Homer Electric Association power bills will rise July 1, driven by the cost of the Cook Inlet natural gas that fuels about 90 percent of the utility cooperative’s electrical generation.
HEA’s cost of power adjustment — the bill component that’s updated quarterly to reflect gas costs — will increase by 8.49 percent. A residential HEA member using the average consumption of 550 kilowatt-hours per month will see a $3.31 increase to their monthly bill.
HEA Manager of Fuel Supply Mike Salzetti said the change is due less to an overall rise in gas prices than the end of an opportunity HEA had earlier this year to buy a cheaper short-term gas supply from an oil producer. Because the cooperative now has to switch to buying from a more expensive source to meet contract obligations, the price is going up for consumers.
The utility’s gas comes from two sources: short-term supplies of small amounts on a local “spot market” and a long-term contract with Cook Inlet gas extractor Furie Operating Alaska that requires HEA to purchase at least 4 billion cubic feet of Furie’s gas per year at prices that vary with the contract’s year and amount purchased. The minimum price this year is $7 for less than 4.5 billion cubic feet of gas.
Though HEA’s gas needs vary with many factors — including electrical demand, generator efficiency, and rainfall on the south side of Kachemak Bay, where water from Bradley Lake powers a hydroelectric plant that offsets more expensive gas generation — the usual usage is between 4.2 and 4.4 billion cubic feet, Salzetti said. Most of that is covered by the mandatory purchase from Furie, but for the rest, spot markets can offer a better deal.
“Basically we look at our annual forecast (of gas need) and if we think we’re going to burn over 4 (billion cubic feet) we go out on the spot market and see if we can beat $7,” Salzetti said. “It turns out this year we had access to some inexpensive spot market gas early in the year. Basically we bought everything we were comfortable buying based on our historical purchases and what our models show we’ll burn this year. As a result, our gas prices have been a little lower.”
The cheaper source, Salzetti said, was an oil company’s “associated gas” — gas produced from the same reservoir as oil, but not wanted by the extractor and often flared. In this case, the oil company sold it at a low price to HEA instead.
“There were times when we were probably purchasing as much as a third of our gas on any given day as spot market gas earlier in the year,” Salzetti said. “But we’re at a point now where we’ve purchased as much as we can and still make our annual minimum volume (to meet the Furie contract).”
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