Central peninsula consumers soon will pay more for electricity thanks to a domino effect sparked by the rising price of natural gas.
Homer Electric Association, which supplies power to consumers from Nanwalek to Nikiski and Sterling, buys roughly 90 percent of its power from Anchorage-based Chugach Electric Association. Chugach generates nearly 90 percent of its power from natural gas, and its gas contracts are pegged to the rolling 12-month average prices on national markets for natural gas, crude oil and fuel oil. Prices for all three commodities have risen by 50 percent or more since the beginning of the year.
Chugach passes increased fuel costs on to consumers -- including retail customers in Cooper Landing and Hope and wholesale customers such as HEA and Matanuska Electric Association. It makes fuel-cost adjustments to its rates on a quarterly basis, said spokesman Phil Steyer, so the next change will not take effect until Jan. 1. Chugach probably will file its proposed fuel cost adjustment with the Regulatory Commission of Alaska on Nov. 15, he said.
The increase consumers will pay during 2001 is a matter of conjecture, since no one knows for sure how national prices of natural gas, crude and fuel oil will behave. However, Chugach projects commodity prices based on historical trends and prices on the futures market, Steyer said, and the model is fairly accurate.
Based on the model, Chugach projects its retail customers will pay 7 percent more for electric power next year. For the average residential customer using 750 kilowatt hours per month, that means an additional cost of $60 for the year.
Chugach projects wholesale customers will pay about 13 percent more for Chugach power over the course of next year.
By Chugach numbers, HEA will pay an added $16 million in wholesale power costs during the whole of 2001, said Norm Story, HEA general manager. However, wholesale power costs account for only half the cost of providing power to Homer Electric consumers, he said. HEA's average residential customer using 750 kilowatt hours per month will pay an extra $55.80 for the year, utility officials estimate. That is an increase of about 5.2 percent.
Meanwhile, HEA is moving the 40 megawatt Soldotna 1 generator to Nikiski, where Agrium Inc. will use its waste heat to produce steam. The generator, which often sat idle in Soldotna, will run full-time. Agrium, which previously generated all of its own electricity, will buy power from HEA.
Story said the co-generation project will offset rising wholesale power costs once it comes on-line during the first quarter next year.
"Over the next 13 years, we'll see $33 million in benefits coming back from that project," he said.
However, the benefits are small for the first few years of the project.
"When it goes on-line, we'll have an effect, and it will grow," he said.
Homer Electric essentially will trade Agrium steam for natural gas. HEA will sell the gas to Chugach Electric at the current market price, Story said, and that will provide an additional hedge against rising fuel costs.
"We are going to continue to do everything possible within our control to minimize the effects of the fluctuating natural gas market on Homer Electric rates," he said. "The last seven years, Homer Electric has reduced rates six times. It may be difficult for us to continue this pattern after the recent announcement from Chugach Electric."
HEA's contract with Chugach expires in 2014. By then, the co-generation project will be fully amortized, Story said. Meanwhile, HEA owns 13 percent of the output from the Bradley Lake hydroelectric project near Homer. Homer Electric will have the choice of building new generators, signing a new contract with Chugach or buying from other generators on the Railbelt grid.
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