executive Board, dated April 19, 1982. A portion of this letter reads as follows:
"I am recomending to the Board and staff of the Supply System that:
(1 )
The construction of WND #2 and !!NP #3 proceed at full ,
pace to maintain or imorove the existing construction schedules for these projects; (2) The construction comoletion schedule of WNP dl be de-layed for a period of from two to five years; and
' (3) The Board instruct the staff of the Supply System to crecare a budget and financing clan consistent with tnese recor.:rendations . . ."
Following the reading (' the letter, Chairman _ Cain recessed the The meeting was reconvened S;ecial Executive Board meeting at 3:20 p.m.
at 3:45 p.m.
' Mr. Richman stated that on the basis of his understanding, the Sucoly System was legally obligated, as a result of contractual arrange-ments, to follow BPA's directicn in the sc9edule of construction for Plants 1, 2 and 3, as well as the size and timing of the cond issues necessary to finance these construction schedules. As a result of this
' ' understanding, Mr. Richman asked the following questions of Mr. Johnson:
(1) Mr. Richman asked if the directions which had been given to theIf Supply System were firm directions with no deviations permitted.
alternatives were permitted, what different actions would *PA allow the Supply System to take without the Bonneville Power Administration con-struing the Supply System as being in breach of contract and therefore
! subject to litigation. (2) Mr. Richman asked what different scenarios BPA had studied.
He asked if 3PA had examined continuing all three of the-plants. He also asked if BPA had considered shutting down WNP-3 at this time in**ead of continuing until the November election and then He also restarting the clant if the election results were positive.
asked if BPA had considered deferring construction on all three of the plants now under construction. (3) fir. Richman stated that his next question related to band issues. He stated that in the past, the bond 1010.1313 r-l L
e
- =
Exe:.-ivt - -: "ieute: --
A:ril 19,1932 5
sales na: ceer mana;e: :y estimating :ne minimum amount *ecuired. The conc bror,ers were inem allowed to tes tne market to :etermine wnetner a 4 lar:er con: sale co',it ce marte:ec.
- ' ini: was the ce:ermination of 2
tne'excerts, BPA woul: :nen authorize a larger bond scie. He continued I na: he believed a different situation was now being faced in view of tne reouirement that sucn bond sales be approved by the citizens of tne 3 State of Washington in accorcance with initiative 394 Mr. Richman asked Mr. Johnson how much discretion he would allow the Supply System's -
governing bodies in determining the size of the May bond sale without e construing the Supply System's actions as a breach of contract.
j Mr. Johnson replied that many alternatives had been considered, "
including the scenarios listed by Mr. Richman. He stated that the _
i recommendation which he had made to the Board concerning tne delay of i
- ne cons *ruction schedule for WNP-1 was the result of BPA's study of J these alternatives. Mr. Johnson continued that time was of the essence -
in making the final decision on his recommendation. He stated that i BPA's resources would be made available to the Board to assist them in evaluating the recommendation. Witn resoect to the size of the May Dond _'
offering, Mr. Jonnson stated that the financial advisors had recommended -
a conc sale in tne range of 1:50 million to $550 million; however, BPA =
was not prepared to make a financing reconmendation to tne Board of -
Directors a this time, inasmuch as flexibility was needed. Mr. Johnson acced that there was no intention to accelerate the financing or an attempt to tuilc a caserve fund, he continued that due to a nummer of '
circumstances, BPA felt that it would be prudent to finance the Supply System's projects on a commitment basis.
'}
Followine tnis reply, Mr. Cichman asked Mr. Jonnson whe:ner tne $
Sucoly Sys*em'had to follow his direction or if the Supply System could 2 recommend alternatives. Mr. Jonnson reclied that he was no: creoared to 1 say tha: the Sucoly System dicn't have any alternatives, nor was he pre- '
carec t0 say that tnere were a lot of al*ernatives to consider. There- -
fore, he indicated he would need to take Mr. Richman's question under =
aovisement. '
Mr. Fischer suggested that it would be helpful to the Scard members if an indeoendent economic study were made on BPA's recommendation prior ?
to the time the Board was asked to make a decision in the matter. Mr. 4 Johnson stated that the Bonneville Power Administration had sought the 2 help and aovice of many people in tne preparation of their recommendation.
i he pointed out that time was of the essence, and a decision must be made in order to move forward with a financing in May 1982. I Mr. Recchi referred to the Analysis of Resource Alternatives which e had been distributed by the Bonneville Power Administration. In parti:u- -
lar, he referenced a statement found on Page 7 of the analysis, which s ta ted :
"A decision to extend the construction schedule of WNP *3 would f_
require the agreement of the other owners, and it now appears they may ;
need that power earlier than SPA." Mr. Recchi asked if there was a 5 legal recuirement that any decision on WNP-3 would require a concurrence 5 by the private owners. Mr. Johnson replied that the agreement between -
1014:1314 g
- - - E
Executive isarc linu8es -.5 - April 19, 1982
\
' ne parties pro. oes for an 80 percent acoroval .I Inasmuch as tne Iaocly System holds a ' ercent snare of W1P-3, sucn action would require another 10 perce-t favorable action on :ne part of the private utilities.
Mr. Recchi askee if there had ceen any indication on the part of the private utilitiet that they would provide the additional ten percent approval. ftr. Jrinnson replied that this question had not been asked.
