HEA to seek rate hike

Posted: Friday, March 02, 2001

Rising prices for natural gas may soon catch up to Kenai Peninsula electric utility customers.

Homer Electric Association buys 90 percent of its power from Chugach Electric Association, and Chugach produces 85 percent of its power with gas-turbine generators. The rates Chugach pays for natural gas have risen 65 percent since the end of 1999, said spokesman Phil Steyer.

Rising gas prices led Chugach to raise its rates Jan. 1 and to seek approval from the Regulatory Commission of Alaska to raise them again on April 1. If the commission approves, the monthly bill for the average Chugach residential customer will rise about 10 percent, from $76.34 in March to $84.02 in April.

Costs also will rise for utilities that buy wholesale power from Chugach. HEA expects to pay roughly $625,000 more for wholesale power during the second quarter of 2001 than it did during the first quarter.

HEA plans to pass the increased cost to its customers, said Sandra Ghormley, manager of member relations. She estimated that HEA's average residential customer will pay about 7.5 percent more for power, perhaps as soon as April.

The average monthly residential bill would rise from about $89.18 to about $95.84. Commercial and industrial customers also would pay more. However, she said, HEA has not yet filed with the Regulatory Commission of Alaska for a rate increase.

HEA adjusts its rates semi-annually, she said, and it had not been due to adjust them again until July.

"But we're talking about the possibility of filing soon," she said.

Norman L. Story, Homer Electric general manager, said he realizes the contemplated increase is substantial.

"Even though Homer Electric doesn't have much control over changes in the cost of purchased power, we can give our customers as much advance notice as possible so they can begin to budget for the increase," he said.

Chugach buys natural gas from four Cook Inlet producers. The price it pays is adjusted quarterly based on the rolling 12-month average U.S. prices of natural gas, heating oil and crude oil. Chugach paid $20 million for gas in 1995 and $42.5 million for gas in 2000, an increase of 113 percent. During the same period, Chugach sales of electricity rose by only 13 percent, managers said, so most of the increase resulted from the rising cost of natural gas.

However, rising gas prices were not the only reason Chugach fourth-quarter expenses were about $3 million higher than expected. Chugach also made fewer economy energy sales to Fairbanks than expected and earned less than expected from moving power through its transmission lines.

In addition, Chugach is midway through a $32.5-million overhaul of the two largest generators at its Beluga Power Plant in western Cook Inlet. The 74-megawatt Beluga Unit No. 6 was out of service for much of last year and was switched back on only late last fall, Steyer said. Work on 74-megawatt Beluga Unit No. 7 will begin this summer.

The company's Cooper Lake Hydroelectric Project has been closed since fall for a major overhaul. In addition, low water levels last fall prevented Chugach from drawing as much low-cost power as expected from the Bradley Lake Hydroelectric Project near Homer. So, Chugach has been forced to buy more natural gas than expected and to produce more power from less efficient generators.

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