Anchorage Daily News

Gov. Frank Murkowski's budget would pull out a major financial underpinning of the proposed Anchorage-Kenai Southern Intertie by taking back $27 million in interest built up on a decade-old legislative grant for the project.

The move would leave Railbelt utilities with only the original $46.8 million in state funding to build the new electric transmission line to the Kenai Peninsula. Cost of the project has been estimated between $100 million and $140 million, with utility ratepayers expected to pick up the balance.

Even with an expected $75 million state contribution, there was debate over whether the benefits equalled the private share of the cost. Chugach Electric, the lead utility in the project, says the power line would improve efficiency and lower electric bills in the future. But critics say that the benefits are being overstated and that the state money should go to other purposes.

Utilities had hoped to get the Legislature this year to approve an additional $30 million for the intertie, using up the last dollars in a pot of money set aside in the 1980s for Railbelt energy projects. Now they appear to be in a defensive effort to hold onto the money they thought they had.

"We're disappointed to hear people talking along those lines," said Chugach spokesman Phil Steyer. "It would be shortsighted for the economy of Alaska, and it would raise the cost of power for consumers."

He said the utility hopes to work with the Legislature to restore the state funding for the project. Utilities involved in the Southern Intertie project will have to meet to discuss the budget consequences, he said.

Murkowski's budget director, Cheryl Frasca, said Monday the idea is a one-time transfer of interest money to the state general fund from the Alaska Industrial Development and Export Authority, which has been holding the original appropriation since 1993. The transfer would mean $27 million less would have to be drawn from the state's savings account, the Constitutional Budget Reserve, to balance next year's budget.

The move came as a surprise, Chugach officials said Monday. As recently as a month ago, a letter from Attorney General Gregg Renkes was supporting the utilities' right to keep the interest payments. Renkes' letter came in response to a letter from the legislative legal arm saying the interest probably belongs to the state, not the utilities.

Frasca said use of the interest funds to help balance next year's state budget had been cleared by the Department of Law.

Renkes could not be reached Monday to explain the administration's change of direction.

The budget move leaves questions around a similar grant made at the same time to Golden Valley Electric of Fairbanks for a Healy-Fairbanks Northern Intertie. That money -- $43 million in state funds plus some $20 million in accumulated interest -- has been spent.

The 62-mile Kenai-Anchorage power line is expected to run up the coast of the Kenai Peninsula from Nikiski to Turnagain Arm, where it would cross via submarine cable. It would provide a second line, joining the existing line along the Seward Highway.

Critics said the project appeared likely to do more for construction companies than for utility ratepayers, citing conflicting benefit estimates. The Matanuska Electric Association called last December for a slowdown and a new cost study before making a final decision to go ahead.

In a rare burst of cross-aisle applause, Rep. Les Gara, D-Anchorage, who started pushing last month to use the interest for the state budget, supported Murkowski's decision Monday. He said he would object to appropriating additional funds for the power line.

"This isn't the time in our state's history when we can afford boondoggles," Gara said.

Reporter Tom Kizzia can be reached at tkizzia@adn.com or in Homer at 907-235-4244.

ON THE WEB: For more on the Alaska Legislature and Gov. Murkowski's proposed budget: www.adn.com/legislature