Mr. Olsen o:: served that in the past, Sonneville's approval was
. sought prior to 'inal action on budgets and bond issues. He stated it would now apoear that Bonneville was providing their approval prior to being asked for Snefr input. He asked if this could be interpreted as a directive from tr se Bonneville Power Administration. Mr. Johnson replied that the items coritained in his letter were being offered as a recommenda-tion. Mr. Nolan cointed out that SPA's recommendation was the result of a' request from the Finance Committee to the Bonneville Power Administra-tion for direction.
d Mr. Olsen re erred to Mr. Johnson's previous statement that the energy resources rf Projects 1, 2 and 3 would be needed in the future. .
He asked if BPA hand investigated the cotion of completing all tnree olants and letting Projects 1 and 3 sit idle until such time as their output was requirsed. He asked if serious consideration had been given to marketing the ernergy outside the region. *1r. Johnson replied that these cotions had seen given careful consideration. However, to nave proceeded with tne financing for all three Projects would have forced t larger increase or the ratepayers of the region. Mr. E. W. Sienkiewicz, Bonneville Power Mministration, added that it was BPA's judgment that it would be more economical to construct two plants rather than all tnree.
Following #urther discussion, Mr. Clayhold asked if the orivate owners had been as <ed if they would approve a construction slowdown at WNP-3. Mr. Johnst' reolied that he had discussed the subject with them, i and the private ow ers had made it clear that it was their desire to t
proceed witn const-uction of WNP-3 on schedule. Mr. Clay 90ld also asked if the bankers had given any indication that the bcnd sale could not be i
issued for more than 5550 million.
_ whien had been ciscussed was between the figures of $550 million andMr. Jo 5650 million.
4 i
i Mr. Recchi stated that he felt moving to a commitment basis was a prudent decision.
l He asked if any analysis had been made on the funding which would be required if the Supply System continued on a cash basis.
Mr. Jim Curtis, Sonneville Power Administration, replieo that-the review j
indicated that the Supply System would have sufficient cash on hand to carry the Supply System to mid-October. The additional bond sale would l
L carry the Supply System through mid-March 1983. Mr. Recchi observed that in the event the electorate did not approve a bond sale in November, i there would not be sufficient funds on hand to meet commitments. Mr.
Curtis reolled that this was a correct interpretation of the situation.
- 1. Secretarv's Ne:e: The Ownership Agreement requires approval by l
ownersnip snares of more than 80 percent.
1014:!313
.- I
- Executive;1 card Pinutes ,6- Acril ig,1932 4 o Mr. O!ser c
- served :nat :ne Regional Powe- :ianning Councii nac a responsi:il':y for balancing forecasts and resources in mid 1923. .~ e continute a: :ne action wnien was oeing proposed by :ne Bonneville
-Power Actinis ration would have an impact on tne options which were Lavailable tc :ne _ Regional Council.. Mr. Olsen asked how extensively BPA 3- had discussed :nis matte- with the Regional Council and. the reacton received from the Council. Mr. Johnson replirj :nat Projects 1, 2 and 3 were memorialized by the Regional Power Act. These projects had been acquired, and it was necessary to manage then successfully. For 14:1s reason, the sub.iect had been discussed with the Regional Council. Their advice was no: to be afraid to take a bold and wise action. The recom-mended choice would leave the region a modest surplus of energy.
'ir. Fischer again suggested .that an independent study be made of the Bonneville recommendation. He suggested that if a firm, such as
. R. W. Beck -& Associates, were to make such an independent study, all parties would be satisfied and confident in the final decision. Mr.
Fischer asked Win Petersen the time period which would be required to ,
make such a study. Mr. Petersen replied that he felt it would take a l' substantial period of time to duolicate the efforts which had been 4
undertaken by the Bonneville Dower Administration. He stated that he did not believe aceouate time was available to make a complete, inde-cendent study. However, ne stated it would be possible to examine tne
}. methodclogy and assu=Deiens wnich were used within a relatively short period of time, i
j :Following further discussion, Mr. Recchi asked Mr. Squire if he saw
- significant c
- erational problems as a result of deferring construe:1on
{ at WNP-1. M . Scuire replied that some disattvantages did exist. He
- stated that effective management teams had been develcoed at WNO-1.
! Asking :nese teams to move from tne Hanfcd a-ee' to tre Satsop site
- could result in the loss of the emoloyees. In adcition, Mr. Souire pointed out
- nat the deferral of construction at WND-1 would. have a
!. serious imcact on the morale of the employees. In addition,' the Supoly
[ System would lose employees wno possess critical skills which are i difficult to replace.
l Mr. Richman endorsed Mr. Fischer's previous suggestion concerning
- the use of a consultant to review the methodology and assumptions used in the BPA recommendation. Following a considerable amount of dis-cussion on this suggestion, Mr. Clayhold asked Mr. Johnson what SPA would do if the Board proposed other action than the BPA recommendation.
Mr. Johnson replied that it was BPA's desire that the Supply System
< Board have an opportunity to review BPA's recommendation and to have the benefit of input from the BPA staff. He continued that it would take a positive decision by both BPA and the Supply System Board to move for-
- ward on a plan. Mr. Clayhcid also asked how the carrying charges were paid for os.ca a plant has been put into an extended construction delay.
He asked .if these expenses would need to be part of.a future financing program. Mr. Johnson replied that tnere were adequate funds to extend l the construction schedule and to maintain a staff of 275 people. Mr.
i Curtis added that the debt service on the bonds already issued was included in the BPA rate base for 1983. Following further discussion, 1019M IG
.' ' Executive Scard Minutes April 19,1982 Chairman Cain asked if tne Participants' Review Board had to concur in the action to extend tne construction schedulc for eitner Projects 1 or
- 3. Mr. G. E. C. Douce' Acting Chief Counsel, replied that action was required by the Particicants' Review Board. However, tnis action could be taken after the Executive Board acted. !
