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New Report Questions Susitna-Watana Economics; AEA Responds

by Phillip Manning ~ December 9th, 2014

A new fiscal analysis of the Susitna-Watana Hydroelectric Project questions the Alaska Energy Authority’s estimates regarding how much the 735-foot tall dam would cost the State of Alaska, if built.  KTNA’s Phillip Manning has this report:

On Monday, economist Gregg Erickson released his analysis of the financial picture of the Susitna-Watana Hydroelectric Project.  The report was commissioned by Trout Unlimited, a conservation group that opposes the project.  Erickson has worked for the University of Alaska Anchorage, a Washington D.C. think-tank, and in multiple roles for the State of Alaska.  He says that, from his perspective, Susitna-Watana doesn’t pencil out.

“There is no market test that this proposed project meets.  There’s every evidence that they’ve underestimated the cost and overestimated the demand.  It doesn’t seem at all likely that the project could be built without very, very large amounts of state subsidy.”

Gregg Erickson says that the Alaska Energy Authority and it’s predecessor, the Alaska Power Authority, have a history of projects going over budget, including Bradley Lake and the Healy Clean Coal Plant.

Wayne Dyok, Project Manager for Susitna-Watana, maintains that AEA’s $5.2 billion dollar estimate is reasonable for construction of the proposed dam.  He says that claim is backed up by a third-party review.

“We want to make sure that our cost estimates are right on the money, and that’s why we requested an independent cost estimate.  They came in around ten percent of one another.”

One of the issues cited in Erickson’s report is the fact that that independent analysis has not been made public.  Wayne Dyok says that AEA plans to release a feasibility report next month that will include the methodology for estimating the cost of Susitna-Watana as well as information regarding the third-party analysis.

Beyond cost estimates, Gregg Erickson’s report calls AEA’s expectation that it will be able to borrow money at an interest rate of five percent “exceedingly optimistic.”

“There’s so much risk involved in this project that, unless the state wants to backstop this project…there’s no way you could borrow at five percent right now or in the foreseeable future.”

Wayne Dyok says that the five percent figure factors in money from the USDA’s Rural Utilities Service program, which could pay for up to half of the Susitna-Watana project.

“Right now, the Rural Utilities Services funding is less than four percent, so when you blend that with other funding you end up with five percent financing.”

According to Gregg Erickson, the federal money also comes with the condition that the state not only provide a backstop against cost overrun, but also guarantee that the project is finished once it begins.

Like Trout Unlimited, who commissioned the highly-critical report by Erickson, the Talkeetna-based Susitna River Coalition is opposed to the building of Susitna-Watana.  Mike Wood is the Coalition’s president.  He was handing out copies of the report at Mat-Su legislative offices on Monday afternoon.  Wood says Erickson’s analysis gives strength to opposition arguments based not just on conservation, but also on cost.

“What it really comes down to is economics.  All along, that should have been the first question…the state was asking itself.  What is this going to cost?  It never should have gotten to the environmental part.”

Beyond Gregg Erickson’s report, another potential concern for AEA is state funding to continue studies for Susitna-Watana.  In the last five years, the state has spent over $190 million on the project.  According to AEA, about $90 million more is still needed to complete federally required field studies in the area.  Last year, the project received $20 million.  The proposed budget left by Governor Parnell for the next fiscal year also contained just $20 million for Susitna-Watana.  If that number doesn’t go up significantly, it could mean additional delays for the project.  Wayne Dyok says AEA plans to work with Governor Walker and legislators to keep Susitna moving forward.

“…Our goal is to work with the [Walker] administration, and ultimately the legislature, to come up with the right number for the coming year.”

During his campaign, Governor Walker made it clear that he intends to take a close look at the state budget, and that some projects may end up on the cutting room floor.  Whether Susitna-Watana is one of those remains to be seen.  Walker has expressed support for hydro projects, and told the Fairbanks Daily News-Miner in August that he would support Susitna-Watana if it meant stabilizing energy costs in the Interior.

In the meantime, the Alaska Energy Authority is considering long-term financial options.  Wayne Dyok says the AEA board of directors will meet later this month to discuss the fiscal outlook.

2 Responses to New Report Questions Susitna-Watana Economics; AEA Responds

  1. Bee Long

    Any federal funding that the state goes after to fund dam construction would have to jump through a lot of paperwork hoops and the decision would be after the NEPA analysis is done. So won’t know the federal agency response to a loan until then. The rest of the financing would be bonds with interest rates that could go as high as 7%.
    Plus this federal funding is contingent on if there is cost overruns, the state itself would have to pay those costs.
    And then there is the little fact, that the states credit rating might go down if two large projects such as the dam and the gasline put out revenue bonds to finance.

  2. Mike Stoltz

    If the people responsible for the Su Dam hired a independent party to analyze their numbers and they found out the numbers were “overly optimistic” for the project or “way off”, there is no way they would release such information.

    Much like the Golden Fleece Award Winning, several times denied funding Knik Bridge and the state money draining KABATA, both the Su Dam and Knik Bridge “dream projects” should be terminated in these fiscal times for the priority of Alaska.

    Maybe then, Mat Su Borough’s number one tourist destination (Talkeetna) property tax payers could get some attention to our dike, sewer, garbage and zoning problems.

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