Friday, January 4, 2013

MEA worries Chugach/GVEA deal might strain Cook Inlet supplies

—Eric Lidji

Matanuska Electric Association is worried a proposed gas sales agreement meant to lower Interior fuel costs might “imprudently hasten” the decline of Southcentral supplies.

In late November, Chugach Electric Association announced plans to purchase up to 8.8 billion cubic feet of natural gas from Hilcorp Alaska LLC between April 2013 and October 2015. Chugach plans to use the additional gas supplies to produce electricity for Golden Valley Electric Association, an electric cooperative serving the Interior region.

While Chugach described the contract as a “win-win-win” because it would lower electricity rates in Fairbanks, increase storage volumes in Southcentral and provide a market for a local producer, MEA is skeptical about its benefits for Southcentral.

“These Southcentral utilities have no reasonable alternative fuel sources by which to satisfy their basic requirements to provide service to the public,” MEA General Manager Joe Griffith wrote in recent comments to the Regulatory Commission of Alaska. “GVEA, on the other hand does have viable alternatives for fuel supply and has not historically been dependent on Cook Inlet natural gas for its base load generation requirements.”

Because the contract includes sales through October 2015, MEA is also worried it may jeopardize its ability to find fuel supplies once it becomes self-sufficient in January 2015.

“The Commission should not allow the gas required to serve MEA’s base load starting January 1, 2015 to be committed to another utility, in this case GVEA,” Griffith added.

MEA currently purchases power from Chugach.

Because of these concerns, Griffith asked the RCA to launch a “formal investigation” to “provide a forum to hear directly from Chugach how the proposed agreement creates a ‘win-win-win scenario’ for the rate payers of Southcentral Alaska, and for the Commission to explore options for ensuring that, in this time of likely fuel shortages, the collective public interest is not compromised by the actions of the individual utilities.”

MEA has also asked to become a party to the proceedings.

While the contract provides for gas to produce power for the Interior, it also includes a clause allowing Chugach to curtail deliveries in the event of a Southcentral fuel shortage.

The RCA does not regulate producers, but it must approve all utility gas purchases.

GVEA and HEA on board

Golden Valley Electric Association believes the contract serves a public interest. Because of its dependence on oil-fired generation, GVEA rates are among the highest for any urban area in the state. With Cook Inlet gas supplies dwindling, the amount of load requirements generated by oil increased by 40 percent in 2012, according to the utility.

By providing lower-cost gas-fired generation, the proposed contract would create savings that GVEA could “immediately” pass on to its customers, GVEA Vice President of Administrative Services Thomas K. Hartnell wrote in comments on Dec. 26.

“This is the proper statewide use of an Alaskan natural resource,” he wrote.

Homer Electric Association also blessed the contract.

While noting its benefits to the Interior and Southcentral, HEA General Manager Brad Janorschke called the proposed pricing mechanisms “reasonable and consistent with the gas costs of other recently approved gas agreements that the Commission has approved.”

But Enstar Natural Gas Co. wonders if the contract could exacerbate potential supply shortfalls in the future, and has therefore also asked to be a party in the proceedings.

While not opposing the sales, Enstar said it wants to help “build a full and accurate record of this (contract) may relate to the ongoing supply issues facing Cook Inlet.”