Following this discussion, Mr. Richman made the following motion: 1 "If IS MOVED THAT R. W. BECX & ASSOCIATES REVIEW THE ASSUMP-T!ONS AND METHODOLOGY USED IN THE DEVELOPMENT OF THE BPA REPORT AND RECOMMENDATION AND THAT R. W. BECK & ASSOCIATES REPORT BACK TO THE EXECUTIVE BOARD WITHIN ONE WEEK."
Chairman Cain observed that inasmuch as this was a Special Meeting of the Executive Board and the oublished agenda did not contain an item related to Mr. Richman's motion, the motion would be out of order.
However, Chairman Cain indicated that staff should ask R. W. Beck &
Associates to supply the Board members with the information requested by Mr. Richman. Mr. Richman withdrew his motion.
- Mr. Nolan urged that the Executive Board make a decision in this matter in a timely fashion, so as to provide direction to the staff for the preparation of the budget documents which are required. Mr. Squire added tnat when he and Peter Johnson were in New York discussing this matter with the rating agencies, it was empnasized by the bankers that April 25,1982 was the date oy which instructions were needed for orecaration of the documents for the next bond sale. Mr. Squire sug-gested tnat the Board not delay in arriving at a decision in this natter. He stated that the staff would instruct R. W. Beck & Associates to study tne methodology and assumotions used in the preparation of the Sonneville Power Administration report and recommendation. He stated that the staff would appreciate specific guidance from the 30ard as to the development of the effort, realizing that R. W. Beck & Associates would not be able to provide an in-death review due to the short csriod of time available. Mr. Richman reviewed the tentative schedule for the next bond offering and asked why this time schedule could not be ex-tended for an additional week in order that the Board would have more time to review the SPA recommenoation. Mr Squire replied that there was a possibility that other actions could be taken relating to the bond sale which would require additional time. Therefore, it was not de-sirable to extend the bond sale schedule. Following further discussion, Mr. Olsen stated that before he could take action on BPA's recommenda-tion, he would need something more firm and positive from the Bonneville Power Administration. He continued that he felt this was a political decision rather than a rational decision.
Several members of the public expressed their support for continua-tion of construction at WNP-1 or the Supply System's projects, in general. These exeressions of support were received from Glenn Lee, Acting President of Tri-City Nuclear Industrial Council; Sam Volpentest, cast Vice President of the Tri-City Nuclear Industrial Council; . Senator King Lysen, Washington State Senate; James Worthington, Southeastern 101'1.'!317
e
-!- April 19,1982
, Executive E:ar: *tna:es ,
Wasningten Buil:i".; Tra:es Cou a
.:il; Don Tu::le, '.u :e-s and Steam-fittees Union, o:a* 59E; Eo: Oilger. Ext:un ve Se:retary, Wasning or 5:a:e Evilding Tea:es Coun:il; Jerry Dennis, Snee: S'e:ai ;forkers Union, Local 2:2; Bob 5:nre<enges : Bill Stillman: Forres: 5:we ; Bill Crook; hancy ;e Lorenzo; Dict Mickean; Ma yanne Kelly; 5 eve kasnburn; L.
Garre::; Clarence Durdle; anc Chuck Hainan.
- s t Dillon, Vice President of FUSE, stated that the ratepayers of
,Snonomish County were opposed to any future bond sales by the Supply System until the public had a right to vote as provided by Initiative 394 Bernice Harcer, irate ratepayer from Grays Haroor, stated that Grays Harbor County PUD commissioners were instructed at a recent meeting not to go forward with any future bond issues without a vote of the pecole. Ms. Harper urged the Executive Board to motnoall WNP-3 and to continue construction on WNP-1.
Mr. Welch, Chairman of the Exe:utive Board Finance Committee, reported that a number of meetings had been held with staff to review the procesed contract actions contained on this meeting's agenda. Mr.
Pelch recuested, in view of the consideration of EPA's recommendation, sna consideration of Resolutions 62, 63, 64 and 65 be ceferred until
- ne next meeting of the Exe:utive Board.
- EET!*!GS Chairman Cain stated that a Regular Board of Dire :ces' meeting w:uld ce neld in Richland on Acril 23,1982 at 9:00 a.m. A Soecial Exe:a:ive Boaro meeting will also be held in Richland on Acril 23, 1982 a: 9:00 a.m.
ADJOL'RNUEN~
Hearing no obje: tion, Chairmar Cain adjourned the Sce:ial Executive Board treeting at 6:00 p.m.
Submitted, fG.s .E. l.Craig. Dou#e' k Jb M' Acting Secretary - Executive Board Prepared by, i
I. eu.,
V g Shirley A. Neese b Administrative Assistant - Legal d, M *, ' '
e o
,Q Attach: .ent I s ..-. > A i uf* t Departrnent of Energy Benneville Power Administration orect cmt cav='sNToa RO. Box 3621 Pert:and. Oregon 97208 a=m=~= AP April 23,1982 Mr. John J. Welch, Chairman Finance Comittee Wasnington Public Power Suoply System 3000 George Wasnington Way Richland, Wasnington 99252
Dear Mr. Welch:
Cn A3ril 19,1992, at the meeting of the Washington Puolic Power Suoply System Executive Board, Howara Richman of your committee cosed a cuestion to me regarding the inolication of the recommendation I made to that group. I resocrced that I would take your question uncer advisement and provide an answer to you at an early date. I will now expres; my intention as fully and com;;1etely as time will cermit.
