Chugach Electric inks deal with Furie for gas to 2033

  • A flow test is conducted at Furie Operating Alaska’s Kitchen Lights Unit last summer before the new Julius R production platform was installed. Furie inked a deal with Chugach Electric Association in March to supply 20 percent or more of its natural gas needs through 2033. (Photo/Courtesy/Furie Operating Alaska)

A contract with a new producer means Alaska’s largest electric utility has secured a natural gas supply for the next 16 years.

Chugach Electric Association and Furie Operating Alaska signed a gas sale and purchase agreement March 3 for Furie to provide at least 20 percent of the utility’s natural gas needs through March 2033.

The firm supply portion of the contract commences in April 2023 for 1.8 billion cubic feet, or bcf, of gas over a 10-year term. Chugach already has contracts with other producers to mostly meet its gas needs until then.

The deal also allows Chugach to buy gas on an interruptible basis immediately starting at a minimum price of $5.75 per thousand cubic feet, or mcf, of gas until the firm contract kicks in.

Chugach CEO Lee Thibert wrote in a letter to the Regulatory Commission of Alaska accompanying the contract — it is pending the commission’s approval — that at this point the utility has all of its forecasted gas needs met through March 2023.

The contract was filed with the commission March 16.

It also provides Chugach additional purchase options for up to double the firm contract amount annually if the utility gives Furie more than a year’s notice to prepare.

Gas prices for the firm supply are quite stable and on par with the current going rate for Inlet gas under other recent utility contracts. Chugach will pay $7.16 per mcf for its firm gas deliveries on April 1, 2023. That price steps up incrementally to $7.98 when the contract expires in 2033.

Utility spokeswoman Julie Hasquet noted there are numerous trade-offs between gas price and other terms in the agreement, but that Chugach favored price stability.

A clause in the contract requires Furie — a fairly new Cook Inlet producer working to grow its production capacity — to provide Chugach with a yearly technical letter starting in 2018 confirming it has gas reserves available to meet its obligations.

Hasquet said that both parties expect to meet the terms of the agreement.

In February 2016 Chugach partnered with fellow Anchorage utility Municipal Light and Power to buy a direct stake in the longstanding Beluga River gas field in northern Cook Inlet.

Chugach leaders said at the time the gas field — operated by Hilcorp Alaska on behalf of the utilities — would supply up to about 15 percent of its gas demand. Beluga River’s gas reserves are expected to last through about 2033.

Thibert wrote to the RCA that the utility has long tried to purchase gas from independent producers, such as Furie. That effort, combined with its Beluga River interest, has helped the utility secure a diversified gas supply with multiple pricing mechanisms, per direction from the Alaska Legislature, according to Thibert.

Chugach, ML&P and neighboring Matanuska Electric Association also entered into a power pooling agreement in late January that should maximize the benefits of the new gas-fired power plants each has since 2013.

Chugach and ML&P are partners in the 183-megawatt Southcentral Power Project; MEA brought its 171-megawatt Eklutna Generation Station online in 2015; and ML&P is currently in the final stages of commissioning its 120-megawatt George M. Sullivan Plant 2A.

Each of plants are individually upward of 30 percent more efficient than the generation they replaced, jointly orchestrating how they are used can take that efficiency further, according to utility officials.

It is expected the pooling agreement could save Anchorage and Mat-Su electric customers between $12 million and $16 million per year simply by burning less natural gas once the power sharing operations are fine tuned, which the utilities will be working on over the next year.

Fuel can account for up to half of a utility’s standard operating expenses.

Chugach is forecasting flat natural gas demand and overall electric sales volumes for the length of the deal with Furie. The numerous variables that could impact customer demand such as customer energy conservation and changes in the state economy resulted in the flat long-term projection, according to Hasquet.

Other Southcentral gas and electric utilities have reported small declines in peak yearly demand in recent years as appliances, homes and commercial buildings are made to be more energy efficient.

Additionally, some utility leaders have said they have been forced to start incorporating slightly warmer climate modeling into their demand forecasts given the state’s unusually warm recent history — before this winter — that translates directly to less energy use.

^

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
04/03/2017 - 4:33pm

Comments