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Alaska Utility Contract OK'd But Supply Uncertainty Remains

The Regulatory Commission of Alaska (RCA) recently approved a seven-year gas supply contract between ConocoPhillips and Chugach Electric Association, which has struggled to secure supply for power generation. Even with the agreement, the gas supply outlook for Chugach and other utilities in Alaska's Southcentral region is dodgy as production from Cook Inlet is in decline. Supply is so uncertain that last week utilities presented a draft plan to regulators that describes measure they could take in times of gas shortfalls.

The Chugach contract is designed to fill 100% of the utility's unmet needs through April 2011, approximately 50% of Chugach's unmet needs from May 2011 through December 2015, and approximately 25% in 2016. The parties struck the deal earlier this year (see NGI, May 18). The total volume of gas under the contract is about 66 Bcf. The vast majority (90%) of the gas under the contract will be priced off Lower 48 production area price points, as published in an index.

The commission issued its decision Aug. 21. Chugach had submitted the contract to the RCA for approval in May. The state of Alaska helped Chugach and ConocoPhillips successfully conclude negotiations on the contract.

Chugach uses gas to produce about 90% of the power it sells annually, with the balance coming from hydroelectric projects. Chugach currently buys gas under contracts from four separate suppliers, including ConocoPhillips. Chugach had been negotiating with Cook Inlet gas producers for many years. Previously signed contracts are expected to expire about the middle of next year as the volume of gas delivered reaches what was originally contracted for.

The state and Southcentral Alaska gas consumers have been seeking a means to tap the state's abundant gas reserves for in-state consumption. In-state pipeline proposals are on the table, and earlier this year then-Gov. Sarah Palin promised that such a pipeline would be operational in five years (see NGI, Mar. 9; Feb. 9). However, little progress has been made.

Chugach and Enstar Natural Gas were among utilities last week that presented plans to an Alaska House energy committee to reduce their gas consumption in times of shortage. If a shortage is imminent, power companies could take steps that would cut their gas demand by up to 40%, according to Chugach CEO Bradley Evans, as reported by the Anchorage Daily News newspaper.

Other measures could include maximization of the output from hydroelectric plants; shifting power loads among generating units; and buying power from the neighboring utility in Fairbanks.

An education campaign, expected to begin later this month, will ask consumers to conserve gas and power in times of shortage. An emergency plan is expected to be completed in the fall.

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