As ycu are aware, my reconmendation was promoted by a recuest of the Finance Cccrittee of tne Board and by the insistence of the SuoDly System's bend uncerwriters tnat a decision on the financing program was essential no later than April 25,198'?, to enaole proceed %g with the scheduled Ny tono sale.
To acd further im:etus to the completion of the studies ar.1 inves :'" . ions necessary to cevelco my recommenda: ion I was advised that en ? c c itnent basis existing fands available to tne Suoply System were cniv : ?'icieu '-
cover cccnitments made prior to May 1,1982, with no additi n 1 s.: ~cc
funcs for commitments the eafter availacie in the absence # 2 7- nl a ' '
May.
To be both responsive and resocnsible to these recuests, I askea the staff of Bonneville Power Acministration, together with outside consultants, to explore in all possible death the financing, marketing, economics, load / resource balance, and contractual considerations pertinent to all reasonable opt'ons.
These options included consideration of proceeding with all three of the net-billed projects on the current schedules, putting one or two of the projects in an extended contract delay mode, and extending the contract schedules for all three of the projects. Because of my sincere conviction that these projects are needed in the region and will be brougnt on line at the aopropriate time to meet regional needs, the ootion of termination of any of the projects was not considerec viable.
- Mr. Jonn J. Welch l Page 2 Acril 23, 1982 The results of this large volume of work forced the conclusion that maintaining the existing contract schedules on WNP-2 and one of tne other plants wnile extending the contract schedule on the remaining plant was the only prudent course of action in tne light of all of the circumstances. Because of-the advanced state of construction of the WNP-2 project, it was apparent that this plant must be comoleted on the present schedule and that the financing plan assure the investors that this project will, in fact, be completed and beceme an operating resource for the benefit of the region.
The selection of the .CP-l profect as the project to be delayed pending ioentification of both the financial markets and the means of accessing tnose markets was dictated by many factors, including, among others, the fact that the delay of either WMP-1 or WNP-3 would result in some reduction of the size, c# the BPA 1953 rate increase with some margin favoring delay of WNP-1; ne oroximity of WNP-3 to the region's major load centers providing increaseo transmission reliability and significant reduction of transmission losses; the delay of WNP-1 results in a greater reduction of surolus in both amount
, anc timing, the circumstance of joint ownersnio of the WNP-3 croject (70.
FCSS/ SPA and 305 others) so that the outcut will be shared cetween Sonneville anc the other joint . owners; :ne enranced opportunity for a more expeditious restart of '.CP-1 because of tne geograony and the ecol of tecnnical ski'.is I within tne Hanford Reservation area; and, cerhaos most imocrtantly, neither Wo3SS nor 3PA can require- the other 30*; owners to forego constructicn witnout substantial legal ano financial risk to WFPSS and BPA.
In the aosence of exceditious acceotance of this recommendation so that financ-ing for a May bond sale can De accomplisnec, tne alternative of seing without funoing witn wnicn to go forwar; with any of tne net-billed rojec s a:: ears inevitaole. The avoidance of tnis wnolly unacceptacle alternative mus . :e accomolished.
To the list of " objectives" set forth on Page 2 of Sonneville's Analysu of Resource Alternatives of April 19, 1982, should be added a reference to main-tain maximum flexibility in order to assure tne region an ability to accomo-date cnangin] conditions. I sincerely Delieve that the orogram outlined in my recommendation best meets the "cojectives" and is the only prudent ccurse of action at this time. I could not, in good conscience. aoprove a budget presentation or a financing plan inconsistent with this orogram. I again urge you and the other members of the board to emorace this olan and to instruct the staff to proceed accordingly.
,, _S,incerely, ,
I /* -
}f tf& j/ t4 /
j) A;4m s Admini sjr'ator
s a
(./. 1; l'
~.
Attachment J PRESENTATION OF ALTERNATI'/ES APP.IL 26, 1982
'O .
e TABLE OF CONTENT _S_
Page INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CHANGED CIRCUMSTANCES. . . . . . . . . ... . . . . . . . . . . . . . . . 2 ,
MAJOR ASSUtiPTIONS/ QUALIFICATIONS . . . . . . . '. . . . . . . . . . . . . 3-4 DEFINITION OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 5-6 EVALUATION OF SELECTED ALTERNATIVES. . . . . . . . . . . . . . . . . . . 7 UNCERWRITERS' LETTER . . . . . . ... . . . . . . . . . . . . . . . . . . 8 NUCLEAR FUEL ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . 9 REASONS FOR CONTINUING CONSTRUCTION ON WNP-1 . . . . . . . . . . . . . . 10 BONNEVILLE OCTOBER 1982 RATE EFFECT. . . . . . . . . . . . . . . . . . . 11 CPT' MUM FINANCING PLANS AT ALTERNATIVE BCND ISSUE LEVELS . . . . . . . . 12 CGMPARISON OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 13 CRITERIA FOR EVALUATING CONSIDERATIONS . . . . . . . . . . . . . . . . 14-15 k
T k
INTR 000CTf0N
- b. ,
At -the request of the Supply System Executive Board (ftr. Clayhold's motion on Acrtl 23,1982), staff has completed an evaluation of possible alternatives to Peter Johnson's recommendation concerning future financing of WNP-1, 2 and 3.
As a result of staff efforts, five selected alternatives are presented herein for the Executive Board Finance Comittee's consideration. Other alternatives and supporting information are also included.
