Blue Lake overflows its spillway in September. The Assembly decided Tuesday night (10-24-12) to go ahead with construction on an 83-foot boost to the dam’s height. (Photo by Ted Laufenberg)

The Sitka Assembly gave final approval Tuesday to begin work at Blue Lake. The dam is one of two hydro projects generating electricity for Sitka. Increasing its height by about 80 feet should boost the capacity to make power.

With the Assembly’s green light, crews could break ground in as little as three weeks. But there are still big questions about how to pay for the project.

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The good news for city officials is that the pricetag to expand Blue Lake is a few million dollars lower than the last time they checked. The bad news is that the construction phase of the project is still estimated to cost about $88 million – well above the $50 million they’d expected over the summer.

Still, it was a unanimous vote Tuesday night to begin work. Montana-based Barnard Construction will handle that, with management from Idaho’s McMillen LLC. There are still a few details to work out, but it looks like shovels will hit the ground on Nov. 19.

Mort McMillen, from the construction management firm bearing his last name, told the Assembly that the Blue Lake project team shaved nearly $5 million off the construction contract by focusing on two main areas.

“One was to change the design parameters that we were looking at,” he said. “The second had to do with the contract terms, like the milestone schedule and the outage periods.”

For example, the city can save $2.3 million if it redesigns part of the dam known as the surge chamber – an area that deals with rapid increases in water flow. That’s a design change. Similarly, if takes Blue Lake offline a little earlier than anticipated, it could save about $300,000. That’s a schedule change.

Hatch Engineering, which designed the project, will need to redraw about 65 of the 300 drawings in the design to make those things work. The company will do that at no additional cost to the city.

Utility director Christopher Brewton says there were a few bumps in that process, including some disagreements between engineers and project managers.

“Engineers from Hatch were sticking by their guns,” Brewton said. “They were like, ‘By golly, we designed it that way, we see no reason to change it.’ So, when we got higher level management at Hatch involved, they recognized these issues will save us a substantial amount of money without risking their design or their professional liability or reputation. I think we’re making progress toward getting them on board to do these design changes for us.”

Essentially, Sitka has walked into the diner and ordered a meal: One 83-foot dam expansion, with a few substitutions, please. And, any minute now, the folks in the kitchen will start cooking. But eventually, someone’s going to bring a bill to the table, and that’s the next step: figuring out how to pay.

The extra costs at Blue Lake mean Sitka needs to find extra funding. In fact, the city was already planning to do that, but now the amount is bigger.

Sitka requested about $43 million from the state, but won’t know if it’s coming until the legislative session early next year. City officials also are going to the Alaska Municipal Bond Bank next week to ask permission to borrow more money. The municipal bond bank is an arm of the state Department of Commerce that makes loans to municipalities for big projects.

“As we told you before, we’ll be the largest borrower the bond bank has ever undertaken,” said Sitka Municipal Administrator Jim Dinley. “They want to make sure they have all the information in front of them to make a good decision, but they’ve given us no indication it would not be approved.”

The Assembly voted at its last meeting to ask the bond bank to let Sitka borrow up to about $80 million. The city doesn’t necessarily plan to take out that much – it only plans to ask for about $30 million immediately – but it has to tell the bank just how much it could possibly need, provided no money comes in from the state.

Assembly members have acknowledged the situation is less than ideal. But they also say with so much invested in the project already – millions of dollars and years of work – there’s no turning back.