Southcentral heat bills likely to rise

Posted: Monday, January 27, 2003

ANCHORAGE (AP) -- An era of cheap heat for Southcentral Alaska is ending, according to Enstar Natural Gas Co., the utility that keeps half the state's population warm.

The region's residents have enjoyed some of the nation's lowest natural gas prices in recent decades. But Cook Inlet's gas fields have dwindled while the region's population has grown, boosting demand on a shrinking supply.

Enstar, a division of Michigan-based Semco Energy Inc., has had to pay higher prices in recent years to get new supply contracts, and those prices get passed through to consumers.

Heating prices won't spike overnight. But as the new gas becomes a bigger part of the Enstar stream, consumers will see costs creep upward.

Electric bills could also rise eventually, since most of the electricity used along the Railbelt is generated by natural gas.

Until 2010, however, gas supplies are locked in for Chugach Electric Association, says Joe Griffith, general manager of the state's biggest power utility. As for new supplies, Griffith said he's waiting to see what happens with North Slope gas.

Southcentral Alaska consumers have enjoyed far lower rates than homeowners have paid in the Lower 48. In 1996, the Alaska price averaged $1.58 per thousand cubic feet, compared to a U.S. average of $3.27. In 2001, Alaskans paid $4.28 when the national average was $10.29.

The good fortune of Southcentral consumers stems from the discovery of huge natural gas reserves in the 1950s and 1960s as oil companies found gas while looking for oil. Companies were developing the oil anyway, so selling the gas was a nice bonus.

Still, supply dwarfed demand.

So new industries were born that could profit from cheap gas. Side-by-side plants in Nikiski were built. One liquefies natural gas for export. The other uses natural gas to make fertilizer. The plants employ hundreds of workers and use well over half of the gas consumed in the region.

But the Cook Inlet fields now hold just a quarter of their original volume. A recent Kenai Peninsula Borough report estimates current reserves will last just a decade more.

And with the decline, companies have gone after new supplies, which utilities have encouraged with agreements to pay higher prices.

Enstar, Chugach and Anchorage's Municipal Light & Power still buy gas under long-term contracts that provide cheap gas. Contracts typically started with a low base rate, roughly $1.45 per thousand cubic feet, that is tied changes to oil prices.

But with a need for new supplies, Enstar in 2000 signed a contract with Unocal to pay at least $2.75 per thousand cubic feet. This new contract also links the rate to Lower 48 natural gas prices.

Enstar bought its first $2.75 gas under a stopgap contract last year. As a result, Enstar's rates crept up 1 percent this month.

The price of gas is about 60 percent of a customer's bill, a straight pass through of what Enstar pays its suppliers. The other 40 percent pays for Enstar's distribution costs and profits.

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