.l.
k *
- l. ,- ",
~
CHANGED CIRCUNSTANCES ,
g l Subsequent to BPA's recortunendation on the future financing of WNP-1, 2 and 3, certain circumstances have changed which are the basis for the Supply System staff's study of possible alternatives. These changed circumstances are as follows:
- 1. A short-term slowdown in construction on WNP-1 and 3 is possible with little risk to the target (early completion) schedule.
- 10". Cash Flow Reduction Through November 1,1982
- 2. Sale of WT4P-1 surplus nuclear fuel assets.
- Equivalent to $100 million bond issue.
- 3. Increased undemriters 'ccennit:nent.
- 5700 Million 2-
. l MAJOR ASSUMPTIONS / QUALIFICATIONS j
l
- 1. Each option provides for full funding of WNP-2 through completion.
(Contingency funding for L*NP-2 from FY-83 BPA revenues in the amount of up to S200 million.)
- 2. No option provides for production of WNP-1 and/or WNP-3 beyond November 1, 1982. However, adequate funds would be available to cover connitments (as of November 1,1982) and fund project (s) in a shutdown node through September 30, 1983.
- 3. Bond issue size for eacn option is adequate to fund WNP-1 and 3 cash requirements for each project under the stated condition through September 30.1983 (and of EPA fiscal year).
- 4. Funding beyond September 30, 1983 would require additional bond sales or BPA revenues.
- 5. Base dccument for full production and 10-20% reduction in cash requirements is the current issue of the rolling 12-month cash flow forecast, dated April 12,1982.
- 6. Base document for construction deferral cash requirements is primarily WNP-1 and 3 " Extended Construction Oelay" Study, dated March 1982.
- 7.10-200 cash flow reduction is achieved through estimated manpower decreases (rapid turncown over two weeks) as follows:
Manual Nonmanual Total
- lNP-1
. 10% 600 200 800 200 1,200 400 1,600 WNP-3 10% 550 150 700 I SP, 750 250 1,000
- 8. Interes / financing assumotions of May sale are:
e Interest -
15 e Discount -
3%
e Financing - 0.5%
e Reserves -
Itaximum 6 Months Interest
- 9. Options 6, 9 and 10 assume contingency funding for UNP-2 from CPA revenues in the amount of up to S200 million in FY-83, and for WNP-1 from anticipatec sale of nuclear fuel assets in the amount of $100 million.
- 10. As of September 30, 1983, following a shutdown of WNP-1 and/or WNP-3, casn will not be available to cover commitments (estimated to be aporeximately
$35 million for WNP-3 and 515 million for WNP-1) and preservation of assets costs incurred oeyond this date.
3-
.?-
, 11 . Adequate funds will be available under all options to allow a controlled
, and orderly construction shutdown.
- 12. Funding production of WNP-1 and/or WNP-3 beyond November 1,1982 requires voter approval or other positive disposition of I-394 and subsequent bond sale. .
I i
i 4
.i 1
I 4
. - _ _ _ _ _ _ _ _ _ _ . - _ . - , , _ . - ~ . _ _ _ _ _ _ __ -. _ -.. _ ,.- _ -~ _ -
DEFINITION OF OPTIONS
($ in Millions)
May Ootion Project Conditions Bond Issue 1 1 Defer on fiay 1,1932 5 0 (BPA) 2 Full Production to Completion; FY-83 BPA Revenues 425 Funding ($145) 3 Full Production to Nov.1,1982 then Defer / Bonds 215-3TTO 2 1 10% Cash Flow Reduction to Nov.1,1982 then Defer / Bonds $205 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding ($200) 3 10% Cash Flow Reduction to Nov.1,1982 then Defer / Bonds 175 3756 3 1 20% Cash Flow Reduction to Nov. 1, 1982 then Defer / Bonds $170 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding (5200) .
3 15% Cash Flow Reduction to Nov. 1, 1982 then Defer / Bonds 160 3706 4 1 Full Production to Nov.1,1982 then Defer / Bonds $235 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding (5200) 3 Defer en May 1,1982 25 5630 5 1 Full Procuction to Nov. 1, 1982 then Defer /Boncs 5235 (Garlick) 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding (5200) 3 Full Procuction to Nov.1,1982 then Oefer/ Bonds _215 5820 6 1 Full Production to Nov. 1, 1982 then Defer / Bonds; S135 Nucleer Fuel Sale (5100) 2 Full Production to Completion; FY-G3 BPA Revenues 370 Funding (5200) 3 Full Production to Nov.1,1982 then Defer / Bonds 21 5 ITT 2 7 1 Full Production to August 1,1982 then Defer / Bonds 3155 (Clayhold) 2 Full Production to Completion; FY-83 SPA Revenues 370 Funding (5200) 3 Full Production to Nov.1,1982 then Defer / Bonds 215 3TTO' l
-S-
I
~
OEpiri!TICN OF OPTIONS (Cont'c) l o
'(5 in Millions)
May Option Project Conditions -
Bond Iss>2e 8 1 20". Cash Flow Reduction to Nov.1,1982 then Defer / Bonds 5170
_('BPA Mod.) 2 Full Production to Completion; FY-83 BPA Revenues 425 Funding (5145) 3 Full Production to Nov.1,1982 then Defer / Bonds 215 3EoTE 9 1 10% Cash Flow Reduction to Nov.1,1982 then Defer / Bonds; 5105 Nuclear Fuel Sale (5100) 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding (5200) 3 10". Cash Flow Reduction to Nov.1,1982 then Defer / Bonds 175 36?I 10 1 10% Cash Flow Reduction to Nov.1,1982 then Defer / Bonds; 3105 Nuclear Fuei Sale (5100) 2 Full Production to Completion; FY-83 BPA Revenues 370 Funding (5200) 3 Full Production to Nov.1,1982 then Defer / Bonds 215 5690 D
