Strategic Issues Discussion Paper - Introduction

September 2006

Dear Member,

Two years ago the price of Alaska North Slope crude oil climbed above $40/barrel and has not slowed since.  In August 2006 the average spot price for ANS crude delivered to the West Coast was $71.74, and some say it may be headed even higher.  Conflicts in the Middle East, natural disasters and other unpredictable world events contribute to the uncertainty facing world oil markets and have resulted in fluctuating and steadily increasing prices.

CVEA generates more than 40% of its annual electricity requirements from fossil fuel plants, and as a consequence, these high oil prices have also dramatically increased your electric bill.

The CVEA Board of Directors has had an ongoing dialog about the impacts of high oil prices on electric bills since mid-2004.  The purpose of this paper is to communicate the substance of what we have learned.  The paper is broken into four separate sections:

(1)    How CVEA Makes Electricity (this section may be review for many of you)

(2)    The Impacts of High Oil Prices and What CVEA Has Been Doing About It

(3)    Alternatives to Burning Diesel to Generate Electricity

(4)   Other Significant Issues Which Could Affect Power Costs Including the Potential for Generating Electricity with Renewable Technologies

This paper contains a lot of information and identifies some of the contractual and seasonal difficulties of producing power on our system and also identifies some opportunities which we are working to further study and evaluate.  It is quite probable the paper leaves many of your questions unanswered.  We want to answer those questions.  CVEA plans to hold district meetings in the near future to hear your comments, questions and concerns regarding this paper.

We hope the paper meets our goal of bringing you up to speed on some of the difficult issues facing CVEA, and we look forward to your feedback on our communication effort.

Sincerely,

James Manning                                                                               Robert A. Wilkinson

President, Board of Directors                                                         Chief Executive Officer

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