6-
- o ~
gatu_a!!ml nr vi(Cis E At ilment!M5 ,
e
($ in Hillions) -
g Optlon: I 2 ~6 le T scrlpt E : hrA P,WiiiT ~90 flail. FlW T sll Canstruct b - ~M1TTiW rlew- T.IIT6struction fr on #l & #3 en #1 & #3 en el & #3 & get Cash flow on fl Until lif8? Until 11/82 IIntil ll/8 L lhetil llfA2
~
-'~lh s-- kW '))nf $his ~
Centlagen Gidin : ~ )l45 -
Criteria ls Ini 5Ize: ~ ~ g' M40 llM ~}126 5 MM lHO ~
! j Ba ic beepairements #Gefleo Gel i
Go Go Go Go Go l 1. Ito SPA Bate lacrease Greater Than 731 Go Go Go
- 2. Acceptet le BonJing level and Vlable financial Go Go Plan Go Go Go Ge Ce
- 3. Minielse Contractual Problems tailch Could Jeopeselae t>e Projects (1018 5espport)
Ge Ce Go Go I laIttal DecI5lon Go 1
! 5econdary Objectives s
- 1. Best laterest of Current and Future Ratepayers - ese ese ete see Y ett BPA toad forecast ese e see se
- 2. filatelse financial Risk to bPA and the Region e
- 3. Preserve Region's Atellity to Deliver the *** ** ee ** *e benefits of the Regional Act
- 4. Bring Stability to Aates and flesserce Decisions see se ** ** ee ese see ese see
- 5. ProwlJe itaalmas Gypertunity for Beglen's e Economy to Recover e est one see see i 6. flasimise Region's flealhility to Acconnedate 4 Changing te4J fee ete tee ese F. Asse.re a Healthy Construction f avironment e within tee Supply Systeis for Harlman Ef ficiency
- 8. 6ptimase Strategy for Deallag with I-3JI e *** *ee **e ese ese se ese
- 9. Mini Ire impact en [ stimate at Cosgeletion (IAC) e et
- 10. Mintelse Schedule Impact e eee *** eee eeo j
ippenJ: o Partially fleets Ubjective j et Better 11eets Objective ese pegg prets (Asjecteve (Relative to Ollier Alternatives)
w- . . -
m Goldman, Sachs & Co. -- - U m if1).;a Aj Merrill Lynch White Wald Capital Markets Group Salomon Brothers Inc.
Smith Barney, Harris Upham & Co., Incorporated
?
April 26,1982 Alexander Squire, Acting Managing Director Washington Public Power Supply System Richland, Washington You have asked the core manag2rs whether a financing plan that would provide sufficient funds to meet all comitments on the continued construction of Projects Nos.1 and 3 on a reduced cash flow basis until a November ,
referendam and to pay for a subsequent deferral of these projects, if necessary, as well as to complete the construction of projet No. 2 would be considered a credible plan.
It is the position of the core managers that such a financing plan would be credible from a marketing perspective. Furthermore, an initial offering size in the 5700 million range is not unreasonable under current market conditions and circumstances and the market acceptance for an issue in this range would not differ substantially from the previously discussed
- 5550 million to $650 million range.
We would be pleased to meet with you and discuss this matter further if you should so desire.
Very truly yours, l
t 1
_ __ _ _ _ _ _ . . . _ _ . _ _ . _ - _ . _ _ _ . . _ _ _ . _ , . . _ ~ , . . , , _ __
i- , .
NUCLEAR FUEL ANALYSIS (Business Sensitive - No Included in this Document)
.g.
h
o
- REASONS FOR CONTINUING *
.,. CONSTRUCTION ON WNP-1 o Preserves options while allowing time for:
- Additional data to be developed. *
. BPA Final Load Forecast
. Draft Report of Regional Power Council Other alternatives to be explored with 100's.
e Reduces risk of only WNP-2 surviving an I-394 November vote.
WNP- 1 and 3 on ballot rather than just WNP-3 is better strategy.
e Reduces risk to WNP-4 termination cost and entire WNP-4/5 Termination Plan.
o Most credible from financial marketing position (underwriter's view).
e Defers immediate impact on region and State economy.
- At least to Movember 1982.
. _ _ _ _ . _ . _ _ , . __ _ ~ - _ .
BONMEVILLE OCTOBER 1982 RATE EFFECT,
-Two test cases were compared to Bonneville's initial rate proposal for FY-1983.
The first case is on the high end of the options considered and includes a 5520 million sale in June 1984 and subsequent issues for the funding of all three -
projects through September 1983. This case showed a reduction of approximately 542 million over the initial BPA rate proposal. The second case included a June issue of 5705 million and sufficient issues to support the temporary 10% construc-tion slowdown on WNP-1 and 3 and $100 million fuel sale. This case showed a reduction of approximately 007 million over the initial BPA rate proposal.
BPA Costs for Plants Nos.1, 2 and 3 Cumulative for FY-1982/83 (SinMillions)
Initial BPA RateProcosal(I) Case I I2) Case 2(3)
Cumulative Costs 51,126.5 51,084.7 51,059.9 Revenue Impacts 5 5 (41.8) $ (66.6 )
Rate Increase 73% 70% 69%
Sased on the test cases analyzed, the rate increase can be expected to range between 68% and 70% for the selected alternatives stucied (5640 - 5750 May bond sale range).
In aedition, the difference between Alternative 1 (BPA Proposal) and Alterna-tives 9 and 10 is expected to be no more than 2 mils (10t) for the SPA FY-84 Notes:
(1 ) 73% proposed rate increase in October 1982 (FY-83).
(2) 5820 million June 1982 sale and a total of 52,015 million througn FY-1983.
(3) 5705 million June 1982 sale and a total of 51,845 million through FY-1983.
\
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- COMPARISON OF OPTIONS OPTIONS 1 2 3 4 5 l6 l 7 8 l9 l10 i CONSIDERATIONS SIZE OF BOND SALE 18 MILL 10NSI 63 0 720 740 310 650 690 640 750 SIZE OF BONO SALE FINANCING PLAN
& VIABILITY _
I l394 I i 1.0.U. ASPECT WNP 3
^(
' ~
S'OuNEiI'"*'" ..
ESilMATE AT COMPLETE i
IMPACT }
I .
OCT. '82 BPA RATE INCREASE 0FFICIAL PRO. LCT
SCHEDULE R
MINIMUM ECONOMIC I liAPACT I;.
POSITIVE CONSTRUCTION ENVIRONMENT ,
{,g M. OK
' CONCERN d
' .<; # PROBLEM
9
. CRITERIA FOR EVALUATING CONSIDERATIONS
- 1. Size of Bond Sale
<S700 - OK
$700-5750 - Concern
$750> - Problem
- 2. Financino Plan and Viability Identical to Bond Sale
- 3. I-394 WHP-2 Not a Concern for Any Strategy WHP-1 Alone on Eallot - OK WNP-3 Alone on Ballot - Problem WNP-1 and 3 on Ballot - Concern
- 4. 100 Ascect - WNP-3 Meet Target Schedule - OK Lose Target Schecule. Meet Official Schedule - Concern Lose Official Schedule - Problem
- 5. Recional Power Council Good Flexibility to Respond to Draft RPC Plan - OK Poor Flexibility to Respond to Draft RPC Plan - Problem
- 6. Estimate at Complete Imoact WNP-2 Cv. in All Cases
- No Threat for WNP-1 or WNP OK Threat for WNP-1 or WNP Concern Threat for UNP-1 and WNP Problem
- 7. October 1982 SPA Rate Increase Identical to Bond Sale
- 8. ' Official Project ScFedule No Threat to UNP-2 Target Schedule UNP-1 and 3 tieet Target 3chedule - OK WNP-1 and/or 3 Target Schedule Threat - Concern WNP-1 and/or 3 Official Schedule Threat - Problem
.- l
, 9.. Minimum Economic Imoact Full Production on All Three Plants - OK 10% Reduction on WNP-1 and/or 3 - OK 20% Reduction on WND-1 and/or 3 - Concern Shutdown of WNP-1 and/or 3 - Problem
- 10. Positive Construction Environment Three Plants Full Production - OK Either WNP-1 and/or 310% Reduction - OK Either WNP-1 and/or'3 20 Reduction - Concern Either WNP-1 and/or 3 Shutdown - Problem 9
l l
I
I lj Attachmant L 2, ...ECUT!*C BOARD
- f.
- 3! RESOLUTION MO. 71 I
4' A RESOLUTIO'1 DIRECTING A FINANCING A'!D CONSTRUCTIOU PROGR%4 FOR PRCJEC~S 1, 5 .,
2 AND 3 X1D s.'1 I.tralD D COU3TRUCTION .
DELAY FOP. PROJOCT 1 6 .I n
71 On A ril 19, 1982, the Sonneville power Administrator l
3 ;. reco== ended to the 3oatd and staff of the Supply System that:
f
- 9 .t
- 1. The' construction of Projects 2 and 3 proceed at full eace to maintain or improve the existine.
10 i,f -
.I 11;i; construction schedules for these projects, f
12 3 2. The censtruction ecmpletien schedule of Project 13.i 1 he delayed for a period of up to five years
-4 14 and 5i 3. The 3 card instrue: the staff of the Supply Syste=
1 16 to prepare a budget and financing plan censisten:
.. wi:h these recce=enda:icns.
"3' The Ad=inis::s:Or's rec:=menda:icn does no pr: vide for
- 9 a tend sale for Pre;ect i a: this time.
20 ' Cn April 23, 1932, the Ad=inis:rs:cr nctified the Enecu-21 ::ve 3 card by letter that he would n0: sp reve a financing 22 plan inconsistent with that progra=.
I 23 8 The Managing Director, s the request of the Inacutive 1
l 24 Scard, prepared and presented al erna:ives := the Aim nistra: r's
- 25
- rec 0=mendation to the Finance Cemrittee of the Oxecutive 3 card f
I 1
26* .
and to the 3cnneville ?cwer Administration.
1 27 - On April 29, 1932, the Adrinistrator notified the 2necu-
- ve 2:ard b.* 12tter that he would no: approve any of the 23
': al ernatives presented er a financinJ plan or bcnd resolu::cn
.n
-- enich was inconsistent w th the original rec ==endation.
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2 System :: :: :lete construction of the Pro e::s at the earl.e:t 3 practical tima, sub.e=: :: the oreject Agreements.
4 ?ursuant to the re ect Agreements , the Ad-.inistrater 5 has a right of approvtl of bond resolutions for the ?ro e::s, 6 and his exercise Of that right is not sub]ec: to review by a 7' project consultant.
8: The :ianaging Director has repersed that without a bend 9
n e
sale for Pr:*ect a 1, the Su=.c.iv System will have insufficien:
funds to pay project co=mitments and that no other source of 10.'I.
11 ' funds is available anc an :.=nediate extended ccnstruction de- '
ii.
12 .* 1ay is necessary to preserve the assets of ? reject 1; ::C*I, i p ?
138: q
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r 15 0 and authori:ed c implement an i==ediate extended construction C
- S '
- delay of ? reject 1 censistent with the Administra:cr's recer.7en-17' and to prepare and submit
- h. dazion and good business practice, 18 5, amended budsets and a financine. plan for the P cjects fcr 19I' ; review and ao.n.reval by the Executive 3 card and the teard of i
20 Directors, and I,
21 r i
- 7 5 F"R**CR RESOINID that the Ixecutive Board recor-. ends
'22 ;I to the Board of Directiers that the Board of Directors concur i
in this action by passing a resolution in a fers substantiallf 23 I
24I: si=ilar to this Resolution No.
a 71, 2Si l ADOPTED hv the Ixecutive Scard of Washington Public Power
. t Sue.civ S.vsten this 29th day of April, 1932.
26 ,
27'II 28 l, A# 3
!i Cna:.r an 29 t.
ii A;;;ST: APPROVID AS TD FORM l 30'l . . -
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31 :; :
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- e. _o j - 1 Secretary Coun'sel 32 (
0362 l l
Attachment K
@'T Department of Energy Bonnevt!!e Power Administration oma ce rse AccesTitAtost P.O. Box 3621 Portland. Oregon 97208 April 29, 1982 mmerewwie A Mr. Stanton H. Cain President, Board o'f Directors Washington Public Power Supply System P.O. Box C Malott, WA 98829
{
Dear Mr. Cain,
I I have reviewed with the staff of the Bonneville Power Ad:ninistration each
,of the alternatives to my recommendation of April 19, 1982, which have been presented to me. In addition, I have taken into account the many public statements included in your Board meeting of April 28, 1982.
All of the alternatives incorporate one, two, or three of the following. basic concepts designed to either temporarily reduce costs or to add capital:
- 1. Temporarily reduce cash flow by a slowdown in construction with little risk to the target schedule;
- 2. Increase available capital by the sale of certain nuclear fuel assets; and
- 3. Further increase capital by an increase in the size of the proposed May bond sale.
After full consideration of these alternatives in the light of the criteria and objectives described in my letter of April 19, 1982, I am of the opinion that the public interest is better served by adherence to the recommendation made in said letter. I, therefore, must advise you and the members of your Board that I could not in good conscisace approve moving forward on the basis of any of the alternatives presented or a financing plan or bond resolution
.which was inconsistent with the original recommendation. For the purpose of at.hieving the best balance of the many factors concerning us all, I again urge the Board to embrice the BPA recommendation and to instruct the Supply Systes staff to take the necessary steps to implement that recosamendat' ion. We look forward to working with you and your staff in this effort. -
Sincerely, f
W/ M -
Adminiser C
_ 1 1 i Attachment !*
. 23 BOARD OF QIR.ECTORS a,
3 'i RESOLUTION NO. 1221 4 .j A RESOLU" ON DIRECTING A ?!'7ANCING AND
.l CONSTRUCTION PROGRAM TOR PROJECT 3 1,
- c. .
. 2 A'1D 3 AND AN IxTENDE CONST.:.*JCTION .
. CC .AY FOR PROJECT 1 6i i
't 7'
.1 On April 10, 1982, the Sonneville Power Administrator n
8'i recem:. ended to the Scard and staff of the supply System that:
9d 1. The construction of Projects 2 and 3 proceed at :
10 '.
full pace to =aintain or improve the e::isting 11'[
construction schedules for these projects _, .
1 12 ' 2. The ccnstruction completion schedule of Project
- 3 :! ,
1 be delayed for a period of ur :o five years; 14 - and
~5'
- 3. The Scard instr.:c the stadf of the Supply System 15 to prepare a bcdge: and financing plan consisten:
17 with these recccmendaticns.
4 :-
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_ ' .e 22 pl.an inconsis:sn: with that program.
'a The Managing Direc:cr, a: the recuest cf the Execu::.ve 2a
- Scard, . rec.ared and c. resented 11:erna:ives te the Ad. m n :ra:cr's 25 recomandatien to the ?:. nance Ccr.ittee Of the 2:<acut .ve Ic ard
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" :ihich was inconsisten: with the ori:inal recc=enda 6
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n . .as = -.. .... c'. a ..".a' . .
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' 5
- o. .- n e . . s ,
and his exercise of tha: ::c.h: is not subjec: to review bv. a e.
, ::=4ect consultant.
8 The Managing Direc:cr has reported that without a beni g sale for ?roject 1, the Supply '3ystem will have insuf'icien:
10 funds to pay project cc minnents and that nc mer smce d 11 funds is available and an i==ediate extended construction de- ,
I 12 lay is necessary to preserve the assets of Project 1, and 13 The .xecutive Board has reco= ended that the Board of 4 3: rec:crs conen in S.esolution Mo. 71 of the Ixecutive 3 card
. 5 22.
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1- ~T IS RES0*.t.20 thr_t the 3 card of Direc:C:s concurs in 18 the action cf the Execu::.ve Board contained in IXeCutive 19 Scarf P.esolutien '.;o. 71. -
20 ADC?TIO by the Board of Direc:crs of *iash:.ngton Public 21 ?cwer Supply System this 23:h day of April, 1.32.
22 4J ( v =%
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